Department of Public Works on its 2012/13 Annual report

Meeting report

Department of Public Works Presentation
Mr Mziwonke Dlabantu, Director General, Department of Public Works (DPW), said that the overall purpose of the presentation was to inform the Committee on the performance and finances of the DPW in order for the Committee to advise them on how to improve performance.

He touched on the 12 government outcomes, and noted that numbers 4,5,6,8 and 12 related to the delivery agreement and outcomes of DPW. These were:

4.         Decent employment through inclusive economic growth;
5.         A skilled and capable workforce to support an inclusive growth path;
6.         An efficient, competitive and responsive economic infrastructure network;
8.         Sustainable human settlements and improved quality of household life; and
12.        An efficient, effective and development-oriented public service, and an empowered, fair and inclusive citizenship.

Mr Dlabantu focused on outcome 6, and said that DPW contributed to the infrastructure in various ways, including the delivery of social infrastructure as one of the core mandates of the Department, and an Infrastructure Delivery Improvement Programme (IDIP) that sought to unlock the government’s infrastructure projects.   To deliver effectively on infrastructure, the Department needed to address   delivery management skills, improve the required resources, implement efficient and appropriate systems and processes, and reduce inconsistent procurement procedures.

Mr Dlabantu explained the audit history of DPW dating back to 2007/08, when DPW had received an unqualified audit.  Through 2008/09 and 2009/10, DPW had received qualified audits and in 2009/10, irregular expenditures were first reported.  In the years 2010/11 and 2011/12, DPW had received disclaimers, and many problems had been listed, including irregular expenditure and operating leases. For 2012/13, DPW had been on an upswing, with many of the issues that had led to the disclaimers were being alleviated.  However, the challenges that remained were immovable capital assets, irregular expenditure, and fruitless and wasteful expenditure.

The high risk elements that DPW needed to address included an inadequate and incomplete Immovable Asset Register, management of financial misconduct, retention and attraction of the required skilled personnel, an inappropriate Property Management Trading Entity (PMTE) structure, construction management, and enabling of an IT platform.  The latter was deemed to be one of the most critical elements in helping to relieve some of DPW’s problems.

Mr Dlabantu gave a programme by programme breakdown of DPW.

Programme 1: Administration.  Some of the achievements noted in the sub-programmes included the successful tabling of the Annual Performance Plan (APP) in the Strategic Management Unit (SMU) sub-programme.   In terms of the Inter-Governmental Relation (IGR), DPW conducted well-coordinated governance and accountability meetings that addressed the challenges they faced.

Programme 2: Immovable Asset Management.  This was the largest DPW programme, and accounted for 64% of DPW’s budget.  It provided management to the government’s immovable property portfolio, which supported the government’s social, economic, functional and political objectives.   DPW had conducted an extensive reconciliation of immovable asserts in its Immovable Asset Register (IAR) against Deeds Registry data.   DPW further planned to formulate a custodian framework for the IAR, as well as the inclusion of a capitalisation policy, an operating model, and a fair value.  It was believed that these changes would provide DPW with the tools to leverage its massive property portfolio for greater economic development.

Programme 3: Expanded Public Works Programme (EPWP) was a programme that ensured the creation of work opportunities and the provision of training for unskilled, marginalised and unemployed people. EPWP was a national programme, with the goal of creating 4.5 million work opportunities, which equated to 2 million full-time positions.   This would help in the government’s attempt to halve the unemployment rate by 2014.  Mr Dlabantu stated that in Phase Two of the EPWP, which ran from April 2009 to March 2013, 3.02 million work opportunities had been created, which represented 68% of the five-year target of 4.5 million work opportunities.  Overall, DPW had disbursed 100% of the Social Sector EPWP Incentive Grant to compliant provincial sector public bodies, via the provincial treasuries.

Programme 4: Property and Construction Industry Policy Regulation, had the purpose of regulating and promoting the growth and transformation of the construction and property industries.  This programme also sought to promote uniformity and good practices in the construction industry and immovable asset management in the public sector.  Some developments in this area included the Expropriation Bill and Construction Industry Development Board (CIDB) Amendment Regulations, which ensured improvements in the registration requirements for contractors, allowing them to better maintain and upgrade their grades with the CIDB.

