NHFC, NURCHA, RHLF, SHRA, NHBRC, HDA, CSOS 2017/18 Annual Reports, with Deputy Minister

Human Settlements, Water and Sanitation

10 October 2018
Chairperson: Ms N Mafu (ANC)
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Meeting Summary

Annual Reports 2017/18

Six of the seven housing entities presented their Annual Reports: National Housing Finance Corporation (NHFC); National Urban Reconstruction and Housing Agency (NURCHA); Rural Housing Loan Fund (RHLF); Social Housing Regulatory Authority (SHRA); National Home Builders Registration Council (NHBRC); Housing Development Agency (HDA); and Community Schemes Ombud Services (CSOS). It was noted that the Estate Agency Affairs Board (EAAB) had sent a letter to the Secretary of Parliament stating that they were unable to file their 2017/18 Annual Report yet. The Committee was angered that it did not bother to appear or send a letter to the Committee. The Committee agreed to summon them.

The National Housing Finance Corporation (NHFC) reported its audit revealed that its supply chain management had irregular expenditure of R2.95 m in 2017/18 due to non-compliance. Investigations revealed no financial loss or damage to NHFC. There is an audit action plan in place to strengthen internal controls. The Road-Map for the consolidation of the three Development Finance Institutions (NHFC; NURCHA, RHLF) into the Human Settlements Development Bank (HSDB) was discussed. Stages 1 and 2 run in parallel. The first is the consolidation transaction of NHFC, NURCHA and RHLF. The second is establishing the HSDB with full operations. It noted what had been achieved so far.

NURCHA, which will be winding down, noted the two key drivers of its strategy:
1. Relevance to the development mandate through: Lending product innovations, Contractor Finance and Development Programme (CFDP), Rental, Higher density developments, Emerging developer programme; and partnerships with provinces and municipalities in lending and service delivery.
2. Restore and maintain organisation sustainability through: terminate intermediaries and re-engineer model; resolve legal actions with intermediaries; attend to collection of legacy book and restore lending performance; reduction of loan defaults; diversification into fee based management services, fund and programme management; turnaround - from erosion of equity to surplus.

There were many vacant senior management positions. The board appointments will be extended to conclude the dissolution audit and the executive and company secretary will remain to dissolve the company. The lending capacity challenges mean there are borrowing constraints which affect short term finance and meeting targets.

The RHLF had a clean audit and the number of housing loans disbursed was 40 921. The number of loans delivered was below the set target due to tough market conditions, high unemployment as a result of slow economic growth low affordability levels as shown in high rejection rates by our intermediaries. High budget for training to ensure our employees develop in order to enhance capacity to deliver on the mandate and entity’s commitment to skills development of its employees in general. Performance against MTSF Targets and other Government Priorities, the minister’s commitment was 1 495 000 housing opportunities while the RHLF commitment was to provide 233 636 housing opportunities. Performance against MTSF Target with a mandate of achievement of Housing Impact Monitoring, the MTSF target was 233 636 housing opportunities while performance at end of Q1 2018/19 = 75.4% at 176 208. This is as a consequence of poor market conditions that have prevailed during the current MTSF period. Majority of loans are accessed by the borrowers in the lowest income bracket mainly women pensioners in rural areas at much affordable interest rate. The loans granted in Priority Rural Nodes upon RHLF development impact in ISRDS was 192 157 loans, valued at just over R888 million have been granted in rural nodes since 2005/06 financial year.

The CSOS report was presented by the Acting Chief Ombud and Acting Chief Financial Officer after the CSOS board suspended the Chief Ombud and Acting CFO on allegations of gross negligence and dishonesty. It was noted that the strategic objective to regulate all community schemes was not achieved. There was a decline in the number of schemes submitting registration documentation. CSOS will implement penalty provisions in the CSOS Act to enforce registration compliance. There were challenges with capacity to handle requests for quality assurance. CSOS has since appointed more officers to conduct quality assurance. It was successful in its provision of a dispute resolution service for Community Schemes. In 2017/18, 4060 disputes were lodged with the CSOS compared to 1282 the previous year. The appointment of part-time adjudicators ensured that more cases are resolved. CSOS received an adverse audit opinion. It outlined the audit findings, including the surplus funds that were illegally deposited in VBS Bank, and the remedial audit action plan to correct this state of affairs.

Both the Committee and the Deputy Minister agreed that CSOS should be put under administration as it was the subject of three investigations and it was supposed to help with sectional titles but it appeared it was nothing more than a money-making scheme currently.

SHRA has the mandate to deliver affordable rental housing for low to middle income groups.  The last three years have seen immense change after a series of interventions which have resulted in significant improvement in its performance resulting in the Minister lifting the administration it was under in July 2017. Key policy changes in 2017/18 included the increase in the Restructuring Capital Grant quantum and the increase in the income bands for qualifying households. There were improvements in expenditure of capital grants; it delivered 3 519 social housing units; it had 32 046 social housing units under regulation; 11 684 units have been delivered thus far within the MTSF period of 2014 to 2019. It received an unqualified audit opinion with an emphasis of matter for non-compliance with legislation and material misstatement. There was no fruitless and wasteful expenditure or irregular expenditure.

The NHBRC briefing dealt with mandate, strategy, products and services, committees of council, training programmes, charts on performance of valuable final products (VFPs), remedial works done, suspension of homebuilders, disciplinary matters, work profile, overall performance and per programme (Administration and Governance, Regulation and Protection, Legal Compliance and Enforcement, Research and Development, Warranty Fund) and finance. NHBRC noted that new builder registrations are dependent on the number of anticipated tenders issued by provincial departments. The general decline in provincial housing delivery was largely due to budget cuts. The achievement is in line with the total number of homes under construction. Irregular expenditure reported is R4 million compared to R7.2 million the previous year. Fruitless and wasteful expenditure was R14.6 million compared to R20.6 million the previous year.

