Department of Public Works irregular, fruitless and wasteful expenditure: hearing follow-up

Public Accounts (SCOPA)

21 August 2018
Chairperson: Mr T Godi (ANC)
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Meeting Summary

Documents: Report to SCOPA: Clarification on Appointment of Mr GB Mokgoro through Honey Cloud Enterprises (PTY) Ltd (Confidential).; Annexures AA, BB, CC and DD on Construction projects; Letter dated 28th June 2018 from DG to SCOPA on submission of report on deviations and expansions to SCOPA.

SCOPA had previously met with the Department of Public Works (DPW) in June 2018 and following the meeting, the DPW had been asked to report back to SCOPA on three issues. These were:

  • The appointment of Mr Boitumelo ‘Cox ‘ Mokgoro;
  • The purchasing of, and other work on ministerial houses;
  • Deviations, variations and expansions on construction projects.

The DPW had forwarded its reports on these issues, and Members of the Committee had come to the meeting prepared to engage on the contents of the reports. However, the Department had requested an extension with regard to the appointment of Mr. Mokgoro because the Director General had been presented with a file by an anonymous member of staff the previous day, and the file had contained new material that would alter the contents of the report. The Chairperson granted an extension on two conditions -- that the Public Service Commission (PSC) would also be engaged, and that the matter be investigated as a matter of urgency within a maximum period of three to four weeks. The DPW was also requested to report back on contracts awarded to four companies on Wednesday 29 August.

Members asked about the purchase by the DPW of four ministerial houses. They took particular issue with the purchase of a house that cost R9 million, and questioned how it could spend almost R500 000 for braai areas at these houses. The DG confirmed that no price cap was set when it came to the purchase of ministerial houses. A Member commented that the DPW spent money as it liked, and did not consider that the majority of South Africans lived below the poverty line. SCOPA was also worried about how the houses allocated to ministers and deputy ministers were being utilized, as exorbitant amounts of taxpayers’ money was being spent on buying and maintaining them. The DPW confirmed that it had 148 houses allocated for prestige accommodation. SCOPA requested the DPW to provide a report of how much each of these houses were costing the government in maintenance, rates and taxes. The Committee also asked for clarification on the houses declared heritage sites, and the costs of maintaining them.

The Minister pf Public Works told the Committee that a restriction committee had been set up, which identified companies that did not perform and were engaged in corrupt activities, and did the blacklisting. On maintenance, he agreed that there was a lot of shoddy work being done, and that the DPW would find it difficult to maintain large houses when it had failed to maintain basic items like intercoms and security gates. He confirmed that the DPW would go back and review all the issues raised, adding that cracking the whip would be part of consequence management.

Meeting report

The Chairperson began by reminding Members that the Committee had in June 2018 met with the Department of Public Works (DPW). The discussion had led to a few issues which the Committee requested the Director General (DG) to report back on. The three issues were the following:

  • The appointment of Mr Boitumelo ‘Cox ‘ Mokgoro;
  • The purchasing of, and other works on ministerial houses;
  • Deviations, variations and expansions on construction projects.

The Committee had received a report from the DPW on the three issues raised, and was ready to proceed and engage the DPW on its concerns and observations. The public’s opinion of the DPW was not good as a result of delay in projects and because of a perception that if was under siege from both internal and external cartels. SCOPA had invited the DPW, and given it an opportunity to put the issues raised into context. He had received a letter from the DG, dated 20 August, requesting that the DPW be granted an extension on the matter of the appointment of Mr Mokgoro .The reason for the request was that the DG had the previous day received a file from an anonymous member of staff which had brought in new materials concerning the matter.

In response to the request for the extension, he said that the letter confirmed the “shenanigans” in the DPW. SCOPA wanted to get to the bottom of the issues, and he had ruled that SCOPA would grant the DPW the extension, subject to two conditions. These were that firstly, the matter would not only be an issue of the DPW, but that the Public Service Commission (PSC) would also be engaged, and the DG had also been requested to forward to SCOPA a copy of the correspondences between the DPW and the PSC on the issue. The second condition was that the matter had to be investigated as a matter of urgency within a maximum period of three to four weeks.

