Department of Water and Sanitation irregular, fruitless and wasteful expenditure: hearing

Public Accounts (SCOPA)

27 February 2018
Chairperson: Mr Themba Godi (APC)
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Meeting Summary

This was quite a tough and uncompromising meeting, during which the Standing Committee on Public Accounts tried to elicit detailed answers from the Department of Water and Sanitation on irregular, wasteful and fruitless expenditure which had previously been identified in briefings to the Committee. Particular attention was focused on borehole expenditures in the Giyani area, where the original budget of R1.3bn had been exceeded by R1.2bn -- almost double the estimated cost.  

The meeting was also attended by representatives from the Hawks, the Office of the Auditor General and numerous media houses. Members of the Portfolio Committee on Water and Sanitation joined the meeting midway through proceedings.

A key sticking point was the cost of boreholes in Giyani, where the Department did not seem to have a clear idea of costs, or were reluctant initially to provide detailed cost breakdowns. Despite numerous questions on actual costs, the Department persisted in providing the Committee with broad cost estimates of boreholes of around R400 000 per borehole. This figure was eventually adjusted to R2.4m per borehole, R400 000 being the actual cost of drilling and the additional costs being for items such as electrification, pipes, water purification etc. According to the Department, the overall cost incurred in drilling boreholes in Giyani was around R317m. However, it was unable to provide a detailed cost breakdown that related to the R2.4m per borehole. 

The Department was also unable to provide the Committee with any details relating to the validation and verification report conducted on the Giyani project by Ernst and Young. The report was concluded in December 2017, but during discussion it seemed as if the delegation was unaware of the contents of the report or was unwilling to share its findings with the Committee. It also could not provide details on the close out report from Lebelle Northern Water, one of its contractors in Giyani.

At this stage, there were internal discussions within the departmental delegation, followed by a prolonged silence. The Committee then asked the Department to leave the meeting while the Committee discussed the issues and the way forward. The Department was allowed back into the meeting only after an agreement was reached, based on input received from the Portfolio Committee on Water and Sanitation.

The Portfolio Committee on Water and Sanitation briefed the Committee on the Parliamentary deliberations relating to the Departmental budgetary review and recommendation report recently approved by the National Assembly. A key outcome from this was that a formal Parliamentary inquiry would be launched into the financial matters of the Department including, where appropriate, involving law enforcement agencies like the Hawks and the Special Investigating Unit. The Portfolio Committee asked for the support of SCOPA in establishing the inquiry, which was agreed to by all Committee Members.

Some of the information provided by the Portfolio Committee was that the Department had applied for an illegal overdraft facility of R2.9bn, that it had serious human resource capacity constraints at the senior management level, and there was concern on whether the Department was a going concern or, in fact, bankrupt.

The Chairperson said he was greatly concerned that due to the lack of proper financial management at the Department, people would be hard hit due to the lack of access to water. This Department had had a long history of mismanagement, and it seemed it had now reached a tipping point. It was in a state of near collapse, effectively destroyed and left in tatters by the departing Minister who, he felt sure, would not have been reassigned to the Department of Communications if this information had been available a day or two earlier, prior to the President announcing his Cabinet changes.

Meeting report

Mr Sifiso Mkhize, Chief Financial Officer and currently Acting Director General (DG), led the delegation of the Department of Water and Sanitation (DWS), supported by Ms Zandile Mathe, Deputy Director General (DDG): Water Resource Infrastructure, and other staff members.

The Department was not asked to present anything to the Committee from its large briefing pack. This was largely ignored by the Committee, and instead the Chairperson advised that one of the Members, Mr E Kekana (ANC) would lead the engagement on the agenda issues.

The meeting was also attended by representatives from the Hawks, the Office of the Auditor General and numerous media houses. Members of the Portfolio Committee on Water and Sanitation joined the meeting midway through proceedings.  

