ATC191018: Budgetary Review and Recommendation Report (2018/19) of the Portfolio Committee on Public Works and Infrastructure on the Performance of the National Department of Public Works and its Entities, dated 16 October 2019

Public Works and Infrastructure

THE BUDGETARY REVIEW AND RECOMMENDATION REPORT (2018/19) OF THE PORTFOLIO COMMITTEE ON PUBLIC WORKS AND INFRASTRUCTURE ON THE PERFORMANCE OF THE NATIONAL DEPARTMENT OF PUBLIC WORKS AND ITS ENTITIES, DATED 16 OCTOBER 2019
 

The Portfolio Committee on Public Works and Infrastructure[1], having considered the performance (financial and non-financial) of the Department of Public Works and Infrastructure, the Property Management Trading Entity (PMTE), and entities -Construction Industry Development Board (CIDB), Council for the Built Environment (CBE), Independent Development Trust (IDT), and Agrément South Africa (ASA) -  for the 2018/19 financial year, reports as follows.

 

1.       INTRODUCTION

The Committee received presentations on the annual reports of the DPW, PMTE, CIDB, CBE, IDT, and ASA, from 8 to 10 October 2019. In this period, the Committee robustly engaged with the Department and the entities on its performance. These meetings were preceded by deliberations with the Office of the Auditor-General (AG) on the performance of the DPWI and its entities during the 2018-2019 financial year.

Section 5 of the Money Bills Amendment Procedure and Related Matters Act (Act No. 9 of 2009) states that in the year preceding the budget, portfolio committees of parliament must conduct reviews of the finances of their respective departments and entities and, if required, issue recommendations on the forward use of resources. The Act further requires that committees submit the budgetary and recommendation reports “after the adoption of the Appropriation Bill and prior to the adoption of the reports on the Medium Term Budget Policy Statement.”[2]

The Budgetary Review and Recommendation Report (BRRR) must provide an assessment of the Department’s service delivery performance given available resources; an assessment on the effectiveness and efficiency of the departments use and forward allocation of available resources; and may include recommendations on the forward use of resources.

The analysis contained in this report is part of the process prior to the examination, consultation, and comments that the finance and appropriation committees of each House of parliament makes on the overall Medium-Term Budget Policy Statement (MTBPS). As stated in the Money Bills Amendment Procedure and Related Matters Act, Parliament may exercise its amendment powers through these committee processes so that there is an appropriate balance between revenue, expenditure and borrowing.

The Act necessitates that the portfolio committees assess the performance of the department and its entities annually through an analysis of the:

“(a) medium term estimates of expenditure of each national department, its strategic priorities and measurable objectives, as tabled in the National Assembly with the national budget;

(b) prevailing strategic plans;

(c) the expenditure report relating to such department published by the National

Treasury in terms of section 32 of the Public Finance Management Act;

(d) the financial statements and annual report of such department;

(e) the reports of the Committee on Public Accounts relating to a department; and

 (f) any other information requested by or presented to a House or Parliament.”[3]

 

The mandate of the DPWI and the PMTE

Schedule 4, Part A of the Constitution of the Republic of South Africa containing the “Functional Areas of Concurrent National and Provincial Legislative Competence” sets out the legal mandate of the DPW.

The Government Immovable Assets Management Act (GIAMA) (2007) describes the Department’s mandate as custodian of government’s immovable properties in further detail.

The Department is responsible for the official accommodation of all national departments. It provides construction, maintenance, and property management services to all client departments at national level. This includes the rendering of expert built environment services relating to the planning, acquisition, management and disposal of immovable assets.

The Department also provides strategic leadership of employment creation through the implementation of phase three of the Expanded Public Works Programme (EPWP). The Department plays a coordinating and capacity-enhancement role with provincial and local government counterparts to ensure the implementation of the EPWP.

As mentioned earlier, the Department is further responsible for the following built environment and construction entities:

  • Agrément South Africa (ASA).
  • Construction Industry Development Board (CIDB).[4]
  • Council for the Built Environment (CBE).[5]
  • Independent Development Trust (IDT).

 

The following Acts form the legislative mandate of the DPWI and PMTE:

  • Government Immovable Asset Management Act, 2007 (Act No. 19 of 2007); 
  • Construction Industry Development Board Act, 2000 (Act No. 38 of 2000);
  • Council for the Built Environment Act, 2000 (Act No. 43 of 2000);
  • The six Acts that regulate the Built Environment Profession Councils (BEPCs);
  • The Agrément South Africa Act, 2015 (Act No. 11 of 2015);
  • Public Finance Management Act, 1999 (Act No. 1 of 1999). 

 

The following policy texts contain the policy mandates of the DPWI, PMTE and public works entities:

  • DPW White Paper: Public Works, Towards the 21st Century, 1997;
  • DPW White Paper: Creating an Enabling Environment for Reconstruction, Growth and Development in the Construction Industry, 1999;
  • Construction Sector Transformation Charter, 2006;
  • Property Sector Transformation Charter, 2007;
  • DPW Broad-based Black Economic Empowerment (BBBEE) Strategy, 2006;
  • Property Management Strategy on BBBEE, Job Creation and Poverty Alleviation, 2007;
  • Green Building Framework, 2011.

 

It is important to note that the Department of Public Works is not directly involved in service delivery. It provides accommodation and maintenance services to service delivery departments. It further provides professional built environment, construction, project management, and facilities management services to client departments. Client departments that directly provide services to the public need the DPW and its entities to use its allocated budgetary resources effectively so that all government buildings and facilities are places of safety and security where people are welcome.

 

The oversight role of the Portfolio Committee on Public Works

The Committee does oversight over the executive authority (the Minister) [6]. The PFMA makes a distinction between the functions of the executive authority or political head of a department (Cabinet Minister) and the head official or accounting officer[7]. The executive authority “is responsible for policy matters and outcomes; this includes seeking Parliamentary… approval and adoption of the department’s budget vote. The head official (Director-General (DG)… is responsible for outputs and implementation, and is accountable to Parliament … for the management of the implementation of the budget.”[8] The DG is the accounting officer of the Department that must report on how the Department uses the budgetary allocation to translate policy into implementable programmes. The DG reports to different levels of oversight to whom he or she is accountable.

Interestingly, the Minister can be thought of as the first level of oversight over the responsibility of the DG. The Portfolio Committee forms the second level of oversight, and the Auditor-General of South Africa (AGSA) is the third level of oversight. Importantly, the DG, and the Minister must report to the Committee to whom both are accountable. The Committee utilises the expertise of the AGSA to deliberate on further matters that may need attention as part of its oversight function. 

The Committee’s oversight focus is therefore firmly on whether and how the Executive Authority developed, regulated and monitored the implementation of public works programmes through which policy is implemented during the past financial year.

 

 

 

2.         EVIDENCE THAT THE COMMITTEE USED

 

In performing its oversight duty, and following the procedure as set out in the Money Bills Amendment and Related Matters Act (2009) to assess the Department’s performance, the Committee used the following evidence:

1.    The Department’s five-year Strategic Plan (2014-2019), its revised Strategic Plan (2015 to 2020) [9], Annual Performance Plan, and the Annual Report for the 2018-2019 financial year;

2.    The Strategic Plans and the Annual Reports of the entities that report to the Minister of Public Works;

3.    Quarterly Expenditure reports[10] as per Section 32 of the Public Finance Management Act (PFMA);

4.    Financial performance statements in the 2018-2019 Annual Report;

5.    The oversight events of the Portfolio Committee on Public Works in the period under review. This includes the deliberations that took place from 8 to 10 October 2019 on the presentations on the Annual Reports, and the Annual Financial Statements (AFS);

6.    The performance audit of the Auditor-General of South Africa (AGSA[11]) on the performance information and the AFS for the 2018-2019 financial year;

7.    The performance audit of the AGSA on the financial statements of the entities reporting to the Minister of Public Works for the 2017/18 financial year.

 

This report records the analysis of the National Assembly’s Portfolio Committee on Public Works, on the annual performance as described in section 5(1)(a) to (f) of the Money Bills Amendment Procedure and Related Matters Act (Act No. 9 of 2009) as set out in the introduction.

 

To give effect to its mandated responsibility, the Portfolio Committee on Public Works and Infrastructure consulted the reports and documents, as stated above, of the Department of Public Works (DPW), Property Management and Trading Entity (PMTE), Construction Industry Development Board (CIDB), the Council for the Built Environment (CBE), Independent Development Trust (IDT), and Agrément South Africa (ASA).

 

3.    ALIGNMENT OF THE LEGAL MANDATE, AND PLANNED INITIATIVES AS STATED IN THE DEPARTMENT’S PLANNING DOCUMENTS

3.1. Alignment of the Strategic Plan, Annual Performance Plan (APP) and the Annual Reports (AR) - Addressing challenges over a longer term

In its deliberations with the DPWI and the PMTE on its APP the Committee noted that there were improvements to the quality of performance information, alignment of planning, budgeting, implementation, monitoring and evaluation, and reporting in line with the Government Wide Monitoring and Evaluation Framework.

The planning documents showed a recognition and acknowledgement of the state of the global economy and the effects that these were having on our country. The top management of the Department situated the 2018-2019 financial year as the final year of the 2014 to 2019 five-year term.

It is important to reflect on the dire situation out of which the DPW emerged prior to the 2014-2019 five-year term. This would assist readers of the BRRR of this final year of the five-year term, to better understand the current state of the Department.

In the Annual Report on the first financial year of this five-year term (2014-2015), former Minister Nxesi used a medical emergency analogy to describe the DPW as “a patient in the Intensive Care Unit in a hospital.” He said: “In 2013, I said that we had stopped the bleeding after we implemented some changes. In 2014, I reported that the patient was fully stabilized. In my 2015 Budget Vote, I informed Parliament that the patient was discharged… but was still subject to a strict medicinal and therapeutic regimen.”[12]

In this BRRR, it is useful to reflect on some of the challenges that made the Minister use this medical emergency analogy, to describe the Department prior to the changes that stabilized the Department from 2011 to 2019. As part of reflecting, it must be recalled that the Turnaround Strategy was developed in the last quarter of the 2011-2012 financial year. It rested on two pillars: fighting corruption and improving the business model and performance of the Department. The following list contains thirteen challenges that sketched the state of the DPW prior to the turnaround strategy on which the former Minister was reflecting in his medical analogy:

 

Challenges noted in the DPW during the 2011-2012 financial year:

1. The Immovable Asset Register was incomplete.

The DPW and PMTE could not confirm complete, accurate and valid recording of the following items on its accounts:

1.1. Receivables for departmental revenue and lease commitments for operating lease revenue (properties being rented out by the Department) and municipal rates and taxes expenditure. 

1.2. Planned maintenance expenditure was being offset against revenue at PMTE. It did not have an effective system with which to capitalise qualifying expenditure to immovable assets at DPW.

2. Leasing: There was a lack of reconciliations. Inaccuracies existed between what was recorded on the Property Management Information System (PMIS) and actual lease agreements with client departments.

3. Supply Chain Management (SCM): A lack of compliance with legislation and regulations guiding SCM that resulted in Irregular Expenditure.  Expenditure was incurred that could have been avoided resulting in Fruitless and Wasteful Expenditure.  No proper system existed to detect and disclose this in the Annual Financial System (AFS).  There was a lack of action against transgressions and no consequence management was possible. A climate existed within which corrupt activities could thrive. 

4. A system of record keeping: A lack of a proper record retention and filing system resulted in internal and external auditing functions being severely limited. Oversight was severely curtailed.

5. Commitments: There was an inability to supply evidence on how contract price adjustment provisions were calculated by consultants.

