Human Settlements, Water and Sanitation 2019BRRR

4. THE BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTS, WATER AND SANITATION ON THE PERFORMANCE OF THE DEPARTMENT OF HUMAN SETTLEMENTS FOR THE 2018/19 FINANCIAL YEAR, DATED 25 OCTOBER 2019

The Portfolio Committee on Human Settlements, Water and Sanitation (the Portfolio Committee), having considered and assessed the performance of the Department of Human Settlements (the Department) and its Entities on 10, 11 and 15 October 2019 reports as follows:

1.         INTRODUCTION

Sustainable human settlements with a specific focus on working toward removing the apartheid spatial planning and patterns of exclusion to decent housing are the main focus of the work of the Department of Human Settlements. The 2018/19 Annual Report of the Department of Human Settlements highlights the strategic achievements as well as challenges encountered in affirming its mandate to creating sustainable human settlements and improving the quality of life for households.  In undertaking oversight of the work of the Department of Human Settlements and its Entities, the Portfolio Committee considered the following:

• Overseeing annual reports of the Department and Entities so as ensure accountability and, transparency and to improve trust and confidence in government service delivery.
• The aim of the organizational environment is to provide a description of any significant development internal to the Department and Entities that may have impacted on its ability to deliver on its Strategic Plan and Annual Performance Plan.

This report considers the internal and external factors that affected the financial and non-financial performance of the Department and its Entities over the 2018/19 financial year.

2.         PURPOSE OF THE BUDGETARY REVIEW AND RECOMMENDATION REPORT

National Assembly, through its Committees, must annually compile Budgetary Review and Recommendation Report.  The Budgetary Review and Recommendation Report assesses financial and non-financial performance of the Departments and Entities. Substantive and grounded recommendations compiled by a specific Portfolio Committee are considered and utilized by the Standing Committee on Appropriations as a means to influence the budget appropriations on a specific programme or project for a particular department and/or entity during the Medium-Term Budget Policy Statement (MTBPS).

3.         METHODOLOGY

The Portfolio Committee on Human Settlements, Water and Sanitation compiled the 2018/19 Budgetary Review and Recommendation Report (Department of Human Settlements) by engaging various source documents; as well as engagements with the following stakeholders:

• The National Development Plan: Vision for 2030.
• Medium-Term Expenditure Framework, 2014 – 2019.
• State of the Nation Address – 2018 and 2019.
• Strategic Plans, Annual Performance Plans and budgetary Votes within the Estimates of National Expenditure for the Department of Human Settlements.
• Assessments undertaken by the Department of Planning, Monitoring and Evaluation (DPME) and the audit outcomes of the Auditor-General South Africa.

4.         MANDATE OF THE PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTS, WATER AND SANITATION

The Portfolio Committee on Human Settlements, Water and Sanitation is established by Section 57 (2) (a) of the Constitution of the Republic of South Africa (Act 108 of 1996,) read with the Rule 225 of the National Assembly. The Committee is an extension of the National Assembly, and derives its functions from Rule 227 of the National Assembly.

5.         SECTOR OVERVIEW OF THE DEPARTMENT OF HUMAN SETTLEMENTS FOR THE 2018/19 FINANCIAL YEAR

Despite a difficult economic climate and having lost more than R10 billion in allocations over the past few years, the Department has over the 2018/19 period, reached the milestone of providing 4.7 million housing opportunities through various housing programmes. A quick snapshot of the achievements of the Department of Human Settlements for the 2018/19 period reflect the following[1]:

5.1       Achievement of the Department for the year under Review

• In working toward reversing apartheid spatial planning, the Department will continue to support the People’s Housing Process model of housing delivery, recently renamed to the Zenzeleni Housing Campaign, which aims to deliver housing opportunities in large numbers.
• Supporting the establishment of construction and non-construction cooperatives to deliver various services in the human settlements value chain. In conjunction with provinces and municipalities, the Department, delivered a total of 125 618 housing opportunities funded through the Human Settlements Development Grant (HSDG).
• Metropolitan municipalities received R11.3 billion of the Urban Development Grant (USDG), which was used as a supplementary grant to deliver human settlements infrastructure such as bulk sewer and electricity services and roads.
• Through the Upgrading of Informal Settlements Programme (UISP), the Department was able to ensure a total of 98 603 households as beneficiaries of the programme.
• In the year under review, the Department undertook funding for planning and implementation of 50 catalytic projects to realise delivery that is socially, economically and spatially integrated. Of the 50 projects, 24 are in the planning phase and 26 are in the servicing or housing construction phase.
• The passing of the Property Practitioners Bill by Parliament was important to advance the transformation of the property sector.  The Bill provides measures that will promote the participation of young people, black women and people living with disabilities in the sector.
• The operationalisation of the Human Settlements Development Bank (HSDB) has been completed with the institutional consolidation of the Rural Housing Loan Fund (RHLF), the National Urban Reconstruction and Housing Agency (NURCHA) and the National Housing Finance Corporation (NHFC). The legislative processes to address the consolidation will commence henceforth.  This will allow for the introduction of a progressive, reliable and affordable financial products and services to households and service providers to improve and ensure public-private sector funding leveraging.

5.2       Challenges highlighted by the Department of Planning, Monitoring and Evaluation

            on the Work of the Department of Human Settlements

Some of the challenges highlighted at the Portfolio Committee’s briefing session by the Department of Planning, Monitoring and Evaluation on 10 October 2019, note that whilst the Department has made major strides within the human settlements sector, critical work in the following areas required urgent attention[2]:

• The Annual Report did not fully provide quantitative performance data for 2018/19 and is inconsistent with previous annual reports.
• The growing backlog of title deed transfers require unblocking the associated institutional and capacity obstacles to ensure transfer of title deed with each new subsidy.  The programme needs strengthening through homeownership education and supporting consumer protection.
• The increase in the housing backlog, especially in the urban centres results in the increase of informal settlements; and is of imminent concern.  Informal settlements upgrading should be accelerated and implemented through community based/participatory planning. Households should also be enabled to formalize their own structures through the provision of access to finance, services and technical support.
• From a governance perspective, significant improvement in the financial performance and management of the Department has been noted.  A key focus area identified by the Department is to ensure the alignment of financial and non-financial performance outcomes to allow for improved accountability, improved service delivery and demonstrating value for money.

6.   MANDATE AND MISSION OF THE DEPARTMENT OF HUMAN SETTLEMENTS

The mandate and core business of the Department is underpinned by the Constitution and all other relevant legislation and policies applicable to the Department.  In addressing the mandate for integrated sustainable human settlements, the review of policies, particularly the development of the White Paper for Human Settlements and revising the Housing Act into the Human Settlements Act will enhance the Department’s effort in the provision of adequate housing by:

• Providing a framework for the realisation of sustainable human settlements and improved quality of household life.
• Providing a foundation for the establishment of viable, socially and economically integrated communities that are located in areas that allow convenient access to economic opportunities, as well as health, educational and social amenities.

The mission of the Department of Human Settlements is to facilitate the creation of sustainable human settlements and improved quality of household life.  The vision of the Department is a nation housed in sustainable human settlements.  The Department has two approaches to addressing housing needs, namely through the scaled delivery of subsidized housing by low-income households, and through striving to create an environment conducive for operations of the subsidized housing market with the larger economy,

6.1       Specific Constitutional, Legislative and Policy Mandate

The Department derives its mandate from a number of policies and legislation. These are sector specific and government policies which include the following:

6.1.1    Constitution of the Republic of South Africa, 1996

The Department’s mandate is derived from Chapter 2, the Bill of Rights, Chapters 3 and 6 of the Constitution of the Republic of South Africa, 1996. In terms of Section 26 of the Bill of Rights[3]:

• Everyone has the right to have access to adequate housing.
• The state must take reasonable legislative and other measures, within its available resources, to achieve the progressive realization of this right.
• No one may be evicted from their home, or have their home demolished, without an order of court being made after consideration of all the relevant circumstances. No legislation may permit arbitrary eviction.

Other legislative and policy mandates underpinning the work of the Department are as follows:

• Housing Act, 1997.
• Comprehensive Plan for the Creation of Sustainable Human Settlements.
• The Housing Consumer Protection Measures Act, 1998.
• The Public Finance Management Act, 1999.
• The Social Housing Act, 2008.
• The Division of Revenue Act,
• The Rental Housing Act, 1999.
• Home Loan and Mortgage Disclosure Act, 2000.
• Inclusionary Housing Bill.
• Sectional Titles Schemes Management Act, 2011.
• Community Schemes Ombud Service Act, 2011.
• Intergovernmental Relations Framework Act, 2005.
• National Development Plan.
• Spatial Planning and Land Use Management Act, 2013.

