The Department of Water and Sanitation (DWS) was asked by the Chairperson to focus on irregular expenditure. DWS reported that irregular expenditure had increased from R781 million in 2014/15 to R2.4 billion in 2015/16. It was mainly due to irregular expenditure incurred by the implementing agent, Lepelle Northern Water Board, on the Giyani intervention. Lepelle appointed LTE Consulting on an emergency basis to implement the Minister’s directive issued in terms of the Water Services Act. The matter was under investigation. A second contribution was the appointment of an ICT service provider without the involvement of State Information Technology Agency (SITA) as required by the SITA Act. Other irregular expenditure cases were being investigated.
On the Giyani intervention there were many questions about the emergency nature of the project, the implementing agent and the contractor. It was asked what qualified the appointment of a turnkey contractor. Issues raised dealt with non-compliance with procurement policies and supply chain management (SCM) process, and with the Public Finance Management Act. Lack of supporting documents for paid claims caused concern. The capacity of Internal Audit was questioned. Consequence management received considerable attention. The Chairperson insisted that the acting Director General deal firmly with transgressions.
The Department of International Relations and Cooperation (DIRCO) had to report on its irregular expenditure as well. Competitive bidding processes were not followed in the case of the BT Communications R170 million contract. The Dimension Data R142 million contract was extended without inviting competitive bidding. Under Fruitless and Wasteful Expenditure there were incidents of continued payment for buildings that were no longer occupied such as the chancery in Luanda, Angola which involved R2.4 million.
Questions focused on the bid adjudication committee overriding the bid evaluation committee in the case of BT Communications. Much attention was given to the fact that the CFO was absent as he had been placed on leave while an external investigation, prompted by an anonymous letter, was conducted. Poor planning and contract management caused concern. The capacity and capability of Internal Audit was questioned. With regard to fruitless and wasteful expenditure, the Committee questioned the continued payment for abandoned buildings, and exorbitant amounts paid for cleaning services. As with the Department of Water and Sanitation, the Chairperson insisted that the acting Director General deal mercilessly with transgressions.
Department of Water and Sanitation: hearing on 2015/16 irregular, fruitless and wasteful expenditure
The Chairperson noted that unlike previous years, the Annual Report would not be dealt with in its entirety. The focus would be on financial expenditure that did not follow prescriptions, failing to apply the principles contained in the Public Finance Management Act (PFMA) and National Treasury regulations. The question was why a rule oriented culture had not developed. It caused discomfort when rules were not followed. A starting point had to be that policies and provisions in the department were not adequate. There were amounts of billions that did not follow prescriptions. DWS had to allay fears about how resources were managed. It had to be ensured that systems were capacitated to prevent that happening. There were challenges around consequences for non-compliance, in spite of absolute assurances that resources were utilised in the right manner. The economy was not growing at the desired rate. The overwhelming majority of the country required basic services. Fruitless and wasteful expenditure had to receive attention. It had to be explained how hundreds of millions were spent without following due process. Members had already gone through the document. He asked the Director General not to go through it line by line. With regard to irregular expenditure, the infrastructure accounts had to be looked at, what had happened and what actions were taken. There was the challenge of both the Director General and the CFO being in acting capacities. He asked the Minister how long the Director General had been in an acting capacity.
Mr Sifiso Mkhize, DWS Acting Director General and CFO, replied that he had been the CFO, but with the resignation of the DG he became Acting DG.
The Chairperson continued that at the end of the day, the challenges centered on the ability of the administrative leadership to act. The Standing Committee on Public Accounts (SCOPA) wanted to check if actions were taken or not. If nothing was happening, the political leadership had to account. The buck had to stop at the political level; otherwise Parliament was just a talk shop. There had to be action to break the stalemate. There had to be definitive statements about who was responsible. If actions were not taken the Minister was responsible to ensure that there was a sense of taking actions against wrongs.
Ms Nomvula Mokonyane, Minister of Water and Sanitation, remarked that the consequence management demonstrated political leadership. Mr Mkhize was selected to serve as DG, after the previous DG handed in his resignation in March, three months before the end of the term. A project management unit would be set up to help re-engineer DWS. She would be happy if rands and cents were dealt with today, but she would appreciate it if an understanding could be reached during interaction on how DWS had arrived at where it currently was. Colleagues in Treasury could help with that. Performance also had to be looked at. There was an absence of performance management and evaluation.
Mr M Booi (ANC) commented that according to the PFMA, the buck stopped with the political leadership. The acting DG would take up where the previous DG left off.
The Chairperson said that there had to be freedom from dependence on the Accounting Officer to ensure action against criminality. There were documents that showed a conflict of interest. Personal material benefits were pursued through awarding of services. There had to be a bridge between Parliament and the law. It would not do to throw things back at the same people who tried to conceal them. SCOPA had to be able to access documents, to study them in terms of the relevant legislation. He wanted SCOPA to get into the meat during the meeting.
Ms N Khonou (ANC) noted that in the previous week it was decided that an investigative officer for the Hawks should be present as part of the meeting of the day, as some of the projects were taken to the Hawks. She asked about progress with the investigation.
The Chairperson asked that the DG not go into too much detail. He had to try to conceptualise and explain overarching elements.
Mr Sifiso Mkhize, acting Director General, presented. Irregular expenditure increased from R781 million in 2014/15 to R2.4 billion in 2015/16. It was mainly due to irregular expenditure of R1.3 billion incurred by the implementing agent, Lepelle Northern Water Board, on the Giyani intervention. The implementing agent appointed a contractor, LTE Consulting, on an emergency basis to implement the Minister’s directive issued as an emergency in terms of the Water Services Act. Investigations were under way to determine corrective steps to be taken. The second contribution was the appointment of an ICT service provider without the involvement of the State Information Technology Agency (SITA) as required by the SITA Act. Investigations on other cases of irregular expenditure were also under way. Disciplinary actions would be taken for each case when investigations were finalised.
Mr T Brauteseth (DA) referred to irregular expenditure. He asked for an explanation of how R2.4 billion was spent by the implementing agents (IAs), as indicated in the report. The IAs had not followed procurement policies. He asked for a breakdown of who they were. He asked if there was only one contract, and who were involved with regard to companies and persons. Across the board the biggest issue seemed to be non-compliance, especially with procurement policies. There had to be actions against officials who did not comply with procurement procedures, otherwise it would just become another statistic in a book, if there were no consequences for those responsible.
