Water Boards' 2009/10 Annual Reports interrogation: Botshelo, Magalies, Bushbuckridge

Public Accounts (SCOPA)

13 September 2011
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Standing Committee on Public Accounts (SCOPA) engaged with the Chairpersons and executive officers from Botshelo Water, Magalies Water and Bushbuckridge Water Boards, to clarify and receive supporting information on matters relating to its respective annual reports and financial statements for 2009/10. Botshelo Water Board had received two consecutive disclaimers by the Auditor General (AG). Magalies Water Board had received a qualified audit opinion. Bushbuckridge Water Board had received its third consecutive qualified audit opinion from the independent auditor who indicated that there was a significant doubt about the entity's ability to continue as a going concern. Members of the Committee also drew attention to the fact that Bushbuckridge Water was technically insolvent.
Lack of documentation and supporting evidence had been raised by the auditors in respect of all the Water Boards. There was prevalence of fraud, corruption, forensic investigations, litigation involving senior management and dismissals in all of the entities. There was also non-compliance with the Public Finance Management Act (PFMA) and the National Treasury Regulations. Lack of proper procedures and policies and the failure to report on performance management and pre-determined objectives was also cited in all the reports of the auditors. This was attributed to mismanagement and a lack of stability in the leadership of the entities over a protracted period of time, as well as legacy issues, particularly the transfer of assets from the former Homelands. 

Botshelo Water Board had incurred irregular, fruitless and wasteful expenditure and had failed to disclose the amount. The balances did not agree nor were reconciled. Documentation was not available. The financial accounting system was cited as the source of many problems, as well as lack of effective procurement and contract management. Members took exception to the fact that the Chairperson of the Board attributed this to a culture of laissez-faire, saying that there had actually been policies and legislation implemented by staff, but she herself had failed to manage properly. Senior Management had received bonuses despite the fact that the entity had received disclaimers. In addition, Board members emoluments included excessive amounts for additional work that did not equate with the poor performance of the entity.

The audit qualifications for Magalies Water were related to the lack of sufficient, appropriate audit evidence to support the revaluation reserve of R40 million in respect of fixed assets, transferred from the former Bophuthatswana. Members raised serious concerns about an amount in excess of R8 million resulting from duplicate purchase orders. An investigation had been conducted by KPMG and there had been dismissals, but Members felt that criminal investigations should have ensued.

Bushbuckridge Water was in a serious crisis due to debt that was building up in terms of the Trade Receivables Valuation. R167 million was owed by the Bushbuckridge Local Municipality and R26 million was owed by the disestablished Bohlabela District Municipality respectively. The auditors assessed the chances of recovery as nil, but the Board maintained it was recoverable and had a commitment from the municipality to start servicing the debt from January 2012. There were major problems in metering and billing.

Members felt that the Department of Water Affairs was not being pro-active enough in its oversight responsibility. The Chairperson emphasised that accountability from all stakeholders was critical in respect of the Water Boards. He proposed that SCOPA visit Bushbuckridge, to engage with the stakeholders including the municipality, province, the Department and National Treasury in order to resolve the crisis there. 

Meeting report

Opening and welcome
The Chairperson welcomed the delegations from the Botshelo, Magalies and Bushbuckridge Water Boards, the Department of Water Affairs, the National Treasury, the Office of The Auditor-General, the members of the Standing Committee and all visitors. He noted that this meeting was to clarify and obtain further information from the water boards in respect of its 2009/10 annual reports and financial statements.

Ms A Dreyer (DA) stated that the apology from the Chairperson of the Bushbuckridge Water Board was unacceptable.

The Chairperson emphasised that accountability was critical for the Water Boards, as water was a basic human need vital for the well being of ordinary people, and especially for vulnerable communities.

Botshelo Water Board (BWB or the Board) 2009/10 Annual Report and financial statements
Irregular, fruitless and wasteful expenditure
Ms M Matladi (UCDP) questioned an amount of  R1,357 million for procurement that contravened supply chain management regulations.

Ms Sophia Lebeko-Ratlhagane, Chairperson of BWB, stated that the Chief Executive Officer (CEO) would respond to this question.

The Chairperson stated that she, as the Accounting Authority, should respond, as the CEO accounted to her.

Ms Lebeko-Ratlhagane said she understood that, but they had decided that morning that the CEO would answer the question as they had no contradictory information.

The Chairperson asked if it was possible that the Chairperson and CEO would have had contradictory information.

Ms Lebeko-Ratlhagane's response was that it was not, but she still wanted the CEO to respond to the question.

The Chairperson stressed she was called to account to Parliament as, according to the Public Finance Management Act (PFMA), she was accountable. If she had no sense of what was going on in the entity, then there was no reason for the Board to exist. Management could not be asked to respond as she had flown in to answer.

Ms Lebeko-Ratlhagane said that she would respond, but requested that the CEO give further input. She said that the BWB was in the process of ensuring that in future procurement was done according to the supply chain management procedures.

The Chairperson interjected that the question to her had asked why this had happened, not what had been done subsequently.

Mr Solly Bokaba, Chief Executive Officer, Botshelo Water Board, asked for permission to respond. When this was given by the Chairperson, he said that this finding had been given because of unavailability of documentation to prove that the services had been provided in accordance with supply chain policy and requirements. When the Auditor-General (AG) was auditing, the documentation for one service provider was not available. The BWB realised that its financial accounting system, as well as the manual system for making documents available, was insufficient. That had since been addressed. The services had been provided, but were noted as irregular, fruitless and wasteful expenditure. BWB had since developed a proper register, and systems were in place to pay service providers and to prevent invoices and documentation going astray in future.

Ms Matladi noted that if the work of filing and keeping documents was not done properly, and its failure had cost BWB R1,3 million, then she wanted to know what was done about those personnel.

The Chairperson said that before that question was answered, he wanted to know why the documentation was unavailable when BWB was being audited, but somehow was found after the audit.

Mr Bokaba noted that the Chairperson had indicated that the BWB should not give broad contextual answers. The BWB had reported to the Portfolio Committee on Water Affairs, on its turnaround plans, earlier in the year. This Committee was informed that some of the accountants had left and that had destabilised the organisation. A lot of the problems identified by the AG related to the availability of documentation on information requested. Since then, BWB had appointed two other people with the necessary financial skills to support the Chief Financial Officer (CFO), and they were being apprised of the challenges in the organisation. Problems of mismanagement over a long period of time resulted in insufficient processes being in place. In the last two years, the Board had set up proper supply chain management processes, and was now able to produce the necessary documentation when it was requested.

The Chairperson said he had expected to hear that the documentation had been lying in a file somewhere and had then been found. The question was about documentary proof, not about processes. He asked specifically if the documents were found.

Mr Bokaba responded that they were.  BWB had since developed proper files for every process and was engaged with service providers dealing with goods and services, including the service provider to whom the irregular expenditure related.

The Chairperson said that all that needed to be established was that, when cleaning up the filing system, the receipts that had been misfiled had been found. That would be reflected in the next audit.

The Chairperson asked Mr Bokaba now to respond what had happened to the personnel who had been responsible for the problems.

Mr Bokaba said that part of the turnaround plan was restructuring and placing staff into the relevant positions. The majority of the staff who had been in the financial directorate had resigned and BWB had appointed three new people to deal with its accounting system.

Ms Matladi said the impression given was that the entity had done nothing. She expected those responsible to be sanctioned through disciplinary action, dismissal or final warnings. She asked if she would be correct to assume that the BWB had taken no action against these personnel.

Mr Bokaba replied that a stringent performance management and development system had been put in place for all the employees, as part of the turnaround strategy. Some of the personnel in finance who had been in its positions for some time realised that they would not measure up and had resigned. They could not be prevented from resigning. This had the positive effect of the new Board and management being able then to put the new systems in place.

The Chairperson noted that both Mr Bokaba and Ms Lebeko-Ratlhagane had been part of the old Board and were re-appointed. They had been in its posts when these discrepancies occurred, and he asked what they were doing and how they accounted for what happened.

Ms Lebeko-Ratlhagane said that the former CFO and the Director of Operations had been dismissed for non-performance.

Ms Matladi referred to the failure to disclose the irregular expenditure in the entity’s financial statements, which had resulted in irregular expenditure being understated by R1 357 499. She asked why this had not been disclosed to the AG.

