Public Works Portfolio Audit Outcomes; DPWI/PTME Annual Report 2021/22; with Ministry

Meeting report

The Chairperson opened the meeting by welcoming the Members of the Committee as well as the delegation from the Auditor-General of South Africa (AGSA). She contextualised the day’s meeting by stating that, since it is time to prepare Budget Review and Recommendation Reports (BRRRs), the Committee would be receiving reports from the Department of Public Works and Infrastructure (DPWI) and the Auditor-General (AG). The Auditor-General will report on the performance of the DPWI in comparison to the previous year.

She noted an apology from the Minister, who is currently in the meeting but will depart early due to other commitments.

The Minister of Public Works and Infrastructure, Ms Patricia de Lille, thanked the Committee for accepting her apology to address the National Council of Provinces (NCOP). She stated that the Department has both good and bad news to report to the Committee. There has been a number of green shoots in the Department. There is still room for improvement on the implementation side. The Department’s leadership is looking into the areas where they can improve.

She said the Deputy Minister of Public Works and Infrastructure, Ms Noxolo Kiviet, will represent her in her absence.
 

Briefing by the Auditor-General of South Africa
Ms Tintswalo Masia, Senior Audit Manager, AGSA, greeted the Committee, and introduced her fellow delegates from the AGSA.

She reported on the different entities, stating that the Independent Development Trust (IDT) was audited and finalised on time in the current year. A “one” is indicated under their outstanding audits due to an auditee, the Parliamentary Village Board, which ought to prepare financial statements. But this board has not been audited. The last time it was reflected as an outstanding report because, if it continuously does not submit its financial statements, then it means that no one will be held accountable for the transactions that are taking place, whether they are right or wrong. No one will be empowered to ensure there are consequences should any irregularities happen.

In the disclaimer column, she reported that the IDT has improved in the current year. The improvement is attributable to the fact that the Minister, Deputy Minister, and all the oversight bodies have been working together to ensure that that entity is stabilised. The appointment of a Chief Financial Officer was instrumental in seeing the auditee submit financial statements and minimise the record keeping issue. IDT is not yet clean but is in a better position than last year. The Property Management Trading Entity (PMTE) is still sitting on a disclaimer as it was in 2021. What happened with PMTE was that there were no issues pertaining to the asset register that could not be corrected last year. Although PMTE was qualified last year, they were able to correct whatever errors the Auditor-General had picked up on the asset register for the first time. After the audit and after the annual report had been tabled, management made significant changes to the records that had been audited, which the AG was fine with. When management makes such changes, from an accounting point of view, they have to inform the auditors before the changes are made so that they can assess whether those changes were warranted. Critically, whatever changes are made once the audits have been made and are found to be fine, management needs to keep records of what they are changing to easily reconcile with what was initially recorded and found to be okay. By the time the Auditor-General came to audit, they picked up that significant changes were made, and no record was kept to indicate what had been changed in the asset register.

In the “qualified with findings” column, she reported that what happened with the Construction Industry Development Board (CIDB) is that the AG has noticed significant positive changes over the years in terms of all the other records and their performance information. There was some revenue recorded, where the auditee themselves registered their contract. The other revenue that was not recorded in CIBD’s systems was not accounted for and the accounting requirements ask that there should be an estimate of everyone who is supposed to be adhering to the Act to keep record of what revenue needs to be collected from those people. The qualification is only in the revenue area, which resulted in the CIDB joining IDT in the qualified space.

On the unqualified column, she stated that the DPWI and Agreement South Africa (ASA) are still struggling with the same compliance and performance information issues that they have been struggling with previously. This results in them not obtaining a clean audit.

On financial management and compliance, she explained that ASA and the Council for the Built Environment (CBE) had been excluded from this analysis because they are small audits, which the Auditor-General opted not to audit themselves because they are audited by small audit firms. The focus of this analysis was on CIBD, IDT, PMTE, and DPWI. When the AG received the first pack of the financial statements, all of them were not of the right quality because there were errors in them. These issues were: CIBD’s revenue problems, IDT’s project management problem; PMTE’s disclaimer on immovable assets and leases that had material errors; PWI’s cash account that was not initially added to the Department’s statements as cash.

On compliance, she stated that most of the entities had compliance issues. CIBD’s problem was pertaining to the qualification. The DPWI’s issue was due to material adjustments that had to be made in the financial statements. ASA’s issues were due to irregular and fruitless expenditure and consequence management. Except for CIBD, all entities had consequence management issues related to irregular expenditure.

Some of the findings that the Auditor-General found related to unfair processes in buying goods and services. Irregular expenditure is also sitting at R148 million, compared to last year’s R98 million. Some irregular expenditure instances have been identified that can potentially make these numbers go up.

She stated that there had been no consequence for irregular expenditure, mainly from PMTE and IDT, that has been confirmed. There has been a slight decrease from last year, but the irregular expenditure balance sits at a range of R2 billion. No money has been recovered yet, and no recovery process has started in this regard. No irregular expenditure has been condoned; it is just R188 million related to PMTE that has been written off. This is worrying. Consequence management needs to be taken. Otherwise, this will signal that it is fine for the portfolio to continue having instances of irregular expenditure.

She reported that the CIDB and CBE’s annual reports did not have any errors in performance information. Errors were identified for Agreement SA, which were later corrected. DPWI and IDT, errors were identified for DPWI relating to EPWP. The errors about numbers in the system not correlating to the numbers that the Auditor-General is accounting for as per the supporting records. This is difficult to fix. The IDT’s problems were that their plans were not crafted in a way that empowers one to know how to verify the information that ought to be reported on; lack of sufficient/appropriate evidence to support the reported performance information and, in certain instances, the supporting evidence provided materially differing from the reported achievement. The opportunities created do not solve the high unemployment rate due to lack of upskilling, training, and certification of beneficiaries.

As part of the AG’s insight’s culture shift, she stated that the AG spent time analysing the portfolio’s performance targets. Looking at EPWP, it can be seen that the Department is achieving its target. But the Department has two concerns. The first is the credibility of the numbers that are reported, because the AG finds differences in numbers once they trace these numbers back. The second is that the EPWP programme was meant to upskill the beneficiaries of the programme by making sure that there is training and certification, so that the experience can be used for the beneficiaries’ job applications, in accordance with the Medium Term Strategic Framework (MTSF). However, training and upskilling are not prevalent in the programme. Therefore, the AG cannot see the desire for the beneficiaries to reduce the unemployment issue.

Root causes identified relating to the portfolio included:
-The action plans need to be monitored. If action plans are not monitored, the things that were resolved could come back to the portfolio, and problems could find themselves as action plans again.
-There is inadequate consequence management.
-Personnel that is critical to enhance the reporting of financial statements lack the right skills and capabilities to ensure that accounting errors are prevented before statements are sent for audit.
Recommendations included:
 

DPWI Sector Performance Analysis, Mandate vs How they Performed
She stated that the AG’s concern regarding the sector is that it seems that maintenance and project implementation problems cut across provinces. One auditee (Western Cape) in the sector has maintained a clean audit, while eight other auditees received unqualified audit opinion. The PMTE has regressed in the current year by obtaining a disclaimer opinion.

On the Infrastructure projects and maintenance of properties, she stated that there were findings in almost every province. The performance indicator relating to conditional assessment of properties is not effective enough to address the maintenance issues within the sector: An example provided related to PMTE planning to perform conditional assessments on 200 properties over a portfolio of 66 115 properties. A total of 236 condition assessments were reported to be achieved, indicating PMTE overachieved in meeting the target. She questioned the strength of this target, seeing that this is only less than five percent of the total portfolio, resulting in the need for maintenance not being identified and prioritised.

On properties being utilised, she reported that there are unutilised buildings within the sector, with PMTE leading by 1 399 properties. The non-maintenance of buildings has been a major contributor resulting in the client department surrendering the previously occupied properties. PMTE has entered into a seven-year private lease to accommodate the National Department of Health, which is paying about R76 million a year.

