Department of Public Works Annual Performance Plan: Auditor General & DPME briefing

Meeting report

The Chairperson welcomed Mr Themba Godi, Chairperson of the Standing Committee on Public Accounts (SCOPA), who had asked to sit in on the meeting. Apologies were noted from Minister in the Presidency (Monitoring and Evaluation), Ms N Dlamini-Zuma, who could not attend along with Ms L Mathys (EFF), Ms L Mjobo (ANC) and Mr M Filtane (UDM).

Public Works Quarterly Briefing: 3rd Quarter briefing document: 3rd Quarter ended 31 December 2017; AGSA

Ms Dipallo Shea, Senior Audit Manager, Auditor-General of South Africa (AGSA), outlined that for the period under review, the AGSA looked at various performance aspects of the Department of Public Works (DPW), and its various entities, including:

- That DPW and its entities were planning correctly. When it came to reporting, there was no supporting documentation to back the veracity of what was contained in the reports. Thus the main issue was the reliability of the information reported

- The Expanded Public Works Programme (EPWP) consistently remained the biggest source of concern for DPWs performance. The review found the same issues, flagged in the last audit report regarding EPWP, were not addressed. These included deceased people being listed as beneficiaries in the number of work opportunities created, invalid ID numbers, duplication of names and other challenges

- A similar situation was found at DPW’s Independent Development Trust (IDT) - the entity was still plagued by failure to account for transactions and the non-existence of supporting documents. The IDT received a disclaimer audit opinion in the last financial year because of these same challenges

-DPW’s Property Management Trading Entity (PMTE) was another concern because of challenges around the Asset Register, which was flagged in the PMTE’s last negative audit outcome. However, for the period under review, the AGSA could not provide any definitive feedback on the PMTE because of its state of unreadines, owing to the recent departure of the Chief Executive Officer and the Chief Financial Officer

- The Construction Industry Development Board (CIDB) also continued to experience challenges with procurement, contract management and inadequate reporting information

- The Council for the Built Environment (CBE) was still the strongest performing entity under DPW with sound financial controls, maintaining its clean audit run from the last financial year.

- Two new DPW entities, the Engineering Council of South Africa and Agrement South Africa, were not reviewed yet

Discussion

Ms C Madlopha (ANC) was appreciative of the briefing but wanted to know, for the record, if IDT and PMTE, in terms of the AGSA’s findings, could be regarded as “repeat offenders”.

Ms Shea replied that in the case of the IDT, this was correct since the same challenges identified the year before were still occurring. However, with the PMTE, despite receiving an adverse opinion last year, the entity could not be similarly characterised as it was not audited for the period under review owing to changes at top management level.

Dr M Figg (DA), citing the EPWP as another repeat offender, was concerned that for a long time, this kind of non-performance by entities had had no real consequences for those who were responsible. This was worse than mere incompetence – it was “criminal”. It seemed officials were more concerned with avoiding negative audit findings than stopping the theft of money belonging to the public purse.

Mr F Adams (ANC) asked Ms Shea whether it was her opinion that instability caused by leadership changes at the PMTE had resulted in poor performance. His view was that PMTE showed signs of stabilising some time before the recent departures of top management, which had now plunged the entity into “terminal illness”.

Notwithstanding that the board of the IDT was “summarily re-arranged, redeployed” or whatever way one chose to call it, Mr D Ryder (DA) said it remained a fact that there needed to be consequences for the kind of sustained, poor performance bordering on criminality happening at the DPW. He wanted to know what steps could be taken to bring to book those responsible for poor performance. He was well aware that it was the DPW rather than the AGSA that could provide the answers, but all the same he wanted it on the record. Mr Ryder queried Ms Shea’s reason that Agrement SA was not audited because it was a new entity. He seemed to remember that Agrement SA had presented an Annual Report to the Committee in October last year.

Mr K Sithole (IFP) wondered whether there might be a number of effective mechanisms to rescue the DPW and its entities from what looked like a downward spiral, and asked Ms Shea for suggestions as to what these mechanisms might be.

Ms P Adams (ANC) prefaced her contribution by saying that Ms Shea’s presentation was “too short”. Referring to the re-appointment of Price Waterhouse Coopers (PWC) as the external auditor for the Engineering Council of SA, she asked whether this was not irregular as the AGSA briefing document indicated that external auditors must be rotated. Ms Adams noted that at the CIDB two senior positions, namely CEO and CFO, were still vacant with acting incumbents - what had AGSA recommended regarding the filling of these posts and by when would they be permanently occupied? She asked the AGSA for advice on how to address persistent problems experienced by both the EPWP and IDT. To assist IDT in recovering significant sums from debtor public bodies such as the Department of Education (in Kwazulu-Natal), Ms Adams urged that as part of the auditing process, the AGSA should emphasise the financial dire straits suffered by entities like the IDT, when debtors fail to honour financial obligations.

