ATC141024: Budgetary Review and Recommendation Report (BRRR) of the Portfolio Committee on Human Settlements, dated 21 October 2014

Budgetary Review and Recommendation Report (BRRR) of the Portfolio Committee on Human Settlements, dated 21 October 2014

The Portfolio Committee on Human Settlements (the Committee), having considered the performance and submission to National Treasury for the medium term period of the Department of Human Settlements and its entities, reports as follows:

1. Introduction

In 2009, the President assented to the Money Bills Amendment Procedure and Related Matters Bill. The Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) came into effect on 16 April 2009. The Act aims to provide for a procedure to amend money bills before Parliament. The Act enables Parliament to amend the budget and other money bills. This includes the annual Division of Revenue Bill ^{[1] ,} the Annual Appropriation Bill and the Adjustments Appropriation Bill.

Cabinet adopted an outcomes-based delivery approach in 2010 to achieve the predetermined objective to accelerate services to the people. All spheres of government should work in a coordinated fashion to effect twelve (12) measurable outcomes which assist to focus all policy and programme implementation. These predetermined objectives, with associated and defined targets, should be reached by 2014. Outcome 8 is focused directly on the mandate of the Department of Human Settlements and is responsible for the creation of sustainable human settlements and improved quality of household life.

During the previous term of government (2009-2014) the competency of sanitation fell under the mandate of the Department of Human Settlements. This competency was transferred from the Department of Water Affairs and Forestry to the Department of Human Settlements as per the proclamation by President Zuma. With the new government administration this function was further removed from the Department of Human Settlements and placed under the newly established Department of Water and Sanitation. The report will therefore, report on the sanitation function as it was under the Department of Human Settlements during the year under review.

Outcome 8 further brings an important policy shift away from the mere building of houses. The Department of Human Settlements is now at the centre of establishing human settlements in which the dignity of people is substantially improved by providing better houses, improved sanitation, better access to schooling, health care, sports and recreation, places of worship and arts and culture, as well as employment opportunities.

The Budgetary Review and Recommendation Report (BRRR) of the Portfolio Committee on Human Settlements is based on information that it accessed through rigorous engagement with the Department on its annual planning processes, and with relevant stakeholders on legislation as indicated below:

• Department of Human Settlements strategic plan and performance target 2013/14;
• Quarterly Reports of the Department;
• Department of Human Settlements Annual Report 2013/14;
• Report of the Auditor-General to Parliament on the Financial Statements of Vote No. 31: National Department of Human Settlements for the year ended 31 March 2014;
• Financial and Fiscal Commission Recommendations of 2013/14; and
• Public Service Commission of 2013/14.

The Committee further engaged with the following entities that report to the Minister of Human Settlements and who work with the national Department on their annual report:

• Housing Development Agency (HDA);
• National Urban Reconstruction and Housing Agency (Nurcha);
• National Home Builders Registration Council (NHBRC);
• National Housing Finance Corporation (NHFC);
• Rural Housing Loan Fund (RHLF);
• Social Housing Regulatory Authority (SHRA);
• Estate Agency Affairs Board (EAAB); and
• Community Schemes Ombud Services (CSOS).

1.1 Highlights of the State of the Nation Address (SONA) 2013

The 2013 State of the Nation Address highlighted the following key strategic objectives pertaining to the Department of Human Settlements: ^[2]

· In his State of the Nation Address 2013, President Jacob Zuma announced the progress of the Finance Linked Individual Subsidy Programme (FLISP) since its inception in 2011.

· Housing programme that is geared towards assisting mine workers living in mining areas.

· Redressing the past apartheid spatial settlements planning and the need to develop National Integrated Urban Development Framework.

2. Mandate of Committee

The Committee’s mandate is to maintain an oversight responsibility that ensures a quality process of scrutinising and overseeing government’s action. It is driven by the ideal of realising a better quality of life for all people in South Africa. It is also required to facilitate public participation and oversees compliance with regulatory legislative frameworks related to human settlements.

In brief, the Committee:

• Considers legislation referred to it;
• Conducts oversight of any organ(s) of the state and constitutional institution(s) falling within its portfolio;
• Facilitates appointment of candidates to entities;
• Considers international agreements; and
• Considers budget of department and entities falling within its portfolio.

In doing its oversight, the Committee consults and engages with relevant state and civil society organs on matters related to human settlement and the urgent need to improve the quality of household life. It has a responsibility to enhance and develop the capacity of its members to exercise effective oversight over the Executive Authority on issues related to the human settlements portfolio.

As mentioned above, the Committee processes and passes legislation, and ratifies international protocols and conventions related to human settlements. It participates in national and international human settlements conferences. It consults with the National Council of Provinces on human settlements legislation affecting the Provincial Legislatures, and with other Committees within the National Assembly. The Committee regularly engages in any activities and programmes aimed at the development of human settlements and the urgent need to improve the quality of household life of all South Africans.

3. The Department of Human Settlements

The mandate of the Department of Human Settlements is to determine, finance, promote, co-ordinate, communicate and monitor the implementation of housing policy and the provision of sustainable human settlements, as mandated by the comprehensive housing plan promulgated in 2004 (Breaking New Ground). In 2009, a proclamation was made that resulted into the reorientation of the then Department of Housing into the Department of Human Settlements. This resulted in the expansion of the mandate of the Department by the inclusion of the sanitation function under Human Settlements. The Department also embarked on a turnaround strategy aimed at organisational restructuring and a new structure came into being which also resulted in the formation of the Project Management Unit (PMU). In aligning the Department’s plans with the Comprehensive Housing Plan, the strategic focus of the Department over the Mid-Term Strategic Framework (five-year plan) includes the following:

· Stimulation of the residential property market through the Finance Linked Individual Subsidy Programme (FLISP) and Mortgage Default Insurance (MDI).

· Spatial restructuring and sustainable human settlements through Integrated Residential Development Programme, Social Housing & Economic Amenities Programme, Enhanced People’s Housing Process, and Farm Residents Housing Assistance Programme.

· Development of Social Housing and Community Residential Unit programme (CRU).