Mr Bokaba said that the question was very difficult. When the AG did the audit, BWB discovered this, and it had not tried to hide any information about the specific service provider. The service provider was contracted in an emergency, as water services had many challenges in terms of materials.

The Chairperson said he thought the response was likely to be that the records were chaotic and BWB was simply not aware of the extent of its irregular expenditure, but this would be disclosed by the end of the financial year. BWB had already admitted that its financial management system had not been functional, and it could not provide all the information that was required.

Ms Matladi said that she had not thought her question was difficult at all. The AG’s report clearly stated that "This amount was not disclosed in the note to the financial statements as irregular expenditure, resulting in irregular expenditure being understated by R1,357 499". She concluded that this had occurred and BWB had not disclosed it.

Ms Matladi noted the further comment of the AG that BWB had not met the requirements for effective procurement and contract management. She asked if that was linked to the policies being in draft form and not approved by the Board.

Mr Bokaba said that the policies were approved by the Board.

Ms Matladi said that SCOPA looked at matters as they were during the time the AG was auditing the books, and asked if, at that time, the policies had been in draft form without having been approved by the Board. If the policies had been in place, then she asked why they had not been followed.

Mr Bokaba said the Chairperson had summarised that the financial system and personnel at that time had not assisted in the proper implementation of the policies. The Board had approved the policies and they were reviewed on a regular basis.

Ms Matladi said she would ask that again. The information that SCOPA had before it indicated that there were problems with the policies, and she was not sure why there was a difference of opinion on that. Her source, the AG, said that BWB did not meet all the requirements for effective procurement and contract management, as well as controls, to ensure a fair, suitable, transparent, competitive and cost effective supply chain management system that prevented and detected fraud, non performance by suppliers and non-compliance with supply chain management legislation. As a result payments amounts to R 1,3 million had been made in contravention of supply chain management requirements.

The Chairperson agreed that this was a statement of fact and asked why the policies were not ratified.

Mr Bokaba said the policies were in place. When the Board had been appointed and had developed the turnaround plan, it had reviewed the policies that had been in place since 2007. The challenge was not with the policies in place, but with implementation.

The Chairperson said that the CEO had been appointed in July 2008. The Annual Report for 2009/2010 reflected issues of non-compliance in this period. The new CFO had been appointed in July 2009, and therefore was in office for nine months, during which time he should have been working on the issues, unless it was “looter’s paradise” when he arrived. Staff were being paid on a monthly basis to do the work and the question was whether they were in fact doing its work, with a commensurate value between what they were being paid and what they did, daily, to implement policies agreed upon.

Ms Matladi said that R1,3 million was not the only amount identified by the AG under irregular, fruitless and wasteful expenditure. There was another amount of R3 849 539 for which no sufficient, appropriate audit evidence could be obtained. She asked why this was so.

Mr Godfried Kruger, Chief Financial Officer, BWB, responded that this had to be seen in context. The amount related to Scot Stewart International (SSI), a consulting firm that monitored the refurbishing project, who were approved five or six years previously. However, all possible ways had been used to try to track down the original contract between BWB and SSI, but could find only the letters of appointment. Because no official contract was found, this was reflected as irregular expenditure.

Ms Matladi said that the next audit would indicate this, but she wanted to know the exact amount of irregular expenditure at Botshelo Water, including the two amounts she had referred to.

Mr Kruger said it would be extremely difficult to give an exact figure. After discussions with the AG, BWB had started to draw a register of irregular, fruitless and wasteful expenditure, on which matters were listed as they came up. This was discussed with the CEO on a regular basis.

Ms Matladi said it was interesting that they did not know, yet had a register.

The Chairperson asked what amount was reflected in the register currently.

Mr Kruger replied that fruitless expenditure was about R348 000. No irregular expenditure or unauthorised expenditure had been identified for the current year.

Non-compliance with the PFMA and Treasury Regulations 
Ms Matladi asked whose responsibility it was to ensure that the entity complied with the legislation.

The Chairperson replied that it was the Board's responsibility.

Ms Matladi agreed, but had wanted to hear from BWB if it was aware of that, and why it had not ensured that BWB was compliant.

Ms Lebeko-Ratlhagane responded that Botshelo Water tended to have a culture of  laissez-faire, where there were policies and legislation in place but staff would not follow them. The Board had taken action on whatever irregularities were reported to it, and she stressed that it could only act on the basis of what it knew.

Ms Matladi responded that this was an interesting answer, which led her to the follow up question of what action had actually been taken against those showing this laissez-faire attitude. She noted that this attitude could not be allowed in an office using taxpayers’ money.

Ms Lebeko-Ratlhagane replied that action was taken. For instance, staff members had been using the organisation’s credit cards for personal expenses, such as fuel, but a firm had been employed to check this, and the people were required to pay back any irregular expenditure.

Ms Matladi said there were other issues of compliance that the Board could have addressed in respect of supply chain management, the laissez-faire culture, and fraud. She asked if there was any value for money in the supply of water, especially to Ramotshere Moiloa, where there was a shortage of water for 15 years, and where water had been supplied only between 19h00 and the following morning at 08h00. Millions of rand had been paid but it was not known whether there was any value for money achieved by this, and whether the needs for water reticulation were being addressed.

Mr Bokaba replied that some of the areas in Ramotshere Moiloa were being serviced by Botshelo Water Board, because of the service contract that it had with the water supply authority, Ramotshere Moiloa District Municipality, but other areas were supplied by the municipality itself. There was a supplementary source of what, and BWB supplied water in some areas, whilst others were addressed by the Department of Water Affairs (DWA) and the municipality. There were other areas in the region, including tribal lands, where water supply was also problematic, and this was being addressed. The Deputy Minister was involved in the process, a task team had been established, and some of the issues that had nothing to do with supply would be resolved.

Ms Matladi was not satisfied with this response, pointing out that no timeframes had been given, and the problem had already existed for 15 years.

The Chairperson asked if there was a timeframe.

Mr Bokaba said that some of the areas had continuous water supply, but two specific places in high level areas were problematic because of infrastructure limitations. When there were mechanical or other problems, the water supply became low. This was a long term project that would require the cooperation of all the parties to resolve. BWB could supply the Committee with the detailed plan of action which was being led by the particular Minister.

The Chairperson said Ms Matladi had asked him to quantify the timeframe.

Mr Bokaba reiterated that BWB could later supply the Committee with all information, as there was a task team dealing with the matter both at a technical and operational level.

The Chairperson agreed, and stressed that this information should include a timeframe.

Financial and Performance Management
Ms Matladi asked why the entity had not submitted its financial statements by the deadline agreed upon.

Mr Kruger responded that there was a history behind that. In 2009, a specific manual accounting system was used, and in 2008, for all practical purposes BWB had received an unqualified audit report. However, the figures for 2009 had to be withdrawn, as he had noticed that they were incorrect. This had a cumulative effect, requiring an adjustment of R48 million on a turnover of  R100 million, which was a substantial figure. The private auditors had also not wanted to supply the opening balance and its working papers for the AG. There was no substantive way of establishing where the organisation had started out in 2008/2009. Other matters had not been attended to. For instance, the fixed assets had not been counted for 10 years, and there was no fixed asset register in place. It was realistic to suppose that this would not be fully correct on a first count. BWB found that some of the fixed assets formerly owned by the former Bophuthatswana state should have been, but were not, transferred to BWB, but instead were erroneously transferred to the names of private persons or other organisations.

BWB asked for an extension of time to submit the 2009 financial statements, which were completed only in April 2010. Simultaneously, BWB implemented a new system for the new financial year. However, capturing the data had been time consuming and BWB could not make its target. For the 2010/2011 year end it then had to reconcile everything two years back and produce a comprehensive audit file. The decision had already been taken to replace the system they had as it was “a real mess”.

Ms Matladi asked how the Board justified the acquisition of the Venus System costing R1,2 million, which then required R1 million in maintenance, as it did not seem to make financial sense.

Ms Lebeko-Ratlhagane agreed that it did not make financial sense and that was why BWB would do away with it, as it was not value for money, although BWB had been assured that it was one of the best.

The Chairperson asked who was responsible for approving the acquisition of the system.

Ms Lebeko-Ratlhagane replied that the Board’s predecessors had bought it.

