The Committee received briefings by Independent Development Trust (IDT) and Agrément South Africa (ASA) on their annual reports for 2018/19.
The IDT received an improved audit outcome, which saw it move from a disclaimer to a qualified audit opinion, meaning that the trend of the last 4 years was broken. But IDT does not, at present, earn enough revenue from its activities to be self-sustainable, as is supposed to be the case. The IDT had a budget of R6.1 billion against actual expenditure of R3.7 billion. The difference between the two figures reflects the amount of programme expenditure or projects required for the IDT to break even.
IDT has updated their systems to create the capability to run and update contracts. The systems are ready and all that is left is to update with information that is on site
Members were concerned by reports that IDT projects had been severely hampered by community protests, with community members demanding that local people are hired by the IDT contractors. The Committee advised the IDT to involve the immediate community in the area within which projects are being started, whether as contractors or sub-contractors. Not involving the community will result in the protests on site.
The Committee expressed strong disappointment with the fact that the Department of Public Works was itself amongst the departments that owed money to the IDT, especially because the IDT is its own entity. The Committee asked the Department of Public Works and the IDT to work together and engage client departments in order to address the continued problem relating to the lack of payment.
The IDT was called on to find alternative solutions to address the issue around the high legal costs that were in the report. The members felt that spending R14 million in legal costs was money that was being taken away from areas that could better utilize such funds. Also of great concern for the Committee was the IDT operating without a fully-fledged Board, a situation which the Minister and Deputy Minister should address as a matter of urgency. The Deputy Minister said that the issue of the Board was affected by the transition phase. Measures were being put into place by the Minister to address the situation of the Board, but there were more pressing issues that needed to be attended to before the December deadline.
Members expressed the view that employees of the Department should not be able to jump ship when charged with corruption or criminal activities without having the consequence of that misconduct follow them. The Deputy Minister responded that the blacklisting of persons cannot happen until the accused employee has been handed a guilty verdict. Sometimes the Chairperson of the disciplinary Committee is unable to hand down such a judgment because the employee has already resigned and left the employment of the entity.
Agrément SA reported a clean audit outcome and a fully-functioning, complete Board.
The Committee discussed differences in the mandates of Agrément SA and the SA Bureau of Standards.
Members said that they would like to see collaboration between the different Departmental entities like IDT and Agrément SA. Agrément SA might usefully go beyond its scope of approving and certifying products to recommending products for IDT to use in their projects.
The Chairperson started the meeting by welcoming everyone from the office of the Minister and Deputy Minister as well as everyone from the Portfolio Committee. She reminded everyone present that the purpose of the meeting was to interact with reports from the Department and the entities within the Department and that this was a process that had started the day before, with a presentation from Auditor General. The Auditor General had presented on the performance and outcomes of the Department and its entities. In the past years, the performance of the Independent Development Trust (IDT) had not been so great and as a result had received negative audit outcomes. There has been a slight improvement although it is not where the Committee would like it to be. The Chairperson said that she will be handing over to IDT to give their presentation, but before that she asked the Committee Secretary to give apologies on behalf of the Honorable Members who were not present at the meeting.
The Committee Secretary gave the apologies as follows: Honorable Thring sent an apology to be excused for the morning session, saying that he will be joining the meeting at mid-day because he was attending another Committee meeting. The second apology came from Honorable Mashele, which was an apology standing for the whole week. The third apology was from Honorable Nxumalo, who was also attending another portfolio meeting. An apology also came from the Minister, who was attending a Cabinet meeting. The last apology was from Honorable Hicklin. The Committee Secretary said that apologies from Honorable Mashele, Honorable Hicklin and Honorable Tshwaku, were for the whole week.
The Chairperson indicated that the Director General (DG) had also sent in an apology saying that he would not be part of the day’s meeting and that he would join the following day. She said that although the DG was not there, she hoped that there were people from his office present. She then handed over to IDT and invited them to come forward to give their presentation.
IDT 2018/19 Annual Report Presentation
Mr Thlotse Motswaledi, Interim Chairperson: IDT, said that he would like to take the opportunity firstly to introduce the interim board of the IDT. He introduced himself, and he gave an apology for two of his colleagues on the interim board, who were scheduled to be present in the meeting but due to other commitments could not attend. He said that despite the absence of the two colleagues, the team was prepared and ready to give their presentation to the Committee. He said that following a meeting that took place in Gauteng, IDT was informed that the Committee supports and is fully behind it, in terms of all the effort that it is trying to put in place to achieve a better performance going forward.
IDT was happy to know that it has this kind of support from the Committee because it gives them hope and courage to do better and as a result it hopes that it will have an unqualified audit. Jokingly he said that there is light at the end of the tunnel and it is not a train coming IDT’s way. Following that introduction Mr Motswaledi handed over to the Chief Executive Officer (CEO) who was to take the Committee through the presentation.
Mr Coceko Pakade, CEO: IDT greeted all present at the meeting and said that he will be doing the presentation, assisted by the Chief Financial officer (CFO) Mr Moitswadi Mofokeng, whom he said would be responsible for presenting the financial part of the presentation and addressing the issues of the audit outcome. He introduced his colleagues who were part of the team present from IDT: Mr Christopher Mulaudzi- the Head of Strategy, Mr Chris Lombard – Programme Management Services Executive and Ms Thandi Thankge – Acting Executive Corporate Services.
The preamble was to cover some of the issues that IDT picked up such as the environmental factors surrounding its performance during the period under review. The worldwide slowdown of the economic growth rate also affected South Africa, which only had a subdued economic growth rate of 0.8% in the 2018/19 financial year. He said that he believes that the country is still struggling to get past the 1% growth mark of the Gross Domestic Product (GDP) as a result. There were many things that the country was affected by that have contributed to this problem, and also the worldwide economic difficulty. The construction industry was largely affected and experienced a slump by 1.2% which Mr Pakade noted as the biggest annual fall since 1999 and the worst in two decades, and also had its second year of economic decline in 2018. He said that this information was important when analysing the plans that IDT has, because it also informs the overall growth in their business portfolio as they rely on the budget growth of the spheres of government.
He said that there is also the challenge of scare skills especially at a technical level in the sector, meaning that the competition for those skills at that level is quite high. Other socio-economic factors that the IDT looked at during their presentation was the demand for localisation of development benefits. He said that the IDT is raising this issue, because it is becoming a huge challenge, not at IDT specifically, but an overall need to focus on procurement policies that need to be addressed in a local context. Mr Pakade said he will expand on this issue when he comes to the issue of stakeholder engagement processes later on in the presentation that relate to process pressures that the IDT gets at site level. There is growing frustration from certain sectors, especially in the business community. Some of the business forums that have been set up, take action in various sites not only for IDT but generally in the construction industry, where they would occupy sites and close sites demanding a slice in terms of being beneficiaries. Mr Pakade said that when he was in Kwazulu-Natal (KZN) the week before, he discovered a new word for this kind of take over ‘Amadela ngo kubona’, whereas some people would call them construction mafia.
The engagement that Mr Pakade had had with his team, made them see an area where more of their stakeholder engagement is critical because this is an indication of a cry, which in their view is a legitimate cry from those who are affected, to look at their empowerment policies and practices. He said that if they did not address them, such as in the supply chain processes, it will result in this kind of unhappiness. IDT has had regular engagements and so far their sites have not had been impacted that much because of their social participation, but they are also affected. Another socio-economic factor, was the increasing number of service delivery protests that influenced the context in which the IDT was operating.
The IDT has two actual programmes the first focusing on core business and the second focusing on support services. In terms of the core business programme it was called the Integrated Service Delivery programme. The strategic outcome focus is to contribute to the state’s capacity to effectively implement development programmes, focusing on social infrastructure as well as employment programmes. The strategic objective of programme one, importantly it is to ensure that IDT does its work to ensure that there is efficiency and effectiveness in terms of a timeous delivery, staying within budget and also ensuring that the quality is good. Mr Pakade said that he will share with the Committee some of their achievements that show that they are trying and getting there. He said that IDT started in 2018 to measure these indicators and so far they are on track but there is still room for improvement.
In terms of strategic objective two, IDT is looking to be a financially viable, compliant, results-based efficient and focused organisation. He said that this is where IDT’s turnaround strategy focus is because they want to ensure that firstly IDT lives its values of being accountable, transparent and compliant with the regulatory framework but also financial management must be improved in order to ensure that they attract more business which will allow IDT to sustain their operations.
Referring to the graph in the presentation, Mr Pakade said that IDT had seen over the years, exponential growth in business from 2010 until 2014. Then it stabilised, then there was a decline until 2015, which then again stabilised for about two to three years then there was a dip in 2018 which was worrisome. The IDT had a total portfolio spend of R3.7 billion which necessitated it to go all out and reach some of the clients that they were not doing business with before in some of the provinces that had previously taken a decision to not do business with IDT. It had recently picked up a bit and currently they are sitting at a portfolio of projects of about R4.3 billion but they are still negotiating more work with their clients. He said that it was important for the Committee to note that, because it has a direct impact on IDT’s turnover in terms of revenue, because the turnover is largely based on a percentage of business growth.
A pie chart illustrated the performance levels for 2018/19. The green portion of the pie chart illustrates what has been achieved (40%). The yellow portion indicates targets that have been partially achieved (20%) and the seven targets out of 25 that were not achieved were illustrated in red. Mr Pakade said that the chart should be considered in the context of the transition and challenges that IDT is currently facing. Looking at the numbers, the Committee will see that there has been a lot of staff turnover, including technical skills. Despite that, IDT managed to try their best in terms of the targets of financial management improvement.
The actual performance of IDT was measured against targets. Mr Pakade said that the most controversial issue, which was raised in the previous meeting, is the business portfolio or programme. What IDT does when planning, is to try and break even, to make sure that their operational costs are contained, because they are self-sustaining and self-funding. Operational costs can only be reduced up to a particular limit, but then they have to look at the revenue side to balance the books. He said that R6 billion is always IDT’s target, because considering the average management fee of 5% which is applied to that figure, it will be where they more or less break even in terms of making sure that they do not make losses.
Mr Pakade said that in the year under review, IDT was too ambitious in targeting to have a 5% surplus. Given the odds that they were facing it was definitely a moderate performance. Addressing the Chairperson, he said that when speaking about governance challenges there was a point where there was not a single executive candidate in place, there was only someone deployed by the Minister of Public Works to go and run the institution. It is important to bring this information to the attention of the Committee because these were things happening during the year of review and these things do an have impact on organisational performance.
IDT managed to reach R2.7 billion in terms of actual spend. IDT had a target of completing 70% of projects on time but what was completed on time was only 40%. Elaborating on this point Mr Phakade said that with construction there is quite a number of things that are involved. IDT has tried its best to have engagements with its major clients to look at improving on training because one of the challenges for government is inadequate planning, especially when it comes to infrastructure programmes. The Building Management System (BMS) gives a good framework in terms of how the IDT should be monitoring contracts, but in reality they find sometimes that an allocation is received just as the financial year starts or after the beginning of the financial year which results in a lot of pressure to get the projects going.
Mr Pakade said that this sometimes has an implication on project execution, because sometimes they have to deal with variations of scope, which then affects the time frames. An example as mentioned earlier are incidents like the taking over of sites by protesting stakeholders. Sometimes with some of its initiatives, IDT consciously takes the decision to empower as well. They find that when some of their services are not being performed according to standard, then in terms of the contract they will decide to take certain action to try and give a chance to those people to remedy the situation. If the contract is terminated, the IDT will have to go through another procurement process to re-appoint another replacement contractor which takes time. These are the kind of factors preventing IDT from achieving their targets in the first time phase.