· Upgrading of informal settlements programme through the National Upgrading Support Programme (NUSP) and emergency housing assistance programme.

· Reforming and restructuring of Human Settlements entities.

· Job creation which will be addressed through the Expanded Public Works Programme (EPWP).

3.1 Department’s strategic priorities and measurable objectives

3.1.1 Strategic Plans of the Department

The Department’s strategic plan recognises that the delivery responsibility shared between the national, provincial, and local governments poses a challenge in the sense that, although the national Department has an overarching responsibility around housing matters, the implementation of policies lies at the different spheres of government; thus making it impossible for the national Department to monitor projects and allocate resource distribution. Notwithstanding these, the Department of Human Settlements needs to enhance its own capacity and capability in response to the comprehensive plan.

The political pronouncements by the government and state on related development priorities in 2012 respectively and the launch of National Development (NDP), which is to be used as a blueprint for developmental state, and subsequent political statements regarding the projected human settlements trajectory has emphasised the need to move from the “normal” policy development approach towards developmental policy in support of interventions that are needed to address the triple challenges of poverty, inequality and unemployment in our country.

Many people still live in appalling accommodation, without access to basic services in a proliferation of marginalised informal settlements as a result of poor planning and socio and geo-spatial dislocations of the apartheid legacy. These informal settlements are located far from economic opportunities and are in many instances without access to water, sanitation facilities, electricity and refuse removal. This together with the shortage of land, the lack of affordable housing opportunities and security of tenure was the motivation behind Outcome 8. The Delivery Agreements for Outcome 8 focuses on the following outputs:

• Output 1: Deprttment had planned to upgrade informal settlements:

- Upgrading of 400 000 households in informal settlements with access to secure tenure and basic services;

- Implementation of the National Upgrading Support Programme for informal settlements;

- Accreditation of municipalities to perform the housing function.

• Output 2: Access to basic services:

- Provision of universal access to adequate sanitation by 2014.

• Output 3: Efficient utilization of land for for human settlements development:

- Release of 6250 ha of land vested nationally or provincially for human settlements development;

- Increased urban densities to 60 units/ha;

- An approved land use management framework.

• Output 4: Improved affordable property market:

- Provision of 80 000 well-located rental accommodation units by 2014;

- Establishment and implementation of a Mortgage Insurance Guarantee Scheme to deliver 600 000 housing finance opportunities by 2014;

- Revised Finance Linked Individual Subsidy Programme (FLISP) to be responsive to the challenges in the affordable (Gap) market.

The intention for Outcome 8 is to create sustainable human settlements and improved quality of household life. In order for the Department to achieve its Outcome 8 mandate coupled with challenges of the 2.2 million housing backlog, the Department has reconfigured its functioning through a turnaround strategy approved by the Department of Public Service and Administration and the National Treasury.

4. Virements after adjustment estimate

Rand thousand	Medium term estimates
	2013/14	2014/15	2015/16 Indicative	2016/17 Indicative
Administration	422,399	425 905	445 612	472 038
Human Settlements Policy, Strategy and Planning	84,055	89 396	94 299	100 332
Programme Delivery Support	226,922	298 475	307 715	325 404
Housing Development Finance	27,377,087	29 707 616	31 994 736	33 554 818
Total	28,110,463	30 521 392	32 842 362	34 452 592

Departmental programme and allocatiom MTEF 2013/14

The annual report of the Department of Human Settlements, analysed in conjunction with the Strategic Plan, provides valuable information on the operational successes of the Department in relation to its programmes. While the Annual Performance Plan provides detailed outputs, performance indicators, strategic and medium-term targets, as well as estimated performance indicators for a programme, the Annual Report only provides a broad report on performance of the programme and its sub-programmes. This makes it a bit of a challenge for one to provide a detailed analysis per programme.

4.1 Programme 1: Administration

Purpose: To provide leadership, management and support functions of the Department.

Programme 1 (Administration) has spent 74% of its allocated budget during the 2013/14 financial year. This is 1% less than the expenditure during the 2012/13 financial year, which was 75%. The Department has reported that the Anti-Fraud and Corruption Strategy has not been approved and committed that the strategy would be developed during the first quarter of the 2014/15 financial year. The National Project Integration has not been fully developed. The reason cited by the Department was a lack of capacity. The delays in the recruitment of staff has resulted in some of the targets being partially achieved.

4.2 Programme 2: Human Settlements Policy, Strategy and Planning

Purpose: Manage the development and compliance with settlements sector delivery frameworks and oversee integrated human settlements strategic and planning services.

The policy on densification has been in the pipeline for a while now. The Department has reported that it has not yet been finalised. Two governance framework reports were scheduled to be produced but only one report was produced during the period under review. The development of the Human Settlements Green Paper is a crucial one because it leads towards the review of the policy on Human Settlements. It will be crucial for the Department to keep the Committee abreast on the progress made so far in this regard.

A total of five additional municipalities was scheduled for assessment for level 2 accreditation. Only one municipality got assessed for level 2 accreditation, which is a concern.

4.3 Programme 3: Programme Delivery Support

Purpose: To oversee and support the execution of human settlements programmes and projects.

During the 2012/13 financial year programme 3 spent 42% of its budget. The expenditure was reduced during the 2013/14 financial year, which is only 35%. This a significant reduction and is a concern because programmes such as bucket eradication fall under this programme. The Rural Housing Infrastructure Programme (RHIP) has previously not performed well. With such a huge backlog in eradicating bucket toilets in the country, the Department should provide information on how it is planning to deal with the issue of bucket toilets.

It has been reported that three out of four quarterly progress reports have been produced with regard to the RHIP. The Department should provide information on what led to the reduction in the expenditure instead of the expenditure increasing.

4.4 Programme 4: Housing Development Finance

Purpose: To manage and support human services grant management services.

The Department was scheduled to produce an impact assessment report on Human Settlements Programmes. The report has not been produced. It would be critically important for the Department to furnish the Committee with such a report mainly because a lot of programmes get underway and Parliament does not get to know about their evaluation. The evaluation report would help in assessing programmes on where improvements should be made.

