Department of Human Settlements Annual Performance Plan: Auditor General input & DHS response

Meeting report

DHS Annual Performance Plan: AGSA input

Ms Corne Myburgh, Business Executive: Auditor General of South Africa (AGSA), informed the Committee the aim of the briefing was to provide the Committee with audit insights into the interim review of the Department of Human Settlement's (DHS’s) draft annual performance plan for 2018/19 in order to add value to oversight, and to provide the Committee with an overview of key areas of concern identified through a high level risk assessment process.

The review was performed on the 2018/19 final draft annual performance plan (APP), and all findings were communicated to the Department to ensure the APP submitted to the Committee was according to the relevant framework. The review process assessed the measurability and relevance of the indicators and targets planned for each selected programme.

Programmes 2 and 3 had been selected for the review process. In Programme 2, indicators on measurability were found to be not well defined, and there were no concerns on relevance. Regarding the approved national Human Settlements Development Plan (HSDG), it was not clear who was responsible for approval of the HSDG. With regard to the number of partnerships mobilised towards human settlements development, there was no clarity on targeted stakeholders. The AG also found there was no clarity on the percentage of projects and policies referred to for assessment in terms of policy compliance.

In Programme 3, indicators on measurability were found to be not well defined, and there were no concerns identified. Regarding the support provided on the implementation of catalytic programmes, there was no clarity provided on what was meant by 'support,' or the type of support provided. Concerning support provided on the implementation of private affordable rental programme, social housing programmes and community residential units, the AG found no clarity in terms of the evidence to be collected in order to report reliably on these programmes. There was no clarity on the type of support to be provided to provinces for the delivery of housing opportunities to military veterans.

All findings had been communicated to the DHS, and it had attended to all of them.

On the status of key focus areas, Ms Myburgh indicated nothing required high level intervention. The basics were in place, and there were no concerns identified.

She highlighted key focus areas for attention. Under financial management, there was an incorrect classification of financial assets in the financial statements. In performance management, the availability of sufficient appropriate audit evidence was not enough regarding the reported achievement on the number of title deeds eradicated. With regard to information technology (IT) management, there was a weak user-access management control environment. Concerning key delivery matters, the Department did not have customised sector indicators to ensure consistency between performance targets and indicators reported on at the national and provincial level. AGSA had engaged with the Director General (DG) and the Department to ensure indicators were customised, but there were still no customised indicators. There was a need for the Department to meet with the Department of Performance Management and Evaluation (DPME) in order to address these issues.

SONA impact on DHS

Mr Neville Chainee, Chief Operating Officer (COO): DHS, said that although no specific references to human settlements and housing had been made by the President in the 2018 State of the Nation Address (SONA), it was important to note that given the integrated, collaborative and coordinated work of the state and government, the Department played a key role in a number of the strategic areas highlighted by the President.Key areas of work being undertaken as part of the Department’s mandate impacted on the overall strategic objectives of the government related to the eradication of poverty, inequality and unemployment, as well as socio-economic transformation. The policies, legislation and implementation frameworks of the Department were designed to ensure key mandates of the government were integrated into the outputs and outcomes achieved.

The Human Settlements Development Grant (HSDG) and Urban Settlements Development Grant (USDG) frameworks ensured the key priorities were addressed, and these included the following:

• Monitoring and reporting on set asides related to procurement awards to women, youth, military veterans and persons with disabilities.
• Investment in socio-economic infrastructure which takes steps to eradicate asset and infrastructure inequality, including the building of libraries, fire stations, community centres, energy, roads, and transport infrastructure.
• Ring-fenced funding for distressed mining towns and labour sending areas.
• In the City of Cape Town, USDG funds had been allocated to assist mitigation measures related to the drought.
• The objective of the title deeds programme was to promote and foster an increase in household wealth, which would promote the eradication of poverty and inequality.

The DHS, through the catalytic projects programme, the distressed mining towns interventions and the Employer-Assisted Housing Programme, ensured the private sector funding was crowded in so as to promote public-private partnerships for government programmes. The Director-General had encouraged the Department to improve its youth and women’s empowerment programmes by ensuring they were underpinned by a clear strategy with concrete outcomes within a clear coordination framework. Presently, programmes include the Estate Agency Affairs Board (EAAB) One Learner-One Agency Partnership; the National Home Builders Registration Council (NHBRC) training academy; the scholarship programme; and youth brigades.

In order to assist in improving the sustainability of small, medium and micro enterprises (SMMEs), the Department had already initiated monitoring mechanisms to ensure payment was within the required 30 day period, as provided in the Public Finance Management Act (PFMA). The Department presented to the Ministers and Members of Executive Council (MinMec) a provincial overview of compliance. The support to ensure matters related to land and property remained a resource was utilised as a measure of socio-economic transformation.