Mr Thulas Nxesi, Minister of Public Works, rsaid that he accepted the Chairperson’s ruling. He added that he had got to know of the details in the file the morning before the meeting, and it spoke more of internal dynamics at the DPW. He reminded the Committee that the matter concerned an individual and that SCOPA should act so as not to be unfair to the person because of what was hanging over him.

Mr Sam Vukela, DG: DPW, responded that he also accepted the Committees’ ruling.

Mr M Booi (ANC) added that there should be better coordination between the executive and the DG. He agreed that the matter should go back to the PSC and be given serious attention.

Mr E Kekana (ANC) supported the ruling. He also indicated that Committee Members prepared well in advance of the meeting, and it was unacceptable that when they came for the meeting the Committee was given new documents that changed the scope of the discussion.

Mr M Hlengwa (IFP) commented that what the Minister had said should be a cause for concern. It was not right for the Minister to be presented with new information the morning before the meeting. He asked why the Minister had been given the information only that morning, and why the two highest offices in the ministry were not communicating well.

Mr C Ross (DA) said he already had questions prepared, and that he wanted more clarity on the reports provided. He could see the letter from the DPW, but he could not see anything from the PSC relating to the issue. He added that there was a complete breakdown in accountability and that he had wanted the Minister to respond. He did not agree that the issue should be passed on to the PSC.

Ms N Khunou (ANC) added that communication was vital. If relationships were not working well, it would affect service delivery. SCOPA and the DPW needed to engage together and see how to go forward. If relationships were not built on trust, then there was a problem
The Chairperson said that he agreed with Ms Khunou in principle. He added that a note had also been sent to Mr Booi from one of the DPW employees. It was vital that SCOPA got to the bottom of the issues to determine whether Mr Mokgoro was a victim or he was complicit. It was not in SCOPA’s domain to interrogate the the breakdown of communication between the office of the DG and the Minister, but he advised the DPW to note of what Members had said about communication.

Mr Vukela responded that the DPW had prepared beforehand and that it was ready to present. However, he had received the new information contained in the file the previous day at 2 pm. He had become concerned and had decided that the DPW needed to disclose everything it had. The information had been given to him personally as he was driving out of the office, and he had not had enough time to assess what the file entailed.

The Minister added that the message concerning the file had been relayed to him by the DG the previous day at 3 pm, and that the DG was to give him the details in the file the morning before the meeting. He said that the DPW would go back and deal with all the issues and thereafter come back and present one story. He agreed that the internal dynamics were as a result of the Department’s own incompetence, which the DPW would have to deal with.

Mr Ross commented that what SCOPA had just witnessed was a breakdown between the executive and the accounting authority of the DPW. SCOPA was being sucked into the spat, yet it should be as independent as possible. It was the role of SCOPA to engage the matter further, and he had very pertinent questions to ask.

The Chairperson responded that three weeks was not a very long time, and SCOPA had a role to assist the DPW and the ministry to be more coherent and focused. SCOPA would actually write to the DPW to give a date on which it was to report back, so that the PSC was also aware of the timelines.

Mr T Brauteseth (DA) commented that disgruntled employees writing directly to the Committee was becoming a trend, and that SCOPA should be very careful with such information so that it did not derail the role of SCOPA. People were seeing it as an open channel to talk to SCOPA directly, which could undermine the role of the Committee.

The Chairperson responded that what was at issue was the additional information that had come into the hands of the DG. If the substance had changed and SCOPA proceeded, it may be discussing something that was incorrect.

Mr Kekana agreed that SCOPA wanted to get answers, and that the reports presented by the DPW did not have the answers. On K I Developers, SCOPA had requested the DPW to report on why a variation of 30 % had been made, and the consequences for the employee involved. The report provided by the DPW did not have the answers -- it only said that the matter had been sent to the compliance unit, yet the variation had happened in 2016. He asked the DPW to give SCOPA a sense of why the variation of 30 % had been made. SCOPA needed finality on the issue, and what it was seeing was a delaying tactic.