The Chairperson asked about the R1.3 billion related to the Lepelle Northern Water Board. It appeared that the contractor was appointed on an emergency basis. He asked who the contractors were, and what the scope of their work was.
Mr Mkhize replied that around 2013 the Mopani District had no water, not even the hospitals. The town was burning. Lepelle Northern Water was appointed for the project, and in turn appointed LTE as consultants. The nature of the work was conceived as long term. Work had gone on for the preceding two years. There was interaction with the Treasury about it being viewed as an emergency project.
The Chairperson asked who appointed Lepelle.
Mr Mkhize replied that all directives signed were based on advice from the DG.
The Minister added that since 2011, in the water sector, infrastructure and service delivery were affected by shoddy workmanship. There had been instability for more than six months at Mopani. Water was not a historical problem in that region. DWS looked at interventions. She wanted to point out the extent of the water demand. It was an emergency situation. Parts were lying by the side of the road for years. Water treatment plants were not functioning. The DG advised that DWS appoint Lepelle Water Board to be the implementing agent. The Water and Sanitation Portfolio Committee brought a body of evidence. There was bad planning and scoping from the beginning. DWS realised that it had to do more. The infrastructure branch interacted with Lepelle to see that the work got done. DWS would provide a report on this
Ms T Chiloane (ANC) commented that it had to be checked against the PFMA. The initial amount of R502 million rose to R2.7 billion. She asked why that was so. The acting DG had stated that there was no proper procedure with regard to the appointment of LTE. Money skyrocketed. A breakdown was needed of who got what.
Ms Khunou remarked that she had checked the PFMA about procedure. Any contract above R500 000 had to be tendered. She agreed with the Minister that it was due to an emergency. But when a contract with an entity was entered into, an agreement had to be written down and signed. The emergency project agreement had to state what would happen if implementation was not on time. But they wanted more money. Lepelle was appointed by the Minister. Someone had to pay back the money. Those who did wrong had to be punished. The Minister had stated that there was no proper project plan. She asked if there were any specifications, and how it came to be that an IA could be appointed without a project plan and scoping to develop specifications. When an intervention was desired there had to be scoping and a development plan to assist in determining a project amount. She asked how the project amount was arrived at, seeing that the Minister had admitted that there was no proper scoping.
Mr Booi said that in terms of its duty, SCOPA had a simple approach. The Accounting Officer [Director General] was responsible in terms of the PFMA. The matter of the project expenditure was under investigation. The acting DG did not have the energy and the time to deal with the investigation. The Anti-Corruption Task Team had to deal with it. At the time of the 2015/16 audit report there was a new acting DG. Figures had to broken down from 2011 to the present. SCOPA would look for guidance from the Anti-Corruption Task Team, to come up with evidence. The onus was on the DG to give evidence. The Accounting Officer was supposed to say what was spent when LTE was appointed. To designate a project as an emergency project was not corruption, but the public viewed it as corruption.
Mr Brauteseth referred to page 19 which stated that the IA appointed a contractor on an emergency basis to implement the Minister’s directive issued as an emergency in terms of the Water Services Act. The following sentence contradicted that by stating that investigations were underway to determine corrective steps to be taken. He noted that the Public Protector investigated the matter. He asked why the Minister duplicated the investigation. There were costs involved. If it was an emergency directive, it was fine. He asked what was going on.
Mr C Ross (DA) referred to capacity and capability. The Portfolio Committee in its Budgetary Review and Recommendations Report (BRRR) mentioned serious irregular expenditure problems. Serious intervention was called for. He agreed with Mr Booi about the Anti-Corruption Task Team. There had to be a forensic investigation to see what happened. DWS had a new team on board. The Minister had referred to re-engineering. Although the Main Account received an unqualified audit opinion, the Water Trading Entity had received a bad audit opinion. There was fruitless and wasteful expenditure to the tune of R89 million. It was stated that officials had to repay expenditure on expensive travel arrangements. It pointed at mismanagement. There had to be work towards a serious intervention. There were lots of challenges in the country with mismanagement of water purification found everywhere.
Mr Booi said that Members were getting more from the Minister, and yet the PFMA held the Accounting Officer responsible. He asked for guidance from the Chairperson.
The Chairperson responded that with respect to the current expenditure, the decision was taken by the Minister. It was only fair for the Minister to explain herself.
Ms Khonou noted that the acting DG had stated that there was an investigation done by the Internal Audit section. Internal Audit was present. The PFMA did not prescribe that the Executive could sign contracts of that kind. It was inappropriate.
Ms N Mente (EFF) commented that there were interesting facts about Lepelle. She referred to the narrative on page 13. DWS revised its SCM policy so as to fit the IAs, so that they could use DWS procurement policies. She told the acting DG that nothing superceded the PFMA. It had been there since 1999. Even if policies did not include the IAs, they did not have the authority to award tenders. Tenders could not be handed out without regard for due process. Irregular expenditure could be attributed to LTE. Money spent went from R502 million to R2.4 billion.
The Chairperson asked on which page the R502 million figure appeared.
Ms Mente replied that it was from her own notes. SCOPA was not told that the R2.4 billion emanated from R502 million. It was scary, if one broke it down to the number of boreholes. Boreholes cost less than R100 000. Whatever was done was at a very high price. Government was dealing with poor people. If one looked at it in terms of how many taps and boreholes could be bought with R2.4 billion, it came down to money laundering. Money disappeared.
Mr M Johnson (ANC) Chairperson of the Water and Sanitation Portfolio Committee, said that there were two main issues. One had to dig deeper into consequence management for the transgressions. The Minister claimed that shoddy work had preceded the project, but there was no report. The previous contractor wanted a lot of money that Parliament was not privy to. The importance of the PFMA could not be overstated. If a project was valued at over R500 000, there had to be public insight into the books. He asked the Minister what qualified the project to be a turnkey project. Adherence to the PFMA was critical.
The Chairperson asked the Minister to respond.
