The Committee convened on a virtual platform to be briefed on the Department of Human Settlement’s entities' annual performance for the 2021/22 financial year. These entities were the Community Schemes Ombud Service, Estate Agency Affairs Board and Housing Development Agency. The respective entities presented their performance and plans to overcome some of the adverse findings by the Auditor-General (AG).
The Community Schemes Ombud Service (CSOS) has had a number of issues regarding its board - there have been resignations including the Chairperson of the board. A key challenge here was to address this in particular so that a new board would be able to take over in the new year. One of the bigger issues throughout the entities was consequence management. Members of the Committee felt that little was done and little was explained on why some employees were dismissed and others had resigned and questions of whether those who had resigned prior to their hearings would still face consequences. CSOS committed that management will implement appropriate consequence management procedures that will ensure that amongst others, management investigate any irregular, fruitless and wasteful expenditures identified through the recommendations of the loss control committee and other disciplinary processes. The other major issue was the high vacancy rate in the entity, Members felt strongly on this matter because they attributed some of the capacity issues of the entity to its high vacancy rate. It would be hard for any organisation to function optimally if there are no permanent suitable individuals to do the job.
The Housing Development Agency (HDA) as an entity was seen to be faced with a multitude of finance mismanagement issues. Management did not implement proper record keeping in a timely manner to ensure that complete, relevant, and accurate information is accessible and available to support financial and performance reporting as a result there were improper procurement practices within the entity. What concerned Members of the Committee the most in this matter is that some of the issues highlighted by the AG were not occurring for the first time. These were repeat cases of the same problem. For example, one of the Members highlighted that the entity has been in the process of updating its IT system since Members of the Committee were sworn in back in 2019 and it has yet to be improved. There were plenty of supply chain management issues that were highlighted here as well. Management did not exercise oversight responsibility regarding financial and performance reporting and compliance as well as related internal controls. There was no review and monitoring of compliance with applicable laws and regulations. This among others was the biggest issue because supply chain management goes in hand with finance management if one lacks then inevitably the other will lack as well. This has had a significant impact on the struggles of the entity. This seems to have been worsened by the reshuffling of senior executives and the reappointment of two boards. Extensive irregular expenditure incurred remains cause for grave concern.
The Estate Agency Affairs Board (EEAB) is one entity that has been going through a lot of litigation. The Minister said she is working on limiting this by striking talks with the respective litigants. One example of this was with Rebosa, a company that sued the entity.
The Chairperson welcomed the Members, support staff and all the guests to the meeting. She then handed over to the Minister for her introductory remarks.
Introduction by the Minister of Human Settlements
Minister Mmamoloko Kubayi asked to be excused early, as she has a presidential commitment. She said that some of the matters have already been addressed in a previous meeting. In that meeting, Members expressed interest in action plans and ways forward in reaction to the AG report. The respective CEOs and other representatives should be able to comfortably answer the questions that relate to the details of the plans to address the AG report on issues like the Talana and Duncan village issues that were questioned by the SIU (Special Investigating Unit). There are quite a number of issues that have been flagged for the Minister to deal with publicly. She said that she opted to not deal with those issues in a public space so that stability could be ensured and so that the brand of the respective entities can be restored – especially for entities like the Housing Development Agency (HDA), which have been going through a number of issues. The Minister said she had met with the various executives, including the CEOs and the administrator, to outline what she wants to see happening: a focus on priority areas to ensure that the tasks at hand have been met. There have been quite a number of issues regarding the perception of manipulation of process and issues surrounding the adjudication process where openness and fairness have not been forthcoming so that trust from the public can be restored.
The Community Schemes Ombud Service (CSOS) has had a number of issues regarding its board. There have been resignations, including that of the Board Chairperson. The Minister asked the Committee Chairperson to assist her up until the end of the month while the appointment of the board is still happening. She wanted people to be able to start with the processes as soon as possible, especially for the person who will be appointed by Cabinet; they need to be started now so that when they take over in January it is an easier transition.
The Estate Agency Affairs Board (EEAB) has had issues with court processes. The Minister said she had met with Rebosa, the company that has taken EEAB to court. The involved parties have agreed that meet at end of November 2021 to iron out the issues between the parties. In that meeting, they will be dealing with administrative and transformation issues that were expressed by Rebosa. She emphasised that she wants fewer court cases going henceforth, and more conversations to resolve issues outside of court.
The Department is now moving to implement new practices in line with the Property Practitioners Act, which has just been assented to by the President. Once the boards have been appointed, there will be an outline of what the primary responsibilities are.
The Minister thanked the Chairperson for the opportunity to address the Committee.
Housing Development Agency 2021/22 Annual Performance Report
Executive Overview and Highlights
During the period under review, the HDA had an interim Board (appointed in the previous financial year, in Nov 2019). The Interim Board was dissolved Feb 2021. The Minister of Human Settlements appointed Mr Neville Chainee as Administrator, effective 17 Feb 2021. Mr Chainee was replaced by Dr Mahapa as the Administrator in July 2021. The Audit and Risk Committee remained the only functional committee to support the organisation under the leadership of the Administrator. Mr Stephen Poya was appointed as Acting CEO from 17 Feb 2021 to 27 Aug 2021. Ms Daphney Ngoasheng was appointed as Acting CEO from 01 Sept 2021.
The HDA’s Performance Highlights
There was a target of acquiring land of 1 500 hectares (h) to be released for human settlements. Land of 2 116h and 5 517h was acquired. The Agency sought to rezone 1 000 hectares of land for Human Settlements development, and 1 190h, as well as 7 144h of land, was actually rezoned. Of the 19 Development plans for PHSHDA completed, 19 were actually completed. There also were 19 partnership agreements established for implementation in the PHSHDA's, and 24 were established.
Medium-Term Strategic Framework Targets and Performance Highlights 2020/21
There were 94 priority development areas declared for human settlements development targeted, and 136 were declared on 15 May 2021. Of the 94, only 19 development plans for PHSHDA were completed. Of all the land rezoned, 32% of from 2014-2019 rezoned falls within the PHSHDAs.