The HDA discussed the Priority National Projects which are catalytic projects aimed at restructuring settlements patterns. On number of hectares of well-located land targeting poor and middle-income households acquired or released, total of 3 329.446 was achieved.

Questions and concerns raised by Members included the consolidation process, too many men in the delegations; the RHLF clean audit; irregular expenditure; CSOS adverse audit opinion and audit action plan; decreased public confidence in CSOS; the Departmental target of 30% contracts to women and youth; there was land acquisition but no development; and the abysmal performance on informal settlement upgrading.

Meeting report

The Chairperson welcomed the Deputy Minister. Today is a cabinet meeting but she opted to be with us. The Minister is at the cabinet meeting as they had to split duties. Yesterday, the Committee interacted with the Auditor-General, the DPME and the Department Annual Report. Today we hear from: National Housing Finance Corporation (NHFC); National Urban Reconstruction and Housing Agency (NURCHA); Rural Housing Loan Fund (RHLF); Social Housing Regulatory Authority (SHRA); National Home Builders Registration Council (NHBRC); Housing Development Agency (HDA); Estate Agency Affairs Board (EAAB); and Community Schemes Ombud Services (CSOS). These entities are many and there is a struggle to merge three of them into one as they are failing. The first presentation is by the NHFC and the next time you come to Parliament, we hope to see you as one entity.

National Housing Finance Corporation (NHFC)
Mr Samson Moraba, CEO: NHFC, noted that the Chair had mentioned that the NHFC is failing so that will be a focus in the presentation which will highlight the problems and possible solutions in raising credit. The challenge for NHFC going forward is how to achieve its set targets while managing transition that involves winding up. It was established in 1996, is a 100% state owned development finance institution (DFI). It has total assets of R3.4 billion and total liabilities of R323 million. In terms of funding, it is self-sustaining and its main business is broadening and deepening access to affordable housing finance for low-to-middle income SA households with a regular monthly income between R1 500 and R15000. The market segment is able to contribute towards its housing costs, but unable to access housing finance from financial institutions. Its geographic activities are national with 61 employees and 53 companies. NHFC strategic objectives, board members and areas of success such as R21 billion to date from an initial capitalization of R800m were noted (see document).

Ms Zola Lupondwana, Acting CFO, presented the audit outcomes. In November 2017, Nkonki was appointed as external auditors for a 5 year term. In April 2018 the AG terminated the appointment of Nkonki. The external audit process commenced fully 4 weeks later than scheduled. Independent Auditors report received on 18 September 2018 giving an unqualified audit opinion with a matter of emphasis on irregular expenditure of R2.95m due to non-compliance with SCM regulations. Investigation revealed no financial loss or damages to NHFC. An audit action plan is in place to strengthen internal controls. She went through the financial report (see document).

Mr Moraba stated that the NHFC encountered several challenges in 2017/18: Protracted consolidation process – the delay in securing Section 66 National Treasury approval aggravates uncertainty among staff and stakeholders (DFI Consolidation/HSDB now resolved); Governance – risks associated with diverse decisions in the context of the imminent consolidation – now resolved; Rising culture of non-payment of rent and illegal occupation of social housing units; Delayed audit process 4 weeks compared to prior year due to termination of Nkonki; Irregular expenditure included in NHFC Audit Report. Tepid economic growth now worsened by the confirmed technical recession will continue affecting economy, business confidence and private sector investment. 2018/19 will be challenging and DFIs will struggle to achieve financial and key impact targets in an economy in recession.

Mr Nonkululeko Zulu, DHS Divisional Program Manager: Subsidy Housing, focused on the 2018/19 outlook. There will be successful conclusion of Phase 1 of the consolidation process and approval for the HSDB business case and draft legislation. After an improvement in business and consumer confidence in the first quarter of 2018 (to 31 March 2018), there has been a slight downturn in confidence in Quarter 2 of 2018 and the situation has now worsened with the recently announced technical recession. Land expropriation without compensation has to be handled properly as there are already indications of the negative impact of the debate on affordable housing. Some bond originators and the South African Affordable Residential Developers Association (SAARDA) indicate that demand for housing was down in Gauteng. They attribute this to expectations by the public for free land and/or housing. Some developers are experiencing invasions. Affordable housing delivery in general may be negatively impacted going forward. The social housing sector is expected to see an uptick in viable/bankable projects due to the gazetting of the increase in the subsidy quantum and in the new income bands.

Mr Moraba spoke about the Road-Map for the consolidation of the three Development Finance Institutions (NHFC; NURCHA, RHLF) into the Human Settlements Development Bank (HSDB). Stages 1 and 2 run in parallel. The first is the consolidation transaction of NHFC, NURCHA and RHLF. The second is establishing the HSDB with full operations. He noted what had been achieved so far.

Discussion
The Chair thanked NHFC and noted the AG did confirm the facts as presented in the audit report. Due to concerns, the AG had to take over the audit of the NHFC producing an unqualified opinion. If the AGSA had not informed us of that, it would have been very difficult to ask questions.

Mr M Bara (DA) noted that when NHFC talks about the consolidation of entities, it is quite encouraging. Her concern was the non-payment. Sometimes there are shortcomings experienced in the collection of revenue so her question is what steps are envisaged in trying to collect or get around this challenge?

Mr L Khoarai (ANC) said that sometimes when entities are consolidating, some things are done deliberately especially from the CFO office. Why is it that every time we have a report there are always the same technical challenges?

The Chair added that the consolidation process had been well presented. We hope that the operational interpretation will be given. Can we get a summary particularly on staffing and whatever else is important in the transition? It is commendable the revenue you have raised but there is a need to ensure that quality is maintained above that. Don’t assume that everyone knows what you are supposed to do in terms of protecting this country in ensuring that this is successful. You spoke about the Inner City Program which is one of the biggest programs you are dealing with. She loves them having a presence in the metros. Your presence is felt in Gauteng. Your presence is felt here in Cape Town. But she would love it if their presence was broader. Is your presence in this program through developers or the government entities or the Provinces? How is your relationship with SHRA maintained and sustained although she understands there is the rent payment problem? She asked NHFC to remain for the SHRA social housing project presentation.

