The Portfolio Committee on Water and Sanitation was briefed in a virtual meeting by the Department of Water and Sanitation (DWS) on its first quarter performance for the 2021/2022 financial year.
The Department reported expenditure for the period ended 30 June of R2.422 billion, representing 13% of the total annual adjusted budget of R18.539 billion, leaving total unspent funds of R2.532 billion for the quarter. The total amount of irregular expenditure condoned by National Treasury had been R1.488 billion. During the period between 2019/20 and 2022/23, 228 cases had been reported to the internal audit unit, and 135 forensic investigation cases were being carried out. A further 73 cases had not yet been investigated, and would be investigated by external service providers to expedite them. Budget reprioritisation amounts included R65 million for the KwaZulu-Natal flood disaster, R32 million for the section 63 intervention on water projects in Umkhanyakude, and R67.4 million for the Eastern Cape's Nelson Mandela Bay and Kouga water crisis intervention. The Department achieved 78% of targets during the quarter under review.
Members said the 2% procurement achievement for the disabled people designated group could not continue at that level, and that there should not be discrimination in the procurement process. The Committee raised concerns about the condonation of cases involving irregular expenditure, uncompleted projects, and procurement targets not being achieved for designated groups, etc. In their response, the Department indicated that most of the projects that were not completed ran over multiple years, and even though they were moving, it may appear as if no progress was being made. It countered that it followed all the rules and procedures of Treasury regarding the condonation of cases, which meant showing that there had been recouping of funds where possible, instigating disciplinary measures and pressing of charges for fraud and corruption.
The Minister indicated that the Department was also burdened with many uncompleted investigations from the past years, but it was doing its best to push for completion with those who were responsible, and hoped that by the end of the third quarter it would have decreased the number of uncompleted investigations, indicating that it was playing an active role in insisting on progress in this regard.
The Chairperson struggled to log in to the meeting due to load-shedding, so Ms G Tseke (ANC) took over as the acting Chairperson until Mr Mashego connected to the meeting. She then welcomed the Ministry and delegation from the Department of Water and Sanitation (DWS).
Minister's opening remarks
Mr Senzo Mchunu, Minister of Water and Sanitation, said that the Department had a meeting with the Auditor-General of South Africa (AGSA) last week, and it had received a bad report on its financial performance for the 2020/21financial year. The report was burdened by problems from the 2017 and 2018 financial years, but the Department was hopeful that in the coming financial years, there would be an improvement in its accountability to the Standing Committee on Public Accounts (SCOPA). One of the ways it had to improve its accountability was to fill up vacant posts as a duty, because having unfilled executive positions meant that there was no one to be held accountable.
The Department was also burdened with lots of uncompleted investigations from the past years. However, it was doing its best to push for completion with the bodies that were responsible, and hoped that by the end of the third quarter, it would have reduced the number of uncompleted investigations. This would show that the Department was actively insisting on progress on these uncompleted investigations.
The low level of operation of systems made it difficult for the Department to account at a higher level. That was why it was working very hard to ensure that its accountability and procurement systems were operating effectively, because it had systems operating at a very low level. The DWS was involved in financial recovery, encompassing all the enhancement processes that the Director General (DG) was currently undertaking.
Overall, the DWS realised it had to make a distinct separation between ordinary procurement and procurement for construction, as procuring for printing paper was not the same as procuring for a R10 billion project, for example. There had been discussions with National Treasury and other government departments on this, and there was a general agreement that there needed to be a separation in the systems of procurement.
The Acting Chairperson said that the Committee had received a petition from the Nandoni Complaints Resolution Committee (NCRC) involving compensation, toilets and so forth. She was currently interacting with the two chairpersons of the Portfolio Committees on Cooperative Governance and Traditional Affairs (COGTA) and Human Settlements, to meet with the NCRC on the issues raised.
DWS's first quarter performance report
Dr Sean Phillips, Director-General (DG), DWS, took the Committee through the executive summary of the Department's report for the first quarter of 2022/23. It highlighted the achievements and various challenges facing the Department in several areas, including its financial performance and position, service delivery, the clearing of legacy cases involving unauthorised, irregular, fruitless and wasteful expenditure, the existence of fraud and corruption, and institutional performance challenges with the water sector value chain.
