DHS Audit outcomes and related matters: engagement with DHS Audit Committee

Meeting report

The Chairperson welcomed the Minister, the Committee, the Audit Committee, and the Western Cape Department of Infrastructure to the meeting and asked for an indication of the Committee Members who were present in the meeting. An apology was given on behalf of Mr D America (DA). The Chairperson then handed over to the Minister of Infrastructure in the Western Cape, Mr Tertius Simmers, for opening remarks.

Minister’s opening remarks

Minister Simmers informed the Committee that he was attending the meeting via his cell phone and thus, his connection would be weak. He thanked the Chairperson for the opportunity to present the Department’s audits and annual performance from the 2021/22 financial year. He explained that the Department faced mammoth tasks to improve the 2020/21 outcomes in the following financial year. The realisation of the post-COVID reality affected both government and its Departments. The Department had to deal with the damage left by the pandemic in their sector and province. The Auditor-General’s (AG) report is key to what the Constitution enshrines, ensuring that organs of state are held accountable effectively and efficiently to ensure that they transparently execute their mandate. Custom to this, the Department was offered the opportunity to review and find responses to the AG’s outcomes which resulted in the creation of this in-depth roadmap presentation to the AG’s findings. This includes areas where there may have been misrepresentation of measures during the interpretation of this specific financial year. There are also areas where the Department instituted rectification and supplementary learning. The Minister believes that the exercise of audits ensures effective governance and implementation by the Department. The Department has always committed to being accountable, transparent, and responsible within the responsible provincial government. This ensures that the well-being and dignity of citizens remain at the centre of the implemented service delivery model. The Minister pointed out that he felt a great sense of pride in the progress depicted in the presentation and he thanked the Deputy Director-General (DDG) for ensuring, together with the core team at their disposal, that the Department maintained the results which would be presented. Above all, the Minister said he was proud of the team that would be proceeding in the Department.

The Chairperson thanked the Minister for his remarks. He asked that the DDG take the Committee through the Department’s presentation and thereafter, the Committee may ask their questions.

Presentation by the Department of Human Settlements on the Auditor-General Report

Ms Labeeqah Schuurman, Deputy Director-General: Human Settlements, greeted everyone in the meeting and reiterated that some changes have been coming into the new Department of Infrastructure (DOI). For example, in this meeting, it will be shown that there have been shifts made in terms of staff. She told the Committee that the former Chief Financial Officer (CFO) of DHS is now the CFO of the Department of Mobility and that the CFO of the DOI, Ms Chantal Smith, was present in the meeting. Another example of the shifts experienced is Mr Benjamin Nikosi, who was key in performance management. Some key members from the branch of Human Settlements who were still in the Department were also present. Ms Schuurman told the Committee that the team present in the meeting was there because it was critical for the wrap-up of the precious DHS.

The quality of the submitted Annual Financial Statements (AFS) improved from the 2022/23 financial year with unqualified audit findings outcome. It was in accordance with the Modified Cash Standard (MCS) and the requirements of the Public Finance Management Act (PFMA) and the revisions of the Revenue Act of 2021 (DORA). In terms of the emphasis of matter, there were two issues that she pointed out. Firstly, all outstanding litigations as of 31 March 2023 were carried into the DOI and disclosed in the audited annual financial statement of the former DHS, in the 2022/23 annual financial report which will be tabled at the end of September. To note, Ms Schuurman pointed out that most of these litigations were on rental stock or social housing evictions. Then there were also issues in litigation, for example, on land invasion.

The second issue regarding the non-adjusting events after the reporting period would be the merger of the human settlement’s component into the new DOI as a branch from 1 April 2023.

The following slides dealt with annual performance reporting, specifically on the indicators related to title deeds that qualified in the 2021/22 financial year. In programme three, an issue was picked up with eight duplicate title deeds. Going into the 2022/23 financial year, the Department put a gap report in place to respond to all issues that the AG raised in the 2021/22 financial year, of which title deeds were also listed. Due to improved internal controls, this finding was resolved with no recurrence in the 2022/23 financial year.

Programme four had one issue relating to title deeds prior to 1994, being an issue relating to the interpretation between the Department and the AG regarding the title deed indicator heading. The indicator was about qualifying beneficiaries receiving title deeds pre-1994 in terms of housing units whereby the AG said it was not certain if it was housing units or stands. The indicator was submitted to National and there was an agreement that the indicator be aligned to the technical indicator description to include housing units and stands, and it is on this basis that this matter was also resolved. It must be noted that going into the 2022/23 financial year, there will be an issue on title deeds in the fourth programme as it relates to completeness. But in terms of the 2021/22 financial year, the two matters raised by the AG have been addressed.

