HDA, PPRA & CSOS 2022/23 Annual Reports; with Deputy Minister

Meeting report

The Chairperson welcomed Members of the Committee, Deputy Minister of Human Settlements, Ms Pam Tshwete, and the Human Settlements entities. She said the agenda for the meeting was to receive the presentations on the audit outcomes for the 2022/23 financial year from the Housing Development Agency (HDA), the Property Practitioners Regulatory Authority (PPRA), and the Community Schemes Ombud Service (CSOS).

Housing Development Agency: 2022/23 audit outcomes

Mr Hosi Ngove, Chairperson, HDA, said the Agency had developed an organisational governance performance recovery plan, resulting in an unqualified audit opinion with findings. This was the first reporting since the organisation had been administered, and the first where the entity had been audited by the Auditor-General of South Africa (AGSA). Although a large proportion of new members had joined the entity this year because of resignations of previous members, this had not caused instability in the entity. Executive board members, such as the chief executive officer (CEO) and chief financial officer (CFO), who had been appointed by the board last year with the approval of the Minister, had conveyed their contentment. All committees of the board had been active. The HDA had managed to achieve 17 of the 23 indicators of the annual performance plan (APP), and the six not achieved would be dealt with, and the steps that had been taken to address them would be indicated.

Mr Bheki Khenisa, CEO, HDA, presented the entity's audit outcomes. He said the overall 74% achievements of targets marked a significant improvement from the previous financial years, where the audit opinions had been qualified for three consecutive financial years, and the annual performance of targets achieved had been 29%. He and the CFO took office on 1 June and 1 July 2022, respectively, and since then, the implementation of financial and operational measures that resulted in an unqualified audit with findings in the 2022/23 financial year, the organisation had achieved 74% of its APP targets, and the supply chain management (SCM) delivery chain was improving. The annual audit confirmed the gains made.

In Programme 1 (Administration), six of the eight targets were achieved, but there had been underspending on procurement targeted at women, youth and persons with disabilities, as well as businesses owned by military veterans,

In Programme 2 (Land Assembly and Priority Human Settlements and Housing Development Areas), three of the five key performance indicators (KPIs) were achieved. The Agency had failed to acquire 993 hectares of well-located acquired land within priority development areas (PDAs) as there were funding limitations from the province, and a slow release of state land located within the PDAs. It had also not achieved the rezoning of 1 786 ha of land acquired during 2014 – 2019, falling within PDAs, as there had been funding limitations and inconsistent municipal Planning Tribunal Committee sittings, which had delayed the achievement of this target.

In Programme 3 (Programme Planning, Design, Regional Coordination and Human Settlement Support Services), the two targets for informal settlements upgrading, and the two targets for priority projects and the revitalisation of distressed mining communities, had been achieved. However, four of the six KPIs for regional coordination and human settlement implementation support services were not achieved. The first of these involved 1 433 housing units not being delivered regarding projects implemented by the HDA, as there had been slow progress on top structure projects due to contractor terminations in the Northern Cape (NC). The Department of Human Settlements (DHS) had reprioritised funding meant for running projects in the Eastern Cape (EC), which had delayed the delivery of housing units. The other had resulted from no HDA bankable business plans/cases being approved for projects planned for implementation in the Free State and KwaZulu-Natal (KZN), where there had been slow implementation due to budget constraints.

Although numerous issues were raised, Mr Khenisa said the entity had received an unqualified opinion. The main focus was on the surplus payable to National Treasury. At the beginning of the year, the surplus had been R1.3 billion, but there were misunderstandings between the entity and National Treasury about the calculations for the surplus. Fortunately, when the matters were resolved and the entity adopted National Treasury’s calculation, the AG had stated that the entity had overstated their liabilities to National Treasury, and had therefore reinstated the amount to R357 million, which was paid to National Treasury.

The audit outcome for Programme 2 and Programme 3 had been unqualified, with no material findings. Procurement, contract management, and revenue management, had resulted in an unqualified outcome with no material findings, which resulted from material findings in the previous year. Another critical outcome area had been consequence management, which had no material findings for 2022/23. This had assisted the entity with the overview of irregular expenditure, as it had had five financial years where it had accumulated the irregular expenditure which had not been fully managed within the regular expenditure framework. As it implemented the regular expenditure framework, those who had been found guilty were involved in the process of consequence management, and the process had been finalised. Irregular expenditure of R703 million had been carried through from the previous financial year, and the R371 million incurred during 2022/23 brought the total to R1.074 billion.

(See attached document for details).

