Water Boards: Umgeni; Rand; Overberg 2018/19 Annual Reports; with Deputy Minister

Human Settlements, Water and Sanitation

15 May 2020
Chairperson: Ms R Semenya (ANC)
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Meeting Summary

Audio: Water Boards: Umgeni; Rand; Overberg 2018/19 Annual Reports; with Deputy Minister 

Annual Reports 2018/19

The Committee was briefed by the Umgeni Water Board, the Rand Water Board and Overberg Water Board on their 2018-2019 Annual Reports.

In the briefing on Umgeni Water Board, Members were pleased to hear it maintained an unqualified audit opinion for the year ended 30 June 2019; and as an organisation had achieved R3.54 billion revenue, a growth from last year’s R2.90 billion. Their investments have increased by R370 million and their profits have grown by 21% year on year in total.

The Committee said the Umgeni Water Board claimed to have a particular focus on rural areas but much of its expenditure shows it was spent on other areas mentioned earlier, they asked: ‘Could we please get clarification on this matter’? Secondly, the Board claimed to have the capacity to give loans to subsidiaries. ‘What is the reason for this’? Members said the Department seems to have a lot of structures that performs the same role and as a result it could be complex to monitor what the Department is truly doing and where. It was therefore difficult to monitor the efficiency of the Department and the subsidiaries.

Members were disappointed that irregular expenditure had increased and said ‘Those people who were involved in the irregular and fruitless expenditure must pay back the tax payers’ money’. Members heard the Board had to also cut capital expenditure over the next few years; however, the interim board went on a luxurious trip to Los Vegas in the USA to attend a conference by the American Water Works Association. Members asked ‘Could the Umgeni Water Board provide details of where this is reflected in their financial statements’ Members asked further ‘Was approval obtained and if not what consequence management was levelled to the implicated board members’? Regarding the trip interim board members had taken; the Committee was told that it was done according to a board resolution and it was done with Umgeni policies. Further a detailed document was submitted to the Minister before the trip was embarked upon. All the areas of compliance in relation to international trips were followed and the trip was legitimate

In the briefing on the Rand Water Board, Members heard the Board received an unqualified audit opinion with findings. Its overall performance at a net income level, showed an increase from R3 billion to R3.5 billion. However its outstanding debt remains a challenge, where it reported 54 debtor’s days against a target of 45 days. Members heard the Board had taken steps to address the challenges related to irregular expenditure, as it amended the SCM policy to strengthen it and ensure that the guidance that is provided ensures effective compliance with all the regulations.

Members asked ‘What has happened with all the learners taken through the War on Leaks Programme’; whether there is still money outstanding owed by the Department and ‘Is it true that these young people (on the War on Leaks Programme) were not utilised and paid’? Members were informed that with the War on Leaks Programme, challenges were two-fold. Firstly, with funding, right at the beginning there were funding shortfalls so from time to time they agreed with the starts and stops to an extent where during the training of some of the students, the colleges could not get the students into classes to complete the programme quickly. When the students were placed within the municipalities, due to the market downturn, municipalities did not have a sufficient budget to absorb the students.

Members said they could appreciate that 51% females have been trained and given managerial positions, but the thinking needs to be corrected that as long as the 51%, gender representivity goals have been met, the matter ends there. The Committee did not want tokens in positions for inclusivity. There asked further ‘What positions do those females hold and what are they doing’? Member stated that ‘We must be clear that they are represented in a programme where they have dignity and are well respected’.

With the Overberg Board, Members heard that due to COVID-19, it had expanded their geographical reach to the Olifants area, although their primary reach is within the Western Cape province. With its performance indicators, it achieved 75% on organisational efficiency and effectiveness; 25% on its customer/stakeholder interaction; 74% on its financial performance; 50% on general performance in terms of risk, audit and governance and 60% with organisational capacity. Its performance indicators show an upward trend of growth. The Committee was pleased to hear that from 2017, it had achieved unqualified audit outcomes and reduced their irregular expenditure.

Members were concerned that even though the Board had mentioned an unqualified audit outcome, irregular expenditure was also mentioned. The Committee said it was not acceptable to say that its irregular expenditure was less than in previous years as it was reflective of condonement which they were not in support of. Members asked ‘Can they be given a guarantee that for 2020 there will be an eradication of irregular expenditure rather than a decrease in it’?