5. Human Settlements Conditional Grant Expenditure

5.1 Human Settlements Development Grant (HSDG)

Provinces	DoRA Allocation 2013/14	Additional / Disaster relief	Reallocation/ (Stopped)	Total Available	Actual Transfer	Amount Received by Province	Amount Spent by Province	% Spent
	R'000	R'000	R'000	R'000	R'000	R'000	R'000
Eastern Cape	2,523,803	-	-	2,523,803	2,523,803	2,523,803	2,523,803	100%
Free State	1,120,936	-	230,000	1,350,936	1,350,936	1,350,936	1,350,936	100%
Gauteng	4,108,399	-	-	4,108,399	4,108,399	4,108,399	4,095,445	100%
KwaZulu-Natal	3,235,428	40,156	57,000	3,332,584	3,332,584	3,332,584	3,333,979	100%
Limpopo	1,324,742	1,368	(644,000)	682,110	682,110	682,110	303,449	44%
Mpumalanga	1,124,332	1,764	-	1,126,096	1,126,096	1,126,096	1,014,826	90%
Northern Cape	395,724	-	207,900	603,624	603,624	603,624	577,450	96%
North West	1,224,537	-	117,000	1,256,637	1,256,637	1,256,637	1,341,523	107%
Western Cape	1,925,971	1,166	32,100	2,044,137	2,044,137	2,044,137	1,959,237	96%
Total	16,983,872	44,454	-	17,028,326	17,028,326	17,028,326	16,500,648	97%

Human Settlements Development Grant (HSDG) Expenditure: 31 March 2014

5.1.1 Development Human Settlements Grants Schedule 5A (Direct Grant)

It should be noted that the competency to deliver houses is vested in the provinces. Therefore, a schedule 5A grant is a direct grant that is transferred directly to provinces for human settlements developments. An amount of R17.9 billion has been allocated for the 2014/15 financial year. In the 2010/11 financial year the allocation of the Human Settlements Developments Grant was R15.2 billion ^[3] . This shows an increase over the period of four years. The intention of the grant is to establish a stable and sustainable human settlements in which all citizens have access to social and economic amnesties and enable an improved quality of household life. The performance of the grant for the past four years is as follows:

• In 2010/11 the grant was allocated R15.2 billion, but only R14.6 billion or 96.3 per cent was spent.
• In 2011/12 the grant was allocated R14.9 billion, but only R14.4 million or 97 per cent was spent.
• In 2012/13 the grant was allocated R15.7 billion, but only R15.4 million or 97 per cent was spent.
• In 2013/14 the grant was allocated R16.9 billion, and as at the end of the third quarter only R10.4 billion or 61.2 per cent was spent. Of note is that the grant was upwards adjusted through the provincial roll over amount of R44.4 million which increased the allocation to R17 billion ^[4] .

Based on the above trends analysis, it should be noted that since its inception in 2010/11 the grant has never spent 100%. The maximum expenditure has been around 97 per cent for each year.

According to the 2014/15 Division of Revenue Bill the formula that is used to allocate this grant has been reviewed during 2013 ^[5] . The 2014/15 allocation is based on a new formula to ensure closer alignment between provincial allocations and the number of households with inadequate housing in each province. ^[6] In addition, a total amount of R2.4 billion has been added over the Mid-term Expenditure Framework (MTEF) to upgraded informal settlements around the mining areas in six provinces where mining sector is predominant. According to National Treasury “the new formula will be phased in for two years from 2014/15 in order to allow provinces to adjust to their new allocations” ^[7] .

5.1.2 Human Settlements Development Grants Schedule 6A (Indirect Grant)

In 2014/15, a new component of this grant was introduced as an indirect grant or in kind grant allocation as opposed to the existing direct grant (schedule 5A) to eradicate the bucket system which the government has reprioritised. An amount of R899 million has been allocated for the current financial year. The intention is to eradicate the sanitation backlog in the form of the bucket system. The grant will run for a two-year period and is an indirect grant. This means that the Department will spend it on behalf of the province to eradicate the bucket system. The indirect grant will be focussed on improving sanitation in areas where housing projects did not adequately provide for decent sanitation systems.

5.2 Rural Household Infrastructure Grant (RHIG)

The grant was initiated as a schedule 7 grant in the 2010/11 financial year ^[8] . In 2013/14 the schedule of the grant was changed from schedule 7 to 5 with effect from 2013. The Rural Household Infrastructure Grant (RHIG) is divided into two components, there is schedule 5 B which is a direct grant to municipalities and schedule 6 B which is an indirect grant or grant in kind allocation to municipalities ^[9] .

The intention of the grant is to provide specific capital funding for the eradication of rural sanitation backlogs and to target existing households where bulk dependent services are not viable ^[10] . Its primary purpose is to improve basic sanitation in rural areas. For the indirect grant component an amount of R66 million has been allocated while only R48 million has been allocated for the direct grant component for 2014/15 ^[11] . The performance of the past three financial years is as follows ^[12] :

• In 2011/12 an amount of R258 million was allocated for this grant, but only R77.8 million or 31 per cent was spent at the end of that financial year.
• In 2012/13 an amount of R340.6 million was allocated for this grant, but only R135 million or 60 per cent was spent.
• In 2013/14 an amount of R106.7 million was allocated for this grant; the expenditure for the third quarter was not available during the time of the analysis.

