Department of Public Works Annual Report 2010/11

Meeting report

Introduction
The Chairperson welcomed the Minister, the Hon. Gwen Mahlangu-Nkabinde, and the delegation from the Department of Public Works (DPW).  She appreciated that many of the DPW’s targets for the review period had been met or exceeded, but hoped that steps would be taken to make Expanded Public Works Programme (EPWP) incentive grants more accessible, and to meet the challenges posed by the Auditor-General’s disclaimer.  The Portfolio Committee would provide support in these areas.

Department of Public Works Annual Report 2010/11 Presentation
The Minister acknowledged that the Department was aware of the challenges posed by the disclaimer, and was having “sleepless nights” trying to understand where the problems were.  She looked forward to positive criticism from the Committee, and the Acting Director-General had a number of new and innovative ways with which he believed the issues could be addressed.

Mr Mandla Mabuza, Acting Director-General (ADG), said 2010/11 planning had been guided by Government policy priorities, such as poverty alleviation and addressing unemployment, building the state’s capacity to implement the programmes and policies of the Government, and investment in productive infrastructure.  Critical attention had been paid to upscaling the EPWP, enhancing the Immovable Asset Register (IAR) and implementing the Government Immovable Asset Management Act (GIAMA), energy efficiency and improvement to the Land Ports of Entry.

In support of national goals, the DPW had continued to enhance its legislative environment through the review of the Expropriation Act and the Built Environment Professions Act, and was in the process of establishing Agrément South Africa as a juristic person. 

Section 25 of the Constitution placed an obligation on the state, as part and parcel of the transformation of the property industry, to expropriate “for public purpose and in the public interest.”  After the required consultations, the DPW intended presenting the revised Expropriations Bill to the Portfolio Committee. 

The Built Environment Professions councils were institutions of the DPW, and while progress had been made in some councils in respect of transformation, this was not the case in other professional councils.  The DPW would therefore be submitting its proposed view of the transformation regulations for the build environment in an amended Act.

The supply of building material into the market was not always effectively regulated, with evidence of contractors in many areas using materials that were not quality assured.  The transformation of Agrément South Africa as a juristic person would go a long way to creating a regulated environment for the construction industry.

The DPW had collaborated with other spheres of Government to foster improved service delivery to communities.  This included the release of 6 327 hectares for land usage and 1 031 hectares for low cost housing.

For the year under review, the DPW had undertaken many construction and maintenance projects with a total value of approximately R5.7 billion.

Ms Cathy Motsisi, Chief Financial Officer (CFO), described the Department’s achievements in its efforts to create an efficient, competitive and responsive network for its finance and supply chain management.  Where targets had not been achieved, this was due to delays in acquiring the financial systems which would be obtained once the Property Management Trading Entity (PMTE) data was completed.  The debtors book had been reduced from R2 billion to R1.3 billion, and payment for 97% of invoices issued had been collected.  The Department had started to implement payment registers in order to monitor the 30-day payment of invoices, but the late submission of invoices had caused it to fall short of its targets.

The number of contracts awarded to Historically Disadvantaged Individuals (HDIs) had exceeded targets, with 1 080 Black Economic Empowerment (BEE) companies handling contracts valued at over R471 million.  Non-HDIs had been awarded 224 contracts, with a value of R131 million.  A total of 3 749 potential suppliers had applied for accreditation, but only 604 (16,2%) had been accredited, as checks showed many could not deliver what they were claiming to be able to do.

Ms Thembi Hlatshwayo, Acting Deputy Director-General (ADDG: Corporate Services, said it had been planned to reduce the DPW vacancy rate to 10%.  However, the vacancy level at the end of the period was above 20%, even though 536 vacancies had been filled.  This was because the process had started at a late stage while funding was being awaited, and only critical vacant and funded posts had been prioritised.  A new disability strategy had been introduced, resulting in 56 disabled persons being employed, which was just above the 1% target.  A further 450 employees received critical skills from 91 Cuban technical advisors as part of a bilateral skills transfer programme.

Ms Tebogo Tukisi, Chief Audit Executive, said a risk assessment had been conducted for the DPW, and four quarterly audit committee meetings had taken place, as planned.