Mr Moraba replied that normally when you buy a house for R300 000, you pay legal fees, stamp duty and transfer costs. That’s part of the cost that the household needs to bear in buying the house. People might not have all this money, so we asked the Reserve Bank to give 0% for other costs and one only pays the R300 000. Every year then there has been inflation and now the threshold is at R900 000. What it does is it demands accountability across the board. We will come back with a detailed report on the operational integration of the consolidation process. We are mindful that you have raised this issue before. On intergovernmental relations we are working with SHRA to find a resolution on matters through the Office of the DG where the sessions were facilitated. We are committed to finding a solution. We are now working together. One of us will remain to benefit from the other presentations. The AG raised that in some of the areas we had maintained the same service providers and this matter has not been resolved. We argued that this is a continuous service and we cannot seek new people to start dealing with this matter. It is not that there was anything fraudulent. It is the manner in which we do things for the continuation of business. Inner City is run by funds to some of our housing institutions but especially through a company called Trust for Housing Finance. We have expanded to KZN and East London and beginning to do some work in the Eastern Cape.

Mr Neville Chainee, DHS DDG: Strategy and Planning, commented about what he termed a footnote that would come back to haunt the department regarding land expropriation. It is important that DHS speak with the same voice as government to indicate the demand for housing was down because people will attribute this to the public eying land. We must be careful when there are these perceptions that create a narrative that in poor South Africans there is anarchy and chaos. What we can talk about is the question of unemployment and economics. We should be very careful around the debate on expropriation. On intergovernmental relations, there is also the rent boycott and it was related to gangs and criminals infiltrating the social housing project and we have managed to work successfully with SHRA.

Deputy Minister Zoe Kota-Fredericks commented about rent control that the NHFC spoke about. In general the level of criminality has affected good housing rent payment. But there are also places where the houses are falling, so they don’t pay rent. The issue here is between the NHFC, SHRA and the Provinces. However, she is very happy with the NHFC report, particularly on the principle of good government.

The Chair thanked NHFC and the Committee had noted issues with SHRA and would ask them in their presentation. They looked forward to getting the report from NHFC.

National Urban Reconstruction and Housing Agency (NURCHA) 2017/2018 Annual Report
Mr Viwe Gqwetha, NURCHA Managing Director, focused on the performance indicators; audit outcomes; management vacancies; current board and winding down. NURCHA ensures the availability of bridging finance to small, medium and established contractors, and developers building low and moderate income housing and related community facilities and infrastructure. Its mission is to initiate programmes and ensure a sustainable flow of finance for the construction of low-income and affordable housing, community facilities and infrastructure. We work in partnership with all role-players in these markets to maximize the development of sustainable human settlements. There are two key drivers of strategy:
1. Relevance to the development mandate through: Lending product innovations, Contractor Finance and Development Programme (CFDP), Rental, Higher density developments, Emerging developer programme; and partnerships with provinces and municipalities in lending and service delivery programmes.
2. Restore and maintain organisation sustainability through: terminate intermediaries and re-engineer model, resolve legal actions with intermediaries, attend to collection of legacy book and restore lending performance; reduction of loan defaults, diversification into fee based management services, fund management and programme management, turnaround - from erosion of equity to surplus.

The strategy execution is also to improve reputation in the market by improve credit rules, certificate based lending, reduce infrastructure lending, lion’s share to affordable housing, diversification of affordable housing and introduction of CFDP for new entrants, women and youth. We will also endeavor to close control of loan book, have new controls and risk management measures, quick and sustained actions on defaulters. We seek to buy-in on lending protocols with Provinces. Our core business involves: affordable housing; home ownership full and sectional title; rental conventional and student accommodation which is short term finance; and bridging finance to contractors delivering subsidy housing.

Ms Sindisa Nxusani, NURCHA CFO, noted that affordable housing got 76% of the budget, subsidy housing 20%, and infrastructure 5%. Gross income by source was interest on money market investments 40%; interest on loans for construction projects 32%; fees on loans for construction projects 8 %; programme management fees 40%; and other income 4%.  She spoke to 2018/19 First Quarter performance highlights: the year started with a fairly good loan book balance of R373m which is 80% of the funding capacity; the interest income has been sustained by the loan book balance from previous year and largely driven by affordable housing; and fees and interest from the lending business has have been close to budget. In the first quarter provisions for losses increased by R7m and ended the period by R6m deficit. The rate of increase in provisions will slow down significantly going forward; interest on the impaired book will still be a driver of the upward movement. Trouble projects in the emerging developer book have largely been provided for, there are intensive engagements with key stakeholders to eliminate fraudulent diversion of funds from financed projects. Improvements in controls where there have been weaknesses is underway. Staff morale also has to be turned around to achieve focus. Monthly interest paid to PIC to service the loan is approx. R600 000. She provided a breakdown of the finances. NURCHA obtained an unqualified audit outcome with emphasis of matter on transfer of functions between entities under common control; material increase in asset provision i.e. loan for construction projects R57.9 million; irregular expenditure of R1.4 million; fruitless and wasteful expenditure of R48 425; and financial commitments amounting to R596 million.

Mr Gqwetha noted the vacant senior management positions. The board members were named. The board appointments will be extended for a reasonable time after the consolidation to conclude the dissolution audit and the executive directors and company secretary will remain to dissolve the company. In conclusion, the lending capacity challenges mean there are constraints to borrowing which affect short term finance and meeting targets. Strategic matters that NURCHA grappled with were: sustainability; volumes, margins and risk management model; working with DHS to eliminate fraudulent diversion of funds and secure buy-in of sector players; new products for market penetration and opening up opportunities for the marginalised.

