ATC141029: Budgetary Review and Recommendation Report of the Portfolio Committee on Public Works, dated 21 October 2014

Budgetary Review and Recommendation Report of the Portfolio Committee on Public Works, dated 21 October 2014

The Portfolio Committee on Public Works, having considered the performance and submission to National Treasury for the medium term period of the department, reports as follows:

1. Introduction

1.1. Mandate of the Committee

The Portfolio Committee on Public Works is guided by the Rules of Parliament and the Constitution to play an oversight role over the Ministry, the department of Public Works and its entities. In doing oversight, the committee:

a) Exercises its monitoring role in such a way that it contributes towards

the improvement of the quality of life of all South Africans;

b) Scrutinises legislation and other policies that impact on the spheres of

Public Works;

c) Facilitates interdepartmental and intergovernmental relations at all

spheres of government;

d) Transforms the conduct of the committee’s business to be sensitive to

provincial interests at the national level;

e) Learns from international best practices that are relevant to its field of jurisdiction to improve service delivery to all South Africans to its best.

1.2. Description of core functions of the Department :

The Constitution of the Republic of South Africa mandates the department of Public Works to:

a) Provide land and accommodation to national government departments and institutions;

b) Manage such land and accommodation;

c) Act as the custodian of national government’s immovable assets;

d) Provide strategic leadership to the construction and property industries;

e) Co-ordinate the implementation of the Expanded Public Works Programme;

f) Have the Minister of Public Works carry out functions related to land and accommodation through the State Land Disposal Act (No. 48 of 1961).

The department is also responsible for four entities that report to the Minister of Public Works as the executive authority. These entities are:

1) Agrèment South Africa (ASA);

2) Construction Industry Development Board ( cidb );

3) Council for the Built Environment (CBE);

4) Independent Development Trust (IDT).

1.3. Purpose of the B udget R eview and R ecommendation Report

Section 77(3) of the Constitution stipulates that an Act of Parliament must provide for a procedure to amend money bills before Parliament. This constitutional provision resulted in Parliament drafting the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009).

The Act makes it obligatory for Parliament to assess the department’s budgetary needs and shortfalls through its oversight of the department’s operational efficiency and performance. In addition to its oversight over the department, the committee exercises oversight over, as mentioned above, Agrèment South Africa (ASA) , the Construction Industry Development Board ( cidb ) , Council for the Built Environment (CBE) and the Independent Development Trust (IDT).

1.4. Method

This report is based on information that was assessed and analysed from the department through briefings and interactions with the entities prior the tabling of the 2013/14 annual reports. Amongst these oversight activities, the committee received briefings from the department of Public Works on its 2013/14 Annual Report, and the Office of the Auditor-General (OAG) on the audit outcomes for the year under review. The committee further bases its review and recommendations on the analysis of the annual reports and the report and briefings of the Office of the Auditor-General. These analyses that were undertaken by the Parliamentary support staff, focused on the performance of the department in terms of its service delivery targets and financial performance. It must be noted that the Committee did not have sufficient time to interact with the annual reports for 2013/14 of the four entities.

1.5. Outline of the Budget Review and Recommendations Report

The report contains the following:

a) An overview of the relevant key policy focus areas.

b) A summary of previous key financial performance recommendations of the c ommittee.

c) An overview and assessment of financial performance.

d) An overview and assessment of service delivery performance.

e) A finance and service delivery performance assessment.

f) A summary of engagements with the d epartment and its e ntities.

g) A summary of reporting requests.

h) The commit tee’s recommendations.

2. AN Overview of the key relevant policy focus areas

The second State of the Nation Address (SONA) for 2014 articulated a number of priorities for government. These include the alleviation of poverty and the reduction of unemployment and inequality in all affected communities. Measures to address these challenges were identified in the National Planning Commission’s Diagnostic Report (released in June 2011), that culminated in the National Development Plan (NDP). The NDP has been adopted as providing the broad policy foot-print for the country towards 2030.

The Diagnostic Report explicitly highlighted both achievements and challenges experienced from 1994 to 2011. It identified the implementation of policies as the real challenge for South Africa. The Diagnostic Report highlighted slow progress in nine areas, due in part to the failure to implement policies. Of these, the following challenges were highlighted in the National Development Plan (NDP) that can be specifically applied to Public Works: ^[1]

• Too few people work.
• Infrastructure is poorly located, inadequate and under-maintained.
• Spatial divides hobble inclusive development.
• Public services are uneven and often of poor quality.
• Corruption levels are high.

In order to overcome these challenges, the focus for Public Works remains on: ^[2]

• Spending R847 billion on infrastructure development and the implementation of the National Infrastructure Plan over the next three years.
• The State procuring 75% of goods and services locally to increase domestic production.
• Utilising the Small, Medium and Micro Enterprise (SMMEs) development programme to support the small, informal sector and township businesses.
• Addressing youth unemployment through skills development and empowerment.
• Creating 6 million work opportunities by 2019 through the Expanded Public Works Programme (EPWP) and 1 million work opportunities through the local Government-based Community Works Programme (CWP).
• Supporting youth development for the next five years by scaling up the EPWP environmental initiatives and the Environmental Youth Services.
• Erecting new schools to eradicate mud schools and inappropriate structures.
• Empowering and improving the lives of women and vulnerable groups such as people with disabilities.
• Investing in skills development of built environment specialists such as engineers, electricians and plumbers.
• Addressing corruption (including barring public servants and representatives from doing business with the State).
• Improving weak Supply Chain Management (SCM), operations and procurement systems.
• Signing of performance agreement between the Minister and President outlining the service delivery programme of the department.

The 2014 SONA articulates the planned priorities of specific focus for the department of Public Works. These have remained constant in the aim to address unemployment and alleviate poverty as well as provide necessary infrastructure for all communities. The department also contributes towards skills development and aims to ensure that beneficiaries enter formal employment where possible.

