DoHS, NHFC, Nurcha & RHLF 2018/19 Annual Reports, with AGSA & DPME input

Human Settlements, Water and Sanitation

10 October 2019
Chairperson: Ms R Semenya (ANC)
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Meeting Summary

Annual Reports 2018/2019

The Auditor-General of SA reported that the Department of Human Settlements (DoHS) received an unqualified opinion throughout the medium-term strategic framework (MTSF), with findings on reported performance against predetermined objectives. The Department also had material noncompliance findings between 2014/15 and 2016/17, with its annual financial statement (AFS) having material misstatements.

The Community Schemes Ombud Service (CSOS) audit outcomes regressed during the five-year period as the entity moved from unqualified with findings in 2014/15 to adverse in 2018/19. CSOS incurred a total of R41 734 000 irregular expenditure due to noncompliance with procurement process requirements.

The National Home Builders Registration Council (NHBRC) improved from a qualified opinion to an unqualified with noncompliance findings. In terms of irregular expenditure, NHBRC incurred a total of R6 400 588, of which R2 499 180 was due to procurement without competitive bidding or a quotation process. The other R3 901 408 was due to noncompliance with legislation on contracts.

For the Estate Agency Affairs Board (EAAB), the AGSA did not have adequate systems to record payments for goods and services received in order to ensure that commitment balance was reliably measured. The reported performance was not consistent or complete when compared with planned performance measures. The EAAB incurred R2 265 340 in irregular expenditure as a result of noncompliance with procurement legislation.

There were findings on the grant utilisations by the HSDG; a total of R18.3bn was transferred to provinces and spending related to that was R18.1bn – equating to 98% of the total available funds. For the USDG, the available funds of the grant were R11.4bn. As at 31 March 2019, R11.3bn was transferred to municipalities, which in turn spent a total of R4.9bn; this was about 43.5% of the total available funds.

The Department of Planning, Monitoring and Evaluation (DPME) indicated that a total of 669 695 informal settlement households were upgraded and this was 89.3% of the MTSF target of 750 000. However, there was a significant decline in the number of sites serviced; the cost for servicing stands had been rising sharply. The servicing budget was not changed, hence a substantially lower number of stands serviced for the same amount of money.

Of the 448 022 houses delivered, only 101 180 title deeds were issued; adding to the already large backlog of 346 842. Of the 818 262 title deeds backlog, just 306 510 were transferred (37.5%). This meant that over 1.2 million individuals that received subsidised housing were not registered owners. An intervention strategy was put in place to address the backlog and fast-track the issuing of title deeds through a National Project Office and the new Title Deed Restoration Grant disbursed to provinces. This was yet to yield significant results. The major constraint appeared to be the inefficiency and slow processing of town planning and township establishment by municipalities, which could take up to 18 months to finalise.
The Chairperson noted that the AG indicated that it interacted with departments and their issues were raised on a quarterly basis. It would be helpful in the quarterly engagements if the departments had all the quarterly information available to ensure that oversight was effective.

The Department of Human Settlements, Water and Sanitation (DoHS) achieved 83% of its targets and the non-achieved targets were still work-in-progress. It received an unqualified audit opinion. Serious interventions were recommended by the AG on the Information Technology used and the quality of the submitted performance information. Management took steps to ensure that corrective measures were implemented as recommended by the AG.

Some of the challenges reported included: incomplete and incorrect submission of funds requested by provinces and Metropolitans; misinterpretation of grant frameworks by provinces and Metros; resistance by community members for erection of temporary shelters and temporary relocation; disputes about beneficiary verification; delays with procurement processes, amongst others.

On the grant that deals with title deeds, the DoHS started just over R550 million and it was transferred to provinces; the Department spent R342 million of that amount and requested a roll-over of the excess not spent to address the backlog of title deeds. The MINMEC suggested that as the property was transferred, the Department must ensure that the property was safe and suitable for occupancy and that the title deeds were immediately transferred.

The Members that in its new Public Audit Amendment Act a certificate of debt would be matters where material irregularity took place with no action taken by the Accounting Officer or Authority. Why should the Members believe that process would be fully implemented in the Department considering the repetitive pattern of misappropriation of funds?