Discussion
Ms M Nkadimeng (ANC) said the presentation had been good. Her concern was the senior manager vacancies and you have stated you do not have capacity. These are key people whose vacancies contributed to your missed targets. You explained that some of the vacancies were due to the suspension of officials implicated in irregular expenditure.

The Chair noted that they should be mindful of the consolidation so NURCHA could not recruit and that was why there were vacancies.

Mr Bara asked in your procuring process, are there mechanisms for verifying the authenticity or credibility of an entity or individual who promises to provide you a service? Treasury rules were not followed causing irregular expenditure. Why were you not able to get to that point of compliance?

Mr M Wolmarans (ANC) welcomed the detailed presentation. DHS is one of the departments that has gazetted the 30% set aside for contracts to youth and women. Going forward, is there a plan for NURCHA to achieve this departmental objective?

Mr Malatsi noted in its provincial spread a lot goes to Gauteng, North West and Western Cape. Can you elaborate on what influences that? Your mandate is to provide bridging finance but there is no indication of the extent you are involved with young, women and disabled contractors.

The Chair noted that yesterday when the Department presented, they had not met this 30% target and it was very worrying and Members were keen to know what specific entities were doing about this.

Mr Gqwetha replied that the Annual Report itself covers some of the questions very well. Notably, of the service providers who provide our services, 50% of them are women controlled companies and 19% are persons with disability. We have a facility meant for these special groups and we fund them as most do not have an asset base to finance their loans. But there are rules to allow lending. We are taking this issue seriously and we are making sure we empower our women and youth to take up tenders and contracts. On the Provinces, first we get funding for controlled activities where we go around with NHBRC and other human settlement entities doing marketing and we do that every six months. In North West we had challenges where they were not willing to cooperate with us and we had to work it out with them. The irregular expenditure was from Provinces where we had a subcontractor divert the services and we had loan defaults. We are going to revisit this to ensure it does not happen again. We are ensuring that we finance not just sub-contractors but main contractors. On irregular expenditure, he raised the same concern as NHFC about the AG finding about service providers.

The Chair joked that it seemed only men were presenting and that these entities are monopolised by men. As the consolidation takes place we will watch to see when you come back, it is not just men sitting here.

Mr Ahmed Vawda, DHS DDG: Policy, stated that NURCHA should not be treated like other entities. It is important it be prioritised especially irregular expenditure in the subsidy market. This will be through insertion of a mechanism in the Division of Revenue Act to introduce measures to monitor the flow of funds. DoRA is a critical tool for you so that when you lose funds you are able to recover.

The Chair stated that it should be agreed that the DoRA approach was not a proposal anymore but that it was a “must” for implementation to curb future instances of pubic theft. There was a challenge about contractors accessing NURCHA. NURCHA is no longer using intermediaries so how will contractors access NURCHA as it is acting as bank?

Mr Gqwetha replied that that was a matter of strategic planning and it had undertaken to ensure its presence is felt in the Western Cape, Eastern Cape, and KZN. The thinking going forward is regional offices as projected in our business case.

The Chair stated that when NURCHA brings the operational program report it must include communication about access by small contractors to NURCHA.

Rural Housing Loan Fund (RHLF)
Mr Jabulani Fakazi, CEO, outlined the RHLF mandate and business model, prevailing market conditions, performance against predetermined outcomes, financial statements, governance and audit outcomes, and winding up of RHLF, transfer of business to NHFC as per donation agreement. Our mandate is household access for housing finance to rural areas. Wholesale funds to retail intermediaries must be repaid to RHLF for further lending which is critical for sustainable delivery on the mandate. There are two types of intermediaries i.e. commercial and community based organisations that lend to borrowers and carry credit risk but RHLF conducts risk reviews annually. Our pricing policy is to make loans affordable. The SA unemployment rate has remained stubbornly high due to slow economic growth and structural factors contribute to the challenge of addressing high unemployment. The result is a high dependency ratio as few people working and many mouths to feed. SA household debt to income was at all time high at 86.4% in 2008, but has been declining. It was 70.9% in Q1 which has slightly increased to 71.3% in Q2 of 2018.

RHLF performance showed 40 921 housing loans disbursed. The number was below the set target due to tough market conditions, high unemployment and low affordability levels as shown in high rejection rates by our intermediaries. All other indicator targets were exceeded. Under business process, the strategic objectives were to sharpen portfolio risk management and enhance the early warning system. Disbursements to retail intermediaries were below target (89%) as a result of the poor economy. More verification visits at borrower level were conducted than budgeted. This gives assurance of compliance with development mandate as shown in stakeholder perspective.

Mr Bruce Gordon, RHLF CFO, noted one of its strategic objectives was real capital preservation. Expenses were below budget, partly due to the delay in implementation of Voucher Programme and managing costs in general and there was surplus slightly above budgeted due to lower than expected provisions. He spoke about learning and growth where the strategic objective was to equip staff with skills for personal development and organizational delivery. RHLF has a policy of recruiting interns where possible, 9 of the 17 current employees joined as interns. There is a high budget for training to ensure our employees develop. Performance against MTSF Target with a mandate of achievement of Housing Impact Monitoring, the MTSF target was 233 636 housing opportunities while performance at end of Q1 2018/19 was 75.4% at 176 208. This is as a consequence of poor market conditions that have prevailed during the current MTSF period.

The profile of borrowers who benefit from RHLF funding for the last five years shows the majority of loans accessed by women is much higher than the 30% target. The majority of loans are by borrowers in the lowest income bracket mainly women pensioners in rural areas at a much affordable interest rate. There were 192 157 loans granted in rural nodes, valued at just over R888 million since 2005/06. Demand for loans comes from: Low income categories of the RHLF target market, including pensioners; and professionals building bigger houses who live and work on communal land so a mortgage is not an option.

RHLF funding supports building materials suppliers, retains jobs in rural nodes, and contributes to local economic development. Housing loans were in line with the Special Presidential Package for Mining Towns and value delivered in both mining towns and labour sending areas. Notably, RHLF started tracking loans since 2014/15. He named the RHLF board members and their term of office is until the dissolution of the company after RHLF business is transferred to NHFC to implement first phase of DFI consolidation. Three board vacancies not filled since 2014 because of pending DFI consolidation.

