N2 Gateway Project: Special audit: Auditor-General’s report interrogation

Public Accounts (SCOPA)

06 July 2009
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Standing Committee, together with the Portfolio Committee on Human Settlements, met to interrogate the Auditor-General’s report on the Special Audit of the N2 Gateway Project (the Project) at the National Department of Housing (as it was then named). Members raised a number of questions around the fact that the Project had started at a time when no policies and legislation were in place, why the company Cyberia had been appointed to manage the Project, despite it being ranked only sixth in the list of possible companies, its lack of capacity to undertake the project, and details of the company officials. The national Department answered that since it had been the responsibility of the City of Cape Town to appoint Cyberia, it was unaware of these details, whilst the City manager said that he was also unaware of the details because Cyberia was already in place by the time he was appointed. The Committee expressed severe displeasure with these answers, pointing out that all spheres of government must have been represented on the Steering Committee, and that it was unlikely that none of the spheres had retained copies of the documentation containing those details, which had been forwarded to the Auditor-General. They also questioned the lack of minutes of the Steering Committee, and the claim by the Department that the Steering Committee had continued after withdrawal of the City of Cape Town, as opposed to the Auditor-General’s comment that the Steering Committee had effectively ceased to function. Members interrogated whether the City had been “removed” from the project, as it claimed, or whether it had “withdrawn”, as claimed by the national Department. Questions were asked as to why the current project manager, Thubelisha, had not been appointed in terms of a tender process, why there was no formal contract, whether there was a formal business plan, why the Memorandum of Understanding, which was poorly drafted, had not yet been revised after 12 months, whether anyone had taken responsibility or had been disciplined in respect of the responsibilities that had not been fulfilled, and why the Department had denied non-compliance with the housing legislation.

After extensive questioning of all officials present, the Committee held a short, closed session, in which it determined that it was dissatisfied with
lack of coherence in the answers given, and the fact that so many questions simply remained unanswered, since the national Department, the provincial Department and the City of Cape Town were collectively responsible for the Project. The Committee wanted to discover what had actually happened, and sought assurances as to how the issues raised by the Auditor-General had been addressed to correct the deficiencies in implementation. The officials were dismissed, were asked to study the report fully, to confer and to be prepared to provide proper coordinated responses when the Committee resumed this hearing on 5 August.

Meeting report

N2 Gateway Project: Public hearing to interrogate Auditor-General’s special audit
The Chairperson introduced the matter by noting that the N2 Gateway Project (the Project) was a pilot project of the National Department of Human Settlements (formerly the Department of Housing), which had sought to address the challenges of housing in a new way. However, completion of the Project had been heavily delayed, and the Auditor-General’s (AG) report on the special audit of this Project had raised serious concerns about its management. He asked Members to interrogate the issues raised.

Ms L Mashiane (COPE) said that her questions would be focused on points raised especially on pages 12 and 13 of the AG’s report. She asked the Department of Human Settlements how some of the irregularities mentioned in the audit report had occurred.

The Chairperson interjected to ask the Department if, in the first place, it could confirm that enabling policies and legislation were now in place. 

Mr Itumeleng Kotsoane, Director General, Department of Human Settlements (DHS) replied in the affirmative.

The Chairperson pointed out that this question was asked since, at the beginning of the Project, enabling legislation had not been in place.

Mr Kotsoane replied that the Project was a pilot, and there had been only draft policy on social housing at the time.  

The Chairperson asked if it was proper to have begun the Project without firm legislation having been enacted.

Mr Kotsoane replied that the Joe Slovo part of the Project was but a small part of the N2 Gateway Project. He said that it was only in respect of the Joe Slovo phase that there had been no firm policy and enacted legislation in place by the time that construction had commenced. However, he affirmed that legislation had since been enacted.

Ms Mashiane asked for the name of the company appointed at the beginning of the Project.

Mr Kotsoane replied that the name of the company appointed by the City of Cape Town at the beginning of the Project was Cyberia.

Ms Mashiane asked also for the names of the company’s directors.

Mr Kotsoane replied that Cyberia had been appointed by the City of Cape Town, and he did not know the names of the directors.

