The Portfolio Committee met virtually to received presentations on the 2020/21 annual reports from three entities in the Department of Human Settlements (DHS) portfolio -- the National Housing Finance Corporation (NHFC), the National Home Builders Registration Council (NHBRC), and the Social Housing Regulatory Authority (SHRA).
In the Minister’s overview, she alerted Members to the fact that quite a number of issues that had been raised at the previous meeting were receiving her attention, and the Department was dealing with them and would report back to the Committee. She also informed the Members of the status of the boards of each entity.
The NHFC presentation covered an executive overview of the corporation, the annual performance report, the audit outcomes, financial performance, 2022 outlook and recommendations.
The NHBRC presentation dealt with its strategic objectives, audit outcomes and improvement plan, performance information over the last five years, key performance highlights and organisational performance information, focus areas for the year ahead, and an analysis of the audited annual financial statements.
The SHRA presentation covered an executive overview and highlights, the audit outcomes, and a performance and financial overview.
In the ensuing discussion, issues raised by Members included the appointment of the SHRA interim council in accordance with section 9 of the Social Housing Act of 2008; the SHRA's difficulties in implementing effective controls to ensure accurate performance and financial reporting; irregular expenditure and material misstatements in financial statements; circumstances surrounding the irregular appointment of the SHRA interim board in 2019 and the current status of the Board; and the mechanisms put in place to address the internal control deficiencies identified by the Auditor-General.
The Committee also asked about the filling of positions by the NHFC; the NHFC’s non-compliance with supply chain management (SCM) regulations which had led to it incurring irregular expenditure; recommendations given to the loss control committee after the NHFC concluded its disciplinary process with regard to the officials implicated in the irregular expenditure incurred; oversight responsibility for the internal controls of the NHBRC, and the review of the financial and performance reports; steps taken to ensure that action plans were implemented; why no investigations were initiated and no disciplinary steps taken by the NHBRC against implicated officials; consequence management; the reasons for the NHBRC’s increased unrealised gain of finance assets; the NHBRC’s accumulated material losses of R39.6 million due to the impairment of trade receivables; reasons for the NHFC’s reduction in interest on investments and dividends received; progress in the establishment of the Human Settlements Development Bank (HSDB); and the amalgamation of various entities by the NHFC.
Ms Mmamoloko Kubayi, Minister of Human Settlements, said that when she had appeared before the Committee previously, she had made quite comprehensive remarks about the Department of Human Settlements' (DHS) entities. She would not take much time again, as the Department's delegation included three entities led by the chairpersons of their boards. In the case of the National Home Builders Registration Council (NHBRC), however, the administrator was leading the delegation as they did not have a board or council. As had been announced, the NHBRC Board had been dissolved and an administrator had been put in place and was overseeing the process until there was a board in place, as the process was being concluded. It could be confirmed that with the other boards, the Department was actually in the process of concluding the work. The Department should also be able to make proper announcements regarding the boards themselves in the coming week or two.
Regarding the National Housing Finance Corporation (NHFC), it would have been noted that when the Department had issued the advertisements for all of the boards, that the NHFC was not part of the package. The Department had since had a meeting earlier in the week, and together with the NHFC board, it had been agreed that it was in accordance with good governance protocols that they go public in terms of the work of the entity, as well as in terms of recruiting and calling for nominations of members for the board. She confirmed that they would do as was normally done with all other boards at state-owned entities (SOEs). As a minister, she was a shareholder representative and not a 100% shareholder. That was why the decisions of the entity regarding its directors needed to be taken fully by the shareholders and, in this regard, needed to be taken by Cabinet. The Department would therefore be approaching Cabinet once they had concluded their process, in order to appoint the board. The Department was working towards establishing a Human Settlements Development Bank (HSDB), and this process would help to identify what the requirements for the directors of the bank should be. The DHS had hoped that the Bill would have been introduced in Parliament this year. Unfortunately, it was not able to do so, but was hoping to do so at the beginning of next year.
Issues had been raised with regard to the entities the previous week. The Department was attending to the issues and believed that part of what would assist them was the appointment of a new board that would be able to oversee some of the challenges in the entities that the Committee had flagged. It was thus not that the Department was not paying attention to them. For instance, Ms Powell had raised the issue of whistle-blowers, and the Department was dealing with them within the processes required in terms of the law. The Department would make sure that they did not ignore those Members who had raised issues, but the processes had to be able to verify whether those queries and issues were legitimate and ensure that there was fairness in the process. The Department had already taken a decision around the forensic investigations, and she had been briefed in relation to the Estate Agencies Affairs Board.