The Members were concerned about the poor uptake of the War on Leaks Programme graduates and asked that the Deputy Minister return to the Committee with an update on the programme, although they agreed that the Programme on the whole was a good initiative. They were pleased that all three Boards had clean audits and encouraged them to maintain that performance. The Committee was concerned about the lack of plans regarding irregular expenditure and requested that the necessary structures be put in place to eradicate it completely.

Meeting report

Umgeni Water Board 2018-19 Annual Report briefing 

Mr Thami Hlongwa, Chief Executive, Umgeni Water Board, took the Committee through an overview of the work of the Umgeni Water Board. He explained that the Board report to Parliament and all its subsidiaries do work to support Umgeni Water as a holding company to execute its mandates. With its performance for 2018-2019, it scored 91% of targets, with only 9% of its targets not met and under review. It ensured it maintained good potable wastewater quality, whereby their wastewater treatment sites have received more than 90% compliance. In the year under review they spent R225 million for maintenance in total. They have met all the requirements from a customer satisfaction perspective. In the year under review, one of the contributors in the 9% variant in their performance was that they had one treatment plant shut down that lasted for over three and a half days due to electricity supply issues from Eskom. After load shedding, as the power returned, the surge destroyed the transformer which had to undergo a period of repairs, resulting in them not meeting their targets.

They have nevertheless increased their supply by 9% year-on-year, supplying 1294 Ml/d for the year compared to other years. They continued to invest in their CAPEX, however there was a period where there were a lot of challenges which led to an underspending in their CAPEX of about R400 million. Here they wanted to achieve R1.65 million but only achieved about R1.25 billion.

They continued to invest in expanding access to the rural areas, spending about R400 million on new projects in the year under review on opening up access to areas previously underserved. They continued to ensure community and environmental sustainability through applying Contract Participation Goals where 35% of their construction contracts are awarded to black owned enterprises, with an emphasis on women, youth and disabled peoples’ ownership. With operational optimisation, they reached their targets of water loss being well below 5%, with the water loss being 2.25% for the year. They have a number of operational rules to ensure optimisation in their water treatment process, whereby they use gravity to lessen their reliance on pumping thus reducing emissions and their carbon footprint as an organisation. They have been deploying a lot of resources towards building leadership and employment development, particularly with preparing the sector for a pipeline of new leadership. With financial viability, as an organisation they have achieved R3.54 billion revenue, a growth from last year’s R2.90 billion.

Ms Nomalungelo Mkhize, Chief Financial Officer, Umgeni Water Board, took the Committee through the 2018/2019 financial report of Umgeni Water Board. They have strengthened their financial position in their growth strategy within KZN and their operating areas with their asset base being just over R9 billion. They maintained an unqualified audit opinion for the year ended 30 June 2019. In summary of their statement of profit and loss, they made a surplus of R1.4 billion, with their revenue growing year on year by 22%. The main factors contributing to the growth are the tariff increases and the increase in demand. They had an increase of 14% for wastewater due to the increases that they put into effect as per their contract agreements with the municipalities they serve. Their growth profit margins increased by 4%.

There has been an increase in the key cost drivers. Some of the savings made with the key cost drivers have been eroded due to the provision for credit losses relating to money owed by the municipality. They had to make a provision for R50 million to not be recovered from the municipality. Their profits have grown by 21% year on year in total. The growth they have seen will be used to invest in infrastructure going forward. Their investments increased by R370 million, which is 15% year on year. They received some grant funding in the current year. Due to not spending according to their budget for capital infrastructure, those monies that would have been raised through the tariffs have been saved. They have challenges with collections from debtors. They are still within their borrowing authority and have repaid some of their debts. This was reflected by their debt equity in their financial statements. Their cash flow has had positive growth. Looking ahead, with infrastructure, they have a budget of R17 billion for the next five financial years. With funding requirements, at the end of the previous financial year, 30 June 2019, they have to raise R9.5 billion within the next five financial years to invest in capital infrastructure.

Ms Ziphozethu Mathenjwa, Chairperson, Umgeni Water Board, concluded the presentation and said that they have excelled in the area of governance, especially with executive and board relations; their committees met all their targets by using all the resources that they needed in order to perform; they have reviewed all the policies; they have a good Moody’s rating and they are confident that the organisation is in a sound financial position. They continue to invest in rural areas especially for Kwa-Zulu Natal.