One of the key challenges facing DPW in this programme was inappropriate management systems, which resulted in irregularities and were open to fraud and corruption.   The remedial action taken was the initiation of a turnaround strategy, which sought to bring about large efficiency gains through better practices and improved policy options.   There had been a lack of control in Supply Chain Management (SCM), and DPW’s capacity to process tenders and manage construction maintenance had been severely eroded.  Projects had been initiated in order to address SCM challenges, and SCM processes were being critically reviewed to combat waste and corruption, as well as to expedite delivery and supplier payments.

DPW had faced the challenge of a lack of built environment and property management skills across the value chain.   There was a significant lack of technical capacity to undertake direct construction and maintenance functions, as well as to manage relations effectively with contractors and service providers.  The remedial action taken by DPW included attempting to reverse these trends through the resuscitation of regional workshop facilities.  DPW had secured cooperation from the Department of Public Service and Administration and the Department of Higher Education and Training to assist in the training of artisans and technicians.

There were 219 vacant technical positions within DPW, and this was a major concern.  These vacancies had led to capacity constraints and inefficiency in service delivery on infrastructure projects.  DPW had taken steps to address these vacancies, and 40% of the positions were being advertised with the intention of filling them during the 2013/14.

The Chairperson stated that due to time constraints the CFO had only 30 minutes to get through the financial presentation.

Mr Cox Mokgoro, Chief Financial Officer, DPW, began with an explanation of the principles of Generally Recognised Accounting Practises (GRAP), noting that the application of GRAP by trading entities had been compulsory from 1 April, 2013.  He reiterated that DPW had been on an upward trend from 2011/12, but that leases remained one of their biggest challenges.

He provided a summary of DPW’s expenditures, broken down by programme. The total allocation for 2012/13 was R7.89 billion, of which DPW had spent R7.2 billion (91%).  The expenditure variance of 9% was due to under-spending on goods and services, transfers and subsidies for Devolution of Property Rates Fund, payments for capital assets, expenditure relating to infrastructure, and machinery and equipment.

Goods and services under-spending was related to office accommodation, and the additional funds received during the adjusted estimates for the implementation of the turnaround programme. Transfers and subsidies had been under-spent due to funds allocated for the Devolution of Property Rates Fund Grant to Provinces being declared as savings by the KwaZulu-Natal Provincial Department of Public Works.   Under-spending in infrastructure was due to the non-performance of contractors and vacant project manager positions in various regions.  DPW had underspent on machinery and equipment, due to the late submission and processing of invoices.

Mr Mokgoro then referred to the virements made during the year.   Programme 1 had been reduced by R43 million, due to funds being shifted to Programmes 2 and 5 in order to offset over-spending on compensation of employees, goods and services and household.   Programme 2 had a final allocation that had been raised by R15 million, due to the shifting of funds.  Programme 3 had been increased by R260 000 to offset over-spending in the machinery and equipment sub-category.  Programme 5 had had a R28 million increase to offset over-spending on goods and services.   These adjustments had been approved by National Treasury.

There had been a large increase in unauthorised expenditure from 2011/12 to 2012/13 -- from R83 million, to R249.4 million.  This was primarily due to an amount of R166 million being spent on the construction of schools and school furniture, which was a provincial competency.   DPW’s irregular expenditure had totalled R1.04 billion, and fruitless and wasteful expenditure, R124 million.

The Property Management Trading Entity (PMTE) had a total of R3.2 billion in total current assets, and a further R33.5 million in total non-current assets.  Due to time constraints, he moved through the detailed financial sections quickly, but took a minute to read the basic disclaimer of the audit report which stated:

”I was unable to obtain sufficient appropriate audit evidence of irregular expenditure as the entity did not have an adequate system for identifying and recognising all irregular expenditure.  I was unable to confirm the irregular expenditure amount by alternative means.  Consequently, I was unable to determine whether any adjustment relating to irregular expenditure, stated at R2 609 711 000 (2012: R1 410 817 000) in note 22 to the financial statements, was necessary.”

