Department of Public Works and Infrastructure 2021/22 Annual Report; with Deputy Minister

Meeting report

The Chairperson opened the virtual meeting, welcoming the Members, support staff and all the guest delegates from the Department of Public Works and Infrastructure.

Deputy Minister’s Remarks

There was an apology received from the Minister, who was attending Cabinet. The Deputy Minister, Ms Noxolo Kiviet, had opening remarks and updates before the presentation was given. She mentioned that the Deputy Director-General responsible for governance risk has now been appointed as the Head of State Security. So, there is now a vacancy there.

The Department did receive an unqualified audit opinion, which has been maintained over time. In as much as the Property Management Trading Entity (PMTE) had improved in the previous financial year, a qualification was received – which was caused by a lapse in the reconciliation of the assets register. That was the main issue, which may have impacted the performance.

On the Department’s contribution towards building a developmental state, which is responsive to the people’s needs: a change management programme was undertaken towards the end of the last financial year, and its results could be evident in the current financial year. The Department is aware that more work still needs to be done, but the progress made thus far puts them in a better state, heading towards the right direction.

Department of Public Works and Infrastructure 2021/22 Annual Report

Mr Lwazi Mahlangu, from the Department, began with the presentation. He gave a main overview of the organisation's performance from the accounting officer’s report.

Highlights from the Accounting Officer mentioned the following:

-Skills Audit concluded;

-ERP project in progress, although very slow;

-Establishment of an Ethics Committee;

-Sector pulling together towards the five-year sector plan working with entities;

-Department supporting the DDM initiatives;

-National Infrastructure Plan 2050 gazetted;

-Progress with some infrastructure projects, most of which are either in implementation stages, have reached financial closure or are completed;

-The Infrastructure Fund facilitated the approval of R2.6 billion in funding;

-Continue Department’s contribution to the economic recovery and reconstruction plan;

-Work opportunities created by various sectors (Infrastructure, Environment & Culture and Social Sectors);

-In support of land reform initiatives: A total of 20 102.3419 hectares of land were released;

-Supported the GBV-F initiatives by working with other government departments and providing shelters to the victims;

 -Intervened and supported the KZN floods crisis by re-assigning more capacity to assist the KZN Department of Transport and affected municipalities.

The Department reported overall performance was 54% in 2020/21 and improved to 60% in 2021/22 – see attached for detailed performance per programme.

Interventions to address underperformance:

• Continue with the ten principles to improve performance

1. Change Management Programme (appointed champions)
2. Service Delivery Improvement Programme (development of Service Level Agreements (SLAs) and in some areas have started receiving positive feedback from clients)
3. Business Process Management Programme (in progress)
4. ERP Fast Track Programme (in progress – appointment of the Chief Information Officer (CIO) to speed up the process)
5. Macro Business and Delivery Model of the DPWI (in progress as part of the development of AOPs and business process management)
6. Ethics & Compliance, Infrastructure and Consequence Management Unit (in progress with a designated Ethics officer and establishment of an Ethics committee and completed the first phase of the Lifestyle Audit)
7. Contract Management and Monitoring Capacity (in progress)
8. Organisation Wide Skills Assessment (conducted)
9. Organisation-Wide Maturity in Strategic Management (in progress and the Impact matrix will serve as a base to test maturity)
10. Clean Audit

• Recognition of Designated Groups and Promotion of Women and Persons with Disabilities: The Department continues in its strides towards empowerment of Women, Youth and Persons with Disabilities and the achievement of the National Employment Equity targets of 50% for women in SMS and 2%, respectively for Persons with Disabilities. In demonstrating its commitment to meeting these targets, the Department will elevate these interventions into the Strategic and Annual Performance plans.
•  Information and Communication Technology (ICT): The COVID-19 pandemic has disrupted all areas of business operations – from how officials interact with each other to how they consume ICT resources. In this regard, ICT has played a critical role in enabling remote working and ensuring business continuity to minimise the impact of the change brought about by the pandemic. In addition, to shape the DPWI’s digital future, ICT is putting in place interventions to ensure proper governance, risk management and IT security. In this regard, there is an emerging consideration for putting in place cybersecurity controls

See presentation attached for financial performance.

