SIU investigations into municipalities; NPA on SIU-referred cases

Public Accounts (SCOPA)

16 October 2019
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary

The Standing Committee on Public Accounts was briefed by the Special Investigating Unit on municipalities under investigation. It was also briefed by the National Prosecuting Authority on cases referred to it for prosecution by the Special Investigating Unit.

Members called for additional funding for law enforcement agencies involved in investigating corruption and state capture, rather than giving money to failing State owned enterprises like Eskom and South African Airways. Both the NPA and the SIU reported that they were faced with several constraints that impeded their mandates.

The NPA managed on a budget of just under R4 billion while the SIU received R400-R500 million annually. Members agreed unanimously to support the call for these two institutions to be adequately funded.

The NPA revealed dismal outcomes for cases referred to the authority by the SIU over the past six years. Of the 881 matters referred to the NPA by the SIU for possible prosecution since 2013, only 293 resulted in cases and of these, 144 were still under investigation, 11 were before the courts, and only 9 cases finalised with 8 of them successful.

The National Director of Public Prosecutions admitted to the Committee that the finalisation of cases had been extremely slow. In the eight successful cases, the resultant sentences have been unremarkable and it is clear that no impactful prosecution has occurred.

Members described the performance of the NPA as abysmal and the National Director pointed out that the deliberate weakening of state institutions to enable corrupt activities to go unpunished. 

The NPA was further hamstrung by a huge number of vacancies with more than 700 vacant prosecutor posts and a freeze on recruitment since 2015. The Directorate for Priority Crimes Investigations was responsible for the NPA investigations had the same challenges. The NPA was working on initiatives to unlock the logjams. Corruption within the ranks of the very institutions tasked with rooting out the scourge is being addressed as a matter of urgency.

The SIU announced that an official had been seconded to the Department of Cooperative Governance and Traditional Affairs to ascertain if there had been irregularities at the VBS Mutual Bank and the siphoning of the Municipal Infrastructure Grant.

The NPA also indicated that the investigation into the VBS Mutual Bank was led by a well resourced team that included the DPCI, a prosecutorial team and private sector investigators.

Members recommended that it may be prudent to invite all role players, including the Hawks, to provide a holistic approach to reporting to Parliament. They said it was important that SIU make follow-ups with municipalities on whether disciplinary or legal action had been taken as recommended in the SIU report. Referrals by municipal managers were also discussed.

Meeting report

Special Investigating Unit (SIU) briefing
Adv Andy Mothibi, SIU Head, reported that 881 cases had been referred to the NPA for prosecution. On cases involving municipalities, he provided the outcomes of 32 cases the SIU had completed final reports on and 17 cases where final reports were being prepared or cases were well advanced.  Once completed these report would be handed over to President Cyril Ramaphosa.

The SIU referenced the details of the allegations. Examples included the following investigations:
- Provincial Department of Planning and Treasury of the Eastern Cape and the Eastern Cape Development Corporation (ECDC) for funds allocated for the funeral of former President Nelson Mandela where maladministration and unauthorised, irregular, fruitless and wasteful expenditure was involved.
- Ekurhuleni Metropolitan Municipality procurement of goods and services and irregular, fruitless and wasteful expenditure in the construction of a new Vosloorus Hospital Public Transport Facility. Tender allegedly awarded without due process having been followed.
- eThekwini Metropolitan Municipality procurement of Tender No WS-6656 and Tender no WS-6749 which had six criminal referrals.

The SIU observed that the maladministration, malpractice and corruption stemmed from procurement irregularities, poor record keeping, employment irregularities, poor management and leadership instability, poor governance such as the failure of Municipal Councils, poor project management, lack of appropriate segregation of duties, poor business processes and the need to strengthen risk management.

The Unit also highlighted that inadequate skills, unfilled vacancies in key positions, a high turnover of staff causing a lack of continuity, poor revenue management (the inability to collect debt from consumers of services), failure to investigate and recover unauthorised, irregular and fruitless and wasteful expenditure as provided for in section 32 of the MFMA all contributed to the abysmal state of poor governance in municipalities it had investigated.