Concerning audit findings and other matters, the province had gazetted all municipalities previously in terms of s16(6) of the DORA and not s16(3). The province gazetting to all municipalities of s16(3) became applicable and the former DHS published a special Gazette in February 2023 to make provision for the expenditures incurred in respect of projects not on the approved national business plan, and some of these projects, for example, relate to retention money. Again, it must be noted that no findings were found in the 2022/23 audit in this regard.

The following slide deals with other matters related to an amount of R718 000, which was a contract awarded to a service provider. Ms Schuurman told the Committee that the service provider was not tax-compliant when awarding the contract. Subsequently, two payments were made in the 2021/22 and 2022/23 financial years to the service provider for work completed and both payments were processed after the tax-compliant certificate was received. This would be an issue coming into the 2022/23 financial year.

The next slide related to internal control deficiencies and related to performance management, where processes were put in place, including quarterly verification and quarter four consolidation of performance information reports. Overall, from 2021/22 going into 2022/23, improved internal controls were put in place. In terms of DORA, there was non-compliance that the AG identified in the 2021/22 financial report. This was addressed and not carried over into the 2022/23 financial year. The tax certificate issue was addressed with more internal controls being put in place, especially between the supply chain management unit and the office of the Accounting Officer. The AG identified no cases of tax compliance in the 2022/23 financial year audit.

The slide thereafter related to the material irregularity regarding the payment of subsidies. The AG stated that the subsidy amounts paid to beneficiaries were not in accordance with the housing code and should have been less. This material irregularity has been resolved as the housing code was amended to account for any anomalies. Also, the Department’s Standard Operating Procedure (SOP) was changed to ensure no misunderstandings in applying the subsidy amounts. At the same time, internal controls were tightened up with all subsidy applications going via the internal control unit before going off for final processing.

She explained to the Committee that the Governance Action Plan (GAP) was put in place because of the findings in the management report in the 2021/22 financial year. To date, there were 50 recommendations made by the AG in the GAP report. These were addressed item by item throughout the 2022/23 financial year and the Department is still looking at sub-matters going into 2023/24. There are still matters in progress in three categories. The first category is value for money or performance audits in terms of free projects. These projects are Forest Village, Trans Hex, and Syferfontein. They are still in progress as part of the 2022/23 financial year. The second category of issues concerned contact management, whereby controls were put in place later in the financial year. These issues are, in terms of contract management as follows 1) total payments made exceeded the contract value, 2) no approval of extensions or expansions, 3) payments made after the contract end date.

Ms Schuurman noted that for the 2022/23 financial year, there had been no repeat findings on these matters. The third category was the two issues on the AFS. One concerns the Bitou Municipality for the payment of R3.79 million, which has been carried into the 2022/23 financial year and is still being addressed with the Provincial Treasury and the municipality. Secondly, in terms of the AFS payables not recognised which are noted in the financial statements.

The last slide said that coming out of the 2021/22 financial year and entering the 2022/23 financial year, there were improved internal controls that were put in place. The overall audit results for the DHS remained unchanged from the 2021/22 financial year going into 2022/23. The overall compliance with legislation has improved with no material non-compliance identified.

(see presentation attached)

The Chairperson thanked the Minister and Ms Schuurman for the presentation. He then allowed the Committee to respond to the presentation.

Ms L Maseko (DA) asked the Chairperson if the Audit Committee could present its presentation before the Committee responded.

The Chairperson thanked Ms Maseko for pointing that out. He asked that the Chairperson of the Audit Committee take over.

Briefing by the Audit Committee

Mr Pieter Strauss, Chairperson Audit Committee (AC), Western Cape Department of Infrastructure, explained that Ms Schuurman’s presentation was very detailed and had pointed out many things he would have pointed out. He said the AC has quarterly meetings with its normal oversight roles to discuss various matters for the Department, including the AFS and performance risk management. The AC also monitors the findings from the AG with the Department, and they regularly get feedback on this and it is reported that the AC is totally up to date. The AC holds meetings to reveal the AFS and audit strategy and it also holds meetings with the AG on these audit findings which are then carried into their meetings and then monitored and assessed by the AC.

Over and above this, the AC has had sessions with the HoD where some of these matters were discussed. It did become easier when the HoD was appointed permanently for the Committee and there was some noticeable movement in the right direction. Mr Strauss indicated that he had a meeting with the MEC where these matters were also discussed, leading to marked improvement.

