The National Home Builders Registration Council (NHBRC) received an unqualified audit report with findings and they are aiming for a clean audit for the next financial year and have established a clean audit task team.
The National Housing Finance Corporation (NHFC) adjusted the material findings that were noted in the unqualified audit report with findings to a point where the annual financial statements had no material findings.
The Social Housing Regulatory Authority (SHRA) received an unqualified audit opinion with emphasis on non-compliance with relevant laws and regulations and material amendments made to the financial statements and annual performance report.
The Committee was concerned about critical targets that were not met by the entities, their irregular expenditure, the mismanagement of funds and some of their presentations not being a true reflection of their work in the ground.
The Chairperson observed a moment of silence for meditation and prayer. She noted the Minister had asked to be late to the meeting as her flight was delayed
National Home Builders Registration Council (NHBRC) briefing
Ms Nomusa Mufamadi (Chairperson, NHBRC) said that the achievement of the Council between 2017 and 2022 has increased by 25%, resulting in a 93% achievement. They have received an unqualified audit and they are aiming for a clean audit for the next financial year by establishing a clear audit task team.
Mr Songezo Booi (CEO, NHBRC) said that the Council had 27 output indicators in 2021/22 and only two in the Administration and the Consumer Protection Programmes were not achieved.
The Council could not comply with the statutory reports as some reports were submitted after the due date, resulting in a 92% achievement. They however managed to achieve an unqualified report and an acceptable spending on BBBEE entities.
The Council achieved a 100% improvement to regulatory compliance by inspecting the homes completed in the non-subsidy sector, resolving disputes, and training builders. Another 100% achievement on training competent home builders and technical professionals including those with disabilities.
The Council managed to improve the regulatory compliance as planned. The target to reduce greenhouse gas emissions was unachieved because no contract was issued to appoint a company that would construct the Green First, Zero Energy model houses.
Ms Tamlyn Bouwer (Acting CFO, NHBRC) presented the 2022 audited annual financial statements (AFS) showing a net profit of R1.3 bn (2021: R737m).
Total income earned of R 1.4bn (2021: R 649m)
Operating profit amounts to R599m (2021: loss R88m)
Expenses have increased to R828m (2021: R766m)
Cash generated from operations: R132m
Cash in bank of R705m
There was a 52.18% in the growth of the surplus, 42.44% growth of equity and 33.75% in growth of assets from 2017 to 2022. There were more warranty claims paid in 2019/20 period out of all the five years.
National Housing Finance Corporation (NHFC) briefing
Mr Luthando Vuthula (Chairperson, NHFC) introduced the NHFC delegation.
Mr Viwe Gqwetha (Executive Strategic Partnerships, NHFC) highlighted that the Council has new board members who are distributed to the committees like the Audit, Risk and Ethics Committees as expected by the governance standards. NHFC priorities included Enterprise Architecture and Business Process Mapping, POPI Implementation, and intensified employee leadership training.
The new board plans to build a strategy to come up with a development bank that acts as a catalyst for a thriving ecosystem that by 1 April 2024, has capacity to fund and facilitate decent homes to meet the demand of the gap market in South Africa by 2032. The target includes 150 000 housing units per annum and 83% procurement spending to BBBEE suppliers levels 1 to 4.
NHFC has partnerships with companies like TUHF Holdings Ltd (32.6% interest), Housing Investment Partners (Pty) Ltd & trusts (33% interest) and International Housing Solutions Fund II (20.9%).
Ms Tsholofelo Ramotsehoa (Executive Lending, NHFC) presented the annual performance targets that were achieved and not achieved:
The NHFC achieved an unqualified audit with findings for 2020/2021 due to misstatements in the disclosure notes to the financial statements as a result of not following supply chain management (SCM) processes. Targets for Risk Management, Anti-Fraud and Corruption and Credit Loss Management Reports were met.
Integrated HS Planning & Development
There was no contribution to the strategic partnerships, no value leveraged from NHFC strategic partnerships and the incremental y-o-y alignment of future financing activities to Priority Human Settlements and Housing Development Areas (PHSHDAs) was 0. This non achievement was due to non closure of deals to allow for investment to flow, potential deals are at relationship building and MOU stages, and a baseline was not established due a deferred GIS establishment.
Rental and Social Housing
Targets with Social Housing and Private Rental Housing Finance were not met due to the challenges with the finance model.
Affordable Housing Programme
Incremental Housing Finance targets not met due to the quality of the intermediaries debtors’ book; intermediaries are under financial distress. Targets for affordable housing bridging finance and incremental housing finance were exceeded.