5.3 Urban Settlements Development Grant (USDG)

Municipality	Allocated Funds National	Rollovers	Total Available	Transferred Funds	Spent by Municipality	Variance Spent vs Transferred	Variance Spent vs Total Available	Spent as % of Total Available	Unspent as % of Total Available
	R'000
Buffalo City	613 305	176 875	790 180	613 305	789 503	677	100%	99.9%	0.1%
Nelson Mandela Bay	727 986	-	727 986	727 986	727 986	-	100%	100.0%	0.0%
Mangaung	596 719	129 450	726 169	596 719	651 137	75 032	100%	89.7%	10.3%
Ekurhuleni	1 584 912	69 509	1 654 421	1 584 912	1 444 715	209 706	100%	87.3%	12.7%
City of JHB	1 488 877	70 347	1 559 224	1 488 877	1 435 796	123 428	100%	92.1%	7.9%
City of Tshwane	1 290 611	-	1 290 611	1 290 611	1 245 781	44 830	100%	96.5%	3.5%
eThekwini	1 580 999	-	1 580 999	1 580 999	1 580 999	-	100%	100.0%	0%
City of Cape Town	1 193 497	66 276	1 259 773	1 193 497	973 226	286 547	100%	77.3%	22.7%
Total	9 076 906	512 457	9 589 363	9 076 906	8 849 143	740 220	100%	92.3%	7.7%

Urban Settlements Development Grant (USDG) Expenditure as at 30 June 2014

The USDG was introduced in the 20011/12 financial year, parallel to the accreditation (delegation of housing responsibilities) of metropolitan municipalities. The aim of this grant as contained in the Division of Revenue Act is to assist metropolitan municipalities to improve urban land production to the benefit of the poor households by supplementing the revenue of the metros. This grant is in line with agreed 12 outcomes by Cabinet within which to frame public service delivery priorities and targets. Outcome 8 refers to sustainable human settlements and is aimed at achieving an “improved quality of household life”. In this regard, four major outputs are spelled out:

· Accelerate housing delivery;

· Improve access to basic services;

· Improve property market;

· More efficient land utilisation and release of state-owned land.

The grant is allocated R10.2 billion for the 2014/15 financial year ^[13] . The grant is targeting about 8 metropolitan areas (Buffalo City, Nelson Mandela, Mangaung, Ekurhuleni, City of Johannesburg, City of Tshwane, eThekwini, City of Cape Town).

The performance of the grant for the past three years is as follows ^[14] :

• In 2011/12 the grant was allocated R6.2 billion, and 88 per cent was spent in that particular year.
• In 2012/13 the allocation increased to R7.3 billion and only R6.8 billion or 93 per cent was spent in that particular year.
• In 2013/14 the allocation increased to R9 billion and the expenditure information was not available at the time when the analysis was done.

Some of the challenges on the USDG raised during the 2013/14 Committee meeting

The Department of Human Settlements in the last engagement with the Standing Committee on Public Accounts (SCOPA) in relation to the USDG cited the following challenges ^[15] :

• Lack of coordination and alignment which was experienced by the Department within the metros which led to poor service delivery;
• Lack of capacity to carry out programme plans in the metro municipalities;
• Critical vacancies and consistent personnel in some metros to manage the USDG grant;
• Land acquisition challenges and limited land in close proximity to the city centres;
• Multi-year projects are budgeted for in one financial year due to inadequate planning of projects;
• There were very lengthy procurement processes which was time consuming;
• Legal challenges - certain tenders were being contested in court, particularly for major projects;
• There was a lack of management and governance of informal settlements area.

5.4 Municipal Human Settlement Capacity Grant

This is a new indirect grant introduced by the 2014/15 Division of Revenue Bill. The aim of the grant is to improve coordination of urban programmes and establish clearer lines of accountability. The National Development Plan recommends that responsibility for housing should shift to municipal level, where human settlement planning takes place. In support of this, government is developing planning and implementation capacity in municipal government through the introduction of the new R300 million municipal human settlements capacity grant for metropolitan municipalities from 2014/15. The intention of the grant is to build capacity in municipalities to deliver and subsidise the operational cost of administering the human settlement programme.

Whilst the Division of Revenue Act (DORA) suggests that the housing function should be assigned to municipalities, the Committee was proposing that this must be linked to their capacity given the history of underspending by some of the metropolitan municipalities.

6. DEPARTMENTAL EXPENDITURE VS. PERFORMANCE TARGETS 2013/14

Branch	Final Allocation (Operational)	Expenditure	Variance	% Spent	Planned Targets	Achieved Targets	Variance/ Targets Not achieved	% Achieved Targets
1: Administration	346 922 000	247 710 959	99 211 041	71%	25	24	1	96%
2: Human Settlements Delivery Frameworks	37 070 395	36 253 742	816 653	98%	24	13	11	54%
3: Human Settlements Strategy And Planning	55 645 605	42 156 537	13 489 068	76%	17	8	9	47%
4: Programme Management Unit	192 945 056	79 867 291	113 077 765	41%	17	12	5	71%
5: Office Of The Chief Financial Officer	198 230 344	168 862 385	29 367 959	85%	30	29	1	97%
6: Office Of The Chief Operations Officer	52 629 600	41 959 659	10 669 941	80%	13	13	0	100%
Total	883 443 000	616 810 573	266 632 427	70%	126	99	27	79%

7. Performance by human settlements institutions

7.1 National Home Builders Registration Council

The National Home Builders Registration Council was established in 1998 in terms of the Housing Consumer Protection Measures Act, 1998 (Act No. 95 of 1998). The NHBRC is mandated to protect the housing consumer and to regulate the home building environment by promoting innovative home building technologies, setting homebuilding standards and improving the capabilities of home builders.

Overview - summary of performance of NHBRC

Valuable Final Product (VFP)	Year- to-date Performance for 2012/2013			Year-to-Date Performance for 2013/2014
	Performance	Target	Variance	% Variance	Performance	Target	Variance	% Variance
Registration of new Home Builders	2,935	3,332	-397	(12%)	3,175	2,974	201	7%
Renewal of registered Home Builders	11,558	11,431	127	1%	12,447	10,480	1,967	19%
Enrolment of homes	204,235	90,119	114,116	126%	168,319	250,394	82,063	(33%)
Late Enrolment of homes	1,906	1,696	173	12%	1,743	1,001	-742	(74)
Inspections of homes	336,046	553,740	-217,694	(65%)	451,324	370,677	80,647	22%
Training of homebuilders	2050	3500	-1450	(41%)	1,369	3,500	2,131	(61%)
Training of Youth	474	2,000	-1526	(76%)	934	2,000	-1.066	(53%)

The NHBRC received an unqalified audit report with emphasis of matter regarding irregular expenditure, performance informatio and Information technology.

