Provincial Departments' Reports on corruption at Nala and Matjhabeng municipalities

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Meeting Summary

The Free State Provincial Department of Cooperative Governance briefed the Committee on the interventions that it had taken following allegations of corruption at Nala and Matjhabeng municipalities, in terms of section 139 of the Constitution. The Nala Municipality report had been finalised in July 2010, and tabled in a Council sitting in 2011. The accounting firm KPMG was commissioned to look into several matters relating to the supply chain management and procurement. The investigations encompassed transaction verification, with a particular focus on fifteen projects.  and particular focus was given to 15 projects. Emphasis was put on supply chain management policies and associated processes. The investigations had been hampered by lack of access to information and potential witnesses claiming not to remember the circumstances surrounding issues investigated. Some of the officials had left the employ of the municipality. Accounting records were not reliable, and were affected by the migration process at the municipality. Some were believed to have been purposely destroyed. Suppliers appeared affected by the prospect of losing out on doing business with the municipality. The findings had included gross contraventions of the supply chain management and the manipulation of the processes involved. There also was lack of performance by the contracted parties. The Speaker of Council was implicated in, but had repaid R10 000 that he had embezzled on liquor. A former mayor had erected a security wall at his private residence and a quantity surveyor was assessing the costs, preparatory to instituting proceedings. A payroll review was under way as part of the financial recovery of irregular salary related expenses. National Treasury and the Public Protector were also involved in the investigations.

The report on Matjhabeng Municipality noted that a consortium of different firms was appointed to investigate allegations and to find out why previous processes had failed to achieve the desired outcomes. Interviews had been conducted with senior officials and there were attempts to analyse relevant records and documentation, and site investigations. Once again, the investigation was hindered by non-availability of some documentation, especially on procurement and bidding. It was suspected that some of the information about directorships in companies might be outdated, and the investigation in some cases had not been conclusive. It was, however, known that the municipality suffered loss and damage through incompetence in supply chain management, inadequate management of contracts, non-compliance with the local government framework and weak project management. This had led to financial distress of the municipality, whilst the municipal manager was often also under political pressure to accede to certain decisions.

Members of the Committee agreed that they needed to be in possession of the full reports, and these were officially requested by the Chairperson. They asked whether those dismissed also faced criminal charges, stressing that this was necessary in all relevant cases, sought clarity on the sanctions against the Speaker, the consistency of decisions, and noted a 15-year sentence against one of those found guilty of fraud. They questioned if there was any municipal code of ethics around officials’ expenses, and suggested that one must be drafted, commented that lack of service delivery was a major concern and asked what had been done to turn around the municipalities. The Committee agreed that a follow-up visit would be necessary, stressed the need for urgent interventions and strong actions, and asked about the effect of the National Treasury interventions, and the need for consultants to assist with the criminal proceeding reports.  

Meeting report

Opening remarks
The Chairperson indicated the MEC would not be joining the meeting, due to uncertainty about the meeting time. The apology had been accepted, but in general he noted that it was important that MPs engaged with officials, especially those at the municipal level, as this was the heart of service delivery.

Mr D Bloem (Cope, Free State) commented that when the Committee dealt with forensic reports the MEC needed to be present, and he questioned the reasons why he was not available.

The Chairperson clarified that the reason was the failure to decide on, and communicate the time of the meeting. The MEC was in Parliament on the previous day, but because there was confusion about the meeting time, and whether the meeting would happen at all, the MEC requested to be released.

Mr V Manzini (DA Mpumalanga) commented that the meeting was scheduled for Tuesday, and whether held in the morning or later in the day, the MEC should have remained.

The Chairperson did not wish to comment further.

Department of Cooperative Governance and Traditional Affairs, Free State: Findings on Nala municipality
Mr Kopung Ralikontsane, Head of Department, Free State Provincial Department of Cooperative Governance and Traditional Affairs, said the Nala Municipality report had been finalised in July 2010, and tabled before a Council sitting in 2011. The accounting firm KPMG was commissioned to look into numerous issues relating to the supply chain management and procurement.

The Nala Municipality had received a very negative audit report, which led to the decision by the province to invoke section 139 and investigate the municipality. The investigations encompassed transaction verification and particular focus was given to 15 projects. Emphasis was put on supply chain management policies and associated processes.

The methodology involved interviews with creditors where possible irregularities were identified. Officials in the supply chain management department were also included. Members of the community were identified as having benefitted as a result of irregularities, as also those who formed part of the tender process. Site inspections were undertaken to verify that work claimed and paid for was completed, and there was also investigation into the supply chain management procedures, when it became apparent that not all the information required had been submitted.

Challenges to the investigations included access to information and potential witnesses not remembering the circumstances surrounding the issues investigated. Some of the officials had left the employ of the municipality. Accounting records were not reliable, and were affected by the migration process at the municipality. Some documents that should have easily been at the disposal of the municipality were not available, and there was reason to believe that some documents might have been purposely destroyed. Suppliers appeared affected by the prospect of losing out on doing business with the municipality.