Grant Facilitation (FLISP)
All targets in this programme were not met because of revised FLISP Policy not approved as planned and low number of applications received and approved.
Targets for disbursements of BBBEE compliant companies were exceeded. Other targets were not achieved due to designated groups being a small pipeline, funds held and managed by NHFC on behalf of clients on an agency basis fell short of the target.
Mr Bruce Gordon (Acting CEO, NHFC) said that the NHFC has adjusted the material findings that were noted in the unqualified audit report to a point where the Annual Financial Statements had no material findings. Key findings of the Auditor-General’s report were addressed by implementing contract management systems, improving the reconciliation process of the loan schedules, and preparing Annual Financial Statements to be completed by 30 April each year to ensure sufficient time allocated for the review prior to presenting to Auditor General.
The key strategic risks include the Financial Sustainability, Mandate, Governance and Compliance, Information Technology and Human Resource Risks.
- Management fees increased because of programme management fees from City of Cape Town.
- Company interest on advances of 5.6% reflects slightly increased interest rates in the 2021/22.
- The credit portfolio performance proved resilient to the challenges with only R49 million impairments and write offs incurred against a budget of R87.4 million due to the sufficient security in the NHFC’s debtors.
- Group Opex increased by 7% due to inflationary increase and increase in ICT expenses aiming at improving IT environment.
- The size of the Group lending book is now R4.1bn (net book value). The growth in the Group loan book is 2.8% from 2020/21 financials
Social Housing Regulatory Authority (SHRA) briefing
Ms Busisiwe Nzo (Chairperson, SHRA) said performance over the previous five years has been regressing, mainly because there has been no CEO. They are interviewing candidates for the position and they are almost at the point of filling the position.
Mr Dewalt Koekermoer (Acting CEO, SHRA) highlighted the following:
- Five audit findings were raised in 2020/21 and three were fully and two partially addressed in the period under review with the most important being the SHRA Council appointment on 26 November 2021.
- Staff vacancy rate as of March 2022 was 19.64% with a headcount of 45 full time staff.
- SHRA’s performance achievement was 61% (19/31 targets) for 2021/22.
- 7 637 housing units (42%) and 10 363 units remaining in the next two years to meet target. Approximately 14 000 units have been approved and not yet completed and units under regulation (2021/22) are 42 553.
2021/22 Annual Performance is as follows:
SHRA achieved 82% on implementation of the approved Internal Audit Plan due to changes service provider of the outsourced internal audit services function. Compliance with statutory reporting requirements, implementation of the annual stakeholder management plan and procurement spent to majority black-owned or controlled service providers’ targets were met.
Compliance, Accreditation and Regulation
The only targets met relate to subsidised housing projects.
Sector Developments and Transformation
No incubation programme participants received project accreditation because no project in from any of the participants in the multi-year programme ready for accreditation. Targets for two projects from municipalities in the municipal support programme accredited were met.
Project Development and Funding
2 771 social housing units completed, this is below the target of 3500 and this is because majority of projects are stuck at planning due to a myriad of reasons, not limited to statutory approvals and largely securing debt funding.
Mr Vusi Fakudze (Acting Corporate Service Manager, SHRA) said SHRA received an unqualified audit opinion with emphasis on non-compliance with relevant laws and regulations and material amendments made to the financial statements and annual performance report. Material misstatements in the submitted financial statements were identified by the external auditors.
Fruitless and wasteful expenditure was not identified. Irregular expenditure relates to transactions being processed following resolutions taken by the Interim Council on CCG project approvals and ensuing disbursements, payroll related approvals remuneration paid, and other costs incurred for the Interim Council.
Cash & cash equivalents stand at R1.152bn – a decrease of R61.1m; total liabilities decreased to R402.67m from R511.1m and accumulated surplus is R758.31m – an increase of R26.32m.
Ms E Powell (DA) said that the NHBRC is doing a decent job out of all the entities the Committee has seen so far. She has a concern with the R369 million worth of claims that NHBRC has opposed. She would like to know why there is an opposition to begin with. She is also concerned about NHBRC charging high rates to enrol housing builds given the low claims and its high profits. She noted that a positive balance is commendable, but she suggested that the surplus may be used to lower the charges it levies to the industry.
She is concerned about the slow progress of the NHFC’s debt relief programme. It could not implement the program because the Minister of Human Settlements had not approved the framework although the board approved the Integrated Residential Development Programme (IRDP) policy in August 2021, which was 18 months after the Covid pandemic. She is of the understanding that the approval was done in February 2021 but the utilisation of the funds is not reported on the financial report. They have also said that they were going to request the retention of funds for 2022/23 but there have been delays. However, government allocated the funds, budgets and the adjustments were approved by Parliament.
