ICD Lease Agreement: input by Independent Complaints Directorate, National Treasury & Department of Public Works

Meeting report

Independent Complaints Directorate’s Head Office leases
The Chairperson welcomed Members and delegates, and also welcomed the media, who were consistently present and who provided useful and constructive comment on the Committee’s work. This meeting had been called in pursuance of the Committee’s duty to do its oversight work consistently.

She reminded the Committee that on 1 November the Independent Complaints Directorate (ICD) had tabled its 2010/11 Annual Report. At that time, Ms A van Wyk (ANC) asked why there was such a sharp increase in the spending on operating leases, from R4 million in 2009/10, to over R15 million. ICD requested that it could answer that question in writing. Although the Portfolio Committee was not happy with that answer, as it expected the ICD to be able to answer questions at the meeting when asked, it allowed that response to be presented at a further meeting on 15 November. After that presentation, Members had asked several probing questions, but when the ICD tried to answer, but it became clear that the Department of Public Works (DPW) and National Treasury (NT) also needed to be present to answer some of the questions that the explanations presented.

The Chairperson noted that the Minister of Police had requested the Public Protector to investigate the leases of the Department of Police buildings. She read out the relevant sections from the Public Protector Act, noting that “nothing contained in this Act shall prohibit the discussion in Parliament of a matter being investigated, or which has been investigated in terms of this Act, by the Public Protector.” There was nothing to prevent this Committee from proceeding with the meeting and calling for information. The Committee had a Constitutional mandate to maintain oversight over any organ of State, and it was indeed doing its work.

The Committee must be satisfied that all actions taken were within the legal framework, in line with legislation, regulations, rules and procedures. Section 38(2) of the Public Finance Management Act (PFMA) stated that an Accounting Officer may not commit an entity to any liability for which money had not been appropriated. Section 39 of the PFMA was also clear on the responsibilities of the Accounting Officer in relation to budgetary control.

The Chairperson noted that she had received a letter from Mr Roux Shabangu (owner of one of the buildings that the ICD had occupied), requesting that he be permitted to speak at this meeting. However, because that letter was addressed to the incorrect person, the Chairperson had seen it yesterday only after about 19h00. By that stage, despite trying to do so, it had proved too late to arrange for Mr Shabangu to be at this meeting. She wanted it placed on record that this request came from him.

She also noted that the Department of Public Works had requested that it should not hand out documents to Members, but merely speak from notes. Reasons had been furnished to her, and she had granted permission for this. The National Treasury had also been asked to speak to the issues.

Ms D Kohler-Barnard (DA) called for clarity, saying that she had written to the Chairperson asking that Mr Shabangu be invited to this meeting, and, when she followed up, was told by the Committee Secretary that this letter had been mislaid. It had been mentioned at the previous meeting that he owned one of the buildings and she did not understand why he had not been invited earlier by the Committee.

The Chairperson noted that everything the Portfolio Committee did had to be based on established facts, and only Ms Kohler-Barnard had raised the ownership of the building, but this had not been confirmed. She reiterated that he had requested to be present. It had not been established whether the building did belong to him.

Mr M George (COPE) questioned why the Department of Public Works (DPW) had requested that it not be obliged to distribute its document.

The Chairperson noted that reasons had been given to her, which she had thought were adequate.

Independent Complaints Directorate (ICD) further presentation
Mr Francois Beukman, Executive Director, ICD, confirmed that the Public Protector had written to the ICD and all thirteen issues raised would be answered in the next week. He also wanted to state up front that Mr Shabangu had now written a letter to the Minister, Department of Public Works and ICD, indicating that he was not in fact the owner of the building being leased, having sold it in 2009. This raised further legal implications in respect of the lease, which would now have to be considered.

Mr Beukman said that his presentation would essentially deal with the matters raised by Members at the previous meeting on 15 November.

The first question was why ICD had moved to the City Forum Building. At the previous meeting, he had indicated that two buildings occupied by the ICD initially, ICD House and Old Mercedes Benz Building (OMB) were leased to other departments, while the ICD was still in occupation. In January 2010 the ICD was sued for R2,4 million by the owner of the OMB building for failure to vacate the premises. In fact, the refurbishment of the OMB and ICD House was already being carried out while the ICD was still in the building, awaiting its own move. The Structura building, to which ICD was supposed to move, was not ready for occupation, and so, on 29 January 2010, DPW proposed a swop, with ICD to move to the City Forum building (which the Department of Human Settlements (DHS) was going to occupy) and DHS to move to the Structura building. ICD had requested a copy of the lease for the City Forum building, but it was only eventually received in November 2010, after ICD had taken occupation. ICD had already requested, when the moving-date to Structura kept being postponed, that DPW find alternative accommodation, but DPW had responded that if ICD did not occupy City Forum, there would be fruitless expenditure. No other alternative was offered to ICD. The threat of litigation for continued occupation of the OMG building was also raised by DPW.

The second question by the Committee related to the relative sizes and costs of the buildings. He noted that the City Forum Building cost R119 per m² and parking costs (included in this figure) were R19.10 per m². He then presented a summary of what the lease costs would have been, today, in respect of all the buildings. The cost of continuing to occupy OMB and ICD House, together, would have been R3.07 million. The cost at Structura would have been R4.61million. The cost at City Forum Building was R10.58 million.

The Committee had asked for an explanation of the roles of DPW and ICD. He said that the ICD’s role was limited to identifying a need for accommodation, submitting a needs analysis, planning and budgeting and providing the DPW with confirmation that funding was available. ICD was not involved at all in the negotiations or conclusion of properly leases. He also confirmed that despite the fact that ICD had requested an alternative to City Forum, it was told that there was no other choice.

In relation to the question on the staff complement, Mr Beukman outlined that from 2007 to 2010, the staff complement rose, each year, from 80, to 83, 89 and 99.