Non-attainment of targets
There was a re-prioritisation of budgets by provincial departments to avail funding to provincial COVID-19 response interventions. There was a slow implementation of projects due to suspension of work on construction sites as a result of the lockdown to slow the spread of Covid-19. The interruption and shortage of supply and delivery of building materials resulting in further delays in implementation also contributed. The withdrawal of Implementation mandates by provinces and municipalities due to reprioritisation of budgets.
The plans to improve the above include initiatives that have been set up to establish improved governance, risk mechanisms, and oversight structures that guide, monitor, and effectively coordinate programme and project management functions:
Operations Committee - The Operations Committee (OpCo) was established in August 2020 to provide guidance, support, and oversight regarding progress of programmes and projects.
Project Readiness Committee - The Project Readiness Committee PRC became effective in November 2020 with the fundamental purpose of ensuring that projects are ready for implementation.
Project Tracking Tool - This tool tracks project performance on a weekly basis. This tool ensures that the entity monitors projects that are performing, and identifies the high-risk projects timeously for intervention.
Audit Outcome from the Auditor-General
The AG said that, for the period under review, the HDA received a qualified audit opinion. “Except for possible effects of the matters described in the basis for the qualified opinion section of our report, the financial statements present fairly, in all material respects, the financial position of the Housing Development Agency as at 31 March 2020. Its financial performance and cash flows for the year then ended per Standards of Generally Recognised Accounting Practice (Standards of GRAP) and the requirements of the Public Finance Management Act of South Africa (Act No.1 of 1999)(PFMA).”
The Audit Action Plan – Finances:
Management did not implement proper record keeping in a timely manner to ensure that complete, relevant, and accurate information is accessible and available to support financial and performance reporting. Management did not perform monthly reconciliations on project obligations. To remedy this the entity will have to (1) communicate project finance records to the regional heads before submitting them to the Department, and give reasons why some numbers are provisional; (2) arrange monthly meetings with the departments to review project finances; (3) communicate to the departments why numbers change and also provide a reconciliation (restatement) of the numbers that changed. The entity has procured a project management system, which will provide regional managers and municipalities read-only rights, to give them access to real-time financial information. And then upon the Department's satisfaction with project funding figures, confirmation will be signed off. This will address reconciliation issues and provide stakeholders with valid and accurate information. This system is currently in a testing phase.
Management did not prepare regular, accurate and complete financial and performance reports that are supported and evidenced by reliable information. It also did not review and monitor compliance with applicable laws and regulations. To remedy this, project obligations will have to be sent to stakeholders timeously. Deadlines for submissions will also have to be communicated.
The Audit Action Plan – Supply Chain Management (SCM):
Management did not review and monitor compliance with applicable laws and regulations. A take-on form has been developed, with an objective to achieve the following: ensure that the project is in the procurement plan. Allocate an SCM Official to the project and confirm the date taken on. A form must be signed by the Project Manager or the Regional Head. SCM Snr Manager will have to approve take-on of project, only if on procurement plan. The form will be enhanced with more controls and submitted to all HDA staff on 01 October 2022.
Management did not review and monitor compliance with applicable laws and regulations. Management did not exercise oversight responsibility in financial and performance reporting and compliance and related internal controls. A probity Audit Team will be appointed and will consist of SCM, Risk and Legal personnel to oversee tender processes and ensure that SCM processes are followed. Where the BEC decision is overridden by BAC, all matters of contention will be referred to this committee for recommendation to the CEO to deviate.
Management did not exercise oversight responsibility regarding financial and performance reporting and compliance as well as related internal controls. To remedy this attendance registers, BAC minutes and declaration of interests for meetings held on MS Teams, need to be electronically filed and electronically archived by records keeping unit to ensure that all minutes and all BAC documents are available for audit purposes.
Management did not exercise oversight responsibility regarding financial and performance reporting and compliance as well as related internal controls. It also did not review and monitor compliance with applicable laws and regulations. SCM will ensure that all tenders have a signed specification before they are advertised.
Management did not prepare regular, accurate and complete financial and performance reports that are supported and evidenced by reliable information. It also did not review and monitor compliance with applicable laws and regulations. The fruitless and wasteful expenditure register managed by Finance Division will be updated regularly. The irregular expenditure register will be maintained and updated by Mr Barnie Ntlou.
Estate Agency Affairs Board Annual Report 2020/2021
The year under review was the first full year over which the entity operated under the restrictive conditions of the COVID-19 pandemic. The period presented numerous challenges that were internal as well as external to the entity. These challenges notwithstanding, the Board is pleased to report that the group has made financial and operational progress, as evidenced by the improved audit outcomes for 2020/21 when compared to prior years. The Board is delighted that the EAAB has received an unqualified audit opinion for the year 2020/21. This result is an improvement on the qualified opinion of the prior year, which was based on an adverse finding related to revenue recognition. Most significantly, the Board is pleased to report that the EAAB received a clean audit, now for the second year in a row. This is the highest possible performance in the public audit process. The Board is gratified that the entity has again discharged the responsibility of managing the fund beyond reproach.
The COVID-19 pandemic resulted in the introduction of government regulations that had a debilitating effect on the industry, at least in the first half of the reporting period. As a consequence, the EAAB presented the Minister with detailed recommendations for supporting the industry by lightening its operational and compliance burden. The Board is delighted to report that a number of these recommendations were successfully implemented to provide the requisite relief.
From a regulatory point of view, the following policy areas are critical for the EAAB:
-Consolidation of policy position on the education and training dispensation given the wide variety and classes of property practitioners;
-Establishment / Active implementation of systems and controls around the keeping of trust accounts and independent review dispensation;
-Application and issuing of Fidelity Fund Certificate dispensation
During the 2020/21 audit by AGSA, the EAAB received an unqualified audit opinion, with emphasis of matter because of material correction of misstatements of revenue and related receivables and material provision for impairments trade debtors.
The Estate Agent Fidelity Fund (EAFF) received an unqualified audit opinion, which has been the case since the 2018/19 financial year.
