The Committee was briefed by the Municipal Infrastructure Support Agent (Misa) on the ongoing dispute with a contractor over the installation of ventilated improved pit (VIP) toilets and waterborne systems in the Northern and Eastern Cape.
It heard how the contractor had been procured by Misa to assist the Amathole district municipality with the installation of the toilets, during which money had been advanced for the work to be carried out. It had later been discovered that the contractor had submitted a fraudulent tax clearance certificate from the South African Revenue Service (SARS) in order to obtain the tender. The contract had been suspended immediately, and the current dispute involved the amount of money to be paid to the contractor for the work completed.
Members were critical of the fact that due diligence had not been carried out before awarding the contract. Misa responded that when the award was made, they were newly established and had no systems in place to give direction on procurement, and did not have a service provider to do the due diligence at the time of the appointment. They assured the Committee that they had not had a similar issue since then, and that hindsight was a great teacher -- they had learnt from their mistakes.
Various shortcomings of the Department’s Community Work Programme (CWP) were highlighted in a report presented by an external auditing firm. The main issue identified involved irregular expenditure amounting to R280.7 million in the 2015/2016 year, although a Committee Member pointed out that there had been substantial increases – totaling R1.68 billion overall -- shown in the annual reports since then. The Department said the challenge was the collusion between suppliers and the non-profit organisations contracted to run the programme, and with 250 000 people participating, it was impossible with its limited resources to maintain effective checks.
Members commented that the annual report indicated that no action had been taken against officials guilty of irregular expenditure, and asked if they had been suspended, or if criminal or civil action had been taken against them. There seemed to be a case of “no consequence” governance in the Department. The Department responded that action had been taken, and that they would submit a report on this to Parliament in the next two weeks.
Northern Cape toilet installation: MISA presentation
Mr Ntandazo Vimba, Chief Executive Officer (CEO), Municipal Infrastructure Support Agent (MISA), said the Siyenza group had been appointed by Misa through a tender process, after Misa had been appointed by the Department of Human Settlements (DHS) to attend to the installation of toilets and water borne systems in the Northern Cape and Eastern Cape.
In the process of running the contract, the Amathole district municipality had approached Misa to say they had a backlog of sanitation and water projects, and requested support.
Amathole had awarded the work to Siyenza. Misa had received a letter from Amathole saying they had appointed Siyenza as the main contractor for the sanitation programme, and were appointing Misa as an implementation agent.
Misa had not accepted the offer of being an implementation agent.
In May 2015, when Siyenza were running the contract in the Northern Cape, it became clear that they did not have a valid tax clearance after being asked to verify that they had one. The due diligence report stated that their tax clearance was not valid, and was not issued by SARS. This raised the eyebrows of Misa’s leadership. SARS confirmed it had not issued the certificate, and the project was suspended pending finalisation of the tax clearance issue.
To terminate the contract, Misa had been advised to get a declaratory order from the court, but the preferred route was to seek mutual termination of the contract. A resolution was reached to mutually terminate the contract, and Misa would pay Siyenza for work done. First, however, they had to do a physical verification of the work done to quantify the amount. A team arrived at an amount, and payments were made to Siyenza.
The appointment letter had a provision that 10 percent of the budget was set aside to cover the scoping of the works, the project implementation plan and site establishment. This matter triggered a dispute, and Siyenza had wanted 10 percent due to them in terms of the appointment letter.
The problem was that at the time of the appointment, Misa had been newly established, so there were no systems in place. It did not have a service provider to do the due diligence at the time of the appointment. Due diligence had been conducted after the appointment, and the first forensic report had not picked up the tax clearance issue, but had picked up the director’s criminal record.
Misa had advised Amathole, and they had immediately suspended the contract with Siyenza.
The Public Protector had got involved as well. A forensic investigation was also initiated by Treasury, which had opened criminal cases, and the Hawks were involved. The CEO said that when they became aware of the fraudulent tax clearance, they had immediately opened a criminal case and handed over the forensic report to the Hawks.
Ms G Opperman (DA) said that stakeholders needed to have professional accountability and could not shift the blame and responsibility. Who was liable at MISA, and who had failed to stick to administrative processes? During paperwork, there had to be supplier research and analysis of the vendor. Who was liable who did not do their job? Siyenza now wanted R48 million for engineering services, and wanted to be paid at higher upon mutual termination of their contract, for work already completed. What was Misa doing about that?
Mr C Brink (DA) said that aside from the discovery that the initial tax certificate was fraudulent, when did Misa realize that Siyenza’s performance was a problem, if at all, in addition to the legislative non-compliance?