The Committee had asked what needs were outlined by ICD, and communicated to the DPW. Mr Beukman said that the first needs analysis was done and communicated to ICD in 2007, when the ICD noted that it needed 3 133 square metres (m²) and 27 parking bays. The DPW had approved provision of 3 246 m². However, that needs analysis was revised in 2008 when ICD expressed the need for 23 additional parking bays, and the area space then became 3 333 m². In February 2010, the ICD revised the needs analysis to 4 641 m² and 105 parking bays. This was because of the impending increase in staff, in anticipation of the Independent Police Investigative Directorate (IPID).

Mr Beukman then outlined what would have needed to be done should the ICD have proceeded to occupy the Meintjies building, after being told initially that Structura was not available. Although this negotiation never proceeded to a point where a cost analysis was given, there would have had to be alterations in relation to disability access, pedestrian routes, parking and toilets and office layout.

The question had been raised whether the ICD was compelled to move. He said that effectively it was, since it was occupying two buildings that had already been leased to other departments or entities. There were, in fact, attempts to evict the ICD and it was threatened with a damages claim, which was noted on the financial statements as a contingent liability.

Mr Beukman added that Structura should have been occupied by ICD in May 2009. However the finalisation of the renovations and occupation date was postponed on various occasions. In January 2010 ICD had, at previously mentioned, met with DPW, and the DPW suggested that ICD and DHS should swop. ICD had then indicated its interest in occupying City Forum, and had requested a copy of the lease, after DPW had assured ICD, on 5 March 2010, that no other options were available.

The Committee had asked if ICD was legally obliged to move. Mr Beukman said that a client department could refuse to move, but in this case, DPW expressed the view that there were no valid reasons why ICD could refuse to move. In fact, on 5 February 2010, DPW said that it was compulsory for the ICD to move to the City Form Building, because of the lease of the OMG and ICD House buildings, the possible incurring of fruitless expenditure, if litigation against ICD in respect of its continued occupation of these premises was successful and the fact that the new tenants needed to proceed with their renovations.

The Committee had questioned why ICD agreed to occupy when it did not have sufficient budget. ICD had already indicated to DPW that it had the amount of R6.19 million available. The DPW did not, contrary to the prescripts of a directive from Key Accounts Management, communicate any change in the rental already quoted to ICD. During a meeting on 18 February 2010 it confirmed that there would not be an increase in the commitment made.

ICD then noted that the client departments’ decision on lease properties was dependent on advice and information provided by DPW. Mr Beukman read out the terms of the Service Level Agreement (SLA) which was entered into between DPW and the ICD. This specified that any additional costs should have been communicated. The DPW did not communicate the additional costs implications.

In answer to questions raised as to the suitability of the premises, Mr Beukman confirmed that the City Forum building was suitable and complied with the National Intelligence Agency (NIA) specifications and South African Police Service (SAPS) physical security requirements. He noted that the legal mandate of the ICD required it to have extra security measures, including certain specifications around security of offices and boardrooms, locks, strongrooms and fire protection. He confirmed that the City Forum building complied with security requirements.

In answer to the question whether ICD had done renovations, Mr Beukman said that although ICD did not make any structural changes, it had attended to refurbishments, totalling 1.8 million,

Mr Beukman noted that the assessment of property bids was done by DPW and ICD was therefore unable to comment on why the Structura new owners were deemed to be compliant with government prescripts.

In answer to the question how much ICD had paid for cabling, Mr Beukman said that ICD had spent R770 000 on cabling at Structura, whilst the DHS had spent R551 000 at the City Forum building. It was decided that each would take over the work done by the other, and a set-off was arranged, with the ICD to recover R218 208 from DHS. The ICD had corresponded with the DHS for the recovery of this amount, and the latter had indicated that it was, on principle, prepared to make the reimbursement.

The Committee had asked why ICD spent money if the Structura Building did not comply with the security requirements. The NIA had indicated that it could be compliant, if certain refurbishments were effected by the landlord, but the landlord could not deliver on those.

The Committee had raised questions about the ownership of the buildings. Mr Beukman said he was not aware whether any of the previous buildings were owned by Mr Roux Shabangu.

In answer to a further question on the specific role of ICD in procurement, Mr Beukman said that the ICD did not take part in the procurement process. It was now clear, in view of the letter from Mr Shabangu, that further legal advice would be needed on the issues.

Mr Beukman said that ICD had been advised by National Treasury that it was too small a department to consider purchasing its own building as this would not be viable.

A question had been raised by a Member as to what money was spent in relation to disability functions. Mr Beukman clarified that this was not a national event, but was in fact an internal event in ICD, in 2008, and the only costs were R150 for the hiring of a wheelchair.

Another Member had asked whether the lease agreement complied with the Government Immovable Asset Management Act (GIAMA) and Mr Beukman said that this would have fallen within the responsibilities of the DPW.

Members had asked for a breakdown of the amounts for the operating leases. Mr Beukman tabled a full list, and explained the figures (see slide 30 of attached presentation).

When the ICD presented its figures on 15 November, he had indicated that part of the amounts were in respect of the backdated billing by DPW. He explained that over the years DPW had not billed departments timeously and correctly, and therefore had claimed the backdated amounts, on an estimate.

Mr Beukman said that although ICD had managed to deal with the financial implications of having to pay more than budgeted for the leases, he wanted to stress that if this were to continue, this would definitely have financial implications for the ICD.

A Member had asked whether there was any link between the ICD not meeting some of its targets and the amount it had to pay additional to budget. Mr Beukman noted that there was no link.

Members had enquired why it was ICD, and not DPW, who was seeking additional funding from National Treasury. He said that the ICD was dedicated to fulfilling its financial obligations. It was, however, currently seeking a legal opinion on its obligations in terms of the lease.

In conclusion, Mr Beukman wanted to reiterate that ICD was not allowed to source its own accommodation, but had to rely on DPW. The process to secure new head office accommodation for ICD had started in October 2008 and had lasted almost three years. Although ICD had requested alternative options, none were presented to it. He stressed that it was facing a R2.4 million lawsuit (subsequently escalated to R9 million) should it have continued to occupy the ICD House and OMB buildings, and was effectively facing eviction.