In line with the Anti-Corruption Task Team (ACTT) vulnerable sector management, the SIU will engage with Standing Committee on Public Accounts (SCOPA), National and Provincial Departments of CoGTA, South African Local Government Association (SALGA) and other key stakeholders to establish a Local Government Anti-Corruption Forum (LGACF).

The purpose of the LGACF will be to support the Anti-Corruption initiatives of Local Government including the Local Government Corruption Prevention Framework. The LGACF will coordinate efforts amongst all law enforcement agencies to ensure that these are well synthesized.

National Prosecuting Authority (NPA) briefing
Adv Shamila Batohi, National Director of Public Prosecutions, said that the NPA has maintained a register of SIU referrals since 2013. She provided the statistics since 2013:

Number of referrals: 881
Number of case            : 293
Number of cases under investigation: 144
Number of cases before court: 11
Number of cases finalised in court: 9
Number of cases withdrawn: 14
Number of cases declined: 18
Number of cases referred to DPCI: 48

Multiple SIU referrals often result in a single case with multiple suspects or legs of investigation. Progress in finalising the investigation and bringing the cases to court has been slow. However, the success rate was 8 out of 9. Where there have been prosecutions, the resultant sentences have been unremarkable and it is clear that no impactful prosecution has occurred.

Adv Batohi noted number of cases that had been authorised in the security sector; state owned entities, public and private sector.  In addition, the SIU referred seven cases that emanated from the South African Broadcasting Corporation (SABC); six resulted in actual cases with one currently in court.

The NPA had also been tasked with prosecuting referrals that emanated from the Life Esidimeni tragedy with 12 referrals, however to date there have been no prosecutions.

The NPA formed part of the Health Sector Forum chaired by the SIU established to foster closer collaboration with role players in the health sector. This forum ensures that matters in the health sector that had been referred to the NPA by the SIU are prioritised, pending successful investigations by the Hawks (Directorate for Priority Crime Investigations). Examples of health sector investigations included: irregularities in the supply of oxygen to hospitals in Kwazulu-Natal and the Northern Cape; construction of a forensic mortuary in Pietermaritzburg and fraudulent procurement in Limpopo; and acquisition of x-ray equipment and MEDIOSA in the North West. The construction of the Kimberley Mental Hospital was also still under investigation. Project Chow dealing with procurement fraud is on the court roll.

The Anti-Corruption Task Team (ACTT) structure, once ineffective, is much improved and there is a plan to enhance its efficiency as a key driver in the prosecution of corruption cases. This will assist in ensuring that those responsible for plunder will be held accountable. Other steps taken to prioritise matters include:
- System of tracking cases implemented
- Progress on cases monitored
- MOU with the SIU being reviewed
- Relationship with the SIU maintained.

The biggest challenge to the successful investigation and prosecution of individuals fingered in the referrals had been the lack of capacity within the Hawks and the NPA. The Hawks remains responsible for the investigation of matters. These two entities operate on limited budget allocations. Budget cutbacks meant high vacancy rates and problems with corruption within the ranks of the very institutions tasked with rooting out the scourge is being addressed as a matter of urgency.

The Chairperson noted slide three of the NPA’s presentation and stated that it was a clear indication of the challenges at hand. South Africans wanted to see meaningful recoveries and effective sentences for those found guilty.

Mr R Lees (DA) thanked the SIU and noted that it had become obvious that resources were in short supply. He referred to the slides that covered completed municipal investigations and lamented the outcomes of the disciplinary enquiries that were included. It noted only that these cases had been referred for prosecution and not the outcomes thereof. He asked if he was right to assume that the SIU would in future make follow-ups with municipalities on whether disciplinary or legal action had been taken.

This was imperative as SCOPA would not be calling upon municipalities to account for the cases under investigation and would refer to the SIU or the NPA for an update. He requested clarity from the SIU and NPA on how this process would unfold going forward.

Adv Mothibi replied that the SIU and the NPA could probably incorporate this information into both of their reports that dealt with these investigations after consultation between the two entities. He saw this as helpful.

Adv Batohi added that the NPA supported such a view as there was scope for joint reporting on cases referred to the SIU for investigation and the NPA for prosecution.

The Chairperson made a recommendation that it may be prudent to invite all role players involved in the investigation and prosecution of the cases such as the Hawks, the SIU and the NPA. This would provide a holistic approach to reporting on the outcomes of the cases under investigation.