A total of 48 projects have been scrapped at their designed stage, over the past five years. This costed R300 million.

There are good stories about the leases, though last year’s qualification about leases still remains this year, but there is improvement on month-to-month leases as the numbers of month-to-month leases have gone down. Government has relocated to a state-owned building in the Free State province.
Questions that: as impact was being analysed on some projects that have been moved from month-to-month to contracts, the AG noticed that this move was just done to get rid of the term month-to-month. This is being said because the contracts are moved to a year contract but are still on the same basis as the month-to-month contract. No desirable impact is being achieved in this setup.

There has been a slight improvement in the lease overpayment balance, as disclosed on the PMTE annual financial statement. This may be attributable to a service provider, which was brought in after the prior year audit outcomes to assist PMTE in resolving overpayments and recovering losses made. However, the impact of the service provider’s interventions is yet to be realised as PMTE made additional overpayments of R161 million in the current year. The Auditor-General has already issued material irregularities in this regard. However, despite the number of material irregularities identified on lease overpayments and management commitment to take appropriate steps towards wrong dowers, a culture of overpayment has not changed as overpayment continues on other leases.

She highlighted that a market analysis of the lease payments revealed that the top ten highest paid landlords who account for eight percent (177 of 2194) of the total PMTE leases received approximately 50% of the total R4.6 billion spent on leases.

She shared positive action being taken on material irregularities. For instance:
-Where payments on state funerals exceed contract amounts – disciplinary and recovery processes are indeed ongoing as per finalised investigation. The Department is committed to ensuring that there is no overspending when state funerals take place.
-Where there was unfair procurement process concerning the Beitbridge issue – disciplinary process finalised and employees charged; recovery of financial loss is still ongoing through SIU.
-Lease overpayment on building used by Department of Defence – payments were stopped to recover the loss. The implicated employees were disciplined. Consultants appointed to determine the full extent of overpayments.

She also reported that a special audit was conducted on the damage caused by the floods in KwaZulu-Natal and the Eastern Cape. That special report only implicated PMTE. Red flags were raised with the Minister and the Acting Director-General, who responded quickly to the matter. Some suppliers were awarded work through questionable processes. Disciplinary processes are taking place in this regard. The PMTE determined that 65 properties (48 projects) suffered damage to roofs, ceilings, gutters and structures. Out of 48 repairs and maintenance projects planned, 43 projects have been completed. Service providers were appointed to conduct the repairs of the damaged buildings using the deviation process.

Overall recommendations on performance information included the Executive:
-Develop appropriate mechanisms to effectively plan and monitor delivery against the MTSF by the sector;
-Develop and include indicators on the annual performance plan for the four MTSF indicators not addressed at all;
-The sector should have standardised indicators aligned to the 2024 MTSF goals.
-Job opportunities created should be sustainable and include upskilling to achieve a sustainable reduction in the unemployment rate.
Recommendations on Facility Management to the Director General included that:
-Infrastructure investment should focus on proactively maintaining existing properties to ensure they are fit for use and reducing the number of privately leased buildings.
-The sector should strive to achieve the set target ratio of 80:20 of scheduled to unscheduled maintenance.

Recommendations about Construction Projects to the Director General included that:
-Projects should be monitored regularly against the original timelines.
Delays that result in the extension of time with cost should be investigated early to determine the root cause, and implicated officials should be disciplined.
-Develop the transfer of skills plan for project managers which aim to reduce reliance on consultants to project monitoring.
Recommendations on the management of private leases:
The accounting officer should ensure that the reduction of month-to-month leases is accompanied by reduced rates aligned to market rates.
The accounting officer should take decisive actions on employees who override the Archibus and Sage systems, resulting in overpayments and misstatements – resulting in qualified leases.
 

DPWI and PMTE 2021/21 Annual Performance Report
Mr Imtiaz Fazel, Deputy Director-General, DPWI, outlined how the presentation was going to take place. He then introduced the delegation from the Department: Mr Lwazi Mahlangu, Chief Director: Monitoring and Evaluation, and Mr Mandla Sithole, Chief Financial Officer.

Mr Mahlangu presented the non-financial performance information. He outlined that his presentation would cover general Information, performance information, governance issues, human resource management, and financial performance.

Highlights in the Accounting Officer Report included:
-A skills audit was concluded and showed that the Department has a high level of skills within the Department. There are still structural issues that need to be looked into, in the organisation, despite the high skills that are present.
-An Enterprise Resource Plan project in progress to help build resilience in the DPWI. The project has modules that drive the institution such as asset management, facilities management, and administrative management. There are a lot of teething issues regarding the project. The Department is in the procurement process. The project is moving slowly. Controls to mitigate against external threats are being built into the project.
-An Ethics Committee has been established. The Committee touches on a number of components such as HR management and HR development. Legal matters, labour matters, and security matters are discussed. Seven ethics risks have been added. These risks form part of the risk register when dealing with ethics issues.
-All the units and provincial departments in the public works have been pulled in to work together towards a five-year sector plan. This plan contains issues about managing sector-related issues, managing the asset register, managing debt, and managing GBV issues. Linked to this is the development of standard operating procedures.
-The National Infrastructure Plan 2050 was gazetted. There has been progress with some infrastructure projects, most of which are either in implementation stages, have reached financial closure or are completed.
-Department’s contribution to the economic recovery and reconstruction is continuing. The Department has developed a construction recovery plan with CID to revive construction. The plan focuses largely on how to revive the economy through construction, empower SMMEs in the construction sector, and promote local content in the construction sector.
-Work opportunities are being created by various sectors (Infrastructure, Environment & Culture and Social Sectors) as the Department is tapping into a pool of graduates and assigning them to different projects in the Department. This is to tackle youth unemployment. EPWP (Expanded Public Works Programme) also contributes to economic recovery through work opportunities.
-GBVF (gender-based violence and femicide) initiatives are being supported by working with others government departments, such the Department of Social Development, and providing shelters to the victims as their form of advocacy.
 

Main Vote Performance Information
The Department reported that achieving the targets set for women, youth, and persons with disabilities was a problem for programme three of EPWP. There was more uptake on the programmes for women but less for youth. Participation of people with disabilities is not yet mainstreamed across programmes.

No targets were reached for programme four (Property and Construction Industry Policy and Research). The challenge experienced in the first quarter (the failure of the SP to develop the memorandum of objects and Draft Bill and their debriefing) had a ripple effect on all the other quarters and annual targets.

Programme three (Construction Project Management) generally experiences issues with extending time, approvals, budget, and delivering material on time.

On what is done to address underperformance, he discussed the ten principles to improve performance, which include:
-Change Management Programme promotes the principle that every manager is responsible for being a change-maker in their unit. It is not a project but a programme embedded in the organisation.
-Service Delivery Improvement Programme: development of SLAs (service level agreements) for improved services (e.g. COGTA, public protector) and in other areas have started receiving positive feedback from clients through FM services – ensuring that the ‘QQQ approach” is maintained, which looks at quality, quantity, and time for service delivery.
-Ethics & Compliance, Infrastructure and Consequence Management Unit
-Contract Management and Monitoring Capacity, which involves contract administration and contract management.
 

Main Vote Financial Performance
Mr Aaron Mazibuko, Chief Director: Financial Management, DPWI, took the Committee through the Department’s financial performance.

The Department has had unqualified audits since the 2014/15 financial year until the 2021/22 financial year. The reason for such an audit in the 2021/22 financial year is mainly due to impairment of receivables and fruitless and wasteful expenditure under assessment.
Increases and decreases:
-There are decreases in prepayments and advances mainly due to the Department expensing the majority of the Advances paid out in respect of EPWP programmes.
-There are increases in receivables mainly in respect of the Department of Defence for the bailey bridges project (R16 million).
-There are increases in cash and cash equivalents due to funds deposited into the Department’s commercial bank account on the last two days of the financial year.
-There are decreases in bank overdrafts mainly due to the decrease in prepayments and advances made not yet expensed as well as an increase in unspent voted funds.
On the bank overdraft analysis, he reported that the main reason for the overdraft in the 2021/22 financial year is due to unauthorised expenditure, which stands at R261 169 million. On unauthorised expenditure and fruitless and wasteful expenditure, he reported that some of the reported unauthorised expenditure from the previous year still has not been resolved this year. Therefore, the 2020/21 and 2021/22 financial numbers are the same.
 