The main contributor to the disclaimed audit opinion was leases.  Leases had impacted many areas of the annual financial statements, including expenditure, revenue, payables (accruals), commitments, prepayments and receivables.  Leases were one of the foremost factors holding back DPW. 

Problems with PMTE billing and accounting systems were noted and it was stated that when PMTE had been established in 2006, it had been done so without proper systems, structures and relevantly skilled staff. All invoices were issued manually and recorded in Excel, and this had led to the risk of understating revenue and misstatement of debtors.   This system had also provided no functionality in calculating the discounting of amounts reported.  Progress had been made in optimising the operational processes of PMTE. The final structure was in the final process of approval and the submission for additional budget had been made.  Improvements had been made in regard to monthly reconciliations, and GRAP complaint policies had been developed and submitted for final approval.  Engagement with the National Treasury had been ongoing in order to rectify technical issues that could not be resolved with the Auditor General. 

Discussion
Ms A Dreyer (DA) commented that without a skilled and competent workforce, the Department would not be able to complete a successful turnaround, but the report shows a skills vacancy rate of 37%.  This rate was particularly concerning, considering that there was a 69% vacancy rate among civil engineering positions.  These positions were critical to the work of DPW -- what were they doing to improve the situation? 

There was a great deal of financial misconduct in the Department and she did not believe there were adequate consequences.  Why was this such a pervasive problem?  The problems of PMTE had to be addressed swiftly if they wished the turnaround to be successful.

She asked what the term “state functions”, on page 191 of the annual report meant, and why there was a large increase in budget allocation for these matters while there was a decrease in the funding for SETAs.

She asked where the prestige portfolio and security upgrades to the homes of the President and some Ministers, was reflected in the annual report.

Ms C Madlopha (ANC) stated that the turnaround would take time, but it was clear that the DPW had been making progress.  She asked how much the Department was paying for consultants and in what areas they were being used.  Why weren’t internal audit committees finding irregular expenditure more quickly, and why were private leases not being paid?

Ms N November (ANC) congratulated DPW for their successes, particularly in reducing the number of irregular leases. She noted that in terms of supply chain management and internal audit, targets had not been met -- was there a monitoring system in place to try and meet targets?  Some service level agreements had not been signed -- was DPW doing anything to speed this process up?

The Chairperson then called on Members to refer to page 176 of the Auditor General’s report, which stated that there was an ongoing investigation by the Public Protector into the use of public funds by DPW for the funding of security measures for the residences of Ministers and the Presidency. The investigation had been ongoing at the reporting date, so conclusions had not been made.   She asked why Members had brought this issue up while investigations were still ongoing.   The Committee needed to be in order, and not impatient, and allow the Public Protector to complete her investigation.

Ms P Nqwenya-Mabila (ANC) said the report indicated progress and she noted her appreciation.  Although an improvement had been made in financial matters, many improvements were needed if DPW wished to reach its target of receiving a clean audit report by 2014. She expressed her contentment with the EPWP and the amount of jobs it had created, but was concerned over skills transfers and training.  If there was not effective training, the EPWP would not have positive results.  The turnaround strategy had had positive results, but the lack of proper systems in place, as noted by the AG, was a major concern. Without proper systems, the turnaround strategy would remain a dream and not a reality. The filling of vacancies was of concern, and DPW needed to hire skilled employees.

Much of her concern was in respect of under-spending, including under-spending on border fences.  She believed this was a very serious issue, and the lack of proper border protection meant a lot of illegal and dangerous movements were taking place.  Why was DPW under-spending on infrastructure?  This sector created jobs and if there was under-spending, this was a problem.  How often did workplace inspections occur, and what effect did they have?

Ms N Madlala (ANC) congratulated DPW on their achievements during the 2012/13 year.  There had been a noticeable improvement since the turnaround strategy was started.  Her issue was with Programme 2 (page 51 of the AR) about the number of title deeds endorsed and the fact that targets were not being achieved -- in the comments section; what were the conveyance services to be sourced by the Department?

