Special Investigating Unit 2017/18 Annual Report

Meeting report

Special Investigating Unit (SIU): 2017/18Annual Report

Adv Andy Mothibi, Head of SIU, said the unit had received a government grant from the Department of Justice and Constitutional Development for the 2017/18 financial year amounting to R346 million to enable it discharge the following objectives:

• Conducting effective and efficient forensic investigations;
• Facilitating or initiation of appropriate remedial action; and
• Collaborating effectively with other role players.

It also received Criminal Assets Recovery Account (CARA) funds to support the anti-corruption activities of government. In terms of section 68 of the Prevention of Organized Crime Act, (POCA), Cabinet had approved on 18 October 2017, the following bids:

R23 million for communication strategy activities by the Government Communication and Information System (GCIS);
R 8.2 million to develop a national anti-corruption strategy for South Africa;
R5.8 million for ethics training of government officials through the Department of Public Service and Administration (DPSA) and the National School of Government;
R5 million for the establishment of a special tribunal under the SIU Act.
 
Revenue collection remained a serious challenge for the SIU, with only R310.4 million for 2018 and R144.2 million for 2017 being generated in cash from the recovery of debt. On a year to year comparison, the SIU had maintained a safe financial environment with a surplus of R120.9 million for 2017/18 against a surplus of R42.4 million in 2016/17. It had achieved eight of its nine operational targets, failing to meet only one target in respect of the actual value of money and/or assets recovered. It had received a clean, unqualified audit report for the 2017/18 financial year from the Auditor General (AG), and had developed an action plan to clear the AG’s audit findings and was currently progressing positively against the end of financial year deadline.

He said the input for the unachieved target was mainly from civil recoveries, acknowledgement of liabilities and debt. Civil recovery continued to elude the SIU, due to the court roll delay as the court dates given were far into the year. The SIU had, however, progressed well together with the Department of Justice (DOJ) to establish special tribunals which would assist in having a focused approach on civil litigation.

He reported that the number of reports submitted to the President totalled 15, which exceeded the target by 88%. There were about 14 ongoing national investigations. The investigations were being done in line with the new strategy that required the turnaround time to be as quick as possible.

On the ongoing investigations on state-owned entities, he reported that investigations into the State Information Technology Agency (SITA) had been completed and there was a draft report. The SIU was giving all who were implicated a right to a hearing before finalising and forwarding the report to the President. It had also completed the first phase of the investigation into the South African Broadcasting Corporation (SABC), and the interim report was ready.

On governance, he reported that the SIU had appeared before the Portfolio Committee on various occasions and had continued to ensure it complied with the applicable laws and regulations governing the SIU. The organisation was focused to ensure that the risk management process ran in accordance with the Enterprise Risk Management (ERM) policy framework and standards, and that key risks were highlighted and mitigated. The key strategic risk was the non-implementation of SIU remedial actions by state institutions, where the SIU had moved to put in place mitigating measures.

On referrals to the National Prosecuting Authority (NPA), the SIU had engaged with the NPA and agreed on a framework to ensure it executes in accordance with the Memorandum of Understanding (MOU) and that the NPA implements accordingly.

In order to ensure state institutions implement SIU referrals, he said that previously state institutions did not have sight of the reports sent to the President. However, as a result of interaction with the presidency, reports were now being released to the state entities. There was then a follow up to find out what had happened to the referrals, and whether disciplinary processes or systemic risk implementation had taken place. This would ensure accountability was raised and consequence management took place where appropriate. For civil litigation, the SIU was looking forward to establishment of special tribunal and referral to other regulatory authorities, which the SIU would follow up.

On internal integrity unit, he stated that the SIU had a focused anti-fraud plan. The integrity of SIU members was also looked at and new members go through integrity checks. There had been three incidents of injuries on duty, and all employees affected had received medical attention. The audit committee was supported by the risk management committee and the human resources (HR) management committee.

