Housing Development Agency challenges, with Minister

Human Settlements, Water and Sanitation

12 February 2019
Chairperson: Ms N Mafu (ANC)
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Meeting Summary

The Committee met to discuss the events that had led to the appointment of an Administrator at the Human Development Agency which had experienced a series of adverse situations at the end of the previous year. Allegations of sexual harassment and allegations of procurement irregularities had been made by whistle blowers against various senior officials, including the CEO. A number of other flaws had been discovered, including poor performance by the Agency, incorrectly appointed board members and the imminent expiry of the term of office of board members, including the Chairperson. The Agency had found itself with a negative cash flow challenge.

The Minister had exercised section 31 of the HDA Act and had appointed an administrator to prevent a vacuum in the Agency and to stabilise the situation and had done well to do precisely that. The financial situation had been analysed and brought under control. The agency was fully stability and rebuilding was beginning. All allegations had been investigated. Some charges had been laid and other cases would be finalised before the end of March 2019.

Members were unhappy that the report had not been distributed 48 hours in advance, as per the rules. How could they prepare for the meeting? Members of the Portfolio Committee were concerned about the sequence of events, especially with the suspension of board members, pointing to the fact that the Department should have surely known that the terms of office of some members were coming to end. Why had the Department waited so long to begin filling those positions? The Members were also concerned with the mechanisms for oversight that the Department had over the HDA. What was the effect of the suspensions on the primary mandate of the Agency?

Members were concerned about the various cases that had been opened, as well as the progress of those cases. Would the Minister be able to present the names of the new board members to the Portfolio Committee before Parliament rose?

Meeting report

Opening remarks
The Chairperson welcomed the Committee Members. It was the last quarter of the Fifth Parliament and there was a lot of work to get through in the time left. The last sitting of Parliament was planned for 20 March 2019.

The Chairperson welcomed the Minister of Human Settlements, Nomaindia Mfeketo, and the Director-General of the Department of Human Settlements, as well as the officials accompanying them.

The intention of the meeting was to receive an update on the Housing Development Agency. The Chairperson stated that she would ask the Minister to make her opening remarks, after which the Housing Agency would make a presentation. The DG would give input and then Members would discuss matters.

Remarks by the Minister of Housing Settlements
Nomaindia Mfeketo, Minister of Human Settlements, wished compliments of the season to everyone that she had not seen. She apologised for not ensuring that the presentation had been sent to Members beforehand, but some of the issues had been in the media, based on leaks and with the media’s own conclusions, and so she felt more comfortable sharing the issues directly with Members rather than making them available before the meeting.

The Minister explained that she had been forced to put the Human Development Agency (HDA) under administration in December 2018, due to the adverse circumstances involving the entity. She had appointed Nosipho Damasane as Administrator. Ms Damasane had to stabilise the HDA, address the governance issues and reassure staff that HDA was important in the lives of people.

The Minister stated that she was not going to speak much at that stage as she was sure that Members would have questions for her after the presentation.

Mr M Bara (DA) was not happy that the report had not been distributed 48 hours in advance, as per the rules, as he would have liked to have read the report prior to the meeting, especially when the meeting had been known about since December 2018. He was also disappointed that the Minister had not taken Members into her confidence in her opening remarks. He was hampered as the Minister had engaged in many issues that he did not know about. He did not expect a political statement but had had thought that the Minister could share some insights with Members in her remarks. He told the Chairperson that he would like his concerns noted.

The Chairperson noted Mr Bara’s concern but also what the Minister had said about confidentiality. She agreed with Mr Bara that it would be a good idea for the Minister to inform the Members of the situation in HDA before the presentation.

The Minister commented that when one was sensitive about time, some things slipped one’s mind. She agreed with Mr Bara that the report should have been provided beforehand. When she had become Minister of Human Settlements, she found that the previous Minister had been deliberating the possibility of bringing in an administrator. However, she had engaged with the board and the officials in HDA and things seemed to be going smoothly. The term of office of the chairperson and three other members of the board was coming to an end. Unfortunately, due to reasons beyond her control, the Department could not replace the four board members before their terms ended. The Department had checked the HDA Act and had found that even sitting members of the board had been incorrectly appointed.

At that time a number of whistle blowers had come forward and the chairperson had to investigate the matter. The Minister was then faced with the question of what to do regarding the board members whose terms of office were ending while they were in the middle of critical work, i.e. investigating the allegations made. She had considered extending their terms of office, but both the Act and the legal advisors stated that it was not possible to extend a term of office, especially when someone had already served two terms. The only option was to put HDA under administration. The Minister had exercised section 31 of the HDA Act and appointed an administrator to prevent a vacuum in the HDA. The administrator would replace both the board and the CEO and had been given a mandate to prioritise certain things, included funding, the governance issues, as well as continuing with the investigations into the allegations of sexual harassment and some irregularities regarding procurement. The Administrator would highlight the progress in her presentation.