The Committee commended the entity for its improvement from the qualified report to an unqalified audit report. However, it was concerned about the same issue that was raised by the recurrence of the emphasis of matter.

7.2 Estate Agency Affairs Board

The Estate Agency Affairs Board was established in 1977 in terms of the Estate Agency Affairs Act (Act No.112 of 1976). The EAAB was transferred from the Department of Trade and Industry (DTI) to the Department of Human Settlements following a Cabinet decision to house all pieces of legislations pertaining to housing under one department. During the financial period under review, registrations increased by 6%. In the 2012/13 financial year, a total of 55 232 registrations was recorded compared to the 52 304 of the 2011/12 financial year. The number of inspections performed in the 2012/13 financial period increased dramatically. A total of 1 613 inspections were performed during the 2012/13 financial year, compared to 364 performed during 2011/12 financial year. The fidelity fund used to protect consumers against unscrupulous estate agents is in a healthy financial position. It has grown by almost 12% since the 2008/09 financial year. Its net asset value is R575 million as at the end of 2012/13 financial year.

Operational overiview of EAAB

INSPECTIONS STATISTICS
NON-COMPLIANCE: INSPECTION CONTRAVENTIONS 2013/14
	Gauteng	Western Cape	Limpopo	Free State	Eastern Cape	KwaZulu Natal	Mpumalanga		Total
ESTATE AGENCIES OPERATING ILLEGALLY	24	36	0	10	15	31		9	210
PRINCIPALS - NO FIDELITY FUND CERTIFICATE	40	48	0	9	9	31		21	168
NON-PRINCIPALS AND INTERNS - NO FIDELITY FUND CERTIFICATE	79	2	0	26	7	24		19	157
PRIMARY TRUST ACCOUNT CONTRAVENTIONS	40	49	1	30	12	20		20	83
SECONDARY/INVESTMENT ACCOUNT CONTRAVENTIONS	22	25	0	17	10	37		9	118
INTEREST EARNED ON TRUST MONEY - NOT PROPERLY DEALT WITH	7	15	0	19	1	11		2	55

The entity reported that it had received an unqualified audit opinion with no emphasis of matter. This was a record for the five consecutive years. There were legal and regulatory matters related to three disqualified board members who had not vacated office. They have since vacated office. It was repoted that 56% of the targets were not achieved as they did not meet the SMART criteria. The Performance Information System was not integrated with the Financial and Reporting Management Systems.

The Committee requested the entity to fast-track the transformation of the entity.

7.3 National Urban Reconstruction and Housing Agency (NURCHA)

The National Urban Reconstruction and Housing Agency (NURCHA) has been mandated to provide bridging finance and development finance for subsidy housing, infrastructure and community facilities and affordable housing. NURCHA presented its 2013/14 business plan to the Committee.

The entity reported that it has achieved an unqalified audit report. The turnaround strategy that was undertaken was successful. It was reported that there was a surplus following years of losses. There was improvement in the collaboration with provincial and local government stakeholders in the human settlements. During the period under review on the affordable housing programme the entity signed 14 contracts, and delivered 1 983 houses and sites. The value of the loans disbursed was R230 729 million and the value of projects was R873 072 million. The number of completed houses was 1 619. On the subsidy housing lending programme there were 11 contracts signed, 4 428 houses and sites and houses completed were 3 108. The value of loan was R55, 482 million and the value of projects was R349, 911 million.

The Committee was concerned about non-compliance with the procurement policy as reported by the Auditor-General. As a result, the entity was requested to report on a quarterly basis on the findings of the Auditor-General.

7.4 Rural Housing Loan Fund (RHLF)

The mandate of the Rural Housing Loan Fund was to make loans available to low-income households in rural areas and to build or improve their houses. These were households with an income of R9 800 and less. It empowered rural dwellers by giving them access to housing finance from sustainable retail lenders and government subsidies through the Individual Rural Subsidy Voucher Programme. The Rural Housing Loan Fund (RHLF) noted that it was stable and had had clean audits for its 12 years of operation. Its mandate was to enable people in rural areas to access finance so that they could incrementally improve their housing conditions. It covered communal land, rural towns and small towns. RHLF received R99 million through fiscal allocations.

A concern was raised that people in rural areas do not have access to information about the RHLF and information is not communicated in the language that could be understood by the people on the ground. There was a concern around the connection between funds provided by RHLF and other entities within the Human Settlements who checked quality, standards, training, and capacity building. It was noted that in rural areas, there are teachers and police who earn slightly higher than the R9800 and do not qualify for RHLF.

7.5 Community Schemes Ombud Services

The Community Schemes Ombud Services Act (Act No 9 of 2011) [CSOS Act] was promulgated on 11 June 2011 and provides for the establishment of the Community Schemes Ombud Services (CSOS) as a public entity. The CSOS has been classified as a Schedule 3A public entity in terms of the Public Finance Management Act (Act No 1 of 1999) [PFMA]. The mandate of the CSOS and core functions of the entity are as indicated below:

• Develop and provide a dispute resolution service in terms of the Act;
• Provide training for conciliators, adjudicators and other employees of the Service.
• Regulate, monitor and control the quality of all sectional title schemes governance documentation and such other scheme governance documentation as may be determined by the Minister;
• Take custody of, preserve and provide access electronically or by other means to sectional title schemes governance documentation and such other scheme governance documents as may be determined by the Minister;
• Manage the Sectional Titles as provided by the Act.

The entity reported that the Chief Ombud and the Chief Financial Officer had been appointed. The office was operational on an ad hoc basis as regulations that regulates the entity still require to be submitted to Parliament for approval. The entity further reported that it would approximately 22 staff complement. The entity was aiming to open three provincial offices by 31 March 2015. The need to revise financial needs was also raised by the entity.

It was reported that during the year under review there were no audit conducted on predetermined objectives as the entity received the money on the last day of the financial year, namely 31 March 2014. The strategic outcomes-oriented goals and strategic objectives were not achieved due to non-operational activities.

7.6 Housing Development Agency (HDA)

The Housing Development Agency (HDA) is a national public development agency established by an Act of Parliament (Housing Development Act 23 of 2008). The HDA promotes sustainable communities by making well-located land and buildings available for the development of housing and human settlements. As an organ of state, the HDA is accountable through its Board to the Minister of Human Settlements.

