CSOS, EAAB & NHBRC 2019/20 Annual Reports; with Deputy Minister

Meeting report

Community Schemes Ombud Services (CSOS) 2019/20 Annual Report

Mr Mthobi Tyamzashe, Chairperson of Board, CSOS, presented on some of the major highlights for the 2019/20 financial year. Amongst these included the fact that there had been an improvement in the AG’s findings for the financial year. CSOS received a qualified audit opinion compared to the previous financial year when it received an adverse audit opinion.

Ms Ndivhuo Rabuli, Acting Chief Ombud, CSOS, presented on the objectives and performance of the CSOS. Amongst the strategic objectives of the CSOS the presentation included providing a dispute resolution service for community schemes. For the 2019/20 financial year, CSOS had three programmes. Overall, it achieved 47% of its programmes. Factors including a high vacancy rate, especially in management and at executive level, contributed to its failure to achieve certain targets.

Ms Boitumelo Phetlhe, Acting Chief Financial Officer, CSOS, presented on CSOS’ financials, as well as its audit outcome and remedial action. CSOS was audited on areas including revenue and receivables, expenditure and monthly creditors’ reconciliations. The presentation on expenditure highlighted the 30-day payment, non-compliance and risk management. Overall, the entity received a qualified audit opinion.

See Presentation for more details

Estate Agency Affairs Board (EAAB) 2019/20 Annual Report

Mr Yusuf Patel, Deputy Chairman, EAAB, made some opening remarks before handing over to Ms Mamodupi Mohlala-Mulaudzi, Chief Executive Officer, EAAB. She told the Committee that the EAAB had received a qualified audit opinion for the 2019/2020 AFS. The basis of the qualified audit opinion was a result of revenue and receivables from non-exchange transactions (fines and penalties).The Estate Agent Fidelity Fund (EAFF) received an unqualified/clean audit opinion for the 2019/2020 AFS. This was an improvement from the 2018/2019 financial year.

During the 2019/2020 financial year, the EAAB issued a total of 47,356 Fidelity Fund and Registration Certificates to estate agents, estate agency firms and attorneys.  There has been a drop in the number of certificates issued compared to the 51,430 issued in the previous financial year.

Fidelity fund certificates were issued to principal estate agents per race. Whites contributed the highest percentage whereas Coloureds contributed the least percentage. However, the number of white principals has decreased compared to the previous financial year while the number of black principles has increased.

The Property Practitioners Act was promulgated into law in October 2019. Its effective implementation was going to take place on the date to be determined by the President of the Republic of South Africa after consultation with the Minister of Human Settlements Water and Sanitation. The Property Practitioners Act of 2019 sought to repeal the Estate Agency Affairs Act of 1976. The objectives of the Act are as follows:

• Regulate the entire property market value chain;
• Regulate the conduct of property practitioners when executing property related services;
• Regulate the education and training dispensation of property practitioners; and
• Transform the property market to be reflective of the South African demographics.

In preparation for the effective implementation of the Act, the Estate Agency Affairs Board (to be known as the Property Practitioners Regulatory Authority) implemented the following strategic measures:

• Finalisation of Regulations to support effective implementation of the Act;
• Development of branding and communication strategies for the Property Practitioners Regulatory Authority;
• Engagement of different kinds of stakeholders involved within the property market value-chain to be affected by the Act to determine areas of collaboration and common approaches;
• Development of appropriate strategies and measures to facilitate enforcement of the Act upon its implementation;

Ms Karen Son, Acting Chief Financial Officer, EAAB, presented on the financials of the EAAB. She told the Committee that the Board’s cashflow was in an unfavorable position as evidenced by the net cash outflows from operating activities of R23 million as opposed to net cash inflows from operating activities amounting to R41,5 million for the 2018/2019 financial year. For the EAFF revenue from exchange transactions has decreased due to a R33 million reduction of the Liberty investment in March 2020. The devaluation has negatively affected the fair value adjustment.

Mr France Mantsho, Chief Risk Officer, EAAB, presented on the successes and challenges related to the operations of the EAAB.

See presentation for more details

National Homebuilders Registration Council (NHBRC) 2019/20 Annual Report

Ms Julieka Bayat, Chairperson of Council, requested that Mr Mziwonke Dlabantu, Chief Executive Officer, NHBRC, to lead the presentation.

Mr Dlabantu presented on the audit outcome of the NHBRC for the 2019/2020 financial year. He said that the entity had been audited on personal information and the AFS. It received unqualified opinions on both audits. This is a significant improvement compared to the previous year. The AG has expressed concern with compliance of laws, regulations, supply chain management and irregular expenditure.

