IDT & Agrément SA 2022/23 Annual Reports; With Deputy Minister

Meeting report

Opening remarks

The Chairperson said the Committee would engage with the Independent Development Trust (IDT) on its 2022/23 Annual Report. She said the Members played a crucial role in ensuring that the entities were transparent and were held accountable. There were apologies from Mr I Seitlholo (DA), Ms S Van Schalkwyk (ANC), Mr P Van Staden (FF+) and the Minister of Public Works and Infrastructure. The Chairperson said the Committee was not pleased with the Deputy Minister and Minister for being absent from the previous meetings. That cannot be repeated as one of them, either the Deputy Minister or Minister, had to be present at the meetings.

Ms Bernice Swarts, Deputy Minister of Public Works and Infrastructure, said the concern had been noted and that she would write to the Chairperson and the Whip on the reasons for her absence. She said the IDT entity would explain how its business had been running and the Auditor-General (AG) would provide input as well.

Briefing by the IDT on its 2022/23 Annual Report

Adv Lufuno Ndou was representing the chairperson of the Board. He said two years ago, the IDT board aimed at making the IDT a viable and purposeful entity. The Board found several problems the entity faced that affected it in delivering its mandate, such as capacity challenges, lack of revenue, poor audit outcomes, etc. The Board decided to work on the entity and strengthen it. The Board brought about change in the IDT and the highlights of its performance had been business generation, turnaround of the entity's fortunes to R6.7 billion, rising levels of programme expenditure, improved governance and stakeholder management, and so on.

The Committee was taken through the report.

The IDT played a significant role in the infrastructure delivery value chain of the State. Although the entity had had a few governance and performance-related challenges in recent years. Its performance during the reporting showed notable improvements in several indicators: rising levels of public confidence which were reflected in, among others, the increase in the size of the entity’s portfolio, as well as rising levels of programme expenditure. That was good, not only for the IDT itself but for the delivery of social infrastructure in the Country.

The end of the reporting period also marked a year and a half since the IDT had a fully functional and quorate board, which, upon coming into office in the middle of the 2021/22 financial year, had set ambitious targets to turn the IDT into a fit-for-purpose and financially viable organisation. Among the most notable outcomes of the turnaround efforts by the IDT board and management during the reporting period were business generation, governance improvements, and financial management. As a result of those improvements, the IDT received a relatively positive audit outcome for the second year in a row. That was a vast improvement from years of audit disclaimers.

Stability at the governance and management level also positively impacted client perception. As part of the turnaround efforts, the Board and management filled critical vacant positions and appointed suitably qualified built environment specialists to deliver on the entity’s mandate.

The IDT aspired to reduce the infrastructure backlogs by building quality public infrastructure that met the goals of its clients. Inefficiency was at variance with that aspiration and had to, therefore, not have a place in service delivery, especially amid the backdrop of enormous infrastructure backlogs in South Africa. As such, completing infrastructure on time, within budget, and to the right quality not only inspired clients’ confidence but also prevented wastage and ensured that more people could gain access to such infrastructure speedily.

Audit outcomes

Audit outcomes have a significant impact on the brand of any institution and have a bearing on the business allocation decisions by clients. For the second year in a row, the entity received a qualified audit outcome for the 2022/23 financial year, which was a notable departure from more than five consecutive disclaimers. The audit outcome was the result of the implementation of the Audit Action Plan that addressed issues which emanated from the 2021/22 audit period. Poor audit outcomes in previous years were also caused by capacity constraints emanating from the departure of many staff members due to uncertainty about the entity’s future. That has since been resolved by filling several vacancies during the period under review.

Performance Overview

In the 2022/23 financial year, the IDT had eighteen (18) targets. Eleven (11) of those targets were under Programme 1, and seven (7) under Programme 2. The entity achieved nine (9) out of eighteen (18) targets during the reporting period. That represented a 50 per cent performance level. Seven (7) targets were partially achieved, while two (2) targets, or 11%, were not achieved. Table 2 presented a performance summary for the period under review. Projects completed on time stood at 29% and the percentage of persons appointed with disabilities stood at 0%.

[Please see report for more information]

Discussion

Mr E Mathebula (ANC) welcomed the report as presented and applauded the IDT on its performance. He said the IDT had not had a proper board for a very long time and now it had been performing exceptionally well with its new Board. In terms of the target on job creation with EPWP, the IDT had overachieved. The main struggle within the Country was unemployment and fulfilling that target was a step in the right direction. There had been instances where contractors had not been paid on time and that was very bad. The IDT had indicated that it had improved stakeholder engagements.

