Key service delivery departments

This is concerning because, together, these sectors are responsible for managing almost a third (R584 billion) of the estimated total expenditure budget of R1 855 billion, and are instrumental in managing infrastructure and delivering key essential services to citizens.

These four sectors each play an essential role in achieving key government priorities. Thus, paying urgent attention to the root causes behind their failure will have the biggest impact on the success of government initiatives.

We begin the chapter by reporting on the results of our audit of infrastructure grant management for projects funded by key grants in the health, education, human settlements and public works sectors. We have reported similar findings in previous years, but little has changed in terms of improving the management of infrastructure projects. We then provide insight into, and identify the root causes behind, key challenges that are prevalent in infrastructure management, such as delayed projects, poor quality and maintenance of infrastructure, excessive and unnecessary costs incurred for unoccupied buildings, and poor project management and implementation. We also highlight the impact of these issues.

In the remainder of the chapter, we give more context to the audit outcomes for each of the four sectors by including insights on the following:

• Financial management and financial health – we expand on matters relating to budgeting, (including the impact of budget reprioritisation, budget cuts, over- and underspending, and budgeting for medical claims), financial reporting, financial health, unauthorised expenditure and losses.
• Programme performance – we focus on key observations, including whether key performance indicators and targets were achieved and reliably reported, and whether departments are on track to achieve targets included in the Medium-Term Strategic Framework (MTSF) and the National Development Plan. Where applicable, we also include obstacles preventing good performance reporting.
• Compliance with legislation – we highlight the main areas of non-compliance with legislation.
• Material irregularities – we provide details on and the status of any material irregularities identified in these sectors.
• Root causes – we discuss the root causes behind accountability failures in these sectors.

 

INFRASTRUCTURE

PERFORMANCE SNAPSHOT

For the 2020-21 audits, we focused on grant management across sectors. This snapshot shows the audit outcomes of infrastructure grant management with an emphasis on projects funded by key grants in health, education and human settlements.

 

1 This programme aims to contribute to eradicating infrastructure backlogs in schools, especially those with dangerous structures and a lack of water, sanitation and electricity, to support better teaching and learning environments that comply with the government’s minimum norms and standards for school infrastructure.

 

Introduction

It is widely accepted that South Africa’s economic recovery from the devastation of the covid-19 pandemic and social unrest hinges on infrastructure development, which unlocks value. As Finance Minister Enoch Godongwana said at the National Investment Dialogue in late September 2021, the country urgently needs investment in areas such as energy (including alternative energy), water and sanitation, roads and bridges, and human settlements.

 

One of the key initiatives in the South African Economic Reconstruction and Recovery Plan is the aggressive infrastructure investment that will lead to increased income levels in the construction sector.

 

 

South Africa desperately needs investment in infrastructure. However, the budget and cost overruns that have become almost synonymous with public sector infrastructure projects are putting further strain on government’s limited financial resources.

Our reports have repeatedly highlighted billions of rands of irregular and fruitless and wasteful expenditure in various government infrastructure projects. While some of this can be attributed to improper tender practices, corner-cutting and the like, a significant amount of money is lost to inefficiencies such as scope creep, where additional scope is added to a project during the construction phase.

This chapter includes information, statistics, insights and stories from our audits of infrastructure projects in the health, education and human settlements sectors.

 

Service delivery objectives

 

• The Constitution of the Republic of South Africa states that everyone has the right to have access to adequate housing. The mission of the Department of Human Settlements is to facilitate creating sustainable human settlements and improving the quality of household life.
• One of the National Development Plan implementation goals is to build healthcare infrastructure for effective service delivery. This objective is also captured in goal 4 of the health sector’s strategy 2019–2024. Through the health facility revitalisation grant, which is the largest source of funds for public health infrastructure, provincial departments of health are responsible for building, replacing, maintaining, renovating, upgrading and adding to infrastructure.
• The education sector remains a priority for government and receives a large share of voted government funding.

Although each sector has a unique set of circumstances, infrastructure investment in these sectors yields the same problems and inefficiencies. During our audit, we paid specific attention to infrastructure delivery across the project life cycle, focusing on some of the key projects in every province.

We also concentrated on each key phase of infrastructure delivery to address the economical, efficient and effective use of resources in constructing infrastructure. The different phases of the project life cycle for infrastructure delivery are depicted on the next page.

 

Overview of deficiencies, findings and impact

 

Over the past few years, we have identified significant internal control deficiencies that led to repeat findings on the economical procurement of resources, and the efficient and effective delivery of infrastructure. These remain unresolved, and infrastructure projects still fail to realise the intended service delivery objectives. In our estimation, if departments imposed consequences, it would promote accountability and thus improve government’s ability to deliver infrastructure projects effectively and within budgeted cost. In implementing our expanded mandate, we have also identified a number of potential material irregularities that are at various stages of the material irregularity process. The findings and key delivery challenges are detailed in the graphics below.

The following graphs show the number of provinces in the targeted sectors with key findings on time, cost and build quality.

Root cause analysis

 

The diagram below highlights the main root causes identified during the audits on infrastructure delivery. There are many contributing challenges and a holistic approach is required to improve infrastructure service delivery. While addressing one or two root causes may alleviate the problem, a coordinated and comprehensive process is required to achieve the goal of delivering infrastructure to the citizens of South Africa.

 

The remainder of this chapter focuses on the unattended project deficiencies in the areas of planning, project implementation and management, and commissioning, with examples of each.

Planning

The success of an infrastructure project depends, to a large extent, on the quality of the needs assessment and planning of a project.

Inadequate needs assessment and project planning for infrastructure projects

 

Departments did not always ensure that the needs of the project were properly identified so that they could plan accordingly.