PMTE: Financial Performance
This section was presented by CFO, Mr Mandla Sithole. He stated that the PMTE received a disclaimer audit report due to the asset management register. Unfortunately, PMTE received a disclaimer report.

The statement of financial performance highlights provides that a deficit of R1.9 billion has been reported, in comparison to 2021’s surplus of R945 million. The main reason for the deficit’s increase is the deferred revenue, which increased from R960 million to R1.2 billion, along with the impairment of receivables, which increased from R1.4 billion to R2.8 billion.

On the summary of revenue outcome, he stated that the PMTE’s biggest source of revenue is accommodation charges. He explained that private leases are always compared to accommodation charges; 97 000 properties in the Department’s asset registry are occupied by government departments. The Department would charge far more than what it is actually charging should it charge market rates. Client departments occupy state properties at a nominal rate, whereas on leases, there are less than 2 500.

He concluded his presentation by discussing key initiatives to address outstanding debt. He requested National Treasury consider ring-fencing the accommodation budget because clients tend to see it fit to jump to an area where they cut the budget that they ought to pay to public works when there is a budget cut. He also requested that National Treasury should vote for the infrastructure budget to DPWI, so that infrastructure is paid by the landlord and then clients will pay the user charge. National Treasury should issue instruction notes for all clients to pay in advance. This request has been made before, and National Treasury is processing it.

Letters were written to Ministers, and there have been meetings between Directors-General and accounting officers. This has led to some disputes being addressed and clients paying monthly. Municipal services have been devolved. Even though initiatives have been put in place, problems still persist. Some of the disputes are not yet resolved. The budget of user departments has been used for other purposes. DPWI invoices are not given priority by user departments.

Discussion
AGSA
Ms A Siwisa (EFF) asked who the board members of the parliamentary village are. If they are the same, then why have they not been changed? What interventions are going to be made about this? How is the Department going to assist PMTE and IDT when it comes to the recovery plan? DPWI and IDT errors were identified by AG but not attended to, and there is inadequate consequence management. What is the Department’s plan to ensure that consequence management takes place?

Ms S Graham (DA) stated that it is important to note that what the Committee is receiving now is feedback from the Auditor-General and not the Department itself. Therefore, it is not going to help to ask the Auditor-General specific questions that relate to how the Department needs to rectify things. There is repeated failure from the Department and various entities to comply. Many issues appear as recurring issues every year. Her understanding is that the Auditor-General’s office has been empowered to take remedial action against serial defaulters. She was deeply concerned by the level of non-compliance with legal requirements. What can be done to ensure more compliance from the Department and its entities? She raised the lack of credibility of work opportunities as a red flag and big concern for her. Although the presentation also had good feedback, such as there being no unauthorised expenditure and certain debts being written off, the DPWI still has over R261 million of cumulative unauthorised expenditure. Although there was no unauthorised expenditure this year, it is still a big issue, and the failure to deal with it is deeply concerning. She was concerned that there were expenditures raised by the Auditor-General, but there was no reporting on what the expenditure was on. Is there any likelihood that this could fall under the unauthorised expenditure and then change that outcome in the audit?

She referred to slide 16 of the presentation – a slide that raised the issue of key personnel not being properly skilled in terms of the Reporting Act. She stated that she cannot understand how,, at this stage of the Department’s evolution, the Department still does not have staff that is properly skilled and capacitated to do the work that is required. This almost feels like an excuse for non-compliance. The Department’s financials show that there is underspending on employees in every single programme, yet there is an issue of staff lacking skills and capacity. More money should be spent and the right people need to be hired. Various properties on harbours are dilapidating and cannot be occupied, but the Department has dragged its feet on the letting out strategy for over a year. The longer the strategy is being dragged out, the more the structures go to ruins. There does not seem to be any cohesive action between the leasing department and the property management department; this leads to the destruction of buildings. A change needs to be done about this. It is deeply concerning that title deeds and the immovable asset register are being changed without the Department being aware.

On the dignified client experiences, Telkom Towers and Port Nolloth are buildings in such a poor state that they are not providing services to clients. When the Committee was doing oversight at Telkom Towers, the Acting Director-General stated that the property portfolio was massive, project managers were overloaded with projects, and there were not enough people for work to be done. This is inexcusable for a Department tasked with looking after government's immovable assets. It is deeply concerning that a department is giving excuses for not being able to deliver on its mandate. The overpayments are ridiculous. She thanked the Auditor-General’s team for their excellent presentation.

Ms M Hicklin (DA) stated that she appreciated the presentation a lot. However, what is unfortunate is that it appears that Ms Masia’s team [AGSA] was doing the job that the Minister and her team were supposed to do [which is] forcing the accounting officers to do their job. The Minister should hold the accounting office accountable for not doing their job. How can someone in a position of authority be able to override the system and make overpayments? How can R116 million be paid in 2022 for projects that have already been cancelled? This is unacceptable. The immovable assets register has been an issue that she has been raising since she has been serving in Parliament. Who is actually on the parliamentary village’s board, and why have they not submitted financial statements and annual reports since 2013/14? Why have they not been held accountable for this? There really is no consequence management in the DPWI.

It is all good and well to make recommendations, and it seems that the DPWI are looking into things and things are looking better. However, the occurrence of repeated violations shows that there is no consequence management, and this comes from a lack of leadership. The asset register and the lack of skilled personnel in the DPWI are major issues that will continue to hinder the performance of the DPWI until these issues are addressed. A department cannot be expected to thrive and meet its obligations unless there is skilled personnel.

The engineering council and property valuers are working well, yet they are losing personnel or personnel is retiring. Those property valuers can be used by the DPWI, as the Department needs people to value properties for them to get its asset register on point. Why can those people who are required to retire but do not necessarily want to retire not be used to value the Department’s property? The DPWI does not have an effective maintenance plan, which is concerning. The DPWI needs to get its act together. Things are falling apart because there is no effective leadership. She thanked the AG for their enlightening report.

Mr P Van Staden (FF+) asked about the R2.4 million worth of fruitless and wasteful expenditure. At which entities was this expenditure identified? On the 187 significantly delayed projects, can Ms Masia indicate what these projects are exactly? What plans does the Department have to stop the decay of government buildings? Of the 66 000 properties, how many of these buildings are problematic and need urgent attention, and at what cost? What is the reason that there have been projects abandoned at the design stage? He requested clarity on what happens to the buildings that are now empty. Has the Auditor-General received reports from the Department on that? Are new leases in place? If not, why not? The landlord was overpaid the amount of R26 000. What was the reason for this?

Ms S Van Schalkwyk (ANC) welcomed the insight the Committee received. She asked the AGSA what they have done regarding the recommendations that have been made or challenges they faced, which are not in line with legislation in instituting the Public Audit Act (PAA) amendments. This would assist the Members in their oversight function, given that they have been given a special mandate through the Public Audit Act (PAA). The Committee has been raising the same issues for a number of years now, and many things are deteriorating. Assistance is needed in terms of instituting the amendments of the PAA from the Auditor-General’s side.

Mr W Thring (ACDP) stated that he appreciates the presentation from the Auditor-General’s office. What are the consequence management recommendations that the AG has put in place for the irregular expenditure of R133.5 million by PMTE and R10.6 billion by IDT, particularly given the new legislative powers that the AG has where there have been contraventions of the financial management acts? How many accounting officers who have fiduciary responsibilities and have failed have been held to task by the AG? He shared concern about the failure to have a proactive maintenance programme in place, given that the DPWI has one of the largest property portfolios in the country, yet only five percent of their properties are maintained. The targets are way below what should be done for effective maintenance. Has the Auditor-General made any recommendations to turn this around? Buildings will continuously be neglected should they not be turned around, which will lie at the feet of the Department.

