DPW/PMTE risk & corruption prevention; Enterprise Resource System progress; with Minister and Deputy Minister

Meeting report

The Chairperson welcomed everyone and stated that he was happy that the Minister and the Deputy Minister were present. However, the absence of the Director General (DG) by apology was not acceptable, as the accountability rested with the DG. He had observed a trend, where the DG and the DDGs were almost boycotting meetings, something which was not acceptable.

Mr Thulas Nxesi, Minister: Department of Public Works (DPW), confirmed that two DDGS were present in the meeting, and said that the DG was required to have also briefed the Minister and the Deputy Minister that he would not be present.

Mr Jeremy Cronin, Deputy Minister: DPW, asked the Committee not to expect all the Deputy Directors General (DDGs) to be attending the meetings, but only the appropriate DDGs.

DPW/PMTE risk and corruption prevention

Mr Imtiaz Fazel, DDG: Governance and Risk Compliance (GRC) said that an anti-corruption strategy was the cornerstone of the DPW. With an annual budget of approximately R20bn, the DPW was not immune to fraud and corruption risks. This was largely due to the vast money involved in the sector and the nature of the jobs to be done. In all spheres of government, R3Obn was being lost annually to corruption, emphasising the need to tighten the systems. In doing so, the guiding principles included the Constitution, the Public Finance Management Act (PFMA), the Prevention and Combating of Corrupt Activities Act, and the Protected Disclosures Act. The DPW had an approved fraud prevention strategy which was being rolled out across the Department. The strategy did not guarantee the elimination of corruption, but was intended to serve as an additional measure. There were four components: Proactive; Prevention (fraud risk management); Reactive; Investigations and Resolutions.

On fraud risk management, he said that the DPW had been associated with fraud and corruption and serious maladministration, and central to this were procurement-related activities, such as inflated pricing on prestige projects and, to a larger extent, mismanagement of leases. This was also made worse by the negative media publicity. Adverse reports from Chapter 9 institutions further underscored the undesirable state. Instability in senior management of the Department further undermined efforts to effectively address the fraud/corruption risks.

To demonstrate its commitment to the effective and efficient management of fraud and corruption risks, the DPW had committed, through its strategic plan, to reduce the fraud risk exposure by 85% by the 2019/20 financial year. The measuring of the reduction in risk levels was a very contentious subject, as it was not based on any scientific processes, but rather a perception. The fraud prevention framework was comprised of:

Fraud risk management;

• Integrated strategy for fraud prevention and control;
• Developing an ownership structure from the top to the bottom of the DPW;
• Sound operational control procedures;
• Periodic reports on the effectiveness of risk control effectiveness.

Top 10 high fraud risks identified were:

• Abuse of unscheduled maintenance;
• Collusion between DPW officials and contractors;
• Inflation of prices and scope of work;
• Conflict of interest;
• Irregular awarding of tender contracts;
• Construction projects mismanagement;
• Duplicate payments;
• Cover quoting;
• Fronting/credential misrepresentation;
• Illegal transfer of state properties.

The weaknesses in supply chain management (SCM) included abuse of emergency deviations, preferential treatment of service providers, inordinate deviations, and non-compliance with SCM processes.

Mr Fazel also reported on activities that the DPW would take to improve internal controls on facilities management. For prestige projects, a proper system of record keeping had been introduced in order to safeguard all information relating to a specific project. Project managers had received training regarding the provisions of Section 217 of the Constitution, which require the DPW to test the market before appointing consultants. Certain control enhancements had also been built in to assist with financial management.

On real estate management services, he said that the DPW was paying more for space, including for parking, and that the Occupation Health Standards (OHS) were not being complied with in many buildings. The DPW was taking steps, one of which was to take the landlords to task and not renew leases without first testing the market.

On internal investigations he reported that 224 cases had been finalised, and 12 had been referred to the Special Investigating Unit (SIU). There had been nine dismissals, 69 people have not been charged, seven charges had been withdrawn, and 47 were still pending.

The DPW also conducts regular fraud/corruption awareness workshops targeting all staff members. A total of 195 fraud awareness presentations had been conducted within the DPW since the 2012/13 financial year.

The SIU had conducted, and was continuing, investigations in terms of four presidential proclamations. When an investigation is finalised, the SIU provides the President with a report of their findings. Where there is prima facie evidence of criminal transgressions, the SIU registers a criminal case with the South African Police Service (SAPS) for further criminal investigations. The SIU also institutes civil action for the recovery of money. There had been 2 324 investigations, and R1.2 billion was being pursued through civil processes.

