Water Affairs irregular, fruitless & wasteful expenditure & accruals, with Minister: hearing 3

Meeting report

The Chairperson said the Committee had engaged with DWS in November 2016, where a commitment had been given to supply the Committee with extra information. The follow up meeting in May had been disappointing as officials could not give answers to SCOPA questions. The Committee had decided to request that the Minister attend the next meeting to find out what the core challenges of DWS were and what needed to be done to ensure a turnaround as DWS was an important department as water affected all, rich and poor alike.

The Minister of Water and Sanitation, Nomvula Mokonyane, said she would answer anything that had not been answered satisfactorily at the previous meeting in May.

She said that on reflection, DWS had done well on the challenges it had faced given that the interventions had not been funded. She said the audit might reflect challenges, but DWS had dealt with key challenges pertaining to water supply and delivery. She said the Director General present at the previous meeting had been suspended for dereliction of duty and failing to follow compliance related matters in management, administration and accounting. The CFO was now the Acting DG. Suspensions were also meted out to DDGs based on the report of a task team and a full forensic investigation had now been instituted. DWS was seeking to respond to all audit queries for the 2015/16 irregular, fruitless and wasteful expenditure and on accruals and consequence management and were holding implementing agencies (IA) to account.

On the Giyani Project, she noted that the Auditor-General had said that only the scope of the emergency was irregular. The challenges of the project had necessitated additional interventions due to aging and decayed infrastructure. The nature of multi-year infrastructure expenditure meant that 2015/16 expenditure were for items as far back as 2008/09. The irregular expenditure emanated from:
- The fact that it was an emergency appointment
- The challenges of municipalities and water boards acting as IAs.
- The absence of supervision by DWS leading to a lack of compliance and hence disciplinary action in DWS.
- Historical instances of fruitless, wasteful expenditure and irregular expenditure prior to 2008
- The fact that infrastructure grants were allocated directly to municipalities, without verifying if municipalities had the capacity to implement projects like reticulation. Thus, the Water Act and the Water Services Act was being reviewed because the flow of water funding needed to be looked at.

She said that from 2009 to 2016 an accumulated R2.5b was reported for irregular expenditure. The total for 2015/16 was R1.7b which included R241m for Goods and Services, R202m for the Giyani Project and R400m spent on maintenance which should have been done by municipalities. The Department had had interactions with AGSA to clear up these issues. On irregular expenditure on the DWS Main Account, she said it had been used in an emergency to provide boreholes to a hospital and would be regarded as irregular expenditure. Another irregular expenditure was for an ICT contract in 2012 which was paid in 2015/16.

She said R727m in accruals was reported in 2015/16. R500m related to cases where Goods and Services were received but no invoices had been provided. Of this R500m, R400m was for infrastructure projects and R43m for Goods and Services. All R727m had been paid in 2016/17. Non-payment had been because there had been no invoices and not because DWS was trying to avoid overspending.

She said accounts payable totalled R227m. R219m was for infrastructure projects and R8m for Goods and Services. Invoices had been received but not paid by March 2017. R119m worth of invoices were still within the 30-day period. Only R36m related to invoices received more than 30 days earlier. The Department had reported R189m unspent monies, so had the R36m been paid, it still would not have overspent its budget.

She said DWS had engaged with Treasury on the following issues:
- The Water Trading Entity (WTE) which was doing its own accounting, independent of the DWS Main Account.
- Interactions with Treasury on the WTE overdraft
- Municipalities had signed agreements to pay its debts, but were not honouring those agreements.
- The total debt of municipalities was R7 billion, but water supply could not be switched off legally in an attempt to recover money as DWS was obliged to continue providing water.
- The WTE budget planning was done on the basis that it would recover the R7b debt. She had asked WTE to take the R7b out when doing planning.
- A service provider had been appointed to collect debts and DWS was investigating the appointment of the debt collector, as well as monies paid to the debt collector and whether it was linked to debt collected. It also wanted to find out if there was front loading by the debt collector.

On IAs, she said DWS was looking at project management and financial management controls as DWS had been found wanting. DWS was putting together a project management team. She said in the past no memorandums had been signed with IAs.

She said that the DWS relationship with the Auditor-General was better and progress had been made. She said the Special Investigating Unit (SIU) investigations were taking place. The Public Protector investigation in the Lesotho Highlands project had been finalised, but the Public Protector was also interested in the Giyani Project. She said the worst of the IAs was Lepelle Water Board. Labour disputes were hampering efficiency at the Amatola Water Board and the Chief Executive there had abdicated his responsibilities. Charges had been laid against the Chief Executive and those in charge of finances.

Discussion
Mr M Hlengwa (IFP) asked where the Minister’s presentation was, as he had only an unsigned and undated document which did not include everything the Minister had presented to the Committee. He did not know what to do with the document.

