Department of Human Settlements & Western Cape Rental Housing Tribunal Annual Report 2021/2022

Meeting report

The Acting Chairperson opened the hybrid meeting, welcoming the Committee Members and all the guest delegates.

Western Cape Provincial Department of Human Settlements Annual Report 2021/22

Minister’s Remarks

The Western Cape Minister of Human Settlements, Mr Tertius Simmers, thanked the Chairperson for the opportunity to account for the Department’s 2021/22 financial year. He said he was looking forward to constructive feedback and guidance from the Committee. The period under review was challenging due to rising complexities, reflected in their annual report and that of the AG. Despite this, the Department was willing to be held accountable while ensuring a smooth transfer towards the provincial Department of Infrastructure, which will go live on 01 April 2023. 

Discussion

Ms N Nkondlo (ANC) asked the Minister when the Department would receive a clean audit, and what the challenges were in receiving one. What were the outcomes of the action plans of the Department’s Internal Control Sub-directorate, given that a panel was established to address audit findings and risks? What were the challenges the Department had in implementing legislation that supports its work, as highlighted in the AG’s report?

Mr Marran (ANC) said that this is the second year that the Department did not obtain a clean audit, showing that the Department had regressed – despite a panel being appointed to address the challenges outlined by the AG. What is the Minister’s plan to regain and achieve a clean audit?

What was the Department doing in addressing the Preferential Procurement Policy, where companies that the Department contracts refuse to have subcontractors? Why is this the case?

Mr M. Xego (EFF) raised a concern that only three municipal committee members had attended all their committee meetings, and that Ms P Mayisela and Mr R Smith, the key officials looking after Human Settlements in the province, have not attended the meetings regularly. What is the reason for this, as this can affect service delivery in the province?

The annual report outlines that two fraud and corruption cases were closed but the reasons for this are vague. What were the reasons for their closure, and what circumstances led to such cases being investigated by the Department?

Ms M Maseko (DA) wanted to find out if there has been a breach of judicial duty surrounding non-compliance. If so, could the CFO provide an indication of whether this is being addressed, especially since the AG has raised non-compliance?

Mr A Van der Westhuizen (DA) asked what the challenges were in the Department ensuring that contractors and suppliers were tax compliant, as the AG has raised this for the second financial year. Ensuring tax compliance should be a relatively simple process, as the internal control department can either request a tax certificate or a link that directs them to one.

The Acting Chairperson asked if the Department of Human Settlement will become a sub-programme once it is merged into the Department of Infrastructure. How will this impact the governance framework once the merger is concluded?

The Acting Chairperson said that the Department’s irregular expenditure figures were worrisome, yet the Department has not outlined any disciplinary process to address this. Why is this the case? The Department had stated that it would calculate the total value of irregular expenditure pertaining to FLISP payments dating back to 2016. The AG has found that the Department has already done this, and the total figure is R22 million. Is this correct or is the Department continuing its investigations to provide a final figure? Can the Department clarify the audit cost of R11 million and detail how and where this money was spent? 

Ms Nkondlo stated that the AG’s report found that the Department had internal control deficiency and did not follow due diligence in standard operating procedures. What would the Department’s leadership do to ensure that the issues raised by the AG do not recur in the next financial year?

The AG raised concerns that the merger of departments will impact how they will account for transactions and operations in the next financial year. Can the Department provide the Committee with a plan already in place, and also indicate the Ministerhanisms that will address the impact of the merger?

Mr van der Westhuizen stated that the State Information Technology Agency (SITA) has underperformed and has been a stumbling block in the spending on ICT equipment in the province. Is it true that the provincial government has engaged with SITA and agreed on delivery terms where, if the Agency does not deliver from its end, the provincial government is not bound to the Agency’s contracts, thus being able to make the necessary decisions on how to spend on required equipment?  

While there are sentiments of local enterprises having a Western Cape office should the provincial government award them a tender, should this requirement not be waived? Can the AG advise on this? Can it be implemented?   

Mr P Marran (ANC) asked what differences were there in the auditing of title deeds between that of the Department and the AG. 

The Department did not inform the National Treasury of the increases in payments to other organs of state, as required by DORA (Division of Revenue Act) legislation. What are the details of these payments?

The Department's lack of tax compliance was raised by the AG in previous financial years, noting that the AG had found that the Department’s plans in addressing this have not yielded satisfactory results. What is the Department planning to do in addressing this challenge? It would also seem that the Department does not follow remedial actions and continues to not follow due diligence.