She raised concern about the number of state-owned properties that had been rehabilitated and how the targets had not been achieved due to four projects being cancelled, and sought clarity as to why the projects had been cancelled and why they were going to be reactivated for the next year.  She asked for clarity in regard to page 58, which dealt with Memorandums of Understanding (MoUs) between DPW and municipalities.   DPW stated that in order to proceed with work, they were seeking to replace MoUs with a PTOB and the power of attorney to unblock delays; what exactly did this mean?

Mr N Magubane (ANC) noted that there was a problem with the immovable asset register and wanted to know whether Public Works was able to account for properties in foreign countries in the register.

Mr J van der Linde (DA) stated that despite EPWP spending being at 99%, no targets had been met, according to the AR.  Job creation targets were too low, when the level of spending was considered. He encouraged the Department to reconsider their methods in terms of training and skills transfer.  He noted that there were still a number of land parcels that needed to be reconciled, and the process would commence in 2013/14 -- would this process be completed in the 2013/14 financial year? This was a serious issue, as many of the leases tied to such properties were the cause of DPW receiving an unqualified audit.

Ms Dreyer then stated that she had a comment on a ruling that the Chairperson made.

The Chairperson interjected that she would not hear it, as it was DPW’s turn to answer the questions of the Committee.

Ms Dreyer persisted, and said that it was not the first time that she had brought up the issue of the security upgrades to the President’s private residence and their cost.   There had been a series of attempts to keep her quiet when she had raised the issues.   She would not stop asking difficult and potentially embarrassing questions to please the ANC.  She was not concerned whether her questions made the ANC uncomfortable, and wanted to make her objection to the Chairperson’s ruling very clear.

The Chairperson stated that she would not entertain issues under investigation, and that it was her final ruling.  She then told Mr Dlabantu that he was not to comment on the issue, and asked him to continue answering the other questions.

Mr Dlabantu addressed the issue of skills within the DPW.  Reports had been given to the Committee in regard to the work done about skills, as part of the turnaround strategy.   DPW recognised that there were areas lacking skills that were core to its functioning.  Areas such as engineers were a priority, and they had since taken steps to close employment gaps, and 46 professionals had been appointed.   The prioritisation of skills areas had begun, and National Treasury had supported and funded this initiative.   Measures had been adopted to attract young professionals and provide them with the proper training.

He spoke about corruption and misconduct.  Only 1.2% of dismissals had been due to misconduct.  The Committee had to consider the processes that DPW went through when dismissing an employee.  The Department took consequences for misconduct very seriously, and the Minister had reiterated this stance on many occasions.   People were responsible for their actions and DPW would hold them accountable. The standards for punishment needed to be more concrete, and despite the amount of disciplinary cases each year the outcomes needed to be more consistent.

Mr Dlabantu stated that he felt that in the years in question, the use of consultants by DPW had not been extreme and that their use had been helpful.  The spike in the number of consultants was in order to address some of the key issues that were part of the turnaround strategy, and once stabilisation happened, the use of consultants would decrease significantly.

Mr L Gaehler (UDM) agreed with what Mr Dlabantu was saying in regard to the fact that a department as big as DPW would need some consultants, but his concern was in the monitoring of consultants. The lack of monitoring caused the misuse of funds and there had to be a disciplinary process for consultants, as under the current structure they had too much freedom to do what they wished.

Mr Mokgoro stated that the use of consultants in DPW was on a downward trend -- they had reduced the number of contractors and consultants.  Page 208 of the AR demonstrated the reduction in the number of consultants, contractors, and agency/outsourced services. Page 208 broke down the types of consultants used, and business and advisory services provided the greatest number, which was due to the need for consultants in implementing the turnaround.   The consultants they used were not just consultants in offices helping management, but were helping at “ground level.”   Furthermore, the consultants they employed helped in transferring skills to DPW employees.

Mr Dlabantu then explained state functions, and what they included.  State functions were responsibilities that DPW dealt with, such as Presidency requests, various functions, funerals and others.  This was a very difficult area to estimate costs on. It was difficult to estimate any of the costs or scope of Presidency activities. DPW was working on a baseline estimate, despite the challenges presented by the unpredictable nature of these issues.

