Housing Development Agency 2019/20 Annual Report; with Deputy Minister

Meeting report

The Chairperson stated that this is a continuation of the 2 March meeting on Housing Development Agency (HDA) Annual Report when the Committee received the auditor’s report and today HDA was invited to present its Annual Report.

Deputy Minister remarks
Deputy Minister Pam Tshwete noted apologies from the Minister due to travel engagements. The Director General of the Department of Human Settlements (DHS) and other senior officials were present. DHS is going to brief the Committee on the HDA 2019/20 Annual Report and the briefing will not deal with temporary residential units which will be dealt with in the 2020/21 Annual Report. Members are aware of the challenges faced by the entity, but it is also proper to bring into focus the incredible value of HDA in the human settlement space. HDA was established by DHS in 2009 as a national entity whose services cut across all spheres of government.

Members stated that they were unhappy that the Minister who is the executive authority never attends Committee meetings and said that this must stop.

The Chairperson reminded Members that the Minister has a sent an apology stating the reason she is unable to attend the meeting. She is as well represented by a senior team of officials led by the Deputy Minister.

Deputy Minister Tshwete continued that the strategic role of HDA was in clearing the backlog for adequate housing the demand for which has grown over time. These means HDA had to perform under intense pressure as the more government delivers, the higher the demand grows. As such, the HDA mandate has expanded into a dynamic space which involves informal settlement upgrade, emergency housing and project management support amongst others. It was through the HDA that DHS was able to identify 136 priority housing developments areas when the target was 94 areas. This ensures 64 000 households in Gauteng benefit from the development from two major human settlement projects.

Ms E Powell (DA) further raised concern at the lack of the executive authority in the meeting because the Act states that this entity is a juristic person, and the executive authority is vested in the Minister and not the Deputy Minister. The board has been disbanded which means there is no accounting authority present here.

Again, the Chairperson ruled that although the Deputy Minister is not part of the executive authority, the DM was appointed by the President to assist the Minister. The Constitution states that the Minister can delegate to the DM in her absence which the Minister has done in this case. In the absence of a functional board, Mr Neville Chainee has been appointed as administrator and will assume full responsibility of responding to questions that will be asked by Members today.

Administrator of Housing Development Agency (HDA) 2019/20 executive summary
Mr Neville Chainee, Administrator of HDA and DHS Deputy Director-General: Strategy and Planning, said that during the period under review 01 April 2019 to 31 March 2020, HDA was under administration between 01 April 2019 and September 2019.

Based on 2018/19 audit, an audit action plan was implemented, and monitored - Slides 20 to 29 provide and overview of the successes achieved in the audit action plan. Some of the key governance and financial items put in place include a risk register, contract register, supply chain management policy, internal audit, and risk unit. Treasury guidelines for the identification of irregular and fruitless and wasteful expenditure is in place and there is the institution of consequence management. Board and Audit Committees were put in place with charters and the company secretary appointed in April 2020.

HDA delivered 4655 housing units and 6041 serviced sites as mandated by various provinces and municipalities. The work-in-progress as of 31 March 2020 was 6822. HDA’s contribution to the delivery figures for 2019/20 can be compared with the Free State, Mpumalanga, and North West. If the work-in-progress is factored into the figures, then HDA can be compared to the Western Cape. The review and improvement of organisational efficiency, financial management, programme and project capabilities, together with capital and operational sustainability remains a priority. The audit for 2020/21 demonstrates further progress in ensuring the mandate of the HDA is achieved.

HDA Annual Report 2019/20: Acting CEO presentation
Mr Teboho Sejane, HDA Acting CEO, stated that an interim Board was appointed in November 2019. The Acting Company Secretary was appointed in September 2019 with the Company Secretary appointed in April 2020, the CFO in May 2020, Manager: Audit and Risk in October 2020 and all executive positions filled.