6.1.2    The National Development Plan

The Department of Human Settlements has, since the inception of the National Development

Plan, committed itself to the NDP’s vision of transforming human settlements and the spatial

economy to create functionally integrated, balanced and vibrant urban settlements by 2030.

In linking its work to the National Development Plan, the Department of Human Settlements has

devised the following strategic priorities:

• Respond systematically to entrenched spatial patterns across all geographic scales that perpetuate social inequality and economic inefficiency.
• Implement strategically the chosen catalytic interventions to achieve spatial governance.
• Achieve a creative balance between spatial equity, economic competitiveness and environmental sustainability.
• Expand personal freedoms by providing the residents of South Africa with greater choice of where to live.
• Support individuals, communities and the private sector in engaging with the state on the future of the spaces and settlements in which they work and live, while streamlining processes to enable local government to implement strategic spatial intervention.

6.1.3    Strategic Outcome Oriented Goals as contained in the Medium-Term Strategic Framework (2014 – 2019) and Related Expenditure Trends over the Medium-Term

Outcome 8 (sustainable human settlements and improved quality of household life) of government’s 2014 – 2019 medium-term strategic framework forms the framework for the work of the Department.  In line with Vision 2030, the work of the Department focuses on the following[4]:

• Ensuring that poor households have access to adequate housing in better living environments.
• Creating a functional housing market as well as focus on the upgrading of informal settlements.
• Invest in catalytic projects that deliver integrated communities.
• Upgrade informal settlements.
• Provide affordable rental housing.
• Ensure that disbursement of title deed to beneficiaries of state-subsidised housing.
• Temporary shelter to people affected by housing emergencies such as fires.

The Department in its Annual Performance Plan stated that the total budget over the Medium-Term Expenditure Framework amounted to R105.6 billion, which would increase at an average annual rate of 4.3 per cent, from R32.3 billion in 2018/19 to R36.6 billion in 2021/22.

6.1.4    Summary of the Translation of the Implementation of the Medium-Term Strategic   Framework as at 31 March 2019[5]

The table below provides an overview of the translation of the implementation objectives of the human settlements sector as articulated in the Medium-Term Strategic Framework. The Department of Human Settlements has systematically worked toward delivery attainment of housing within the informal settlements, individual housing units for the subsidy housing submarket, social housing units completed or under construction, and housing delivered through Financed Linked Individual Subsidy Programme (FLISP).

Source: Presentation by the Department of Human Settlements, 9 October 2019

An analysis of the attainment of objectives articulated in the MTSF reflect that the Department has not optimally achieved in the following categories and needs to pay closer attention to these in the 2019/20 financial year:

• Completion of the social housing units was set at a target of 27 000 but the Department attained 13 859 and the remaining balance is 13 150.
• Finance linked individual subsidy Programme set a target of 70 000 housing opportunity but the Department attained 9 762 and the remaining balance is 60 238.
• Eradication backlog of title deeds reflected a target of 818 262 and attained 306 510, translated to a percentage of 34.7 and the remaining balance is 511 752.
• Issuance of title deeds to new homeowners in the subsidy submarket and backlog eradication reflected a target of 452 650. 101 180, translated to a percentage of 22.3 was attained.  The balance remaining is 351 470.

6.1.5    Implications of the 2018 and 2019 State of the Nation Address on the Work of the Department

As stated previously, there were no substantial reference to the human settlements sector in SONA 2018. However, the sector was a key focus area in both the February and June SONA in 2019. Within this context, the increase in specific references to the housing sector illustrates the important role that the sector can play in achieving an inclusive economy and societal transformation.

An overall theme in the February SONA 2019 was the need for investment and economic development, including infrastructure projects for inclusive growth. Within this context, several references were made to the facilitation of investment in infrastructure in the human settlements sector, including the establishment of the Human Settlements Development Bank and the infrastructure implementation model and Infrastructure Fund.[6]

Apart from a focus on funding and investment, attention was also paid to the execution of projects. Increased technical capacity in Government, as a means to ensure that projects progress at a faster rate, as well as a new infrastructure implementation model to address the fragmented nature of infrastructure development, shows the support for human settlements projects at planning, funding and construction phases to ensure the success of such developments.[7]

In order to address the legacy of spatial inequality, Government will also ensure that strategically located land be released to address human settlements needs in peri-urban and urban areas to ensure access to economic opportunities. A concerted effort will be made to address the housing backlog, including an additional 500 000 housing units delivered through the HDA, as well as an additional R30 billion to local and provincial spheres over a five-year period. The People’s Housing Programme will also be expanded.[8]

In the June SONA of 2019, a key message was the need for realignment with the National Development Plan (NDP). Spatial integration, Human Settlements and Local Government was identified as one of seven key priority areas for the new administration. It was emphasised that over the next five years, government plans to accelerate the provision of well-located housing and land to poor South Africans.

7.         FINANCIAL PERFORMANCE OF THE DEPARTMENT OF HUMAN SETTLEMENTS

7.1       Overall Expenditure for the 2018/19 Financial Year

The table reflects the Department’s total expenditure for the 2018/19 financial year was R32.2 billion. This constitutes around 99.2% of the allocated funds.  The Department underspent by R260.5 million, which translates to 0.8% of the budget. 

Source: Department of Human Settlements, 2018/19 Annual report, 2019

An overview of the programme expenditure of the Department shows that the Department achieved 80% (46) of its targets and 20% (9) targets were not achieved.  Total expenditure for the period ending 31 March 2019 was R32.2 billion (approximately 99.2% of the allocated funds.  Underspending of R260.4 million translates into 0.8% of the total allocation.  Several virements were made from Programme 1 and Programme 3.  Virements totaling R12 960 million were made from Programme 1 to the rest of the departmental programmes, and R18.998 million in turn from Programme 3 to Programme 1. In particular, R10 million was transferred to Programme 1 to fund the shortfall in Property Management and R8.998 million to fund the shortfall in the Ministry.

The Department received an unqualified audit opinion with matter of emphasis on financial information and material findings.  The reasons for under-spending in each of the Programmes are highlighted below[9]:

7.1.1    Programme 1: Administration

The programme underspent by R37.3 million of the adjusted allocation of R448.1 million.  The underspending was due to the following – vacant posts could not be filled over the Medium-Term Expenditure Framework (MTEF). Underspending on Goods and Services could be attributed to:

• The delay in appointing service providers to augment capacity for the Internal Audit, Risk Management and Investigations Unit.
• Underperformance by Management Information Services, which underspent on computer services due to a delay with implementing the migration project; payment of Microsoft licence fees and the implementation of Virtual Private Network.

7.1.2    Programme 2: Human Settlements Policy, Strategy and Planning

There was underspending of R7 million or 7.2% of adjusted allocation.  On current payments, the under-spending was due to the following:

• Vacant posts could not be filled as funding shortages within the MTEF limited the number of positions that could be filled.  This also resulted in less equipment being bought than was anticipated.  Underspending on Goods and Services can mainly be attributed to:
  • Expenditure on consultant related activities was slow.
  • Funds provided for MTSF development remained unspent, as preparatory work was done internally.

7.1.3    Programme 3: Programme Delivery Support

The programme underspent by R57 million (24.6%) of the adjusted allocation. On current payments, the underspending is due to the following:

• Vacant positions could not be filled as funding shortages with the MTEF limited the number of positions that could be filled.  This also resulted in less equipment being bought than was anticipated.
• Goods and Services underspending can mainly be attributed to:
  • The National Upgrade Support Programme underspent due to the late commencement of the procurement process to secure the services of a panel of Professional Resource Teams.
  • Service providers that provide provincial and municipal intervention support, Title Deeds Restoration Grant support and Emergency Housing Grant Support were appointed in November 2018.  This meant that work only got underway thereafter, resulting in underspending.
  • The Housing Subsidy System (HSS) underspent due to SITA not being able to provide the required services, as per the service level agreement on the HSS.

7.1.4    Programme 4: Housing Development Finance

The programme underspent by R159.1 million (0,5%) of the adjusted allocation. The reasons for underspending are as follows:

• Current payments – the underspending can be attributed to vacancies not being filled and a reduction in travel and subsistence.
• Transfer and subsidies – partial transfer of the provincial and municipal Emergency Housing grants.
• Expenditure on capital assets – the underspending on capital assets is mainly attributed to positions not being filled, which resulted in less equipment being bought than was anticipated.

7.1.5    Grants and transfers

As reflected in the table below, 99.5% of the budget of the Department is on transfers and grants. Most of the grants and transfers were disbursed at 100%.  However, the Provincial Emergency Housing Grant and the Municipal Emergency Grant reflected a slightly lower percentage.  The information on the Provincial and Municipal Emergency Grant is captured in the sections below.