2.1. Budget Review

During the 2013/14 financial year the department:

· Spent a total of R476 million on the construction, upgrading and refurbishment of residential accommodation. ^[3]

· Created 1 230 000 work opportunities under Phase II of the EPWP. ^[4]

· Rural municipalities created 700 000 EPWP work opportunities.

· Released 9 properties for redistribution under the Land Reform programme.

· Ensured accessibility for people with disabilities to 4 buildings that were rehabilitated and 28 buildings were refurbished.

The department must continue to monitor the implementation of the EPWP and to ensure that the set percentages of targeted groups of 55% women; 40% youth and 2% people with disabilities are met. The department has acknowledged that the target of 2% participation of people with disabilities in the EPWP was not met in Phase I and II of the programme.

The large vacancies in the department have gradually been addressed, particularly in the identified specialist and critical areas. The department reported that 88.9% of all posts have been filled.

2.2 Overview of key developments in the organisational and service delivery environments of Department for 201 3 /1 4 and 201 4 /1 5 MTEF cycle

The main policy priorities of the department are set out in the 2014 State of the Nation Address. The areas of focus for Public Works remain the up-scaling and implementation of Phase III of the EPWP; the creation of 6 million job opportunities via the EPWP and the Community Works Programme (CWP) by 2018/19; poverty alleviation through the provision of decent work and skills development; addressing youth unemployment; infrastructure development; and addressing corruption and weak Supply Chain Management (SCM) systems .

The 2014/15 priorities of the department include: ^[5]

· Releasing 40 properties for redistribution under the Land Reform programme.

· Creating a total of 1 075 026 work opportunities under the EPWP.

· Signing 12 outcomes-based facilities management contracts for State-owned buildings.

· Retro-fitting 300 buildings utilising green building principles.

The department has allocated a total of R510.4 million for 2014/15 towards planned long-term infrastructure for new, replacement, upgrades and additions. The allocations are for the following projects: ^[6]

· R86 million – for various departmental projects.

· R11.4 million – Accessibility programme.

· R17 million – Dolomite Risk Management.

· R233 million – Land Ports of Entry.

· R107 million – Inner City Regeneration.

· R56 million – for various Prestige projects.

The department further allocated R1.6 billion towards Planned maintenance projects for 2014/15. ^[7] The allocation increased by R107.6 million from the R1.5 million allocated in 2013/14, which is an increase of 7.2% in nominal terms and 0.9% in real terms.

A total of R1.1 billion was allocated towards various long-term planned infrastructure, rehabilitation, renovation and refurbishment projects for the 2014/15 financial year. ^[8] This is an increase of R150.9 million.

3. A Summary of previous key financial and performance recommendations of Committee

In the 2013 Budgetary Review and Recommendation Report, the committee recommended to the Minister of Public Works that systems for the management of rentals and leases entered into by the department of Public Works on behalf of client departments should be sorted out and be fully functional by the end of the 2013/14 financial year.

The national, provincial and municipality asset registers were to be aligned by the end of 2014.The Minister needed to ensure that tender specifications on all EPWP projects included the appointment of women contractors and people with disabilities.

The Minister of Public Works needed to ensure that there were policies in the department of Public Works for state funerals.

The Minister of Public Works needed to ensure that the department of Public Works regulated the professional fees charged by the consultants.

The committee made a strong recommendation that the Minister needed to re-open the workshops to facilitate the training of artisans nationally and in all the provincial departments of Public Works.

4. AN Overview and assessment of financial performance

Table: Budget Allocations Public Works

Source: National Treasury (2014) and own calculations

The Department of Public Works received a budget allocation of R6.1 billion for 2014/15 with which to accomplish the priorities listed above. It represents a decrease of 0.9% in nominal terms, and 6.7% in real terms (calculating the impact of inflation) from the 2013/14 adjusted appropriation of R6.2 billion. The department’s budget represents approximately 0.1% of the national appropriation by vote, excluding direct charges.

In terms of economic classification, the departmental budget includes transfers totalling 41.9% of the budget, with a total monetary value of R2.6 billion. Of these, R1.2 billion is in the form of conditional grants to provinces and municipalities, while a total of R802.8 million is allocated to departmental agencies and accounts. During 2014/15, the department will spend R510.4 million on infrastructure-related projects.

Moreover, current payments amount to 48.4% of the budget (R3.0 billion) and capital payments amount to 9.7% of the budget (R596 million). ^[9]

Compensation of employees increased by 186.4 million from R1.5 billion in the 2013/14 adjusted period to R 1.7 billion in 2014/15. It has been noted in the past that the department has experienced capacity constraints in general, but most especially in the technically qualified fields.

In 2013, the department identified the following shortages in the areas of strategic professional and technical skills: project management, financial management, quantity surveying, supply chain management, contract drafting, and business analysis. ^[10]

At a briefing to the Portfolio Committee on Public Works in 2014 the Director-General reported that in order to fill some of these critical vacancies, apart from economists, specialist personnel such as property lawyers, project managers, and quantity surveyors, were being recruited and are in the process of being appointed to the PMTE by the department. ^[11]

4.1 Auditor - General Report

The department of Public Works (DPW) received an unqualified audit opinion (with emphasis of matters and additional matters) for the 2013/14 financial year. This is an improvement from the Qualified Audit Opinion for 2012/13 and the two Disclaimers of Opinion with emphasis of matters and additional matters that the department received in respectively, 2011/12 and 2010/11.

The Property Management Trading Entity (PMTE) received a qualified audit opinion (including an emphasis of matters and additional matters) from the Auditor-General (AG) for the 2013/14 financial year. The PMTE improved from the Disclaimer it received for three years in a row.