An analytical review of material movement statements of EAF: the reason for the increase in EAFF is investments is because of better returns in the investments and Investec investment that was previously under call account and moved to Equity Link Note portfolio and classified as investment. The loan decreased due to payment of the management fee by the fund to the Board. An Increase in payables is a result of accruals raised at year-end and paid after year-end. Revenue from exchange transactions increased drastically due to improvement in the return of return from investment. The investments performed extremely during the financial year. Revenue from non-exchange transactions decreased slightly due to a decrease in the monetary value from the interest on the trust accounts from the agents due to lockdown restrictions affecting the industry.
The Legal Compliance Department is responsible for investigating all complaints received against estate agents. Complaints may come from consumers who have been aggrieved by the actions or conduct of any estate agent, a professional organisation such as the South African Police Service, the Law Society, or from a whistleblower.
Mediations and Disciplinary Hearings
The Estate Agency Affairs Act (EAAA) and code of conduct of estate agents prescribe certain conduct for estate agents when conducting their work, and all estate agents must adhere to both.
Every complaint received by the department is investigated and the contravention may end up before a disciplinary committee. Investigations are carried out by a team of legal officers who follow a vigorous, fair and objective process based on a set of standard operating procedures guided by the provisions of the EAAA and the Code of Conduct in investigating and prosecuting matters.
Only serious cases and those that cannot be mediated upon are referred to a Disciplinary Committee (DC). The DC, in sanctioning the respondent in terms of section 30(3)(b), may impose:
- A fine not exceeding R 25 000
- Reprimand such estate agent
- Withdrawal of any fidelity fund certificate
Virtual Disciplinary Hearings
Given the outbreak and continuous spread of the COVID-19 pandemic, in South Africa and around the world, the EAAB had to deploy different measures to curtail and contain the spread of the virus.
The increased compliance in audit report submissions has been noted over the years with regards to the submission of estate agency audit reports by auditors within the prescribed timeframe of four months after the financial year-end of the estate agencies. The small number of estate agencies that are disqualified from being issued Fidelity Fund Certificates, as a result of late and non-submission of audit reports to the EAAB, eventually submit the outstanding audit reports, regularise their registration status with the EAAB and are then issued with Fidelity Fund Certificates. For the financial year ended 31 March 2021, only 20% of estate agencies were disqualified for late and non-submission of audit reports to the EAAB.
Fidelity Fund Claims
Claims against the Fidelity Fund are considered in terms of sections 18 and 19 of Act 112/1976. The fund covers trust money losses occasioned by the activities of estate agents, only. Consequential loss or damages claims are not covered by the fund. Claims are considered by the claims committee of the Board and by the EXCO claims committee if they fall under R100 000. The majority of outstanding claims contained in the annual report relate to unproven claims, which await the submission of supporting documentation to allow the board to consider approval thereof. These claims may or may not be valid claims depending on the jurisdictional, quantum, evidentiary and factual evidence, which remains outstanding. In terms of s18(3) of Act 112/1976, claimants have up to six months to submit requested documentation in support of their claim. Under the new Property Practitioners Act, 22/2019, only trust fund losses incurred against registered agents may found a claim against the Fidelity Fund. This will safeguard the fund as well as reduce claims.
Plans for the Regularisation and Rehabilitation Programme
Identifying and regularising operations of illegally trading estate agents, through the Incubation Programme, and re-registering them and then keeping them practicing legally will increase and retain registered property practitioners within the real estate sector. An example of such would be providing an extension of time to comply with and exemption from educational compliance and financial obligations. Another plan is to conduct research to identify barriers to the entry and retention of property practitioners within the real estate sector. Other plans include: conducting Provincial Public Participation and Stakeholder Engagement Road Shows; setting up help desks in all provinces to advise illegal operators and prospective estate agents on compliance with the Estate Agency Affairs Act; implementing an Incubation and Training Support Programme as well as Implement a Mentorship Programme.
The EAAB has received an unqualified audit opinion for both Board and the Fund. The Board had had adjustments to be made from AG recommendations. The Annual Performance Report has also been unqualified with the achievement of 57%. Audit findings were resolved with the AG during the audit; those that were unresolved only relate to IT challenges. An action plan was presented to the ARC and was checked by the internal auditor. All AG findings relating to finance and other sections were resolved during the audit. Finance findings were resolved through the adjustments that AG has accepted.
Community Schemes Ombud Service 2021/22 Annual Report
This report was presented by the Board of Directors of the Community Schemes Ombud Service Guide (CSOS), led by its Chairperson, Mr Mthobi Tyamzashe, and the CEO, Adv. Boyce Mkhize
To address the negative historical context, the Board identified five key focus areas (priorities) for the year under review and registered the following achievements:
- Filling the two key positions (Chief Ombud and CFO): the board was able to fill in suitable candidates.
- Unlawful VBS Investment: Hawks engaged the matter and is seeking to pursue possible recovery through Asset Forfeiture Unit. Disciplinary process has been initiated and has led to the termination of contracts for the executives involved.
- Business Automation Solutions: this is underway, as well as integration of systems with ERP authorised to be part of the BAS automation.
- Physical Infrastructure: the entity moved to new offices in January of 2021.
- Enhancing Registration and Collection of Revenue Processes/Profiling of CSOS. The data cleansing process has commenced. The Board approved ‘go-to-market’ strategy, which is being rolled out, i.e., media platforms, billboards, inserts to newspapers, etc.
There was an improvement in the audit outcome from the baseline, which was an “adverse’’ to ‘’qualified’’ audit opinion. The oversight role coupled with management’s resolve to institute adequate controls has started to yield positive results. The board and the executive management are alive to the challenges that have inhibited the entity’s performance – in this regard, an effective business automation solution, delays in the finalisation of adjudication matters, and the entity’s inability to account for the complete universe of the schemes. A new approach is already in place to tackle these challenges in the 2021/22 financial year, and there is already great progress towards the processing of these issues.
Remedial Actions to Address the 2021 Audit Outcomes
The entity intends to improve the outcomes in the following manner:
The development of an audit action plan with remedial action and timelines are to be monitored on a quarterly basis. National Treasury did not allow the CSOS to use the modified cash basis of accounting. However, they recommended an alternative basis of accounting in line with GRAP; this is being pursued. A revenue-collection drive is underway to deal with the completeness of the entity’s database, amongst the other projects already underway in the CSOS governance unit. In the current financial year, the entity continued with monthly reporting of planned targets against progress. This then allows for corrective measures identified to be implemented and followed up timeously before the end of the quarter.
