Accounting by the Former Director General of the Department of Public Works

Meeting report

Commentary by the former Director General: Department of Public Works (DPW)
Mr Manyi Moroka, former DPW Director General, informed the Committee that his period of tenure was from 1 April 2007 to 2 April 2009. Mr Moroka was appearing before the Committee in order to clear his name. The main issues were whether he had acted outside of the scope of the pilot project which was given to Servcon and Intersite, and had contravened the Public Finance Management Act (PFMA) and the Public Service Act (PSA). The other issue was whether there was a conflict of interest due to remuneration he received from Servcon. Another aspect of this matter that was of importance was the appointment of Servcon and Intersite for the project, which cost R223 million whereas the Department had a budget of R30 million.

The Department had to have accounted for state owned assets by the end of the financial year as per an urgent directive from the Accountant General. The two entities that were appointed to carry out this project were both 100% state owned enterprises (SOE). The cost of auditing each property would have cost R4 600 totalling R500 million whereas Intersite and Servcon charged R1 596. The Department was guided by the Constitution, which allowed SOEs to be used by departments. Intersite and Servcon had the capacity and budget to undertake the project until such time the Department had the budget to pay for their costs. When the decision was made, the intention was for there to be a pilot project and there were no limitations. When MinMec (DPW Inter-governmental Forum) appointed the two SOEs it did so on the basis that the Department only had a R30 million budget and would thus not be able to perform the task. The minute from the MinMec meeting was in writing and was signed; in terms of the PFMA it could constitute a directive to the accounting officer. The PFMA did not state that a directive should be in writing via a letter from the Minister to the Director General - it was quite broad. The two entities were not subject to the processes of competitive bidding as they were not profit making entities. Section 41 of the Constitution held that there could be instances where inter-governmental entities co-operated with each other in mutual trust and good faith as well as assisting and supporting each other. The whole point of MinMec was to foster relations between government entities.

Private entities that required the normal tender process were not appointed; a written directive ratified the deviation in the form of a MinMec minute. There was no irregular or unauthorised expenditure in this instance. During the deliberations and decision-making of the MinMec, the Chief Financial Officer (CFO) and other officials were present. The officials had seven months to “translate” the MinMec meeting and ascertain whether it was within the PFMA and whether the Director General could sign the service level agreement. The Director General had no business interest in Servcon during the time it was appointed. He was appointed the Director of Servcon on the 1 November 2002 until December 2009. When he was appointed as the Director General of the DPW, he was asked by the then Minister of Housing to remain as the Director of Servcon because of certain transformational processes, this was discussed by the two executive authorities. There was clearly no conflict of interest.

He met officials from the Office of the Auditor General in January 2009 and they recorded his verbal presentation in that meeting. He subsequently provided a written response to their report three days later to clarify his position on whether there was any irregular expenditure.  The expenditure was not irregular as the permission was given via MinMec; the Auditor General’s response was that Mr Moroka should prepare a letter to National Treasury informing them of this. The service level agreement was very conditional as it stated that the project would be performed on an ongoing basis and payment would be performed only when there was a budget. No payments were made towards the R223 million that constituted the cost of the project during the period of his tenure. If there were any payments, then he did not know about them. The Department had been providing MinMec with feedback about the implementation of the service level agreement. Members of MinMec did not object and say that the accounting officer had acted outside of the scope of his limitations. The R30 million from the budget had also not been spent.

There was a cash incentive that was deposited into his bank account without his knowledge from Servcon. This was for work done, which was not related to DPW. The incentive was a decision of the Servcon board without his knowledge. A letter of explanation from Servcon was sent to him and he shared this information with the DDG of Corporate Services. On the 31 March 2009 he disclosed this amount to the Department in terms of the PSA. He did not contravene section 31(1) of the PSA and there was not any disciplinary action taken against him. His resignation from the state had nothing to do with the cash incentive.

Mr Moroka said that he had never contravened any section of the PFMA, PSA or the Constitution and this was why the Minister had never instituted any disciplinary action against him. This presentation was limited to 2 April 2007 to 2 April 2009. He asked that the Committee should accept his commentary as a true reflection of the legal, administrative and financial processes that had transpired.

Discussion
Mr M Malale (ANC) asked how long Mr Moroka had worked for Servcon.

Mr Moroka replied that it was from 1 November 2002 to December 2009.

