Special Investigating Unit on its 2011/12 Annual Report

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Justice and Correctional Services

10 October 2012
Chairperson: Mr L Landers (ANC)
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Meeting Summary

The Portfolio Committee on Justice and Constitutional Development received a briefing on the 2011/12 Annual Report of the Special Investigating Unit. The mandate was to investigate corruption and maladministration. The Special Investigating Unit fulfilled its mandate via forensic investigations as well as through civil litigation. It received its briefs via presidential proclamations. The Unit had positioned itself in a manner that enabled it to deliver forensic services, increase its impact as well as workload and function. Investigations were more focused on procurement. The SIU was aiming to strengthen its capacity to litigate civil cases at a special tribunal. The new proclamations for the 2012/13 financial period include investigations into maladministration committed in Gauteng and KwaZulu Natal. For the 2011/12 financial period irregularities in procurement to the value of R5 billion had been identified. In terms of staff, there were currently 95 staff members under business support; 15 under business management and 411 under business operations. Procurement training had been undertaken in order to improve services. There were 15 new appointments during the financial period.

The overall audit opinion from the Auditor General was an unqualified opinion with two matters of emphasis. The first was on the funding position. The second matter related to a spreadsheet error. By the end of the financial period, the debtor’s book was standing at R33 million. Revenue was down from last year, between now and next year the invoicing would be to the amount of R100 million. The grant funding for this year was R307 million. The Committee was made aware that the grant funding allocation was due to decline over the next two years. Compensation to employees would exceed the grant funding allocation over the next few years; this meant that the Unit would rely on the payment of fees from other state organisations to pay for its expenses. The notes on the annual financial statements set out four items of irregular expenditure. These were: the training provided to the Government Employees Medical Scheme; expenditure on forensic consultants which was incurred post the expiry date of a deviation certificate; expenditure on temporary employees and the acquisition of forensic data analysis software.

The Committee was of the view that the Special Investigating Unit should provide more information on staff, collaborative ventures with other state agencies as well as details of actual performance measured against strategic objectives, outcomes, measures and indicators. There was a request for more information on the proclamation for the Department of Rural Development and Land Reform as well as the Guardian’s Fund. The Committee raised questions about resignations within the Unit of senior staff members, the lack of confidence within the organisation as well as the decision by the Acting Head to re-instate a staff member that had breached her contractual agreement. The reinstatement was despite legal opinions to the contrary as well as a Labour Court decision that she could be dismissed.

Meeting report

Special Investigating Unit presentation on its 2011/12 Annual Report
Advocate Nomvula Mokhatla, Acting Head of the Special Investigating Unit (SIU) said that the mandate of the SIU was to investigate corruption and maladministration. The SIU fulfilled its mandate via forensic investigations as well as through civil litigation. The SIU received its briefs via presidential proclamations. The SIU had positioned itself in a manner that enabled it to deliver forensic services.

Mr Paul Modiba, Acting Projects Director for the SIU, continued with the presentation and said that the SIU had increased its impact as well as its workload and function. There was now a shift in focus for investigations on procurement. The SIU was aiming to strengthen its capacity to litigate civil cases at a special tribunal. Fourteen advocates and attorneys had been internally identified in order to strengthen the civil litigation unit. The new proclamations for the 2012/13 financial period include investigations into maladministration committed in Gauteng and KwaZulu Natal (KZN). For the 2011/12 financial period the SIU identified irregularities in procurement to the value of R5 billion.

Ms Miseria Nyathi, SIU Head of Business Support, took the Committee through the business support side of the SIU said that there were currently 95 staff members under business support; 15 under business management and 411 under business operations. The SIU had to have a strong people oriented focus. The SIU had procurement training in order to improve its services. There were 15 new appointments during the financial period. There was a need for a robust Information Technology (IT). To address its IT needs, the SIU had embarked on an upgrade programme. The SIU had invested in a modern data centre. The costs towards this IT upgrade project were a concern.

Mr Garth Elliot, SIU Acting Chief Financial Officer, continued and said that the organisation was a creature of statute and was thus not authorised to charge others state bodies. Appropriate legislation to enable the SIU to collect fees from other state bodies had been enacted. During the period that the SIU was awaiting the passing of this legislation, there had been a reduction in cash flow. The SIU responded by reducing expenditure. The SIU had already begun to invoice. By the end of the financial period the debtor’s book was standing at R33 million. National Treasury had been roped in to assist with the collection of due fees. Revenue was down from last year. Between now and next year the invoicing would amount to R100 million. The grant funding for this year was R307 million. The Committee should be aware that the grant funding allocation was due to decline over the next two years. Compensation to employees would exceed the grant funding allocation over the next few years; this meant that the SIU would rely on the payment of fees from other state organisations to pay for its expenses. The overall audit opinion was unqualified with two matters of emphasis. The first matter of emphasis was the funding position. The second matter of emphasis raised by the Auditor General (AG) related to a spreadsheet error.

