PORTFOLIO COMMITTEE ON HUMAN SETTLEMENTS BRIEFING BY THE DEPARTMENT AND THE CSOS ON THE CSOS PROGRESS MADE WITH REGARDS TO TURN-AROUND STRATEGY AND CORPORATE GOVERNACE CHALLENGES AND AG FINDINGS PRESENTATION. ACTING CHIEF OMBUD : MS. N. RABULI

CONTENTS Purpose Who Is Csos Governance Challenges Governance Status Governance Structure Vacancies And Action Plans Audit Outcomes And; Mitigation Measures Audit Action Plans Conclusion Recommendation

1. PURPOSE To provide the Portfolio Committee with the progress made with regards to Turn-around Strategy to address corporate governance challenges and Auditor-General’s findings.

2. WHO IS CSOS? A schedule 3A, public entity Established in terms of the CSOS Act of 2011 Executive authority vested with Minister of Human Settlements Established to regulate the conduct of parties within community schemes and to ensure their good governance. 04

3. MANDATE Promote and monitor good governance of community schemes Provide general education on rights and obligations in community schemes Develop and provide an alternative dispute resolution service for community schemes that is cost effective and provides value for money Take over all sectional titles scheme governance documentation.

4. GOVERNANCE CHALLENGES The following Governance Challenges were raised in the KHL Report: Allegations that Board Members were involved in Managerial or Operational whistleblowing system to allow employees to report any interference Too much mutuality between the Board and Committee membership, and between committee membership per se Members of the Audit and Risk Committee should not be members of FINCOM. Audit and Risk should be independent and should be separate from other committee; Appointment of Specialist as per section 12(4) of the CSOS Act Reduce the number of sub-committee members

5. GOVERNANCE CHALLENGES The Investments of Funds contrary to the provisions of PFMA, TR & Policy Recommendations: Disciplinary charges against the two suspended executives Lodging of criminal charges with SAPS against the GWS (Pty) Ltd / Gundo CC Criminal Case and any other person involved The Report be served to the SARB Prudential Authority and any other relevant regulatory Authority and FSB Approaching the Special Investigations Unit (SIU) to conduct an investigation into potential commission of criminal acts and corruption by the suspended executives and any other person associated with such acts Court Application to retrieve the funds deposited in FNB account held by VBS

6. GOVERNANCE STATUS Appointment of a new CSOS Board on 21 December 2018; Induction of the new Board on 25 January 2019 together with Minister and the Department; and Clear instruction and mandate was given by the Minister

6.1 GOVERNANCE STRUCTURE Staff Compliment: 89 (inclusive of Regional Offices; 3 Vacant Executive Positions; 11 Vacant Manager Positions; Vacancy Rate: 59%;

7. VACANCIES AND ACTION PLAN The Board has approved the filling of the vacant positions; The prioritized positions are mainly core positions and the remainder of the vacancies will be staggered over the next three years; 18 Positions in a process of being filled by the end of March 2019; The Minister seconded the DHS CFO to assist CSOS The Department will second 3 governance and financial specialists to CSOS in two weeks time.

CSOS received an Adverse opinion; 8. AGSA AUDIT OUTCOMES CSOS received an Adverse opinion; The finding is a result of CSOS not having adequate system to record and reconcile all transactions relating to the payment of levies; Irregular Expenditure in the amount of R 26 757 000; and Material Impairment losses to the amount of R81 million related to the investment.

9. MITIGATION MEASURES TO FINDINGS THAT AFFECTED THE AUDIT REPORT 2017/18 Submission of annual financial statements on 31 May 2018 not approved by the accounting authority Management developed a detailed project plan indicating the detailed timelines building to the compilation of Annual Financial Statements. 31 October 2018 Completeness of revenue from non-exchange transactions (levies) and receivables from non-exchange transactions Have received the database of all Sectional Titles Schemes registered with the Deeds Office; and Notice will be issued at least 60% of the identified sectional titles 31 March 2019 Engagement with SARS to obtain the data on other forms of community schemes i.e. HOAs, etc. ; and Awaiting the signing of the Implementation Protocol. Finance will recruit personnel that will perform reconciliations manually while awaiting to procure a revenue management system; Procurement of the revenue management system is the 2019/2020 procurement plan and the process will be concluded in the coming financial year. Apply to National Treasury for approval of the recognition of revenue on cash basis and not accrual until the procurement of the system and finalisation of registration of majority of schemes.

10. Cont… Cash and cash equivalents – Bank account opened without prior approval from National Treasury There is compliance checklist developed and will be monitored on a monthly basis by the CFO and reported on a quarterly basis to the Board; and Consequence Management will be implemented for the non-compliance with the National Treasury Regulations Immediately 31 March 2019 Other financial assets – Investment of surplus funds All future investments to be approved by the Board and will be aligned to the Treasury Regulations Statement of Comparison of Budget to Actual Amounts not agreeing to Approved Budget Intensify monthly reporting that will be presented to the monthly EXCO meetings and the Board 31 October 2018

11. Cont… Investment of surplus funds The investment policy shall be updated with the amendments to include all the compliance requirements including the Treasury Regulations and PFMA. 31 March 2019 Preference points calculated incorrectly (quotations) SCM will make use of a manual point system calculation to verify the system generated calculations; and The process of procuring an Enterprise Resource Planning system is in progress. Immediately

12. AUDIT ACTION PLANS – 2017/18 CSOS has responded to the audit findings raised in 2017/18 by implementing a number of initiatives, these initiatives are cited below:  HUMAN RESOURCES AND SKILLS The following key permanent resources have been secured during the 2017/18 financial year in order to bring both additional capacity and the required skills/experience to address the issues raised by the AG as well as to increase capacity within the organization for compliance: Chief Audit Executive Executive: Governance, Compliance and Enforcement Two Senior Accountants Two Finance Administrators  18 Position will filled before the end of the financial year

13. Cont… The following control to the environment has been introduced: Since November 2017, the finance department improved on the segregation of duties due to recruitment of personnel in the finance department; The finance department has developed a checklist for payments to be made which is to be attached to all payments to be processed effective 01 October 2018; A separate database was created specifically for the levy allocation to community schemes registered and the issue of levy receipt statements quarterly; The manual system of having an index will eventually fall away once the procurement of the ERP is finalized; and This will allow for significant improvement to document management, reconciliation and auditing.

9. CONCLUSION The CSOS’s audit turnaround strategy does not only focus on the findings raised by the Auditor-General but holistically looks at arears that have a significant impact on the achievement of the organizational goals. Governance, Compliance and Risk management have been prioritized. Focus is made to ensure that the organization is capacitated and this includes regional offices. Procurement and Implementation of Key Core Systems; The Department will second 3 governance and financial specialists to CSOS in two weeks time. A draft report from Grant Thornton on the VBS investment has been presented to Minister and DG, it will now be presented to the Board.

10. RECOMMENDATION It is recommended that the Portfolio Committee takes note of the progress made with regards to Turn-around Strategy to address corporate governance challenges and Auditor-General’s findings.

Thank you