ANNUAL REPORT FOR 2013/14 Presented to Portfolio Committee on Human Settlements on 15.10.2014

1. ANNUAL REPORT FOR 2013/14 Presented to Portfolio Committee on Human Settlements on 15.10.2014

2. TABLE OF CONTENTS • PART A : OVERVIEW OF THE ORGANISATION • STRATEGIC OVERVIEW • LEGISLATIVE AND OTHER MANDATES • GOVERNANCE • FOREWORD BY CHAIRPERSON • CEO’S OVERVIEW • PART B : PERFORMANCE INFORMATION • STRATEGIC OUTCOMES ORIENTED GOALS • PERFORMANCE INFORMATION BY PROGRAMME • SOCIAL HOUSING INVESTMENT PROGRAMME • INSTITUTIONAL INVESTMENT PROGRAMME • REGULATIONS PROGRAMME 2

3. TABLE OF CONTENTS CONT. • PART C : ANNUAL FINANCIAL STATEMENTS • 11. COUNCIL RESPONSIBILITIES AND APPROVAL • 12. AUDIT, FINANCE AND IT COMMITTEE • REPORT FROM EXTERNAL AUDITORS • COUNCIL’S REPORT • STATEMENT OF FINANCIAL POSITION • STATEMENT OF FINANCIAL PERFORMANCE • STATEMENT OF CHANGES IN NET ASSETS • CASH FLOW STATEMENTS • ACCOUNTING POLICIES • NOTES TO ANNUAL FINANCIAL STATEMENTS 3

4. 1. PART A : ORGANISATIONAL REVIEW (THEME OF ANNUAL REPORT AND STRATEGIC OVERVIEW) • THEME OF THE ANNUAL REPORT • The theme of SHRA’s annual report is “Striving towards Synergy” because the concept is in keeping with that of social housing, the sector and the organisation of “Working together to achieve more”. • The aim of social housing is : • to provide housing opportunities for low to medium income households, • restructure cities and empower residents, • provide clean, healthy and save environments within proximity to services, transport routes, clinics, schools and economic opportunities • Social housing sector consists of many role-players and each contribute to holistic system • STRATEGIC OVERVIEW • SHRA is a Schedule 3A public entity in terms of PFMA Act 29 of 1999 and was established in August 2010 by the Minister of Human Settlements in terms of the Social Housing Act 16 of 2008 • SHRA is responsible for regulating the social housing sector in South Africa and administer and approve disbursement of Restructuring Capital Grant ( ie capital and institutional investment grants) 4

5. 2. PART A : ORGANISATIONAL REVIEW: LEGISLATIVE AND OTHER MANDATES • LEGISLATIVE AND OTHER MANDATES • SHRA derives its mandate from the following legislation and policy: • The Constitution of RSA No 108 of 1996 • The Social Housing Act No 16 of 2008 • The Housing Act, No 107 of 1997 as amended • The Rental Housing Act No 50 of 1999 as amended • The Public Finance Management Act No 1 of 1999 • Comprehensive Plan for the Development of Sustainable Human Settlements : Breaking New Ground, 2004 • The Social Housing Policy, 2005 • The National Housing Code,2009 • The National Development Plan 2030 5

6. 3. PART A : ORGANISATIONAL REVIEW: GOVERNANCE • COUNCIL MEMBERS • The Council which was appointed ito Sec 9 of the Social Housing Act, serves as the Accounting Authority ito the PFMA and Shareholder Compact Agreement. • The Members of Council are : • Ms ZohraEbrahim who is Chairperson; • Ms MaphuthiLamola; • Ms NontutuzeloMbiza; • Adv Seeng Ntsaba-Letele (Acting CEO); • Ms Sharon Trail; • Mr Ahmed Vadwa; • Adv CollenWeapond; and • Ms MapulaHlaba (Company Secretary) • The Council’s responsibility is to ensure that SHRA’s mandate and strategic objectives are met and state’s investment is protected. 6