The Audit Action Plan
Consequence management: Management will implement appropriate consequence management procedures that will ensure that, amongst other things, management investigate any irregular, fruitless and wasteful expenditures identified through the recommendations of the Loss Control Committee and other disciplinary processes.
Non-compliance with B-BBEE Act and Regulations: Management will design a checklist that tracks all the compliance requirements CSOS needs to consider relating to BBEEE requirements. A service provider has been appointed to grade the CSOS in line with its compliance with the BBB-EE Act.
Mr A Tseki (ANC) said that he has two questions, mainly for the HDA. The first was on the acquisition of land: are there any difficulties in acquiring land? He asked because the percentage that has been presented for the medium term is too low. If it is the case that there are difficulties in land acquisition, what are those difficulties?
Secondly, on the number of people that are being employed, the CEO mentioned that eight positions are to be filled. Does this mean that, because of the situation that occurred a few years ago within the HAD, there has had to be an overhaul of the board?
Lastly, all the entities were given their respective audit outcomes, and they are already four months away from the next financial year to submit their responses to the findings. Are they in action now? He suggested that, probably by the end of February 2022, even if it is not a meeting, the entities must have written records on whether, in the next financial year, the AG is not going to make the same findings on the same issues like it has in this past financial year. He therefore proposed that, before the AG makes the next report, the entities should report on some of the findings and other matters on whether they have done a satisfactory job in doing them.
Ms E Powell (DA) said that her first set of questions is directed at the EEAB, specifically to the Chairperson and the CEO. As everybody is aware, the EEAB has recently lost a court case with Rebosa. A second application was launched based on the EEAB being in contempt of court. It appears that the certificates listed in the first application were only issued on receipt of the second application, and some are still outstanding. Firstly, to the EEAB Chairperson: why did the board not adhere to the court order, and run the risk of further legal expenses for the entity. To the CEO: can it be confirmed that an amount of more than R730 000 has already been paid to the plaintiffs who brought the action as a result of the court ruling? She also noted that the CEO provided guarantees to the Committee and that those guarantees formed part of the plaintiff's particulars of claims. Given the court’s ruling, what would be the CEO's response to allegations that he may have misled Parliament? The CEO also recently stated at a property summit that, for all practical purposes, the case has already been settled and everything has been resolved with the application still pending. So, why was this statement made? The board has also, on many occasions, since the Committee was sworn in, promised that it would replace the IT system imminently. However, tenders were asked for and received last year, but no tender has been awarded. The IT system to the knowledge of the Committee has not been replaced despite all these guarantees. A date on when these should be expected by the Committee would be appreciated.
Agents were exonerated from payment of the CPD fees last year and they were supposed to be credited for 2021. However, there seem to be many issues with this. And payment agents now make sure that FCC registrations are being allocated to CPD payments that are not actually due and then the FCCs are not being issued. Why is this happening, despite the entity having been notified of these areas? She said that she has received numerous emails from various organisations and individuals that will attest to this error. Can it be advised on how many applications were received and how many certificates have been issued to date? Can the CEO also give the Committee a guarantee that there will not be a reoccurrence of last year in view of the pending court action and how much money it costs the entity as a result of its inability to perform the most fundamental task?
What action has been taken by the Chairperson of the EEAB and the Chairperson of the HR Committee, in respect of the former acting CFO Bruce Gordon's report? Some quite serious allegations are contained in that report. In there are points of governance challenges, malfeasance, non-adherence to Treasury regulations, etc.
Can the CEO or the CFO confirm before the Committee that contracts motivated for award to two companies, one called Thakga Investments, were subject to evaluations on price, BBBEE, and their ability to actually deliver on these contracts? Can it also be confirmed if Thakga Investments was registered for that at the time of the award? She then asked why was it that, to her knowledge and in terms of recent findings, the HR department of the EEAB was instructed not to deduct pensions from five new appointees? This is contrary to the Act and the pension fund rules. This has also led to a material loss of R1.4million for the EEAB. On what basis did the board approve this, and what consequence management will be taken as a result? With the recent HR manager having been suspended without a formal disciplinary hearing, has the EEAB suspended other employees without a disciplinary hearing?
This is quite a serious question; it is something that has been exposed and spoken about quite a lot in the media. She would like to hear the side of the EEAB. As it is understood, it is the CEO or rather the entity that proceeded with the action against a whistleblower, despite the previous Minister having requested that her previous disciplinary hearing be delayed until the entity's forensic audit has been concluded. Can the CEO confirm whether or not an action has been taken or a concomitant subsequent action has been taken against the whistle-blower, despite the Minister's request to hold on? If so, to what extent? To the Chairperson of the board: has the board supported this decision?
How many CCMA matters are the EEAB cited on, whether as the respondent or not, are currently pending due to staff complaints? Can the delegation confirm whether or not the Finance Department was introduced to a new CFO on the same day that the board was conducting the final interviews of shortlisted candidates for CFOs? Can the CEO also provide the Committee with any evidence of written permissions that he has obtained from Treasury or the Auditor-General to deviate from the Public Finance Management Act? Lastly, she said that, to her understanding and based on the presentation itself, one cannot fund the principal position programme from the fidelity fund in terms of the existing EEAB Act. So, is the programme that is spoken of going to await the commencement of the new Act and the transformation fund that this Act provides for? If not, in terms of what legislation will the principal position programme be funded with the current Act still in operation?
She then directed her questions to the HDA. It is no secret to the Committee that the entity has been in an extreme crisis, and it was said in a previous meeting that the Committee has been impressed by the actions that were taken by the new Minister. She seems to have acted swiftly since she became the incumbent Minister, to attempt to turn around and at least get the basics going. But again, for the second financial year in a row, the legally required financial control systems have almost entirely failed. This seems to have been worsened by the reshuffling of senior executives and the reappointment of two boards. Extensive irregular expenditure incurred remains cause for grave concern. She also noted that there are a number of Members of the Committee who have been recipients of whistleblowing claims with regards to the entity, and some of the Members have lodged certain matters with the Hawks in respect of the information received.
She would like to thank the new administrator in respect of the information that has been received. Ms Powell further expressed sympathies with her, regarding what she has had to deal with on a regular basis.