[See presentation for more details]

Discussion

Mr M Rayi (ANC, Eastern Cape) acknowledged the presentation. He said that some points were a part of it, but he wanted to raise the matters by the Auditor-General (AG) in particular. The first issue raised by the AG is parliamentary villages that have not submitted financial statements since 2014 and have not been audited since 2013/14. Why is that?

The second issue concerns the quality of financial reporting internal control system developed to address prior year qualification. It has not been effective in certain instances. There are issues around leases at PMTE that remain, leading to overpayments being made. Weaknesses in financial management control relating to programme assets and liabilities and prior year irregular expenditure are still a concern. Regarding compliance with key legislation, the AG identified the most common areas of non-compliance: quality of financial statements, PMTE, and DPWI. These entities were found to be non-compliant, with irregular expenditures, and non-compliance with revenue management. This relates to PMTE. Concerning procurement and payment, the AG raised the issue of uncompetitive and unfair procurement processes, indicating an amount of R242 million. In terms of irregular expenditure, the report mentioned that one of the contributors is PMTE, with R133.5 million and DPWI with R3.8 million. It further states the breach of the pillars of procurement, which are: equitable fairness, transparency, competitiveness, and cost-effectiveness. PMTE incurred R9 million as a result of procurement processes not followed. PMTE incurred another R54 million due to irregular appointment of employees and appropriate approval not obtained by delegated officials. DPWI incurred R3.9 million as a result of irregular appointment of officials. PMTE incurred R107 million as a result of procurement and contract management. DPWI incurred R453 000 as a result of contracts awarded to the winning bidder who was non-responsive.

He asked for a response on consequence management related to the irregular expenditure, considering the point raised by the AG – addressing the irregular expenditure items that were due to be written off as opposed to being investigated.

Regarding performance planning and reporting, the AG raised a concern regarding EPWPs, stating that the work opportunities created are unsustainable and do not always result in upskilling and training. This is known. However, most of the time, the report focuses on the number of jobs created but does not focus on the training side of it and the skills those who received these opportunities leave with. There is also concern about lack of supporting evidence concerning the numbers that the Department claims to have achieved in the EPWP.

In terms of the reporting on the programmes, particularly on finances – why was there underspending? He wanted to understand what went behind the virement from programme three to programme one, yet the latter programme had to underspend. That means there already were some funds in programme one that could have been utilised, so the reprioritisation does not make sense.

Regarding programme three, Mr Rayi also wanted to understand the underspending on machinery and equipment. The report said that the underspending was due to spending lower than projected on acquiring assets. What is meant by ‘lower than projected spending’? On expanding the economic classification, there is said to have been a variance of R1.475 million. What was the reason for that variance? Regarding transfers and subsidies, there is a non-profit institution with a variance of R64 280. What caused this?

On PMTE revenue, can clarity be provided under the item interest, fines, recovery and other receipts, if it is R63 000 or R63 million? He also asked for an explanation on the R1.350 million.

Mr Rayi recounted that the Committee had a briefing from the Deputy Minister of Police, who indicated that he made an unannounced visit to a police station in East London police and found no holding cell. This means that, if people get arrested, the police have to travel to another area, as there is a delay from the DPWI in ensuring that the projects are built on time and that there are holding cells in these police stations.

Another issue that came up during the meeting with the PSC was that some of the buildings used in the provinces are not conducive to health and safety as well as environmental issues. There was also an amount raised by the DG, on the beatification of schools – which is an amount of R54.541 million that the Department of Basic Education is disputing. Clarity is needed on that.

Ms M Mamaregane (ANC, Limpopo) posed her questions. First, at the end of the 2021/22 financial year, the entity spent R19.75 billion and had an under-expenditure of R2.89 billion. This was mainly due to under expenditures on infrastructure projects, property rates, and goods and services. What were the challenges, and how is the situation being planned to be turned around?