It is concerning that work opportunities are just box-ticking activities that are not leading to employment, given the high unemployment rate in the country. Many Members of the Committee want to see people upskilled and employed.

The Chairperson appreciated the report, and said that she found it clear and indicative of several issues. She stated that the matter of month-to-month leases had been raised on several occasions. The fact that the Department is charged month-to-month rates raises red flags. The Committee is going to hammer on the AG recommendation that a Special Investigations Unit (SIU) investigation must be done on this.

On the recommendations, there is a problem with rentals – having seen the reports from the Department, seeing that Members of the Committee have a responsibility to ensure that public funds are saved in the midst of all of this. The Committee knows the officials that were pointed out by the SIU, and now there is the issue of the rentals. From the reports that have been seen, are the people involved in the rentals matter not the same people pointed out by SIU? “I am not saying that you should disclose names, but are the people who are dealing with leases not the same people who were found to have done wrong dealing by the SIU?” The delegation can confirm that there perhaps is a pattern. The Committee has an obligation to point out wrongdoing by the Department for the Department to correct that. She appreciated the work that the AG does. 
 

Responses
On who the board members of the parliamentary village are, Ms Masia replied that, according to the Act that governs that village, the board is meant to be chaired by the accounting officer of the Department. But she thinks that all the questions raised about why the board has not been changed and whether the board is effective are critical questions that can be raised with the Department when it arrives at the meeting.

On how the Department is going to assist PMTE and IDT, she replied that this is a critical question because there were errors in the financial statements received. These errors were only addressed after the audit of the AG. The Department has performance information and consequence management issues where one finds that people who need to be held accountable are not being held accountable after investigations are finalised. The Department has work to do on its own before it can assist PMTE and IDT. The Department can assist these two entities by ensuring that decisive consequence management is put in place. The Department’s leadership needs to ensure that there is consequence management for errors such as overpayments, whether intentional or mistakenly. This is to send a clear message that the Department will not tolerate such behaviour. However, in general, the Department can assist PMTE and IDT. IDT has been capacitated with the right skilled people hungry to assist the entity; the same can be done for PMTE. Put the right people with the right skills who can prepare and review the financial statements and also put everything that is a reflection of all the transaction that took place in that space. If that can be done for PMTE, it would ensure that people in charge understand and appreciate what the accounting prescripts require from a record keeping point of view. That will assist PMTE.

She agreed with the comments that findings on PMTE and IDT are not addressed, and that consequence management is not taking place. She stated that, in all the structures that the AG went to last year, they kept emphasising: “if an issue is solved this year, do not forget about it. Track it and continue to clean up that space, so that regression is prevented. If there were action plans to prevent overspending, then we see overspending, we will know that it went over the action plan and the repercussions, so consequences can be considered. Consequence management is not taking place, and there is big irregular expenditure in that place.”

On the repeated failures identified, Ms Masia replied that, as raised by Ms Graham,  the AG is empowered to take action, given the level of non-compliance they see in that space. On what the AG can do to ensure more compliance goes back to her previous statements on consequence management: action needs to be taken, and consequences need to be implemented. The Department needs to demonstrate more efforts to distance itself from the irregularities that are taking place; this will help turn PMTE around.

On the credibility of work opportunities, she replied that this has indeed been an issue for as long as the Auditor-General has been auditing that programme. It goes down to the processes in place, and just keeping the basic records and making sure that there is reconciliation and that what goes to the annual performance report can be traced back to a report. If this continues to be an issue, it does not matter how many job opportunities the Department achieves, the credibility will be questioned if they cannot trace the information back to a document.

On the unauthorised expenditure, she replied that she agreed that this issue has persisted for over five years. It relates to the old school’s project, which has been flagged every year when the institution comes to Parliament. This unauthorised expenditure has neither been written off or condoned through National Treasury. It has not been done. The Department should be asked later this afternoon why this process has taken so long.

On the lease issues, unscheduled maintenance issues, and the key unskilled key personnel, she replied that this is a critical component because a basic understanding of the financial statements shows respect to those who need to review and audit financial statements. When the Auditor-General received it, the number of errors showed that the statements were prepared by someone who did not have the skills to prevent the errors. That is a big root cause that has been highlighted.

On the lending out strategy, she stated that a target had been put in the annual performance report where the Department is supposed to measure themselves on the number of properties they have turned around and leased out. However, zooming into the annual performance report, one would note that the target is very low and is still not being achieved. This begs the critical question: why is the lending out strategy that ought to see a turnaround in the underutilised properties and properties in bad condition still not being done?

On the title deeds being changed without government knowing, she replied that she agrees this is a concerning issue. Management also agrees by disclosing it in one of the notes in the financial statements by stating that changes were happening in the title deed, but these are immovable assets that belong to the state. It is very worrying that the ownership can change without anyone in the Department knowing anything. It says a lot about the status of the productive assets that the state wants to see itself having.

On the removal assets changing to another system, she emphasised that regardless of what system is being used – it is an accounting principle that one cannot do away with records that have been audited and approved without keeping track of what they are deleting. That did not go well at all. It is not supposed to be done. A process needs to be followed once the financial statements have been followed, where Parliament is notified that something significant, which they did not know, has appeared on the radar. She stated that it must not be reduced to a system issue but must be understood as an accounting principle issue.

On the remarks about maintenance, and looking at a portfolio of 66 000 people, there are not enough people to do the work – that is why this is being done every eight years. If these remarks are given in relation to all the other projects, PMTE also has implementing agencies that are being appointed and paid, and are supposed to take the responsibility to monitor all these projects. There is a whole unit dedicated to maintaining and refurbishing properties. The Department just needs to have a plan to write down the number of properties that are not being maintained, and consider what they are going to do to turn the situation around. Management needs to be held accountable by the Portfolio Committee to ensure a clear turnaround plan.
On the employees that have been overpaid, she replied that she had already touched on this issue when she spoke about consequence management. She added that, without saying that the person will be disciplined, the best thing that can happen here is for a deduction to be made on the salary of the employee who has overpaid. That is a demonstration of consequence management.

On how people are just able to override the system and make payments, she replied that this question constantly pops up in the Auditor-General’s deliberations during auditing. It pops up that there is a system that has already been loaded with what contracts and what amounts that need to be paid, yet someone is able to do something else and override the system. However, technology is helpful in this regard because it allows one to see who clicked the button and released the payment, because people log into the system that the Department uses, and the system automatically keeps track of the activities done by the person who logged onto the system. It all boils down to the consequence management of the people who are implicated in the irregularities.

On who is part of the parliamentary village board and why they have not been held accountable, she replied that she has already answered. The Department will be in the best place to answer why they have not prepared and submitted a financial statement since 2014. It is supposed to be the accounting officer who chairs that board. So, perhaps the Department will point to that and then appraise the Committee with what has happened.
On how the Department will reach its goals without properly skilled personnel, she replied that the personnel is there. The AG is just saying that they need to review all these reports that are being prepared to account for all the activities of the Department and its entities. They need to review and ensure that the statements being submitted are of quality. If that is not so, then it is indicative of a skills shortage, and the people there need to be trained.

On making use of the property valuers already in the DPWI’s portfolio, she replied that, when referring back to the immovable assets register, one would see that the problem is not that there are properties that need to be valued nor that the DPWI does not have capacity. The problem is more of an accounting issue. She said they have all the properties across the country, and the assets register is there. The question is how it should be maintained. Does someone understand how this asset register needs to be maintained from an accounting perspective? Once the auditors have accepted the values of the properties, how should those values be treated from an accounting perspective, going forward? Beyond that, it needs to be ensured that there is tight control around the protection of the immovable asset register to the extent that deeds cannot be changed without the knowledge of the responsible person at the deeds office.