Department of Public Works presentation on the leases
Mr Butcher Matutle, Acting Chief Operations Officer, Department of Public Works, noted that he would provide some clarity on some issues, although he noted that there may be some gaps in the information that he could provide.

The Chairperson said that the letter to DPW inviting it to this meeting had specifically asked that the Accounting Officer and the person who dealt with this lease should be present at the meeting. She asked for clarity.

Mr Matutle noted that the Acting Director General was not available because he and the Minister of Public Works had to attend a Cabinet meeting. The official who had been responsible for the lease was not present in the meeting. The team from DPW who was present, being himself and Ms Sassa Subban, Deputy Director General: Investment Management, DPW, had had no direct role in this matter.

Ms A van Wyk (ANC) said that no reason was given why the person who dealt with the lease was not present.

Mr George agreed that an answer was needed on that. He also commented that he did not think it was useful to note that there would be gaps in the information.

Mr Matutle said that he had no knowledge of why the person responsible for the leases was not present.

Mr Matutle then continued with his presentation. He summarised that ICD had been occupying two building in Pretoria, and had approached DPW in 2007 to secure alternative accommodation for 2008. A procurement instruction was issued in DPW, in December 2007, to secure other accommodation, by August 2008. The relevant offices advertised the tender in February 2008. On closure of that tender, four bidders had tendered, and one of those was the owner of the Structura building. The other tenderers were not mentioned. However, the bidders for Structura did not meet the requirements, when the request was sent to them. In July 2008, after the building had changed hands, the DPW approached the new owners who then indicated that they were prepared to make the building available. On 31 July 2008 the ICD confirmed that it would like to take up this possibility. He noted that only the Director General and Exco members were allowed to approve and support procurement. In line with this, approval letters were granted for 3 887 m² at R70 per m² excluding the VAT and 27 bays at R438 per bay, excluding VAT, with 9% escalation per annum. The contract was for eight years and eleven months. The lease was signed 15 October 2008 and the landlord was obliged to reconfigure to suit the client needs. After considerable delay, of almost a year, the client complained about the challenges and the delays in issuing compliance certificates. In the meantime, the lease renewal of ICD House had expired and the rental expenditure was therefore irregular.

The DPW had then made other arrangements. In 2010, a certificate to occupy Structura was given, but the client refused occupation because it wanted the upgrades to be completed first before occupying. In view of the fact that documents had been signed, it was thought by DPW that if ICD did not occupy there might be legal problems, and that was why that ICD was offered a “soft deal” to occupy the City Forum, whilst DHS would then occupy Structura.

At this point Ms Kohler-Barnard intervened to note that she and other Members were having considerable difficulty, firstly with hearing the presentation and secondly, with noting all the figures, as Members had nothing in front of them. She asked if copies of the presentation could be made and circulated. with DHS occupying Structura.

The Chairperson said again that DPW had made representations to her that the presentation should not be made available. She was listening carefully to try to find out if there was anything in the presentation that would compromise the position if the DPW were to make copies available. She asked the presenters to move closer to the front, and to continue.

Mr Matutle continued with his explanation. He noted that a procurement instruction was issued and the procurement strategy was approved on 31 January 2008, with the tender being advertised on 22 February 2008. On the closure of the tender in March 2007 two bidders had expressed interest, but they later did not respond to enquiries. In May 2008 approval to lapse the tender was given. On 11 June DPW reached an agreement with Mati Properties to conclude the lease. On 5 September the Director General granted approval, and here again he explained that the role of the Regional Office of DPW was limited to making recommendations.

On 18 June there was approval and acceptance of the Mati Property bid at the rate of R62.70 per m², a further amount for parking bays and 8% escalation. He noted that acceptance “was informed by the Deed of Sale between Mati Properties and Bamboo Rock, a subsidiary”. The costs for the Structura building, on commencement, were to be R79 per m², for 3 800 m², and 8% escalation. There were 27 parking bays.

The City Forum building, by comparison, cost R80 per m², VAT exclusive, for 3 740 m², and R438 for the parking bays, with 10% escalation. The difference in rental was 1% for the escalation, and the difference in rental was R10 per square metre (sic).

DPW looked at comparable building costs for both the Structura Building and City Forum. The DPW had invited tenders for occupation by South African Social Security Agency (SASSA), and here he mentioned some comparable costs. For instance, the lease signed for SASSA then to occupy OMB building was for R124 per m², with R255 for the parking bays.

In respect of the Structura building, ICD had installed some computer cabling at about R700 000. DHS meantime had made no investment in upgrades, only in physical security. R2.8 million was invested on security in that building. ICD did not accept DHS configurations and wanted major changes to the office layout.

Mr Matutle noted that the space that DHS was to occupy in the City Forum building was 7 614 m², and there were 102 parking bays. ICD, in the Structura building, would have occupied 3 387 m², with 27 parking bays.

DPW considered a number of issues when it made the recommendations for the swop. Firstly, the continued non-occupation by anyone of the Structura building would mean that there was fruitless expenditure, as DPW was paying the lease costs. Interest was being charged. There had been an issue where ICD negotiated with the landlord without involvement of the Department of Public Works, and committed the DPW to a rental of R154 000 per month in the ICD House building. The layout plans that ICD wanted resulted in further delays in occupation of the building. Major reconfiguration was needed in the City Forum building rather than ICD occupying it as it was. A demand to be provided with accommodation other than in the City Forum building could have led to major expenditure.

Mr Matutle said that a letter written on 1 January 2009 by the DHS to the former Accounting Officer of DPW “gave some kind of a dynamic to the situation”. DHS had raised the issue of possible fruitless expenditure. DPW was paying rental for the City Forum building from July 2009 to August 2010, because of the lease commencement date. The Legal Services Division opinion said that rental should be paid from that date.