The HDA reported its highlights during the period under review, including the 3 819 hectares of land was released and acquired for human settlements. A total of 16 properties was held by the Agency and 27 leases were in place. The Priority Housing Development Area (PHDA) Policy was approved by the Board. The PHDA Regulations were adopted by the Parliamentary Portfolio Committee. It was further reported that 15 implementation protocols (IP) with provinces and local authorities were in place with four new protocols signed with the Mpumalanga Department of Human Settlements, Buffalo City Municipality, City of Cape Town and City of Johannesburg.

The HDA received an unqualified audit report for the year ended 31 March 2014. Financial, supply chain and risk management reporting, systems and procedures continued to improve. Specific focus was placed on the improvement of Human Resources and Information Technology. The performance management system remains in place and evaluations were conducted twice annually . Communications and marketing activities continued to inform, position and brand the HDA as a credible, professional and responsive organisation.

The Committee was concerned about transformation within the entity as the structure did not reflect black personnel in managerial posts.

7.7 National Housing Finance Corporation (NHFC)

The NHFC is a state-owned development finance institution with a principal mandate to broaden and deepen access to affordable housing finance for the low and middle-income households. The NHFC is responsible for the Mortgage Default Insurance Company (MDIC) that was set up to encourage banks to lend to a wider sector, by providing them with guarantees that would take up a portion of the risk, and, in particular, drop the down payment requirements to 5%. The FLISP programme which commenced in 2011 was linked to this. It would provide down payment assistance to qualifying households earning between R3 500 and R15 000 to purchase a property not exceeding R300 000.

7.8 Social Housing Regulatory Authority

The Social Housing Regulatory Authority (SHRA) was established in terms of the Social Housing Act, (No. 16 of 2008). Its mandate is to regulate the social housing sector and invest in social housing projects. The sector which SHRA regulates include:

• Social housing institutions (SHIs) which are non-profit companies and act as landlords in terms of the Rental Housing Act;
• A few SHIs are municipal-owned entities (MoEs); and
• Housing cooperatives.

The entity reported that it had received unqualified report with predetermined objectives. There were no material findings raised on the usefulness and reliability of the reported performance information. Compliance with laws and regulations - t here were material findings with expenditure management regarding the prevention of irregular expenditure and fruitless and wasteful expenditure which resulted in non-compliance with section 51(1)(b)(ii) of the PFMA.

8. Report of the Auditor-General of South Africa (AGSA)

The AGSA reported that the Department of Human Settlements had received an unqualified audit opinion with significant emphasis of matter as indicated below :

8.1 Material underspending of the vote

The Department has materially underspent the budget on programme 2. The Department spent R12 433 000 of its allocation of R 87 773 000 in respect of Programme Implementation Facility. As a consequence, the Department’s objectives of supporting human settlements projects were not achieved.

The Department spent R108 589 000 of its allocation of R133 649 000 on the implementation of the Rural Household Infrastructure Grant. The Department was also allocated an amount of R106 721 000 to be transferred to municipalities. However these transfers were only made in March 2014 and a significant portion of these grants were unspent as at 31 March 2014. As a consequence the Department may not achieve its objectives of providing sanitation services to the rural communities.

8.2 Predetermined objectives

The AGSA has reported on the usefulness and reliability of information reported on:

Programme 2: Human Settlements Policy, Research and Monitoring

Programme 3: Programme Delivery Support on pages and

Programme 4: Housing Development Finance on pages.

8.3 Changes to objectives, indicators and targets not approved

The AGSA further stated that Treasury Regulation 5.1.1 requires the executive authority to approve the strategic and annual performance plan. Therefore, if this plan is changed in the year due to significant policy or mandate changes, the executive authority must also approve the updated plan. Material changes were made to indicators and targets reported in the annual performance report without these changes being approved. This was due to management’s lack of understanding of their approval requirements of Treasury Regulation 5.1.

8.4 Consistency of indicators and targets

Treasury Regulation 5.2.4 requires the strategic plan to form the basis for the annual report, therefore requiring consistency of objectives, indicators and targets between planning and reporting documents. A total of 28% of the reported indicators and 29% of reported targets were not consistent with those in the approved annual performance plan. This was due to management’s lack of understanding of their reporting requirements during the strategic planning phase.

8.5 Measurability of indicators targets

The Framework fo Mananaging Programme Informaion (FMPPI) requires the following:

• Performance targets must be specific in clearly identifying the nature and required level of performance. A total of 26% of the targets was not specific.

• Performance targets must be measurable. We could not measure the required performance for 26% of the targets. This was because management did not adhere to the requirements of the FMPPI due to a lack of proper systems and processes and technical indicator descriptions.

8.6 Reliability of reported performance information

The FMPPI requires auditees to have appropriate systems to collect, collate, verify and store performance information to ensure valid, accurate and complete reporting of actual achievements against planned objectives, indicators and targets. Significantly important targets were not reliable when compared to the source information or evidence provided. This was due to a lack of documented standard operating procedures for the accurate recording of actual achievements and technical indicator descriptions for the accurate measurement, recording and monitoring of performance.

8.7 Programme 3: Programme delivery support

8.8 Measurability of indicators and/or targets

The FMPPI requires the following:

Performance targets must be specific in clearly identifying the nature and required level of performance. A total of 58% of the targets were not specific.

Performance targets must be measurable. We could not measure the required performance for 58% of the targets. This was because management did not adhere to the requirements of the FMPPI due to a lack of proper systems and processes and technical indicator descriptions.

8.9 Human resource management and compensation

Funded vacant posts were not filled within 12 months as required by Public Service Regulation 1/VII/C.1A.2. A human resource plan was not in place as required by Public Service Regulation 1/III/B.2(d).

The AGSA also reported on the entities as indicated below:

The Estate Agency Affairs Board (EAAB) had a number of weaknesses in the performing environment, including:

· Lack of periodic review of the annual performance plan;

· Lack of alignment between the annual performance plan and the annual budget;

· Lack of integration between the financial and performance information systems; and

· Lack of review of performance information reports.