This section will only provide a select list of issues highlighted by the Auditor-General (AG)

4.1.1 Department of Public Works

The AG highlighted challenges that included the following:

· Material impairments to the amount of R51.5 million were provided for as a result of irrecoverable receivables. ^[12]

· The department materially underspent the budget on Programme 2: Immovable Asset Management by an amount of R105 million, which resulted in the department’s objectives of infrastructure delivery not being fully met.

· Effective, efficient and transparent risk management and internal control with respect to performance information and management was not maintained as required by Section 38(1 )( a)(i) of the PFMA.

· Goods and services with a transaction value below R500 000 were procured without obtaining the required price quotations as per Treasury Regulation 16A8.3.

· A contract was awarded to a bidder who did not submit a declaration on whether it is employed by the State or connected to any person employed by the State, which is prescribed in order to comply with Treasury Regulation 16A6.1.

· The Accounting Officer did not take effective steps to prevent irregular and fruitless and wasteful expenditure, as required by Section 38(1 )( c)(ii) of the PFMA and Treasury Regulation 9.1.1.

· Effective and appropriate disciplinary steps were not taken in certain instances against officials who made or permitted irregular expenditure as required by Section 38(1 )( h)(iii) of the PFMA and Treasury Regulation 9.1.3.

· Some allegations of corruption, improper conduct or failure to comply with Supply Chain Management (SCM) system were not yet investigated as required by Treasury Regulation 16A9.1( b).

· Investigations: Numerous internal allegations mainly related to transgressions with respect to SCM, potential fraud and financial misconduct are being investigated on an ongoing basis.

4.1.2 Property Management Trading Entity (PMTE)

The AG highlighted challenges that included the following:

· The PMTE did not have an appropriate system for identifying irregular expenditure. ^[13]

· The AG was unable to determine if adjustments were necessary with regard to the stated irregular expenditure of R34.4 billion.

· The AG was unable to determine if the operating leases were accurately accounted for due to the status of the accounting records.

· The AG was unable to determine the full extent of the understatement of accruals as the PMTE did not have an adequate system to identify and record outstanding payments for goods and services and services received but not yet paid at year-end.

· The Accounting Officer of the department of Public Works did not formulate a policy and reporting framework for the head of the PMTE, in accordance with the requirements of Treasury Regulation 19.3.1.

· The AG could not obtain sufficient appropriate audit evidence that invitations for competitive bidding were always advertised in the government tender bulletin as required by Treasury Regulation 16A6.3(c).

· PMTE did not take effective steps to prevent irregular and fruitless and wasteful expenditure, as required by Section 38(1 )( c)(ii) of the PFMA and Treasury Regulation 9.1.1. ^[14]

· The PMTE remains a going concern due to a bank overdraft of R443 million and the current net liabilities exceeding the current assets. ^[15]

· Reviewing and monitoring of compliance with applicable laws and regulations was not effective.

· Implementation of proper and timely record keeping was not always followed ensuring that information is accurate and relevant and accessible.

· Ongoing internal investigations: related to SCM transgressions; potential fraud and financial misconduct; alleged abuse of urgent and emergency procurement; and the utilisation of sole suppliers. The investigations aimed to determine if there was collusion between officials and service providers, as well as, reckless spending of funds. ^[16]

4.2 Financial performance 201 4 /1 5

Following below is an analysis of the department’s 1 ^st Quarter Expenditure (April to June) for 2014/15 in relation to that of the same period for 2013/14. Below, areas where targets were met and some of the challenges affecting the performance of the department are highlighted.

The department received an allocation of R6.1 billion for the 2014/15 financial year, which represents a decrease of R54 million or 0.9% in nominal terms or 6.7% in real terms (calculating the impact of inflation) from the 2013/14 adjusted appropriation of R6.2 billion.

Operational Expenditure

A total of R3.55 billion was allocated towards the department’s Operational Expenditure, for the 2014/15 financial year. ^[17] This is a decline of R14.3 million or 0.4% in nominal terms (i.e. 6.2% in real terms) from the R3.57 billion allocation in the 1 ^st Quarter of 2013/14.

The total Operational Expenditure (for the 5 main programmes) ^[18] in the 1 ^st Quarter of 2014/15 amounted to R810.1 million, which is an increase of R204.3 million or 34% in nominal terms (or a real increase of 26.1% from the R605.8 million spent in the same period of 2013/14. Expenditure in the 1 ^st Quarter was dominated by spending on compensation of employees and goods and services.

Programme 1: Administration received an allocation of R1.2 billion for 2014/15, the second largest portion of the department’s allocation. This is an increase of R50.6 million or a nominal increase of 4.5% from the R1.1 billion in 2013/14. But in real terms the 2014/15 allocation for the Administration programme declined by 1.6% compared to the 2013/14 allocation.

Of this total allocation, R284 million was spent to date, which is an increase of R145.2 million or 105% in nominal terms (or a real increase of 93%) from the R138.4 million spent in the 1 ^st Quarter of 2013/14.

The expenditure constitutes 24.2% which is in range of the 25% quarterly expenditure target, which is an improvement from the 12.3% recorded in the 1 ^st Quarter of 2013/14. ^[19]

Programme 2: Immovable Asset Management received R2.0 billion for 2014/15, the largest portion of the department’s total appropriation. This is a decrease of R63.4 million or 3.1% in nominal terms (or 8.7% in real terms) from the R2.1 billion allocated in 2013/14. ^[20]

The department spent R418.5 million in the 1 ^st Quarter of 2014/15, an increase of R4.1 million or 1.0% in nominal terms (or a decline of 4.9% in real terms) from the R414.4 million spent in the same period of 2013/14. The increase in spending on Programme 2 was mainly due to additional expenditure on compensation of employees; property payments and business and advisory consultancy services. ^[21]

The expenditure constitutes 20.9% for the 1 ^st Quarter of 2014/15, an increase of 0.9% from the 20% recorded in the 1 ^st Quarter of 2013/14.