 6. There was an inadequate compilation and review process of the AFS that resulted in material adjustments to AFS having to be submitted for audits in subsequent financial years.

7. The PMTE: A lack of a proper accrual accounting system. A lack of capacity of skills to perform accrual accounting resulted in audit qualifications at the PMTE in subsequent financial years.

8. The business case of the PMTE remained incomplete.

9. Material underspending: Immovable asset management impacted negatively on the DPW mandate to assist client departments to perform their service delivery mandates. Underspending of budget allocations to the EPWP contr9inued to occur - albeit due to under-reporting by provincial departments and municipalities.

 10. Predetermined objectives: A lack of understanding of the Framework for Managing Programme Performance Information (FMPPI) requirements resulting in strategic plans not conforming to the “SMART” principles.  A lack of policies and procedures for recording and evidence keeping of actual achievements (especially of concern for the EPWP).

11. Compliance: Inadequate compliance monitoring systems and processes.  Lack of action against transgressors.

12.   Internal audit: Not adequately capacitated and enabled to address all material risk areas in the department comprehensively.

13. Risk assessment: Inadequate risk assessment, mitigation and monitoring processes.

In the sections of this report that review the financial and legislative compliance during the final year of the 2014 to 2019 administrative term, as well as the report of the AGSA, the information shows the effect of the turnaround strategy that addressed these challenges.

Two features of the Department and PMTE emerges: Firstly, that materially, some of the challenges were shifted from the Department to the PMTE. The Department shows great improvement in its audit outcomes, with the PMTE dealing with challenges that it inherited. Secondly, that both the Department and PMTE showed marked improvements. However, specific matters related to the Key Performance Indicator of Programme 3, EPWP, related to its functions of coordination and verification of data remained. At the PMTE, the information contained in the Immovable Assets Register (IAR) remained a difficult obstacle to overcome.

The planning documents provided detail on efforts to support client departments across the three spheres of government. Yet, matters need to be concretely addressed to sort out problems with how KPIs were stated, and how in-year reporting that assists with financial management control, is complied with as per the PFMA.

 

The report now turns to matters that emerged in some of its BRR Reports over the last term.

 

 

 

3.2. Matters arising from 2015/16 to 2017/18 in the Committee’s Budgetary Review and Recommendation Reports

In the Budgetary Review and Recommendation Reports on the 2015/16 to 2017/18 financial years, this Committee expressed its disappointment that the stated target to review the White Papers on Public Works (1997 and 1999) remained incomplete. This target appeared in the five-year Strategic Plan and continued to be stated in the Annual Performance Plans from 2014 to 2019. In its BRR Reports during the last administrative term, this Committee urged that the allocated resources for these reviews had to be used to complete respectively the Public Works Bill and amendments to the CIDB Act and the CBE Act. In the 2018/19 financial year, the APP stated that this would not be completed in the 2014 to 2019 administrative term.

This task is the responsibility of Programme 4: Property and Construction Industry Policy and Research. In section 4 of this report that shows the Financial Allocations to programmes, the report shows the amounts allocated to this programme 4 for 2018/19 that is the final year that closes down the five-year term 2014-2019 when this task had to be completed. This shifting of a predetermined objective signals an unfortunate, but real policy and administrative failure.

At the end of this paragraph, we provide a list that shows planned policy and legislative tasks. These were repeatedly stated as targets in the Department’s APP since 2014. These in fact also appear in planning documents of the previous five-year term (2009 to 2014) within which the Turnaround Strategy was initiated.

This brings to the fore the crucial importance of planning documents having to state clear targets along which budgetary allocations will be used to achieve predetermined objectives.

In addition, the importance of in-year reports, and quarterly performance reports, being adequately reported on, with sufficient relevant detail so that oversight by the Office of the Minister, the Portfolio Committee and the AG, can point weak performance out, and consequences for non-performance can guide the Department back to the progressive trajectory that is spelled out in its planning documents.

Department stated in its APP that it would review and/or develop the following policies and legislation in 2018/19:

  1. The President returned the Expropriation Bill [B 4D-2015] that was passed by Parliament in 2016, citing a lack of proper consultation. The legislation will ultimately replace the Expropriation Act, 1975 that is inconsistent with the spirit and provisions of the Constitution, 1996.
  2. The Department is processing the draft Public Works General Laws Amendment and Repeal Bill that was developed to repeal or amend legislation or provisions in legislation assigned to the Department that are inconsistent with the Constitution or are redundant or obsolete.
  3. Review of the Department’s White Papers: “Public Works towards the 21st Century, 1997”; and “Creating an Enabling Environment for Reconstruction, Growth and Development in the Construction Industry, 1999” towards the development of a new Public Works White Paper and enabling legislation.
  4. The Department will review the Council for the Built Environment Act, 2000 (Act No. 43 of 2000) to address the various challenges within the regulatory environment that have been experienced in the terrain of built environment professionals in the past few years.
  5. The review of the Construction Industry Development Board Act will take into consideration the need to strengthen the regulatory, developmental and transformational role of the CIDB.

 

3.3. Strategic policy priorities in the Performance Agreement of the Minister of Public Works in the 2014 - 2019 MTEF

In his meeting with the Committee on 3 October 2017[13], the Minister of Public Works re-stated the following Government priorities as forming the basis of the Department’s Strategic Plan informed by the Performance Agreement of the Minister of Public Works and the 2014-2019 Medium Term Strategic Framework (MTSF). The following outcomes as described in the National Development Plan (NDP) guides what the Minister emphasised:

 

(a)    Outcome 4 - Decent employment through inclusive economic growth. The Department designed phase three of the Expanded Public Works Programme and reported to the committee on a focus on funding training in projects. It also highlighted how this phase would, with the collaborative work across national and provincial spheres as well as with other Departments, address the attempt to provide job opportunities to ensure inclusive economic growth.

 

(b)   Outcome 5 - Skilled and capable workforce to support an inclusive growth path. The Department uses its allocated budget to roll out a combination of development programmes such as the young professionals programme, its internship programme, learnership programme, and artisan programme. Through these attempts to achieve the stated policy objective of providing valuable on the job experience to young people who are in the preparation phase of entering the formal employment sector of the South African economy.

The effort to promote sustainable growth of the Built Environment Professions (BEPs) and transform the sector is the mandate of the Council for the Built Environment. It initiated a Skills Development Programme with schools to support learners undertaking Mathematics and Science to assist them to pursue a career in the built environment.

 

(c)   Outcome 6 - An Efficient Competitive and Responsive Economic Infrastructure Network. The DPW is the custodian of all immovable assets. The Minister stated a commitment to ensure that the maintenance of these assets are effectively done. The Minister affirmed the leading policy role over the public works sector and that he would ensure that the DPW, PMTE and entities play the coordinating role with relevant infrastructure-related departments to ensure that there is no degradation of assets and infrastructure. The Minister would ensure that relevant implementable policy exist for the enforcement of maintenance instruments. As leader of the Department, he or she must ensure that the DG and top management use the allocated budget in manners that is effectively used for maintenance programmes. In addition, the Minister would work with the top management and Boards of entities to monitor compliance with public works policy. The Government Immovable Asset Management Act (GIAMA) and the National Infrastructure Maintenance Strategy (NIMS) are government’s tools to ensure that this outcome is reached. The DPW, PMTE and entities are the Minister’s tools with which to reach outcome 6 in coordinating public works functions with other infrastructure delivery departments.

 

(d)        Outcome 12 – An efficient, effective and development-oriented public service. This outcome is in line with the Constitution of the Republic of South Africa (1996) that envisages a public service that is professional, accountable and development-oriented. The NDP shows awareness that “there is unevenness in capacity that leads to uneven performance in the public service. This is caused by a complex set of factors, including tensions in the political-administrative interface, instability of administrative leadership, skills deficits, insufficient attention to the role of the state in reproducing the skills it needs, the erosion of accountability and authority, poor organizational design and low staff morale.” Importantly, it states clearly that there have been “challenges in achieving constructive relations between departments and between the spheres of government, and a reluctance to manage the system on a day-to-day basis has created tension and instability. Steps are needed to strengthen skills, enhance morale, clarify lines of accountability and build an ethos of public service.”[14] 

 

(e)    Outcome 13 - “The provision of work opportunities is one of the best forms of social protection”, is aligned with the EPWP’s current primary objective of providing the unemployed with an opportunity to work, thus empowering vulnerable families in South African communities.

 

4. OVERALL EXPENDITURE OF THE DPW FOR THE 2018/19 FINANCIAL YEAR

4.1 Expenditure for 2017/18 and 2018/19[15]

 

 

Programme

Final Appropriation 2017/18

(R’000)

Expenditure 2017/18 (R’000)

Final Appropriation 2018/19

(R’000)

Expenditure 2018/19 (R’000)

  1. Administration

 

 

447,741

 

447,607

 

470,674

 

448,316

2. Intergovernmental

 

 

 

 

   Coordination

48,230

45,419

53,868

50,425

3. Expanded Public

 

 

 

 

    Works Programme

 

 

 

 

    (EPWP)

2,402,957

2,367,805

2,538,562

2,532,725

4. Property and

 

 

 

 

   Construction Industry

 

 

 

 

   Policy and Research

4,001,406

3,986,848

4,232,691

4,232,318

5. Prestige Policy

 

84,796

79,608

188,531

184,765

 

Total

 

6,985,130

 

6,927,287

 

7,484,326

 

7,448,549

 

Programme 1: Administration received a final appropriation of R470.7 million and spent R448.3 million. This equates to under expenditure of R22.4 million (or 4.8 per cent), by the end of the financial year as follows:

 

  • R14.4 million – Compensation of Employees, due to delays in filling positions in line with the identified priority positions.
  • R7 million – Machinery and Equipment due to delays in planned acquisition of assets directly linked to non-filling of the prioritised vacant positions.

 

Programme 2: Intergovernmental Relations received R53.9 million of the total Department allocation and spent R50.4 million, an under expenditure of R3.4 million (or 6.4 per cent).

 

The R2.4 million variance, is due to underspending on Compensation of Employees, due to delays in the filling of vacant positions and those that became vacant during the year.

 

Programme 3: EPWP received the second largest allocation after Programme 4, with a total of R2.54 billion of which 99.8 per cent or R2.53 billion was spent. It underspent by R5.8 million or 0.2 per cent.

 

The variance of R5.8 million was mainly due to Compensation of Employees, as a result of delays in the filling of identified priority positions.

 

Programme 4: Property and Construction Industry Policy and Research received the largest allocation of R4.23 billion and spent R4.23 billion or 99.99 per cent of its allocation. The programme underspent by R373 000 (or 0.0001 per cent).

It should be noted that the 99.99 per cent expenditure is the large portion of Programme 4’s allocation of R4.23 billion that was transferred to the PMTE (namely, R4.01 billion), and another portion amounting to R175.0 million that was transferred to the entities that report to the Minister of Public Works.

 

R48.2 million was allocated to the actual responsibility in terms of deliverables of the Property and Construction Policy and Research branch of the DPWI. This amount was allocated to the following two sub-programmes:

 

  • R39.9 million - Construction Property Development Programme.
  • R8.3 million - Property Policy Development Programme.

 

As mentioned in the section assessing performance information in planning documents, this is the Property and Construction Policy and Research branch that had to review the White Paper (1997) that had to be developed as the draft Public Works bill, which had to result in a Public Works Bill. This bill had to state the mandate of the Department in stronger terms, including much needed powers for the PMTE and entities like the IDT to collect user fees from client department within the relevant financial year.