The Minister stated that the Water Services Act gave the Minister authority to issue a directive to the IA. It was inherited in that administration, and approved by Parliament. SCM processes were reviewed precisely because of a flaw. The Water Services Act gave an authority that went against the PFMA. Some of the issues were picked up together with the Auditor-General (AG). The intervention by the Minister and DWS was different from PFMA requirements. Page 19 was not a slip of the tongue. The reviewing of SCM processes was a decision that emanated from a process that DWS attended to, it was not to investigate the correctness of the decision by the Minister. Once instructed, the Lepelle Water Board had to deal with its own issues. Mr Booi had previously raised questions the Accounting Officer had to respond to. Historically DWS was not close up to the SCM process of the IA. An interest had to be developed. It was one of the flaws. The question was how to turn it around to achieve legitimacy. In terms of scoping, it was a historical project. The R502 million that was peddled about was for design and scoping. The other amounts were for construction. It was not just a matter of boreholes. The entire value chain was involved. Colleagues had to familiarise themselves with what happened in that space. An investigation would be welcomed. The determinations that led DWS to the point where it currently was, had to be known. She wished to put it on record that it was not true that the former Public Protector had instituted an investigation. DWS instituted an independent investigation on the basis of its audit outcome. She was not called by Ms Madonsela. She supported the idea of a breakdown, but the team had to be given a chance through interaction to provide a better understanding of what happened, including consequence management. The Chairperson of the Water and Sanitation Portfolio Committee correctly pointed out that water infrastructure projects were multi-year projects. When a tap was seen, it had to be remembered that there had to be tunneling before there could be a tap. The Anti-Corruption Task Team could be called in if desired. DWS would not shy away, it would deal with the problems. The AG had identified irregular expenditure and it was humbly accepted. In terms of the Water Services Act, the Minister could not just write a directive as the Act stipulated a process. DWS had to present a case to the Minister for consideration. It included a business case and modelling, and a motivation for why things were being dealt with in that fashion.
The Chairperson remarked that the Committee was dealing with the current matter for the first time. Time had to be managed. The transgressions listed below Lepelle on page 25 could not be dealt with one by one. He wanted to check with the AG about the stated contradiction between the Water Services Act and the PFMA. The IAs could not provide supporting documents for paid claims, in the cases of Mbizana and Alfred Nzo municipalities. R40 million or part of it could not be supported. The total of R40 million was paid without supporting documents; the question was what happened. He asked who paid the money and who signed for it. The IA did not advertise the bid in accordance with Construction Industry Development Board (CIDB) requirements. He asked who paid, who signed, and who was paid. The AG could speak to the matter. If claims could not be verified, it was fruitless and wasteful expenditure, actually fraud. R40 million was paid without an invoice. Either the person who signed, did so knowingly to give money to a friend, or he and the person paid talked collectively. He asked who was responsible and what happened.
Mr Mkhize replied that in the previous financial year, to come out of its qualified audit, DWS had to do an exercise on its own, long before the AG came. There had to be a review of commitments and accruals, which were what had bedeviled DWS for the preceding five years. It was disclosed and given to the Internal Audit to investigate. As DWS interacted with the IAs, it was not getting the required documents.
Mr Booi asked what he meant by “DWS on its own”. He asked who he meant.
The Chairperson asked Mr Booi to allow the DG to respond.
Mr Mkhize continued that the investigation by Internal Audit was not yet finalised. Irregular expenditure was identified, but documents could not be found. Sometimes when supporting documents from IAs could not be found, it was disclosed as irregular expenditure. Internal Audit had to look at each and every IA like Lepelle and Rand Water where irregular expenditure was identified. It would come out who transgressed.
The Chairperson asked how long it would take.
Mr Japie Du Plessis, DWS Internal Audit chairperson, replied that the investigation went back to 2009. Soon after the appointment of the current CFO it became evident that DWS had not dealt with irregular expenditure dating back to 2009. DWS was investigating 264 staff members. The investigation was being finalised. Disciplinary processes had started for one or two people. The internal report would be completed by 31 December. The entities would take longer. Contracts were complex. It had to be found out what happened, and what was supposed to happen.
Mr Booi noted that only two cases had been processed. It was not even reported to an agency that could arrest them. He asked who among the 264 under investigation, were arrested. The Committee members were politicians and not interested in complexities. He asked how SCOPA was supposed to trust that DWS could deal with the issues. There had been inability to deliver since 2009. Government was under pressure. The poorest of ordinary people were without water. The question was how truthfully DWS could deliver evidence. The DG was not able to give a breakdown. Disciplinary action had to be taken internally, against those criminally involved. He asked how many people broke the department disciplinary code, and how many would be charged.
Mr Brauteseth said that he counted 52 cases to attend to. He was formerly involved with forensics. Internal Audit knew what it needed to do and had the resources to investigate. 52 out of 264 cases were covered. DWS had to provide SCOPA with a regular update. There had to be quarterly reports. Detail was needed about who was involved, and what they took.
Mr Ross asked when the audit committee was established. He asked the DG how long he had been CFO.
Mr Booi said that DWS was lying to Parliament. The presentation document stated that supporting documents could not be obtained. He asked how it was then possible to have information to conclude the investigation by 31 December.
Mr E Kekana (ANC) noted that DWS stated that it could conclude the investigation by the end of December. The Committee had to allow them to do so. DWS would be met with early in the following year, by January, and it could then report on the investigation. The Committee had asked about capacity, and DWS had replied that it had the capacity to conclude by end December. Their word had to be taken for that.
Mr Booi said that he was not opposed to that, if DWS could inform on practicalities by December, as long as it did not come back to say that the numbers had increased. It was necessary for DWS to inform on money that would be spent, before it committed itself.
The Chairperson referred to irregular expenditure on goods and services (pages 30 and 31). He asked if the end of December timeframe included that.
Mr Mkhize replied that it formed part of the internal investigation in DWS. The irregular expenditure by the IAs was due to a lack of documentation. It would have to be investigated outside DWS. The irregular expenditure related to goods and services were incurred through normal procurement.
Mr Booi asked how it would be explained to taxpayers that normal expenditure got DWS into trouble. The fiscus was spent on normal procurement. The money did not belong to DWS. He asked if it could be considered normal to wake up in the morning and take two billion to buy peanuts. By the end of December DWS had to say what the two billion meant. The acting DG said that Internal Audit had capacity. He was not to mislead Parliament.
Mr Mkhize asked that the Internal Audit head be allowed to answer.
The Chairperson repeated his question whether the investigation to be concluded in December would include irregular expenditure on both goods and services and infrastructure.