There were substantially fewer audit queries this year in the 2022/23 financial year, having decreased from 50 to 27. From the Audit Committee’s perspective to ensure a swift handover, together with the Chairperson of Infrastructure with whom Mr Strauss had a meeting for continuity. A member from the previous DHS Audit Committee is now in the DOI, which implies succession in this area. There was a formal handover where they discussed the AG’s findings and price risk management outstanding action plans. Mr Strauss noted the improvement from the outcomes for the year, and the AC ensured an efficient handover from the ex-DHS into the DOI.

The Chairperson thanked Mr Strauss and the Audit Committee FOR its presentation. He then opened the floor for engagements.

(see presentation attached)

Discussion

Ms Maseko pointed out that the remedial action was aimed at the 2021/22 financial year and that the report indicated a date of April 2023 and 30 September 2023. She asked for clarification if these dates were the expected dates for the remedial action.

Ms Schuurman explained that all the slides in the presentation, up to the last slide, dealt with issues highlighted in the management report for the 2021/22 financial year. In the first slide, two things were demonstrated to indicate the wrap-up of the DHS and that no outstanding issues are going into the DOI and if there are issues, they have been responsibly taken into the DOI. Slide three referred to the list of litigation matters because that was part of the wrap-up and closure as part of the DHS. Mr Strauss commented that the handover of the AC into the new AC of the DOI is to ensure the absolute continuity and closure of the former Department. The Department also tried to demonstrate that these matters had been seen to and some had been resolved. One or two matters will be carried into the DOI as arising from the 2021/22 financial year management report. One of these matters would be on the three projects mentioned earlier in terms of performance management, which are Trans Hex and Syferfontein. The other matter would be on title deeds which goes as a qualified finding into the DOI.

Regarding the slide where the AG addressed the subsidies that were paid incorrectly, Ms Maseko asked the Department which loophole the AG took to access such statements to say that the calculations were incorrect versus when it says there is no non-compliance to laws and regulations. She expressed her concern that if the Committee did not understand this matter, it could pose a problem in the future.

Mr I Sileku (DA) asked that the presenter speak to the 50 audit queries statement, specifically about the 37 queries that had been met. He asked when the Committee can expect the finalisation of the remaining queries that are still outstanding. He also noted the evident lack of consequence management regarding mistakes and non-compliance with laws and regulations. While many internal management controls have been put in place, not a lot has been done to correct what the individuals did wrong. Has the Department taken any action pertaining to these individuals?

Ms Maseko added to Mr Sileku’s question about human error, asking if it had led to any cost implications and why there were so many human errors. She also asked for clarification on the Department’s statement that there had been an improvement in terms of compliance with legislation.

Ms Schuurman said that in response to the human error, these errors mostly included tax issues where tax certificates were not compliant. This was largely due to suppliers’ tax status that changed overnight. More controls have been put in place between the supply chain management and audit team and the accounting offices so that the tax certificates are checked literally hours before the Accounting Officer signs off. The Department is also conforming to a more stable system in terms of the checks and balances coming into the DOI. This non-compliance has not recurred regarding the subsidies that were paid incorrectly.

Regarding the interpretation between the AG and the Department, there was a difference in interpretation and to ensure absolute clarity and no misunderstanding, the housing code was amended. In terms of the performance audit and the GAP report on slide 10, three issues are still being dealt with because the 2022/23 financial year audit is still in the process and those issues should be addressed by the conclusion of the 2022/23 performance audit. In terms of compliance with legislation, part of this is on the DORA issue, which has been addressed in terms of the re-gazetting.

As for consequence management, it was difficult to do it in the five or six months she was in the Department. She noted that consequence management does not always equal disciplinary action. In some instances, training is put in place or officials being sent letters. Ms Schuurman handed three matters over to Labour Relations which are still being investigated.

Ms Maseko suggested that the Department use fewer abbreviations in the future to make it easier for the Committee to follow along. She asked for clarification on the issue the Department is experiencing with DORA and by when the Committee can expect this issue to be resolved.

Mr Sileku took cognisance of Ms Schuurman’s explanation that she had only been there for six months. However, he pointed out that it would have been easier for the Committee to understand how many people had been affected. If the responsible parties are not held accountable, not even in the form of punitive punishment, but in the sense that they learn about how the processes work, the merger between the two Departments would surely have affected individuals, so he asked if these individuals who failed to comply with legislation were held accountable in any means.

The Chairperson thanked the Department and Audit Committee for coming to the meeting to present their reports, despite their many postponements. Part of the reason why the Department was invited was to assess how it manages the Department and to identify areas of potential improvement. The AC was also involved to combat the issue of governance. Based on the unqualified audit report received by the AG, the Department can safely assure the Committee that there has been improvement. However, some technical issues, like the title deeds, the subsidies, and the DORA, may simply be administrative issues and not financial or mismanagement implications.

