Budgetary Review and Recommendation Report of the Portfolio Committee on Public Works, dated 22 October 2013
The Portfolio Committee on Public Works, having considered the performance and submission to National Treasury for the medium term period of the Department, reports as follows:
1.Introduction
1.1.Mandate of the Committee:
The Portfolio Committee on Public Works is guided by the Rules of Parliament and the Constitution to play an oversight role over the Ministry, the Department of Public Works and its entities. In doing oversight, the Committee:
a) Exercises its monitoring role in such a way that it contributes towards
the improvement of the quality of life of all South Africans;
b) Scrutinises legislation and other policies that impact on the spheres of
Public Works;
c) Facilitates interdepartmental and intergovernmental relations at all
spheres of government;
d) Transforms the conduct of the Committee’s business to be sensitive to
provincial interests at the national level;
e) Learns from international best practices that are relevant to its field of jurisdiction to improve service delivery to all South Africans to its best.
1.2.Description of core functions of the Department:
The Constitution of the Republic of South Africa mandates the Department of Public Works to:
a) Provide land and accommodation to national government departments and institutions;
b) Manage such land and accommodation;
c) Act as the custodian of national government’s immovable assets;
d) Provide strategic leadership to the construction and property industries;
e) Co-ordinate the implementation of the Expanded Public Works Programme;
f) Have the Minister of Public Works carry out functions related to land and accommodation through the State Land Disposal Act (No. 48 of 1961).
The Department is also responsible for four entities that report to the Minister of Public Works as the executive authority. These entities are:
1)Agrèment South Africa (ASA);
2) Construction Industry Development Board (cidb);
3) Council for the Built Environment (CBE);
4) Independent Development Trust (IDT).
1.3.Purpose of the BudgetRecommendationReviewReport:
Section 77(3) of the Constitution stipulates that an Act of Parliament must provide for a procedure to amend money bills before Parliament. This constitutional provision resulted in Parliament drafting the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009).
The Act makes it obligatory for Parliament to assess the Department’s budgetary needs and shortfalls through its oversight of the Department’s operational efficiency and performance. The Department has oversight responsibilities over the four entities mentioned above.
1.4. Method:
This report is based on information that was assessed and analysed from the Department and the entities through briefings, oversight visits and interaction with relevant stakeholders. Amongst these oversight activities, the Committee received a briefing from the Department of Public Works on its 2012/13 Annual Report, a briefing from the Office of the Auditor-General (OAG) on the audit outcomes and deliberations on the analysis that was undertaken by the Parliamentary support staff. These analyses focused on the performance of the Department in terms of its service delivery targets and financial performance. However, the Committee did not have sufficient time to interact with the four entities on their 2012/13 Annual Reports.
1.5.Outline of theBudget Review and RecommendationsReport:
The report contains the following:
a) An overview of the relevant key policy focus areas.
b) A summary of previous key financial performance recommendations of the committee.
c) An overview and assessment of financial performance.
d) An overview and assessment of service delivery performance.
e) A finance and service delivery performance assessment.
f) The committee observation from oversight visit reports.
g) A summary of engagements with the Department and its entities.
h) A summary of reporting requests.
i) The committee’s recommendations.
2.ANOverview of the key relevant policy focus areas
The 2012 and 2013 State of the Nation Addresses remained largely unchanged from previous ones delivered from as early as 2007 in many of the key areas. The 2012 State of the Nation Address (SONA) highlighted a number of priorities specific to Public Works. These included an extension of past concerns set out in the Departmental Strategic Plan for 2012-2016 and the Annual Performance Plan for 2012-2014. The areas of focus for the Department of Public Works remained the following:
a) In response to the requirement of halving unemployment and poverty,Phase II of the Expanded Public Works Programme (EPWP), aimed at creating 4.5million work opportunities by 2014.
b) Mitigating the effects of climate change through the implementation of energy and water efficient programmes in all Government buildings.
c) Infrastructure development.
d) The rehabilitation of immovable assets, provision of financial aid in job creation, as well as skills development. All Government departments in the Public Sector were also expected to achieve the 2% target of employing persons with disabilities.
