DPWI & PMTE Audit Action Plan & 2024/25 Annual Performance Plan

Meeting report

Deputy Ministers remarks
Ms Bernice Swarts, Deputy Minister of Public Works and Infrastructure, stated DPWI's commitment to aligning its Annual Performance Plans (APPs) to the budget allocation and ensuring the KPIs talk to the department’s performance. With the assistance of the internal audit and the guidance of the Auditor General (AG) on audit findings over the last three to five years, she reassured the Committee of DPWI's commitment to resolving these to ensure seamless functioning and achieve better results and performance in accordance with its mandate. There are six priorities per branch that have been derived from the cost containment to ensure branches streamline planning, KPI performance and overall impact.

DPWI Audit Action Plan & 2024/25 Annual Performance Plan
Mr Sifiso Mdakane, DPWI Deputy General, led the presentation.

Ms Mandla Sithole, CFO of DPWI, presented the Audit Action Plan.Then highlighted a number of areas that the presentation intended to cover. Namely, the Audit Risk, and the Action Plans linked to it, and the recommendation given by the AG, and to what extent the Department has implemented these. As well reflecting on the commitments that the Minister had made based on the record presented to the committee and the progress made on them.

The main vote was not qualified and DPWI has consistently over the years now received unqualified audit opinions. The only concern the AG raised on the main vote was on performance, where some branches where qualified, such as Expanded Public Works Programme (EPWP), ConstructionProject Management and Road Asset Management System (RAMS).

DPWI has provided progress reports in implementing the Audit Action Plan to the AG, Internal Audit, Audit Committee and National Treasury.
- DPWI has revised the TID to refer Roads and Responsibilities in accordance with AG recommendations.
- The over statement of actual achievement in the Annual Performance Report has also been addressed, with DPWI providing training to its officials so when Performance Reports are submitted, they are accurate, valid, complete and in line with the required criteria.
- DPWI also reviewed quarterly reports with a portfolio of evidence and submitted them to M&E as well as implementing consequence management for noncompliance to prevent negative effects to the review processes such as late submissions. Eight consequence management letters have been handed to implicated officials.
- On the AG finding that a number of planned indicators in the APP were not consistent with the reported indicators in the Annual Performance Report, DPWI has amended the wording to align reporting.

PMTE had a qualified audit but had moved from a disclaimer in 2021/22 but in 2022/23 it had an improve audit outcome. An emphasis was made about the immovable assets register that has been a concern for the Committee in the Sixth Administration: 2019/20 the Asset Register was qualified; 2020/2021 it was unqualified; 2021/22 it was a disclaimer, and 22/23 it was unqualified. This was highlighted as a milestone.

The qualified audit areas were Accruals, Commitments and Revenue. DPWI has been monitoring the progress in updating accrual status.

DPWI has weekly audit war rooms, where all the regions focus on updating the status to ensure the improvement of the audit outcome. The rest of the Action Plan has been completed.

On Leases, DPWI has started to perform monthly calculations to determine accruals and prepayments which will be validated with regions to initiate the recovery of confirmed overpayments. Prior to the implementation of SAGE and ARCHIBUS, DPWI was unable to identify overpayments and unable to complete proper reconciliation to the extent that in 2018 there was over R662 million in overpayments. However, the current overpayments on leases is only R8.5 million, a significant drop, indicating the work that has been done. There is an increased emphasis by DPWI on lease inspections to ensure lease agreements are fulfilled correctly and holding officials accountable for transgressions so that the material irregularities highlighted by the AG are addressed.

For Property Plant and Equipment, the CFO outlined the work done to improve qualified commitments. A validated list of derecognized properties has been made. DPWI is determining the impact of the derecognized properties by calculating the revenue that needs to be derecognized accordingly.

The AG recommendations have been taken very seriously, with the Minister and Deputy Minister committing to them in meetings with Auditor General executives. The MTSF indicators not included in the APP have now been included. On the weaknesses that hamper progress with infrastructure delivery, the Minister committed to investigate cancelled and delayed projects. This process has been concluded and is now in the process of being routed to the accounting officer for approval. Recommendations will be made and actions taken depending on the outcome of the investigations. An independent investigation has also been initiated on Independent Development Trust (IDT) issues.