The Department had developed and was currently implementing a turnaround and financial recovery plan addressing the strategic context; performance and consequence management systems; strategic leadership; institutional stabilisation; capacity and transformation; sustainable service delivery; infrastructure maintenance and development; and financial management.
There were ongoing interventions to correct systematic challenges within the water sector, which were being done in collaboration with National Treasury, COGTA, municipalities and water boards.
A total of 23 senior management posts had been filled since the start of the 2021/2022 financial year, including the Director-General post, which was filled with effect from 1 January 2022. The Chief Financial Officer (CFO) and all other Deputy Director-General (DDG) posts had also been filled. All Chief Director posts had been filled, except for the post that was vacated by the current CFO, and the new incumbent would assume duty on 1 October. One vacant director post -- Forensic Investigation and Quality Assurance -- was in the process of being filled. The Forensic Investigation Unit had eight investigators, three of whom had since vacated their positions. This created a capacity constraint.
The DWS was now following a proactive approach, preparing recruitment and selection processes in instances where it became aware of future vacancies. It was also currently reprioritising other critical vacancies in line with the compensation of employees (CoE) budget allocation for the 2022 medium term expenditure framework (MTEF), and in line with the approved organisational structure. Specific emphasis was being placed on professional and critical positions.
Ms Babalwa Manyakanyaka, Chief Director: Performance Measurement and Monitoring, DWS, said that administration, water resources management and water services management had achieved quarterly milestones of 81%, 77% and 80% respectively. In the first quarter, procurement from small, medium and micro enterprises (SMMEs) had been 61%, against a target of 30%. Procurement from exempt micro enterprises (EMEs) in the first quarter was 38%, while procurement from qualifying small enterprises (QSEs) was 23%. The Department had achieved procurement from the youth designated group of 22% from a target of 30%, and 39% from women against a target of 40%.
Two of the four sub-programmes of the administration programme -- corporate services, and provincial and international coordination -- had achieved a 100% performance on what had been planned for the first quarter. Three of the seven sub-programmes of the water resources management project had achieved a 100% performance, as had two of the six sub-programmes of the water services management programme.
In the first quarter, the Department completed five of the 82 regional bulk projects under construction, and 42 water services infrastructure grant projects.
Mr Frans Moatshe, CFO, DWS, said that the expenditure for the period ended 30 June 2022 had amounted to R2.422 billion, representing 13% of the total adjusted budget of R18.539 billion, leaving total unspent funds of R2.532 billion for the quarter. Most of the underspending was recorded under "payments for capital assets" at an amount of R796.6 million.
Budget reprioritisation amounts included R65 million for the KwaZulu-Natal (KZN) flood disaster, R32 million for the section 63 intervention on water projects in uMkhanyakude, and R67.4 million for the Eastern Cape Nelson Mandela Bay (NMB) and Kouga water crisis intervention. Shifting of funds was effected on slow moving projects, but this would not affect the current projects negatively as they were behind schedule, and funding was being redirected to these projects during the adjusted estimates of national expenditure (AENE) and the MTEF, to prevent a negative impact on the affected communities.
Some of the provinces had recorded expenditure in line with their projections, but others had recorded low expenditure due to the following reasons:
Implementing agents' capacity constraints;
Work stoppages and contractual disputes;
Disruptions by some business demanding an allocation of tenders.
As part of its recovery plans, the Department had developed an infrastructure procurement strategy, including implementation of project management systems, and support to the implementing agents. Acceleration plans were being implemented for projects, including the Bucket Eradication Programme (BEP), the Vaal River intervention project, and the Madibeng bulk water supply.
The cumulative infrastructure project commitments balance for head office and regions as of 30 June amounted to R6.235 billion. Some of the commitments were stagnant, and/or involved contractual disputes. Non-performing contractors included in the commitments were being engaged, and where there was a breach of contract, penalties and termination clauses would be invoked.
The cumulative sanitation infrastructure project commitments balance as at 30 June had amounted to R639.2million. Contractors' performance assessments were being reviewed to resolve factors contributing to a lack of performance, and where there was breach of contract, penalties and termination clauses would be invoked. Lack of performance was affecting spending of the programme and service delivery.