Mr Malale noted that Mr Moroka also served as a non-executive board member and on the audit committee.

Mr Moroka replied that he did not have much detail on this but the committee he headed was the remuneration committee for which he attended about one or two meetings.

Mr Malale asked if Mr Moroka was the chairperson of the sub-committee on finance and remuneration.

Mr Moroka replied in the affirmative.

Mr Malale put to Mr Moroka that in the Servcon Annual Report he was reported as having served as their managing director. This was on page 17 of their annual report for the 2008/09 financial year.

Mr Moroka replied in the affirmative.

Mr Malale asked if Mr Moroka knew of any director of Servcon that worked for Omega Process Servers.

Mr Moroka said that he did not.

Mr Malale asked if Mr Moroka had served Omega Process Servers himself.

Mr Moroka said yes.

Mr Malale said that on page 12 of Mr Moroka’s presentation, he indicated that the accounting officer had decided that the process the Department was following was legitimate as public entities would be utilised as opposed to conventional competitors. In addition, the Department did not have a big enough budget, except for the R30 million. Were you the accounting officer referred to herein?

Mr Moroka said yes.

Mr Malale asked if Mr Moroka had said that the Minister appointed Servcon in terms of MinMec minutes.

Mr Moroka replied that the PFMA said that for an accounting officer to have authority to appoint an entity there had to be authority from the executive via a written expression. The PFMA was not specific; the MinMec minutes were a directive. His answer was yes.

Mr Malale asked if the minutes of MinMec were recorded.

Mr Moroka said yes.

Mr Malale asked if a set of the minutes were in writing and signed by the Minister.

Mr Moroka said yes.

Mr Malale said that the minutes received by the Auditor-General were unsigned, which Minister was being referred to?

Mr Moroka replied that it was the former Minister, Ms Thoko Didiza. The minutes of MinMec were not his own but the Minister’s.

Mr Malale asked what was Mr Moroka’s reaction to the fact that the minutes received by the Auditor-General were unsigned.

Mr Moroka replied that he had not had a chance to look at any documentation that belonged to the Department. The secretary, Mr Adam Mthombeni, would be in a position to say which minutes had been signed. The minutes of the 25 May were adopted. He was not in a position to say which minutes the Auditor-General had received.

Mr Malale asked who identified Servcon as the preferred company.

Mr Moroka replied that Servcon was not a company. As the Director General, he had indicated to MinMec that the experience located in Servcon was the only one that he was aware of at that time. The capacity and budget of Servcon as a SOE could be tapped into. Intersite had the same status and could be linked with Servcon.

Mr Malale asked if Mr Moroka had signed the service level agreement.

Mr Moroka replied that the officials signed it after seven months of consideration. The questions being asked were trying to determine his motive and he have not been afforded the opportunity to explain things in detail. These were not questions of clarity.

The Chairperson said that if at the end of the hearing, Mr Moroka felt that there were issues that had to be cleared up he would be afforded the opportunity to talk.

Mr Malale said that he felt that it would be fair if Mr Moroka was allowed to say whatever he needed to say as long as it was relevant to the questions. As the DG, were you aware at the time that the project would cost R232 million and the Department had a budget of only R30 million?

Mr Moroka replied that he was aware of this but at the same time he knew that there were conditions attached to the service level agreement. The conditions were that a state owned entity would undertake the project as it had a budget and could start the work - but would be paid when the Department had the money.

Mr Malale asked if Mr Moroka had not felt that a normal tender process should be initiated.

Mr Moroka replied that he instituted a written directive from MinMec and the executive authority to appoint state owned entities. Prior to doing this, the decision of MinMec was subjected to administrative, legal and financial interrogation by officials for seven months. They had to look at compliance issues. They then gave the green light to the accounting officer. The administrative, legal and financial officials prepared the service level agreement. He also checked it.

Mr Malale asked if there was a supply chain management system in place.

Mr Moroka replied yes.

Mr Malale asked if the system allowed a tender appointment on the basis of MinMec minutes.

Mr Moroka replied that it was not a tender but a directive to a state owned entity, the interpretation of words was important. The Department had given money to other state owned government through MinMec minutes and there were other government precedents to that effect.

Mr Malale asked if there was a contractual relationship between the Department and the two entities.