Both the 2017/18 and 2016/17 audits by  an independent auditor were clean. In winding up RHLF NPC, it is a division of NHFC as per donation agreement, effective 1 October 2018 (implementation of Phase 1 of consolidation). In terms of the Companies Act a non-profit company can only donate assets when being wound up. One the financial statements for this period have been audited and approved by the board, the board will pass a resolution to wind up the company and lodge winding up resolution with CIPC.

Discussion
The Chair appreciated the detailed presentation.

Ms Nkadimeng congratulated RHLF for the clean audits and stated that this was a good trend.

Mr Malatsi asked for clarity on the transaction Social contributions in the income statement.

Mr Khoarai asked if there was a concrete reason they did not use the voucher system.

The Chair commented that women should be more included. They were doing well on their mandate. We commend you for good work done despite the numerous challenges. Year after year you have a clean audit and you are the housing entity to do so and congratulations are in order.

Mr Fakazi thanked Members for their comments and recommendation. They are committed to working with the Department on vouchers - there are challenges that should be overcome. Social contributions are collected from all employees and these go to the insurance fund.

The Chair commented that it might help with the problem if the voucher system could be computerised. Can a report on this also be attached to the consolidation operational program report?

Community Schemes Ombud Services (CSOS)
Ms Ndivhuo Rabuli Acting Chief Ombud, presented the performance information. The strategic objective to regulate all community schemes was not achieved. There was a decline in the number of schemes submitting registration documentation. CSOS will implement penalty provisions in the CSOS Act to enforce registration compliance. Of the 76 677 sectional title schemes received by the Deeds Office, 27.7% (20 969) are registered with CSOS. The second objective to provide quality assurance of Community Schemes governance documentation was not achieved. The target was 5000 and 1561 is what CSOS managed. There were challenges with capacity to handle requests for quality assurance. CSOS has since appointed more officers in the governance business unit. The target for certificates issued for quality assured documentation was not achieved. The target was 5000 and 961 is what CSOS managed. It has since appointed more officers to conduct quality assurance.

The third strategic objective is to provide a dispute resolution service for Community Schemes. The 2017/18 target was 60% of disputes resolved and 64% was achieved. The appointment of part-time adjudicators ensured that more cases are resolved.  In 2017/18, 4060 disputes were lodged with the CSOS compared to 1282 the previous year. The fourth strategic objective was stakeholder training and consumer education and this target was achieved. The fifth strategic objective was to ensure CSOS is an effective and sustainable organization and 67% was achieved. No new visible CSOS point of presence was established as the focus was capacitating the current understaffed offices. Negotiations were held with other entities for points of presence but no agreements were signed.

CSOS board members  were noted and their term is ending 31 December 2018.

Mr Nathi Dube, Acting CFO, presented the audit action plan. A finding was that the annual financial statements were not approved by the accounting authority when submitted on 31 May 2018. Management will develop a detailed plan with detailed timelines to be discussed at EXCO as a standing agenda item. A second finding was a lack of completeness of revenue from non-exchange transactions (levies) and receivables from non-exchange transactions. The action plan is: Database of all Sectional Titles Schemes registered with the Deeds Office. Notice will be issued to at least 60% of the identified sectional titles. CSOS will engage other government entities including SARS and SALGA to obtain the data on other forms of community schemes. Finance will recruit personnel to do manual reconciliations while awaiting to procure a revenue management system. It is currently recruiting personnel to implement the reconciliation project.

The third finding was due to a bank account being opened without prior approval from National Treasury. A compliance checklist has been developed and will be monitored monthly by the CFO and reported on quarterly to the governance structures: Finance and Audit Committees. Finance checklists have been developed and will be implemented. Consequence management will be implemented immediately. Currently there is an investigation running. The Chief Ombud and Board are also participating.

The fourth finding was for the investment of surplus funds from other financial assets. Consequence management will be implemented immediately and there is also an on-going investigation. The fifth finding was the actual amounts on the budget not agreeing with the approved budget. We will intensify monthly reporting at EXCO meetings and consequence management will be implemented. The sixth finding was on investment of surplus funds from cash and cash equivalents. The investment policy will be updated to match Treasury regulations. Lastly preference points were calculated incorrectly. SCM will make use of a manual point system calculation to verify the system generated calculations.

Discussion
The Chairperson thanked CSOS for their very detailed report whilst the Committee is aware that there is still an ongoing investigation. CSOS had R26 million in irregular expenditure which had an impact on the Department’s irregular expenditure. She recalled that CSOS came here begging us for an extra R26 million claiming strained expenditure. What happened to that R26 million? Her understanding was that as soon as they started collecting levies they would pay that back to the Department. She wanted confirmation whether this is the same R20 million.

Mr Dube replied that the simple answer is no. CSOS is not in a position to be able to request money from the Department for irregular expenditure. Those are two different issues. The money requested then was to back a debt as they did not have enough levies collected then.

Mr Khoarai stated that his concerns were that there was a time CSOS was talking about opening up offices in Provinces, and now they are saying that they are in the process of starting that process. I don’t know what to call it. There is no progress.

Mr Bara stated that poor performance by the entities does not mean that the Department is performing poorly. All targets set by departments are eroded by the poor performance of entities that are not performing as expected. He did not want to assume anything and would wait for the finalisation of the investigation. He asked for the expected completion date, the extent and scope of the investigation? To what extent had the board played its oversight role of the executive? How have the board members contributed or not contributed to the current state of affairs? Is it not time for the board members to give space to new people who can come up with new ideas?

Mr Kabini stated that the remedial plans presented were too general and one cannot even say that they will be implemented. It should be problem specific.