The Chairperson asked in what year this happened.

Mr Kruger replied that the original system had been procured for the debtors and billing side, in 2005. In 2008, BWB thought it could then use the other modules, and purchased them, but this  had turned out to be a disaster.

Ms Matladi said it would be interesting to find out how BWB was persuaded that it was a good system, but it later failed. She asked if BWB had done its own investigation and research into this, to check whether it was the best system, as unnecessary expenditure had been incurred.

The Chairperson commented that he hoped the Department of Water Affairs was listening very closely. He said that the quality of people appointed could lead to wasteful expenditure.

Ms Matladi questioned why BWB failed, in its Annual Report, to mention these challenges that had led to the disclaimer by the AG, particularly since there was a history of disclaimers.

Mr Bokaba said BWB had been trying to isolate the Annual Report, and the Chairperson of the Board was trying to describe the state in which the Board had found the entity. It had shared it challenges with the DWA and the Portfolio Committee on Water Affairs. Since then, a turnaround plan was developed. About three years ago an unqualified audit report was given, by a private auditing firm. However, since the AG took over the audits, the Board had realised that it had to deal with deeper issues. This was the second disclaimer. BWB had been working hard to try to put correct systems in place, and was dealing with the issues identified by the AG. An action plan was developed, and it were reporting to the Portfolio Committee every two months, as well as working with the DWA and AG's office to address the issues that were impacting negatively on the organisation.

Ms Matladi said she had been trying to establish if the BWB Board intentionally omitted to mention the challenges in its report, stressing that they should have been indicated.

Mr Kruger noted that in the 2009 Annual Report, BWB had made a comprehensive report on its challenges and it was an oversight that these had not been stated again.

Ms Matladi said even if these challenges were in the 2009 report, they must be reiterated until corrected.

Ms Matladi said it seemed that BWB had problems in meeting the requirements of the PFMA. She asked how many forensic investigations were instituted, how far they had gone, and the general progress. She knew of one, and asked if was completed, and when the report would be available.

Mr Bokaba said that there had been a forensic investigation about four years ago before the present Board had been appointed. The previous Board had to deal with the recommendations, in relation to the former CEO, who had since died, but this matter went to the High Court to try to recoup the R18 million unlawfully paid to him. These forensic recommendations had been implemented, and the report was with the Department.

Ms T Chiloane (ANC) referred to the disclaimer of the AG, noting that it was directed to the DWA, as the entity who oversaw BWB. She asked what remedial actions had been put in place to address the disclaimers that BWB had received for two years in a row.

Mr Mahomed Vawda, Regional Head, Mpumalanga DWA, responded that the Department had seconded one person to visit BWB every two months to monitor progress.

The Chairperson asked when that started.

Mr Vawda replied that the official had started to visit BWB about three months ago. Prior to that, the DWA had looked at Botshelo Water's turnaround strategy and asked it to adopt measures to correct the situation. However, that was not fruitful, given the subsequent disclaimer by the AG. The DWA was now taking a more hands on approach and its official went in every two months to monitor the progress, to try to avoid a third disclaimer being issued.

Ms Chiloane asked if, in respect of the High Court matter referred to earlier, only the CEO had been responsible for mismanagement.

Mr Bokaba replied that the investigation report had pointed directly to the Chief Executive Officer and no other staff were implicated. Others had been responsible for mismanagement during 2006/2007. However, the forensic report highlighted only the then-CEO in this action. A new Board was appointed in 2007. The current Board took office in 2011.  

Ms Chiloane said that from 2007 to the present, two disclaimers were received, and she wanted to know if the current Board was still trying to address the issues giving rise to those.

Mr Kruger said that the disclaimers were for the years 2008/2009 and 2009/2010. and BWB was addressing all the issues. There were legal issues involved, and it was still waiting for a Court date. There were also problems with documentation; some had been deliberately destroyed, and it was necessary to get copies from the banks to build up a case. There were also other difficulties, such as the rights and obligations where fixed property was involved.

Property, Plant and Equipment
Ms Chiloane referred to the report on Property, Plant and Equipment and asked why BWB had such difficulty in implementing the recommendations of the internal audit unit.

Mr Kruger wanted clarity on this question.

Ms Chiloane said her question related to the historical cost of R16,7 million that was included in the financial statements at a zero net amount, although, as highlighted by the AG, it was still in use and reflected as property, plant and equipment. The AG had recommended an internal audit on this, and she enquired why there seemed to be difficulty in doing so.

Mr Kruger said that in accordance with the Generally Accepted Accounting Practice standards, assets that depreciated had still to be shown at R1,00 value, in line with IAS (International Accounting Standard) 16. Consequent to the audit, it was discovered that this value was reflected as one cent. The first count of assets had run into problems in reconciling the physical count with the asset register. A number of assets recorded in the asset register could not be found. Because of the history of fraud at BWB, the entity did not want to write out the assets and further implicate the person doing so in any potential fraud. BWB was advised to leave the items on the books for two to three years and see what transpired. One logical explanation could be that BWB simply did not update the fixed asset register when other project that it was managing were transferred. In hindsight, it would have been useful to add a note to the financial statements to explain this.

Ms Chiloane agreed and said that it would always recur in the financial statements if it was not resolved.

The Chairperson added that BWB should always take the advice of the AG and National Treasury.

Investment properties
Ms Chiloane referred to the AG's finding that there was no audit evidence to verify the entity's rights to investment properties of R2,6 million. She asked for an explanation..

Mr Kruger said that with the transfer of property from the defunct Bophuthatswana government, errors had been made in the registration of properties. Botshelo Water Board had also owned houses. In 2005, the Minister gave people the right to sell the houses, on two provisos: firstly, that employees should not benefit, and secondly, that those houses must be sold at market related prices. There had been a forensic investigation. Eight of the 23 houses were rescued, but the title deeds had been destroyed and it was necessary to try to reinstate those, before reversing the transactions. Quite a substantial stripping of assets had taken place over two to three years, and that would still feature in the current audit report.

Ms Chiloane noted that most of the matters were being handled by lawyers.

The Chairperson agreed and said that a lot of the problems were being explained away as past actions. He remarked that the Department of Defence and Military Veterans, with a budget of billions, had been able to resolve its qualifications, and BWB should surely be able to resolve its own much smaller problems.

Trade and Receivables
Ms Chiloane noted that the AG had found that the receivable balance of R131,9 million did not agree with the balance of R151, 6 million on the sub-ledger, and BWB had not reconciled the balance of R19,9 million between the financial statements and the underlying accounting records. She asked Mr Kruger to explain this, as she did not think it was related to an historical event.

Mr Kruger said this did not relate to an historical event. It related to the inability of the organisation to perform a bank reconciliation, due to the problems in implementation of the system. BWB had to do a two year manual bank reconciliation, starting at 1 July 2009, because of the integration of the system. Under the Venus System it was necessary to manually link transactions, and if they were not linked properly, then this would be reflected in the bank reconciliation.

Ms Chiloane asked if the clerks were not qualified to do the job, and if senior management also did not have the capacity to deal with the issue. Systems related not only to information technology but also to the human capacity in the office.

Mr Kruger said that this was an issue of human capacity but also had to be seen in the context of the system. If BWB had had an easier system, it could have trained people with a lower initial skills level. However, the type of system meant that BWB was constantly at the mercy of the consultants, and there was never proper transfer of  skills to the staff.

The Chairperson referred to the remuneration of the members of the board and noted that the Chairperson of the Board had received R391 000 for holding this position in 2010, and in 2009 had received R305 000, despite the two consecutive disclaimers. He commented that all the responses had blamed the failures of the past, yet she had received this remuneration to manage the entity.

Ms Chiloane said that there were serious problems in the entity. She asked what the consultant’s fee of R1,6 million was for. The Minister had commented that the water entities were a problem. She asked for more information from the Department on the official who was visiting BWB every two months, commenting also that this had only been put in place about three months ago, despite the fact that BWB had shown problems for some time. She did not think this showed fair assistance by the Department.

Mr Kruger said that the consultation fees were primarily for the Venus Accounting System and the rest represented consulting fees for human resources.

The Chairperson asked how many staff were in the finance department.

Mr Kruger said there were 16, including the cashiers.

