WC Department of Human Settlements Audit Outcomes & Annual Report

Meeting report

The Chairperson said the purpose of meeting was to discuss the annual report of the Western Cape Department of Human Settlements (DHS), in conjunction with the Auditor-General’s (AG’s) report, as well as the report of the audit committee.

[The discussion with the Auditor-General was not open to the public]

Mr Tertius Simmers, Western Cape MEC for Human Settlements, said that the Department had received a clean audit, and had been able of meet most of their targets by working together with all communities and all key stakeholders.

Ms Jacqueline Samson, Head of Department (HOD), Western Cape Department of Human Settlements, acknowledged the oversight and assistance provided by the audit committee, especially in preparation for today’s meeting, as well as the Department of the Premier. She had the entire team with her, and they were all fully prepared to answer to answer any questions.

Mr D America (DA) congratulated the Department on the clean audit. He said that there were risks identified by the Department, as well as risks identified by the Audit Committee, but the responses that he had received from both the AG’s office and the audit committee seemed to be from different perspectives. The AG’s office viewed risk as a possible financial loss in the future, while the audit committee’s perspective on risk was about the impact it would have on service delivery in terms of the Department’s mandate. He asked how the Department viewed risk, and whether or not they considered both perspectives. He said that the Department had not emphasised the risk of fires in informal settlements and metros, as well as land invasions, sufficiently and had not provided the Committee with factors that they would consider and execute to mitigate these risks.

Whistle-blowers were very courageous people, but even with the Protected Disclosures Act, there was not sufficient protection for whistle-blowers. He asked if the Department had a degree of protection that would insulate whistle-blowers from an adverse impact on their careers and continued employment. He said that the audit committee had alluded to the cost of impact and the desire to get a clean audit, and that this could divert resources away from areas where enhanced service delivery could take place. He asked if the Department had a similar sort of view.

Ms M Maseko (DA) said that the upgrading of the informal settlements had to go with the bulk services, and asked that when the DHS said that projects were ready, did it include the bulk services and did it have the capacity to carry the community within that project? She asked how the Department planned to address this key strategic aspect. Regarding the broad-based black economic empowerment (BBBEE) compliance performance, the developing criteria for entering into partnerships with the private sector were non-applicable, and she asked why they were not applicable to the Department.

Mr P Marais (FF+) said that there were two things that the Department failed to do to satisfy the Courts. The first was that they did not have any law defining the minimum standards for adequate housing. He said that living in shacks was not adequate housing, and asked why they did not pass a law defining what adequate housing was. He added that the minimum criteria to live informally needed also to be defined by the law.

Department’s response

MEC Simmers, responding to Mr America’s question, said they first needed to understand that local government had a risk register and fire registers, with strategies in place for such fires. The problem was when the fire was not a natural occurrence and was manmade; these were the risks that local government could not really prepare for. How this fed into the DHS was that ultimately they worked with the Department of Local Government (DLG) to find new mechanisms to effectively address issues of the continuous fire risks in informal settlements.

On the issue of bulk services, it was the fundamental responsibility of local government. He said the Department had worked with the DLG, and the grants afforded to local government would never be adequate enough to unlock the housing opportunities or the upgrading potential in certain informal settlements if they did not assist them in some form or another. Bulk services were an issue because of the cost associated with them, and that was something that the DLG had identified when they had a joint session.

He said that last year, the Western Cape High Court had issued a judgement which had been brought forward to the Court by the Human Rights Commission and the Economic Freedom Fighters, and they had joined in on the second part of the judgement. As government, they should have the option to exercise their right to ensure that land that had been earmarked for human settlements was not invaded, and they needed further clarity on that. They were a law-abiding Department, and they respected the rule of law and their right to appeal outcomes. They now awaited the outcome of their appeal against the High Court judgment. The way in which the Western Cape High Court perceived dwellings was very worrisome, and had massive implications for private land ownership.

Ms Samson said that when they assessed risks and the resources that were required, they evaluate what the possible risk of loss of resources or loss of assets was, particularly when they considered land invasions, which would mean having to provide security services, which they had budgeted for, and this did impact on other projects with the limited budget that they had. The risk of fires was more prevalent in the informal settlements and through their Informal Settlements Support Plan and the forums that they had, they engaged with the leadership in those informal settlements and assisted in educating them on reducing the risk of fires. They had also partnered with the University of Stellenbosch, where they were looking at risk assessment and ensuring that they assisted and equipped the informal settlement dwellers with information on how risk could be reduced. They gave regular feedback to municipalities and guided them. They were also looking at improving the shacks, making them more fire resistant and improving their energy efficiency, and had partnered with the Creative Institute on this endeavour.