Mr Wasnaar Hlabangwane, Construction Projects Manager: DPW, responded that it had been a case of irregular application of delegation. Directors at the regional level were empowered to approve certain variations of an urgent nature, and when the variation order committee had reviewed the application, it had come to the conclusion that the approval should not have been made at the regional level. The matter had then been referred to the investigation unit. When the DPW exceeded the threshold, it had to get National Treasury approval.

The Chairperson wanted to know why the matter was being referred only now, when the matter had happened a long time ago.

Mr Kekana reminded the DPW that the Committee had requested information on the 30 percent variation at the previous meeting, and that there had been a letter discussed at the previous meeting which confirmed that the NT had not approved the variation. He was surprised that the DPW still did not have answers on issues raised at the last meeting.

Mr Vukela said that the DPW had made some changes after its last engagement with SCOPA. It now ensured that the Department followed up on matters coming from the variation order committee. From the variation order committee, the recommendations went to the compliance unit and to the governance unit. After its previous meeting with SCOPA, the DPW had gone back and checked on the matter of the 30% variation which was an old case, and it had thereafter facilitated the process of investigation.
Mr Kekana stated that SCOPA was not getting answers. There was a trend for Parliament to discuss issues and leave them hanging. He said he that a corrective measure had been put in place, but he wanted information on the disciplinary process -- who was involved and how the DPW had dealt with that person.

Mr Vukela responded that all matters sent for investigation had been given a deadline of 28 September to be completed, and that the DPW was still awaiting the outcome of the investigative unit.

The Chairperson said that the fact that the oversight unit had found there was an issue and had sent it to the project managers who had caused the issue, facilitated continuous wrong doing. There was no mechanism to follow up on the culprit.

Mr Vukela agreed that there was a fault in the system, since it required project managers to implement corrective measures.

The Chairperson asked who the compliance unit reported to.

Mr Vukela answered that the compliance unit reported to the CFO. He added that the report from the variation committee went to the compliance unit and also to the investigative unit, which was headed by the DDG.

Mr Kekana reminded the DG that he was the accounting officer and the responsible person. He was to make sure that officers charged with various responsibilities were doing the correct thing, and that he could not delegate. He insisted that he wanted to get the responses from the DG as the accounting officer, and not from anyone else. He asked the DG to confirm if he was confident with the content given in the reports.

Mr Vukela answered that he had gone through the information and he was happy with it. After submission of the reports to SCOPA, the DPW had gone further to probe in order to ensure that where there was a need, it was able to augment. It was able to supply additional information on the issues raised.

Mr Kekana asked the DG to respond on the consequences.

Mr Vukela answered that consequences could not be implement immediately, since the DPW had to subject these issues to investigations. The investigations would give the DPW capacity to take corrective measures. In areas previously not investigated, the DPW did so after the last engagement with SCOPA.

Mr Kekana commented that SCOPA had been specific on the information it wanted from DPW. It wanted information on the employees responsible. For the DPW to say that it was still investigating gave the impression that it did not take SCOPA seriously. SCOPA was making follow-ups, and it was finding there was no change.
Mr Vukela responded that the DPW did take SCOPA seriously.

The Chairperson suggested that in order not to discuss issues randomly, the DPW should go back and look at the contracts awarded to the four companies -- KI Developers, Varymix Nineteen Pty Ltd, Sebushi Somo and MEONDO -- and return to the Committee on Wednesday the following week with a detailed report on the four contracts. SCOPA would want information on what happened and why, who were responsible for the contracts, what had happened, the amounts involved, and which other contracts the companies had been awarded in the last three years.

Mr Kekana added that SCOPA would also want information on the status of the projects and the directors of the four companies.

Mr Ross said that he would also want information on what dates the contracts had been signed, and who the CEO and CFO had been at the time the contracts were signed.

Ms Khunou wanted to know whether the Cabinet had a moratorium on the black-listing of companies, as some companies never completed their projects and were still given other projects. She added that SCOPA was also serious about following up on transgressing employees who moved from one department to another.

