Department of Public Works Third Quarter Expenditure Report for 2013/14, with Deputy Minister in attendance; Committee Legacy Report

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed the Deputy Minister, Mr Jeremy Cronin, the Director General, Mr Mziwonke Dlabantu, and the delegation from the Department of Public Works (DPW) to the final sitting of the Portfolio Committee during the present term.  She invited everyone present to mark the occasion by joining her for lunch after the meeting, which she jokingly referred to as “the last supper!”

DPW Performance Report
Mr Dlabantu said the report was a mixture of good progress and significant achievements, and areas where performance was below expectations.  One of the areas the DPW was concentrating on, was reviewing its targets to ensure they were “SMART” -- specific, measurable, achievable, relevant, and time-bound – in future.   Highlights of the quarter had been the holding of about ten fraud awareness workshops, the development of a functional organisational structure which would respond to the business of the Department, increased participation of employees in employment health and wellness programmes, and approval of a supply chain management policy, accompanied by a series of workshops and consultations on the framework for acquisition and contract management.  Secondary service providers had been appointed in September to conduct physical verification of the DPW’s immovable assets, resulting in the target for this project being exceeded.    Inspection reports on state and leased facilities, as well as construction projects, had also exceeded targets, and were the result of complaints from clients (which drew a light-hearted comment from a Member, that with more complaints, there would be better achievement of targets).   The Expanded Public Works Programme had been reported on separately to the Committee, but it should be noted that significant progress had been made by municipalities in reporting their progress, helping the DPW to obtain definite information about the performance of the programme.  The built environment policy had been finalised, and the second draft of the Independent Development Trust business case had been developed.   Support had been provided for two planned and six unplanned prestige projects.  

The DG concluded by conceding that while there had been a great deal of improvement in the DPW’s performance, it had not yet reached “the ultimate point” which it was striving to achieve. 

Mr Cox Mokgoro, Chief Financial Officer, DPW, presented an overview of the Department’s financial performance up to December 31 – the end of the third quarter.   In linear terms, 75% of the budget should have been spent, but so far the Department had spent R4.398bn (71%) of its annual R6.175bn budget allocation.  He broke this down by economic classification.  This indicated that compensation of employees amounted to R1.084bn (74%), which was a good sign, as the Department had been “scourged” for over-expenditure on compensation in the past, and showed that it was managing the engagement of staff on a tight basis.  Goods and services accounted for R495m (57%), which was primarily due to the late submission of invoices by service providers.  Office accommodation expenses of only R211m (42%) was entirely due to the reconciliations that were taking place between the Property Management Trading Entity (PMTE) and the DPW, and matters were now being accounted for properly.  Transfers and subsidies of R2.278bn (90%) were at a high level, as these take place on an advanced basis.  Infrastructure spending of R268m (40%) was well below the target.  The DPW was aware of the pressure to deliver in this area, and was looking at interventions to address the shortfall.    A detailed breakdown of each area of the Department’s five programmes was presented to the Committee (See presentation).

Mr Mokgoro reported on the PMTE’s financial performance, where the annual revenue budget was R7.917bn, and 75% had been claimed, amounting to R5.918bn.   By the end of the third quarter, R5.495bn had been received.   In respect of state accommodation charges, R2.807bn had been claimed, and R2.759bn had been paid, representing an almost 100% collection record.  With private accommodation charges, however, R2.317bn had been claimed, but only R1.954bn recovered.  PMTE’s bank overdraft had been reduced to just over R1bn.   On the expenditure side, R5.586bn (70%) of the R7.945bn budget allocation had been spent, and under-expenditure of R370m was projected by the year-end.  Expenditure against planned maintenance was lower than the 75% guideline, and there could be a R359m under-expenditure on this budget, so funds would possibly be moved to the day-to-day maintenance budget during the last quarter.   Arrears on property rates were proving slow to settle, owing to difficulties in verifying and resolving claims from municipalities, some of which went back several years.

Discussion
Ms A Dreyer (DA) said she was particularly concerned at the low percentage (40%) expenditure on infrastructure.  In the past, the Minister had explained that this was mainly due to a lack of technically skilled professional staff.  Why was this situation still persisting?

There was a transfer of R10.4m in the property and construction policy programme, against a budget of only R200 000 – why the huge disparity?   Why had the Department of Labour settled only R14.2m (14%) of its R95.9m accommodation invoices? 

She pointed out that SAPS – the Department’s biggest client – had settled all of its state-owned accommodation invoices, but had paid only 54% of the recoverable capital allocation invoices.  Was this related to some huge disputes in the past between SAPS and the DPW over office accommodation?

