Housing National & Provincial Departments Audit Report

Meeting report

The Chairperson said that the purpose of engagement was to investigate the allocation of housing subsidies, and the management of housing in municipalities.

Ms N Hlangwana (ANC) noted that at the national level there were 6 974 municipal employees from various provinces that had had illicitly received housing subsidies. Taking into account their actual income, they should not have received the subsidies. The Department was asked to comment on this.

Mr Itumuleng Khotsoane, Director General: Department of Housing, replied that the cases had been referred to the Special Investigating Unit (SIU), which was working closely with the Department. It was hoped that the matter would be completely dealt with soon. The Department was working on developing a process which would pick up such irregularities.

Ms Hlangwana asked whether any disciplinary action had been taken against these municipal employees and whether there was any money recovered. 

Mr Khotsoane replied that the cases had been referred to the SIU and the SIU was working closely with the Department in order to pick up on irregularities.

Ms Hlangwana said that pg 16 of the Auditor General’s report notes various irregularities on the delay of housing subsidy applications in Free State. The province should comment on the matter.

Ms M Buthelezi, Acting HOD: Free State, replied that the report referred to payment for services. The monies that were paid by the Department were transferred to the municipalities on the servicing on sites.

The Chairperson asked the national Department to comment on Ms Buthelezi’s statement.

Mr Khotsoane replied the matter could have arisen as a result of delinking. The Department set up a process to delink beneficiary applications from a project as it slowed down the process of applications. The Department felt that beneficiary management was the responsibility of government and the contractor’s responsibility was to build houses

Mr L Van Vuuren, Office of the Auditor-General, added that the Free State could not find any beneficiaries for the site; hence no houses had been built on that site since 1999. The Auditor General spoke to National Treasury about the matter and Treasury stated that there were no beneficiaries for the site

Ms Buthelezi asked for clarity on why National Treasury informed the Auditor General that there were no beneficiaries available. The Department talked to National Treasury on the matter and Treasury did not come back to the province

The Chairperson said that there was a missing link somewhere.

Mr Mziwonke Dlabantu, Chief Financial Officer, said that the Municipal Infrastructure Grant (MIG) financed bulk infrastructure. There were municipalities where the MIG could not cover the entire bulk infrastructure and, in order to prevent delays, the Department decided to cover internal (electricity, water) services. 

Ms Hlangwana noted that the Housing Annual Report as well as a report tabled in January focused on government employees who had benefited illegally in the subsidised process of claiming low cost housing. She asked if any initiatives had been taken to prevent this from occurring in other departments.

Mr Khotsoane replied that before 2006 a search had been done against the population register and the deeds register. The Department tried to verify whether applicants were South Africans and first time homeowners. The Department also extended the scope of the search in order to limit fraud, and checked with SARS and various pension funds in order to pick up irregular activities by government employees. The Department was looking at ways of enhancing the system in order to pick up irregularities and applicants were required to make affidavits. Individuals who had been found to be involved in irregular activities were taken to task.

Ms Hlangwana asked if disciplinary action was taken against false certification. She also asked if the blacklisting of contractors who built poor quality housing took place.

Ms Buthelezi said that the inspections of the houses were those houses that were built pre-1999. There were many reasons for the defects and in order to address the poor workmanship, National Home Builder Registration Council (NHBRC) was brought on board to perform an investigation. When it came to the building of houses, the Department first made sure that the houses were built on the correct soil conditions. Inspectors were brought on sight to oversee the building of the houses and whether they were built correctly. The involvement of the NHBRC helped the department to avoid the construction of poor quality houses.

The Chairperson noted that the Free State would therefore no longer have defective housing as a result of the NHBRC involvement. 

Ms Manching Monama, Head of Department, Gauteng Department of Housing said that when one looked at the Auditor General’s Report, the incidents were from 1995 to 2005. At the time there was no quality assurance unit in the province and the NHBRC was brought on board in order to ensure that each house complied with the various standards. There was also an in-house office which consulted with municipalities and the NHBRC. There would always be challenges in the construction of houses and that was why an in-house office was established to address the matter.