Response from AGSA

Beginning with the Agrement SA query, Ms Shea explained that previously, the entity was under the Council for Scientific and Industrial Research (CSIR) and, therefore, reported through that body. Since its transition to a Schedule Three entity under DPW, Agrement SA had yet to submit a Report on its own.

Regarding the EPWP, in the last three years, the AGSA made a number of recommendations on how to address the Programme’s persistent challenges. One recommendation was that EPWP should interface with the Department of Home Affairs which would eliminate the incidence of fake ID numbers on the list of EPWP work opportunity beneficiaries. Another suggestion was that DPW officials should undertake site visits at which physical inspection of documents and information could be conducted.

On whether instability caused by the comings and goings of leadership at IDT and PMTE had contributed to poor performance, she agreed but also pointed out that if the control environment was already weak, leadership changes alone were not much of a factor.

Ms Shea said the rotation of external auditors every five years was a legal requirement but in the case of the Engineering Council of South Africa, PWC was retained in order to help the new DPW entity better navigate the unfamiliar regulatory waters of the Public Finance and Management Act (PFMA).

Regarding leadership changes due to the vacant positions of CEO and CFO at the CIDB, the posts were advertised but when former Minister Nhleko came in, the process was stopped. The AGSA conveyed its view to the DPW leadership that continuing to have such senior positions vacant did not contribute to a good financial control environment.

In its interactions with public entities, the AGSA always highlighted the issue of paying service providers within 30 days, in line with the law.

DPME Briefing on the 2017/18 Performance of the Department of Public Works and its Entities

Mr Rudi Dicks, DPME DDG: Monitoring, by way of background, noted that each year, departments are required to submit, for assessment, two draft Annual Performance Plans to the DPME - the first by 31 August and the second by 30 November. DPME provides recommendations to departments on both drafts for the improvement of plans. The assessment covered areas such as alignment to the Medium Term Strategic Framework (MTSF) and technical compliance to planning principles, including measurability of plans and alignment to the core functions of the department.

Although the latest assessment commended the DPW for satisfying all the basic conditions in relation to its Annual Performance Plan (APP), it should be noted that while a technically compliant plan was a step in the right direction, it however does not always translate to good performance. Looking at performance by means of assessing the DPW’s programmes, the DPME noted that with regard to Programme One, Administration, the Department had reported itself to be performing fairly well on the indicator “percentage of compliant invoices paid within 30 days”. Although both DPW and the PMTE had not yet fully achieved the planned target of 100%, on average, the PMTE was at 80% and DPW at 94%. However, PMTE had consistently under-achieved on the planned targets for the indicator “percentage of bids awarded within 56 working days of closure of tender advertisement”. DPW’s reported performance against the quarterly planned targets of 65% was as follows: Q1: 20%, Q2: 23% and Q3: 19% - this clearly showed that PMTE would not achieve the planned 2017/18 target. To explain this failure, DPW cited challenges around internal governance, such as project managers not adhering to bid execution plans and bid committees being unable to form a quorum. As a corrective, the Department indicated that the bids would be monitored on a weekly basis through “war rooms”. The matter was also escalated to EXCO level.

A brief look at the financials showed that DPW spent R5.623 billion, or 80.8 per cent, of its available budget of R6.963 billion as at the end of December 2017. The R5.623 billion actual spending represents 97.5 per cent of the R5.768 billion projected expenditure for this period. The low spending was mainly attributed to transfers and subsidies in programme three, specifically on the EPWP: Integrated Grant for Municipalities, which was withheld due to non-compliance with the Division of Revenue Act (DORA) requirements.

Ms Nokuthula Zuma, DPME Manager: Outcomes, also made brief comments on the DPME’s view regarding alignment between the MTSF and DPW’s recent performance - the view was that the pace of job creation fell short of the target set by the National Development Plan, which was to bring the unemployment rate down to 14% by 2020 and 6% by 2030. Weak monitoring and data management systems were responsible for the severe hampering of any evaluation of the outcomes. Claims regarding the number of job opportunities created, the number of participants trained and the details and locations of service delivery, were based on questionable information.