Mr K Sithole (IFP) said inner-city regeneration had been listed as a sub-programme of the immovable asset management programme, but no details had been given on progress.  The Department had said they were dealing with Tshwane, but that they would need to expand the project to the City of Johannesburg and Ehurhuleni, and other major metros.  What was happening in this regard?

The Department was failing to deal with the provision of infrastructure.  The DPW had spent only 38% of its budget in the same period of 2012, and 2013’s 40% was no improvement.

He asked whether promises of financial support for countries responsible for Commonwealth War Graves had been fulfilled.

The Chairperson said she recalled that the DPW had responded on the issue, and had advised that graves that formed part of the Commonwealth were taken care of.

Ms N Ngcengwane (ANC) said she supported the EPWP’s critical role in providing technical support to municipalities in their planning and implementation of labour-intensive projects.  She suggested that a DPW study group and the municipalities should sit together, because oversight visits had revealed a disjuncture between what the Committee was saying and what municipalities were supposed to be doing.

She was concerned that the DPW was still grappling with the issues surrounding the development of a policy regarding unplanned prestige events.

There should be proper monitoring of transfers of funds to the EPWP, especially those for the social sector.  At the municipal level, one finds employees toyi-toying over non-payment of salaries, even though the funds had been paid over to a non-government organisation (NGO) or non-profit organisation (NPO).

She commented that expenditure on the maintenance of buildings was too slow in some regions, and yet this was an area with potential to create a large number of jobs.

Ms P Ngwenya-Mabila (ANC) said she was unhappy with the spending trends regarding EPWP incentives for municipalities, where only R387m (63%) of the R611m annual budget had been spent.  This was disappointing, because this money should go into creating jobs and “helping to put bread on the table.”

Overspending on audit fees was another worrying factor.  The Public Finance Management Act (PFMA) did not allow any over- or under-spending, so funds would have to be shifted, to the possible detriment of other programmes.  The same applied to the PMTE, where several areas of over-spending had been identified.

The report had stated that the EPWP was busy with an initiative to spend R15m before the end of the year in areas where it would have an impact on service delivery.  This seemed very much like fiscal dumping.   Funds should be spent according to plan, and not allocated in the final quarter, with no impact at the end of the day.

Ms Ngwenya-Mabila asked why there was a problem with debt collection.  Why were some clients not paying the invoices submitted to them, or just paying a portion of the account?  Why were others not paying on time?   Only 20% of prior year outstanding balances had been paid by the end of September, and meetings were being scheduled with clients to collect the outstanding amounts.  Why were meetings being scheduled, when matters should already have been finalised? 

There was a dispute with the Government Printer over an outstanding invoice.  Had this been resolved?

Ms N Madlala (ANC) said she wanted to know which of the eight prestige events listed were planned expenditure, and which were unplanned.    How would the expenditure on the DPW’s administration programme, currently at 56%, reach 100% by the end of the financial year?  In addition, there were a number of regions where capital budgets had been greatly underspent – how were they going to be pressurised into spending their full allocations?

Mr J van der Linde (DA) said the DPW’s slide presentation had focussed more on the highlights and the achievements than on the challenges which were covered in the performance report itself.  For instance, in the case of immovable assets, 18 of the targets had not been achieved, four had been partially achieved, and only nine had been achieved.  In the case of the EPWP, three targets had been achieved, two had not been achieved, and one had been partially achieved.  It was fine to see the good news, but there was some “not so good news” as well.

Mr Dlabantu, DG, DPW, said the Department had acknowledged there were areas of weakness.  It evaluated itself and interrogated the performance targets, some of which had proved to be problematic and had been dealt with.  The programme managers had been called upon to account for areas of under-performance, and in some cases it was possible that appropriate action would be taken.  Two issues were at the core of the challenges faced by the Department.  It had not been able to recruit all the skills it required to build capacity in specific areas, and the business models – and their associated processes – had not been appropriate for the Department’s projects, particularly with regard to planning, and would be revised.

He said he would not allow fiscal dumping to make up for under-spending.  Government money would not be wasted.  The DPW was taking action now to ensure that the problems did not recur.   There would be a big improvement in capital expenditure programmes involving infrastructure and maintenance.

Mr Clive Mtshisa, Acting Deputy Director General, Corporate Services, DPW, responded to the issue of skills shortages affecting the DPW’s capacity to deliver.  He said part of the problem related to insufficient posts at the project branch, and until the structure was changed, the problem would not be resolved.  The organisational structure had been reviewed, and there were now sufficient posts.  Another issue was that direct accountability at regional level was needed.  Funds had been put aside, and the challenge was now to recruit the appropriate skills in a very competitive market.

Mr Mokgoro said the disparity in the property and construction policy programme – R10.4m against a R200 000 budget – was an issue of classification relating to a transfer to Agrément SA.