In the report, the Department seemed to be satisfied with the delivery of the houses but according to the AG’s report, there was no value for the money. The houses that were built by the contractors were of poor quality while the Department claimed to have done oversight. During oversight, did the Department not pick that up? If it did, what was done to ensure that quality houses were built? Also, why did the Department fail to implement consequence management because that expenditure would be fruitless and wasteful?

On its audit outcomes, the National Housing Finance Corporation (NHFC) received an unqualified audit opinion with findings. Key areas of improvement were in the Supply Chain Management and the R2.95 million of irregular expenditure which was identified in the previous year, although in the current year it was R285 775 due to noncompliance; there was, however, no loss of damage to the entity. Management had put plans in place to ensure that internal controls were strengthened. The assets appreciated considerably from R3.5 billion to R4.5 billion due to the merger.

The Members said that the CFO should develop an action plan that would address the issues raised by the AG instead of arguing and disagreeing with the AG. The NHFC should just acknowledge the AG’s report and ensure that the same mistakes would not be repeated in the next financial year.

 

Meeting report

Briefing by the AG on BRRR and 2018/19 audit outcomes of the Human Settlement Portfolio
Mr Londoloza Songwevu, Senior Manager, AGSA, highlighted the audit outcomes of the portfolio over five years. He reported that the Department of Human Settlements (DoHS) received an unqualified opinion throughout the medium-term strategic framework (MTSF), with findings on reported performance against predetermined objectives. The Department also had material noncompliance findings between 2014/15 and 2016/17, with its annual financial statement (AFS) having material misstatements.

The Community Schemes Ombud Service (CSOS) audit outcomes regressed during the five-year period as the entity moved from unqualified with findings in 2014/15 to adverse in 2018/19. The outcome stagnated during the last two years with an adverse opinion with findings on reported performance against predetermined objectives and compliance with laws and regulations. CSOS incurred a total of R41 734 000 irregular expenditure due to noncompliance with procurement process requirements. It remained a challenge for the AGSA to determine the total number of community schemes in South Africa as defined by the Community Schemes Ombud Service Act; AGSA entity thus could not reliably collect all due levies and needed to develop a complete database and implement a credible revenue management system that would allow it to collect all levies from all liable schemes.

The National Home Builders Registration Council (NHBRC) improved from a qualified opinion to an unqualified with noncompliance findings. The National Housing Finance Corporation (NHFC) was previously audited by Nkonki and Associates Consulting and was taken back by AGSA in FY2017/18. The audit outcome remained unqualified with findings on reported performance against predetermined objectives and compliance with laws and regulations. In terms of irregular expenditure, NHBRC incurred a total of R6 400 588, of which R2 499 180 was due to procurement without competitive bidding or a quotation process. The other R3 901 408 was due to noncompliance with legislation on contracts.

The Estate Agency Affairs Board (EAAB) was previously audited by Ngubane & Co. and was taken back by AGSA in FY2018/19. The audit outcome remained qualified with findings on reported performance against predetermined objectives and compliance with laws and regulations. For the EAAB, the AGSA did not have adequate systems to record payments for goods and services received in order to ensure that commitment balance was reliably measured. The reported performance against predetermined objectives of the AGSA was not useful and reliable – it was not consistent or complete when compared with planned performance measures. The EAAB incurred R2 265 340 in irregular expenditure as a result of noncompliance with procurement legislation.

As for the Department, NHBRC and NHFC, the reported performance against predetermined objectives of the department and entities were not well defined and therefore not verifiable. The Department did not exercise adequate oversight regarding the reliability of reported performance against predetermined objectives.

Top four non-compliance areas included:
• Management of procurement and contracts (NHBRC)
• Quality of financial statements (NHBRC, CSOS, EAAB and NHFC)
• Prevention of irregular and fruitless and wasteful expenditure (NHBRC, CSOS and EAAB).
• Effective and appropriate steps to collect all revenue due from Levies (CSOS)

There were findings on the grant utilisations by the HSDG; a total of R18.3bn was transferred to provinces and spending related to that was R18.1bn – equating to 98% of the total available funds. For the USDG, the available funds of the grant were R11.4bn. As at 31 March 2019, R11.3bn was transferred to municipalities, which in turn spent a total of R4.9bn; this was about 43.5% of the total available funds.