Property Practitioners Regulatory Authority:  2022/23 audit outcomes

Mr Steven Ngubeni, Chairperson, PPRA, reported on the challenges the entity had inherited which had prompted forensic investigations into the activities of the organisation, and had led to disciplinary processes and the dismissal of the employees found guilty. For the 2022/23 financial year, the entity had had to grapple with these challenges, and was then assigned the task to fill the executive positions to give it stability. He was pleased to report that the executive positions, except for the CEO, had been filled. Significant milestones achieved were establishing the Property Sector Research Centre, in partnership with the National Research Foundation (NRF), and the Transformation Fund, as mandated by the new legislation recognised in the 2022/23 financial year. The three programmes under the PPRA, the Fidelity Fund and Transformation Fund, had attained two unqualified audit opinions and one qualified audit opinion.

Ms Thato Ramaili, Acting CEO, PPRA presented the entity's audit outcomes. She commented on the notable improvement in the fourth quarter performance, which was 68% better than the level achieved in the first quarter.

In Programme 1 (Finance and Administration), seven of the 11 targets were not achieved. These included risk management and fraud prevention plans; underexpenditure of budgets for procurement from enterprises owned by persons with disabilities; implementation of the approved human resource management plan; implementation of the PPRA stakeholder management plan; and the 80%target of resolving consumer queries within 90 days.

In Programme 2 (Licensing and Compliance), 6 548 new property practitioners were registered on the database of the PPRA against a 9 000 target due to delays in configuring the information communication technology (ICT) system to register and issue Fidelity Fund certificates (FFCs) to all new categories of property practitioners.

In Programme 3 (Inspection and Enforcement), two of the three targets were not achieved. These involved delays in conducting disciplinary hearings during the first quarter because a hearings panel had not been appointed, and delays in disciplinary outcome orders being signed and submitted for enforcement.

In Programme 4 (Research, Professionalisation and Training), two of the five targets were achieved. Not achieved target was implementation of the Skills Development Plan, as it required identification of pivotal skills within the property sector, which was coordinated by the Services Sector Education and Training Authority (SETA). It also required internal skills development initiatives within the PPRA.

In Programme 5 (Transformation), none of the three targets was achieved. The Transformation Fund banking account was not opened, as National Treasury approval was received after only year-end. Full-status of black women supported through the Principalisation Programme was not achieved, as a new principalisation model would be implemented in the new financial year. No small, medium and micro enterprises (SMMEs) owned by historically disadvantaged groups were placed through the incubation programme.

(See attached document for details).

Community Schemes Ombud Service: 2022/23 Audit Outcomes

Ms Phindile Mthethwa, Chairperson, CSOS, said the board continued to oversee the entity's operations, and the 2022/23 focus had been on improved efficiencies and realignment of the organisational resources. This was accomplished through the organisational redesign project and the implementation of the business automation system, which sought to digitalise the entity’s services and increase and improve their services to community schemes. Another critical focus had been on improving its visibility and increasing efforts to transform the community scheme sector.

She reported on the challenges faced by the entity, which involved three major projects -- the organisational design project, the business automation system, and changes in revenue collection. Despite these challenges, the CSOS had achieved an overall 71% annual performance against its targets, a 29% increase in revenue as a result of 74% of registered schemes paying their levies, increased operational efficiencies, and the expenditure of the budget moved to 84%, compared to 61% in the previous year. As a result, the entity had achieved an unqualified audit with findings. It had established two satellite offices to increase its point of access and visibility sources in areas with no representation.

Ms Thembelihle Mbatha, Acting Chief Ombud, CSOS, presented the audit outcomes.
In Programme 1 (Administration), four targets were not achieved. Two core business automation solution phases were not implemented due to a review of the original system specification to integrate key functions of the scheme for governance and compliance modules; the Electronic Content Document Management System (ECDMS) configuration and implementation were not completed; and the targeted percentage of procurement expenditure from businesses owned by women, youth and persons with disabilities, was not reached.

In Programme 2 (Regulations), one target was narrowly missed -- the registration of 1213 community schemes that had submitted scheme registration documents, against the target of 1 232. The CSOS connect registration module had gone live in November and experienced system challenges, which led to the non-registration of 19 schemes in the fourth quarter.

In Programme 3 ( Education and Training), the only target not achieved was appointing the targeted number of previously disadvantaged individuals as executive managing agents.

Ms Mbatha said the overall audit outcomes of the entity had been unqualified with findings -- the same as the previous year. The matters affecting the audit report involved material misstatements of non-current assets, liabilities, revenue, expenditure, and disclosure items; material findings on procurement and contract management, weaknesses in expenditure management, and material findings on revenue management supporting documentation. Other critical challenges include a review of the draft 2023/24 annual performance plan (APP), high vacancy rates against the approved organisational structure, material misstatements on performance information, other findings on revenue and receivables, other findings on expenditure and payables, various findings on disclosure items, and the minutes of executive committee (EXCO) and ICT meetings not being signed.