As part of reorganization, the SIU was focused on having a clear governance framework and structure. On HR management, the reorganisation programme was complete and the SIU was focused on employees being paid and the implementation of standard operating procedures. It was also focusing on developing an ethical and performance-driven culture. He confirmed that the SIU was mindful of employment equity requirements and it had plans which it was executing to ensure the SIU was represented as required.

Mr Andre Gernandt, Chief Financial Officer (CFO): SIU, took Members through the statement of the unit’s financial position, the cash flow statement and the comparison of budget versus actual expenditure. He reported that the receivables from exchange transactions for 2018, was R58.9 million, and the bank balance was R32.7 million. The cash and cash equivalents for 2018 was R514 million. On the income statement, he reported that total revenue from exchange transactions was R302.7 million, and total revenue from non-exchange transactions was R355.1 million. National Treasury (NT) had in August approved the retention of a surplus of R120.9 million.

The SIU had reported irregular expenditure of R1.5 million for the 2017/18 financial year as compared to R1.8 million in 2016/17. The 2017/18 irregular expenditure was related to historical contracts that were in the process of being regularised. He confirmed that the SIU was in the process of regularising all contracts that were considered to be irregular to ensure that irregular expenditure was not incurred any more. It had embarked on an intensive exercise to recover outstanding debts. It had submitted progress reports to most state institutions that detailed the outputs that the SIU had achieved through its investigations.

Adv Mothibi added that the SIU had embarked on an improved whistle blower platform for the reporting of corruption and maladministration. There was also focused assessment of the allegations that were taken through a proclamation process. The improvement was giving investigations a quick turnaround time. In order to ensure quality investigations, the SIU had invested in skilled and experienced investigators. There was also the production of interim reports for investigations which took over a year to conclude. There was improved reporting internally and externally, and also to the public and to the Portfolio Committee.

The SIU would like to see an improvement in civil litigation and the criminal prosecution process. Where further investigations were required, the SIU would like to be alerted. He added that the SIU was proactive, it assisted state entities to improve risk mitigation and the planning process. It was focused on following up so that the impact of SIU could be felt and stolen money and assets recovered.

Discussion
The Chairperson said there were a lot of allegations against the SIU which may impact on the integrity of unit. She commended the SIU, however, for the improvement and for having attained all the targets except for one. She was concerned about the irregular expenditure which had decreased from R1.8 million to R1.5 million, especially in relation to supply chain management. She also expressed concern at the high vacancy rate, especially at the senior management level.

Mr V Smith (ANC) congratulated the SIU on its clean audit. On the irregular expenditure, and service providers being used for supply chain management, he asked if the SIU was happy with the effectiveness of the internal audit unit. He said it had not presented on its contingent liabilities, and requested more details on this. He asked for a breakdown of the debt in terms of recovery, and information about which sphere of government was giving it the hardest time in terms of collecting.

Adv G Breytenbach (DA) requested an update on the current status of the debt book. She asked if any of the departments had indicated that they could not pay. Had the involvement of the Minister helped the SIU in collecting the debts? What could the Portfolio Committee do to assist in the debt collection? On remedial action, she observed that the SIU and the NPA operate under the umbrella of the Anti-Corruption Task Team (ACTT), and commented that the ACTT had been inefficient and unsuccessful, and that the entities communicated poorly with each other, if at all. The NPA was busy with an audit of SIU cases, and the SIU had reported that there were 686 cases. She asked what was discussed when the SIU attended the ACTT meetings. She asked what had happened to the MOU entered into with the NPA and how it was being, if at all. The now defunct National Director had stated in the previous year that there were 99 SIU cases that had been converted to 34 and allocated to prosecutors. She asked what had happened to the cases and whether SIU had followed up on them.

On the BOSASA matter which had been in the news recently, she commented that the prosecutor appeared to be reluctant to take the matter to court. She asked how the SIU managed such a situation. She added that the SIU applied for CARA funding and had received it, yet it had not spent its allocated budget. She asked what the CARA funding was used for.