Programme 3: Expanded Public Works Programme (EPWP) received an allocation of R272.2 million for 2014/15, which is an increase of R3.4 million or 1.3% in nominal terms (but a decrease of 4.7% in real terms) from the R268.8 million allocated in 2013/14.

The department spent R51.3 million in the 1 ^st Quarter of 2014/15, which is an increase of R8 million (or 18.5% in nominal terms and 11.6% in real terms), from the R43.3 million spent in 2013/14. The expenditure was mainly for consultants and professional services for infrastructure and planning. ^[22]

The 1 ^st Quarter expenditure of Programme 3 constitutes 18.4%, which is an increase of 2.3% from the 16.1% recorded in the 1 ^st Quarter of 2013/14.

Compensation of employees; property payments and business and advisory consultancy services. ^[23]

The expenditure constitutes 20.9% for the 1 ^st Quarter of 2014/15, an increase of 0.9% from the 20% recorded in the 1 ^st Quarter of 2013/14.

Programme 4: Property and Construction Industry Policy Regulation received an allocation of R41.3 million for 2014/15, which is an increase of R4.8 million (i.e. an increase of 13.2% in nominal terms or a real increase of 6.5%), from the R36.5 million allocated in 2013/14.

The department spent R13.1 million in the 1 ^st Quarter of 2014/15, which is an increase of R7.2 million or 122.0% in nominal terms (and 109.1% in real terms), from the R5.9 million spent in 2013/14. The main contributors to the increased expenditure relates to ‘consultancy work on the policy and regulation of the property and construction industry.’ ^[24] The spending under Programme 4 also includes a transfer of R11.1 million ^[25] to Agrément South Africa. The transfer is made under business and advisory consultancy services, as Agrément South Africa must still be constituted as a juristic person.

The expenditure of R13.1 million constitutes 31.7%, an increase of 15.5% from the 16.2% recorded in the 1 ^st Quarter of 2013/14.

Programme 5: Auxiliary and Associated Services received an allocation of R68.2 million for 2014/15, which is a decline of R9.7 million or 12.5% in nominal terms (or 17.6% in real terms), from the R77.9 million allocated in 2013/14.

The department spent R43.6 million in the 1 ^st Quarter of 2014/15, which is an increase of 963.4% in nominal terms (or 901.33% in real terms), from the R4.1 million spent in 2013/14. The main contributor to the increased expenditure was on contractors under goods and services. The contractors provided services on behalf of the department for State events and functions that included the 2014 Presidential Inauguration and the 2 ^nd State of the Nation Address.

4.3 2014/15 MTEF financial allocations

This section provides a summary of funding submissions by the d epartment to the National Treasury for the 2015/16 MTEF period. It also provides an analysis of the five p rogrammes through which the department give effect to its policy mandate .

The d epartment requested an allocation of R6.6 billion for the 2015/16 financial year, which constitutes an increase of R424 million. The allocation for the Administration programme declined by R42.1 million from R1.2 billion for 2014/15 to R1.1 billion for 2015/16. ^[26] A total of R128 million over the MTEF period has been cut from the Administration programme’s budget. The budget reductions as approved by Cabinet are to be implemented mainly in spending on non-core goods and services ; these are for items such as communication , computer services , agency and support services , stationary , operating leases , property payments , travel and subsistence , and venues and facilities. ^[27]

The allocation for Programme 2: Immovable Asset Management rose from R2.9 billion in 2014/15 to R3.3 billion in 2015/16. This constitutes an increase of R446.8 million. The department will spend the following allocations over the MTEF period:

· R306 million – Dolomite projects.

· R30 million – Accessibility projects.

· R795 million – Land Ports of Entry for Border Control Operational Coordinating Committee projects.

· R346 million – Prestige Management.

· R448 million – departmental projects.

· R314 million – Projects facilitating Inner City Regeneration around the Tshwane area; to address accommodation needs of National Government departments. ^[28]

The EPWP allocation increases by R55.6 million to R2 billion in 2015/16, from a total allocation of R1.9 billion for the 2014/15 financial year. The EPWP Integrated Grant for Municipalities will be reduced by R37.8 million in 2014/15 and a further R42 million in 2015/16. A further reduction of R22 million will be made on the EPWP Integrated Grant for Provinces in 2014/15 and R25 million in 2015/16, respectively.

Expenditure on performance-based incentive allocations for the 2016/17 financial year are expected to increase by R159 million, as follows:

· R10 million – EPWP Integrated Grant for Municipalities.

· R10 million – EPWP Integrated Grant for Provinces.

· R74 million – Social Sector EPWP Incentive Grant for Provinces.

· R65 million – Non-State Sector. ^[29]

Programme 4 is allocated a total of R43.4 million in 2015/16 which is an increase of R1.9 million from the allocation of R41.5 million in 2014/15. The expenditure on the Programme will increase under items such as compensation of employees and goods and services, specifically travel and subsistence; agency support and outsourced services; professional services and advertising. The increased spending on the programme in the medium terms will mainly be focussed on the tabling of the Expropriation Bill (which provides for the expropriation of property for a public purposes or in the public interest, subject to just and equitable compensation); and the Agrément South Africa Bill (which confers the appropriate legal status to the e ntity). The focus will also be on promoting the growth and transformation of the construction and property industries through the implementation of the Construction and Property Charters. ^[30]

The Auxiliary and Associated Services programme is allocated R53.7 million in 2015/16 which is a decrease of R38.9 million from the allocated R91.8 million in 2014/15. The programme is mainly responsible for the transfer of funds to the Assistance to Organisations for the Preservation of National Memorials as well as State Functions among others. The bulk of the programmes allocation is usually assigned to these two sub-programmes with the former receiving R22.7 million for 2015/16 which increased by R1 million from the R21.7 million for 2014/15, while the latter receives R28.5 million for 2015/16 which represents a significant decline of R39.2 million from the R67.7 million allocated in 2014/15. The increase in the allocation for the State Functions sub-programme is mainly linked to the State funeral of former President Mandela at the end of 2013, as well as the inauguration ceremony of the President following the 2014 elections. ^[31]

4.4 Concluding comments on financial performance

The funding requirements of the d epartment relate to the implementation of its core functions of infrastructure delivery and official accommodation for National departments, hence the requirement of an accurate Immovable Asset Register; a properly managed and updated lease portfolio; and the EPWP in terms of providing job opportunities for poor and marginalised communities.