 

The review of the White Paper (1999) had to result in amendments to the CIDB and CBE Acts. Note that crucially, these amendments would have ideally guided transformation in the construction, and the professional built environment professions.

 

Programme 5: Prestige Policy received an allocation of R188.5 million of which R184.8 million was spent. It underspent by R3.8 million or 2 per cent.

 

Virements:

The Department reported the virement of R38.5 million. These funds were applied as follows during the year under review:

  • R12.7 million decreased from Programme 1 to offset over expenditure on Goods and Services, Transfers and Subsidies and Payment for Capital Assets under Programmes 2 and 5.
  • R3.3 million decreased from Programme 2 through a virement of funds from Programme 1 and towards Programme 5.
  • R8.7 million decreased from Programme 3 through a virement of funds to offset overspending in Programme 5.
  • R13.8 million decreased from Programme 4 through a virement of funds to offset overspending in Programme 5.

 

Programme 5’s baseline allocation was therefore increased though these virements by R38.5 million, to offset over expenditure for Compensation of Employees, as well as on Goods and Services.

 

4.2. Unauthorised expenditure[16]

The Department reported an opening balance of R261.2 million in unauthorised expenditure from 2017/18 awaiting reconciliation. Note 9.4 in the AFS section of the Annual Report details the unauthorised expenditure as follows:

 

  • R174.1 million – Unauthorised expenditure under capital expenditure incurred towards building of schools, which is a provincial competency.
  • R3.9 million – Unauthorised expenditure on capital assets procured for schools.
  • R67.1 million – Overspending on compensation of employees.
  • R13.6 million – Overspending on goods and services.
  • R2.3 million – Overspending on transfers and subsidies.

 

The Department explained[17] that management initiated an investigation into the procurement of State events under the Prestige branch during the year. In this regard, the Auditor-General also identified potential irregular expenditure identified as R42.99 million. The amount and appropriate disclosure will be quantified once the forensic investigation is finalised.

 

 

4.3. Audit outcomes for the 2018/19 Financial Year

In the previous financial year, this Portfolio Committee[18] stated that there was an urgent need to address the need for Sustained Stable Leadership, Internal Control, and Financial Performance Management. In that year (2017/18) the Department received an Unqualified Audit Opinion for the third year since the Turnaround Plan was initiated. In its audit report of that year as contained in the DPW AR, the AG emphasised the challenges that the Committee referred to as the following additional matters: [19]

  • Internal Control Deficiencies[20]
    • The AG limited the findings to significant deficiencies found in the internal controls that resulted in the findings on the Annual Performance Report. 
  • Leadership
    • Exercised inadequate monitoring of the Action Plan to address prior-year findings, which resulted in similar findings for the current year.
  • Financial and Performance Management
    • Regular, accurate and complete performance reports were not always supported and proved by reliable information.
  • Other reports Investigations[21]
    • Numerous allegations, (mainly relating to transgressions with regard to supply chain management, potential fraud and financial misconduct), were still being investigated on an ongoing basis by the Special Investigating Unit at the time of the publication of the Annual Report.

 

There has been no progress on these matters despite the Portfolio Committee and the AG’s urgent prodding. For that reason, in this financial year (2018/19), the Department received its fourth consecutive Unqualified Audit Opinion with emphasis of matter and additional matters.

 

Regarding the 2018/19 financial year, the Auditor-General (AG), highlighted the following key matters:

  • Identified material impairments of R64.0 million as a result of irrecoverable receivables.
  • The AG found that for Programme 3: EPWP, the AG could not find sufficient appropriate evidence of the reported achievement, or in other cases, the supporting evidence that was provided, did not agree to the reported achievement of 997 286 work opportunities (WO) as reported in the Expanded Public Works Programme - Reporting System (EPWP-RS) by public bodies (Cumulative).
  • The AG could not determine whether the percentage of EPWP participation of designated groups of 68% Women; 43% Youth and 1% People with Disabilities as reported on the EPWP-RS by public bodies required further adjustments.
  • Expenditure management: Payments were not made within 30 days or an agreed period after receipt of an invoice in certain instances, as required by Treasury Regulation 8.2.3[22].
  • Contract management: Some contracts were extended or modified without the approval of a properly delegated official as required by Section 44 of the PFMA and Treasury Regulations 8.1 and 8.2.
  • Internal control deficiencies: Inadequate monitoring of Action Plans to address the previous year’s findings resulted in similar findings on Programme 3: Expanded Public Works Programme in the current year.
  • Vacancies in key Senior Management positions had negative effects and caused instability. Consequently, there were instances of non-compliance with laws and regulations on procurement and contract management and expenditure management that are not monitored through in-year reports.
  • Other reports: Investigations
    • The Special Investigating Unit (SIU) has been authorised to investigate the affairs of the Department of Public Works as follows:
      • Finalised a report in 2018/19 on Supply Chain Management irregularities within the Prestige Branch, covering the period 2003/04 to 2010/11.
      • Investigation extended to cover the period 2010/11 to 2015/16, and further extended to cover the period 2015/16 to 2018/19. The investigations were still in progress at the time of the publication of this year’s Annual Report.
      • Completed an investigation of Prestige projects in the Western Cape from 2007/08 to 2015/16. Report with the Head of the SIU for submission to the President.
      • At the request of the Minister of Public Works, the Public Service Commission conducted an investigation into appointments made at the National Department of Public Works and the Property Management Trading Entity during the period 1 April 2017 to 31 March 2018. In February 2019, the investigation was completed and handed to the Minister of Public Works. The results were not shared with the Portfolio Committee or the public.

 

5. THE PROPERTY MANAGEMENT TRADING ENTITY (PMTE)

The PMTE was established as a trading entity that operates within the administration of the Department of Public Works. As part of the Turnaround Strategy, it has been operationalised to manage the majority of the functions that used to be done by the DPW. It deals with core functions of the public works portfolio that are, amongst others, property leasing, the compilation of user and custodian asset management plans with client departments, maintenance, and the Immovable Asset Register.

 

5.1. Programme Performance

The PMTE reported on 42 targets under its six programmes and sub-programmes, of which it met 22, while 20 were not achieved.[23] The table below outlines the performance of the PMTE under the six main programmes as reported for the 2017/18 financial year.

 

5.2. Financial Statement

The financial statement of the PMTE for the financial year is represented in the following table:

 

PMTE Financial Performance

Revenue

2018/19

R'000

2017/18

R'000

Revenue from exchange transactions Revenue from non-exchange transactions

Construction revenue

12,108,862

4,042,032

324,618

10,514,798

3,690,334

296,286

 

Total Revenue

 

16,475,512

 

14,501,418

Expenditure

 Construction expenses

Depreciation, amortization & impartments on assets Employee benefit costs

Impairment loss on receivables Interest expense

Loss on disposal/transfer of assets Operating leases

Property maintenance (contracted services) Property Rates

Sundry operating expenses

324,618

2,577,509

1,792,150

756,140

73,549

52,609

4,767,815

2,317,211

1,296,230

1,401,993

296,286

2,404,051

1,602,748

1,083,610

85,081

3,219

4,602,461

2,161,617

1,042,236

1,438,016

Total Expenditure

15,359,824

14,719,325

 

Surplus/ (deficit) for the year

1,115,688

-217,907

 

The total revenue of the PMTE increased by R1.97 billion to R16.48 billion in 2018/19 from R14.50 billion in 2017/18. This was mainly due to the increase of:

 

  • R1.59 billion under revenue from exchange transactions from R10.5 billion in 2017/18 to R12.1 billion in 2018/19.
  • R351.7 million under revenue from non-exchange transactions from R3.7 billion in 2017/18 to R4.0 billion in 2018/19.
  • R28.3 million under construction revenue from R296.3 million in 2017/18 to R324.6 million in 2018/19.

 

Revenue from exchange transactions is mainly generated from accommodation charges on leasehold intergovernmental; freehold private; management fees on municipal services; sundry revenue and interest revenue, for example.

 

The PMTE’s interest expense decreased to R73.5 million during the year under review. This is R11.5 million less than the R85.1 million in interest paid in in 2017/18. The decrease was mainly due to the following:

  • Interest on municipal services and property rates decreased by R13.9 million from R83.2 million in 2017/18 to R69.3 million in 2018/19.
  • Interest on finance leases decreased by R833 000, to R954 000 in 2018/19 from R1.79 million in 2017/18.
  • Interest on overdue accounts increased significantly by R3.17 million in 2018/19 to R3.25 million, from R74 000 in 2017/18.

 

The R73.5 million is allocated towards interest due on backlog municipal services and property rates that has not been paid, but was provided for. This was mainly due to the Department embarking on the Phase II Verification Project, to verify claims across all regions made by local municipalities on arear municipal debt.

 

Loss on disposal/transfer of assets increased by R49.4 million in 2018/19 to R52.6 million from R3.2 million in 2017/18. This was mainly due to loss on the disposal of property, plant and equipment:

  • Related to an additional 70 properties (2018: 185 properties), and 43 land parcels with a carrying value of 32 million (2018: two land parcels amounting to R339 000) which has changed ownership with no formal process of disposal followed during the financial period.
  • Management reassessed the useful lives in accordance with the Asset Management Policy, the change in estimated amounts to a decrease in depreciation of R20.4 million (2018: R10.8 million). The future impact period amounts to a decrease in depreciation of R2.5 million.

 

Operating lease increased by R165.4 million to R4.77 billion in 2018/19 from R4.60 billion in 2017/18. This was mainly due to an increase of:

  • R173.5 million (from R4.53 billion to R4.70 billion in 2018/19) on operating leases – building and improvements.

 

However, the following two declined as follows:

  • R6.6 million (from R47.8 million to R41.1 million in 2018/19) on operating leases – vehicles, furniture and office equipment.
  • R1.6 million (from 25.5 million to R23. million in 2018/19) on rent on land.

 

Property maintenance (contracted services) increased by R155.6 million to R2.32 billion in 2018/19, from R2.16 billion in 2017/18. This was mainly due to the increase of:

  • R29.4 million under Investment property from R315 000 in 2017/18 to R29.8 million in 2018/19.
  • R333.2 million under Heritage assets from R7.8 million in 2017/18 to R40.9 million in 2018/19.
  • R2.6 million under Leased properties from R9.3 million in 2017/18 to R11.8 million in 2018/19.

 

In addition, property, plant and equipment declined by R209.6 million from R2.14 billion in 2017/18 to R1.94 billion in 2018/19. The property maintenance expenses constitute transactions with contractors for services rendered related to the repairs and maintenance on properties.

 

Sundry operating expenses decreased by R36.0 million to R1.40 billion in 2018/19 from R1.44 billion in 2017/18. A select number of expenses are noted below to highlight some of the decreases:

  • R3.5 million (to R276 000 in 2018/19 from R3.8 million in 2017/18) on Advertising.
  • R6.3 million (to R29.4 million in 2018/19 from R35.7 million in 2017/18) on Auditor’s remuneration.
  • R2.6 million (to R17.2 million in 2018/19 from R19.8 million in 2017/18) on Computer software related expenses.
  • R6.4 million (to R380.6 million in 2018/19 from R387 million in 2017/18) on Municipal service expenses.
  • R2.9 million (to R167.9 million in 2018/19 from R197.9 million in 2017/18) on losses incurred, which consist mainly of additional payments made to defaulting contractors on projects.

 

The PMTE reported a surplus of R1.1 billion, this is in contrast to the deficit of R217.9 million reported in 2017/18. It should be noted that the deficit for 2017/18 was restated and increased by R65.2 from R152.7 million to 217.9 million. See Note 36 of the financial statements which relates to prior errors.

