Follow-up on DWS 2018/19 Audit & Trans-Caledon Tunnel Authority Update; with Deputy Minister

Meeting report

Follow-up on audit outcomes

The Chairperson said the meeting would be a continuation of the previous meeting with the Auditor-General (AG) and the Department of Water and Sanitation (DWS). She welcomed Mr David Mahlobo, Deputy Minister of Human Settlements, Water and Sanitation, and the Office of the Auditor-General, and conveyed apologies that had been received from the Minister. She asked Members to engage with the presentations from the AG and the DWS.

Mr L Basson (DA) raised concerns on the programmes that had spent 100% of their budgets and achieved 80% of their targets. He asked the AG if the programmes were over-budgeted or if money had been misused by the DWS. On the Trans-Caledon Tunnel Authority (TCTA), he asked the Auditor-General to explain how the R20 billion which had been loaned to resolve issues would assist the DWS. He asked the DWS about its the irregular expenditure, especially because there were a lot of people in acting positions in the Department, and asked if the DWS could make more permanent positions to avoid irregular expenditure. He highlighted that Water Trading Account had an overdraft of R1.45 billion which should have been paid off two years ago, and asked what the plan was to repay the amount. He commented that the DWS had been warned by Members to pay off the account, and suggestions had been given that the Department’s budget surplus should be used for this purpose.

Ms G Tseke (ANC) pointed out that the DWS’s Annual Report was 10 months late and that some issues had already been presented in the 2019/20 quarterly reports. She stressed that the Portfolio Committee had the responsibility of interacting with the Department and ensuring that the turnaround strategy of the DWS was implemented. Acting positions could be filled for only eight months, and the DWS’s acting positions had been filled for longer than that. She asked the Auditor-General what processes were being used to deal with the matter, and if the DWS was not acting against the Public Service Act (PSA). She applauded the DWS for its efforts to provide clean water and basic water services to the country. She highlighted that some of the issues faced by the Department were on-site disruptions of the execution of mega-projects, and issues of corruption. She thanked Deputy Minster Mahlobo for his speedy response in dealing with corruption, maladministration and for ensuring disciplinary action against corrupt officials. She asked whether the DWS had a turnaround strategy in place that had considered the financial investigation reports, if the Department had implemented these strategies, and asked what the costs of the investigations were.

Ms M Mohlala (EFF) questioned the DWS on the partnership it had with the Department of Basic Education (DBE) to use R600 million to provide water tanks to 3 000 schools. She asked how the Department had reached the agreement with DBE, who the service provider would be, and what the cost of one water tank was. She enquired about the combined efforts of whistleblowers, and what action had been taken against officials who had been found guilty of corruption. She also highlighted that the DWS had a R10 million condonement for irregular expenditure, and that the condonation had a condition that a plan of action for corrupt officials had to be provided. Had the DWS implemented any action plans to prosecute corrupt officials? She also highlighted to the AG that corruption in the DWS had increased since the term of former Minister, Ms Nomvula Mokoyane, with some cases still uncovered, which had led to bankruptcy. She asked the AG what action had been taken against the former Minister. Had the AG had looked at the 2020/21 annual performance plan to determine if the indicators and targets were realistic, considering the challenges in the DWS? She requested the AG to increase its capacity to interrogate the Department’s quarterly financial and non-financial performance. She also enquired about the acting positions in the DWS, and asked the AG to provide a root cause analysis of all entities that had been identified to have challenges.

Ms N Sihlwayi (ANC) asked for clarity on the TCTA’s structure, which seemed to have challenges of its own. A clear recovery plan should have been developed to assist the DWS. It had clearly not budgeted for some projects.

Ms E Powell (DA) asked the Director-General how many boards and entities had acting executive officers, and for information on the status of the Lepelle Northern Water board. How many engineering vacancies did the DWS still have? She asked the AG if it would make remedial recommendations to deal with maladministration and corruption, and if it had information on the number of DWS officials that had been prosecuted to date since 2013. She asked the Deputy Minister to clarify the situation in the 2018/2019 financial year, before Minister Sisulu was in office. She also asked him to confirm if the Minister had appointed a new member to her advisory committee.