Mr W Horn (DA) followed up on the CARA funding. He said the fund was specifically requested to finance the setting up of the special tribunal. He said that in May 2018, when the Committee had engaged with SIU, the Committee had given specific targets. The president of the tribunal was to have been appointed. The SIU was also expected to have made certain arrangements to have the high court provide logistical support. Between January and March 2019, the tribunal was to be up and running. He said that the SIU was reporting that there was progress but it was not enough, given that the actual target not achieved on actual value of money recovered turned on the issue of special tribunal.

On debtors books, he said it was worrying that in the previous engagement he and the Committee had formed the opinion that progress had been made, but today in the annual report being presented, the debtors book appeared to have ballooned. He added that the SABC proclamation had been declared the best case for the improved turnaround time. What had the SIU learnt from the SABC investigations and what it would carry forward in light of the old investigations? He gave the example of the 2010 proclamation on the South African Social Security Agency (SASSA), and asked whether that investigation had been overtaken by other events, or whether the SIU was going forward. He also sought details on the 2012 proclamation on the Department of Water Affairs in terms of the turnaround time.

On the specific oversight responsibility of the Committee, he asked if Members could be informed of the progress of all matters related to the DOJ and Correctional Services. He cited the example of the electronic monitoring system and the Department’s issue of wasteful expenditure, pointing to corrupt practices. On proclamations, he asked whether there was anything significant happening in respect of proclamations since President Ramaphosa took office. Previously proclamations, were preceded by engagement with the office of the President. He asked whether the practice was still in place or whether the process had been streamlined.

He asked for details of progress in civil litigation by the SIU. Had any pre-trials taken place in 2018 and if so, had there been any joinder applications? On the MOU, he commented that the way the SIU was going about criminal matters was not working, and asked whether it was possible for the SIU to involve the NPA the moment it uncovered information pointing to criminal activities.

Mr D van Rooyen (ANC) commended the unit for maintaining the audit outcome. On irregular expenditure, he asked how the regularisation was done and said that if there was something wrong with a service provider, the contract must be terminated. On the organisational review process, he said that there was a contract for the automation of case management, and asked about the duration and budget of the contract and whether the SIU was still on course. He added that his take from the media statements was that the SIU was not getting cooperation from other bodies, and asked for clarification on his role as a Member of Parliament. He also asked for clarification on the role of the provincial legislature, the National Assembly and the Portfolio Committee in supporting the work of the SIU.

Mr T Mulaudzi (EFF) said that the SIU results showed that it had much frustration with the cases referred to the NPA between 2013 and 2018. There had been an MOU signed with the former NPA director, and he asked if SIU was still on it with the new director. Had the SIU had any meeting to discuss their frustration at the pile of cases, and engaged the new acting Director of Public Prosecutions? Had the appointment of the president of the special tribunal happened? Why had there been a delay in appointing a new service provider to support the audit committee? How many members were part of the audit committee and how many meetings had it held in the present financial year? On irregular expenditure, he asked how far the SIU was with the application of consequence management. He also asked for an update on any ongoing labour disputes the SIU had.

The Chairperson asked the SIU to expound on the diverse qualifications of the audit committee members. On the injuries sustained while on duty, she asked the SIU to elaborate on the kind of injuries sustained and the kind of medical attention received. On the declaration of interests, she noted that only 37 % had complied, and asked what action was being taken against those who did not comply.

SIU’s response

Adv Mothibi responded on the allegations made against the SIU, and confirmed that it had been made aware of the allegations through the Minister’s office. The allegations covered similar aspects that had been raised since 2016. The SIU had already responded comprehensively and had even given a response to the Committee.  He shared the Chairperson’s view that if the allegations were not dealt with once and for all, such allegations had the potential to affect the reputation of the SIU. He reiterated that although the SIU had already responded comprehensively, it appeared the people who kept raising the issues were not satisfied with the answers provided. The SIU would engage with the Minister, as the SIU was providing the same response that the Minister was providing, and hopefully another process would be given with the Minister’s advice. The SIU was satisfied that it had not done anything wrong in connection with the matter. It offers its cooperation and commitment to ensure the matter was resolved and that it was in the process of submitting its response yet again to the Minister.