Consistent non-achievement was noted for the newly introduced indicator “percentage Savings for Built Environment Consultants” in respect of the PMTE. The planned quarterly target was 24%. DPW however had achieved 0% for all three quarters.

Regarding fraud and corruption cases, DPW reported that 100 per cent of cases were subjected to disciplinary processes. 100 percent was also achieved in connection with targets for the filling of funded prioritised vacancies. However, DPME found that the indicator only measured vacancies actually filled, while reported output only reflected the process towards the filling of positions - essentially the advertising of posts.

In the first quarter, EPWP reported an over achievement of targets. The number of work opportunities reported was 352 330 as against the set target of 250 000. However, both subsequent quarters saw the EPWP underachieving on the set targets, by wide margins. The performance overview with regard to Programme Four, Property Construction Industry Policy and Research, painted a negative picture of consistent under achievement. This meant that targets set for DPW’s White Paper Review and amendments to the CIDB and CBE Acts, would not be achieved during the current financial year.   

A look at Programme Three, Construction Project Management, and for which PMTE was the relevant entity, showed the Department again reported achievements in the first quarter, only for those achievements to be undermined in the subsequent periods. The targets comprised the following indicators:

- number of infrastructure projects completed

- number of infrastructure projects completed within agreed construction period

- number of infrastructure projects completed within approved budget

- number of EPWP work opportunities created through construction projects

The rest of the other indicators in this Programme reported under-achievement throughout the quarter. When giving an account for this deviation, the common refrain across all reviewed periods was additional work from client departments and under-performance by contractors. Mr Dicks stressed that in all instances similar to the above, DPME had urged DPW to ensure that corrective measures be put in place to ensure full achievement of the overall target. DPME’s concern was that the under-performance on these targets affected DPW’s own contribution to the creation of work opportunities.

Ms Zuma provided a more detailed picture of outcome areas in which EPWP and PMTE are significantly involved. For example, DPME covered four indicators within Sub-Outcome 3 (Outcome 12), under which PMTE fell. These were:

- percentage of infrastructure projects completed within agreed construction period

- percentage of infrastructure projects completed within budget

- number of leases reduced  within the security cluster

- percentage of reduction of backlog in infrastructure projects   

Ms Zuma gave some conclusions and recommendations as follows:

-Some progress was made in addressing absolute poverty, primarily through extensive social safety- net programmes like EPWP

-Public bodies needed to be held to account to avoid well-intended solutions morphing into unintended pockets of disadvantage and exploitation

-Government should also carefully balance the need to improve conditions of employment with the need to expand PEPs

-Ways of reducing costs of rural participation in PEPs should be explored, including easier accessibility to services such as banks and registration processes

-An assessment of micro enterprises in rural areas, that are viable self-employment options, should be conducted and inform the roll-out of training programmes for EPWP beneficiaries

-It is critical that innovative programmes be closely monitored to ensure positive effects and to explore how these could be significantly scaled-up

Discussion

Dr Figg expressed doubts as to whether the DPME itself could justify its existence given what he saw as a duplication of roles between it and other public bodies such as the Human Sciences and Research Council. Furthermore, each department has its own internal audit unit whose monitoring role was more in depth (at the level of operations) and occurred on a continuous basis. DPME, on the other hand, came in from time to time and could suffer from a lack of insight into the particularities of a department. He argued that DPME’s own presentation bore out these reservations. Why should DPW and its entities be told by outsiders what it already knows? Zooming in on the presentation, Dr Figg picked up on the statement that PMTE and DPW achieved 80 percent and 94 percent, respectively, on the payment of compliant invoices within 30 days - he argued the remaining unachieved percentage meant dire consequences for those small businesses that remained unpaid. Government could not afford to be seen as a contributor to the destruction of small businesses, and heads needed to roll on this issue alone.

Referring to the EPWP and the number of work opportunities created, he asked that a more accurate and fixed definition be used when reporting on the issue because, as things stood, all manner of abuse was possible. For instance, to push up numbers, the working hours of one person could be divided into two, thus effectively doubling the number of work opportunities. Regarding concerns about inadequate employee compensation, Dr Figg cautioned against too much focus on the needs of employees at the expense of small businesses who provide goods and services to government. He also wanted to find out what the targets were in the training of EPWP beneficiaries aimed at improving the chances of finding work in the mainstream labour market. How many were trained and how many had succeeded in this endeavour? Dr Figg pointed out that more needs to done to ensure that government contractors are competent and able to do their work properly.