Three formal investigations had been conducted regarding the security upgrades at the President’s private residence at Nkandla. The DPW had implemented reports of all the recommendations to ensure there were clear expectations and that the DPW stayed within budget.13 officials had been subjected to disciplinary action. One employee had passed away, one had retired, and one was no longer with the DPW. The remaining ten matters had been concluded via a combination of convictions and settlements with the DPW. A civil suit had been instituted against the architect, and four criminal actions had been recommended, 14 matters of possible tax fraud had been referred to SARS.
 
Regarding unscheduled maintenance, the GRC had conducted a detection review on day to day maintenance to identify anomalies. The team had run trend analyses on the data of the DPW, by identifying red flags, in order to highlight relevant trends and patterns in day to day maintenance expenditure. The red flags were not evidence of wrong doing, but were an indication that something may need to be investigated or corrected from a management perspective. Internal control weaknesses were apparent, since it had been discovered that there were top companies in Cape Town getting as many as seven contracts in a day. There was also a lack of verification as to whether the things being repaired existed. This could be attributed to high level of collusion, fictitious calls from client departments, abuse of emergency services and deliberate splitting of services to circumvent SCM processes. At one state owned property, the swimming pool and water feature to be maintained were not in working order and have not been in working order for more than a year, yet the DPW had been, and was currently, paying R7 000 per month for the maintenance of the swimming pool and the water feature.

The President had signed Proclamation Number R 20 of 2018, which would focus on five DPW regional offices that had been observed to be consistently prone to irregularities related to unscheduled/day to day maintenance. These offices were Pretoria, Bloemfontein, Cape Town, Durban and Johannesburg.

Mr Fazel reported that the anti-corruption unit (ACU) had conducted, and was currently conducting, investigations into allegations of serious maladministration in respect of projects awarded. Of particular concern to the DPW was that huge amounts of money were paid to these contractors at the time of cancellations -- in some instances, to values exceeding the contract amount. Of further concern was that when other service providers were appointed to complete the outstanding work, the contract amounts were in all instances greater than the initial contract amount. The ACU had recommended disciplinary action against 42 officials of the Johannesburg regional office, eight contractors for blacklisting, and three referrals were made to professional bodies to consider sanctioning their members.

He said that there was more emphasis on prevention than investigation, and that the DPW had improved consequence management and was also working with the labour office. At the branch level, the DPW was focusing heavily on efficiency management. Eliminating fraud and corruption required a change in departmental values and emphasis on managers to take personal responsibility.

Advocate Andy Mothibi, Head of the SIU, informed Members that in the civil matter instituted against the architect at the Pietermaritzburg High Court, the respondent had changed the legal team and the process had had to start again. The Court had provided a date in June 2019, and there was nothing the DPW could do at the moment. The SIU had identified the high court roll delays as an obstacle. He added that the legislation made provision for a civil tribunal, and the SIU had approached the Minister of Justice and the Presidency, who were in agreement that a special tribunal should be established. Once it was established, there would be legal considerations, depending on the rules of the tribunal, and that matters pending in courts could be transferred to the tribunal.

Discussion

The Chairperson commented that the report was not motivating, since it was the same message, and this was not encouraging since there had been no action. He reminded Members that the Committee had a duty to make the DPW account.

Ms P Adams (ANC) wanted to know the constitutionality of the special tribunal, since the DPW had indicated that it would be established around September 2018.She also wanted to know whether the mandate of the tribunal was clear. She asked for clarification on the emergency delegation, and observed that there had been much spending. The DPW had stated in the presentation that the PFMA did not clearly indicate certain areas, and she wanted to know whether there was a gap in the PFMA, and if there was, what could be done. She asked whether the prevention controls at DPW were watertight.

Mr K Sithole (IFP) commented that there was no proper implementation of plans in the DPW. A seven-year strategy had been adopted but if one checked the report, very little had been achieved. He wondered how poverty would be eradicated if the senior management was involved in corruption. He gave the example of the DDG who had previously been suspended and later on reinstated -- and was now the DG. He asked if a time frame could be given on the revised DPW call centre business operations, and the basic internal controls being set up.