 

 

Syferfontein housing project (WC) – Human Settlements

Water use license and building plans were not approved in time, contributing to extension-of-time claims of R4,69 million, and a six-month delay in completing houses.

The purpose of the project was to construct civil services for 359 erven and build 173 housing units. The project commenced on 31 August 2018; however, the provincial department did not ensure that all the planning processes and approvals were in place upfront:

• The water use licence application was only approved 52 calendar days after the project commenced, resulting in the contractor claiming for extension of time as well as stockpiling to the value of R2,75 million.
• The department (as the developer) did not ensure that the George Municipality provided revised construction drawings and site instructions to the contractor in good time. The contractor then claimed an extension of time amounting to R1,94 million for 135 calendar days (24% of the original 573 construction days).

The extensions of time contributed to a delay in completing the project.
In addition, although 147 housing units had been completed by 2 December 2019, the units were not commissioned and thus stood vacant and were not handed over to the beneficiaries. The delays were caused by a delay in upgrading the Outeniqua wastewaster treatment works contract, which included a package plant to allow connections to the new housing units. This had an impact on the intended beneficiaries.

Julius Sebolai Primary School site (GP) – Education

Poor planning resulted in additional cost of 35% (R27,04 million) more than original
contract value.
The site was handed over for construction in April 2015, and the original contract value was R77,83 million. However, poor planning resulted in the following:

• In August 2015, the provincial department converted the project into a smart school prototype that included R15,89 million in design and specification changes.
• The geotechnical investigation was only conducted on 29 June 2015, after the contract was awarded. Excessive rock was identified on site, increasing the contract value by a further R5,79 million. This extra cost was due to poor planning for the initial tender process, as the tender was not specific about the proposed project location. Bidders did not have an opportunity to visit and investigate the site before tendering.
• During the site handover, the existing mobile classrooms could not be relocated as the department could not arrange for an alternative location. A decision was made to split the project into two phases to allow learning to continue during construction. The estimated cost of incorporating a second phase (including a soccer field, sports facilities, combi courts and external work) was R5,36 million. The project was actually completed on 21 June 2019, and the newly constructed school is in use. However, by 18 June 2021, the mobile structures were still on site, unused and occupying the area allocated to sports fields, denying the learners access to onsite recreation facilities.

 

Project implementation and management

 

Project implementation and management focuses on achieving critical targets or delivery dates, monitoring current expenditure against progress and budgeted funds, monitoring quality against specifications, and addressing risks with suitable interventions.

The provincial departments responsible for education, health and low-cost housing are usually responsible for project implementation and management, and supplement their limited capacity with consultants and implementing agents.

 

Ineffective monitoring of project milestones and contractors or implementing agents

Provincial departments did not monitor and evaluate projects effectively to ensure that they were completed on time, within budget and to the required quality. Of the projects selected for detailed auditing, 68% were completed late or were still under construction after the contractual completion dates. The average delay for these projects was 26 months, as shown in the
graphs below.

 

Jubilee Primary School (EC) – Education

School projects were delayed by more than four years and learners were accommodated in temporary classrooms. Completed infrastructure is not being used.

The school, built in the 1950s, was known as the plankie school, as most of the existing structures were built from timber. In 2011, the structure was deemed unsafe, posing a grave risk to teachers and learners, and the school was slated to be demolished as soon as possible. Repairs, renovations and additions to the value of R77,01 million commenced on
5 August 2014, with a planned completion date of 5 September 2016.

As at 16 July 2021, the contractor had not reached practical completion and the project was still in progress. The actual project expenditure as at 30 August 2021 was R105,14 million – 37% higher than the original contract value.

This excluded professional fees of R15,95 million.

The delay in service delivery deprives communities of their constitutional right to have access to basic school infrastructure.

As the contractor has taken time to complete the project, the implementing agent decided to hand over the completed sections to the department.

Project status on 16 July 2021: Temporary prefab classrooms in use (left) and unused computer laboratory (top)

Betshwana – 1 000 housing project (EC) – Human Settlements

Project delayed by more than four years due to poor planning and poor contractor performance, which led to poor-quality work that needs repairs.

The project consisted of constructing 1 000 housing units with VIP toilets and water tanks. The 24-month contract had a value of R140,30 million and was due to be completed in May 2017. However, as at 12 July 2021, the project was still not completed, with 92 housing units outstanding.

The actual spend on the contract was R126,11 million. The delay in completing the project was caused by poor project and budget planning, and the poor performance of the contractor, resulting in work of poor quality that required repairs. The project has been delayed by more than four years, and is still ongoing.

 

Khotsong/Caleb Motshabi water and sewer reticulation (FS) – Human Settlements

Project was delayed more than three years as unsatisfactory performance by first contractor led to a new contractor being appointed.

In April 2015, construction began on a water and sewer reticulation network to 5 690 stands. The project, valued at R303,39 million, was planned for completion by 2 April 2018. In July 2017, the contract with the service provider was terminated due to unsatisfactory performance. At termination, only 14% of the work by contract value had been completed, while approximately 20% (R60,89 million) had been paid.

A second contractor was appointed in August 2017 to complete the construction at a total contract value of R196,01 million. Subsequent variation orders amounted to R87,21 million, while an increase in scope contributed a further R40,72 million to expenditure.

In July 2021, the project was still under construction and had been delayed by more than three years. The termination of the first contractor and appointment of a new contractor contributed to the delay, which led to a delay in service delivery.

 

Pelonomi tertiary hospital (FS) – Health

Health service delivery hampered as hospital completion delayed by more than four years.