Ms A Dreyer (DA) referred to the remuneration of Ms Lebeko-Ratlhagane, as stated in the Annual Report. In 2009, her remuneration as a Board member was R120 000 and she had done additional work for which she was remunerated R161 000. In 2010 her remuneration was R123  000 and she had done additional work for which she had been remunerated R237 000. She asked what the additional work comprised.

Ms Lebeko-Ratlhagane said that the Board’s remuneration was determined by the Minister and the members of the Board did not give themselves any additional remuneration. Whatever she had been remunerated was in accordance with the manual.

The Chairperson asked if it was in accordance with what the Minister determined, or the manual.

Ms Lebeko-Ratlhagane said that it was according to the Minister's determination, but a manual guided the Board, related to what the Minister had stipulated.

The Chairperson asked if the Minister determined an exact amount or if she set guidelines.

Ms Lebeko-Ratlhagane said the Minister produced guidelines.

The Chairperson stated that in that case, the Minister did not determine the remuneration.

Ms Lebeko-Ratlhagane said the Minister provided the framework.

The Chairperson said he wanted to establish that the Minister provided the Framework and the figure of R120 thousand was not what the Minister had said specifically should be given.

Ms Lebeko-Ratlhagane said this amount was in line with the policy.

The Chairperson said he was not talking about policy, but figures. She had stated that the Minister set the policy.

Ms Lebeko-Ratlhagane said that there had been a lot to attend to in the first tenure. The Board’s meetings were pre-determined and dealt with substantive issues. Whatever she had done was in line with the policy, and there was nothing extraordinary.

Ms Dreyer said that she had not answered the question. She had asked about the additional work, over and above her normal duties as the Chairperson of the Board.

Ms Lebeko-Ratlhagane said that, for example, her presence at this meeting was over and above what she would have required to do in the Board’s programme. She had been called many times to Pretoria or Cape Town, over and above what was stipulated in the Board’s programme, and she did not even have to attend the Standing Committee meetings.

Ms Dreyer said she was still not satisfied. Trips between Cape Town and Pretoria would have been covered by the subsistence allowance. She wanted the additional work explained.

Ms Lebeko-Ratlhagane said the subsistence allowance was for travelling expenses if she was using her private vehicle. She could submit the details if required.

The Chairperson said that it was not so much the details that the Committee wanted, but the rationale. He asked her to explain the rationale so that Members could see that what she had been paid was justifiable, right, fair, correct, cost effective and added value. He asked, for instance, how much she would be paid for the current meeting.

Ms Lebeko-Ratlhagane said the flight and accommodation had been paid for, according to the policy.

The Chairperson said that Ms Lebeko-Ratlhagane had been explaining that her additional work went beyond the pre-determined meetings. She had cited meetings such as this as being additional work, so he asked how much she would be paid for being present.

Ms Lebeko-Ratlhagane replied that she did not know. She only put in her hours and the rest was done by the finance division at BWB.

The Chairperson asked Mr Kruger how much she would be paid.

Mr Kruger said he did not know the exact amount, but it was calculated at about R650-00 per hour.

The Chairperson rounded it off to R600-00 and asked when these hours would start; at 09h00, to run until the meeting ended, or from the time she boarded the plane.

Mr Kruger said that it would be calculated on an eight hour day, as she would be away from her office for the day.

The Chairperson said the Committee wanted to be clear and not make assumptions.

Ms Dreyer said that Ms Lebeko-Ratlhagane had alluded to the fact that she could provide the Committee with the details. She suggested that the Committee insist upon this, as the figures did not seem to add up. She had appeared before Parliament once a year, before SCOPA, and a calculation of the “extra work” gave a figure of around R19 000 per month, over and above normal Director’s fees. SCOPA wanted to see exactly what extra work had been done.

Ms Dreyer asked whether she had submitted a declaration of her financial interests.

Ms Lebeko-Ratlhagane said that this was done at every meeting, and there was a register for that.

Ms Dreyer asked where the register was, as the Committee would like to see it.

Ms G Saal (ANC) noted the AG's finding that the financial statements did not agree with the final balance, and that the Board held very few meetings. She expressed her frustration at the AG having made so many findings on so many matters that BWB had simply not complied with, as well as her frustration with the number of errors in the financial statements. She asked if the BWB had not gone through the report, or whether there were misprints.

Mr Kruger said that there were errors.

Ms Saal asked if those were the only errors, and if more were likely to be found.

The Chairperson repeated that question and asked if there were more errors, as BWB and the AG had already identified numerous inaccuracies. The Committee read the documents. It presumed that when people submitted reports to Parliament, these would be thoroughly prepared, not compiled in a shoddy manner and in mechanical compliance.

Mr Kruger replied that BWB had discovered some other errors additional to those mentioned for the current financial year, but these had been corrected subsequently. 

Mr S Thobejane (ANC) noted that BWB had received a disclaimer for two consecutive years, and was clearly not complying with the PFMA. He noted that the Department of Water Affairs disbursed funds to BWB. He asked why it had intervened only three months ago.

The Chairperson agreed, and asked why the Department had not taken drastic action earlier.

Mr Vawda responded that prior to the two years disclaimers and prior to the AG having done the audit, BWB had received an unqualified audit from private auditors.

The Chairperson asked what the Department had done after the first disclaimer.

Mr Vawda said that the Department had asked BWB to put a turnaround strategy in place, which was done, and the Department commented upon it and told BWB to implement it. When the next disclaimer was received, the Department then decided to play a more active role and support BWB, checking up on what all the issues were. Now the Department had had to send someone in, and had had to appoint a person specifically to provide the support.

Mr Thobejane said he had expected to hear that when it realised the turnaround strategy had not worked, the Department would take action so that the disclaimer would never recur. He was afraid that there did not appear to be any certainty that BWB would not obtain a disclaimer for a third time.

Mr Vawda said the Department could not say that, and at best it hoped that the BWB would obtain a qualification and move from a disclaimer.

Mr Thobejane said that his second question related to BWB and the bonuses that had been paid to senior executives. He asked why it had been decided that staff qualified for performance bonuses, despite the disclaimers.

The Chairperson noted that the CEO had received a bonus of R113 thousand.

Ms Lebeko-Ratlhagane said that the bonus was awarded before the disclaimer was known. When the new Board had come into place, the CEO had resigned. The new Board had appointed the Director of Cooperative Services as Acting CEO, in addition to her existing function. She had performed exceptionally well, and, after it had assessed her, the Board took a decision to award her the bonus.

Mr Thobejane asked if Ms Lebeko-Ratlhagane did not seem to understand about the year under review. BWB had received a disclaimer for the year 2008/2009. The bonuses were paid in that year. He asked what criteria had been decided upon, by the Board, as justification for paying R198 000 in bonuses. The Board had decided upon this and, as accounting authority, had to account for this decision.

The Chairperson said that he understood that bonuses were awarded for the previous year’s work. If an individual received a bonus in 2009, it was in respect of work done in the previous financial year. Mr Thobejane's point was that Ms Bokgwathile, the person who had received the bonus of R189 thousand in 2009, had been awarded this for her performance in the 2008/09 financial year, when BWB received a disclaimer. The CEO had received a bonus of R113 000 thousand in 2010, based on his performance for the 2009/10 financial year, in which BWB again received a disclaimer. He wanted an explanation on these situations.

The Chairperson said the Board had assessed Ms Bokgwathile’s actions as Acting CEO, and she had performed well on all the key performance areas. Then the Board learned from its previous mistakes and said, in the next year, when BWB was late in submitting the financial statements, that the Board would not assess the CEO or Directors until the Board was sure that the financial statements were correct. There had been no remuneration for that year.

Mr Thobejane said that one could  not “learn from mistakes” in public entities, but when a mistake was made, it had to be corrected. The allocation of R113 thousand as a performance bonus to the CEO who had, as accounting officer, been responsible for the disclaimer, had to be explained. He wanted the Board to explain to the Committee exactly how the CEO was evaluated, and in what areas.

Ms Lebeko-Ratlhagane said assessment was not only on financial considerations, and there were many aspects taken into consideration.

The Chairperson asked what percentage of the job the financial aspects constituted, more or less.

Ms Lebeko-Ratlhagane said about 50.

The Chairperson suggested that if BWB had obtained a clean audit, then the CEO's bonus would have doubled.