In terms of the reports that were presented on the day, she said that they mostly speak on the significant political interference that has gone on in the entity as well as its resultant failure from that. From both last year and this year, the HDA has received a qualified audit opinion.
She went on to reiterate some of the failings of the entity: project obligations were misstated by R2.4 million. The Auditor-General was unable to obtain appropriate audit evidence for project obligations. Irregular, fruitless and wasteful expenditure this year reached a staggering R143 million. Supply chain management processes were not effectively maintained. Internal controls and the required prescripts in supply chain management that would comply with the entity did not have adequate systems in place for identifying or even recording irregular, fruitless and wasteful expenditure; there were no measures in place to record this.
She expressed that she found it obscure and exceptionally worrisome. Parliamentarians and the public at large find know it when Supply Chain Management legislation is not being followed; generally, that is an indication of corruption. In the HDA, the non-adherence to the PFMA and Treasury regulations has resulted in the majority of the irregular expenditure. It is also seen that goods and services valued at above R500 000 were procured without inviting bids, and the deviations approved by the accounting officer were done despite the non-compliance with legislation – even though it was practical to embed competitive bids in certain cases. Some of the invitations for competitive bidding were not advertised as required by law, while some of these were also not advertised for the minimum period. She went on to say that all of this is fancy language to say that there is some corruption going on – a very serious corruption plan that the incumbent people in the entity aided and abetted. Going forward, she hopes that these concerns will be taken seriously.
Her first question was to the administrator, who she said was in an unlucky position of having to answer her question. Can the administrator tell the Committee who is going to take responsibility for these findings? Will it be the CEO? There have been lots of CEOs and CFOs. What action is the administrator going to take to guarantee the Committee that there will be consequence management? Further, what action is has been taken to charge officials involved in the state of the supply chain management issues reported? Are officials in the HDA finance department going to be charged responsibility for the irregular Supply Chain Management awards? Then, what action has been taken to blacklist the companies and to recover the proceeds of the state for the irregular expenditure?
She said she had addressed the Chairperson of the Committee and the previous Minister regarding section 65(a) (b) of the Public Finance Management Act. When she wrote to the Minister for the report it was sent to the administrator at the time. She has also received a formal letter sent to her stating that no formal action has been taken by the HDA in terms of section 65. She asked the administrator if the situation has changed as per the consequence management report. If it has, when can the Committee expect the section 65(a) (b) report?
She then spoke on some of the shortfalls of the entity: emergency procurement of professionals and contracts for the construction of the TRUs. This has been seen in instances like Talana having been referred to the NHPRC, and many of them to the Hawks and the SIU. She asked if the administrator will receive regular updates on the matter. The SIU launched an investigation into allegations of fraud and corruption in regard to Limpopo. It is known that HDA officials were arrested and are out on bail on the matter. She also pointed out that there have been no recommendations or appropriate action taken by the authorities, and the board against the employees implicated; the case is still ongoing. Can the Committee receive a status update as to the employment status of those officials who are out on bail? Can these employees not be suspended on the basis of these charges? Have they been suspended with or without pay?
A total of 31 contracts were awarded by deviation; the reason for this was not explained. She asked the CFO or the administrator to clarify what they mean by saying that contracts. Is this a way to say that the law was not followed? Is there specific legislative processes and request that can be made for exceptional condemnation? Can there be an explanation of the deviation process? How many criminal charges have been filed against officials since the commencement of the 2019 financial year? Then why were the financial statements have not submitted with full and proper records, while misstatements were not corrected?
The Auditor-General found that the amount is closed in terms of the irregular expenditure of R147 million does not reflect the full extent. Can the Committee be given an indication of the full extent of irregular expenditure? A lot of challenges were highlighted relating to procurement and contract management component. What measures will the HDA take to ensure that these serious cases of non-compliance do not reoccur? What fiduciary liabilities do the Minister and executive authority assume in respect of all of this compounded irregular expenditure? What civil and criminal liability did the accounting officer authorising deviations that did not comply with ACM legislation, as highlighted in the audit report? She said she has plenty more questions but she will submit those as parliamentary questions.
Ms N Tafeni (EFF) asked what the circumstances were surrounding the awarding of a contract to a bidder that did not score the highest points in the evaluation process as required by their preference, preferential procurement for this framework. She further asked why a transaction below R500 000 per charge would be allowed without obtaining the required price quotations by Treasury. A similar transgression was reported in the 2019/20 financial year. The HDA reported a surplus of R109 million for the 2020/21 financial year. Total revenue of R359 million exceeded the total expenditure of R294 million. She wanted a clarification on the R58.8 million for the 2019/2020 financial year. Lastly, while there were employees at the HDA, the reported number on the field was 53. Why was this the case? Secondly, why would a transaction below R500 000 per charge without obtaining the required Price Quotations, as required by treasurer regulations? Similar transit transgressions were reported from 2019 to 2020. What are the details of these goods and services?
Ms S Mokgotho (EFF) said that her first question was for the administrators of the HAD. The entity received an unqualified audit opinion, with findings due to lack of proper record-keeping controls in a timely manner and also because of non-compliance to supply chain management and the PFMA. In the 2019/20 financial year, the entity had an irregular expenditure of R15 million; in the 2020/21 financial year, it will carry an irregular expenditure of R15 million, too. Once again, in the 2019/20 financial year, it received a fruitless expenditure of R14.5 million and R8 000 in the 2020/21 financial year. She wanted to know if there is any consequence management applied to all the officials that are implicated in all this expenditure.
To CSCOS: 46.7 % of procurement was spent on black-owned enterprises instead of the required 70%. Why was there an under expenditure on the strategic objective? Only 1 127 communities were registered, instead of 5 000. Only 25% of disputes were adjudicated, instead of the required 50%. Why is this the case? She also wanted a reason for not appointing disadvantaged individuals for executive positions.
She then directed questions to the EEAB: the total liability for the entity is above R83 million. How does the entity intend on reducing this liability? What is the turnaround strategy to ensure that African men and women participate in this sector of business? Have they found the cost of the applications from the Western and Northern Cape to ensure that something of this nature does not repeat itself?