This is the province’s only specialist referral hospital. The provincial department started a project to refurbish the neonatal, obstetrics, antenatal and delivery wards of the existing maternity ward. The R41,90 million contract had a completion date of 29 October 2016, but was still not complete as at 27 May 2021 – a delay of more than four years. There was also no activity or contractor on site as the project was halted due to contractual litigation between the contractor and the department. The contractor has since vacated the site.

The department did not promptly institute corrective action, such as charging penalties or terminating the contract, once performance issues were identified. These delays negatively affected the hospital’s ability to execute its mandate and attend to referrals from regional hospitals. The delays continue to have a negative impact on the province’s infant and maternal mortality, and its general healthcare services.

 

Below are some examples of projects with ineffective monitoring.

We also identified quality defects at 10 schools across five provinces, largely due to poor workmanship that was not effectively addressed. The contractors or professional teams did not address poor quality because the provincial departments did not adequately monitor, manage and supervise the projects.

Underperformance by contractors not identified and dealt with

Contractors did not always make adequate progress during the contractual term, and replacing them resulted in significant project delays and escalating project costs. In some instances, the combined costs of the original and replacement contractors exceeded the original contract price.

 

 

New nursing college (NC) – Health

Poor contractor performance resulted in project delay of more than three years, cost increase of 61% to R260,51 million, and remedial work at a cost of R410 453.

Construction of the R161,42 million college began in November 2016, and the contract with the first contractor was terminated on 27 May 2019 for reasons including poor-quality work, health and safety shortcomings, and poor planning. The contractor was paid R96,44 million.

A second contractor was appointed on 29 September 2020 at a contract cost of R164,07 million. Some project sections needed to be re-worked, which increased the total project cost to
R260,51 million, R410 453 of which related to remedial work.

The project was still under construction as at 7 June 2021 – a delay of more than three years from the original planned practical completion date.

Masinenge slums clearance housing project (KZN) – Human Settlements

Poor contractor performance resulted in project delay of more than five years, only 26 of 882 units being completed in contract period, cost increase of 18% per house, and remedial work at a
cost of R3,48 million.

The project was initiated in 2013-14 to provide decent housing for the occupants of the Masinenge informal settlement in the Ray Nkonyeni Municipality. The planned 800 housing units were later increased to 882 units.

The 30-month contract had a planned completion date of 0 April 2016 and a contract value of R97,96 million.
Various challenges encountered during the project led to the initial contractor being terminated. By February 2016, only 26 units had been completed. This poor progress was caused by ineffective project management processes and unenforced contractual remedies for delays in the project.

On 7 July 2020, a new service provider was appointed on a 24-month contract to continue with the project. The contract value of R102,33 million, including R3,48 million for remedial work.

The cost per house increased by 18%, from R116 410 in the initial contract to R137 927 for the new contract. The delay in completing the project is currently more than five years.

 

Quality defects observed during site visit: Structural crack on the side of the houase (left) and ceiling collapse (top)

Ufafa rural housing project (KZN) – Human Settlements

Poor contractor performance resulted in delayed provision of 547 houses to the community. Appointment of new contractor resulted in 10% increased cost per house due to time lapsed.

Planning for the project, which is a priority for the Ubuhlebezwe Local Municipality, started in 2012. The two-phase, 1 000-house project falls within areas of the provincial growth and development strategy that have a high need for services and a high potential for economic development that could contribute to sustainable community development.

After various delays in funding approval, the R55,89 million phase 1 contract was signed on
13 February 2017 for a construction period of 25 months.

Due to delays in project planning, construction was delayed and the service provider did not complete the project by March 2019. An extension of time was granted until November 2019. However, because the projected targets were not met and the quality of workmanship on site was poor, the municipality terminated the contract on 20 September 2019, with only 453 of the 500 phase 1 houses completed.

On 3 May 2021, a new contractor was appointed to construct 300 houses over 24 months at a cost of R38,29 million, but construction of the phase 2 houses had not yet started by 23 June 2021.

Nine years has elapsed since the start of the project, and only 453 of the original 1 000 houses
for the first two phases have been completed. A new contractor has been appointed to construct a further 300 houses by April 2023, with the balance of phase 2 still to be contracted.

The cost per house has risen by 10%, from R104 829 to R115 567.
During our site visit, we observed quality defects that the provincial department has indicated
it is investigating.

 

Contractors not paid on time

 

Late payments to contractors often contribute to project delays and additional expenditure due to
standing time.

 

Commissioning

 

Commissioning is the final phase of completing a project. The contractor commissions the completed building to the client department for occupation and use.

Lack of coordination and collaboration between role-players

Role-players at different levels of government, or within in the same institution, did not work together to synchronise project completion, staff appointments and the availability of completed infrastructure and municipal services in order to ensure comprehensive infrastructure delivery.

 

Low-cost houses in Emzinoni (MP) – Human Settlements

Basic services not available due to insufficient coordination.

Lack of coordination between the provincial department and the Govan Mbeki Local Municipality meant that completed houses did not have in-house water, electricity and sanitation services. In some instances, beneficiaries created illegal electricity connections because there was no bulk supply to the housing units. Some beneficiaries abandoned the units, which were then vandalised. The department will have to spend more money to fix these houses when the bulk supply is available, as beneficiaries are unlikely to occupy houses that have been vandalised.

Vandalism inside house (left) and illegal electricity connections (top) at Emzinoni (Ext 16)

Vlakkeland housing project (WC) – Human Settlement

Poor coordination resulted in additional costs.