Mr Moroka replied that the contract was under strict conditions, which were attached, in the service level agreement.

Mr Malale asked which conditions were these.

Mr Moroka replied that the conditions were that because the entity had a budget, capacity and skill they should assist the Department. This was why not a cent has been paid to these entities up until now and there were no legal implications. This was not a tender. The entities were not asked to perform work on the basis of the R30 million.

Mr Malale asked if the appointment of Servcon was based on its capacity.

Mr Moroka replied that it was Servcon and Intersite. A further point that should be noted was that there were six Members of the Executive Committee (MECs) of MinMec present and he had secured three affidavits that confirmed the directive.

Mr Malale asked if Mr Moroka was aware that Servcon and Intersite issued tenders to private concerns to do the work they had been appointed to do by the Department.

Mr Moroka replied that he was not in the executive management of Servcon or Intersite. This was not a question to be answered by him. He was not aware of decisions by parastatals in terms of what they did.

Mr Malale asked if Mr Moroka had not found it necessary to inform National Treasury and the Auditor-General of this project given the fact that the amount involved was over R1 million. 

Mr Moroka replied that the matter had been debated between himself and the Auditor-General as it was a directive and therefore not irregular expenditure. A detailed letter was subsequently written to National Treasury.

Mr Malale read out section 63(1)(a) of the PFMA: “ Executive Authorities of Departments must perform their functions within the limits of the funds authorised from the relevant vote”. He said that Mr Moroka should have been aware that this transaction went over the available R30 million and contravened this section.

Mr Moroka agreed but said that the executive authority could also give a written expression as to what had to be done. Section 64(1) had to be read in conjunction with section 63(1)(a). It said, “any directive by the executive authority of any department to the accounting officer of the department having financial implications for the department must be in writing”. The MinMec directive was in writing.

Mr Malale read out section 38(2) of the PFMA, which held that “the accounting officer may not commit a department to a liability for which money has not been appropriated”. Mr Moroka had signed a service level agreement to the tune of R232 million which the Department did not have.

Mr Moroka replied that this was not correct. The processes that were followed he had already indicated.

Mr Malale asked if Mr Moroka advised the Minister at the time that the money for the project was unavailable.

Mr Moroka said that the presentation was clear from the outset about this. Section 41(1)(h) of the Constitution qualified the written directive from MinMec. The PFMA should be read in conjunction with this section of the Constitution.

Mr Malale asked if this was the basis on which the service level agreement was entered into.

Mr Moroka replied that the section of the PFMA that was referred to earlier had many interpretations and should not be interpreted here.

Mr Malale said that Mr Moroka was supposed to have had a tender process in accordance with section 217 of the Constitution.

Mr Moroka said that his document addressed this section and how the process was consistent with section 217 of the Constitution. The various legislative sections had to be applied collectively.

Mr Malale asked if Mr Moroka had not in his opinion thought that if other companies were engaged with they would have perhaps competed differently to the two SOEs.

Mr Moroka replied that the information before MinMec indicated that prior to the recommendation to MinMec there was the IRAB programme where private concerns had been asked to do the same functions. The functions were categorised in terms of seven issues and the private concerns had only performed one whereas the Department needed all seven. The seven issues were costed at R4000, which the Department did not have. The two SOEs were offering the seven issues except for the valuations of the properties. The Department did not have the money for private concerns.

Mr Malale asked if the R4000 was an estimation by the Department.

Mr Moroka replied that it was, the officials in asset management had done it.

Mr Malale said that in other words it was not an amount determined by the private companies themselves.

Mr Moroka replied that a model was used according to how much had been spent for IRAB.

Mr Malale concluded that therefore it had not been suggested by private concerns but was estimated by the Department.

Mr Moroka replied this was true, but it should be remembered that the budget to do the entire portfolio was not enough.

The Chairperson commented that the issues were whether or not there was a directive, whether or not MinMec minutes constituted a directive and the non-use of a competitive bidding process.

Mr M Mbili (ANC) asked if Mr Moroka had seen the signed minutes of the MinMec meeting of the 25 May 2009.

Mr Moroka replied that the report of the Auditor-General acknowledged that Servcon and Intersite were appointed to the tune of R232 million by MinMec but on a pilot programme.

Mr Mbili asked what was the written directive that authorised Mr Moroka to act as he had done.