(See attached document for details).

Discussion

Mr C Malematja (ANC) said the presentations indicated hard work by the respective entities. He applauded the CSOS for its achievements. As it had shown its inclusive aspects in including women in its executive managing Agency, what was its strategy to ensure that this was extended to persons with disabilities? Regarding expanding its satellite offices, what was the entity’s plan to reach rural areas in other provinces to ensure efficient work capabilities? He said the challenges faced by the PPRA were understood -- how would they ratify the findings in the audit outcomes and ensure that they achieved their targets? He commended the HDA on their audit outcomes, and said that all in all, he was satisfied by the presented audit outcomes from the three entities.

Dr N Khumalo (DA) asked the HDA about the consequences for the number of people who had undergone disciplinary hearings due to irregular expenditure. What had happened about the provision of chemical toilets, as the service provider had been replaced? What were the cost implications? She said there was little to admire in the PPRA presentation, considering the challenges the entity faced. There was evidence in the report that there were vacancies the entity could not fill for over a year. Had the disciplinary hearings in the HR space led to any consequences being implemented, and who was taking accountability? She requested details about the suspensions and the extent of the charges. She expressed her disappointment with the PPRA's lack of achievements, and asked if there would be a turnaround strategy, as mitigation plans had been mentioned in the report. If so, she called for the PPRA to present the turnaround strategy so the Committee could monitor their plan. What were the plans for the ICT system that had been problematic, and was the entity considering using other applications for that function? She commended the CSOS on their education and training performance outcomes.

Mr L Mphithi (DA) said he appreciated the CSOS Indaba summit that took place, which had focused on the purpose of the entity. However, he was disappointed with the manner the entity communicated with people who needed help. He had reached out to the members of CSOS about the complaints he had received from people who needed assistance, and had never received any correspondence from the entity. Its performance level was 68%, but he believed it could improve. He suggested that the vacancy rate could be due to the lack of assistance from the entity to those who needed help. The Minister had reported a month ago that the community schemes were utilising broad-based black economic empowerment (BBEEE) companies to provide security. What was the CSOS's view on this matter, and how was it responding to community schemes' attempts to receive clarity on it? The decrease in the overall performance level was concerning -- what could be the reason for the regression? He referred to the CSOS connect platform experiencing system failures, and asked for an update on the situation and what interventions had been made to ensure the system was operating.

He raised concerns about the PPRA's management of its cases. What percentage of the queries the entity receives was handled, and how were they handled? He reported on a case he had submitted to the PPRA in April, and until now there had been no follow-up. Regarding the AG's recommendation, he was aware of an investigation report which was available on 23 August last year, and asked for an update. The PPRA should consider the AG's reference to HR and supply chain management. Who had received a disciplinary hearing? What was the update on the ICT failures and delays, and how would the entity ensure that the systems operate when people require access?

Mr A Tseki (ANC) acknowledged the roles of the entities to the state, and said they were vital to the transformation of South Africa. He spoke about the CSOS Indaba, and how it had shown the potential for transformation. He suggested that the CSOS develop a programme to ensure that it related to other institutions to recognise the transformation and inclusivity of Africans in the property sector. The performance of the CSOS had convinced him that it was on the right path. He expressed concern at the performance of PPRA. Addressing the HDA, he said that it had made efforts to improve its performance for the past two years, and asked if the entity was now convinced that it was on the right path.

Ms N Sihlwayi (ANC) said that the human settlements housing aspect was a sensitive issue, as it exposed how eager people were to receive houses. This prompted the Committee to ensure this was achieved, and the establishment of the entities was a way to professionalise the human settlements field and reach areas certain departments could not reach. It was important for the entities to take their work seriously. The CSOS had presented an important objective of establishing satellite offices, but it was also important to focus on what had been requested, which was to decentralise its work to reach vast areas. Referring to the CSOS Indaba which the Committee had attended, she wanted to know if the entity had a turnaround strategy to address the opposing views expressed by various stakeholders. As the CSOS had overachieved their targets, it meant it had under-scored its capabilities. She suggested it should have more targets, as it was not about the numbers but how practical issues were addressed.

She then addressed the PPRA, and emphasised the entity’s background. She was impressed that the entity had managed to populate their organogram in a manner that ensured an improvement in its performance. The targets that were not achieved were critical -- the skills transfer for the SMMEs in the property management environment was a transformation issue. What strategies could address this matter?