The provincial department and the Drakenstein Municipality did not coordinate and formally agree on the responsibilities, timing and actions required from the municipality before the project began. For example, the role-players did not agree on:

• the time frames and sequencing for approving the house plans, which contributed to an eight-month delay and a cost increase of R3,05 million
• when the municipality would take over the civil portion of the housing project. As a result, the department paid the contractor preliminary and general costs of R1,14 million to remain responsible for the civil portion of the project over a longer period. If the department had agreed on the timing for taking over the civil works portion before the contract commenced, this additional cost could have been avoided

 

Recommendations

 

Our recommendations to those involved in and overseeing infrastructure projects are as follows:

1. Projects should be adequately planned to reduce delivery delays and unnecessary extensions. Poor demand and procurement planning results in inadequate specifications, wrong decisions about the type and scope of work and/or the feasibility of the project, and unrealistic cost estimates.
2. Factors that could lead to delays and impede projects should be identified during planning, and continuously revised and updated during implementation. Measures should be implemented to address factors likely to contribute to delays.
3. The provincial departments should improve their project management and monitoring to ensure that all instances of poor workmanship are promptly identified and rectified.
4. Projects should be adequately managed and deviations from the contract or poor performance should be addressed promptly in terms of the contract. For example, penalties or terminations should be implemented immediately once the deviation is discovered.
5. Project managers should prioritise completing projects and avoid the risk of cost escalations.
6. Coordination between the implementing agent, client and other role-players should be improved to ensure that the infrastructure can be commissioned and used immediately after practical completion.
7. Different project phases should be completed in a practical and logical order, and deliverables should be used and tested to ensure that they meet the project need.

 

Conclusion

Over the past few years, we have identified significant internal control deficiencies that led to repeat findings on the economical, efficient and effective use of resources on the delivery of infrastructure projects. These findings are not receiving enough attention, and key delivery challenges to infrastructure projects, such as the continued shortage of housing, good school infrastructure, access to healthcare facilities and poor-quality infrastructure, still affect service delivery. As a result, the lives of citizens in many parts of the country have still not improved.

 

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HEALTH

PERFORMANCE SNAPSHOT

The snapshot shows the audit outcomes of 10 auditees in the sector – the national department and 9 provincial departments.

 

 

Overall message

 

Overall, accounting officers and senior management are not implementing key recommendations and/or action plans to address the deficiencies identified in previous years. The unwillingness to implement remedial actions and key recommendations creates an environment in which consequence management is not always prioritised. This, in turn, creates opportunities for transgressors as internal control system weaknesses remain unaddressed. The sector has thus been unable to improve on its unfavourable overall audit outcomes over a number of years. The poor financial management and performance reporting disciplines may also be reflected in critical areas of service delivery.

 

Financial and performance reporting

 

Despite the North West department’s improvement to an unqualified audit opinion, the audit outcomes relating to financial reporting remained generally stagnant, as Limpopo regressed to a qualified audit opinion. We commend Gauteng, Mpumalanga, North West and the Western Cape for submitting financial statements that were free from material misstatements in the 2020-21 year. Our biggest concerns are KwaZulu-Natal and the Northern Cape, which have received qualified audit outcomes for the past five years with no indication of progress or even minimal improvement.

The sector’s performance reporting reflects similar unfavourable audit outcomes for the past five years, with the exception of the Western Cape. Given that this is the core programme for primary healthcare in the provinces, it is concerning that the district health services programme continues have difficulty with the credible collection, collation and reporting of performance information. In general, the sector still faces challenges with performing basic reconciliations between the source documents, various summary registers and the District Health Information System (its performance information system). This inability to perform these reconciliations placed a limitation on our work that left us unable to conclude on whether the achievements reported were valid, accurate and complete, with the exception of the Western Cape.

The sector has not been able to implement our recommendations, mainly due to capacity constraints and its efforts being primarily focused on patient treatment. In some instances, facilities have a limited number of clinicians and an inadequate number of administrative support staff. These clinicians are then responsible for both treating patients and completing the daily registers or patient files, and often focus on patient treatment and only complete the registers and/or patient files at a later stage. The impact of this can be seen in the differences noted through the audit process.

Without credible, reliable and accurate performance data, the sector will not be able to easily identify and respond to any service delivery challenges that might arise. As an example, if the department cannot reliably measure the number of tuberculosis patients being serviced by a specific hospital or facility, this may result in a shortage of medicine for those patients at that hospital or facility, and potentially an excess of medicine at another hospital or facility.

Compliance

 

There is a continuous disregard for laws and regulations relating to supply chain and contract management. This is evident in the year-on-year increase in unauthorised, irregular, and fruitless and wasteful expenditure reported by the sector. The lack of actions taken against perpetrators has created an environment in which non-compliance continues to flourish. Instability in leadership may also be fuelling the harmful culture, as acting leaders constantly leave mid-investigation and new leaders may not have an appetite to continue with investigations in which they were not involved. As a result, investigations are frequently left unfinalised, as occurred in the Northern Cape.

 

Sector performance

 

The MTSF priority outcomes for the health sector were set to achieve the goals as set out in chapter 10 of the National Development Plan, which were informed by the United Nations’ sustainable development goals, specifically goal 3. Within the continent, the MTSF targets are aligned to the African Union’s Agenda 2063 (strategic framework), which also highlights the importance of healthy and well-nourished citizens through its targets relating to maternal, child and neo-natal deaths; malnutrition; and access to anti-retroviral medication.

The president also signed a presidential health compact that details the plan to improve the nine fundamental pillars of the country’s health system. When these are dysfunctional, it leads towards collapse.

The table below shows the sector performance towards achieving the MTSF targets. The status (progress) was sourced from the Department of Planning, Monitoring and Evaluation’s Bi-annual 2019–2024 MTSF synthesis report for the period ending March 2021. The sector is behind on a number targets because its efforts were concentrated on managing the pandemic during the year under review.