Ms Lydia Bisi, Deputy Director-General (DDG): Policy, said one of the key projects of the Strategic Management Unit was the development of an integrated risk management policy.  The risk registers in all nine regions and the head office had been cleaned up in preparation for the 2011/12 risk assessment.  A monitoring and evaluation policy had been formulated and was currently being reviewed with all stakeholders.  The Department’s intergovernmental relations unit was facilitating engagement with spheres of Government and entities through relevant structures, such as Parliament, the Portfolio Committees and public communities.

Ms Sasa Subban, DDG: Asset Investment Management, said the Department was in the process of compiling accurate and complete information on immovable assets in the Asset Register (AR), with the objective of populating 90% of the AR fields – 97 705 properties – with essential information.  However, only 82% had been completed by the end of the review period.  The project to obtain supplementary information had been put on hold until the essential information project had been completed, in compliance with the Auditor-General’s requirements.  A strategy to increase revenue by leasing out superfluous, but not redundant, state assets had been implemented, and the targeted revenue had been achieved.

The DPW had embarked on a campaign to reduce energy consumption, and this had resulted in a 3% reduction in kilowatt hours at state-owned buildings – a total saving of 206 million kilowatt-hours (Kwh) during the year.  Water consumption had also been reduced by 10%.

Mr Obed Molotsi, ADDG: Projects, said the inner city regeneration programme was originally focused on rural towns, to serve as service centres for rural economies, and a “desktop review” for the development of Mthatha, Modjadji, Kokstad and Mount Frere had been compiled, but the project had not progressed to a full feasibility study because all the DPW’s limited resources had to be concentrated within the city of Tshwane to fulfil the revitalisation of the Capital City project.

Successes included the building and upgrading of stadiums for the 2010 Soccer World Cup, and the completion of border posts at Golela and Vioolsdrift, with the construction of Skilpadhek and Lebombo in progress.

Mr Ignatius Ariyo, Chief Director, EPWP Infrastructure, said the objective was to create 4.5 million work opportunities for the poor and unemployed by the year 2014.  The target for 2010-11 was 642 000 work opportunities and 260 000 full time equivalents (FTEs), and, with validations still under-way, achievement stood at 626 935 work opportunities and 203 690 FTEs – although these figures had improved to the targeted levels once the validations had been completed.  The targeted breakdown was 55% women, 40% youth and 2% people with disabilities, and the actual breakdown had been 62% women, 51% youth and 0,45% people with disabilities.  Only 59% of the available wage incentive grant had been disbursed, and this was due to public bodies under-reporting on EPWP as well as not implementing their projects labour-intensively.

Ms Bisi said the DPW was developing a framework and action plan for the roll-out of the Government Immovable Asset Management Act (GIAMA) at local government level, and consultations were being conducted with stakeholders such as Cooperative Governance and Traditional Affairs (COGTA) and National Treasury.

Ms Motsisi presented the financial performance and audit reports for the year.

The budget allocation of R7 365 million was 22% more than the previous year’s R6 049 million.  Expenditure amounted to R6 616 million (90% of budget) compared to R5 688 (94%) the previous year. 

The largest under- expenditure was recorded in the EPWP, where only R915 million (65%) of the R1 416 million budget was spent.  This was largely attributable to the slow reporting of EPWP work opportunities created by municipalities and provinces. 

There had also been under spending of R23 million due to additional funds being reprioritised for the filling of vacant posts which, because of time lags between interviews and appointments, had in many cases been filled only in the new financial year. 

A further under spending of R120 million for infrastructure related to funds committed through the Independent Development Trust (IDT) as an implementing agent, for the transformation of mud schools.  A roll-over had been requested for the committed amount.

Ms Motsisi gave the reasons for the Auditor-General’s disclaimer, and the DPW’s responses.

In the case of the Immovable Asset Register, the Auditor-General (AG) had not been satisfied with the amounts disclosed in the financial reports, nor with the initiatives put in place during the year.  A service provider had now been appointed who would assist the Department in conducting a more comprehensive analysis of the register, and then determine the scope of work for completing it, which would be accomplished within 24 months.