 

5.3. Audit outcomes:

The PMTE received a Qualified Audit Opinion with emphasis of matters and additional matters in 2018/19. It follows from a similar opinion in 2017/18, and is an improvement from the Adverse Audit Opinion (including emphasis of matters and additional matters) from the Auditor-General (AG) for the 2016/17 financial year. The AG’s basis for the qualified opinion for 2018/19 includes the following:

 

 

Property, Plant and Equipment

The Entity did not correctly measure deemed costs for property, plant and equipment in accordance with GRAP 17, and the useful lives utilised in calculating depreciation did not reflect the actual conditions of the assets being depreciated. This affected the items in the financial statement as follows:

  • Overstated property, plant and equipment by R16.4 billion (2017, R16.7 billion).
  • Impact on the surplus for the period and the accumulated surplus.

 

Emphasis of Matters and Other Matters

A select number of issues as highlighted by the AG are noted below:

  • The AG questioned the PMTE’s ability to remain a going concern and indicated that the entity had a bank overdraft of R2.6 billion (March 2018: R2.3 billion) and current liabilities which exceeded current assets by R10.8 billion (March 2018, R11.4 billion).
  • Identified material impairments of R756.1 million as a result of write-off of irrecoverable receivables from exchange transactions.
  • As disclosed in Note 36 to the financial statements, the corresponding figures for 31 March 2018 were restated as a result of an error in the financial statements of the Trading Entity.

Programme 3: Construction Project Management

  • The AG could not verify the achievement by alternative means of reported achievement of 5 607 work opportunities from the target of 7 511 EPWP work opportunities created through construction projects.
  • The Trading Entity did not have an adequate performance management system in place to maintain records to enable reliable reporting on the achievement.

Programme 4: Real Estate Management Services

The AG could not obtain sufficient appropriate evidence for the variances between the planned target and the achievement reported as follows:

  • Achieved R332 million of planned R200 million savings realised on private leases.
  • 5.3% of planned 10% increase in revenue through rental of State-owned small harbours and coastal properties.
  • 505 of planned 400 State-owned properties verified to confirm occupation status.

Programme 6: Facilities Management

  • The AG could not determine the usefulness of reported performance information for the reported achievement of 3.89 per cent of unscheduled reported maintenance incidents resolved within the prescribed timeframes.
  • 187.8 million kilowatt hours (kWh) reduction in energy consumption for identified buildings.
  • 12.78 million kilolitre (kl) reduction in water consumption for identified buildings.

Annual Financial Statements

  • Financial statements were not submitted for auditing within two months after the end of the financial year, as required by Section 40(1)(c)(i) of the Public Finance Management Act No. 1 of 1999 (PFMA).
  • Financial statements submitted were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records as requited by Section 40(1)(a) and (b) of the PFMA.
  • Corrected material misstatements identified by the Auditor of current assets and disclosure, however, uncorrected material misstatements resulted in the financial statements receiving a qualified opinion.

Expenditure Management

  • Steps taken to prevent irregular expenditure amounting to R159 million were not effective in certain instances, as required by Section 38(1)(c)(ii) of the PFMA and Treasury Regulation 9.1.1.
  • The PMTE did not settle money owed within 30 days as required by Treasury Regulation 8.2.3.
  • Payments were made in advance of the receipt of services with respect to operating leases in certain instances in contravention of Treasury regulation 15.10.1.2(c).

Procurement and Contract Management

  • In certain instances, the AG could not obtain appropriate audit evidence that a properly delegated official as required by section 44 of the PFMA and Treasury Regulation 8.1 and 8.2 approved all extensions and modifications to contracts.

Revenue Management

Effective and appropriate steps were not taken to collect all money due as required by Section 38(1)(c)(i) of the PFMA.

Leadership

  • Adequate effective oversight responsibility was not exercised regarding the effective implementation of audit action plans.
  • Management did not effectively implement the recommendations to address the root causes of material misstatements reported in the previous year’s audit report, resulting in a reoccurrence for the year under review.

Financial and Performance Management

  • Complete, relevant and accurate information was not readily accessible and available to support performance reporting due to proper record keeping not always being implemented in a timely manner.
  • Senior management did not adequately review regular, accurate and complete financial and performance reports; consequently, the information submitted for audit was inaccurate and incomplete.
  • In certain instances, reviewing and monitoring of compliance with applicable laws and regulations by senior management were ineffective.
  • The process of preparing financial statements was lengthy and manual reviews performed proved inadequate to prevent the reoccurrence of material misstatements, due to the delay in the full implementation of the Financial Accounting System.

Other reports: Investigations

  • The Special Investigating Unit (SIU) has been authorised to investigate the affairs of the Department of Public Works and the PMTE as follows:
  • Finalised a report in 2018/19 on Supply Chain Management irregularities at the Department and the Trading Entity, covering the period 2003/04 to 2010/11.
  • Investigation extended to cover the period 2010/11 to 2015/16, and further extended to cover the period 2015/16 to 2018/19. The investigations were still in progress at the time of publication of the Annual Report.
  • Completed an investigation of Prestige projects in the Western Cape from 2007/08 to 2015/16. Report with the Head of the SIU for submission to the President.
  • At the request of the Minister of Public Works, the Public Service Commission conducted an investigation into appointments made at the National Department of Public Works and the Property Management Trading Entity during the period 1 April 2017 to 31 March 2018. The investigation was completed in February 2019 and was handed to the Minister of Public Works.

 

5.4. Human Resources

The PMTE has a total of 5 046 posts of which 4 623 were filled at the end of 2018/19 with another 779 filled positions additional to the establishment. During the year under review, the PMTE’s vacancy stood at 423. This translates into a vacancy rate of 8.4 per cent.

 

At top management level, of the six positions in the PMTE (excluding the Director-General), four are filled and two are acting. These acing positions include the following:

  • Head of PMTE.
  • Supply Chain Management Services.

 

Employment and Vacancies per Programme for 2018/19:

Programme

Number of Posts

Filled Posts

Vacant Posts

Posts Filled Additional to

Establishment

1. Administration

1,052

909

143

119

2. Real Estate Investment Services

264

229

35

19

3. Construction Project Management

723

670

53

333

4. Real Estate Management Services

299

250

49

30

5.Real Estate Information and Registry Services

78

72

6

34

6. Facilities Management

2,630

2,493

137

244

TOTAL

5,046

4,623

423

779

 

The largest portion of the 423 vacancies falls under Programme 1: Administration, with 143 vacancies, Programme 6: Facilities Management with 137 vacancies, followed by Programmes 3: Construction Project Management with 53 vacancies. These three programmes also have the largest portion of posts filled additional to the establishment. From the additional 799 positions: Programme 3 has a total of 333, Programme 6 accounts for an additional 244 positions, and Programme 1 has 119 posts filled additional to the establishment.

 

Programme 4: Real Estate Management Services, reported 49 vacancies and 30 additional posts; and Programme 2: Real Estate Investment Services reported 35 vacancies and 19additional posts.. While, Programme 5 reported the lowest vacancies with 6 unfilled posts, but 34 posts filled additional to the establishment.

 

 

Employment and Vacancies by Critical Occupations

The PMTE reported on a total of 430 posts by critical occupation of which 391 were filled at the end of 2018/19 with another 156 filled positions additional to the establishment. During the year under review, the PMTE’s vacancy rate of critical occupations stood at 39 posts. This translates into a vacancy rate of 9.1 per cent. The largest vacancy at 24 falls under Engineers and Related Professions, and includes 55 posts filled additional to the establishment.

 

5.4.1. Financial control and administration sections were under resourced

These matters did not change from the previous year. It must be noted that when matters were that noted as requiring attention were not acted on, stagnation sets in. This cannot be celebrated as it often leads to rapid decline rather than progress to improvement. This is especially concerning in the context of a lack of stable leadership with most of the DDGs in acting positions.

Further note that in its Budgetary Review and Recommendation Report for the 2016/17 financial year, this Committee noted that DPW and PMTE officials made statements that committed themselves to ensuring that daily activities would be imbued with solid risk management practices. This assurance was repeated during the 2017/18 financial year.

Unfortunately, in spite of this, the evidence in the annual financial statement and the audit performance report of the AG showed that this was not part and parcel of the daily practice of the PMTE. What is more concerning in this financial year, is that the consistent improvements of the last few years did not include the stabilisation of key leadership positions.

The PMTE reported that its risk management function was under-resourced and that this was the main reason for several misstatements and omissions in its reports.

With regards to human resources required to perform the core functions of the public works portfolio, the PMTE is facing serious problems. This Committee raised this in several reports since the 2014/15 financial year and the consequences of not giving the requisite attention to this, is manifested in the negative audit opinions expressed by the AG.

 

The rest of the report turns to Annual Reports of the entities that report to the Minister of Public Works.

 

6. MATTERS THAT EMERGED RELATED TO THE ANNUAL REPORTS OF THE ENTITIES REPORTING TO THE MINISTER OF PUBLIC WORKS

6.1. The Independent Development Trust (IDT)

6.1.1. Background:

The Independent Development Trust (IDT) was established in 1990 as an independent civil society, temporary grant-making agency with an initial endowment of R2 billion.  The IDT is now an important part of the broader Public Works sector that reports to the Minister of Public Works. The IDT is currently a Schedule 2A Public Entity in terms of the  Public  Finance  Management  Act  (Act No. 1 of 1999) as amended. The entity reports to Parliament through the Minister of Public Works and Infrastructure.

The IDT’s Mandate is to implement social infrastructure programmes and project management services to all three spheres of government through client-specific service level agreements on a management fee basis. To do this, the entity enter into Programme Implementation Agreements (PIAs) with client Departments in terms of standard contract engagements as specified by the National Treasury Instruction 4 of 2014/15.

The entity manages over R4 billion worth of infrastructure programmes on behalf of client Departments of Justice and Constitutional Development; Basic Education; Social Development; Health; and Sports, Arts and Culture. The IDT clearly plays a crucial role in the provision of judicial service facilities, schools, social welfare, clinics, sports and arts and culture venues are properly constructed and maintained. While it is not a primary service provider of basic rights as stipulated in the Constitution, the IDT plays a crucially important role to ensure that the infrastructure from which client Departments deliver these services, are properly constructed and fit for the purpose it should serve. In addition, in delivering this social infrastructure management service, the IDT also plays a key role in the Expanded Public Works Programme Non-State Sector (EPWP-NSS) management. The latter role is one in which the IDT provides guidance to Non-Profit Organisations (NPOs) in all the Provinces of South Africa that will be appointed to create work opportunities for the unemployed people as part of the EPWP Phase 3 Non-State Sector (NSS) Programme. This is a strategic partnership as the IDT has representation in all provinces and is organized on the basis of regional offices. The majority of the programmes undertaken by the IDT are managed from these offices.

The IDT is critical for the delivery of services that provide the basic rights of South Africans. During the reporting period, the IDT had several poor performance challenges which threaten its long-term financial viability. The Auditor-General of South Africa (AGSA) published several findings that illustrate that the entity has struggled. Amongst this was that governance suffered as the Board did not quorate; that a large number of key personnel in financial management and administration positions exited the institution and this impacted negatively on financially viability; that it struggled to collect management fees from client departments; and that financial statements submitted for auditing were not according to requirements by the Public Finance Management Act (PFMA).