Source: Presentation by the Department of Human Settlements to the Portfolio Committee on 9 October 2019

An analysis of the table above reflects that the Provincial Emergency Housing Grant and Municipal Emergency Housing Grant did not spend the transfers.  The reasons for the non-spending of the PEHG in Mpumalanga and Western Cape related to the following:

7.1.5    Provincial Emergency Housing Grant[10]

Mpumalanga Province

• Approval of R121 million was granted to the provinces for the provision of 1 877 temporary shelters following severe thunderstorms which damaged houses in Kanyamazana, Entokzweni and Tekwane South.
• Funds were transferred on 11 February 2019.
• To date, the province has reported expenditure of R72.2 million.

Western Cape

• On the 26 October 2018, a fire disaster occurred in the Kosovo Informal Settlements in Phillipi and also on the same date, a fire disaster destroyed the informal settlement structures of Silvertown in Khayelitsha.
• Approval was granted to the province for the provision of 1 300 temporary shelters costing R83.8 million. Funds were transferred on 11 February 2019. Negotiations between the Department and private land owners to purchase the land took a few months before it was finalised.
• The purchased land has environmental limitations which may prolong commencement of the project. There is an environmental specialist investigation/study which is underway to investigate the extent of an identified wetland section.

7.1.5.2 Municipal Emergency Housing Grant[11]

An amount of R3.9 million was transferred on 8 November 2018 to the Bitou Municipality to provide 69 temporary shelters following a fire disaster in the following areas – KwaNokutula (2 houses), Kurland (39 households), Qolweni (26 households).  The municipality reported expenditure of R3.9 billion for the acquisition/purchase of temporary shelters.

The Nelson Mandela Bay Metro received funds for the 130 transitional residential units at a cost of R54 807 per unit amounting to R7.1 million and this amount was transferred on the 11 March 2019.  The Metro indicated that various areas within its jurisdiction were affected such as KwaNobuhle, Motherwell NU12, Khayamandi and Despatch.

Buffalo City Metro received funds for 165 temporary shelters at a cost of R54 807 per unit amounting to R9 million.  The metro has reported that land with services has been secured and that the municipality has requested the contractor to order all the materials so the project can be completed.

The Jozini Municipality was allocated an amount of R10.8 million for 168 temporary shelters which was transferred on 20 March 2019. The rural areas that were affected by fire are the following – Shemula, Makwakwa, Emakhonyeni and Mbadleni. 

An amount of R5.2 million was transferred to OR Tambo District Municipality for 82 temporary shelters on 20 March 2019.  The affected households reside in the Port St Johns area and were subjected to strong winds, heavy rains and fire disaster incidents.

The Joe Moroleng Local Municipality received R1.5 million for 24 temporary shelters on 20 March 2019.  The following areas were affected by disaster incidents with strong winds and heavy rains, for example, Kudamane and Batlhaping.

7.1.5.3 Challenges in relation to PEHG and MEHG

The Department in their presentation on 9 October 2019 noted that the following challenges resulted in the non-spend of the transfers for the PEHG and MEHG:

• Incomplete and incorrect submission of fund requests by provinces and metros.
• Misinterpretation of the grant frameworks by provinces and metros.
• Resistance by community members for erection of temporary shelters and temporary relocation.
• Disputes regarding beneficiary verification.
• Delays with procurement processes.
• Newly erected temporary shelters occupied by unlawful and undeserving occupants.
• Disputes regarding beneficiary verification.
• Delays with procurement at the metro level.

8.         OVERVIEW AND ASSESSMENT OF PROGRAMME PERFORMANCE

The Department of Human Settlements executes its mandate in line with national priorities through four programmes, as reported on in the Annual Report for 2018/19.  These are:

• Programme 1: Administration
• Programme 2: Human Settlements Policy, Strategy and Planning
• Programme 3: Programme Delivery Support
• Programme 4: Housing Development Finance

The table below provides an overview of the number of targets achieved, partially achieved and not completely achieved. Overall, the Department performed better in attainment of targets in Programmes 2 and 3 compared to Programme 1 and 4.  The Department for the year under review achieved 82.6% of its annual targets.

Source: Department of Human Settlements, 2018/19 Annual Report, 2019

The expenditure for Programme 1 amounted to 91.7% of the final appropriation for the programme, compared to 90.5% in the previous financial year.  Actual performance in terms of indicators for the 2018/19 financial year was at 77.8% compared to 53.3% in the previous financial year.  Performance in this programme improved in terms of both expenditure and performance.

The expenditure for Programme 2 amounted to 92.8% by the end of the 2018/19 financial year, compared to 89.8% in the previous financial year.  About 87.5% of the performance targets were achieved during 2018/19, compared to 68/6% of targets in the previous financial year.  Performance in this programme improved in term of both expenditure and performance.

Programme 3, over the last three years has been the worst performing programme of the Department.  In the 2018/19 financial year, the programme reflected an improvement with 85.7% of the predetermined targets being met, while 75.4% of the final appropriated budget being spent.  Whilst there is an improvement in performance, a slight regression was shown in terms of expenditure.  The targets not achieved under this programme are as follows[12]:

• The target for the number of informal settlements upgrading plans developed was not met. Only 319 plans were developed out of a total of 500 plans.  The reason for this is that professional resource teams were refused access to settlements.
• The target for provinces supported in the delivery of housing opportunities for military veterans was not met.  All provinces were support but only 230 out of a planned 1 000 housing opportunities were realized (92 in Gauteng, 28 in the Eastern Cape, 3 in Mpumalanga, 13 in Limpopo and 11 in North West.  The poor performance in this regard related to the fact that provinces are reluctant to build houses due to contests over the qualifying beneficiaries.
• The target on the number of evaluation studies completed was not met. The reason for this was that service providers were not appointed as bidders were not responsive.

Under Programme 4, the targets that were not met are as follows:

• The target for 30% of HSDG construction budgets allocated to designated groups (women and youth) was not met, as only 19% of the budget was allocated to these groups.  Provinces did not allocate the required percentage which led to the target not being met.
• The target of 30% of USDG construction budgets allocated to designated groups (women and youth) was not met, as only 15% of the construction budget was allocated to these groups.  Metros did not allocate the required percentage which led to the target not being met.

8.1       Human Resources Issues in the Department

Due to the sustained budget cuts effected by National Treasury in the budget for Compensation of Employees, filling of prioritized vacant positions was limited to contract appointments.  There have been certain strides in clearing long inactive posts.  The Department has a total of 612 approved posts on its establishment, of which 535 are filled.  This means that there is an average vacancy rate of 12.6%.  The programme with the highest vacancy rate is Programme 2, with a 14.3% vacancy rate.

8.2.      Audit Outcomes

The Department of Human Settlements received an unqualified audit opinion in the Annual Financial Statement with no matters of emphasis on the audit report.  In relation to Supply Chain Management, the Department received no material audit findings. The quality of submitted performance information for programmes 2, 3 and 4 were selected for audit purposes.  Programme 2 received an unqualified audit opinion. Programme 3 received a qualification due to limitations of scope of 5 indicators out of 19; and invalid information submitted for audit purposes.  Programme 4 received an unqualified audit opinion. 

Under Programme 3: the following were highlighted by the Auditor-General as material findings:

• AGSA was unable to obtain sufficient appropriate audit evidence for reported achievements on a number of indicators, due to inadequate technical indicator descriptions, proper performance management systems and processes with formal standard operating procedures that predetermined how the achievement would be measured, monitored and reported.
• Some of these indicators include: the support provided on the implementation of the catalytic programme; the implementation of the revitalisation of the distressed mining communities programme; the implementation of private affordable rental housing; the implementation of the social housing programme; and the implementation of community residential units.

Under Programme 2 (Human Settlements Policy, Strategy and Planning), the AGSA found material misstatements but since management subsequently corrected the misstatements, no material findings were raised.

Comments made on internal control deficiencies include the following:

• Leadership did not exercise effective oversight responsibility over performance information reported in the annual report performance report and information technology governance, resulting in repeat audit findings.
• Proper record keeping was not always implemented in a timely manner to ensure that complete, relevant and accurate information was accessible and available to support performance reporting.
• Regular, accurate and complete performance reports that were supported and evidenced by reliable information was not prepared through the financial year.

On Debt, bad debt to the value of R567 000 was written off during 2018/19 in terms of the Department’s Debtors Management Policy.