7. 4. PART A : ORGANISATIONAL REVIEW: FOREWORD BY THE CHAIRPERSON • Highlights from the Chairperson’s foreword • The Council’s term was extended by the Minister in July 2014 after serving three years; • The 2013/14 year was a difficult year whereby the CEO and CSM were suspended in Dec 2013 which impacted on ability of SHRA to meet its performance targets. Acting CEO was appointed by Council and CSM resigned and CEO’s case is continuing. • Council is proceeding with legal and criminal proceedings • Aspects of project selection and implementation especially the Provincial Special Projects were identified as risk • Steps taken to enhance internal control environment especially area of project management and disbursement of funds • SHRA received a high number of applications for accreditation. 47 out of 60 achieved accreditation status • Financial performance of Social Housing Institutions (SHIs) remain healthy and robust • The target sector threshold for rental collection rate is 83% and has been achieved across the sector. • SHRA approved 2279 units under SHIP 4b and large number of these projects are in Johannesburg • First SHIP project situated in North West in mining town of Klerksdorp was approved under SHIP 4b • SHIP 4a did not yield any projects qualifying for grant awardthus SHRA was unable to reach target of 5 429 units 7

8. 4. PART A : ORGANISATIONAL REVIEW: FOREWORD BY THE CHAIRPERSON CONT… • Highlights from the Chairperson’s foreword • A pipeline has been developed in partnership with Provincial Steering Committee and has potential to deliver 25 000 units in next 4 years. • SHIs have implemented energy efficient measures and SHRA’s technical specifications incorporate greening elements • SHRA contributed to the Rental Housing Amendment Bill tabled at Parliament • Establishment of Rental Tribunals will add value to SHRA’s work in regulating the sector • SHRA has worked with South African Housing Co-operatives Association to develop strategy to include co-operatives in the sector • SHRA is moving into organisational effectiveness by looking at automation of certain key functions and revision of organisational structure. • Internal collaboration and greater stakeholder engagement will be prioritised in an effort for “striving towards synergy” • Annual report should be reviewed with understanding of difficulties the organisation faced. • Since the Minister’s Budget Vote speech, the Council is of the view that SHRA is expected to work closely with the National DHS to align its mandate and delivery in line with targets set in MTSF 2015-2019 8

9. 5. PART A : ORGANISATIONAL REVIEW: CEO’s OVERVIEW • Highlights from the CEO’s Overview: • Priority was to stabilise the organisation and ensure continued delivery. • Since inception, SHRA has approved 12 429 units which totals R1.6b in RCG • Going forward SHRA’s focus will be to integrate our work and greatly expand our reach by ensuring protection of public funds invested in social housing by: • Promoting comprehensive property risk management; • Certainty of rent collection • Security of tenure • Creation of equity and maintenance of properties • SHRA will regulate the sector for the benefit of low to middle income earners also ensuring financial viability of SHIs • The sector will be capacitated through training and financial assistance to achieve project readiness and turnaround of distressed SHIs. • Long term accreditation would be introduced for fully accredited institutions and would be aligned to ISO and EAAB standards as our SHIs are Estate Managers • Priority will be on mass delivery of well located rental housing stock in areas of high economic activity • Financial models will be developed that would link the rental and income bands to the grant and engage the Department on adjustment of income and rental bands • SHRA will work and agree with Provinces and Municipalities on role played by individual entities in delivery of social housing • SHRA will initiate extensive stakeholder engagements to create an enabling environment for delivery of social housing units and alignment of SHRA and Provincial pipeline 9

10. 6. PART B : PERFORMANCE INFORMATION : STRATEGIC OUTCOMES ORIENTED GOALS 10

11. 7. PART B : PERFORMANCE INFORMATION BY PROGRAMME • SHRA’s PROGRAMMES • The SHRA operates three core programmes, namely: • Investment Programme : The approval, administration and disbursement of the RCG • Regulations Programme : Comprising of Accreditation and Compliance Monitoring of social housing projects and institutions • Institutional Investment Programme : The approval, administration and disbursement of Institutional Investment grants • These core programmes are supported by the Corporate Services Programme which comprises of Finance, Information Technology, Human Resources and Supply Chain Management . • The head count of the establishment at the end of the year under review was 27 out of a total of 36 positions with 9 vacancies 11

12. 7. PART B : PERFORMANCE INFORMATION BY PROGRAMME CONT.. • Social Housing Investment Programme (SHIP) 12