 

In order to complete infrastructure projects, the IDT pays project management fees to construction service providers on behalf of client departments. Once projects are completed, client departments should pay the project management fees owed to the IDT from their respective Capital Expenditure portions of their budgets. In a context of fiscal constraint, client departments often refrain from paying management fees on time. This leads to the IDT not collecting management fees on time for their Annual Financial Statements to show that they accountably utilized funds to achieve predetermined objectives for the financial year under review. This leads to the IDT’s Annual Financial Statements showing depleted accounts, high debt owed, a high risk in terms of legal costs (as debtors sue the entity for monies owed), and liabilities exceeding asset value. The IDT has been, in terms of accounting and business principles, strictly speaking not a viable business. The Minister, as shareholder states her belief in the service that the IDT renders to the country: “Providing social infrastructure is key to achieving South Africa’s national development goals. The construction, renovation and rehabilitation of educational, health and justice facilities signify the Government’s determination to broaden access to learning, health and justice for all. Investment in infrastructure not only supports structural transformation, but it rejuvenates the economy and creates jobs.”[24]

For this reason, the Department transferred funds from Programme 4, (Property and Construction Industry Policy and Research) so that the IDT could continue its operations and basic services can be delivered to the people.

In spite of the bleak picture emerging from the IDT’s audit report for the year under review, it must be recalled that the IDT’s debt challenges were much worse since the 2010/11 through the 2015/16[25] financial years.  The manner in which it had whittled away its old debt since then, must be viewed in a positive light. It must be kept in mind that the IDT was on a path of recovery - the manner in which it improved its financial statement outcome to accurately account for expenditure incurred on behalf of client Departments during the year under review, was a result of implementing successful interventions that is testimony to the efforts of the entity to improve operations.

 

6.1.2. The 2017/18 and continued destabilisation of the IDT:

Unfortunately, the review shows that the IDT continues to suffer due to a spate of personnel exiting from its administrative management, financial control, and governance structures. This was the case in previous financial years and if this trend continues it would have a negative effect on the services that the public works sector requires. That means that the entity’s transformation must be escalated.

 

In the 2017/18 and in the current year under review, the exodus of personnel from the administration as well as from the Board caused a leadership and governance vacuum that led to a severe setback as far as the implementation of the action plan and organisational restructuring efforts is concerned. In important offices such as the Chief Financial Officer, and the Chief Executive Officer, critical staff were removed, suspended or resigned.

 

This was happening while management fees had to be collected from client departments, service providers had to be paid, key projects had to continue, and the financial administration and management had to continue delivering social infrastructure projects to client departments. The staff losses in the vitally important areas of financial administration and management meant that the entity struggled to collect management fees.

 

6.2. Programme Performance

6.2.1. Programme 1: Integrated Service Delivery

Strategic Objective: Deliver quality social infrastructure on time, within budget and scope.

During the year under review, the IDT performed poorly in Programme 1. Client Departments withdrew projects and where projects continued, the values were reduced. In addition, delays in funds being transferred to the IDT and on-going capacity constraints brought down the entity’s performance.

The entity achieved 4 out of 11 targets under Programme 1 which represented a 36.36% performance level. The performance during the previous year was 44,4% which is a reduction of 8% in year-on-year performance.

  

The following were reported under Programme 1:

  • Total value on social infrastructure spend was R3.775 billion against an annual target of R6.1 billion at the end of the financial year. This represents an achievement of 62%;
  • Sixty-nine per cent (69%) or R2.622 billion on of weighted Broad-Based Black Economic Empowerment (BBBEE) spend against a target of 70%. This represents an achievement of 99% against target;
  • The number of work opportunities created though the EPWP was 63 119 against a target of 54 000. This represents a performance level of 117%;
  • The number of EPWP/Cooperatives/NPOs/CBOs supported was 361 against a target of 380. This represents 95% performance level; and
  • Seventy per cent (70%) of social infrastructure projects were completed within budget out of total completed projects in a financial year based on the approved project budget against a target of 70%. This represents a 100% performance level.

The following targets were either partially achieved or not achieved as per the approved corporate performance rating scale which identifies a performance level of 51-85% as a partial achievement while performance below 50% is considered a non-achievement.

  • The number of work opportunities created through the IDT portfolio as at the end of the reporting period was 3 488 against a target of 7 800.
  • An amount of R190 663 million which represent 15% of programme contracts value awarded to women (based on R1.297 billion being the value of programme contracts awarded) was allocated to women against a target of 20%. This translates to a 75% achievement.
  • An amount of R121 162 million which represent 9% of programme contracts value awarded to youth  (based  on the value of programme contracts awarded of R1.297 billion) against a target of 15%. This translates to a 60% achievement.
  • The entity did not implement the Contractor Development Programme (CDP) during the period under review. The programme was reviewed in consultation with the National Department of Public Works and Infrastructure and the Construction Industry Development Board. As a result, targets on the number of designated contractors participating in the CDP and percentage of women contractors participating in the CDP were not achieved. The processes to recruit new programme participants is still under way and is projected to be completed during the first quarter of 2019/20 financial year.
  • A total of 112 social infrastructure projects were completed as at the end of the reporting period. Based on approved project time frame and project budget, 70% of completed social infrastructure projects were completed within budget whilst 40% were completed on time.

 

6.2.2. Programme 2: An Effective and Efficient Administration[26]

Strategic Objective: A compliant, results-based, efficient and focused organisation.

The entity achieved four (4) out of nine (9) targets under Programme 2 during the year under review. This represents 44.4% achievement.

 

The IDT reported on Programme 2’s performance as follows:

  • A corporate budget saving of 25% was achieved against a target of 5%. Overhead expenditure items that contributed to the savings were communication (62% below budget); travel and subsistence (50% below budget); consultancy fees, Facilities and Information technology (all at 31% below budget); and fees at 29% below budget. It must be noted that the savings reported on items such as travel and subsistence were due to the implementation of cost containment measures, it was also due to the decline in business activity as reported in Programme 1. Budget savings was also boosted by a reversal of R18.1 million bad debt provision raised in previous reporting periods following improved collections of old debt[27].
  • Billing an annual average management fees of 5% against a target of 5%.
  • The final copy of the 2019/20 Annual Performance Plan was submitted to the Executive Authority (NDPW) and the National Treasury; and tabled in Parliament.
  • Corporate occupancy level for funded positions measured against the old structure stood at 96% against a target of not less than 92%.
  • However, some of the targets were either partially achieved or not achieved. During the reporting period, the entity paid 19% of the total number of compliant invoices received within 30 days. This was largely due to pervasive and continuous delays in transfer of funds by client departments. Corporate efficiency ratio of 6.9% against a target of 5.7%. However, 6.7% of employees had  been  migrated  to  the new structure as at the end of the reporting period. The process of migrating employees to the new structure is still under way. The process was projected to be completed by the second quarter of the 2019/20 financial year.

6.2.3. Human resources

The Organisational  Development (OD) process of this entity has been drawn out over several years since 2014/15. The process waned and restarted several times during this period.

As the Executive Authority signed off and approved the Operating Model and Turnaround Plan in 2017/18, OD process was initiated with new vigour with the objective to the developing its Service Delivery Model and develop an organisational structure that complemented the revised Operating Model. This would include reviewing and introducing an “appropriate organisation culture to improve the entity’s performance and effectiveness.”[28]

During the year under review the IDT began with the implementation of some elements of the OD project.

 

 

Staff Establishment

A new organisational structure was approved in November 2017 with a total of 297 positions. The structure was reviewed in February 2019 and a revised structure with 292 approved positions.

HR played a leadership role on matters relating to organisational development. The IDT staff and other relevant stakeholder were regularly kept abreast of developments through stakeholder engagements with the recognised staff representative union in the bargaining forum meetings.

 

During the financial year under review the IDT successfully filled the positions of Chief Financial Officer and General Manager: Human Resources Management. Furthermore, 28 fixed term contract employees were appointed during the fourth quarter in the Financial Services Unit for a period of six (6) months as part of the strategic intervention to address the audit findings emanating from 2017/18 audit by the AGSA.

 

High staff turnover:

During the year under review the entity lost 51.92% (27) staff members who resigned. This component included senior management, professionally qualified, skilled and semi-skilled employees. The IDT had to note the reasons for these resignations; they included challenges with the physical work environment, the organisational culture, and the high level of uncertainty.

48.08%, (22) staff members left the entity as a result of the entity offering them a voluntary severance package (VSP) and 3 left due to retrenchment.  Of these 17 (32.69%) left as a result  of the expiry of their long-term contracts. Based on the agreement with the representative Union, they were paid severance packages. At the beginning of the 2018/19 financial year, the entity had 304 employees. The contracts of 52 employees were terminated during the course of the year whilst 32 new appointments were made during the same period.

Despite the IDT reporting progress in filling positions at executive level, the reality is that continued uncertainty over the organisation’s future would lead to a high level of staff exiting the organisation.

 

 

The areas of weakness that led to the continued disclaimer issued by the Office of the Auditor-General (OAG)

The areas of weakness that were stated in the BRRR of the committee for the 2017/18 financial year recurred in the 2018/19 financial year. The OAG remarked that while the IDT noted the advice given in 2017/18, and developed action plans, they were not implemented.

The relevant areas of weakness stated in the 2017/18 BRRR remain. They are listed below:

  • The loss of key leadership and accounts and financial management staff - the vacancies in key positions meant that the organisation could not realistically be expected to do well with basic project, accounts and financial management. It had vacancies in critical finance positions such as general Manager, Finance; Senior Manager, Financial Technical Specialists; Senior Manager Financial Accounting; and Senior Manager Project Accounting.
  • Inadequate document management systems - there was no readily available supporting documentation and back-up system for critical transactions in the organisation.
  • Low capacity of the Internal Audit function - lack of Internal Audit support in the organization; the IDT was unable to deal with the auditing process with the Office of the Auditor-General; it means it was not in control of its records and systems at the time the AG’s auditing team arrived to audit its books for the financial year.
  • Poor record-keeping of externally contracted services - this could continue to lead to over and underpayments and the ad hoc management of projects (in the past the IDT struggled to collect management fees on projects and was running at a loss due to this).
  • A high ratio of project managers to projects - this adds to the challenge of proper record keeping, the over and under payment of sub-contractors, and poor management of relationships with communities where social infrastructure projects are being constructed.

 

 

6.3.  THE COUNCIL FOR THE BUILT ENVIRONMENT (CBE)

The Council for the Built Environment (CBE) is a schedule 3A entity established by the Council for the Built Environment Act (Act No. 43 of 2000). This entity is responsible for regulating the councils for the built environment professions of architecture, engineering, landscape architecture, project and construction management, property valuation and quantity surveying.  Together with these built environment professional councils (BEPCs), the CBE has the responsibility to “regulate those Built Environment Professions who conceptualise, design, build, maintain and transfer social and economic infrastructure”[29] for the South African communities. As such, the entity and the BEPCs play a pivotal role in the implementation of programmes that give effect to the basic rights that all South Africans deserve.

 

Mission, Vision, and Values

The entity has fine-tuned its mission, vision and values. In the Annual Report for 2017/18, it stated its mission as “Implementing projects and programmes that address built environment issues and add value to the built environment professions, government and the general public.”[30] The CBE’s vision of the past financial year (2018/19) was to play a role in creating “An environment built to meet people’s needs and aspirations.”[31]

 

The mission for the 2018/19 financial stated that the CBE aimed to implement “projects and programmes that address built environment issues and add value to the built environment professions, government and the general public.”

It aimed to give effect to its responsibilities guided by the following values:

Integrity: We will carry out our responsibility in a manner that will preserve and enhance the integrity of the organisation.

Transparency: We recognise the CBE as a public entity and commit to providing reliable information to all our stakeholders.

Excellence: We will endeavour to achieve the best possible standards in all we do.