On the commitments made on poor maintenance of state-owned properties, the Minister has fulfilled this with the development of the State-Owned Properties Maintenance Policy, to provide guidance on preventative maintenance. Its expected approval is by 31 March. In its workshop strategy, DPWI has committed to use its own workshops instead of relying on outside service providers for day-to-day maintenance. However, budget constraints will have an impact on the pace of transition.

The development of the Refurbishment, Operate and Transfer Programme (ROTP) has been completed and is now being discussed at Cabinet level to allow for its successful implementation. Some facilities, such as Telkom Tower, has already been identified to be part of Phase 1 of the programme.

DPWI has developed a strategy to transfer state-owed properties to communities that have requested them, as well as standard operating procedures on how to engage section 5 on GIAMA. Circular 135 of 2020 is being implemented to meet the Minister's commitment to generate revenue using state-owned properties. There are 186 approved applications with a projected revenue of R101 million over five years. DPWI is looking to Custodian Asset Management Plans with the aim to reduce leases with implementation of government precincts as the key solution.

Management of leased properties aims to reduce month to month leases, especially where there are over payments. DPWI is investigating the top 10 highest paid landlords in DPWI as well the identification of over payments, all of which are in progress. After consultation with AG the appointment of a service provider is ongoing. The process of the accounting officer taking decisive actions against employees who commit over payment transgressions is ongoing, with only R8.5 million in the 2023/24 to date. On rental rates not aligning to the market, DPWI has addressed this and renegotiated leases with DPWI saving R594 million. The AG has welcomed this positive effort made by DPWI.

On the AG comment that clients act independently as DPWI is failing to provide adequate services, with such a large portfolio as this one where departments are in occupation of about 59 000 properties but it receives only R5.6 billion. That is why DPWI went to Treasury to explain that to complete the mandate on facilities it needs a budget of R13.5bn. This is a shortfall of R8.3bn which adds up to R25bn in shortfall over the MTEF. This in turn prevents DPWI from implementing solutions such as having its own workshops and programmes to address maintenance issues. The funding received is not adequate. Thus, even with the implementation of the ROT and other programmes, the success factor of these programmes is dependent on the client departments ability to pay the rental equivalent to the service provided to them.

When leasing from the private sector, the same clients are willing to pay R120 per square meter, but when it comes to state facilities, they are paying R4.80 per square meter. Correctional services, a large client, only pays R12 per square meter. In this context, it must be understood why DPWI struggles to meet the same standards as the private sector in maintaining facilities. The funding model and the attitude of clients is the cause behind the poor condition of state facilities.

The CFO stated that over and above the deficit R8.3bn to maintain the properties under DPWI, a further R33.6bn will be needed. This was calculated in July 2023 and thus the real number is now closer to R40bn to refurbish all properties to clients demands. It is the hope of DPWI that ROT and and Build, Operate, and Transfer (BOT) will aid in bridging the fiscal gap to achieve this.

Annual Performance Plan
Mr Lwazi Mahlangu, DPWI Acting Deputy Director-General (DDG): Governance, Risk and Compliance, highlighted only the key issues of interest due to the depth of the presentation. The APP was structured into five sections: Strategic Overview, Programme performance information, Key Strategic Risk, Budget Structure and Estimates for MTEF, Annexures.

Strategic Overview
The external environment has contributed to guiding the APP. In using infrastructure economic growth, as the CFO commented, the use of leasing the environment is an example of the market space that DPWI operates. Transformation is another deliberate agenda driving the APP. From a regulatory perspective, DPWI is looking at how to influence the transformation of the built environment, construction and property along with ensuring the skills pipeline mechanisms encourage transformation and also stimulate job creation. Infrastructure projects will be used to help generate job opportunities and bring employment. The APP is also looking at contributing to land reform, specifically the release or government land for use. It also contributes to addressing gender based violence and femicide.

The internal environment has also contributed with a focus on what processes and mechanisms are available to complement and give effect to the external environment. This includes initiatives involving the Change Management Programme, Service Delivery Improvement Plan (SDIP), addressing audit weaknesses within the system, and the Business Process Management Programme. Information, Communication and Technology (ICT) assessments give effect to the components required, and the Macro Business Delivery Model links to what the CFO spoke about on the need to change the funding model. Initiatives on Ethic and Compliance within the infrastructure space speaks to consequence management compliance. The challenges within the value chain are being addressed by Contract Management and Monitoring Capabilities. An organization wide skills-assessment is dealing with skills capacity. Risk assessment and Strategic Management is being implemented. Lastly this all links to the intent to achieve a clean audit and will be achieved using the process discussed in the Audit Action Plan.