Mr Xego stated that the transfer of Informal Settlement Upgrading Partnership Conditional Grants (ISUPG) to municipalities received no approval from treasury, violating key legislation. Can there be clarification on this?

The Department is involved in various litigations and has spent more than R6 million on legal costs. What is the cause of this, and how can this be avoided, as this amount should be spent on service delivery?

The Department has written off a salary-related debt of R17 000. How did this debt occur, and why is the Department not in the process of recovering these funds?

What are the circumstances surrounding the R20 million damages claim against the Department?

What was the contractual agreement between the Department and the contractor who constructed a half-built wall, and what liability does it carry?

How did the Department incur R70.7 million in irregular expenditure for services that do not fall under the Department’s scope?

Minister Simmers said that the reason it did not receive a clean audit was due to the challenges that arose in the period under review. This does not mean that citizens did not benefit from the services rendered. It shows, rather, that there are flaws within the administrative processes that need to be addressed. It would be ideal for the Department to achieve a clean audit before the start of the new Department. However, this has not been the case for the past two years. The Department has a plan to regain and maintain its clean audit status. While starting a new Department is not easy, especially for the staff members – as they have undergone three changes in the last 15 years – the Department is undergoing a cultural change where there is a higher level of accountability and good governance.

The new Department of Infrastructure will consist of five subdivisions, one of which will be Human Settlements, now that the structural permutation draft of the Department has been finalised. Each subdivision has its respective objectives. However, merging other departments into the new Department has better administrative processes, which would help in Human Settlements. In due course, the Minister will explain to the Committee how each division would work, and reveal the new administrative processes.

Ms Kahmiela August, Acting HOD, said that since the Department received the management report from the AG, the Department’s management has instituted the preparation of the GAP Report to find solutions to the issues flagged by the AG. The finance department has been instructed to meet with all chief directorates and their directors to understand how they may have played a role that has led to the outcomes specified in the management report. All consultations have been concluded by 28 October 2022 so that the GAP report can be scrutinised thoroughly.

Regarding Ms Mayisela’s attendance at municipal committee (MComm) meetings, she attended the meetings in her capacity as Acting HOD of the Department for three meetings and as Chief Director for Implementation for one meeting, resulting in her attending all MComm meetings. Mr Smith was an Acting Chief Director for Implementation when Ms Mayisela was the Acting HOD, bringing his attendance to a total of three meetings.

Mr Franscois de Wet, CFO, said that a financial GAP report was compiled in the previous financial year, and it was reported to the audit committee on a partial basis.

The AG flagged the Department for lack of tax compliance. The issue of tax compliance relates to the date when a supplier is awarded a tender, where it is established that they are not tax compliant, and not when they submitted their tender applications. It is also further established that they are not compliant when payments need to be made. The Department has now implemented additional internal control measures.

The AG’s management report stated that the quality of the Department’s annual financial statements had improved for the current financial year, thus receiving an unqualified opinion.

Performance indicators, more so title deeds, led to the Department not receiving an overall clean audit. It was the first time they had been included in the AG’s report. The AG found that the Department had material findings that needed to be addressed. 

Another area of non-compliance was DORA legislation, which stipulates that section 16.6 of the Human Settlement Development Grant will only be gazetted to accredited municipalities – which, in this case, is the City of Cape Town (CoCT). The Department had gazetted all municipalities in the province – which contravenes the legislation. The Department will, going forward, not be allowed to adjust funding from one municipality to another after undergoing a budget adjustment. This means that current projects in municipalities will have to be halted, as the Department cannot pay them unless the Department stops gazetting non-accredited municipalities. There are discussions with the provincial treasury on navigating this, as it will impact service delivery in municipalities.

Contracts that were approved based on the Preferential Procurement Regulations were flagged as irregular expenditures. These contracts are from the Buyers Professional Services Framework Agreement of the 2014/15 and 2018/19 financial years and the Cerin Security Tender in 2021, which the provincial treasury had condoned. The Provincial Treasury found that the Red Ants contract was not irregular, but the Department still noted it in its reports.

The Department is engaging with all its line managers to ensure that they form part of the solutions that will be identified in the GAP report, and do not deem it purely a financial function.

Material irregularity is deemed as non-compliance with legislation. The Housing Code is not legislation but it is read in accordance with housing legislation. This finding is being contested as they put in place the necessary control mechanisms. The AG has stated that the Department has taken the necessary steps to rectify the irregularities.