In terms of completing projects within budget, under the current economic climate, Mr Pakade said if IDT can maintain their standard or improve it even further they would be doing well. Even the Auditor General (AG) took time to agree with IDT on this point even though initially they did not believe that IDT had this figure. The 70% target for completing the project within budget is an audited figure.
With regards to the percentage of weighted Broad Based Black Economic Empowerment (BBBEE) spend the presentation shows that IDT was on target, but for contracts awarded to women it fell short by 5% with the same result for contracts awarded to youth.
Mr Pakade said that what IDT should be doing is to look at the root causes. On the next slide of the presentation, he said that IDT now have a finalized review of the Contract Development Programme (CDP), which targets those categories. Their percentage target of women contractors participating in the CDP was set at 40% but now IDT is sitting at 64% for the CDP. IDT has picked up that few women and youth owned companies have responded to the bids that were issued during the financial year. He said that IDT always hits this target and for them as IDT it is a concern, hence they are looking at the empowerment policy to make sure that they have definitely captured or retained at least 20-30% and keep that momentum, because it would be good.
Still presenting on the performance of objective 1, Mr Pakade said that the CDP was not implemented in the last financial year, so IDT is busy reviewing it together with the CDP in consultation with the Department of Public Works (DPW). The IDT started to roll out this initiative in the current financial year and they already have 52 contractors that are on board.
Speaking on the target for the number of work opportunities created through the IDT portfolio, he said that it was 40% achieved. Mr Pakade said that with this item, he was harsh with his colleagues because he had challenged the target set before. This, he said, was not inclusive of the Expanded Public Works Programme (EPWP) but purely the IDT’s own programme largely based on social infrastructure and social development. Explaining the target figure of 7 800 work opportunities, he said it was a historical baseline which was informed by the time when IDT had labour intensive programmes that were rolled out with the Department of Water and Environmental Affairs. Since those programmes have slowed down and some even finished, IDT should revise this target to be 50% of what it is. This was the reason for the 3 488 figure reflected as what was actually achieved. Referring to previous years’ financial report, Mr Pakade said that it would also reflect that the actual performance was around 3 500 jobs. Meaning that the 7 800 target is something that IDT is working on in terms of actually getting the correct estimate.
Moving onto the next item of the presentation, which was the Number of EPWP non-state sector (NSS) work opportunities created, the IDT over achieved in terms of their target by 117%. Mr Pakade explained that this one of the labour intensive programmes for EPWP participants. He said that IDT, since the inception of EPWP, has been doing well has been in terms of overachieving the target. In the last financial year, the AG did not express an opinion on the numbers and IDT had learned that at least this year they have not sustained these numbers albeit that few findings have been highlighted but the 63 000 of job opportunities is a number that IDT can comfortably say is reasonable.
The programme expenditure trends graph, was just to show the trends of how the performance was on a monthly basis, which Mr Pakade said was something he was not going to deal with in detail.
Programme 2, Mr Pakade said, focuses on support services which will be an opportunity for the CFO to speak on what he has done. The CFO had joined the IDT in October 2018 and according to Mr Pakade, he had done magic for the organisation’s financial situation. Mr Pakade explained that when the CFO joined IDT, he had suggested that the two of them should meet with the AG, to understand what their approach would be. They then realized from this meeting that they do not have the time to clean everything up, so they decided with the AG that they will focus on the current financial year in addressing most of the issues that were a result of the disclaimer because that disclaimer was like a big deal for the IDT because whether they go to their clients or to their investors, they always look at the financial position in the financial statement. It does not look good to say that the AG could not make head or tail of the books. As much as IDT may know what the true issue is, the true issue currently was that of cut off and programme spend. However, they definitely wanted to focus on that.
Mr Pakade said that in the previous year they could not unfortunately go back and rework the expenditure. It was not going to be cost effective because the cut off challenge of 2017/18 will automatically just go away in the following year if IDT has done cut off properly in the current financial year. So their major qualification is the previous year’s figures that were displayed. This certainly paved way for them getting an unqualified audit in the 2018/19 financial year.
In terms of the percentage of staff occupancy, Mr Pakade said that as much as it is showing that IDT is doing well, he thinks that the reason for this is that in the vision of the structure they have reduced the number of posts significantly in line with the organizational development at the time. IDT previously reported on about 241 posts in terms of the approved organogram. Currently the organogram has about 292 approved post. The good occupancy rate does not mean that IDT has appropriate and resource of skills, because they still need to ensure that they deal with the issue of having the correct ratio of technical versus non-technical personnel and that is what as IDT they are busy working on.
The last target covered implementation of risk and compliance where IDT achieved about 88% and all the necessary instruments are in place. Mr Pakade said that they have strategic risk registers, operational risk registers, risk appetite levels and have set up the risk implementation plan. But the challenge that they really experienced in the year under review is the issue of capacity. The IDT is going to be doing a lot of empowerment in the area of capacity building, because there was a point where they had no one available in terms of managing this area well. The official that was heading this operation left IDT and as mentioned earlier they are struggling with the retention of these skills because of the transition that is currently underway. The IDT has now engaged the services of a very qualified person, but it is on short term contract, to try and rebuild the capacity and there is also an additional resource that has been appointed. Mr Pakade said that they are hopeful that in this financial year their risk management will be done much better. He then said that he will hand over to the CFO to take the Committee through the financial report and that he would come back and speak to the governance issues that are challenging IDT. He indicated that he had already asked the CFO to start his presentation by speaking on section 5 of the report, which dealt with the 2018/19 Audit Outcome and Corrective Measures because it would make sense to start with the audit outcome and then talk to the numbers after that with the permission of the Chairperson.
Mr Moitswadi Mofokeng, Chief Financial Officer: IDT began by greeting everybody present at the meeting. He indicated that he will begin his presentation from slide 13, which covers the Audit Outcomes. IDT’s performance saw a significant improvement which resulted in it receiving an improved audit outcome in the 2018/19 financial year, which moved from disclaimer to a qualified audit opinion. The trend of the last 4 years was broken.
He said the basis for the qualification from the AG, relates to items that IDT could not address in the previous financial year. The programme to address the disclaimer issue was covered in two financial years: the current financial year and the 2017/18 financial year, and in essence IDT was doing the work of two financial years in a space of six months. The approach that IDT took was that they appointed about 15 graduates to assist shape the strategy of how they are going to look at the financial information and to assist with the re-classifying cut-offs and review any accounting system on their side, in terms of the changes that they would need to make that could help expedite processes.
By the time IDT submitted their report which was on time, on the 31st of May at about 10am, they were comfortable with their submission, however a day or two later, they realised that there was a major issue with their submission, in that the financials submitted were not in compliance with the graph. Thereafter changes were made by the IDT and after those changes were made, everything was resolved. As a result, the audit opinion was qualified because of the cut off and NSS issue from last year.
Mr Mofokeng said that, if the AG was to issue two audit reports from the previous year and the current year, the previous year’s outcome would have been qualified (which is what they got) and the current year’s outcome would have been a clean audit. This was something he felt it important to emphasise, because it means that in the upcoming financial year IDT is set for a clean audit if it maintains what it did this year and again addresses the issues that the AG has identified during the audit that still need to be worked on. There was still a lot of work to be done to improve the financial management of the IDT, however things were on par to the extent that they had got a clean audit for this financial year, meaning IDT is set for perfect results in the upcoming year. The financial statements prepared do comply with the graph and the audit opinion that IDT got does confirm that.
He said that the other issues that relate to the audit report, is that AG has indicated that IDT needs to improve the Key financial controls and Contract Management.
The two issues have to do with financial controls and contract management are being addressed as follows. With regard to the financial issues, while IDT was busy working on the current financial year’s finances in preparation for the audit last year, they were already on the side working on 2019/20 financials to improve their finances and financial management. It was around 2014, when the AG reported that IDT did not do reconciliation properly for all the programmes, which had to be done manually. Mr Mofokeng confirmed that, that situation is now history and that now IDT’s records are automated and for the whole of the 2019/20 financial year, they will be produced on a weekly basis upon demand. Secondly, from the end of October 2019, the IDT will be sending statements to their clients which will show from the inception of the programme to date all the money that IDT has received from them, all the clients that were paid, all the invoices received and paid, all management invoices that were sent to them and paid and the bank account balance. That information will be made available immediately on demand allowing the IDT to be conciliatory. This highlights the progress that the IDT has made, but this information could not be used for the year 2018/19 because it was work under construction. But now the IDT is comfortable to say that this will be what will come through for the year 2019/20.
Referring to the issue of contract management, Mr Mofokeng said that it remains a pain to management and the process that they put into place is that they updated their systems, to create the capability to run it and update contracts. What remains outstanding is a process that the IDT is going to address with the executive and members on the project. This is to update their contract details as they are on the ground to be reflected on the system, so that when information is drawn on the system it must say exactly what is happening on the ground for example to say that there is 30 days left from the last update. The systems are ready and all that is left is to update with information that is on site.
The other item which is a very serious issue for the IDT, is that of supply chain management. Mr Mofokeng said that they have a big problem that they need to address regarding supply chain management. One of its key differentiators is that their process is fast and that is why their clients always want to use them for the implementation of projects. The challenge is that even though their process may seem to be fast based on the average standards in terms of the Department versus the IDT, they still think that it takes way too long to procure and ensuring that that procurement is transparent, fair and equitable. He said that the process that they have now engaged on is in line with the findings of the AG report detailed in a full page of supply chain management at an audit point. The IDT has embarked on a process of overhauling their supply chain management processes, to the extent that they want it to be a key differentiating factor for the IDT when it comes to construction project procurement. Mr Mofokeng said the details of that will come through when they report back in the third or fourth quarter. Everything that the IDT is doing is in preparation for the next financial year which will be 2021. But they have put in the work now so that the implementation and impact will be felt in the 2021 financial year.
Consequence Management is another factor that is really linked to Search Engine marketing (SEM) and there are a couple of Special Investigations Unit (SIU) investigations that are taking place. All the reports that they have received, which are on the IDT register which is available, show what IDT is doing in terms of all the reports that were issued by the SIU. Some of the items were identified by the AG related to capacity problems. The IDT lacked human resources skilled to carry through the investigations from the IDT side, but the IDT also does not have enough money to appoint external investigators in terms of working with their internal processes to conclude on these investigations. The risk person was appointed a week or two ago and this is a serious problem, because if you link consequence management it needs to follow a fair process. A fair process means not dealing with allegations but dealing with facts that are objective, properly investigated and then brought through Human Resources (HR) disciplinary processes. But to do that the IDT needs time and money, two tools that the IDT management does not have at this point in time.
Mr Pakade interjected, saying that he would like to indicate that the common trend concern from the AG was about lack of consequence management. He said that for the IDT, they were fortunate that the board has taken a stand of zero tolerance on these issues. Where the IDT has acted, they have acted decisively. In many cases which were reported as well as those that were investigated, because they had to prioritise due to budget and capacity constraints, they were almost successful in prosecuting those cases.
In his experience, Mr Pakade said, officials that are taken through these processes of consequence management often jump ship and resign. The IDT is now pursuing some of the companies that are highlighted in the report through civil cases and civil claims. The IDT had one case where the court awarded judgement in their favor in terms of them having the right to attach assets, but what they found is that the company had been liquidated and there were no assets to attach. IDT is currently busy through the courts pursuing the individual directors, in their personal capacity in terms of the Companies Act. Handing back to Mr Mofokeng, Mr Pakade said that this was what he wanted to indicate.