Mr Mkhize replied that with regard to goods and services, the work was done by DWS, whereas the work on the IAs was done on the outside. All irregular expenditure would be investigated by end December. By normal procurement, he meant procurement by DWS.
The Chairperson asked when Lepelle North Water would be concluded.
Mr Mkhize replied that the Internal Audit head could deal with that.
The Chairperson told Mr Mkhize that a solution had to be found to deal with that. DWS had first stated that Lepelle North Water would be included, and it was now saying that it would not be included. The IA did not provide documents, and did not advertise.
Mr Mkhize replied that there could be a full report by the end of March 2017, internally and externally.
The Chairperson said that goods and services had to be done by end December. What Comrade Kekana was saying was based on end December. The way forward had to be clarified.
Mr Booi insisted that all reports and answers be available by the end of December. DWS should not transgress further by misleading Parliament. The DG had to pronounce. He was not to sit there and mislead SCOPA by having it believe what the Internal Audit head was telling SCOPA.
Mr Mkhize replied that everything related to irregular expenditure, including goods and services, would be concluded by the end of March 2017.
The Chairperson told Mr Mkhize that he heard him.
Ms Khonou commented that investigations should have started already, when DWS wrote the report. She referred to page 28. There were four points set out there that every Accounting Officer had to know. If something was going wrong, it would not do to wait for an investigation. There had to be consequences. If money was taken from the fiscus, people had to go to jail. She asked if the anti-fraud unit had said anything. She asked how Internal Audit could investigate when there had not been a proper reckoning. She asked the DG to take SCOPA seriously. If he was not ready, he had to say so. There was a water problem in South Africa. The R2.7 billion was spent irregularly. Whoever took the money had to pay it back. The DG was not putting his foot down. He had to tell the Committee if he could not do the job, so that it could help him.
Mr Ross commented that time frames had to be aligned. The Minister had appointed a task team, led by an Senior Counsel, to be concluded in May. The report back time was six months. It had to evaluate the strategic plans of DWS and investigate any matter that arose from the probity process. He asked how the end of December and the end of March would be aligned.
Mr Booi asked Mr Ross where he got the information.
Mr Ross replied that it was from the Portfolio Committee on Water and Sanitation. There was a media statement made by the Minister.
Mr Kekana said that a commitment was received. He advised that the Committee hold DWS to it. Internal Audit knew the amount of work it had done. Internal Audit stated that the investigation into the 264 went back to 2009. It was quantified. Internal Audit said that it could be done by end December. It would not be in order if some issues were removed to conclude the investigation. But SCOPA had to be satisfied and accept what Internal Audit was saying. DWS had to have capacity if it could make the undertaking.
The Chairperson told Mr Kekana that he heard him, and it had to be kept in mind.
Mr Booi agreed with Mr Kekana.
Mr Brauteseth asked what resources DWS had to do the work, with 52 cases and 264 people to be investigated. Resources and staff would be needed to handle it. He asked if resources were adequate. If not, an arrangement had to be made for better resourcing.
Ms Mente said that she was happy with December. SCOPA Members were public representatives, invoices taken to the AG within the investigation had to be brought to SCOPA. The AG was not in a position to determine value for money. The Minister had referred to it as irregular expenditure, but if money ballooned to five times the original amount, it was wasteful. Value for money had to be checked.
Mr Johnson asked how many staff members there were in Internal Audit. It was related to capacity to do the work. Senior management, leadership and oversight structures had to pay close attention to the occurrence of SCM transgressions. The Portfolio Committee’s BRRR on Water and Sanitation recommended investigation into non-compliance and the taking of corrective steps. Consequence management had to be implemented. DWS needed to collaborate on the work it did. DWS had to say what qualified the turnkey project. It was more a matter for the IA that did the work. The Portfolio Committee had raised the matter with DWS. Out of the department database, only one company did the work. The PFMA prescribed that for amounts over R500 000, there had to be a public bid process. To select one company would have been proper for an amount under R500 000.
The Chairperson said that a report was needed on what qualified the appointment of a turnkey contractor.
Mr Mkhize replied that there were 40 internal auditors. Work was already under way. He joined DWS in November 2015 and began to review the audit report of the previous year. He looked at issues of commitment and accrual. There had to be a turnaround. DWS had to improve the internal control environment. He did not feel comfortable about explaining fruitless and wasteful expenditure. He had found DWS in a mess. It was an ongoing process.
The Chairperson noted that Internal Audit also dealt with the Water Trading Entity. He asked for confirmation on the figure of 40 internal auditors.
Mr Mkhize confirmed that. The Minister appointed lawyers to investigate a lot of the work done. The Special Investigating Unit (SIU) and Treasury also investigated.
The Chairperson said that he was glad about the number of auditors employed. He asked if a report could be received by the end of December. He suggested that the matter be left there.
Ms Khonou referred to the statement by the Minister that the Water Services Act contradicted the PFMA. She asked how the IA could have the right to employ contractors. She thought it good that Internal Audit employed 40 people. The President had advised that the use of newspapers be minimised. Yet three weeks before there was a prominent newspaper report about the unqualified audit report received by DWS. It cost money. She asked if it was really necessary.
Mr Booi advised that the matter be closed, as the DG had spoken from the heart. DWS had to write about the role of Treasury and the SIU. They had to speak for themselves. He wondered if they knew what the DG was talking about. The question was how investigations would be coordinated. Parliament wanted consequences for those who transgressed.
The Chairperson asked Auditor-General of South Africa (AGSA) to comment on the stated contradiction between the Water Services Act and the PFMA. The Treasury could speak on variation, and policies related to that.
Ms Alice Muller, AGSA Corporate Executive: Audit, responded that the Water Services Act allowed the Minister to give a directive, but once the administration responded, the PFMA procedures of DWS had to be followed. The quantum amount and the nature of the contract had to be looked into. It was a multi-year contract, and it could not be concluded that there had been a fair and transparent and equitable process followed. Only a small portion of the project met the requirements of an emergency project. There was engagement with the procurement officer before it was concluded that the process was irregular. DWS was told to investigate, and to say what met the needs of emergency, and what the quantum amount of expenditure was. DWS had agreed that its procurement rules had to be adhered to.