There were also poor quality issues identified in the current year in some of the units delivered. Across projects visited in all nine provinces, on the final stages of the houses there were deficiencies such as the roof tiles around the edges being inadequately aligned with risk of rainwater ingress; lack of mortar between bricks and leaking toilet connections, amongst others.

Briefing by the Department of Planning, Monitoring and Evaluation (DPME)
Mr Hassen Mohamed, Deputy Director-General: Outcomes Monitoring and Evaluation, DPME, reported on the 2014-19 MTSF performance of the Human Settlements portfolio on subsidised housing. The initial five-year target for subsidy houses delivered was 563 000. This was brought down to 452 650 from 2017/18 due to budget cuts. By the end of the MTSF period, 448 022 subsidy houses were delivered, achieving 98.9% of the lowered target; the total shortfall was 4 628 housing units (1.1%).
A total of 669 695 informal settlement households were upgraded and this was 89.3% of the MTSF target of 750 000. However, there was a significant decline in the number of sites serviced; the cost for servicing stands had been rising sharply. The servicing budget was not changed, hence a substantially lower number of stands serviced for the same amount of money.
Of the 448 022 houses delivered, only 101 180 title deeds were issued; adding to the already large backlog of 346 842. Of the 818 262 title deeds backlog, just 306 510 were transferred (37.5%). This meant that over 1.2 million individuals that received subsidised housing were not registered owners. An intervention strategy was put in place to address the backlog and fast-track the issuing of title deeds through a National Project Office and the new Title Deed Restoration Grant disbursed to provinces. This was yet to yield significant results.
Performance for land acquisition and release was 19 962.2 hectares (ha) against the 10 000ha targeted by the MTSF; but only 2 241.7ha (22.4%) was rezoned for development.
The major constraint appeared to be the inefficiency and slow processing of town planning and township establishment by municipalities, which could take up to 18 months to finalise. The Finance Linked Subsidy Programme (FLISP) reached 9 762 of the 70 000 MTSF target (13.9%) for the delivery of new units. The revision of the FLISP programme by increasing the maximum income target market from R15 000 to R22 000 was intended to increase the number of mortgages likely to be approved in the future. Heavy indebtedness of the target income group remained a challenge.
Discussion
Ms N Sihlwayi (ANC) asked the Monitoring and Evaluation team whether it had a programme that detected financial challenges and ensured that the Department was able to reach a clear programme.

The Chairperson said that the NDP provided mandates for departments; as the DPME assesses them, is it able to assist and intervene at the planning level if a department lacked enough funding to realise its objectives which are aligned to the NDP?  The programmes implemented by department are meant to reduce inequality and other socio-economic issues; so in DPME’s assessments, is it able to check whether the Department was in the right direction?

The Chairperson noted that the AG indicated that it interacted with departments and their issues were raised on a quarterly basis. It would be helpful in the quarterly engagements if the departments had all the quarterly information available to ensure that oversight was effective.

From the private auditors these entities would be getting clean audits but now that they are being audited by the AG a lot of issues were coming up. What systems do these firms use? Why are the systems not automatically in sync?

It would assist Members if the DPME commented on its relationship with the National Treasury.

Responses
Mr Mohamed said that there was demarcation in human settlements where future housing development would take place and it would not be in areas where the poor were sent to the periphery. The Department of Public Works and Infrastructure (DPWI) had started with the process of acquiring 16 000ha of state land that was in well located places; that would include municipal land. These two big initiatives would ensure which housing development that took place would not marginalise the people. Planning processes were slow at the municipal level and SALGA was approached to address this. It was not only influencing housing but also business and investment. In big cities, many investment opportunities had been lost.

The Department and municipality failed to deliver about 2000 houses, but he was uncertain where the shortfall came from. Overall, 99% of the targets were achieved for the delivery of houses.

Mr Mohamed explained that financial performance was overseen by National Treasury and the financials were reported quarterly. The Department of Planning, Monitoring and Evaluation was responsible for monitoring the results. Previously it was monitoring inputs but that was revised because it was an inadequate exercise.

The discrepancy in financial performance would be picked up by Treasury. On a quarterly basis, AGSA would conduct reviews to assess whether the departments were meeting the targets, then report to Cabinet and make recommendations on how the performance gaps could be fixed.