With regard to the NHBRC, as had pointed been pointed out, there was an administrator there as the council had been dissolved. The Department was in the process of stabilising it, and work was happening. Both the Administrator and Acting Chief Executive Officer (CEO) would be able to deal with the situation. She was hoping that by the time the Department presented the annual reports of the entities, they would at least have boards, and that the boards would have started the process of employing their CEOs. The Department would make this a priority, because stabilisation and good governance protocols needed to be adhered to.
As could be seen, there were CEOs in acting positions. The Department knew that this was one of the things that Parliament always flagged and said was not good. The DHS needed to ensure that they recruited to ensure that there were permanent people. They were also hoping that at the beginning of the year they would be able to report on this in the quarterly reports, as well as on the processes of the board. She felt that it was important that, as the boards came in, it should not be the Minister that drove the process because it overlapped in terms of governance. The Department would thus appoint the boards, and they would then be able to lead the entities.
She said there were quite a number of areas in which the Department was aware that performance was not good. There had been engagement with the Auditor-General (AG) across the portfolio, and the Department had committed to showing leadership and paying attention to improving performance. This was why part of what the Department had done was to amend the presentations to reflect the AG's opinion on the matters that had been raised, and what the Department was doing about it. It was thus part of what the Department had started to do in responding to the issues that the Committee and the AG were raising.
National Housing Finance Corporation (NHFC) Integrated 2020/21 Annual Report
Ms Phekane Ramarumo, Acting Board Chairperson, provided a general overview of the NHFC’s highlights for 2020/2021.
Mr Sizwe Tati, Acting CEO, led the presentation on the Integrated Annual Report for the 2020/21 financial year.
Ms Mandu Mamatela, Executive Manager: Corporate Strategy, presented the strategic outcomes and areas of success.
Ms Tsholofelo Ramotsehoa, General Manager: Lending, presented the annual performance report.
Mr Mogotsi Oepeng, Acting Chief Financial Officer (CFO), presented the audit outcomes, financial performance overview, and audit improvement plan.
Mr Tati presented the NHFC’s outlook for 2022.
The NHFC had had devastating challenges due to Covid-19, which had impacted clients negatively. The government had put interventions in place, such as debt relief which took time to implement because of institutional and legal issues. The NHFC had embarked on a strategic planning process after they amalgamated with three entities. This had been a robust, interactive, and long-term planning exercise followed by the NHFC board interrogating what had been happening and identifying the gaps and risks. The merger and acquisition process had been tedious, because the three entities had different areas of emphasis and directives. There had been challenges of people being discontented and wanting to block the processes, but the Department had a focused entity, despite the challenges being experienced. The Department had also encouraged and supported their managers to implement the projects and programmes whilst still working in Parliament and merging those entities. Now, the NHFC was one unit and geared to help implement the HSDB.
The merger of the Rural Housing Loan Fund (RHLF) and the National Urban Reconstruction and Housing Agency (NURCHA) was accomplished in October 2018 after much legal rumbling. The next step was the formal establishment of the bank. The business case had been completed and submitted to the Department and National Treasury, and served as the basis for the capitalisation of the bank – as well as confirming its expanded mandate and establishment as an apex financing institution in human settlements for all identified DHS projects and programmes. The legislation had been reviewed and updated before sending it to the state legal advisor for the clearance certificate to take through the various channels of cluster engagement, public opinion comment, joint evaluation programme review, and the Cabinet.
The NHFC’s operational performance indicated 20 973 incremental housing opportunities through disbursements, with R1.1 billion in approved loans, 4 232 housing units and stands, R710 million in disbursed funds, and a developmental impact of R519 million disbursed to emerging black economic empowerment (BEE) entrepreneurs, including women and youth. The Finance Linked Individual Subsidy Programme (FLISP) had 1 136 subsidies applications approved and disbursed, R111.2 million subsidy applications approved, R60.9 million subsidies disbursed, and R1.04 billion leveraged from financial institutions. The cumulative funds disbursed directly by the NHFC amounted to R9.823 billion. The private-sector funds leveraged through the NHFC’s funding, interventions and partnerships amounted to R24 billion. The cumulative housing opportunities facilitated through lending disbursements and leveraged funds amounted to 744 000.