 

Sector progress towards MTSF targets

The sector decided on these indicators and targets because they were deemed crucial for achieving the specific outcomes in the implementation of government’s health objectives. Some of these were, therefore, included in all the provincial departments’ annual performance plans as standardised indicators for programme 2 – district health services. Despite reported progress on some of these, we experienced and reported on material limitations during the auditing of programme 2 across the various provinces, and the outcomes
are reflected in the financial and performance reporting section above.

The sector’s financial health situation is also concerning, given its critical role in ensuring that South Africans have access to quality healthcare, and this threatens its ability to achieve overall targets by 2030. The covid-19 pandemic aggravated the pressure of the situation, as the sector had to use its limited budget to expand its current activities to include measures to deal with the pandemic. Some activities had to be reprioritised because the already strained budget was not geared for any unplanned activities.

The situation is further exacerbated by the significant increase in medico-legal claims, with claims paid by the sector in the 2020-21 financial year amounting to R1 756 million, while total claims against the sector amounted to R124 145 million. If these claims are unsuccessfully defended and need to be paid out, it will further erode an already stretched budget and have a negative impact on service delivery.

This financial strain also led to an increase in unpaid invoices (accruals) amounting to R15 364 million, which represents 17% of the sector’s 2021-22 appropriation (excluding compensation of employees and transfer payments). When the sector settles these invoices, only 83% of its budget for the 2021-22 financial year will be available for service delivery. As the sector requires 100% of its budget to deliver an effective and efficient service, it may have to suspend some activities, which will further disadvantage citizens.

 

In the current year, the balance for medico-legal claims against the Eastern Cape department escalated to R38 608 million. The department has an approved overdraft facility of R1 000 million to help it pay these medico-legal claims, which are not within its budget. There has also been an increase in instances of the department’s bank accounts being attached due to attorneys approaching the courts. This means that at specific points the department may not be able to transact in its own bank account, and has resulted in funds being transferred from other service delivery areas to pay for these medico-legal claims. The department also paid R866 million relating to medical claims in the current year, while R450 million was awaiting payment (accruals and payables not yet recognised) at year-end. This has reduced the department’s total budget for service delivery areas.

 

Conclusion

 

If these sector challenges relating to record keeping and financial health remain neglected, they will have a detrimental long-term effect on the sector’s ability to deliver quality and timeous healthcare services and will threaten its ability to achieve set targets by 2030. The impact of not achieving these targets constrains the sectors’ ability to achieve goals relating to improving access to medical care, reducing the burden of diseases and ultimately increasing life expectancy as articulated in the indicators for goal 3 of the sustainable development goals.

 

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EDUCATION

PERFORMANCE SNAPSHOT

The snapshot shows the audit outcomes of 10 auditees in the sector – the national department and nine provincial departments.

 

 

Audit outcomes

The audit outcomes of most auditees in the sector remained unchanged from 2019-20, although there was a noticeable improvement in the audit outcomes of the national Department of Basic Education. The leadership of the department responded positively to our recommendations, including ensuring closer monitoring of the agents responsible for implementing infrastructure projects. We encourage leadership to continue with this commitment, as the environment still needs to have internal control disciplines embedded in department officials as they perform their daily activities.

The North West Department of Education regressed to a qualified audit opinion because it did not address the root causes of the internal control deficiencies that were previously reported. There was also a lack of accountability and monitoring from department officials to ensure that the financial and performance information submitted for auditing was credible.

The quality of financial statements submitted for auditing by most auditees in the sector remains concerning, with departments still relying on the audit process to identify errors. The main area of significant control deficiencies related to the accounting for infrastructure assets due to inadequate project management and coordination of implementing agents. The preventative and detective controls have not yet institutionalised, and we recommended that these be prioritised.

Leadership at the national Department of Basic Education was driving the management of implementing agents to ensure accountability and delivery on commitments. As a result, the department’s audit outcomes have improved. It is vital that the national department share these newly established best practices within the sector.

Material non-compliance findings were reported at all auditees across the sector. The non-compliance with supply chain management regulations is concerning, as is the resultant increase in irregular expenditure, because it exposes the sector to the risk of fraud. The sector needs to strengthen and improve compliance monitoring, and intensify consequence management processes to address the root causes of transgressions.

 

Financial health

The financial health of most sector auditees is concerning, while the KwaZulu-Natal and Free State departments of education require urgent intervention – mainly due to inefficient spending of the budget as well as a lack of proper cash-flow management. The financial sustainability of some of sector auditees remained under stress, aggravated by economic pressures and budget cuts.

Under the current financial conditions, it is crucial that the management of the departments implements prudent financial disciplines so that they can achieve set targets and provide quality education.

 

In KwaZulu-Natal, the department’s staff debt escalated due to overpayments to staff whose services had been terminated, which placed added pressure on the department finances. At year-end, the department has written off a significant amount of employee debt. The strained financial health resulted in delayed payments to creditors, including contractors for infrastructure assets. Three of the projects that were audited were delayed due to non-payment of contractors.

In the Free State, the department incurred unauthorised expenditure in previous years, a portion of which was approved without funding. The department also incurred cost overruns due to poor project management and creditors not being paid when they became due. This placed further strain on the department’s cash flow and has a negative impact on its deliverables.

 

Performance reporting

According to the information contained in the annual performance reports of basic education departments for programme 2 – public ordinary schools, as well as in the Department of Planning, Monitoring and Evaluation’s bi-annual 2019–2024 MTSF synthesis report for the period ending 31 March 2021, the sector seems to be on track to achieve the material planned MTSF targets, as shown in the table below.