Housing allowances are a matter that affects the National Government because of differing interpretations between the government and provinces, especially as the allowance policy comes from the National Government. As of 01 April 2022, the allowance policy makes provisions for a basic salary and housing-related allowances. It took a while for the policy to be implemented, as it was scheduled for discussion at MINMINISTER (Ministers and Members of Executive Councils Meeting). However, due to changes in the national government from new ministers or absence of time, the policy was not approved timeously. The MINISTER pushed for the National Government to have it approved and implemented.

Mr Xego said that the provincial government tends to compare its shortcomings with that of the national government as a form of evading accountability. Why did the Department not receive a clean audit? Why did they not comply with the necessary regulations and legislation? The Department will continue being flagged for non-compliance because of its comparisons with national government’s faults. They are essentially saying that their faults should be forgiven, as they are not as bad as the national government’s faults.

Ms Maseko raised a point of order to Mr Xego’s comment, stating that her question is not to shield the Department from accountability but to seek clarity on the Code of Human Settlements and associated legislation. This can only be done once the Department provides answers for its actions as to why it has been flagged for non-compliance.

Mr Van der Westhuizen asked that the Department clarify its response on the tax compliance status of suppliers.

Ms Nkondlo asked the Minister to clarify what he meant by the cultural issues within the Department that are hindering its ability to receive a clean audit. What are the measures being put in place to address these issues?

The Minister clarified his comment by saying that the provincial government is adjusting to a post-COVID-19 reality. It cannot function the way it used to before the pandemic started. Therefore, the government is now finding solutions on how to adjust to the new norm while ensuring that citizens get quality and effective service delivery. All Ministers were tasked with ensuring a culture change within their departments, which reviews their internal processes and how they operate – especially when departments merge with one another.    

An example of where such a change is required is the Housing Code, which was not written by the Western Cape Provincial Government. The provincial government is implementing the Code, which comes from National Government to address citizens' needs. If government employees become complacent and used to implementing the Code in a particular way, this warrants a change in organisational culture.

The Minister stated that he is taking accountability for the Department’s actions. He highlighted that some hardworking individuals work tirelessly to produce quality results, but the AG’s report proves that much more needs to be done to show the fruits of the Department’s labour. He agrees with many of the AG’s findings and is working to achieve a clean audit at the next committee sitting, even though the Department would have been integrated into the Department of Infrastructure.

The Acting HOD echoed the Minister, stating that small inefficiencies have derailed the Department from receiving a clean audit – which the CFO has started addressing. There are attempts to try to ensure accountability at all levels of the Department where they comply with departmental guidelines of when information must be submitted to the AG and other investigative offices. There is no deflection from the Department nor is there a shifting of blame toward the national government.

The CFO highlighted that financial legislation states that contractors must be tax compliant on the date they are awarded their contract. When contractors apply for a tender up until they receive the final award, they are tax compliant. But, once the contract is signed off, it is later established that this is not the case. Corrective measures have been put in place to prevent this from happening in the future. The Department now issues award certificates placed on file when a tender award is being considered and submitted to the Accounting Officer, who has the final sign-off of a tender bid before it is awarded. 

An irregular expenditure may be found in the current financial year, which comes from expenditure from the previous financial year, which has been sent for condoning. That will be reflected in the 2022/23 financial report.

The lack of information on performance indicators also prevented the Department from getting a clean audit. It was the first time that title deeds were audited. The Department did not clearly define whether the transfers mentioned in its documents to the AG were housing unit transfers as per its Annual Performance Plans (APP) or general transfers as per its technical indicators, thus being deemed unreliable. The Department will change its performance and technical indicators to include title deeds and other metrics the AG has identified.

A Department official stated that four fraud and corruption cases were closed. Two other cases are being investigated. Once they are concluded, the Department will be able to provide information on the nature of the investigations.

The first case was on tender irregularities in which the Provincial Forensic Services (PFS) received a complaint from a whistleblower on a specific housing project, where a preferred name was allegedly selected for the tender. The PFS found that the claim of irregularity was unfounded and unsubstantiated.

The second case alleged that a control worker in one of the Department’s regional offices was corrupt in that they managed to get a certain bidder to successfully get a tender. It was revealed that the whistleblower’s allegations were unsubstantiated.

The third case from 2021 was on irregularities in the allocation of provincial rental houses to officials within the Department. It was established that one official had entered a contract with his wife in getting a house, which subsequently led to his dismissal. The PFS has recommended that this former official be flagged should they wish to reenter the employment of the Department or provincial government. Since then, a rental allocations committee has been established to avoid similar instances in the future. Another official was found not to meet the rental criteria but is still employed by the Department after facing disciplinary action.