The last point of the audit outcome dealt with management oversight. Mr Mofokeng said that this was an expectation that management practice required and the IDT was aware of it and that it was mentioned in the AG report that there was inadequate management oversight. The reality that the IDT finance unit and IDT in general is faced with is that a management that is made up of highly skilled individuals does not exist. The IDT lost four managers due to the audit process that is ongoing. This created a lot of instability, because when there is such a programme being implemented for a period of time this makes it difficult to have that oversight without saying that the CEO is expected to sign off certain documents that are prepared by the CFO or the CFO being responsible for signing off journal entries that have been prepared by a junior accountant. The CFO gave an example that the last time he signed off a journal entry was 15 or 17 years ago, but now he finds himself having to do those functions again because without this management funds have been known to disappear through highly skilled individuals like Chartered Accountants (CAs) and adequately trained individuals. This was one of the findings of the AG and as a result the issue cannot be resolved unit the IDT has the required warm bodies. Mr Mofokeng said that if it is something that comes up again it needs to be noted as a reality that they face.
On the Financial Performance Review, the programme expenditure for the 2018/19 year was R3.7 billion, whereas the target was R6.1 billion. The reason for such a huge gap, Mr Mofokeng explained, between the R3.7 and R6.1 billion figure was purely based on the critical mark in terms of programme expenditure that IDT requires to break even which is where the R6 billion is coming from. The R3.7 billion speaks purely to programmes available on the ground that IDT managed to get. The difference between the two figures reflects the amount of programme expenditure or projects required for IDT to derive enough revenue to be self-sustainable.
The management fee that IDT had for this financial year was R192 million against a budget of R261 million and the difference represents what has been explained by Mr Mofokeng above. The deficit of 26% from their budgeted revenue versus actual was funded through outstanding debts that the IDT had to recover from their clients that related to previous fees that were outstanding. The current balance as at year end is around R2 million that the IDT need to recover to catch up to the current financial year from their side.
As at year end the IDT had a net balance of R12.3 million and last year they had R18 million in their bank account. However, these are not excess funds, it means that at the year end it is what they had. Every month the IDT has a rush to collect enough to pay salaries and the second other rush, which is a week after, is to pay other commitments.
Mr Mofokeng said Trade and other receivables represents their management fees, which is the invoices that they have received but not yet given to their clients.
The figures for Programme assets and liabilities are balance sheet items. These are all invoices that they have received from their service providers and contractors at construction sites, which have not been paid by the IDT. As a result they owe their contractors and service providers R1.7 billion as at year end. Mr Mofokeng explained that this was money that the IDT expected from client Departments to pay contractors and the professional service providers. This figure also represents the cash that the IDT was supposed to get to settle all the accounts that they have.
The spreadsheet provided was intended simply to reflect the breakdown of what the amounts and categories of expenditure that the IDT has for programme expenditure so that it can provide more information.
Overhead Analysis: 75% of the total operating expenditure of the R261 million, relates to salaries. Facilities is made up of things like the office space, municipal bills and electricity. He said the legal fees expenditure at R14 million is a problem. The majority of the legal costs, relate to the money that remains unpaid for an extended period of time on the programme expenditure. Mr Mofokeng explained that the IDT employs contractors and service providers, and if IDT do not pay in time after receiving their invoices, the contractors and service providers take them to court to demand their money. This then results in the IDT having to pull in the Departments to come to the party, however that process is expensive which has resulted in the R14 million in legal fees. The reversal of this expenditure is that, if the IDT pays accounts on time, there will be no need for such an expenditure.
Mr Mofokeng said that the spreadsheet provided was for information purposes, but one thing he would like everyone to note other than that the IDT does not have sufficient cash piles on an ongoing basis, is that they literally move from the reserve they have on any given month to cover them for the next month and at times they run short of funds, in reference to the collection rush spoken about earlier.
As at the 30th of June this year, client departments owed IDT R62 million. Their biggest debtors were the Department of Education, Department of Justice and the Department of Public Works. Mr Mofokeng said that he was aware that the Director General (DG) of Public Works Adv Vukela was asked to assist in writing letters to provincial and client departments to assist them in collecting the money. This happened three weeks prior to the Portfolio Committee meeting. He said that hopefully the IDT will see the results coming through in terms of the collection as a result.
The IDT has done quite a lot to cut down on costs, but they can only cut so much before they start a process where you are unable to deliver the service itself. Mr Mofokeng said that the IDT will continue to look at what it can continue to cut to address the operating deficit. The issue of salaries and employing people for certain posts it may seem as if it is failing for now but it is a serious quest that the IDT may have to deal with later on. Because they don’t have warm bodies to do the work, the other side of it is that there will be shortcomings in terms of their financial information and the potential for fraud increases because as people become aware that IDT does not have enough people to check all the documents being processed in terms of expenditure. It actually exposes the team, hence the need for warm bodies and a proper system.
The big one that the IDT is working on with HR executive programmes, is to improve their service delivery. That is very key because in the strategy session they had, which was headed by Chris Mulaudzi they had a survey of their client departments: Department of Correctional Services, Department of Education and the Department of Justice The reason they said they were coming to IDT for business is that they want technically competent people, they want procurement that is faster than anywhere else where they could take their business and where there projects can be done on time and with good quality. To do those three items, the IDT’s analysis is that they need professionally registered project managers with very skilled experience to execute on those. They also need a back office in terms of finance and HR to provide the required support to make that happen as their key service. This Mr Mofokeng believes should increase their portfolio and as a result increase their revenue.
Mr Pakade then thanked Mr Mofokeng for his presentation and spoke further on Governance Matters
and the functioning of the IDT Board. He said that IDT is still faced with the situation of having an interim board, which is made up of 3 members and another 3 non-executive members who are sitting on the audit and risk committee. He said that so far the board operates in a limited fashion in terms of the trust deed. This is the requirement for them to ensure that the maintenance and safeguarding of access and the abilities of the trust is done in a proper way. However, the priority has been given to the audit and risk committee so that they can ensure compliance with the requirements.
They have had 14 meetings and because of the size of the board currently and also because of the urgency of some of the matters that need to be tackled, they have met more frequently than the norm in order to make sure that decisions are taken and the organisation is continuing to run its day to day duties.
The IDT faces particular governance challenges. It still remains at high risk of litigation, because as indicated in the financial statement, their liabilities are very high. Because of this, the IDT have put up a litigation management strategy to look at reviewing their contracting model, to make sure that there is clarity as to who does what and who is responsible for what between the IDT and their client Departments. Lately the IDT is also getting more co-operation because the IDT joined their clients in terms of getting engagement especially in cases where matters are best addressed by them, in terms of specific roles or challenges and claims that have been submitted by those who are taking the IDT to court.
In terms of terms of financial viability, even though this had been covered by the CFO, Mr Pakade said that the IDT continues to be at high risk of not being in a position where they can comfortably say that they are a going concern. They remain a going concern purely because the shareholders have supported them but they are at risk from an age perspective as well and this is a matter that needs attention. Growing concern means you are in a position to carry on operating. The IDT is saying that they will continue to operate until the end of March, but again they need to re-assess their positions at the end of the financial year.
The restructuring of the IDT is ongoing. Members would appreciate that the Minister and Deputy Minister have now joined the portfolio and are now prioritising this by applying their mind. The agreement so far is that there are certain issues that that the board of IDT and Ministry must align on the restructuring. The IDT is not moving at a paced that they would have loved in order to allow that kind of engagement, but they understand that they have to allow that kind of engagement and processes, because they need to get political direction before they implement certain things. What the IDT is trying to do now, is to ensure that the organisation continues operating in terms of replacement positions that become vacant. A full migration to the new structures has not yet been achieved, but IDT hopes to achieve this by the end of the financial year.
Mr Pakade said he would like to highlight another bigger risk that the IDT is faced with: the insurance cover for Directors liability. This generally applies to legal entities, private or public companies. It is purely to ensure that the actions of those who are delegated power to run the entity or to govern a particular entity are covered in case certain decisions could result in delictual liability. The IDT has been interacting with their brokers and they have indicated that the industry in general does not have an appetite for State Owned Enterprises (SOE’s) because of the problems that SOE’s are facing throughout. The IDT has a weak balance sheet and there are challenges that they would raise in terms of being a going concern, because they need to ensure that their risk is minimal. If they just look at IDT’s books and see the high levels and costs of litigation, they already know that there is a risk of having to pay IDT if that claim becomes a reality.
The IDT has now asked the brokers to go international to look into finding companies would be willing to assist. They will be reporting this feedback to the board because that work has been indicated by the current audit outcome. They wanted to wait for the current audit report which was submitted to them. Mr Pakade said that he is hoping that the brokers will give them something.
Mr Pakade discussed a table that just gives a record of compliance. IDT had met all the compliance requirements and as the CFO had mentioned earlier, the audit was covering almost two years. The AG requested attention on issues which delayed IDT from submitting the necessary reports to Treasury and the Ministry. IDT felt that this was a good thing, because it allowed the AG to think deeper and avoid a situation where staff complain about constantly being investigated and not audited. This was at the level of details, when they were testing the cut off and other related previous year findings.
There was a time when IDT did well, in terms of employment equity status for women. Even at executive level they had 50/50 representation, without most of their qualified people and senior executives. There was quite a number of qualified female project managers who left because of being in demand and highly marketable. Some of them were managing some of IDT’s national projects and some were in the region. Mr Pakade apologized that there was no balance in terms of the gender dynamics, but he ensured the Committee that they were going to fix that as it was a work in progress.
Another table illustrated the key risks that IDT has to focus on. what current mitigating plans are in place and what controls the IDT currently has. Mr Pakade said that the IDT is looking to put in additional controls, to ensure that they further address those risks. In terms of financial viability and sustainability, the IDT is starting to see some of the doors opening, especially in provinces where they did not have a foot print before. Some projects that the IDT has been given are currently on hold because of previous decisions that were taken. The IDT is now negotiating to get a new allocated budget from those provinces for the projects that they had started.
In terms of organizational repositioning impact, he said that IDT’s Chairperson has a particular interest in that because it speaks about the strategic direction of the organisation. Mr Pakade said that the IDT has a new operating model approved and they have developed a turnaround plan. They have not implemented all the things they wanted to implement firstly because of the current transition that they are in and secondly because of the financial constraints which will require the IDT to invest in new areas of intervention.
The Chairperson thanked the CEO and the Chairperson of IDT for the report, commenting that it is clear and concise. She said that she would allow the Committee to make comments and raise questions after a comfort break.
Returning from the break, the Chairperson gave members an opportunity to make comments and raise question for the IDT based on the presentation.
Honorable A Siwisa (EFF) said that she welcomed the report by the IDT. She said that she was worried about IDT because the report from the AG is that one of the reasons that they do not have a board and the way that the interim board was established did not follow the proper processes but she hopes that the Deputy Minister will get the board issue right so that IDT can be functional.
Making reference to scarcity of skills in the construction sector, in the presentation, she said that they know that some of the entities, including the Department itself have been giving out bursaries, typically in construction and engineering. Her question was then that if there is a scarcity, why can’t the beneficiaries of those bursaries be used to close the scarcity gap? Because there are people who have been sent off to institutions of higher education with the objective of addressing this issue of scarce skills.
Referring to the point of the increasing number of service delivery protests escalating the risks of construction projects implementation disruption, the Honorable Member asked why this should be happening, if the process is transparent when the project starts, especially on the part of IDT. She said that these types of protests always start if the immediate community around the area where the project is going to take place, is not involved. Another reason she gave for these type of protests happening, is that IDT or whomever is responsible for the project, will always look outside of the province or town and bring in contractors from other places, without considering who is available within the immediate community-whether it be from the region, town or province.