Ms Mashiane said that this lack of knowledge would create problems. She pointed out that she had understood that this project was inclusive of all three spheres of government, notwithstanding that there was no policy in place when the Project was started. She asked why the national Department was not represented at the beginning of the Project.

Mr Kotsoane replied that the City of Cape Town (CCT) was the implementing agent, and had asked Cyberia to undertake the management of the project. The Province was to ensure that funds were available. The national Department of Housing (as it was then named) was to raise additional funding for the project. For these reasons it was not possible for him to give the names of the shareholders and directors of the company. Each sphere of government had a particular responsibility to fulfil, and he believed that each had done “exactly that”.

Ms Mashiane stated that she was not satisfied with this response. She said that for each housing project, steering committees were formed. Each sphere of government should have been represented in the N2 Gateway Project’s steering committee (SteerCom) in order to ensure that the Project gave value for money.

Ms Mashiane drew attention to page 13 of the AG’s report. She asked why the Cyberia company, ranked sixth in the list of companies evaluated for possible appointment, had nonetheless been appointed to undertake the project, above the other five other companies that had higher rankings.

Mr Kotsoane confirmed that there was a steering committee (SteerCom) on which the Department had been represented, along with the Province and the City of Cape Town (CCT) However, he reiterated that it was CCT that had appointed Cyberia. He asked if the Chairperson could request the view of CCT on this point.

The Chairperson asked CCT why it had appointed Cyberia, despite its sixth rank.

The officials from City of Cape Town who were present at the meeting indicated that they were unable to give the reasons, since none of them had been appointed until after Cyberia’s selection.

Ms Mashiane commented that the City Manager should have familiarised himself with the facts of the Project. She demanded that the Committee be given answers in writing to her questions within two weeks.

The Chairperson asked the City of Cape Town if there were no minutes of the SteerCom’s meetings.

The officials from City of Cape Town responded that CCT had been removed from the project in February 2006. It had carried out a forensic investigation, but these documents had been handed to the Auditor-General for his investigation. 

The Chairperson asked if these documents supplied to the AG would have contained information on why Cyberia had been appointed. 

The officials from City of Cape Town undertook to search for the required information and provide it to the Committee.

The Chairperson asked for Mr Kotsoane’s view. 

Mr Kotsoane replied again that the City of Cape Town had appointed Cyberia.

The Chairperson asked if SteerCom had played no role in the appointment of Cyberia as the project manager.

A representative from Department of Human Settlements responded that it had been left to the City of Cape Town to appoint the project manager.

The Chairperson asked for a response on this issue from the provincial government.

The representative from the Western Cape Provincial Department replied that the municipality was expected to follow its supply chain processes, and this had happened in this case.

Ms Mashiane said that the answers provided were unsatisfactory. 

Mr Kotsoane said that the scope of the Project had become larger. Initially, precinct 1 involved the piloting of social housing. That had resulted in the need to amend plans and increase the scope of the Project. 

Ms Mashiane asked if there did not seem to be something “sinister” in the whole Project, in terms of the applicable legislation. She also proposed that the Committee should insist on being informed of the name of the current project manager. She asked why no tender process had been followed in the appointment of the current project manager; and asked that Mr Kotsoane and the City Manager specifically write down this request.

The Chairperson interrupted to suggest that the Committee establish firstly whether any answers would be forthcoming from the officials at the meeting.

Mr Kotsoane replied that the current project management company was Thubelisha Homes, a Section 21 State company that was accountable to the national Department of Human Settlements. It had been appointed by various provinces to rectify building projects. He explained that MinMEC, a Committee consisting of the Minister and provincial Members of the Executive Committees, had decided in 2006 that this State company be enlisted to manage the N2 Gateway Project.

Ms Mashiane asked why due internal process was not followed.

Mr Kotsoane replied that there had been a lengthy discussion in the Office of the Auditor-General on this issue. The Department had premised its case not to follow the normal processes on the basis that Thubelisha Homes was a State company, formed to perform the particular function of closing an identified gap in the market. However, the AG had taken a different view. The Department respected the differing view and had undertaken to regularise its approach. 

Ms Mashiane said that it appeared that there had been no contract between the national Department of Housing and the Project manager, and asked why this was so.