Mr Sejane went through the performance indicators and noted met and unmet targets such as:
- Six parcels of land were facilitated for rezoning and the annual target was exceeded by one parcel of land.
- Of the 6498 human settlements units delivered/supported, 4655 housing units were achieved with a shortfall of 1843 units.
- 9100 human settlements serviced sites delivered/supported. With 4455 achieved, there was a shortfall of 3059 in the annual target.

The non-attainment of targets is borne out of the fact that HDA does not directly receive funds for its capital programme. The programme is undertaken based on agreements with provinces and municipalities. In several instances, it is common that such partners do not transfer the associated funds timeously or even do not meet their obligations entirely. In response, it is unavoidable for HDA to mitigate against financial ruin and to safeguard its credibility by downscaling its programme or to forestall embarking on projects where funds have not been in received.

Ms Mmemeng Tsehla, HDA Acting CFO, reported that HDA received a qualified audit opinion. She explained the audit action plan to address irregular expenditure and the other audit findings. Measures and controls:
- HDA has adopted Treasury Practice Note 4 of 2008 on procedures for treatment of irregular expenditure.
- SCM has developed a checklist to determine any possible irregular expenditure incurred monthly.
- Contract Management department is responsible for compiling a list of expired contracts.
- Newly established Internal Audit & Risk Function monitors the implementation of internal controls.
- Audit & Risk investigates irregular expenditure and a report is submitted to the CEO.

Discussion
Ms E Powell (DA) asked for clarity from DHS on its understanding of a juristic person and what authority the executive authority as a juristic person has? Caretakers of this entity should be ashamed because this Annual Report is indicative of the crises besetting it. The legally required financial controls have failed, there is constant reshuffling of executives and the degree of irregular expenditure is a cause for grave concern. This Committee demands full and timely explanations with a view to establishing full liability. It must be noted that in the absence of a board, the Minister as the executive authority should assume full authority seeing that the accounting authority was dissolved. The audit report has deteriorated under the watch of the Minister. What liability does the executive authority assume on the irregular expenditure incurred? What disciplinary actions has been taken on the 2018/19 audit report? Two employees were dismissed. There was R109m irregular expenditure in 2018/19 and R131m irregular expenditure in 2019/20. What further actions has been taken against officials who were identified to be complicit?

Ms S Mokgotho (EFF) asked what disciplinary steps have been taken against financial transgressions that took place in 2019/20. If two officials were dismissed, what were their offences? Were their sanctions commensurate to their wrongdoing? If they committed wasteful and fruitless expenditure, why were they not asked to pay back the money after their dismissal? Why was there no audit evidence showing that disciplinary steps were taken against HDA officials who incurred irregular, wasteful and fruitless expenditure during 2018/19 and 2019/20? Did DHS do effective oversight to address non-compliance with legislation by HDA; if so, why did it not intervene to give guidance during those two financial years? Why did HDA management not exercise adequate financial oversight responsibility over the preparation of annual financial statements, performance reporting and comply with laws and regulations and internal controls? Why did HDA management not implement proper record keeping to support financial and performance reporting? Does HDA have overarching plans and programmes to address the challenges that led to the qualified audit? Why were some competitive bids adjudicated by the adjudication committee not in compliance with Treasury regulations? Why were some contracts extended and modified without proper approval as required by the PFMA? What are the reasons for non-availability of housing for military veterans in Limpopo? What has been put in place to address the challenge of untraceable beneficiaries in Limpopo?

Ms M Mohlala (EFF) revisited the unavailability of the Minister at Committee meetings and suggested when next the HDA is discussed, the Minister must be summoned to attend. Last time the Minister told the Committee that she will only avail herself when asked to. She noted the former HDA CEO earning close to R6.5m in 2020 – an increase from R4.3m. Why the increase of R2m. In 2021 there was no CEO so why was this annual salary of a CEO necessary? Findings of the independent auditor dealt with irregular, fruitless and wasteful expenditure, project receivables and procurement irregularities. Can HDA explain in detail what went wrong on procurement and contract management? Some of the bids adjudicated by an adjudication committee were not compliant. People are doing these things knowing there is no consequence management. Some of the contracts were awarded to contractors who were not tax compliant with SARS. We see looting taking place here. Sufficient appropriate evidence could not be obtained by a review team on the Gateway projects. Lots of things are out of order and people who do not know their responsibilities are hired. They should explain the performance bonus and what it was paid for. Everyone knows that if an entity does not perform well, they do not get a performance bonus. Why were they paid a performance bonus?