While progress appears to be on track, the sector did not have approved standardised indicators, and not all provincial departments included these MTSF targets in their annual performance plans, making it difficult to reliably measure the collective performance of the sector. This challenge is exacerbated by unreliable processes for collation, recording and reporting on performance information. It is therefore crucial that the sectors standardise the MTSF indicators.

The quality of performance reports submitted for auditing remains poor, with 80% of sector auditees having material findings on their performance reports. The process for collating information at school level is based on manually capturing documents on the Education Management Information System. This manual capturing is prone to errors, while the in-year monitoring processes and reconciliations are not always implemented. These deficiencies will further impact the planning for future targets and management of these achievements.
We are encouraged by the national Department of Basic Education and the Gauteng Department of Education, which did not have findings on performance information because their indicators and targets were found to be useful. These departments have also managed to ensure that they have processes in place to reliably report on targets achieved.

The sector will benefit from an automated system at input level, such as learner attendance, as well as improved accountability at all levels – school, district and department. Credible performance reports are key to the sector’s current and future decision-making, and significantly affect planning for future infrastructure needs, particularly given the changing environment while the sector is recovering from the impact of covid-19.

Conclusion

The basic education sector is crucial for the facilitation of the key government priorities. Therefore, sector leadership must ensure a sustainable control environment to guarantee accurate and reliable financial and performance reporting. This will aid those charged with governance in decision-making and will enable prompt remedial interventions, ensuring that the sector achieves its aspirations.

 

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Human settlements

PERFORMANCE SNAPSHOT

The snapshot shows the audit outcomes of nine auditees in the sector – the national department and 8 provincial departments.

The audit of the Western Cape Department of Human Settlements was still in progress at the cut-off date for this report. With the exception of irregular, and fruitless and wasteful expenditure, as well as the information on material irregularities, the outcomes of this auditee are not included in the snapshot.

 

Sector planning and performance

 

The Department of Human Settlements is responsible for facilitating and supporting the creation of sustainable and integrated human settlements across the country. Through the human settlements development grant, the sector seeks to create sustainable and integrated human settlements that enable improved quality of household life and access to basic services. The title deeds restoration grant seeks to eradicate the pre-2014 title deeds registration backlog.

As indicated in the five-year MTSF targets for upgrading informal settlements and title deeds, the sector’s delivery targets included 450 000 houses, 300 000 serviced sites and the transfer of 1 193 222 title deeds to the homeowners referred to in the key indicators under sector performance. Therefore, the sector should be aiming to deliver at least 90 000 houses, 60 000 serviced sites and 238 644 title deeds each year. However, for the past financial two years (since the start of the MTSF period), the sector has not developed plans geared towards achieving its medium-term housing targets, as the consolidated, sector-planned targets for these three key indicators bore no similarity to the average MTSF targets for those years. As a result, the achievements are significantly lower than both the required MTSF targets and the consolidated sector targets.

There is thus a risk that the targets will not be met at the end of the MTSF period, leaving an estimated shortfall of 188 678 houses, 109 843 serviced sites and 1 061 527 title deeds to be transferred. This will increase the growing backlog for adequate housing.

The sector still does not have processes to ensure effective planning and coordination, and intergovernmental relations structures remain ineffective as there are no evident mechanisms to ensure consistent and reliable performance reporting throughout the sector. We could not confirm the reliability of the sector’s reported achievements, as six of the auditees reported on had material misstatements on their performance information.

During the period under review, the sector spent an average of 96% (2020: 94%) of the human settlements development grant, while only completing 93% of serviced sites and 86% of houses.

 

Sector spending

 

Human settlements development grant

The purpose of the human settlements development grant is to create sustainable, integrated human settlements that enable improved quality of household life and access to basic services.

 

 

The Gauteng department over-achieved on targets for both serviced sites and houses, at 103% and 122%, respectively, which means the department has completed more houses and serviced more sites than its plan for the year. For serviced sites, the department identified additional sites during the implementation of the Western Mega Project. For houses, the Gauteng Partnership contributed funds to accelerate the delivery of more houses at the Elijah Barayi/ Varkenslaagte and Affrivillage Greenhills projects.

The Mpumalanga department completed more houses (103%) than its planned target. However, it only managed to service 38% of planned serviced sites. This raises concerns that the housing units delivered might have been built on sites without basic services such as sewerage, water and/or electricity, as identified in the Emzinoni project referred to earlier in this chapter.

The Eastern Cape department completed 45% of the 2 581 planned houses, while the Free State completed 78% of the 6 807 planned houses. This is due to contractors being appointed late and not being properly overseen once appointed (e.g. payments not in line with project stage of completion, standing payments due to covid -19 delays).

The Northern Cape department spent 77% of its budget and completed 58% of the planned houses due to delays on various projects as well as spending on rectification works. A similar trend was noted in the Western Cape, where the department spent 100% of its budget and completed only 75% of its 8 506 planned houses due to project delays.

The North West department spent 92% of its R1 357,1 million allocation and completed 2 968 houses (64% of the planned 4 668 houses) because it outsourced the project management of its projects to a service provider without effectively monitoring the service provider’s work.

The challenges highlighted above have remained unattended over the years and are significantly affecting the sector’s ability to effectively meet the objectives of this grant – to provide much-needed houses to citizens.

Title deeds restoration grant

The purpose of the title deeds restoration grant is to provide funding to eradicate the pre-2014 title deeds registration backlog.

 

 

The year under review started during the countrywide lockdown precipitated by covid-19; consequently, various reductions were made in the human settlements budget. This included a reduction of R415 million for the title deeds restoration grant. This also necessitated a review of the related targets, which affected the provincial performance. For example, in KwaZulu-Natal, the targets were revised downwards by 71% as the funding decreased by 63,5% compared to the previous year. In some instances, such as in the Northern Cape, the allocated budget was revised but the planned target was not adjusted in line with the revision. As a result, the province spent 100% of the revised allocation, but only registered 24% of the planned title deeds.