The Chairperson said there were serious issues to be addressed, specifically the Department’s financial management and the irregular and fruitless expenditure. The Giyani project was a major concern, and there were others like Amathole that the Committee urgently needed answers on. Now that a new minister was in place, the Committee hoped that it would bring stability to the Department   

Irregular expenditure at Giyani

Mr Kekana said the Public Finance Management Act (PFMA) and related regulations were very clear that people had to comply. In that regard, he wanted to know how the Department was progressing in resolving the R1.3bn irregular expenditure at Giyani.

Mr Mkhize responded that the DWS had received the close out report from the contractor (Lebelle Northern Water) on the Gyani project. This related to Phase One of the project, and a further R2.5bn was required to connect the bulk water infrastructure to reservoirs. 

Mr Kekana said it was all good and well that the close out report for Phase One had been received, but he was more interested in Phase Two, and asked what the situation was regarding that.

Mr Mkhize advised that Phase One consisted of about 12 activities, and that around 96% of the work relating to it had been completed. This included water reticulation to the villages from the bulk supply pipeline(s). Phase Two involved further pipeline supplies to other villages along the pipeline for which further funding was required.

Ms Mathe said she was responsible for water resource infrastructure in the Department. She said that water was being supplied to villages via stand pipes. Other government departments, such as local authorities, were also involved in these projects -- not just the DWS -- and the Department was collaborating with them as part of the service delivery to villages. Some acts of vandalism were hampering service delivery, and more political support was needed to deliver on the project. There was no movement on Phase Two, as there was no money to proceed.

Mr Kekana wanted to know if the Department had any other plans to supply water into the villages, rather than just the provision of a bulk supply.

The Chairperson commented that this was an emergency intervention to supply water to the people, and it seemed that the emergency was to supply water to the Nkhensani Hospital in Giyani. The budget had moved from R1.3bn to R2.5bn, and he wanted more detail on these plans and how this new figure had been arrived at.

Mr Kekana said one of the key issues was the cost of boreholes. He wanted to know what the initial budget was per borehole.

Ms Mathe answered that the Department did not have a budget per borehole, as the costs varied depending on conditions such as the depth, rocks, water quality, etc. The overall cost per borehole was around R400 000 to R500 000, but this was an all-inclusive cost that included drilling, the cost of equipment, water cleaning and purification. In some cases, however, costs were as low as R200 000.

Mr Kekana responded that there was a figure of up to R2.2m per borehole. He wanted to know if the cost of boreholes had increased from initial estimates, and why it was as high as this.   

Ms Mathe said that the cost per borehole had not increased, but that other costs, such as package plant costs had risen. She did not elaborate on what this was.

The Chairperson asked that the discussion be at a more practical level - specifically on the Giyani Project -- and asked that the discussion be confined to this. He wanted to know what the actual borehole costs were, as in some cases there were costs of around R3m associated with boreholes. Was this correct?

Ms Mathe responded that according to her information, the costs were around R400 000 per borehole. These included all the extras alluded to earlier, not just the actual drilling.

Mr Kekana asked that the Department provide actual costs and not conceptual estimates. What the Committee needed was the actual numbers of the above items - what the drilling cost was, what was paid to service providers, and who they were.

Ms Mathe said the R400 000 referred to drilling in Giyani. The addition of other equipment to the borehole, such as package plants to improve the water quality, and pipelines added an additional R1m to the R400 000.

Mr Kekana said he was not interested in estimates, he need the actual expenditure on the boreholes, not an analysis of the numbers.

At this stage, the DGG said she would try to find the actual costs and get back to Mr Kekana.

Mr Kekana wanted to know what was in the close out report, and was concerned that the Department was unable to provide any of the actual costs associated with the boreholes. 

The Chairperson said that while the Department was obtaining the information, the meeting would continue. He wanted to know if the figure of R300m for boreholes, as provided in an earlier engagement with the Department, was correct. He also wanted further clarity on the validation and verification report conducted on the project by Ernst and Young. It was supposed to have been concluded in December 2017, and he wanted to know if this had been the case. 

Ms Mathe confirmed that the report had been concluded in December 2017.

Mr Kekana asked for details on the investigation done by Ernst and Young.