Rand Water Board 2018-19 Annual Report briefing

Ms Faith Hashatse, Chairperson, Rand Water Board, took the Committee through the introduction of the Rand Water Board briefing. She stated that their Chief Executive Officer was appointed in March 2019. He was in the role for the last quarter of the financial year. She reported that they have obtained an unqualified audit opinion with findings. They have succeeded in areas such as water quality, reliability of supply and maintaining the financial health of the institution. Their challenges have been municipality debt and irregular expenditure. The implementation of the CAPEX has been the root cause of impacting other KPIs leading to them only achieving 82% of their targets for the year. They have taken steps to address the challenges. With irregular expenditure, they have amended the SCM policy to strengthen it and ensure that the guidance that is provided ensures effective compliance with all the regulations. They have looked at their systems and capacity and strengthened compliance during SCM processes by embedding compliance officers in the process, including looking at a more active role by internal auditors. They have looked at enhancing the Performance Management System in order to speak more to compliance related issues. They changed the scorecards of the Chief Executives to ensure that sufficient focus is given to the improvement plan to address the challenges that have been identified. They expect the Chief Executive Officer to do the same and cascade those organisational KPIs to the rest of the organisation. Their risk and audit committees are working at monitoring and increasing their vigilance to track consequence management and effective measures for the prevention of irregular expenditure in order to re-orientate the organisation in the right direction.

Mr Sipho Mosai, Chief Executive Officer, Rand Water Board, took the Committee through the reporting lines in terms of the structure of the Rand Water Board; vision, mission and goals and the global challenges. Their borrowing limits have been approved for the next five years. They continued to maintain very strong financial capital. In the year under review they have also seen improvements in operating margins and maintained the quality of their management systems. They pride themselves in having some of the best drinking water quality as indicated by their national drinking water standard on the SANS241 Composite Indicator. They have spent just over R100 million on social development partners, the Rand Water Foundation and Rand Water Foundation External Funding.  Challenges that they have experienced with the War on Leaks Programme is that they have had a lot of starts and stops, resulting in having to extend project timelines and they have had serious problems with regard to learner retention. Going forward they want to wind down the project in a responsible and phased approach as soon as lockdown is lifted. With their BEE achievements, relative to last year they have seen African, Coloureds and Indians benefiting from R382 million in socio-economic development. The board has done better than last year in terms of skills development. With the environmental bottom line, their cost of energy is increasing year on year. They were able to maintain the same energy usage year on year thereby being an environmentally compliant institution. They take their risks very seriously, with cost effective and timeous procurement of quality goods and services for sustainability of Rand Water being ranked as the highest risk.

Ms Matshidiso Nyembe, Chief Financial Officer, Rand Water Board, took the Committee through the financial performance overview of the board for 2018/2019. They had strong financial performance both at the top and bottom line driven by revenue increases of 14%, cost efficiencies that were extracted that resulted in the improvement of gross income and net income levels by 17% and 18%. The performance was impacted upon negatively by the lower than expected capital expenditure where a reduction of 15% was spent compared to the previous years. The 14% revenue growth was mainly driven by an increase in the tariff of 12% and the volume increase of 4% in the period under review.

They have reported discontinued operations relating to the Bushbuckridge local municipality area of supply, where from 1 July 2019, they handed over those operations to the municipality. Revenue for the period under review was principally driven by the three metros. Overall performance at a net income level, showed an increase from R3 billion to R3, 5 billion. Their outstanding debt remains a challenge, where they have reported 54 debtor’s days against a target of 45 days. They have engaged with the municipalities, the provincial government and most of them are receiving support from the provincial government. They have entered into payment arrangements with those municipalities that they are now monitoring on a monthly basis. They are concerned about the impact of the default rates as it is increasing and will impact on the financial sustainability of the organisation, more so during the COVID-19 pandemic because there has been increasing defaulting payments from the municipalities. Their fruitless, wasteful and irregular expenditure has increased since they had reported it for the year under review to R822 million, although the number of incidences has reduced due to the large contracts being identified that have contributed to irregular expenditure. The irregularity was found to be with the panel of manufactures contract whereby the 90/10 preference point system was not utilised in the evaluation to award the tender. The Loss Control Office concluded the assessment and found that there were no losses suffered by Rand Water. On recommendation by the Loss Control Office, a condonation was submitted to the National Treasury. They are awaiting the conclusion of the investigation.