The Chairperson referred to the statement by Mr Sithole on the reinstatement of the DDG, and reminded Members that many people were suspected, and that all South Africans were considered innocent until proven guilty, and that suspension did not mean guilt.

Ms E Masehela (ANC) said that the situation was scary, especially as there was an annual loss of R30 billion across the departments, which was more than the whole budget allocated to the DPW. She asked if there were officials tendering with the DPW, and said that these officials needed to know that the government was transparent and that one day things would come out. She asked how protected the whistle blowers were. Regarding warehouses requiring immediate repairs, she advised that the warehouses could be misused unless the DPW had a store management policy. She had noted some improvement, and if the policies were well implemented there could be change.
 
Mr D Ryder (DA) concurred with the Chairperson that it was unfortunate what the position was after 24 years. A lot of the public anger had been on the costs of the maintenance of the Premier. He said the DPW had a big salary bill, and he wondered why it was not buying the right skills. Why were basic internal controls being put now when action should have been taken at the beginning? He attributed the abuse of emergency deviations to the Government Immovable Asset Management Act (GIAMA) not being implemented properly.

He advised that shifting from a reactive to a proactive approach would change things. There was slow progress on cases, and he wanted to know whether the people involved had been suspended, and what the actual turnaround time was. He asked how much it was costing the DPW to have the SIU working on some of the cases in the Department, and whether the amount had been factored into the budget. He referred to the outcome of investigations, and said that the results did not give a great success rate.

On landlords charging for parking which was not available, he advised the DPW that when it signed the initial lease, it should take note of what it was being charged for. On contractors being paid and skipping the site, he asked why people were being paid before completion, and whether the certification process was not being complied with. He added that the idea of blacklisting companies, and their referral to professional bodies was a good step, and that building a culture of integrity in the DPW was important.

Mr M Figg (DA) said that the R30 billion was the figure which was known, and that the figure could be more. On the high staff turnover, he said it was possible the skilled staff left because it was easier to do business with the department than to work for it. Was there a cooling off period for people leaving the DPW, during which the former employees were not allowed to do business with the DPW? He asked for further clarification on the different strategies for people alleged to have committed misconduct.

He said that unscheduled maintenance had costs R3 billion over three years, and wanted to know how it had been funded and whether other areas had been disadvantaged. Some of the items listed, such as collusion, were easy to track and he did not know why the DPW was not putting enough emphasis on certain areas. Something was wrong -- there was a problem with the management. On Contractors being paid and disappearing, he said what should be used for payment was the percentage of work completed. He agreed that the DPW was not where it should be.

Ms C Madlopha (ANC) said that if the framework was implemented, it could achieve better results. She asked if the DPW had seen the difference in results from the year 2014, when the framework was put in place. She commented that Mr Fazel had reported that the DPW was tightening the system, and that the section heads would monitor, and asked if that duty was part of the performance contract of the section heads. She noted that the total number of cases was 2 324, and 1 159 had been finalized, and asked what made the DPW sure that the remaining cases could be finalised in the next three months. She asked about the challenge of no separation of responsibility between political office bearers and technocrats, saying there should be a clear demarcation since the provisions were in the constitution and in the PFMA.

On there being no consequences for those who failed to perform appropriately, she asked by whom that sanction was to be done. She asked whether no inspection was being done, since one could not pay 90% when the work was only 20% completed. She added that the framework would not prevent fraud, it was the people who could do that.

Ms Masehela said that on the contract where the payment made was more than what had been budgeted for, the DPW should have indicated the status of the project, and if complete, how much more had been spent to complete the project. She suggested that for the Parliamentary residential parks, where changes were made after every five years, the DPW should not replace items which could still be used, but should consider looking at replacing the baths.

Ms Madlopha added that random maintenance pointed to suspicion of fraud. She asked if the matter could be followed up and the Committee updated on the companies being awarded seven contracts in a day.

The Chairperson said that the DPW had to have its own internal audit structures so that it did not have to rely on the SIU. He urged that the DPW develops its internal structures, since it had members of staff assigned to that role and wondered what they were being paid for if the work was being assigned to the SIU. He asked the DPW to prioritise cases where large sums of money were involved -- that it should prioritise chasing after a person who takes R1 billion, rather than one who takes R 1000.

He described the report as informative and promising, and that having indicated high fraud risk areas, action was needed. He insisted that the SIU should not be at home within the DPW, and that the Committee would want a report on why the seven contracts had been being awarded in one day. The quicker the DPW acted the better. He asked how there could be no proper records, since that made investigations hard, and the DPW needed to understand why the records had disappeared. He also asked the DPW to check on milestones achieved before paying the contractors.