Ms N Mvana (ANC) said to HDA that its actions were unacceptable. Those irregularities happening while under administration should not be an excuse. She was covered by the other Members' questions; let us see what their answers will be before more questions are asked. 

Mr M Tseki (ANC) said at last week’s meeting the auditor briefed this Committee. The Committee had resolved to wait for the Administrator’s presentation. In the expected presentation, the Administrator will tell the Committee the true position of HDA challenges and what they did. We must hear what DHS is doing and based on that, this Committee will take a political decision. Members have advanced some proposals already but those may be premature.

Mr L Basson (DA) called a point of order that no Member should answer questions meant for DHS. DHS can answer the questions put to them. The Member should stick to the questions he wants to ask and not comment on questions asked by other Members.

The Chairperson agreed and said the Member must not respond to other Members' questions meant for DHS.

Mr Tseki sought guidance on whether this presentation is that of DHS or HDA? Since the auditor’s briefing last week, action is now being awaited from DHS. Based on what the guidance is from DHS, the Committee will then take a decision.

Several Members raised a point of order. They all said the Member should not defend DHS.

Ms N Sihlwayi (ANC) appreciated the audit report which revealed organisational problems at the HDA. Three areas were problematic. They depend on other sectors to carry out their projects. After the 4 000 housing units built by HDA, sadly it has regressed very much since then. HDA's organisational structure is a problem, and so is the lack of authority to deal with project management principles. They cannot plan because they must rely on money coming from other places. The audit action plan is appreciated because what they have done is to analyse their weaknesses with DHS. What is unclear from the action plan is when and how they are going to get a direct budget.

Ms N Tafeni (EFF) asked how HDA is responding to invasion of stands and community protests? What measures have been implemented in the Eastern Cape to address the challenges of untraceable beneficiaries as in the Limpopo province? What caused the delay in implementing the findings of the external auditors?

Response
Deputy Minister Tshwete appreciated the comments and questions raised by Members and it is true that HDA has no authority as the Department is the implementing agent in the provinces. As many of the questions are directed at HDA, DDG Chainee and HDA will respond. 

Mr Chainee reiterated that as DHS and the core group of officials at HDA, the matter of irregular and fruitless and wasteful expenditure is taken seriously.  Exercising responsibility and accountability is a serious matter for the officials. It is important to note that when an audit takes place, it is a reflection of the previous year in terms of what has occurred. The important take away from such an audit exercise is what is the audit action plan, the rectification and mitigation measures being adopted to resolve the issues? The main issue is the irregular and wasteful expenditure and there is a specific plan to address that as presented – the steps to be taken, actions, who is responsible and accountability. All the deficiencies and weaknesses occurred over a period that started around 2017/18 and it deteriorated. The Committee will remember that 2018/19 was a period of turmoil. There were weaknesses in capacity, knowledge and experience. People left the organisation, there was lack of discipline and consequence management. The important point to make now is that there is an audit action plan in place and there have been improvements now. We can now say that we have a risk register and alignment of the organisation to its functions and objectives. When it comes to any form of irregular expenditure, it should not be condoned. When it is identified, there must be an investigation to determine its root cause. In many instances it is non-compliance with regulations and policy prescripts. When that happens, investigations take place that results in an official charged, facing a disciplinary hearing.

Mr Chainee noted that with consequence management, people often drag out disciplinary action but of course the rule of law must be followed. He noted the increase in cash reserves of R638m versus the previous R497m. On an annual basis, HDA enters into contracts with provinces and municipalities to undertake work for house construction etc. What happens is coupled with monies rolled over from the previous financial year, there are new commitments that get taken on. That amount will change when HDA accounts to the Committee for 2020/21. This is because of the contracts with municipalities and provinces where they lack capacity and HDA is then contracted to do that work. The figures that are reflected are disclosures; it means HDA can account for them.

