The Minister acknowledged that the consecutive clean audits achieved by the Department of Human Settlements (DHS) were indicative of its governance strength and adherence to audit guidelines. The results had been delivered despite the Department operating with a reduced staff complement, as not all salaries had been covered by the provincial equitable share budget.
Innovative measures had been introduced to address budget cuts and to mitigate losses. The duration of projects was extended to ensure that funds were not wasted on projects that were already implemented. A team of senior officials had formed a stakeholder engagement team to address problems of instability on sites before projects were implemented.
Land invasions posed a huge risk to service delivery and to the stability of communities. Property payments had increased significantly over the past financial period, as large amounts were spent to secure building sites.
The erosion of mandates was of concern to the Department, and the Committee was asked to investigate the work of other departments that impacted on the DHS’s mandate.
The Chairperson of the Standing Committee on Public Accounts (SCOPA) welcomed the Minister, the officials who accompanied the Minister, and all other persons present at the meeting. The purpose of meeting was to discuss the annual report of the Department of Human Settlements (DHS), in conjunction with the Auditor-General’s (AG’s) report, as well as the report of the audit committee.
The discussion would focus on the topics of governance in Part C and financial information in Part E. The other sections of the report were dealt with in the various standing committee meetings.
Mr Tertius Simmers, Minister of the DHS, congratulated Mr Mvimbi on his appointment as the Chairperson of SCOPA.
Part C: Governance
The Minister said that the Department had achieved another consecutive clean audit, which spoke of its governance strength and adherence to guidelines from the perspective of the AG.
Mr Thando Mguli, Head of Department (HOD): DHS, said that the Department was fully functional, with a track record of good governance. It had met and exceeded housing targets, attended to title deed transfers which enabled security of tenure, all funds could be accounted for, and staff members were truly representative, competent and highly qualified.
Ms D Baartman (DA) asked whether members of the Enterprise Risk Management Committee (ERMCO) who had not attended all the meetings scheduled for the year under review, had submitted valid apologies. In regard to key emerging risks for the following year, which referred to the current year, she asked what ‘erosion of mandates’ meant. Treasury guidelines required all departments and provinces to cut budgets by between 5% and 7% over the next financial period, and she questioned whether budget constraints were not considered as one of the key emerging risks. How had budget cuts affected the Department?
The HOD replied that apologies were submitted from members who did not attend meetings. Too many meetings were scheduled for the same time, and members had found themselves over committed.
Mr Mguli said that budget cuts were regarded as an emerging risk. The Department did not intend to stop any project that was currently running, but were rather looking at solutions. Concerns had been highlighted when the Department made a presentation requesting an increase in the budget. Where budget cuts became too severe, the Department would extend the duration of projects, as too much was already committed in terms of resources and planning. Projects not yet started got deferred for a few months until the budget could be met. The Department also resolved to complete projects that were already implemented, rather than increase the pipeline and raise expectations. This was how the Department would navigate around the issue of a decrease in budgets.
The Minister explained that over the next two years, 90% of the entire budget was dependent on grants from the National Department. Mitigating measures were built into the system to provide for escalation of risks. Provincial Treasury had been flagged that this was a service delivery department, but the provincial equitable share did not cover its salaries. He expressed the hope that Provincial Treasury would address the matter.
Ms Baartman asked how much of the salaries were not covered, and pointed out that her question on the erosion of mandates was not yet answered.
Erosion of mandates
The HOD explained that erosion of mandate implied that people went beyond the brief. This had to do with the erosion of the human settlements mandate by other departments in the province which performed work closely related to the work of Human Settlements. He suggested that their money should be transferred to Human Settlements to do the work. He asked the Committee to look into the erosion of mandates by other departments, as every department had a specific mandate. Citizens that rebelled around housing-related matters knew only to go to the address of the Department of Human Settlements, and none of the other departments that had activities, programmes and funding. He emphasised the need to guard against erosion of mandates, particularly in times of financial scarcity.
Mr Francois de Wet, Chief Financial Officer (CFO): Management Support, said that the compensation of employees (COE) component of the provincial equitable budget was only R250 million. There was a shortfall of R80 million, as the equitable share budget also covered administrative costs for transport and communication. The R50 million of own revenue was derived from subsidies that were returned and properties that might have been sold. It was capital being utilised for current expenditure.