The notes on the annual financial statements set out four items of irregular expenditure. The SIU had provided training to the Government Employees Medical Scheme (GEMS), this was viewed by the AG as outside of the SIU’s legislative powers. the second item related to expenditure on forensic consultants which was incurred post the expiry date of a deviation certificate. The third item was expenditure on temporary employees. The SIU had employed temporary employees via a recruitment process. The AG was of the view that this was not a recruitment of human resources but rather a recruitment process of human resources through organisations that were temp agencies. The AG viewed the procurement in aggregate whilst the SIU had viewed it individualistically. The AG viewed this as irregular as there was no formal tender process that had been undertaken. The fourth item related to the acquisition of forensic data analysis software. The software was secured through a certificate at the date of the audit the software was not operational and the AG took the SIU to task because the main reason given in the deviation certificate was that the software was required urgently yet at the time of the audit, this was nine months down the line.

Mr Gerhard Visagie, Head of Legal Services for the SIU said that the audit committee had been increased via the addition of three new members to five members now. A Human Resources (HR) remuneration and transformation committee had been established which consisted of external members. At an internal level, a bigger role for the management committee had been re-kindled. It now looked at the SIU’s performance against its own strategy, business plan, budget resources and asset management and risk.

Discussion
Mr J Jeffery (ANC) said that the annual reporting could be more helpful in the sense that issues relating to staff were missing; more information was needed on this. More information on the number of staff and vacancies was needed. Why was the Department of Rural Development and Land Reform placed under extension, was this because the SIU was dealing with them before? What was the progress on those officials that had been singled out for disciplinary action? The Committee needed more information on the Guardian’s Fund in preparation for its meeting with the Master’s Office; however this should not be seen as interference with the SIU’s investigation.  There were other matters that the AG had raised which were not responded to such as bank reconciliations not responded to on a weekly basis. There were complaints raised by the AG during the last financial period yet the outgoing CFO was given a R90 000 bonus, why?

Ms D Smuts (DA) said that there was not much information provided on the internal strategic goals. The SIU was an entity brimming with confidence and very effective under Mr Hofmeyr’s leadership – there was a different impression now. How frequently were there executive meetings, under Mr Hofmeyr these were weekly but now they were seldom held? There were resignations from several staff members, why? One of the staff members, Ms Mizeria Nyathi, had refused to undergo a polygraph test which was a breach of contract. The Acting Head of the SIU, Adv Nomvula Mokhatla, re-instated her after she was suspended, why? This whole matter was sparked by the allegation that Ms Nyathi had written a letter asking for the resignation of Mr Willie Hofmeyr as the then Head of the SIU. Adv Mokhatla had indicated that other staff members have come forward to take responsibility for the letter, if this was so, why had disciplinary action not been taken against them? It had transpired that the letter was traced to the computer of Adv Mokhatla’s daughter, was it produced on this computer? A Labour Court had found that the SIU had a lawful reason to terminate Ms Nyathi’s contract, this decision should have bound the Council for Conciliation, Mediation and Arbitration (CCMA) where a deal was struck. The settlement reached at the CCMA was in breach of the Public Finance Management Act (PFMA) as well as other legal opinions.

Ms Smuts continued to state that the settlement was financial misconduct and could result in Adv Mokhatla’s own dismissal.

Mr Modiba said that the investigation on the Department of Rural Development and Land Reform was focused on three areas: the land reform programme, deeds as well as land restitution. These were separated into separate proclamations for purposes of effectiveness. The SIU had submitted evidence and files to the Department on those officials singled out for disciplinary action. The proclamation relating to the Guardian’s Fund dealt with maladministration and irregular expenditure. 

Ms Nyathi said that the SIU would ensure that the
Annual Report would have a staff breakdown. The SIU had noted the AG’s concerns on the bank reconciliation statements. National Treasury was contacted in this regard to also try and obtain exemption from compiling a bank reconciliation statement on a weekly basis however they rejected this.

Mr Wells said that the SIU had changed its strategic objectives and seven strategic drivers to address the concerns of the AG. Some of the findings by the AG were technical in nature. The matter relating to GEMS was that they contacted the SIU to train GEMS staff members for payment. The AG had approved these types of contracts in the past and it was only now that the AG turned around and said strictly speaking this was ultra vires. The same applied to the recruitment drives for temps. The main issue of the performance of the previous CFO that was raised by the AG was on performance information; this was not part of the CFO’s responsibilities.