Ms N Sihlwayi (ANC) said that CSCOS has a clear mandate of transformation, building the capacity for businesses to participate in the economy. She did not get a sense of understanding of the role that CSCOS has with democratising society. Do they actually believe that they will achieve these goals or if they are achieving these goals and values for the country? Many problems have been reported with regard to disputes. She wants to know what these disputes are exactly, and she wants to know the real problems. With regards to auditing, she said she wanted to know if the internal audits are just not effective or if they do not exist within the entity because there is no way for the entity to be better in its outcomes if the internal auditing team is not doing its job well. She said she appreciates that the Minister has established an administrator to deal with the issues of HDA. It might be important in the future to find out province by province to find out the real reasons why this is happening. Further, it is important to find out the root courses of these issues. She is formally reintroducing the idea of having a conversation looking at the kind of contracts that are actually being given to women. There needs to be a look beyond numbers to look at the jobs that people actually occupy and the content of the contracts that are given to women.
The HDA says it has improved because it has provincial offices have been established. Ms Sihlwayi however, is not convinced. She reckoned that the reason that these improvements are there is that they way pointed out as issues by the AG and were told to implement programmes to improve their performance. She said that the entity has to be innovative in its improvement; it has to find ways on its own to better deliver services, not because they were instructed to but because they have on their own accord made those decisions. Management needs to get its act together because this is a matter of ethical consideration and one of credibility. If management is not able to master this it becomes a case of credibility – it ceases to be credible. Supply chain is an important issue in South Africa that needs to be addressed properly.
She then spoke on record keeping – the people that are there are important: from middle management to the CEO. Those people are very important in record keeping. Record keeping is key; it is the starting point to accountability in the Department. It cannot be that there is an issue of record-keeping when there are so many people in the entity from management all the way to the CEO.
Adv. M Masutha (ANC) commended the Minister on how swift she has been in acting in the short space that she has been in her duties. He mentioned further that, on that note, the Minister has to do an evaluation of the portfolio on how for the last 27 years it has been lagging, and how its various entities have had varied. The Minister has to fix the issue of leadership across the board, as it is central to the woes of the Department. Essentially, do a leadership audit and look at where the Department is underperforming; implement the interventions that are necessary to ensure that everyone is working competitively. After 27 years, the Department should be able to see what policy and legislative framework gaps exist that need to be fixed to ensure that the Department is performing. This would ensure that the legislative framework serves matters of leadership accountability like the kind that the Department is facing right now. Overall, there is a lot that still needs to be done by the Department in making sure that it is on par with everyone else. The advocate made an example of how the Department is still using the term ‘RDP’, which is a legacy. A thorough deliberation on these matters is a necessity. What causes this bottleneck delivery occurring right now? He also said that he found that entities function in silos through their governing legislation, with very little consideration for the entity next door whose role is central to their delivery.
On the matter of transformation, he says he has been hearing on these matters quite a lot lately. He made a note on the previous AG on how he transformed auditing from being an old white man's sport to one that is inclusive of many young black professionals. The matter of number of white estate agents coming in at ten times the number of black people simply cannot be accepted as reality. This battle has been and continues to be fought in legal and medical professions. There is a constitutional mandate to ensure that this is not the case anymore in this field. It is just too embarrassing that these are still the same issues that have been dealt with before again.
With regards to consequence management, he said that there needs to be a full spectrum of reporting on consequence management agency interventions from referrals, to some touching on criminal investigations, the public protector, and so on. There also needs to be detail on why the Department is failing on its disciplinary hearing issues. Is this because some of the people implicated are too senior to discipline that there is a regression in consequence management? If that is the case, then external agencies like the SIU or similar can be involved so that they deal with such a matter. Consequence management is a serious matter; it cannot be that the entities have accepted that they will deviate with regard to consequence management after so long. He also said he cannot accept that, after 27 years, there is no overarching framework for an entire Department. The sentiment that he gets from the Department is that this does not seem to be taken as seriously as it should be.
Ms A Buthelezi (IFP) asked questions relating to the irregular expenditure by the Estate Agent Fidelity Fund. While much has to be said about the unqualified audit opinion received by the board the reality is that there is a need to urgently address the compliance of the fidelity fund with its own procedures, particularly on procurement where there has been irregular expenditure due to deviations from quotations. She wanted to know whether the board recognises the importance of preventing irregular expenditure. She also would like to know if the board recognises the need to obtain the relevant quotations for services like legal services and ICT. If that is the case, then what have been the consequences against individuals whose activities resulted in the irregular expenditure that is over R2 million in the estate agents’ fidelity fund. What steps have been taken to prevent a similar rate of irregular expenditure?
She said that vacancies cause inefficiency in the organisations; this leads to the hiring of temporal staff, which also leads to efficacy issues within organisations. What causes the high vacancy rates? What plans are being put in place to address this problem? Is there an estimated timeline to resolve this problem? She said that the Committee needs to fully understand the problem, particularly given that there is so much unemployment in this country.
The Chairperson said that, from all political parties, he can feel the urgency on the need to attend to the issues that are facing these issues. Institutions that have not done well in the past have been turned around. However, for that to occur there needs to be a working together that happens on all fronts.
Dr Mahapa started by saying that he has been an administrator for 26 years and that he is able to deal with the issues that are affecting HDA. He thanked the department, especially the DG for the leadership.
The first question that was posed is whether there is any consequence management that is taking place with regard to the audit findings. He indicated that he started dealing with consequence management after receiving the audit. He followed that with an audit improvement action plan, which will be able to indicate the plans that are going to follow in case of dealing with the consequence management. Many findings that have been stated with regards to the irregular expenditure happen in the HR unit – irregular appointments, and also appointments that are not aligned with the budget structure that allows one to get an edge in case of giving a precautionary suspension to the HR Corporate Service; there is a firm that is dealing with that. The entity is already in the process of handing out charges through the HR Corporate Service with regards to the findings.
With regards to consequence management action steps in relation to irregular, fruitless and wasteful expenditure: timelines have been put on that action plan and all the officials that are affected. The scope of who is investigated has been broadened so that everyone can be given an answer. To deal with this, there are forensic investigators who are questioning the concerned people; they are expecting the reports in two weeks.