Mr Matutle then noted that the City Forum building had been sold, from Mati Properties to Bamboo Rock, a subsidiary of SHM Group. The original sale price was R23 million, but this was in respect of a 70% share, and there were some doubts as to whether this deal was done at arm’s length. DPW had not signed a lease at this time because Mati was not the owner of the building. It was intended that R62,70 would have been paid in rental, per m². However, by the time the Deed of Sale was signed with the SHM Group there was a huge discrepancy in the purchase price of the two sales (see attached presentation for full details). The change in the “market value” had resulted in a change of rental. DPW concluded that this deal would benefit the sellers only.

At this point, Mr Matutle noted that the figures he had read out still had to be clarified and he could not vouch for them. He was reading from a report prepared by the official responsible for the lease procurement, which he had received on the previous day.

Discussion
The Chairperson said that she would have liked to have been given a brief summary, because the Committee did not understand a lot of what had been presented. It seemed that ICD was required to leave its previous building, ICD House and OMB, because someone else wanted to occupy them. The point was that City Forum had suddenly been presented as an alternative, but at a huge cost. She asked at what stage DPW would sign leases for departments to move in, without having first acquired some other building into which ICD could move. She wanted to know the exact role of DPW in the process.

The Chairperson noted that the Public Protector report on the SAPS headquarters had noted that the rental on that was inflated to a huge degree. She thought that there was “chaos of the highest order’’ in relation to the property transactions.

Mr Matutle agreed that there were problems with what had happened. He confirmed that although it was alleged that documents were with the Special Investigating Unit (SIU), and although it did have a copy of the City Forum contract, this body had said that it had yet to receive the Structura contract, which appeared to have ‘’vanished’’. That indicated the extent of the problem.

Mr Matutle said that he had been at pains to try to explain some matters. SIU, however, said that because the investigations into the procurement of leases was quite involved and at a quite advanced stage, DPW should not disclose or discuss too many details, as this may have an impact upon the investigations. Some of the documents relating to the case were available. He agreed that there were challenges. A building that was supposed to be occupied by one department was swopped with another and it was common knowledge that there would be serious cost implications. There should have been engagement with the Accounting officer and the fact that it had not happened was unfortunate. The Minister had requested that whatever was known should be conveyed.

Co-Chairperson Ms Mabuza noted that during the strategic legkotla of DPW, she had raised the issue of the ICD matters and asked that DPW must attend to it. She was very disappointed that DPW had not come with a complete and correct report to present to this Committee. The Minister had also raised the question of the ICD report, Public Protector report and the report of the Auditor-General (AG) and had said that another damning report was in the pipeline, although nobody knew when that would emerge. She was pleased to hear that the Minister had now said that the Regional Managers could not in future sign any leases, as they must all be directed to Head office and should not be signed without the consent of the Minister. She had pleaded with DPW to be completely honest and transparent on all issues.

National Treasury presentation
Mr Megan Govender, Director: Public Finance (responsible for Police and ICD), National Treasury, said that , he had been asked to explain how National Treasury had dealt with the request for additional funding for ICD. ICD had requested R34 million. National Treasury had made recommendations to Cabinet and the Minister’s Committee, which could also institute changes. At this stage it was not proper for him to say what had been recommended. The concerns raised by this Committee would also inform how National Treasury viewed the request for additional funding for leases for ICD.

Discussion
The Chairperson said that no recommendations from National Treasury should enhance corruption of the highest order. She hoped that National Treasury would not recommend additional funding in circumstances such as these. Although she was not saying that National Treasury should not make a recommendation, she hoped that it would not. People who continued to loot the State’s finances committed offences and she would not like to see National Treasury recommending funding for matters that could not be properly explained. She noted her frustration that all the relevant players were present, but the Committee was still not getting proper explanations.

Mr V Ndlovu (IFP) asked, following up on an earlier question from Ms Kohler Barnard, if the Chairperson, having now heard the presentation, thought that there was anything in that document that should not be made available to Members. It was very difficult to ask questions when the information was not before Members.

The Chairperson noted that she did not think that there was anything critical, that should not be released, although she had been listening very carefully to try to pinpoint any instances. She therefore asked that the document be circulated.

Mr Matutle asked if he could rather persuade the Chairperson and Members that DPW should take questions and then provide responses in writing. The problem was that the information he had presented was not necessarily reliable. There were also problems about the report received on ownership the previous day, and he had already said that the figures could not be verified.

The Chairperson ruled that the document should be copied.

Ms A van Wyk (ANC) said that the information was given by DPW in the public forum, and whether it was reliable or not, that was the information that the DPW had presented, to this Committee and Parliament. She did not believe that this could be used as an excuse. If the information was not reliable then the DPW should not have presented it. The Chairperson had also made a ruling. She was not trying to blame any individuals, but rather the way the DPW had handled this.

Mr Ndlovu agreed that since the document was presented in an open meeting, he saw no reason for Members not to have the information in a written form, for it would otherwise be impossible to interrogate the issues.

The Chairperson confirmed again that she had originally accepted the explanation by DPW, but, after listening carefully, heard nothing to persuade her that the document should not be made available. Whoever prepared that document should have known that correct figures were needed. Members had to interact with the information and take a position.

Ms van Wyk asked DPW to indicate whether, and when, a contract was given to ICD, which set out the cost of the building.

Ms van Wyk said that there were many issues that remained unclear. She still believed that the responsibility to clarify lay with the Accounting Officers. She therefore asked Mr Beukman at what stage the ICD had decided to get a legal opinion on the current lease issues, in respect of the City Forum building. She had the impression that this was only done when the Committee started the question the issues.

Ms van Wyk also said that essentially, ICD had been threatened by DPW, and she asked if this had been taken up with the political head, whether ICD sought any guidance, whether the Minister of Public Works was informed that ICD was being pressurised, and whether it had ever questioned why it should move into a building that was double the floor space it needed, with five times the number of parking bays. Logic alone should surely have told ICD that this would cost more.

Ms van Wyk also asked if the ICD had signed a contract with DPW and, if so, when it was signed.

Mr G Lekgetho (ANC) noted that Mr Shabangu was not the owner of the building, and asked ICD who the current owner was.