Honorable Siwisa acknowledged that some of these protests are illegal and are motivated by the fact that the people want the money for themselves and try to act as mafias.
Moving on, she addressed the issue of people who owe the IDT money, including the DPW itself. If the DPW owes IDT, how can it expect the Department of Education, Justice and Social Development to pay IDT? She said that the other departments were taking advantage of a disadvantage. The disadvantage being that the DPW owes IDT, its own entity. She expressed that she was very disappointed to receive a statement that shows that the DPW owes money to its own entity.
Highlighting that the mandate of the IDT is to implement social infrastructure programmes and project management services to all spheres of government, and the social infrastructure programmes managed by it cut across national, provincial and local government, her next question was who owns IDT. If the answer was Lonmin and others, she then asked if IDT was still serving its purpose, because Lonmin is a private company and it is unclear who the “others” that are being referred to are. The question was how Lonmin fits into the IDT puzzle. She asked if the services that IDT was rendering to Lonmin were supported by the finances provided by the Department of Public Works. She said that clarity was needed, because the purpose of IDT was to serve all spheres of government and not all spheres of government and private companies.
In closing Honorable Siwisa said that she needs clarity regarding how Lonmin fits into getting services from IDT and why the Department of Public Works is not paying IDT.
Honorable S Kopane (DA) thanked the Chairperson, and the IDT for their presentation. She said her concern was regarding the irregular expenditure referenced when Mr Pakade was presenting on the corporate performance overview, pointing out that he said that the IDT business portfolio is declining and how the economy is affecting them. She said she failed to see the balance because the irregular expenditure was worse than the scenario painted about the business portfolio declining.
With regards to the issues that affected the irregular expenditure, the Honorable Member requested that Mr Pakade explain to the Committee, how according to the annual report there was an appointment of a service provider for a transformation initiative that was found to be irregular, but there was no further action against the official responsible because he was deceased, but the question was what about the other officials that were involved.
Honorable Kopane, said that there were so many issues that were under investigation like employment of service providers without a valid tax certificate and not following competitive processes but to name a few. She asked that the entity explain this to them because all they say is that there are investigations, but what the Committee needs to know is who is doing the investigation and what is the state of those investigations.
Making reference to page 142 of the Annual Report, she said that there are four line items that repeat that contracts continued after their expiry date but there are different amounts of money shown there. She asked Mr Pakade to explain what the difference between those four items and amounts is.
Honorable Kopane said that her other concern was based on the report given by the Auditor General the previous day which indicated that even though the entity has improved, there are still some issues that are apparent. The first was with regards to the issue of compliance. Apparently, the entity procures certain stuff irregularly but there is no consequence management. She asked if IDT can explain what it is that they are really doing to address the issue of consequence management.
With regards to the board Honorable Kopane indicated that IDT had said that there are only three, members that make up the board, but they try to meet frequently to do their job, but the reality is that the board is not properly constituted in terms of the requirements of the trust deed. Her question was to ask how soon the IDT was going to rectify the situation. The AG also identified that the IDT had insufficient skills to source people. The question was then if the IDT had done a skills audit within the entity and if the Committee can be given the timeframe in terms of what they were planning to do. A further question was why the tender contracts were not specific because that was a mandatory requirement.
Record keeping was also still a problem for the entity according to the AG. The question she asked was, what measures the IDT was going to put into place to rectify the situation regarding the record keeping.
The AG again said that one of the things that the IDT does not do is to pay invoices within 30 days, which is accumulating a lot of interest. The question she asked is what measures the IDT was going to put in place, because this is one of the things that new Minister was saying must happen as soon as possible.
Honorable L Shabalala (ANC) said that she would like to join her colleague in honoring the report presented and appreciate the sincerity and transparency within the Department and entity. She said that in her previous experience, the Department and entity would present that everything is ok, then the next day it is all over the newspapers that the entity cannot pay its constructors.
She said that she wanted to commend the CEO, Mr Pakade for being GRAP compliant and that the Committee was looking forward to a clean audit.
The Honorable Member said that the IDT had moved from an adverse to a qualified audit opinion. Sometimes it makes her feel very scared when she considers what the auditor will be looking for in the future, but she appreciates the entity making progress rather than a regress because a regress would be a disaster for the Committee. Referring to page 4 she said that she wants to make a comment about the entity having many unemployed graduates who are qualified, but cannot work because they need to get experience before they get a certificate or license. She suggested that the entity should use those graduates even if it means that they group them together and include them as part of the partnership. It could help them to be a part of the sub-contracting. It would not matter if they do the project management of that project, what would matter is that the Department would have assisted them. She asked if the entity was able to see the contradiction by not employing the graduates, because the aim is to uplift people who had been disadvantaged, but the IDT was not assisting them and the criteria is being used as if everything was normal in the past. She said that IDT needs to reconsider their strategy.
Moving forward, the first thing to look forward to with regards to the turnaround strategy is the risk management around the procurement plan. She suggested that the performance plan include new recruitment of specialised people but that even if it has specialized people, she said IDT needs to think about the morality that goes with the responsibility of the job.
Honorable Shabalala was not sure if the priority of job creation was coming up clearly in the documentation and if the entity was going to highlight it because it should be in line with what the President and government is looking at.
Making reference to a point relating to objective 1 she said that there is a point that speaks to the percentage of the projects completed on time and not on time which affects the outcome of the audit moving forward. She said as the Committee they wanted to understand the process of appointing companies that put in bids, because what the entity sometimes does is appoint company number 3 rather than company number 1. What the Committee knows and has seen is that there are big private companies that have a lot of cash and will come to the public sector to close the door for the upcoming BEE companies by making sure that their prices are so low, that the department has no choice but to do business with them and when these big companies make their money, they can sit for the whole year not doing anything. She said for the Committee it is not just about figures but about the transformation agenda that they are pushing.
Honorable Shabalala said that she was not sure about the review the entity did of their organogram and whether it is informed by the strategic approach that they are going to take.
The Honorable Member pointed out that she thinks there is an error on page 13, with relation to the corporate budget savings and the 500% that was achieved. The Honorable Member said that she did not believe that this was a possible figure and believes that this is an error, because the corporate budget savings had a target of 5%. Meaning that the 500% was an error.
Honorable Shabalala said that the entity needed to give the Committee a turnaround strategy for the issue around corporate business that comes IDT’s way. She said she knows of the challenges, but felt that those challenges must give the entity an idea of what their turnaround strategy moving forward will be, so that in the near future the Committee knows that IDT has a bank balance that is able to attract investors and clients.
She said that the entity needs to go into detail with its litigation strategy and not treat it as a by the way thing because the Committee is aware that there is a lot that goes into litigation. She said that it does not make sense to have R14 million in legal costs. She asked the entity to ask itself if it was fighting a battle that it can win through these legal costs, saying that if IDT knows that it cannot win the battle, can it not sit down with the litigants and try to resolve their issues without having to resort to court proceedings. Spending R14 million on legal costs does not make logical sense and it could go a long way to uplift the community.
Honorable E Mathebula (ANC) said that he would like to focus first on the point of ‘demand for localisation of development benefits emphasising procurement supplies for programmes’ and the sector’s transformational programme based on point two on page five of the presentation: “The emergence of construction sector ‘transformation forums’ demanding participation in project implementation through subcontracting leading to disruption of construction projects work schedules”. The previous day there was a report given by the office of the AG, where the AG spoke about the very same matter being raised in these points. In relation to the issue of work being awarded to local contractors or business people, the feedback that the AG reported, was that there was an issue with tender requirements. The question he posed to the entity is why local sub-contractors were being denied the opportunity to get contracts, when the IDT knows that it is not supposed to do that. In his view he felt that IDT does not only go there to conduct business or give business to new contractors, without having sub-contracted local people.
Matters that were raised by the AG that were very concerning to IDT. The first was that contracting quotations were awarded to bidders that did not score the highest points in the bidding process, this was a legal violation of supply chain management. Another issue was that contracts were amended or extended without the approval by delegated officials. It also raised the issue that specifications for the pre-award of implementation, did not indicate the threshold of local production and content.
The last issue, Honorable Mathebula said, was that some of the awards could not be audited due to a limitation of scope. He said that he just wanted to check if there was any move from IDT to correct this particular happening.
Honorable Mathebula noted that the IDT had reported that their audit outcome had moved from adverse to qualified and they intend to go to unqualified. He said he thinks that IDT should not be aiming for an unqualified audit outcome, but move straight to a clean audit because there is nothing stopping them from doing that. There was a surplus of R42 million from wasteful expenditure and the question was how the IDT was going to deal with it. It cannot be business as usual and the Committee needs to do away with this, because this indicates that something somewhere is being done in an incorrect way. It could be that the IDT spend money where they were not supposed to. At some point there must be action taken against those who are wasting government money, because the Committee cannot allow this to go on unchallenged and without consequences.
He said that there were some elements of corruption that were reported on and there were officials who tried to jump ship and there is also the issue of some companies that are being pursued in terms of the Companies Act. He said to the IDT that their report back was that some of the officials resigned and stopped there. It cannot be that one can commit acts of corruption and it ends there and as the official you resign. What if R10 million was stolen and then afterwards the official decides to jump ship? It cannot mean that just because the official jumps ship they are exonerated of the corrupt act. He said he agrees that the matter cannot be pursued with the person no longer being an employee of the IDT, but he is sure that the matter can be pursued as a criminal matter, where a criminal charge is laid against that particular person. The Committee wants to see that happen so that they can put a stop to this trend and send a message to other officials who would be corrupt.
The other matter is that he realised from the IDT budget that 75% goes to salaries and 25% caters for the other things. The question was why is there such a huge percentage going to one expense.
Honorable Mathebula said that there is an issue that he would like to re-iterate that his colleagues touched on, which is the issue of an improperly constituted board. He said that the audit committee is not even forming quorum because there is only 3 of them and the decisions that they will take will become illegal because of this failure to meet quorum. The Committee needed clarity as to how the IDT carries on with its functions without complying. What is unfortunate about the board being improperly constituted, is that this has been happening for some time and there is nothing that is actually being done. He said that his understanding of the operations of this institution, is that the officials from IDT through the CEO should be in a position to advise the board, to say that their existence as the board is unlawful, because these members of the board are being paid and their decisions are being implemented by the IDT. If they were to be challenged, it was not only going to be a battle of the board that would be illegal in taking decisions, but as officials of the IDT implementing decisions that come from an illegal board is illegal. So even if the IDT wanted to defend itself it would not be able to. What the courts are doing now, which Honorable Mathebula said is a good thing, was that when it comes to court orders, courts are saying that payment must be made from peoples’ own personal pockets. He said he wishes to see this happen to the IDT, so that they can learn that they cannot allow the same thing to continue to happen.
Turning his address to the members who are part of the board, he said that they need to understand that what they are doing is wrong and begin the process of being properly constituted in terms of the law.
Honorable S Graham (DA) said that it must really suck to be like the step child of the Department, because the IDT has no mandate, no support and is climbing in the dark at the moment, but, despite all of that, she commended the fantastic outcome given where they come from. The IDT was congratulated for the work done this far, she said it was fantastic and the control of project finances is outstanding and the fact that the IDT is making that work is excellent.
The construction mafia is a massive issue that Honorable Graham said she wanted to raise, saying that she engaged with a couple of people during the recess in various construction companies in the Eastern Cape. She said that there is a police station that is being built and construction been has not been able to start for two weeks, because of Small Medium Micro Enterprises (SMME’s) who are demanding their share through registered SMME’s who were not part of the original discussions and this has just shut down the entire project. The problem is that the construction company is sitting with individuals that they cannot train and that is accumulating to wasteful expenditure. Nelson Mandela University (NMU) is building residences and they were able to sort out the construction mafia, but now it is the Students’ Representative Council (SRC) that is demanding money and threatening to shut down the project meaning that everyone is demanding their share of the pie at the moment. The Honorable Member said that she encountered a private individual who was building their own house on their own property, who had people come and demand 6% of his project.