As part of the measures to prevent under-spending, the Department had reprioritised budgets between projects with supporting acceleration plans, including effective contract management, penalties, and termination of non-performing contractors. Some of the key prioritised projects included:
Vaal River System Intervention – Rand Water
The Emfuleni Section 63 Directive was being implemented by Rand Water, with an estimated refurbishment cost of R655.96 million in the 2022/23 financial year.
The Department had appointed seven contractors to replace collapsed pipelines and electromechanical projects, and had issued work packages with a combined value of R223.7 million during August. Construction had already commenced.
Project performance had been affected by community protests and interruptions by business interest groups.
More work packages were being processed, and construction was being accelerated. Upon work certification, significant expenditure would be realised, thus mitigating under-spending.
The current budget allocation of R400 million would be increased with unspent funds from identified non-performing projects.
Madibeng Bulk Water Supply – Magalies Water
The project had many challenges, resulting in work stoppages, community protests, liquidation of one of the service providers, poor project execution, etc.
Efforts had been made to resolve these challenges, and six contractors -- civil, mechanical and electrical -- had been appointed with expenditure projections estimated at R488 million for the 2022/23 financial year.
The project was accelerating, and it was anticipated that additional funding would be required.
The current budget allocation of R105 million would be increased with unspent funds from identified non-performing projects.
Loskop Regional Bulk Water Supply Scheme
Three contractors for projects with a combined value of R1.5 billion had been appointed on 5 September, and construction was expected to commence at the end of September, as the contractors were currently busy with contractual obligations such as surety and insurances.
The current budget allocation of R140 million was projected to be spent in the 2022/23 financial year.
Construction would be accelerated, and upon work certification significant expenditure would be realised.
Upgrade of the Olifantspoort and Ebenezer Water Supply Scheme – Lepelle Northern Water
An amount of R422 million had been allocated through the Budget Facility for Infrastructure Fund.
A memorandum of agreement (MOA) had been concluded, with a transfer scheduled for the second quarter to enable Lepelle Northern Water to finalise the implementation readiness study and start the refurbishment works.
Budget reallocations between projects within the same province
Reallocations between projects were also being processed and aimed at preventing under-spending.
By the end of June, an amount of R25.4867 billion was owed by trade customers. In addition to enforcement of credit control measures, the Department was part of the Multidisciplinary Revenue Committee (MdRC), which was comprised of National Treasury (NT), the South African Local Government Association (SALGA) and COGTA, which focused on providing solutions to water debt challenges across the value chain.
Long-term financial liabilities were the amounts owed to the Trans-Caledon Tunnel Authority (TCTA) in accordance with various construction contracts for developing and maintaining infrastructure assets. Compared to the prior year, these liabilities had decreased by R1.946 billion. Contingent liabilities mainly consisted of legal claims against the DWS by several service providers in respect of contractual disputes which were the litigation processes. Fruitless and wasteful expenditure had been incurred because of irrecoverable construction costs incurred in internal and external projects.
No unauthorised expenditure had been incurred since the prior period incidents. The unauthorised expenditure was related to overspending on the BEP and the "War on Leaks" programmes in prior years, and had been reported to the NT for processing to Parliament. Fruitless and wasteful expenditure was related mainly to costs incurred on internal and external construction projects that could not be recovered. Further incidents had been noted at the Water Trading Entity (WTE), which was currently at an assessment stage. Included in the irregular expenditure was an amount of R8.8 billion submitted for condonation.
The reported incidents of unauthorised, irregular, fruitless and wasteful expenditure were at various processing stages, including investigations by the Department, the Special Investigating Unit (SIU) and the South African Police Service (SAPS), disciplinary proceedings and court proceedings. The Department had appointed a panel of professional service providers (PSPs) to augment the current investigation capacity of the internal audit unit.
Fruitless and wasteful expenditure was related mainly to costs that could not be recovered and capitalised to projects, and had been incurred on internal and external construction projects. Investigations were being accelerated to enable finalisation before the end of the 2022/23 financial year. Further incidents were noted at the WTE, and were currently at an assessment stage.