On the maintenance plan, she replied that the question about the Auditor-General doing the Minister’s work should be raised with the Ministry. Perhaps they will reflect on that. She stated that she sees the Minister being responsive about the many issues they have raised, but that does not mean that the entity is where it is meant to be. Everyone in the Department, including senior management, needs to be held accountable and needs to ensure that the action plans that are being put in place are being implemented.

On who is involved in the R2.4 million worth of fruitless and wasteful expenditure, she replied that IDT and PMTE are the main culprits here and have incurred irregular expenditure mainly related to infrastructure projects, where losses are being incurred due to various reasons.

On the significantly delayed projects, she replied that the presentation does have a breakdown of each auditee in the sector of the number of significantly delayed projects. This cuts across everywhere, including PMTE. The Department will be able to provide a detailed analysis of the significantly delayed projects to the Committee.

On what needs to be done to stop projects from delaying, she replied that she believes that the government should compile a list of all its properties that are in bad condition and are not being occupied. It must also have an action list in this regard. Once this plan is in place, government can consider how to map it to the need analysis of the user Departments. How can private leases be reduced by allocating the user department to those properties and by being decisive about turning the maintenance and refurbishment of those properties around, so that the needs of the user department and the letting of these properties to the private department can yield more money to the fiscus? This can turn the situation around.

On how many of the 6 000 properties discussed in slide 30 need attention, she replied that this goes back to properties that are not being maintained. The table projected on that slide shows that 1 624 properties are in poor condition in PMTE. Therefore, those are the properties that currently need attention. 1 399 properties are discussed on slide 32 that are not being utilised at the moment. At the end of the day, the 200 accessed properties are very few compared to the ones requiring attention.

On the reason for properties being abandoned at the design stage, she replied that some of the information they have received states that these projects could be abandoned due to budget constraints. However, it is unclear why there would be budget constraints on a property that has not yet started but money has already been spent on it. Perhaps it is due to the fact that extra costs are revealed once the property reaches the design stage. From an auditor’s point of view, it is suggested that an investigation should be had. The investigation will reveal why there are cancellations at the beginning stage.
She replied to Ms van Schalkwyk that the message that the AG has shared with the Committee speaks on loopholes in the planning stage. This reveals many problems regarding how projects are being maintained, how maintenance is being neglected, and loopholes in the mismanagement of leases. Two material irregularities pertaining to leases have been raised, as the AG believes that they do not have to raise 100 material irregularities to set a culture of accountability. However, things remain the same. When material irregularities are raised per lease, action is seen being taken per landlord but the culture does not change. The Committee’s assistance is needed to hold management accountable for the lack of change in the culture despite material irregularities being raised. Four material irregularities have been raised, and these irregularities are based on project management. If these issues are not addressed, material irregularities will persist. Should the accounting officer fail to address the actions to deal with these material irregularities, then the institution will go to the certification of debt. What the AGSA desires to achieve with these material irregularities is to see a change in the Department's behaviour and all its entities. A certificate of debt has not been shared with the accounting officer because he has taken action on the few material irregularities raised with him. This is welcomed, yet the institution still wants to see proactiveness from the Department.

On the irregular expenditure discussed in slide ten and who it relates to, she replied that the expenditure relates to IDT and PMTE. The consequence management recommended for this is that, when there is irregular expenditure done, the AG always recommends that an investigation be conducted. This helps the accounting officer be proactive and recover the money before a material irregularity is raised. This is the one area where consequence management is really low and slow. The AG’s recommendation will be proactive to prevent instances of irregular expenditure from happening. However, because expenditure has already occurred, they will set examples by ensuring that there is decisive action on the people that have caused the irregular expenditure.

On how the Auditor-General has used its power where the accounting officer is bound by a fiduciary duty and has failed to exercise its powers, she explained the AG's steps to identify material irregularities. In the cases where we identified material irregularities, she said that they have not yet arrived at a certification of debt because the investigating officer actually does the work that is required of them and implements the recommendations from the investigation. Because of that, the AGSA cannot move to the certification of debt. The AG needs to help the Committee with these insights because the ones not being dealt with will result in material irregularity. The AG is saying that it will cost a lot of money to only look into it once there are material irregularities. The Committee’s oversight function is needed to ensure that things are dealt with before they are raised as material irregularities.

On what should be done as a recommendation for maintenance issues, she replied that the eight-year assessment of the condition of properties needs to be done away with. A plan must be put in place to deal with the already occupied buildings in bad condition. That will inform what needs to happen to the money, and the channelling of the budget to ensure that a plan addresses these properties. The second priority in the plan should be about the unoccupied buildings because, the longer they remain unoccupied, the more criminals can invade the properties and damage the properties while the entities are paying rates and taxes on the properties. On unemployment, she agreed with the statement made by Mr Thring.

She acknowledged the Chairperson’s remarks. On whether the people involved in the Beitbridge matter are the same people involved in the mismanagement of leases, she replied that she could not pronounce on that without evidence of an investigation, which is why a recommendation has been made that all leases must be referred to the SIU for investigation where a specialist can trace the root of the issues. Alternatively, the Department can extract information from the logs showing who the people who process overpayments are. This can potentially show whether there is a link between those people and the people implicated in Beitbridge. From a high-level point of view, the leases are managed by the same unit, while issues such as Beitbridge are project management issues and are managed by CPM – which is a different branch. The Department can provide more clarity on this.
She appreciated all the comments and the positive reception of the insights from the Members.

The Chairperson called for a meeting recess.

Discussion on the DPWI
Ms van Schalkwyk welcomed the report by the Department and acknowledged the continuous good performance, through qualified audit opinions, of the Department. However, the Committee is sad to see the regression of the PMTE. She also appreciated how the previous acting Director-General, Mr Imtiaz Fazel, was steering the ship. She stated that his moving on would be a loss to the Department. She acknowledged the presence of the Deputy Minister, Ms Noxolo Kiviet.

She stated that she is very worried about the payment period. The Ministry has been consistent on the issue of the 30-day payments and has excelled to 21 days, but then one can see PMTE making payments after more than 100 days. There is a need for individuals to benchmark each other to perform in this area of speciality. The irregular expenditure balance and the zero-recovery process in terms of irregular expenditure are points of concern.
Looking at the number of infrastructure programmes, one can see that 95 out of 108 projects are being completed, but then the number of delayed projects stands at 157. An unrealistic target has been set to manipulate reality and make it appear that the Department is excelling, whereas they are underperforming.

She was concerned by the high irregular expenditure by PMTE. When looking at the under-expenditure of programme one of the DPWI, one can see that under-expenditure in terms of vacancy filing is combined to a total of R36 million. This is concerning, given the strenuous economic circumstances that the country is in. Things need to be done differently, and real efforts need to be made. Including the turnover rate in the Department and PMTE is worrying. She was specifically worried about PMTE, which saw 1 855 leaving the entity. A total of 189 resigned, and 1 537 left due to contracts expiring. What is the Department doing to retain people, conduct exit interviews, and absorb people whose contracts come to an end, to ensure a low vacancy rate?

On the employment of foreign nations, she said they see around 30 foreign nationals employed. Would this indicate that the Department cannot find local people to fill those positions? What is the Department doing to employ locals in those positions?

Ms Graham spoke to page 24 of the financial statements, which indicates that construction management services from the Department underspent. The Department listed the underspending for that programme and for facilities management as being a result of contractors delaying executions and the finalisation and extension of times. Is action being taken against the defaulting contractors? Does the Department still use them? Are they blacklisted or penalised? What mitigation is taken when there are delays from a client’s side? The underspending on employees is remediable. Why is it not being remedied? What was the reason for the delay in the cleaning and gardening tender?