Mr Lekgetho expressed his disappointment in DPW, that in February 2010 it had apparently said that there was no increase in the commitment for the lease, knowing the budgetary constraints, and that this was not correct. He found it “very strange” that the person dealing with this had not, as requested, attended, but expressed his gratitude to Mr Matutle for outlining what he could.

Mr Lekgetho was also disappointed in the response from National Treasury. It seemed to be creating a precedent, without putting any caveat, on the overspending.

Mr Ndlovu referred to slide 14 of the ICD presentation, and noted that DPW had said that there was no reason why ICD should refuse to move to the City Forum building. He wanted further clarity on that comment, and asked what “compulsory” meant in the context.

Mr Ndlovu noted that, on slide 15, ICD said that DPW did not communicate a change in the cost implications to the ICD. He asked when this change was communicated, if at all, and what the response of the ICD to that information had been.

Mr Ndlovu also asked ICD why the DPW had not communicated additional costs. He would wait until he had the DPW document in front of him before interrogating DPW’s presentation.

Mr M George (COPE) said that Members had not been aware, at the previous meeting, of the SIU investigations, and he was concerned that this put a new light on the issues. He would not like the Committee to compromise itself of the SIU investigations, and wondered how the Committee should approach this. If the matter was already under investigation, perhaps the Committee should allow that to take its course.

Mr George said that the ICD responses were not substantially different from those presented in the previous week. It was said that Mr Shabangu had sold the building in 2009, but the whole process started before that, in 2007. The essential issue was why ICD had moved to City Forum without any discussion on the difference in rental. He was concerned that the lease was requested in February 2010 but was only presented in November. He believed that the Minister had good reasons for calling for an investigation, and reiterated that he was worried that the Committee’s probes might compromise that.

The Chairperson said that had she known that the SIU was investigating the issues, she would have invited both the SIU and Hawks to the meeting. The Committee’s report on this meeting would also be handed over to them. In the previous year, the Committee had held a meeting on the police buildings and the President had announced the commissioning of an investigation, so the Committee had invited SIU to the meetings and had willingly provided a report. This matter was not before a court, and was therefore not sub judice so there was nothing incorrect in the Committee continuing with its investigations, as part of its oversight over ICD. She hoped that the investigations would proceed successfully. The Committee would like to see that wrongdoers must be brought to book. She said that Members could continue to ask questions.

Mr George said that it was clear, from the fact that SIU had been called in, that the DPW had been irresponsible. It had itself admitted that some figures were not accurate. He wanted to question the costs of the cabling and the renovations, as he would have thought those were costs that the landlord should bear.

Mr G Schneemann (ANC) said that he was pleased that the matter was being investigated. It was clear that the whole situation was a total mess, particularly on the side of DPW. He too hoped that anyone who had committed any wrongdoing would be found out and the necessary action taken.

Mr Schneemann reminded the Committee that in the previous week he had raised the point that the PFMA provided that an Accounting Officer may not commit a department or entity to any liability for which money had not been appropriated. Nobody seemed to have checked on those costs. DPW had not advised the ICD, and the ICD said it was not advised of the costs. However, he had difficulty in understanding why ICD would agree to make the move without knowing what its liability would be. He asked how and why DPW could have “forced” ICD to move. ICD said that DPW was well aware of its requirements, and its budget, and if this was so, then he questioned why DPW effectively forced ICD to occupy a space that was larger than its requirement, and the rent was not affordable for ICD. He wanted a full explanation from DPW on this point.

Mr Schneemann noted that the lease for City Forum was signed in March 2009, in respect of the DHS’s proposed occupation, and he asked if DHS had moved in at that time. He suspected that they had not, and that DPW was landed with paying rent on an empty building. If DHS had not moved in, then he wanted to know why. He also asked why exactly the idea of a swop was thought out when the difficulty with security in Structura was raised.

Mr Schneemann said that one of the reasons why Structura was not occupied by ICD, at the outset, was that Structura’s ownership then did not comply with black economic empowerment (BEE) requirements. He asked when exactly this had changed.

Mr Schneemann asked ICD when it had actually occupied the City Forum Building.

Ms A Molebatsi (ANC) asked who the owner was of the Structura Building.

Ms Molebatsi questioned slide 12 of the ICD presentation, and the comment that the owner of the OMB had attempted to evict ICD. She, and Mr M Swathe (DA) wanted to know who owned that building.

Ms Molebatsi noted that between 2007 and 2008 the staff complement increased from 80 to 83 members. However, the revised needs indicated that another 23 parking bays were needed, and she asked for whom these were intended.

Mr M Swathe (DA) asked about the movement of the ICD from OMB, and what budget it had at that time. ICD had told DPW that it had around R6 million available at the time that it asked for more accommodation.

Mr Swathe expressed his concern that DPW appeared to be unprepared for this meeting and had not given reliable figures. He asked when senior management of DPW would be able to clarify the points raised.

Ms Kohler-Barnard noted that Mr Matutle claimed not to have dealt with the lease, yet the document from which he was reading made some very serious accusations that ICD had entered into property negotiations behind the back of DPW. Mr Beukman, for his part, was saying that there were paper trails to support what he had said. She was not sure whom to believe, but it seemed that someone was trying to mislead the Committee. DPW had stated, almost as an aside, that the Structura lease had disappeared. ICD had asked for it in writing, and she asked if DPW was trying to suggest that ICD had the lease document. She asked when it had become aware that the lease was “missing”, and how it was possible that every copy could have evaporated. This might well be a deal with impropriety.

Ms Kohler Barnard noted that the DA had asked the Public Protector to investigate this matter because this seemed to be yet another overpriced lease deal that DPW had signed. Whether or not the lease was with Roux Shabangu, it was for a contract with exorbitant rental out of line with comparable buildings. The DPW should be checking that all leases signed were in line with market-related rentals. This did not seem to be happening. The 477, Smith Street building was rented at R6 million a month, and the rental paid over six months could have bought the building outright at market value. The City Forum premises were expensive, too large, and unsuitable, just like the Smith Street building. She noted that taxpayers were being committed to funding long leases that ended up with the DPW owning nothing but the owners of the buildings being enriched.