Overall, the sector spent an average of 73% (2020: 52%) of the final title deeds restoration grant, while only 30% of the title deeds were registered. This can be attributed to the challenge of an increasing backlog as informal townships continue to be established without the legal processes of formal establishments being undertaken.

Ineffective intergovernmental coordination continues to be a stumbling block to the sector’s performance in this programme. Through our audit processes, we identified that municipalities and provincial departments do not adequately coordinate to ensure that beneficiaries are registered. In the Eastern Cape, for example, the department established a panel of attorneys to register title deeds. However, no work was done by the panel and title deeds were not transferred, as most municipalities were not ready for the registration processes to commence. As a result, some beneficiaries are occupying low-cost houses without title deeds. Provincial departments are also unable to confirm the number of title deeds registered across the sector.

There are legal and financial benefits associated with title deeds. If beneficiaries do not hold the title deeds, they cannot leverage their houses as security to access bonds or obtain funding to extend their homes. Houses without title deeds do not have an official address and cannot be legally transferred to next of kin. There is a thus a missed opportunity for these title deeds to be used to complement other basic needs associated with security of tenure.

Key strategic projects

 

During the audit of selected housing projects across the country, we identified findings relating to projects being completed on time, quality of workmanship, mismanagement of funds and delays in the commissioning of houses due to basic infrastructure not being available. The detail and impact of these findings are included in the infrastructure section of this chapter.

Conclusion

 

The sector’s overall audit outcomes have remained stagnant, with most departments struggling to effectively manage and improve performance reporting and compliance. Ineffective intergovernmental coordination continues to be an obstacle within the sector. Concerns about performance reporting require the national department to take action to ensure that there are better coordination and monitoring initiatives within the sector through standardised indicators and accompanying standard operating procedures.

We encourage the sector to institutionalise preventative controls relating to project management to reduce the risk of errors in the project life cycle, as this type of trend continues to put a strain on government’s purse and, most importantly, to marginalise communities as their basic human right to adequate housing is not met.

 

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Public works and infrastructure

PERFORMANCE SNAPSHOT

The snapshot shows the audit outcomes of 11 auditees in the sector – the national department, 9 provincial departments and 1 trading entity.

 

 

Analysis of funding spent on key strategic initiatives

 

As the custodian of immovable properties, the public works sector has the mandate to provide support user departments with the infrastructure needed to deliver services to the public. The sector is thus required by law to put proactive plans in place for the 145 712 properties it manages to be adequately managed (maintained) to ensure the occupational health and safety of the user departments. In addition, where the sector does not have properties that meet the needs of the user departments, it is expected to carry out construction or infrastructure projects on time, at the right quality and within the allocated budget.

As outlined under the sector performance section of this report, the only sector target set for the key indicators that was met was completing infrastructure projects within budget, which may result in the five-year MTSF targets not being attained. It is extremely concerning that of all sector auditees, only the national department and the Northern Cape included indicators related to completing infrastructure projects on time and within budget in their plans and performance reports. This could be due to the lack of coordinated efforts within the sector to ensure that these critical strategic initiatives are agreed upon and included as standardised sector indicators.

The proportion of planned maintenance when compared to the planned assessment conditions is also of great concern, as it shows that maintenance of existing immovable assets under the custodianship of the sector is not prioritised to underpin the sector’s mandate.

To demonstrate the impact of these concerns, we reflect on significantly delayed infrastructure projects; poor and unfit properties that are still being used and those that have been closed, affecting service delivery; and how the mismanagement of lease contracts is resulting in a loss of funds that could be used to fulfil key indicators supporting the sector’s mandate.

The figure below illustrates how the sector spent its budget on strategic initiatives that aimed to support this mandate.

Given the high number of properties under its custodianship (145 712 properties), the sector could be expected to spend a significant portion of its budget on facility management to ensure that these properties are regularly assessed and properly maintained. However, it actually allocates only 18% of its budget to facility management, while spending the largest portion (37%) on private leases.

Infrastructure projects

 

As outlined under sector performance, the public works sector has struggled for more than two years to complete infrastructure projects within the planned time and budget.

The Property Management Trading Entity had 120 significantly delayed projects, while provincial departments had 146 such projects.

These delays can be attributed to poorly performing contractors that fail to complete the project at the right time and quality, delays in the supply chain process when appointing contractors to start the projects, poor project monitoring, and lack of consequence management for project managers who are charged with overseeing these projects.

 

In the Eastern Cape, the project to refurbish the electrical, mechanical and fire installation of the Botha Sigcau building, which is used by several departments servicing the OR Tambo region in Mthatha, commenced in 2012-13. In 2015, the contract was terminated due to poor contractor performance and a new contractor was appointed in 2019. However, in 2021 the project had still not been finalised. The building is currently occupied by several departments while refurbishment is in progress.

In the Northern Cape, a mental health facility construction project commenced in 2005 and was planned to be completed in 2007. The contract was delayed by 14 years due to poor contractor performance and was only finalised in 2021. Not only did the delays result in massive overspending that is currently being evaluated for material irregularity, in 2019-20 patients in the province who suffered with mental illness could not be institutionalised when needed due to facility constraints.

 

Facility management

 

According to the Government Immovable Asset Management Act, properties that have had their condition assessed at 20% are considered poor and neither safe nor fit for use. However, a number of properties that have been assessed as poor and not fit are still being used (see figure below).

As outlined under sector performance and budget spending, the sector has poor and unfit properties because, from a planning and budgetary perspective, less priority is given to maintaining the buildings in its custody.