DPW’s response

Deputy Minister Cronin responded that the DPW needed to develop an internal capacity. The report presented to the Committee could not have been generated in 2011, and was part of the implementation strategy. He agreed that all was not well, and that the DPW was vulnerable because of the funds and its reliance on the private sector. It thus needed to be more vigilant. There had been progress, because the DPW was now able to report. He said that approximately R2 million had been reclaimed in terms of leases, criminal cases had been instituted, and there had been blacklisting of companies. He asked the Committee not to be in despair, and that it should continue to put pressure on the DPW.

He added that the performance of the National Prosecution Authority had not been good, since it had been declining to prosecute in some cases. Changes were taking place at the NPA, and hopefully there would be progress. The DPW needed the SIU, as it produced the criminal charges which were forwarded to the NPA for prosecution. The prosecution was not being done as it should, and from the executive side, pressure would be put on the Minister of Justice.

Regarding the reinstatement of the DG to the DPW, he clarified that Mr Vukela had been dismissed from the DPW, and had taken the matter to the Commission for Conciliation, Mediation and Arbitration (CCMA), and had won the case early the previous year. The CCMA had ordered he be taken back as DDG for corporate services. The Minister, Mr Nxesi, had intended to take the matter for review in court but before the decision could be implemented, there was a new minister who thought that the DPW should minimise the number of cases in court, and that Mr Vukela should be reinstated.

On the appearance by the DPW before the Standing Committee on Public Accounts (SCOPA), he said that the DPW was not being grilled and that it was being assisted to exercise its political responsibility. The DPW welcomed the independence and robustness of SCOPA. He clarified that the braai areas were three entertainment facilities worth about R150 000 each. The DPW was looking at what had happened -- the public anger was justified, since there had been spending amid abject poverty. The Chairperson of SCOPA had also raised the question of why reference was being made to prestige houses, since it implied prestigious treatment. He said that the prestige housing issue related to the ministerial handbook, and that the DPW was campaigning for it to be revised. He added that the President had also noted that there was an extremely large Cabinet, which he had promised to look into. He reminded Members that there were two sets of houses involved -- one in Cape Town and another in Pretoria -- and that ideally ministers should be hosted in the estates.

Mr Fazel responded that the NPA was best placed to advise on the gaps in the PFMA, and that the problem related to largely how to implement it in respect of financial crimes.

He said that there was a list of what constituted an emergency requiring 24 hours to resolve.

He said the reason the DPW was cheated in respect of leases was as a result of negligence -- leases were signed, and due diligence was not done. He said the fraud index was a proxy indicator, since it was not a real indicator --it was an unknown factor -- so the DPW relied on perception and surveys

He acknowledged that prosecution was not happening as it should. The DPW was working with the South African Police Service (SAPS) and was considering contracting.

He added that the DPW had accountability management that dealt with deviations, although what had been done was not enough and there was a need to improve on accountability. Some of the cases were slow, while other investigations had a quick turnaround time.

On SIU expenses, he said the DPW would be having a discussion with the SIU to engage on the scope of work.

On the cooling off period and integrity management, he said this was something that the DPW needed to apply its minds to. It was a huge risk, since staff left and thereafter did business with the DPW.

He responded that the maintenance costs were funded from user charges.

There was a problem with management, which was the reason why the DPW was incurring substantial losses. The DPW was as much pained as anyone, and it was charging everybody involved. Management needed to play a bigger and better role, and management responsibility needed to change. It was also a societal problem, and the DPW needed to appeal to the conscience of members of staff.

He appreciated the input of Members, and said that the DPW had come a long way and that it was now seen as being a cutting edge in fighting corruption.

Mr Clive Mtshisa, DDG: Corporate Services, DPW, reiterated that this was the first time a report of such a nature had been presented by the GRC. The report had given a broader picture of what had happened years back, and that before there had been an overlap of political and executive roles. Temporary contracts could minimise reactive maintenance, and in terms of prevention, the DPW was going for integrity, ethical conduct and disclosures -- and everybody had to disclose. He confirmed that there was progress.

He then requested the Chairperson whether the DPW could quickly present to the Committee on the information communication technology (ICT) progress in the DPW.