The Turnaround Strategy of the department also forms the core part of the plans as it is aimed at addressing some of the serious challenges in the department; these include strengthening the Internal Audit functions, as well as Supply Chain Management (SCM) and procurement systems. As mentioned earlier, and reported on by the DG in 2014, t he department needs to recruit and appoint technically specialist staff such as p property lawyers, project managers, and quantity surveyors.

5 AN Overview and assessment of service delivery performance

5.1. Programme Performance

Programme 1: Administration

The Administration programme completed 30 or 83.3% of a total of 36 targets for the year under review. ^[32] A total of 6 or 16.7% of the targets were not achieved, while R1.1 billion or 97.0% of the total programme allocation of R1.13 billion was spent by the end of the financial year.

The programme underspent by R33.5 million of which: ^[33]

· R6.9 million – Compensation of Employees.

· R8.2 million – Goods and Services.

· R18 million – Payments for Capital Assets.

The programme also reported a high vacancy of 145 from a total of 1 130 posts. The programme had 985 filled positions, with an added 445 posts filled additional to the establishment. ^[34]

The Administration programme consists of six sub-programmes of which three achieved all their performance targets, while the other three sub-programmes did not meet their performance targets, and include:

· Monitoring and Evaluation (M&E) met 5 of 6 targets.

· Finance and Supply Chain Management (SCM) met 4 of 6 targets.

· Corporate Services met 11 of 14 targets.

M&E sub-programme only completed one of two evaluation reports on the department’s performance for 1 April to 31 December 2013. The sub-programme did not have enough capacity to meet the increased demands for M&E services. ^[35]

Finance and SCM sub-programme did not develop the Accounting and Billing System by 31 March 2014. The delay in achieving the target resulted from the longer than anticipated development of the System, which was at the stage whereby the blue prints were only developed in the 4 ^th Quarter. However, it is unclear if this was the planned target, given that the stated target for 2013/14 was for the completion of a framework to institutionalise an improved Acquisition Management function to be developed by 31 March 2014. ^[36]

The 2 ^nd target that was not achieved relates to the Accounting and Billing System which was not developed by 31 March 2014. ^[37] This reported target is a repetition of the above one. These two targets should be clarified.

Corporate Services sub-programme did not achieve 3 of the 14 targets:

· The initiation phase of the Integrated Financial Management System was not completed.

· 1 of a targeted 2 Exchange Programmes in SADC ^[38] (Zambia) achieved. The 2 ^nd programme did not take place due to the non-availability of Namibian counterparts to discuss dates for the visit by the department of Public Works Technical Team and the finalisation of an action plan. ^[39]

· Identification of 2 areas for training opportunities within BRICS ^[40] (i.e. India) completed, but the implementation must still be followed up with the Human Resources department.

Internal Audit and Audit Committee is comprised of five members and held eight meetings during the year under review. The Audit Committee highlighted the following: ^[41]

· The systems of control of the department and the Property Management Trading Entity (PMTE) is not effective.

· Internal Audit Reports indicate that the systems and controls of both the department and PMTE are not effective.

· The department inadequately manages Consequence Management in terms of the timely completion of all investigative processes within the prescribed turnaround times; as well as taking appropriate action against transgressors and perpetrators.

Management of the department’s strategy addressed the issues as follows:

· Implementation of a Financial and Reporting System.

· General recruitment of personnel in critical areas.

· Overall improvement of the overall system of Internal Control

· department plans to present the Audit Committee with an Audit Action Plan addressing all core findings of the Auditor-General.

Audit Committee will monitor the implementation of the suggested corrective measures

Programme 2: Immovable Asset Management

Programme 2 is one of the main programmes of the department and received R2.96 billion of the programme allocation, and reported on 31 targets of which 12 or 38.7% were achieved. ^[42] At the end of the financial year a total of 19 or 61.3% of the targets were not achieved while R2.89 billion or 96.4% of the programme’s budget was spent. The programme has 4 501 posts filled from a total of 5 623. The programme reported a vacancy of 1 122, and 198 positions additional to the establishment were also filled. ^[43]

Immovable Asset Management Programme consists of four sub-programmes, none of which achieved all their performance targets.

The Minister of Public Works introduced the Turnaround Strategy at the beginning of 2012. It was aimed at ensuring the stabilisation of the department; working towards a clean audit; completing a skills audit to determine the gaps in the skills requirements; and repositioning the department to fulfil its core mandate.

The planned intervention also aimed to ensure that the department finalised a usable, updated and comprehensive Immovable Asset Register (IAR), which remains one of the requirements for the department to receive a clean audit. The department employed a number of consultants to assist in the IAR project and spent a total of R507.9 million on consultants, contractors and agency/outsourced services. ^[44] The allocation constitutes an overall increase of R239.2 million from the 268.7 million of the 2012/13 financial year, assigned as follows:

· Contractors received R100.7 million, an increase of R51.1 million from 2012/13.

· Agent and support/outsourced services received R201.1 million, an increase of R85.1 million from the previous year.

· Business and advisory services received R169.4 million, an increase of R91.3 million from the R78.1 million.

· Legal costs received R18.4 million, an increase of R4.6 million from the R13.8 million in 2012/13.

· Infrastructure and Planning received R182 million, an increase of R7.2 million from the R11.1 million of the previous year.

Asset Investment Management sub-programme achieved three of the eight performance targets, of which one exceeded the target. The following targets were not achieved: ^[45]

· Confirmed ownership (Vesting) of 1 174 of the 5 540 land parcels by 31 March 2014.