Material non-compliance with Treasury Regulations, the Public Finance Management Act and the Estate Agency Affairs Board Act were also identified in the year under review.

The Social Housing Regulatory Authority (SHRA) did not take effective steps to prevent irregular expenditure, as required by section 51(1)(b)(ii) of the Public Finance Management Act.

In relation to the National Urban Reconstruction & Housing Agency (NURCHA), the following procurement issues relating to non compliance were identified in the 2013/14 financial year:

· Invitations for competitive bidding were not always advertised for a required minimum period of 21 days, as required by Treasury Regulations.

· Requests for proposals did not stipulate the minimum points to be awarded for functionality and the weight allocated to each functionality/criteria as required by National Treasury Instruction Notes.

· Deviations for not advertising in the national tender bulletin and national newspapers were not supported by justifiable reasons, as required by Treasury Regulations.

9. Report of the Financial and Fiscal Commission (FFC)

The FFC reported that the Department’s overall performance had been good over the last four (4) years at an average spending over 98% of allocated funds. Some targets set for 2013/14 have been achieved. However, of concern was Programme 3 where under-spending was 36% in 2012/13 and increased to 55% in 2013/14. The FFC indicated that it was difficult to fully assess whether targets were met in some instances as targets are not clearly determined where the Department has under-performed, and reasons were not always provided. Some of the reasons for under-performance in 2013/14 were similar to 2012/13.

The FFC recommended that:

• Municipalities, especially metros, should invest in forward-looking processes and systems that will enable such municipalities to accurately understand and disaggregate the housing demand.
• Metros should focus on planning for rental flats and creating new (or transform existing) neighbourhoods in intermediate suburbs, which have lower densities than the inner city.
• Government’s housing subsidy should prioritise the most vulnerable groups, which include poor female-headed households with children below the age of 20 years and households with adults who are permanently out of the labour market.

10. Report of the Public Service Commission

The PSC gave a report on the annual performance of the Department of Human Settlements. The Department received an unqualified audit opinion with findings. The PSC outlined the findings by the Auditor-General as follows:

Financial management of the Department was as indicated below:

· The Department received invoices amounting to R22,4 million for office accommodation. The offices were not occupied.

· The Department has materially underspent on the RHIG.

· Only 14% of the budget was spent in respect of the Programme Implementation Facility, and consequently the objectives of supporting human settlements projects were not achieved.

· 81% of the budget was spent on the implementation of the Rural Household Infrastructure Grant.

· R106 721 allocated for municipalities was only transferred in March 2014. As a result a significant portion of the grant was unspent as at 31 March 2014.

Expenditure vs performance

The PSC reported that:

· The spending of the Department was within the generally accepted margin of 2% set by National Treasury.

· Although almost the entire budget was spent over the past four years, the achievement of predetermined outputs remained fairly low (67% on average).

· Major reasons for underspending were delays in the filling of vacant posts, delays in migration from Novell to Microsoft, funds for Special Investigating Unit SIU were not fully utilised and delays in the implementation of the National Upgrading Support Programme which takes up to 30% of Programme 3’s budget.

· With regard to reporting on performance information in 2013/14, the Auditor-General found that material changes were made to indicators and targets reported in the annual performance report without these changes being approved, 28% of the reported indicators and targets were not consistent with those the approved annual performance plan, the required performance for 26% of the targets could not be measured and 58% of the targets were not specific as prescribed by the National Treasury Framework for managing programme performance information.

The PSC reported that the Department had maintained its audit record of unqualified audits over the past two years. Effective spending of the Rural Household Infrastructure Grant remained a challenge. Spending trends as at August 2014 point to inadequate financial management and a need to put mitigating strategies in place to ensure spending in line with predetermined objectives and targets. Similar to the previous financial year, the Auditor-General made findings in respect of the usefulness and reliability of performance information reflected in the Annual Report. In addition, not all required information in respect of Human Resources was reported. There is therefore a need for the Department to improve accountability.

The PSC has noted achievements in respect of access to sanitation and electricity. The Department would have to put measures in place to eliminate the backlogs reported. There was a concern regarding the maintenance of professional ethics in the Department. There has been no improvement in the Department’s ability to deal with cases reported to the NACH and no Financial Disclosure Forms were submitted to the PSC by the due date. The latter impacts negatively on the EA’s ability to monitor and deal with potential and actual conflicts of interest. Although the MPAT results shows improvements in some areas of compliance, areas around the submission of Financial Disclosure Forms, having a human resource plan in place, the filling vacancies and employment equity requires immediate attention. It is of concern that since the last report to the Portfolio Committee there had been no improvements in these areas.

The Committee was concerned about the low level of responding to allegations of corruption. The Committee was also concerned about the drastic drop of disclosures by Senior Managers Services.

11. Department of Human Settlements contributions to key government priorities

11.1 Provision of quality education

The Department reported that the Fledgling Scholarship Programme benefited 347 beneficiaries since inception. Annual investment by the Department was at R9 million per annum. The Bachelor of Human Settlements Development Degree (BHSD) was offered via the Nelson Mandela Metropolitan University (NMMU). The Chair for Human Settlements Development and Management was hosted by the NMMU to develop the body of knowledge in the sector. The said degree was approved by the Cabinet and the Chair.

The Committee proposed that the Department should assist students who were willing to study engineering courses. This would assist the Department to close the gap of the shortage of rare skills.

11.2 Job creation

For the period under review, the Department had created jobs in the construction sector. The Department further reported that it had delivered 48 193 serviced cites and 105 936 houses during 2013/14. This translated into 53 278 job opportunities (28 502 direct jobs and 4 349 indirect and 20 427 induced).

11.3 Fight against crime

The establishment of the Directorate of Fraud and Corruption with the mandate to investigate analyse and assess patterns on fraud and corruption was welcomed. It was important to note that, the statistics below were a reflection of work done with an added advantage to stop criminals. In 2013/14 the following were recorded and reported by the Public Service Commission:

• Cases reported in September 2013 were 268 and in September 2014 were 187 and feedback was 4% and 6% respectively.
• Cases closed in September 2013 was 1% and in September 2014 were 2%.
• Outstanding cases were 265 in September 2013 and in September 2014 were 184.