Honorable Graham said that one way of circumventing this kind of situation is to strengthen the relations of the Construction Industry Development Board (CIDB) and that it needs to be the entity that takes the lead in this situation. They need to accredit SMME’s as fast as possible, because what happens is that when a new project emerges, new SMME’S emerge out of the wood works and start demanding their share of the pie. The entities within in the Department need to start operating together so that the CIDB takes control of the SMME’s. It is now in the IDT’s mandate to deal with the SMME’s, but this is something that needs to be looked at so that the Committee can separate the work being done and so that they are not duplicating and failing because of the expectation of expecting other people to do it.
Honorable Graham asked the IDT when the audit action plan will be ready, because all they said is that it is being worked on, but the Committee would like to know when that will be ready, and get feedback as to how it will be monitored and implemented.
She asked why the IDT is not positioning itself as the maintenance organisation of projects. She said the IDT did an amazing job with their flagship project and the R9 billion maintenance project and so it does not make sense for them to not position themselves in this way, especially seeing that the IDT is strapped for cash.
70% of the social infrastructure projects were completed within budget, which is a huge deal in construction because so many projects run over and are not completed. This should be something that the IDT is celebrating and advertising and using as merit to get more projects.
Honorable Graham said that there was a disparity between the IDT’s completed on time reporting. On page 42 of the annual report it is quoted saying that only 40% of the projects are completed on time, but on page 37 of the Auditor General report, it says that 30% of the projects were reported to have been completed on time, but only 17% was audited as having being completed on time. If the IDT can work on that, it would have the result of them being used more. Also on page 66 of the annual report, there are no targets for females in the IDT’s private equity plan. There are numbers with no targets. Slide 27 does not agree with page 65 of the annual report which indicates that the IDT has one Colored and Indian male but it did not reflect on the slide. There is another disparity on the slide and on pages 139 and 138 in terms of black males. She said she was curious to find out why there was a difference in numbers between the presentation slides and the annual report.
With respect to outstanding money from client departments the problem that the departments have is that some of the projects taken on by the implementing agents like IDT are multiyear projects and what seems to be happening, is that some of the departments will budget for the project in the first year, then they start a new bill for new projects in the next financial year and are not budgeting for the continuation of the project so the project stalls. An example is the building of a hospital in the Eastern Cape, where it started being built and they are now being told that R30 million is required to finish the building project, with only R10 million being available. So now the whole project has been stalled. And what will happen is that the material of the project can get stolen, vandalized and carried away as a result.
There has to be a way for the IDT, when accepting a project to get guaranteed funding for a project from the client departments so that they know that they can get through their project and will be guaranteed to get their funding and need to secure National Treasury’s commitment on that as well. Referring to the contingent liability plan on page 130 and 131 of the Annual Report, there is a long list of client departments that owe money to the IDT. The question was what is being done to recover these costs from the client departments and if the figures include projected amounts and projected legal fees or if that is just the amount owing on those there. What is being done with respect to the legal costs in relation to client departments that have not paid and there has to be a way to get that resolved.
With infrastructure coming in, the mandate of the Department currently is social-infrastructure but the IDT does not have a real mandate at this stage, so the question Honorable Graham asked, is what IDT is doing to position themselves to take on the infrastructure aspect of the Department and if they are positioning themselves to take over that as well, because this could assist the IDT’s bottom line going forward.
Honorable S Van Schalkwyk (ANC) welcomed the audit outcome of the IDT and congratulated IDT on the progress made. She said that she needed to re-emphasise the issues raised by the Auditor General in terms of improvement with regards to compliance with legislation, procurement and contract management as well as consequence management. There was no need to venture into a discussion on these issues because they had already been dealt with in detail, other than to express that she is looking forward to the audit action plan.
She said that the point of concern that she really has, which she would like IDT to venture into, is the fact that officials are resigning before they are being charged. There needs to be measures put in place to deal with that issue otherwise the officials can resign and do the same thing at other departments that they go to so their actions need to follow them.
In terms of the debtor balances, the Committee knows that there are cash problems that the entity is facing and in order to improve this, they need to be harsh in terms of recovering money from their outstanding debtors. Looking at the slide with debtor balances as at the 30th of June, Honorable Van Schalkwyk asked for clarification in reference to the Department of Education. Is it the Department of Basic Education or the Department of Higher Education?
Looking at slide 27, she pointed out that the IDT was speaking to the employment equity status and that she wants to echo the sentiments raised in terms of the employment equity targets asking whether it is in line with the guidelines by the Department of Labour. She said that even if the Committee welcomes the representation of women, they are concerned about the current status of the lack of the representation of the demographics of the county and the IDT really needs to look into that area. There is a large silence regarding people with disabilities and physical challenges and the Committee would like to get an indication from the IDT as to where they stand in terms of this area.
The Chairperson thanked the Honorable Members for their input and questions. She once again echoed the sentiment that the Committee appreciates the positive movement that the entity has done in terms of the audit outcome. She said there are 11 official languages in South Africa, then isiXhosa said “into entle iya nconywa” when someone has done well. Even if what they have done is small, if it is good then one has to appreciate it. She said that when the CFO was presenting, some of the things that were said by him, were things that had been said by the Auditor General. If the IDT implements the suggestions that the Auditor General suggested then the results will be improved, which is good to hear.
There are seriously glaring issues, which she would like to address with the Deputy Minister (DM). The Chairperson said that these issues were raised even in the oversight by the Chairperson of the Board, that they are operating with a Board that is not fully fledged and this has serious implications. Some of the decisions that the Board has taken may be overturned by the courts. Therefore the Chairperson was asking the Deputy Minister to speak to the Minister, so that the issue of the Board can be resolved as soon as possible.
The IDT indicated to the Committee that there is a plan to re-organise their mandate and the Committee said in response that it wanted to see the results of this. Another issue how the IDT is owed money by other departments including the Department of Public Works which is very sad, because for IDT that should be easy money. If this information had to find its way into the media it would be a shame for it to be exposed that the Department of Public Works owes its own entity money. The Chairperson appealed to the executive present at the meeting to sit with the Minister, Deputy Minister and the IDT to resolve the issue of the money owed.
It seems that the issue of protests in the country have become a fashionable thing to do even if there is nothing to protest about. Having said that the Chairperson noted that there are valid points that were raised by Honorable Shabalala that one cannot bring in contractors from outside and even when sub-contracting, continue to bring in outsiders this will result in the community fighting back. IDT used to be very good at social supplementation and therefore does not understand how they were able to lose focus of not taking in the community.
Apparently there is a police station that was built, by the Department through IDT and 2019 is the fifth year in which that building has not been occupied and this was raised with the Department. This is not a good sign, because whatever building that the IDT has built, like the Booysens police station and the Magistrate Court which is good, there are policy issues that lie dormant there. If the IDT is able to take what the Auditor General said to task then they can see then it would have the same effect of the turnaround that they had last October. Turning the situation now may even have the unqualified audit outcome that the IDT wants.
Giving their report back, Auditor General had said that IDT’s record keeping had slightly improved but not to the extent required. The Chairperson said that this resulted in material findings on the annual performance. Record keeping does not require perfect skills.
The Chairperson said that when they met with IDT, they had no hope that they would move from where it was. What the Committee would really like to see is the audit plan, so that they can monitor and check how far they are with addressing the issues raised by the Auditor General. The Committee said to the Auditor General, that it wants a report quarterly to see if the issues are being addressed based on its findings.
The Chairperson of the IDT Board, requested that the CEO give details of the old operational issues and that he would fill in to give context of the strategy is going forward. Then the DM will sum up all the political issues.
Mr Pakade said that because there are a lot of questions and because some are similar in nature, what would make it easier is allowing his colleagues to take some of the answers and that he would quickly run through his own so that his colleagues can prepare themselves.
Mr Pakade said that he will start by addressing the debts that are owed to the IDT. He said that this was a matter that needed to be addressed by various stakeholders. In the new contracts that they are using for clients, based on the new contracting model, the IDT makes it clear that they are operating as an implementing agent, therefore on an agency basis and are applying the laws of responsibility in the detailed model that they have devised.
He said that he was already engaging with the Heads of Department (HOD) in the different provinces, and are therefore moving towards the direction of having tripartite agreement arrangements, where the DPD, IDT and developmental departments will enter into a contract. The issues that lead to litigation are addressed in the contract so that, all parties take responsibility. He said that they are still struggling but are moving on. The DPW indicated that the DG has prepared letters which will be going out to the departments even at provincial level. There are so many issues that exist between IDT, the DPW and client departments. But if there was tripartite agreement, the DPW would take responsibility for the payment of those projects that were implemented on behalf of it by the IDT. The DPW says that they gave that responsibility to client departments who are now disputing and saying that it is not their responsibility. There is nothing about work done that is being disputed so IDT is just caught in the middle. The IDT is dealing with these issues on a case by case basis. The HOD from the Eastern Cape has indicated that he will follow these balances up.
The history to the Lonmin issue, Mr Pakade said, was that the IDT amongst other things is a development agency. A strategic decision taken by the board some time back was to enter into strategic partnerships with stakeholders that are involved in community empowerment. The mining sector situated in the North West, had a need for social housing, as part of their corporate social investment that was managed by Lonmin. Lonmin then identified IDT in terms of their capacity, to manage development programmes and do social facilitation. So that is how the relationship started. However, it must be noted that IDT is not doing this for free, they are charging a management fee so there was an intention on both sides to ensure that the development programme is rolled out. He did not believe that having a relationship with Lonmin will take away the ability of IDT being an implementation agent for government departments. Rather it strengthens the social cohesion component of their growth. Mr Pakade said that it is a matter that can be discussed further from a political level if there are concerns that the leadership has around that. IDT was thinking that as part of their new strategy, that if they do have this kind of capacity it will strengthen their financial muscle as IDT.
Before speaking on the irregular spending Mr Pakade asked firstly to apologise. He acknowledged that the last column on page 141 is actually an amount in Millions of Rands, he said that the mistake was because of an editing error. The follow up question was what then happens to officials who were part of that transaction, who had not deceased.
He said that the IDT had received a report about the deceased and the report had indicated that there was nothing much that they could do about the deceased person. However, to put this into perspective, this amount led to a company that was appointed by IDT and the strategic partner which did not follow proper supply chain processes. This was in the year 2013. The investigation report took a while and initially it was started by the board until the board was dissolved and then National Treasury took over but continued to use the same investigative company, which was Gobodo Forensic Investigation.
The IDT said that there were three officials that played a specific role in this instance: The CFO; the Head of Office – Managing Strategic Process in the office of the CEO; and a support person in the office of the CEO. These above individuals were taken through the disciplinary process and all three of them were found to have contravened the Public Finance Management Act (PFMA), and their services were terminated by the Board. Mr Pakade said that in all three of them, IDT identified that some money was going to be recovered, from these transactions. The overall transformation initiative project is subdivided into mini sub projects. So the sub-projects that were implemented are the ones that IDT is focusing on now, but the investigations have been completed. IDT has lodged a civil claim against the officials, even though they have left the organisation. One of them has already paid a sum of R250 000, but there is going to be another claim of about R3,9 million and another for about R600 000. Mr Pakade said that the companies themselves that received the money are in court with the IDT battling it out, because the arbitration process cleared the companies, which the strategy office did not agree with. The IDT appealed that award and that process is still underway.