· None of the 16 planned properties were released for land reform purposes.

· Three of 15 properties were rehabilitated aimed at reducing the lease portfolio.

· 15 of 100 buildings were made accessible to people with disabilities.

· One of 19 properties approved for release for human settlement purposes.

Projects and Professional Services sub-programme did not achieve the following targets: ^[46]

· 179 of 300 construction projects were completed by 31 March 2014.

· 5 309 work opportunities created by the department through projects in construction stage at the Head Office and the 11 Regional Offices from a target of 40 000 work opportunities.

· 140 Exempted Micro Enterprises were not appointed on Construction Projects.

· 40 Cooperatives were not appointed.

Operations Management sub-programme achieved six of the 10 planned targets, some of which exceeded the target. The following targets were not achieved:

· 2 441 of a targeted 2 778 leases payments were managed. Some of the leases on the Property Management Information System (PMIS) had expired.

· Process for the appointment of a service provider to manage the day-to-day Call Centre was not completed and the department plans to manage it in-house.

· 7 508 of 7 700 State properties were verified for the payment of municipal services.

· 1 398 of a targeted 1 453 property current debtors and vacated debtors with debit balances were managed in terms of the signed contract terms and conditions. ^[47]

Key Accounts Management (KAM) sub-programme did not achieve three of the 6 planned targets, which include: ^[48]

· No Service Delivery Standards were updated due to departmental changes that prevented the KAM from interacting with the property unit.

· 19 of 21 targeted Service Level Agreements (SLAs) were not signed with Client departments.

· No Progress Report on the compilation of User Asset Management Plans (UAMPs) by the 43 user departments was submitted to the department’s Accounting Officer in compliance with GIAMA. This was due to only 5 user departments (departments of Defence; Social Development; Public Works as well as the South African Police Service and the South African Social Security Agency) submitted UAMPs.

Programme 3: Expanded Public Works Programme

The EPWP received the second largest allocation after Programme 2, with a total of R1.94 billion of which 98.6% or R1.93 billion was spent. The bulk of the programme’s allocation, R1.22 billion is for transfers and subsidies to provinces and municipalities for payment of conditional grants for the implementation of EPWP projects. The programme did not meet 3 of its 6 performance targets, while the three it did achieve exceeded their set targets.

The programme created 1 012 664 work opportunities, thereby meeting 82.3% of the actual target. The programme required an additional 217 336 work opportunities to reach the 1 230 000 target. The percentage of work opportunities were exceeded for women, which increased from 55% to 61% and from 40% to 49% for youth, respectively.

However, the target of 2% work opportunities for people with disabilities was not achieved with 1.018% participation.

In addition, the 3 500 target of National Youth Service (NYS) participants was not reached with 718 or 20.5% of youth taking part in the programme. A further 2 782 youth did not participate in the programme. ^[49]

The factors cited as contributing to the non-achievement of certain targets included: ^[50]

· Procurement delays for infrastructure projects in some provinces.

· Limited funding of the Environment and Culture, as well as, Non-State Sectors affected the creation of job opportunities.

· People with disabilities are not participating in the EPWP programme because some public bodies would prefer to give priority to beneficiaries who are neither unemployed, nor receiving stipends. People with disabilities are often excluded as they already benefit from the Disability Grant.

The EPWP programme exceeded some of its performance targets by providing technical support to the provinces, municipalities, as well as all other spheres of government to ensure that all EPWP requirements are met. However, the staff compliment equals 209 or 82.6%, and a vacancy of 56 positions from 265 available positions. ^[51] An additional 1 position was also filled in addition to the establishment.

The programme underspent by R5.6 million as follows: ^[52]

· R4.3 million on transfers and subsidies in which transfer of payments to Provinces for the EPWP Integrated and Incentive Grants were withheld due to non-compliance to the Division of Revenue Act by the provinces.

· R1 million on machinery and equipment due to the non-filling of vacant positions and the tools of trade not being acquired.

The Auditor-General highlighted the following in terms of the reliability of reported performance information of the EPWP: ^[53]

· Adequate and reliable corroborating evidence could not be provided for 32% of the targets to assess the reliability of the reported performance information.

· This was due to the absence of guidelines on document retention and records management for the EPWP programme as well as a lack of oversight in ensuring that payments are only made to valid beneficiaries.

Programme 4: Property and Construction Industry Policy Regulation

Programme 4 only met 2 of its 5 targets for the 2013/14 financial year. The programme received R36.7 million and spent R32.8 million or 89.4 per cent of its allocation. The programme consists of 25 positions of which 15 are filled and 10 are vacant, (and 2 posts filled additional to the establishment). This programme has the lowest vacancy in the department; however, it is also a crucial programme as it deals with policy formulation for the construction and property sectors; drafting of legislation, ^[54] amongst others.

Three of the programme’s targets were not finalised or approved by 31 March 2014. These targets mainly relate to the finalisation of policies and legislation.

• Agrément South Africa Bill was not tabled in Parliament by 31 July 2013.
• Expropriation Bill was not tabled in Parliament by 30 June 2013.
• Final Built Environment Professions Policy was not submitted for Ministerial approval by 31 December 2013.

Explanations provided included: delayed internal consultation processes, underestimating duration of consultation with key stakeholders and analysis of public comments, as well as, consideration of policy options.

Programme 5: Auxiliary and Associated Services

This programme does not have a staff complement as its main function is to transfer funds and meet protocol responsibilities for State functions. The programme received an allocation of R50.7 million which was increased by R50.5 million to R101.2 million for the 2013/14 financial year. A total of R96.9 million or 95.8% of the allocation was spent.

The programme underspent by R4.2 million of which R2.95 million was underspend on the Commonwealth War Graves Commission due to the lower exchange rate between the South African Rand and British Pound.