Programme performance information
This section provided the key performance indicators and targets (see document) according to the strategic plan outcomes:
Outcome 1: A Resilient, Ethical and Capable DPWI
Outcome 2: Integrated planning and coordination
Outcome 3: Sustainable Infrastructure Investments
Outcome 4: Productive Assets
Outcome 5: Transformed Built Environment
Outcome 6: Optimised Job Opportunities
Outcome 7: Dignified Client experience

The risk management plan outlined 13 strategic risks to be managed, both administrative risks that deal with internal controls and external risks and steps taken to mitigate these.

Budget structure and Estimates
The CFO indicated that the main vote has a R7.6bn budget allocation from Treasury for 2024/25; R7.9bn for 25/26 and R8.3bn for 26/27. There was a concern that this was a significant reduction in comparison with the 2023/24 allocation of R8.7bn. This reduction will mostly affect the EPWP, which previously had a budget of R3.1bn and is currently R2.3bn. This affects the DPWI ability to create work opportunities designed to alleviate poverty and unemployment.

The Property and Construction Industry Policy and Research programme has had massive budget reductions from a previous R5bn reduced to a current R4.5bn. This significant decrease affects DPWI's ability to deliver on property management and this budget cut affects the client departments.

Compensation of employees has increased linked to the officials that DPWI is hiring. With goods and services there has been a slight decrease in the previous budget. However, DPWI's intention to implement cost containment measures so this should not be a concern.

For transfers and subsides, the budget has decreased from R7.5bn to R6.3bn for 24/25; R6.5bn for 25/26 and R6.9bn for 26/27. This is unsustainable as it may continue to decrease in the next budget cycle.

There is a significant decrease in the budget for the Non-Profit Organisations (NPO) Programme, where the budget has dropped to R689 million from R1bn. This negatively affects the EPWP.

For PMTE, the budget for the 2024/25 is R17.6bn. The CFO highlighted the concern of the budget reduction from R21bn in the previous financial year.

A major concern about these reductions are clients taking over the function of municipal services due to the challenges faced when the decision was made to devolve municipal services. The DPWI transfer from the main vote is a drop from R4.3 to R4.1bn. This reduction is of concern.

The budget allocation over the medium-term was outlined. Highlights are:
Maintenance: R1.7bn 24/25, R1.8bn 25/26, R1.9bn 26/27, a decrease from the previous financial year, hampering DPWI’s ability to maintain its portfolio.

Compensation of employees: R2.1bn 24/25, R2.23bn 25/26, R2.26bn 26/27, a slight increase, but one that is mainly explained by inflation and increased wage bill due to labour negotiations, indicating a stagnant budget.

Operating leases: R6.1bn 24/25, R6.5bn 25/26, R7.1bn 26/27. It appears there is an increase, however it better explained by new leases requested by clients due to increase in demand by clients.

DPWI Infrastructure: R3.1bn 24/25, R3.3bn25/26, R3.5bn 26/27. This is a drop from the 23/24 budget of R3.2bn, hampering ability to make an impact on its facilities.

Clients Capital: R1.7bn 24/25, R1.8bn 25/26, R1.9bn 26/27. Although it is a slight increase from the 23/24 budget of R1.6bn, it is not a sustainable increase as the client departments also got budget cuts and then request price cuts from DPWI.

Annexures
The DG explained the Annexures. Annexure A were amendments to the Strategic Plan, of which there were none. Annexure B was conditional grants. Annexure C was critical in consolidating indicators and their specific targets. Annexure D is the standardised indicators, in which all nine provinces within DPWI, have developed four specific indicators that are similar to each other. Annexure E is the contribution to District Development Model (DDM), in which DPWI provides support to Dr Kenneth Kaunda District and King Cetshwayo District Municipalities on school programmes and illegal occupations.

Discussion
Ms L Mjobo (ANC) took over the role as Chairperson for the discussion.