Payments amounting to R16.6 million were made in contravention of supply chain management requirements, and while the DPW agreed with some of the findings, there were many instances where procurement policies were simply not followed.  There were also differences in interpretation of delegation of authority relating to procurement strategy.  However, some issues uncovered by the AG showed there had been gross negligence and a deliberate transgression of policies.  All cases were currently being assessed to identify root causes and the people responsible.

A further disclaimer, classified as “other expenditure”, rather than irregular expenditure, related to an estimated amount of R154.6 million.  The documents supporting this amount were with the Special Investigating Unit (SIU), and neither the DPW nor the AG had been able to access them.  In the circumstances, the DPW felt that the matter should be disclosed differently, and not as a disclaimer.  The manner in which the amount had been extrapolated by the AG had resulted in the entire goods and services (R819 million) and capital (R1.34 billion) expenditure being disclaimed, creating the impression these amounts could not be accounted for, which was not the case.

Other disclaimer issues related to lease commitments (failure to supply supporting documents), contingent liabilities and assets (anticipated settlement claims in civil claims against the state not confirmed), and material losses (irrecoverable debts from the period 1996/2004).

Reporting on the performance information, the AG noted that the objectives, targets and indicators were not consistent with the approved strategic plan, and the targets and indicators were not well defined, specific and measurable.  The information was also deficient in respect of validity, accuracy and completeness.  Ms Motsisi said that when the DPW finalised its strategic plan for this year, it would take all these factors into account so that it was not faced with similar challenges at audit time.  A plan had been put in place to capacitate and refocus the Monitoring and Evaluation (M&E) unit, and more emphasis was being placed on regular reporting and management accountability.

The CFO presented the balance sheet of the Property Management Trading Entity (PMTE), reporting assets of just over R2 billion, and indicating an accumulated loss of R404.7 million.  The bank overdraft had been reduced to R1 255 million from R1 675 million the previous year, mainly due to improved collections.  Income for the year amounted to R4 879 million, and with expenses totalling R4 920 million, the entity showed a lost of R41 million.  This was an improvement on the previous year’s loss of R175 million.

The PMTE received a disclaimer on its audit report.

Irregular expenditure of R291.7 million was made in contravention of supply chain management requirements, according to the AG.  DPW’s response was that although internal controls had been significantly improved, it seemed as if the monitoring of these controls had been inadequate.  Each case was being analysed to assess the root causes and to institute disciplinary measures.  The management of documents presented a challenge, as most cases reported were a result of missing tax clearance certificates and SDP documents.  A decision had already been taken to centralise all contracts within the legal services, and a data base of all contracts was being developed so that the DPW could provide information to the auditors on any contract at any time.  A breakdown of the irregular expenditure identified “variation orders” not authorised by delegated officials (R182 million), bids not advertised through the open tender process (R35 million), winning bids not advertised (R34 million), tax clearances not attached (R20 million) and lease contracts made without a contract (R10 million).

Ms Motsisi said the PMTE had been implemented in 2006 without a system, structure or relevant skilled staff.  All invoices were issued manually, and the budget was managed on Excel spreadsheets.  This created the risk of understating revenue and misstating debtors.  Trial balance items had to be converted manually to an accrual basis at year end, risking further errors in calculations and adding more journals to the process.  A new structure had been approved, three qualified accountants had been appointed, and the sourcing of a financial management system had begun.  With other improvements being implemented, she expected the entity to be fully compliant by the end of the 2012/13 financial year.

Discussion
Ms C Madlopha (ANC) referred to the increased EPWP technical support being provided to municipalities, from 68 in 2009/10 to 126 in 2010/11.  However, one report indicated 198 municipalities were currently being supported, while another put the figure at 217.  She asked for clarification.

Mr Ariyo said the figure of 198 referred to the number of municipalities that were eligible for the incentive grant, while the figure of 217 referred to municipalities which were reporting, to become eligible in the following financial year for support. 

Ms Madlopha asked why there was a delay in finalising the methodology for the valuation of the properties in the asset register.