The NHFC had received an unqualified audit report with findings. The audit of the annual financial statements was unqualified, with material adjusted items on disclosure notes. The audit of the annual performance report was unqualified. The audit of compliance with legislation was unqualified with findings, and the audit of subsidiaries and controlled entities was unqualified.
The presentation covered an executive overview of the NHFC, annual performance report, audit outcomes, financial performance, 2022 outlook, and recommendations.
(See attached document for details).
National Home Builders Registration Council (NHBRC) 2020/21 Annual Report
Mr Mphedziseni Alfred Radzilani, Administrator, NHBRC, led the presentation and presented an executive overview and highlights for 2020/21.
Mr Songezo Booi, CEO, presented the performance information, audit outcomes, audit improvement plan, summary of historical performance over the last five years, organisational performance information, and focus areas for 2021/2022.
Ms Tamlyn Bouwer, Acting CFO, presented the audited annual financial statements analysis.
The National Home Builders Registration Council was able to maintain net profits and operating cash flows while preserving jobs during 2020/21. There was growth of the warranty fund, despite economic challenges caused by Covid-19. It spent 73% of its budget on Black Economic Empowerment (BEE) suppliers, and on average it took 21 days to facilitate supplier payments. The Housing Development Investment Fund was approved.
The NHBRC received an unqualified audit outcome with findings, and achieved 83% of its target. The revised inspectorate and operating model was approved. There was progress on legislative review, as the Bill was undergoing a Parliamentary approval process.
The NHBRC had three programmes -- administration, regulation and consumer protection. It had 29 output indicators, of which five were not achieved.
The presentation covered the NHBRC’s strategic objectives, audit outcomes and improvement plan, performance information over the last five years, key performance highlights for 2020/21, organisational performance information, focus areas for 2021/22, and the audited annual financial statements analysis.
(See attached document for details).
Social Housing Regulatory Authority (SHRA) 2020/21 Annual Report
Ms Bathabile Dlamini, Chairperson, SHRA, led the presentation.
Ms Mpolai Nkopane, Acting CEO, presented an executive overview, highlights and performance overview.
Mr Vusi Fakudze, Finance Manager, presented the audit outcomes and financial overview.
A total of 1 856 units were completed in 2020/21, and 4 866 units were completed in the initial stage of the medium-term strategic framework (MTSF) 2019/24 period. Growth was seen in the number of units under regulation, from 26 328 units in 2015/16, to 40 628 in 2020/21. There were 92 institutions on the SHRA accreditation register, of which eight were fully accredited, 84 were conditionally accredited, and 26 were currently managing social housing stock.
Expenditure of the consolidated capital grant (CCG) for 2020/21 was R587.2 million – a decrease of 55% from 2019/20. SHRA’s performance achievement was 71% for the year. The staff vacancy rate at the end of the period was 22.6%, with a headcount of 41 full-time staff.
The SHRA had four key programmes: Administration; Compliance, Accreditation, and Regulation; Sector Development and Transformation; and Project Development and Funding. Of its 24 performance indicators, seven targets were not achieved (71%). The unachieved targets were as a result of advent of Covid-19 and the implementation of the national lockdown, as well as the non-performance of key stakeholders.
The SHRA had received an unqualified audit opinion, with an emphasis of matter.
The presentation covered an executive overview and highlights, performance overview, audit outcome, and financial overview.
(See attached document for details).
Ms S Mokgotho (EFF) asked the SHRA why the appointment of the interim council was not in accordance with section 9 of the Social Housing Act of 2008. Why was it difficult for the SHRA to implement effective controls to ensure accurate performance and financial reporting? The SHRA had not exercised adequate oversight responsibility and compliance with applicable legislation, which had resulted in irregular expenditure and material misstatements. What were the circumstances surrounding the irregular appointment of the interim board in 2019? What was the current status of the board? What mechanism had since been put in place to address internal control deficiencies as identified by the Auditor-General?
She asked the NHFC how soon the positions of CEO and CFO were going to be filled. What were the reasons for its noncompliance to supply chain management (SCM) regulations which had led to the entity incurring irregular expenditure? How was it going to ensure that it did not repeat the same SCM non-compliance mistakes in 2021/22? What were the recommendations given to the loss control committee after the NHFC concluded its disciplinary process with regard to the officials implicated in the irregular expenditure incurred?