The Department received R32 billion from the fiscus and the audit showed that the money was used well. The Department did not get a clean audit due to compliance to legislation and the Constitution. It failed on the performance information area. The Department was, however, progressing well and that needs to be acknowledged. Under the review of the MTSF, the AG realised that there was a misalignment between annual performance planning and strategic planning. The decision made in Cabinet was that the departments would submit their annual performance plans (APPs) and Strategic Plans on time in order to assess whether the departments would be able to meet their MTSF targets.

The #FeesMustFall uprising was a government issue and about R52 billion was needed for that campaign; the National Treasury needed to come up with ways to provide it. The human settlements portfolio forewent about R10bn of its budget and the targets thus had to be reduced. Therefore, the Department cannot be held to account on the reduction of the targets as its resources were reduced significantly.

The Department was identifying cases and they were being investigated. It identified cases pertaining to the misallocation of the RDP houses – there was a criterion to ensure that the houses were not given to the wrong people. But when that happened it was picked up. Even when there were several irregularities, they would be fully picked up when the reporting took place.

The targets were assessed to check whether they can be funded through the baseline but if that cannot be done measures would be taken to ensure that new funding would be sought.

The AGSA was requested by the Standing Committee on Appropriations to combine the Treasury quarterly financial report with the Department’s one and submit it so that the Committee would be able to see the full picture. The Minister was now signing off on that request to confirm that would be the arrangement going forward. These reports would be used to compile the parliamentary reports.

Mr Songwevu spoke on the renewal of the mandate and whether it has implemented it or not. The approach that was taken was a phase-in approach which entailed selecting certain audits but unfortunately none of the audits in the human settlement sector were selected for it. For the next financial year, it would be implemented across all the departments and audits.

The only area in the sector where it was implemented was in the Free State province. That audit has not yet been completed. Once that audit has been finalised, we will be able to assess the impact.

Penalising the department if it failed to meet targets would be beyond the AGSA’s mandate because this required oversight. The AGSA were not responsible for providing oversight but enabled those that were responsible for it. Even with the expended mandate, the PAA would not allow the entity to do so.

Mr Songwevu noted the comment on CSOS management but the issue that the AG identified was around the finance department. The recurring problems were in the finance division – no one was held accountable, including the Acting CFO. So, it became difficult to come up with a plan without the input of the finance department on the levies that were not collected.

Initially, when the AG identified material irregularity, it would provide a recommendation on addressing it; failure to do so the remedial action would then be binding. It was only at the point of failure to implement the remedial action that a certificate of debt would be issued by the AG. This was one of the powers that the PAA now gave the AG, but this was not retrospective. The PFMA referred to the Accounting Officer and the Accounting Authority. Workshops with all the Accounting Officers and Authorities were held to explain the implications of the new amendments.

On policy to comply with the Constitution and the citizens’ rights to housing, the AG would look at all the Acts that were applicable to the auditee as part of the planning process of the audit. The AG would assess the auditee’s mandate in line with the applicable legal prescripts and whether it complied. From a performance point of view, the AG provided assurance in line with legislation relevant to the auditee.

Lastly, audits differed when they were taken by the AG and there was no change in the system or the auditing processes when the audits were transferred to the AG from the private firms. What normally happened was that the regression came from performance information and compliance. The Office of AG were more like experts on the performance information when it came to auditing the departments and some of the private sector firms may not have the expertise in those areas. There were processes to bridge that gap when the private firms audit the Department on behalf of the AG.  

2018/19 Annual Report: Briefing by Department of Human Settlements, Water and Sanitation
Mr Mbulelo Tshangana, Director-General (DG), DoHS, said that the report was presented in context to the increasing demand of housing and the fast-growing urbanisation.

On governance and administration, the Department complied with 75% of the statutory requirements. However, it did not comply with the 30 days payment of invoices. Out of the total of 4 711 invoices, only 34 invoices were paid outside the turnaround time of 30 days. The Department also did not comply with the submission of compliance documents to the DPSA by its Human Resources department.

The consolidation of the human settlement configuration was still work-in-progress but it would hopefully be finalised by the end of this financial year.

On monitoring and delivery support, the Department reported that 46 730 sites were serviced, while 77 346 houses or units were provided. Therefore, 124 076 families were housed in the year under review. A total of 1 014 community residential units were built and 230 military veterans were housed.