Overberg Water Board 2018-2019 Annual Report briefing

Mr Phakamani Buthelezi, Chief Executive Officer, Overberg Water Board, took the Committee through the board’s presentation. They put in place the Growth Path strategy to increase their reach and revenue. Due to COVID-19 they have expanded their geographical reach to the Olifants area, although their primary reach is within the Western Cape Province. Their largest client at the moment is industrial customers, followed by Theewaterskloof Municipality and Hessequa Municipality. He highlighted the fact that the lockdown measures will affect their income due to South African Breweries owning one of the largest plants but not being active due to the shut down for COVID-19. From a national perspective, Overberg is insignificant, but its presence in the Western Cape has shown that the role of national government is important. There challenges include: delays in the appointment of the board, whereby they were appointed in April 2019; non-submission of an annual report on time for 2015/16 and 2016/17; their accounting records were not maintained properly; there was no internal audit in place to strengthen internal control within the organisation; their tariff model does not include capital levy; they have ageing infrastructure and are struggling with a low customer base. Their responses to their challenges include: filling key positions on the board; implementing the ERP system including document management system; outsourcing their internal audit function; proposing a capital level but this has been met with resistance; they have considered several funding mechanisms including grant funding to update their infrastructure and the Growth Path strategy was developed to deal with their low customer base.

He took the Committee through the organisational structure of the board, their workforce profile and their training and skills development progress. With their performance indicators, they have achieved 75% on organisational efficiency and effectiveness; 25% on their customer/stakeholder interaction; 74% on their financial performance; 50% on general performance in terms of risk, audit and governance and 60% with organisational capacity. Their performance indicators show an upward trend of growth. They have achieved a high water quality compliance standard of 98%. With their financial reporting compliance, their current ratio is 3, 7 and gross profit margin is 43%, showing that they are improving. They did exceptionally well with BEE as their target was 15% and they achieved 59%. They need to manage their costs as their actual expenditure increased by 7% due to the challenges mentioned earlier. Their internal controls are sound and on the right course as indicated by their 100% achievement on statutory reporting compliance. They have trained five people and awarded them a three year contract which exposed them to the environment so that when they leave Overberg, those skills are transferable. They hope to see an increase in job creation with the installation of water tanks in all districts except the Cape Metropolitan. In 2015 they received a disclaimer for their audit outcome due to not submitting their financial reports on time and they had to address that backlog before moving forward. In 2016 they received a qualified audit opinion as there was incorrect accounting policy was applied on the valuation of PPE and the inventory was not valued appropriately. From 2017 they had achieved unqualified audit outcomes.

Their revenue for 2019 had increased as the volume of water they supplied increased. Their surplus increased by 82% for the year. With the key ratios of gross profit margin, net profit margin, current ratio, return on assets, cost per unit, average tariffs and cash ratios they have seen improvements. Their debtor’s days had also improved from 87 days to 65 days. They are in a financially healthy position. They have also reduced their irregular expenditure. He concluded by stating that they have taken every effort to improve their performance and will continue to improve in their partnership, working with the Committee.

The Chairperson of the Committee asked the Members to ask questions and engage with the presentations given by the three bodies.

Discussion

Mr M Mashego (ANC) stated that he arrived late to the meeting so he could not engage fully with the material presented by the boards but noted that the boards had given themselves 100% for their performances and they must leave room for growth.

Mr M Tseki (ANC) directed his question at the Rand Water Board. The presentation looked positive in that they are dealing with their challenges, however in Hammanskraal there are people alleging that the Department has neglected them - presently this will have to be a general statement and in follow-up he would be able to give specific scenarios. ‘What has happened with all the learners taken through the War on Leaks Programme’?

Mr L Basson (DA) reiterated that he was equally concerned about the War on Leaks Programme. There are many people saying that they do not have jobs so to him the programme seems to be a waste. They were informed that the programme will be completed now because it is unfunded. He asked the Rand Water Board whether there is still money outstanding owed by the Department. ‘Is it true that these young people were not utilised and paid’?

Ms N Sihlwayi (ANC) had two questions for each board. She first addressed the Umgeni Water Board. The information presented indicated they have been given R1.2 billion and they stated that an amount of R927 million was spent on expansion, augmentation and rehabilitation. They then stated that an amount of R283 million was spent on rural areas and they had met their target by 66%. They have claimed to have a particular focus on rural areas but much of their expenditure shows that it was spent on the areas mentioned earlier. ‘Could we please get clarification on this matter’? Secondly, they have the capacity to give loans to subsidiaries. ‘What is the reason for this’? The Department seems to have a lot of structure that performs the same role and as a result it could be complex to monitor what the Department is truly doing and where. It is difficult to monitor the efficiency of the Department and the subsidiaries.