Mr Mkhize responded that the report contained the validation and verification of the project and related to the actual work “done on the ground”

Mr Kekana asked if the Department had a copy of the report.

The DG said he did not have the report with him.

Mr Kekana asked him to obtain a copy of the report from the contractor. The buck stopped with the Department, and it was not clear to him why this report was not in the hands of the Department. The government needed a copy of the report as it belonged to the government, and not to the implementing agent. He wanted to know when the report would be available to the government.

Mr Mkhize said he agreed with Mr Kekana and that he would follow up and ensure that the report was in the Department.

The Chairperson wanted to know why the Acting DG had not followed up on the important Ernst and Young report in the course of normal due diligence.

Mr Kekana wanted clarity on media reports regarding the amounts paid to Khato Civils, a contractor of the DWS.

Mr Mkhize responded that all amounts paid were authenticated by departmental engineering and quantity surveyor staff on the ground. 

Mr Kekana said that this issue was not new, and the Committee had engaged with the Department on it on previous occasions. So far the departmental responses had been far from satisfactory. He wanted to know why it was so difficult to get information.

Ms Mathe said there had been challenges with costs. The Department’s engineers had revised cost estimates with Khato Civils, and based on that, new costs were paid.

The Chairperson said he was well aware that there were cost challenges. What the Committee needed was some indication -- not a comprehensive overview -- of cost overruns indicating what the initial estimate was, what the new value was that was paid, and why. These had to be actual costs, not estimates.

Mr Kekana wanted to know what the Department had done to correct over-pricing. The issue had been raised in previous meetings and although the Department had promised to revert, at this stage the Committee had had no response. The Committee needed the detail on this - not principles and estimates - but actual numbers.

Ms Mathe said the information was available and the Department could provide it to the Committee.

The Chairperson responded that if the information was available, why did the Department not provide it at the meeting? The Department was wasting the Committee’s time. The Committee needed the detail on the budget’s overrun from R1.3bn to R2.5bn, and the close out report. How did the DWS get to R2.5bn, and what were the cost drivers? 

Mr Mkhize said the information was not at hand at this time, but that the Department could provide it to the Committee immediately.

The Chairperson wanted to know what was meant by “immediately.”

The DDG responded that the information was in the office, and was available.

The Chairperson said that in that case surely the information had to be in their heads, and therefore the Department should be able to brief the Committee on the issues raised. 

Mr Kekana said it was very difficult to proceed further with the meeting if the Department was unable to provide any answers to the Committee. It was very embarrassing that the report had been left at the office. What was even more embarrassing was that it seemed as if the Department did not know the contents of the report.

The Chairperson wanted to know if the Committee should give the Department time to get the report from their offices and provide it to Members, to enable the meeting to continue.

Mr V Smith (ANC) said he fully agreed with Mr Kekana, but did not agree that the Department had to be given an opportunity to fetch the report. The Department should be able to answer Member’s queries from the report. If their answers were inconsistent with the report -- when the Committee finally got it -- they would be held accountable.

Ms N Mente (EFF) said the Committee had a big problem. It had requested information from the Department on the detailed cost breakdowns. The Department did not even know the costs breakdowns on Giyani. They were unable to provide the Committee with any useful information, so there was no purpose on being here. She said the Department was playing with the Committee.

Mr M Hlengwa (IFP) said the Department was fully aware and knew exactly what the Committee required, yet they were now unable to provide the Committee with any information. He suggested that instead of continuing with the current “runaround” the DWS was giving the Committee, the Committee should download the information from their laptops, as surely the information also had to be there.

Mr Kekana said he was extremely frustrated, as the questions he had for the Department were based on information they had provided in earlier engagements with the Committee. These questions were not new and the Department was aware of them, yet it was unable to answer even some of the most basic questions on cost breakdowns. 

Ms Mathe responded that she now had the borehole cost information. The total costs were about R317m, and this included drilling, package plants, electrification, piping and the related costs. This amounted to about R2.4m per borehole. She emphasised though, that the actual drilling cost only about R400 000 per borehole.