On the grant that deals with title deeds, the DoHS started just over R550 million and it was transferred to provinces; the Department spent R342 million of that amount and requested a roll-over of the excess not spent to address the backlog of title deeds. The Department was slowly addressing the backlog of title deeds. The grant was sought to be extended because it was a limited grant but the MINMEC suggested that as the property was transferred, the Department must ensure that the property was safe and suitable for occupancy and that the title deeds were immediately transferred.

On the housing finance, the Department conducted assessments on the lending and discriminatory patterns of financial institutions during the financial year. The Department did not achieve the planned 30% allocation of the HSDG and the USDG construction budget to designated groups as per the regulations. Only 19% allocation was achieved on the HSDG and 15% on the USDG construction budget.

The Department only achieved 83% of its targets and the non-achieved targets were still work-in-progress.

For the PEHG (non-financial), the Department approved R121 million which was granted to the Mpumalanga province for the provision of 1 877 temporary shelters, following a severe thunderstorm which damaged houses. To date the province reported to have spent R72.2 million of that money.

In Western Cape, on 26 October 2018, a fire disaster occurred in Kosovo Informal Settlement in Philippi and on the same date another fire disaster destroyed informal settlement structures of Silvertown in Khayelitsha. Approval was granted to the province for the provision of 1300 temporary shelters costing R83.8 million in those areas.

Some of the challenges reported included: incomplete and incorrect submission of funds requested by provinces and Metropolitans; misinterpretation of grant frameworks by provinces and Metros; resistance by community members for erection of temporary shelters and temporary relocation; disputes about beneficiary verification; delays with procurement processes, amongst others.

The Department received an unqualified audit opinion. Serious interventions were recommended by the AG on the Information Technology used and the quality of the submitted performance information. Management took steps to ensure that corrective measures were implemented as recommended by the AG.

Discussion
Mr M Mashego (ANC) asked about the importance of the NHRC.  In the earlier discussion, Members were told that the Department fraudulently granted scholarships to students, but the Department presented that as an achievement. The Planning and Monitoring team believed that the Department acted fraudulently in granting those scholarships. He asked the Department to account on this issue.

Mr Mashego sought information on the matter of misallocation of houses because the Department seemed to be claiming achievement and victory on this. The misallocation brought illegal occupants into the houses.

He wanted to know about the difficulty faced by the Department in tracking its money to its entities. There were large amounts of monies that were still being misappropriated.

AG informed Members that in its new Public Audit Amendment Act, a certificate of debt would be matters where material irregularity took place with no action taken by the Accounting Officer or Authority. Why should the Members believe that process would be fully implemented in the Department considering the repetitive pattern of misappropriation of funds?

Ms S Mokgotho (EFF) commented on the compensation of employees and said that there were funds that were budgeted for filling vacant posts, but the funds were not fully utilised. As a result, CSOS had a qualified audit opinion because key executive positions were not filled. She asked what plans were put in place to rectify the qualified opinion. She was not satisfied that some of the key positions were not yet advertised, even on the audit report.

In the report, the Department seemed to be satisfied with the delivery of the houses but according to the AG’s report, there was no value for the money. The houses that were built by the contractors were of poor quality while the Department claimed to have done oversight. During oversight, did the Department not pick that up? If it did, what was done to ensure that quality houses were built? Also, why did the Department fail to implement consequence management because that expenditure would be fruitless and wasteful?

One of the factors that led to CSOS receiving a qualified opinion was poor contract management. Clearly there was substantial fruitless and wasteful expenditure incurred. She asked the Department to comment on that.

On the audit report it was mentioned that there were significant delays on the delivery of the units and houses. Why did the Department allow that to happen? Did the Department of Monitoring and Evaluation not report these issues to the DoHS? If so, why did the DoHS not do anything about it? Officials that oversaw the projects squandered people’s money and the irregular expenditure reported by AG was R41 million. What did the Department do about this? Will there be any consequences?

Ms M Mohlala (EFF) said that the construction sector rigs of a lot of issues relating to tenders and corruption. She sought some clarity on whether the Department was communicating with other relevant structures and departments to engage the construction sector. Secondly, how effective are the early warning measures to assess risks at the early stage? Is the staff capacitated to carry out its duties? She asked the Department to provide any information related to bonuses that were paid during the year.