9.         ENTITIES SUPPORTING THE WORK OF THE DEPARTMENT OF HUMAN SETTLEMENTS

The following entities support the work of the Department of Human Settlements:

9.1       National Home Builders Registration Council (NHBRC)

The mandate of the NHBRC is to protect the interests of housing consumers and to regulate the home building industry.  The mandate is derived from the Housing Consumers Protection Measures Act, 1998.  The NHBRC Council was appointed by the Minister of Human Settlements for a period of three (3) years with effect from 1 August 2018.  The previous Council’s term of office ended on 30 July 2018. The Council consists of thirteen (13) experienced members with a good balance of skills and is constituted by the following committees – audit and risk; funds advisory, registrations, industry advisory, human capital and remuneration, social ethics and transformation and disciplinary committees.

9.1.1    Programmes with Aligned Strategic Objectives

The NHBRC has five (5) programmes with aligned strategic objectives to guide the work of the entity:

9.1.2    Overview of the Work of the NHRBC for the 2018/19 financial year

The key performance highlights for the 2018/19 financial year entailed the following:

• Initiated a social transformation programme to increase access for targeted groups in the construction sector.
• Amendments to the NHBRC Bill to promote inclusion of – rural houses enrolment in non-subsidy; warranty extension; and mixed use developments.
• Built 9 houses using IBT technologies.
• Embedded risk management within the operations with a combined Assurance Model.
• Achieved an unqualified audit opinion.
• A total of 3 600 new home builders were registered with the NHBRC, representing an increase of 1.8% compared to the previous financial year. 
• Although the enrolment target was not met for the subsidy sector, an increase of 15% in enrolments was achieved, in comparison to the previous financial year. The NHBRC also launched a simplified home building manual in 2018/19 to assist emerging home builders participating in the home built industry.
• An amount of R3.2 million was spent by the NHBRC from its warranty fund to rectify structural defects in cases where the home builder was unable to rectify the structures.

9.1.3    Financial Performance of the NHBRC

The NHBRC reported an increase profit from its operating activities in the 2018/19 financial year, which amounted to R161.3 million, compared to 2017/18, which had a profit of R21.3 million.  The overall financial position of the NHBRC weakened between 2017/18 and 2018/19.  A surplus of R584.8 million was recorded for the 2018/19 financial year compared to R614 million in 2017/18. The tables below speak to the revenue, expenses and profit of the entity:

NHBRC Revenue reported for 2018 and 2019

Source: NHBRC Annual Report, 2019

Revenue from enrolments premiums written increased by R57 million to R776 million, while the premiums written decreased by R80 million in 2018.  The decrease in the provision for unearned premium or R31 million (an increase of R133 million in 2018) was reduced by the change in the unexpired risk provision amounting to R80 million (R64 million in 2018). Insurance premiums are recognized over the period of the policy commensurate, with the expected incidence of risk from the date of occupation of the home.

NHBRC expenses reported for 2018 and 2019

Source: NHBRC Annual Report, 2019

Profit from operating activities

Source: NHBRC Annual Report, 2019

Net investment income

Source: NHBRC Annual Report, 2019

9.1.4    Non-Financial Performance of the NHBRC

The performance of the NHBRC for the 2018/19 financial year shows that a total of 26 targets out of 33 were met. This translates to a 78.7% success rate.  It is the highest performance achievement for the entity over the past five (5) years.

The table below provides a summary of performance of the strategic objectives:

Source: NHBRC Annual Report, 2019

In Programme 1, two targets were not met, that of achieving a clean audit, and the stabilization and enhancement of the core business system (SAP).  Details provided by the Department on the poor performance of the target related to the stabilization and enhancement of the business system with a 90% implementation rate being achieved.  The subsidy solution was completed in the fourth quarter and only the solution manager and defects are outstanding.

In Programme 2, the objective to ensure effective regulatory compliance and home builders to be registered, three targets were not met.  This related to the following:

• 112 179 homes to be inspected in the subsidy sector

The target was based on the projected number of subsidy houses by the Department. Fewer houses were submitted to the NHBRC for enrolment, which impacted inspections on the ground. A total of 85 263 homes were inspected.

• A total of 112 179 units for home enrolment

The target was based on the projected number of new subsidy houses planned to be enrolled and constructed in the current financial year by the Department. Only 76 526 homes were enrolled by the subsidy sector.

• 100% home builders card systems (phase 1) completed as per the project plan

0% achievement was realized on this target.

In Programme 3, which has one strategic objective, which is to entrench a culture of compliance and ensure effective regulatory compliance, all four (4) targets were met for the 2018/19 financial year.

In Programme 4, which has one strategic objective, which is to promote research and innovation in housing through technical, transformational and intellectual leadership, two targets were not met.  This related to:

• Train and develop 300 people living with disabilities

There was a limited number of training modules available to train people living with disabilities.

• Number of military veterans trained and developed in home construction and related fields

Not all military veterans have an interest in construction-related training, as some opt for training in other fields offered by other government departments.

In Programme 5, all related targets were met.

9.1.5    Human Resources

At the end of the 2018/19 financial year, there were 634 permanent staff at the NHBRC, compared to a staff complement of 636 in 2017/18. 

9.1.6    Findings by the Auditor-General

The NHBRC received an unqualified audit opinion, with material findings by the Auditor-General. 

In Programme 1, (administration and governance), the Auditor-General was unable to obtain sufficient appropriate audit evidence to support the reported achievements of some targets.  This related to the number of housing consumer stakeholder session held in provinces, and the number of homebuilder stakeholder sessions held in provinces.

In Programme 2, (regulation and protection), the Auditor-General stated that the source information and method of calculation for achieving the planned indicator was not clearly defined for two targets.  This related to the number of homes to be inspected in the subsidy sector and the number to be inspected in the non-subsidy sector. Inadequate technical indicator description that predetermined how the achievement would be measured, monitored and reported, made it difficult to obtain sufficient audit evidence to verify some of the reported achievements.

Material findings on non-compliance with specific matters in key legislation comprised the following:

Source: NHBRC Annual Report, 2019

9.2       Community Schemes Ombud Service (CSOS)

The mandate of the CSOS is to:

• Regulate, monitor and control the quality of all schemes governance documentation.
• Provide a dispute resolution service.
• Provide training for conciliators, adjudicators and other employees of the CSOS.
• Take custody of, preserve and provide public access (electronically or by other means) to schemes governance documentation.

The mandate is derived from the Community Schemes Ombud Service Act, 2011.  CSOS commenced its operations in 2016, after proclamation of the Act.

The CSOS service is applicable to all owners, occupiers, executive committees and other person or entities who have rights and obligations in community schemes.  The Act refers to “community schemes” as any scheme or arrangement where there is a shared use of, and responsibility for parts of land and buildings, including sectional titles development schemes, shared block companies, home or property owners’ associations, housing schemes for retired persons and housing cooperatives.

9.2.1    Strategic Overview of the Work of CSOS in the 2018/19 Financial Year

During the year under review, CSOS completed 1 296 conciliations and 1 517 adjudications. It received 12 220 new applications between 2015 and 2019, of which 6 266 were received during 2018/19.  CSOS received negative publicity during 2018/19, as a result of R100 million that was invested with two local banks.  Two separate investigations with different scopes (one by the entity and another by the Minister). Both investigations found significant levels of wrongdoing by some senior CSOS management.  As a result of the findings, necessary disciplinary processes have been initiated.

As a result of new Board appointments, CSOS had to firstly complete outstanding business from the last quarter in addition to 2019/20 assignments.  Apart from addressing backlogs, the Board also inherited an organization with a number of adverse audit findings.  These stemmed largely from the organisation’s reliance and use of an unsophisticated manual revenue collection system and ineffective policies.

In the first six months of operations, the new Board managed to stabilize the entity by reporting the implicated parties to relevant law enforcement authorities, and a portion of the funds invested, were recovered.

The process of filling the vacant positions of the Chief Financial Officer (CFO) and the Chief Ombud and other unfilled positions in respect of key functions, was initiated.  Proper, functioning Board Committees are in place and a recent strategic planning session was held to adopt a roadmap to improve overall operations and internal staff morale.

9.2.2    Strategic Objectives of CSOS with Performance Information

The table below provides an overview of the overall performance of the strategic objectives determined by the CSOS for the 2018/19 financial year:

Source: Presentation by CSOS to the Portfolio Committee on 17 October 2019.

9.2.3    Financial Performance of CSOS

The financial performance of CSOS strengthened between 2017/18 and 2018/19, with a surplus recorded for the 2018/19 year of R147.9 million.  This is compared to a surplus of R59.9 million for 2017/18.  The 2017/18 financial year included an impairment loss of R81.765 million for the fraudulent investment with VBS, hence the lower surplus reported).