13. 7. PART B : PERFORMANCE INFORMATION BY PROGRAMME CONT.. • Interventions (Institutional Investment ) Programme • Regulations Programme 13

14. 8. PART B : PERFORMANCE INFORMATION : SOCIAL HOUSING INVESTMENT PROGRAMME (SHIP) • Purpose of SHIP • The approval, administration and disbursement of the Restructuring Capital Grant (RCG), • The programme calls for project proposals during the year which undergo independent assessment for organisational sustainability, project technical feasibility and financial viability. • The projects that are successful in this assessment and selection process are awarded the RCG, subject to meeting Conditions Precedent and Financial Closure. • Projects that are not located in Restructuring Zones are not considered further but those that meet the basic requirements but are not yet viable are placed on the project pipeline for further monitoring and future consideration. • These pipeline projects may then also potentially qualify for assistance in terms of the institutional investment programme where project feasibility grants are awarded to prepare social housing projects for implementation. • The RCG grants are proactively managed throughout the projects’ lifecycle and grant tranches released on achievement of specific criteria as work progresses. Once initial tenanting is undertaken these projects, or social housing estates, are transferred over to the Regulatory Unit for compliance and monitoring. 14

15. 8. PART B : PERFORMANCE INFORMATION : SOCIAL HOUSING INVESTMENT PROGRAMME (SHIP) • Overview of the Programme • The SHRA has successfully managed four funding cycles a summary of the programmes that have been funded is presented below: • Of the 12,429 units approved to date, 2357 have been completed, 5932 are under construction / semi-tenanted and 4140 are still in the planning stages or were awarded in the year under review. • The internal control environment involving disbursement of the RCG has been reviewed and enhanced to reduce risk, for example the policies and contractual agreements have been altered to ensure all new projects are undertaken in a more controlled environment. 15

16. 8. PART B : PERFORMANCE INFORMATION : SOCIAL HOUSING INVESTMENT PROGRAMME (SHIP) CONT.. • SHIP Performance • RCG Awards • Two ‘Calls for Proposals’ were published in the year under review (ie Ship 4a and 4b). • None of the projects under SHIP4a met grant qualification status as they were not technically and / or financially feasible • Projects submitted, that had potential and are located in a Restructuring Zone, but not approved were included in the project pipeline. • The projects awarded under SHIP 4b are presented below: 16

17. 8. PART B : PERFORMANCE INFORMATION : SOCIAL HOUSING INVESTMENT PROGRAMME (SHIP) CONT.. • SHIP Performance • Project Expenditure • The table below represents the expenditure on the SHIP projects during the year under review: 17

18. 8. PART B : PERFORMANCE INFORMATION : SOCIAL HOUSING INVESTMENT PROGRAMME (SHIP) CONT.. • SHIP Performance • Pipeline Planning • Pipeline of projects has been developed to mitigate the risk of achieving the required delivery of social housing units and to develop a much more integrated and thorough planning process and move away from the Call for Proposals process • The SHRA has proactively engaged with 5 out of the 9 provinces and will continue to engage with the other 4 provinces to ensure that a reliable National Social Housing Pipeline of projects is developed. • This will assist the SHRA to proactively invest in the social housing sector as well as ensuring alignment of all Provincial Business Plans. • Sustainability • The sector has a broad view of sustainability which includes Green Buildings, orientation of buildings in relation to the sun, landscaping, use of material, energy conservation and water conservation. • All Social Housing Projects are to comply with SANS 10400 and in addition SHRA expects all Grant Recipients to proactively include other sustainability measures to reduce the carbon footprint of Social Housing Projects. • To date, some Social Housing Projects have included: water tanks, solar water geysers and heat pumps. The SHRA is currently consider participating in a number of greening research initiatives 18