The investigation firm was mandated to look into projects that included the Bucket Eradication programme, waste water treatment plant, Kgotsong paved road phase, Kgotsong multi-purpose centre, valuation roll, upgrading of the Wesselsbron Taxi rank, electrification of 500 households, Kgotsong and Monyakeng landfill sites, and the Naledi Clinic.

It was found that there was gross contravention of the supply chain management and the manipulation of the processes involved. KPMG indicated there was lack of performance by the contracted parties, and there was little or no monitoring. Documents were amended during the bidding process with vetting certificates unlawfully changed. There were breaches of internal control procedures, and also poor value for money. There were also contraventions of the Municipal Finance Management Act (MFMA).

The report further indicated premature invoicing with the purpose of soliciting bribes. Documents were destroyed in anticipation of the investigation. Payments amounting to R705 000 to temporary workers could not be accounted for. About R160 000 was found to have been used to fuel vehicles that did not appear on the municipal list provided to investigators. There also was a security wall, amounting to R230 000, built at a mayor’s private residence, where the procurement process appeared suspect.

Mr Ralikontsane said the report had been presented on 14 November 2011 to the Council. Disciplinary proceedings were instituted against former municipal manager (Mr David Shongwe) and the manager of technical services (Mr Sidwell Nxumalo). They were both no longer in the employ of the municipality. Disciplinary proceedings were ongoing against the official implicated in the misuse of vehicles and petrol cards. In addition, criminal proceedings were preferred against all concerned. The Speaker of Council had also repaid the R10 000 he was found to have embezzled on liquor. A quantity surveyor had been employed to assess the cost of the wall erected at former mayor’s private residence, preparatory to instituting proceedings to recover that money.  

The full report had been handed to National Treasury (NT) who in turn had pledged support with further expertise and investigative work.

Mr Ralikontsane noted that a payroll review was under way, as part of financial recovery of irregular salary related expenses. The Public Protector had visited Nala on 6 February and subsequently expressed satisfaction with progress thus far.

Report on Matjhabeng
Mr Ralikontsane then presented the Department’s report on Matjhabeng Municipality, and noted that in this instance Latitude, a consortium of different firms, was appointed to investigate. The Consortium included Ramathe-Fivaz Forensic and Investigation Accounting Services, who were appointed to investigate the root causes of previous processes which failed to produce the desired outcomes. The methodology included conducting interviews with senior management of the municipality, and other officials. There also was analysis of relevant records and supporting documentation. There were also site inspections and verification of work claimed and paid.

Challenges included the absence of large volumes of supporting documentation, especially on procurement and bidding. The investigation relied on company and directorship searches at the Companies and Intellectual Property Registration Office (CIPRO), although this information might not have been current and accurate. The investigation in some areas also did not progress to a level that was conclusive enough to allow for full findings by way of a report. The findings that were included in the report had not been presented to individual councillors to solicit responses.

The investigators were tasked with looking into issues of false rate clearance certificates, cash points, bad debt and debts written off, electrical and mechanical stores, supply chain management, sale of land and assets waste management and verification of municipal properties.

It was found that Matjhabeng municipality suffered loss and damage on account of incompetence in supply chain management. There was a general lack of, and inadequacy in contract management, and also non-compliance with the local government legal framework. Weak project management, especially on infrastructure projects, was found. There was poor oversight and incompetence in the finance department.

Municipal operations were adversely affected and were under financial distress. That resulted in losses as contracted services were not of the desired standard. The municipal manager was often under political pressure to accede to certain decisions, and was increasingly isolated as a result of trying to remedy difficulties the municipality faced.

Discussion
Mr D Bloem commented that the Committee needed to receive both reports in full, rather than merely getting the briefing notes, to allow Members to get a full understanding of the issues.

Mr Bloem sought clarity on people found guilty and dismissed by the municipality, and asked why those officials had not been charged with fraud. He sought clarity on the Speaker, who was repaying R10 000, which, as later found, was spent on liquor. The Secretary to Parliament was fired for exactly the same offence as the mayor had committee, namely erecting a security wall at his private residence, and he enquired why this person was not fired, but merely required to repay.

Mr Ralikontsane replied that criminal cases had been opened against officials to supplement the internal disciplinary processes. The South African Police Services and the Hawks had been drawn in, and a number of criminal cases were ongoing.

Mr Ralikontsane clarified that because over-pricing was suspected in the case of the wall at the Mayor’s private residence, the review by the quantity surveyor would provide clarity, and appropriate steps would then be taken.

Mr B Mnguni (ANC, Free State) explained that he was not part of the Committee but had decided to attend as both municipalities formed part of his constituency, and the issues had also been raised in other committees of which he was a member. He concurred with Mr Bloem that Members needed to see the full reports, adding that this would also give a better opportunity to Members to monitor whether the Council had implemented the recommendations.