He noted Members highlighted a lot of issues with supply chain management funding. There were a lot of issues with SCM funding that have been rectified. Some of the Specification Committee had not been formed yet to determine bid classifications of contracts; there was not enough data to see who scored the highest total for the contracts to be awarded. There was no proof of declaration of interest on the SBD form, which should be completed by winning bidders. There was no proper policy with regards to SCM, which would be in line with the Department and in line with SCM. These are the issues that are going to need to be adhered to because everything else that is being done is in line with SCM policy that has been approved. There have also been issues with regard to the confirmation of project obligations and the case equivalents in the respective provinces, which are incorrectly disclosed. To deal with this, a project management officer has been appointed to help the entity deal with those obligations. A project compliance officer has also been hired to ensure that the same is achieved. The entity now has a project tracking tool in place, and a project management tool that is set to ensure that all of the provinces are on par. There is also a records and compliance committee that is responsible for ensuring that the entity is in line with the documentation and actions that the entity is meant to do.
There was a question on whether the company that dealt with TRUs has been blacklisted: a letter has been sent to the company to notify them that they are being blacklisted if they have an argument for why that should not be happening; they will be given an opportunity to do that. This is done to be in line with corporate governance laws so that the entity does not find itself in court being sued. A letter has been received from the company that they are contesting the blacklisting. The administrator said that he is still moving forward with the blacklisting with National Treasury.
With regards to emergency TRUs on the Duncan Village, the entity has followed the processes with regard to the DCR processes. There are officials that have resigned from that entity, but one remains. The SIU has been engaged with regard to that so that they can present the preliminary report to the Minister. According to them, consequence management was done well by the Department; they also found that due diligence was not done on the company as it was found that the company was fraudulent in the names of people that is said to be under it. R2 million was already paid into the company and a further R11 million was supposed to be paid for the action that is being taken: the entity is now in the process of acquiring the money that has been paid, and the matter is now in court.
With regards to other contracts that have been awarded, the established compliance and records committee is looking at whether any of these contracts had deviations as per the PFMA and management policies. The entity has also been working in conjunction with State Security Agency (SSA) to ensure that a vetting system is in place.
When it comes to the Duncan, the preliminary report has not found any wrongdoing but the entity is still awaiting the final report so that it can be acted on. Even in the internal investigation, there was no finding of wrongdoing. The HDA has put an action plan in place to deal with such matters. The administrator says he has changed the culture of having people disagreeing with the findings to people rather looking at what they can do better. Most of the unqualified audits were based on the SCM and irregular appointments, not following the budget structure. The HDA has also been in contact with the Departmental oversight led by the DDG.
Dealing with the non-performance of the provinces in the HDA is a complicated matter because this means that you need to have a signed implementation protocol, an approved project plan and a service level agreement (SLA). He said that he advised the Minister to avoid taking money in the fourth quarter without a project plan that has been signed between the entity and the client. The issue with managing this is that provinces, and municipalities, create problems by delaying finalising their internal processes and sending in money prior to that finalisation. The other issue raised was that there seems to be problems even though provincial offices have been opened. The entity is in the process of recapitalising itself so that it can deal with matters financially, without having to rely on the help of outside stakeholders. This way targets are set based on what the entity has in its reserves not what stakeholders can provide.
Mr Patel wanted to correct Ms Powell to say the EEAB did not in fact lose that case and it did comply with the order that it was given. The EEAB actually processed 43 000 fidelity fund certificates in the year in question. The entity was then taken to court over nine of the cases for queries that they had. Rebosa withdrew the matter as an urgent matter in the court to find the processes on which some of the queries could be addressed. Systems were put in place between Rebosa and the entity so that the matter did not need to go to court.
The other issue that was brought forward was that of Mr Bruce Gordon who was appointed and seconded to the entity from another Human Settlements entity this was done at the request of the Department because a new entity was imminent at the time. The sentiment was that, instead of having a new CFO, it would be better to have someone seconded within the Department so that the new entity could undergo the process of appointing a new CFO. Mr Gordon, instead of filling up the position of CFO, picked up on a number of other issues in the system; this was linked to a similar matter by name of Lindokuhle, where similar allegations were made. The board had put in place ways to deal with this through the Social and Ethics Committee to look at some of these allegations. The committee found some areas of risk, which were subsequently sent for an internal audit. However, there were no findings on the entity. The manner in which the employees dealt with the issues is that the internal protocols were not followed and the matter was catapulted in the media and ended destabilising the organisation. In the Lindokuhle matter, there was an interim decision for immediate dismissal.
In terms of the pension fund matter, the board did not approve that there should not be any deductions in the employees’ pension fund. In fact, the board is clear that all employees must follow the proper protocols to ensure they follow employment equity requirements. Some of the employees wanted to restructure their pensions. The entity sought a legal opinion and then referred the matter to the pension fund for adjudication based on the interpretation that they received. In general, the board is instituting to make sure that there is compliance within the entity and it has asked management to ensure that the correct procedures are being followed.
Ms Mohlala-Mulaudzi said there is a system within the EEAB to ensure that there are remedial steps to dealing with audit findings. On a monthly basis, the entity has a meeting where one of the agenda points is dealing with audit outcomes. The affected units make presentations on how they are dealing with those matters. These are then compiled and sent to exco for ongoing monitoring of the findings so that, when the time comes to report to the Committee or the audit team, there is an already ready report. These are then sent to the board, which sends them to DHS and the Committee on a quarterly basis.
With regards to the Rebosa case, she said she would like to hear the guarantees that Ms Powell says she made, which ultimately led her to mislead Parliament. With regards to the case being settled and resolved, she said she thinks Ms Powell is referring to the Private Property Summit. She explained that, in that summit, she only spoke about how the matter was removed from the roll similar to what the Chairperson of the EEAB board had said, and that there was absolutely no argument that could be put before the court in relation to contempt. She said it is correct that the ERP process is underway and has been so for 12 months now; the matter has been advertised, and the bid evaluation and adjudication committee have deliberated and will indicate their indication in due course. A full conversation on the matter can be had after the committee has released a full report.