Ms Mamaregane noted that the PMTE reported 44 vacancies under engineers and related professionals. Why is there such a high turnover, and what impact has the vacancy in this critical occupation had on the performance of the PMTE? What is the progress to date regarding the filling of vacancies?

Lastly, the Department underspent by R88.1 million under programme one, and it reported that it was due to a delay in advertising and filling vacancies post R32.0 million and acquiring equipment of R40 million directly linked to the unfilled vacancies. Can the Department clarify the positions that need to be filled? Furthermore, can the Department clarify the R261.2 million of unauthorised expenditure, from 2017 and 2018, still awaiting endorsement from the National Treasury and the Standing Committee on Public Accounts?

Mr Rayi asked more questions. On the R35 million that was unspent, which was allocated to the project legal occupied properties: why was it not spent? On one of the programmes, there is an issue of a draft bill. More explanation is needed regarding its statement, especially considering that the target was achieved.

The Chairperson also posed remarks and questions. The condition of state-owned buildings must be given attention. What was recorded by the Public Service Commission (PSC)? They have not been successful in engagements with the Department, on securing suitable and compliant accommodation in a number of provincial PSC offices. It would be important to get a sense from the Department if this matter can be given attention.

The second question relates to the part that was raised on the role played by the Department regarding the identification and restoration of facilities in the district, in line with the commitment by Cabinet, to have its voice heard. It would be important to get a way forward regarding the establishment. He asked for information regarding the six properties identified in this financial year.

He wanted to get a sense of the role ISA is playing, and its role in other provinces. He also requested an update on the progress of concern, which is consequence management concerning the investigation referred to in the PSC report. In addition, he asked for updates on the progress of remedying the situation.   

Mr Rayi added questions. On the matter raised by the AG under the section of root causes: there is a statement raised mentioning key personnel with the right skills and capabilities. He asked for more clarity on skills audit positive results.

On programme two of PMTE, there is a statement that said delays were experienced during the procurement processes. What was the cause of these procurement delays? On programme three of PMTE, there is a statement speaking to the delay of execution and finalisation of the project caused by poor performances by some contractors. Have any penalties been given to these contractors?

The Chairperson had additional questions. Regarding the municipal services accounts: what are the immediate measures put in place to mitigate the concern the AG raised?

Responses

The Deputy Minister (DM) thanked the Committee, and acknowledged the comments and questions from Members. These are necessary for one to think beyond what is reported. She mentioned who would answer which questions, and then handed over to the CFO.

Mr Mandla Sithole, Chief Financial Officer, was tasked with answering financial management-related questions. He confirmed that the matter of quality of financial reporting was, indeed, raised by the AG. He explained that the quality of financial statements is a result of a number of issues. The PMTE has no integrated system other than transactions, where some payments and some information are kept on Excel. This consists of municipal services where an estimate is required. The municipalities do not submit invoices on time. Therefore, provision needs to be made for such transactions, hence there is an issue of quality of information. Where provisions were made for the purposes of the audit, the municipality would provide an invoice up to six months later. One then finds that the estimated provision is not in-line with what was submitted.

Similarly, maintenance is an area that has challenges. There are calls done to certify that the work is done. Public Works serves a number of districts, and the offices are located in urban areas. For example, in Durban, there is one regional office servicing throughout KZN, where you have to travel about 700 km when going to all facilities. Financial statements become impossible if the provider has not provided an invoice. One needs estimations. The ICT is working hard to develop an integrated system to assist in that area.