He explained why the internal audit had not picked up on irregular expenditure. He stated that irregular expenditures occurred due to the lack of systems, and this limited even the best internal audit system. DPW had had to go back to look at every transaction and examine them.  Policies were being developed to deal with irregular expenditures. The internal audit committee that had been in place had been appointed by the previous acting Director General in November or December of 2012, and was functioning by February 2013.  Mr Dlabantu had attended meetings and knew first hand that it had functioned effectively.  Furthermore, an accountability management committee had been established to deal with the issue of accountability within DPW.  DPW had a risk management policy that was present in all branches of their work and assessed each situation and project DPW entered.

Mr Mokgoro stated that there was a plan in place to look at the overdraft, which had a fixed and a variable element to it.  The fixed element involved old debt, which was around R800 million and dated back to 2006. This was a result of historical issues related to the administration and management of the issues in the Department and was evidenced through the loss of documentation.   DPW was in the process of attempting to reconstruct most of the data in order to authenticate statements, and was working closely with the National Treasury in this regard. 

Private leases had attributed to the overdraft, and in many cases lease agreements were not present or had expired.  DPW was in the process of finding a mechanism to regulate leases and related processes, and hoped that by December they would have resolved the issue.   Clients were hesitant to pay bills to DPW because of the lack of documentation, but DPW was working towards getting the necessary documentation that clients requested in order to solve the issue of non-payment.

Mr Dlabantu addressed service delivery agreements and the concern over the lack of targets being met.  Some of the reasons why agreements had not been met were captured in the AR.  Part of dealing with some of the performance gaps in the relationship between DPW and their clients, was the need to address issues of non-compliance in agreements.  DPW needed to manage compliance better and ensure that there were consequences for those who did not comply.

DPW had an open competition policy for any open position, and posts could not be reserved for individuals.  DPW needed to increase the amount of national advertising for open posts.  DPW hoped that this would help in their efforts to attract more young professionals and increase the overall skill levels of DPW employees.

The issue of the border fence was addressed and it was stated that it involved two Departments -- the Department of Environmental Affairs and the Department of Agriculture. A major concern was rhino poaching in Kruger Park and more protection was needed around the perimeter in order to keep poachers out.  DPW had transferred R35 million to the Department of Environmental Affairs in order to repair the fences around Kruger Park.  This was a problem that was always changing and DPW was always reviewing its tactics on security.

The Chairperson interjected and asked what kind of monitoring had taken place to ensure that the R35 million was being properly spent.

Mr Dlabantu stated that DPW funded and the Department of Environmental Affairs implemented, and they met on a quarterly basis for progress reports.

Ms Madlopha asked if this was a onetime transfer or if it would be a multiple occurrence.

Mr Dlabantu stated that it was a onetime transaction and that this was noted in the MoU between the two Departments.

Mr Gaehler felt that DPW was not being direct in their answers; how were the funds monitored?

DPW stated that they had the Department of Environmental Affairs progress plan and the building plan.  They also required Environmental Affairs to provide them with receipts demonstrating spending.

Ms Madlopha asked if DPW visited sites to ensure that work was ongoing and funds were being spent properly.

DPW had not done physical site explorations. 

Mr Dlabantu referred to the EPWP, and said that skills development was essential in expanding public works programmes.  Work opportunities were directly related to training, and training was prioritised in terms of sub-programmes and the funding they received.

Ms Madlala asked why a budget for training was not more prominent, so that no training would have to be put off.  Employment and skills development were the priorities of the programmes, so why did they not ensure that the budget allowed for full training?

Ms Nqwenya-Mabila felt that in order to move through the phases of EPWP more efficiently, analysis should be done at the end of each phase to deal with the challenges that occurred.  She also raised concern over the reporting systems for the programme that municipalities used, to provide feedback on EPWP.  They were not clear, and it made her question some of the statistics about the programme.

Mr Gaehler felt as though oversight visits must be led by more responsible leaders in order for the information to be correct and legitimate.

The Chairperson then stated that unfortunately the meeting would have to end prematurely as another meeting was scheduled in the same room.  Many questions remained and they would need more time to address other issues.  She thanked Members and guests for their attendance and thanked DPW for their presentation.

Meeting adjourned.