This recommendation was supported by all Members present.

Mr Lees addressed the case that involved the construction of the new Kimberley Mental Hospital and stated that Adv Batohi seemed to have glossed over this major case under investigation. Over the past 10 years‚ the cost of the project had ballooned from R290 million to almost R2 billion.  The former Northern Cape Finance MEC John Block was jailed for his involvement in irregularities. He had had meetings with the investigators of Northern Cape cases as the province was a hotbed for corrupt practices. He said the NPA should prioritise cases related to the construction of the Kimberley Mental Hospital, especially since it was still not operational.

Mr Lees decried the recent bailout of the SABC and asked to be briefed on the budget allocations for both the SIU and the NPA.

Adv Batohi replied that the NPA operated on a budget of just under R4 billion and the SIU operated on a budget of between R400-R500 million.

Mr Lees found it appalling that these two institutions, the SIU and the NPA, that he regarded as critical operated under these budgetary conditions. The money spent on bailing out the SABC and other underperforming state-owned enterprises (SOE) such as Eskom and SAA could have best been spent on the NPA and the SIU. He recommended that these inconsistencies had to be highlighted in the SCOPA report and the challenges faced by the SIU and the NPA were not simply about incompetence, but more about resource allocations.

He requested an update from the SIU on whether any investigations had been launched into Municipal Infrastructure Grant (MIG) funds that were apparently “invested” in the VBS Mutual Bank.

Adv Mothibi replied that an SIU official had been seconded to the Department of Cooperative Governance and Traditional Affairs (COGTA) to ascertain if there had been irregularities and that a report would be issued.

Mr Pranesh Maharaj, SIU Chief Programme Portfolio Officer, added that a formal investigation depended on the outcome of the assessment on whether MIG funds had been invested into certain entities. The SIU was an allegation driven unit and if irregularities were found, this could lead to grounds for the establishment of a proclamation.

Adv Batohi noted that from an investigative and prosecutorial perspective the investigation into the VBS Mutual Bank was led by a well resourced team that included the Directorate for Priority Crimes (Hawks), a prosecutorial team and private sector investigators. There are three prongs to this process and one was well on its way. She did not want to elaborate further due to the sensitive nature of the cases involved.

Adv Mothibi was requested by Mr Lees to explain the process of what happened to the final report compiled by the SIU and the referral of disciplinary and or criminal cases.

Adv Mothibi replied that once an SIU investigation was completed it was sent to the President who signed off on the report. It then becomes the President’s report. New regulations by the Presidency allowed for accounting and executive authorities to be given access to the report, if they requested it. The President had taken a decision not to “sit on” reports anymore.

 Mr Lees touched on the Steinhoff investigation and said he failed to fathom why there had been issues of capacity in dealing with the Steinhoff matter. The Steinhoff matter concerned one transaction that was arguably the biggest case of corporate fraud in South Africa.

Adv Batohi replied that the NPA presentation had not dealt with the VBS and Steinhoff cases as these did not emanate from SIU referrals as requested for this meeting. She informed the Committee that during her first interactions with prosecutors, the Steinhoff matter had been raised and that the NPA wanted to prosecute on the one transaction. The challenge was that the NPA had had to wait on PriceWaterhouseCoopers (PWC) to provide the forensic report. That report had been handed over and the case was progressing well. This was not the only investigation being looked at, as there had been other transactions that had come to light.

Ms N Tolashe (ANC) thanked the SIU and NPA Heads for the progress reported on. She commended the gender representation as both delegations comprised a majority of women and stated that this might be the reason for the progress.

She expressed her displeasure at the number of referrals. She was also concerned that Adv Batohi seemed to have changed her tone since she had been appointed as the NDPP. She hoped that Adv Batohi had not been changed by the system.

SCOPA had paid oversight visits to municipalities that received adverse findings from the Auditor-General (AG) and those involved in the VBS scandal. She was worried about referrals by municipalities and wanted to establish how the SIU and NPA monitored implementation of referrals, especially since networks of corruption had been established in these municipalities.

