North West Human Settlements

1. North West Human Settlements Winding down of the North West Housing Corporation

2. Contents • Section 2 – Technical • Section 1 – Introduction • Section 3 – Financial • Section 4 – Legal • Section 5 – Other matters

3. Section 1 – Introduction Considerable progress has been done, in a very difficult operating environment

4. Intro - Background • Premier State address – wind down NWHC 2009/2010 • Service Provider was appointed in November 2010 • Key objectives of the assignment: • Complete an Asset Register (incl. verification, valuation) • Due Diligence reports • Finalisation of the audit (incl. Revenue Management) • Legal close of the NWHC • Transfer of assets (to Province or other departments)

5. Intro – End onjective in mind • In terms of the ‘Repeal Bill’ • Wind down of the NWHC will be achieved through the enactment of the disestablishment bill of the NWHC, also giving effect of • Asset side: Transferring all rights and assets of the NWHC to the North West Department of Human Settlements, and • Liability side: Vesting the obligations and liabilities of the NWHC to the Department • Our strategic approach therefore looks into the asset side & liability side

6. Intro - Wind down process & scope Before wind down Point of wind down * Property Verification (Physical) Reconstruct asset register Property Verification (Desktop) Property Valuation (Desktop) Technical Complete Asset Register * * Overall audit preparation Revenues - Cash flow analysis Audited Financials Fair value assets and liabilities Finance Cut-off wind down values * * Forensic review NWHC Legal claim NWHC properties Validity liability, litigation & contingency Transfer of assets & Liabilities Legal Revenue recovery Legal Legal wind down of the NWHC * * * * Communication & awareness Help Desk – Manage Liability Revenue Potential Surveys Help Desk – Asset Verification General Public Residents dispute resolution - Revenue enhancement portion - Included in the scope of Service Provider

7. Intro - Progress • Considerable progress has been done to date • Technical • 24 753 desktop verifications, 13 663 asset files captured, engaged with 9 municipalities • Finance • Financial due diligence, pre-audit started, financial close strategy presented • Legal • Draft repeal bill, understanding of litigation, Legal due diligence

8. Intro – Environment & Challenges • Institutional knowledge – no existing staff or documentation • Key Service providers – non-cooperation, non-payment • Financial statements – qualified audits, lack of reliability • Communities – disgruntled, need property transfers, in the dark • Municipalities – disputes on properties • Audit – lack of sign-off for go ahead

9. Section 2 – Technical Section Reconstructed an asset register, based on a combination of property files at the NWHC and information from Municipalities. Data desktop verified around 24 753, files captured around 13 663

10. Approach to property register Multiple sources of information, with a view of corroboration in complete preparation of an asset register 10 171 properties 13 663 properties 12 390 MAP estimate Microzone – 8000 guestimate 24753 properties

11. The Technical Framework • The reconstruction of the NWHC Asset Register revolved around 9 Local Municipalities and one Metropolitan Municipality. • 9 municiplaiteis have been visited thus far, with a view of obtaining corroborating information Property information (municipal sources) • Tshwane 13 813 • Rustenburg 1,696 • Moses Kotane1,111 • RamotshereMoiloa896 • Ditsobotla1,615 • Greater Taung217 • Mafikeng 2803 • Tswaing805 • Mangaung1143 w 24753 properties 14 291 new stock 9 832 old stock 5 863 still with municipality

12. Property capture from files u Property physical files • A total population of about 22 136 files, of which 13663 have been converted into an asset register database Files from the NWHC • Vacant sites –3 560 • Rental Stock –2 767 • Old Stock –3 844 Note: the above is a combination of summaries and property lists 13 663 properties v 10 171 properties

13. x • Lack of information from prior year Service Providers (MAP, Microzone) 8000 - 12000 properties min 12 277 MAPproperties estimated 8 000 Microzone - guestimate 6518 – 4959installment stock 913 Vacant site 2539 Old Rental Stock 3866 New Rental Stock 2009 Physical files y • No financial closure with respect to a help desk to obtain tenant corroboration and property verifications Dependent on call centre

14. The Way Forward • Cleans all lists and cross reference for accuracy • To expedite the desktop verification (24 753 desktop verification have been conducted for Tshwane) with the aim to identifying properties that are still held in the name of the respective municipalities. • Review information request from municipalities, drive continuous and timeous cooperation with respec to property lists • Assitance through Help Desk to perform the physical verification

15. Challenges • More property individual files are being found across regions • Another estimated 8700 at Head Office • Indication of addition files at regional offices • Concern from residents of the occupancy process and timing • No clarity on the legal authority of the NWHC over properties categorized under various municipalities • Misrepresentation letters purporting to be the NWHC Service Provider and property verification agents • Outstanding tenant property transfers, for sales historically made and paid for

16. Section 3 – Financial Section Conducted the financial due dilligence and developed a finance strategy that revolves around finalisation of the audit process. Lack of supporting documentaiton and auditing of assets remain key areas of contention

17. Background • Conducted due diligence, reflecting historic financial affairs • Due diligence depict decline in business activity • Debate around whether inherent value in NWHC (assets) • Three years, 2009, 2010 and 2011 remain unaudited • The financial close strategy dependent on the reinstatement of MAP system • Pre-audit has begun despite outstanding MAP, focusing on obtaining supporting documentation for: • Assets and Income cycles • Liabilities, Contingencies and Expenses • Auditor General would take 6 to 8 weeks to audit year fin. year • Pre-audit strategy to reduce this timeline, why cant the 2009 audit be conducted?