There was a comment from the Committee, about whether IDT was going to able to sustain the improved audit outcome that they received to the point where they get an unqualified opinion. Mr Pakade said that the big ticket for them would be a clean audit and it does not come without a price. In as much as they can make commitments, they need to be honest with the Committee members that they need to invest in these interventions e.g.: if one is going to manage thousands of transactions worth billions of rands, one would need relevant systems in place. They cannot keep operating on manual systems, because even excel spreadsheets will not help much. It needs to be systems that give readily available information that is accurate, which so far, based on the fact that the IDT does not have really good systems, the IT division together with the CFO and Financial Services Unit (FSU) unit of core business has sat down to look at the interim interventions that have been put into place so that IDT can look at integrating the dashboard system and supply chain modules. So they are able to get reliable information. Mr Pakade said it is not only about the IDT getting accurate reliable information, but also help the AG during the audit, to be able to have reliable information that they can use during their audit. So far Mr Pakade said that the IDT can definitely promise the Committee an unqualified audit. But to get to a point of a clean audit it is going to take a bit of effort.
Mr Pakade said that he had covered the issue of litigation and that he welcomes the advice from the Honorable Members on this issue. In addition, he said that the IDT proposes that each and every case is looked at on its own merit and where they think their chances of success are limited, they do not pursue such cases but rather take them to the Board, for them to take certain decisions. The IDT has an obligation to defend where they are challenged. The construction industry is highly litigious and there have been summonses that have been submitted because of a technical error or mistake. Where they were not properly served, the IDT has averted situations where the sheriff was knocking at the door. When the IDT has a weak case it will be in the instance where the client department has not paid it and as a result they have not been able to pay their clients.
Going to court is never their intention. If after exploring the facts, IDT finds that there are more cost effective measures like going to mediation and arbitration, they will opt for those. It is only when those processes fail that they will take it further. Recently the IDT had a heritage project, where Mr Pakade had to sit and negotiate with clients and departments to set aside the court processes and find alternative solutions. They are now looking at chasing the real culprits on the ground which are the people who have done shoddy work for them.
The issue of the SIU reports is that the members would want more reflection and IDT understands where this concern comes from, because it is linked in trying to understand what were the underlying issues. Mr Pakade said that most of the issues that the IDT is dealing with are historic legacy issues, but unfortunately they have to deal with that. Looking at the reputation of the organisation you need them to try and find a way of looking at those lessons that were learnt from those processes and decide how to then prevent it going forward. But also do some stakeholder management because IDT’s clients need to understand what really happened and measures to put in place because when its reputation is dented it is always difficult to convince clients otherwise, but fortunately with the big clients the IDT is working very closely with them and so they understand the benefits of some of these programmes.
There was a question about the costs that are included in the debtors’ amounts owing to them and whether these included legal costs. Mr Pakade said that the IDT had discussed this matter with their legal services and they have agreed that they must engage clients going forward where there is interest charged as this is classified as fruitless expenditure. With the legal action as well, they have agreed that they will claim the R14 million costs back from the department if they are the ones who are responsible for the IDT being taken to court.
Mr Pakade said that covers the questions that he was going to cover and that he would hand over to the CFO answer other questions.
Mr Mofokeng said that he will go through the list of questions and where there is a repetition, he wishes to apologise upfront.
One question was about the decisions that are made by the Board and the legality of those decisions. Those decisions were audited by the Auditor General in full and the process used to audit these Board decisions was guided by the trust deed, which indicates the role of the board and what happens if the board does not have sufficient member. What it says is that the Board can only maintain the status quo, they cannot make any new decisions that direct the argument in a different direction, other than to steer the ship in the same direction. The outcome was that the Board decisions that were made in total, amount to maintaining the status quo. The audit decision was taken while the Board was a full complement at the time, so what is happening is just to maintain the status quo. All the decisions are all above board and there is nothing illegal that the IDT is aware of and the audit process has actually confirmed that.
With regards to the collection of debts, the IDT is taking it seriously to the extent that every second month the IDT is trying to contact client departments, HOD’s, CFO’s in terms of trying to expedite the collection process. Some of the departments have funds available in terms of the transfers that they get from Treasury usually around April and September. IDT tries to get as much money as possible during those transfer periods
In terms of when the Committee is going to have the Audit Action Plan, the IDT does not have the final management letter as yet from the Auditor General. They have requested it twice already in the past two weeks and the reason why it has not been sent as yet is because the Auditor General is busy finalising the audit file, so that they can give IDT their issues after it appears that all the items have been resolved.
Addressing this issue, Mr Mofokeng said that he wants to link the response to another comment that was made, that a qualified opinion is not good enough and that IDT needs to be on an unqualified opinion. Mr Mofokeng said that he agrees with this comment. However, he asked the Committee to take note that in 2017/18 IDT was given one month by the AG to execute their audit action plan, which was impossible, hence the majority of the interventions that led to an improvement was through the interventions. It is controlled processes, implemented over a period of time, that produce quality financials. In the report there is a mention of the interventions that were implemented.
The audit process for the current financial year under review started in November until September. It took 10 months for the audit. That is a long time for an audit process and that needs to be supported by very skilled staff when it comes to management. As indicated earlier, it is the middle part that is missing. He said the Committee would need to appreciate that while working on the audit process they need to be aware that the interventions are meant to be stock control measures and they need to be starting on the control measures in terms of the key financial controls, which was happening at the same time as the interventions in this current year. And once the auditor’s report becomes available the Committee will see that the interventions were implemented as part of the monthly process. As to when the Committee will have the audit action plan, Mr Mofokeng confirmed that as soon as the management have it they still need to compile their action plan. From a manager’s point of view they consider the audit advice from AG as a bare minimum of what they can do, but the bar that IDT has set for themselves is much higher than that. Hence there is no finding on the issuing of statements to client departments and it was one or two items that IDT had to implement. Every month they know what expenditure will apply. On the other hand, there is a trend that the auditors for client departments request confirmation of expenditure for their client department. Mr Mofokeng said he experienced a situation where he had to sign 50 or so letters confirming the expenditure by the client departments. What IDT is saying is that with this new process, they should be able to provide that upfront.
Procurement is a very serious issue and could need urgent attention. With the financials improving, the next big thing for them as the IDT is supply chain management. The question then becomes efficiency within their system. A systematic problem is embedded in a manual based process. With an audit process, that is prolonged with practitioners leaving the company. Some of the findings that they will have will be from the region where procurement was assessed. Using the report they take procurement samples, which is what is reflected in IDT’s financials. What the IDT wants to do is that they want to centralise their procurement process. However they cannot make too many promises, but the cost of managing it will be expensive. Mr Mofokeng said that they now need to put a system in place so that they can make a majority of the controls system-embedded and that is a process that is underway. It is being run in two ways:
- Using their current system to monitor the flow of information so that they can at least do spot checks especially in the areas that they identify as being within their office space and this will depend on what they see happening.
- Where IDT is going to operate, procurement will be driven mostly by what they have seen in terms of case logs that have come out. Some of the information that has been reflected, comes as a result of a misunderstanding.
While Mr Mofokeng was giving the report back, Honourable Kopane, interjected to say that on page 142 of the annual report regarding contracts that continue after the expiry date, the four of them listed there are the same, but the amounts listed next to them are not the same. The Honourable Member requested clarity as to why it is detailed like that.
Miss Thandi Thankge, Acting Executive CSU IDT, said that she was going to address the three questions that were raised regarding the sourcing of scarce skills. The organisation is currently offering bursaries and is working closely with the Sectoral Education and Training Authority (SETA) as well. In terms of their strategy moving forward they want to increase that number. In terms of addressing the issue of scarce skills she said that the IDT is working quite hard on that and they know.
The Chairperson said that she was aware that she needed to give Vuyani a chance, but considering that the time was 13:15, which was lunch, she suggested that it would be a good idea to ask Vuyani to speak after everyone came back from lunch. She gave an instruction that when everyone returned from lunch, IDT will be given an opportunity to finalise their responses and Agrément SA will get an opportunity to do give their Annual Report presentation to the Committee.
Mr Chris Lombard, Executive Programme Management Services Unit (PMSU) IDT, said that he was going to start by addressing the issue that was raised and then add on the development of capacity in the IDT, more specifically the questions that came from the members around the skills pipeline and graduates. To give context Mr Lombard said, even though IDT has the bursary and development programme for the candidates, it is all informed by the feedback that they are getting from their clients. Clients are more interested in seeing professional people on their projects and the reason for that is twofold:
First, the signing off of oversight projects requires that a professionally registered construction project manager sign that off.
Second, IDT’s processes in terms of the council, require that a professional sign that off.
Mr Lombard said that the IDT has had situations where they had projects on which the consultants that they appointed were the professionals, rather than IDT staff. Therefore, it is an important need to cover that gap. Hence the current initiative to take the 30 odd people they currently have and put them through a programme to be registered to become professionals. The reason for this is because, it takes about three to four years to go from being a candidate to a professional, so it is some serious work.
Considering the way that IDT is currently, they have three professionally registered construction project managers inclusive of Mr Lombard, who are actually supposed to be doing the mentoring. However, since the IDT has a good relationship with the Council for the Built Environment (CBE) they can do that. They can make use of their resources to build up on this initiative, or take it further not only for the development of professionals in house but also for contactors, which is the next step.
Typically if you have a candidate from the organisation which you can train like they do through the CBE, you can do the same going forward for those 52 contractors, that the IDT has on the contractors’ development plan, because they also need skills amongst other things in civil engineering, quantity surveying and project management.
The second issue was regarding the way forward and possible business. Mr Lombard said that IDT is very keen on becoming a powerhouse in facilities management specifically for money in two line streams. If one takes a typical property you want it to be funded from the onset, if it is a greenfield project you would want it to have a 30 course life cycle funding. Where you would develop a new piece of work, then typically around the last cycle which is about 20-25 years you want a maintenance plan as well. Mr Lombard said that IDT would rather be that institution, that would have gone forward in the course that they completed to do that management, because, thinking about it, who would know better about what happens in the development of works than IDT.
Admittedly Mr Lombard said that the IDT has got some work to do, and currently is already consulting with the Deputy Director General (DDG) in the Department about construction management. There is a huge portfolio in the Property Management Trading Entity (PMTE) that requires facilities management and that could make up the shortfall to the R6 billion that IDT needs going forward per annum.
On the planning side it remains a serious issue, but not one that cannot be overcome. Mr Lombard said that the IDT has had its second meeting as confirmed by the CFO in the past week, where they have had training as SOE’s with the office of the Chief Procurement Officer, on the new system called the Framework for Infrastructure Delivery and Procurement Management which has changed slightly but is the same thing. It has been implemented as of the 1st of October, taking over from the old system that was in place.
Mr Lombard said that what IDT has produced over the last month, is a detailed process to show what the roles and responsibilities are of the parties who are within the process of the living infrastructure. The planning part is the critical part, because at this point in time, IDT looks at the instruction note and where they get fees from. At this point in time the IDT only involves itself after the appointment.
During the early stages the IDT is not involved. It is an oversight role and it must do much more with their clients to amend that, because if they do that they can have a say as to where the budget is going to. Especially with a multiyear budget, which in their case is mostly how projects are implemented and funded, Mr Lombard said that they need to do that so that they can access the management fees as part of the implementation for appointing the consultants and contractors.
What happens with IDT’s involvement before the time, at the early stages of the implementation, is that there could be a lot of work that they do as professionals but cannot get paid for. Mr Lombard said that was an issue that was raised because it needs to be addressed, and it was agreed that when meeting with the DPW, those issues would come up.