There were only three applications for incremental housing loans in the Northern Cape compared to over 10 600 in Kwa-Zulu Natal. What capacity building is being done in provinces that are not taking up the offerings and is there a reason the Northern Cape has few applications? The target for the KPIs was 50 but it had no achievements. The justification was that no deals have been closed to allow investment to flow and potential deals are at relationship building and MOU stages. She emphasised that it is unnecessary to set a target and allocate millions of rands to such a project. In such instances it would be better to state that they are in the process of building relationships without setting targets as deals have not been finalised, to reduce a bad look to its performance. She asked what guarantees it has to assure the Committee that they are prepared for the establishment of the Human Settlements Development Bank.
She is not happy with the report SHRA sent – it is scanned and highlighted – and requested it to send a clear report by the end of the day. In terms of compliance, only three were met and that was severe. There was a budget of R806 million and a R143 under-expenditure, but most objectives were not achieved. It is concerning that the Residential Rental Relief Programme took 14 months to be approved. SHRA should justify its continuous underperformance to Parliament. With R356 million in irregular expenditure but a R2.7 million payment for performance bonuses, she wondered how SHRA can pay bonuses with its bad performance. She is aware that there is a new chairperson, and she hopes that she brings some positive changes to SHRA.
Ms S Mokgotho (EFF) asked NHFC about the consequence management applied to the official responsible for the R16 million irregular expenditure. There was also no consequence management applied to an official responsible for modifying and extending contracts without following PFMA and Treasury regulations. When is the NHFC board going to complete the process of working towards the development of the Human Settlements Development Bank as this is long overdue.
She asked NHBRC what measures they have taken to improve the quality of their financial statements, and did they take disciplinary action on the officials who permitted irregular expenditure before the investigations were closed.
She was disappointed with the SHRA performance and they are failing the South African citizens. SHRA is unable to meet the targets yet they are aware that they operate in a country where a lot of disadvantaged people need housing. She asked what measures they have taken to manage the meeting of targets such as the 3500 target in housing units which had only 2771 achieved. Have they applied consequence management for the irregular expenditure of R356 million? When are they planning to employ a permanent CEO? What measures are they planning to take to obtain a clean audit report as requested by the financial reporting standards?
Mr C Malematja (ANC) said that it is disturbing to realize these audit reports may give the public the impression that National Treasury is deceiving them in the amount of money give to entities for the year which are not utilized properly. He asked the NHBRC chairperson why she had to wait for the audit report to start thinking about formulating a ‘clean audit unit task team’. Why did she wait until Auditor-General South Africa (AGSA) pointed out that there are executive positions to fill before she thought about filling them. He said that the CEO was irresponsible about the AFS sent to AGSA which obtained a qualified report, but when they returned with the corrected reports, they obtained an unqualified report. It must work with its internal audit unit and ensure compliance with the PFMA and regulations. He noted improvements in the targets achieved and applauded the decrease in the payment of invoices to 25 days.
Ms N Sihlwayi (ANC) raised a concern about the institutions not creating value with the money given by Treasury. The non-meeting of targets is also a concern for the improvement of the lives of South Africans. She commended NHBRC for the 25-day payment of invoices they were able to achieve and the online registration system improvement. She was however concerned by the people who live in rural areas and have no access to online utilities to register for training and housing. What does it plan to do to ensure that such people have access? NHBRC is tasked to monitor the quality of houses but judging from the report, she worries how it will be able to do so.
The unachieved target due to low application from the women and people with disabilities speaks to the organisational design of the institution. She emphasised having a structure that will be responsible for ensuring they reach their targets. How does NHBR deal with low applications and what are they planning to do to improve it, and why does it take long to approve?
She asked SHRA why they have not notified their clients about the new quantum they are using, leaving them to continue using the old quantum. Of the 2771 completed housing units, she asked why SHRA did not revise its targets because they could clearly see that they were not going to meet them. She asked why SHRA does not refer the people they cannot help to the relevant entities rather than ignoring them. She asked for the strategy used for the accreditation of designated groups.
Mr P Tseki (ANC) noted that the NHBRC performance looks great as opposed to what is on the ground that says they are not doing a good job. He suggested that the Committee visits one or two of the towns where NHBRC has built RDP houses especially in Limpopo. There is always a report about the Human Settlements Development Bank but nothing is being done to implement the idea. It is very concerning that the idea was pitched from 2019 and nothing has been done to show implementation of the idea.