Regarding the overpayment on leases: the AG had reported the overpayments. Not everything was an overpayment. Due to data, it shows where one could have a lease that was signed April 2021 but captured in the system only six months later. In this instance, one may find that, if the amount estimated for the calculated lease is less than the original lease in the system, it results in overpayment or underpayment if it was more than due to data not captured correctly and on time. However, where overpayments were confirmed, letters were issued to officials and responded. Those responses were assessed, and the matter was referred to Labour Relations for further action. Some amounts had been recovered from the landlords, where monthly rentals were due. Furthermore, there are weekly meetings with all regions, where the focus is cleaning up all the data leases. Whereas, when the lease is signed, it is captured in the system so that the right amount can be paid when it becomes due.

There was an issue of interest on PMTE about a significant decrease to R413 million in the current year, from R703 million. This is good progress in comparison to the previous financial year, because it means that there is less interest paid as a result of overdue accounts that decreased sharply by R6.7 million.  

On the subject of the beautification of schools: the matter was referred for investigation. Mr Mahlangu will provide more progress on how far the investigation is.

Regarding the matter of the R35 million on the illegal occupation, and why the amount was not spent: the matter of liquidation is affecting the PMTE, but what is being done is that even SCOPA called a few months ago and had concerns. Some recommendations were made. One of them was to take these matters to Cabinet, where the Minister would be doing that. Beyond that, there have also been engagements with the Treasury to intervene where it had advised the Department in certain areas to say that they should declare a formal dispute in line with the intergovernmental framework.

Another issue pertains to the matter of state properties. It was indicated that there is an assets portfolio of 77 000 properties occurred by clients. The same clients are complaining about the condition of facilities, but they do not pay. In instances where they do pay the rental, they pay below the amount really needed in order to keep those assets in good condition. As government, there is no adequate money to maintain facilities where clients have money; it is prioritised for other purposes, and they are first to complain.

The next speaker came to address some questions. Firstly, the matter of the virement. If programme one was underspending, why was money taken from programme three? There are rules when doing the virements. For example, transfers and compensation of employees cannot be increased. When the accounting officer approves, it must be from the same economic classification. Money moved from programme three to one was approved at R66 000. That R66 000 programme one was overspending under the transfers, specifically under the item for a household. Therefore, money from goods and services or compensation could not be utilised under the transfers in the same programme, hence the movement of money.

Second was the underspending of machinery and equipment under programme three. The budget for machinery and equipment is mostly linked to compensation of employees, where there is a projection of spending linked to recruitment. If there is a delay in the recruitment, it will ultimately result in underspending under machinery and equipment. Items like computers and office equipment are budgeted for should the need arise for them. In some instances, one finds that, when there is an internal appointment, there will not be a need to purchase the computer since the official will continue to utilise the computer they used in their previous position. If there is an eternal appointment, a new computer would be purchased.

Looking at the issue of the R1.4 billion reported under the provinces and municipalities. The money relates to EPWP integrated grant for provinces, specifically for the project linked to the Department of Sport, Arts and Culture (DSAC) for the Gauteng province. If there was non-compliance, funds would not be transferred. In the case of Gauteng, DSAC failed to report on the project funded by the grant, as the last payment that was scheduled to be transferred was around February but could not be transferred. Even after EPWP intervened, they still failed to implement and submit the report. As such, the payment was not transferred to the province.

On the issues of the underspent R64 million that was reported: This was the money being transferred to the ITE at the beginning of the financial year EPWP and IDT agreed that some of the money would be allocated for the procurement of the PPEs. There were delays on the side of the service providers, and to deliver on the PPEs as such that R64 million was projected to be underspent. That money was not transferred, and the Department has reflected 100%. “We would still be receiving that money back post the audit of the IDT.” A decision was made that, since it was not spent, it would remain in the Department.

The last issue relating to DPW on the unauthorised expenditure for the 2017/18 financial year. The last time the Department incurred an unauthorised expenditure was at the end of 2014/15. The unauthorised expenditure reported is an old unauthorised expenditure that was not resolved. There was a process of investigation, which took long and was only concluded in 2019. The report was submitted to National Treasury. It was only in 2021 when Treasury received feedback, and it included some of the issues that needed clarification. The response was submitted to Treasury, and another meeting is scheduled with them. There have been constant engagements between them and the Department so that Treasury could finalise its report.