Ms Madlopha said although internal auditors might play an important role within departments, it was equally important that an external entity, like the DPME, be around to keep an eye on things. Sometimes an internal auditor might deliberately overlook non-compliance simply as a consequence of being too close to the entity. With regard to DPW’s planning process, she flagged a potential disagreement between the findings by the AGSA and DPME’s positive remarks on the matter – the AGSA indicated weaknesses in the PMTE’s planning and monitoring of infrastructure projects which resulted in fruitless and wasteful expenditure while DPME commended DPW ‘s planning mechanisms. Revisiting the matter of payments to small contractors within 30 days, Ms Madlopha agreed with Dr Figg that despite the apparently congratulatory comments made by DPME on the issue, more needed to be done as she could personally testify to the ongoing bankruptcy of small businesses because of late or non payment by government. She urged that this be addressed as of the utmost priority as it had grave implications for the mounting unemployment rate in society. She also suggested that spot checks be done with all stakeholders to ensure compliance. She queried the Quarter Three expenditure analysis review where it indicated that DPW had already spent 97 percent of its projected expenditure for the period. She asked whether DPME had checked if this figure aligns well with the targets set as part of the performance plans. She also raised concern in connection with DPW’s reported non-compliance with the DORA requirements which resulted in withholding of funds allocated to the Integrated Grant for municipalities. Experience showed that this could have serious consequences for the lives and properties of municipal councillors – houses were burnt by angry residents because of regulatory failures of this sort. Ms Madlopha reiterated her view that DPME was an important actor in the oversight role of the Committee but urged that the Department adopt a more hands on, more robust approach towards its mandate and ensure that Committees are empowered with real information that could be used to improve performance and right the wrongs of bad governance and non-delivery.

Mr Ryder remarked that next time DPME presented, it should bring tissues for Members because the story it had told was enough to make anybody cry. His characterisation of the situation was that it was “putrid” - not only was there no commitment to reporting, the prevailing attitude was “I don’t care.” Repeatedly, DPW was dismissive of being held accountable and had showed the middle finger. The question was, does DPME have teeth? What could the consequences be for those responsible for this state of affairs? Mr Ryder repeated what he said before – DPW had no direction. Even worse this time, the CBE, which was the only star in the last audit report, also stopped reporting. The White Paper Review process was not going to make the target - again. Was this a sign of how deep in the mire the Department had sunk? Acknowledging that the best place to direct his questions was the DPW itself, Mr Ryder said it was disingenuous of DPW to blame unrealistic targets or unreliable contractors for its own poor performance when in fact those targets were set by the Department itself. He also demanded answers concerning EPWP which kept missing its targets – was there a plan going forward and, if so, what was it?

Mr Sithole agreed that DPW is in trouble. He sharply questioned the description of DPW’s performance as “fairly well” in the DPME briefing document. He charged that from a Nkandla perspective, which is where he hailed from, most people would disagree. He told of many small contractors there who lost their businesses because of DPW’s incompetence. Why had contractors suddenly become under-performers after years of being retained by DPW? Mr Sithole also refused to believe that DPW had met its target completely concerning reporting of cases of fraud and corruption, including the dubious disclaimer, “subjected to disciplinary processes”. He implored DPME to find answers before DPW fell apart.

Ms E Masehela (ANC) echoed other Members in asking DPME to assist in rehabilitating EPWP. She also wanted to know what consequences could be applied to those entities who failed to report quarterly performance.

Ms Adams asked DPME for the best definition of Monitoring and Evaluation. Was DPME satisfied with the quality of the targets submitted by public bodies? If not, were these concerns raised with DPW, for example? Was DPW, in DPME’s opinion, in a position to achieve its objectives with this strategy?

Concerning the EPWP, Ms Madlopha proposed that the Committee should summon all implementing agents to a meeting where the issue would be thrashed out once and for all.

The Chairperson was of the opinion that DPME was too soft in its assessment of DPW. He warned DPME not to compromise itself by “praise-singing” for state entities. DPME should be aware that site visits by the Committee exposed shocking conditions on the ground – these were not reflected on the DPME reports. If people were found to have fallen short of performance targets, DPME should not hesitate to recommend consequences.

DPME Response

Mr Dicks began by assuring Members that contrary to what some may believe, DPME is not a post box merely receiving information and passing it on. DPME made many recommendations but those were excluded from the presentation because of a discussion process that was currently underway designed to bring more tangible consequences to bear on non-performance.