Mr Daniel Molokome, Senior General Manager: Limpopo Department of Housing, commented that Limpopo’s housing defects were not fundamental and when some of the projects were performed the department had inadequate capacity. The Department had the support of the NHBRC and introduced the retention clause which helped keep contracts in check.

Mr Cyril Dlamini, Acting Head of Department: Mpumalanga Local Government and Housing, noted that Department had many challenges during the inspections. These included insufficient inspectors. There were contractors who were found to be defrauding the Department and they had been referred to the SIU. Service level agreements had been signed with the NHBRC in order to ensure that all houses were built according to standards. The failure to comply resulted in the blacklisting of contractors. The Department had blacklisted contractors on the database and the matter has been referred to Treasury. 

Mr Bradley Swartland, Acting Head of Department: Northern Cape Local Government, said that some of the defects that had been found appeared after the six month defect period. The Department referred the faults to the SIU and increased its technical capacity. New projects would be registered with the NHBRC in order to address the issue of quality.

Mr Rayan Rugubar, Chief Director: Housing Delivery, Western Cape, said that it was important to note that some of the housing projects were built by contractors, as well as the communities. When the beneficiaries built the houses they tended to use less cement. In order to prevent the building of substandard housing, the Department used managers to oversee the building of the houses. Cuban professionals had also been hired in order to assist with the construction of the houses.

Mr V Smith (ANC) said that the National Department was claiming that the issue pertaining to subsidies had been transferred to the SIU and they did not know the outcome. A year ago the Department had informed the Committee that the matter had been referred to the SIU. How many individuals had been prosecuted? What were the criteria for handing this over to the SIU? A year ago the Committee had recommended that all irregular subsidy application forms be forwarded to the Committee. However, the Department had assured the Committee that the matter was being investigated. Clarity was needed on how many applications had been dealt with. Clarity should be provided on what the provincial and the national Departments were doing to address the issue of irregular subsidies.

Mr Khotsoane replied that progress had been made by the SIU and there was a detailed report on the progress in the investigations. The Department was satisfied with all the progresses that had been made by the SIU, and there was a committee within the Department which followed up on each and every matter that had been raised. The Department was acting and provinces were taking disciplinary measures against individuals. The SIU report would be made available to the Committee.

The Chairperson felt that the Department’s response was too broad and general

Mr Smith asked if the report would give details on how many people per province had been disciplined and how they had been disciplined. The Committee needed to know whether the Department was serious in dealing with corruption and a detailed report should be sent to the Committee within two weeks.

Mr Khotsoane replied that the Department would comply with the request. The Committee should note that since the SIU took over there had been 85 convictions and 101 arrests and R401 million had been recovered.

Mr E Trent (DA) asked for clarity on what the provinces that were not included in the Auditor General’s report, thought about the issues raised by the Auditor General. The Department should also comment on government’s capacity in fixing defective houses and on how many housing inspectors were being employed.

Ms Naditha Sishuba, Head of Department: Eastern Cape Housing, replied that the first thing the province did was to conduct an assessment of all the houses where the Department identified and verified the cost of the defects. The Department was working with NHBRC to address the matter.

Mr Wayne Evans, Chief Financial Officer: Kwazulu Natal Department of Housing, replied that a performance audit had been conducted and the findings of the Auditor General were not sufficient enough to warrant a report. The minor issues that had been found however were included in the department’s audit report. The defects that had been identified by the Auditor General were corrected by the contractor.

The Chairperson asked if it were not for the Auditor General, would the defects have been identified?

Mr Evans replied that there were a few projects where there had been defects on a larger scale. The problems had been identified and were being rectified.