In total, the amount of irregular expenditure condoned by National Treasury was R1.488 billion. The Department has ensured that remedial action is being taken, to ensure that similar irregular expenditure would not be incurred in future. It has strengthened and enhanced its internal controls for procurement processes, procedures, and contract management to address the root causes of irregular expenditure.
To date, the total/accumulative irregular expenditure for the financial year amounted to R16.562 billion. This figure had been adjusted from 17.812 billion, due to the condonation approved by National Treasury.
A total of 228 cases were reported to the internal audit unit, and 135 forensic investigation cases were investigated by the unit between 2019/20 and 2022/23. 98 of the allegations were confirmed to be true, while 37 had been unfounded and 20 cases were currently under investigation. 73 cases had not been investigated yet, and their cases would be investigated by external services providers in order to expedite them.
A panel of investigators had been appointed to expedite these cases. The finalised cases (98) had been referred to:
Employee Relations, to take disciplinary action against the officials who committed financial and other acts of misconduct;
SAPS and the Hawks, for criminal investigation; and
Legal Services, for civil recovery in instances where the Department had suffered a financial loss.
These cases resulted in sanctions against the transgressors. The sanctions included dismissal, demotion, suspension without pay, and written warning letters. These cases had resulted in an amount of R996 883 being recovered through civil recovery processes and a judgment of R27 510 067. During the period from 2019/20 to 2022/23, 74 awareness sessions took place at which 1 781 officials were trained on anti-fraud and corruption measures.
(See presentation for more detail.)
Chairperson Mashego took over from the Acting Chairperson.
The Chairperson acknowledged the progress made by the DWS, and emphasised that the Department had to communicate with the public and the Committee on its achievements, as there was an impression of non-performance by the Department because of the lack of communication. He also raised his concerns over the uncompleted projects that were indicated in the report and the questions that were raised in the previous meeting that the Department had not answered in their report.
Ms R Mohlala (EFF) interjected that the Chairperson should be allowing Members to ask questions first before he asked his own questions, as he was chairing the meeting.
The Chairperson then got into a heated disagreement with Ms Mohlala as to which of them was out of order.
The Chairperson asserted that Ms Mohlala was out of order, and as a Member of the Committee, he was also allowed to ask questions.
Ms Mohlala strongly denied that she was out of order, and continued to request that the Chairperson allow Members to ask questions first. She said that the meeting was for all Members, not only the ANC.
The Chairperson maintained that he had every right to ask his questions and would finish asking his questions and then give the platform to the Members to ask their questions. The argument ended and the Chairperson continued speaking. He said that some of the issues he wanted to raise with the Department were the unauthorised expenditure and the increase in irregular expenditure.
Ms Mohlala said that in future, the Chairperson should educate himself on how to run a meeting and allow Members to ask their questions first.
She then asked which implementing agents (IAs)of the Regional Bulk Infrastructure Grant (RBIG) were experiencing constraints in each province and what the reasons were. How was the Department resolving this? The condonation of cases was very concerning and out of order, as the more cases were condoned, the more the taxpayers lost their money. What had happened to the people involved in the cases condoned?
Ms N Sihlwayi (ANC) appreciated the Minister's feedback on the progress made by the Department. She also appreciated the finalisation of the organisational structure of the DWS. The previous year, there had been a very progressive approach to the construction unit, attempting to empower young people with critical skills. She asked where that was in the finalised structure of the Department, as it had been progressive when it was presented to the Committee.
The fact that only 2% procurement achievement for disabled people was concerning and could not continue at that level -- there should not be discrimination in the procurement process. What exactly were the procurement services that the designated groups had applied to provide?
She asked the Department to clarify the reasons for the non-achievement of targets.
The President had made it clear in the 2021 State of the Nation Address (SONA) that the private sector was there to assist the state in creating jobs, and the public sector was expected to be the main role player in the creation of jobs. The DWS had huge amounts of money which could be used to create jobs. Did the DWS have a standard measurement in place to ensure that the private sector was able to create jobs with the money received from the Department?