With respect to CSOS’ financial position, total assets (R188 million) by far exceeded its liabilities of R9.8 million.  Its accumulated surplus (or net assets) therefore reaches R178.183 million in 2018/19. The tables below provide information on the revenue reported, and expenditure of CSOS for 2017/2018.

Revenue for 2017/18 and 2018/19

Source: 2018/19 CSOS Annual Report, 2019

CSOS expenditure for 2017/18 and 2018/19

Source: 2018/19 CSOS Annual Report, 2019

9.2.4    Findings by the Auditor-General

CSOS received an adverse opinion from the Auditor-General with emphasis of matter on its financial statements. 

Source: 2018/19 CSOS Annual Report, 2019

9.3       Housing Development Agency (HDA)

The Housing Development Agency (HDA) was established in 2009 in terms of the Housing Development Agency Act, 2008.  The HDA is a Schedule 3A national public entity of the national Department of Human Settlements.  The HDA was established in response to the following service delivery challenges in the housing sector:

• Delivery of housing to low-income earners was severely constrained due to delays in the identification, acquisition, assembly and release of land for human settlement development.
• The urgent need to address the increasing backlog in respect of housing delivery by fast tracking the housing development process.
• The critical shortage of skills and capacity to provide housing in some provinces and municipalities.

In order to contribute toward the resolution of the aforementioned challenges, the Act outlines the purpose or object of the HDA to:

• Identify, acquire, develop and release land (state, communal and privately owned) for residential and community purposes and for the creation of sustainable human settlements (clause 4(a).
• Project manage housing development services for the purpose of the creation of sustainable human settlements (clause 4(b).
• Ensure and monitor a centrally coordinated planning and budgeting of all infrastructure required for housing development (clause 4(c).
• Monitor the provision of all infrastructure required for housing development (clause 4(d).

9.3.1    Performance of the HDA over the Reporting Period

In December 2018, the HDA was placed under administration in terms of section 31 of the HDA Act.  This was due to the inadequate performance of the entity, with notable underachievement with respect to Catalytic Projects Programme, National Upgrading Support Programme, Public Sector Land and Property Development and Distressed Mining Town programmes.

The focus was on stabilising the operations and addressing challenging governance and operational matters.  This included the finalisation of investigations into suspended staff and improving financial management and internal controls, as well as refocusing staff on key operational matters.

HDA comprises the following five programmes:

9.3.1.1 Programme 1: Administration

The purpose of this programme is to provide strategic leadership and support in the implementation of HDA’s mandate.  These support functions set the performance targets to ensure effective and efficient administration, and implement strategic leadership and good governance, to ensure that the HDA is financially sustainable, internally cohesive and effective, with stable and accessible systems.

This programme achieved 6 of the 11 targets, which translates to 54.5 per cent.  The reason for the failure is attributed to limited availability of the service providers and shifting of the development of the financial modelling to the new financial year.  The allocation for this programme was R92.122 million, but it exceeded its allocation by 25 per cent.  Actual spending was R115. 465 million.

9.3.1.2 Programme 2: Built Environment Implementation

The purpose of this programme is to identify, hold, acquire, develop and release state, communal and privately owned land for the residential and community purposes and for the creation of sustainable human settlements.  The two programmes implementing this are the land management and built environment and each operates to a strategic plan.

The number of achieved planned target was six (6) while only one was not achieved.  During the reporting period, this programme performed well in the 2018/19 financial year.  The performance is attributed to the following, that:

• It exceeded its annual targets of hectares of well-located land (targeting the poor and middle-income households) acquired or released by 1124.877 hectares.
• It exceeded the annual target of the number of the well-located land identified for human settlements development by 1583.2911 hectares.

9.3.1.3 Programme 3: Development Management and Operations

The purpose of this programme is to project manage housing development services to create sustainable human settlements, assisted by seven (7) sub-programmes that undertake project management services such as approvals for housing development.  The sub-programmes are the National Programme Design and Management, Catalytic Projects, Mining Town, Upgrading of Informal Settlements,

The target in this programme that were not achieved relate to the delivery of houses being hindered by the delays in the payments of contractors.  This resulted in contractors experiencing cash flows problems and not being able to complete the work on time.  This includes protests by the community, business forums, strikes, the unwillingness by the beneficiaries to relocate out of constructions and the lack of approved beneficiaries.  By the end of the reporting period, the programme underspent by 4.8 per cent.

9.3.1.4 Programme 4: Stakeholder and Governmental Relations

The purpose of this programme is to ensure and monitor that there is a centrally coordinated planning and budgeting of all infrastructure required for housing development.  The reported target of one (1) in the annual performance plan and annual report was not met.  The main reason for the failure to meet its intended target is attributed to the fact that the Department failed to establish the Project Steering Committee in the Northern Cape.  This programme underspent by 12.5 per cent.

9.3.1.5 Programme 5: Spatial Information Analysis

The purpose of this programme is to monitor the provision of all infrastructure required for housing development. This programme achieved all its targets; but underspent 12 per cent in the current reporting year (2018/19), which is a slight improvement compared to the previous financial year (2017/18) at 19 per cent.

9.3.2    Financial Performance

The table below shows that the entity generated a revenue of R385.5 million compared to R381 million in 2017/18.  However, expenditure exceeded its income, resulting in a reported deficit of R12.7 million for 2018/19. 

Source: 2018/19 Annual Report of HDA, 2019

Included in the HDA’s revenue stream, was a government transfer of R222.1 million.  One of the core drivers for expenditure was employee costs which constitutes 48.5 per cent of the expenditure for 2018/19. Employee cost grew from R148.5 million to R193 million in 2018/19.

The table below provides an overview of the current assets, and liabilities of the HDA for the financial year under review:

Source: 2018/19 Annual Report of HDA, 2019

The HDA’s assets declined considerably in 2018/19 from R2.618 billion previously to R1.086 billion in 2018/19.  Most notably was the reduction of cash and cash equivalents under current assets.  Cash and cash equivalents decreased from R2.374 billion to R497.490 million between the 2017/18 and 2018/19 financial year.

9.3.3    Findings by the Auditor-General

The entity obtained a Qualified Audit Opinion.

9.4       National Housing Finance Corporation (NHFC)

The National Housing Finance Corporation (NHFC) is one of several Development Finance Institutions (DFIs) created by the South African Government to sustainably improve on the socio-economic challenges of the country. The developmental financial focus of the NHFC is specifically about finding workable models on affordable housing finance for the low- to middle-income beneficiary target market.

The National Housing Finance Corporation is a state-owned Development Finance Institution with a principle mandate to broaden and deepen access to affordable housing finance for the low- and middle- income households.

9.4.1    Strategic Market and Objectives

9.4.1.1 Strategic Market

The target market is the low- to middle- income housing market in any South African household with a monthly income between R800 and R15 000 (from 1 April 2019 – R22 000).  The market segment is able to contribute towards its housing costs, but unable to access housing finance from commercial financial institutions.

9.4.1.2 Strategic Objectives

• Expand housing finance activities, through the effective provision of housing finance solutions, thus enabling low-to-middle income households to have the choice of renting or ownership or incrementally building to meet their housing needs.
• Facilitate the increased and sustained lending by financial institutions to the affordable housing market.
• Mobilise funding into the human settlement space, on a sustainable basis, in partnership with the broadest range of institutions.
• Conduct the business activities of the NHFC in a manner that ensures the continued economic sustainability of the NHFC whilst promoting lasting social, ethical and environmental development.
• Provide robust, timely and relevant market research.

9.4.2    Overview of the Work of NHFC for the 2018/19 Financial Year

The NHFC merged with NURCHA and RHLF.  In effect, the entity took over the RHLF loan from KfW (through DBSA) and took over the NURCHA loan from PIC.  The NHFC appointed a national implementing agent for FLISP.

9.4.3    Financial Performance of NHFC

The NHFC had an excellent year from a financial perspective. The primary reason for the entity exceeding their net profit budget are, through a lower than expected impairment figure and lower than budgeted operating expenditure.

Source: 2018/19 Annual Report of NHFC, 2019

9.4.4    Non-Financial Performance of NHFC

The work of the NHFC in relation to programme performance as outlined in the 2018/19 Annual Report[13] relates to the following:

• Private rental

Although the entity managed to disburse a significant portion of private rental targets, R188 million against a target of R198 million, delays in construction progress has contributed to the low amount of housing opportunities realized. Increasing volatility on construction sites as a result of disruptive community forums who illegally demand jobs and contracts from developers, has become a challenge and hinders progress on most construction sites.