The SIU would like to achieve all nine of its targets. It had identified the risks and had put in place mitigating measures. The target missed had to do with the process of civil litigation. The SIU had raised the establishment of the tribunal issue with the DOJ. The legislation made provision for the establishment of special tribunal and the SIU had proposed that it be reestablished. The DOJ had agreed. The DOJ was responsible for court services and was also responsible for making sure the proposal was implemented. The DOJ did that in line with its processes. The appointment of special tribunal president, and members that would serve on the tribunal, was a process handled by the DOJ. The SIU had confirmed from the Department that the proposal had now been referred to the President. When the President was satisfied with the process followed, Members would see the appointment of the special tribunal president and others who would serve on it.

On vacancy rate, the SIU agreed that vacancies had to be filled. It had completed its reorganisation process and was working to make sure that the recruitment process kicked in. At the moment, it was busy with the internal placements. It would work to ensure that vacancies were filled at all levels, taking into account legal requirements and employment equity. At the skills level, the SIU some years ago got in quite a high number of administrators and it was now working to make sure the administrators were reskilled in various areas. It had advertised internally, and those who needed to be skilled had to obtain either a B Tech or a degree. The SIU had a bursary service which staff could access. He added that the union had presented a proposal that the SIU should in-source the cleaners and security. The landlords provided security for most of the buildings which housed the SIU.

In response to Mr Smith’s question on irregular expenditure, he said the SIU was in agreement that irregular expenditure had to be cleared. On the effectiveness of the internal audit, he responded that the internal audit was assessed through the audit process and the Auditor General. The SIU also had to make sure it was happy with the output. Whenever the auditors identified control areas that were weak or assurance areas that were to be audited, an audit plan was produced which was executed in any financial year. It was the effectiveness thereof that had to be looked at. He reported that audit, governance and risk were previously concentrated in one room. The audit committee had indicated that there was need to focus and split the role in terms of audit and risk, and the SIU had done that. On the internal capacity, he said that the SIU was using an in-sourced service provider whose contract had run out the previous year. Because SIU had not developed internal capacity as yet, a service provider had been appointed under an in-sourced arrangement.

The CFO said the contingent liability had originated in the financial years from 2012 to 2015.

Adv Mothibi referred to the issue of debt collection, and said the SIU could compile a breakdown of data and indicate the various spheres, but the picture was across government, whether national, provincial or municipal. He was happy that the report would be distributed to the state entities which would assist. In some instances municipalities said there were no funds, and the legislature then directed the municipalities to apply to Treasury for funds. Some applied to provincial treasuries, and others to the National Treasury. In the SIUs’ engagement with the NT, the NT did not consider the applications favorably because it had knowledge of the funding model. The state institutions were claiming that deliverables were not evident for them to pay, so the SIU had now created a practice where it was producing deliverables per invoice. The practice was changing the situation, although it was still bleak and caled for a broader discussion which may necessitate a review of the funding model.

The Chairperson sought more clarity on how the SIU was dealing with the debtors.

Adv Mothibi responded that there was the Intergovernment Relations Act which provided the process to follow in case of a dispute. The SIU could not immediately pursue civil litigation against another government entity -- it wanted to ensure that civil litigation was the last resort. The involvement of the Minister and the Presidency had made a difference to a limited extent, but there was still a problem. This was an area where the SIU would look to the Committee to assist.

He agreed with Ms Breytenbach that there were efficiency issues affecting the ACTT. The new chairperson of the ACTT had indicated that there was need to engage on a strategic review of the task team to foster cooperation and coordination. The SIU had proposed that the referral system to the ACTT be improved. In terms of referral, the legislation provided that once the SIU picked up evidence pointing to criminal acts, it had to refer it to the NPA.