She said the AG had found that management did not exercise its oversight responsibility over the internal controls of the NHBRC and the review of the financial and performance reports submitted for auditing. Compliance with applicable laws and regulations was not regularly reviewed and monitored. Adequate steps were also not taken to ensure that action plans were implemented. How would the NHBRC management ensure that these matters received the required attention during the 2021/22 financial year? Sufficient audit evidence should be obtained to show that disciplinary steps had been taken against the officials responsible for incurring irregular, fruitless, and wasteful expenditure. Since investigations had not been taken, why had no investigations been initiated and no disciplinary steps taken against implicated officials?
Ms N Tafeni (EFF) referred to the NHBRC annual report, and asked what the reason was for the increased unrealised gain of finance assets from R42 million in 2019/20, to R429.4 million in 2020/21, representing an increase of over 1 000%? She also wanted to know what the reasons were for the NHFC's reduction in interest on investment and dividends received for both the company and group between 2019 and 2020. What were the reasons for the delay in the appraised KwaZulu-Natal application worth R180 million?
Mr T Malatji (ANC) commented that it had to be acknowledged and agreed that the ruling party was the only organisation that, when it has done wrong, took responsibility and fixed the wrong. When it felt that there was a need to focus, this was also done. One of the things that the ruling party had done to try to fix the Department was to separate it from the Department of Water and Sanitation (DWS) so that there was a direct focus it. With that, it meant that there was a new minister and committee that had the responsibility to assist the entities to function, work and resolve all the mistakes that had happened in the past. If there was consequence management that had to be taken, the ruling party was the first to say that the law had to take its course for those who had to take responsibility. This was a process of trying to fix the Department. One of the comments he had made in the beginning when the Committee had started, was that they needed to operate like a committee that wanted to fix things. It should not be that all the Committee did was criticise, as they also had to come up with solutions on how best to assist the executives to function and make sure that they delivered services to the people. This was an attitude that needed to be adopted, and Members should not come to the Committee as the ANC, DA or EFF etc. Members should come to the Committee as Members of Parliament and the Committee, who wanted to assist and deliver services to the people.
Ms Mokgotho wanted to make it clear that Members had come to the meeting as the Committee because they had been given a mandate by their constituencies to come and serve them – not to please whoever might be feeling that Members were wrong if they asked relevant questions that needed answers, or that they were just supposed to keep quiet and accept everything that was in the presentations that they had been given. The Committee had been given the opportunity to listen to the presentations and engage effectively – not to please any other person. The Committee was present as the vanguard of the people and to make sure that targets that had been planned or that were supposed to be achieved by different entities in order to ensure communities’ needs were fulfilled. If the Committee had to hold entities accountable, they had to do so. If the Committee had to force entities to adhere to the recommendations made by the Auditor-General, they should do so. Entities should stop making promises which they did not fulfill, and stop committing the same mistakes on a yearly basis.
The Chairperson thought that the intention of the meeting was to allow Members to engage with the presentation, get a response from the Department out of the engagement, and make sure that issues that had been raised were attended to and corrected. Everybody was protected in the meeting.
Ms C Seoposengwe (ANC) commented that she was particularly happy about the HSDB, which was really going to assist first-time home buyers, most financial housing institutions, and people with lower incomes to purchase or build their own homes. The HSDB would play an integral part in securing a role in the mainstream economy, which she thought was a redress of the imbalances of the past. This was really going to make a difference to the lives of people.
The Chairperson said that one of the issues that had been raised by the Auditor-General was that most of the action plan that was drawn up in response to the audit issues, was not actually addressing their root cause. Instead, the Committee was fixing or responding to the issues that the AG was raising, based on an issue. She thought it would be critical for the audit action plan to address the root cause of the findings so that they do not recur or manifest themselves in other issues. She needed the entities to commit themselves to telling the Committee that the action plans that they had prepared spoke to the root causes.
She congratulated the SHRA for their performance under the difficult circumstances of Covid-19, as they had done their best. The Committee hoped that, as things were getting back to normality, the SHRA would fast-track the issues of the registration of their stakeholders so that they were able to balance and address transformation in the entity.