Mr Kekana said that the information did not address the question posed by the Committee. What was needed was a detailed breakdown of the unit costs per borehole, such as electrification, drilling and other items etc.

The Chairperson asked if the Department could provide the Committee with the detailed cost breakdown of one, or some, of the boreholes, based on the high level information just provided. 

Mr Kekana said the Committee needed the detailed costs breakdown based on the information provided by the Department in previous engagements.

At this stage, there were internal discussions within the departmental delegation. A silence of a few minutes followed. There was no response from the Department to the questions raised by Members.

During the pause in proceedings, some Members from the Portfolio Committee on Water and Sanitation joined the meeting. They were the Chairperson, Mr M Johnson (ANC), Mr H Chauke (ANC) and Mr L Basson (DA). The SCOPA Chairperson welcomed them to the meeting.

Ms T Chiloane (ANC) wanted to know what was happening, as the Department was not responding to the Committee’s questions. These were the same officials that the Committee had engaged with in previous meetings. The questions were not new, so why was it so difficult to answer?

The Chairperson suggested that perhaps it was an opportune time to have a short break?

Mr Smith responded that the Committee could not allow the current state of affairs to continue. The Department was holding the Committee in contempt by refusing to answer questions. He suggested that the Committee ask the Department to leave the meeting and be called back at a later time so that the Committee could decide on an appropriate plan of action.

The Chairperson said the Committee was refusing to continue with the meeting without answers from the Department. The Committee was prepared to wait, but only for the correct answers addressing the issues raised by Members.

Mr T Brauteseth (DA) said he supported Mr Smith, and the Department should be asked to respond as best they could without the report. If they were unable to answer any of the Committee’s questions, they should be held accountable. He also wanted to the meeting to proceed, as there were other issues the Committee could engage the Department on. He specifically wanted to ask the DDG some questions.

Mr Chauke (suggested the Department be asked to leave and that Committee Members discuss the resolution of the Departmental Budgetary Review and Recommendation Report (BRRR) that had already been adopted by Parliament to deal with the proper accountability on this and other issues.

Ms S Khawula (EFF) expressed her concerns about proceedings and the attitude of the Department thus far.

The Chairperson said that in the absence of details from the Department, it was a waste of the Committee’s time to proceed.

Mr Johnson said that the main issue with the Department was about wasteful and irregular expenditure and consequence management.

The Chairperson said that as far as he was concerned, the Committee was in agreement that it required the issues and questions raised with the Department to be tied down. If current discussions were unable to achieve that, then he was reluctant to proceed. The Committee needed detail on the cost movement from R1.3bn to R2.5bn and what had driven this over-expenditure. The Committee needed specifics, not generalised statements. He wanted to get the views from his colleagues on this before deciding how to proceed.

Mr Hlengwa said he agreed with the Chairperson. He was very concerned about the Department’s “wishy-washy flip flopping” and lack of accountability. He also wanted to know who would be paying for this waste of taxpayers’ money to fly down to Cape Town. He felt the Department had to be held accountable for this cost.

Mr Brauteseth said while he agreed with Mr Hlengwa, the cost could not be addressed in the manner suggested. He reiterated that as the Department was with the Committee at this stage, other matters could be raised with them.

Mr C Ross (DA) said that in terms of efficiency, the current situation was totally unacceptable. Someone had to take political responsibility for the complete lack of financial competence and the level of deterioration in the Department. He supported the Chairperson’s views.

Ms Chiloane also agreed with the Chairperson, but said she was very frustrated and concerned about the lack of information from the Department. This was the third time the Committee had engaged them on the same issues, and all they did was keep quiet. She said they were useless. A better approach would be an inquiry or Parliamentary investigation. She suggested the Department should leave the meeting so the Committee could discuss an appropriate plan of action to deal with them and the issues on the table.

Mr Smith said he was in full agreement with Ms Chiloane. He suggested that the Department should leave the meeting and return a bit later, once the Committee had agreement on the way forward. The Portfolio Committee (PC) on Water and Sanitation being present could provide further input to the Committee.  He did not agree with Mr Brauteseth that other issues should be discussed. He felt the Committee had to stick to the agreed agenda.