Mr Thobejane asked if the Department was aware that bonuses were awarded on the basis of courtesy and goodness, as the Board saw fit.

Mr Vawda replied that the Department was aware of it, but these were decisions made by the Board. During the Water Boards’ annual review, the Department asked these questions.

Ms Saal said she wanted to respond to the matter of errors in the entity's financial statements and the BWB’s response that it was aware of the errors. She wanted to establish who had signed the report when it was submitted.

Mr Kruger replied that it was the responsibility of the Accounting Authority.

Ms Saal noted that the Chairperson of the Board had signed a report that was full of errors, which was then sent to Parliament. Ms Saal noted that the Chairperson had indicated that she had not signed the error report, and asked then who had signed it. She made the point that the Board should, before signing the report, go through it, page by page, and correct any errors and mistakes.

The Chairperson noted that the Board had to take responsibility for everything in the Report that was before the Committee.

Mr P Pretorius (DA) said his question related to the performance bonuses. He asked if the Chairperson had a signed performance agreement with the Minister, and if the CEO hade a signed performance agreement with the Board.

They both indicated that they did.

Mr Pretorius asked if the assessment on its performance had been done strictly in terms of the Key Performance Areas, as set out in its respective performance agreements they had signed.

Ms Lebeko-Ratlhagane responded that they had done so.

The Chairperson thanked BWB for sharing this information. He noted that, on the positive side, its turnover had increased from R88 million to R150 million, and that the overheads had decreased from R19,4 million to R19,2 million. However, that did not mitigate what had gone wrong. Many people in the country worked selflessly in the struggle for change, many paying with its lives. However, these people had been paid to bring about change, and had done the wrong things. He noted that anyone placed in a position of responsibility should utilise that position to improve the lives of those less fortunate. He hoped that the turnaround strategy had put BWB on the right track. SCOPA could possibly do an oversight visit to check on how the turnaround strategy was being put into practice, and how it could support BWB.

Magalies Water Board

Mr R Ainslie (ANC) said he was looking at certain matters that had led Magalies Water Board (MWB) receiving a qualification from the AG for the 2009/10 financial year end.

Mr Ainslee referred to the AG's finding that the entity had not provided sufficient appropriate audit evidence to support the revaluation reserve of R40 million. He asked why it was not able to do so. If he understood the AG's opinion correctly, one of the reasons and root causes was that there were no policies and procedures in place at that stage to ensure that MWB had regular asset counts, and, after that, to record and store the information in safekeeping. This was one of the chief reasons that it had received the qualification. He called for an explanation.

Prof Mohammed Jahed, Chairperson of the MWB, did not wish to rationalise what the current Board had inherited, and responded that the new Board had decided to address the challenges of the past as it moved forward. It had taken action on the financial management and institutional arrangements, including basic issues around procurement policies and performance agreements that had not been in place. It had implemented an asset register and had performed an asset count. Fundamental changes were being made, and a lot of the policies and procedures were in place, but a lot more still needed to be done.

Mr Ainslie asked if Prof Jahed had been Chairperson of the Board during the period under review. He also asked if any of the management team at that time were present.

Prof Jahed said they were not. MWB had been through three CEOs in the past three years.

The Chairperson asked when he had become Chairperson of the Board.

Prof Jahed replied that he had been appointed in 2009. The Board had just appointed a new Chief Executive Officer and Chief Financial Officer (CFO) as well as a new Group Resources Manager.

Mr Ainslie asked if he had been able to establish what the problem was and why there was a qualification on assets.

Mr Mboniseni Dlamini, the CEO, said that the current administration in MWB had inherited the auditor's report, but they took it seriously as they were accountable in the future.  All the issues raised by the AG had been addressed and a very comprehensive action plan had been drawn up. In respect of the assets, particularly the specific issue raised by the AG, he reported that this related to problems from as far back as 1997. The matter should have been picked up by previous audits, but it only surfaced in the 2009/10 audit. Assets were transferred from the former Bophuthatswana to Magalies Water, amounting to R40 million. MWB had put a procedure in place to deal with this accounting transaction in the current financial year, and believed it would be fixed within the year.

Mr Ainslee asked whether the entity would be able to produce documentation to substantiate that claim if asked to do so by SCOPA.

Mr Dlamini said that the current executive had been looking for that documentation for the last nine months. To date, it had not been found, although it was known that this related to assets that had been transferred from the former Bophuthatswana, which were not treated according to acceptable accounting standards. In this particular case, MWB would deal with this transaction in a particular way so as to eradicate the problem. The CFO could elaborate on that.

Mr Ainslie said he did not get the sense that the problem would definitely not repeat itself in the next audit. MWB was not presenting a convincing argument on what it was doing, such as ensuring that there was sufficient documentation, how it would treating the assets in future, and that the situation was under control.

Mr Dlamini replied that it was a specific issue, but the more general approach to asset management was a recognition that there had been poor management of assets through an asset register, and an attempt now by MWB to ensure that it could account for all of its assets. When the problem had surfaced, part of the comprehensive plan involved the physical identification of all the assets and placing them in the register. MBW was confident that the level of work it had undertaken to address the matter, would ensure that the finding was not repeated.

Mr Ainslie stated that another root cause for the qualification was that internal audit function had made certain recommendations that were not implemented and monitored by the previous dispensation. He asked about the relationship now with the internal audit unit.

Prof Jahed responded that this was quite correct. The Board had restructured the audit and finance committees since coming into office. The internal audit committee played a crucial role in oversight, in terms of the functions of the Board and the Executive Committee, and this process had been successful and had picked up on additional issues. These were issues not only relating to financial mismanagement, but declaration of interests. These issues had been addressed and as the internal audit unit was strengthened, the MWB would be able to use it as an additional oversight function.

Mr Dlamini added that the Board had embarked upon a path where it acknowledged that there were weaknesses in the system. The internal audit was seen as the most important structure in the MWB. The Board was going to address the issue of accountability, which would basically address situations where the Internal Audit's risk findings were brought to the fore, especially where people were not acting on instructions. Risk management, and audit matters relating to that, had been included in the performance contracts of managers, including the CEO. This process was a way of institutionalising good governance and risk management in the organisation. The Board had gone further to ensure that management institutionalised risk management, by having a Management Risk Committee. The Internal Audit was represented on that Committee, and gave its own report to ensure that all the issues identified in terms of governance were reported at that level, and that accountability was enforced.    

Mr Ainslie commented that this appeared promising and SCOPA would await the next audit report to see if MWB’s asset management had improved.

Mr Ainslie noted that lack of documentation and lack of supporting evidence had been raised by the AG in respect of the operating expenditure of R198 million. Once more, the lack of proper procedures and policies to review the accounts and financial statements on a regular basis were not in place. He asked why this had happened, and what had been done when it was discovered, and currently.

The Chairperson noted that this reverted back to questions of how the CEOs had been appointed, and called into question the Department’s institutional support.

Mr Ainslie agreed. There was a Board who had no procedures and policies in place so implementation would not have been possible. He questioned what exactly these well-paid Boards were doing. The Department was also responsible for its own lack of oversight.

Mr Jahed said that he could not say what the previous Board had done as he had not been with MWB at the time. . The present Board had been horrified at what it had inherited. Some Board members had decided to leave, and it was necessary then to appoint two new Board members.

The Chairperson asked why the Board members had left.

Prof Jahed responded that there had been various reasons, but questions of credibility and personal risk had played a part. Some people did not want to be associated with an institution where they could possibly be held accountable if they could not turn things around. The former Chief Executive had sued MWB, and this was still ongoing.

Mr Ainslie observed that it was very frustrating for SCOPA to try to deal with the present situation, and that perhaps SCOPA should have demanded that the previous Board be present, as they could answer the questions. However, he asked if the current Board could respond on the investigation now instigated into R8 million, which was part of the R198 million mentioned earlier, which resulted specifically from duplicate purchase orders, which sounded alarms. He also asked for comment on the progress of the investigations, what had given rise to these duplicate purchases, what exactly they comprised, and who was charged with it.

Mr Dlamini said the duplicate purchases and payments had been investigated, and the new Board had made a follow up where it could. It had tried to do a reconciliation and had established that some of the creditors were erroneously paid twice. MWB had to recover the money. Some purchases had related to its routine consignments such as water treatment chemicals. When MWB had done the reconciliation, it was able to recover the amounts that had been paid.