The amalgamation of the various entities by the NHFC was not an easy task. She commended both the board chairperson and the CEO, as they had actually managed to finalise the amalgamation. The Committee hoped that there would not be issues that came from employees arising from the amalgamation. The Department must tie up the loose ends and make sure that the amalgamation moved forward and that all the staff who had been amalgamated were satisfied at being incorporated into the new bank. This was so that, when they started operating as a bank, they did not have legacy issues that followed them.
Ms Ramarumo referred to the appointment of the NHFC CEO, and said the Minister felt that the new NHFC board should be the one to make the appointment. The Board had felt that this made sense, and they were thus in support of the Minister. Regarding the CFO, the NHFC was disappointed that they had appointed a very intelligent and hardworking young woman, but that she had left for greener pastures and they could not stop it. This was the reason why the NHFC had an acting CFO at the moment.
Regarding SCM issues, the NHFC Board had mandated that an investigation happen through an audit, and this had been completed. The CEO had been tasked to ensure that the recommendations from the external investigation be implemented, because the NHFC did not just want to deal with issues that were not going deep enough. She said that this institution was very unique in the sense that the skills they had were highly specialised. There were people who were dealmakers, financial experts, lending experts etc. They could therefore not afford to have staff turnover or mix people around. The NHFC board had tried to preserve and nurture the skills of its employees and encourage innovation and self-training so that they could develop even further. This had been done in preparation for the HSDB, so that when the bank started it did not start from the beginning with having to get the specialised skills. This was very important, because finance was a very scarce skill in the country. The NHFC board had thus managed to preserve as much skill as possible, but they were not saying that they had done so perfectly.
Regarding the amalgamation, she had spoken about the successes that had been achieved. Getting people who were working in different directions to come and embrace and work together had indeed not been easy. The new bank would now have it easy with regard to implementation and taking the bank forward.
Mr Tati confirmed that the role of the CEO would be dealt with by the new NHFC Board. Regarding the CFO, the NHFC was taking a recommendation to the board, which was sitting later that month, to get permanency in that environment. From December onwards, the CFO position should thus be filled with a permanent person.
On the reduction in interest and dividend payment, particularly on the deviant side, the NHFC’s subsidiary institutions had been similarly affected by the drop in interest rates in general. as well as the reduction in their own earnings because of the Covid-19 environment. The NHFC would take the advice of the Chairperson, as their audit action plan had to address the root causes. Every time the NHFC provided responses to the AG, it sought at all times to give them the perspective of the causes, and addressed those issues with permanent solutions so that they did not recur on a consistent basis. The AG had since come back and reviewed the environment on the same basis. The NHFC would have liked to believe that the merger and its implications were almost complete. They had maximised the opportunities for all staff, in that every time they faced opportunities for appointments, they drew first from within before going external so that everybody felt that they were being considered. The NHFC thus believed that as they moved into the bank, they would move into a stable environment.
Mr Oepeng said that the issue of consequence management had been touched on by the NHFC in the presentation. In 2020, it was actually at a point where it had finalised all of its processes. The outcomes from that process varied. Through an external investigation process, the NHFC had actually implemented the recommendations, which were quite clear. The recommendations were also considered internally. What was reassuring and comforting was that there were no financial losses for the entity. However, because compliance management was an area that the NHFC took seriously as an organisation, the recommendations amongst others included warning letters to those who were involved in the processes, as well as final written warnings to some colleagues. These had all been actioned, therefore. To reflect again, before touching on the issue of root causes, it was almost as if the events had perhaps tested the environment that the NHFC operated in. In the presentation, the NHFC had touched on the issue of the merger, saying that it was never an easy process.
Over and above the people issue, the NHFC had to consolidate and standardise their processes, which were not always similar in the different entities. It had therefore been quite a process for the NHFC to align and ensure that there was a common understanding amongst those who were involved in the management of SCM. However, he thought that it had done fairly well in that regard, as well as in reflecting this in the audit improvement plan that they had put together, which was quite integrated. At the heart of the matter was that the NHFC was standardising its processes. With internal controls, one actually had to find tools to reinforce certain protocols and the checks that needed to be done internally, so that whoever came to do the vetting in the processes came to the same result. In the medium-term, the plan was to automate the environment, so there would certainly be less dependence on manual interventions from the NHFC’s colleagues and SCM.