Adv Mokhatla said that perceptions were subjective and it was a matter of an individual’s own views whether the SIU was brimming with confidence or not. The effectiveness of an organisation did not depend on the number of meetings held by its executive management. The SIU acknowledged the resignations and people could not be prevented from moving to greener pastures. In the disciplinary matter relating to Ms Nyathi, there were consultations with various persons and stakeholders including the executive management team. It was not true that there were subsequent persons who owned up to the letter. The Labour Court had not adjudged that Ms Nyathi should be dismissed by the SIU. The Labour Court had said that if there was a breach of a material nature in a contract, then an employee could be dismissed. In terms of financial misconduct on her, Adv Mokhatla’s, part there was an opinion that indicated that it would be financial misconduct if a person that was found guilty of fraud was re-instated. There was no guilty verdict in any forum levelled against Ms Nyathi at the time of her re-instatement. There have not been any findings on a letter produced on a daughter’s computer. The process of the CCMA was not in breach of the PFMA. One of the crucial questions that had to be answered was why Ms Nyathi had to be required to submit to a polygraph test. The issues had not been properly crystallised at a pre-trial stage and this would have resulted in a very embarrassing situation for the SIU.

Ms Smuts interrupted and asked if Adv Mokhatla was saying that settlement was reached in order to avoid the ventilation of issues that would have resulted in an embarrassing situation for the SIU?

Adv Mokhatla said that she was not saying that this was why there was settlement however the embarrassment of the SIU would have been an inevitability. She said that t
he conduct of the employer was unbecoming. It was going to be a very embarrassing situation for the SIU and perhaps for the country at large.  The decisive factor was that there was no evidence pointing to Ms Nyathi being found guilty of fraud or authoring a letter that called for the resignation of the then head of the SIU. The records indicated that Ms Nyathi was a hard working, high performer.

Mr Jeffery said that corrupt officials had no place in the public service especially at an institution that investigated fraud and corruption in the public sector. Non-performing officials also did not have a place in the public service. Having heard the interaction between Ms Smuts and Adv Mokhatla it seemed like this was a storm in a teacup. It was generally known that polygraph tests were not accepted in criminal matters where the burden of proof was the beyond reasonable doubt requirement however they were accepted in labour matters where the burden was less. One could understand subjecting a person to a polygraph test where fraud, corruption or the stealing of dockets was involved however this was a non-issue. The decision of Adv Mokhatla was understandable.

Ms Smuts asked if there was a second legal opinion and also requested the legal opinion from Advocate Bruiners.

Mr Jeffery said that he was not sure if the opinions would help the Committee, it seemed as if this was a matter where a value judgment had to be exercised concerning the organisation.

Ms Smuts said that the legal opinions were to the effect that the settlement itself was unlawful and therefore a breach of the PFMA and may constitute a criminal offence.

The Chairperson said that there was no obligation on the part of the SIU; the decision was Adv Mokhatla’s.

Adv Mokhatla said that her decision was no, simply because the opinion was referring to a person having been found guilty of fraud so it would not be helpful to anybody in this regard. It referred to issues that were not present when “I was reviewing the decision”.

Mr Jeffery said that Ms Nyathi could have been dismissed for breach of contract as she refused to take the polygraph test as per the Labour Court judgement. However the question was should have this been done on the basis that there was an anonymous letter that she may have written. The AG would advise the Committee on the irregular expenditure of the decision as per Ms Smuts’ comments.

Mr Wells said that in relation to the issue of resignations, the senior managers that had left did so because they received offers to positions that had very high remuneration packages. The AG had said that no steps were taken by senior management to prevent some of the irregular expenditure; the SIU disagreed with this statement and it made it seem as if nothing had been done. The Committee should be aware that this was the type of language used by the AG and that it was not as if nothing had been done.

The Chairperson said that the SIU should have more information on any collaborative work done with other entities in the Annual Report. The Annual Report did not have details of actual performance measured against strategic objectives, outcomes, measures and indicators.

Adv Mokhatla said that the SIU had already acknowledged that it would put more beef into the Annual Report. More information could have been provided on collaboration with other entities. Most of the AG’s findings were accepted. The governance structures have been beefed up to ensure that internal reports were followed up.

The Chairperson said that the SIU had set itself a target of 100 persons with assets of R5 million derived from corrupt activities, how far was the SIU on this?

Adv Mokhatla said that it looked like the SIU would not be able to meet its target in the timeframes set out, so far it was 69 and the conviction rate was at over 20%.

The Chairperson thanked the SIU and adjourned the meeting.