Mr Ainslie asked if it had all been done in error, or whether there was a possibility of fraud.

Mr Dlamini said that KPMG had been appointed to do the investigation and there was no conclusive evidence of deliberate misrepresentation. It was a matter of poor controls.

The Chairperson queried how poor controls could have been the reason.

Mr Dlamini said that the investigation had looked into the procurement procedures and processes and how they were structured. There were problems around the segregation of duties. Some individuals were performing similar duties, and they had not been aware of what the other persons were doing.

Mr Ainslie said that reference was always made to procedures. However, it was also necessary to look at people’s intent when making the double payments. KPMG would pick up on the procedures but the Special Investigations Unit (SIU) or Hawks should investigate intentional fraud. He thought that it was a very superficial procedure to look at tightening up the procedures without catching those responsible.

Prof Jahed said the issue about intent was correct. However, MWB had to assume innocence until the contrary was proved. This situation had led to the dismissal of the previous CFO, amongst others. MWB realised that there were certain people who were responsible, who had to be held accountable for what had happened.

Mr Ainslie asked if the Board had held anyone else accountable, and what other steps had been taken.

Prof Jahed replied that the responsibilities of people in procurement had been addressed, and some had been dismissed.

The Chairperson asked how many had been dismissed.

Mr Jahed replied that two people had been dismissed, both the CFO and the Procurement Manager. 

The Chairperson asked what the reason was for dismissal.

Prof Jahed said they had been dismissed for not following proper procedures, not taking accountability, not doing its work and not looking after the entity's financial interests.

Mr Ainslie asked if the matter was concluded, as far as these former staff members were concerned. KPMG had established that there was no fraud on the part of anybody, and now MWB was ensuring that the procedures were in place. He asked, in respect of the R8 million, whether the Board was satisfied that this was to do with lack of correct procedures and not criminal intent.

The Chairperson said that was what Prof Jahed had said.

Mr Ainslie said he just wanted to confirm it, as it was difficult to believe.

Mr Dlamini said that the issue of procedures should not be disregarded.

The Chairperson summarised what had emerged.  The investigation was done, MWB had recovered the money, and there was no intention to defraud. The case was now closed. The Chairperson asked how much money was recovered.   

Mr Dlamini responded that all duplicate payments had been recovered

The Chairperson and Mr Ainslie asked how much of the R8 million was recovered .

Mr Dlamini replied that he could not remember.

The Chairperson asked him to give an approximate amount.

The Chairperson asked the delegation from the AG how the duplicate payments were discovered.

The AG’s representative responded that it had been noticed that some payments looked the same, with similar purchase order numbers, but different dates.

Mr Ainslie said that it was unacceptable that the MWB had simply dropped the matter. SCOPA wanted to know how much of the R8 million had been recovered, and from which suppliers. If it had not been for the AG, MWB would still be making double payments. The Board was implicated. He thought that fraud should be investigated by the proper authorities. KPMG had not been the appropriate agency to investigate as it merely looked at procedures and processes.

Mr Ainslie wanted to return to the matter of expenditure, identified for a qualification, due to the lack of supporting documentation and the failure to follow procedures. He referred to the extensive “operating expenses” as listed in the Annual Report and asked what it was advertising, for the sum of R3.8 million.

Prof Jahed said that MWB had held golf days in the past, at major expense, but the new Board had stopped that. There was no reason why an institution like a Water Board should host golf days. End of year functions were also brought to a halt.

Mr Ainslie asked about the R7 million under operating expenses for bad debt, who owed the bad debt, and if it was the municipality recorded in the ledger. He also asked what was being done to recover the debt.

Mr Dlamini said the R7 million was a provision for bad debts. Most of this was owed by the municipalities. The MWB had done a review of its debtors and had embarked upon collection of amounts owed.

Mr Ainslie asked MWB to submit a list of the municipalities that owed money, the amount they owed, and since when. He asked exactly what was being done to recover the debt.

Mr Dlamini said that the amount that had been accrued resulted from the lack of active steps, in the past, to collect that debt.  MWB had now established a cash flow model to monitor what was coming in, as also to monitor the creditors. MWB was following up on outstanding amounts and there had been positive results thus far.

Mr Ainslie noted that R2,6 million had been spent on consulting fees. He added that the AG had noted that MWB had not been able to supply it with a list of the consultants. He asked if this list was now available.

Prof Jahed said that the new Board had been concerned by the consultants that had been appointed. It had dealt with a consultant that had been in the office of the CE. The Board did not have a list of consultants.

Mr Dlamini said that it was only possible to provide a list of consultants used for the 2009/2010 financial year.

Legal and Regulatory Findings
Mr Ainslie referred to the AG's finding that the entity had not complied with the PFMA and Treasury Regulations, and again noted that it was the current Board's predecessors who should have been giving account of this. He noted the long list dealing with the predetermined objectives in the AG's report, which identified the areas of non-compliance with the PFMA and the Water Services Act. He asked what steps were now being taken to ensure that MWB reported on the pre-determined objectives as required.

Mr Dlamini stated that MWB had incorporated that into its new corporate plan, which was in the process of being submitted to the shareholder. The Board had identified its pre-determined objectives and key performance indicators and linked it to performance management reporting timelines. It was ensuring compliance in the current financial year.

Mr Ainslie said that the other finding was that, in terms of the Water Services Act, not all the members of the Board had declared their interests. He asked what the position was now, and which Members of the current Board may not have disclosed their interests.

Prof Jahed replied that it was discovered that one member of the Board had not disclosed. He had, as Chairperson, taken this up with the Board. An independent investigation had been undertaken, recommendations had been made, and the Board had approached the Minister for a decision.

The Chairperson asked what was meant by “an independent investigation”.

Prof Jahed replied that Deloitte was appointed.

The Chairperson confirmed that a Board member had not disclosed and MWB had appointed Deloittes.

Prof Jahed said that it was a procedural issue. A whistleblower had brought this to the attention of its internal audit unit, who then brought the matter to the Board. The procedure stated that this was what should be done, and also prescribed that an independent investigation would have to follow.

The Chairperson remarked that MWB should have asked the Board member if he had disclosed his interests or not.

Mr Ainslie stated that if MWB checked its files it would surely have been able to establish that fact. He could not understand the need for the investigation. If the Board was not sure about that member, he asked if it could give the assurance that it was sure about the other members.

Prof Jahed said he could send SCOPA the details of this particular case.

The Chairperson asked what the finding was, and if the Board member had benefited.

Prof Jahed replied that the finding was that the member had not disclosed, that he had had an interest and benefited from it.

Mr Ainslie asked if MWB would tighten up its internal controls to ensure that it did not recur. If one Board member could slip through, then there was something wrong with its internal controls.

Mr Dlamini said that in future a declaration had to be completed annually by the Board. The onus was on Board members to indicate if there were any changes.

Mr Ainslie said that the signing of the Declaration seemed to be a very loose arrangement and he urged MWB to tighten up on its system. The member had probably not disclosed fully and he hoped that action had been taken

Mr Thobejane again expressed concerns that this delegation did not consist of anyone who was actually responsible for the year under review. He thought that the historical issues should rather be addressed by the Portfolio Committee on Water Affairs.

The Chairperson said that how SCOPA would have to deal with such issues would need to be addressed in its strategic planning agenda. Accountability was institutional, but at the same time institutions were comprised of individuals. Whatever issue was raised, he said that the response was likely to be that this was how the new Board had found the situation, and that it was taking measures to correct it.

Mr Thobejane said that perhaps a decision should be taken by this Committee that this was the situation, and then suggest that the Portfolio Committee should conduct hands-on oversight. Little more could be expected of a board and management who were not in office during this reporting period. He said that the Department had to bear some responsibility for how its oversight had been done.

The Chairperson agreed that Members would like to hear from the  Department as to whether its oversight was proactive or reactive.

Ms M Mangena (ANC) expressed her concern about the double payments and asked how MWB was going to recover the money and deal with those responsible in procurement.

Ms Z Balindlela (COPE) referred to the attendance of members of the Audit and Risk Committee at meetings in the period under review. Only the Chairperson had attended all of the seven meetings, whilst other members had missed up to four of the meetings. She asked what steps were taken to address this, as it appeared that some members were long serving members of the Audit Committee.