The Minister was not going to go into all the issues, especially not those relating to the media. The Mail and Guardian had run stories over a couple of weeks, and she would answer questions on what she knew about what was contained in those articles, if the Members wished to put questions to her.

The Chairperson thanked the Minister for the information. She knew that all the Members appreciated the background as it assisted in understanding the situation.

The Chairperson welcomed the administrator. She asked her to introduce herself and provide some background.

Presentation by the Human Development Agency
Ms Nosipho Damasana, Administrator, HDA, said that she had been appointed in December 2018 and would address the key tasks given to her in her presentation. At the time of her appointment, the HDA had cash flow issues, there were allegations of sexual harassment and allegations of irregularities in procurement. The CEO and other executives had been suspended and so she had been given a mandate by the Minister, according to the Act, to act as the chairperson of the board as well as the CEO of the HDA.

Ms Damasana said that the purpose of her presentation was to appraise the Portfolio Committee on the work undertaken by her as the Administrator in line with her letter of appointment, and to further appraise the Portfolio Committee on the current financial status of the HDA.

The functions of the Administrator included assisting the Minister with the turnaround of the financial situation in the HDA and creating a clear projection plan on how the Agency would regain a going-concern status and financial viability. She also had to assist the Minister in handling the cases of the suspended executives, including the CEO, and ensure that clear and transparent processes were followed for the hearings. A firm of attorneys, Werksmans, was hired to assist with the procurement case and, because the sexual harassment case was a specialised case, Werksmans had subcontracted a legal firm to deal with it and to provide legal advice for the way forward.

Some of the investigations into alleged sexual harassment had been completed and those implicated had been charged. Disciplinary procedures were underway. Some of the other cases were still waiting for reports to be finalised as it had been decided to collapse cases, where appropriate. The investigation on alleged financial irregularities was still being conducted and she expected the matters to be finalised by the end of March, following which recommendations would be made to the Minister. The Administrator added that additional whistle blowers had come forward and the Agency was looking into those as well. The Portfolio Committee would be kept informed of the situation.

The working capital deficit reported in the middle of December had been resolved and salaries had been paid timeously. The Agency had been short of R 11 million in December. With support from the Department, the financial status had been clarified. The Agency had an operational funding requirement of R 86.8 million and its operational income for the year was R 91.9 million. The operational funding deficit had been due to late payment by the Eastern Cape Province of R 68 million for projects completed but not paid for and late payment by Ekurhuleni Metropolitan Municipality which owed the Agency R 98 million. In addition, an amount of R 2.3 billion had been transferred from provincial departments to HDA without the required approvals. National Treasury had indicated that an amount of R 2.3 billion should have been returned to Treasury and not transferred to the HDA. Gauteng had paid R 1.6 billion and North West had paid R 600 million. The net amount of R 1.6 billion had been transferred to Treasury. National Treasury had returned R 300 million for work that had been done for the provinces.

The Chairperson asked Ms Damasana if she had covered everything.

Ms Damasana was comfortable with the progress and stability of the HDA.

Comments by the Director-General of the Department of Human Settlements
Mr Mbulelo Tshangana, the Director-General (DG): Department of Human Settlement, stated that the HDA had 13 executives, of whom four had been suspended, but work continued. The Administrator had done well to steer the HDA back to fulfilling its primary mandate. If there was a conflict between the primary mandate and the secondary or tertiary mandate, then the primary mandate had to prevail. The primary mandate for the HDA was acquisition of land, land reform and preparing the land for human settlement. Mr Tshangana believed that the Administrator had done more than she had been asked to do.

The R2.3 billion that had been flagged by the media was due to the poor performance of North West and Gauteng provinces that had not used the money for the projects for which it was designated. Mr Tshangana said that the HDA had to ensure that those projects were up and running soon. National Treasury had taken back the money not used, after all contractual obligations had been taken care of.

Mr K Sithole (IFP) asked if the Department had any mechanisms in place to monitor the HDA.

Mr A Malatsi (PAC) said that intervention was essential. He had an issue with the term of the board. The presentation suggested that there was a sudden realisation that the term of office of board members was coming to end. That was a serious allegation. He understood that the process to appoint a new board took a long time, but the Department should surely have anticipated the ending of the term of office of board members. Mr Malatsi would like clarification on the future of the board and those positions that would not be renewed upon expiry of the term of office. What was the current state of those officials who had been suspended? As the unit was responsible for the primary mandate, he enquired as to the impact of the issues at HDA on current projects. When did the Department plan to appoint a new board?

Mr M Walmarans (ANC) asked about the effect of the suspensions on the primary mandate. When would the board positions be filled? How far was the HDA with the contracts for the various projects?