Ms Mente said she was totally frustrated as she had just perused the documentation provided to the Department for the meeting, and had found that it did not contain any of the information requested by the Committee. The root cause was the lack of detail. She supported the view that the Department had to move outside to allow the Committee to decide what to do. She commented that the Department was like a pre-school child, and that it had to be spoon-fed.

At this stage, the Chairperson asked the Department to leave the meeting. and wait outside. They would be called back in due course.

The Department left the meeting.

Other issues of concern

Mr Chauke said there were many and varied issues of concern relating to the Department. He mentioned the 2017 accruals that had been paid only in 2018, which was but one example of the inappropriate financial practices within the Department. Thus far there had been three different responses on this issue from the Department. He was pleased that the office of the Auditor General was present at the meeting, as it could help the Committee in unravelling the issues.

Other aspects that were of serious concern to the PC on Water and Sanitation included:

  • Application for an illegal overdraft of R2.9bn from the SA Reserve Bank; 
  • The resources and technical staffing in the Department. There were five departmental programmes, but nine divisional heads and two DDGs who were employed but did not feature in the Department’s organogram;
  • Lack of appropriate skills. There were, for example, two cases where senior technical staff (DDGs) in water infrastructure positions had only a matric qualification, and another a Bachelor of Arts degree.
  • Whether the Department was a going concern – was it bankrupt?

He said that there were enough reasons for a (parliamentary) hearing that would include involving the SIU (Special Investigations Unit) and the Hawks to get to the bottom of issues in the Department. He said the Department  was in a state of chaos - over the past periods it has had three CFO’s , suspended and reassigned DG’s and that those that had abused state resources had to be held accountable.

He asked for support from SCOPA for a full parliamentary investigation of the Department regarding how money was spent and accountability in the DWS. The Committee was dealing with corruption at the highest level.

Mr Basson said he had a concern that the recently suspended DG now had a new position in the Department of Cooperative Governance (COGTA). It was not clear why the Minister had suspended him, but rumours were that he had refused to appoint a firm of attorneys the Minister had suggested for some departmental work. Other concerns he cited relating to the Department were:

  • R5bn of accruals;
  • After spending about R500m on pre-work on the Clanwilliam Dam, the project had had to be stopped at a crucial stage due to funding shortages.

Ms Mente wanted to know if there was enough evidence of criminal activity in the Department to warrant an investigation by the Hawks. There were representatives of the Hawks at the meeting. They should call in the Acting Head of the Hawks, Lt-General Yolisa Matakata, for help. 

Mr Hlengwa said the input from the PC on Water and Sanitation was helping the Committee to formulate its plans. The former Minister of Water and Sanitation, Ms Nomvula Mokonyana, since redeployed as Minister of Communications, had in the past defended the Department’s practices, so he supported the proposal by the PC on Water and Sanitation for a full investigation. If there were any criminal activities, charges had to be laid.

Mr Smith said be supported his colleagues and the proposal by the PC on Water and Sanitation. The Committee had to stop all its activities and engagements with the Department. There was prima facie evidence of real problems at the Department. The Parliamentary inquiry should not stop law enforcement agencies from doing what they had to do, if there was evidence of criminality. Both Committees  -- SCOPA and the PC on Water and Sanitation -- were duty bound to brief the new Minister, Mr Gugile Nkwinti, on the real state of affairs in the DWS. 

Ms Chiloane said what was happening in this Department pained her greatly, as it must for all South Africans. People who had acted improperly had to be identified and dismissed to prevent them from interfering with the proposed investigation. She was also concerned about the borrowing of money, and wanted to know if this occurred with the approval of National Treasury (NT).

Mr Kekane said he supported his colleagues, as the root cause of the Department’s problems had to be found. It was evident to him that there was “no Department here” -- since 2008, it had had seven DGs, and these officials were very clever at hiding things.

The Chairperson suggested that they were not clever, but cunning.