Mr Isbal Motala, Head of Department: North West Local Government and Housing, replied that the province had not started a complete audit of all projects done since 1994.

Mr Khotsoane said that that on the extent of liability, a resolution had been taken during a MINMEC meeting to fix defects on houses built post 1994. When the Department started with the housing programmes, there were many shortcomings and the NHBRC was established to address some of the issues. It was therefore important that MECs put money aside in order to correct all the post 1994 housing delivery problems and a policy had been developed and approved which addressed the matter.

The Chairperson asked for clarity on when the MINMEC resolution was taken

Mr Khotsoane replied that the resolution was taken in 2005

The Chairperson asked the Department to comment why the North West had not done anything with the grant

Mr Khotsoane replied that the discretion lay with the MEC and it was up to the MEC to ensure the implementation of policy.

Mr Trent asked for clarity on what was the point of having a policy, which said one could use a certain amount when one did not know what the amount was.

Mr R Mofokeng (ANC) asked if there was a penalty clause when one involved a contractor. The Department should also state what the lifespan of the houses was.

The Chairperson said that the low cost housing built pre 1994 was more intact than the newly built low cost housing. It was sad that it was the audit inspectors instead of professional inspectors who had identified the wear and tear.

Mr Khotsoane replied that one needed to ensure that the NHBRC played a role in the housing programme. The Committee should note that post 1994 there was a boom in the building of low cost housing. However many of the contractors withdrew as a result of the boom in commercial high rise buildings. The Department then started to develop emerging contractors. In order to address key issues the NHBRC was on board and was working with provinces in order to ensure that contractors were registered with them in order to ensure that performance was correct. Each province had their own performance contract with contractors. There was a retention clause in each contract which made sure that a certain percentage of the payment would not be paid out until 12 months had passed.

Mr Mofokeng found it strange that MECs were forced to keep money aside for repairs as a result of negligent work by contractors, yet there was a penalty clause issued to contractors. 

Ms Z Kota (Chairperson: Housing Portfolio Committee) said that the provinces were ducking and diving. One of the areas Western Cape was referring to in their response was the Peoples Housing Project (PHP) and the answer provided by the province was incorrect. The Housing Portfolio Committee had performed oversight in the Western Cape and it was discovered that some of the houses were defective. It was recommended that the houses be demolished, but the houses were still standing.

Mr T Bonhomme (ANC) said that people were ducking and diving and the Director General should compile a report. The process of giving out the tenders was also a major problem. Tenders were given to emerging contractors, but many of the emerging contractors appeared to lack the capacity. The Director General should carry full responsibility for the poor quality of reporting.

The Chairperson asked the Office of the Auditor General to provide clarity on the defects

Mr Van Vuuren replied that the houses inspected were built after 2000 and the audit looked at obvious defaults. It was discovered that in various instances, basic services had not been installed.

Mr Trent said that the Committee was not trying to interfere with provincial autonomy. Provinces should however note that the money that they spent was passed by Parliament. What was the point of giving someone funds to build houses when there was no capacity to build and monitor the construction of the houses? There was something very wrong in the whole system, and the Minister should provide a whole new housing subsidy system.

Mr Smith noted that page 17 of the Auditor General’s Report, it notes that someone in government paid a significant amount of money to a developer in Mpumalanga and nothing was done. Clarity should be provided on the matter. 

Mr Dlamini replied that the amount missing was as a result of collusion between developers and inspectors in the province. The inspectors underwent disciplinary action and some had been dismissed. The Department was aware of the matter and was trying to recover the funds from the developers.

Mr Smith asked the province to comment on the steps taken to ensure that the matter do not happen again. The province would be held responsible for ensuring that the matter was remedied. If the matter was not addressed, the Committee would recommend that the HOD be dismissed. 

The Chairperson remarked that in Limpopo a housing project had been approved in May 2004 for 200 houses. To date only 33 houses had been built and 17 houses were still under construction. Out of the R6 million budget, R3 million had been spent. Clarity should be provided on the matter.