Mr Kotsoane replied that there was a contract between the Province and Thubelisha Homes, following the withdrawal of the CCT from the Project.

Ms Mashiane said that she was not asking why the contract was not with CCT. She was asking why, as pointed out by the AG, there was no contract. It was necessary to draw up a new contract for every project, regardless of whether the company concerned had fulfilled other contracts for the Department. She asked how, in the absence of such a contract, the national Department would be able to take the other party to court in the case of non-fulfilment of obligations.

The Chairperson opined that there was no disputing the lack of a contract.

Mr Kotsoane replied that he was advised by the Province that there was a contract, but what had been lacking was a business plan.

Mr N Singh (IFP) commented that this was a classic case of corporate governance gone wrong. Someone must give an answer. He noted that surely these three spheres of government had received the Auditor-General’s report in good time, so the questions being posed by Ms Mashiane were nothing new. By now he would have expected the three spheres to have compiled a thick file of answers.

Mr Singh asked if politics had played any part in the Project. 

Mr N Du Toit (ANC) said that a substantial amount of money had been lost. He asked the officials if anyone had taken responsibility for this, and if anyone had been disciplined. He asked if the CCT had been removed, as the City had suggested, or whether it had withdrawn, as Mr Kotsoane had stated. He was concerned that nobody was willing to tell the Committee who had taken the decisions mentioned in the Report. He asked when CCT had ceased to be represented on the SteerCom.

The Chairperson said that he wanted questions to be directly related to the management of the Project.

Ms T Chiloane (ANC) referred back to Ms Mashiane’s question about the contract between the three spheres of government and the project manager. She asked Mr Kotsoane if the business plan had been drawn up on the AG’s recommendations.

Another Member referred back to the question of Cyberia being ranked sixth by the evaluation committee, and the excuses that had been made for the information on this not being available. She asked if there was no reporting mechanism. She reiterated that she and other Members wished to know why the company ranked in sixth position had been given the project. She did not find the excuse of “Don’t ask me, ask them” to be acceptable.

A Member asked if CCT had received back the documents that it had sent to the Auditor-General.

A representative of the Office of the Auditor-General confirmed that the City of Cape Town had commissioned the forensic investigation into why Cyberia had been awarded the contract, but, because of lack of sufficient documentation and the lack of reconciliation of the role players involved, the investigation had been inconclusive. That investigation had been conducted by an independent, outside organisation.

The Chairperson asked who appointed Cyberia and how this was done. He commented that if CCT had indeed appointed Cyberia, it seemed strange that the investigation was deemed inconclusive by reason of lack of documentation.

The AG’s representative confirmed that the evaluation committee had ranked Cyberia sixth. It appeared that the evaluation committee had then submitted that information to the Goods, Services and Property Advisory Board, which had then recalculated the scores and, despite the fact that it had only advisory powers, had recommended the appointment of Cyberia. Based on that recommendation, the Supply Chain Management Committee awarded the contract to Cyberia.

A Member asked if CCT and Mr Kotsoane could produce the memorandum of understanding. He also asked if CCT could give proof that it was “removed” from the project. It was unacceptable for the City Manager to tell the Committee that he could take no responsibility for supplying answers because he was not in office at the time. When that individual took the office, he also took on the responsibility, and the Project was CCT’s responsibility.

Mr M Steele (DA) asked if the process of removing Cyberia and replacing it with Thubelisha was based on an evaluation, and if anyone had been held accountable.

Mr Singh said that before 2006 CCT had different political masters. It was to be borne in mind that the investigation of Cyberia took place under a new political regime. This was material to the subject under discussion, and full answers were required.

The Chairperson reiterated the point made earlier that Mr Kotsoane had reported that the City of Cape Town had “withdrawn”, whereas CCT had said that they had been “removed”. According to the Memorandum of Understanding, the City was supposed to deal with matters of implementation. In terms of the Social Housing Act, 2008, local municipalities were to be the implementing agents. However, it appeared that politicians at the MinMEC level had taken the decision. He asked for a focused answer to his question on whether the City of Cape Town withdrew from the Project, or was removed from it.  