Mr M Mashego (ANC) questioned why the legislative and executive board had not considered the findings and remedial actions of the AG. Would the AG still consider the remedial actions even after they had been considered? He pointed out contradictions between the AG’s and the DWS’s presentations on the number of targets achieved -- the AG had stated that 55% was achieved, and the DWS had stated that 75% was achieved. He asked why the differences existed. He also raised concern over with the R10 million condonement of the DWS, and highlighted its failure to act on disciplinary matters, and commented that the DWS approach to consequence management was tolerant.

Ms N Tafeni (EFF) said that the DWS management had not complied with the processes when funds were misused and not spent on their intended purpose. She asked if the DWS had considered the consequences of the development of bulk infrastructure for the future water needs of the country, or if it would use water tanks instead of creating sustainable water infrastructure.

Ms Sihlwayi referred to the R10 million condonement, and asked why corrupt officials had not been expected to pay back the money from their pension packages. She had also hoped that the DWS would clarify and provide a clear analysis on the corruption that had been taking place. She asked if the DWS management monitored actions in the Department, and if the level of implementation of programmes was overseen. Recovery plans should have been provided, to prevent the issues from happening continuously. She felt that the AG was not taking the issues of the DWS seriously.

Mr M Tseki (ANC) commented on the AG’s report, and highlighted that the DWS management had nine Directors-General, and only six had remained in their positions for the year. He also mentioned that every eight months, the DWS had a new Director-General, which was a concern as internal control had a significant impact on the Department. He said that the Water Trading Account improvement was not convincing, and was not progressive. He applauded the DWS’s internal controls, because it had achieved an unqualified audit report.

The Chairperson asked the AG if the audit metrics response from the DWS could be improved, and if the AG was satisfied with the structures for the reduction of risks in the DWS. She welcomed the actions of the DWS to resolve issues, and asked if it had time frames for the action plans to deal with cases. What progress had been made by the Special Investigating Unit (SIU)? She requested the commitment of the DWS to the 30-day payment of creditors. The AG had indicated that programmes 2,3 and 4 of the DWS had not achieved their targets, although the budgets had been used 100%, which was worrying. She asked about the planning and management of contracts in the annual performance plan, to avoid similar issues in the next AG reports.

Responses

Auditor-General

Mr Odwa Duda, Acting Corporate Executive, AGSA, said the office of the Auditor-General would try to respond to all the Members’ questions, but responses that required more detail would be provided in writing.

Mr Andries Sekgetho, Business Executive: AGSA, referred to the 100% spent budgets without targets being achieved, and said it was because of the DWS implementing projects that had not been budgeted for. The money that the DWS requested was for specific programmes, and the money was used for other Departmental programmes which reflected on the upcoming financial years.

On the issue of the TCTA, he said that the TCTA sourced funding independently to implement infrastructure projects, but the conditions of the funding were that the TCTA could not receive a qualified audit report outcome. Unfortunately, it had received a qualified audit report in the current financial year, which was noted as a default by the AG.

On the issue of the loan repayment, he explained that the TCTA’s ratios were not bad in respect of cash flow issues, liquidity or the repayment of creditors. If funders enforced the clause agreement, it could result in pressure to repay the R20 billion to the fiscus. The issue had been brought to the attention of management.

The purpose of presenting the length of acting positions, as per the Public Service Act (PSA), was to show the instability of management in the DWS. He agreed with Members that the PSA allowed for six months to be filled by an acting position, but the Act also allowed for an extension of six months. The current arrangement in the DWS was nine months, which still fell within the legal requirements of the PSA.

The Auditor-General’s role with regard to the increase of corruption, and action taken against the former Minister of Water and Sanitation, Ms Nomvula Mokonyane, was to report in terms in terms of the Public Finance Management Act (PFMA), and the transgressions had been noted and reported to the Standing Committee on Public Accounts (SCOPA).

With the 2020/21 annual performance plans, the AG would take the portfolios of different departments, both national and provincial, and performs interim reviews. The shortcomings of the departments were reviewed in January/February and were submitted to management to rectify. Unfortunately, the DWS annual performance plan was not reviewed by the AG because the Auditor-General was still finalising the audit -- the water trading account was still being audited at the time.

Assessments had been done by the AG on the root causes that had led to unfavourable outcomes. All nine water boards and four institutions had been assessed. The detailed assessment would be provided to Members of the Committee.