She addressed the Rand Water Board next. She rehashed the statistics presented by the board regarding the War on Leaks Programme and stated that the young people want jobs not training or skills. She said that as the Department they are clear that in order to obtain those jobs, they need to be trained in those relevant skills first. Now that the programme is in its final stages the board claims that they are ready to close down the programme and hand it over to the Department. Are their jobs available to them and salaries to pay them once they are transferred to the Department? The board is able to fund external institutions such as the IDT which means that Rand Water has a financial liability. They continue to provide services and continue to look for other people for assistance to support them. ‘Can we get clarity regarding this’? They appreciate that 51% females have been trained and given managerial positions, but the thinking needs to be corrected that as long as the 51%, gender representivity goals have been met, the matter ends there. They do not want a token in positions for inclusivity. ‘What positions do those females hold and what are they doing’? ‘We must be clear that they are represented in a programme where they have dignity and are well respected’.  

Ms N Mvana (ANC) stated that all the boards have reported on unqualified audit outcomes. It is like an exodus in terms of the municipalities that are not paying back the money owed, yet there is no clear plan. ‘What are they going to do about it’? They expect too much from Rand Water Board as the worst example of them all. She reiterated the issue that there is 51% female representivity but there is no mention of youth representation. ‘What is being done about the youth’? Overberg Water Board has also mentioned having an unqualified audit outcome yet irregular expenditure was mentioned. It is not acceptable to say that their irregular expenditure was less than in previous years as it is reflective of condonement which they are not in support of. ‘Can they be given a guarantee that for 2020 there will be an eradication of irregular expenditure rather than a decrease in it’?

Ms M Mohlala (EFF) noted that the Umgeni Water Board was appointed on 1 May 2019 till April 2023. She hoped that they would serve the institution with dignity and push the interests of the people forward. The report by the Auditor General (AG) to the previous Committee as part of the enquiry into the joint functioning of the Department of Water and Sanitation showed that irregular expenditure had increased. The AG also raised concerns about governance issues at four of the water boards including Umgeni. The Umgeni Water Board had to also cut capital expenditure over the next few years due to reduced allocation from the national government, which means that some projects are being delayed. However, the interim board went on a luxurious trip to Los Vegas in the USA to attend a conference by the American Water Works Association. ‘Could the Umgeni Water Board provide details of where this is reflected in their financial statements’? What was the reason for that approval in light of the financial issues in the water sector? ‘Was there an approval obtained and if not what consequence management was levelled to the implicated board members’? ‘Those people who were involved in the irregular and fruitless expenditure must pay back the tax payers’ money’.

The Overberg Water Board does not have an oversight structure in place after the board leadership and the CEO were dismissed in 2017. The former Minister appointed the CEO of the Breede-Gouritz Catchment Agency as acting CEO of Overberg Water Board. Utility continues to act without a formally constituted board. ‘Is the CEO of the Breede-Gouritz Catchment Agency still the acting CEO of Overberg Water Board’? They presented the challenges experienced by the institution, one of which is the fact that their internal audit function is being outsourced. ‘How long, to what extent and who is the service provider of the outsourced internal audit’? ‘Are we going to be funding it with taxpayers’ money and contribute to fruitless expenditure’? We cannot rely on external outsourcing all the time when we have unemployed graduates who can deliver those services.

Her last questions were directed at Rand Water Board. She asked ‘Can we get a brief report on the write-offs regarding debts owed by the Municipality’? ‘How effective is section 139 in holding municipalities accountable’? In 2017 reports emerged that trainees recruited for the first phase were paid while languishing at home. After completing theory at colleges, these learners stayed at home because they could not be placed in companies. ‘How many learners are absorbed in the water space at the moment’? Ms Mohlala said that Members needed a progress report on whether the Department really invested in the board to facilitate the programme. ‘How are we going to ensure that those that were running the project are held accountable for playing with the emotions of the unemployed graduates sitting at home’? The intention of the programme was good but it was not implemented properly.  

Ms S Mokgotho (EFF) directed her questions to all the water boards. She asked, ‘over the years, what are some challenges encountered in water tariff determinations, specifically in the engagement with municipalities’? ‘Could the water boards provide directives issued by the Department of Water and Sanitation and work undertaken on its behalf for the 2018-2019 financial year’? ‘What are some of the challenges experienced by the water boards in undertaking these projects on behalf of the Department’? ‘Does the Department still owe money to the water boards for completed work’?