With land invasions, they had to reallocate resources, looking at what the risk of loss was and what was needed to protect the infrastructure and the land.

Mr Francois de Wet, Chief Financial Officer (CFO). Western Cape DHS, said that the whistle-blowers were very well protected. The Department did not go after whistle-blowers and respected their views. However, sometimes intentions were false, and those officials were not being protected against false claims.

He said that the AG was more concerned with the accounting and the disclosure of the new changes that were coming to the floor, while the audit committee was more concerned with the service delivery element and the efficiency and the economic utilisation of the resources that they were being allocated. The lack of service delivery was blamed on lack of compliance and red tape, and it should not be like that. If one did one’s work correctly, then compliance should not be an issue.

He said that, when there was anything contentious, the Department would liaise with Provincial Treasury and Internal Audit, and would make a decision from there. Their track record of delivery, spending and audit outcomes demonstrated that the DHS had a well-balanced approach on how to deal with this. BBBEE was applicable in terms of procurement, and the Department did however utilise all the partners that could assist them.

Bulk infrastructure was costly to the municipalities, and the bigger municipalities had access to external funding, but the smaller municipalities did not have a good income base and thus the cost of providing infrastructure was very high. They took this into consideration when assisting the smaller municipalities. These municipalities sometimes lost out on other funding, such as the Rural Bulk Infrastructure Grant (RBIG), where they needed to have co-funding, and that was where the DHS stepped in and would leverage the co-funding if they had the money to do so.

Ms Samson referred to the informal settlements, and said they were considering new and innovative ideas, and would present the municipalities with those opportunities. It was still the municipalities’ responsibility to provide the bulk services infrastructure, and what they did -- especially in the informal settlements -- was to provide interim basic services as well as shared services.

Ms Maseko said her understanding was that even when they were in partnership, there would be service providers and these service providers have to adhere to BBBEE standards. She asked the CFO how they monitored that compliance, and if there was a compliance structure that dealt with the issue of partnerships, with BBBEE included in it.

Mr De Wet said that as soon as there was procurement, and contracts came into place, BBBEE came into place as well. A partnership was supposed to be a partnership, with no expectation of something in return.  Where it went wrong was when a partner dictated which service providers should be used by the Department. They would rather not go into a partnership where they would be told what to do and how to procure by the other partner.

Ms Samson said that they also engaged in partnership arrangements with land owners and other corporates, and employers of individuals who qualified for subsidies. They had partnered with the Langeberg Municipality for industries in that area where land was provided, creating opportunities for farmers and other employees in the area. Those were the types of partnership where they looked for reciprocation and benefits for both the person providing the resources as well as the DHS, enabling the creation of housing opportunities through these partnerships.

The Chairperson prompted the meeting to move on to Part E of the report.

Part E of Annual Report

Ms D Baartman (DA) asked why it would be a problem if the Western Cape wanted to procure from businesses in the Western Cape. What happened now, where many businesses were working from home and closing down their physical offices in order to save money and keep their enterprises running -- would it be considered irregular expenditure if they procured from these Western Cape businesses?

Mr America asked if the desired outcome had been achieved with the identification of the problematic municipalities. Could the Department provide them with an update of how soon the settlement negotiations would be concluded?

Ms Maseko asked what mechanisms were in place to tackle the issue of the People’s Housing Project debt write-off, as this money could be used for something else.

MEC Simmers said that it was important to note that when they talked about global economic empowerment, it was important to start at home and in their case that would be within their own province.

Mr De Wet said that in order for the DHS to enhance service delivery, they had embarked on framework agreements with the professional service providers, as well as the contractors. When the tender was advertised, they indicated that it was only for the Western Cape. This was in line with the general procurement guidelines issued by the National Treasury, and was specifically to promote local procurement. They had deviated from their original framework, and what happened was that there were some companies that did not have an office in the Western Cape that had also submitted bids. They should have not been appointed, but they had done so to have more people in the framework, and that was where the problem had arisen. This was why the spending had been declared irregular. This irregular expenditure would still appear in this year’s financial statements, as they were still incurring this expenditure. They had sent the matter through to Provincial Treasury for condonement, as there had been no losses to the Department. In the meantime, they had advertised a new framework contract and had removed that clause, and it was not in their tender documents any more.