Mr Kotsoane said that after the 2006 municipal elections questions were asked about the Project. Issues of corruption were raised. The political atmosphere was affecting the operation of the project. MinMEC therefore advised that the Project should “let them (CCT) go”. Thubelisha Homes was then appointed to manage the project. He said that it was more of a political challenge than an administrative challenge.

Ms Mashiane said that the officials present from the three spheres of government had obviously not met with each other before this meeting. She still had not received answers to her questions, including her question on whether the business plan was the result of the Auditor-General’s intervention. There were far too many excuses being proferred. In her view, the officials should prepare themselves properly, then return with answers. It was disheartening to question officials who could not provide answers.

The Chairperson said that the business plan had not been the result of the Auditor-General’s intervention, but was a normal requirement for any project.

Mr Steele also noted said that his question had not been answered. 

Mr Kotsoane said that he had been advised that Cyberia’s contract had been a fixed term contract, but there had been challenges with regard to Cyberia’s performance at that stage.

Mr Steele questioned the reference to “challenges” and asked for details.

Mr Kotsoane said that there was no clarity about the scope of the Project when the project manager had been appointed. In the process, the City felt that it was not moving as fast as possible and as expected. There had been challenges concerning land. There were also challenges as regards obtaining additional funding at that stage.

The Chairperson did not want to get involved with those elements at this meeting. He asked that Members persevere with the process of interrogating the AG’s report. It was clear that Cyberia had been appointed by the City of Cape Town, which, in 2006 tried to investigate how Cyberia had been appointed. This meeting could not conclude the investigation because it could not get sufficient co-operation from role players and obtain adequate documentation. This matter should have taken no more than five minutes to clarify. It was clear that Cyberia had been given a contract, with the full knowledge that it lacked the capacity to perform. This Committee wanted to know who had given the contract to Cyberia. CCT had failed in its own investigation for want of co-operation and documentation.

Mr A Ainslie (ANC) said that he would be questioning compliance with roles and responsibilities. There were a number of serious basic problems with the project. He asked who was responsible for the problems, and what action had been taken against the individual or people concerned. He asked for details of the SteerCom. He did not think that the full answers were being provided by Mr Kotsoane. SteerCom, according to the AG’s report, had not met after 10 May 2006. He asked what had taken its place, and who had supervised the Project in the absence of SteerCom. He also asked who was responsible for the fact that the SteerCom was not convened. 

Mr Kotsoane said that SteerCom had been meeting, in the absence of CCT, under the chairpersonship of Mr Aaref Osman, an official from the national Department of Housing (as it then was) responsible for N2 Gateway Projects. SteerCom had ceased to meet in its previous form.

The Chairperson asked for confirmation that the SteerCom had effectively continued and that meetings were regular.

Mr Aaref Osman confirmed that the committee had continued to have many engagements, both provincial and national.

Mr Ainslie said that this contradicted the statement of the AG that the committee had ceased to meet after 10 May 2006.

Mr Osman said that the Auditor-General’s statement was wrong.

The representative from the AG’s office explained that the Department appeared to have conceded that the SteerCom had ceased to meet after 10 May 2006, because it had subsequently informed the Auditor-General (as set out in paragraph 6.2.3(b) of the report) that that the committee had been ‘resuscitated’. The Auditor-General had not considered these engagements that Mr Osman had described to be meetings of the committee, but rather to be in the nature of dialogues.

Mr Ainslie said that if engagements were to take place between Members of this Standing Committee on Public Accounts, but without any minutes being taken, then these could not be considered to be meetings. He asked for formal minutes of SteerCom. He was pleased that the AG had highlighted the problems. He said that the Memorandum of Understanding between the three spheres of government had been very badly drafted, and enquired who had drafted it and what action would be taken against the drafter.

Mr Kotsoane replied that the Memorandum of Understanding was being revised.

The Chairperson was surprised to hear that, some 12 months after publication of the Auditor-General’s report, the Department was still discussing the Memorandum of Understanding. 

Mr Kotsoane conferred with his colleagues. He then informed the Committee that the revised Memorandum would be completed shortly, and that Members should understand that the Department was dealing with a situation not entirely in its control, as the Province was playing a role.