A joint coordinating committee had been established in 2010, and comprised representation from the Departments of Public Works, Public Enterprises, Rural Development and Land Reform, and Cooperative Governance and Traditional Affairs (CoGTA). Its terms of reference stated that government land was sourced and released for purposes of housing and human settlements. A report was being prepared for the Minister to present to Cabinet on progress and measures for improvement. The Housing Development Agency (HAD) was being positioned to provide assistance to the Department and the sector at large in relation to the identification and acquisition of urban land and property.  The focus of the Departmental catalytic projects programme was to eradicate the stubborn effects of the inherited racial, class and income spatial planning patterns within housing and human settlements. This programme was supported by a progressive and radical land and property transformation agenda which would ensure the state was able to fund and implement projects.

DHS APP Presentation

Mr Mbulelo Tshangana, Director-General: DHS, informed the Committee the DHS had recorded an unqualified opinion with no matters of emphasis for the 2017/18 period. Based on the recommendations of AGSA, emphasis would be placed on monitoring completeness, controls and verification of performance information. Priority programmes focused on achieving the objectives of the medium term strategic framework (MTSF) would be a focus of attention in terms of monitoring, evaluation and active management by the Department. There would be focused support to provinces and municipalities to improve provincial and municipal contract management.

Momentum to improve the Department capacity would continue with the finalisation of filling of vacancies and contracting-in of capacity support. There would be a coordinated effort with Parliament to pass the Property Practitioners Bill, the Housing Consumers Protection Measures Amendment Bill, and the Home Loans and Mortgage Disclosure Amendment Bill. As part of the new Department of Public Service and Administration (DPSA) requirements, 60% of the performance of the branch manager would be linked to individual performance, 20% would be directly linked to the performance of the Department, and 20% would be linked to compliance and regulation. The activation of the Title Deeds Restoration Grant would now allow the Department to improve accountability and consequence management over poor performance in the provinces for the programme.

The following were the Department’s policy and legislative priorities for 2018/19:

• Development of the Human Settlements Code.
• Amendment of the Housing Act to Human Settlements legislation.
• Repealing the Housing Consumer Protection Measures Act.
• Human Settlements Development Bank Bill.
• Amending the Prevention of Illegal Evictions and Unlawful Occupation of Land Act.
• Revision of the social housing policy and regulations.
• Policy review and evaluations

Ms Funani Matlatsi, Chief Financial Officer (CFO): DHS, reported in her MTEF budget overview that the Departmental baseline had been reduced by R10.8 billion. The 2018/19 budget allocation was therefore less than the 2017/18 allocation. The 2018/19 budget totalled R32.355 billion. The following funds were reprioritised through the HSDG over the MTEF:

• Title Deeds Restoration operational support  – R95.1 million;
• Municipal Emergency Housing Grant – R447.8 million;
• Provincial Emergency Housing Grant – R831.7 million;
• Title Deeds Restoration Grant – R1.64 billion.

(Tables and graphs were shown to illustrate the allocation per economic classification allocation, per province and municipalities, the Human Settlements Development Grant, the Title Deeds Restoration Grant, and the Emergency Housing Conditional Grant)

Discussion

AGSA Presentation

Mr S Malatsi (DA) asked if AGSA had observed in its engagement with the Department any proactive approach to ensure targets and indicators helped in service delivery, because the indicated issues were on the framing of indicators and targets. The framing pointed to ambiguity, because the language around the indicators and targets was used in a problematic way.

Ms Myburgh responded that if one did not plan properly, one planned for failure. When the Department prepared its APP for submission, it needed to make use of the review processes in place, apply its mind, and state what it meant to have well defined indicators.

Ms B Mabe (ANC) applauded the Department for achieving a clean audit with no findings. She said that the use of words on indicators was very confusing. She added that the issuing of title deeds was the responsibility of the national Department. It needed to come up with programmes so that municipalities and provinces started doing their fair share of the projects.

The Chairperson remarked that information technology (IT) always appeared to be a problem. The AGSA had stated that the Department did not seem to act on it, and there was nothing that had come out of the engagement with the Department regarding the problem. AGSA had pointed out that if the title deeds matter was not corrected, it would lead to a qualification. She asked what the outcome had been in interacting with the Department regarding Programme 3, which was the worst performing programme in terms of the audit outcomes. It had never reached 80%, though it was the heartbeat of the Department.

Ms Malikah Groenewald, Audit Manager: AGSA, said they had been engaging with the DG and Department on the issue of title deeds and IT. The Department had promised things would be better before the end of the year. Concerning Programme 3, the AGSA had audited usefulness, evidence and reliability

Ms Tshegofatso Mahuma, Audit Manager: AGSA, referred to the IT issue, and indicated that this year there had been no monitoring of system controllers, and there had been no evidence to prove the monitoring of system controllers. The Department did not have evidence to show, even though it insisted on monitoring, but AGSA could not verify that.

Mr Londoloza Songwevu, Audit Manager: AGSA, pointed out that the main challenge was the understanding of processes. The DHS was saying AGSA did not understand its processes, while on the other hand AGSA was stating the Department did not understand AGSA’s processes. There was a need to engage on the understanding of each party's processes, especially the audit process as a whole.

The Chairperson said the engagement between the DHS and AGSA should be on-going, and should not wait for the submission of APPs and the audit process. It was good to learn that AGSA had picked up the misunderstanding on the audit process.