Referring to Ms Adams’ request for a definition of monitoring and evaluation, Mr Dicks pointed out that it was quite distinct from auditing and whether DPME existed or not, there would still be a need for monitoring and evaluation.

He agreed with Dr Figg that many questions still remained about DPME’s effectiveness and its role - he reassured the Committee these concerns were taken seriously. The main thing was how DPME could play a role in improving the effectiveness of service delivery. For him, that was exactly what it was all about. While accepting criticism from the Chairperson and understanding that DPME needed to justify its existence, Mr Dicks argued there should be a balance between the positive and the negative. Where a department was not performing well, there should be no hesitation in pointing that out but, equally, excellence should be encouraged and applauded.

In response to Dr Figg, he agreed that it was important to capture an accurate number of work opportunities created and measure that against real targets. He did not have the figures regarding the targets on hand, but promised to make them available to Members as soon as possible.

In response to Ms Madlopha, he explained how the Vision 2030 time horizon of the National Development Plan (NDP) was cascaded down to five year periods, in line with the five year cycles of government, and even further into yearly and quarterly periods. Commonly, departments tried to change the wording of the actions to be performed to water them down. Thus in the last few years, the monitoring and evaluation bodies became very strict to make sure the language used in the NDP is the same both in the MTSF and the APPs.

On the 30 days payment rule, Mr Dicks explained that DPME verifies receipts both with the department concerned and also with National Treasury and the Office of the Chief Procurement Officer (OCPO). He was therefore quite confident that indeed what was captured in the briefing document was accurate. DPME made enquiries and established that the key problem with late payment of invoices was incorrect information on the invoices. Indeed there were cases where the person responsible had simply not performed their duty, but it seemed the main challenge was still incorrect information. Mr Dicks was most emphatic that DPME had in several such cases recommended serious consequences or even dismissal. Unfortunately, it was not in DPME’s power to effect those recommendations. However a discussion was underway wherein DPME proposed, in its Budget Mandate Paper, that the NDP be used to set priorities in how funding should be allocated. In the document, DPME not only recommended consequences, in other words discipline, but also that under spending or failure to meet targets should lead to consequences for budget allocation. These recommendations then were aimed right at the heart of the problem. This would mean essentially that non- performance or compliance would be punished by budget cuts.

On entities who fail to meet DORA requirements, Mr Dicks said although it was not DPME’s mandate to assist, the Department still went out of its way to ensure entities were able to comply. DPME also conducted “Performance Dialogues” with delinquent departments to help improve performance.

Referring to Ms Madlopha’s concern with quaterly performance, it was possible to talk about fourth quarter targets before the end of that period.

Addressing Mr Ryder’s question on whether DPME could play a role in enforcing performance and to bring consequences to bear, Mr Dicks said DPME was in the process of finding a niche for itself with regard to the matter of consequence management. The above- mentioned Budget Mandate Paper was a case in point.

To Ms Masehela’s question of how EPWP could be assisted, Mr Dicks said a number of recommendations were made and DPME was working closely with the AGSA to tighten requirements, including operational and reporting processes.

On contractors, he stated that it was imperative that emerging contractors be included even though they might not comply with some of the technical standards. This was part of the transformation agenda of government. The supplier development approach allowed departments to bring onto the mainstream those who can do the job but could not meet the uncompromising criteria demanded by the industry.

Concerning the percentage of reported fraud and corruption cases, Mr Dicks explained that a distinction needed to be made between reported cases and the actual outcome of disciplinary processes. The latter process was allocated its own target and therefore no information was available. 

The Chairperson disagreed by saying that the 100 percent achieved target was a “joke” as he knew that the reported target did not accord with real experience. He took Mr Dicks to task for allowing himself to be compromised by failing to engage with the report.

Mr Dicks replied one way of dealing with that was to engage with Cabinet through recommendations on disciplinary actions where appropriate.

The Chairperson said that Ms Madlopha’s proposal to summon all under-performing entities to account before the Committee would be considered at top management level and a decision would be taken. He again raised the matter of corruption and urged that DPME and the AGSA should ensure that the fight against this scourge had no place to hide in government.

Ms Madlopha asked whether DPW officials had signed performance contracts. She expressed her concern that it might not be feasible to call people to account or discipline them if no performance contracts were applicable.

Mr Dick replied that he was not able to respond to the question with any certainty. He asked that he be allowed to investigate and again promised to convey the information to the Committee as soon as possible.

Draft Committee Minutes dated 27 March 2018

Draft Committee minutes dated 27 March 2018 were adopted with minor, grammatical amendments.

The meeting was adjourned.