In the discussion that the IDT was having in terms of work, in a number of instances they get to projects, through Public Works and when they get to analyze and plan the process going forward, they find that they are competing with other implementing agents. In the Eastern Cape, the IDT has gone to two sites in the past week, where they realized that there is involvement of Cooperative Governance and Traditional Affairs (COGTA) in the process and the IDT is of the view that they should not be competing with them However, it is a matter for discussion.
The poor planning, Mr Lombard said is informed by a number of other things. The IDT has found in situations lately in the Northern Cape, that as a result of over commitment in the previous financial years, monies get paid from the current financial year to deal with problems from the past.
There will be a situation where many projects will be sitting in planning and it will get to a point where the appointment of consultants needs to take place and in some instances as well, the appointment of contractors. Then the money dries up because it is used for other purposes and that inhibits trading quite severely.
When a service provider is not paid, contractually they can go off site. Once that happens there is a serious issue because they will charge for that. Secondly what the contractors will do is that they will claim for re-establishment. The problem is that the materials on site, once delivered, are owned by the client and IDT must then look after that. Mr Lombard said that there are real risks in terms of those issues, not only with regards to payment of the consultant but also materials getting lost on site and everything that goes with that. Those are issues that IDT needs to address.
There was a question about what the IDT does to mitigate these situations so that the money that is sitting there could be used for something else. Mr Lombard said that since he joined IDT in the last six months much of his work has been to go after projects that could be failing. There is a lot of work that has to be put in and it takes away from work that the organisation should be doing to take it forward.
There is a project in Port Nolloth, which required the IDT to sit down with both the Department and contractor just to keep them on site, because if they leave, it is a very big project in a far-off place and this can result in suffering a magnificent loss. That is what the IDT is trying to do continuously to resolve those issues.
In terms of terms of IDT’s mandate, the opportunities are huge and it will have a way forward soon and the Honorable DM will have to direct the IDT in that respect but from what they have heard from their clients, there have been projects that they have not done well and this is a reality that the IDT cannot escape. But they are also saying that they are doing everything that can to get back on track. The situation is unfortunately, that in some instances like the project in the Northern Cape, the norm for project management in the industry is on a ratio of one to eight. It can be one project manager to ten projects, depending on the complexity. In some cases the project managers have 20-25 projects.
When skilled technical people are lost, it really impacts on the ability to service the client correctly and in an appropriate way. As soon as the candidacy programme pipeline becomes a reality, IDT will be able to improve their serious pipeline in respect of the organisation.
With regards to the police station, Mr Lombard said that he will get feedback about that and come back to the Honorable Members because he does not have any information off hand about that.
The Chairperson then said she would give the Deputy Minister an opportunity to make her address. The interim Chairperson of the IDT Board, Mr Motswaledi, asked to make two additions to the responses given on behalf of the IDT before hearing from the Deputy Minister.
Mr Motswaledi said that he wanted to give a picture in respect of the Board, to highlight what the CFO said based on the report by the Auditor General. It is necessary to indicate that in as much as the AG has found that the function of the Board has been adequate it is important to reflect on whether it is providing effective leadership.
The Board is stretched as there are only three members that sit on it and even though there are relevant sections in the trust deed that allow this arrangement to be preserved, however Mr Motswaledi feels that it is not enough because the IDT should be drawing from a different level and that this is something that the DM will address, which will be the re-constituting of the Board and how soon that can happen.
Listening to what the Honorable Members had to say about the report back from the Auditor General, Mr Motswaledi said it makes one reflect as to whether a qualified audit outcome was the right one. The issues that were raised and the manner in which they were raised would suggest that the IDT does not know what it is doing. From this one could conclude that the team that was presenting was probably not the team that was interacting with the IDT, who would understand many of the other issues that were picked up.
Honorable Shabalala addressed her colleagues by saying that the issues had been dealt with since the morning. She said she was requesting that Members persuade each other to not get into a space of challenging each other in the current meeting on issues of the audit. If there are issues that anyone has with the AG report, it is best that the IDT with the Deputy Minister and anyone else involved go to the AG and challenge those issues. She said that it will open a flood gate where AG will come to the Committee and then the IDT will dispute what the AG has said. It will be a cycle that the Committee will not be able to close.
Deputy Minister Ms Noxolo Kiviet (ANC) started by greeting everyone present at the meeting from the Honorable Members to the members of the Boards and supporting staff.
The first issue that the Deputy Minster addressed was the issue of the Board, pointing out that the Minister had dealt with the matter quite adequately in her response, clarifying what the Department is doing. The Deputy Minister indicated that all the institutions had been present when the mandate of the Department was published. The mandate of the Department, has now stretched to include infrastructure, which places the authority on infrastructure squarely on the shoulders of the Department. If one checks the legislation that set up the various entities, and some not set up by legislation like IDT, which was first a trust to implement transition and look at when the IDT was formed in 1990, it was born during the time of transition where one critical element was identified as the soul of the nation – social infrastructure throughout the country which included the building of schools, hospitals etc.
When the IDT was created as a trust it was given money by the government to go and do this kind of work to interact with communities. Over time government has reviewed the mandate of the IDT where at some point it moved from being a trust to a schedule 2 entity and therefore that interfered with the initial mandate and way of doing things.
The Deputy Minister said that over time decisions have been taken by both government and the IDT that talk to the mandate of IDT to the point of where we are today. As the years go by the organisation has grown as it has tried to fit itself within the environment it operates. They now have bursaries and create opportunities to work with companies in the private sector, like Lonmin. This shows that as an organisation they are gradually growing and that the Department needs to grow with them and take them to another level. But this has happened within a legislated environment.
The Deputy Minister said that she had asked all the entities within the Department to go back and review their operations in reliance with the changing environment within which they operate. The feedback was not what she thought it would be and this has prompted the Department to interrogate themselves as an organisation and Department to say, in light of this and what the President expects of us, bearing in mind that infrastructure is going to be a way to deal with unemployment, are they going to meet that obligation and how should they be structured?
They are engaged in that process together with the a Department of Public Service and Administration (PSA) regarding this at the moment because when the mandate of the DPW changed, the lead department in terms of dealing with that change is public service and administration. The Deputy Minister said that when looking at the entities there is some duplication to be found in some. When checking their mandate one will find that there are areas where they overlap. That overlapping results in the bleeding of the fiscus because if IDT is in the space of providing bursaries, CBE also does that and the Department does the same, will they collectively be able to say what the impact was. They cannot, because each one is doing this in terms of their own regulations. The Department has a responsibility to ensure that they stop the bleeding of the fiscus. They need to focus and maximize impact and the only way to maximize impact, is to interrogate the existence of each of the structures.
The Deputy Minister asked if it was wise to choose a board that you cannot guarantee will last, considering that in the current financial year everyone is working towards the next financial year. The re-alignment of the entities with new Department needs to be realized so that come December there is direction on how to execute the mandate. In the coming two to three months, if the Department starts the process of filling in Boards, when are they going to finalise the primary task at hand? As much as they are dealing with the Annual Report which is based on the past and are in the current and cannot suspend the work to be done, the Department needs to be sensitive to the time within which it must finish some of the projects.
The Deputy Minister said that it was an important issue for the committees of Parliament to address the issue of people who jump ship. This is a government-wide problem which requires them to look at the lacuna in legislation. Currently one has authority over an employee as long as that employee is in your employ. She said she understands the proposed notion that if the person jumps ship, any criminal activity should follow him/her. However this is not always within the employer’s control. The simplest thing to do is to open a case. If it is followed up then the employer would be lucky, but nine out of ten times it is not followed because that person is no longer in your employ. The law says that one can only blacklist a party in the public sector after the person has been found guilty. That is the lacuna that must be looked into because what people have realized is that once there is no escape route, even after they have gone through the processes of discipline, they can jump ship. If the Chairperson of that disciplinary committee has not yet handed down judgement to the accused person, that person jumps ship once they realise that they are in a tight spot. That person then seeks employment in the next department and the next department cannot not [i.e. may] hire them because that person was not found guilty because the verdict was not handed down [while the person was still formally employed by government].
The Deputy Minister said that the issue of record management is worrisome because nine out of ten times it is not [done] by default. This issue talks to how one is going to follow up on the issues of corruption, which becomes difficult. Some of the considerations must really be attended to.
The Deputy Minister explained that the IDT is owed money and in essence this was dealt with in meetings where the DG was present. It became clear that the breakdown is more from provincial departments and that is why the DG said that he would write to the various departments as well as the Province. The Deputy Minister said that she would like the Committee to assist them because the entities in the Department have some level of duplication. When browsing through each one’s mandate, she could pick up similarities in terms of what their mandate is and what they are doing. This needs to corrected so that resources can be channeled to work where they will make maximum impact.
The Chairperson said that everyone appreciates the responses and that they were shocked to hear that the Department is owing its own entity.
Agrément SA 2018/19 Annual Report Presentation
Dr Jeffrey Mahachi, Acting Chairperson: Agrément SA (ASA) greeted the Chairperson, Honorable Members and those present at the meeting. He then introduced his team, saying that the CEO and CFO would be taking everyone through the presentation. He said that ASA would not go into too much detail in terms of the first few slides because the information was put down to refresh everyone’s mind about who ASA is. He said that he will summarise slides one to nine.
To recap as to who Agrément SA is, they are certifiers of non-standardized construction products meaning that what they are there for is to check, evaluate and certify anything non standardized in particular. Everything that has no SABS standard, that is where Agrément comes in. In terms of their history they were established in 1969. Dr Mahachi confirmed that they were celebrating their 50th anniversary a few days before the meeting. For 48 of the 50 years Agrément was a technical agency reporting to the DPW. Their mandate has gone beyond certifying products but now includes promotion.
Mr Richard Somanje, Chief Financial Officer: Agrément SA said that the slides are a reflection of the organisation in terms of its function starting from the executive authority The accounting authority is in the form of the accounting officer who is supported by four arms which are the CFO’s office, the executive manager, technical services as well as the executive manager – corporate services. The chief audit representative is representing on behalf of audit risk and compliance. Each executive is supported by individual staff members in each of those sub sections and this organisational structure is currently in the making. Mr Somanje said that Agrément SA is looking at an organisational design that will assist the organisation implement its mandate.
Agrément SA compared the percentage of irregular expenditure against appropriate expenditure. Mr Somanje said that in the current financial year of 2018/19 there was a deviation due to non-compliance. Members were invited to recall that the AG explained the previous day where Agrément is lacking in terms of compliance. So this was a result of the non-compliance which they were currently working on. Mr Somanje said that Agrément SA has put together their action plan that speaks to addressing these shortcomings.
The 30 day payout target set by government for processing invoices is an issue around the country and they as Agrément SA were working hard to address this issue. They are looking at the invoices that were paid within the 30 days versus those which are outside this period and will provide reasons. The 5% deviation is all payments that were paid outside the 30 days. Their aim is to get a clean audit because in the current year they got an unqualified audit outcome. There were 21 audit issues raised by the AG and they are currently working on those. For the second quarter they have implemented six of those 21. The ones that were implemented are ongoing but the matters are continually being monitored so that they can be closed before the end of the year.
On Corporate Services, Agrément SA had put together policies and procedures so that there was no variation in terms of the implementation. Salary benchmarking was conducted to put Agrément in line with other organisations in terms of remuneration that is paid to their staff. They implemented the Key Performance Areas (KPI’s) and there was no deviation in this regard.
For information and communication technology there was a deviation of 20% in developing the ICT structure. This was mainly due to a draft policy, which has been drafted but has not yet been approved.