Mr Songezo Booi, Chief Financial Officer, NHBRC, presented the financial statements. Regarding the balance sheet, he told the Committee that total assets have grown by R236 million (3%) after adjusting to fair values. In addition, equity has grown by R137 million and total liabilities has increased by R99 million (6%). Presenting the cash flow, he told the Committee that cash generated from operations amounted to R139 million and cash in the bank amounted to R766 million.

On irregular expenditure, Mr Booi told the Committee that this has reduced over time. In the next financial year, the NHBRC’s target is to not have any irregular expenditure. Mr Booi confirmed that there are measures it has put in place to address this. For example, policies have been aligned to National Treasury Regulations and maturity analysis has been done on the supply chain management function to improve areas of concern. The Chairperson asked whether a regression in supply chain management in compliance happened due to systematic problems.

See presentation for details.

Discussion

Mr M Tseki (ANC) asked whether the EAAB has an action plan for the acting positions within the organisation.

On devaluation of assets, the EAAB has to provide feedback on some of the challenges it is facing.

What is the reason for the decrease in the number of estate agents?

He said that transformation within the EAAB was commendable. However, the EAAB spoke about reducing illegal estate agents and not eradicating them. Did this mean that it was normal to have illegal agents in the estate agency industry?

The increase in disciplinary hearings over the past 5 years shows that there was a serious disciplinary process within the EAAB.

Ms R Mohlala (EFF) said that there is a problem with transformation within the EAAB, simply because the majority of Estate Agents are being run by a white minority.

Ms E Powell (DA) said the EAAB has received a qualified audit opinion as a result of inadequate controls and processes around revenue. In addition, the entity has no CFO. Revenue has been materially understated as penalties for late renewals of fidelity funds certificates by state agencies were not always raised. Were these raised but not reflected? The AG found that there were no assurances provided by senior management, the accounting officer and internal audit committee. The Committee has raised this issue before, but was told that everything was under control. However, the AG has also raised the issue.

The AG has uncovered material findings relating to procurement. The EAAB has awarded tenders without inviting the prescribed number of quotations. This was a simple procedure to follow, but has not been followed. Ms Powell asked if the quotations related to IT or if they were illegal contracts?

In the previous year certificates were issued late due to system failures. The CEO had to provide assurance that this would not happen again. Ms Powell emphasised that all certificates had to be issued on time.

There have been complaints about customer services. What is the EAAB doing to capacitate staff within the organisation?

The CSOS has received a qualified audit opinion due to inadequate controls and processes. In addition, the AG has noted that the entity did not have a CFO. Levies from community schemes have not been identified and collected.

She asked if the longstanding matter on the suspension of the Chief Ombud has been resolved. Furthermore, the term of the Acting Chief Ombud has expired. Has the position been filled?

CSOS planned to make amendments to its act. What did the amendments seek to remedy and what were they going to look like?

There were concerns about the regional Ombud not adhering to regulations.

Ms N Tafeni (EFF) asked why it is taking so long to finalise regulations since the Act had been promulgated two years ago. She said that the delays are hindering the work of estate agencies, especially those previously disadvantaged.

The Property Practioner’s Regulatory Bill was been published and gazetted in March 2017 and enacted in September 2019. When did the board plan to transform itself from the EAAB to the Property Regulatory Agency?

The annual report has showed those areas that need further enhancement. Included in these is the revenue commission, which has resulted in a qualified audit opinion. What measures has the EAAB put in place to ensure audit improvement?

Ms N Sihlwayi (ANC) said that the presentation did not provide a sense of stability in terms of the structure of the CSOS. 

The NHBRC has not presented on some of the important issues raised by the AG. There was R711, 5 million that the entity could not trace, yet it was in its books. Where did this money come from? In addition, it spoke about disciplinary processes that had to do with unethical conduct? What form of unethical conduct was this, and who had been unethical? In addition, what was the disciplinary process? The CEO said that the AG identified gaps. Ms Sihlwayi asked these gaps were.

The NHRBC has a responsibility to monitor and protect homeowners in terms of house quality. This responsibility has not been reflected in the presentation. The question is was it there? Did the NHRBC have recovery plans for poorly constructed houses? There were rumours of money getting recovered from some builders.  She said that the presenters had to provide clarity on this.

On the EAAB, the Chairperson said the AG had noted a regression in SCM on compliance. Had this happened due to systematic problems?

The AG reported that some awards had been awarded when contracts had lapsed. This was a big irregularity. There was no goodness to a qualified audit, whether adverse or disclaimer. The Chairperson said that the EAAB had to strive to get a clean audit.