Ms Motsisi said a valuation model had been discussed with National Treasury and had been finalised, but had been put on hold until the asset register had been completed, at which stage it would be tested to see if it produced the anticipated results.

Mr P Mnguni (ANC) launched a strong criticism against the irregular expenditure identified at PMTE.  He wanted to know whether it was DPW policy that contracts were awarded on the basis of an “internal discussion” rather than through open tender or, if this was considered illegal, what action was taken against officials.  How could contracts be awarded if tax clearances were not attached to tenders?  He suggested the SIU should be involved in investigating these issues, and asked how any person could dare to issue a variation order without being authorised, as this required the approval of the consulting engineer.

Ms Motsisi said in terms of the procurement strategy, one could either go through the nominated route, the negotiated route, quotations or the open bid, depending on the case and the request put before the committee.  The committee would decide whether there was time for the bid to be on a 14- or 21-day open process.  Where time was not available, there was a normal process to obtain approval to bypass.  The AG’s report had made the point that those deviations should have been reported to National Treasury. 

The DPW adhered to the rule of not granting contracts without a tax clearance certificate, but it had been observed that some of the documents went missing, and this had led to a decision to safeguard documents and to improve record management.  The certificates would have been available when the contract was awarded, but were missing by the time the audit took place. 

Winning bids were always made known when the tender boxes were opened, but if a tender had been advertised in a newspaper, it was a requirement that the result should be advertised in the same paper.  This was proving costly, so the DPW now advertised on the Construction Industry Development Board (CIDB) data base and in the Government Gazette.  The disclaimer had merely indicated that some winning bids had not been advertised in the required manner.

Mr Molotsi, responding to criticisms arising from the disclaimer over variance orders, said there was a standard process to follow.  Under normal circumstances, there would be an engineer on site, or an architect monitoring the work, and they could raise the need for a variation order.  In an emergency, however, where time was critical, the formal system could be by-passed, with the level of delegation of authority related to the cost involved.  Reporting this through the CFO to the AG was the proper mechanism for dealing with the situation.

Mr J Steenhuizen (DA) suggested that the “sleepless nights” referred to by the Minister should have occurred long before the disclaimer was received, as the AG had had regular meetings during the course of the financial year with the CFO and the ADG, and had written to explain the difficulties he was having in obtaining documents.  The AG’s office had also had numerous interactions with the Minister to discuss their frustrations and her role in oversight.  These issues should have been handled during the audit process.

In a recent statement, the Minister had spoken about how she had been let down by dishonest officials in the DPW, and how it had been difficult to get to the truth of what had happened because some officials had done everything they could to obstruct her investigations.  She had referred to deception and people lining their own pockets, rather than serving the people.  This would indicate a very serious lack of discipline within the Department, but only seven dismissals for misconduct were noted in the annual report, and this did not correspond with the gravity of the situation.

Mr Mabuza said the issues surrounding disciplinary hearings were regulated by the constitution and Labour Relations Act, which provided for a person being presumed innocent until proven guilty.  The Department would never provide wrong information to the Portfolio Committee, but unless he was presented with overwhelming evidence, he could not be expected to act. 

Mr Steenhuizen said the challenges surrounding the immovable asset register had been highlighted in the last three annual reports, and while it was gratifying to see the plans to address these challenges, an assurance was needed that concrete steps would in fact be taken.

Ms Subban said the appointment of a service provider, and the terms of reference ensuring the physical verification of these properties, would enhance the process.

Mr Steenhuizen said the presentation had created the impression that the internal audit department had achieved fantastic results and was fully compliant with its mandate, yet the AG was expressing severe concerns around proper risk management, stating that the department was horribly under-resourced and consequently not able to perform its function.  He was concerned that no plan had been put forward to strengthen the internal audit function.

The ADG conceded that there were serious capacity challenges within internal audit, and had given instructions that no fewer than three competent people be employed in the unit before the end of the year.

Ms N Madlala (ANC) asked whether contractors who were not accredited were still able to provide a service to the Department.