Innovation: We will continuously seek and employ better and more affordable solutions to meet the needs of our stakeholders and end-users.”[32]

 

Legislative Mandate

The objectives of the CBE as per section 3 of the CBE Act, 2000 are to:[33]

  • Promote and protect the interest of the public in the built environment.
  • Promote and maintain a sustainable Built Environment and natural environment.
  • Promote on-going human resources development in the Built Environment.
  • Facilitate participation of the Built Environment Professions in integrated development in the context of national goals.
  • Promote appropriate standards of health, safety and environmental protection in the Built Environment.
  • Promote sound governance of the Built Environment Professions.
  • Promote liaison in the field of training in the Republic and elsewhere and to promote the standards of such training in the Republic.
  • Serve as a forum where the Built Environment Professions can discuss relevant issues.
  • Ensure uniform application of norms and guidelines set by the Professional Councils throughout the Built Environment.

6.3.1. Performance Information

The CBE’s performance is measured against the Key Performance Indicators (KPIs) as stated in the APP of the year under review. The overall performance of the CBE against its annual targets for the 2018/19 financial year was that it completed 18 of 21 targets; it thus achieved 86% of stated targets as per the APP.

 

The following targets stated in the CBE’s APP of 2018/19 were not achieved:

 

Target 1.1: Implement six Information and Communication Technology (ICT) Governance Policies. Some of the controls of the six ICT Governance Policies were not fully implemented. These Governance Policies had to be implemented as per the Corporate Governance Policy Framework of the Department of Public Service and Administration (DPSA).

 

Target 1.2: The Electronic-Built Environment (E-BE) System. The procurement of the system did not take place as planned. Delays with the bid and governance challenges delayed the process. An agile methodology was adopted to expedite the deliverables of the project. 70% of the first key functionalities for the Public Interface, namely System User Registration, Profile Update, Application to be registered, and Application Monitoring were completed. The project would be completed in the second quarter of the 2019/20 financial year.

 

Target 4.6: Only two of the six Built Environment Professional Councils[34] submitted their annual performance plans (APP) to the CBE. The Acts of the six Councils do not require them to submit their APPs to the CBE; it however, compels them to submit their annual reports (ARs) within six months at the end of each financial year. This makes checking on performance of the CBEPs difficult and hampers the oversight role of the CBE. The non-submission of other CBEP ARs was due to their governance issues. The CBE is addressing this issue through meetings with the Registrars of the six CBEPs. The plan is to train their council members to exercise their oversight role in the respective CBEPs. The CBE plan to deal with this matter in the Registrars and Presidents Forums.

 

6.3.2. Revenue

2018/2019

2017/2018

Source of revenue

Estimate

Actual Amount Collected

(Over) / Under Collection

Estimate

Actual Amount Collected

(Over) / Under Collection

R’000

R’000

R’000

R’000

R’000

R’000

Transfer from DPW Main Vote (Programme 4)

50 100

50 100

-

48 568

48 568

-

Levies

2 125

2 158

(33)

2 011

2 120

(109)

Interest

926

1 021

(95)

810

821

(11)

Other operating income

1 218

1 390

(172)

817

926

(109)

Total

54 369

54 669

(300)

52 206

52 435

(229)

 

The CBE provided the following reasons for under/over collection:

Levies Received

The levy figures are subject to fluctuation as it solely depends on members’ payments. The slight increase is due to an increase in memberships.

Interest Income

The CBE was in the process of optimising its revenue. The interest received was due to the delay in certain projects, resulting in cash invested for a longer period.

Other Operating Income

The major contributor for the amount over collected was proceeds from insurance claims for assets lost.

 

 

6.3.3. Expenditure per Programme:

 

2018/19

2017/18

Programme

Budget

 

‘000

Actual Expenditure

‘000

(Over)/ Under Expenditure

‘000

Budget

‘000

Actual Expenditure

‘000

(Over)/ Under Expenditure

‘000

1: Administration

44 754

45 872

(1 118)

42 156

41 884

272

2: Skills for Infrastructure Delivery

7 822

7 934

(112)

7 888

7 243

645

3: BE Research, Information and Advisory

519

272

247

601

728

(127)

4: Regulation and Oversight of six CBEP

1 105

917

188

1 040

930

110

5: Government Policies and Priorities

169

167

2

521

341

180

Total

54 369

55 162

(793)

52 206

51 126

1 080

 

The CBE provided the following reasons for over and under-expenditure per programme as reported in the above table:

Programme 1: Administration:

The difference mainly relates to depreciation, not budgeted for in a cash-based budget.

Programme 2: Skills for Infrastructure Delivery:

The over expenditure was due to travel for unplanned meetings and invoices for stipends relating to the prior year.

Programme 3: BE Research, Information and Advisory:

The under-expenditure was mainly due to vacancies in the Department, resulting in less expenditure incurred during the year under review.

Programme 4: Regulation and Oversight of six CBEP:

The under-expenditure was due to an appeal which was withdrawn and savings on appeal committee fees. The nature of the expense did not allow for an accurate budget due to external dependency.

Programme 5: Government Policies and Priorities:

There was a saving on travel expenditure.

6.3.3. Human Resources Statistics

 

Personnel Cost by Programme

 

Programme

Total Expenditure for the entity (R’000)

Personnel Expenditure (R’000)

Personnel exp. as a % of total exp.

No. of employees

Average personnel cost per employee (R’000)

1: Administration

45 872

16 531

36.04%

31

533

2: Skills for Infrastructure Delivery

7 934

4 655

58.67%

6

776

3: BE Research, Information and Advisory

272

2 137

785.66%

4

534

4: Regulation and Oversight of six BEPCs

917

2 236

243.84%

4

559

5: Government Policies and Priorities

167

-

-

-

-

TOTAL

55 162

25 559

46.33%

45

568

 

6.3.4. Report by the Auditor-General[35]

Audit Opinion

The CBE received a clean audit opinion for the third consecutive year.

The AG advised that the CBE had to continue to monitor the compliance with legislation (the PFMA) and National Treasury and other regulations to prevent fruitless and wasteful expenditure.

 

 

 

6.4. THE CONSTRUCTION INDUSTRY DEVELOPMENT BOARD (CIDB[36])

6.4.1. Background and mandate

The CIDB is a Schedule 3A public entity established by the Construction Industry Development Board Act (Act No. 38 of 2000). The CIDB is responsible for providing leadership to stakeholders and to stimulate sustainable growth, reform and improvement of the construction sector, for effective delivery and the industry’s enhanced role in the country’s economy.  In terms of the Public Finance Management Act, the Board of the CIDB is the accounting authority, responsible to the Minister of Public Works. The board submits its Annual Performance Plan and budget to the executive authority.

 

The Mandate of the CIDB is to:[37] 

  • Provide strategic leadership to the construction industry stakeholders to stimulate sustainable growth, reform and improvement of the construction sector;
  • Promote sustainable growth of the construction industry and the participation of the emerging sector in the industry;
  • Determine, establish, promote improved performance and best practice of public and private sector clients, contractors and other participants in the construction delivery process;
  • Promote uniform application of policy throughout all spheres of government and promote uniform and ethical standards, construction procurement reform, and improved procurement delivery management – including a code of conduct;
  • Develop systematic methods for monitoring and regulating the performance of the industry and its stakeholders, including the registration of projects and contractors.

 

 

 

6.4.2. Programme Performance[38]

Programme 1: Administration

 

The programme achieved five of seven targets stated in its Annual Performance Plan (APP). This means that the CIDB achieved 71.4% of the programme targets. The targets not achieved are stated in the table below:

 

Target

Actual performance

67.5% of total revenue received through other revenue streams

61% - process of exploring other revenue not finalized.

85% of targets achieved in scorecards.

80% - due to the project delays, external dependencies and insufficient internal controls.

 

Programme 2: Regulation and Advocacy

 

Programme 2 reported on three targets, of which two were achieved. This means that it achieved a 66.7% performance success rate. The following target was not achieved:

 

Target

Actual performance

65% of public sector compliance with Regulatory Framework to the projects compliance index

47% of public sector compliance index - Compliance Strategy to be enhanced to focus on root causes of non-compliance, detection and corrective action.

 

 

Programme 3: Development and Capacitation

 

Programme 3 reported on three targets, of which none were achieved, so it scored a 0% success rate. The following targets were not achieved:

 

Target

Actual performance

0.01% Developmental support of construction Gross Fixed Capital Formation (GFCF)

0.00056% - developmental support of construction GFCF achieved.

1 000 learners receiving workplace learning opportunities

118 learners receiving workplace learning opportunities, due to lack of support from clients, as the training of learners is done on a voluntary basis.

One contractor growth through partnership and collaboration

None, due to the implementation of the partnership strategy not being effected.

 

Programme 4: Industry Performance and Transformation

 

Programme 4 reported on three targets, of which one was achieved, and two were not achieved. This constitutes 33.3% of the programme targets achieved. The following targets were not achieved:

Industry Performance and Transformation

Target

Actual performance

80% client satisfaction with contractors

0% - Performance rating of contractors

not performed, due to CID Regulation not finalized.

5% contractor and PSP recognition index

0.1% of contractors were recognized in the contractor recognition scheme; CID

Regulations have not been amended.

 

6.4.3. Human Resources

The CIDB reported a total of 174 staff members for 2018/19. Of this total, a 145 are permanent, and 29 non-permanent staff members. The entity reported that it requested that the shareholder agree that the moratorium on recruitment of executives be lifted, particularly as it applied to the appointment of the following:

 

 

  • Chief Executive Officer (CEO).
  • Chief Financial Officer (CFO).
  • Chief Information Officer (CIO).

 

The Board approved the new structure early in the year being reviewed.

 

 

Occupational Levels

 

 

Total

% of Overall

Structure

Top management

0

0%

General management

2

1,15%

Senior management

10

5,75%

Professionally qualified and experienced specialists and mid-

 

 

management

17

9,8%

Skilled technical and academically qualified workers, junior

 

 

management, supervisors, foremen, and superintendents,

38

21,8%

Semi-skilled and discretionary decision making

77

44,3%

Unskilled and defined decision making

1

0,6%

Total Permanent

145

 

Fixed-term Contract

27

15,5%

Employees with disabilities

1

0,57%

Temporary employees

1

0,57%

Grand Total

174

100%

 

6.4.4. 2018/19 Financial statement and performance

a. Financial Statement

 

2018/19

(R)

2017/18

(R)

Assets

 

 

Current Assets

 

 

Receivables from exchange transactions

3,963,040

5,791,992

Cash and cash equivalents

241,400,950

211,768,118

 

245,363,990

217,560,110

 

 

 

Non-current assets

 

 

Property, plant and equipment

10,287,544

9,008,609

Intangible assets

8,342,146

4,773,670

 

18,629,690

13,782,279

TOTAL ASSETS

263,993,680

231,342,389

 

 

LIABILITIES

 

 

Current Liabilities

 

 

Finance lease obligations

103,153

422,744

Payables from exchange transactions

13,132,840

10,882,970

Provisions

5,136,381

4,799,661

Income received in advance

69,148,180

66,183,890

 

87,520,554

82,289,265

 

 

Non-Current Liabilities

 

Finance lease obligations

103,154

TOTAL LIABILITIES

87,520,554

82,392,419

Net Assets

176,473,126

148,949,970

Accumulated surplus

176,473,126

148,949,970

 

 

b. Statement of Financial Performance

 

208/19

(R)

2017/18

(R)

Revenue

 

 

Revenue from Exchange transactions

 

 

Assessment fees

46 714 950

44 199 000

Other income

18 451

35 913

Finance income

16 126 291

14 666 268

Total revenue from exchange transactions

62 859 692

58 901 181

 

Revenue from non-exchange transactions

 

 

Transfer revenue

 

 

Government grants

73 323 000

74 984 000

Contractor fines

405 000

349 308

Annual fees

53 426 430

43 213 322

Total revenue from non-exchange transactions

Total revenue

127 154 430

118 546 630

190 014 122

177 447 811

 

Expenditure

 

 

Employee benefit costs

(83 854 906)

(78 257 499)

Members’ emoluments

(3 777 613)

(2 524 658)

Depreciation and amortization

(3 993 227)

(4 003 024)

Finance costs

(28 069)

(137 171)

Debt impairment

(184 560)

(108 899)

Loss on assets written off

(819 425)

(168 161)

Operating expenses

(70 511 335)

(57 053 133)

Total expenditure

Surplus for the year

(163 169 135)

(142 252 545)

26 844 987

35 195 266

 

By the end of 2018/19, the CIDB had an accumulated surplus of R176.5 million. Its opening balance at the beginning of the financial year was R149.6 million, of which a surplus of R26.8 million was added by the end of the financial year.