 Ms Kohler Barnard noted that National Treasury felt that the ICD was too small an entity to buy its own building. However, the same could surely not be said of either SAPS. She said that the various leases, considered together, led to an extraordinary situation, with leases of up to ten years, and she, like the Chairperson, would not like to think that National Treasury was approving payment of leases for exorbitant amounts, that were not suitable. She did not see an effective oversight mechanism operating. She was not surprised to hear that SIU was investigating the matter.

The Chairperson added (later in the meeting, but on the same point) that the purchase price of City Forum, when it was sold, showed that DPW could have purchased the building for a smaller amount than the amount it had committed ICD to paying in rental. Even if ICD could not afford to buy a building, she pointed out that DHS was supposed to be the occupant, and that was not a small department.

Ms Kohler-Barnard asked who was threatening the legal action mentioned on slide 14.

Rev K Meshoe (ACDP) referred to slide 13 and asked whether ICD, when it indicated its interest, had any idea of the cost of the building. He found it difficult to understand why Mr Beukman could have committed himself to something when he did not know the legal implications and whether ICD would be able to deliver on its commitments.

Rev Meshoe asked who had signed the lease, and when it was signed.

Rev Meshoe asked if the City Forum building was suitable for DHS at the time when it should have moved in HE asked whether, when signing the lease, DPW had intended that DHS should occupy the building, or if it might have had another department in mind.

Rev Meshoe was worried that DPW might have deliberately misled the ICD at the time that it forced ICD to occupy the building. He noted that ICD had provided a budget, so DPW was aware of it, and he asked why it had not initially communicated the cost implications to ICD, and when it had eventually done so.

Rev Meshoe noted the comment about an “administrative error” on slide 31, and asked if this was referring to another building, or the fact that there was no building at all.

Ms van Wyk said that DPW had indicated that ICD had been negotiating, without its knowledge, about the OMB. According to the information provided, ICD then agreed to pay R154 000 per month, increasing from either R67 000 or R69 000 (two figures were provided). She asked when these negotiations had taken place, and why. In none of the previous presentations had there been any mention of an increased amount of rental for OMB, and in fact ICD had still mentioned payment of the rental there of around R69 000 per month.

Mr Schneemann said that he had now received the DPW document, and said that although there was initially a claim by the presenter that the difference in cost was only R10 per square metre, the space was double what had been approved for ICD. The total space and total cost must be compared. ICD was given twice what it needed, so the figures were misleading.

Mr Schneemann noted that when the inspection of Structura was done in 2008, the building did not meet the minimum functional criteria, and there was approval given for the lapsing of the tender in April 2008. However, in July 2008, the same (lapsed) tender had apparently been approved. He asked for clarity as to how this could be done, and why it was done. He thought the DPW document contained many contradictions.

The Chairperson asked who, at DPW, had interacted with ICD, and what exactly those interactions were. She asked if the Accounting Officer of DPW was involved.

The Chairperson noted the comment by DPW that ICD had “no valid reasons’’ not to move. However, she pointed out that ICD had only been provided with an incomplete lease agreement, and would have thought that this alone was a valid reason.

The Chairperson questioned exactly what the Committee was looking at, and if the Committee was seeing problems where none existed. She said that in all the meetings with ICD, prior to the presentation of the Annual Report, there had been no indication from the ICD that it was having problems with buildings. Had Members not brought up the issues, they could have been left to assume that all was well. Nothing was mentioned at the time the budget was discussed. She wondered when ICD might have been intending to make the Committee aware of the issues. She also posed the question if this was merely a problem of human error, or if it involved looting and corruption.

Ms van Wyk asked DPW to explain what the needs analysis of ICD was, and whether it had changed to justify the change in space between what ICD had been occupying and what it would occupy at City Forum.

Mr Ndlovu questioned a statement by DPW that ICD had been unable to provide adjusted or revised needs assessments, and the statement that “this could have resulted in the creation of a vacancy’’.

The Chairperson asked which department would have been declared to have had “fruitless” expenditure should ICD not have occupied City Forum.

The Chairperson reiterated that the rental at City Forum was more than twice the amount that ICD said it had available. She also asked for further clarity on the comment about “high lease amounts’’ when the previous buildings at ICD House and OMB were offered to SASSA, and noted that once again this raised concerns about high rentals being agreed to by DPW.

Mr Beukman firstly responded to the query on ownership of the buildings, noting that Mr Shabangu said that Majestic Silver Trading (Mr Shabangu’s venture) had sold the building to HKML3. Mr van Niekerk was a director. ICD had not verified this.

The Chairperson interjected to ask if ICD really had not known who its landlord was. She asked DPW to advise the Committee who the owner was.

Mr Beukman said that when ICD eventually received a copy of the lease, in November 2010, it reflected the owner of the building at Majestic Silver Trading. It came as a surprise to him that there was apparently a new owner.

The Chairperson pointed out that according to information now received, the change in ownership took place in 2009, before ICD had occupied City Forum. All the contracts and the power of attorney to pass transfer referred to Majestic Silver Trading.

Ms Sassa Subban, Deputy Director General, DPW, said that DPW also thought the building was owned by Majestic Silver Trading. She suspected that this might be a consortium, and it was possible that Mr Shabangu might hold a percentage of shares, and have sold those. Normally, if ownership changed, the lease payments would be made to a new owner, and there would be an addendum to the lease, but no information had been provided to DPW.

The Chairperson read out the relevant portion of the letter from Mr Shabangu, which said that there was an agreement between Majestic Silver Trading and HKML3, for a part transfer of property, signed on 10 March 2009, by Mr Shabangu on behalf of Majestic Silver Trading. A resolution of directors to pass transfer was also signed. A statement was sent to Nedbank asking for the transfer of the bank account to HKML3, on 9 September 2009. Mr van Niekerk was appointed as the public auditor. Transfer of shares was effected in July 2010. Despite the fact that a lease agreement was signed with Mr Shabangu, he was currently no longer the owner of City Forum, and he also had no knowledge that it was occupied by ICD, as the original lease indicated that DHS would occupy.