The Chairperson noted that the directive of the Minister still required the administration to follow procurement rules. It was not true that there was a contradiction. There was nothing to be amended. Harmonisation did not have to be brought in. It was already there.
Mr Solly Tshitangano, National Treasury Chief Director: Governance Monitoring and Compliance, said the fact that Lepelle was identified by the Minister did not exempt it from following SCM processes when appointing a supplier. One deviation was that DWS did not appoint through a process of competitive bidding. It was asked why there had been no advertising within 21 days. If the initial amount of R502 million had expanded into R2.4 billion, it had to be asked if procurement processes were followed to expand. It emerged from the Treasury preliminary review that SCM processes to expand where not followed.
Ms Zandile Mathe, DWS Deputy Director-General: National Water Resources Infrastructure, answered about what qualified the appointment of a turnkey contractor. In the current instance, the client was not comfortable with the scope of work due to circumstances beyond the client’s control. It was a means of apportioning risk. A contract was entered into with a lump sum agreement. It was not yet possible to do feasibility studies to come up with an exact cost estimate. If it was a good service provider, an amount would be agreed upon. In this case the client had to pay more. It was a risk consciously taken. Rome was on fire and DWS wanted to get on site. The scope of the turnkey contractor (LTE) was not clearly defined. It would be defined as the project moved.
Mr Kekana asked who determined the scope, whether it was the turnkey contractor or not.
Ms Mathe answered that it was the client. When appointed the turnkey contractor appointed all professionals: the design team, the construction team, and risk fell within the professionals. The company came with a design team, planners, and civil, electrical and mechanical professionals, as well as contract managers. The company came up with contractors and contract managers. The risk went into the company who got the job.
Mr Booi noted that the AG had said that there was not consistency in how the law was applied. He asked on what basis the intervention by the Minister was facilitated. If there was a letter from the former DG it had to be given to the Committee. He asked about the mandate of the investigating agency Mr Ross had referred to.
Mr Johnson remarked that the figures on pages 25 and 26 were not conclusive. One could not get a sense of which figures were related to which municipalities. It was not clear what Vharanani was. He asked if it referred to a municipality or supplier or a water entity. He surmised that it was an agency that was working on bucket eradication. The bucket eradication programme was a major programme. DWS was working to a deadline of March 2016, but the Portfolio Committee was still trying to have it concluded by June. The programme remained an issue, despite promises by former President THabo Mbeki and President Zuma.
The Chairperson asked that the DG give a list of IAs, where they were active and what they did. The Committee wanted a copy of the directive from the Minister, for the emergency project assigned to Lepelle. There had to be a written response from DWS about how the directive was implemented. The terms of reference had to be investigated by the Minister. The written response had to be ready by the following Tuesday. The document explained that DWS was in an emergency situation. There was a directive from the Minister and a report from DWS on how to implement plans and follow the directive. It was a serious process, and different from those followed before. SCOPA wanted to ensure that Accounting Officers followed the law. Fruitless and wasteful expenditure had to be firmly dealt with. It had to go beyond written warnings. If the Accounting Officer did not do that, the Minister had to act on him. If the Minister did not do that, and it was reported to Parliament, the President had to act for her. If the Accounting Officer did not take swift action against fruitless and wasteful and irregular expenditure the Minister would be called on to explain why she had not taken action against him. The line had to be drawn. SCOPA wanted a report on what was found, and what actions were taken. If R20 million was paid to an IA with no invoice, it amounted to fraud. Where there were clear-cut cases, people had to go to jail. He wished the acting DG good luck. The Committee expected him to act.
DIRCO: SCOPA hearing on 2015/16 irregular, fruitless and wasteful expenditure
The Chairperson noted that the Committee was again faced with an acting DG. The former DG received a posting to the UN. He advised that the presentation not dwell on unauthorised expenditure. There were different processes to deal with irregular and fruitless and wasteful expenditure.
Mr Kgabo Mahoai, Acting Director General, DIRCO, said that in the case of irregular expenditure concerning BT Communications, a competitive bidding process was not followed. The amount involved was R170 million. The award of the bid did not comply with SCM prescripts and the Preferential Procurement Regulations of 2011. Under the extension of contract without inviting competitive bidding, the amount involved for Dimension Data was R142 million. For Frasers International Removals the amount involved was R84 million. Under fruitless and wasteful expenditure there were incidents of continued payment for buildings that were no longer occupied. The amount involved in the case of the Chancery in Luanda, Angola, was R2.4 million.
The Chairperson asked Treasury what the standing of the bid evaluation committee (BEC) was. He asked if the bid adjudication committee (BAC) could override it.
Mr Tshitangano replied that the BEC evaluated the tender and made recommendations which were considered by the BAC. If the bid adjudication committee agreed, it would recommend this through the Accounting Officer. It depended on the Accounting Officer to approve if the BAC was not in line with the BEC.
Mr Booi asked if the investigating officer was informed by the PFMA or internal regulations. He asked about capacity for further assistance. He asked why it was not possible to just take people to the police.
Mr Mahoai replied that the investigating officer was a public servant, who investigated in terms of Treasury regulations. If an Accounting Officer saw potential financial misconduct, he could institute an internal process, to determine if there was criminality or not.
The Chairperson asked who constituted the bid evaluation and adjudication committees, and who the accounting officer was.
Mr Mahoai replied that it was the accounting officer of the Department.
The Chairperson asked who peopled the two committees.
Mr Mahoai replied that there were more senior managers in the bid adjudication committee. It was chaired by the CFO. The bid evaluation committee was constituted of senior managers.
The Chairperson noted that the BAC could override the BEC, as it contained more senior members and was chaired by the CFO. He asked if a letter in which the Accounting Officer approved the rejection of the BEC recommendations by the BAC, was sent within 10 days.
Mr Mahoai responded that it was not done.
The Chairperson asked why the BAC went ahead without approval of their rejection by the Accounting Officer.
Mr Mahoai replied that it was a tough one for him. It was part of what would come out. He would assume responsibility for it.
The Chairperson said that one of the key issues that SCOPA engaged about with DIRCO was consequence management. The DG had simply allowed things to happen. A R170 million contract was merely approved. The CFO as chair of the BAC suggested that the BEC was wrong in finding that companies did not meet the required criteria. It had to be taken to the DG. The DG had to approve it and report to Treasury and the AG. That was the correct process, but there were none of the required letters. There was a R170 million contract with no record to prove that the required procedures had been done.