A total of R1.3 million was underspent from the R2.8 million allocation towards the Construction Education and Training Authority due to the under expenditure of the compensation of employees budget allocation.

The department exceeded its planned performance target by 2 when it provided infrastructure support for 14 planned Prestige Events. It also reported providing infrastructure support for 12 unplanned Prestige Events. ^[55]

The allocation of R27.3 million towards State Functions was increased to R77.9 million due to the shifting of funds of R285 000 and a virement of R50.5 million. The R285 000 funds were shifted from the Compensation for Losses sub-programme (R284 000) and Distress Relief (R1 000). The R50.5 million virement was approved by National Treasury and relates to the State Funeral of former President Mandela. A transfer of R17.6 million or 85.6% was made for assistance to the Organisations for the Preservation of National Memorials from an allocation of R20.5 million. ^[56]

These two sub-programmes usually receive the bulk of the programme’s allocation. The department indicated in the past that the challenges with the above sub-programmes included uncertainty in planning for certain State functions such as funerals or unplanned functions; as well as fluctuations in the exchange rate. These issues sometimes impact negatively on the planning of the department and budget allocated for Programme 5.

5.2. Other service delivery performance findings

5.2.1 EPWP

The Auditor General could not find records proving that the incentive grants were paid to the correct beneficiaries. The performance management of the programme should be prioritised moving forward, where proper documentation should be kept and proper reporting systems be maintained.

5.2.2 Asset Register and lease management

The management of leases has a direct bearing on the financial state of the PMTE and the fraud and corruption cases in the department. The accuracy and completion of the Asset Register remains a concern.

5.2.3 Policy

The committee was looking forward to the introduction of the Agrèment South Africa Bill, Expropriation Bill, the Built Environment Professions Bill and the amendment of the Government Immovable Asset Management Act (GIAMA).

6. The COMMITTEE’S Observations and response S

6.1. Technical issues

In the previous Parliament, the department promised to ensure that the Annual Performance Plans would be submitted to Parliament with indicators that are specific, measurable, achievable, relevant, and time bound (SMART).

The committee urges the department to provide monthly financial performance reports and internally audited financial statements on a quarterly basis.

6.2. Governance and operational issues

The department should ensure the implementation and full use of i-Eworks, proper IT systems, and the employment of persons with the required technical skills to ensure the maintenance and continued operation of these systems within the department.

The department should ensure that the required internal control measures are properly instituted and monitored.

6.3. Service delivery performance

The roll-out of phase two of the Expanded Public Works Programme (EPWP) was a success. The department needs to ensure proper reporting and recording of performance.

The department should also note the findings of the Office of the Auditor-General that reported that there was not sufficient evidence that incentive grants were paid to the correct beneficiaries. The challenge relates to the manner in which information is captured, recorded, and verified. The system used by municipalities needs to be consistent so that the quality of evidence used in the whole system across the EPWP is consistent. The department’s EPWP phase three roll-out should include consistent training and maintenance of skills across the system so that these negative findings are eradicated.

6.4. Financial performance including funding proposals

A total of R2.56 billion was allocated towards Transfers and Subsidies for the 2014/15 financial year, which is a decline of R31.8 million or 1.2% in nominal terms (and 7.0% in real terms) from the R2.59 billion allocated in 2013/14.

A total of R1.20 billion was allocated as Conditional Grants to Provinces and Municipalities in 2014/15, a decline of R24.3 million or 2.0% in nominal terms (and 7.7% in real terms) from the R1.23 billion allocated in 2013/14. In the 1 ^st Quarter of 2014/15 a total of R240.2 million was spent, which is an increase of R200 000 or 1.0% in nominal terms (but a decline of 5.8% in real terms) from the R240.0 million spent in 2013/14. The R240.2 million is disaggregated as follows: ^[57]

· The EPWP Integrated Grant for Municipalities was allocated R594.6 million a decrease of R16.1 million or 2.6% in nominal terms (and a decline of 8.3% in real terms) from the R610.7 million allocated in 2013/14. At the end of the 1 ^st Quarter of 2014/15 and 2013/14, none of the allocation was spent.

· The EPWP Integrated Grant for Provinces received an allocation of R348.9 million for 2014/15, which is a decline of R7 million or 2.0% in nominal terms (and 7.7% in real terms) from the R355.9 million allocated in 2013/14. A total of R137.0 million was spent at the end of the 1 ^st Quarter of 2014/15,which is a decline of R3.6 million or 2.6% in nominal terms (and 8.3% in real terms) from the R140.6 million spent in 2013/14. The expenditure of R137.0 million constitutes 39.3% at the end of the 1 ^st Quarter of 2014/15.

· The Social Sector EPWP Integrated Grant for Provinces received an allocation of R258.0 million for 2014/15, which is an increase of R400 000 or 0.2% in nominal terms (but a decline of 5.7% in real terms) from the R257.6 million allocated in 2013/14.

· A total of R103.2 million was spent in the 1 ^st Quarter of 2014/15, which is an increase of R3.8 million or 3.8% in nominal terms (but a decline of 2.2% in real terms) from the R99.4 million spent in 2013/14. This constitutes 40.0% expended in the 1 ^st Quarter of 2014/15 compared to the 38.6% recorded in the same period of 2013/14.

Departmental Agencies and Accounts received an allocation of R802.8 million for 2014/15, which is a decline of R900 000 or 0.1% in nominal terms (and 5.9% in real terms), from the R803.7 million allocated in 2013/14. The allocation was disbursed to the operations of the following 4 agencies:

· R77.2 million was allocated to the Construction Industry Development Board ( cidb ) for 2014/15, of which R38.6 million or 50% was transferred to the cidb in the 1 ^st Quarter of 2014/15.

· R41.6 million was allocated to the Council for the Built Environment (CBE) of which R20.8 million or 50% was transferred to the CBE in the 1 ^st Quarter of 2014/15.