The Department continues to say that there is an 11% vacancy rate, whereas research has shown a 13% difference in the vacancy rate. Why is there a difference in the numbers? Page 62 speaks on productive assets and that proposals for leases were received from people, and those proposals were ignored. Why was that letting out strategy delayed for so long? Why were proposals from people being ignored, and why has the Department failed to secure the additional leases of the small harbours? Page 63 speaks on revenue increasing through letting out state-owned properties. She stated that the reported achievement is disingenuous, as the revenue increase was due to annual increases and not due to new lease agreements because the Department said that there were no new leases signed. Claiming that an increase has been achieved is somewhat disingenuous regarding the documentation.

She referred to an underspending mentioned on page 70, including an underspending on IGR. IGR is one of the sectors that should not have an underspending. Page 83 speaks on properties in poor conditions. Why is there a big difference between the Auditor-General’s reported 66 000 properties in poor condition and the Department’s reported 77 517 properties in poor condition? According to what the Department says in the annual financial statements, there is no actual strategy to deal with these properties. Is a needs assessment going to be done and put on the list? That is not addressing the issue. It also means that the properties are going to disintegrate. Page 120 speaks on performance agreements and two salary-level-16 employees that do not have performance agreements. Who are those two employees, and why do they not have these agreements? Page 155 has zero salary-level-16 performance agreements on the PMTE side but there actually is somebody in that position. Why is that discrepancy there? Page 158 speaks on 30 foreign national workers, 22 being Cubans. Who are the other eight workers? Where are they from? Why are they necessary? It is understandable if they are technical advisors with technical expertise but not as admin officers.

About R122 million was allocated for infrastructure development coordination. Infrastructure South Africa (ISA) is a separate branch on the organogram. All the other branches are providing feedback on their expenditures yet the Committee is receiving nothing from ISA. Why is there no feedback on ISA’s expenditure?

Ms Hicklin referred to slide 18, which provides that R6.3 million of the EPWP non-state sector for PPE was given to a contractor who did not deliver goods. Who was the contractor, and were they struck off the roll? R1.5 million for integrated grants was not paid due to non-compliance with the Division of Revenue Act. Who was this contractor and is the contract still in the DPWI’s books?

The presentation speaks on 86% underspending of the budget regarding compensating the employees. How can there be a position not filled in the DPWI when the country has a ridiculously high unemployment rate? This issue is constantly raised with every entity in the DPWI. There are constant calls for vacancies to be filled, and there are highly qualified people in the country to fill those positions. There are constant problems in the DPWI, including fruitless and wasteful expenditure. The Committee and the Auditor-General make recommendations to the Department, yet the Department does not act on these recommendations.

Is the PMTE in need of business rescue due to a decrease in revenue recognised from deferred revenue, recoverables that are not recovered, maintenance projects that do not get off the ground, disputes raised by clients, loss of disposal assets and a deficit of 149%? Where is the consequence management for this, especially concerning fruitless and wasteful expenditure? The Public Finance Management Act (PFMA) requires the Minister to act against people responsible for fruitless and wasteful expenditure, yet little is done. The PFMA also requires an accounting officer to report on the under-collection of revenue, yet that is not done either. Two specific sections in the PFMA dictate that the Minister has to act against people in a department who do not comply with the law, yet no action is taken. Measurable consequence management is needed in the DPWI against the DPWI and PMTE. There are statutes that can act against this, yet nothing gets done as a Committee.

Mr E Mathebula (ANC) raised concern and disappointment with the PMTE’s disclaimer. He commented that this was very bad. This is the worst thing a department or an entity can get because this is an indication that something went very wrong. He wishes to see improvement in the next financial year. He hoped that an investigation into fruitless and wasteful expenditure would occur, as those investigations could reveal what went wrong and who was responsible for the expenditure. The Committee cannot accept the news on the irregular expenditure. He commended the Department for saying that they are doing something to correct this, and assured the Department that the Committee is behind them and will give them the support they need. There are a lot of young graduates who need jobs, yet there are such entities not employing those kids. An investigation needs to be done into the unauthorised expenditures that lead to the overdrafts. On the same entity, the same money indicated in the previous financial year is the same as this financial case. If this is the case, then how do you have Rands and cents exactly the same as last year? Something is not correct, and clarity is requested on this.
He noted that Ms van Schalkwyk indicated that the PMTE pays its service providers over 100 days. The payment over a 100 days issue is not a matter of principle or choice but rather a matter of policy. Policy requires service providers to be paid over the course of 30 days. He believes that the reason for such a policy decision is because many businesses collapse due to late payment by the state. Some of these businesses end up having their properties attached. “We cannot be happy about that.” The PMTE must work around the clock, especially those people whose businesses are collapsing. The Committee cared about businesses in South Africa and believes that these businesses should thrive. The businesses that are being paid late are owned by Africans, and this is worrying.

On the AG’s presentation, regarding the issue of the disclaimer, he respectfully thinks that the AG must stop being a biteless bulldog and start biting. In the event that someone misuses funds, the AG must be able to step in and ensure that that person pays for their misbehaviour.

Mr Thring stated that the inability to reach the target of two percent, presumably due to suitably qualified applicants, is unacceptable. This is regarding creating employment for people with disabilities. This is indicative of the Department’s inability to meet targets in other programmes. It is unacceptable to underspend R113 million on goods and services. This underspending is unacceptable, considering the high level of unemployment in the country that is set to increase along with the high level of poverty in the country. This underspending cannot be normalised.

The R197 million irregular expenditure underscores the challenges that the Department has, particularly in the adverse economic climate that the country faces. Irregular expenditure speaks to non-compliance with contracts and finance management legislation. This is where accountability and consequence management must be applied. There cannot be similar findings of irregular expenditure year in and year out, with little consequence management. The fact that PMTE has regressed from a qualified opinion to a disclaimer must raise serious red flags. If one looks at PMTE’s trajectory, one can spot a number of red flags that indicate PMTE as a going concern. The office of the AG indicated that only five percent of the portfolio of the targets set for maintaining buildings would be reached. This is reactive maintenance, where proactive maintenance is needed. The AG stated that a plan needs to be put in place. He called for a proactive maintenance plan to be put in place, and said that this particular Committee monitors that plan.

The Chairperson emphasised the employment of foreign nationals for administrative positions being an issue. South Africa is one of the countries with the highest unemployment rate, yet foreign nationals are being employed in these administrative positions. She fully agreed with her Committee Members that this was a problem. The Auditor-General has raised that it gave a disclaimer audit opinion on PMTE. Is the restating of the asset register the issue? She does not understand why the register had to be restated to be different from what was audited in the 2020/21 report. What is being hidden there? Why was there such a major change? “Now you are sitting with a disclaimer audit opinion because you have restated the asset register. There are serious red flags on that one.”

What impact does this large number of vacancies in PMTE have on PMTE delivering its mandate? What does it mean in terms of staff establishment that there has been an addition of 493 staff members to PMTE? A total of 67 people have retired, and an amount of R8.9 million was reported for retirement awards. This is a R7.9 million increase from 2020/21, when 111 employees retired. She asked for clarity in this regard.

Responses
Deputy Minister Kiviet greeted the Committee and apologised for her delay in connecting to the meeting. She stated that she would first give the officials a chance to deal with the issues raised and then return to address the outstanding ones. She handed the platform over to the acting Director-General.
Dr Alec Moemi, Acting Director-General, DPWI, greeted the Committee. He acknowledged and welcomed the instructive directives that the Committee has shared, and stated that the Department plans to implement these directives. “We have listened to the key issues brought to the fore, and how the Committee wants the Department to deal with them. We welcome the measures, such as a proactive maintenance plan and the directive to table it before the Committee, after which Members can then hold the Department accountable in that regard.”