The Chairperson noted that this was an important question as there had been incidents where municipal managers had been fingered in investigations. During deliberations with municipalities it became evident that there had been instances of municipal managers being both the player and the referee. This was especially since these municipal managers would draft the terms of reference for investigations that absolved them of wrongdoing, whilst targeting others.

Adv Mothibi acknowledged this point and recalled his previous response that the SIU had taken a decision to monitor the implementation of referrals. There had also been engagements with the AG to recommend that these referrals be incorporated into the AG’s audit findings.

Part of what the SIU could also do to mitigate the risk posed by municipal managers was to refer matters to the executive authority such as mayors and the responsible Member of the Executive Council (MEC). COGTA could also be roped in to ensure that there was a holistic approach that left no opportunity for referrals to be ignored.

Ms Tolashe stated that she was not convinced with the reply by Adv Mothibi as South Africa had experienced serious graft and that the SIU had an important function to fight graft in society.

South Africans did not trust politicians anymore and had placed their faith in the SIU and like-minded entities to rid society of this scourge. She was concerned that the good results delivered by the SIU might be scuppered by executive authorities that did not share the same sentiments as the SIU, and that the AG might also be overwhelmed.

Adv Mothibi replied that the SIU was busy with the implementation of new functional areas that included new structures. These structures would have to be capacitated. He added that there had been a view that the SIU had to send their own to state institutions and check for themselves if referrals had been implemented.

The misuse of MIG and other grants were highlighted by Ms Tolashe citing municipalities in Limpopo as an example where these grants had been used to pay for salaries. The prescripts of the Municipal Finance Management Act (MFMA) were completely disregarded.

She regarded this as low hanging fruit that should be easy for the NPA to prosecute. She lamented the silo mentality that enabled corruption to flourish and said that there should be more partnerships.

Ms Tolashe agreed that both the NPA and the SIU required more funding to deliver on their mandate and that SCOPA should lead this call. Moreover, she referred to the media coverage of this SCOPA meeting that was a clear sign of the interest in what Adv Batohi had to say.

This also pointed towards a need for a clear communication strategy by the NPA as South Africans wanted to be briefed on the state of affairs at the NPA as they are not aware about the good work you are doing. She recounted her experiences from her home province, the Eastern Cape, where she had been asked what government was doing about corruption.

Adv Batohi replied that she took note of the recommendations on a communications strategy for the NPA, especially since the focus had been on state capture and other high profile cases, yet there had been other less known success stories.

She added that the Eastern Cape had only two specialised commercial unit prosecutors and this seriously undermined the capacity of the NPA to prosecute cases. Most cases required two prosecutors per case. She had received several requests for more prosecutors, however budgetary constraints made this impossible.

The Chairperson was of the opinion that the NPA needed a bailout and he agreed with Mr Lees and Ms Tolashe that the NPA and the SIU had to be funded properly. He called on Members to brainstorm the issue of funding.

He recalled that government found R1 billion to fight gender based violence recently and the same exercise was necessary for these two very important law enforcement agencies.

It was unacceptable that non-performing SOEs were continually bailed out, yet no change was recorded. He cited the recent announcement by Eskom that load shedding was on the cards again.

Mr S Somyo (ANC) thanked both the NPA and SIU for their presentations and referred to slide three of the NPA presentation. He lamented the fact that from 881 referrals, only nine had been finalised.

He did not envy the SIU, as it had a huge task at hand. The low rate of convictions defeated President Cyril Ramaphosa’s intention to root out unethical conduct.

With only nine cases finalised, a scenario of lawlessness has been created where malfeasance and corruption reigned. This created the impression that there were no structures in place to deal with this conduct. He noted that this must surely have affected the morale of the investigating officers, especially since only 293 cases emanated out of the 881 referrals.

Adv Batohi clarified that there had been cases where several referrals became one case with more than accused standing trial. The 293 cases out of 881 referrals pointed towards such legal scenarios and not necessarily individual cases.

Mr Somyo said that he was not convinced and would like a reclassification or a filtering of the cases as this would give a better understanding. He also pointed to the 48 cases referred to DPCI.

The Chairperson supported the view that the NPA had to rework the filtering or classification of the number of referrals against the actual number of cases.

Adv Batohi replied that the 48 cases referred to DPCI registering the dockets for an enquiry. DPCI first launched an enquiry before they launched any investigation.