· R8.7 million was transferred to the Parliamentary Villages Management Board of which 100% was transferred in the 1 ^st Quarter of 2014/15.

· R1.9 million was transferred to the Construction Education and Training Authority (CETA) of which 0% was transferred in the 1 ^st Quarter of 2014/15.

Foreign Governments and International Organisations received an allocation of R21.7 million in 2014/15, towards the Commonwealth War Graves Commission: Maintenance of Soldiers’ Graves. This allocation constitutes an increase of R1.2 million or

5.9% in nominal terms (but a decline of 0.3% in real terms) from the 20.5 million allocated in 2013/14.

A total of R22.5 million was transferred in the 1 ^st Quarter of 2014/15, and constitutes 103% of the allocation, an over-expenditure of R800 000. A contributing factor to this over- expenditure results from the fluctuation in the foreign currency rates, upon transfer.

A total of R50 million was allocated to Public Corporations towards the operations of the Independent Development Trust in 2014/15, which is a decline of R50 million or 50% in nominal terms (and 53% in real terms) from the R100 million allocated in 2013/14. A 100% was transferred at the end of the 1 ^st Quarter of 2014/15 in contrast to the 50% that was transferred in the 1 ^st Quarter of 2013/14. ^[58]

7. Summary of reporting requests

Reporting matter	Action required	Timeframe
Predetermined objectives: DPW	The Committee should ensure there are guidelines on document retention and records management in the department, including proper record management of EPWP information.	March 2015
Supply Chain Management: DPW PMTE IDT CIDB	The Committee should ensure it monitors ineffectiveness oversight and monitoring by the leadership of the department.	March 2015
Human resource management: DPW	Human resources plan should be completed prior to year end of any financial year. The department should adequately prioritise the filling of vacant positions and technical skills.	March 2015
Information Technology (IT) controls: DPW PMTE IDT	Weaknesses identified in the IT environment should be resolved	March 2015
Material errors/omissions in submitted annual financial statements (AFS): DPW PMTE IDT/CIDB/CBE	The department and entities should draft monthly financial statements. Financial statements should be drafted in accordance with the requirements of the PFMA.	March 2015
Other non-compliance: PMTE IDT	PMTE should ensure that there is proper monitoring and evaluation in terms of compliance issues. Audit action plan should be implemented.	March 2015
Financial health status: DPW	The department should avoid delays in the implementation of infrastructure problems.	March 2015

8. Recommendations

The Committee recommends to the Minister of Public Works that:

8.1 The billing system used by the department should meet the required accounting standards in order for the client departments to pay their rental and service costs. This would assist in paying the overdraft amount owed by the Property Management Trading Entity (PMTE).

8.2 The national, provincial and municipality Asset Registers should be aligned by the end of the 2014/15 financial year.

8.3 In the third phase of EPWP there should be proper records management and accurate reporting on the performance of the programme across the whole system with special attention to skills needs at the provincial and municipal sphere.

8.4 In the 2014/15 financial year the department focuses on attracting and retaining the required technical skills with specific attention to specialist personnel such as property lawyers, project managers and quantity surveyors .

8.5 The Minister should continue to keep staff accountable for unauthorised, irregular, fruitless and wasteful expenditure within the department; in cases where investigations identified staff that were found to have been guilty of non-compliance to the department’s supply chain management and procurement policies, disciplinary action must follow and the law must take its course.

8.6 The Chief Financial Officer should provide comprehensive and accurate financial statements to the committee on a quarterly basis, in order for the committee to monitor the department’s spending patterns and trends.

8.7 The role of consultants should be monitored on construction projects, and that contractors should be held accountable, along with the project managers if projects have large overrun costs.

8.8 The outstanding legislation be finalised for tabling before Parliament by the end of the 2014/15 financial year.

8.9 The Minister should strengthen the Supply Chain Management system to ensure the detection of possible collusion in the construction industry, and to avert any future risks to the department.

8.10 All instances of variation orders should be monitored to ensure that all projects are completed on time and that the State receives value for money. The department should provide quarterly reports to the Committee on projects already completed.

8.11 The i -EWorks system should be fully implemented and an accrual-based accounting system for the PMTE should replace the current basic accounting system.

8.12 The Minister should prioritise capacitating governance structures, e.g. Internal Audit Unit and Risk Management Unit, by end of the 2014/15 financial year.

8.13 The Minister should address the lack of compliance with the Employment Equity Plan, with specific attention to women at the senior management level in the department by the end of the 2014/15 financial year.

8.14 The Minister should ensure that the Independent Development Trust (IDT) maintain proper financial records with regard to tender deposits as well as its leave accrual system.

8.15 The Minister should ensure that the tendency of irregular expenditure is closely monitored and avoided in the 2014/15 financial audit of the department.

9. Appreciation

The c ommittee appreciates the improvements made by the department, which have yielded tangible positive changes. These changes include the department moving from a qualified audit opinion to an unqualified audit opinion with matters and additional matters raised.

The committee notes that the PMTE received a qualified audit opinion from a disclaimer in the previous financial year. It is anticipating tangible positive changes in this regard in the following financial year.

The committee appreciates the support of the Office of the Auditor-General which substantially increased the strength of the committee’s oversight responsibility.

Report to be considered.

_________________________________________________________________________

References

Department of Public Works (2014) Annual Report of the Department of Public Works for 2013/14 .

Department of Public Works (2013a) Strategic Plan of the Department of Public Works for 2012 to 2016 .

Minister of Public Works (2012) Developing a Turnaround Strategy: Remarks by Minister of Public Works T.W. Nxesi , Department of Public Works Workshop, 23 January.

National Treasury (2014) 2014 Estimates of National Expenditure.

National Planning Commission (2013 ).

Zuma, J.G. (2014) State of the Nation Address delivered by President J. G. Zuma, Parliament of the Republic of South Africa: Cape Town, 17 June.