The 2012 SONA’s main priorities, apart from the creation of job opportunities and poverty alleviation and addressing persistent challenges of unemployment, poverty and inequality amongst Africans, women and the youth, also included the slow growth and declining employment as a result of historical structural unemployment between the 1970s and early 2000s. Some of the main vehicles (identified in the 2012 SONA), included: infrastructure development, tourism, agriculture, mining, manufacturing and the green economy. The green economy extended to the implementation of the Green Economy Accord with economic stakeholders, as well as increased energy capacity through using renewable energy sources such as solar electricity and biofuels.
The Presidential Infrastructure Coordinating Commission, (PICC) was created as the body that would be responsible for administering the development of projects and infrastructure initiatives through the state-owned enterprises as well as national, provincial, and local government departments. These initiatives included the Presidential Special Project to revitalise Mthatha; the improvement of infrastructure on the West Coast of the country and the provision of social infrastructure projects, such as the refurbishment of hospitals and nurses’ homes.
The 2013 SONA, (similar to the one in 2012), recognised that marginalised communities, as well as women, youth and people with disabilities remained particularly vulnerable. In addition, people living in rural areas, many of whom lack the skills to enter the formal economy were of particular concern.
As with previous SONAs, areas of priority that were highlighted in the 2013 SONA included: increased numbers of job opportunities that create decent work; utilising state-owned companies to provide unemployed youth with apprenticeships and learnerships; and reducing inequality and unemployment by absorbing young people into the EPWP and the Community Works Programmes.
Infrastructure development programmes remained central, and were focused on implementing Government’s social infrastructure plans to provide clinics, hospitals and schools, bulk water systems, bridges and transportation; and eradicating mud schools and unsafe structures, particularly in rural areas. The overarching focus on infrastructure was also highlighted through the implementation of programmes, through the NEPAD[1]the Presidential Infrastructure Championing Initiative, which impacted on the large infrastructure projects to other countries on the continent; and ensuring that all departments’ activities aligned to the priorities outlined in the National Development Plan.
2.1.Budget Review
The Department of Public Works received a budget allocation of R7.9 billion for 2012/13, (prior to adjustment), with which to accomplish the priorities listed above. It represented an increase of 2.1 per cent in nominal terms, and a decline of 3.6 per cent in real terms from the 2011/12 adjusted appropriation of R7.8 billion. The Department’s budget represented approximately 1.5 per cent of the national appropriation by vote, excluding direct charges.
2.2Overview of key developments in the organisational and service
delivery environments of Department for 2012/13 and 2013/14 MTEF cycle
The Minister of Public Works introduced the Turnaround Strategy at the beginning of 2012. It was aimed at ensuring the stabilisation of the Department; working towards a clean audit; completing a skills audit to determine the gaps in the skills requirements; and repositioning the Department to fulfil its core mandate. The planned intervention also aimed to ensure that the Department finalised a usable, updated and comprehensive Immovable Asset Register (IAR), which remains one of the requirements for the Department to receive a clean audit.
The Department employed a number of consultants to assist in the IAR project and spent a total of R268.7 million on consultants, contractors and agency/outsourced services.[2]This is an overall decrease of R17.2 million from the 2011/12 financial year.
a)Contractors received R49.7 million, a reduction of R105 million from 2011/12.
b)Agent and support/outsourced services received R116.0 million, an increase of R39.3 million from the previous year.
c)Business and advisory services increased by R40.1 million and the legal costs by R7.8 million from 2011/12.[3]
The Department completed the State land reconciliation with the Deeds Office records at the end of 31 March 2013. A repository was created and cleaned IAR dated was placed on i-EWorks.[4]A tool for the physical inventory process was also procured.[5]
The Department further plans to formulate a custodian framework and develop a capitalisation policy. An operating model and fair value model are also planned, which will provide the Department with tools to leverage the considerable property portfolio in the interest of economic development.