• Social rental

The existing social housing book had however, posed significant challenges, as arrears on four big social housing clients increased to levels not previously experienced.  These arose mainly as a result of organized rental boycotts by tenants, as well as, illegal occupation of completed units prior to contractor handover.

• Affordable housing

The affordable housing programme under-delivered mainly as a result of – staff loses and challenging market conditions.  2018/19 was a tough economic year in terms of end-user affordability (financial pressures, high cost of living and consumer confidence) and there was an under-demand for residential property in this market.

• Subsidy housing

The performance of subsidy housing was marginally low due to several challenges ranging from staff issues, operational inefficiencies relating turnaround times and other external factors.

• Incremental housing

R135 million in loans were approved under the sub-programme representing 169% of targets (R80 million). Tough markets conditions have led to lower disbursements of approved facilities as some clients struggled to issue loans – especially those with limited loan distribution channels

9.4.5    Findings by the Auditor-General

NHFC received an unqualified audit with the following findings:

Source: 2018/19 Annual Report of NHFC, 2019

9.5       Social Housing Regulatory Authority (SHRA)

The Social Housing Regulatory Authority (SHRA) was established by the National Department of Human Settlements as prescribed by the Social Housing Act, 2008.  The SHRA is classified as a national public entity in terms of Schedule 3A of the Public Finance Management Act, 1999. The mission of SHRA is to facilitate delivery of quality sustainable social housing at scale to advance the needs of low- and middle-income groups in support of spatial and social restructuring.  The SHRA’s mandate is to capacitate, invest in and regulate the social housing sector.  The primary intention of social housing is twofold: firstly, to deliver affordable rental housing for low-to middle-income groups, most of whom do not qualify for free BNG housing, but also do not qualify for bank financing to purchase a house; and secondly, to achieve spatial, economic and social integration of the urban environments in South Africa[14].

The mandate of SHRA in tabulated form reads as follows:

9.5.1    Overview of the Work of SHRA for the 2018/19 Financial Year

The year under review ushered in a renewal of purpose and collective commitments to reignite growth to strengthen the economy for a more resilient and regulated Social Housing Sector.  SHRA reached 62 per cent in the period under review and the vacancy rate at the end of the period was 10 per cent.

There are currently 102 fully and conditionally accredited institutions on the SHRA Accreditation Register, of which twelve (12) institutions are fully accredited and ninety (90) are conditionally accredited.  During the MTSF (2014 – 2019), 13 968 units were completed with a further 9 273 units under construction and 12 447 awarded capital grants, but have not yet broken ground. There has been a growth in the number of units under regulation over the MTSF period, in 2017/18, it was 32 046 and in 2018/19 was 36 305.

9.5.2    Financial Performance of SHRA

SHRA received an unqualified audit opinion with no material findings. There was an instance of non-compliance with legislation due to irregular expenditure. R26 724 812 of irregular expenditure was incurred due to a contract for a housing social delivery project in Soweto being categorized as falling under sub-leased land.  SHRA made a mistake of misreading Regulation.

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2019

Source: 2018/19 Annual Report of SHRA, 2019

9.5.3    Non-Financial Performance of SHRA

SHRA received 62% of planned deliverables. It achieved 21 of the 34 targets planned for 2018/19. Its vacancy rate at the end of the period was at 10%.  There are currently 102 fully and conditionally accredited institutions on the SHRA Accreditation Register of which 12 are fully accredited and 90 are conditionally accredited.  During the MTSF period, 13 986 units were completed with a further 9 273 units under construction and 12 477 awarded capital grants, but which have not yet broken ground.  There has been growth in the number of units under regulation over the MTSF period with 32 046 in 2017/18 and 36 305 units in 2018/19.  SHRA increased expenditure on the Consolidated Capital Grant to R778 327 million in 2018/19, which comprises a 105% performance against budget.

9.5.3.1 Programme 1: Administration

86% of the 2018/19 Human Resources Action Plan was implemented by year end. The negative variance of 14% was due to inadequate Employee Performance Management and challenges with the implementation with a learnership programme. A service provider was appointed to assist with the development of performance contracts for 2019/20. The Information Communication Technology Action Plan had 76.7% implemented by year end. The negative variance of 23.3% was because the IT action plan could not be implemented at the older building since the SHRA was moving to newer premises.

9.5.3.2 Programme 2: Compliance, Accreditation and Regulation

The final Social Housing Regulatory Plan was submitted to the Department of Human Settlement on 30 January 2019. 100% of accreditation applications were received and processed within an average of 59 days. The third quarter compliance report approved by the CAR EXCO on 10 December 2018 recommended that SHRA must intervene and establish reasons for the high vacancy rate as opposed to the regulated benchmark of 2%. The intervention plan was tabled on 28 January 2019 with an average of 49 days from the day of approval of the third quarter compliance report. Executive Committee meetings scheduled with a maximum of 60 calendar days. Property Management Agreements signed with Harrison Reef Housing Co- Operative, Philani Ma Africa (Pty) Ltd, Everest Court Housing Association and Troyeville Housing Co-Operative for four Institutional Subsidy projects.

9.5.3.3 Programme 3: Sector Development and Transformation

71% has been recorded on Institutional Investment Grant funding allocation. 75% (R2.1m) work of work or contract value was awarded to BBBEE training providers. SD&T disbursed over R1m in Staff Gear Up Grant funding to fund three newly developed projects and created 22 new jobs. Work has been completed on Steve Tshwete Housing Association with others still in process. This institution maintained its conditional accreditation and, therefore,100% achievement has been registered. Work on other projects was still in process. The negative variance of 75% was where a project was not recommended for approval due to the size of units and institutional subsidy awarded previously.

9.5.3.4 Programme 4: Project Development and Funding

5 out of 8 targets were achieved. 2 471 social housing units were tenanted. There was a negative variance of 1 385 units. The effect of appointed contractors not meeting the expected levels of delivery either as a result of a negative cash flow, capacity, capability, entrant ODAs and SHIs taking longer to source debt funding, amongst others, has impacted this target negatively. Going forward, grant recipients would be required to submit a tenant shortlist at least 6 months prior to unit completion, allowing occupation almost immediately after the municipality issues occupation certificates. This would be on the back of a construction methodology that meets occupational health and safety (OH&S) requirements.

2 284 social housing units were completed. The negative variance of 2 627 social housing units was a result of some of the large size contracts not performing as expected due to a plethora of issues such as contractual disputes, negative cash flow during implementation, delays in statutory municipal approvals to unlock project implementation. With the increase in Portfolio Managers and the imminent appointment of PRCs, there will be more engagement and on-site presence going forward allowing PD&F to upscale delivery.

9.6       Findings by the Auditor-General

10.       Estate Agency Affairs Board (EAAB)  

The EAAB is a schedule 3A public entity in terms of the PFMA.  The primary mandate of the entity is to:

• Regulate, maintain and promote the standard of conduct of estate agents having due regard to the public interest.
• Issue Fidelity Fund Certificates to qualifying applicants.
• Prescribe the standard training of estate agents.
• Investigate complaints against estate agents and institute disciplinary proceedings against offending estate agents where required.
• Manage and control the Estate Agents Fidelity Fund.

The strategic objectives and goals of the EAAB are to:

• Improve compliance with the Estate Agency Affairs Act and Financial Intelligence Centre Act.
• Build capacity of key stakeholders and professionalise the estate agent sector.
• Ensure that the Fidelity Fund is financially sustainable.
• Ensure that the EAAB operations are efficient and effective.

10.1     Performance of the EAAB Over the Reporting Period

The EAAB has the following six programmes:

10.1.1  Programme 1: Compliance

The purpose of this programme is to implement speedy, cost effective and transparent measures to ensure compliance by estate agents within the relevant legislation.  Programme 1 achieved 3 of the 11 targets, which translates to 42.9 per cent.  If failed to achieve 4.  The reason for this failure is attributed to estate agents paying their renewal fees using references other than the uniquely assigned 7-digit reference numbers.  This also includes inefficiencies within the EAAB in downloading and uploading the payments.  In addition, there is also the failure by Systems Application Product (SAP) system in the issuance of Fidelity Fund certificates to compliant applicants and staff members resigning, and absconding from work.

10.1.2  Programme 2: Education and Training

The purpose of this programme is to, professionalise the Estate Agency industry through creating awareness of the education requirements. The number of achieved planned targets was eight (8) and another eight (8) were not achieved.  The programme failed to create a Facebook page and have more estate agents registered on its database.

10.1.3  Programme 3: Transformation

The purpose of this programme is to implement a structured approach to the transformation of the sector and its impact on economic transformation in the country.  Of the six (6) planned targets, none was achieved.  One of the reasons for the failure to meet the planned targets relates to the late implementation of the one-learner one-estate agency and the delayed implementation of the principalisation programme, which was approved towards the end of the financial year.