The Chairperson stated that the Rand Water Board is in the process of condonation by the National Treasury for irregular expenditure. He said that we need to hear from the board what necessary structures they were putting in place to mitigate the situation on irregular expenditure because it is not adequate to not have preventative measures. With the Overberg Water Board, even if they reduced their irregular expenditure they should work towards not having them at all by maximising their compliance structures and the structures in place to manage risk issues in their organisation. She asked for commitment from the boards that the issues raised by the Auditor General would be resolved and not arise in the next annual report.

Responses

Umgeni Water Board

Mr Hlongwa responded to Ms N Sihlwayi’s question regarding their prioritisation of rural areas in their spending. They have a budget of R1.6 billion spent on CAPEX, but of that budget they spent in total, R1. 2 billion. Of the R1.2 billion, R82 million was spent on rural development or increased access to rural areas. This does not mean that the money spent on other projects such as augmentations is not for rural development projects. Some of the augmentation projects speak to expanding the water works to rural areas, such as Maphumulo, which was an existing water works but because of the growth of demand, we have had to augment it. We cannot necessarily define it as rural development because they are augmenting an existing infrastructure in rural areas. We can submit through the Secretary of the Committee, all the projects where we are augmenting existing infrastructures in the rural areas and not starting new projects. He addressed Ms Sihlwayi’s second question regarding the loans to subsidiaries. They have two subsidiaries - one is used to manage their dams to ensure there is no pollution around the dams and undue development that would have a negative impact on the water bodies in those dams. It is a nonprofit entity that fulfils the mandate of managing the water sources. Over time we provide funding for it to fulfil its mandate through a management fee arrangement. It is not necessarily a loan but rather a management fee arrangement so that it is able to fulfil its mandate.

He addressed the questions a number of Members asked regarding the irregular expenditure matter and stated that they accept they need to work harder but that the chairperson of the board would explain what was being done with regard to consequence management in that regard. Lastly, he addressed the questions regarding the non-payment by municipalities and the tariff determinations. They continue to engage with the local government sphere through CoGTA and the KZN provincial cabinets to ensure they do get their payments for services rendered. It would be irresponsible for them to totally terminate the services of those areas, as ordinary people would suffer. They also need to ensure that they maintain a sustainable organisation. They always try to ensure they have a balance. Through the intergovernmental relations process they always try to get something out of the balances that are owed. The situation is worrisome but they are trying to resolve it by working hand in hand with the Premier of KZN.

With the tariffs, because the municipalities are supplying to the end consumer, the end consumer in turn does not pay the municipality. Some municipalities are therefore in the space where they cannot afford to pay the Umgeni Water Board as they render services, particularly with tariffs. Some municipalities have also failed to set their tariffs properly. For instance, the board is selling the municipality water at R7 per kilolitre, whereas they sell to consumers for R6 per kilolitre because they do not have a robust tariff setting process. The board has embarked upon a process of revenue enhancements where they are assisting municipalities with putting together a process that is robust enough to set the tariffs properly. They are also assisting them with metering all the major customers so they can at least recover revenue from those businesses that can afford to pay them. ‘We have found in rural areas that there are a number of businesses that are unmetered - who are prepared to pay but have never been metered before so Umgeni Water Board has invested in metering those areas so the municipalities can receive some form of an income so they can pay Umgeni Water Board for their services’.

With regard to the directives received from the Department - they have only received one directive issued by the Minister in 2018-2019. That directive is a continuation of a project that is part of the Presidential 6 which is the Umkhomazi water project, to clarify institutional arrangements where the project was concerned. There are no financial implications as yet because the aim was to clarify institutional arrangements, such as who does what portion of the projects and that the projects are expected to be self-funding, meaning that consumers work with the board to ensure that the projects are implemented using their own funding.

Ms Mathenjwa addressed the issue of irregular expenditure stating that they are committed to ensuring that any areas that are raised during a financial year are attended to timeously and that they have a plan. They have regular engagement sessions with the Auditor General. They go through every item that is reflected as irregular expenditure thoroughly, not just for Umgeni but also the other SOEs and get guidance from the AG. As a board, whenever they have areas of irregular expenditure they go through an internal process and call management to account. They analyse each irregularity and ensure that there are no acts of corruption and no areas of non-compliance that are unjustified. Before sending it to the Treasury, they have their own internal process of resolution that clearly dictates the steps that must be taken by management to ensure that they do not have any irregular expenditure in the future. They have a formal engagement with the Treasury to ensure they meet their deadlines and submit for coordination. They have gone further to appoint a team of experts to ensure they are constantly in line with good governance. Their policies are reviewed and they have proper benchmarking exercises. These processes ensure that in the future, they identify problems before they are deemed acceptable and resolved before the end of the financial year. They commit to working vigorously going forward. For the year under review, they have ensured that all areas with irregular expenditure have been addressed in full with the AG and sent to the National Treasury.