Mr Malatsi was concerned that the remedial process was too simplistic. There was nothing showing a concrete plan for how the problems were to be solved. The Minister yesterday stated that she had made a request to CSOS to stop any process and that she would appoint an investigator. However, CSOS went ahead and appointed an investigator which means there are now two investigations taking place. Why was the Minister's request ignored? There is need to take responsibility at CSOS.

Ms P Mabe (ANC) added that there was a high percentage of decreased public confidence. It could be in the response time, or approval of arbitration, but where there is an opportunity for people to benefit, if you see it you must utilise it to the maximum. The CFO talked about CSOS not complying with the PFMA. Why do we have the PFMA and what does the non-compliance mean? Your internal systems are also not in place. How often does the executive interact with the staff? Nothing is mentioned about the compliance management framework. We need to know if you want Parliament to sustain CSOS or declare that it should cease to exist.

Mr Wolmarans said that there was 100% performance in the 60% target for solving problems and also over-collection. Is that the reason those two are in bold while the rest are not? Members burst out laughing.

The Chair added that perhaps the question should be why the target was set at 60% and not 100%? We have interacted with CSOS several times and even did an oversight visit to your head office in January 2018. There was a challenge about how you collect your levies and you yourself told us that there was a discussion with SARS to ensure that you improve the manner of collection so as not to have loopholes. However in 2017/18 you had a finding of R30 million. From your discussion with SARS the report we got is that you were waiting for concurrent agreements between the Ministers of Finance and Human Settlements. Your report is silent about this progress which is critical. Why is this? There was also training where you went to Australia to learn best practice on training because it was important to roll out training. The report is also quiet on this. Why is this?

The Chair pointed out that there are now three investigations in total. This tells us that there is a breakdown in management at CSOS. Is there rule of law at CSOS? You have an adverse opinion from the Auditor General. One of the reasons is that there was late submission of the AFS. This means the process in section 55 of the PFMA was not being followed. You must prepare financial accounts according to accounting standards unless there is an exemption from the accounting standards board. Did you have such exemption? You should be able to provide mitigating reasons so the Committee is able to understand the difficulties you face. As Parliament, we cannot say we are doing our job. We do not want to be blamed. CSOS is a family entity. All of us must be proud that it is working as effectively as it should be, given it is collecting heavily from the public. We are giving the Department six months to turn this entity around and report to us what has been done. CSOS should interact with the Committee for a full day on this.

Mr Bara said that what the Chair was raising was critically important because there were many areas of uncertainty.  He supported the Chair and hoped that everyone can agree that it should be the stance of this Committee.

Ms Mabe added that this was true. People believe that governments come and go. In six months’ time surely we will be out of office. It will be election time.

Ms Nkadimeng agreed with the Chair that DHS must return and tell us because that is the way to go. Mr Khoairai, Mr Wolmarans and Mr Kabini agreed. Mr Malatsi was ambivalent so he would defer to their judgement.

Deputy Minister Zou Kota -Fredericks said she could see the reasons for the Chair saying that CSOS must be put under administration. CSOS is supposed to help with sectional titles but it is a money making scheme. We should stop this revenue collection because what is it for? What has CSOS done with it? The Department must delve into this so at the end of the day we are not found wanting. She agreed that CSOS should be put under administration.

Ms Sindisiwe Ngxongo, NDHS Chief Operations Officer, stated that it was a responsibility of the Department to provide oversight over the entities. We will begin the process in six weeks and in six months we will file a  report to the Committee. We should allow the investigation to take its course and await the outcome. Everything that has been requested here will be covered by the investigation.

Mr Neville Chainee added that when we return we will provide a timeline for completion of the investigation, the intervention, and about matters that have been raised over the last three years under CSOS management. He wanted to point out that as soon as the Minister became aware of this state of affairs, action was taken by the Minister who informed the executive, the Board and the Auditor General. The AG filed an audit report and based on that report, the investigation was mandated.

Afternoon session

Social Housing Regulatory Authority (SHRA)
Mr Shadrack Ganda, Chair of the SHRA Audit Committee, said that SHRA was established in August 2010 with the mandate to capacitate, invest in and regulate the social housing sector. The primary intention of the Social Housing Act is to deliver affordable rental housing for low to middle income groups and to achieve spatial, economic and social integration and restructuring of the urban environments in SA.   

Current board members were named as were the SHRA executive such as the CEO Rory Gallocher, Corporate Services Manager Alice Puoane, and Project Development and Funding Executive Lebowa Letsoalo. Current vacancies were listed as well.  

Ms Nambitha Ntshongwana, SHRA board deputy chairperson, said that the last three financial years have seen immense change within the entity; a series of interventions were instituted. These interventions have resulted in significant improvement in its financial and non-financial performance resulting in the Minister lifting the administration it was under in July 2017. Key policy changes in 2017/18 included the increase in the Restructuring Capital Grant quantum and the increase in the income bands for qualifying households. The In summary there were improvements in expenditure of capital grants; improvements in non-financial performance; it delivered 3 519 social housing units; it had 32 046 social housing units under regulation; 11 684 units have been delivered thus far within the MTSF period of 2014 to 2019. It received an unqualified audit opinion with an emphasis of matter for non-compliance with legislation and material misstatement of the AFS which was corrected. There was no fruitless and wasteful expenditure or irregular expenditure.

Discussion
Ms Mabe said the presentation was good and commended them for the targets they managed to achieve. In previous years, there was a problem with transformation. You should give us the demographics and also who benefitted from their work. The increase in the annual performance rate is commendable.

Mrs Nkadimeng commended the unqualified audit despite the executive vacancies. Her concern is the long list of vacancies because it means others in the office now have to work long hours.