The clients were stakeholders. Since that was the case, clients needed to ensure that payments were made on time so that the contractors were paid. How would the IDT address that situation? The issue of high irregular and wasteful expenditure had to be included in the report and not only in the annual statement. How would the IDT mitigate the issue of the high irregular and wasteful expenditure? Were there any cases of fraud and corruption? If so, how much did those impact the IDT financially? What had been done to mitigate the issues? How much did the litigations cost the IDT? Could there be more information on the litigations? There needed to be more clarity on the flouting of the supply chain management processes.

Mr W Thring (ACDP) said the Members fought for the IDT to remain and welcomed the improvements that had been seen. On business generation – the R6.9 billion increase was welcomed. One of the challenges noted in business generation was that letters from clients were not received. Those little things needed to be addressed for business generation to maximise. Only having 22% of projects completed on time encouraged sister Departments to work on their own projects. There was an understanding that the delays were due to contractors not being paid on time and other factors, but that needed improvement.

The contracts and their penalties needed to be considered to determine how things could be properly enforced. The target for people with disabilities was not met and had received 0%. That was not good at all. The value of the business portfolio target of R3.5 billion achieved was very small in comparison to the large scope of work from government that was available. That needed to be addressed as well. On the finances on programme two – the variance of business generated did not tally. What penalties had the IDT incurred under expenses? If the IDT ran a tight ship, a grant would not be needed. Goods and services received and not paid for needed to be recorded. Transactions and irregular expenditures had not been properly recorded. The heads of the relevant units needed to be held accountable. There needed to be consequence management.

Ms A Siwisa (EFF) asked about the target not being achieved on filling disability vacancies – were the posts being advertised? What advertising mechanisms were being used? The Committee believed in the IDT and was happy with the progress. Lack of invoices and lack of a proper recording system was very bad and needed to be addressed. There needed to be consequence management. On the presentation on reconfiguration – how far was the reconfiguration process? Have there been any discussions or negotiations between the IDT and the Department of Human Settlements?

Mr T Mashele (ANC) said the IDT had not regressed but it had not moved. More was expected of the IDT and the quarterly reports would be monitored. If the IDT failed, the masses of the poor people on the ground would pay the price.

Ms L Mjobo (ANC) told the Deputy Minister that the AG was complaining that there was an Acting DG, an Acting CFO, an Acting CEO, and so on in the IDT. There needed to be appointment of those important members.

The Chairperson said the AG's recommendations had to be addressed. Did the IDT take any steps to ensure that the recommendations would be implemented?

Response

Ms Tebogo Malaka, Acting CEO, IDT, said on contractors not being paid on time – the IDT was constantly conversing with clients for payments to be made on time and for tranche payments. The contracting model was under discussion for change – the payments would be changed to tranche payments to pay service providers on time. On fraud and corruption cases – there had been six cases in the 2022/23 financial year. Four were investigated and two were closed. One was reported to the SAPS and two to the Hawks. There would be more reporting on those cases to the Committee. Some officials were involved that were dismissed on EPWP and some had gotten disciplinary hearings. On litigation – where the IDT could settle with the client, it did, especially if the IDT was at fault. If the client was not paying the IDT, then there were discussions to settle with the client to not incur litigation costs.

Frivolous claims came forward where there were no grounds for the IDT to pay and those cases were investigated and challenged. During the financial year under review, claims against the IDT stood at 36 with a value of R395 million, and the total of claims from the IDT was 70. On supply chain management processes, controls were put in place with the internal audit. On business generation and allocation letters – there was a change in processes because there was no confirmation of budget in the service letters. So, projects only commenced when allocation letters were received to ensure that the budget covered the costs of the contractors.

When agreements were signed, clients delayed with allocation letters, and that delayed the IDT in implementing the project on the ground. It was an ongoing process and the delays went from one office to the next. On targets for disabilities – the IDT was struggling with that target and there were no responses to adverts from people with disabilities. The value spent, which was R3 billion, needed to be improved, and the IDT was working closely with clients to speed up service delivery. On programme two on variants that did not tally – it was an error, which was R141 million instead of R241 million. The IDT needed to tighten the ship and not depend on the grant. The IDT was struggling with a lack of sufficient evidence, and the IDT was working with the Department to procure an efficient system. On engagements with the Department of Human Settlements – the IDT was engaging with that Department but not on alternative technology but on service delivery on bulk infrastructure. There were engagements with Agrément SA on alternative technology. On the acting CFO – there was an appointed CFO who was receiving disciplinary hearings.