Ms Nomusa Mufamadi (Chairperson, NHBRC) replied about the non-employment of executives until the AGSA raise the matter saying that it had been considered before. The current board members were appointed in November 2021 and it found all the positions were filled by acting members. The COO is back after obtaining a legal opinion which took time. The CEO appointment has been finalised and all remaining positions could not be filled until the CEO was appointed. She promised that by December 2022 all the vacant positions should be filled.
Community centres have been established in the rural areas to help with online registrations. It is true that NHBRC does not look as good on the ground as the performance report and meetings to visit provinces have been scheduled with two meetings confirmed for November. They will be engaging with all the MECs in the provinces to understand the challenges faced on the ground. There were people from certain towns like the Midrand who complained directly to their offices and they have attended to such matters.
The irregular expenditure caused by previous employees has been investigated and NHBRC has engaged with National Treasury.
Mr Songezo Booi (CEO, NHBRC) replied that the fees it is charging are legislated by the policy the currently have. The new Housing Consumer Protection Bill will still be discussed and the recommendations to review the fees may be done there. They have looked at ways to reinvest the surplus for development, and the strategy has been approved by the Minister and it is awaiting approval from the Minister of Finance. Cases of irregular expenditure dating back to 2011 have been investigated. They are currently communicating with Treasury about the root cause and gaps to stop this cycle. The employment of the clean audit task team is a management team that will help identify the key points AGSA highlighted when auditing the financial statements. This would help them to make improvements while they still have time in this financial year. The 25-day payment of invoices was achieved across the country and they appreciate the acknowledgement by the members of the Committee.
Ms Tamlyn Bouwer (Acting CFO, NHBRC) addressed the contingent liabilities saying that they arise from the nature of their business as a regulator, where they take certain decisions in enforcing the housing consumer’s protection. The disagreements between AGSA and NHBRC led to the delay in issuing their AFS. They have issued a few measures to adhere to the new reporting standards that will come in to effect in January 2023 and they will avoid delays by any means. They have sourced an accounting software to help with reliable reporting. They are in communication with the Accounting Standards Board to have an independent overview of their financial statements.
Mr Luthando Vuthula (Chairperson, NHFC) replied that there has been progress about the Human Settlements Development Bank (HSDB). There were three institutions they had to merge. The merger of NHFC with the Rural Housing Loan Fund (RHLF) and the National Urban Reconstruction and Housing Agency (NURCHA) has been completed leading them to the next step. It is important that in the interim there is an engagement with the Department and a committee that has been set up to deal with this. There are engagements with Treasury about the capitalisation of the HSDB. They will be looking at the revised business case for the process in a meeting scheduled in November. They need to ensure that they crowd in the private sector in the development of the HSDB to help with the funding for development of housing in the affordable housing space. The government cannot have enough money to give everyone a house, which is why they need assistance from other institutions to de-risk the sector.
Consequence management has been implemented to a certain extent, especially in the procurement area. A new procurement manager was appointed and improvements have been noted. They are expecting consequence management and accountability in the senior level. They must work closely with the Department of Human Settlements (DHS) to improve performance.
Mr Bruce Gordon (Acting CEO, NHFC) said that NHFC is working hard with the Department on the HSDB legislative process and the Department drives that process and NHFC gives them support. The DHS Acting DG has constituted the steering committee to get the HSDB working and they will be meeting for the first time before the end of this month.
The debt relief programme took a while because there were decisions that had to be taken about how wide it should go. It was initially proposed as a rent relief, but it was changed to debt relief to assist their clients.
Ms Viola Moraswi (Acting CFO, NHFC) addressed the irregular expenditure saying that most of the SCM units need training on the SCM regulations. They will ensure that the SCM officials are trained. A new SCM manager has been appointed and is already doing a great job. She emphasised that for 2022/23 they are expecting the best results.
Ms Tsholofelo Ramotsehoa (Executive Lending, NHFC) replied that the NHFC incremental product particularly focuses on wholesale financing that enables retail intermediaries to lend to households and earn up to R22 million. They have partnered with Micro Finance South Africa to increase lending in provinces like the Northern Cape and Free State where the lending was low. They have encouraged the intermediaries in those provinces to participate and they have approved a large facility to a large intermediary who partnered with a nationwide retail chain. This will help with the necessary reach to such provinces. She acknowledged that NHFC has a long way to go with their performance and impact but highlighted that they disbursed 5 763 subsidies for units that people are able to move into, they have created 5 264 units from their lending activities, and 26 000 loans were issued from their incremental activities.