With the trip taken to Las Vegas, they have a delegation of authority framework and at the end of the financial year the board does an analysis of all the areas of interest and trips that would benefit the board. They usually pay attention to areas where they have large infrastructural projects like big dams in areas where they have technologies around desalination, waste water works and others. For the trip referred to by the Committee they did the same exercise and came to a board resolution and it was done with Umgeni policies. They went further and submitted a detailed document to the Minister before the trip was embarked upon. All the areas of compliance in relation to international trips were followed and the trip was legitimate.

Rand Water Board

Mr Mosai to the questions regarding the War on Leaks Programme. The challenges have been two-fold. Firstly, with funding, the allocation was appropriate right at the beginning they had funding shortfalls so from time to time they agreed with the starts and stops to an extent where during the training of some of the students, the colleges could not get the students into classes to complete the programme quickly. When the students were placed within the municipalities, due to the market downturn, the municipalities did not have a sufficient budget to absorb the students.

Ms Wayida Mohamed, Group Human Resources Executive, Rand Water Board, responded to the question of learners neglected by the Department. All learners that were attending classes were paid but some had taken chances and bunked classes but expected to be paid. The regional coordinators have been on the ground assessing the situation in all the regions, working together with the Department’s regional officers. Because of the budget limitations and some of the dangerous challenges on the ground, such as learners wanting to assault officials because of the verification role they play, they have not always been able to verify. The learners who they have paid, they are able to verify. Those learners that say that they are home without being paid are usually because on the side of the EWSETA, colleges had not been paid because of cost limitations and some colleges excluded learners. They were faced with the dilemma of whether they should withhold the stipend and access to the college or do they pay. All of those issues have been resolved in terms of verifying the payroll.

With regard to unemployed trained graduates and whether the Department has paid the board or if there is money outstanding - there is a significant amount of the budget outstanding which will be detailed by the Chief Financial Officer. There has been a downturn in the job market and placement into jobs has been difficult. Our mandate was a tripartite agreement between them, the EWSETA and the Department. Their mandate was never to find permanent jobs but to find working opportunities for the learners to complete their qualifications, which they have done, but because of the COVID-19 situation, there are about 2000 learners left in the system that have had to leave the workplace. Those who are still in the classrooms will be back to prepare for tests. This is the last group. Unfortunately municipalities who were meant to absorb them to assist in their water loss challenges and other related challenges do not have the budget to be able to use them. We have also found that some learners like the conditions in the private sector more and give various excuses as to why they do not want to be placed with the municipalities and then they leave their posts without giving adequate notice. Some learners are also currently being used for certain water projects by M and E agencies on the ground.

With the War on Leaks Programme and assisting the Department, it is true that young people want jobs but not skills but they need the skills for the job. They are not in the position to answer on behalf of the Department whether there are salaried jobs available. The mandate was never to secure salaried jobs but rather to make them more employable with specific reference to the municipality. Learners are completing their qualifications and some move into industry while others move into projects. It is difficult to keep track of them because they often move out of the municipalities they were originally placed in. Some learners have said they have started small businesses in the more remote and rural areas of the county and have started training other young learners in turn.

With the comment that too much is expected from the Rand Water Board, she stated that because they are the eldest they take the overall responsibility for being the implementing agent for a number of projects that include multiple agencies and entities that are role players. The Department project manager has been supportive in trying to take up some of these issues, especially the funding challenges.

The Chairperson asked for Ms Mohamed to provide a written response to the Committee that will be circulated.

Ms Hashatse answered the question regarding the funding of IDT. She wanted to correct that impression and stated that the organisations listed in the presentation are the organisations with whom the foundation works, not who they are giving money to. With the irregular expenditure matter and the commitments made to it, she agrees with the Chairperson and the Committee that it needs to be eliminated and not reduced. The root causes are analysed and from that analysis they worked out how to address the irregularities.