Mr Kekana responded that it seems to him as if officials were hiding something, so an inquiry was necessary to force them to account. The current delegation at the meeting from the Department would just waste the Committee’s time, so he proposed that engagements be postponed until after the inquiry.

Mr Brauteseth said he supported the Committee’s proposal for an inquiry. He wanted to know who would serve on the inquiry team, and if SCOPA would be able to participate. He did not necessarily want to be on the inquiry team, but wanted to be able to provide input and receive information about it.

Mr Ross commented that in the main there were two allegations - the illegal overdraft and the under or over-spending on the approved budget. National Treasury and the Auditor General had to be roped in to help with the investigations. He supported the inquiry process and that where obligated, law enforcement agencies had to take their course regardless of the inquiry process. The Committee now had to take charge and forge ahead with the issue.

The Chairperson thanked the PC on Water and Sanitation for their valuable input and said that based on Members’ comments, SCOPA supported them on the inquiry. He felt that the two Committees should participate jointly in the inquiry and that the modalities of it could be agreed later. He agreed that the inquiry should not deter any criminal investigations that could arise. He also agreed that he and the PC on Water and Sanitation would brief the new Minister as soon as possible, to avoid any misinformation he may get internally.

He was greatly concerned, though, that people would be hit hard due to the lack of access to water as a result of the Department’s financial mismanagement. This Department had had a long history of mismanagement and it seemed to have reached a tipping point. Based on SCOPA’s experience, he felt there was “no department left.” It had been down this road before with two collapsed government departments in the past - the Departments of Home Affairs and Public Works. It seemed Water and Sanitation was now on a similar trajectory, as it was in a state of near collapse - effectively destroyed by the departing Minister.

He added he was sure that the former Minister of Water and Sanitation would not have been reassigned to Communications if this information had been available a day or two earlier, prior to the President announcing his Cabinet changes. He remained hopeful that the SABC would not be adversely affected by Ms Mokonyane’s appointment as the new Minister of Communications.  

Mr Brauteseth wanted to know how the inquiry would function, and who had the authority to initiate it. He wanted to know of there was a “Plan B,” if there was no inquiry.

Mr Chauke responded that Parliament had already resolved that the inquiry had to go ahead.

The Chairperson of the PC on Water and Sanitation commented that the recently approved BRRR of the Department contained very straightforward recommendations, and as there was broad agreement on this, the inquiry would go ahead.

Mr Ross wanted to know who would drive the law enforcement processes.

The Chairperson said details such as this would be contained in the operational plans and detailed action plans of the inquiry 

Mr Chauke said that Giyani was already in the sights of law enforcement agencies.

Mr Kekana said that the two Chairpersons - SCOPA and the PC on Water and Sanitation - had to meet urgently and draft a clear plan of action with timelines to achieve the desired outcomes.

Ms Mente wanted to know if this meeting could be in the coming week, and if the outcomes would be communicated to the Committee. She said that both Mr Frolich from the National Assembly, and Lt-Gen Matakata from the Hawks, had to be in the programme of action on this issue.

At this stage , the Department of Water and Sanitation was allowed to rejoin the meeting.

The Chairperson informed the Acting DG that the Committee would not continue engaging the Department at this stage on the meeting’s agenda items. The PC on Water and Sanitation and SCOPA would jointly engage with the Department at a later stage, as outlined in the BRRR approved by Parliament. He was concerned that the Department was facing similar challenges to those of the Departments of Home Affairs and Public Works in the past, and the Committee was concerned that the Department had now reached a tipping point on whether it was still a proper functioning department.

At the political level, it was unfortunate that the erstwhile political leader of the Department had been moved elsewhere, as he felt she did not deserve the horizontal movement. He hoped that the Department had been able to see the extreme sense of outrage from Parliamentarians on the current state of affairs in Water and Sanitation.  

He asked the office of the Auditor General to provide comment on the issues raised thus far.

Mr Andries Sekgetho, Business Executive: AGSA said that the office of the Auditor General had had several engagements with the Department, including meetings between the Minister and the Auditor General, Mr Makwhetu, to address issues raised by AGSA.

The meeting was adjourned.

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