Mr Motala replied that the Director General had indicated that the big players had left the market years ago and the Department had to bring in emerging contractors. The Department had done an assessment on all the contractors and discovered that most of the contractors who had been employed had limited capacity. The Department therefore terminated contracts that were signed pre-2005.

The Chairperson asked if there were any timeframes attached to the project. He asked for the reasons why half the budget had been spent on 33 houses.

Mr Molokome replied that there were time frames. Many of the contractors who were appointed many years ago had limited capacity. The Department had therefore implemented a system which aimed at eliminating poorly performing contractors. A detailed report on the matter would be forwarded to the Committee. The Department also found that in rural areas, contractors with no capacity had been given 75 villages to work on.

The Chairperson asked how many contractors worked on the 75 villages.

Mr Motala replied that each contractor with limited capacity was appointed 75 villages and each councilor in the municipality wanted to have a share of projects in a municipality. The practice occurred pre 2005 and the Department had taken corrective steps to address the matter.

Mr Smith said that he was not sure if provinces understood that the Public Finance Management Act allowed Parliament to deal with issues of fruitless expenditure. The accounting officer was responsible for ensuring that fruitless expenditure did not take place. The Act also stated that if fruitless expenditure took place, then criminal procedures should be followed. The HOD should therefore write a report to the Committee on how the issue of the 200 houses was not fruitless expenditure.

Mr Trent asked the DG to comment on which accounting officer was responsible for the fruitless expenditure.

The Chairperson noted that the response by the Western Cape pertaining to the PHPs amounted to political spin and clarity should be provided on the matter.

Mr Rugubar replied that in terms of management of payments to ensure that excess funding had not been paid to contractors, there was a system in place in which a project manager performed regular oversight visits.

The Chairperson said that the answer was merely conceptual, and clarity should be provided on whether the policies were being implemented.

Mr Rugubar replied that the province had not come across serious issues where there were excess payments for the work that had been done. In some cases the Department provided a percentage of funding upfront to municipalities for work done. The Department expected municipalities to bridge the finance costs of construction and the province paid for work that had been done.

The Chairperson asked Western Cape to comment on whether they had blacklisted any companies that had been found guilty of negligence

Mr Rugubar replied that there was no blacklisting taking place in the province. Each municipality was putting out tenders and the Department asked the municipalities for a list of negligent contractors.

Mr Mofokeng said that provinces had not been responding to the issue of engineers. Therefore clarity should be provided on what was being done to the engineers who had been found negligent and were still operating.

The Chairperson said that the Committee’s focus had been on contractors. However there were a long list of officials who ensured that the payments were effected. Gauteng should comment on whether the issue of corrupt officials led to projects lagging behind. 

Ms Monama replied that an inspectorate unit had been established which would go out and confirm that work had taken place and the quality had been assured. There were 34 inspectors in the inspectorate and the Department worked closely with the NHBRC and the municipalities. The section that was responsible for payments would only pay out when the Departmental officials ensured that the housing quality was optimum. The Department had also an agency to perform an audit in order to determine whether the houses had defects and were occupied by the right people. The Department had 72 criminal cases before the SIU and several cases had been handed over to the SAPS.

Ms Sishuba replied that the province had initiated a process of identification of the houses, and it was discovered that there was a problem with the illegal selling of subsidized housing. The Department had 1 484 civil servant cases investigated, and the province was also working with the SIU which was investigating some of the provincial cases. The Department of Housing in the province was a newly established unit as it was previously a part of another department. With the establishment of the new unit, the Department had a component which looked at the total quality assurance. The Department had also set up a project management unit and was deploying various professional teams to address key challenges.

Mr Motala replied that the Department did not have details on the SIU investigation, and the information would be forwarded to the Committee. On quality assurance, the department did not have the optimum capacity required. Since 2007 the department adopted an approach where the province managed the contractors. However the province did not have the capacity to manage the contractors and quality assurance was a major part of the management of contractors.