Ms N Sihlwayi (ANC) said that it was very clear that the Department was handicapped by legislation that was still outstanding. As such, entities remained obliterated from discharging their duties as an extension of the Department’s mandate. However, the AG would then audit the Department and it would be the Department that would take the fall for the failure of delivery of the units.  

The presentation indicated that there were mining towns that were more distressed than others; what did the Department mean by this? The Acting DG also mentioned community residential properties; was this referring to hostels?

There is a programme of military veterans and this is an important programme. Is the Department building for the soldiers or their families? She also wanted to know whether the Department was working with the Department of Military Veterans to ensure that there were no controversies around the building of the houses.

She suggested that the Department take up the Social Class Programme because municipalities were clearly failing on implementing this programme.

On emergency housing, the Department should outline the strategy on turning the process around. In addition, the department should develop a strategy on the delays in procurement on how it intends to deal with the issue.

Mr M Tseki (ANC) said that irregular was not equivalent to fruitless. However, he hoped that the Department would act on AG’s recommendations and Department of Monitoring and Evaluation.

The AG mentioned that the Department almost achieved a clean audit but it was the entities that hindered it. Despite this, the Department showed improvement from the previous year. He asked the Department to provide the audit outcomes of provinces if those were available. Perhaps the Committee could invite two Metros to come and report on how the USDG grant was spent.

The Chairperson commented on women contractors’ targets and whether they were achieved even though some of the programmes were not delivered by the Department but by the implementing agents. The burden would continue being on the Department if the entities and implementing agents were not performing. The Department must then ensure that it exercised its monitoring role effectively over its entities.

The business model also did not translate to the APP. This was flagged as a concern by the AG and the Department needed to investigate it.

The Chairperson welcomed the signing of the Property Practitioners Act and the Department should come back and present the regulations.

Responses
Mr Tshangana said that management was happy to rectify the issues that were outlined by the AG. The DG was not always present when the Heads of Departments (HODs) or the Members of the Executive Council (MECs) made decisions on reprioritising projects. The Office of the DG would only find out after the effect. The power to approve the beneficiary for the house lied with the MECs.

The NHBRC existed as the agent and it provided warranties for the houses that were built. The Department currently sat with a challenge that the agent was mandated to deal with. Every house that was built had to be inspected in phases until it was finished. When that did not happen, poor quality houses were delivered. The policy was clear that in correcting those gaps the Department had to sign with the NHBRC to confirm whether the projects were enrolled. If they were not enrolled, there must be assurance that they would be enrolled in that specific year. The way the Department read the DPME report was by analysing its report and then indicating that fraudulent things were detected and would be investigated. Out of that investigation, there were trends of misappropriation and misallocation. The Department was aware of those concerns and it investigated them; corrective measures were currently being devised to ensure that they were addressed.

The Department did not give funds to the #FeesMustFall Campaign; there was a general budget cut for all departments and it was approved by Cabinet. He assured Members that there were rigorous monitoring measures in place. Unfortunately, the onus of spending the money lied with the provinces and the municipalities. For example, there were floods in Durban and the National Department did everything it could to assist the municipality; about R90 million was transferred to the municipality to provide aid and, consequently, temporary houses to the victims of the floods. The municipality struggled to implement and it was only in the previous week, when the DG was there, that the municipality started working.

He said that the Department would come back to the Committee on the remodelling matters.

While some people would appreciate the reasons to be relocated, others may not. People were often resistant to relocate to certain areas because they were usually attached to the spaces they resided in. Whenever there was resistance there would be delays.

The MEC’s approval of the beneficiaries had to be published; this was a decision taken by MINMEC.

He then confirmed that the distinction must be made in that where the Department under-spent and did not fill positions, there was a process underway. In the previous era the outer year of the compensation budget was constrained because the fiscus was not performing well. Department vacancies could not be filled on a permanent basis but Treasury had now agreed to provide the funding and all critical vacancies in the Department would be filled.

On staff competence he said that the team satisfactorily got the job done although it was not perfect. He verified that the CEO and CFO posts for CSOS were, indeed, vacant. Those two posts were critical but the Interim appointments were in place and the Department was supporting CSOS.