The Chairperson asked if the same people still served on the Committee, and for comment about the level of attendance.

Ms Talitha Zondi, Audit and Risk Committee member, Magalies Water Board, said the term of the two members had expired, and MWB had begun the process of replacing them. There was a problem in that some members were over-committed and unable to attend regularly.

Ms Dreyer said that the Chairperson had raised the question of “accountability”, which was a key word, but coupled with that was the imposition of consequences for certain actions. People in South Africa were tired of corruption and officials stealing from the poor. In respect of the Board member who misled the Board by submitting an incomplete financial declaration, there must be consequences. She asked what steps had been taken to hold that member to account.

Ms Dreyer noted also that the former CEO had been dismissed for a reason, and asked if the MWB had, in addition to dismissing him, laid criminal charges against him. If it did not, then that CEO would simply be employed somewhere else, or a board member would simply move on to take up a position at another board, and the same activities would be repeated. Anyone doing wrong must be held to account. This action should be visible for all to see.

Prof Jahed said action had been taken against the former Board member, and a recommendation for dismissal had been made. It was up to the Minister who appointed the Board members to make the final decision.

The Chairperson asked who that Board member was.

Prof Jahed said he was Councillor William Mahlangu.

Prof Jahed said that, when dealing with staff members, there were specific policies and procedures to be followed. People could not simply be dismissed without a case being made out.

The Chairperson said the point was that there had to be consequences, and consequences were realised by following procedures.

Prof Jahed said processes were being followed.

The Chairperson stated that processes should not be treated as tedious. He stressed again that consequences had to follow. If they did not, then people would carry on wrongdoing with impunity.

Ms Dreyer said she was asking if criminal charges had been laid. If not, then she asked why not.

Prof Jahed said that criminal charges had been laid against the previous CFO.

Mr Pretorius queried the World Cup expenditure incurred under the present Board and management. They had spent more than a R1 million on the FIFA World Cup. Board members bought 20 tickets totalling R281 000, management had bought 30 tickets totalling another R290 000 and they bought 500 World Cup T-shirts totalling another R376 000. He asked if MWB really thought that this expense was justified, particularly given MWB’s financial situation.

Prof Jahed said everyone had thoroughly enjoyed the World Cup but, with hindsight, perspectives changed, especially given the statements by the Minister of Finance. The Management had taken the decision. If the question had come to this Board, it would have refused. However, the current Board had undertaken an analysis of the expenditure and had also taken a decision that it was prepared to repay these amounts if the Minister made that ruling.

Mr Pretorius noted that an amount of R2,7 million for 'Travel : Local' (with no further breakdown) was indicated under “operating expenses” in the AG's report. He asked if the money was spent to travel to soccer matches, or if the tickets were purchased only in respect of the local matches.

Prof Jahed said he did not know the answers.

Mr Pretorius asked if MWB members had travelled to soccer matches outside its own area, using official funds from the entity.

Prof Jahed replied that this was not done; the Board members had only received the tickets.

Mr Pretorius asked if the MWB had official credit cards

Prof Jahed responded that there were specific stipulations on what the Board members received. As Chairperson of the Board he received a stipend of R634 per hour for attending Board meetings. He charged only for actual time spent at the meetings. The Board members did not have credit cards, cell phones, golf days, car allowances or end of the year function. 

The Chairperson referred to the Board emoluments, noting that some Board members were paid more than the Chairperson.

Prof Jahed responded that the Deputy Chairperson and other members served on other committees in the entity, and they attended the sub-committee meetings as well.

Ms Chiloane wanted to check with the Department on the frame of reference for the payment for Board members for the Water Boards. 

Mr Vawda said there was a policy, and it was based on the size of the Board. The bigger the Board, the higher the stipend. There was a grading system for the Boards. Board members received hourly rates for attending Board meetings. He stated that he could send the Committee the policy document.

Ms Saal said she would like to know the difference between the Board members and the Senior Managers. She asked if it was really necessary for the Water Boards to have directors of the Board and managers.

Ms Saal said that she thought that SCOPA should do something about the World Cup tickets, as it was unacceptable. Board members earned enough to buy their own tickets, jerseys and scarves. She would have preferred to see money like this spent on school children as part of a campaign.

The Chairperson said the Water Boards and their management was a policy issue. It was up to the Portfolio Committee to engage on whether this was the appropriate governance structure or not.

Bushbuckridge Water Board (BBR)
The Chairperson said that he had written to the Chairperson of the Board and if that person was not going to be present, he should have communicated with the Chairperson directly and stated the reasons why he could not make be present. In the absence of the Chairperson of the Board, the Delegation was led by the Deputy Chairperson, Adv Geraldine Khoza. The Chairperson noted that it was the third time that the Bushbuckridge Water Board had appeared before SCOPA.

Mr Pretorius agreed with the Chairperson that the Committee was not impressed by the absence of the Chairperson of the Board. Parliament was the second most important body and when a specific person was called to give account, he should attend, irrespective of the circumstances.

Trade Receivables Valuation
Mr Pretorius noted that the entity (BBR) had received a qualification for the third time in a row from the independent auditors. This related particularly to the debt that was building up in terms of the Trade Receivables Valuation. The auditor had found that an amount of R167 million was owed by the Bushbuckridge Local Municipality, and a further R26 million was owed by the disestablished Bohlabela District Municipality respectively. The auditor's finding was that the chances of recovering the money was nil.

Mr Pretorius said his first question was whether BBR accepted the finding of the auditor.

Adv Khoza said that BBR accepted the finding.

Mr Pretorius asked if it was agreed that money was not recoverable.

Adv Khoza responded that BBR Board did not agree that the money was not recoverable, as the Board had been engaging in processes to recover the money. In terms of the turnaround strategy they had put in place, they believed it was still possible to recover.

Mr Pretorius noted that the BBR Board and auditor were in disagreement with the auditor on this point. He drew attention to the fact that Adv Khoza’s view conformed with the Chairperson's Statement in the Annual Report, where he had expressed his confidence that the debt would be recovered from the municipalities. The CEO further agreed with this. Mr Pretorius understood that the debt had a history, and he asked Adv Khoza to confirm that the debt was not stable, and that it was rising all the time.

Adv Khoza replied that the debt was not stable, but there were reasons why this was happening.

The Chairperson commented that the debt was rising, yet the Board still thought it was recoverable.

Mr Pretorius asked what the current debt was.

Adv Khoza replied that the portion that was stable was the R26 million for Bohlabela District Municipality. The Bushbuckridge Municipality debt was R190 million as at December 2010. There was a dispute as to the actual amount of the debt, because of metering problems. The Municipality thought that it owed less.

The Chairperson said that when the BBR Board had appeared before SCOPA in 2008, it had raised the issue of metering then.

Adv Khoza confirmed that the metering and budgeting were cited then as problems.

The Chairperson asked if the metering problem had been resolved.

Adv Khoza said that it had not been resolved, but it was hoped that it would be finalised by December 2011, when the turnaround strategy was resolved.

Mr Pretorius asked if the main cause of the problem was that there was no written agreement between the BBR Board and the municipality.

Adv Khoza replied that there was still no agreement in place. Currently the debt was not being serviced, and that was one of the major reasons for the problems. The municipality was also not making any provision in its budget to service the debt. On a monthly basis the BBR was being paid on the current invoices in respect of services that it was delivering, but was trying to come up with mechanisms to deal with the debt over and above those invoices. The Municipality needed to service the debt and the Board needed the assistance of other stakeholders to ensure this happened.

Mr Pretorius commented that these were the same arguments proffered to SCOPA when the BBR Board last appeared. At that time also there had been challenges around the collection of debt, yet nothing had changed.

Mr Mapholoba Letswalo, Chief Financial Officer, BBR Water Board, said there was a process and BBR had installed metres in areas agreed to by the Municipality. However there had been other areas that were not accounted for. There was much loss of water in those areas. There were connections that went directly to the villages instead of going directly to the reservoirs. This had led to a dispute. There was a need to clean up the connections on the main bulk pipeline leading to the reservoirs. If BBR had had sufficient funds it could have resolved the matter. However, it had cash flow problems that prevented it from doing so.