The Chairperson asked the National Department to comment on how they dealt with the issues that had been raised by the provinces. 

Mr Khotsoane replied that it was impossible for the Department to intervene as a result of the limitation on concurrency of function. The Department decided that a new directorate had to be created in order to offer implementation support to provinces. The Department had also started a process of hearings with the HODs of provinces in order to discuss and look at the plans of provinces to implement housing programmes. During the assessments, it was discovered that some provinces were challenged and that the allocation of housing was more than the province could provide and there was a lack of capacity. The Department identified the Eastern Cape, Mpumalanga and the Free State as critical provinces

The Chairperson asked for clarity on why the North West was not identified as a critical province.

Mr Khotsoane replied that the North West was identified as the second province that the Department would work with. When the Department did its assessment in March the Department felt that the North West would be able to implement the funding mechanisms.

Mr Motala noted that capacity was a problem; however the big challenge was how to deal with the capacity. The Department was planning to contract a company which would obtain personnel with necessary skills to address the project management capacity under the Department’s management. The process would be concluded soon.

Mr Trent asked the Department to comment on whether the 3% amount in the Division of Revenue was sufficient in addressing the capacity challenges.

Mr Khotsoane replied that the 3% was intended to assist with additional capacity. The Department was emphasising that provincial treasuries should increase allocation for capacity in accordance with the growth of the housing subsidy on an annual basis.

Mr Trent noted that there was competition for resources in provinces. The Committee has learnt that capacity problems appeared to be at the root of all the problems. The Auditor General in his audit discovered that in some provinces a large number of houses were not registered. The Department should comment on the matter.

Mr Khotsoane replied that some of the projects were in rural areas and there were many challenges when it came to the ownership and registration of land.

Ms Buthelezi added that some of the land was in rural provinces and the land belonged to the tribal authority with some land belonging to the national Department of Public Works. What was done in some municipalities was to give permission to retain funds from the housing subsidy amount with a view that when the land issues were resolved, they could register the land in the name of the beneficiary.

Mr Swartland replied that one of the issues in the Northern Cape pertained to the registry issue. The Department was currently dealing with the matter and the progress would be forwarded to the Committee.

Mr Mofokeng noted that provinces had been aware of the challenges that had been listed. Some of the challenges had been addressed by MINMEC. It would place the Committee at ease if there were a discussion with MINMEC on the challenges that were faced by the provinces and the initiatives that had been taken to address the challenges.

The Chairperson noted that there definitely needed to be some continual discussion. The Portfolio Committee of Housing in their engagements with the Department should check whether the recommendations raised by the Auditor General were in place. The Department should comment on the issue where people lived in houses that were not listed in their names.

Mr Khotsoane replied that the intention of the Department’s housing audit was to investigate the allegations in which people claimed that they were approved for housing. The Department needed to understand the basis whereby people occupied the houses illegally. The Department was also willing to provide alternative accommodation to individuals whose homes had been illegally occupied on a case-by-case basis. In most instances, legal action would be taken against individuals who rented their government subsided homes.

The Chairperson said that there were some cases where individuals lost their homes completely and the Department informed them that they could not get another house.

Ms Monama added that there were cases in the province where homes were registered in one name but occupied by different people. The Department had various consultations on how the matter should be addressed. There were areas in the law which made provisions for what should happen. In situations where children were involved the law made it quite clear that alternative accommodation needed to be found.

The Chairperson said that the Committee would communicate with the Department about areas that needed to be followed up. It was stressed that it was important that officials were aware of the issues that had been raised by the Auditor General. The Department was providing services to vulnerable individuals, and the Committee needed to make sure that the rights of the vulnerable were protected. The Housing Portfolio Committee needed to ensure that there was continual monitoring, in order to ensure the way forward.

The meeting was adjourned.