 

The total Remuneration for Executives (which included Annual Remuneration, Acting Allowance and Performance Bonuses) equalled R14.8 million for 2018/19. This is an increase of R2.1 million from the R12.7 million for 2017/18.

 

The CIDB reported a total expenditure of R163.2 million for 2018/19, an increase of R20.9 million from the R142.3 million in 2017/18. The increase in expenditure included the following:

  • R83.9 million in Employee benefit costs - an increase of R5.6 million in 2018/19 from the R78.3 million spent in 2017/18.
  • R70.5 million in Operating expenses - an increase of R13.5 million in 2018/19 from the R57.1 million spent in 2017/18. A select number of increases in operating expenses was noted as follows:
    • 29.2 million on Consulting and professional fees, an increase of R6.5 million from the R22.7 million reported in 2017/18.
    • R8.2 million on Rentals, an increase of R2.5 million from the R5.7 million reported in 2017/18.

 

The CIDB reported the following with regards to financial performance:

  • R98.7 million in Contingent liabilities, which is a decline of R7.7 million from the R106.4 million reported in 2017/18. The contingent liabilities are to National Treasury (NT) and relates to surpluses that require approval to be retained, as Section 53(3) of the PFMA does not allow entities to accumulate surpluses without NT approval.
  • R70 885 in Contingent assets relates to a pending outcome in a court case between the CIDB and an employee to recover the amount. The CIDB expected to recover the full amount.
  • R5.2 million reported on Computer expenses, for computer software development, the new system is set for implementation in October 2019, all qualifying cost were capitalised. This is an increase of R5.1 million from the R93 068 spent in 2017/18.
  • R1.0 million was reported an opening balance in Irregular expenditure for 2018/19.  This follows from the R1.2 million reported in 2017/18, of which R217 116 was condoned.

 

The Auditor-General noted the following with respect to Programme’s performance:

  • The AG was unable to obtain sufficient appropriate audit evidence for reported achievement of target of 80% Register of Project information verified ad corrected within 8 weeks’ index – due to limitations placed on the scope of his work.
  • The achievement for a target of 94% of Grade 1 contractors activated within 48 hours, reported in the Annual Performance Report, was 92%. However, the supporting evidence provided did not agree with the reported achievement and indicated an achievement of 77%.

 

6.4.5. Report of the Auditor-General for the year ended 31 March 2019[39]

The CIDB received an unqualified audit opinion from the Auditor-General (AG) with the following emphases of matter:

 

  • Material misstatements in the Annual Performance Report on the reported performance of Programme 2: Regulation and Advocacy; Programme 3: Development and Capacitation as well as Programme 4: Industry Performance and Transformation. The AG raised material findings on the usefulness and reliability of the misstatements that were not corrected by management.
  • Reported achievements under Programme 3: 20% of contractors graduating from CDP.

reported as 70%. However, the supporting evidence provided did not agree and indicated an achievement of 0%.

  • The AG noted that in Programme 4, the index for the indicator of the planned target of 50% of contractors paid within 30 days, was not specific in clearly identifying the nature of the required level of performance and nor was it measurable.
  • Financial statements submitted for auditing were not prepared in accordance with the prescribed framework as required by Section 55(1)(a) and (b) of the PFMA.
  • Material misstatements on: non-current assets, current assets, current liabilities, revenue, expenditure and disclosure items were identified by the auditors, for which supporting documentation was subsequently provided, thereby resulting in the financial statements receiving an unqualified opinion.
  • Key senior management positions remained vacant, which resulted in the oversight responsibilities regarding financial performance reporting and compliance as well as internal controls being inadequate.
  • The entity lacked sufficient and adequately qualified and skilled staff to support senior management.
  • The entity lacked training and development interventions to capacitate middle management to supervise and hold staff accountable.
  • Management did not implement proper record keeping in a timely manner to ensure complete, relevant and accurate information is available to support financial and performance reporting.
  • Other Reports: At the date of the audit, the SIU was in the process of investigating allegations related to alleged irregular actions that took place between 1 January 2006 and 15 April 2016 on the Register of Contractors.

 

6.4.6. Matters requiring attention to improve the CIDB in the 2019/20 Financial Year:

The instability at management level has resulted in the entity not having proper internal controls, which led to the AG highlighting this, including the lack of proper financial management and reported misstatements. The CIDB therefore needs to fill the vacancies at management level, particularly that of Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chief Information Officer (CIO) urgently, in order to improve the executive, financial, and information technology oversight of its performance.

 

The Registers of Contractors and Projects should be finalised, as well as plans to ensure that more public and private sector clients utilise these. Furthermore, the transformation in the construction sector is still lagging behind, particularly in the higher Grades of 7 to 9, for women-owned and black-owned construction companies.

 

The large number of contractors still at Grade 1 level also needed to be reviewed and better solutions had to be found to address the situation.

 

6.5. AGRÉMENT SOUTH AFRICA

6.5.1. Introduction:

Agrément South Africa was first established in July 1969 in terms of a delegation of Authority from the then Minister of Public Works.

The organisation is currently a schedule 3A public entity under the Public Finance Management Act No. 11 of 1999 and is established under the Agrément South Africa Act No 11 of 2015.

The organisation is an entity of the National Department of Public Works and Infrastructure (NDPWI) and its mandate is within the domain of the built environment and as such, the legislation and mandates that impact on the built environment and public works guide the functioning and operations of Agrément South Africa.

 

 

 

 

 

6.5.2. Performance:

 

Agrément South Africa supports and promotes the introduction and use of non-standardised and innovative construction related products or systems in the local and international markets.

 

While its work does not directly impact on service delivery, the entity performs this process to contribute to the broader integrated socio-economic development in the Country. By testing mom-standardized innovative building material and systems, ASA provides support to policy makers in minimizing the risks associated with the use of non-standardised construction related products or systems.

 

Over the past five years (2014 to 2019), ASA issued an average of 28 certificates each year. This is in line with annual trends of technical assessments that are carried out world-wide by the technical assessment organisations that are members of the World Federation of Technical Assessments Organisations (WFTAO). In the year under review Agrément South Africa issued a total of 27 certificates.

 

Performance and the budget:

Performance linked to the 2017/18 to 2018/19

 

2018/2019 Financial Year

2017/2018 Financial Year

Programme/ Activity/ Objective

Budgeted Rand

Actual Expenditure Rand

(Over)/ Under Expenditure

Rand

Budgeted Rand

Actual Expenditure Rand

(Over)/ Under Expenditure

Rand

Employee Related

Costs

19 541 000

15 127 507

4 413 493

15 014 000

10 975 670

4 038 330

Administration Fee

-

-

-

-

4 912 434

-4 912 434

Depreciation and Amortization

640 000

3 624 230

2 984 230

634 000

28 278

605 722

Lease Rentals on

Operating Lease

2 140 000

1 884 633

255 367

1 625 000

858 189

766 811

Debt Impairment

-

300 917

-300 917

-

-

-

Operating Expenses

10 959 000

8 955 884

2 003 116

16 235 000

3 449 615

12 785 385

Total Expenses

33 280 000

29 893 171

3 386 829

33 508 000

20 224 186

13 283 814

               

 

6.5.3. Comparative Revenue Collection

2018/2019

2017/2018

 

Sources of Revenue

Budgeted Rand

Actual Amount Collected

Rand

Over/ Under Collection

Rand

Budgeted Rand

Actual Amount Collected

Rand

Over/ Under Collection

Rand

Government Grant

29 988 000

29 988 000

-

29 045 000

29 045 000

-

Assessment Fees

2 442 000

2 642 834

(200 834)

4 120 000

2 281 633

1 838 367

Interest Received

850 000

1 680 028

(830 028)

343 000

1 171 425

(828 425)

Total

33 280 000

34 310 862

(1 030 862)

33 508 000

32 498 058

1 009 942

 

The amount collected for assessment fees was R200 834 more than the budgeted figure. The amount received as interest was R830 028 more than the budget figure of R850 000.

 

6.5.4. Matters raised by the Auditor-General

 

In spite of its unqualified audit (with findings), the AGSA picked up a problem within the Supply Chain Management of the entity. Due to a lack of compliance to legal prescripts in awarding contracts  and  quotations this weakness led to fruitless and wasteful expenditure totalling R50 955 of which R36 173 was due to SARS, and R14 782 related to travel costs.

 

The ASA explained that the first matter involving R36 173 related to the start-up of the organisation in 2015. It was a request that was submitted to SARS in relation to penalties on late payment after the legislation bringing the ASA into existence was passed. No disciplinary steps have been instituted as the result of the investigation of the penalty committee at SARS is awaited.

 

The matter involving R14 782 related to travel cost due to tickets not being issued as flexi-tickets. ASA reported to the Committee that no disciplinary steps were instituted as the investigation was still being finalised.

 

 

6. NOTE OF APPRECIATION:

The Portfolio Committee on Public Works and Infrastructure commends the Office of the Minister of Public Works and Infrastructure, the Department of Public Works and Infrastructure, and the PMTE, for the progress made in stabilising the Department and in operationalising the PMTE.

The consistent attendance of the Minister and Deputy Minister of Public Works and Infrastructure and their staff is highly appreciated. This significantly enhanced the Committee’s on-going efforts to deal with the challenging matters that the portfolio of public works faces.

The Committee further notes the high level of engagement of the boards and administrations of the IDT, CBE, CIDB, and ASA in its willingness to engage, and report to the Committee.

Finally, the Committee expresses its appreciation to the Office of the Auditor-General for the professional manner in which it provided analytic assistance on material evidence on which the opinions was based on the annual performance reports and financial statements of the department, the PMTE and the entities.

 

 

7. FINDINGS:

7.1. The Committee found that while there were improvements to the quality of performance information, alignment of planning, budgeting, implementation, monitoring and evaluation, and reporting in line with the Government Wide Monitoring and Evaluation Framework, there were problems with planning indicators that could assist the process of achieving a clean audit.

7.2. The Committee was concerned that some of the Key Performance Indicators of the DPW, PMTE, CIDB, and IDT did not conform to the reliability and usefulness criteria of properly defined indicators for planning documents.

7.3. The DPW and PMTE did not comply with and follow the prescripts of the PFMA (Act No. 1 of 1999)[40] that stipulated that regular performance reporting, supported by appropriate evidence had to be done throughout the year[41].

7.4. The DPW’s turnaround strategy had a positive effect on the Department and assisted to improve its audit outcome. However, many of the audit challenges were shifted to the PMTE that was the implementing arm of the Department.