The Chair added that on the target for women and youth, SHRA reached only 20% and asked the cause of this. What are the challenges? We had a presentation yesterday from DPME who had a concern that it does not look like this year we are going to meet the social housing target. You had a shortfall of 4265. Why was this? It is critical because it means overall the Department will not achieve its targets. DPME said the Department is currently at 74%. SHRA has therefore to take responsibility. The report looks good but you are not meeting the targets. When we were interacting with NHFC, we saw the new challenge of a rent boycott. In your report you do not touch on this challenge. Can we have a sense of how you are dealing with it? You have the important task of registration of sectional titles. In your report you say you are trying to increase some of the overheads. How do you hope to deal with that and resolve it with speed so it does not affect NDHS?

Ms Ntshongwana replied that nine positions will have been filled by Quarter 3. We are also going to embark on finalising the technical aspects so before the end of the year SHRA will be operating normally.

Mr Ganda replied about ensuring that state entities including SHRA pull their weight in delivery of the government mandate. We cannot say that these things cannot happen because they will in the ordinary course of business. But if something is not right we must correct it. He believed that by the time SHRA meets the Committee again, the matter will have been concluded. On the rent boycott, we have experienced this in several housing settlements as well as in the City of Cape Town. We have found solutions which we believe are viable. As elections near, sometimes there are things that fly at you that come from dubious sources. We will be positioning ourselves before the boycotts come. There are things brewing in Gauteng and also in Cape Town and it will be imperative to start collecting loans beforehand. On the DPME concern, SHRA had a projection of achieving 27 000 completions by the end of 2018/19. We confirm the DPME position that the 27000 will not be possible as most will still be under construction. The reason is the slow start in year one and two because of administration and other matters. On the 30% women target, the trick here is the applicants because some of them do not fulfil the conditions of the tenders including shareholding. We have published guidelines to assist them. We will get there but it will require using our influence on the applicants.

The Chair recalled that the Committee had a concern at the previous meeting that there are Provinces where we do not see the SHRA footprint such as Limpopo and North West. We had suggested you correct that.

Mr Ganda replied that at their last meeting with the Committee they left feeling very bad because it felt as if there could be a bias towards Gauteng. So we had a myriad programs in Gauteng and that is why you see that concentration this year. We are committed to be felt in every Province and we are not neglecting any. We have gone to Mpumalanga and Northern Cape.

The Chair asked if there were any comments from the Department.

Ms Ngxongo, NDHS COO, stated that in terms of transformation going forward, NDHS has attached a scorecard that has to be achieved by the entity.

The Chair thanked SHRA. She noted that the next presenters were supposed to be EAAB but they had not bothered to come. They had send a letter but addressed to Secretary of Parliament, stating that they were having delays and would be filing their Annual Report after they had sorted out the delay. What is Members take on this? Should we take summon them to appear before the Committee? Honestly, it is very rude that they did not bother to come and engage with the Committee and explain why they were experiencing delays and why they were not able to file their Annual Report on time.

Ms Mabe stated that was indeed very rude and it should not be entertained by the Committee. She seconded the motion to summon them.

Ms Nkadimeng, Mr Khoarai, Mr Bara, Mr Wolmarans and Mr Malatsi agreed.

National Home Builders Registration Council (NHBRC)
Ms Mampe Kotsi, NHBRC Deputy Chairperson, introduced her team and handed over to the CEO.

The briefing by Mr Mziwonke Dlabantu, NHBRC CEO, and Mr Songezo Booi, Acting CFO, dealt with mandate, strategy, products and services, committees of council, training programmes, charts on performance of valuable final products (VFPs), remedial works done, suspension of homebuilders, disciplinary matters, work profile, overall performance and per programme (Administration and Governance, Regulation and Protection, Legal Compliance and Enforcement, Research and Development, Warranty Fund) and finance (see document).

New builder registrations are dependent on the number of anticipated tenders issued by provincial departments. The general decline in provincial housing delivery was largely due to budget cuts. The achievement is in line with the total number of homes under construction.

Irregular expenditure reported is R4 million compared to R7.2 million the previous year. Fruitless and wasteful expenditure was R14.6 million compared to R20.6 million the previous year.

Discussion
The Chair thanked the NHBRC for the detailed report. You still have irregular expenditure and fruitless and wasteful expenditure. Last year we asked NHBRC to come up with remedial measures including suspending executives. The suspension has occurred now but as a result of the audit outcome.

Mr D Kabini (ANC) said that NHBRC had good programs however the remedial work you discuss does not cover the reasons for the audit outcome. Can you try and elaborate?

Mr Malatsi noted that in the previous engagement with the Committee, concerns were raised about the ability of NHBRC to produce a good inspection report and about the austerity measures. What is the consequence management especially in areas affected by the austerity measures?

Mr Bara said that NHBRC had exhausted them with a long presentation so that they do not ask too many questions. We still managed to stay awake. There were too many justifications. The truth is that NHBRC has a crisis. That is the starting point. Something is not right somewhere.

The number of disciplinary matters has risen to 506 which is the highest over the past four years. If you look at the money for settlements arising from legal disputes, it has risen to R9 million which again is the highest. On the ability of the inspector, we enquired about the sequencing of monitoring to be able to make interventions. How good are they at that level? It seems that it is only after completion that issues are picked up? What was the cause of this? For example in the Eastern Cape, how often do you have inspectors who can make a good report? This is so that we do not end up having fruitless expenditure.

Ms Nkadimeng had a concern about the unqualified report with findings. For two years now the entity had received the findings. What was the reason for this? And what have you done since the previous year to change that? If you had changed things, the audit report would be better. You are supposed to have been improving.

Mr Dlabantu replied about inspectors, saying it is not that they were not trained enough but they had to abide by the guidelines and technological limitations whenever they undertook their work. As stated, the number of days it takes to conduct a forensic investigation is 30 days from receipt of appointment letter while the number of days it takes to conduct a geotechnical investigation is 45 days from receipt of appointment letter. The training focus is on monitoring, follow up and awareness of core legislation.