Mr Pretorius said that BBR indicated that there were disputes and discussions, but yet there seemed to be no resolution. He asked who would be able to arbitrate in the matter and find a solution, and if the Department would step in and help.

 Was the Department going to step in and help them?

Adv Khoza said that at this stage BBR had been engaging stakeholders such as National Treasury, had managed to get the Municipality to commit to 50% of the debt and had its agreement to start servicing that debt from January 2012. This was  They had got the municipality to commit to 50% of the debt and they had agreed to start servicing the debt from January 2012 and this was coupled with the signing of a long term agreement. After six months the Municipality would be able to review the amount of R5 million a month that it was paying. It had not budgeted for the amounts paid at present. There would be an adjustment done in January 2012 that would accommodate this arrangement.

Mr Pretorius asked, at that rate, how long would it take for the debt to be settled.

Adv Khoza said that BBR would address this in June when there was a re-negotiation. A strategy would be formulated, with a timeframe, and that was why BBR needed assistance from stakeholders. There could not be a monthly arrangement forever. A short term repayment had to be settled.

 and they had to agree on a short term repayment.

Mr Pretorius asked if BBR was being short paid at the moment, or was getting what was due on a monthly basis.

Mr Letswalo replied that the Municipality was not paying the full debt. He stated that since the last time that BBR had appeared before SCOPA, it had been receiving R1 million, which had escalated to R3 million as a flat rate, but that was negotiated up again to R5 million. The flat rate would increase by a percentage of the tariff increases effected for each financial year.

Adv Khoza noted that the reason why the Municipality was not paying the full invoice was because of the metering. The parties had agreed that once the metering process had been finalised, they would then reconcile and get the exact amount of what the invoice should be.

Mr Pretorius asked when it was anticipated that the debt would be cleared, and when the Municipality would begin to pay a monthly rate per invoice.

Ms Carlyn van Rensburg, Chairperson: Finance and Budget Committee, BBR Water Board, responded that part of the problem was linked to the municipality’s budgeting process. Its budget for water supply was way below the cost, and until that was addressed the problem would persist. The Municipality had no understanding of the community demand in that area. The problem with the metering was that the Municipality was saying that it was paying from when the water left the reservoir. However, there were illegal connections from the pipelines that were servicing communities, but this was not part of the Municipality’s reticulation system.  but they were not paying as they were not part of the municipality's reticulation system. The metering project needed to meter what was going out. However, BBR had no cash flow to deal with this, as it was currently carrying the water consumption needs of the communities with the illegal connections. This should have been provided for by the equitable share that went to municipalities. The BBR had highlighted the shortfalls in its budget to the Portfolio Committee and National Treasury. She noted that it had been said that this was to be addressed in the adjustment budget, and she hoped this would happen. The problem was bigger than the BBR Water Board alone.

Mr Pretorius enquired about the involvement of Rand Water Board, and if it was assisting BBR.

Ms van Rensburg replied that Rand Water's involvement started when that Board had been appointed to assist BBR, through the Department. However, BBR had not received that much support and was moving ahead with the metering project on its own.

The Chairperson asked what the metering project entailed .

Mr Letswalo explained that it related to illegal connections, and it was increasing every day.

The Chairperson asked if illegal connections were made to supply villages who otherwise would not have a water supply. He asked if some names could be given.

Mr Letswalo mentioned the names of some villages and mentioned that water was being drawn from the main pipeline, and water was not reaching the reservoirs.

The Chairperson commented that during the Homelands period, almost of the villages in the area had water pipes supplying water. He was struggling to understand the present situation. After 1994, many contracts had been awarded to lay pipelines. There were now illegal connections to supply entire villages.

Mr Pretorius asked who was responsible for the maintenance of the underground pipes from the dams to the reservoirs, and where did the capital expenditure emanate.

Ms van Rensburg said the maintenance of the pipes were the responsibility of BBR, from the dams to the reservoirs. The responsibility for reservoirs onwards belonged to the Municipality.

Ms Pretorius said he asked the question specifically because the capital expenditure budget of the BBR last year allocated only R212 000, which was a minute amount for the needs of such a huge entity. While the figures were adequate, and BBR was selling more water, it was also not spending money on capital, to guard against future crisis.

Ms van Rensburg replied that not only capital expenditure but also maintenance were a significant problem. BBR did not have the cash flow  to maintain what it had to operate with. It was only recovering 40% of the revenue due, and could not maintain what it had. This would indeed create problems if there were break-downs. If BBR had the funds, it could also do the metering project now. If BBR had funds, it could check the illegal connections and give the relevant information to the Municipality, who could in turn upgrade its budgeting and change the figures. If BBR could address its money problems, most of the other problems could be solved.

Mr Pretorius asked if there was a need for a Water Board in the area and wondered if the Municipality alone could fulfil the function.

Adv Khoza thought that there was a need. When the Water Board was established, it was mainly to assist people to get water, as Bushbuckridge was a nodal area. It might not have achieved its objectives, but the need still existed.

Mr Pretorius raised the issue of a forensic investigation, which was named as a matter of emphasis in the auditor's report. This had involved an amount of R644 000 for irregular payments dating back to 2004. He asked why this had not been resolved.

Adv Khoza replied that the Forensic Report implicated the then-CFO, who was dismissed and criminal charges were laid. There was a problem with the prosecution, and two months ago the BBR was told that witnesses were no longer available to testify, and were no longer in BBR’s employ.

Mr Pretorius asked if money had been stolen.

Mr Letswalo replied that the matter involved making payment to fictitious companies.

The Chairperson asked why witnesses were unable to testify.

Mr Letswalo said the process had been going well, but a new prosecutor was then appointed who had to start from scratch, and he recalled all the witnesses.

Adv Khoza said that the previous Prosecutor had died. However, the case could have proceeded on the record, but BBR was told that there was lack of evidence. The Board of BBR had still to follow this up.

The Chairperson asked why

Adv Khoza responded that a special Board meeting would be held to address specific issues in a month’s time.

Mr Pretorius insisted that this must be the first item on the agenda, as it represented money stolen from the State that had to be recovered.

The Chairperson established which court had been involved.

Mr Pretorius referred to the reports of non-compliance in respect of performance management, asking if all the senior management had performance agreements with the Accounting authority, and whether the Chairperson of the Board had a performance agreement with the Minister.

Adv Khoza replied that they were in place.

Mr Pretorius questioned the bonuses paid out. Technically this water board was insolvent. However, substantial bonuses had been paid out. The CEO had received R38 000 plus an expenses allowance of R214 000. He asked what the latter figure was.

Mr Letswalo said that the amount reflected was a cost-to-company figure. The staff were not in fact paid bonuses since the BBR was in financial difficulties. The bonus described was actually more like a 13th cheque. The expenses allowance included a car allowance and other allowances but it was basically the total cost to company.  

Mr Pretorius asked if any of the officials had credit cards.

Adv Khoza replied that they did not.

Mr Pretorius asked if all of them had disclosed their interests.

Adv Khoza said this was done annually and at sittings of the Board.

The Chairperson remarked that the emoluments for Board members were relatively low.

Ms Dreyer said that the entity was technically insolvent but still supported the South African Local Government Association (SALGA).

Ms Z Balindlela (COPE) voiced her concerns about the entity's liquidity risk, asking how serious this was, whether the Department was aware of it and what was being done.

Adv Khoza responded that the Department was aware of the liquidity risk and was engaged in discussions with BBR on how it could assist. BBR believed that the Department could do more. Then there was a directive, and the involvement of Rand Water for funding. Certain things had to be implemented, to get BBR out of its predicament.

Mr Letswalo responded on the support given to SALGA and said that it was an arrangement that would assist the entity.

The Chairperson asked how much had been paid.

Mr Letswalo replied that he could not remember, but it was not more than R10 000.

The Chairperson said that SCOPA would like to visit this entity, engage with it and the Municipalities in the district, the Province, National Treasury and the Department, to talk about the issues. This problem could not go on without finding a solution. SCOPA would communicate with BBR and the other stakeholders on the date.

The Chairperson observed that with the disestablishment of Bohlabela Municipality, there should have been some assets, and whoever had taken those over should also have taken over the liabilities. BBR was not the only water board with serious challenges. The Committee had to find a way to address the issues, as they impacted on the fundamental rights of South Africans.

The meeting was adjourned.


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