Mr Moroka read from page 4 of the Auditor-General’s report which said that “the Minister should address the following: the intention of MinMec when they referred to service providers such as Servcon and Intersite to conduct the audit of state assets on a pilot basis in their minutes”. The minutes of MinMec had been adopted. The report that he had did not have unsigned minutes.

Mr M Steele (DA) asked if the MinMec minutes stipulated any limitations of scope, scale, time of the pilot project, number and value of units to be assessed and what actually defined this project as a pilot in these minutes?

Mr Moroka replied that he did not have the presentation and documentation that was before MinMec. His faint recollection was that the recommendation to MinMec was for the appointment of Servcon and Intersite, that they look at all 140 000 properties and that the amount of R1 400 be accepted. MinMec agreed that both institutions should be appointed as a pilot programme.

Mr Steele asked why Servcon was mentioned as the only entity that would be appointed for the project as contained in Mr Moroka’s document.

Mr Moroka responded that Intersite had administrative issues that they had to sort out and for a time it seemed that they were not going to sign. Intersite sorted this out before the service level agreements were signed.

Mr P Pretorius (DA) asked for Mr Moroka’s position on who was the executive authority.

Mr Moroka replied that the form of a written directive of an executive authority was not specified. Signed minutes of the executive authority served as directives to accounting officers across departments. Signed minutes were meant for the administration to make implementation and could only be signed by the Minister.

Mr Pretorius asked if this interpretation had been tested in a court of law.

Mr Moroka replied that directives of MinMec were legal and they had been used in a court of law.

Mr N Singh (IFP) said that he had been attending MinMec meetings for ten years on a continual basis. At no time had a MinMec directive served as an instruction to a Director General. MinMec meetings were not statutory formations. One could not take a directive from them. The PFMA said that the executive authority had to issue a directive. Did the Minister at that time issue a letterhead instructing the Director General to execute certain decisions? Did the former Director General withdraw from the meeting where it was decided which entities would be appointed as he had an interest in Servcon?

Mr Moroka put it to Mr Singh that when Mr Singh was the MEC of Housing, they had sat together at MinMec meetings where there were a number of directives from that MinMec, which were implemented at provincial and local level. The PSA did not explicitly require a letterhead from a Minister.

Mr Singh asked if a MinMec was a body created in terms of the Constitution.

Mr Moroka replied that the MinMec of the Department comprised national departments and provinces. MinMec was a constitutional body.

The Chairperson asked in which sections of the Constitution was this stated.

Mr Moroka replied that it was Chapter 3 and Chapter 6 of the Constitution.

Mr Singh said that he could not recall an Act of Parliament establishing a MinMec as per section 41(2) of the Constitution.

The Chairperson said that the focus and limitation of the Committee should be on matters that had financial implications and not administrative ones.

Mr Steele asked if it would not have been reasonable for the former DG, when he saw that the MinMec minutes stated the project was on a pilot basis, to ask the Minister to spell out clearly what had to be done.

Mr Moroka replied that he had gone back to MinMec and informed them how their decision in May had been implemented and nobody objected.

Ms A Muthambi (ANC) asked if the former Director General had signed the service level agreement with the two entities.

Mr Moroka said yes, the directive informed this.

Ms Muthambi asked what the total cost was for the service level agreement.

Mr Moroka replied that it was R223 million divided into half for each entity.

Ms Muthambi asked if Mr Moroka agreed that at this time the Department only had R30 million appropriated for this project.

Mr Moroka replied that the policy decision was not based on the R30 million but on incidental costs on the part of the state-owned entities. The R30 million had not been set aside for purposes of the project. The agreement was conditional; payments would be made progressively if and when the Department had money. During his two-year tenure he had approved projects in excess of R4.1 billion in the first year and R3.8 billion in the second year. None of these projects were being questioned.

Ms Muthambi pointed out that there were however invoices submitted to the tune of R73 million.

Mr Moroka replied there was nothing wrong with this as they indicated the work that had been done.

Ms Muthambi said that interest amounting to R335 000 was also claimed.

Mr Moroka replied that there was a meeting where he informed Intersite that there was no interest in reference to the service level agreement. The interest claimed was not part of the deal and it had been resolved.

Ms Muthambi said that the Auditor-General had concluded that the condition of the Department paying, if and when it was convenient, was not in the service level agreement.