Regarding the reprioritisation of funds, what processes had been put in place by the Department to inform the community about the delays in projects and their reasons. What processes had preceded the condonation of cases, as money was being allocated to areas such as Giyani, and no value had been derived from that money due to the condonation.
Ms G Tseke (ANC) asked what factors had prevented the Department from achieving the set targets in the designated groups of women, youth and people with disabilities. What was the role of the internal audit unit vs the panel of professional service providers? How far was the Department on the case of transgression involving one of the DDGs of the Department? What role did the Development Bank of Southern Africa (DBSA) play in undertaking departmental projects?
How many contracts had been terminated for non-performance, and in which provinces? What was the value of the terminated contracts? Were there any funds that the Department intended to recoup from the terminated contracts?
Ms M Pietersen (ANC) said that as it was evident the Department had underperformed when it came to water user monitoring, how would it improve the monitoring of water users going forward? On slide 25, several projects had been reported as complete, but seven had not been achieved -- could the Department provide more clarity on that?
Dr Phillips noted the Chairperson’s remark on the need to improve communication, and said that the Department would improve in this area.
Mr Risimati Mathye, DDG: Water Resource Management, DWS, responded that most of the projects that were not completed were running over multiple years, and even though they were moving it may appear as if no progress was being made.
The Department committed to providing detailed reports in future meetings to the Committee on why there were problems with each of the implementing agents, and the relevant provinces affected. The reports would also clarify how far the IAs were, and what the Department was doing to accelerate those projects.
Dr Phillips added that IAs had experienced various problems, including project management and infrastructure procurement challenges. As the Department closely monitored all the projects, it also offered advice and support to the IAs to assist them in improving before taking a project away.
There was a set process that National Treasury followed before condoning any previous irregular expenditure. It was very strict, and all the requirements had to be met before a condonation was allowed. The DWS followed all the rules and procedures of Treasury on the condonation of cases, and part of those requirements included showing that the was recouping of funds where possible, and the instigation of disciplinary measures and pressing of charges for fraud and corruption.
Mr Moatshe added that where there happened to be no value for money, Treasury required that the Department conclude all the procedures that were set before a condonation would be allowed.
Dr Philips responded to Ms Sihlwayi that the construction unit established many decades ago was not for the sole purpose of giving experience to young people, but for the purpose of building major infrastructure. The DWS had problems bringing in young people to help them gain experience working in the sector.
Ms Nthabiseng Fundakubi, Deputy Director-General: Water Services Management, DWS, added that the Department had an academy of learning, where young people were recruited through a graduate training bursary, and it had made strides in that area. So far, 975 bursaries have been awarded, and 827 students had completed their courses and joined the Department as graduate trainees. 145 graduates were currently in the new graduate intern programme, and about 600 candidates had been appointed to contract positions in the Department. 300 candidates have been appointed to permanent positions in the Department so far.
The Chairperson said that the matter of the construction unit had been brought up because it seemed as though it did not fairly represent all the demographics, and that needed to be changed. The great work that the construction unit was doing was appreciated and acknowledged by the Committee.
Dr Philips noted the Chairpersons comments, and added that the construction unit had transformed considerably in the last decade.
Mr Moatshe responded that the Department could not achieve all the set targets due to some of the crises that had been faced, and funds having to be reallocated. It was confident that by the second and third quarters, it would be able to achieve the set targets, as it took the necessary steps to resolve the challenges faced in the first quarter.
Ms Fundakubi said that the role of the panel of investigators was to boost the capacity in the internal audit so that cases could be finalised in time.
Minister's closing remarks
Minister Mchunu responded to the question by Ms Tseke, saying that the presiding officer wants to streamline the finalisation of the disciplinary case involving one of the directors in the Department to avoid the case dragging on for too long. There had been perpetual postponement on the part of the director, which was what officials did, even though there was no justification. That was part of the reason for the streamlining of the case's finalisation.
The Department was having ongoing discussions with Treasury to avoid being set back by having too many budget cuts. It was in a situation where it had to persuade Treasury not to have too many cuts as that would lead to deficits in programmes and projects. The Department would need more money to ensure that uncompleted projects were completed in time and challenges causing delays in projects were addressed effectively.
The meeting was adjourned
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