He recognised that the Department has a higher than normal turnover rate because the Department is aware that they are one of the largest departments in government. An age analysis has been done on the staff, and the staff inadequacy exercise of the PMTE has been looked at. The Department is aware that a large portion of its members are at the end of their contractual obligations with the Department, and some are at retirement age. A number of aged staff members have left the Department. The key issue is what the Department will do to retain skills. “We are allowed to extend some staff member’s retirement age from 60 to 65. This has been determined and such staff members have been retained. Each case of extending the retirement age is dealt with on its own merits. What cannot be put aside is that vacancies need to be filled with speed. In the pipeline, there are no less than 250 positions in the stream on different recruitment levels. Focus is needed to fast-track this process and ensure that recruitment capacity is enhanced.”

On why more retired awards were paid in 2022/21 as compared to 2020/21, given the lower number of retired persons in 2022/21: firstly, this is attributable to the fact that the rules of the GEPF and pension awards are linked to inflation. They determine the pay-out on the basis of the last salary notch of an employee and on the basis of the economic conditions at that time. “When the GEPF and the council approves higher percentages in rewards, we see a raise in the number of the pension rewards.” Secondly, the awards are predetermined on the notch and salary level of an employee. The retirement awards are most likely to be higher in a year when more people with a higher salary level retire, compared to a year when more people with a lower salary level retire. Taking those two factors into account, and knowing that this is one of the areas in which the Department can only but compile, the confirmation of the exact awards are determined by the GEPF and National Treasury. “We can say that we have a higher degree of certainty that the pensions amount that has been rewarded is correct.”

On the identity of the two employees at a salary level 16 who did not have performance agreements in place, and why these agreements are not in place: he replied that the two employees could not complete performance agreements because the first employee was suspended. The second employee is Dr Alec Moemi, who has not signed a performance agreement as at 31 March 2022.

On foreign nationals being hired for administrative work, he replied that the Department complies with the law in as far as the appointment of foreign nationals is concerned. The Department also strictly follows the requirements of the Immigration Act. “We are in corporate agreements with some countries where we agree to exchange professionals and host visiting professionals as part of the exchange programmes and the administrative support programme, which we sign on a country-to-country basis. We do not have any foreign national employees who do not qualify in accordance with the policies in place.”

On what the Department is doing to employ more locals, he replied that the Department does have an HDI programme in place and a young professionals programme that recruits graduates in the built environment. Skills transfer tests are also done on the locals and young people to help them acquire critical skills.

On what has been done about the defaulting contractors and whether they are still in the Department’s books, he replied that the Department has analysed this programme and agreed on the institutionalisation of a panel of contractors – which will allow the Department to change contractors easily when they do default. Action is being taken, and dispute resolution mechanisms are being followed. The Department is hammering them hard in terms of penalties and recovery. Each matter is dealt with on its own merits, but actions are being taken against the contractors. Some contractors are still in the Department’s books, but the onus to remove them lies with National Treasury. The real test on the Department’s part is whether they have reported the defaulting contractors to National Treasury, which the Department has been doing on a quarterly basis. The Department also has begun compiling a report on significantly delayed projects and is reporting on the measures to tackle this.

On the high cost of employment and the high underspending on employment, he replied that the Department accepts full responsibility in this regard. Mechanisms have been put in place to fill these vacancies. There are over 250 positions that are open, and the Department is at different stages of recruitment with these positions. More positions will be advertised in the coming two weeks. For the first time, some of the positions to be filled are in anticipation of the personnel that are going to exit.

On the accounting officer’s responsibility to report on all the under collection of revenue, he was in agreement with this. He stated that the annual report does indicate such a report. They are also required to report to National Treasury on a quarterly basis, and they can confirm that such reports indicating the lack of revenue collection have been issued to National Treasury. There have been renewed efforts at revenue collection.

Restating assets in the asset register and the need to temper with the register should not be done, as it is borderline corruption. Opening and closing balances are sacrosanct principles that should not be tampered with from an accounting point of view. The Department has a dilemma because they check all the state land community records as they comb through the book. Comparisons are made, and the Department does recover some properties. It realised that some properties were wrongly vested. The properties need to have vested in the Department’s national register. “We have not been able to do this properly due to the transitions from the apartheid regime in 1994 and the land issue not being handled the way it should have been.” Vesting and ownership have been thorny issues. The Department of Public Works needs to drive the process vigorously and make sure that the determinations that should have been made in 1994 are made now. The Department comes across new processes once in a while. The state expropriated some properties, but those properties were never taken to their logical conclusion. When properties should have been stated in previous years and were not stated, it will also be very tricky for the Department not to include those properties and correct the values. “The AG stated that the Department has changed their values so much that they have become material to the actual overall value of the register that we do not where to start auditing you, hence the disclaimer opinion. The Department and the AG need to find each other on this matter. The SIU has been engaged. As the assets are recovered and returned to the state, the assets will certainly change the value of the asset registry. These are assets that should have always been listed as state assets. A solution must be found, as it cannot be the case of just saying those figures are sacrosanct, and we cannot tamper them. Tampering has been done indeed, and an accounting solution needs to be found in this regard. The Department is engaging accounting firms to assist with this issue. We are aware that there are assets at the registry that we need to work on and bring into our register.”

On why ISA is not reporting that PMTE and the DPWI are reporting separately, he replied that PMTE is a trading entity of the Department, which is why it can get its own separate vote. The rules of accounting to Parliament require each vote to have its own book and it must be accounted for individually in its own books. ISA is a government component on its own way to becoming its own entity. However, by law, it is not required for ISA to have its own books, as it does not have its own vote.

On the EPWP, he gave the platform to CFO Sithole, to respond to the question on which contractor was involved and to questions about late payments to the PMTE.

On the bank overdraft and unauthorised expenditure, Mr Sithole replied that this is unauthorised expenditure that has been coming over the years since 2014. Investigations have been done, and a report was submitted to National Treasury to take the matter to Parliament to approve the unauthorised expenditure. This resulted in a bank overdraft because it consumed the Department’s bank account.

On what is being done about the number of properties where revenue is not being generated, he replied that National Treasury had been engaged about this, and a programme called Itemised Billing is in place. It is intended for the Department to charge government departments according to a tariff structure that will assist government in becoming financially self-sufficient. At this stage, government is not affording the tariff structure that the Department is charging, which then means that Treasury is unable to approve what is expected.

On whether PMTE is self-sustaining or not, he replied that the PMTE sources its revenue from a government department. About 97% of PMTE’s portfolio is utilised by government departments. “If we do not generate enough revenue from the asset portfolio that we have and clients are not paying, then it raises the question of PMTE being a going concern.”

On the 30-day payment period, he replied that the Auditor-General usually puts a “non-compliance” on the report. Both PMTE and the DPWI did not receive such a remark for the past two years. However, there are certain instances where a significant number of invoices are not paid within 30 days. As a result, the overall performance for paying within 30-days sits at 59% for PMTE. About 89% of the 162 000 invoices that the Department processed were paid within 30 days. A lot of effort is being put into that area. However, there are instances of disputes with service providers where invoices are not paid.
On the contractor who did not provide the PPE, he handed the platform over to Mr Mazibuko, to comment on the matter.

Mr Mazibuko stated that the name of the contractor would be obtained as the money that was underspent was on the side of the Department. But the appointment is done by IDT for the non-state sector programme. He is not sure if colleagues from EPWP know the service provider. If they do, then they can assist. If not, then information will be provided later.

Mr Ignatius Ariyo, Chief Director: Infrastructure, EPWP, DPWI, spoke on the IDT matter. He stated that the money was transferred for PPE but was not paid to any service provider because of procurement delays. On the R1.5 million that was not transferred, he explained that this was not to a service provider, but the Gauteng Department of Sports and Arts and Culture did not make payments on the EPWP integrated grant because they were not compliant with the conditions of the Division of Revenue Act in terms of reporting on projects and expenditure. “When we engage with them they say that there are delays in implementing their projects.”

A member of the Department’s delegation who deals with the non-state sector added to the PPE issue. She stated that the Acting Deputy Director-General responded adequately to the question because the service provider was going to be appointed by IDT to provide the PPE. But because they did not manage to reflect accordingly and the PPE’s quality was not on par, the service provided was not appointed to do this part of the procurement. Therefore, the money was not paid to the service provider. “We are clear that the service provider was not paid R64.3 million.”