The Chairperson appreciated the work that had been done, and congratulated the entities that had achieved unqualified reports. She said the AG had mentioned that the debt collection period was more than 90 days for the entities -- the average collection period was 231 days  -- which was a concern as it placed additional strain on the limited government sources. There should be a strategic plan in place to address this matter. The irregular expenditure presented by the entities should be addressed -- what strategies would be adopted to solve this issue? This situation indicated that there had been no implementation of the legislation, which was unacceptable. The payment of invoices within 30 days also needed to be tackled, as legislation meant it was compulsory to implement this. She agreed with the Members of the Committee that the PPRA should return with their strategic plan and provide details on the audit action plan. Lastly, she asked the HDA to elaborate on the matter of chemical toilets.

The Deputy Minister Tshwete welcomed the comments and questions from the Members of the Committee. She handed over to the entities to respond to the tabled questions and comments.

Responses

Housing Development Agency

Mr Khenisa said that to respond to the questions posed about consequence management and the number of people who underwent disciplinary hearings, it was important to report that in the previous financial years, there had been a number of transactions completed to the value of R898 million, and the value of the transactions completed for the 2022/23 financial year was R755 million. The consequence management process had addressed this matter, and the completed transactions had been sent to the board and National Treasury for condonation. Regarding the irregular expenditure framework, a separate investigation process would determine the value of taking the matter further. The entity had appointed a legal firm to go through the process of ensuring that the disciplinary hearing aspect was adhered to. Six members were found guilty, and two were suspended without pay. However, a couple of members had not finalised hearings, as it was an ongoing matter for the 2022/23 financial year.

He clarified the situation regarding the chemical toilets, and said that the HDA had appointed companies to provide this service. The downfall of this process was the use of averages, but the entity proceeded with emergency procurement to ensure regulation for the appointment of the contractors through rates. He said the entity was on the right path and gave an assurance that the performance would improve.

Referring to the debt collection, he said that in 2016, there had been an agreement between the HDA and the Thaba Chweu municipality to assist them with their internal services, which included that the Department of Human Settlements in Mpumalanga would pay the cost for the HDA, which amounted to R14.5 million. However, that was not paid because there had been no agreement with the Department. Unfortunately, the matter had been prescribed and sent to the board to request acondonation, given that the matter had been within the entity for more than six years. The entity was exploring the possibility of a follow-up about the money with the Thaba Chweu municipality because it had received the services. Unfortunately, it was known that the municipality was one of those not doing well financially. About the R2.9 million in fruitless expenditure involving the lease agreements done within the HDA for accommodation in the Free State and KZN, the entity had since corrected the matter and ensured it would be paid for.

Ms Joy Masemola, Chief Financial Officer (CFO), HDA, responded to questions arising from the HDA's financial statement and its receivables. She said it had needed to disclose the R106 million, which was for buildings the entity needed, as it involved HDA funds. The R65 million and R96 million amounts were receivable funds that were owed to the HDA at the end of the 2022/23 financial year. The entity had not received payment for these invoices.

Property Practitioners Regulatory Authority

Mr Ngubeni started by welcoming all the comments that Members of the Committee had made. He said the entity accepted the criticism raised on its audit outcome report, and to improve the situation, it would strive to progress and restore the stability of the entity.

He wanted to intentionally link the issues of the vacancies, disciplinary processes and the forensic investigation. As he had indicated earlier, people had been subjected to disciplinary processes that had been concluded, and as a result, they had been suspended. The findings that were contained in the forensic report had been acted upon. With the guidance and permission of the Ministry, the PPRA should be able to make a report available to the Committee on this matter. The entity anticipated that it would affect its performance, given the fact that there would be a trust deficit between the new leadership and the existing staff.

The introduction of the new legislation with a modified mandate encouraged the entity to develop a turnaround strategy. It was willing to come back to the Committee and present that strategy. It had highlighted in the presented report its response plan to the audit findings.

Responding to the vacancies, he said the entity was in the process of finalising the CEO position. The present CEO and CFO had joined PPRA almost at the end of the 2022/23 financial year.

The 2022/23 financial year had shown an upward trajectory which indicated the impact of the interventions. Mr Ngubeni gave an assurance that the entity would take the complaints seriously and address them accordingly. He acknowledged that the transformation agenda was vital in the property sector.

Mr Tseki interjected, and asked Mr Ngubeni to refrain from being general in his responses.

The Chairperson asked Mr Ngubeni to be specific in his responses.

Mr Ngubeni agreed, and stated that he had wanted to address the issues through a holistic perspective.