With regards to the improvements of IT systems, she says she believes the contract that deals with that is in its late stages with Vodacom. This is going to seriously alleviate the problems that the entity has had with regard to IT issues. Moreover, there is also an app that will deal with the issue of fidelity fund certificates: new members will be able to apply through the app and existing members will be able to renew their certificates.
The CPD exemption from payment was a recommendation of the previous Minister and the EEAB. The exemption was granted and the entity received money from the Department to offset the deficit created by the exemption. There was a request that there be a report on how many applications were received as of October 2021 and how many were accepted. This can be made available. However, the entity will need to be afforded the time to do that because it requires information to be put together from a previous financial year. The entity has gone public with its plans; it has spoken about how it has increased human resources capacity and IT improvement. Bruce Gordon had never even set foot within the EEAB; he was appointed seconded CFO. He only worked remotely, even though there were assurances that the working environment would be a safe space for him to work. In any case, he refused to show up to work. He then left after a period of six weeks without ever coming in to supervise the staff. So, he worked with the EEAB by being in the system. This then begs a question of how much reliance one can place on someone who never even showed up for work. She also said she was not happy with him having had issues of financial mismanagement. Upon his unwillingness to show up at work, she then made a recommendation that his employment be terminated. So, one could ask if his employment was terminated or if he resigned himself. In reference to the correctness of the contents of his report: the matter was referred to SICA because, according to the secondment agreement, Mr Gordon had made an undertaking that all information of the EEAB be kept confidential. He went on to submit information that is not factually correct to the general public. She also found it interesting that a report by an EEAB employee was made available as an annexure in a court application by Rebosa, an industry player. This raises questions of conflict of interest, but the matter is going to be dealt with by SICA.
Thakga Investments was never paid by the EEAB. She is failing to understand how that could amount to fruitful and wasteful expenditure. In relation to the Thakga matter, that registration is not a requirement for one’s services to be utilised. One is only expected to be registered as a backhand vendor if offering services in excess of R1 million. What Thakga was offering was costing less than R1 million. So, there was no expectation for that to be the case.
The HRM manager who had been dismissed: in this financial year, there has been no HRM manager that has been dismissed; there is only one that has been suspended as there were various charges leveled against them. In terms of the details of the case, Ms Mohlala-Mulaudzi said that she is not sure it is permissible for her to divulge those because of the Protection of Personal Information Act. She says the Member has been misinformed about there being no disciplinary hearing. The only thing that can be confirmed is that the concerned manager has been charged and suspended accordingly.
She said she also wanted to add to the issue of the whistleblower: there has been a legal opinion that she does not in fact meet that definition of a whistleblower.
On how many matters are up for dispute: five matters are currently in the CCMA. She believes that in an institution of 155 members, five is a small number, and people should feel free to exercise their constitutional rights. If this information is also required it can be made available.
On the matter of the new CFO being announced while interviews for the position were already in place and that being in contravention of the PFMA, it is correct that on the day of the interviews there was a meeting but only to introduce the acting CFO, not the permanent person. This was on the instruction of both the Minister and the board because it had been stated that there needed to be a temporal measure in place. There is no deviation from the PFMA.
The reason for the vacancy is that the previous CFO unfortunately succumbed to covid-19 and that role needed to be filled. With regards to transformation: she reiterated that there are five programmes in place, one of which is expected to increase the number of African estate agents. An example of the agreement with UNISA was made to help prospective agents with the legalese and the finances of the industry. Grants were meant to help the start or extend the enterprises. There will be exemptions for black estate agents that may have trouble paying for the regulatory fee requirements. There is also a public awareness programme for people to join the industry.
Irregular expenditure and getting three quotes, asked by Ms Buthelezi: she said that procurement, both in legal and ICT, emanates from historical transactions that emerged from within the EEAB. One will find that some of these matters have been in court for as long as three years and are only being settled now. Because there was an irregular expenditure at the time, this will have to be disclosed as an irregular expenditure now; it is, however, being remedied. These are being phased out, but for some of them, there is no record of how the procurement occurred.
Mr France Mantsho, Chief Risk Officer, spoke on the matter of the R84 million irregular expenditure. He clarified that the figure is actually R77 million. The amount is just the amount owed to suppliers, but there are also issues of deferred revenue. This is not something that requires there be a turnaround strategy because that is the nature of the transactions that happen. As the CEO has explained, there are systems in place to ensure that all irregular expenditure is attended to.
Mr Boyce Mkhize, CSOS Chief Ombud, spoke on the recommendation by Mr Tseki for a report around February 2022, on readiness with regards to the audit remedial action plan in preparation for the year end. He thought this task was feasible. The major issue with regards to underspending is largely due to inactivity during the course of the last financial year, as a result of the pandemic. Consequently, the spend was much less than anticipated. There are also capacity issues within CSOS and also largely due to the pandemic, which made it hard to deal with disputes. This has been addressed by looking at virtual meetings and making sure that they are had online to expedite the process. These are measures that have been institutionalised to deal with problems brought about by the pandemic. Another capacity issue that was raised was why there are no disabled individuals in management. This can be addressed along with the high vacancy rate issue. This is historical. At the time, vacancies may not have been managed well; what complicated the issue even further is that the organisation wanted to know what the correct and appropriate structure is.
He then responded to Ms Sihlwayi's question on enabling black people in the sector to be able to work: this is going to require a restructuring of the industry. For now, the entity has identified a target of ensuring that there are at least 20 black managing agents by the end of this financial year. There has been a call nationally for disadvantaged black managing agents. Through that process, there is a training session that has been going on for two weeks now. The target will be met, as he is now in the process of making a second call.
The nature of disputes received: these range from non-compliance, levies, noise, and so on.
With regards to regards to the weaknesses in internal controls: the main areas of concern in this were mismanagement and the CFO. These are being attended to as part of the audit remedial action. There is also an internal audit that is headed by a qualified executive auditor; there is also an audit and risk committee. He agreed with Mr Masutha’s sentiments on leadership, saying that CSOS has already embarked on a project to determine the kind of capacity that it has to be able to deliver on an optimum level.
The Chairperson requested the entities to submit some written responses because there might be Members who are not satisfied with the manner in which their questions have been answered.
She then thanked everyone for attending the meeting.
The meeting was adjourned.
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