He agreed with the AG’s findings and said that the houses that were built the department made a resolution to go to the province and instruct to remove the beneficiaries from the houses because they were not safe. But enrolments and inspections measures were being strengthened to ensure that these matters were dealt with.

The delays were in nature inevitable but the Department was strengthening its measures to ensure that delays were mitigated.

Inter-governmental failure was common in most of the projects but the reality was that you could not overlook the authority of the municipality and run the services. Some projects suffered because of the lack of agreement between the municipality and the province.

The tender system was reviewed and it was now commissioning the design of the procurement regime, especially for subsidy housing. The Department thought that this issue was dealt with based on the price but that was not the case.

The internal audit was active and the internal audit committee was satisfied. The risks that the AG raised were already in the risk register of the Department and the audit function was working on reducing these risks.

The matter about the military veterans should be closed and that number should not be growing. The difficulty was identifying the beneficiaries because the Department was incompetent in identifying the military vets; therefore, it was important to strengthen the relationship with that department and close that gap. He noted that he was not satisfied with the level of performance but in some instances, it was issues that were beyond the Department’s control.

There was increasing lawlessness and elements of criminality – people were forcefully entering a construction site, threatening the contractor and then forcefully occupying the houses. He pleaded with the Committee to not lose sight of that. Projects got hijacked and land invaded in some areas.

There were a fair number of people that were approved for receiving a house but sometimes the house that they should be receiving were occupied by other people. This needed to be addressed and investigated thoroughly. The Minister would, after approving the beneficiaries, publish the list and the houses that were allocated to the beneficiaries. A biometric system was introduced in Gauteng but the problem was that Gauteng wanted to build that system using an incorrect grant.

He agreed with the Committee about strengthening the Department’s monitoring function. If the province failed to comply, the Department should be allowed to refuse transferring the funds to the province. The Premiers of the provinces should be alerted on these matters so that they were aware of the noncompliance of provinces and the Department’s subsequent refusal to transfer the funds and grants.

The Acting CFO noted the comments on audit opinion. Management took a decision which was implemented last year to strengthen internal controls. Part of that decision included a strategy in the internal audit function to ensure that provinces would be visited by evaluation and monitoring teams. Three teams were dispensed in the year under review and yet to provide feedback on its discoveries.

Every year when the audit function implemented the AG’s recommendations, the internal controls would be reviewed to ensure that they were in line and positioned to deliver on the expectations of the AG’s recommendations.

On the 30 days payment, while the Department sook to meet zero percent, in the previous year there were about 200 invoices that could not be paid due to various circumstantial issues. Controls were now being put in place every day as the teams realised that the current internal controls were not effective.

On fruitless and wasteful expenditure, whatever the AG found to be a matter of emphasis on irregular and fruitless expenditure, the Department ensured that it was taken into cognisance and investigated the nature of the expenditure.

Mr Ndemo confirmed that there were performance bonuses that were paid to about 73% of the staff members. The total amount was R4.9 million, which was within the 1.5% of compensation of employees.

He said that the Department had already started working on the regulations with the AAEB. The scholarship programme was ear-marked to close the gap on the provincial level; this was done with the province. The Department could provide a detailed analysis of how the process would unfold.

The Acting DG said, in conclusion, that the scholarships were advertised and due processes were always followed.

He confirmed that the Department was on track but the terrain was not levelled. There were severe difficulties in the sector but there was progress.

2018/19 Annual Report: Briefing by the National Housing Finance Corporation
Mr Samson Moraba, Chief Executive Officer at NHFC, took Members through the presentation and provided an overview of the entity; said it was classified as a state-owned Development Finance Institution (DFI).

On programme two, there was a funding of R1 billion that was used to build 2 783 housing units. Transformation in this sector was vital to the entity to ensure that opportunities were created for small entrepreneurs and funding was made available for the acquisition of property and building construction and development.

The assets appreciated considerably from R3.5 billion to R4.5 billion due to the merger.

On its audit outcomes, the entity received an unqualified audit opinion with findings. There was irregular expenditure that was identified. Management was still engaging with the AG on the changes that had occurred after the 31 May 2019. The AG qualified the entity on the performance report because the entity added the whole year in the APP instead of just the six months. So, the APP numbers were not useful and comparable to the previous years. Key areas of improvement were in the Supply Chain Management and the R2.95 million of irregular expenditure which was identified in the previous year, although in the current year it was R285 775 due to noncompliance; there was, however, no loss of damage to the entity. Management had put plans in place to ensure that internal controls were strengthened.