Ms N Nkondlo (ANC) said she was satisfied with the explanation by the HOD, but asked for a detailed report to be made available to SCOPA to indicate the level of erosion of mandates. She also requested more detail about the fraud and corruption cases including when the new cases were closed.
Fraud and corruption cases
Mr Melvin Stoffels, Director: Financial Management, responded that only two cases were closed. The first case involved a whistle blower who had implicated an official for assisting others to prepare for interviews. The official was advised to refrain from offering his help in future, but a disciplinary hearing was not held due to a lack of sufficient evidence. The matter was considered as being finalised.
The second case related to alleged procurement irregularities. An irregular expense of R3.2 million had been revealed in a forensic report. The finding related to a contractor that commenced work without a valid contract. The oversight error could have been due to the transition when the Department first had the People’s Housing Process (PHP). The Department had since introduced a revised approach that was aligned with procurement prescripts. Under the old PHP approach, contractors were contacted by support organisations and the Department had limited or no control of oversight of processes and expenditure, and had been open to fraud, corruption and collusion. This had changed under the new approach, where contractors needed to be contracted by the Department and subjected to various bid committees and governance compliance requirements. The Department recognised the administrative error in this case, but reported no financial loss. Houses were built according to specifications and in line with the approved subsidies. The Department was in the process of condoning this amount. If disciplinary action was needed, it would be actioned by the office of the Premier, but to date no correspondence had been received in this regard.
Ms Nkondlo asked whether the implicated official had assisted all contractors, and what the policy of the Department was in this case. It would not be a problem if it was standard practice to give advice, but the fact that the official had been asked not to do it again required an explanation.
The HOD explained that the matter did not relate to contractors. A senior official of the Department had given advice on how to prepare for an interview to other officials of a younger generation. A staff member had over-reacted and given the impression that something untoward was happening. The implicated official was actually busy with capacity building, but was advised not to do it again. This case had had the effect of a caring person being punished for helping younger civil servants to apply for a promotion. The case was closed.
Mr Stoffels replied that the other two cases were still work-in-progress, and would be finalised only once the forensic reports were received.
Ms Phila Mayisela, Chief Director: Human Settlement Implementation, said that there was nothing untoward about the outcome of the case. A panel of four members, including an official from the Department of the Premier as an observer, had overseen the case. The allegation of nepotism had not swayed the appointment.
People’s Housing Process (PHP)
The Chairperson asked for clarity about the PHP.
Mr Stoffels replied that support organisations were responsible for negotiating with contractors to build houses when the PHP approach was applicable. With the new approach, contractors needed to be on the framework and pass all governance requirements. An administrative error had resulted in the old contract still being in place when the new framework came into effect.
Capacity building of younger employees
Ms Baartman remarked that the first case had been very sad. She asked whether the person who had wanted to engage with the youth could be approached to take part in a formal programme to assist with developmental training and capacity building of younger employees. The programme could be introduced within the Department under management direction and supervision. This would be a better option, as based on his previous experience, this person might not want to assist in future.
The CFO agreed that it was a wonderful recommendation, and that it would be considered.
Mr D America (DA) referred the Committee to the aspects of Grant Expenditure Management and Construction Procurement that had been highlighted in the internal audit committee report. He referred to an earlier discussion about an irregular expenditure of over R3 million that was related to a contract that did not exist, but the money had been spent. He asked what could be done to strengthen oversight of grant disbursements, and to what extent recommendations of the internal audit committee were taken on board to strengthen internal controls.
Mr Stoffels replied that in terms of the Public Finance Management Act (PMFA), the Department was responsible for paying over the grants to municipalities. To monitor that the money was spent only on low cost housing, the municipalities had to submit a reconciliation on what was spent on a monthly basis. The Department had not adhered to time frames regarding the monitoring, but follow up was done. Inspectors were doing the work, but it was not formally documented, as required by internal audit. Training was subsequently done to ensure proper record keeping by inspectors.
He said that since 2014, the Department had acted as a transferring agent, but it was now an implementing institution. The Department had become less dependent on the targets of municipalities and were now in control of reaching targets independently, since the functions were aligned to the new approach. The Department operated with limited staff, but was still compliant. The process to have the new structure approved had been delayed due to financial constraints. Efforts were being made to align the accounting system with policies and regulations. Improvements were made to supply chain files. The completeness of the files was still of concern, but it was under control.