The EPWP created a total of 3.1 million work opportunities in Phase II (April 2009 – 31 March 2013), that represents 68% of the targeted 4.5 million work opportunities for the five year period. Three provinces (Eastern Cape; Mpumalanga and Western Cape) all exceeded their targets for 2012/13, while the Northern Cape achieved 99% of its target. The remaining provinces all achieved over 70% of their targets.[6]
The Department had planned to introduce several pieces of legislation to Parliament, which it now has shifted to the 2013/14 financial year. The legislation included the introduction of the Expropriation Bill (aimed at ensuring consistency with the Constitution and uniformity in the expropriation of property by all organs of State). In addition, the draft Agrément South Africa Bill must be finalised; and the Built Environment Professions Policy which is aimed at the possible amendment of the legislative framework governing the built environment professions.[7]
3.A Summary of previous key financial and performance recommendations of Committee
The Committee recommended to the Minister of Public Works that systems for the management of rentals and leases entered into by the Department of Public Works on behalf of client departments should be sorted out and be fully functional by the end of the 2013/14 financial year.
The national, provincial and municipality asset registers were to be aligned by the end of 2014.The Minister needed to ensure that tender specifications on all EPWP projects included the appointment of women contractors and people with disabilities.
The Minister of Public Works needed to ensure that there were policies in the Department of Public Works for state funerals.
The Minister of Public Works needed to ensure that the Department of Public Works regulated the professional fees charged by the consultants.
The committee made a strong recommendation that the Minister needed to re-open the workshops to facilitate the training of artisans nationally and in all the provincial departments of Public Works.
2.ANOverview and assessment of financial performance
The Department’s 2012/13 main appropriation of R7.9 billion was adjusted by R102.6million. A total of R7.2 billion or 91.3% of the final appropriation was spent at the end of 31 March 2013, and resulted in a total under expenditure of R687.3 million. The Office of the Auditor-General (OAG) highlighted material findings on the reliability of information for Programme 2: Immovable Asset Management and Programme 3: Expanded Public Works Programme (EPWP). The OAG further noted that the Department lacked standard operating procedures to record actual achievements accurately; and monitor completeness of source documentation which supports actual achievements which must constantly be reviewed.[8]
4.1.Overview of Vote allocation and spending (2009/10 2014/15)Programme
R’000 / 2009/10 / 2010/11 / 2011/12 / 2012/13 / 2013/14 / 2014/15
Outcomes / Outcomes / Outcomes / Main / Adjusted / Outcomes / Estimates / Estimates
Administration / 773.4 / 679.5 / 837.1 / 893.9 / 1004.9 / 856.2 / 1148.2 / 1148.4
Immovable Asset Management / 4265.1 / 4968.5 / 5001.7 / 5364.0 / 5052.9 / 4563.5 / 2984.0 / 3260.6
Expanded Public Works Programme / 429.5 / 914.9 / 1163.0 / 1659.0 / 1729.1 / 1704.1 / 1984.0 / 2076.4
Property and Construction Industry Policy Regulations / 26.0 / 28.0 / 34.4 / 37.4 / 37.4 / 26.9 / 39.9 / 41.5
Auxiliary and Associated Services / 39.6 / 24.1 / 25.2 / 39.3 / 66.8 / 53.3 / 50.7 / 52.8
Total / 5533.6 / 6615.1 / 7061.4 / 7993.8 / 7891.2 / 7203.9 / 6170.0 / 6579.7
(Source: National Treasury (2013)).
4.2.Financial performance 2012/13
The under-spending occurred in programmes 1 to 4. Programme 1 incurred under expenditure of R148.7 million, after receiving additional funds of R111 million during the adjustment estimates. Under-spending was incurred under the item of goods and services for office accommodation in terms of lease payment; and for the implementation of the Turnaround Strategy. The procurement of an Accounting System for the PMTE for which additional funds of R20 million was received during the adjustment estimates that was also not spent.[9]The Department would still have underspent by an amount of R37.7 million without the additional funding received from the adjustment.
The allocation for Programme 2’was reduced by R311.1 during the adjustment estimates, from R5.4 billion to R5.1 billion. The programme underspent by R489.4 million at the end of 31 March 2013. The decline was mainly due to under-spending on infrastructure that resulted from delays in implementing infrastructure projects in the Department.[10]
The allocation for Programme 3 increased by R70.1 million during the adjustment estimates to R1.7 billion. The programme underspent by R25 million at the end of the 2012/13 financial year. If the allocation had not been increased from the main appropriation, programme would have overspent by R45.1 million. The under expenditure for the EPWP programme was due to lower than expected spending on consultancy fees.[11]The programme received a virement of R260000 from Programme 2 to offset over expenditure under machinery and equipment.