10.1.4  Programme 4: Fidelity

The purpose of this programme is the accumulation of financial resources used as a protection mechanism for property consumers defrauded by Estate Agents.  Of the six (6) targets reported in the annual report, only two (2) were achieved.  The main reason for the failure to meet its intended targets is attributed to the fact that there was a delay in the documentation for the finalization of order for the claims to be paid by the finance department.

10.1.5  Programme 5: Contribution to Medium-Term Strategic Framework

The purpose of this programme is to promote and implement government-wide priorities.  It does this through:

• Consumer education.
• Placement of unemployed youth with Principal Estate Agents.
• Transactional support, and issuing of title deeds.

This programme has achieved three (3) of its targets and failed to meet two (2).  This is attributed to the difficulties encountered in receiving a report from the service provider.

10.1.6  Programme 6: Administration

The purpose of this programme is to ensure that the EAAB operations are efficient and effective.  The programme failed to meet 17 of its targets out of 18 targets reported in the annual report.  This is due to budgetary cuts which impacted on, amongst others, training/staff development targets and key appointments (including meeting unemployment equity targets).  Targets with respect to resolving stakeholder queries were also under-achieved.

10.2     Financial Performance of the EAAB

The Group (EAAB and Estate Agents Fidelity Fund) reflected in the table below generated a revenue of R221.504 million compared to R150.154 million the previous year.  The EAAB’s revenue totaled R186.184 million for 2018/19.  Both the Group and EAAB revenue strengthened in 2018/19.  The Group surplus increased from R13.495 million in 2017/18, to R27.281 million during the year under review.  Commensurately, the EAAB surplus grew from R656 thousand in 2017/18 to R19.375 million in 2018/19. 

Statement of Financial Performance

The statement of financial position of the Group and EAAB reflected in the table below saw both the Group and EAAB’s assets growing from the previous year, while liabilities declined.  This saw net assets for the Group reaching R725.308 million and for the EAAB reaching R108.216 million.

Statement of Financial Position

10.3     Findings by the Auditor-General

11.       OBSERVATIONS BY MEMBERS OF THE PORTFOLIO COMMITTEE ON THE WORK OF THE DEPARTMENT AND ENTITIES

11.1     Department of Human Settlements

11.1.1  Title Deeds Transfers

Members raised a number of concerns around the transfers of titles as determined by targets to be met set in the MTSF.  Of the 448 022 houses delivered, only 101 180 title deeds were issued; which added to the already large backlog of 346 842.  Of the 818 262 title deed backlog, only 306 510 were transferred, which amounted to 37.5%.  Whilst the Department has put in place an intervention strategy to address the backlog and fast track the issuing of title deeds through a National Project Office and the new Title Deed Restoration Grant disbursed to provinces.  This has yet to yield significant results. 

11.1.2  Affordable Rental Housing

Members argued that social housing performed below the Medium-Term Strategic Framework target with 13 850 of the targeted 27 000 units achieved (51.3% achievement).  Community Residential Units are intended to reach the very low income households.  Rental through the Community Residential Units have also performed below the Medium-Term Strategic Framework target of 10 000 units with 7 088 (71%) units delivered. Among the challenges experienced are rent defaults and high maintenance costs for municipalities.  Affordable private rental units achieved 22 436 of the target of 25 000 units (89.7%).

11.1.3  Performance for Land Acquisition and Release

Members noted that performance for land acquisition and release was 19 962.2 hectares, but only 2 241.7 hectares (22.4%) has been rezoned for development.  Whilst Members understood that the major constraint appears to be the inefficiency and slow processing of town planning and township establishment by municipalities which can take up to 18 months to finalise. This area was critical toward addressing spatial injustice of the past.

11.1.4  The Finance Linked Subsidy Programme (FLISP)

The FLISP met 9 762 (13.9%) of the projected target of 70 000 delineated in the MTSF for the delivery of new units.  Although the revision of the FLISP increased the maximum income target market from R15 000 to R22 000, the heavy indebtedness of the target income group remains a challenge.

11.1.5  Access to Bank Mortgages

Members maintained that access to bank mortgages remained in favour of individuals with a gross monthly income of greater than R15 000.  Access by medium to lower end income households to bank mortgages still remains a challenge.

11.1.6  Reasons for not meeting the Revising of the Target for the Human Settlements Code

The revising of the Human Settlements Code was not met.  The development of this detailed guideline was not conducted, as a result of delays in the appointment of consultants.

11.1.7  Target for the Number of Informal Settlement Upgrading Plans (IUSP) developed was not met

The target for the IUSP developed were not met. Only 319 plans were developed out of a planned 500 plans.  The reason provided is that professional resource teams were refused access to settlements.  More detail was required on the non-attainment of the target.

11.1.8  Target for provinces support in the delivery of housing opportunities for military veterans was not met

While all provinces were supported, only 230 out of a planned 1 000 housing opportunities were realized (92 in Gauteng, 28 in the Eastern Cape, 83 in the Western Cape, 3 in Mpumalanga and 11 in North West.  More detail was required on the non-attainment of the target.

11.1.9  Allocation of HSDG and USDG construction budgets to designated groups

The target for 30% of HSDG construction budgets allocated to designated groups (women and youth) was not met, as only 19% of the construction budget was allocated to these groups.  The target for 30% of USDG construction budgets allocated to designated groups (women and youth) was not met. Only 15% of the construction budget was allocated to these groups.  The reason provided is that Metros did not allocate the required percentage.  How will the Department address this issue?

11.1.10 Performance by provinces on the HSDG

Members raised their concern on the financial and non-financial component of the HSDG.  There were some provinces that were not being held to account for the money that was being allocated to them.  The oversight on the actual outcomes was not correctly monitored.

11.1.11 National Upgrading Support Programme

This was a programme meant to help municipalities with upgrading plans for informal settlements, but there had been some underspending.

11.1.12 Employees subject to Disciplinary Action and Suspensions without Pay

In table 3.6.6 of the Annual Report for the Department for 2018/19, it is stated that a total of 5 people were subjected to disciplinary action, without any details provided for the nature of the transgressions and the type of disciplinary action taken.  What are the relevant details in this regard?

11.1.13 Number of Fraud and Corruption Cases as presented by the Department of

Performance, Planning, Monitoring and Evaluation (DPME)

18 cases of fraud and corruption was reported during 2018/19.  83% of reported cases of fraud and corruption were investigated.  Trends identified included – allegations of fraudulent payments, RFQ scams, fraudulent sale of houses, fraudulent allocation of scholarships, and fraudulent awarding of RDP houses.  What are the relevant details in this regard?

11.1.14 Findings of the Auditor-General

Members, in engagements with the Auditor-General South Africa agreed with the findings and urged the Department of Human Settlement to critically engage with the recommendations to the Department.  Members provided a synopsis of actions that the Portfolio Committee would be taking to hold the Department and Entities accountable in the short-and medium-term:

• Request management to provide feedback on the implementation and progress of the action plan to address audit outcomes during quarterly reporting.
• Request management to provide quarterly feedback on status of key controls.
• Request management to provide feedback on consequence management measures taken against transgressor as part of a follow-up for all irregular and fruitless and wasteful expenditure incurred.

11.2     NHBRC

11.2.1  Challenges related to Audit Findings

Members requested more information on measures that will be taken on the audit findings of the NHBRC in respect of the following issues:

• The reasons for the financial statements not initially being prepared in accordance with the prescribed financial reporting framework.
• In relation to expenditure management, procurement and contract management, greater oversight is required to ensure greater transparency and to avoid fruitless, wasteful and irregular expenditure.
• Reasons for the disciplinary steps not being taken against employees implicated in fruitless, wasteful and irregular expenditure.
• Senior management not exercising adequate oversight of supply chain management, which resulted in significant irregular, fruitless and wasteful expenditure being reported.

11.3     CSOS

11.3.1  Negative publicity in 2018/19 as a result of R100 million invested with two local banks

Members required further information on the two separate investigations with different scopes (one by the entity itself and the other by the Minister), which found significant levels of wrongdoing by some senior CSOS management.  As a result of the findings, necessary disciplinary processes have been initiated against the implicated persons. 

11.3.2  Investment of CSOS funds in VBS Mutual bank

In 2018/19, R80 million in funds from CSOS was invested with VBS Mutual Bank.  In March 2018, the South African Reserve Bank, along with the Minister of Finance, placed VBS Mutual Bank under curatorship.  A criminal case has been opened. 