The Auditor-General cannot make remedial recommendations on the issue of maladministration and corruption. Recommendations should be made by a needs assessment, but the challenges had been noted and reported. The Public Audit Act amendment now allowed the AG to act in the event on non-action against officials.

Mr Sekgetho said that committee structures were reviewed every year, and some findings had been submitted to the relevant portfolio committees on the recommendations. He also explained that the differences in the Auditor-General’s and DWS budget expenditure figures were because the AG used the initial targets without adjustments. The DWS may have used the annual performance plan that was adjusted because of additional programmes.

He commented that the DWS had improved on the audit metrics response, which was commendable. The challenge was to ensure that enough measures and controls were implemented to sustain and improve its performance. Improvements could be achieved through the implementation of sound financial management. He hoped that the DWS would use the strategy used in the previous year to maintain the improvement. The AG had taken note of the challenges of preventive measures in the DWS, and that concerning structures had been identified. The recommendations for improvement had been submitted to the DWS management, but the problem was implementing the recommendations.

The Auditor-General had noted wasteful expenditures in the report, which included the payment of salaries of people who did not do any work. He added that the DWS had embarked on a re-structuring programme.      

Department of Water and Sanitation

Deputy Minister Mahlobo agreed with the AG’s observations on the 2018/19 report, and commented that there had been improvements in the audit outcomes of the main account, which was unqualified. He said it was the link between the Water Trading Account and the TCTA that had resulted in a regression board being formed.

Some programmes of the DWS had not performed satisfactorily. There had been a discussion about irregular expenditure with the Members of the Portfolio Committee, and there had been approval of the 2019/20 annual performance plan. Issues had been raised by Members, and a chance was given to the DWS to address them, including the stabilisation of the DWS on two fronts -- top management and finance. The Director-General, Deputy Minister and the Minister had returned to the Committee and provided a turnaround plan on stabilising the Department. Some issues were ongoing. A progress report had also been submitted on how irregularities were going to be addressed.

Deputy Minister Mahlobo said that some of the concerns raised by Members were general in nature. There was a legacy report that Members had received which raised concerns on issues of corruption which SCOPA was dealing with. Members had resolved that the DWS should handle the issues in the report, and they had not provided feedback.

The issue of consequential management was serious, and action was being taken to address it. The DWS presentation had indicated that several senior managers were undergoing disciplinary processes. Disciplinary action should be swift, but some processes were long and had not been concluded. Long disciplinary processes made it difficult to appoint new people. Special Investigating Unit (SIU) investigations were being conducted, with cooperation from the DWS.

He said the DWS was aware of how irregular expenditures happened. Regularisation was one of the challenges it was facing, and this could happen if processes to receive condonement were followed. Officials continued to incur irregular expenditure, and those who did not follow the rules and procedures would be dealt with.

Mr Mbulelo Tshangana, Acting Director-General: DWS, provided a breakdown of officials disciplined in the Department. He revealed that:

• 97 officials had been found guilty.
• 16 had been found not guilty.
• 24 resignations had been received.
• One official had been reinstated.
• 138 officials had been investigated.

 

Investigations that were being conducted before new people were appointed were still under consideration by the DWS. Most investigations were conducted through the DWS forensic investigation unit, which was part of the DWS internal audit department. Some investigations were conducted as supplements to the DWS’s capacity, which helped the Department achieve sanctions that were relevant in the prosecution of officials. This had resulted in:

• 13 dismissals of officials.
• One demotion.
• 17 warning letters issued.
• 38 final warning letters issued.
• Eight one-month suspensions without pay.
• Eight two-month suspensions.
• 11 three-month suspensions.
• One 15-day suspension.

 

20 criminal cases had been opened against officials who had resigned, which was part of consequence management. The R10 billion would not be condoned if consequence management was not executed. Successfully prosecuted officials had been linked to the condonement.

Mr Tshangana explained that the partnership with the DBE was not just to provide water tanks, but also water tankers, which were the biggest cost. Once the work was completed with all three involved entities -- the DWS, the DBE and Rand Water -- a cost breakdown would be forwarded to the Committee for evaluation.

He said there were no interim boards at any DWS entities, but there was an executive caretaker at Amatola Water and an acting CEO at Sedibeng Water. The Lepelle Northern Water board’s tenure ended on 30 March, and the Minister had decided to ask for an extension so that a proper handover could take place, and had announced that a new executive caretaker for Lepelle Northern Water would be appointed. The current board had been asked by the Minister to prepare a handover report.