Mr Lesetja Toona, Chief Director: Internal Controls, DPWI, addressed the question of wasteful and fruitless expenditure reported by the AG for both the Department and the PMTE. With PMTE, as shown in slide 47 of the presentation, which sought to give historical context to the Members so that there is an understanding of the journey that the Department has travelled thus far: this is because, from 2009, wasteful and fruitless expenditure was one of those concerning matters up until 2013/14 where the Department addressed this matter. That resulted in PMTE having irregular expenditure amounting to R34 billion. There has been a steady reduction of that amount, as its current standing is R1.4 billion. An application was made to Treasury for condonment of the set amount. The fruitless expenditure is not condoned. What the Department is currently doing is to make follow-ups with the implicated officials, as there is an expectation that the Department recovers that amount from them. Further, consequence management is being implemented to deal with those transactions effectively.

On the matter of transactions that were put under assessment: ordinarily, during the audit process, the AG would raise the finding. If the finding is not resolved at the end of the audit, those transactions would be placed under assessment. Management would then be provided with an opportunity to review those transactions that they would not finalise. At the beginning of the year, the AG would be provided with the file in terms of the work done. After the review, there is confirmation of which of those were indeed irregular expenditures with reasons given as well as those that were concluded to be non-irregular expenditure with reasons given too. The file would be given to the AG for audit. The process would be looked into for the 2022/23 financial year. For as long as those transactions have not been finalised, they will continue being disclosed as irregular expenditure.

Mr Adam Mthombeni, Deputy Director-General: Inter-Governmental Coordination, DPWI, responded to two questions. The first question was one raised by the Chairperson, concerning the Gender-Based Violence and Femicide (GBVF). He said that the Department was working alongside the Department of Social Development to develop ways to assist the victims of GBVF by providing shelters. Inspection is done within the various districts, and lots of properties that are not used were identified and put forward to be utilised for that purpose. A total of 21 properties were confirmed to be suitable for the programme. There are ongoing engagements with national DSD, the provincial DSD, and the provincial Department of Public Works to refurbish these properties so that they are useable for the victims. Some properties from the Western Cape were transformed, and five in Gauteng were in finalisation of terms of agreements regarding roles and responsibilities of maintenance and operations of these centres. In Mpumalanga and Limpopo, conditional assessments were done for the shelters, and refurbishment is underway. Regarding the interface of the private sector concerning GBVF, the Department reached out to the Solidarity Fund and the Kara Fund for assistance with operational costs.

The second matter raised was about the parliamentary villages. Concerning financial statements of parliamentary villages, the Department managed to prepare all financial statements up to 2019. This was tabled in one of the board meetings. However, the board did not adopt these statements due to pending investigations regarding the transport system from parliamentary villages to Parliament. They were not keen to approve the statement, awaiting the outcome of the investigations. Another contributing challenge was that the board wanted a legal opinion regarding approving the statements that occurred before their appointment. It is safe to say that the statements are now ready, and the new board would tackle the matter during this financial year. It is also important to note that there were a number of meeting dates proposed to the board, such as 14 September 2022, which did not materialise; 12 October 2022 did occur. Others will be on 23 November 2022 and 03 February 2023. Once a date has been confirmed, all statements will be taken for endorsement.

Ms CJ Abrahams, Chief Director: EPWP Partnership Support, began by addressing the question on training. She said that training is non-mandatory but an important component of the Department’s programmes. The types of training provided are NQF level two road works construction, early childhood development training, environmental practice, landscaping, small business development and security-related practices. The training being conducted is concerning the DPWI programme.

Ms Abrahams was disconnected from the platform due to technical difficulties.

