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North West Human Settlements. Winding down of the North West Housing Corporation. Contents. Section 2 – Technical. Section 1 – Introduction. Section 3 – Financial. Section 4 – Legal. Section 5 – Other matters. Section 1 – Introduction. - PowerPoint PPT Presentation
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North West Human Settlements
Winding down of the North West Housing Corporation
Contents
• Section 2 – Technical
• Section 3 – Financial
• Section 4 – Legal
• Section 5 – Other matters
• Section 1 – Introduction
Page 2
Section 1 – Introduction
Considerable progress has been done, in a very difficult operating environment
Page 3
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)
Page 4
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
Page 5
Intro - Wind down process & scopeTe
chni
cal
Tech
nica
l Fi
nanc
eFi
nanc
eLe
gal
Lega
l
General Public
General Public
Reconstruct asset registerReconstruct
asset register
Forensic review NWHC
Forensic review NWHC
Property Verification (Desktop)
Property Verification (Desktop)
Legal claim NWHC properties
Legal claim NWHC properties
Communication & awareness
Communication & awareness
Help Desk – Asset Verification
Help Desk – Asset Verification
Property Verification (Physical)
Property Verification (Physical)
Property Valuation (Desktop)
Property Valuation (Desktop)
Complete Asset
Register
Complete Asset
Register
Help Desk – Manage Liability
Help Desk – Manage Liability
Residents dispute
resolution
Residents dispute
resolution
Validity liability, litigation & contingency
Validity liability, litigation & contingency
Transfer of assets & Liabilities
Transfer of assets & Liabilities
Legal wind down of
the NWHC
Legal wind down of
the NWHCLegal Revenue
recoveryLegal Revenue
recovery
Fair value assets and liabilities
Fair value assets and liabilities
Revenues - Cash flow analysis
Revenues - Cash flow analysis Audited FinancialsAudited Financials
Cut-off wind down
values
Cut-off wind down
values
Revenue Potential Surveys
Revenue Potential Surveys
*
* *
*
- Included in the scope of Service Provider - Revenue enhancement portion
Overall audit preparationOverall audit preparation
Point of wind downBefore wind down
*
* * * *
Page 6
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
Page 7
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
Page 8
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
Page 9
Approach to property registerMultiple sources of information, with a view of corroboration in
complete preparation of an asset register
24753 properties
13 663 properties10 171 properties
12 390 MAP estimateMicrozone – 8000 guestimate
Page 10
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)
1.Tshwane 13 813 2.Rustenburg 1,6963.Moses Kotane 1,1114.Ramotshere Moiloa 8965.Ditsobotla 1,6156.Greater Taung 2177.Mafikeng 28038.Tswaing 8059.Mangaung 1143
24753 properties
14 291 new stock9 832 old stock
5 863 still with municipality
Page 11
Property capture from files
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
10 171 properties
13 663 properties
Page 12
• Lack of information from prior year Service Providers (MAP, Microzone)
• No financial closure with respect to a help desk to obtain tenant corroboration and property verifications
min 12 277 MAP properties estimated
6518 – 4959 installment stock913 Vacant site2539 Old Rental Stock3866 New Rental Stock
8 000 Microzone - guestimate
8000 - 12000 properties
Dependent on call centre
2009 Physical files
Page 13
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
Page 14
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
Page 15
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
Page 16
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? Page 17
Assets (Financial side)
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
-
50 000
100 000
150 000
200 000
250 000
300 000
350 000
2009 2008 2007
Bala
nce
Shee
t Am
ount
Financial year
Reducing net worth - equity
Total Liabilities
Total Assets
R 19mnR 133mn
R 8mn
Strategy to determine fair value NB and coincides with Asset Register compilation process
Mismatch Book value and Fair value Receivables and property information
Understatement of assets (assets not recorded on balance sheet)
?
Page 18
Liabilities (Financial side)
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
Understatement of liabilities (e.g. unrecorded sold properties)
?
Page 19
Revenue Collection
Revenue make-upSupported by•Installment debtors•Rental debtors
R'000 2009 2008 2007 2006unaudited audited audited audited
Government Grant 3 186.9 344.2 3 325.5 15 350.3 Interest Received 15 482.7 7 105.8 19.7 3 611.9 Fixed Asset sales 7 672.1 7 010.5 1 344.6 -41.8 Property Sales 43 206.6 2 642.8 7 922.2 1 377.9 Rent Received 24 657.5 12 058.3 17 326.1 17 043.1 Project sales - 16 146.1 30.0 65.0 Other 231.1 274.2 291.7 582.3
94 205.7 45 307.7 29 968.1 37 406.3
Cash Receipts 25 902.0 35 072.0 21 293.0 39 222.0
Cash conversion 0.27 0.77 0.71 1.05
FNB Account
Absa Account
Receipts FNB Account
Absa Account
Receipts
Apr-08 2 665.0 25.2 2 690.2 762.0 20.5 782.5 May-08 1 963.9 17.4 1 981.3 2 885.1 19.3 2 904.4 Jun-08 1 719.2 12.2 1 731.4 1 031.3 18.4 1 049.7 Jul-08 2 149.5 8.5 2 158.0 1 527.3 15.4 1 542.7
Aug-08 1 644.1 46.6 1 690.7 779.8 14.2 794.1 Sep-08 1 429.3 15.3 1 444.6 1 274.8 13.2 1 288.0 Oct-08 3 714.7 14.4 3 729.1 1 703.6 11.9 1 715.5
Nov-08 900.5 81.0 981.5 954.9 15.4 970.3 Dec-08 715.6 89.1 804.7 1 715.0 11.3 1 726.3 Jan-09 3 583.4 25.6 3 609.0 820.3 13.1 833.3 Feb-09 1 656.9 1 772.8 3 429.8 495.0 12.8 507.8 Mar-09 2 002.6 23.5 2 026.1 569.2 13.4 582.5
Total 24 144.7 2 131.7 26 276.4 14 518.3 178.9 14 697.2 Average 2 189.70 1 224.77
2009 2010
Monies collected•Mainly random deposits (some in suspense accounts & unreconcilled)•MAP key to determining pattern
Page 20
Status of pre-audit• 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
Initial indications are that most of the audit qualification points will remain up to the point of wind down
Page 21
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)
Page 22
Section 4 – Legal Section
Conducted the legal due dilligence, drafted the repeal bill and attended to litigation
matters
Page 23
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
Page 24
ChallengesIn 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
Page 25
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
Page 26
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
Page 27
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.
Page 28
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)
– disposal of assets– delegation of powers– how agreements should be
signed (2 persons)
– how tenders will be adjudicated
– matters related to board resolutions
– adjudication of matters
Page 29
Section 5 – Other Matters
Help Desk, Communication strategies, occupational surveys, project timelines and
delays
Page 30
Other MattersHelp 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 strategyCommunication strategy•Co-ordination with Departments and wrt Service Provider Scope•Department of Human Settlements ownership as stakeholderOccupational Surveys - Tshwane•Priority, but not priced in current Bid•Can bolt onto the physical verification process
Page 31
Help Desk - Model
Share-Call Number 0861 100 1234
NWHC Contact Centre
Customer interaction
initial interaction and receipt of customers queries, plus related response
Mafikeng Head Office
Regional Offices
Page 32
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
Page 33