The last case relates to an expansion of a project. An accounting officer had approved an expansion that they were not supposed to. The Supply Chain Management (SCM) had not approved an appointment letter nor had the Department concluded an updated service level agreement with the service provider. No claims or payments have been made.

Regarding the FLISP subsidies, the Department has updated its standard operations procedure, and two internal controls have been implemented from when applications are submitted so that the correct subsidy amount is submitted, before a letter is sent to the successful beneficiary.

Mr Van der Westhuizen said that it is understood that SARS would not issue a tax compliance certificate if tax information were outdated. Should a non-compliant supplier receive a tax-compliant certificate from SARS, the AG would then state that the Department has complied, and the Department is thus not at risk of having repeated irregular expenditures. 

Ms Nkondlo asked if the Department has a sexual harassment policy. Does it also have a policy regarding conflict of interest by officials and their families, considering the official was fired for entering into a contractual agreement with his wife? 

As stated by the Minister and the Acting HOD, what areas and programmes of accountability are of concern for the Department? What are the plans of action in addressing these concerns, considering that the small challenges have a big impact on the Department?

Mr Marran asked if the current or previous Acting HOD approved the irregular expansion of the project stated by the Department.

Regarding tax compliance: the tax certificate of a supplier should be compliant by the time payment is made to them. The Department seems not to be aware that this is a mandatory requirement, and it was the AG who had highlighted this irregularity.

What auditing processes were in place prior to the title deeds being audited by the AG? Consequently, the AG found that the information provided by the Department was unreliable, further highlighting the Department’s inability to achieve a clean audit.

The CFO stated that the Department does not make payments to any supplier that does not have a compliant tax certificate. A mentioned supplier waited for six months to receive payment, as they had to be tax compliant. It will still be deemed irregular in the Department’s records because, at the time of processing the tender and its payments, the supplier was not tax-compliant. A supplier being tax compliant at a later stage does not have a retrospective effect where the tender is now deemed regular.

The Department does have a sexual harassment policy as well as a sexual harassment officer who deals with complaints and investigations.

The AG did not find any conflicts of interest in the Department. The issue with the housing scheme of the dismissed official was that he was found to have allocated a housing unit to his wife, which led to a change in policy regarding how rental units are allocated.

The official and his wife had different surnames, which he did not disclose to the Department. The rental policy has been amended to deal with similar situations in the future.

The Minister said that the Department will work on a turnaround strategy to have disciplinary measures so that officials within the Department are held accountable should they be found to have acted improperly.

Risks have been identified in the merger of departments, and a plan is in place to manage these risks. Prior to the merger, the Department will address outstanding issues that its internal investigations and the AG have flagged to ensure that there is heightened accountability on all fronts.

The CFO stated the R22 million in irregular expenditure for FLISP expenditure is a culmination of the last three financial years, when FLISP first commenced. The Department conducted its own assessment by assessing each transaction and not relying on sampling data.

All cases of financial mismanagement are sent to the provincial treasury for consideration of condonement, and recommendations on whether disciplinary action should be instituted are made. To date, no disciplinary action has been recommended.

The policy of local enterprises having to have offices in the Western Cape was found to be unfair, transparent, or equitable. This requires a change of the Constitution, as it is the premise from which the policy emanates.

A detailed plan outlines the merger of departments, which involves the merger of assets, systems, and human capital. The plan is used to assess each phase of the merger to minimise its impact on all fronts.  

The challenges at SITA meant that the Department could not spend its IT budget, but the Minister is now resolving this.

Regarding the title deeds, the Department submitted a population register to the AG, who found that it contained material errors such as the inclusion of the FLISP subsidies; some title deeds declared but not occur in the period of review; a title deed that was not registered in anyone’s name; and a case where the ERF was not yet registered. The Department resubmitted a revised register that contained a duplication of title deed numbers.

Regarding the DORA matter, the Department paid Beta R7.9 million on the agreement that this was the full amount to be paid to pay the contractor responsible for relocations, as the municipality did not have the funds to do so. The adjusted budget allocated an additional R4 million, which led to R3.9 million not being gazetted but flagged by the AG. 

The high legal fees are a result of COVID-19 claim assessments, which cost the Department money, as well as legal action instituted against the Department – which the legal counsel is sought for. It also involves the cost of transfers that the Department undertakes with the support of a legal counsel. 