Ms Kohler-Barnard noted that earlier on, the Committee was informed that the lease had “disappeared”. She asked how the Committee could know whether there was not an addendum to it.

Mr Matutle noted that SIU did have a lease for the City Forum building; it was the Structura lease that was missing.

Mr Beukman answered the allegation that ICD had negotiated directly on the lease, which was allegedly in 2008. He circulated a copy of an affidavit, which he explained was drawn by Mr Elias Valoyi, at that time Chief Director of Corporate Services, ICD, in relation to the threat of legal action on the OMB building. IN 2008, the landlord of the OMB building visited the building and threatened to evict ICD. Mr Valoyi had noted that he would need to contact DPW, as that was the department responsible for the lease agreement. Mr Valoyi had, in his affidavit, denied that he had agreed to extend the lease, and said that there had been no negotiation on any terms.

Ms Kohler-Barnard questioned why DPW had claimed that ICD had negotiated without knowledge of DPW on the lease, and asked if that claim would be withdrawn.

Ms van Wyk commented that there were many murky issues, and this would no doubt become part of the ICD investigations. She thought that the Committee should be cautious about demanding that information be withdrawn. Mr Valoyi was not present to answer any questions.

The Chairperson asked if this affidavit was prepared in response to what the DPW had said.

Mr Matthews Sesoko, Programme Manager, ICD, gave context to the affidavit, noting that it in fact related to the civil suit. ICD had originally been leasing the OMB building at R69 0000 per month. When it was due to vacate, DPW entered into another contract, with the same landlord, but for SASSA occupation, and the rental in this new contract was R154 000 for the same building, more than twice what ICD had been paying. When the owner became aware that ICD was still staying on, he had sought to sue ICD for the difference between the old ICD rental and the new SASSA amounts.

Ms van Wyk said this did not explain why the Committee was not alerted of the problem before, including the document of 4 November.

Mr Beukman said that there were a number of questions asked in relation to the process, the swop, and the role of the Accounting Officer and he would try to deal with all of them together, as the issues were intertwined. The first point raised by Ms van Wyk was about internal controls, and he noted that this was a valid point. ICD had indicated, at the last meeting, that it was reviewing its internal processes and the report of Mr Innocent Khuba, Regional Manager appointed to head the internal investigation, would be given to the Public Protector. That report would, amongst others, look at levels of delegation. Some of the correspondence in this matter was done between Accounting Officers, but others at Chief or Assistant Director levels. ICD realised now that it should have better escalation processes, and delegation, and that it should monitor its risks better. Risk management processes were being looked at. He conceded that the discrepancies should have been noted earlier.

The ICD had obtained internal legal opinions when the matters came to the fore, and had interacted with National Treasury. He agreed that the Chairperson had raised an important point on budget control, saying that this issue should have been reported to the Committee earlier, and he again assured the Committee that all processes were being reviewed and that ICD did not want to “play the blame game’’.

Mr George asked who, at DPW, had been involved in the negotiations.

Mr Beukman said that when he joined ICD, there had been correspondence between Accounting Officers and Chief Directors in both departments. In regard to the City Forum building, the highest official dealing with the matter was Director of Property Management for Pretoria.

The Chairperson commented that this was very frustrating. She would have thought that ICD would want to know exactly what it would have to pay each month. The Committee had to approve the ICD’s budget, but it did not appear to know what its liabilities were. The fact that millions were being played with in such a cavalier fashion was of great concern.

Ms van Wyk commented that the answers so far given made her even more worried. Although she accepted that matters would hopefully improve in future, she was very concerned that the ICD did not know the answers. At the March meeting, she had insisted that Mr Beukman should answer some questions, and she was very concerned that management may not have been given all the information about the ICD’s second largest expense item.

Mr Beukman said that during 2010, ICD had been billed by DPW for R25 million, but when it queried this amount, it was dropped to R13 million. DPW was in a continuous process of reconciling accounts. Hopefully there would be clarity soon on what exactly ICD had to pay for the properties.

Mr Ndlovu wondered, from the responses given to this point, if anything could be achieved in this meeting, and he did not want to waste more time if the Committee would receive only incomplete answers.

The Chairperson thought that the delegates should continue to give their answers. The Committee could not assume that full answers would not be given. The Committee would have to reach a conclusion on the answers given at a later stage.

Mr Beukman gave the names of those involved in the lease, from DPW, as Mr Moshiane, Director of Property Management, and Mr Bezuidenhout, Acting Regional Manager.

Mr Beukman recapped that on 3 February 2010 ICD had indicated that it would be interested in occupying City Forum, and asked for the lease, whether there were any other building available, and how the expenses in installing cabling to Structura would be recovered. No lease was provided, and a follow up request was sent on 8 July. An incomplete lease was forwarded later in July, but the complete lease agreement, in hard copy, was provided in November 2010.

The Chairperson repeated earlier questions as to why ICD had moved in without having the lease agreement in its possession.

Ms van Wyk asked when ICD had signed that document.

Mr Beukman clarified that ICD did not sign a lease, but a service level agreement with DPW, which set out the roles and duties of the DPW. That document would be made available to the Committee. He believed that there was certain information that should have come to ICD. ICD had based its move to the City Forum building on the assurance that it was a swop. If the space being occupied was more than 5 000 m² certain actions should have been taken to alert ICD.

The Chairperson asked what conditions were set out for the swop, and what ICD had agreed upon. She said that surely ICD should have seen that the building was bigger, and it therefore would have been safe to assume that the costs were greater.

Mr Beukman said that the February 2010 meeting indicated that there would not be any additional financial implications.

Mr George said that the costs of the building were listed by ICD, which clearly showed that the costs were way in excess of the ICD budget, and he questioned where ICD thought it would obtain additional funds.