The Chairperson agreed to the request

Implementation of Enterprise Resource System

The Department provided an update on progress with the implementation of the Enterprise Resource system, with Sage and Archibus software to strengthen supply chain management and financial control systems, to comply with the PFMA and Treasury Guidelines.

The DPW was on a journey of moving away from legacy systems, and because of the Propperty Management Trading Entity (PMTE), the DPW had to migrate. The DPW was heavy in terms of information, and it had been extracted so the PMTE could use the model to predict if there were any changes to be made. At the planning stage, certain applications wee needed -- for example, the location-based Geographic Information System (GIS), which helps in locating where the properties were actually sited. At execution, did not need all the applications and that when it cames to finance, ARCHIBUS and SAGE were coming up strongly.

The DPW was also moving from cash-based to an accrual-based system, which was also a requirement from National Treasury. The system was aligned to core business processes, and the asset management was linked to the off-the-shelf billing and accounting system. In terms of best practices, the Gartner Magic Quadrant (Archibus) was the world’s most comprehensive facilities management solution for managing space totaling thousands or millions of square feet or meters. It used a modular structure which lets one choose only those applications one needs. It also supported an unlimited number of concurrent users and sites. On the functionality analysis of Archibus against business requirements, the average success criteria was 79.4 %. It scored less under the SCM, however, at 41.5%.

Archibus was used for asset lifecycle management, whereas Sage managed the financial transactions taking place. The system was aligned to GIAMA. The functionality of Archibus was that it enabled the management of revenue and expenses, and central was the immovable asset register. It also had the ability to integrate with Sage and SAPS. On unscheduled maintenance, it simplified the request dispatch and feedback processes of maintenance tasks, to improve service provision. It also provided a link to service level agreements (SLAs) to enforce standards and increase efficiency. The capabilities would include showing a report of the immovable assets register, statistics of calls logged, location, showing where vacant properties were and where improvements were. There were Generally Accepted Accounting Practice (GRAP) standards that would also need to be complied with.

The DPW was working on the lease-in module to ensure it functioned by October 2018. What was remaining was the lease-out module, infrastructure, condition assessment and preventive maintenance. The Department confirmed that Sage had been in operation since 2014, dealing with accounts payable, accounts receivable, financial reporting and process interfaces from the Works Control System (WCS) and Property Management Information System (PMIS) (payments/journals).

Discussion

Mr Ryder wanted to know where the data was stored. He also commented that ALCM had been appointed through an open tender, and wanted to know how the other suppliers were appointed. The presentation had also indicated that the services of LDM had been sourced through a KwaZulu-Natal (KZN) contract and he wanted the DPW to clarify further on that. He wondered why there were still pockets of Excel, yet the DPW had previously assured the Committee that there was none.

On the functionality analysis of Archibus, where the SCM gave a score of 41.5 %, he asked the DPW to clarify the reasons why the score was low, and whether Sage makes up for the deficiencies. He asked for clarification on who the people sitting on the ICT steering committee were, and whether they had clearances. He added that he would have appreciated a demonstration of how the system physically worked.

Mr Figg said that ICT usually made it easier for wrongdoers, and asked if the DPW was satisfied with the user controls. He asked what the capital costs for Archibus and Sage were, what the maintenance costs were, and whether the DPW had enough skills to work on the systems. He also asked whether the timelines given for implementation would be met.

Ms Mathebe commented that the Committee had been asking for the immovable and movable assets register for a long time, and asked whether the DPW could make the numbers available. She asked for clarification on the project amount to be spent by 2021, the value of the contracts being signed with the service providers, and on whether these contracts were on open tender or not.

The Chairperson asked whether there were any members of the ICT steering Committee who had previously been staff members. He also suggested that the DPW respond to the questions raised by Members in writing.

Mr Mtshisa responded that the steering committee was composed of senior management at the DDG level, and did not involve external persons -- it was more of an ICT EXCO sub-committee. He confirmed that all the questions asked would be responded to in writing by the DPW.

Adoption of Minutes

The Chairperson asked that Members read through the minutes of 5 June 2018 for the purpose of confirmation.

Mr Adams proposed that the minutes be confirmed, subject to the correction of grammatical errors. Ms Mjobo seconded.

The Chairperson then asked that Members go through the minutes of 28 August 2018.

Ms Masehela moved for approval. Ms Madlopha seconded, subject to the correction of grammatical errors.

The meeting was adjourned