The allocation of R37.4 million for programme 4 remained unchanged during the adjustment estimates. The programme underspent by R10.5 million during the first 3 quarters, mainly due to lower than anticipated expenditure on compensation of employees as a result of the non-filling of vacant posts.[12]Additional under expenditure occurred due to low spending for border fencing from a total allocation of R24.7 million under goods and services.[13]
Programme 5, underspent R13.5 million of its total adjusted allocation of R66.8 million. The programme added approximately R28 million from its main appropriation of R39.3 million, that was adjusted from Programmes 1 and 2, to offset the unforeseen expenditure for two State funerals.[14]
The expenditure of the Department in all its programmes for the 2014/15 and 2015/16 financial years should be closely monitored on a quarterly basis to ensure that the expenditure is on its planned programmes. Of particular concern is the expenditure on compensation of employees and infrastructure. The Department requires technically skilled and appropriate staff to address its high vacancy rate thereby meeting its objectives. The infrastructure programmes should also be monitored, particularly, procurement and SCM processes; overpricing and collusion; and proper reporting on the EPWP.
The implementation of the Department’s Turnaround Strategy should especially be scrutinised during the 2014/15 and 2015/16 financial period, given that it is the vehicle which aims to stabilise the Department to meet all its obligations, finalise a reliable Immovable Asset Register, as well as coordinate the implementation of the EPWP towards addressing poverty and unemployment. It is important that progress on the EPWP is monitored and reviewed as its 5-years will conclude and a third Phase is being considered. The allocation for the programme will gradually increase from R1.7 billion in 2013/14 to almost R2.0 billion in 2014/15 and R2.1 billion in 2015/16.[15]
4.3.Auditor-General Report:
The Department of Public Works (DPW) received a Qualified Audit Opinion. This is an improvement from the Disclaimer of Opinion with matters and additional matters that it received in 2010/11 and 2011/12.
The Property Management Trading Entity (PMTE) received a Disclaimer of Opinion (including emphasis of matters and additional matters) from the Auditor-General (AG) for the 2012/13 financial year. The PMTE must still improve as it received a Disclaimer for the third year in a row.
The Department has incurred irregular expenditure over a number of years. As well as experienced challenges in its supply chain management (SCM) and internal controls. For the 2012/13 financial year, the AG was unable to determine whether the Department implemented and maintained an appropriate provisioning system and if the award of R32.2million (2012: R15.8 million) followed (SCM) prescripts.[16]The Department also realised material under-spending of R489.4 million[17]under Programme 2: Immovable Asset Management which impacted on the meeting of its infrastructure delivery objective.
Incomplete process existed in the Department for identifying and recognising all irregular expenditure incurred by the PMTE, hence uncertainty related to the disclosed irregular expenditure of R874.5 million (2012: 168.2 million). This resulted in the AG being unable to determine if the PMTE implemented and maintained an appropriate system for identifying irregular expenditure.[18]In addition, the AG was also unable to determine if adjustments were necessary with regard to stated irregular expenditure of R2.6 billion, (2012: 1.4 billion); and if any adjustment to the financial statements was necessary, in terms of the stated fruitless and wasteful expenditure of R254.4 million (2012: 239.9 million).
The Department did not conduct effective risk management activities, including the consideration of information technology risks and fraud prevention. The Internal Audit Unit was not adequately resourced to effectively identify internal control deficiencies as well as make recommendations on corrective measures. Additional challenges included allegations related to transgressions in SCM, potential fraud and financial misconduct as well a probe into alleged abuse of the urgent and emergency procurement and the utilisation of sole suppliers. Further, the Public Protector also conducted a probe into the allocation of funding to projects and procurement processes following alleged “misappropriation of public funds by the Department in the installation and implementation of security measures at President’s private residence at Nkandla.”[19]All these areas highlight the lack of sufficient internal control in the Department.
The Department’s PMTE experienced a number of challenges that included: theft and losses of R22.6 million (2012: R26.7 million); improper procurement and contract management processes and procedures were followed; failed to comply with Treasury Regulations; and persons in service of PMTE with private interests or business interest in the contract contravened Treasury and Public Service Regulations.[20]