Ms A Siwisa (EFF) asked when the review of the multi-disciplinary professional plan will be completed. Timeframes are a necessary inclusion for the audit action plan. The guidelines require this. It cannot state "in progress" without a timeline as that is not specific enough to ensure the turnaround plan is correctly implemented.

Another concern is the rate that private owners charge for leases in comparison to the Public Works rate. This in turn means DPWI is working at a loss. Why is this the case?

Ms Siwisa said the APP presentation suggests that infrastructure failure has been caused by budget cuts. She placed it on the record that infrastructure failure cannot be blamed on budget cuts. This is due to the lack of maintenance by DPWI for client departments, not budget cuts. Some departments are now doing their own infrastructure maintenance due to DPWI failures. It cannot be blamed on budget cuts, but rather to DPWI failing to provide this.

Ms Siwisa asked what caused the budget cut to EPWP among the DPWI programmes.

Mr I Seitlholo (DA) asked about the status of the two legal cases which were won by former employees against DPWI for unfair dismissal. The former minister took these cases on review at the labour court and thus DPWI had to keep funds available in case of payouts. The APP must factor in funds kept for this – or have they been paid out if the cases have been finalised?

He asked that the issues raised by Ms Siwisa be noted, as they cover many of the concerns raised with DPWI previously.

Ms Mjobo said that the audit report stated that DPWI lost R10 million on leases and R17 million on Beitbridge border fence. The AG recommended that DPWI instigate a special investigation into leases and overpayments. It lost R3.8 million on the Mamelodi East Magistrates' Court. Telkom Tower which is unutilised, had R5.92 million spent on it. She asked for clarity on these and on the overpayment for bridges. She asked about slide 63 on construction expenses for 2021 where there is an allocation of R8.42 million and subsequently there is R0 allocation.

DPWI response
The Director General agreed that progress in the audit action plan should be accompanied by dates to provide timelines for both the committee and DPWI to keep track of progress.

The CFO replied that the timelines for the audit action plan go up to 31 March 2024. The presentation merely did not reflect these due to space constraints.

The ROTP is being implemented according to Circular 135 which are the interim guidelines.

The CFO clarified that more properties are being let to client departments than to the private sector. In fact, 94-96% of DPWI properties are occupied by client departments. The square meter rates is what client departments pay; private clients pay market value prices. The bulk of the debt owed to DPWI is from client departments. Even when some departments pay, they often pay below market value.

The reasons for the budget cuts for EPWP were not provided to DPWI. National Treasury wrote to DPWI stating a 30% budget cut for EPWP. However discussions between DPWI and Treasury are under way to find clarity on the reasoning for this.

On slide 63, the construction expenses in 2021 was a misallocation. This has been allocated under refurbishments and other channels.

On the R10 million overpayment on leases, an investigation has begun from an operational basis. Two of the three leases have been fully recovered, with one still in progress with a dispute ongoing on the amount to be recovered. When an overpayment is picked up, recovering it is not difficult, as the system is designed to simply offset that from the rental. If the overpayment is found to be purposefully caused by officials, disciplinary and consequence management is instituted.

Circular 135 was submitted to the Committee. There were a few glitches, that is why an interim guideline was instituted. This has allowed for the letting out of state properties and the correction of leases to fall under the interim guidelines so the leases of properties are adjusted correctly to make them financially viable.

Mr Mahlangu replied that the Beitbridge border fence is now being handled in court and is under way. When the court process is completed, a full report will be made to the Committee. The Mamelodi East Magistrates' Court is under investigation and in due time a final report will be brought to the Committee with a final conclusion. An investigation revealed that the costs were not caused by a material irregularity but due to cost of transport, due to the difficulty in finding a route to transport the beams. This had not been anticipated in the costing but has been shown to be justifiable cost to the AG.

On the Telkom Tower precinct, DPWI has provided the AG a response for the differences in money spent. The AG has subsequently requested a plan of action on how to deal with Telkom Tower which is currently ongoing. There is an investigation into how the current state came about to avoid future mistakes.

The CFO replied about the former employee cases for unfair dismissal. Some are still pending. However for those that have won their cases, DPWI is implementing the court order. In the case of misuse of funds, the Labour Court referred the case back to General Public Service Sector Bargaining Council (GPSSBC) thus it is not finalised.

The CFO gave apologies on behalf of the Deputy Minister who had to leave early due to flight demands so she could not add her input.

Meeting adjourned.