On the audit findings, Mr Dlabantu replied that a compliance checklist has been developed and will be monitored on a monthly basis by the CFO and reported on a quarterly basis to the relevant governance structures i.e. Finance and Audit Committees. Finance checklists have been developed and will be implemented. Consequence management will be implemented immediately. This is because NHBRC demands accountability across the board. We will come back with a detailed report on operational integration of the consolidation process. We are mindful of the fact that you have raised this before. We are using intergovernmental relations to try and find a resolution. We are committed to finding a solution.

The Chair joked that members were noting that when it came to annual reports they would not put NHBRC with other entities but give them a full day on their own because they had taken such a long time to present.

Housing Development Agency (HDA)
Mr Pascal Moloi, HDA CEO, noted that HDA was established for land acquisition. Its functions include to develop a development plan approved by the Minister in consultation with the relevant authorities in the provinces and municipalities; develop strategic plans for the identification and acquisition of state, privately and communal owned land which is suitable for residential and community development; monitor progress of the development of land and landed property acquired for the purposes of creating sustainable human settlements.

He outlined the priorities for 2018 and beyond and gave an overview of National Priority Programs. These catalytic projects are spatially targeted interventions that aim to change the way infrastructure is provided by restructuring settlements patterns. These projects are mega in size. The benefits of catalytic projects are increased economic opportunities from jobs created and post construction SMME job creation. The Upgrading of Informal Settlement Program (UISP) is designed to provide technical and capacity support to provinces and municipalities for the implementation of informal settlement upgrading across the country.  For mining towns, the objective of the intervention is the transformation of mining towns through the creation of sustainable integrated human settlements. He reported on the indicators for monitoring and evaluation reports against the Framework for Spatial Investment for Human Settlements (FSIHS) based on the Master Spatial Plan. The target for the land acquisition was exceeded (see document).

Ms Zingaphi Matanzima, HDA Manager: Communications and Marketing, outlined the performance indicators for the three HDA programmes and whether the targets were achieved.

Discussion
Mr Bara said land was available but it is not utilised. Throughout all the presentations this available land is not in any program. What can this be alluded to? On fiscal budgeting, if the Provinces or Metros say that in this financial year it will not be able to meet targets and meeting the targets is only possible through the assistance of HDA - it seems HDA is doing everything including fire fighting. There is need to utilise it to ensure that all resources are utilised adequately. It is like knowing a financial crisis is going to happen but one is not going to do anything about it. On the Eastern Cape, he said that he has a lot of trust in the HDA and he knows that if something is not being done, "it must be done by someone else". HDA always leave a mark everywhere they go. Money is always allocated to Provinces and he does not see any Province lacking money to pay for units to be built. How did this happen? Can you offer insight?

Ms Mabe stated that in any country there is a need to achieve what is called integration of communities. What is the role of HDA in making sure this is achieved especially with municipalities when planning social housing? Is acquisition of rental housing part of what they are mandated to do? Are they getting cooperation if they want to develop local houses?

Mr Kabini asked if there is a working relationship between HDA and Gauteng? Does it have an issue with the Province? Nothing was mentioned about interventions for the problems HDA faces? What is it doing about building houses for people with disabilities as some of the houses they live in are not conducive to stay in.

The Chair stated the CEO could respond to some questions later due to time constraints. Her concern was gender representation. DHS is not meeting its 30%. What is HDA doing about its own 30% target? All the other entities are failing. On the HDA footprint in Gauteng, we want to put it to you today that Gauteng is one of our worst performing Provinces. Can you elaborate on your footprint there in terms of projects? Your footprint is very visible in terms of taking money. What is worrying us is that you get a lot of money from Gauteng but there is no output. Gauteng presented its Quarter 1 progress report to this Committee and it was abysmal. You are an implementing agent in Gauteng, therefore you can answer us when we say 80% of their "not performing" should be sitting on your doorstep. We could be wrong or right. When Gauteng presents its Quarter 2 report, HDA must be present. We are not happy that not much is happening in Gauteng. The problem is not with acquisition of land. The problem is developing the acquired land. What is important is the end product. You are responsible for the bulk of catalytic projects DHS has identified. She requested a proper report so that we can speak on your behalf. Why do you have project management problems? One of your jobs is to support informal settlement upgrades. This is one area where the Department is performing abysmally. The last time we asked for an update, we never got that report. We still want that report. Even if you don’t have it now, sent it to us so we can go through it. It can help us understand a lot.

Mr Moloi replied to the comments on Gauteng, Members are very keen and have raised several issues. That was the reason he was deliberately raising Section 39. It is not R8 billion but R800 million. This entire amount we agreed has to be spent in 2016/17 but it was not. We had to report it in all these years’ financial statements and that is the reason it is reflected. Remember this year started in March 2018. On Gauteng’s performance, from 2015 we got R440 million spread across different Johannesburg suburbs. When we talk about footprint it is only to the extent of transferring money. It is easy to say we were given R440 million and have nothing to show for it but our work is only to transfer. Also some of the programs we had come up with, took us some time. However, programs for the R800 million have already being identified. We are only responsible to Gauteng for the transfer of the operational grant. This is for salaries, office space, equipment, furniture, software licences and so on. There are operational costs in between so that is what we get out of the money. It is not catered for and it is not budgeted for. We have anticipated all the problems likely to arise. We are willing to return when Gauteng presents the Quarter 2 report.

On informal settlements, HDA can assist in facilitation and support. However it is not part of our mandate but it could be changed so that it is. We are willing to help. In fact, due to our processes in Gauteng and in the municipalities we are able to fast-track some of these processes. On community integration, this requires a multi-faceted approach from all key stakeholders. There are valuable intermediate and normative measures of integration that can drive state efforts and expenditure. Essential to a community integration goal is having an ongoing and active program through which individuals can be regularly re-evaluated for eligibility in increasingly integrated residential opportunities. HDA will prepare a full report in writing on all the questions raised and send it to the Committee.

The Chairperson thanked HDA and stated that she was sure it would submit the report in writing to the Committee as soon as possible. She noted that the meeting had been very fruitful. She thanked everyone for having found time to attend and was looking forward to their next engagement.

The meeting was adjourned.

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