The Deputy Minister came in to round off the issues, as there were common issues raised by the Committee. She commented that this reflects how serious the Committee views those issues. She explained that when an acting vacancy is open in the Ministry, human resources are required to attach their plan to fill that vacancy so that a person is not in an acting capacity perpetually. It appears that it has been normalised to have a person act for years before a position is filled. PMTE is currently at over 4 500 employees, and vacancies that are there are around 400. But due to the workforce being huge, the numbers also look huge.

On recommendations being made but not being acted upon by the Department, she replied that, if the Members were to be privy to the Department’s internal audit meetings with the audit committee and internal auditors, they would understand that part of the recommendations from the part of Members constitute that internal audit report. “We assess how far we are on a quarterly basis. The large size of the Department often limits how quickly the impact of implementing the recommendations can be realised. We are not deterred from ensuring that the recommendations are applied. The one report that has been quite impactful is the number of people employed without proper procedure.” These people’s salaries are classified as unauthorised expenditure. However, the Department cannot not pay them, as they are still employed by the Department. Many of these cases are before tribunals and need to be resolved. This limits the Department’s ability to decide on the cases.

DPWI: Follow-up Questions
Ms Graham followed up by requesting clarity on the contingent liabilities of R13.33 million. The presentation says that this is about rising labour costs at the bargaining council, but her understanding of this is that only R3 million is from the bargaining council and the other R10 million arises from a defamation case from the Minister.

On PMTE not being a going concern, her understanding is that PMTE has not been fully operationalised in terms of National Treasury’s requirements. Can the Committee receive clarity on when that is going to happen? For that to happen, it has to be a going concern. There is no way an entity can be run on such a loss.

On the R1.02 billion overdraft, some assets exceed the liabilities by R6.7 billion. This is a major deficit; R101 million was spent on consultants for operational work – this work could be done in-house if the right people were hired. It goes back to the vacancies: while the Deputy Minister said that this is not a big deal, in-house people are paid a lot less to do the day-to-day things at the end of the day. Large costs are incurred due to inefficiencies.

In terms of funding the PMTE, the bulk of the funding comes from properties that are being leased but also from transfers from the Department. Over and above all of that, there are massive costs shared between the Department and PMTE. All corporate services are provided by government to the PMTE, and values are not attached to this. She agreed with other Members that PMTE needs business rescue.

On the costs to the tune of R265 million, regarding the Department of Justice and the Department of Sport, Arts and Culture, which have not been recovered, and the Departments only receiving R13.5 million in exchange for services: this is untenable. Half of what the Department spends on leases is just spent on the properties, which is just a massive issue.

On the debtors' age analysis, there is only an 82% recovery of debtors. This is untenable, as it creates a bigger opening balance for the next year. On ISA: this is the infrastructure arm of the DPWI and is responsible for R100 billion worth of infrastructure over the next year, which it needs to facilitate the coordination thereof. But the Committee cannot do oversight over it because it does not have its own reporting, even though it is its own entity. This is concerning.

Ms Van Schalkwyk followed up by asking about the outstanding debt and the age analysis of that debt. Several interventions have been made in this regard, but the Department still has a large amount of debt. New solutions must be found to recover debt and the interventions must be followed up with Treasury. A full report is needed to discuss the top ten service providers, leases, and unscheduled maintenance, as clarity is needed on how many consultants are used and what the costs are for this exercise. Are we going to see the Draft Public Works Bill being gazetted before 2024? She thought that this was a priority for the Committee. “But every time when we receive the annual reports, there is no movement on this matter. Can we get an update on what is the held up on this matter?”

Follow-up Responses
Mr Moemi indicated the Department has listened to all the concerns on PMTE’s financial management and PMTE being a going concern. The Department is also similarly concerned and has looked at the inability to collect debt, the dependency on the state departments to service the revenue, the lack of solutions, and the letting out strategy. This is being discussed with National Treasury, and the genesis of this is being traced back to the initial change in policy and the mandate and the budget being resolved to client departments. The possibility of ring-fencing the budget is being discussed with National Treasury. They also approached the AG to look at a situation where money was budgeted for rentals and should have been handed over to the Department but the departments have not paid it back yet. They have also looked at what the departments have utilised the money for, as the law does not allow for budgets appropriated for one purpose to be used for a different purpose. “We have vigorously started to collect debts where there was previously under-collecting. Discussions have been had with the relevant departments, and solutions have been found. Independent valuators have been found to measure the space. These models and interventions are made to resolve the longstanding disputes to address the historical balance but also to have a model with Treasury to ring-fence the budget and avoid the future occurrence of a similar thing. We are revising our policies to ensure that our systems are more robust to ensure resolutions of disputes at an early stage. Our contention is that, although it may appear that PMTE is a runaway train, we have to put a concerted effort into resolving this to ensure that the debt does not balloon any further. And those that have been recurring and ongoing for a long time are sorted out first – such as that of National Treasury.”

The Department is looking at sweating the assets. Several options have been discussed with Committee Members to reduce the cost of doing business and lowering cost of utilities. The ROT process is being looked at. This will lead to investment by the private sector and the refurbishment of the Department’s buildings. The permutation of the ROT programme is currently being done selfishly to lower rental costs, but it will ultimately be done for commercial purposes, so the state’s assets can be sweated. He will be the first to admit that the scenario of spending R5.3 billion every year on renting private sector properties is unhealthy, whereas the Department’s own efforts to rent its property yield R80 billion a year. “We are aiming to claw back R1 billion in leasing costs in one financial year. We seek to expand new leased out properties and diversify our tenant base. We have found that there are deficiencies in our circular 135 has some deficiencies, and it would have opened up many corrupt practices and other challenges had we not tightened up on it. We now believe that we have done all in terms of the approval for some of these things and the setup of the committees that have independent people on them to ensure that the processes are robust.”

On the ISA issue, he replied that the Department is not at all refusing to account. “The issue is the manner of accounting because, currently, it is not the case that we are not accounting for ISA’s expenditure, as it does appear in the Department’s book. In no way can we say no to packaging an expenditure report purely for ISA related matters if the Committee requests that the Department does that. We are willing to do so as there is nothing to hide.”
On looking at the key cost drivers as raised by Ms van Schalkwyk, he replied that an assessment of the top ten service providers that provide the Department with leases had been done. This has been the subject of the Department’s target to negotiate better prices because these top ten landlords account for a significant portion of the country-wide leases. A dent is made immediately when one has reached an agreement with the landlords. The result of the landlord conference, and the embedding of the report as a benchmark for the market, do attest to the progress being made. “We are seeing the successes with leases, and we are applying the same for the top ten processes in the construction area.”

Deputy Minister Kiviet indicated to Ms Graham that there would be nothing one would underplay when they are charged with the responsibility to ensure good governance. Dealing with the high unemployment rate is a concern for everyone. She clarified that she was just illustrating that they would not want to see vacancies prolonged and want them filled timeously.

On the landlord issue raised by Ms Van Schalkwyk, she stated that the example that the Acting Director-General made would not bedevil that point. It is safe to say that those, the landlord, the top ten leases, and the top construction companies should be easy to compile and provide that information.
On the lack of in-house personnel to deal with issues such as forensics, she replied that discussions are being had, and approaches are being employed in the Department to ensure that the Department has the desired skilled people. The GRC branch becomes responsible for investigations and forensics. The Department is of the view that each case needs to be looked at on its own merits. “When you have in-house people, you find that they sometimes become subsumed by the culture of the organisation to the extent that it clouds their objectivity. An external view is often quite helpful. The Department needs to strike a balance in this.”

The Chairperson stated that this information is helpful for preparations for BRRR and for reports for the debate that will take place at the House.
She thanked the Committee Members and the Department’s delegation for the questions and the progressive discussions. She announced that another meeting would take place on the following day.

The meeting was adjourned.