Some areas of the audit improvement plan that the NHFC had put together had already been implemented, one of which was a contract management solution that they had commissioned shortly after the audit, and which was automated. This would include various monitoring activities to ensure that the contract management issues around extensions and deviations were minimised in their environment. This was an area which would perhaps see some payoffs in the current year. The NHFC was already almost nine months into the new financial year, so the plan they had put together was premised on the issues and misalignments that had been seen in the processes of the three entities that had merged. The payoffs were realistically expected to materialise in the 2022/23 financial year, but there were certainly things that the NHFC had already implemented that were "quick wins" in their view.
On policy issues, the NHFC’s policies were found to be sound, and they were just being reinforced now. There were one or two incidents on which the NHFC had consulted National Treasury, where it was felt that expenditure had not been irregular, especially in regard to the 2021 financial year. From a control environment and SCM point of view, things were improving. The issue of dividends had been touched on, to indicated that it was more of a performance matter. If intermediaries and companies that had been invested in had challenges around delivering healthy returns and earnings, they would obviously hold back on declaring dividends. This was why the NHFC had not realised any dividends in the current year, but they hoped that this situation would reverse in the next year or two.
On the interest reduction, it was known that the NHFC was mainly a lending organisation, so a lot of their income was generated from the interest that they charged their intermediaries. What tended to happen was that with the interest rate cycle, which for the NHFC was currently on the low end, it felt the impact in that they suffered a margin loss. It thus had a direct impact on their revenue line. From a volume point of view, what the NHFC was dispersing had in many ways remained normal and in line with how they had performed in other years. It was thus more of a market issue, as opposed to a disbursement issue.
Ms Ramotsehoa said that Mr Tafeni had asked a question around a project in KwaZulu-Natal, and what the delay in the appraisal process was. Structurally it was a very complicated project -- in fact, it was a building that was going to be built on top of an existing structure. Due to the complications of the structure, the client had wanted an opportunity to spend more time on the design with their structural engineers and architects. They had thus wanted an opportunity to redesign the building as well as recast it, and therefore had withdrew their application from the NHFC. This was the reason for the delay in the NHFC assessing the project for their social housing approvals in the period under review.
Mr Booi referred to the commitment that the Chairperson was asking of the entities insofar as implementing the audit improvement plans that they had developed was concerned, and said the NHBRC had looked at the management report that had been presented to them by the Auditor-General. It had considered all the issues that were raised by looking at their people, processes and systems, and then developed the action plan. The NHBRC had also brought in its internal audit unit to provide an assurance to the Administrator of the progress they were making in resolving all of the issues. The NHBRC was committing to the Committee that by the end of this financial year, all of the issues would have been dealt with. It was also going beyond that, and looking at all of the other areas in their business as well.
Further issues had been raised around the disciplinary steps that the AG was not happy with. There were a couple of ongoing investigations that had not yet been concluded at the end of the financial year. The AG had not been happy with the slow progress that was being made in concluding those investigations. Those investigations had since been prioritised and concluded, and the recommendations outlined in the report were in the process of being implemented.
The lower enrolments in the subsidy area was related to the impact of Covid-19. The sector as a whole had been impacted negatively by Covid-19, as they had lost the first three months of the financial year. However, since then there had been some recovery, and the NHBRC had processed all of the applications that they had received in the prior financial year. Currently there was an improvement, as it was seeing the numbers coming through, and it would be reporting a better performance in the current financial year.
Ms Bouwer said that with the AG's finding on the lack of internal controls and review of information, a lot of the NHBRC’s processes in the prior financial year in terms of performance information, as well as on their financial side, were very malleable and therefore very cumbersome and tedious. The NHBRC had gone a long way so far in automating these processes, which had then enabled the review to be much easier and alerted them a lot more quickly to where there could be potential issues. It thus believed that it had addressed the finding in this way.
To ensure compliance with applicable laws, the NHBRC had had its new supply chain policy, as recommended by the AG, approved and that has been implemented. The NHBRC thus believed that it would also assist it to abide by the rules.
The slower payments causing the increase in the NHBRC’s debtor’s provision was largely attributable to some slower payments coming through from the Department as a result of backlogs on their side due to the Covid-19 pandemic and also as a result of some budget constraints that they were experiencing. This was something that the NHBRC had followed up on, and were very much aware of.