19. 8. PART B : PERFORMANCE INFORMATION : SOCIAL HOUSING INVESTMENT PROGRAMME (SHIP) CONT.. • SHIP Performance • The year ahead • The SHRA constantly looks for ways to improve the SHIP programme and plans to benchmark processes against other funding agencies both locally and internationally. • SHRA, has plans in the ensuing year to map all key processes and undertake automation of processes which will lead to greater efficiencies and capacity to handle an increase in the number of projects. • An automated investment business information system will cover the following processes: Call for Proposals, Compliance of RCG Contracts, Pipeline Pre-assessment and Management of the Pipeline. • This will also allow a level of self-monitoring by the grant recipients on their Compliance Status to track their progress in line with their contract obligations. 19

20. 9. PART B : PERFORMANCE INFORMATION : INSTITUTIONAL INVESTMENT PROGRAMME (IIP) • Purpose of the Programme • The IIP manages the approval, administration and disbursement of the Institutional Investment grants. • The programme is designed to ensure that social housing institutions acquire the expertise, skills and operational capacity to manage sustainable entities capable of developing feasible projects. • It is managed as a grant programme and therefore award is based on the applicant qualifying for grant status upon meeting certain criteria. • The IIG supports and capacitates the sector to ensure an enabling environment for projects. • Grants • The programme makes provision for the following grants: • Project feasibility grants for fully or conditionally accredited SHIs to assist projects almost ready for the RCG • Gear-up grants for fully or conditionally accredited SHIs where assistance is provided to SHIs such that projects may be implemented and managed effectively and efficiently, • Specific intervention grants to SHIs where all other proposals submitted for potential assistance could be considered • A separate budget for this programme was never ring-fenced to specifically make provision for the grants although SHRA confirmed targets for the various grants in the Annual Performance Plans. 20

21. 9. PART B : PERFORMANCE INFORMATION : INSTITUTIONAL INVESTMENT PROGRAMME (IIP) CONT.. • Implementation of approved grants • Interventions into the potential turnaround of six (6) SHIs without conditional or full accreditation that received institutional subsidies prior to the establishment of SHRA were initiated during the financial year. • These were: • Polokwane Housing Association in Limpopo • Mbombela Housing Association in Mpumalanga • Govan Mbeki Housing Company in Mpumalanga • Steve Tshwete Housing Association in Mpumalanga • VusaniMadolobha Housing Company in Gauteng • Housing Company Tshwane in Gauteng • The major challenge for these SHI’s is the lack of performance related to the identification of and securing new social housing projects for implementation to ensure sustainability over the medium to longer term. 21

22. 9. PART B : PERFORMANCE INFORMATION : INSTITUTIONAL INVESTMENT PROGRAMME (IIP) CONT.. • Approval of grants • A project feasibility grant for Own Haven Housing Association was approved during the first quarter • Three project feasibility grants for Communicare were also approved during the year under review. • It is important to note that 11 applications for gear-up were received but none of these could be awarded, due to a lack of information provided to appropriately assess the requests • Legal opinion • A legal opinion was sought on what would be required within this programme to appropriately align it with the provisions of the Social Housing Act 16 of 2008 • The opinion confirmed that the current institutional investment programme was not aligned with what needs to be undertaken and as was envisaged in the Social Housing Policy. • The legal opinion confirmed that the current Institutional Investment Programme was not sufficient and that it needs to provide for the following grants, namely Gear-up grants, Project acquisition and feasibility grants , Pre-accreditation grants and Capacitation grants . 22

23. 10. PART B : PERFORMANCE INFORMATION : REGULATIONS PROGRAMME • Variance on performance • The shortfall on performance targets was largely due to: • the confirmation that no additional budget would be released by the NDoHS before additional internal controls had been implemented for the investment programme • Expenditure incurred using the RCG for other programmes incl IIP would be regarded as Irregular Expenditure • Institutional investment grants could not be approved without confirmation that an operational budget would be available for the implementation of these grants • The year ahead • The strategic goals set for the ensuing year relate to consolidation of the institutional investment programme to ensure that grants submitted may be appropriately evaluated and implemented • The first priority is to get the budget, in accordance with the Institutional Investment Plan, ring fenced and approved. The Institutional Investment Policy and Guideline will be finalised and approved by Council to ensure that, as soon as the budget is confirmed, work may proceed in accordance with the policy document. 23