Ms Motsisi responded that the DPW advertised on a quarterly basis, and service providers who were not accredited were continuously evaluated so that the data base could be kept up-to-date.

Mr K Sithole (IFP) said it appeared the Department was very divided and lacking in leadership.  Maintenance backlogs were increasing and there were a large number of state buildings in a poor, or very poor, condition.  He asked if there was a budget to effect repairs.

Ms Subban said the piecemeal, reactive approach to maintaining state assets was not working out.  The process now was to carry out detailed condition assessments, targeting bigger facilities, and then registering maintenance projects based on the reports received.  The rehabilitation of unused facilities was being given priority to ensure they were used to the best advantage, with a view to housing DPW staff in them and reducing the cost of leased accommodation, or using them for revenue generation.

Mr Sithole said the President had insisted that all vacancies should be filled this year, yet there was still a high number of unfilled posts at the DPW.

Ms Hlatshwayo said the Department had received additional funding for the filling of vacancies in the third quarter, and had immediately advertised 1 400 positions, but managed to fill only 536.  The process was ongoing, but slow, because some positions were filled internally – creating new vacancies – while external candidates had to give 30 days’ notice, and often accepted counter-offers, leaving the DPW having to start again with the second-best candidates.  She felt there would be a big improvement by the end of the year.

Mr Molotsi added that anyone employed in the construction side of the DPW had to be professionally registered.  However, there was a major shortage of people in this category.  The DPW had adopted a policy of employing retired professionals and trainee artisans, but with no budget to absorb them into the structure, it was using maintenance and capital budget funds to employ them on a contract basis.

The ADG said there was a challenge in expanding the base of built environment professionals such as architects, engineers and project managers.  An architect, for example, would take four years to get a university degree, followed by three years’ experiential training, three years to register with the professional council, and a further two years for placement – a total of 12 years.  The aim of the Built Environment Professions Act was therefore to fast track the expansion of the base in the professional councils.

Ms N Ngcengwane (ANC) asked what action would be taken to address the under-reporting problem in the EPWP.

Mr Ariyo said 90 data capturers had been appointed, of whom 30 were located in the provincial regional offices. and 60 at the data centre in Midrand.  An increase in the number of reports had been noticed, so the situation was improving.  During the first quarter, 308 000 work opportunities had been reported – the highest first quarter figure ever.  Training of municipal officials and public bodies was also improving the reporting rate.

Mr Steenhuizen asked if disciplinary action had been taken against any DPW members in connection with the South African Police Service “lease scandal,” and when the committee could expect a full report on the Department’s actions as a result of the Public Protector’s findings.

The ADG said its was common cause that the Department had applied to the high court for a declaratory order for the lease to be nullified, and that it had been informed that the defendant would oppose the application.  Once the court had pronounced on the matter, the Department would act accordingly.  As the matter was still before the court, it remained sub judice.  However, when pressed on whether any officials had been suspended, he replied in the affirmative.

The Chairperson thanked the delegation for its presentation and engagement with the Committee, and invited the Minister to address the meeting.

The Minister said that, from her own experience as a Portfolio Committee Member, she knew how important it was for officials not to gloss over the truth and to tell things as they were – even if they were not as palatable as they wanted them to be.  For this reason, she was very happy that the team had “told it as it is.”

Referring to the lack of leadership stability in the Department, she said it was “two DDGs down today.”  During 2009, the President had signed a proclamation authorising the SIU to investigate a number of departments, including Public Works.  The SIU had finalised some of its mandate, and given a report to the President and the Department, identifying the officials which it thought had been “fingered” in the process started in 2009.  If the SIU advised her that another three DDGs had been “fingered” in their report, what did the committee expect her to do to resolve the leadership issue?  When there was wrong-doing, one had to step aside and allow the investigation to continue.  People would be employed to act in positions until the investigation was completed.

The Minister said she did not want to have the media accusing her of covering for her officials.  She had pleaded for the SIU to be supported, and if suspensions were warranted, this should happen in the name of good governance.

She was satisfied that with the support of the Portfolio Committee, the Department would be able to correct what needed to be corrected, and that praise would be offered if credit were due.

The meeting was closed.