Ms Sasa Subban, Deputy Director-General: Real Estate and Investment Services, DPWI, took over to answer what she was allocated. There are limited amounts of money received concerning state building conditions. Ms Subban argued that it should be R45-R50 per square metre but they are only getting an average of R17 per square metre to address the 77 000 buildings that were spoken about. A methodology is used to prioritise the buildings and is addressed according to the critical components that require refurbishments. The Public Service Commission will determine which buildings are not found to be conducive to work in a report that will be provided to the Committee. Similarly, with the holding cells, it would have to be determined if SAPS had prioritised them and come to the Committee to report.

Regarding the built environment positions, they would have to be fast-tracked. This includes town planning positions and QS positions. HR has been consulted, and the recruitment process is underway. There is hope that it will be finalised urgently because they do impact the planning processes and implementing of the necessary developments needed for the sites.

Lastly, on the immovable assets on the register from the AG’s comments: the documentation was provided two days late and was not accepted by the AG. One of the reasons for the late submission was the delays in receiving the completed project schedules from the SAPS. For example, projects were completed in 2014-2021, amounting to R1.1 billion; the documentation was captured in late March, which impacted the schedules being produced on time. This concern has been looked into and SAPS has been urged to produce the documentation timeously to provide the financial statements on time. It is also being dealt with by receiving the assets where the accounting officers sign it off and the assets are put in the asset register. This is being dealt with SAPS and other custodians that are required to submit projects timeously, including the provinces. Another challenge is the delay in obtaining the deeds downloads; this impacted the adjustment processes. This year, engagements were formed with the Deeds Office via the Department of Agriculture, Land Reform and Rural Development (DALRRD) to see how soon the information can be obtained. The matter is also being taken up to the IMC. This is because the Registrar of Deeds requires entities to pay for the information, which could result in a cost over R100 million.

Ms Mameetse Masemola, Head: Infrastructure Investment, Planning and Oversight, Infrastructure South Africa (ISA), answered the matter raised by the Chairperson – about the accelerating social infrastructure delivery, especially looking at the schools' programme for the Eastern Cape and Northern Cape. For background context, she said that, in October 2021, the Ministry and ISA presented the concept of accelerating social infrastructure delivery, looking at innovative finance mechanisms. This is because social infrastructure programmes ordinarily do not attract private finance due to non-revenue streams nature. There were collaborations with the DVSA and the IDC to assess how else this can be enabled to accelerate the provision of infrastructure in the country. The Department of Basic Education published stats on schools that had inappropriate infrastructure. The solution provided to a Cabinet Lekgotla to deal with the triple challenge – in this case, the funding challenge. The way in which the three-year funding cycles work, such as in the context of the Eastern Cape and the Northern Cape, was that it would take 68 years and require R79 billion just to eradicate the backlog. The other challenge is the implantation challenge, such as slow delivery, delays in construction, contractors abandoning sites due to financial difficulties and social disruptions, among other things. The innovative mechanism being introduced will deal with three challenge components funding, implementation, governance and facilities. Following these discussions with Cabinet Lekgotla in October 2021, the Minister of Finance, in his budget speech, in February, indicated that National Treasury is going to be amending the Division of Revenue Act (DORA) to enable provinces to pledge their future allocations to roll out infrastructure, so that they can borrow money and be able to repay the loans through their future allocations. The DORA was recently amended, following the mid-term budget speech, where provinces are now able to pledge parts or all of their future allocations as security for any borrowing they may make. For now, the focus will be the Eastern Cape and Northern. Business cases will be made to support these provinces and submitted to the Loans Coordinating Committee, which hopefully be considered and approved to allow them to pledge their future allocations to roll out schools' infrastructure in the short to medium term. What this also means is that private sector funding could be leveraged on.  

Deputy Minister Closing Remarks

She thanked the Members and appealed to the Committee to encourage board members to meet and resolve these issues. Concerning the non-paying departments, the Construction Industry Development Board (CDB) now has an agreement with the AG’s office that, for those who are not paying the CIDB, the AG must make it an issue of qualification. The AG should also help the Department by qualifying those who do not pay the Department.

The Chairperson thanked the Members, and all the guests for appearing before the Committee.

The meeting was adjourned.