The Chairperson confirmed that SCOPA would deal with the four contracts the following week.

Ministerial houses

Mr Kekana said that the report had not touched on what had been requested with regard to the purchasing of ministerial houses.

Mr Vukela answered that the DPW purchased the houses for value, and that it tabulated the cost per house. On whether it constructed or purchased the houses, he responded that the houses were purchased. On the braai areas, he clarified that these were entertainment facilities that had a braai area. The DPW was satisfied that what it was paying was within market value. In some instances, it was able to negotiate and obtain a lower price. For each house, there was an amount and rationale as to why it had been concluded at that amount. Where there were no entertainment facilities in the houses, the DPW had to meet the cost of including them, including the braai areas.

Mr Kekana said that SCOPA needed information, and the DPW should not keep the information to itself. Issues needed to be clarified so that the public was aware of them. SCOPA needed to know the original prices, and how the negotiations on the houses had proceeded.

The Chairperson agreed that wars were won by those that had information, and if the DPW had presented all the information to SCOPA, fewer questions would have been asked.

Mr Kekana added that since the DG had received verified information on the purchase of the houses, he should have forwarded it to SCOPA.

Mr Brauteseth wanted to know what had happened to the old houses, since the DPW was buying new houses. He also asked for information on who currently resides in the four new houses.

Minister Nxesi interjected and asked whether it really mattered who stays in the houses, since there were security concerns attached. What mattered was that the houses were allocated by the DPW.

Mr Brauteseth responded that it was possible for the DPW to buy too many houses, and that the number of ministers had been 39 for the longest time. He wanted to know where those ministers had stayed before that they had to be moved to the new houses. The reason he was asking was that when a recent audit of Acacia Park had been done, it had been discovered that the majority of people staying there were not supposed to be staying there.

Mr Mzwandile Sazona, Chief Director: Prestige, DPW, responded that in 2014, when there had been a Cabinet expansion, the DPW had had to rent houses for the ministers. He confirmed that all the ministerial houses had ministers resident, except for one which had been recently vacated.
Mr Brauteseth asked why one minister had a R4.5 million house and another a R9 million house, and whether there was a basis for such a variation.

Mr Sazona responded that the DPW had the same specifications for ministerial houses, and that where the house was situated had a bearing on the price. The DPW opted for a shopping procedure rather than the tender system, where it would have been forced to work with only what was provided. He clarified that in looking for a ministerial house, the DPW shopped for a four to six-bedroomed house which had a double garage, a study, a kitchen and a pantry. The house also had to have an entertainment area, with security measures comprising an electric fence and a camera.

Mr Brauteseth asked whether the houses were for ministers alone or also for guests, given the large number of bedrooms.

Mr Sazona responded that the houses were for ministers.

Mr Brauteseth asked the DPW to clarify whether it was telling the public that no matter where the house was, the DPW was prepared to pay the price. He asked what the cap on the houses at that time was.

The Chairperson added that the DPW should also clarify whether the price cap was for different areas and where there was no cap, the DPW should admit that there was none.

Mr Sazona responded that at that particular time, the cap on the houses was R7 million.

Mr Brauteseth wanted to know why the DPW had gone and bought a house for R9 million when there was a cap of R7 million.

Mr Sazona answered that the DPW had been looking for four houses. Two companies tendered, and one company had given it seven to eight to look at. The DPW had gone through that process for almost a year, and only four houses had fitted the profile. There had thereafter been an internal process requesting that savings made be used to top up the purchase of the R9 million house. A submission had been made to the DG at the time who, after taking into consideration the savings made on the purchase of the other three houses, had agreed to the purchase.

Mr Brauteseth asked whether the DPW had considered that 70% of South Africans were living in abject poverty. The DPW had to explain why it was necessary to spend approximately R26 million for four houses for ministers, and R150 000 for entertainment/braai facilities.

Mr Ross asked the DPW to explain what the shopping procedure was. On the tender procedure, he advised the DPW that it should have explained to the selling agent that it had a special procedure to follow, and that the agents had to comply. He also asked the DPW to share with SCOPA the correspondences between it and the agents, and to confirm who had approved the shopping procedures.