Mr America said that the Department would be held accountable, in terms of the Public Audit Act, if working papers were not complete, and thanked the officials for addressing the shortcomings.
Mr De Wet replied that managers signed off on working papers. The Department reported to the audit committee on a quarterly basis and valued the work of internal audit.
Mr Mguli said that the Department introduced best practice in construction procurement in the Western Cape. All staff, including in the back office as well as the engineers, had been trained on best practice in supply chain management (SCM). Most activities were compliant with the procurement regime. Every document was accompanied by a contract. He was concerned that the auditors had not spoken to everybody involved in the processes, and therefore had not obtained all documents.
Part E: Financial Information
Provision for exit gratuity
Mr Brett Herron (GP) asked for an explanation of the provision made for an exit gratuity for the Provincial Minister for two consecutive years.
Mr De Wet replied that the provision had been done by Alexander Forbes. He would get a response from them and provide it in writing to the Committee. In terms of Proclamation 48 of 2016, a relevant office bearer who exited the fund at, or as a consequence of, the 2019 elections would be entitled to a gratuity.
The Chairperson said that he had come across a similar issue previously at another meeting, and that it was standard practice.
Mr Herron asked whether it was a provision or a payment.
The CFO replied that it was only a provision, and that it would not be paid while the Minister was still employed in Parliament.
Ms Baartman congratulated the Department on its well documented notes. She asked for an explanation about the sale of tender documents. She questioned whether the sale of Airports Company South Africa (ACSA) land referred to the land next to the airport, or the land behind ACSA. She asked why losses of computers and equipment valued at R541 000 were under investigation, and what outcome was so far. Had the proceeds from the sale of ACSA land been given to Provincial Treasury or to Human Settlements? She asked for an explanation of the R1.2 million spent on photocopying machines, and why the Eastern Cape DHS owed money to the Department.
Mr De Wet replied that the ACSA land referred to the re-alignment of the landing strip. All funds go to the Provincial Revenue Fund and the Department then applies for utilisation through a Parliamentary process to ensure oversight. The money was ear-marked for Conradie Hospital. The site development was the contribution of the province to bulk development.
Sale of tender documents
The CFO explained that tender documents were sold for R250 per document. It was normal practice for contractors to pay for documents towards the recovery of costs.
Eastern Cape properties
He said the Department still had Western Cape housing board properties in the Eastern Cape. People from the Eastern Cape paid at post offices, and it was an administrative nightmare to recover the small amounts.
Mr De Wet said that government departments still used hard copies. The monthly payment of between R7 000 to R8 000 for photocopying machines included printing, scanning and replacement of cartridges.
Computer and equipment losses under investigation
Mr Stoffels said that differences between the asset register and the physical equipment could be as a result of assets being misplaced, stolen or lost. The amounts were temporarily transferred to losses while they were being investigated.
Mr D Mitchell (DA) asked why these investigations were not reflected under ‘Opening of Cases’ on p101.
The CFO replied that if officials were involved, cases would be handed to forensics for investigation. When the Department compared the asset register to the equipment on the floor and the goods were short, investigations were needed before action could be taken. He said that R183 000 of equipment had been recovered, and the Department followed processes to recover shortages.
Ms Nkondlo asked what type of conditional grants were being referred to, and the reasons for underspending of the funds. She asked for clarity about the Provincial Emergency Housing Grants, and what had contributed to the funds not being spent. She questioned the role of the Department of the Premier in the condonation of the irregular expenditure, and asked what disciplinary steps had been taken against the accounting officer. What was the nature of the settlement negotiations in the matter of Hawston Sea Farms versus the Premier and MEC of the Department, and by when it would be concluded? She wanted more information on why property payments had increased since the previous year, and asked for clarity about the R4.7 million in bad debts in respect of private enterprises that had not been recovered.
Underspending of Conditional Grants
The CFO replied that the unspent money that the Department transferred to municipalities. It was excess revenue from the Department that was appropriated in the adjustment budget in November 2018 but allocated to the municipalities in January 2019.
