Department of Human Settlements Audit Outcomes & Annual Report 2020/21

Meeting report

The Chairperson encouraged members of the public to participate in the meeting.

Opening remarks by Western Cape Human Settlements MEC
MEC Tertius Simmers discussed the Department's outputs and measurable annual performance. He noted that the Auditor-General highlighted certain aspects for the Department to focus on. The 2020/21 financial year had its peculiarities, especially the COVID-19 pandemic and the increased wave of land invasions in the province. WCDoHS moved swiftly to curb the threats of land invasion by rerouting funding to safeguard provincial properties and various projects.

 The Auditor-General had an adverse finding on the fund allocated to curb land invasion.

The MEC expressed concern that about 60% of all processes in the province are locked in local government areas, which represents a major risk for the Department. Other external factors that impacted the performance of WCDoHS included the COVID-19 pandemic as well as the backlog of about 200 000 title deeds.

WCDoHS exceeded its target on Women and Youths in construction. The Department already spends more than 50% of the Human Settlements Development Grant on SMMEs. However, it could not achieve its target for Youth Empowerment opportunities due to COVID-19 restrictions, which will be rectified in the current financial year.

The role of human settlements in the province is not limited to WCDoHS. Other role players include the national government, local government, and a number of departments within the province. The community dynamics really had a negative impact on the Department's ability to achieve some of its targets.

Department of Human Settlements Annual Report 2020/21
Acting Head of Department, Ms Phila Mayiseka, reported a regression in the audit outcome. The audit opinion regressed from unqualified with no findings in 2019/2020 to unqualified with findings in 2020/21 with material findings being non-compliance with procurement and contract management. There is also material correction to financial statements, which led to non-compliance in terms of Section 40. WCDoHS has already put measures in place to address most of the deficiencies. She assured the Committee that all findings will be completely addressed in this financial year. The Department prioritises good governance and will address all concerns. The interaction between WCDoHS and the Audit Committee will help improve the audit outcome at the end of this financial year.

Discussion on Part C: Governance
The Chairperson encouraged MPLs to seek clarity on the Department Annual Report and the AGSA and Audit Committee Reports. The discussion should focus on Section C: Governance and thereafter on Section E: Audit Report and Financial Information of the Annual Report.

Ms N Nkondlo (ANC) sought clarity on the disparities in the levels of achievement in various targets in the youth sector.

She also asked about the department official attendance of the Audit and Risk Committee meetings. It is concerning that some officials sparingly attend the meetings.

It is important that the Committee know the housing demand numbers which should be on a database and the annual housing delivery of the Department, especially for 2020/21. What is the total number of informal settlements in the province and what has WCDoHS done to upgrade the earmarked informal settlements?

Ms Nkondlo sought clarity on the nature of the fraud allegations. How many of these cases are closed or under investigation? She asked WCDoHS to elaborate on the conflict of interest mentioned in the Annual Report.

MEC and Department response
MEC Simmers said that WCDoHS intended to empower 150 youths with necessary skill sets to participate in the building industry but ended up empowering 56 youths. The skills acquisition programme was in collaboration with National Home Builders Registration Council (NHBRC), Construction Industry Development Board (CIDB), and other role players. On the other hand, WCDoHS exceeded its target in the Youth in Construction programme.

Ms Phila Mayiseka, Acting HOD, replied that the youth programme (Quantum) amounted to R93 million. WCDoHS spent R270 million on projects with women representation. The current Western Cape housing demand sits at 558 000 with the bulk in the City of Cape Town (61%), Overberg (12%), Garden Route (11%), West Coast (8%), and Central Karoo (1%). WCDoHS delivered a total of 6 247 housing units against a target of 8 506. The Department delivered 5 204 serviced sites against a target of 5 697. It was unable to completely meet its target for upgrading informal settlements due to various challenges, including the refusal of certain communities and individuals to allow construction. In addition, there were a number of procurement challenges at the municipality level. Another reason for underperformance in upgrading is lack of alignment with the Bulk Infrastructure Grant. WCDoHS engaged a number of NGOs to engage with communities and accelerate the upgrading programme. WCDoHS has also resolved to improve the level of services for the number of structures that are linked to basic services.