Mr Sazona responded that after the DPW had had experiences with the other processes which were not successful, the shopping procedure had been approved by National Treasury (NT). The DPW had adhered to the NT circular to ensure competitiveness. He explained that the tender process closed on a particular date, and if one received five houses it would concentrate on those five houses only. If agents had given the DPW five houses which did not meet the standard, the DPW would have had to start again. On using the shopping procedure, the net becomes wider and one was not confined to what the estate agents provided - the DPW could shop until it got what it wanted. However, it shopped within the principles of openness and competitiveness.

Ms Khunou commented that she had noted that the DG had come to the meeting without being prepared. She reminded the DG that the Public Finance Management Act (PFMA) was clear that he was the accounting officer, and that if he did not have information, the DPW would not get anywhere. The President had said that he would reduce the size of the Cabinet, so why were more houses being purchased? SCOPA had been asking for an asset register which had not been forthcoming. SCOPA did not have a tool to help it monitor. What would happen to the houses should the President reduce the Cabinet size?
Mr Vukela responded that the DPW had an asset register. He confirmed that there were discussions in government on what would eventually happen to those houses, but under normal circumstances all the houses were assets of the Department and could be used for generating income. The houses would be able to serve the purpose of the Property Management Trading Entity (PMTE).

Ms Khunou asked why the DPW did not fit the cameras in the houses itself, since buying the houses with cameras already installed could contribute to a security breach.

Mr Sazona answered that all the houses had to meet at least 50% of the security measure requirements. The police thereafter made an assessment and gave advice. For the particular house purchased at R9 million, no additional security measures were required.

Ms Khunuo commented on the issue of savings, and said she hoped SCOPA would not be dealing with the same issues next year because of deviations attributed to the DPW going over budget.

Mr Sazona answered that the savings utilised were the savings made on the three other houses purchased at that time.

Ms Khunou added that the maintenance plans of the DPW were up to standard. Members of the Committee also stayed in those houses and could attest to the fact that maintenance was not being done well. She asked how much DPW had budgeted for maintenance. The DPW did not have to outsource -- it could have people within the Department charged with carrying out maintenance. She agreed with Mr Brauteseth that it was not acceptable to have exorbitantly priced houses when the nation was bleeding for service delivery.

Mr Hlengwa said that he did not buy the notion that a braai area could cost R 150 000, R 122 000 and R 116 000 for the various houses, and that the preliminaries cost R63 000, resulting in a final inclusive amount of approximately R 500 000 for the braai areas. He asked to view those braai areas when he was next in Pretoria, since it looked like corruption. What was the general rule on the price cap for the purchase of ministerial houses?

Mr Vukela answered that there was no specific cap.

Mr Hlengwa said that since there was no specific cap, it was an open field and it could not be said that the DPW had saved or gone over budget in the purchase of the houses. He asked who bore the cost of maintenance for the houses, including rates and taxes.

Mr Vukela responded that the DPW was responsible for the maintenance, and that the rates were paid by the state.

Mr Hlengwa was of the opinion that the bigger the houses, the higher the cost of maintenance. He asked whether any long term considerations were made. He requested a schedule of how much each of the houses cost the DPW in maintenance and in rates and taxes. He also asked whether there were any ministerial houses which were vacant.
Mr Sazona responded that there was one house which was vacant.

Mr Hlengwa asked how many houses there were for ministers and deputy ministers.

Mr Vukela responded that he would be able to provide the numbers.

Mr Hlengwa asked why the DPW was buying houses, yet it did not have the numbers. Regarding the houses that had taken a year to buy, he asked where the ministers had been staying for that one year.

Mr Vukela responded that the DPW had 148 fully furnished houses for prestige clients. 67 of the houses were in Cape Town, one was in Durban and 80 were in Pretoria.

Mr Hlengwa wanted to know if there was any contribution that the ministers and deputy ministers made in terms of their rent for those houses. He reiterated that he did not believe that approximately R523 000 was spent on braai areas. He asked what other costs had gone into the upscaling of the houses after the purchase. To what extent was the PMTE relevant to the department? Were the 148 houses fully occupied by the ministers?