The bonuses reflected in the Annual Report of 2019/20 are bonuses that were paid in respect of performance agreements signed and agreed to in 2018/19. It was not for the year under review. The HDA does have a performance management system for staff and that includes where staff do qualify, those amounts are paid with specific reference to bonuses.

Mr Lucien Rakgoale, Landholding National Manager at HDA, replied about the Limpopo Military Veterans Housing Unit that to date of the 611 units targeted for construction of military veteran houses, 447 units have been completed. Currently 118 units are under construction. The challenges experienced are that the distances between villages is vast so that it makes no business sense to build one unit for a veteran very far away from the next veteran who is 100 km away. The contractors appointed to build are the ones that are building rural housing units in Limpopo.  On the matter of untraceable beneficiaries, that varies from area to area. In cases where beneficiaries cannot be traced, their names are published in the local newspapers.

Follow-up questions
Ms Powell said the Minister had replied to her Parliamentary Written Question that the CEO Mr Moloi was paid R6.5m salary in 2020. He was appointed on a five-year contract which was due to terminate on 20 January 2020. It is strange a legal battle took place as Mr Moloi was supposed to be leaving in any case. The settlement was supposed to be a departure agreement as it was easier to let him go and pay him that amount than to continue fighting in court with huge legal costs.

It is great that the weaknesses are being addressed but let us see how that will reflected in the 2020/21 Annual Report. The point is that these weaknesses are not new as the entity had been in administration a year before. We must not accept there plans on face value. We know two officials have been dismissed; how many criminal charges has been filed against officials? What steps have been taken to recover irregular expenditure incurred by these officials? In terms of Section 65 of the PFMA, the Minister has a duty to report all findings and sanctions imposed by the disciplinary boards. It is a legislative duty to report it to Parliament. When can the Committee expect a full report of all the disciplinary action, sanctions imposed, and criminal cases filed?  The responses the Committee is getting are inadequate as we are not hearing of the consequences.

Ms Mokgotho wanted to know if DHS is proactive in dealing with HDA or are they reactive. Do they do timely oversight? HDA said they track beneficiaries but in the Eastern Cape, that is not case because there were people that registered for an RDP house in 1998 and their houses were approved even though it took a long time. Some beneficiaries died before getting their house. Instead of contacting their families, the municipalities sold those houses to other people who were not even staying in that municipal area. What then is HDA going to do about these concerns?  

Ms Sihlwayi said HDA, as an entity of DHS, is not well coordinated for it to succeed. DHS needs to strengthen the coordination of HDA systems and the different spheres of government systems also need to inter-coordinate.

Ms Mohlala noted that Mr Chainee said that the performance bonuses were for the previous year but HDA had a qualified audit that year as well. The Committee hopes it will not be surprised again with HDA employees being paid another set of performance bonus in the current financial year. Just ensure they are not paid a bonus for 2019/20 as there is no performance that will warrant it.

The Chairperson agreed that the role of DHS must be visible. It has a responsibility to ensure that HDA performs better because it was established by DHS. Its oversight functions must not be slack and all the structures necessary for it to function must be put in place. The internal audit of DHS must monitor all the entities of DHS. From a layperson’s point of view, HDA is supposed to have all the engineering quality leadership and project management skills for this department. DHS must have an interest in the people being appointed into the structures of HDA.

Ms Tafeni said that people who registered to get RDP houses years ago only got those houses when they are older and they need to extend those houses because they have larger family. However, they are asked by government to pay for the building plan. Where are they supposed to get the money from?

Mr MbuleloTshangana, DHS Director General, replied on what government should do to stablise HDA, saying that what was suggested will be taken as a recommendation. DHS oversight will be more hands on. The current Administrator knows the mandate of HDA and was instrumental in its establishment. He knows both its primary and secondary mandates. It has been focusing more on the secondary and not so much on the primary mandate.