Mr Bara was disappointed with the HDA, as the Portfolio Committee had put its trust in the Agency. Where there had been issues, the Committee had always been able to turn to the HDA to rectify the situation, especially when it came to the issue of housing. He asked how the HDA had ended up where it was, when there was supposedly constant oversight and reports were constantly given. What was the way forward now that the Administrator had stabilised the situation?

Ms M Nkadimeng (ANC) asked for an explanation for the delay in appointing a new board. Were there more allegations or was it just about the sexual harassment allegations?

The Chairperson stated that the cash flow issues needed to be properly clarified. The Committee needed to thank the whistle-blowers for bringing the allegations forward as that had led to the uncovering of the issue of poor performance.

Ms Damasana provided an update on those who had been suspended. The first hearings had been concluded. All cases should be completed by the end of March, with reports being made available on each case. The process of finding a new CEO would continue on 20 February. With regards to the gaps within the Agency, the only real gap had been that left by the CEO. The other suspensions had not affected the organisation very much. The cash flow challenges were due to provinces gearing themselves up for projects that they planned to do by increasing their operational expenditure in the hope that they would not need to send any money back to HDA, which, in turn, had to send it back to Treasury. In the Eastern Cape and Ekurhuleni, payment to the HDA was not made on time due the business model that they used whereby the HDA was only paid by after it had completed the work. The Eastern Cape was set to pay by the end of February 2019.

Mr Tshangana stated that the supply chain mechanisms seemed to be working well because it had been possible to pick up the issues and resolve them. He believed that it had been irresponsible to release the CFO at the time that the issues arose. The CFO was the most experienced in the sector and HDA should have found a new CFO before the releasing the previous one. Luckily, the early warning systems had worked well, and the only hurdle at present was to figure out better ways to deal with situations once they had been detected.

Mr Malatsi wanted to know if the Department felt that the current executive team was the right team to lead the organisation.

The Chairperson stated that in terms of the acquisition of land parcels, it was important for the Agency to specify what it planned to do once it had acquired the land. That point had been discussed the previous year when 10 000 hectares of land had been acquired. The portfolio committee needed to know what was planned. The primary mandate needed to go beyond the acquisition of land. Did the HDA have the skills needed to help the provinces and municipalities with the preparation of land for human settlement?

The Minister said that in hindsight one could look back of the issues that one might or might not have seen. She had interacted mainly with the chairperson of the board and the CEO. She had considered HDA a very strong organisation. Maybe the chairperson and the CEO were not perfect, but they were functional, and the executive seemed highly skilled and able to work with the corporate sector. She saw a highly skilled board and a functioning agency. She could acknowledge that they should be judged only after the HDA had become part of an integrated government that served the people. The whole thing had been a sequence of events.

The Minister stated that she had taken the structure for granted. The board comprised nine Members: four appointed by the Minister, three were designated by the Departments of Public Works, Rural Development and Land Reform and Cooperative Governance and Traditional Affairs (COGTA). Of the final two, one was the CEO and the other was the CFO. Having interacted with the Chairperson on a weekly basis, she had assumed that even if the four ministerial appointments expired, there were other members who would form a quorum. That was always the understanding and therefore there had been no rush to appoint new board members. That was how the whistle-blower and the board tied in. Once the CEO and CFO had been removed, there was not a quorum on the board. It was then found that only COGTA had designated a board member. The other two board members had been appointed irregularly and therefore each and every decision of the board could be challenged. Ordinary staff members had then wanted to provide information to the media about the irregular board. Consequently, the administrator had been appointed. That was how things stood.

The way forward was that the Minister had instructed that the positions on the board be advertised, although the advertisement had been delayed and had only gone out the previous Sunday, and the closing date was 14 March 2019. There was some confusion about the advertisement. The Minister stated that applicants had to be given 14 days’ notice as it was a re-advertisement. The Administrator had been appointed only to 14 February 2019, but a board had not yet been appointed. The Minister was applying her mind on the question of extending the term of the administer, appointing a new administrator, or appointing an interim board. She had to make a decision within 24 hours which did not allow much time, but the Minister assured Members that she would not leave a vacuum. In appointing board members, she needed to be sure that she appointed the correct people.
The Chairperson thanked the Minister for her honesty and for not trying to hide things and pretend that all was well. It was important that there was a commitment to put things right. HDA had been put out there as a super-entity. It had been perceived as the messiah. It was the centre of human settlement and if it collapsed, Human Settlement would collapse. It was critical that it be put into shape as a matter of urgency. That meant that before Parliament rose, the Department of Home Affairs, HDA and the Minister had to come back and report to the Committee. She was particularly concerned about the date of 19 March 2019.

The Minister stated that a new and energetic board would be in place. The date of 19 March 2019 could not be correct. She would deal with it.

The Chairperson thanked the Minister.

The meeting was adjourned.


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