He said that they did find that some of their municipalities might be a risk. They were still accountable for all the funds that were transferred to the municipalities, as they were acting as implementing agents of the Department. They did have meetings with these municipalities with regards to contractors not being paid, and they would rather pay the contractors directly.

Working from home would not affect businesses applying for tenders, as they would no longer utilise the clause that only Western Cape businesses should be used.

He said that the contingent liability of R87 million had been in their books for the past 20 years. It referred to Austin Sea Farms, which had bought a piece of land from them but had then changed their model. The matter was being resolved. With respect to the debts written off over the years, they had agreements with support organisations and private accounts. They had learnt their lesson, as a lot of money had been lost.

Ms Maseko said that R1.9 million had been given to the Beaufort West Municipality for the building of toilets, and that service had not been rendered as anticipated. They had to recover that money. In her view, lengthy investigations were not necessary because one could clearly see whether they had implemented what they were meant to implement. She asked how they would fast-track the recovery of the money from the municipality and if there was corruption involved, whether they would recover the money from the individuals responsible. How long did the Department anticipate the recovery of the money allocated to these projects?

Ms Baartman said that she would like a point of clarity with regard to the irregular expenditure. In terms of the irregular expenditure, the Western Cape had put out a tender, and the National Treasury had stated that local meant anywhere in South Africa. They had appointed a company in line with the National Treasury notes and regulations, but had been told they had accrued irregular expenditure because they had gone further and asked that the companies have an office in the Western Cape. To her knowledge, there was no law that prohibited them from asking that the company have an office in the Western Cape, and asked if she was on the same page as the CFO.

Mr America said that there was an opening balance of R3.27 million on irregular expenditure, and the Department had subsequently requested that that amount ought to be condoned. He did not know when the application had been made, and asked what the status of this application was and if there were any applications for condonement for amounts in the previous financial years, and what the outcomes were.

Mr De Wet said that with regard to Beaufort West, the municipality had come back to them and after they had looked at the contracts, they were not very clear. They had had discussions with the municipality and Provincial Treasury. The contract which they had entered into with the municipalities was very vague. They were assessing the value of the work that had been done by the municipality, and they would take it from them.  They would keep the Committee up to date with any further progress on this matter.

The issue with the irregular expenditure was that they had deviated from their own strategy. If they had stood by their clause which stated that companies must have an office in the Western Cape, then it would not have been an issue, but because they appointed not according to their added clause, it had become irregular expenditure. They had submitted an application for condonement to the Provincial Treasury and had received a conformation from forensic services that the Office of the Premier had given an assurance and a recommendation that the amount should be condoned.

The Chairperson said that even with the clean audit, the Department still had some challenges, and raises the question of how they balanced a clean audit and service delivery.

Ms Samson said that they have been requested to look at not just compliance, but also the impact of service delivery. They were, however, constrained by the limited resources that they had, so what they needed to look at was how they maximised and optimised the use of their limited resources to make the maximum impact.

MEC Simmers said that when they engaged communities, they wanted to see something that was tangible and measurable. The current auditing fraternity was assessing the performance of government from a more compliance-based point of view. If one looked at the province as a whole, they have shown continuously that all departments had the ability to translate expenditure in the broader interest of the community. He said that the measurement matrixes that the auditors used would start measuring the impact of the expenditure of government.

The Chairperson thanks the audit committee, the Auditor-General, the Minister and the Department, and allows them to leave the meeting.

Committee resolutions

The Chairperson said he would like the Members to deal with their resolutions, and asked if there were any that they would like to propose.

Ms Maseko said she would like the Committee to zoom in on the issue of the recovery of the money that was out there, as she was worried that it would become the modus operandi of some of the municipalities not to use the money efficiently, and to allow the situation to go on and on until the debt was written off.

The Chairperson said that there was a list of municipalities who had been given funds, and they had subsequently visited the project sites. It should be one of their resolutions to get feedback on the outcome of these visits.

The Members agreed with the Chairperson.

Ms Maseko said another resolution would be a discussion on the emerging risk that the audit committee had highlighted of the extended pressure on safety-related resources towards xenophobia and the emerging community development forums.

The Chairperson said that this was an important point in terms of the risk that had been identified by the Department and how they planned to mitigate those risks, as they could have adverse effects on the delivery of housing and the human settlements agenda in general.

The meeting was adjourned.