In response to Mr Horn’s question on whether there was any provision limiting referrals to the HAWKS, he responded that there had been indications that some matters had been referred to the HAWKS. He added that the SIU had engaged the NPA and the acting director of public prosecutions, and the resolution was that when the SIU sends matters to the NPA, it should copy the director of public prosecutions in the province. That could assist in fast tracking the matters. There was requirement for a prosecution policy which would spell out how matters were to be handled.

On the BOSASA matter, the initial prosecutor had some views on the evidence that had been referred to the SIU. The SIU was of the view that where there were issues with the evidence and a gap was identified, then the SIU would prefer that the matter be referred back to the SIU to track the gap and refer the evidence back, rather than referring the matter to a new investigator who would have to start afresh and delay the matter.

On CARA funding, he responded that part of it was allocated for establishment of special tribunal. Once the process of appointing the president and members of the tribunal was complete, the funds would be spent on equipment and human resources. The funds would be utilised by the DOJ. Because of legislation, the funds had to be channeled through a law enforcement agency, the SIU.

The SIU would classify the debtors in terms of the spheres of government and forward the details to the Committee.

He said the turnaround time for the SABC investigation was within the prescribed period, and the SIU had produced an interim report covering phase 1 with various outcomes. The SIU was willing and able to share with the Committee the details of the investigation. There had been referrals for disciplinary action and criminal prosecution. The prosecution had turned around as quickly as expected, and one of the executives was facing criminal prosecution. There was also civil litigation to declare some contracts irregular, in order for them to be set aside. The board had acknowledged the quick turn around and the SIU continued to keep the board updated.

On the 2012 investigation in the Department of Water Affairs, the SIU had produced a report which had been sent to the President. There was one aspect which was outstanding, but it had since been completed and would be sent to the President. On the outcomes, there had been irregularities in appointment of service providers, and fraudulently acquired grading status which was a good basis for attacking the contracts.

On the investigation of electronic monitoring in Correctional Services, the SIU had found irregularities. The appointment of service providers had not follow the process, and as a result it was an irregular contract. Based on the findings of the SIU, Correctional Services had used the contractual provisions to approach the service providers in order to terminate the contract. The SIU was in engagement with the Commissioner to mitigate the risk without contradicting the findings of the SIU.

On pre-proclamation, and the engagement which had been happening before, he said that once the SIU received an allegation, it did a pre-proclamation assessment. That was the part which required regulatory improvement. The SIU still did the pre-proclamation engagement, but not necessarily with the Presidency. If the allegation pointed to a state institution, the SIU assessed to ensure the allegation was within its scope. Once the SIU was satisfied, it prepared a proclamation which went through the process. The proclamation process had been regulated between the SIU, the Presidency and the DoJ through an MOU. The MOU had agreed timelines, and the SIU had seen that the MOU was achieving the results and the proclamations were being approved on time.

He said the SIU had included the progress on litigations in the annual report in the manner it did because it realised there was a risk to mitigating the details it puts in the annual report, such as the names of litigants. He confirmed, however, that the SIU could submit the details to the PCJustice in committee.

On BOSASA, he said that the Court date was set for June 2019, and that all pretrial investigations and joinder applications had been done. The SIU was of the view that no pre-litigation issue should arise.

The CFO responded on the regularising of irregular expenditure. He confirmed that it meant terminating contracts and going out to tender. For courier services, the contract had been terminated and the SIU had gone on to another contract. For travel management, the SIU had gone out on tender for the first time in 2017, but it was a non-responsive tender, as all the travel companies did not comply with the compulsory requirements and the SIU had been forced to go out on tender again, and was now in the final stages of awarding the tender. For Insurance, he reported that the SIU would go out on tender in the next two months.
 
Adv Mothibi responded on the contract for the reorganisation programme. The contract had been completed, but there were variations. The variations were caused by the length of consultations that the SIU had to do with the unions, who had suggested a lot of changes in dealing with the HR issues.