The Chairperson pointed out that tax non-compliance was a cause for concern, especially considering that the service provider was paid despite the lack of a valid tax compliance certificate. Surely, this would have required an investigation as to why this happened. He also asked for a number of people who were involved in these activities. He urged the Minister not to be shy when being punitive because this is the essence of consequence management.

The Minister thanked the Chairperson for his questions, pointing out that hindsight is just as important as foresight. He said that he has been focusing on the pattern of consequence management since becoming the Provincial Minister in 2019. Together with the management team, the Department has put processes in place to address the repetitive findings in the management report. He said it was crucial that these matters be dressed effectively because he did not want this to impact the new Department’s performance. He admitted that the process of closing one Department and opening another was no easy task, taking note of Human Settlement’s own management report and the historical nature of some of these matters.

The bulk of the discussion focused on administrative error and the fact that there was a lack of focus on continuous staff training, which the Department is effectively addressing through the various intentions as part of the DOI. The Minister believes in proper accountability and said that the first thing he does is assess the competency of individuals involved in the repetitive nature of wrongdoings. Before punitive action can be taken, the Department must try to upskill and empower those individuals. He added that himself and the DDG are tightening the nuts and bolts because chief directors also need to be held accountable because it entrenches the belief of consequence management.

Ms Schuurman added that the tax non-compliance from the service provider was a human error as the contract was awarded when the service provider was not tax compliant. Subsequently, two payments were made for work completed but those payments were not processed before the Department ensured that the service provider became tax-compliant and issued an up-to-date tax certificate. In terms of this, the Department put further checkpoints in place between themselves and the Supply Chain Management (SCM) unit, bringing in the internal control unit and the Operating Officer’s office to ensure tax certificates were checked literally an hour or two before signing off on payments. In terms of internal controls, stronger and more controls were put in place to include the internal control unit which served as an extra checkpoint unit in supply chain management matters.

There was a difference in interpretation between the Department and the AG regarding the miscalculations of the subsidies. This interpretation was resolved in terms of amending the housing code so that there is a very clear outline when applying this interpretation. The Department was not wrong in terms of its interpretation and application of the housing code. The DORA payments made to municipalities were a once-off occurrence for the 2021/22 financial year, where the payments that were made were not in the National Business Plan. This was addressed by re-gazetting those payments regarding the Gazette of February 2022/23. DORA is no longer a further issue.

In terms of consequence management, different mechanisms were implemented during the DDG’s final time in the DHS. It is looking at at least three matters with Labour Relations. It has issued notifications and letters to SCM officials. The biggest part of the consequence management is the awareness and training of officials.

The Chairperson asked for clarification on whether Human Settlements now fall under a branch within the DOI.

The Minister explained that Human Settlement is now a branch/programme within the DOI, thus making Ms Schuurman the DDG as opposed to the HoD.

The Chairperson thanked the Minister for that correction. He then gave the Minister the opportunity to give closing remarks.

Closing Remarks

Minister Simmers thanked the Chairperson and the Committee for the opportunity to deliver the presentation and their pertinent and objective questions. Given the merger between the two Departments, Minister Simmers believed that the culture of accountability and training would bear more fruits in the future regarding its performance.

The Chairperson thanked the Minister and the Department. He was grateful that they could interact with the Committee. He excused the Department to continue with the Committee’s business.

Committee matters

The next item dealt with the South African Association of Public Accounts (SAAPAC) and the next meeting. He said that the issues of the next meeting (whether virtual or in-person) might have some budgetary implications because there are added expenses that come with in-person meetings.

The Committee Administrator suggested that the Committee make a resolution for future meetings as to whether they will be in person because logistical arrangements will have to be made.

Ms Maseko expressed concern about the Committee changing its oversight role due to financial constraints. She said the decision should be made based on the core business of the institution. She added that Members face many difficulties when the meetings are virtual, such as connection issues that will not be an issue if the meeting is done in person.

Mr Sileku agreed with Ms Maseko, appreciating the guidance from both her and the Chairperson as he is still fairly new to the Committee.

The Chairperson said he tries to deal with issues openly and with matters using open consultation and participation. There are pros and cons for both mediums of meetings.

The Chairperson informed the Committee that a pre-SAAPAC meeting would be held to determine which issues would be discussed in the meeting. This meeting is scheduled for 21 September. All Members of the Public Accounts Committee are invited to attend.

The Chairperson thanked the Members for attending the meeting.

The meeting was adjourned.