As for its unrealised profits from its investments, the year 2021 saw the best investment performance that the NHBRC had seen in recent times. The end result of that performance was reflected in the unrealised profit figure, as it showed the change in the market value of the NHBRC’s investments, which was substantially higher than it had been in previous financial years.
Ms Nkopane said that she wanted to give a little bit of background on the question of the SHRA Council, because the question had been why the Social Housing Act had not been complied with in terms of the appointment. During 2019, there had been a dispute between the then Council and the CEO, which had ended up in litigation. The CEO had not only won the case, but in his statement to the court he had made allegations against some Council members. The CEO had been suspended, and the court had concluded that he needed to be brought back to work, which the Council had initially done -- but then he was suspended again. The Minister was the second respondent in the matter, and had found it problematic because there was a direct order by the court to the Council to bring back the CEO. The Minister had thus seen it fit to release the Council members at that point. As this had been done on an urgent basis because there was a court order, the Minister then did not have time to advertise. The most important aspect of this finding was that there had been no advertisement for the Council members. Even though the SHRA had not necessarily participated in the appointment of Council, the external auditors had found that it had to be the SHRA that was penalised through the audit finding, because Social Housing Act was legislation that had to be complied with. This was very difficult, and there was a lot of tossing and turning between the SHRA and the external auditors about this. However, ultimately the external auditors had wanted to keep the finding there so that the Minister could then appoint a new council.
The current status was that the SHRA still had an interim council. At the time of this audit, the Minister had put out an advertisement to appoint a new council. However, that process had not yet reached Parliament, and then the SHRA had had the external audit. The new Minister had now advertised and the SHRA had been made aware that the appointment of council was imminent.
The issue on the irregular expenditure was one of gazetting. What had happened was that the SHRA had been receiving a lot of applications. As the Chairperson and Members might know, the SHRA approved projects that were based in restructuring zones. During the previous financial year, and in fact in 2018/19 as well, the SHRA had received a lot of applications from projects that were a few kilometers outside of a restructuring zone. This was to the extent that Council members had adopted a resolution that the SHRA needed to approve those projects, because they were very close to the restructuring zones. The SHRA had then got the Minister to approve the fact that it had wanted to approve those projects for the consolidated capital grant (CCG). The intention was that later on, those areas would be gazetted as restructuring zones. Of course, the audit timeframe overtook the SHRA, because they had the external audit before those areas could be gazetted as restructuring zones. That was the reason why the external auditors found it to be irregular expenditure -- purely because those areas were outside of the restructuring zones. The SHRA was now not approving projects outside of the restructuring zones, and were guided by the gazette so that they could avoid that finding.
The SHRA took consequence management seriously, so given the fact that there had been a repeat finding in terms of the misstatements, the SHRA had started the process of managing the consequences with the executive in charge. It was thus hoping that it did not happen in future. After the external audit, the SHRA had also had a debrief just to think of and put in place mitigating mechanisms for this risk in future – including the fact that the documents needed to come to the executive committee beforehand, and that they needed to be approved before they were submitted to the external auditors.
Minister Kubayi said that she was not so sure why the CEO had explained the issue of the boards, as it was not within their purview in her presence, so she hoped that she could explain protocols. The Department had noted the issues that had been raised in the Committee, and she thought that the entities had responded in addressing some of the issues. Regarding the briefing of the Committee about the process, the Department would be making that announcement once Cabinet had processed the matter in terms of the appointments of the boards. Earlier on, she had noted what Ms Mokgotho was referring to regarding the board processes. She wanted to add that the process the Department was currently following was to ensure that they would welcome the final outcome. However, the Department wanted to leave the situation at the level where the Minister had it within her prerogative and the legal processes. She did not think that what the Member had said indicated that there had been a violation of the law. The Department might not have agreed with the process itself, in the manner that it had been done, but she did not think there was an issue with the legality of the process.
Ms Mokgotho asked the NHBRC if they could provide more information on the accumulated material losses of R39.6 million due to the impairment of trade receivables.
Mr Booi said that the provision that the NHBRC had raised had been for debtors that were outstanding for over 120 days. There was thus a breakdown of which provincial departments owed the NHBRC, and the aging of that debt was over 120 days. It had not written these amounts off. In terms of the accounting standards, this was how the NHBRC reported. They were not material losses but a provision that the NHBRC had raised, guided by the accounting standards.
The Chairperson thanked the Ministers and entities for availing themselves for the meeting.
The meeting was adjourned.
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