Mr Moroka replied that he could not respond, as he did not have the service level agreement with him.

Ms Muthambi said that section 38(2) of the PFMA held that “an accounting officer may not commit a Department to any liability for which money had not been appropriated” Was MinMec informed of the cost and was there then a subsequent directive for the Director General to go ahead?

Mr Moroka asked if Ms Muthambi was ignoring the fact that MinMec took a policy decision to give the former Director General a directive to implement their decision. Certain questions could not be answered as if this was a disciplinary hearing. Mr Moroka said he had not gone out of his way to commit money which the Department did not have.

Ms Muthambi asked what informed this policy decision.

Mr Moroka replied that it was informed by the fact that the Department had a minuscule budget; it did not have the capacity and expertise to do the function and there were two SOEs that had the necessary capabilities.

Ms Muthambi asked why the Department was committed to an amount for which there was no budget.

Mr Moroka replied that he did not commit the Department for money which was not appropriated.

Mr Singh asked if permission was obtained from the Auditor-General and National Treasury when the Department was committed by the former Director General to this project for which it did not have a budget?

The Chairperson pointed out that Mr Moroka had said no, but subsequently the Department did write to National Treasury.

Mr Moroka added that this particular instance was not in the context referred to by Mr Singh.

Mr Steele asked if the former Director General was present at a crisis meeting that was held after it transpired that things were going wrong, ten months after the service level agreement had been signed.

Mr Moroka replied that he was at that meeting; it was the same meeting where the issue of interest was addressed.

Mr Steele asked how the responsibilities of monitoring this project were divided between the Director General and the Chief Operating Officer.

Mr Moroka replied that at the level of the service level agreement, the COO was solely responsible for all operational concerns.

Mr Steele asked if Servcon and Intersite were given a timeframe in which they had to address the discrepancies highlighted in a letter that was written to them by the Department.

Mr Moroka replied that there were a number of regions that were involved in the implementation of the project. Three regions had certified the work by October 2008. The agreement with the COO was that the entities had to attend to the discrepancies.

Mr Steele asked how come the entities had charged interest in December 2008 despite being told that there was no interest due.

Mr Moroka replied that it had been agreed that the interest would not be charged on the account.

Mr Steele asked if the Director General had motivated for Servcon and Intersite to be used.

Mr Moroka replied that the presentation he made and prepared with officials had motivated for the SOEs.

Mr Steele asked how the former Director General felt after a year when it was clear that the entities were not performing?

Mr Moroka replied that their work was within the annexure of the service level agreement during the first financial year of 2007/08. The entities did not under-perform; the only issue was whether what they said they did was certifiable.

Ms T Chiloane (ANC) asked why the former Director General had not disclosed his interests in Omega during the 2007/08 financial year.

Mr Moroka replied that his resignation from the company had happened in 2005/06. The board resignation process had not been properly done by Omega and they had apologised for this. He was not aware that they had not submitted his CM29 forms.

Ms Chiloane asked if the Director General had obtained permission to do work outside of the Department from the executive authority?

Mr Moroka replied that he had no prior knowledge of the incentive that was paid by Servcon. The incentive was disclosed together with the general financial disclosure. There was no need to seek permission, as he did not know about the cash incentive.

Ms Chiloane asked how this could be when he was the chairperson of the remuneration committee at Servcon.

Mr Moroka replied that he was a chairperson for officials at management level, not for board members.

Ms Chiloane asked how the board had arrived at a decision to pay the incentive?

Mr Moroka replied that Servcon had written a letter explaining the work for which he was being paid which he had done previously for them.

Ms Chiloane asked if the former Director General had not determined that there would be a conflict of interest as Servcon was his former employer of five years.
 
Mr Moroka replied that Servcon was a SOE and a policy decision was taken via MinMec to appoint it. There was no conflict of interest as it was not a private concern that was appointed.

The Chairperson asked the Acting Director General how far the process was currently.

Mr Sam Vukelwa, Acting Director General of the DPW, replied that R10,4 million had already been paid to the two entities. The Department had written a letter to Servcon to iron out certain issues. The matter would be finalised once these issues had been sorted out.

The Chairperson closed by thanking Mr Moroka for clarifying his position. The Committee would decide whether or not Mr Moroka was wrong or right and then it would make its recommendations.

Meeting adjourned.