On HDA budgeting, the Director General replied that the entity was never capitalized. The intention was that the majority of land parcels and buildings would be transferred to HDA which would then  use those land parcels to capitalize HDA. That approach did not work because it took forever to finalise the transfer of assets from Public Works and state-owned enterprises to HDA. This did not happen making it difficult for HDA to have its own budget. HDA is relying on an operational budget of about R250m – the bulk of which goes to salary payments. They rely on provincial implementation agency agreements which sometimes come very late. This year the focus will be on how best to capitalise the HDA. A previous HDA CEO made a 2013 proposal for it to be capitalized at R500m which never happened, but that discussion is still on the table and will be prioritised this year. For HDA to be able to negotiate with private funders and developers, it needs to have its own capital budget which it does not have right now.

 On what DHS is doing now, the DG replied that the Minister took the decision for DDG Chainee to be the administrator because he knows the business of human settlements and was there as an executive manager right from the onset. That is not an adequate solution and DHS has gone out to advertise for the new board and done the shortlisting. All that is left is for the Minister is to apply her mind on the new board members. The plan is not to keep DDG Chainee there as an administrator for too long as there are many competing demands for him from DHS itself and his portfolio is to guide policy implementation in DHS. A CEO also needs to be appointed as a matter of urgency.

The DG replied that the former CEO was paid out because it was in the best interest of HDA to do so. His departure was finalised in January 2020 whilst his contract was coming to end in October 2020, so he was released before the end of the contract.

Mr Tshangana said the point about the waiting list is valid point because many people are on a waiting list for a very long time. That is why the strategy of prioritising elderly people was implemented. Elderly people 60 years and above were prioritised to jump the queue so that they can get the houses they deserve before they pass on with dignity. For young people, the provision of serviced sites was prioritised because they are young and have the time to still build their own houses. The backlog of elderly people will be completed in less than no time because there are not too many of them. To stabilise HDA, a CFO must also be appointed as a matter of urgency. The CEO and CFO are executive members of the board and if left vacant for a long time, HDA will never be stable.

Mr Chainee provided clarity on beneficiaries. HDA has given assurance that in terms of its systems, it prides itself on the integrity of its beneficiaries. Besides construction, at the onset of projects, it ensures that the project committee is established with the community which helps to be clear at the outset who the beneficiaries of the project will be.

Ms Powell recapped her questions by asking for Mr Chainee’s understanding of the liability of a juristic person with regards to the executive authority because the accounting authority of the board has been terminated. What is his understanding of the liabilities of a juristic person? How many criminal cases have ensued due to irregular expenditure in the past two financial years? When can the Committee expect a report in terms of Section 65 of PFMA with full details of all disciplinary action that has been taken against HDA officials since financial year 2018?

Mr Chainee in summation stated that in relation to accountability and responsibility of the Administrator, that is covered in Section 31 of the HDA Act. The administrator will step into the shoes of the board and assume the responsibility of the accounting authority. The Section 65 report will be provided to the Committee within seven days. On the settlement, the DG has indicated that a separation agreement was signed on 20 January 2020. The contract was due to terminate on 31 October 2020. Based on an evaluation of how long the settlement would have taken, it would have gone beyond 31 October. It is pertinent to note that at the time the settlement occurred, there was a disciplinary matter against Mr Moloi that had commenced around January 2019. By January 2020, we had gone through only one charge for an entire year. It was on this basis that DHS weighed in that the option to settle was the best outcome.

Deputy Minister Tshwete thanked Committee members for their advice and recommendations which have all been noted. The advice that DHS must monitor the entity and its internal audit is well taken. It is reassuring that the DG has promised that there will be stability at HDA. The shortlisting of the new board has started and once that is in place, there will be change.  All the issues raised have been noted and DHS will report back to Parliament.

The Chairperson urged DHS to move with speed. When Parliament deal with Quarter 4 2020/21 performance, DHS should ensure that HDA is brought along so they can brief Parliament on how they have implemented the action plan mentioned in the presentation.

The meeting was adjourned.