11.3.3  Filling of vacant position of the CFO and Chief Ombud

Members raised concerns about critical vacant posts that were unfilled for a long time.  This was especially worrying as the CFO and Chief Ombud positions are the mainstay of this particular entity.

11.3.4  Repeat of audit findings from 2017/18 to 2018/19

Members requested further information on the measures that have been put in place to address the deficiencies in remedying audit findings over the years.

11.3.5  Issues related to expenditure for 2017/18 and 2018/19

Members requested further information on the way in which the entity would address the following:

• The increase in salaries from R34.4 million in 2017/18 to R51.3 million in 2018/19.
• The item for auditors’ remuneration which has more than doubled, from R1.5 million in 2017/18 to R3.7 million in 2018/19.
• Bank charges that doubled from R62 000 in 2017/18 to R115 000 in 2018/19.
• Donations that increased from R36 000 in 2017/18 to R95 000 in 2018/19.
• Legal expenses for 2018/19 recorded as R5.4 million.
• Increased amounts for licenses from R643 000 in 2017/18 to R1.9 million in 2018/19.
• Local travel costs that increased from R2.1 million in 2017/18 to R3 million in 2018/19.

11.3.6  Challenges in relation to the number of community schemes

Members argued that it was imperative that the CSOS develop and strengthen their database so as to ensure that all community schemes in the country were incorporated.

11.4     Housing Development Agency (HDA)

Members requested further information on the following:

• The deferral of the development of the financial modelling to the next financial year.
• The mechanisms to be used to strengthen adequate systems for identifying and recording all irregular expenditure.

11.5     SHRA

11.5.1  Addressing R26.7 billion in irregular expenditure

Members questioned the supply chain weaknesses which resulted in irregular expenditure.

11.6     Estate Agency Affairs Board (EAAB)

Members requested a full report on the measures that the entity would take on the following:

• Receiving a qualified opinion for the second consecutive year.
• Corrective and relevant disciplinary action to be taken with respect to fruitless and wasteful expenditure, as well as irregular expenditure.
• Procurement of the new SAP system.

11.7     NHFC

The Committee welcomed the progress made in consolidating the entities into one entity, Human Settlements Development Bank.  The Committee was concerned about the composition of the Board, gender representation.  There were only three women and seven males as board members.  The Committee further advised the entity to fast-track the reviewing and enhancement of the business case for the Bank and the finalisation of the Draft legislation that would be the enabler of the functioning of the Bank.

12.       RECOMMENDATIONS

Having been briefed by the Office of the Auditor-General South Africa, the Department of Planning, Monitoring and Evaluation, the Department of Human Settlements and its Entities on its 2018/19 Annual Report, the Portfolio Committee recommends that the Minister should:

12.1     Department of Human Settlements

12.1.1  Provide quarterly briefings to the Portfolio Committee on the following:

• Title deeds issuing and transfers.
• The way in which the Department will improve the performance of the Community Residential Units and Social Housing.
• Assistance offered to beneficiaries struggling with rent defaults and provide awareness and education around the scope of rental vs ownership housing.
• Progress report on the rezoning of acquired land for development.
• Provide feedback on the implementation and progress of audit outcomes and implementing the recommendations of the Auditor-General.

12.1.2  Develop a plan to assist responsible entities and other stakeholders on the reviewing the

            challenges experienced by highly indebted households that cannot access banking loans.

12.1.3  Utilise the Intergovernmental Relations Framework more effectively to ensure that municipalities plan and implement the Informal Settlements Upgrading Programme.

12.1.4  Fast track the Human Settlements Bills so as to align or revise the Housing Code to Human Settlements Code.

12.1.5  Ensure that the construction of houses for military veterans be processed in all provinces.

12.1.6  Ensure that 30% of the HSDG is allocated to designated groups such as women and youth.

12.1.7  Ensure that cases of fraud and corruption are investigated and transgressors are held accountable for their actions.  A report must be submitted to the Portfolio Committee within 3 months.

12.1.8  Ensure that the performance planning and reporting of the national Department and its grant beneficiaries is customised in the respective annual performance plans and annual performance reports to ensure useful and reliable reporting of performance against predetermined objectives[18].

12.1.9  Ensure that all targets and indicators relevant to measure performance against government priorities such as the title deeds restoration are not included in the planning documents of all relevant sector departments and public bodies.

12.1.10 Enhance the current project and quality management processes by holding the NHBRC, public bodies and any other key role players accountable for their respective areas of responsibilities in the value creation process.

12.1.11 Ensure that the resources of the sector are used effectively, efficiently and economically and follow-up on any instances where the money spent does not approximate the actual performance.  This will ensure that action is taken against any non-compliance that caused/likely to cause material financial loss to the Department.

12.2     CSOS

12.2.1  Provide the Portfolio Committee with the two reports currently under investigation (once completed) by the entity itself and the Minister of Finance. This would assist the Members to further interrogate the reports.

12.2.2  Provide the Portfolio Committee with the outcome (once concluded) of the criminal case in respect of investments by CSOS with VBS Mutual Bank.

12.2.3  Provide an action plan which details the progress of the critical positions such as the CFO and Chief Ombud within one month.

12.2.4  Provide further information on the measures that will be taken to address the deficiencies in remedying audit findings over the years on a quarterly basis.

12.2.5  Provide an action plan of when the entity would develop and strengthen their database so as to ensure that all community schemes in the country were incorporated.

12.3     HDA

12.3.1  Provide quarterly briefings to strengthen adequate systems for identifying and recording all irregular expenditure.

12.3.2  Provide a briefing on the development of the financial modelling.

12.4     EAAB

The entity to provide quarterly progress reports on the following aspects of their work:

• Improving on the audit outcome of a qualified opinion for two consecutive years.
• Corrective and disciplinary action to be taken with respect to fruitless and wasteful expenditure.
• Procurement of the new SAP system.

13.       REFERENCES

Department of Human Settlements, 2018/19 Annual Report

Department of Human Settlements, Annual Performance Plan, 2019/20

Presentation by the Department of Human Settlements, 9 October 2019

Presentation by National Treasury, 10 October 2019

Presentation by Auditor-General, 10 October 2019

Presentation by Department of Planning, Monitoring and Evaluation, 10 October 2019

Constitution of the Republic of South Africa, 1996

State of the Nation Address, 2019

2018/19 National Housing Finance Corporation, Annual Report, 2019

2018/19 Housing Development Agency, Annual Report, 2019

2018/19 Community Schemes Ombud Service (CSOS), 2019

2018/19 National Home Builders Registration Council, Annual Report, 2019

Analysis of the Annual Report and Financial Statement of the Housing Development Agency,

Research Unit, Parliament of the Republic of South Africa, 2019

Analysis of the Annual Report and Financial Statement of the Home Builders Registration

Council, 2019 Research Unit, Parliament of the Republic of South Africa, 2019

Analysis of the Annual Report and Financial Statement of the Department of Human Settlements,

Research Unit, Parliament of the Republic of South Africa, 2019

Analysis of the Annual Report and Financial Statement of the Community Schemes Ombud

Service, Research Unit, Parliament of the Republic of South Africa, 2019

Analysis of the Annual and Financial Statements of the Estate Agency Affairs Board, Research

Unit, Parliament of the Republic of South Africa, 2019

Report to be considered.

[1] Information for this section was sourced from the 2018/19 Annual Report of the Department of Human Settlements, 2019.

[2] Presentation by the Department of Planning, Monitoring and Evaluation, 10 October 2019.

[3] Constitution of the Republic of South Africa, 1996.

[4] Department of Human Settlements, Annual Performance Plan, 2019/2020

[5] The information that follows was sourced from a presentation by the Department of Human Settlements on 9 October 2019.

[6] Ramaphosa (2019).

[7] Ibid.

[8] Ibid.

[9] The information that follows was sourced from the 2018/19 Annual Report of the Department of Human Settlements, 2019.

[10] Presentation by the Department of Human Settlements to the Portfolio Committee on 9 October 2019.

[11] Presentation by the Department of Human Settlements to the Portfolio Committee on 9 October 2019.

[12] Department of Human Settlements, 2018/19 Annual Report, 2019.

[13] The information that follows was sourced from the 2018/19 Annual Report of the NHFC.

[14] The information was sourced from the 2018/19 Annual Report of the SHRA, 2019.

[15] The Group consist of the EAAB Board and the Estate Agents Fidelity Fund

[16] EAAB indicated figures restated for 2017/18.

[17] The Group consist of the EAAB Board and the Estate Agents Fidelity Fund

[18] The information sourced below was sourced from the presentation by the Auditor-General South Africa to the Portfolio Committee on Human Settlements, Water and Sanitation, dated 10 October 2019.