The reason for the Department of Labour not paying what they owed the DPW was due to issues surrounding private leases.  There had been a number of engagements between the DGs of both departments, and the matter was about to be resolved.

He agreed that the DPW needed to strengthen its monitoring of EPWP transfers to the social sector to ensure that the funds flowed through so that workers were paid.

An aggressive project execution programme had been launched.  This would involve changes to the way in which the Department conducted its business, including how it went about tendering, so that ground could be broken from 1 April and the delays of the past year would not be repeated.

Audit fees had increased because of the negative audit outcomes which the DPW had received.  The consequence had been more intensive auditing, and this had led to the over-expenditure.

Mr Mokgoro explained the discrepancy between the SAPS payment for accommodation (100%) and the recoverable capital allocation (only 54%).   The accommodation charges were for state-owned facilities, while the 54% referred to projects outside the client’s capital allocation, where there would need to be verification of claims and resolution of possible disputes.

Ms Dreyer said she was concerned about the situation where the police used privately-owned accommodation, and disputes had in the past led to them being locked out.  Had these been resolved?

Mr Mokgoro said the biggest problem was where private leases had expired and had not been replaced, or there had been discrepancies over issues such as space, and this had resulted in disputes between the DPW and private owners.  This problem was being addressed by making all lease agreements current, so that the DPW could enforce its own rights.

The Deputy Minister, Mr Cronin, entered the discussion for the first time, and said it would be interesting learn what the issues with private leases were,  and to establish the balance between state-owned and privately-owned accommodation, and whether progress was being made in the movement towards state-owned.

Mr Mokgoro said the reason for some clients paying their invoices in full, while others paid only a portion, was often due to historical factors – a lack of compliance in the past, or withholding of payment owing to irregularities on the part of the DPW.   A meeting had been held with Treasury, and this would result in an improvement in collection rates.

The DPW had had a dispute with the Government Printer over the payment of R53m, but this had now been billed according to the client’s request, and an amount of R42m had been recovered.

He clarified the situation regarding prestige events.  The two planned events were the extended Cabinet meeting (Lekgotla) in October, and the centenary celebrations of the Union Buildings and unveiling of the Mandela statue.  The unplanned events were the RSA-Sweden Bi-National Committee, the France state visit, the ambassadors’ credentials ceremony, the Belgium visit (all in October), the National Consultative Forum on Mining and the RSA-Botswana B-inational Committee (both in November).

Mr Dlabantu said engagements were taking place regarding future sites for the inner-city regeneration project, and a full report would be available in the fourth quarter.  He was confident that in the next cycle, the Department would be able to present full plans on Tshwane, as well as proposals for other possible sites.

Closure
The Chairperson, who advised the meeting that she would be retiring at the end of this Parliamentary session, said she wanted to thank the DPW and the Ministry for the smooth working relationship which existed between the Portfolio Committee and the Department.  The Committee had recommended the appointment of a permanent Director General, a new model for the EPWP, and a special investigation by the Public Protector into the SAPS leases – and all of this had happened.   She singled out the Deputy Minister for his “passion” – particularly for the EPWP project.   She said the support she had received had made her “a better person.

Mr Sithole thanked the Chairperson for her leadership, and paid tribute to the commitment and loyalty of the Deputy Minister.

Ms Dreyer said she had joined the Committee only midway through the term, but had seen many changes, and was pleased to see the efforts that had been made to rescue “an ailing department.”

Ms Ngcengwane thanked the Department for its honesty in facing up to its challenges and for introducing its turnaround strategy.  Members had been very frustrated, but she was now proud to be a part of the Committee and the DPW.

Mr Dlabantu, responding on behalf of the Department, said he had received “a rude awakening” when he had first encountered the Chairperson.  It had been a shock to his system, but her impatience – and leadership – had been a great help to the DPW.

Mr Cronin, speaking on behalf of the Minister, said the Department took its interactions with the Committee very seriously.  The Committee was legitimately angry and frustrated before the change of leadership, and there had been an important improvement in the DPW, as well as a good working relationship with the Committee.  It had helped to have an alert, feisty and constructive multi-party portfolio committee.  He paid tribute to the Chairperson for her leadership under “difficult circumstances” at times, and wished her well in her retirement.  He thanked the staff, the researcher and the administrator, and also mentioned the important role fulfilled by the Parliamentary Monitoring Group (PMG), as they helped to keep the Parliamentarians “on their toes.”

Legacy Report
The Portfolio Committee’s legacy report was presented to Members for approval.  Its adoption was proposed by Ms Ngcengwane, and seconded by Mr Sithole.

The meeting was adjourned.