Mr Kekana asked if the acting DG had details regarding the basis on which the BAC disregarded the BEC recommendations. He asked if there was any document related to the BAC disapproval.
Mr Booi remarked that there was a similar history of no documentation with the African Renaissance Fund. People in Foreign Affairs did what they liked with public money and poor people’s money. There was no paperwork to substantiate while there was a scrambling around to condone the African Renaissance Fund. People could not write properly to satisfy proper arrangements. DIRCO did not have educated people.
Ms Khonou remarked that it was good that the acting DG was taking responsibility. He should have asked how it was condoned without anything written down. It should have been done before DIRCO came to the Committee.
The Chairperson asked for reasons why the BAC rejected the recommendations,
Mr Mahoai replied that it was part of the AG report.
The Chairperson asked where the CFO was.
Mr Mahoai replied that he was on special leave for the course of the investigation.
The Chairperson asked how long the leave would be.
Mr Mahoai replied that the investigating officer needed 30 days, of which 10 had passed. He would be recalled back to office, when the recommendations of the investigating officer were considered. The suspension period would not be exceeded.
The Chairperson remarked that there was an investigation into matters that implicated the CFO. The Committee had to receive a preliminary report within a week.
Mr Booi asked why the CFO had disappeared when DIRCO had to come to SCOPA. The acting DG had stated that the CFO was put on leave on the basis of an anonymous allegation. He would reappear in the following week to escape interrogation. It aroused suspicion when someone disappeared.
Mr Mahoai agreed with that.
Mr Kekana noted that the last column on Actions Taken referred to an external investigator. He asked if the investigator was connected to a law enforcement agency, and if so, which one.
Mr Mahoai replied that it was the director of forensic audit in the Department of Justice.
Mr Kekana asked how long the investigation would take.
Mr Mahoai replied that 30 working days were mentioned in the appointment letter.
The Chairperson asked when the CFO would return to office.
Mr Mahoai replied that it would be on the 21st.
The Chairperson asked when the anonymous email was received.
Mr Mahoai replied that it was on 14 September. Internal Audit was investigating.
The Chairperson asked what the allegations were.
Mr Mahoai replied that it was related to the award of the tender to BT Communications.
The Chairperson asked if the acting DG had a copy.
Mr Mahoai replied that the then DG approved it without sending a letter within the prescribed period. DIRCO was investigating who did what, including the approval.
Ms Khonou asked for a letter written by Mr Mahoai, as Accounting Officer, putting the CFO on special leave. The DG was creating a precedent. An anonymous letter was received, and a CFO was put on leave. In the previous year when irregular expenditure was dealt with, the then DG had said that an ambassador had used R3.7 million for herself, but was too sick to prosecute. No report was received about her.
Mr Ross remarked that the administrative process followed was sanctioning special leave. There was deliberate non-compliance. R170 million was lost. He asked how serious the deliberate non-compliance of the CFO was. It bordered on criminal.
The Chairperson asked the DIRCO audit committee chairperson about the BAC overriding the decisions of the BEC.
Ms Manase, DIRCO audit committee chairperson, replied that there was engagement with the AG. The CFO maintained that he had made the correct decision, which he took to Treasury. But the Auditor-General opined that it was the wrong decision. The BEC had recommended that the tender be cancelled. Some disqualified entities were included. The CFO said that they should not have been disqualified, and that the criteria used were unfair. He should have taken the tender back. The departmental investigation would provide the facts.
Mr Kekana asked what the view of the audit committee was. He asked if it condoned the BAC actions, and agreed with the CFO.
Ms Manase replied that the audit committee agreed with the AG, when it investigated the matter.
Mr Booi asked what was said when the irregularity was noticed. Departments had to do internal auditing before it went to the AG. He asked if the audit committee waited for the Accounting Officer or followed the law to the letter.
Ms Manase replied that it was not picked up by the audit committee systems. It was only discovered when the AG met with the audit committee in July.
The Chairperson asked why it was not picked up. He asked about the capacity of Internal Audit, and if the audit committee was satisfied with the capacity and scope of its work.
Mr Booi noted that Ms Manase had said that the issue did not provoke Internal Audit. An anonymous letter provoked it. The audit committee did not apply its mind to it.
Ms Manase replied that the letter was received in September, after the AG report in July. Management wanted an investigation. It would start with an internal investigation, but a full external investigation was also recommended. Reasons why it was not picked up would come out in the investigation.
The Chairperson noted that the audit committee was an external function. Internal Audit reported to the audit committee. He asked for an assessment of the Internal Audit function in general, whether it was adequately capacitated to do the work, or if management had to be asked to beef it up.
Ms Manase replied that Treasury was asked for a review of the Internal Audit. Weaknesses and capacity issues were identified. Treasury made recommendations. There were capacity weaknesses. The appointment process took long. Internal Audit was not fully capacitated. There had been some improvement.
Mr Booi remarked that DIRCO was a huge department that spoke to the South African public across the world. He asked what the problem was.
Ms Manase replied that the audit committee was not satisfied with Internal Audit. Vacancies were being attended to, but at a slow pace.
Mr Booi asked what was lacking in the audit committee office.
The Chairperson reminded Mr Booi that the audit committee were not members of the Department. Internal Audit could not pick up wrongs in the day to day functioning of the Department. He asked what the constraints were, and what was needed.
Mr Gideon Labane, DIRCO Chief Audit Executive, replied that he was not happy with capacity. There was no-one in IT audit. Auditing was passive, rather than pro-active. Issues came in after payments were made. Internal Audit wanted to improve its processes to become more pro-active. It would liaise with the HR section. Vacancies would be filled by the end of March 2017.
The Chairperson asked the DG why the response in filling vacancies had been so slow. In the previous year DIRCO received a qualified audit opinion because it could not account for matters picked up by the AG.
Mr Mahoai replied that DIRCO had done an organisational review to address deficiencies. The structure was approved in March 2015. The procedures and processes of placing people in the structure delayed the filling of critical posts. It was being prioritised and would be dealt with. The appointment of an ICT director was recommended, and had been in the approval process for some time. Delays were stretched across the organisational structure, as DIRCO had to start all over again.
Ms Khonou asked how many staff Internal Audit had, and how many it would like to have, in terms of the revised organisational structure.