Appendix
SIU tries to quash auditor general’s queries
Sally Evans & Sam Sole http://amabhungane.co.za
Sep 14 2012

Acting head also ignores her own legal adviser and external auditors' counsel.
Advocate Nomvula Mokhatla, acting head of the Special Investigating Unit, has gone to extraordinary lengths to defend her controversial reinstatement of senior SIU manager Miseria Nyathi -- against the advice of her own legal adviser, the unit’s external auditors and the auditor general.

Nyathi was sacked by former SIU head Willie Hofmeyr for refusing to take a lie detector test as part of an investigation into allegations of misconduct made against her. One of the conditions of SIU members’ employment is that they must take lie detector tests.

After Hofmeyr was removed as SIU head, Mokhatla quickly reached a settlement with Nyathi.

In July, the Mail & Guardian reported that Mokhatla’s decision to reinstate Nyathi -- with back pay and a performance bonus -- was contrary to the advice of the two advocates representing the unit in the case against her.

In a May 16 memorandum advocates Tim Bruinders and Karensa Millard wrote: “We advised that the settlement was imprudent and unlawful and recommended against settlement of the dispute with Nyathi.”

Overruled
Correspondence seen by the M&G shows that Mokhatla has subsequently:
▪ Overruled advice from her own legal adviser and the SIU’s external auditors that the reinstatement was improper; and

▪ Has taken the extraordinary step of personally writing to the auditor general to reject a management letter that also queried the basis of the reinstatement.

The correspondence shows that acting SIU chief financial officer Garth Elliot called in the unit’s auditors, PwC, to provide advice about whether the reinstatement could be justified in terms of the requirements of the Public Finance Management Act.

The June 27 PwC report reveals that the unit’s in-house legal adviser, advocate Bobby Walser, believed that the unit was still obliged to investigate the allegations of timesheet fraud, amounting to about R70 000, by Nyathi, which had been raised under Hofmeyr’s tenure.

Walser also believed that the decision to reinstate Nyathi contrary to legal advice amounted to an allegation of financial misconduct, which should have been referred to the unit’s audit committee.

PwC concurred with this view, advising that an investigation of Nyathi’s possible financial misconduct should be conducted and the decision to ignore legal advice should be referred to the SIU’s executive authority for investigation.

The auditor general also questioned the reinstatement.

In a draft audit finding directed to Elliot on July 20, auditor Xolile Ntuli wrote: “It is not clear on what grounds she was reinstated. From the Labour Court ruling, the legal opinion obtained from Edward Nathan Sonnenbergs and the memo prepared by Bruinders and Millard, it appears that the SIU did have legal grounds to terminate the contract [of] employment [for] her.”

Questionable
The auditor general’s report also questions the R913 000 settlement agreement. “It appears that it was highly unlikely that any court of law would have ordered [her] reinstatement.”

In response Mokhatla went on the offensive. An SIU source said: “In this instance, the whole of the exco [executive committee] met the AG [auditor general] team and explicitly explained that the initial report finding cannot be left in, as it was more of a legal opinion than an audit finding. It was clearly indicated to the AG that their initial report must be taken out, but a briefing note would be drawn up by Mokhatla on the reasons for Nyathi’s reinstatement to replace it.”

Mokhatla’s final brief was submitted to the auditor general on September 5. It stated she had accepted the claim that Nyathi was subject to a witch-hunt and wrote: “Mrs Nyathi was called under false pretences to be served with a suspension letter … It is at this time that her private laptop was requested.

“Mrs Nyathi is alleged to have authored a letter calling, among other things, for the former head of the unit, Mr Willie Hofmeyr, to resign. The cyber tests … into Mrs Nyathi’s official laptop never proved that the letter was authored by her … The SIU still insisted that she undergo a polygraph test. She refused and remained on suspension.”

A subsequent Labour Court ruling found procedural lapses in how the unit had handled the disciplinary process, but ruled that Nyathi’s refusal to undergo the lie test was a breach of her contract, justifying her dismissal.

Disagree
Mokhatla disagreed: “I applied my mind to the matter and I was not satisfied that there were reasonable grounds to insist on a polygraph test. I was accordingly not convinced that her subsequent failure to do the polygraph test amounted to a material breach of her employment contract.”

Mokhatla stated that Nyathi gave as reasons for refusing to undergo a polygraph test that the “integrity of the test is questionable” and it could be manipulated, given that the unit was “bent towards getting rid of her”.

Mokhatla also stated that the unit’s entry and exit logs, which formed the basis of querying Nyathi’s overtime claims, “could not be relied on to show the exact hours that Mrs Nyathi spent at work”.

Responding to questions, the auditor general said it could not comment on its audits or reports until they had been tabled in Parliament.

The SIU denied that Mokhatla ignored advice “during the process of reviewing Nyathi’s matter”.
Spokesperson Boy Ndala added: “We will give full support and co-operation to the AG if it wants to investigate the reinstatement.”



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