24. 10. PART B : PERFORMANCE INFORMATION : REGULATIONS PROGRAMME CONT.. • Purpose of the programme • The Regulatory programme regulates the SHIs through accreditation, compliance and monitoring. • The SHRA is provided powers, through the Social Housing Act, to enforce compliance and intervene in cases of maladministration. • The purpose of regulation is to protect the state’s investment in social housing therefore ensuring longevity of the stock ensuring maximum benefit and to ensure the SHIs are managing the stock to achieve the desired impact of the social housing programme. • Accreditation • A total of 60 Institutions applied for accreditation the details are as follows:- • 43 Renewal Applicants • 16 New Applicants • 1 Co-operatives • Below is an Accreditation Growth Table 24

25. 10. PART B : PERFORMANCE INFORMATION : REGULATIONS PROGRAMME CONT.. • Regulatory Policies • The following five policies have been approved by Council and are in the process of being implemented: • Code of Conduct for Institutions Accredited with SHRA • Distressed SHI Policy • Legal Intervention Policy • Housing Co-operatives Policy • Forensic Investigations Policy • Rules and Forms on Disposal and Transfer of State Funded Stock • The SHRA has developed Draft Rules and forms for disposal and transfer of stock, the rules have been approved by the Executive Committee and the Council. • The Draft Rules will be gazetted for public comments during the second quarter of ensuing year. • SHRA is in a process of developing a financial model that will be used to engage with the sector on how the State’s investment will be valued • Tenant Income Audits and Satisfaction Surveys • SHRA has commenced with 14 Tenants Income Audits and Tenants Satisfaction Survey expected to be completed within the second quarter of 2014/15 25

26. 10. PART B : PERFORMANCE INFORMATION : REGULATIONS PROGRAMME CONT.. • Building Condition Audits • Thirteen BCAs will be conducted and the tools are expected to be refined during this process as well. • Regulatory Framework • The Regulatory Framework has been presented and discussed by the Regulations Committee; this document was presented as a Draft Framework as further consultation is due to take place • Outcomes of Verification and Action Plan • SHRA has completed the process of verifying the Gauteng based projects that were funded with public funds prior to the inception of the SHRA • The NDoHS has also provided the SHRA with a list of 390 social housing projects that received public funds in the other 8 Provinces in order for SHRA to commence the verification process of these projects • SHRA has opted for a strategy that is focused on reviving the provisionally accredited SHI’s based on the fact that the Provincial (Gauteng) Human Settlement Department had a more structured system than other provinces 26

27. 10. PART B : PERFORMANCE INFORMATION : REGULATIONS PROGRAMME CONT.. • Variance on performance • The Regulatory programme achieved its targets for processing and accrediting 100% of all applications. • More compliance audits were conducted therefore surpassing the set target. This was not initially anticipated but the tools developed are easy to use and understandable • The year ahead • Various aspects of the regulatory function has the potential to be automated such as accreditation and compliance reporting • A long term accreditation system is also hoped to be developed in the ensuing year to reduce reporting requirements particularly aimed at the fully functioning and well performing institutions • The SHRA also wishes to incorporate ISO standards in the regulatory environment in the move towards establishment of best practice and recognition 27

28. 11. PART C : AFS : COUNCIL RESPONSIBILITIES AND APPROVAL • In terms of Social Housing Act and Sec 51 of PFMA, Council is responsible for : • Maintenance of adequate accounting records, • Integrity of the annual financial statements, • Fair presentation of the state of affairs, operations and cash flows of the entity, and • Maintenance of system of internal financial controlsand strong control environment, • Setting standards of internal control aimed at reducing risks • The annual financial statements (AFS) have been prepared in accordance with Generally Recognised Accounting Practice (GRAP) including interpretations, guidelines and directive issued by Accounting Standard Board. • SHRA is wholly dependent on the National Department of Human Settlements for funding of operations. The AFS are prepared on Going Concern Basis and that the Department has no intention to liquidate or curtail materially the scale of entity • Council is supported by external auditors for independent review and reporting of AFS. The AFS were approved by Council on 30.07.2014 28