Mr T Brauteseth (DA) echoed this, saying it was very unprofessional not to provide a printed copy in advance. He asked the Minister if she knew that she was ultimately responsible for the allocation, protection and access to water as noted in the Preamble to the Water Act.

The Minister said she understood she was responsible but that she was not responsible for reticulation in municipalities. The allocation of infrastructure monies was the responsibility of Parliament and she wanted the Committee to assist in the review of the Water Act. She said DWS would not have been involved in the Giyani Project were it not for the court order for it to do so.

Mr Brauteseth commenced question on irregular expenditure and noted there had been R87m of fruitless and wasteful expenditure due to double and triple invoicing.

Mr Sifiso Mkhize, CFO and Acting Director General, said the double payments occurred at agency level and were historical. An investigation had been done in 2016 and the Risk Unit had also done an investigation. Employees had been subject to consequence management and efforts had been done to recover monies from IAs. Double payments had occurred because there had been no regular or robust checks by DWS. Monies had been recovered and disciplinary action had been taken. He would make the list available to the Committee.

Mr Brauteseth asked if there had been any dismissals or suspensions since the May meeting.

Mr Chris Du Preez, Chief Director: Risk Management, confirmed that no one was dismissed and the suspensions were still a total of three. The DG’s suspension was not related to the matter at hand.

Mr Brauteseth asked why the DG was suspended.

The Minister said that it was because of dereliction of duty.

Mr Brauteseth asked for the number of final written warnings issued, which in May had been 35.

Mr Du Preez replied the number had increased to 92, verbal warnings had dropped from 12 to two, written warnings had dropped from 107 to 34.

Mr Brauteseth asked about the 125 people against which no action would be taken.

Mr Du Preez replied that disciplinary action would be taken against them, because they had ported their cell phones.

Mr Brauteseth asked about the investigations into 141 employees.

Mr Du Preez replied all investigations had been completed and employees had been subjected to disciplinary processes.

Mr Brauteseth asked where the details on the 141 investigation cases and 125 cell phone porting cases were.

Mr Du Preez replied DWS would provide the details to the Committee as well as the details of the instances where double payments were made.

Mr Brauteseth asked who had been taken to task for non-compliance with legislation.

Mr Mkhize replied the accounting officer of that the time was not at DWS anymore, but action had been taken against senior management. It had been prior to his time with DWS.

The Minister said that a forensic investigation had been instituted and disciplinary action was taken against senior managers.

Mr Brauteseth asked why it was taking so long to take action against people.

The Minister replied the consequence management processes meant cases were not dealt with overnight, but she also acknowledged that the process had taken long.

Mr Brauteseth asked why the CFO had left.

The Minister replied it was because she had abdicated her responsibilities. DWS had sought the advice of the Public Service Commission about the CFO. The CFO had remained in DWS. She had been assigned to assist the Overberg Water Board. She had performed dismally at the Overberg Water Board and was now back with DWS but not as CFO.

Mr Brauteseth then asked questions around procurement.

Mr Du Preez replied that investigations around procurement matters should be concluded by mid September.

Mr Brauteseth asked how many foreigners worked for DWS that were under investigation.

Mr Du Preez replied there were none.

Mr M Hlengwa (IFP) took over the questioning and turned to accruals and the accumulated debt. He asked what the DWS budget allocation for 2015/16 was.

Mr Mkhize replied that it was R16b and that it was underspent by R189m.

Mr Hlengwa said there had been account payables of R226m and accruals of half a billion rands in 2015/16, which had led DWS not to pay its accounts. He asked DWS how many DGs and CFOs it had had.

The Minister replied there had been two DGs and two acting DGs

Mr Hlengwa asked why the first DG had left.

The Minister replied the first DG had given notice and the second DG had been charged and was still under suspension.

Mr Hlengwa asked how many CFOs DWS had had.

The Minister replied there had been two.

Mr Hlengwa asked how had accruals reached the level of half a billion rands.

Mr Mkhize replied R457m was for infrastructure, while R43m was for Goods and Services and that only R36m was for payments not made within the 30-day payment period

Mr Hlengwa asked where DWS would have got the money to pay for the half billion rands in accruals.

Mr Mkhize replied DWS dealt with multi-year projects.

Mr Hlengwa wanted a breakdown of the multi-year projects.

Ms Zandile Mathe, DDG Infrastructure, said the Giyani Project had been completed and DWS would provide the invoices.

Mr Hlengwa asked if DWS had underspent in 2014/15 and by how much.

Mr Mkhize replied the underspend was approximately R2b.

Mr Hlengwa asked what financial commitments DWS had for 2016/17. Had Treasury approved rollovers to allow for the settlement of accruals?

Ms Mathe replied in 2014/15 some rollovers had been allowed and in 2015/16 no rollovers had been allowed.