Ms Ramaili responded on the PPRA's ICT system and the SAP system. She said that with the appointment of the Chief Information Officer (CIO), the entity had been able to finalise the specifications for the economic recovery programme (ERP) system, which was the property practitioners' information management system. The bid was out, and it had closed on Tuesday. The entity was waiting to follow through with that process. In the interim, a strategy was set to stabilise the ICT environment.

Regarding the question raised by Mr Mphithi around the response to queries, she said the entity would ensure that they had all been addressed.

Referring to the investigation report, she said the names could not be divulged. The individuals involved in the irregular expenditure did not have the requisite qualifications for their roles. The entity was still going through this process and was awaiting two sanctions before the end of October.

She said the turnaround strategy and audit implementation plan were readily available.

Mr Evert Potgieter, CFO, PPRA spoke about the data qualification. The entity had followed a holistic approach, so it had not focused on the qualifications, but on the collections, so it needed to change how it managed the debtor’s book. It would interact with the audit committee and the AG on this process in terms of fruitless, wasteful and irregular expenditure. The entity had developed a term of reference for the loss control committee. It would appoint a committee to investigate the issues. It would take proactive measures to prevent a recurrence of similar instances going forward.

Community Schemes Ombud Service

Ms Mthethwa welcomed the comments and criticisms, especially the positive reinforcement from the Members of the Committee.

Ms Mbatha said the integration of the entity’s work and persons living with disabilities had been included in the CSOS's supply chain systems. It had appointed an enterprise development service provider that would tap into that particular sector, especially from the supply chain management perspective, to assist in responding to the requests.

It would be expanding to KZN, North-West and Mpumalanga to improve its outreach to some of the rural areas.

On matters of consequence management, the entity had issued written warnings and sanctions for all people who had participated in the bid committees responsible for irregular expenditure. As disciplinary hearings were underway, the colleagues in the legal units responsible for these irregular expenditure issues had been suspended.

She asked Mr Mphithi to forward his communication concerns to the entity so that they could follow up.

Responding to the vacancy rate, she said the old structure had 204 positions and the new structure had 251. This affected the vacancy rate. The CSOS had had a high vacancy rate in the old structure, which had been reduced to 30% in Q2. The entity had advertised 54 positions, but there were cost containment measures, and the entity would be filling only critical positions required for the structure.

She said the entity had received over 10000 matters for adjudication in the prior year, of which 3 762 had been adjudicated. The entity had conciliated 5 861 matters, which accounted for the 96% in audited numbers. The different percentage was due to the matters mediated through conciliation.

The failure of the CSOS connect system was being addressed through interfacing with other external government systems. The entity planned to collaborate with the banks, so that the payments were easier on the platform. The customer relations management (CRM) system would track the cases logged.

The CSOS had made progress with transformation matters by ensuring economic inclusivity in the schemes of different races, genders, and disadvantaged groups. It had signed memorandums of understanding (MoUs) with large scale managing agents to incubate previously disadvantaged persons. Then would then offer their services to these schemes from their transformation point of view.

She said the entity had taken note of the over-achievement of its targets. She welcomed the strides and the proposal to review the targets upwards, especially in areas where the entity had capacity.

The entity would look into the CRM project that would deal with the matters that had come through at the Indaba. She would address the matter of non-responses, and report back to the Committee.

As indicated, the declining performance had involved matters beyond their control, but they were working towards remedying those challenges in their audit action plan.

Mr Mphithi welcomed the offer to follow-up, and would forward all the correspondence he had. He requested officials who had volunteered to take on these cases to please send him their e-mail addresses.

The Chairperson commented on Mr Mphithi’s remarks, and said that the system should not have to wait for a question to be asked by a Member of Parliament, but should respond to any query that came through. The CSOS should take this into consideration.

Deputy Minister Tshwete noted the comments and questions posed about the challenges. She indicated that the Department was comfortable with the progress that the entities had made. Members would recall where the entities were in previous years, and now there was stability. This was because of the new appointment to the boards.

The Department was aware of the process underway about the PPRA recruitment of a substantive CEO. When the process had been concluded, there would be improvements.

She noted that the entities had acknowledged the remarks made by the AG about the preparation of the annual financial statements. She expressed the desire to assist in ensuring an improvement in this matter. All the entities had prepared their remedial actions, or the audit action plans, and had started implementing them. The Department expected an improvement.

Regarding the challenge that the AG had raised, the compliance level at all the entities had been stable, although a few challenges were faced in procurement and contract management. The Department expects there to be improvement. In due time, all the entities would make progress and ultimately progress from unqualified audit opinions to clean audits -- that was achievable.

The Chairperson welcomed the 2022/23 financial year audit outcomes.

The meeting was adjourned.