There had been delays in the appointment of the CFO which means that there was a need for commitment in that area? Has the EAAB and CSOS lost money due to advertising the position of the CFO?

The Committee welcomed the report by the NHRBC and the progress it was making.

Houses that had been enrolled and awarded by the state needed to be protected in terms of quality in the previous financial year, by contractors who had the duty to enrol.  The NHRBC has to take the responsibility of enrolling. This issue has also been raised as a risk by the AG.

Transformation within the EAAB was commendable but there was still work to be done. There is a need for targets to fast track transformation.

Responses

Responding to the Committee’s expressed concern regarding the stability of the CSOS’ structure, Mr Rabuli said that in the previous financial year the entity had vacancies, more particularly at the executive level. Most of the positions had been filled and there was a priority to fill important positions to do with dispute resolution and governance. This was going to decrease the vacancy rate at the end of the next financial year by 30%. During the current financial year, the department has advertised for vacancies which saw the reduction of the vacancy rate by an additional 40%. He said that the entity was doing the best it can in terms of capacity.

On the amendment of the CSOS Act, it was looking at strengthening governance on community schemes. The dispute resolution system set out in the Act was not adequate and one of its amendments sought to reinforce this by improving the process relating to appeal of the adjudication order by members of the board corporate. This area was lacking and required improvement. The amendment also sought to add a section that provided for an internal review of the adjudication order. This will minimise the use of external dispute resolutions systems, for example courts, by corporate or members of the community scheme on matters relating to CSOS adjudication. This is also going to assist in terms of cost containment since external disciplinary processes are costly.

The amendments have to be done in a regulation. Since the CSOS Act requires an Amendment to a regulation to be tabled in Parliament, the CSOS is going to submit both the amendment and regulation for consideration and approval by Parliament.

Overall, the amendment is going to ensure that there are sufficient and clear instructions in terms of what needs to be done in the entire value chain for dispute resolution processes.

On the appointment of the CFO, Mr Tymazshe said that CSOS has managed to interview candidates for both positions and has made selections. All that is left is for it to hear the outcome, which it is still waiting for.

Ms Mohlala-Mulaudzi (EAAB) said it was not entirely correct that there has been a regression in terms of SCM compliance.  The AG referred to the cancellation of three contracts during the 2019/2020 financial year.  The contracts were from the 2017 and 2018 financial years and had to do with procurement irregularities. The EAAB had cancelled these during its clean-up process and had notified the AG. The AG had not picked up these.

On fidelity funds certificates, there have been delays issuing these due to problems with management of the EAAB database. The data base was managed by a third-party service provider and the contract has since been terminated.

On the SCM, the report by the AG that there had been an appointment without obtaining three quotes was not entirely correct. The EAAB has evidence that it had obtained the three quotes. The evidence has been shown to the AG and the AG has ruled out the matter as an issue.

On the audit opinion, the EAAB has tried very hard to obtain an unqualified audit. However, the decision lies with the AG. The entity has received qualified audit opinions on certain things that did not require such. The entity has been qualified on one issue.

On the appointment of the CFO, the process of appointment has been halted by a request from the Minister’s office on the secondment of the CFO from other entities.

On whether there has been irregular expenditure as a result of the processes undertaken, the chairperson of the board has written to the Minister for an update on how far the process was and to get guidance on this.

On the finalisation of the regulations, the EAAB provided input on the content of the regulations but the process of enactment lies with the Executive. The process had been affected by COVID-19 but has resumed and all public engagements are being undertaken.

On the Property Practioner’s Act, this has been promulgated but the date of enactment lies with the President. The EAAB has started consulting with sectors including auctioneers and bond originators in preparation of the Act. Some of the sectors were previously not regulated so the Act is going to present challenges. The EAAB is working on an organogram and once this is done a presentation is going to be made to the board and the Department of Human Settlements. The challenge that the extended mandate presented was funding since the EAAB was not funded from the fiscus but through contributions made by members.  However, the power purchase agreement allowed the EAAB to ask for money from the fiscus.

On revenue management and understatement of penalties, Ms Mohlala-Mulaudzi confirmed that this was the reason for the qualified opinion. The EAAB had under collected in terms of the penalties issued. The AG was of the opinion that the EAAB should have over stated instead of understating. To resolve the issue, the entity has engaged with the AG and has adopted alternative audit procedures. In addition, estate agencies were interviewed in order to confirm whether penalties had been obtained. The confirmation obtained by the AG was not satisfactory. In addition, the EAAB has not met the materiality framework in terms of the quantum.