An official said the decision to remove irregular expenditure from the annual statements was followed from advice from National Treasury. That expenditure was said to be noted in the annual financial statements and the IDT had to keep a register that could be requested at any time and be accurate. On the mitigation of irregular expenditure - the SVM policy was an issue that had to be updated due to the lack of leadership with the previous Board and most contracts were based on outdated policies.

However, new policies had been approved, including a checklist that detected non-compliance before transactions were taken to the next stage. The policies included the requirements of PPPFE, the National Treasury, and so on. The controls were tightly controlled and could cut down irregularities in expenditure. There were agreements with the internal auditors on bids over R10 million and above. On penalties – those came from contracts signed with the service providers for instances such as delays in standing time and so on. Factors out of control had resulted in expansion in the scope of the audit. There were regional audits that were autonomous. On steps taken on MI – that was still in process. The failure to pay VAT was due to the lack of funds. There were issues with cash flow at the time and debts could not be honoured. The IDT moved out of offices to cut costs and investigated which actions were taken to address the issues.

Deputy Minister Swarts said on the update of the reconfiguration of the IDT, on the seven-month review on the Presidential SOE Council, following the presentation of the IDT business case on 29 March 2023 by the DPWI, the assessment was meant to be done by July 2023 and concluded by September 2023. That had to be followed by the Departments and entities, and consultations had to be done by the PSEC and those had not taken place. When those things started happen, the Committee would be notified and updated. On the appointment of the CEO, that matter was with the executive authority and the Board, and the outcome would require input from the Cabinet. The CFO was currently under suspension and that was why there was an acting CFO in the meeting. Proper systems would be in place to monitor the IDT’s work, which would help when being audited. All advice and guidance given by the Members would be considered.

Ms W Alexander (DA) said four members of the IDT had resigned overnight. That would hamper the performance and functioning of that entity. Could there be more information on that?

DM Swarts said the Minister would respond to the Committee in writing on the four members who resigned. There had also been two posts that were advertised to replace two members of the Board previously.

Briefing by Agrément SA on its 2022/23 Annual Report

The Chairperson welcomed the entity. She said that Agrément SA was one of the best-performing entities.

The Committee was taken through the report.

The sixth Agrément South Africa (ASA) Annual Report provided insight into its performance information, financial position, financial performance, human resources information and outlook. Despite unfavourable economic conditions due to the COVID-19 pandemic, ASA continued to implement its mandate, improve its operational efficiencies, and support the Department of Public Works and Infrastructure (DPWI) objectives, to which ASA reported. Demand for certification was less than expected and more could be done to increase that demand, notably to designated groups, i.e., women, youth and people with disabilities.

The Board exercised its oversight role to ensure the organisation achieved its mandate. That enabled ASA to achieve most of its Annual Performance Plan targets for the 2022/2023 financial year. ASA’s core mandate was the technical assessment and issuing of Agrément certificates for non-standardised construction-related products and systems for which no South African national standards existed. In undertaking that core mandate, ASA issued a total number of fifteen Agrément certificates, during the financial year under review. Those certificates had been used widely by South Africans to safely adopt innovative construction technologies thus minimising the risks associated therewith. ASA continued in its role of overseeing the safe importation of innovative construction products into the country, by assessing those products in line with global best practices adopted by the members of the world federations of technical assessment organisations.

Challenges faced by Board

In the 2022/23 financial year, the Board continued to experience budget constraints in addition to the operational challenges posed by the COVID-19 pandemic. The scarcity of key technical skills and accessibility to the technical infrastructure continued to hinder ASA in executing its mandate.

Outlook/ plans to address financial challenges

ASA continued reviewing its business processes to improve efficiencies and ensure financial sustainability. Implementing Eco-Labelling projects could add an additional revenue stream that would reduce over-reliance on grants and ease budget constraints over medium to long-term. Implementing strategies to improve the efficiency and effectiveness of business processes was underway. Reviewing criteria to address current challenges and validity reviews, which would add credence to the database, was ongoing. A plan to Conduct certificate holder workshops to improve stakeholder engagements and experience. A plan existed to explore and enter strategic partnerships with critical stakeholders to achieve synergies and exposure. There was a need to explore strategies to support and introduce innovative, non-standardised construction-related products and systems to women, youth, and people with disabilities.

Audit Outcome

According to the audit opinion, the financial statements present fairly, in all material respects, the financial position of Agrément South Africa as of 31 March 2023 and its financial performance and cash flows for the year that ended in accordance with the Generally Recognised Accounting Practice (GRAP) and the requirements of the Public Finance Management Act (Act1 of 1999). Attention was given to the following matters: national treasury instruction notes no. 4 of 2022-23: PFMA compliance and reporting framework; and achievement of planned targets.