Ms Mahlatse Kabi, Audit Committee, Rand Water Board, stated that they track all irregular expenditure they are closed. They have consequence management and processes put in place to ensure they are not repeated. This becomes their standard audit item that they deal with on a quarterly basis. They have advised management to put processes in place to identify the irregular expenditure timeously. They have strengthened their compliance function to prevent further irregular expenditure. They have regular sessions with the AG to learn from experiences in other water boards and what can be done to eliminate it. They have enhanced their SCM policy to mitigate the risk. They have also asked management to ask for clarification on matters they were not clear about during the year so that they do not end up with high irregular expenditure by the end of the year. Moving forward they also work with their forensic, legal and compliance departments to ensure they reduce the irregular expenditure for the coming financial year.

Overberg Water Board

Mr Buthelezi answered the question on irregular expenditure. They have a new SCM policy with regard to compliance that was developed to eliminate irregular expenditure. They have a risk matrix that looks at high priority risks that are presented on a quarterly basis to the Committee and contained in board reports. They have been engaging with the AG’s office that has been providing counselling and guidance with how to deal with the matter so that they work towards elimination. They cannot eliminate it completely because there are some figures they still need to deal with but they are working towards reducing it completely. 

The CEO of Breede-Gouritz, on being appointed as the acting CEO, responded that he was the new CEO appointed by Cabinet on 14 December 2019. He no longer belonged to the Breede-Gouritz organisation but was the full-time CEO of the Overberg Water Board. There was an oversight role performed by the board. With regard to the outsourcing of the internal audit, the appointment is for 3 years to be able to build enough infrastructure to internalise the role. They chose that option based on their analysis, considering the challenges they had before regarding what was more cost effective that would maximise benefits. The contract ends next year and was only a temporary measure. They have not received any directives in 2018/2019, so there is no money owed to them by the Department of Water and Sanitation.

Mr Razeen Benjamin, Chairperson, Overberg Water Board, stated that they investigated 100% of the irregular expenditure and engaged with the AG and legal advisors for the process going forward, especially regarding consequence management. They are currently in the process of implementing consequence management with one of the employees within the structure, within the lockdown period. They have not received any directives but prior to the lockdown and currently they have engaged with the Department to become an implementing agent for specific projects.

Mr David Mahlobo, Deputy Minister of Human Settlements, Water and Sanitation, responded that the War on Leaks Programme remains unresolved. They have engaged with CoGTA and affected municipalities. Rand Water Board as their host for the water common center will be able to deploy some of the graduates in the meantime. The Department was committed to returning to the Committee regarding the matter. The Department is pleased with the performance of the three entities. The Umgeni and Rand Water Boards have been around for some time so they cannot be praised for merely performing their roles. Overberg has recently come about and the Department will continue to support them. They need a clean audit from all three entities. The debt of the municipalities is a cost cutting issue. With the Committee’s support and guidance he requested that they have a further discussion on the matter as it is a problem for the whole country and if it is not contained it will become like the Eskom problem.

Ms Sihlwayi, asked, as a follow-up question to the Deputy Minister – ‘now that the Rand Water Board is in the final stage in terms of training, is the Department ready to take on the graduates for salaried work within the Department’?

The Deputy Minister responded that there are problems with the programme as the municipalities wanted the graduates to be given employment without making the financial provisions for it. In the last engagement the Department had with CoGTA, there was an argument that for a period of three months they will be able to make them available to municipalities that will be able to carry the costs. There was no uptake even for the municipalities that were able to pay the salaries for that period. They will not be able to absorb all of them so they are looking to find an innovative way to use some of them for the COVID-19 wash campaigns and issues around hygiene. In the meantime they are working on a post-COVID-19 recovery plan. They are putting in a plan to see how they will put in the development infrastructure to absorb all the young people. Water, energy, transport and telecommunications are all sectors where they should be able to invest to create labour intensive and technical jobs. When their plans are more mature or they were able to be rolled out, they will share it with Members of Parliament. They have been raising the flag because these young people are going to be a lost investment and adding to fruitless spending. ‘Let us work together with CoGTA to tie those loose ends’.

The Chairperson requested that the Deputy Minister return to the Committee to update them on progress of the Programme. She shared the sentiment that the Programme was good but needed to be restructured. She stated that they need to look at compliance issues and run a proper development programme for the youth. She requested that they meet up at a later stage to discuss the matter and asked that the board get unqualified audits and put structures in place to mitigate irregular expenditure.

The meeting was adjourned.

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