On the new value chain, some work had to be done to streamline investigations and aspects of the investigations, and the SIU had ensured it stayed within the limited Public Finance Management Act (PFMA) level. He added that the SIU did not have a case management system. The case management system being used was a system that had been available all along in the SIU. To have it utilized, the SIU had to scope it, and to look at what needed to be done to support the new case management process. The IT department had costed what needed to be done. The SIU would consider whether there was a need to go out and procure another system. The system being used went out on 1 October 2018, and the SIU was still testing to see whether it was giving what was required.

On the question on cooperation from the executive, he said that in terms of the law, once the investigation was complete, a report had to be submitted to the Presidency. It became the President’s report and the SIU makes recommendations on what needed to be done arising out of the report.

On the role of legislature, he said the SIU would like utmost support from the legislature, particularly from the Committee, to ensure the mandate of the SIU was executed appropriately. One instance where the SIU required support was when it was not getting cooperation from state institutions that were not paying. There were also changes to the SIU Act which the SIU would want to propose, and it would require the support of the Committee.

The service provider working with the Audit Committee had been appointed. To meet PFMA requirements before terminating the contract of an audit committee member, the SIU had to get concurrence from the Minister. That was done and the contract of a given audit member was terminated.

On irregular expenditure, the SIU wanted to make sure there was consequence management. He agreed with the Committee, and said that going forward the SIU would format the audit committee report to depict the names of the audit committee members and the number of meetings held.

On the management of conflict of interest, he said the SIU required its members to annually declare their interests in any business the members may have, and where there was a conflict of interest, it took action and required its members to get out of the business. Where there was failure to declare an interest, the SIU ensured it took action. The SIU analyses any work on an ongoing basis to ensure it did not conflict. If there was a business venture, the SIU monitored it to ensure there was no conflict.

An official from the SIU responded to the question raised by Mr. Horn, who had pointed out that the SIU had previously indicated to the Committee that the debtor’s book was doing better, but it now looked like the reverse was happening. She clarified that it was a moving target, and that there had been a decline in the number of proclamations received. The more the proclamations, the more invoices were issued and consequently the debtors book tended to grow.

On the role of the legislature, she said that the President was now releasing the reports and there was a new strategy where the SIU was more proactive in engaging the departments to assist in implementation of the recommendations. There was now an opportunity to engage with the relevant portfolio committees to make sure they were aware of the recommendations.

Further discussion

Mr Mulaudzi commented that the SIU had a surplus of R121 million, yet it had reported that it was affected by a reduction in the budget by the NT. He asked how many people were convicted in the year under review resulting from the efforts of SIU.

Mr Horn said that there was nothing precluding the SIU from referring a matter to the NPA upon obtaining first evidence pointing to criminal behaviour. He was looking forward to a situation where there was no tension between the SIU and the NPA.

Adv Mothibi agreed with Mr Horn, and stated that the position would provide meaningful insight as the SIU engaged further with the NPA. As part of the investigation, the SIU did not wait until the end of the investigation to refer matters to the NPA. At any point, when the SIU finds evidence pointing to the commission of a crime, the SIU refers the matter at that time. On dual referral, he agreed that the legislation did not say the SIU could not. This was an opportunity to bring efficiency into the system and while referring matters to the NPA, the SIU could indicate that the matter had been referred to HAWKS. There could then be a monitoring process and the NPA could follow up with HAWKS.

He said he did  not have the figures on the numbers convictions secured but through engagement with NPA, the SIU should be able to provide the Committee with a response.

The CFO referred to the income statement on the surplus of approximately R121 million. He clarified that the statements were on full accrual accounting, and the only income received in cash was the government grant. Because of challenges with debt, the SIU had not physically received what had been invoiced. The R121 million surplus was to a large extent theoretical, and for the SIU to employ more investigators, it would need cash. Although Treasury had approved retention of the surplus, if SIU wanted to use the surplus, it would have to budget for a deficit. Currently the PFMA did not allow for that, and in the event that it had to do that, the SIU would apply to Treasury to budget for a deficit for a specific year.

The Chairperson thanked the SIU for the presentation and the accurate report. She confirmed that the SIU had 14 days to respond to the Committee in writing on issues which it had to follow up on.
 
The meeting was adjourned.