Mr Tshangana confirmed that Mr Gugile Nkwinti had not been appointed by the Minister.

He said that the R10 billion was not an irregular expense, because it had not been misused, but had been labeled an irregular expense because the proper process of appointing a service provider had gone wrong.

On the funds used to deal with COVID-19 matters, he said there was no additional budget allocation. Instead, the DWS budget had been adjusted to cater for the COVID-19.

The target for Giyani and Mzimvubu still had to be concluded within the current financial year. The Mzimvubu project had started, but there had been disruptions because of the COVID-19 outbreak.

A new structure had been approved which would assist the DWS in filling vacant positions. 86% of posts had been filled, which meant it had a 14% vacancy rate.

Referring to the SIU report, he said the SIU had appointed a specialist to assist with the audit on Giyani to determine the value for money, and the DWS had considered the challenges and concerns highlighted by the Auditor-General.

Mr Leonardo Manus, Acting Deputy Director-General: Infrastructure, DWS, said that at the end of the 2018/19 financial year, the Department had 738 science and engineering positions, and 629 permanent positions. Over-filling had taken place because the DWS was looking to develop capacity by appointing graduates. There were 135 engineers in the DWS, 60 were candidate engineers and nine were certified engineers. There were 222 technicians. He added that there was a 15.6% vacancy rate.

Trans-Caledon Tunnel Authority (TCTA)

Mr Percy Sechemane, Chief Executive Officer (CEO), TCTA, said the strategic goals for the year 2018/2019 were to ensure financial sustainability; to manage the implementation of projects to achieve objectives; to operate and maintain the Acid Mine Drainage plant; to structure project financing and to secure institutional arrangement as well as request necessary authorisations; to raise funding for the implementation of infrastructure projects; and to manage debt to ensure repayment.

He described the products and services, which included debt management and raising project finance. The TCTA was an implementing agent of the DWS. Most of the issues highlighted by the Auditor-General came from the Lesotho Highlands Water Project. He outlined the relationship that existed between South Africa and Lesotho on the water project. The TCTA had been involved in the meetings where the AG had provided findings. There were areas that needed to be improved, and some issues had happened because of delays caused by the Lesotho system, which functioned differently from South Africa. Findings by the Auditor-General on TCTA had resulted because information from Lesotho had not been readily available. He added that some treaty requirements had not been met by the TCTA, and full responsibility was taken.

Mr Sechemane provided information on the operation process of the Highlands Water project, and said that for the first phase of the project, the funds had been raised by Lesotho. He provided a list of the TCTA’s project implementations, which included projects in progress, projects at close phase, projects at preparation phase and projects in operation and maintenance. He explained the performance objectives that were used to ensure financial sustainability, which included targets, the status of the targets and the reasons for any variances between the targets and outcomes. He also provided information on how the TCTA managed the implementation of projects to meet objectives.

Mr Johann Claasen, Acting Chief Financial Officer (CFO), TCTA, said that receivables were the main asset of the TCTA, and that the costs of projects were not reflected in its balance sheet because they were reflected in the DWS, and revenue was received through the DWS.

The TCTA’s expenditure had been lower for the current year. The under-spent amount was because of projects that had not been implemented due to disruptions, but they were set to start later in the year. Income had been higher in the current year because more water was sold by the DWS. An increase in the payment analysis was because the TCTA’s bonds had been repaid.

Discussion

Mr Mashego said that most of the work done by the TCTA could not be separated from the DWS’s internal discipline. He asked how the TCTA’s internal discipline was different. Why did the South African treaty structure have a lot of bottlenecks compared to the Lesotho structure? He wanted details of the geographical location of rivers in the TCTA presentation. 

Mr Basson asked if the country’s current junk status affected the TCTA’s current loans, and the extent of this impact on its ability to take out future loans for the Lesotho Highlands Water Project.

Ms Tseke asked for clarity on the 19.3% vacancy rate in the TCTA, and how the vacancies were being filled. How would the qualified audit outcome affect the TCTA’s current credit agreement and its ability to borrow money in the future?