Mr Mnguni sought clarity on whether there was a municipal code of ethics that specified acceptable expenses for municipal officials. If not, then he suggested that the political parties needed to look into that situation and address it, as it posed the potential for loopholes. He also sought clarity on the Council resolutions with regard to the ex-Mayor.

Mr Ralikontsane replied the Council did not have a clear policy on expenses that could be allocated to municipal officials. He agreed that this was an issue that the political parties had to address. He said the presentation indicated that the Council would recover the money spent on liquor, but there was no policy.

Mr Mnguni commented that service delivery was key, and wanted to know if there were strategies to turn around both the Nala and Matjhabeng municipalities, to ensure that service delivery happened to the local communities. He asked that any other issues that might hinder delivery going forward also be clarified.

Mr J Joseph (DA, Western Cape) sought clarity on the involvement of the Public Protector, including when she had been involved in the process, as it seemed that this had happened only in this year.

Mr Ralikontsane replied that the Public Protector was doing an investigation at Matjhabeng but the report would be out by the end of March.

Mr Joseph sought clarity on the word “consortium”, when applied to the firms who investigated the Matjhabeng municipality. He asked what was the actual cost of the Latitude consortium, and the impact of such a consortium on service delivery.

Mr Joseph asked if the MEC had considered investigating the councillors in line with the code of conduct, and whether there were attempts to comply with the MFMA. He also sought clarity on the current status of the relationship between the municipalities and various service providers.

Mr Ralikontsane replied that the MEC had become involved and engaged councillors. The MEC could invoke Section 106 and order interventions. He said one councillor was no longer involved with the municipality, following the interventions.

Mr Manzini sought clarity on the R705 000 spent on members of the community and the kind of work they performed to receive the payments.

Mr Bloem asked what had happened to the person who tried to defraud the Nala municipalites. He also wanted to know where the Matjhabeng municipal manager was, and what he was currently doing, noting that he had been involved in substantial maladministration.

Mr Ralikontsane replied that the Matjhabeng municipal manager, Mr Mekgwe, who sought to use fraudulent cheques, had already been sentenced to 15 years.

Mr Bloem sought clarity on the credentials of the Ramathe -Fivaz firm. He commented that the appearance of municipal officials before the Committee needed not be the end of the engagement, and suggested that there should be a follow up oversight visit to the municipalities. In the meantime, he reiterated that the full reports should be made available.

Mr Ralikontsane clarified that the Ramathe -Fivaz firm was well established in the Free State as an accounting and forensic investigations firm.

Mr L Nzimande (ANC, KwaZulu Natal) commented that the issues were not apparently new ones, and this was an indicator that no speedy conclusion would be reached. He pointed out that the longer that matters such as this were dragged out, the greater the impact on service delivery. He wanted to know the extent of the impact of the current situation at Nala and Matjhabeng on service delivery, pointing out that this kind of maladaministration negatively affected communities. Any solutions to the current situation should take cognisance of the need for real delivery at these municipalities. In relation to the reports, he commented that the Committee should focus on ensuring that there had been value for money. He was concerned at the length of time taken on numerous investigations, and the need to take decisive action.

Mr Ralikontsane commented that one of the reasons why it was necessary to pursue issues, no matter how long this might take, was that the problems created animosity in communities, especially if they were not resolved. These challenges led to political tensions and caused instability when it came to delivery of services. However, he assured the Committee that both municipalities were now functional, and the provincial department was satisfied on that point.

The Chairperson commented that there had been some progress from when the Committee last dealt with the issues. He wanted to know if there were any matters that were still sub judice, and asked for the current status of implementation of the recommendations.

The Chairperson also asked if the intervention by the National Treasury (NT) had affected service delivery. The Committee would need to meet with NT and get clarity on the suspended transfer of funds. He said reports indicated that those were lifted, and the Committee was happy with the progress, but there was still a need to confirm the status of many of the issues.

Mr Ralikontsane replied that NT was a partner in resolving the matter in Nala. The Department of Cooperative Governance and Traditional Affairs, the Committee and NT were all enjoined, by Section 104, to support municipalities.

The Chairperson added that he agreed that the full reports were required as the Committee needed to fully understand why the delegation needed to intervene and brief Parliament. He asked the status of the consortiums, and commented that officials needed to avoid a situation where they paid consultants for the sake of paying; consultants should do work that yielded good results. The findings of the consultants would not be binding but he requested that the consultants should also assist in preparing the necessary documentation to support the criminal proceedings and follow-ups against individuals. There needed to be further engagements and see how the Committee took the matters further.

Mayor’s comment
Mr Theko Nogoje, Mayor, Nala Municipality, commented that this municipality was now progressing well and that he was satisfied with progress. He said he was happy with the sentence meted out to the individual who had tried to defraud the municipality, but noted also that senior officials in the Shongwe case had been approached and requested to expedite the matter.

Mr Sebenzile Ngangelizwe, Mayor, Matjhabeng Municipality, said he accepted the decision of the Committee to visit both municipalities and said that he would be happy to interact during that visit.

Further questions were deferred, due to shortage of time.

The meeting was adjourned.

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