In some provinces, this is because the maintenance budget is allocated to user departments instead of to the sector, and these user departments do not prioritise maintaining the buildings. At the Property Management Trading Entity, this is mainly due to overreliance on private leases, which leads to resources being focused on these instead of on facility management.

 

n the Free State, the clinic in Winburg Road in Mahlatswetsa town was closed due to vandalism. The people in the area either have to go to Borwa Municipality Clinic in Excelsior which is 36,5 kilometres (33 minutes) away, or to Pule Sefatsa Clinic in Botshabelo, which is 81,1 kilometres (over an hour) away to get medical assistance This might be a challenge if there is medical emergency. The Witzieshoek Police Station in Harrismith in the Free State was closed due to poor condition. However, there are other police stations in the area such as the Pabalong Police Station, which is 2,6 kilometres (six minutes) from the closed one.

Three Free State schools that have been assessed to be in poor and unfit condition – Joe Solomon P. School in Heidedal, Reitz Combined School in Reitz and Witteberg High School in Bethlehem – are still being used despite not adhering to occupational health and safety standards, putting learners and teachers at risk.

 

The sector has a strategic initiative aimed at leasing out unoccupied buildings to reduce the number of private leases entered into on behalf of user departments. However, this is not included in the planning documents for some auditees, such as the Free State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, the Northern Cape and the Western Cape. Where it is included, as is the case with Property Management Trading Entity, it was not achieved.

Many of these buildings are unoccupied because they do not meet the needs of the user departments and the sector instead relies heavily on private leases to meet these needs.
If the sector reprioritised its budget to focus on fixing unoccupied buildings, it could reduce the number of leases held, yielding a significant impact. This is especially true for the Property Management Trading Entity, which has several properties in good condition that are unoccupied.

 

The Telkom Towers building, located opposite the national Department of Public Works and Infrastructure headquarters in Pretoria, Gauteng, was initially purchased on 9 September 2016 for R695 million. The intention was for the building to be used by the South African Police Service, but later that year the department indicated that this move would be delayed for unknown reasons. As at 31 March 2021, the costs incurred include R152 million paid to consultants, R10 million paid for securing the building and R15 million in facility management costs. Cumulatively, the sector has spent R872 million (excluding rates, taxes and security costs) on this building that is still not occupied.

The sector continues to hold most expired private lease contracts on a month-to-month basis over long periods, which has a significant impact.

 

The Armscor building in Pretoria, Gauteng, occupied by the Department of Defence, has been on a month-to-month contract for 17 years, since the lease expired in 2004. Throughout this period, the lease amount has increased at 10% annually, costing the sector R502 million from 2004 to 2020. If the lease had escalated at 5,5% as approved by the National Treasury, the Property Management Trading Entity would have paid only R455 million – a saving of R47 million over the 17 years for which the contract has been running month to month.

The Domans building used by the Free State Department of Agriculture has been on a month-to-month lease since 2007. Although a lease for a new building has been signed, the building cannot be used as it has not been renovated. According to the lease agreement, the lessor is responsible for renovating the building before the lessee moves in.

 

There appears to be lack of will from the sector, the affected user departments and the lessors to enter into new agreements. As demonstrated by the Armscor building example, resources that could have been used to maintain the properties owned by the sector are spent to the benefit of the lessors who own these buildings through lease amounts that continue to escalate at 10%, which is much higher than the national inflation rate. To date, R1 033 million relating to expired leases held on month-to-month contracts has been disclosed as irregular expenditure under assessment (Property Management Trading Entity, Eastern Cape and Free State), while R368 million has already been confirmed as irregular expenditure (Gauteng, KwaZulu-Natal and Eastern Cape).

 

Sector material irregularities

 

Based on the 11 material irregularities notified by 15 October 2021 at four auditees in the sector, an established loss of R98,6 million was reported. The loss could be higher if we consider that in some instances accounting officers are in the process of determining the amounts of these losses. Decisive actions, including recovering these losses, must be taken immediately and consequences must be implemented against the officials and service providers who caused these material irregularities. This will demonstrate a behaviour shift that sets a tone of zero tolerance for financial mismanagement.

Overall message and impact

 

The sector is spending excessive amounts on leasing private buildings rather than maintaining its existing infrastructure. Consequently, some critical service delivery-related properties such as police stations and clinics have been closed because they are in poor and unfit condition. In addition, some properties that are in poor and unfit condition, such as schools, are still being used, which endangers the lives of the learners and teachers. At the same time, a significant number of infrastructure projects are delayed and are not being finalised within the planned time, which results in government suffering financial losses. Insufficient maintenance of properties and significantly delayed delivery of infrastructure projects exacerbate the sector’s use of private leases to respond to the needs of user departments. This overreliance on leases has created opportunities for these funds to be mismanaged, as evidenced by the irregular expenditure incurred due to excessive use of month-to-month contracts. It has also led to overpayment of leases, some instances of which we have already identified as financial losses.

We urge accounting officers to consider the above concerns when compiling their strategic planning documents. Oversight bodies should also be aware of these issues and seek accountability for strategic plans, annual plans and budgetary processes.

 

Conclusion

 

Sector stakeholders urgently need to make a coordinated effort to ensure that both the strategic planning documents and the budgetary process prioritise key initiatives that directly support the sector’s mandate. Such initiatives include those focusing on facility management and completing infrastructure projects on time. It will also be critical for the sector to curb the financial losses and irregular expenditure arising from lease mismanagement so that these funds can be used to maintain existing properties and enable new infrastructure projects to be completed on time. This will ensure that delivery of key services such as education, healthcare, and safety and security are not further affected by significantly delayed projects or poor and unfit properties that have to be closed.

 

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