Mr Singh said that the N2 Gateway Project showed vision on the part of those who conceived it, but it was costing the taxpayer a substantial amount of money, and must be made to work.

Mr Ainslie said that there had been a failure to comply with the Housing Act, and asked who was responsible, and what disciplinary measures had been taken against these individuals.  

Mr du Toit said that when he read the AG’s report he had made a note that the Memorandum of Understanding was the root of the chaos. He asked if the Memorandum could not be drawn up more quickly. He said that Mr Ainslie’s question had not been answered, and hoped that the person responsible for drafting the first memorandum was not being used to draft the revised version.

Mr Ainslie said that Mr Kotsoane had denied that that there had been non-compliance with the provisions of the Housing Act, and that there was no confusion as to roles and responsibilities.  

The Chairperson commented that the respondents appeared to assume that politicians did not read documents and would easily be satisfied with generalised answers to their questions. He asked for a response from CCT on the points raised.

The CCT representatives responded that the CCT had not been represented on the SteerCom since the City’s removal in February 2006, because of certain disagreements.

The Department responded that the Memorandum of Understanding was only a guide and not a defining document.

The Chairperson said that there could be no justification for the contradictions in the Department’s response. 

Mr S Thobejane (ANC), at this point, asked if Members could have their own closed meeting, since he was concerned that the Committee was not getting satisfactory answers from the national, provincial and local government representatives. 

The Chairperson proposed that the meeting should continue.

Mr Thobejane objected to this ruling, saying that the Members’ concerns should be taken seriously.

The Chairperson said that Members could not make a decision to halt the proceedings and move to a closed session lightly.

Mr Singh concurred with Mr Thobejane. He affirmed that in any event the national, provincial and local government representatives would need to confer, so that the Committee could obtain relevant answers. He wanted to know who was driving the project.

The Chairperson ruled that the Committee would take a short break. The
representatives of the three spheres of government and observers were asked to leave the room.

The Committee then proceeded to hold a brief, closed session.

On resumption, the Chairperson reported that the Committee, in closed session, had determined that it had failed to obtain coherent responses, and that Members were greatly dissatisfied with
the feedback from the representatives of the three spheres of government. There was a remarkable lack of coherence in the views expressed by the national Department, the provincial Department and CCT. Because the N2 Project had been a joint project of all three spheres of government, it was reasonable for the Committee to expect that views of all three should converge to present a collective position. The Committee also wanted to ensure that the responses given related to the work that the three spheres had done on the pertinent issues raised by the AG’s report.

The Chairperson stressed that this C
ommittee wanted definite answers on matters of finance, since questions of policy could be addressed by the Portfolio Committee on Human Settlements.  This Committee wanted to know why Cyberia had been hired when it was ranked sixth of the shortlisted companies, particularly when it was soon apparent that it did not have the capacity to undertake the project, and all related matters must also be answered. This Committee would find it surprising if none of the representatives from the three spheres had retained copies of any of the documents that they had sent to the Auditor-General.

The Committee also wanted to know what measures had been implemented thus far to correct the deficiencies, and who had taken the necessary decisions to ensure that the Project could continue and be successful. Since public money was involved, it was important to ensure economy and efficiency.

The Committee took its responsibilities very seriously. It was not concerned with what had not occurred, but with what had actually happened. Members had therefore decided that the
representatives of the three spheres of government must again study the AG’s report on the Special Audit of the N2 Gateway Project, and prepare themselves fully to answer the questions that the Committee would ask when it resumed this public hearing on 5 August 2009. Members hoped that by that date the representatives of all three spheres would have conferred and clarified the responsibilities. This

The Chairperson stressed that t
he Committee had not taken this decision lightly. He commented that the preceding week it had also cut short its interaction with another entity because of lack of detail in its responses. The Committee expected that all those called upon to account to Parliament took their responsibilities seriously.  

A Member of the Portfolio Committee on Human Settlements said that this Portfolio Committee appreciated the invitation to participate in these hearings and insisted that the Department of Human Settlements prepare itself well for the resumption of the hearing on 5 August 2009.

Mr Kotsoane gave his assurance that the Committee would receive a response that was collectively coherent. .

The meeting was adjourned until 5 August 2009.

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