The number of informal settlements in the province sits at 836. The number of informal settlements increased rapidly as a result of land invasion, especially during the COVID-19 pandemic. Utilising the newly introduced Upgrading of Informal Settlements Partnership Grant (R450 million), WCDoHS works with municipalities to accelerate the upgrading of earmarked informal settlements. The housing demands are huge and the Department may not be able to meet all demands, especially in the near term. However, it continues to use the grant to improve the level of services within the informal settlements. A dedicated team addresses key challenges and ensures performance on the part of the municipalities. It continues to offer professional assistance to municipalities to ensure the success of the programme.

Ms Mayiseka replied that there was no conflict of interest in WCDoHS in 2020/21.

Mr Melvin Stoffels, WCDoHS Director: Financial Management, explained that the Department recorded a total of four fraud cases in the year under review. Only one case was closed. The main reason for the fraud allegations was non-compliance in the Supply Chain Unit. There were allegations that an official received money from suppliers. Other allegations include authorised business dealings outside the public sector. WCDoHS has taken steps to strengthen its internal controls. It also raises awareness about the roles and responsibilities of its employees.

Ms Mayiseka replied that the members absent from the Audit and Risk Committee meetings usually tender apologies and there is no prescription in terms of the level of the officials that represent a Department branch.

Discussion on Part E: Financials
Mr D America (DA) said concerns about irregular expenditure and localisation requirements were already addressed in the closed meeting with the AGSA and the Audit Committee. He asked if the upgrading of informal settlements was demand-driven. Are there applicable uniform criteria in Upgrading of Informal Settlements or are those criteria established and formulated by the municipalities themselves?

He sought clarity on the irregular expenditure on the security company contract. Some payments were outside the scope of the agreement. What is the Department doing to address the irregular expenditure, given its scale of R190 million? Are there disciplinary measures and consequence management in place? Is it taking steps to recover the funds if the allegations of irregular expenditure turn out to be true?

Ms D Baartman (DA) expressed concern that WCDoHS failed to follow due process in emergency procurement. Does it have an annual procurement plan? She sought clarity on the underspending in the Housing Asset Management programme reported on page 196. Why did the Department record an unspent amount of R185 000 in Legal Services? What was the average legal cost per title deed?

She noted that WCDoHS appointed the South African Post Office SAPO), as a principal agent to collect debt from beneficiaries. Is the relationship between WCDoHS and SAPO effective? Could it significantly improve its revenue by digitising its processes? Most government entities are embracing technology and this ensures fairness on the part of most beneficiaries. This will also prevent adverse audit findings at the end of the current financial year.

Ms Nkondlo asked about the circumstances surrounding the resignation of the former HOD. Was the resignation connected with the irregularities in the Department? How do officials in the Supply Chain Unit manage to perpetuate such levels of corruption? Who were the officials responsible for the loopholes in the procurement process and is there adequate disciplinary action as well as consequence management?

Ms Nkondlo expressed concern about the conditional grant over-expenditure on Killarney Gardens. Is it even the property of the WCDoHS to justify such overspending?

Ms Nkondlo said it is concerning that the Department legal fees almost quadrupled from R1.4 million (2019/20) to R5.3 million (2020/21). Are there additional legal obligations?

Ms Nkondlo asked the reason for underspending on the Provincial Emergency Housing Grant and the outstanding planning approvals. Which entity is responsible for the emergency housing response in the province? The Emergency Housing Grant should cater for disasters such as house fires but this is currently not the case. Who is responsible for the outstanding planning approvals?

MEC and Department response
MEC Simmers said WCDoHS could only access the Provincial and National Emergency Housing Grants where 1 000 or more structures are affected. He cited the example of Masiphumelele. The Emergency Grant for the area was released in two tranches. R32 million was spent on the construction of 800 temporary structures (fire kits). However, WCDoHS could not access the remaining R70.8 million for intended permanent structures due to pending approval. The Department continues to explore avenues to secure the outstanding grants to deliver the outstanding benefits to Masiphumelele.

The Department also continues to ensure that municipalities prioritise permanent structures over fire kits. Municipalities should earmark appropriate funds for fire response in their budget, especially during the summer.

Ms Mayiseka, Acting HOD, replied that the City of Cape Town (CoCT) expects environmental approval in May 2022. They will then proceed with procuring services to install the engineering services as well as the construction of permanent structures.

WCDoHS adopts proactive measures towards emergency situations but the statutory requirements and processes, especially at the local government level, represent serious impediments. It aims to explore various avenues to remove unnecessary statutory bottlenecks to ensure a timely response, especially during disasters.