[Please see report for more information]

Discussion

Mr Thring welcomed the presentation and the unqualified audit report. He said the mandate of Agrément was to bring about innovation. What were the innovations that could be used that were not being used? Why? What key innovations were ready but were not being taken up by government departments? Why was that? Were innovations shared also with civil society and the private sector? Could there be more information on and on irregular expenditure? What measures were being taken to address irregular expenditure? On targets not achieved on non-standardised construction-related projects and systems – what measures were being taken to ensure that did not happen again? On the rendering of services declined – what measures were being taken to turn that around? What was the entity's cash flow looking like?

Mr Mathebula commended the entity on its progress and taking in the recommendations. Of the 17 projects that Agrément had, only ten had been. There was hope that the entity would improve that. On the rendering of services setback to 55%– how had the setback affected performance and the paying of expenses? In 2022, there was a surplus of R5 million, which had now dropped to R3 million – what were the causes for that?

Ms Siwisa asked how the public and government benefited from Agrément SA. How many products that had been taken to Agrément had benefited local entrepreneurs and South African citizens? There was nothing gained in return from Agrément SA.

The Chairperson said the entity had improved its self-marketing. When would South Africa see a building fully built with Agrément SA materials? On houses in rural areas that still had asbestos roofs – when would those houses be built with the innovative materials that Agrément had come up with?

Response

Mr Jeffrey Mahachi, Acting Chairperson, Agrément SA , said on innovation and benefits – there were numerous impediments when it came to introducing any new technologies in the marketplace. Most projects impacted the social infrastructure spaces like clinics, schools, police stations, student accommodations and so on. One of the buildings in Cape Town was constructed using hemp and that was an example of innovative building technology. Road technologies, bridge technologies and so on were being used in South Africa and certified by Agrément. In the human settlement space, that was the most challenging for the intake of such technologies due to the social acceptance of the products. The entity did all technical testing, including fire, stability and so on, but still, those products were not socially acceptable. The entity had partnered with the Department of Human Settlements to increase the uptake of those technologies. There were also partnerships with the NHBRC and Infrastructure South Africa to push those technologies within the human settlement space. The Committee could go and visit those projects to understand how those technologies worked.

Mr Richard Somanje, CEO of Agrément SA, said that on sharing products with civil society and the private sector, the entity did share its products and services with those sectors. SAGA, CSIR, SARS, NHBRC and other entities had access to the databases and technologies to further increase the uptake of those innovative technologies. The benefits of those technologies were massive – when looking at water and sanitation products being implemented in the rural areas, those were products certified by Agrément SA and were to the benefit of the public. The ordinary public was benefiting from the innovative products that Agrément had created. Young innovators had been supported by Agrément and gained conditional certification. The entity was approached by SAPS and the entity assisted the SAPS with products that could be used in police stations and correctional services infrastructure. Agrément SA had also assisted the DPWI on issues such as alternative road maintenance products.

Ms Lebogang Madumo, CFO, Agrément SA, said that irregular expenditure was a result of lack of contract management. The necessary processes in line with the irregular expenditure framework had been done and internal auditors had reviewed the submissions. There had been consequence management processes and preventative controls were set in place. Internal auditors properly reviewed tenders and compliance matters were dealt with. There was a lot of work done to prevent irregular expenditure. There were trainings done for staff members on non-compliance by the National Treasury. That was the only matter that prevented the entity from receiving a clean audit. On the decline of revenue from the rendering of services – the revenue comprised of project fees, which was what the certificate holders paid and an annual fee. On the new applications, there had been a decline. The revenue was impacted by timing as it was only recognised once the project was completed. There was monitoring of expenditure and budgets to ensure that all purchases were made with the available funds. The revenue collected was managed to ensure that all bills were settled. The entity aimed to increase revenues by launching the Equal Labelling project, which was launched in September 2022. that was to not depend on the government grant and be a financially sustainable entity.

Mr Mahachi responded to measures put in place to address KPIs on non-standardised assessments and certifications – seven (7) out of 17 projects not attained within the stipulated timeframe were bad and there was room for improvement. There would be steps taken to address that. The challenge was with the KPI – if a product failed on one test, there would be no compliance and no certification. If that happened, then advice was given on how to improve the product to where it complied with the relevant standards. The time frames were the major issue and that needed to be worked out.

The Chairperson thanked the entity for their clear responses. She thanked Members for participating.

The meeting was adjourned.