The salary-related claim was for an official who had passed away and his family had withdrawn the money instead of paying back the Department. The State Attorney had recommended that the Department not pursue legal action and write off the debt.

The appointment of the Red Ants was deemed proper, with no violation of processes found. It should be reclassified under a different category.

The audit cost of R11 million was geared towards the AG assisting the Department with a finding note that was due to material non-compliance that led to an unqualified audit with material findings. This led to a substantial amount of audit hours. As such, the high cost associated with the audit.

Ms Nkondlo asked the Department to account for a staff overpayment. What is the correlation with the staff debts that have been written off?

Can the Department account for the additional overpayment of R2.1 million from the Provincial Treasury? Was it an error? If so, why is this the case?

There were advances paid to the CoCT regarding the Urban Settlement Development Grant (USDG) and Informal Settlement Upgrading Grant (ISUPG). Could these advances be explained? Are these funds being returned from the City to the Department? If it was for bulk infrastructure, where were these projects meant to take place, and what is their status?

The Department’s report states “the amount for Private enterprises mainly relates to fraudulent use of PHP subsidies, which were held in trust by Account Administrators.” What does this mean, and what does it pertain to?

The CFO stated the staff debt is for bursaries, which are given to staff members who must repay the Department if they have not completed their courses. The debt is noted on the Department’s books. The debt record is also sent to the pension fund if a staff member leaves the Department to recoup the funds. This is usually done before the rest of their pension fund is paid. Sometimes, the pension fund does not deduct the debt owed, and the State Attorney usually advises that the debt should be written off because some of the outstanding amounts are not worth pursuing.

The overpayment of R2.1 million was from the Provincial Treasury, which had paid the Department more than what was allocated to them in their budget. The Department has subsequently sent back the funds to the treasury.

The CoCT has the Urban Settlement Development Grant, which came directly from the National Department of Human Settlements and is being used for bulk infrastructure. There is an agreement between the Department and the City to use the money when projects are developed. The Department must be paid in advance to begin construction, which becomes an asset of the City.

Before the current system, some PHP Accounts Administrators used to administer funds and received professional immunity, which led to some cases of financial misappropriation. The R2 million that is listed on the report is from a previous administrator who misappropriated funds and now pays back the Department monthly.  

Ms Maseko, on behalf of the Acting Chairperson, thanked the Department delegates for their presentation. She said that the Committee asks questions that arise from their constituencies as Human Settlements require continuous improvements. The presentation also gives insight into the Department’s work addressing rising challenges. There are teething problems, but the Committee is confident that the Department will work on the feedback it has received, and provide improved results in the 2022/23 financial year.

The Acting HOD thanked all Department, AG, and the Committee stakeholders for their oversight and insight.

The Minister said that it is important to be held accountable. He thanked the Committee for its role in ensuring this is the case. The discussion was robust, and the Department will continuously work on addressing its shortfalls.

The Chairperson thanked the Department for their contributions. The Department was released from the meeting.

Committee Resolutions

Ms Nkondlo asked that the Committee be provided with the planning document that outlines the merger of departments into the Department of Infrastructure, and for clarity of whether Cabinet has approved it.

The Department should also provide details and clarify the current contracts of the rental units.

Mr Van der Westhuizen said that the Department seems to be working on the matters addressed by the AG to get a clean audit. The frustration stems from the AG assessing new metrics every financial year, which may make it difficult to achieve a clean audit. The AG should be asked to standardise its metrics unless there are new regulations that state otherwise. This will also save audit costs and reduce the AG's time with a department. Officials should know what the AG looks for when they enter public office. 

The Acting Chairperson disagreed with this, as officials will only focus on those metrics and not focus on correcting challenges that may arise from further investigations. The audit cost, however, needs further scrutiny as it is prohibitive and there is no justification for it. A private auditor would not charge such a large amount.

Mr Xego agreed with Mr Van de Westhuizen on the need to shorten the auditing processes, citing that it would reduce unnecessary costs. The AG, however, should not have a framework of what it assesses, as it would lead to departments manipulating their information to receive a clean audit, hindering accountability.

Ms Maseko said that the issues raised in the meeting will determine the scope and monitoring framework for the next financial year. This should be central to the work of the Committee to ensure effective oversight.

The Chairperson thanked Committee Members for their role in ensuring accountability, and the procedural officers for the smooth running of the meeting. 

The meeting was adjourned.