29. 12. PART C : AFS : AUDIT, FINANCE, RISK AND IT COMMITTEE REPORT • The Audit Committee has complied with its responsibilities as set out in Sec 55 (1) (a) (ii) of PFMA and Treasury Regulations 27.1 • The Audit Committee has reviewed and discussed the AFS with external auditors, reviewed the external auditors management repo and compliance with legal and regulatory framework. The Audit Comm also oversees the internal audit function. • Attendance of meetings during the year under review was as follows: 29

30. 13. PART C : AFS : REPORT OF EXTERNAL AUDITOR • REPORT ON AFS – AUDIT OPINION • External Auditors of SHRA are Ernest and Young and were appointed on 3 year cycle • SHRA received an UNQUALIFIED audit opinion on the AFS for financial year ended 31 March 2014 with: • An Emphasis of Matter on the Going Concern of the entity as a result of the Minister’s announcement in her budget Vote speech; and • Additional matters regarding reportable irregularities as a result of findings on Irregular Expenditure with regards to: • Provincial Special Projects (PSP) amounting to R93 603 283; and • Use of Capital budget for operational requirements amounting to R20 253 060 • The Emphasis of Matter and Additional matters raised DO NOT modify the UNQUALIFIED Audit Opinion 30

31. 13. PART C : AFS : REPORT OF EXTERNAL AUDITOR CONT.. • REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS • Report on Predetermined objectives • There were no material findings raised on the usefulness and reliability of the reported performance information • Compliance with laws and regulations • There were material findings with Expenditure Management regarding the prevention of Irregular Expenditure and Fruitless and Wasteful Expenditure which resulted in non-compliance with Sec 51 (1) (b) (ii) of the PFMA. 31

32. 14. PART C : AFS : COUNCIL’S REPORT • Highlights from Council Report: • Remuneration of Council and Executive Managers was as follows: • The CEO and CSM were placed on special leave in Dec 2013 pending disciplinary hearing and Adv Ntsaba-Letele appointed as Acting CEO. CEO contract expired end of Dec 2013 and CSM resigned in January 2014 • Council has 3 Committees, namely, HR Comm, Regulations Comm and Investment Comm • A total of 14 Council meetings were held of which 11 were special and 3 were ordinary meetings; Committees of Council had following meetings HR Comm 2 ; Regulations Comm 3 and Investment Committee 2 32

33. 14. PART C : AFS : COUNCIL’S REPORT CONT.. • Highlights from Council Report are : • Irregular Expenditure as disclosed was R113 861 343 (2014) and R826 570 877 (2013) and below is breakdown thereof: • * Includes Fruitless and Wasteful Expenditure of R144 000 of which R59 755 040 (2014) and R85 000 000 (2013) iro transfer of funds to Marang Estate Development Project 33

34. 15. PART C : AFS : STATEMENT OF FINANCIAL POSITION • SUMMARISED STATEMENT OF FINANCIAL POSITION 34

35. 16. PART C : AFS : STATEMENT OF FINANCIAL PERFORMANCE • SUMMARISED STATEMENT OF FINANCIAL PERFORMANCE 35

36. 17. PART C : AFS : STATEMENT OF CHANGES IN NET ASSETS 36

37. 18. PART C : AFS : CASHFLOW STATEMENT • * Grants in 2014 was R214 151 000 which comprise % compared to grants of R1,1bn in 2013 which comprised of % • # Surplus funds worth R170 628 829 were returned to National Treasury 37

38. 19. PART C : AFS : ACCOUNTING POLICIES • The AFS were prepared in accordance with the following Standards of Generally Recognised Accounting Practice (GRAP): • Grap 01 : Presentation of AFS • Grap 13 : Leases • Grap 17 : Property Plant and Equipment • Grap 19 : Provisions and Contingencies • Grap 21 : Impairment of Non-Cash generating Assets • Grap 23 : Revenue from Non-Exchange Transactions • Grap 25 : Employee Benefits • Grap 31 : Intangible Assets • Grap 104 : Financial Instruments • None of the new Standards and Interpretations were applicable to SHRA 38

39. 20. PART C : AFS : NOTES TO AFS 39

40. 20. PART C : AFS : NOTES TO AFS CONT.. 40

41. 20. PART C : AFS : NOTES TO AFS CONT.. 41

42. END OF PRESENTATION • THANK YOU AND QUESTIONS 42