Mr Tseki questioned whether the TCTA could be considered a central point for the implementation of projects in the DWS. Acid mine drainage was an issue, and taxpayers money was being used to deal with it. How was the TCTA dealing with this matter? Why did it have irregular expenditure when it had a surplus and money in reserve?

Ms Mokgotho asked why the Mokolo and Crocodile River (West): Water Augmentation Project (MCWAP) was faulty, and if there was strategic planning for projects. Why did the TCTA have continuous irregular expenditure, and why there was no compliance with the PFMA?

Ms Mohlala asked if the delay in projects from the DWS had an impact on the TCTA’s accounting principles and compliance with the legislation. She also asked about the outcome of the TCTA’s engagements with the Financial Conduct Authority (FCA) and the Johannesburg Stock Exchange (JSE) on the delays of the annual report. She enquired where the TCTA sourced its funding. 

Ms C Seoposengwe (ANC) asked how the TCTA’s reduction in targets had affected service delivery, especially as some projects had already started. Which projects were affected?

The Chairperson asked if the TCTA had a plan of action developed to ensure that its financial books were in order. She also asked how the DWS conducted oversight on the Lesotho Highlands Water Project.

Response

Mr Sechemane said that the TCTA did not act as the DWS’s internal discipline. The DWS allocated projects that were bankable, but did not have funding, to the TCTA. The DWS was a structure of government so it could not directly borrow money, but the TCTA could borrow money from the market. Over time, the TCTA had managed to lead projects independently.

On the bottlenecks, he explained that the structure of South Africa and Lesotho were almost similar, the only difference being that the Lesotho authority had over 300 people while the TCTA had only 155 people in its operational structure.

On the river geography, he said that the rivers’ sources had been used in the presentation.

South Africa’s junk credit rating status affected the TCTA as a government structure, because borrowing money would be more expensive.

The TCTA vacancies depended on executed projects, so if there was no money available for a project, then the vacancies were not filled.

He said the TCTA could not be a central point for implementation, because bulk projects that were implemented were those that the DWS had no funding for, and the projects were allocated by the DWS.

He agreed that acid mine drainage issues did exist. A decision had been made by Cabinet on the funding of acid mine drainage, and the legislation ensured that those responsible were held accountable for any environmental harm created.

Regarding the surplus and reserved money, Mr Sechemane explained that the accumulated debts of the TCTA were paid off from the reserved money, and loans were refinanced from the surplus money to implement other projects.

He said there was a challenge with the MCWAP because the TCTA had not been meeting timelines. It was involved in projects that the DWS had previously viewed as feasible. The area that the MCWAP was allocated was where a lot of mining was supposed to take place. Water was not in demand so there was no supply.

Referring to the engagements with the FCA and JSE, he said that all lenders of the TCTA were informed on all its activities. Even when the TCTA received a qualified audit outcome, lenders had agreed not to exercise the agreement clause. The TCTA sourced funding from local banks and financial institutions.

On the reduced targets, he said that there were no identified issues with service delivery and even if problems did exist, they would not affect service delivery. There was an action plan in place that the TCTA was working on, and it was willing to share the progress of the plan. The treaty issue could be dealt with together with the DWS.

Mr Claasen said the TCTA had implemented consequence management on all irregular expenditure issues. Investigations of cases had been ongoing to identify irregular expenditure. A mediator had been appointed to assist with the process. The disciplinary processes had been concluded successfully and all guilty persons had been sanctioned.

Mr Sechemane added that the TCTA had been delayed in addressing issues of irregular expenditure. The challenge was that people could not be forced to court, so the issues had been dealt with through investigations and allowing accused people an opportunity to state their side of the case.

Mr Tshangana said that there was an agreement with the Lesotho authorities to meet and discuss oversight issues. The TCTA was involved in the engagements. He added that the procurement of infrastructure had been denied because certain issues had been identified.

Mr Gerald Dumas, Chairperson, TCTA Board, confirmed that the South African and Lesotho treaty issues needed to be resolved to ensure proper oversight.

Deputy Minister Mahlobo said that lessons had been learnt from the AG’s findings, and the remedial actions were being implemented to resolve issues of accountability and strengthening of the TCTA on the treaty. Issues of debt would still be managed properly. Acid mine drainage would be discussed by the DWS with the Committee. There would also be engagements with the Department of Environmental Affairs and the Department of Mineral Resources and Energy.

The meeting was adjourned.