Mr Booi commented that in the public eye someone who was dealing with drugs got appointed for a long time. Internal Audit could not explain what type of work it was doing. He asked if DIRCO was not doing its work. There was no turnaround strategy. When DIRCO came back to SCOPA, the problem would have grown.
Mr Mahoai replied that the implementation of the reviewed structure was completed. Critical posts were being filled, and vacancies were within the 10 percent margin. There was the new challenge of the ceiling on the compensation of employees, but it would not affect critical positions, and the challenge of frozen posts. Critical posts were prioritised for success. Ambassadors were appointed in terms of a different process, over which DIRCO had no administrative control.
Mr Labane stated that Internal Audit needed 23 positions to be at full strength. Currently nine positions were vacant.
Mr Mahoai said that he could try to avail SCOPA immediately of the letter which had placed the CFO on special leave. In terms of fair labour practice, the leave period had to coincide with the investigation.
Mr Booi noted that an anonymous letter had been referred to. That letter stated that the DG had met with management. The CFO was suspended so that he would not have to appear in Parliament.
The Chairperson said that it was not necessary to produce the letter immediately, as long as it was done.
Mr Booi noted that there had been an anonymous letter. The letter stated that the acting DG had met with the people who compiled it. The letter also stated that the CFO was suspended because he had to come to Parliament.
Mr Mahoai replied that the anonymous letter came from a DIRCO employee, Ms P. There were serious allegations. Management knew who complained. Management were not the authors of the letter. The letter referred to things known as well as rumours. Finance employees approached him. It was finance employees who raised the issues, and management went back to it. The letter was thrown into the system with facts and rumours that management was aware of. One of those was the ICT tender part of the irregular expenditure. Management was only attending to that issue. The letter was addressed to the CFO and raised issues management had an interest in. The management point of interest was known grievances against the CFO. It had to be decided whether allegations were about issues or grievances related to the CFO. It was not possible to immediately place the CFO on leave.
The Chairperson noted that in the second line of the letter it said that everything had been tried, including talking and writing, but nothing was done. When it was still discussed internally there was no movement. He asked what finally motivated the DG to act. The letter raised issues of a criminal nature. Some were related to agencies outside DIRCO. There were serious allegations of criminality. The letter gave reasons why the BAC overrode the BEC and gave the tender to that company.
Mr Booi opined that Internal Audit was not telling the truth. It could not be due to lack of capacity. Internal Audit was not doing its work. SCOPA was not being told the truth. It was not proper that Internal Audit had to be guided by an anonymous letter. Internal Audit should have picked it up. Parliament was being misled. Internal Audit and the DG were misleading Parliament.
The Chairperson advised that questioning on irregular expenditure be rounded off.
Ms Mente remarked that there were many whistleblowers. She asked if the whistleblowers approached the acting DG. The head of Internal Audit had to say why Internal Audit did not look into the matter when it was approached. The fact that the overriding of the BEC by the BAC was not responded to showed that the Internal Audit mindset was wrong. She asked the DG why the BEC only included junior members. People would enrich themselves. It was unacceptable for the BAC to override the BEC. She asked if it was possible to balance the two committees.
Ms Khonou said that if the CFO was suspended on the basis of an anonymous letter, without suspending the BAC, the question was what the criteria were. The adjudication process was flawed, and in most instances nothing was done to the BAC. The explanations DIRCO was giving had to be backed up. SCOPA wanted to see minutes, and all relevant documents, as it had become a public issue.
Mr Booi asked that the DG disclose the mandate of the external investigator. He asked if he was receiving double payment. The external investigator was probably a good friend of the DG. He himself sat in the International Relations Portfolio Committee and had to listen to a number of things said that were contradictory. The letter became authentic because DIRCO itself recognised it. The Committee wanted a full report on the matter.
The Chairperson noted that costs related to Dimension Data were R142 million. For Frasers International Removals it was R84 million (page 4). The last sentence in the description column stated that the competitive bidding process was not started on time, due to poor planning and poor contract management. He asked the DG who the people were that were supposed to plan and manage.
Mr Mahoai responded that the database was consulted on who would meet the requirements for external investigation. Resources could be pulled in from government. Forensic skills were required. The external investigator would not be doubly paid, as he was an employee of the state. It was not the letter that led DIRCO to where it currently was. The final investigation was under way, and the report would give names. DIRCO was in the process of investigating the irregular expenditure. The things written in the description column were mainly AG findings that DIRCO confirmed and agreed with. By the time the letter was sent, the finance employees already said that they agreed with management.
Ms Bhengu, acting CFO, responded that in DIRCO contracts were assigned by the head of supply chain and the owner of the contract. The owner of the Dimension Data contract was the DIRCO Chief Information Officer. The owner of Frasers Removals was the DIRCO Chief Director of HR. The owner of the Sound Ideas contract was the DIRCO Chief Director of Diplomacy. DIRCO did not have a contract management unit. It was trying to establish one within the SCM. All contracts were migrated out and recorded on a system DIRCO used.
The Chairperson said that in the case of Dimension Data, the contract was not managed well. There was poor planning, extensions and delays. He asked if it was part of what was being investigated. He asked if it could be determined who had not managed the process well. It had to be asked if extensions of contracts were deliberate and malicious. The Chairperson asked if the investigation would cover everybody and everything.
Mr Mahoai replied that it would.
Ms Bhengu responded that there were multi-year contracts where payment was done over a number of years. Treasury was only involved at the end when the AG identified irregular expenditure. Condonement was sought from Treasury. Incidents that had caused irregular expenditure were indicated.
Mr Kekana commented that corruption was not to be looked for among senior management, but among junior management. Treasury regulations were not adhered to. The contract figures indicated that there had to be tenders. But it appeared that figures were split. The R170 million related to Dimension Data could only be explained by breaking it down. He was sure that such a process would confirm his suspicion.
Ms Bhengu responded that tenders went out and there was advertising for BT and PWC, even VWSA. The projection was that the contracts were more than R1 million.
Mr Booi told Ms Bhengu that the discussion had moved on to Dimension Data, Frasers International Removals and the Sound Ideas Factory. She was not to go back into history.
The Chairperson told Mr Kekana that he heard him. But it would be better to wait for the full report, to check how the payments went.