7.5. The PMTE’s operationalisation provides a trajectory of progress on audit outcomes. Since the turnaround strategy was initiated in 2011/12 it had twelve matters that led to a disclaimer[42]. In 2013/14 it progressed to a qualified audit with three matters highlighted. During the 2014 to 2019 five-year term, of which the current financial year is the closing year, the three matters were reduced to one, that recurred in various forms over this period, namely the Immovable Asset Register.

7.6. The outstanding matters that prevented the PMTE from getting a clean audit are ownership of immovable assets as per title deed. This involves physical verification to prove property use and confirmation of custodianship. In addition, valuation to determine replacement cost continued as a matter in the financial year under review.

7.7. The Committee found that the organogram of the Department and the PMTE showed that too many additional posts continued to exist additional to the post-establishment.

7.8. In spite of the successes with the PMTE’s operationalisation, within the new five-year term (2019-2024), it had to address the challenges that characterised it over the last few years. These included:

  • its weakened ability to achieve full cost recovery because of a low user charge model;
  • a shortage of critical, technical built environment, property management, and contracting skills that are relevant to the property sector, leading to the under capacitation of the PMTE in managing the state’s large asset portfolio; and
  • its financial sustainability as it continued to struggle to collect management fees.

7.9. The Committee welcomed the work done by the Real Estate Information and Registry Services (REIS) with the Operationalisation and Financial Sustainability Programme (OFSP) of the PMTE. The Committee believed that as part of addressing the human resource challenges in the DPW and the PMTE, especially the REIS and OFSP needed to be capacitated to address the following challenges:

  • a complete and accurate Immovable Asset Register (IAR), as the AGSA found that it contained material errors;
  • the DPW and PMTE management needed to negotiate with the National Treasury on a review of the user charge model on leasing out to client departments;
  • the PMTE management needed to develop a funding strategy composed of short-term quick wins worth over R1 billion, and long term value creation scenarios; and
  • the DPW and PMTE management needed to develop a financial model centred on the componentisation of the IAR to unlock more value from the property portfolio.

7.10. The Committee found that insufficient attention was given to the recommendations made by the AGSA and the Portfolio Committee on Public Works in the 2018/19 financial year. It expressed its disappointment that the DPW and PMTE’ responses to the BRRR recommendations were only sent at 13:00 on 08 October 2019. This showed the lack of consequence management and a lethargic reaction from the DG and his senior management team to address the serious challenges that the DPW and PMTE faced.

7.11. The Committee welcomed the Minister’s announcement that from the second quarter of the new financial year 2019/2020, a key performance indicator would be added to the contracts of each senior manager that stated that a clean audit had to be achieved in the 2019/2020 financial year.

7.12. The Committee found that there was a need to customize the performance indicator for all spheres of government that created EPWP employment. In this way, figures stated as Key Performance Indicators in the Annual Performance Plan of the EPWP would not lead to the AG emphasising insufficient evidence for reported achievements. The audit evidence that the AGSA required was not in the control of the EPWP itself. Instead, it was information that had to be verified by the relevant departments in provinces and municipalities.

 

8. RECOMMENDATIONS:

The Portfolio Committee recommends that the Minister of Public Works and Infrastructure:

  1. Reports to the Committee on the following investigations that were mentioned in the Annual Report for the year under review[43]:
    1. The Public Service Commission investigation completed in February 2019, into appointments made at the DPW and the PMTE during the period 1 April 2017 to 31 March 2018. The report to reach the Committee by February 2020.
    2. The 2018/19 investigation into Supply Chain Management irregularities within the Prestige Branch, covering the period 2003/04 to 2010/11, that was extended to cover the period 2010/11 to 2015/16, and further extended to cover the period 2015/16 to 2018/19.
    3. An investigation of Prestige projects in the Western Cape from 2007/08 to 2015/16.
  2. Reports to the Committee on the steps taken to deal with posts in addition to the DPWI and PMTE post-establishment.
  3. Reports to the Committee on the high number of vacancies in key management positions that continue to lead to non-compliance with the PFMA’s stipulated in-year reporting and proper financial administration and financial management control systems in the DPW and the PMTE.
  4. Instructs the Director-General of the DPW, the Head of the PMTE and the CEOs and Boards of public works entities to, on a quarterly basis, as part of the quarterly performance reports to this Committee, include a progress report on the implementation of the audit action plans to address poor audit outcomes within the public works  portfolio.
  5. Instructs the DG to report to the Committee by March 2020 on progress to customize the performance indicator for all national and provincial departments as well as municipalities that created employment through EPWP projects. In this way, figures stated as Key Performance Indicators in the Annual Performance Plan of the EPWP would not lead to the AG emphasising insufficient evidence for reported achievements. The report to the Committee should also address efforts made to ensure that the DPWI, public bodies, and municipalities account on the under-achievement of  set targets in  relation to Expanded Public Works Programme (EPWP).
  6. Reports to the Committee on streamlining the mandates of all the public works entities that reports to her, so that where functions are duplicated they can be streamlined as part of the drive towards centres of excellence, transformation of the built environment professions, and the construction industry, and the use of innovative, fit-for-purpose building material and systems are in full use throughout the public works and infrastructure sector of South Africa.
  7. Instructs the PMTE, together with the CBE and CIDB to initiate discussions with the Departments of Basic Education, and Higher Education and Training. These discussions to centre on innovative curriculum development that would allow learners to enter built environment training through Further Education and Training, and Technical and Vocational Education and Training programmes that may seamlessly link with professional built environment courses at universities. Such efforts to be reported to the Committee and relevant sister Portfolio Committees on Basic Education and Higher Education and Training by the March 2021.
  8. Instructs the Head of the PMTE and DDG in charge of the Real Estate Information Registry to provide  feedback  on  the  monitoring  of  leases to the Committee in the third quarter of the next financial year  to prevent  overpayments recurring in the 2019/20 Annual Report.
  9. Reports to the Committee by May 2020 on the efforts to appoint suitably capacitated personnel in the Real Estate Information and Registry branch of the PMTE to:
  • Deal with material errors in the Immovable Asset Register, and establish and maintain the IAR as complete and accurate as part of a clean audit for the PMTE;
  • Negotiate with the National Treasury on a review of the user charge model on leasing out to client departments;
  • Develop a funding strategy composed of short-term quick wins worth over R1 billion, and long term value creation scenarios; and
  • Develop a financial model centred on the componentisation of the IAR to unlock more value from the property portfolio.
  • Initiate a strategy to effectively deal with the under-capacitation of the PMTE that is needed to manage, design, and implement strategies through which the value of the large asset portfolio can be unlocked.
  1. Reports to the Committee by February 2020 on progress to ensure that the Boards of all public works entities are fully functional so that the entities can function optimally.
  2. Reports to the Committee by August 2020 on the urgent need to    capacitate the  IDT board of trustees and the general state of the turn-around strategy of the entity, including Human Resource (  HR) capacity.
  3. Instructs the IDT to report on a quarterly basis on the status of action plans to implement consequence management and the ongoing investigations into fruitless and wasteful expenditure.

 

Report to be considered.

 

 


[1] Note that during the period under review, the DPWI was still referred to as the DPW. References in the report to DPW and DPWI refers to the same department.

[2] Section 5(4), the Money Bills Amendment Procedure and Related Matters Act (Act No. 9 of 2009)

[3] Section 5(1) (a) to (f) of the Money Bills Amendment Procedure and Related Matters Act (2009).

[4] Department of Public Works (2014), p. 43. The Department regulates the construction industry through the Construction Industry Development Board Act (No. 38 of 2000).

[5] The Department regulates and built environment through the Council for the Built Environment Act (No. 43 of 2000) and the six Professional Council Acts that regulate the six Built Environment Professions.

[6] Section 1(a) of the Public Finance Management Act (PFMA) (Act No. 1 of 1999 as amended by Act No. 29 of 1999).

[7] S1 and S36 of the PFMA.

[8] Explanatory memorandum on the Act, Division of Responsibility, PFMA.

[9] The 2018-2019 financial year forms the outer year of the 2014-2019 term. The 2018/19 BRRR therefore uses the 2014-2019 Strategic Plan of the Department that was revised as 2015-2020. It must be noted that the 2019-2024 Strategic Plan is being processed and will form part of the analysis for the 2019-2020 BRRR.

[10] This Committee had its first meeting on 2 July 2019. It used the Fourth Quarter Financial Performance Report 2018-2019 as presented to it on 20 August 2019.

[11] Note that in parts of this report, the AGSA may be referred to simply as Auditor-General and is then abbreviated as AG.

[12]6 May 2015, Extended Public Committee, Debate on Vote 11 (Public Works) Minister of Public Works.

[13]In a presentation to the Committee on 3 October 2017, the Minister stressed the policy imperatives as stated in the NDP as expressing government policy in government’s medium term strategic framework (MTSF). Due to the continued relevance of the broad objectives for the 2014-2019 MTEF, this report repeats this section from the 2016/17 BRRR.

[14] Medium Term Strategic Framework (MTSF) Appendix 12.

[15]All figures in this sub-section are from the 2018/19 Annual Report of the Department of Public Works.

[16]Note 9.4 of the Annual Financial Statement (AFS) of the Annual Report.

[17] Note 25 of the AFS dealing with irregular expenditure, on p 222.

[18] Portfolio Committee on Public Works BRRR 2017/18.

[19] Department of Public Works (2018a), p 187.

[20] Department of Public Works (2018a), p 190.

[21] Department of Public Works (2018), p 190.

[22]Treasury Regulation 8.2.3. states, “Unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from receipt of an invoice or, in the case of civil claims, from the date of settlement or court judgement”. This was further strengthened by an updated Instruction Note 34 issued by the Office of the Accountant-General on 30 November 2011, that enhanced compliance with section 38(1)(f) of the PFMA.

[23] Department of Public Works (2018), pp 86-96.

[24] Foreword of the Minister of Public Works and Infrastructure, IDT Annual Report 2018/19.

[25] The IDT had disclaimed audit opinions on its Annual Financial Statements during these years.

[26] IDT (2018), pp. 36-40.

[27] This is with reference to the continued effort of the IDT to whittle away old debt as referred to earlier.

[28] IDT Annual Report 2018/19.

[29] CBE Annual Report (2018/19).

[30] CBE Annual Report (2017/18).

[31] CBE Annual Report (2018/19).

[32] Ibid.

[33] Ibid.

[34] These are referred to as Council for the Built Environment Councils (CBEPs) in the 2018/19 Annual Report. The term Built Environment Professional Councils (BEPCs) is also used.

[35] CBE (2018a), pp 90-93.

[36] Note that while the entity uses the initialism, “cidb” as its brand name, throughout this report it is referred to as “CIDB”.

[37] CIDB Annual Report, 2018/19.

[38] All data and percentages related to programme performance, human resources, and financial performance are presented in this report as presented to the Committee in the entity’s Annual Report and AFS for the year under review.

[39]  CIDB (2018) pp 46-48.

[40]PFMA as amended by Act 29 of 1999.

[41]These prescripts are stated in the PFMA as follows: For annual reporting, S40(1); for regular reports to the AGSA, (2) and (3); for in-year monthly reports, (4) and its sub-sections. In case the Accounting Officer is (for whatever reason(s)) unable to do these, S40(5) requires that he or she “report the inability, together with reasons, to the relevant revenue authority and treasury.”

[42] See page 9 and 12 for these matters. It used to be challenges that led to disclaimers on the DPW Main Vote.

[43] While the second and third reports were not completely processed at the time of reporting, the Committee lists these for urgent reporting as soon as they are completed.

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