On the criteria for upgrading of informal settlements, Ms Mayiseka replied that WCDoHS follows an established process for allocating funds to municipalities. The Department carefully considers all proposed projects from municipalities and only approves projects that are ready for implementation. In terms of readiness metrics, it considers a number of factors including land availability, bulk infrastructure, and risks associated with a particular informal settlement. It also considers the conditions guiding the upgrading process. The priority now focuses on permanent structures instead of temporary structures as this helps ensure the health, safety, and dignity of the beneficiaries. This requires extensive planning, which takes a significant length of time. The municipalities must do their due diligence before the Department can release funds for proposed projects. The CoCT receives its fund directly from the national government as part of the Urban Settlements Development Grant (USDG). However, WCDoHS still integrates the CoCT in its Inter-governmental relations (IGR) process as the municipality has the bulk of the informal settlements. WCDoHS works with municipalities to accelerate projects, where needed, and sometimes adjusts the budget depending on the absorptive capacity of the affected municipality.

Mr Francois de Wet, Department CFO, replied that AGSA had an adverse finding for security contract on behalf of other entities within the province. The contracts were outside the mandate of the Department. Investigation revealed that there was no malicious intent or fraud. All requests were done in writing to the HOD and approvals were given. The only challenge was the expansion of the terms of reference to other departments, which AGSA considered irregular.

WCDoHS budgeted an average of R2 500 legal fees per title deed case. The under-expenditure of R185 000 was expected to cater for about 70 to 90 cases. The legal fee would vary according to the complexity of each case.

The South African Post Office has collaborated with the National Department of Human Settlements even before 1994 and continues with the same agreement to date. The entity ensures debt collection by effectively connecting the owners to the tenants.

WCDoHS accepted that the adverse finding about Killarney Gardens resulted from irregular expenditure on its part. It will liaise with the CoCT to address the matter and collaboratively adopt measures to avoid adverse findings at the end of 2021/22.

Ms Mayiseka replied that the approval for the emergency grant is expected in May 2022. Provided there are no objections, the CoCT will be in a position to erect permanent structures for the beneficiaries in Masiphumelele.

Further discussion
Ms Nkondlo expressed dissatisfaction with the Department's responses on the resignation of the HOD, the irregularities in the supply chain management, and the condonement of irregular expenditure. WCDoHS should respond appropriately to address the matter and ensure the adverse findings do not reappear at the end of 2021/22.

MEC Simmers noted that the former HOD, Ms Jacqueline Samson, was Chief Director of Planning in the Department for 12 years before she became the HOD. She decided to resign from the Department to pursue a career in her area of specialization (planning) and she currently works for the Drakenstein Municipality. There was no case of malfeasance on either side.

The Acting HOD noted that the non-compliance for subcontracting tenders above R30 million was specifically due to the security contract. WCDoHS collaborated with the Department of Community Safety but all interactions were verbal in nature. The lack of written documentation led AGSA to consider this contract irregular. Going forward, WCDoHS would ensure appropriate documentation in cases where subcontracting is not feasible to comply with the Act.

The Chairperson sought clarity on the late submission of the Department Annual Report.

Ms Mayiseka replied that the Annual Report was completed in October but WCDoHS could not sign it off due to the outstanding technical discussion with AGSA.

Closing remarks
MEC Simmers thanked the Committee for the opportunity to present the Annual Report. There was no malicious intention on the part of the Department; every step taken was for the public good but it took note of all concerns raised and would work harder to achieve a better audit outcome in 2021/22. The Department will continue to work with the Auditor General and the Audit Committee to ensure good governance.

The Chairperson thanked MEC Simmers and his Department. The interrogations from the Committee were not intended to implicate WCDoHS but to ensure effective oversight and accountability. The Committee will continue to work with the Department to ensure transparency and effective service delivery to the beneficiaries.

Resolutions
Ms Baartman proposed that WCDoHS submit a written report to the Committee on steps it is taking to avoid irregular expenditure and if there disciplinary action against corrupt employees?

Ms Nkondlo proposed that WCDoHS furnish the Committee with measures it puts in place to curb irregularities on the part of municipalities. It should inform the Committee of its emergency action plan for structures less than 1 000 units. The Committee should strive to obtain the minutes of the 11 October 2021 meeting between the Audit Committee, Department, and AGSA. It is concerning that the audit outcome regressed in 2020/21. AGSA should enlighten the Committee more on the requirements for deviations and waiving of procedural unfairness.

The Chairperson thanked all MPLs for attending the meeting and closed the meeting.