Ms Khonou asked if the amount paid over the years was paid in full, or if there was more to be paid.
Ms Bhengu responded that the Dimension Data contract had expired. There was a transitional arrangement to move from Dimension Data to BT Communications. Frasers International Removals also came to an end.
Ms Khonou asked how it would be investigated that DIRCO kept on paying Faranani Chauffeur services after the contract expired. The report to Parliament was a public report, if a reader saw that money given to Faranani was not due to it, the question would be what would be investigated.
Ms Bhengu responded that the investigation would state by mid December what to recover from whom.
Mr Booi asked what Faranani was and who was being chauffeured. He asked if he could for instance make use of the service himself.
Ms Bhengu responded that Faranani was a car rental service related to protocol services. DIRCO officials used departmental cars. Faranani was for executives.
The Chairperson asked who the executives were.
Mr Mahoai replied that it was part of diplomatic courtesies. It was for visiting heads of state. The function was based on convention. A host country had to provide courtesies of that kind. It was a car rental service.
Mr Kekana suggested that it would be better to await the outcome. In the case of Reakgona Commercial and Industrial Hygiene Services, the market was not tested.
Ms Khonou asked if there was double payment to Faranani and another service provider for executive car rental.
Mr Booi remarked that the Finance Minister had spoken of austerity measures for Fees must Fall. He referred to Reakgona Commercial and Industrial Hygiene and Super Cleaning Services. The amount involved was R1.3 million. He asked why cleaning had to cost so much. Had the market been tested, it could have created employment. The DG did not know what was going on. He asked what DIRCO was cleaning. The amount involved was R1.3 million and Internal Audit could not see it. The dissolution of Internal Audit had to be called for.
The Chairperson told the CFO that he hoped that he had heard wrongly when she said that Treasury was asked to condone the irregular expenditure. The question was why condonement could be asked for before an investigation, and why a step in the process was skipped.
Ms Bhengu replied that in terms of Treasury regulations that was the part that was skipped.
The Chairperson asked why it was skipped.
Ms Bhengu replied that it was an oversight on the part of financial management.
The Chairperson remarked that it was a substantive process to miss. Things were being done without clarity about the process. DIRCO was not concerned about an investigation, it wanted it condoned out of its books. The investigation was on account of pressure from employees in the finance section. DIRCO wanted condonement without it being underscored by the right process. It reflected badly on DIRCO.
Mr Mahoai referred to the juniorisation of BEC. Treasury had brought it up as a challenge. Bid committees were not properly constituted.
The Chairperson told him that it had to wait until the day after.
Mr Mahoai replied that DIRCO was there because of what happened in 2015/16. There was a post audit workshop with the AG.
The Chairperson asked Mr Mahoai to stop talking. He sympathised with Mr Mahoai, and wished that the Minister was there to support him. But he was being addressed about things that happened when he was not there. He could not be held accountable for people who put pen to paper. When SCOPA met with DIRCO the previous year, a new person was introduced, but 12 months down the line he was not there. Ms Khonou had referred to the Ghana issue in the previous year. He asked how it happened that rent was paid for unoccupied buildings (page 5).
Ms Bhengu responded that officials were moved to a new office accommodation building. DIRCO paid for security and to keep the building clean and not dilapidated and vandalised.
The Chairperson asked how DIRCO got into that situation in the first place. Why was it allowed to happen?
Ms Bhengu replied that there were problems with the structure of the building, and with electricity and plumbing.
The Chairperson asked why the old office was still paid for. It was defined as fruitless and wasteful expenditure. DIRCO paid for a building it was not supposed to pay for. He asked who was responsible.
Ms Bhengu replied that no one could be held responsible, as it was not investigated.
The Chairperson asked why there had been no investigation.
Mr Booi remarked that things did not happen overnight. It had started long ago to arrive at R2 million. There was no need to investigate a building that was falling apart, and no need to investigate paying of rent for a building that was unoccupied. The democratic process was 20 years old. After 22 years there was no proper explanation for the fruitless and wasteful expenditure. It was pointless to investigate it.
The Chairperson said that the Minister had to be written to, to ask why processes to recover money were not done. The DG had sent a note that rental paid was R2.4 million. The amount had to be broken down into months and sent to the Committee, so that the Minister could be written to in the following week. It was fruitless and wasteful expenditure. No external investigation was needed to check if it was justified.
Mr Booi referred to the utility in Berne, Switzerland. It had been unoccupied for 20 years. DIRCO did not have a mandate to dispose of State property. He referred to Juba, South Sudan. The ambassador’s ticket was paid and he did not go to work. The person was known. He was not a bad person. R14 000 was involved.
Ms Khonou remarked that SCOPA did not have anything to report on about Water and Sanitation and DIRCO, outside of the investigations. Both departments had to come back in January or February. They themselves did not know what to include in the SCOPA reports to Parliament. She asked if there could be another meeting in January.
The Chairperson noted that the DG had said that the external investigation report would stretch over the following two weeks. Findings had to be made available before the end of November. SCOPA would not let the anonymous letter gather dust. There were serious criminal allegations. If it were merely empty rumours, there would be no cloud over the CFO’s head. If there was veracity in the allegations, the law of the land had to apply. SCOPA would not allow things to be explained away. He told the DG that there were long-standing flaws in the departmental culture. The AG had identified consequence management as a challenge. Transgression had to stop. The acting DG had to deal with transgressions without mercy. If the acting DG could not do so, the Minister had to come and motivate why he had to continue as acting DG. If she failed to do so, there had to be a conversation in Parliament around her as Minister. There was too much tolerance for wrong. He wished DIRCO all the best. There was a lot of work to be done in the interests of the people.
Mr Kekana asked that the report on the external investigation not be an executive summary. It had to be detailed and comprehensive, and not dig into issues that were self-explanatory. It served no purpose to have political and administrative leaders who could not do the work.
The Chairperson adjourned the meeting.
- Department of Water and Sanitation presentation
- SCOPA Briefing Notes on the 2015/2016 Annual Report on Water Trading Entity
- Analysis of Fruitless & Wasteful Expenditure onDIRCO
- Analysis of Fruitless & Wasteful Expenditure of DWA
- SCOPA Briefing Notes on the 2015/2016 Annual Report on DWA
- SITA presentation
- CIty Press
- We don't have attendance info for this committee meeting
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