Adv Batohi agreed that there should be prioritisation of certain high profile cases and that the Anti-Corruption Task Team (ACTT) was the key driver in conjunction with the Hawks, SIU, NPA and other role players in identifying cases that will make an impact and build confidence in the system.

There was even a suggestion that the ACTT should have its own Annual Performance Plan (APP) with its own allocated budget and measurable outcomes.

Mr Somyo noted that the ACTT comprised of different entities with a collective mandate which had their own functional duties, almost like a rugby team with different players occupying different positions. He stated that the SIU was waiting on the NPA to act upon the SIU’s recommendation.

Adv Batohi clarified that it was imperative to look at the inefficiencies within entities and various government departments. She admitted that the NPA’s record had been abysmal and there needed to be recognition that institutions had deliberately been weakened.

Certain cases were deliberately not given attention as there had been no will to prosecute. There was currently a vacancy rate of 21% or 700 prosecutors out of a 3300 staff complement.

This was brought about as a result of the freeze on appointments as well. At the Specialised Commercial Crimes Unit (SCCU) there was a vacancy rate of between 25-28%, a situation that seriously affected the efficacy of the prosecutorial team.

Skills within DPCI were also a cause for concern in dealing with the complex corruption cases and the NPA had been working closely with the Hawks in addressing inherent challenges such as corruption and the other matters raised.

Mr Lees requested an overall picture of how many commercialised crime prosecutors the NPA had nationally.

Ms Tolashe wanted to ascertain what role provincial governments could play in the execution of the SIU and NPA mandates, especially since Premiers had widely pronounced their intentions to fight against corruption.

She recommended that both  the SIU and NPA should make specific representations on how provinces could contribute to operational costs such as paying for utilities or office lease agreements.

Adv Batohi explained that there are provincial forums that brought different entities together however she did not have that information at hand. That sort of collaboration is foreseen.

Adv Mothibi added that the SIU will take this matter up with provinces so that the collaboration proposed could be assessed and possibly implemented.

The Chairperson agreed and said that SCOPA will engage the relevant portfolio committees on how to proceed with this specific proposal.

Ms B Zibula (ANC) thanked the SIU and NPA for their presentations as it spoke to what SCOPA wanted to know. She said there was confusion about eThekwini Municipality. The media had reported on assets being attached; however Hawks had a different story. This created confusion in the community and she requested clarity. She also wanted to know how much funds the municipality had lost. These investigations needed to be sped up and properly handled as it concerned high profile cases and personas that galvanised support from the community.

She broached the subject of former President Nelson Mandela’s passing and the large scale corruption that occurred. He was dead and gone, yet people responsible for this graft, had not yet faced justice.

Adv Batohi stated that the actual amount lost in eThekwini had not yet been uncovered as the current case against the former mayor dealt with her case specifically. Additional investigations were warranted before an assessment could be made about the total amount of money that was lost.

Adv Mothibi added that the SIU had uncovered criminal activities that implicated six individuals and these had been referred for prosecution. Two tenders had been mentioned and the SIU will provide an update on the value of these tenders and if there had been value for money.

The Chairperson referred to the various forensic investigations done by municipalities that had been collecting dust. He cited the Manashe report commissioned by eThekwini as an example where every effort and attempt had been made to sit on that report.

He proposed that as the SIU engaged and sought to create a local government anti-corruption forum, it had to request that these municipalities release these reports.

The Chair also commended the NPA for proceeding with the Steinhoff matter and called for the investigation into this large scale corporate fraud to proceed and those responsible should be brought to book.

He noted that in the SIU presentation, twelve municipalities had been highlighted as they had received disclaimers from the AG for three consecutive years. He had no problem working with municipalities who had received adverse findings , as opposed to disclaimers, as this at least showed that there had been an attempt to stay within the prescribed auditing prescripts.

The challenge that he had was with those who received disclaimers from the AG as this showed that a municipality had completely moved in the opposite direction. These municipalities had to be the first port of call for such a forum as there was a total collapse of governance, financial mismanagement, poor or little record keeping, fraud and corruption on a grand scale.

In conclusion, the Chairperson said SCOPA’s patience with the NPA was running out and they wanted to see the prosecution and conviction of officials for corruption.

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