The core mandate of ASA is technical assessment which is divided into: Technical assessments and Product or services assistance core certifications.
Mr Somanje said that when Agrément SA looked at the technical assessments, they implemented their applications for non-standardised construction products, and are meeting all the requirements and so there was no deviation. Meeting the requirement for processing assignments within agreed time frames, also had no deviation.
However, on the product and systems approved there was a deviation of 25%. This was a result of 27 specific systems and products being assessed and approved within the time line ,but not being finalized within the time period.
With regards to products and systems core certification Mr Somanje said that ASA had a 4% deviation from their planned 100% and as a result only achieved 96%. With 27 out of 28 certificates approved by the technical committee, only one was not approved when it was submitted to the Board.
With regards to inspections for certificate holder’s licensees, 100% was achieved as per the plan.
There was no deviation in the performance of the office of the CEO from the achievement of the KPI’s planned in the three sections and financial management. The implementation of corporate services also had no deviation. There was only one deviation under technical services which was not achieved.
Mr Somanje said that with the employee related costs Agrément had planned to spend R19,5 million and only spent R15 million resulting in a R4,4 million unspent amount due to the posts that were not filled in the period under review.
Lease or rental for the premises Agrément is currently using, had an expenditure of less than what they had planned and the difference was R 100 000. In the previous year it was almost 50%.
Mr Somanje said that the debt impairment resulted from invoices that Agrément issued to their customers, who are normally requested to pay in advance. At the end of the April to April period Agrément realized that the customers did not pay invoices amounting to R300 000. Agrément had to impair that. Impairment is the process of saying that they do not believe that their customers will pay in the next 12 months. In the process, six months down the line, a few of those that were impaired are starting to pay, because it is conditional that customers shall pay an annual fee to Agrément’s each year.
Addressing the operating expenses Mr Somanje said Agrément spent R9 million compared to the R11 million planned, resulting in R2 million underspending. Looking at the previous year the whole R12 million was underspent so the total expense versus what was spent will reflect in the financials the same as the previous year which reflects around R3 million being a surplus as well as R13 million in the previous financial year.
In as far as the graph of budgeted revenues versus actual collection was concerned, 100% was paid as planned. Concerning the supplements, these are the fees that Agrément realized through doing a process of doing assessments. Assessments are done to make sure that a particular client can qualify for the certificates. Mr Somanje said that this is what they have realized from their plan. Agrément planned for R2,4 million but realized R2,6 million. In the previous year they had budgeted for R4 million, but only got half of that.
Interest received is the return on surplus money that was not required immediately and put in the bank to generate interest. This is how Agrément performed better than the planned in the current year. In the previous year they had the same case.
Mr Joe Odhiambo, CEO: Agrément SA greeted the Deputy Minister, the Chairperson, Honorable Members of Parliament and all colleagues present. He said that Agrément appreciated the opportunity to give their presentation and did not take it for granted in any way.
As mentioned by the Chairperson and the CFO earlier, he would touch on Board Governance. In the year under review Agrément had five Board members and four new Board members that were appointed. Currently they have nine Board members and that makes them compliant with the legislative requirements to have at least seven Board members. The Board members do oversight on the entity and they appreciate the work that they do. The Board has three sub-Committees: An Audit and Risk Sub-Committee; a Technical Sub-Committee which is important because they are an advisory committee and they look at issues of strategic planning; and a Human Resources and Remunerations Sub-Committee
Agrément SA believes that the Board does its oversight to ensure that Agrément is well managed and that everyone does what they are required to do in terms of legislation. The Board members have a number of meetings in a year and the audit and risk have three ordinary and special meetings. Four sub committees have members of the Board on them. The Human Resources had three meetings which were planned during the year.
The remuneration of board members is very moderate comparatively and the fees presented in the Annual Report show what was paid out to the Board members.
Mr Odhiambo said that in terms of Human Resources, the amounts that were paid is what has been provided. He said that Agrément has a very small staff complement of 28 staff members and Agrément takes the issue of convergence that was mentioned by the Deputy Minister very seriously. It looks forward to receiving whatever recommendations are made and they will comply and advice on those recommendations because Agrément believes that it is about them as individuals taking the country forward.
80% of the ASA Executive is female and they believe that they are the only entity that has that particular set up. 54% of the staff complement is female as well, and for a technical organisation this is commendable.
Mr Odhiambo said that the performance rewards worked similar to IDT. No performance rewards were awarded last year as they were busy setting up and carving their transition from the Centre for Scientific and Industrial Research (CSIR) to be a stand-alone entity.
Mr Odhiambo said that of the 54% female employees, 19 are professionally qualified - in other words they are technical staff members. Senior management make up five and top management one and support staff being three making the subtotal 28. Agrément is a highly technical entity.
Mr Odhiambo said that in terms of what Agrément SA does, the Chairperson had mentioned in his opening remarks they are there to assess the products of the outlets, and the outlets listed in the presentation are the ones that received certificates last year. 27 certificates were given out. These outlets cover a wide range of different products from concrete to plastic that Agrément believes contribute to the whole country. The reason why people approach Agrément for assessment is because there is no national standard for that particular product. These outlets then use their products in construction by getting an approval from an independent technical team which Agrément forms part of. While Agrément is giving an independent assessment, the outlets are welcome to visit their spaces at the CSIR in Pretoria and the Eric Molobi Housing Innovation Hub in Soshanguve while doing their own oversight visits. One kind of the certificates that Agrément gives out was: Much Asphalt: GB 5 High Modules Asphalt certificate which is an interim certificate awarded to those products where after it is tested in the lab. Agrément does a three year field test to see how the product actually performs on the road and compares it to the lab tests because in the lab the product is being tested under ideal conditions and when tested under actual conditions, those two conditions may be different.
Agrément have a toilet system in Katlehong which Mr Odhiambo was very impressed with. Agrément also does energy, software and waste assessment which have tremendous benefits for the country.
In closing Mr Odhiambo said that Agrément will continue to play an important role and it appreciates being able to present to the Parliamentary Portfolio Committee and looks forward to the engagement.
The Chairperson said that she is thankful that Agrément was able to complete their presentation within the agreed time frame. She then invited the Honorable Members to raise questions, seek clarity or take just make comments.
Honorable Siwisa, said that she was still trying to get to grips with what the mandate of Agrément is and hoped that one day she will get it right. Of all the entities, the presentation by Agrément is always short, on point and it shows that the Board members understand what they are supposed to do.
Honorable Siwisa said that her question was about the products that Agrément SA has tested, in terms of how many are actually being used by the middle class society in South Africa, because they are the ones who should benefit.
Honorable Kopane said she wanted to find out what the working relationship is between Agrément and other entities in the DPW because in the previous presentation by IDT they mentioned all the other entities that they have worked with. Therefore it led her to question whether they are working with other entities in the Department?
The other concern, is that according to the AG, Agrément still provides contracts to bidders who did not score the highest points in the evaluation process. The question then becomes what they are doing to rectify the process because this is what AG is concerned about?
Honorable Kopane said that according to the Annual Report on page 73, with regards to the number of Board members, she was unable to get clarity because Agrément said that they have nine members but from the Annual Report she was only able to count seven. So she asked for Agrément to explain what the difference between the two is. Her other worry is regarding Ms Adelaide Ranaka and the fact that she had not seen anything about her remuneration in the 2018/19 financial year like other Board members. The question is what happened to her and is she still with Agrément.
With regards to the remuneration of Board members, in the 2017/18 financial year, at the bottom it is unclear if the amount is R7 941 and what was the total value of what was given. But looking at 2018/19, the figure jumped from R7 900 to R110 000. The request was to get clarity as to why there was such a big gap.
Honorable Thring said that during the presentation by Auditor General the day before it indicated some of the top non-compliance areas and Agrément falls within the category of non-compliance in at least two areas given by the Auditor General: Financial statements that are not submitted for audit or materially misdated; and Effective and appropriate steps were not taken to prevent irregular expenditure.
Honorable Thring asked for feedback from the Board in terms of what is being done to ensure that when the Committee sits with Auditor General again, they are not going to find that there is non-compliance in this particular area.
Honorable Thring said that he has the good fortune of also sitting on the Portfolio Committee for Trade and Industry and they have picked up challenges with the SA Bureaus of Standards (SABS) and the National Regulator for Compulsory Specifications (NRCS). The question he had is if there had been any effort to work together with the SABS and NRCS on matters of compatibility and areas of knowledge sharing and if Agrément had taken away some work from SABS and NRCS.
Responding to the issue that Honorable Siwisa has with understanding Agréments’ mandate, Dr Mahachi said in summary Agréments’ role is to satisfy non-standardised products. There was a slide in the presentation that he did not go through which shows the role of SABS and Agrément South Africa. The role of SABS is to develop some standards for materials where they know the material behaviour, what is usually referred to as conventional material so they actually know the performance of those materials. They end up developing a standard pertaining to that product. For example if they will be developing a standard for a brick, they will know the behavior of the brick and will add a standard for that brick.
Agrément on the other hand deals with a material whose behavior is unknown. It could be a new brick that is made up of materials that no one knows the behaviour of. It could be polystyrene which no one knows how it will behave in a developmental environment where it may be tested in a fire for example. Therefore there will be a new performance criteria for this brick. So there is quite a difference in functions between the SABS and Agrément. SABS has conventional standards and Agrément is about developing new standards for new materials.
The principle of certifying is similar, therefore there is a need to share that knowledge. In some cases the products might go to the SABS and get some tests to be done by the SABS and they can bring the products over to Agrément who can certify them. This will be another way of having a coalition.
Dr Mahachi said that he does not have an answer for the question about who uses the products and because he does not know, this can be an opportunity for Agrément to find out.
Agrément definitely has partnerships with other entities that they were working closely with last year and in other past years. Dr Mahachi said that Agrément had not had any partnership with the IDT. Taking what the Deputy Minister said, he asked if IDT can look into any collaborative work that they can do with Agrément even though they do not have any direct control because their clients may want to do things differently. But there is an opportunity for them to work together.
Focusing on the issue of Ms Adelaide Ranaka and the Board Members, Dr Mahachi said there were five Board Members in the last financial year and the nine make up the Board members in this financial year. In the last financial year, Agrément did not have an adequate number of Board members and Ms Adelaide Ranaka resigned in the last financial year. The next time Agrément meets it will be able to say what their strategy is around marketing.
Mr Somanje commented that the Auditor General said that the financial statements that were submitted, contained errors that needed to be corrected. Mr Somanje said that they will improve on this. What was indicated in the organisational structure is that the finance department currently is manned by one person. So in terms of improving the accounting control and the quality of the audit they will prioritse it so that whenever they prepare the financial statements they should be ready for audit without any changes or mistakes as reported. In the audit action plan, Agrément indicated that working on this concern will be a continuous thing. It will be reported monthly as to how many transactions were considered.
Members also raised the issue that in the previous financial year 2017/18 and in 2018/19 the Chairperson of the audit and risk committee was not a Board member. At first when he was appointed he only attended a few meetings but currently it is under consideration. There have been meetings to try and address some of the issues that have been raised by the Auditor General.
The Chairperson said that they always appreciate Agrément South Africa as one of the entities that is performing so well within the Department. There are some products that Agrément has certified and the Committee would like to see in the future Agrément SA certifying products maybe for the Department of Human Settlements. Knowing that Agrément is an entity within the Department of Public Works and Infrastructure, in future the Committee would like to see Agrément SA recommending products to be used by IDT, not just certifying only. She said that the Committee appreciates what they are doing, but they would like to see their products being used by the Department as this will be a serious achievement.
The meeting was adjourned.