Mr Hlengwa asked why service providers were not paid within 30 days. How much was owed in 2015/16 and what interest was paid?

Mr Mkhize replied it totalled R36m for invoices under 30 days old and no interest was paid.

Mr Hlengwa asked what was going on with accruals for travel.

Mr Mkhize replied that there were many infrastructure projects and engineers had to stay for a week or two at sites to do oversight of various projects. He did not have the details of the travel costs incurred.

Mr Mkhize said that DWS was managing the accruals well and DWS would provide a detailed report in writing.

Mr Hlengwa asked in which areas the underspend of R189m occurred.

Mr Mkhize replied it was mainly in the area of the Compensation of Employees budget which had been under review and hence there had been a moratorium on new appointments.

Mr Hlengwa said this proved that the unpaid invoices were not paid because there was no money for payments. DWS had maliciously decided not to pay invoices rather than have to account for unauthorised expenditure. He asked what the state of health of the Audit Committee was. Had it given warnings or was it not listened to?

Mr Du Preez replied that pre-2015 the Audit Committee had not been functioning.

Ms Mathe replied that R110m of the R189m was for Compensation of Employees, R40m was for the bucket eradication program, but a portion of this program was in Programme 3 of DWS.

Mr Hlengwa said it was clear that there was a serious lack of controls in DWS.

Ms T Chiloane (ANC) asked that the fast-tracked Giyani Project be explained. How was it that a project of R2.5b that was supposed to take five years was completed in two year? Was DWS happy with the work done?

Ms Mathe replied that the quality of the Giyani Project work had been applauded.

Ms Chiloane asked why the Auditor-General had then raised it as irregular spending, because it was suspicious that a five-year project was completed in two years.

Ms Mathe replied there had been challenges of old pipes which meant that extra work had to be done and this did not fall under the definition of emergency as defined by the Auditor-General and therefore was regarded as irregular expenditure by the Auditor-General. DWS had written to the Auditor-General about the additional scope of work and still believed that it was correctly handled.

Ms Chiloane asked when action was initiated on the irregular expenditure.

Mr Du Preez replied that the details were in the list provided to the Committee. Some had been initiated before the investigation and the rest afterwards.

Ms Chiloane said that 80% of the cases related to Supply Chain Management (SCM) processes. She wanted a progress report on R1.3b of irregular expenditure for the period 2014/15 to 2015/16. She asked if the Giyani Project was also part of the investigation.

The Minister confirmed that it was part of the investigation by the SIU.

Ms Chiloane asked what services Ernst and Young were doing and what payments were made to them. When was the last payment for the Giyani Project?

The Minister replied Ernst and Young were there to provide independent verification of the project.

Mr Phineas Legodi, Chief Executive: Lepelle Water Board, said Ernst and Young were paid on a varying scale, per hour fee and were not paid less than R400 000 monthly. This contract would end in December and had started in 2015. The last payment was in the previous month. He said that given the large size scale of the project and the fact that it was an emergency project, management had needed to be beefed up and a team comprising Lepelle, DWS and Ernst and Young had to assess the work after claims were made.

The Minister replied that the DWS investigations did not stop just because the Public Protector or the SIU were doing investigations, because the latter entities were acting on their own. She said Ernst and Young was not investigating, it was doing claim verification and validation work.

Ms Chiloane asked when Ernst and Young would finish its work.

Mr Legodi replied that their work was tied to the project which meant that it would end in December 2017.

Ms Chiloane asked if that meant that irregular expenditure could go beyond R2.5b.

The Minister replied that December 2017 was the end of Phase 1 of the project.

The Chairperson said that two companies were paid twice, what were their names and why did this happen.

Ms Mathe replied it was not companies, it was the Rand Water Board. DWS was in the process of recovering the monies totalling R52m which had occurred because of a lack of internal controls.

Ms Chiloane asked if there were any other investigations taking place.

The Minister replied that there was the investigation into the Giyani Project and a report would be written on that which could lead to other investigations.

Ms Chiloane asked if there were any disciplinary actions taken and whether any monies had been recovered and wanted the answer in writing. She asked how much was owed by municipalities for water.

Mr Mpho Mofokeng, CFO: Water Trading Entity, replied that as at 30 June the figure stood at R7.1b which included R3.7b by municipalities and R3.2b by Water Boards, as Water Boards were also owed by municipalities.

Mr E Kekana (ANC) asked what had been done about Service Level Agreements (SLA) that had not been signed. He said that the Overberg Water Board was dysfunctional and asked if a CEO had been appointed.

Mr Mkhize replied all SLAs had been signed and the appointment of a CEO was being finalised.

The Minister added that a CEO was appointed by the Board, but the Board had been dissolved. It would take 90 days to establish the appointment of a new Board, which would in turn appoint a CEO.