DHS Presentation

The Chairperson commented that the Department was very strict with business plans from provinces in terms of scrutinising them, yet the view of AGSA was that the customised indicators from provinces were not clearly defined. However, the DHS had said the business plans were fine because the customised indicators were measured against the business plans.

The Director-General explained the Department was in control of a R32 billion budget. That was why provincial departments had to submit their business plans to the national Department, which then handed over them to National Treasury. The Department did not have to look at the provincial APPs. The provinces submitted only technical target reports to the Department, especially on Programme 3. For purchases made by the provinces from the grants allocated to them, they had to report to the national Department, even though they did not have to report on what they did on other programmes. Some of the things purchased from the grants had to be reported to the Housing Subsidy System (HSS).

The Chairperson commented the Department did not seem to be on the same page with the AGSA when it came to processes, but it did not appear to be a big problem.

Mr M Bara (DA) asked for clarity on how much thought was given to allocations based on previous performance. Gauteng, for example, got a big chunk of the budget, but when one looked at its performance, it was supposed to get the least. It was better to reward those that had delivered on their mandates.

The Director-General replied that the budget allocation was a constitutional matter. Funds were allocated equitably across all provinces. The Division of Revenue Act (DORA) allowed one to fix the performance areas in the review process. Performances had to be dealt with in the first quarter, not in the last one, when one was waiting for the adjustment budget. Three or four provinces had experienced the withholding of budgets, and Gauteng was one of them.

Mr Malatsi wanted to know if there was a way of circumventing the uncertainty around the Human Settlements Bank regarding the legislation that needed to be put in place, though that did not impact on the operational aspects. What interventions were in place to boost the Title Deed Restoration Grant because it appeared there were other administrative and technical issues that had come to the fore, though finance was not part of the challenges.

The Director-General responded on the Human Settlement Bank, and said that Section 66 approvals from Treasury allowed the Rural Housing Loan Fund (RHLF) and the National Urban Reconstruction Housing Agency (NURCHA) to transfer their assets to the National Housing Finance Corporation National Housing Finance Corporation (NHFC). Once Section 66 was done, there was going to be one entity. Feedback was still awaited from the Minister regarding the matter. The business of the Human Settlements Bank was under discussion. The policy aspect had been approved. The Department was waiting only for the passing of the Bill. The business case of the Human Settlements Bank was available.

Concerning the title deeds, there were measures in place because the Department had received a fully-fledged grant. At first it had not understood the nature of the challenges. For example, 133 properties were linked to 133 title deeds in Gauteng, and were also linked to the township register. The Department was now able to tell who was affected by this and who the occupant was. The other challenging area in title deeds was that municipalities were struggling to find beneficiaries because they had moved on. Throughout the country, the Department met conveyancers, land surveyors, etc and had discovered that the title deeds process entailed 14 steps before issuing a title deed. These steps had to be managed as one. Progress was being made in Gauteng, KwaZulu-Natal (KZN) and the Northern Cape, and the Eastern Cape had come very late. Work still needed to be done in the other provinces.

The approach to managing title deeds was not the same throughout the country. Each province had its own approach. The DHS had managed to register 256 000 title deeds, and that was important to note. Now they needed to manage the remaining 526 000 -- there was work to be done.

The Chairperson asked why the Department could not to get the indicators right the first time, as they should not have to be corrected by AGSA. She also wanted to find out why the information communication technology (ICT) problem could not be resolved, because it had remained a finding for the Department, even though the CFO had said the Department was doing well.

Mr Chainee said that in respect of ICT, the DHS did not have control over the provincial APPs. The AGSA wanted the Department to force the provinces to attach their business plans to the APPs. For example, if they reported on 10 000 title deeds issued and the AGSA discovered the province had issued 11 000 and came back to the Department for clarity, it would be difficult for the Department to verify that information because the provinces did not report to the Department.

Ms Matlatsi said that not getting it right the first time was a silly human error, and it was a finding. Once the document was sent to the National Treasury, one would not be able to correct it. That was why they had to make use of the review process. An incorrect document had been sent to Treasury, and the Department had had to correct it again. However, the Department had now put in place measures and appointed the right people to ensure such errors did not recur.

She said the Department and AGSA did not have the same approach when it came to disclosures on transfers. The issue was now looking like a fight between accountants and audit officials. The Department did not want to argue with AGSA, but was trying to find an amicable solution. The contentious issue involved an investment made to the NHFC. The Department had given money to the NHFC to recapitalise it. AGSA had said the Department was not disclosing it properly. It wanted the Department to disclose it as an investment, in contrast to a transfer payment. The Department had argued that it could not disclose it as an investment because in any investment, there should be returns. One would need to report on the return on investment (ROI) if it was an investment. Eventually, the Department had disclosed it as an investment.

Adoption of Minutes

Mr L Khoarai (ANC) moved the adoption of the minutes of March 20.

Mr Malatsi seconded the motion.

The minutes were adopted with no amendments.

The meeting was adjourned.