Emergency Housing Grants
The CFO explained that the emergency grant was a Schedule 6 grant in terms of the Division of Revenue Act (DORA) that came from the national Department of Human Settlements. The allocation was based on a business plan for a project in Khayelitsha, where a big fire had occurred. It had not been spent at the time when the report was compiled, as it was received late in March 2019. The Department was busy with the final procurement of contractors, and would soon hit the ground with the project.
Condonation of Irregular Expenditure
The CFO said that the irregular expenditure was not yet condoned. National Treasury had issued new guidelines and delegated condonation to the Provincial Treasury, which was busy setting up structures to deal with the matter. The Department had received e-mail confirmation that it would be done before the end of this financial year.
The CFO indicated that nothing needed to be done on the case that Mr Stoffels had described earlier. Steps were not needed for the R7 000 that was condoned by the accounting officer. It was related to non-adherence to local content requirements when a steel cabinet had been bought. Controls had been improved to ensure compliance.
Hawston Sea Farms
The CFO announced that settlement had been reached with the aggrieved party, the Hawston Sea Farms Foundation. All parties had signed an agreement whereby 15 000 hectares of land would be sold to them at the original price. The transfer to the Foundation would bring revenue to the Department, and it was anticipated that the process would be completed by the end of this financial year.
The CFO explained that security had now been classified as property payments. It was a big increase, as security was needed to protect all human settlement projects against land invasions and from vandalism. The Department had spent R25.3 million on securing the properties and projects that were in the implementation stage during the year under review.
Bad debts written off
The CFO said the R4.7 million debt referred to very old cases under the old PHP approach. One of the cases was for R2.6 million, where the accountant had committed suicide. Another case was for R2.8 million, where an accounts administrator had received a jail sentence. The state attorney had given permission to write it off, as there was no chance of recovery.
Ms Nkondlo asked what the plans were to mitigate the challenges of invasion of houses, as it increased costs of transactions and affected stability.
The HOD said that communities created problems of instability wherever developments took place. A team of senior officials had formed a stakeholder engagement team to address this problem. The team engaged with all parties, including the community, during each process before construction to avoid instability, but it still happened. Contractors were being shot at, and for this reason security funding was added as part of the contractual requirements. It was a political, not an administrative, issue. The services of anti-land invasion units, the city police, and South African Police Service (SAPS), as well as private security enterprises, had all been involved to secure sites.
The Minister said he had been in Velddrif recently to hand over 53 units, but the damage to the units had been over R4 million. He had met with the cluster commander who had told him that 80% of the 43 people arrested were not Western Cape citizens, and had been living in the area for only three weeks. The invaders victimised communities and had initiated violence in areas where they took control. The Department was increasingly confronted with criminal activity, and securing the properties would cost even more in future.
Govan Mbeki awards
The Chairperson asked for an explanation of the Govan Mbeki awards mentioned in the audit committee report.
The CFO responded that this was s high profile award, and that it would lack credibility if not signed off by the units of the respective provinces. An independent view had been obtained to confirm that processes were followed according to the indicators for evaluation.
An official from the internal audit department said that the process involved nominations from municipalities for projects in different categories. It went through phases of assessment, followed by evaluation. The internal audit committee participated in the final assessment of the process. The assessment was limited to the process, and did not include the award.
The Chairperson said the Committee had spent time with the audit committee, which was confident that the Department was in the process of fixing things. He expressed the hope that next year the same questions would not be asked about the process of accountability so that it could be used as a process for service delivery.
The Chairperson referred to the risks that required continuous monitoring, as per Section 5.4 of the AG’s report, and asked about the Department’s compliance with the requirements of Broad-Based Black Economic Empowerment (BBBEE).
The HOD replied that Annexure A would demonstrate that the Department was fully compliant. The Department did business with companies with BBBEE ratings, and its compliance was second to none.
The Chairperson said that the question about compliance was raised with all departments. It appeared that coordination was needed between the Department of the Premier and Treasury to assist all departments to become compliant as it had been raised as an issue that required continuous monitoring.
The Minister said that it was the last meeting of Mr Mguli as HOD, and expressed his gratitude for his six years of service. He said that the HOD had been a passionate and loyal public servant.
Mr Mguli thanked the Committee and the Members of the previous Committees for their guidance, and for adding value to the Department.
The meeting was adjourned.
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