In the absence of assurances from the senior management, accounting officer and internal audit, the AG was supposed to raise issues of delays in providing minutes for different Committees. Minutes were eventually provided. From the contents of the minutes the AG got assurance that there has been no attempt to conceal information.

On the IT system procurement, no tenders have been awarded. The tender process closed in August and the evaluation and adjudication process is ongoing for the purposes of awards. Before the end of the calendar year, there is going to be a service provider responsible for the ERP system. This is going to be the first time in many years. The IT system at EAAB is outdated and does not meet the growth of the industry.

On the issuance of fidelity certificates, it is correct these were issued after October 2019. All compliant certificates had been issued on 31 December 2019. In the current year, all certificates will be issued by the 31 December 2020.

The Committee spoke about complaints in the EAAB customer service. During level 5 lockdown all systems were closed. In level 4, the systems were opened and calls resumed. The EAAB resolved 96% of the complaints that had come through.

Due to COVID 19, the EAAB started providing exams online. 98% of those that wrote the exams had submitted. The remaining 2 percent had failed to do so due to ICT problems.

On acting positions, at the end of the financial year there were four vacant executive positions namely, the CFO, Corporate Services, Transformation, and Enforcement and Compliance. The office for enforcement and compliance became vacant in February this year. The EAAB had advertised this and was looking to fill the position at the end of the financial year. The position for the office of transformation became vacant two years ago. However, this was a top priority and was going to be filled in 90 days. The corporate services office was also going to be filled in 90 days.

The drop on the number of estate agencies had to do with the economic downturn that befell the property sector before COVID 19. However, the number of agencies is going to increase due to transformation measures including the PDI resolution.  The EAAB plans to offer payment exemptions on examinations, education, training, and CPD to qualifying black estate agencies.

The EAAB is also identifying barriers to entry including access to bonds and markets. Regarding the access to markets, the EAAB has spoken to various state agencies and other stakeholders to provide stock to estate agencies.

On incubation, the EAAB is looking to increase the number of principals. Estate agencies, especially HDI do not have look forward to employment but have to become their own principals.

The EAAB has a two prolonged strategy that will empower both new and old estate agencies. Whilst new estate agencies bring fresh ideas into the industry, old estate agencies sustained its development. The EAAB also has a grant set aside for both new and old agencies.

Transformation is difficult but not impossible. The EAAB plans to enrol between 2000 and 5000 interns in the next year so as to increase the number of estate agencies.

On the devaluation of the Liberty investment, Ms Son said that at the end of February the investment value was R169 million. However, at the 31STof March this had decreased to R135 million. The EAAB engaged Liberty on the devaluation. The EAAB was told COVID 19 had impacted the global market. Even if that was the case, the EAAB’s portfolio had a guaranteed portfolio. Liberty had incorrectly valued the portfolio. The EAAB has lodged a legal complaint against Liberty.

Mr Patel said that the request by the Minister for the secondment of the CFO position was being processed.

The term for the sitting EAAB board has expired and a new board was coming into place. The advertisements for nominations of the new board have been posted.

On disciplinary actions to do with unethical conduct, Mr Dlabantu said this had to do with collusion between employees and homebuilders, as well as homebuilders and homeowners. The unethical conduct also had to do with homebuilders not enrolling. The NHRBC interdicted those implicated and took full disciplinary action. In some provinces, the safety of NHRBC officers has been compromised. There are cases of assault and kidnapping of NHRBC officers.

On the R711 million, Mr Booi said that this had to do with irregular expenditure that appeared in the annual report. From 2011 to 2019 the entity had appointed service providers without following processes. The transactions had been considered irregular. The NHRBC investigated the cases and took the appropriate measure. Subsequently it applied for a condonation from National Treasury.

The NHRBC has a duty to protect consumers. Its inability to protect consumers has to do with the existing legislation not being in line with the industry within which it operates.

Follow up questions

Ms Powell said that the EAAB had to provide the Committee with evidence that it furnished to the AG on the quotations to do with the SCM.

Mr Tseki said the Chairperson had to write a letter to SAPS to assist the NHRBC on the issue of assault and kidnapping of officials.

Deputy Minister of Human Settlements, Ms Pam Tshwete, said that the Department of Human Settlements was going to monitor the 5 areas that had been mentioned by CSOS.

The entities have to prioritise filling all vacant positions within their institutions.

The EAAB spoke about the internship program. It has to extend this to rural areas for the benefit of those disadvantaged.

The meeting was adjourned.