12. Committee findings

Having considered the Annual Report presented by the Department of Human Settlements, the Committee presents its findings on areas of success and those that need special attention to improve the Department’s performance.

There had been a significant improvement in the overall performance of the Department. However, a more concerted effort to focus on key areas indicated in the report was required. By addressing these critical areas, the department would be in a better position to yield improved results on its performance.

· The Committee appreciated the fact that the Department and its entities received unqualified audit outcomes, however stressed the need to improve in responding to opinions from the Office of the Auditor-General.

· Funds provided for the Special Investigating Unit (SIU) were not fully utilised. The contractual agreements that the SIU had with the Department of Human Settlements included, amongst others, carrying out high-level investigations on fraud, corruption and maladministration. The SIU, after having completed its contractual duties, had to invoice the Department of Human Settlements for the payments to be effected. It came to the Committee’s attention that the invoices took longer to be received and to process. This posed a challenge to the Department’s budget expenditure because the SIU funds were not spent within the specific financial year.

· The Committee noticed that most of the human settlements entities were tasked to assist in and support the eradication of bucket system in various provinces. Quarterly reports on the progress in this regard would be highly appreciated.

· There was a huge backlog in the registration and issuing of title deeds, particularly those that were meant for state-subsidised houses. The lack of a dedicated policy within the department, to determine standards and norms on processing, registration and issuing of title deeds, are viewed as one of the limitations to providing security of tenure. However, the Committee was aware that the Minister had tasked the Estate Agency Affairs Board to prioritise the issuing of title deeds for pre-1994 stock.

· As stated in a number of annual reports of the Department, there were recurring challenges with the services that the State Information Technology Agency (SITA) had to deliver. These affected the implementation of the Department’s information technology systems. A case in point is the Housing Subsidy System (HSS) that was developed to regulate all beneficiary lists in the nine provinces. The Committee appreciated the undertaking by the Minister to sign a service level agreement with SITA.

· Only 14% of the budget was spent in respect of programme implementation facility, and consequently the objectives of supporting human settlements projects were not achieved.

· Although the Department introduced a revised policy on the implementation of the Finance Linked Individual Subsidy Programme (FLISP), progress remained slow. It was attributed to the fact that there was a number of individual recipients under the programme that had negative credit records. This situation prejudiced a large number of people who ought to benefit from FLISP. Slow progress on the finalization of the Mortgage Default Insurance (MDI) caused delays in the implementation of the programme and further compromised the intended purpose.

· It was a cause for concern that the process of winding up Thubelisha, Servcon and the National Housing Fund had taken too long to be concluded.

· The Committee noted that funds provided for the leasing of additional office accommodation have not been fully utilised.

· The Department was not filling most of its critical posts due to a lack of people with technocal skills such as engeneers. The Auditor-General also stated that competition was very high in the market and made it extremely difficult for the Department to acquire suitable people unless it could adjust its budget.

· The delay in the implementation of the National Upgrading Support Programme was a concern.

· The invisibility of the human settlements entities on the ground was a concern. The Committee advised the Department to assist the entities in marketing their work espcially in rural areas because its where they are need most.

· The annual report in most cases reflected that the expenditure was higher than the houses delivered. This was also noted by the AGSA and the FFC. Both AGSA and FFC stated that the incomplete houses in the audited financial year were not included, hence the number of built units were alaways below expenditure.

13. Recommendations

The Committee recommends that the Minister of Human Settlements should ensure that the Department:

· Consider and develop action plans and a monitoring tool to address all issues raised by the chapter nine institutions, including such reports from the Office of the AG, the PSC, and the FFC on all governance and budget-related issues raised and report to Parliament on a quarterly basis.

· Ensure that SIU invoices received are processed timesouly to prevent underspending in the relevant programme.

· Review the national housing code to determine norms and standards that will ensure that whenever a house is handed over to the respective beneficiary, a title deed is simultaneously handed to that beneficiary.

· Create a reporting mechanism on work-in-progress in every financial year to qualify spending.

· Ensure that the NHBRC quality assure subsidy houses before they are handed over to beneficiries.

· Ensure that the information technology system is implemented seeing that the service level agreement had been signed. This would assist in the development of the Housing Subsidy System (HSS) and regulation of beneficiary list management.

· Consider completing incomplete houses and handing them over to beneficiaries.

· Ensures that entities report quarterly on the emphasis of matter, irregular expenditure and Information Technology (IT) issues raised by the Auditor-General.

· Develop measures to assess the capacity of municipalities prior to the awarding of accreditation.

· Fast-track the development of a policy that would specifically address the matter of backyard dwellers as there was no standard way of dealing with this important matter.

· Ensure that the Housing Development Agency (HDA) assists municipalities with land acquisition and the land audit.

· Consider extending the Urban Settlement Development Grant allocations to those District Municipalities that were accredited and that were no longer receiving the Municipal Infrastructure Grant (MIG) funding.

· Fast-track the amendment of the Housing Act that would result in the closure of the National Housing Fund.

· Fast-track the closure of the business of Servcon and Thubelisha. This would assist the Department to unpack the issue of Thubelisha contractors as there was a lot of subcontracting regarding to payment.

· Ensure that all upgraded informal settlements should be provided with a place to play (recreational facility).

· Fast-track the rolling-out of the Financed Linked Subsidy Programme to benefiting beneficiaries. This should be conducted through vigorous marketing via all sorts of media.

Conclusion

It was evident from the Department’s performance that there is a significant improvement in service delivery. However, there were still challenges that need to be attended to if the Department is to realise its full potential. The provision of proper sanitation (eradication of bucket system) to restore the dignity of the communities remains a cause for concern.

Appreciation

The Committee appreciates the support of the members of the Committee, the Parliamentary support staff, the Ministry, the Director-General and the team, human settlements entities and chapter nine institutions for their collective commitment and time devoted to the work of the Committee.

Report to be considered.