Ms N Kunou (ANC) said planning was important yet there were continuous changes in personnel to the DG position which would not help planning.

The Minister replied that the previous DG had done well in the interview phase but not in practice. She said there was a small Project Management Unit (PMU) in infrastructure. The DWS now wanted to have PMUs throughout DWS as the appointment of service providers was seen as flawed. Mr Trevor Balzer, DDG, and other officials would continue to do this work outside of the individual DWS branches.

Ms N Mente (EFF) said the name, Mr Majola, kept popping up in a number of fraudulent transactions in the list of irregular expenditure, yet DWS did not talk to how the SCM process was flawed. In the Annual Report it was reported that double payments of advances were paid to Chris Hani Hospital because it was claimed that invoices were not properly presented. She said the Ncora Bulk infrastructure works were not finished and nothing was working there.

Ms Mathe replied that most of the information in the Annual Report was cleared by the Auditor-General which had followed the money to the IAs. At the time of the audit DWS had not received the invoices but it had now received them. She said the Ncora Eastern Cape project had been successfully completed. The municipalities had to now complete the reticulation. She would check up if this had been done.

On the appointment of LTE as being irregular, Mr Legodi said that Lepelle had followed its own policy and Treasury guidelines on what was regarded as an emergency.

The Chairperson noted however that it had been accepted by the DWS in a December report that it was irregular spending and that Treasury had not approved it.

The Minister agreed with the Chairperson's remarks.

Ms Surette Taljaard, AGSA Senior Manager: DWS Account, said the Auditor-General accepted that it was an emergency but argued that because it was a multi-year project, procurement had to follow normal procurement practices in the appointment of a contractor. The Auditor-General had consulted Treasury which said there had to be a motivation to justify a deviation.

Mr L Basson (DA), Water and Sanitation Portfolio Committee member, said that no mention had been made of the Motau Task Team and no report by the team had been tabled. He asked what the new financial year would look like. He said DWS had overspent its budget but had attained only 43% of its targets and was using money for the current year to pay for work of the previous year.

The Minister replied she was in possession of the report and would be instituting forensic letters based on the report.

Ms Mente said the CEO of Lepelle Water was taking the responsibility to ignore the PFMA on the matter of the appointment of LTE. LTE was involved in problematic projects. Why was LTE chosen? Lepelle could not establish its "own law". If the Auditor-General said it was incorrect and unacceptable then it had to be accepted as such. The Division of Revenue Act (DORA) required specifics. What specifications would DWS use to get money allocated to it, because it had shown that it could not manage monies.

Ms Kunou said the DWS report indicated that the fruitless expenditure of R28m on travel was for two individuals and that some of the travelling had not even been honoured. This was a problem for her. Management had no policies and the use of consultants was not being phased out.

Ms Chiloane asked if the boreholes at the Giyani Hospital was part of the project. She asked how many boreholes were drilled and what the total cost was.

Mr Legodi confirmed that six boreholes were drilled at the hospital. In total 154 were drilled, of which 137 were completed at a total cost of R336m. He went on to explain the cost drivers.

Ms Chiloane asked who the service providers for the boreholes were as there had been a number of tender irregularities.

Mr Kekana wanted an explanation why there was an increase in payment from R96m to R595m in three months.

Mr M Johnson (ANC), Water and Sanitation Portfolio Committee chairperson, said the institution of feasibility studies would assist in project management. He said that what stood out was the amount of investigations and litigation. He said the problems at heart were managing the budget and managing costs.

On the clearance of the irregular expenditure, Mr Mkhize replied that the next step in the process was to engage with the Auditor-General. On the budget allocation, he said this was an ongoing process with Treasury. On the travel, he explained that it was for two companies not two officials.

The Chairperson added that the Committee wanted to know what actions were being taken.

Ms Mathe replied that the increase from R96m to R595m was not a payment, but the increase in the scope of the project. An amount of R502m was paid over nine months. DWS would provide a report on the boreholes because there were other issues, including operations and maintenance, that needed to be taken into account.

Ms Kunou said the Committee needed to get the real reports.

Ms Mente wanted a breakdown of the municipalities that owed monies for water.

Mr Legodi said he was not wilfully disobeying the supply chain management (SCM) prescripts and apologised if that was the impression that had been created. He said they were still in discussions with the Auditor-General on the whole Giyani Project. On why LTE was chosen, he replied that LTE was on a panel of preferred service providers and had the capability and capacity to do that size project.

The Chairperson said that the issue was not on the capacity of LTE to do the work but on the process followed to appoint LTE.

The Minister replied that DWS would provide the various reports to the Committee, including that of the Motau Task Team and the Public Service Commission. She suggested that a meeting solely on the Giyani Project should be scheduled.

The meeting adjourned.