The Chairperson reiterated that the physical size of the building should have alerted ICD to the fact that it would cost more.

Ms van Wk asked whether a contract was signed.

Mr Beukman said that lease agreements for fixed accommodation were entered into between DPW and the landlord. ICD would only sign a service level agreement with DPW. In answer to Mr George, he said that ICD indicated to DPW that its budget was R6 million and the figures set out in its slide were not known to ICD at the time.

Ms van Wyk noted the earlier comment by DPW that the cost of City Forum was only R10 per square metre more, and asked if ICD was entirely sure that the discussions did not indicate that the cost of the new building would be about the same per square metre, as ICD had ended up with about double the space it required, and more than double the rent.

Mr Sesoko was adamant that the information from DPW was that this would be a direct swop, between ICD and DHS. The DPW had already signed the lease agreement for DHS to occupy City Forum building, as originally intended. ICD only came into the picture in January 2010. It was always ICD’s understanding of the swop, confirmed in the meetings mentioned, that DHS would take over Structura, and ICD would take over City Forum, on the same terms as it would have had with Structura, including paying the Structura amounts of rental, whilst DHS would be paying the City Forum amounts.

Mr George questioned this. He asked how DHS would explain spending R10 million for a building it was not using, and how ICD could pay R4 million for a building that it was not using. If ICD understood that this was the case, then he thought there was a problem with ICD.

Mr Schneemann agreed that these explanations seemed odd, and said the same problems were arising in this meeting as in the last, in that more questions were raised as the presentations were given. He was inclined to agree with Mr Ndlovu that this meeting did not seem to be getting further. It seemed from the answers that no controls were in place, and that the officials did not know what they were doing.

Mr Matutle conceded that there were serious problems at DPW, and the DPW systems needed a complete overhaul. That was why there was no longer any delegation to the regions. He said that he could not respond to all questions, and asked for permission to refer some to other people and provide answers later. He assured Members that, having worked in Parliament himself, he was fully aware of the need to be truthful and that was why he had indicated upfront what information was not available to him. He had received the memorandum from which he had been reading only at about 18:00 on the previous day and had not had the time or opportunity to interrogate the issues fully. Whilst he was not seeking to exculpate himself, and accepted that, as a member of senior management, he bore responsibility, he was simply not able to speak to some of the issues. He was happy to hear that lease information was available from ICD. He reminded Members that the Auditor-General had given a disclaimer because so much information could not be found at DPW, and he noted that DPW lacked proper filing systems. Although the scope of the SIU had been limited, it had found, to date, that in all of the selected sample for one region, the leases were fundamentally flawed, irregular, and problematic. This was only a small fraction of the work, and there were 11 regions that needed to be investigated.

In response to queries about the rentals charged, Mr Matutle said that there were indeed some instances where individuals probably would have been able to negotiate better rates than DPW had, and some leases were signed with escalation rates of 11% of 12%, way above the norm of 7% to 8%. This showed how fundamentally flawed some of the processes were. He suspected that over time some bigger processes would take place. There were nearly 3 000 leases, nationally, for which DPW paid about R3 billion per annum. Cabinet had also raised concerns about the size of the lease portfolio and said that should be reduced, to release more money for other more important matters. DPW was looking into that aspect at the moment, and was also looking at constructing buildings in some cities.

Mr Matutle also said that there was no proper mechanism to manage the Service Level Agreements (SLAs). Most of the client departments were dependent on DPW. The portfolio was largely influenced by the big property players.

Without going into further details, Mr Matutle wanted to highlight that point, and said that the DPW would work closely with the ICD colleagues to try to resolve these issues.

Ms Sassa Subban verified that DPW did have a mandate to sign lease agreements with the landlords. She noted that the existing business process was that before a lease agreement was signed, there would have to be confirmation with the Accounting Officer. DPW was obliged to communicate the associated costs accordingly.

Chairperson Ms Chikunga noted that time was short, and asked that the presenters should answer as to where they could move from this point.

Mr Govender noted again that National Treasury had made recommendations but he could not communicate them at this point. He answered a question posed by Members as to whether there was any oversight in the Public Finance Directorate at National Treasury into leases, and confirmed that National Treasury would check that rental escalation clauses were within the norm, and it did have a supply chain function to issue supply notes.

Mr Beukman said that ICD would cooperate fully with the investigation by the Public Protector and it had also written to the Department of Public Works, suggesting that it was vitally important to sit down and discuss all the issues, consider the legal opinions, and formulate a view on how to move forward to ensure that there was no loss of financial resources, how to economies, and use resources more effectively.

Co-Chairperson Ms Mabuza indicated that there were some very serious issues at DPW, as indicated. The Minister had been consulted, and was receiving more information. However, there were concerns that DPW was still unlikely to be able to produce the documentation requested by the SIU. The Minister would not be signing any approvals until further notice.

Chairperson Ms Chikunga thanked all delegates and reiterated that some extremely serious concerns were raised. Members of Parliament were mandated to oversee the spending of public money and it was of huge concern to see money being wasted at one level instead of being used to help people on the ground. She pointed out that even the poorest of the poor were paying tax through VAT on purchases.

The Chairperson asked that the remaining questions should be responded to in writing. The Committee would consider inviting those who had actually dealt with the issues, at both ICD and DPW, to another meeting. It was necessary to know who the owners were, and what the conditions and negotiations had related to. This Committee owed it to taxpayers to get answers on how public money was being used by those put in positions of power. She stressed also that anyone found to have acted incorrectly should be sanctioned. Many of the challenges in DPW were long-standing, and there was a need to find out exactly what had happened. She also reiterated that the Committee would have to think very carefully as to how it would approach the budget requests in the following year, recognising the impact on service delivery if the budget was not approved. The Committee would cooperate with and await the outcomes of the SIU investigation. The Committee would compile a Report with recommendations. Finally, she noted that this meeting had been not only disappointing, but depressing.

The meeting was adjourned.