Mr Sazona responded that after 2014 elections, when the DPW realised there was a need for accommodation, some ministers had been accommodated in rental units and others in their own homes.

Ms Khunou said she knew that DGs had houses or flats, yet half of the DGs rarely went to those houses because they were far away. She requested the DPW to also look into the issue of DG’s houses.

Mr Brauteseth asked whether the Parliamentary villages established in Pretoria back in the time when Parliamentarians stayed six months in Pretoria and six months in Cape Town, still existed.

Mr Sazona answered that he was not aware of those Parliamentary villages.

Mr Kekana asked how, in its annual budget, the DPW budgeted for houses if it did not have a capping level.

Mr Vukela answered that the DPW submitted its proposals in the normal course of budgeting. In areas where there had been expansions, the DPW worked to accommodate them -- it was not something it planned for. The issue of houses came up once in a while, and the DPW used that as a basis for motivating the base line whenever there was a new arrangement that it did not budget for.

Mr Brauteseth commented that it appeared that the DPW spends what it likes.

The Chairperson requested the Minister to change the reference to the group of houses known as “prestige housing.” He hoped that SCOPA would not be hearing of any further purchases of ministerial houses. He was worried about utilisation of these properties, and suggested that there was a possibility of the houses being underutilised. The figures on braai facilities did not add up in the report -- the additions were wrong, yet the information was coming from the DPW. He asked whether the entertainment features had to be there in the houses. He also asked about the heritage houses, and whether the maintenance costs for those houses were justified. He gave the example of Acacia Village, where intercoms had never worked yet payment was made. The gates at Acacia Village had also been out of order, yet people had been paid.

Minister’s comments

Minister Nxesi agreed that in government there was poor consequence management, which was a problem. He added that the DPW had recently discussed all these issues of accountability with the top management.

On blacklisting companies, a restriction committee had been set up which was informed by a note from the NT. It identified companies that did not perform and were engaged in corrupt activities. It was the NT that kept the register and did the blacklisting. Sometimes it was temporary, and so long as cases were still in court, the DPW did not have the liberty to suspend people until the cases were finalised.

On the morality of the spending on the houses, he said that clearly the issue of the limits to spend needed a radical review in terms of the ministerial handbook, and that would have to be done by the executive. It was a matter for consideration, and he may have to submit it to the executive. The issue of ministerial houses was an inherited manner, and most of the houses ministers were staying in had been inherited from previous ministers.

He agreed that there was a lot of shoddy maintenance work.

He clarified that “prestige housing” included the President, Ministers, Deputy Ministers, Parliamentary villages and Parliamentary buildings.

There were systemic issues in general. People were contracted who could not deal with technical skills. Last month there had been 16 000 irregular transactions on payments made. This had been because of the 30-day limit which forced officials to pay for things not cleared properly.

He confirmed that there were internal investigations and that there was movement in a number of areas. The DPW would follow up on all the issues raised -- for instance, the heritage houses, as not everything that was heritage needed to be kept. The DPW would need to have a motivation and keep a few houses for heritage purposes.

On the intercom and gates which were not functional, he commented that those were basic things and that it would be difficult to maintain the big houses where maintenance of the basics had failed. He advised that village committees needed to meet on a monthly basis. together with the DPW, and that renovations came through engagements with the village boards.

He concluded that all the appointments were made through the advice of the human resources (HR) department. The DPW would go back and review the issues, and unfortunately cracking the whip would be part of consequence management.

The Chairperson commented that the momentum should not be lost. He said that village committees were not needed for maintenance to be carried out, and that the DPW should work to get the basic things done.

He confirmed that the DPW would report back to SCOPA on Wednesday at 6 pm to deliberate on the four contracts.

Mr Kekana cautioned that the DPW should not come back the following week and say that investigations were still going on. On the issue of shoddy maintenance, he observed that in general people were contracted who could not deal with the technical skills required for the work.

The meeting was adjourned.



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