The entity received a Human Resources Award based on its consolidated Human Resources component. As the entity merged with two other entities, it was assessed based on its consolidation whether its Human Resources function would not be affected. The award also meant that it was the employer of choice in the year under review.

Towards the Human Settlements Development Bank, the current business model was being reviewed and the legislation (for HSDB) was nearing finalisation.

Discussion
Ms Mokgotho commended the entity for being proactive in its mandate and advised that the people that were renting should be subjected to signing contracts so that they were legally accountable to any non-payments, before occupying the houses.

Mr Tseki was satisfied with the performance of the NHFC and encouraged the entity to keep up the good work. He wanted to know whether institutions such as the SA National Lottery provided any funding to these DFIs.

He sought clarity on the provision of loans to pensioners and wanted to know how much interest rate was charged to pensioners.

Ms N Mvana (ANC) wanted to know about the salary range which the entity granted loans to people.

Ms L Arries (EFF) wanted to know whether young people entering the labour market for the first time, who did not have dependents, were eligible for the housing loans offered by the entity.

Mr Mashego was concerned about the composition of the Board because it consisted of ten members, with eight males and just two females. After the amalgamation, what happened to the CEOs and CFOs or the previous executives of the other two entities? He asked about the challenges faced on the amalgamation of the entities.

Mr Mashego noted that the entity claimed to disagree with the AG on its audit outcome. It was worrisome that the entity failed to level itself to the AG’s expectations.

Ms Mohlala wanted to know whether the NHFC would ensure that it adhered to regulations on unsecured lending and illegal legal.

The Chairperson concurred with Mr Mashego on his sentiments about the entity’s stance on disagreeing with the AG. Often when these development banks were established, the interest rate did not translate to the development aspect. For example, the Land Bank – it repossessed small-scale farmers that had not been able to pay the credit. The CFO should develop an action plan that would address the issues raised by the AG instead of arguing and disagreeing with the AG. The NHFC should just acknowledge the AG’s report and ensure that the same mistakes would not be repeated in the next financial year.

Ms Mvana asked about the loans granted to pensioners and for the details on the process followed.

Responses
Mr Moraba said that there were three females in the Board, with two vacancies which would be filled soon but those two vacancies were meant for women.

He confirmed that the Members were taken from other entities to become part of the Board and they were appointed by the Minister, hence the Minister directed on how the process should unfold.

On the consolidation of the entities, he said that the merger had been a process and it started in 2016. There were a lot of engagements that took place with all the entities that were involved and there was also a business case for Human Settlements Development Bank. The NHFC aligned all roles and responsibilities of Executives and some of the Executives would assume their roles in the Development Bank. The structures would reflect what the future would look like for the bank.

The NHFC did nurture SMMEs, start-ups and contractor-developer level; hence, there was a Contractor Finance Development Programme to provide assistance instead of just investing money in them.

The NHFC was not rebelling against the mandatory role of the AG but was arguing on the basis on the interpretation of financial instruments that were used in the entity. The entity suggested that the AG should think about how these instruments were used and the goal thereof.

Mr Bruce Gordon, Acting Chief Financial Officer, said that the National Lottery did not fund state-owned enterprises. On the irregular expenditure, processes and plans were put in place and the current year would be the last year it would be reflected in the books.

The granting of loans to pensioners was legal. The Act stated that loan repayments should not be deducted but funeral insurance could be. The previous Committee suggested that the entity should lend to pensioners and the Department could pay those back out of the BNG funds; but this was not implemented.

The maximum interest charge on unsecured loans was 34% for housing but for regular expenditure the maximum was 28%. When the entity lent to people that would lend to pensioners, it always ensured that it give them a discount. This was still risky and did not yield maximum profits but the profits received were reasonable. The minimum salary required for someone to borrow was R8000 and the maximum was R22 000 per month. One did not have to have dependence to borrow.

The entity issued most of its loans to women but a detailed report of the loan spread, in terms of demographics, would be submitted to the Committee.

The Chairperson thanked the Members and the entity for attending the meeting. He informed the delegation that the Members appreciated the work that it was doing.

The meeting was adjourned.
 

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