Mr Viwe Gqwetha (Executive Strategic Partnerships, NHFC) replied that they admit to the overestimation of the targets on the strategic partnerships. The strategic partnerships must enhance how the NHFC currently orchestrates partnerships that are productive in the market. They have underestimated the work that needs to be done in orchestrating the market and building partnerships that go beyond just signing MOUs. They are focusing on the National Infrastructure Program and come in with the Integrated Residential Development Programme (IRDP) to form an alliance between programmes from the public and private sector. They have observed that the long pipeline needs to be prepared and ready for financial closure. There are gaps in the projects that are in the pipeline and the work that is being done by various parties to ensure that the projects cross over the barriers and are ready to raise finance to implement the projects.
Ms Busisiwe Nzo (Chairperson, SHRA) apologised for the low-quality report and promised to send a clearer report by the end of the business day. Her mention that the SHRA Council is still new is not running from the responsibility she carries. She understands that she inherited the good and bad reputation of the entity. As a Council they are committed to changing things around by using their innovative thinking. Decisions that lead to irregular expenditure are never planned. They are focused on measures that need to be taken to ensure that it does not happen again. The student accommodation project is an ongoing research project which was introduced in their last Council meeting in September 2022. They are still researching the risk areas so that they make a fully informed decision before they enter that market. They are working closely with other state entities that have participated in the student accommodation market to avoid repeating the same mistakes they made.
The R2.7 million for performance bonuses was an accounting provision and of that amount, R1million was paid to the executives for the performance increase from 67% to 71% in 2019/20.
They have 14 000 units in the pipeline and they are currently establishing relations with relevant stakeholders and financiers to streamline their approval process. There was a legal matter between the previous CEO and the Council that could not allow the Council to appoint a new CEO during the legal proceedings. The Council won the case and they are preparing to appoint a new CEO.
The moment social housing institutions (SHIs) are aware that there will be an increase in the quantum, they will normally hold back from implementing projects on a new level and they were aware of the new quantum. SHRA realises the performance review is poor and they take the matter seriously.
Mr Dewalt Koekermoer (Acting CEO, SHRA) replied that the reporting institutions were not meeting the benchmarks. SHRA has been developing intervention plans per institution to track their records and give recommendations for improvements. They are happy to note a 10% improvement in the institutions and they are confident that the unachieved targets would be reached by the end of 2022/23. Of the conditionally accredited institutions, 28 have projects under management that will lead them to full accreditation. SHRA is working to ensure that institutions that do not yet have projects under management receive them so that they are completed and tenanted.
The rent relief is needed by a lot of people out there. SHRA started its implementation in July 2021 after policy approval and they were allowed to give out rent relief for the period from March to September 2020. The requirements for people to qualify for rent relief included confirmation of job loss and the tenants had to be in a good state before the pandemic started in March 2020. The people were not aware about the policy, which made it hard for SHRA to implement it. They applied for amendments of the policy that got approved in February 2021. He believes that the Social Housing programme is value for money but there needs to be an improvement with the implementation. SHRA is working closely with DHS to issue affordable housing to those that need it. SHRA approved an inclusive growth policy in January 2022 to prioritize the designated groups.
They have done well in Gauteng, Western Cape and Kwa-Zulu Natal. To some extent there was a decline in KZN but there was a lot of planning done to increase delivery in towns that were declared restructuring zones. They are currently working with North West, Mpumalanga and Northern Cape. There is a lot of room for improvement in North West and Mpumalanga. Eastern Cape used to be good with social housing, especially in Buffalo City and Nelson Mandela Bay. The most work needs to be done in the Free State and Limpopo by ensuring that there are restructuring zones as there is a demand for social housing in municipalities and towns in those provinces.
Mr Vusi Fakudze (Acting Corporate Service Manager, SHRA) explained that the R143 million is not under expenditure but is an operating surplus. There was an accounting provision for performance bonuses and executives earned approximately R700 000 of the amount. Irregular expenditure that is on the financial statements relates to prior financial years. Now that the mitigation process has been done, SHRA has to take over the losses as if they were done by them, and they hope that this process will be done by 2022/23 to prevent reoccurrence in future years.
Ms Sindisiwe Ngxonqo (COO, DHS) said that the quality of financial statements and compliance with regulations are very important and DHS and its entities must follow that. They are working with the National School of Governance to improve on this with training.
The Chairperson thanked all participants and attendees and adjourned the meeting.
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