18. Assets (Financial side) Understatement of assets (assets not recorded on balance sheet) ? Mismatch Book value and Fair value Receivables and property information Assets • Book value has been decreasing 2007-2009 (reducing equity gap) • Balance as at March 2009 – R203mn (unaudited) • Book value just above R100mn significantly less after R99mn (Local Gov Houses) • Assets = Revenue Driver Strategy to determine fair value NB and coincides with Asset Register compilation process

19. Liabilities (Financial side) Understatement of liabilities (e.g. unrecorded sold properties) ? Liabilities • 4 creditors account for 61% of debt • Problematic creditors include: • Suspense accounts • Sundry creditors • Interbank transfers • Debt reduction strategies can reduce the gap between Assets and Liabilities • Liabilities linked to expenses, expense reduced as operations ceased

20. Revenue Collection Revenue make-up Supported by • Installment debtors • Rental debtors Monies collected • Mainly random deposits (some in suspense accounts & unreconcilled) • MAP key to determining pattern

21. Status of pre-audit Initial indications are that most of the audit qualification points will remain up to the point of wind down Pre-audit has begun with initial information request on the Asset-Income side and the Liability-Expense side Lack of availability of supporting information still exists Lack of availability of MAP audit of preparation of debtors book MAP also key for rental and installment sale inventories, forming part of asset register Lack of supporting documentation from 3rd party sources, mainly internal documents Some assets and income transactions recorded off balance sheet, and hence not recorded Remaining lack of controls and non-compliance with PFMA, as compliance documentation continues to exist

22. Key Concerns No confirmation and resolutions with respect to MAP Slow response rate with respect to request for financial supporting documentation Lack of 3rd party corroborating information (e.g. municipalities, individual debtors statements) Lack of co-operation from previous service providers. Some transactions are off balance sheet Existence of inherent prior year errors, audit qualifications and suspense accounts No resolution from the auditor general wrt. Finailisation of the audit (disagreement with approach)

23. Section 4 – Legal Section Conducted the legal due dilligence, drafted the repeal bill and attended to litigation matters

24. Background • State owned entity – created in terms of an Act of Parliament • In order to wind down • Repeal of the statute • Disestablishment of the entity • A Bill has been drafted and submitted to the Office of the State Law Adviser • Depending on wind down strategy, The Assets and Liabilities of the Corporation as at date of wind down have to be transferred to a designated Department

25. Challenges In order for the Bill to be passed: • an asset register needs to be completed • have to be clear on the liabilities as at date of wind down • required in order to determine the liquidity of the North West Housing Corporation – by determining the solvent or insolvent state of the Corporation

26. Liabilities • Litigation ongoing – this may take at least 12 to 18 months to complete • This is being handled by more than one attorney • Challenge – The Corporation doesn’t have a complete record of these litigation matters • We are currently attending at attorney’s offices in order to determine the extent of the liabilities and compile a record, i.e. determine if the matter can be settled, prospects of success in each matter where it has been defended. • Estimated time to completion – 2 months

27. Liabilities • There are matters where the Corporation is being sued and it has not defended the matter. • In some cases we find that there is no record of these matters against the Corporation. • We have to go to the Plaintiff’s attorneys in order to get this information • Estimated time to completion – 1.5 months

28. Liabilities • We discovered that there are monies owed to private parties in order to finance salaries amounting to R3,500,000.00. • In such cases: • no loan agreement • no board resolution • non compliance with PFMA • payment of this loan is not clear • loan at a managerial level, not even at a board level • creditor is now claiming his money, and it is an issue that needs to be resolved.

29. Challenges in respect of the Act • In the North West Housing Corporation Act, procedures set out: • Discovered that these procedures as outlined in the Act have not been followed • numerous properties were transferred without following correct procedure • properties which should have been transferred have still not been transferred • no record of transfer exists in such circumstances • occupants of current stock are in some instances not the lawful occupiers of the leasehold properties (Tshwane Municipality, Taung Municipality) • Miscommunication (e.g. unauthorised notices) in the communities, creating tension between community members, the Department and the Service Provider (i.e. free transfer of properties without verification) • how tenders will be adjudicated • matters related to board resolutions • adjudication of matters • disposal of assets • delegation of powers • how agreements should be signed (2 persons)

30. Section 5 – Other Matters Help Desk, Communication strategies, occupational surveys, project timelines and delays

31. Other Matters Help Desk • Refine scope wrt supporting Service Provide Mandate • Need to establish a help desk to ease communities • Additional information source for preparation of asset register • Key component of Revenue enhancement strategy Communication strategy • Co-ordination with Departments and wrt Service Provider Scope • Department of Human Settlements ownership as stakeholder Occupational Surveys - Tshwane • Priority, but not priced in current Bid • Can bolt onto the physical verification process

32. Help Desk - Model initial interaction and receipt of customers queries, plus related response Customer interaction Share-Call Number 0861 100 1234 NWHC Contact Centre Mafikeng Head Office Regional Offices

33. Project Timeline and delays • Given the above challenges the project cannot be completed by end of June 2011, • Key delays include: • Efficiency in information flows • Factors outside the Service Provider scope • payment for of MAP • Extend and costs of the Help Desk • Extent and cost for communication strategy • No responses from the previous Service Providers (lack of cooperation, pending litigations) • Times associated with engagement with municipalities • Delays with treasury regarding audit kick-off