He referred to the presenter’s comment that they could not unilaterally terminate, and had waited for mutual termination or going to court to set aside the whole matter. The Blue Nightingale case and Siyenza issue was the same thing. The judgment had profound implications for how organs of state interpreted these piggy-back tenders. If there was a tender awarded by one organ of state, then a second organ of state becomes part of that contract and procures the same services at the same price and the same contract. This judgment said that the second organ of state could not conclude an independent contract with that service provider. Service providers used these technicalities to their own advantage. Was Misa taking active steps to ensure the Blue Nightingale case was complied with?
Mr K Ceza (EFF) said that Misa had spoken about a tender notice and the fact that it did not pick up at first that the certificate that was not valid in terms of SARS. They had then gone on to elect a service provider. Who was the service provider, and what were the criteria? What would happen to them if they did not deliver? He also asked who had conducted the forensic report.
Mr G Mpumza (ANC) asked if due process had been undertaken after having awarded the contract. Here he was referring to the fact that no due diligence had been completed before the appointment, but only after. Why had Misa allowed Amathole to participate if Misa had good intentions? How many toilets had been installed? The units were R6 000 each, and there were 66. In the report submitted by engineering, they had said they needed R8 million in advance. Was the former CEO in agreement with this?
Mr Vimba replied that his predecessor’s contract was not renewed and he was no longer with Misa. They would have to get the details of how many toilets had been completed, but the Development Bank of Southern Africa (DBSA), because they had paid Amathole and gone on site, and had done the verification.
Mr Ceza asked why Misa had paid the company.
The CEO replied that Misa paid for the contract in the Northern Cape. There had been two contracts. He could obtain details of how many toilets were completed, and provide the information to the Committee.
Mr Mpumza said that no geological study had been undertaken. What was the hidden intention in requesting the participation of Amathole, knowing that the Siyenza contract was a waterborne contract in the Northern Cape, and in the space of three or four months, Siyenza had been paid R94 million.
The CEO said that he was not in a position to articulate what had motivated Amathole.
The Chairperson asked why Misa had allowed Amathole to participate. She was not asking them to speak on behalf of Amathole, but even in the investigation they had recommended to Misa what needed to happen. However, to allow them to participate in an agreement where there was no due diligence done would require an accounting officer to authorise that. That was a requirement that all accounting officers have to follow. She referred to the payment made by Amathole and the involvement of the National Prosecuting Authority (NPA), the Hawks and the Special Investigating Unit (SIU), and suggested the Committee should invite Amathole to appear before the Committee.
Mr Vimba replied that at all times, Misa had believed that the process had been conducted in line with due process. They had advertised the tender and taken a decision, but in hindsight they recognized that their interpretation of the work involved had been wrong. In this instance, Treasury had not issued instruction note. It had not carried out due diligence before the appointment because at the time they did not have the capacity to undertake due diligence -- and it was not part of Misa’s operating procedure to do due diligence for every appointment. There were requirements for them to get a tenderer with a valid tax clearance certificate, and they had indicated that they had one – and had submitted it. However, when they had done the verification as part of the process of the establishment of Misa, they had found gaps. The due diligence was a recommendation of the evaluation committee because of the magnitude of the tender, but it was not part and parcel of the process of Misa. Misa had not decided to deliberately bypass the procedures.
Regarding accountability, he acknowledged that in this case there were serious gaps. Even the head of the supply chain was not necessarily someone appointed, but had been seconded to the supply chain, and Misa had corrected most of the gaps that were there. That person had been moved and the accounting officer had been removed to make sure they corrected the situation. The CFO, who was the head of finances at Misa, was removed and his contract was not renewed.
The matters had been handed over to the Hawks and were the subject of current Hawks investigations.
Procedures had now been put into place, and since 2017 Misa had not had a single such issue. They had learnt from their mistakes.
Mr Vimba said the quality of the toilets had been verified by the engineers of Misa. They had had a consulting engineer as project manager in this case, and together with the engineers had a process of visiting all sites to verify if the claims of Siyenza were valid. There had been no finding on the quality of work done, so he could not talk about the quality.
At what point, did Misa realise there was a challenge in performance? They had realised that during implementation, the contractor had experienced serious problems with machinery required to deal with the hard rock in the Northern Cape, and needed to sub-contract as it did not have that capacity. Misa acknowledged the lapses in the process, as they ought to have done a geo technical study before issuing the tender to understand the topography, but this was not done. The contractor was experiencing the conditions for the first time on site, and could not progress because of this hard rock problem.
Regarding taking the matter to the high court to set the contract aside, the contract itself was no longer there -- it had been mutually terminated. There was a dispute regarding payment. Misa had withheld payment, and Siyenza want Misa to pay them. However, if Misa pay them, there was still this matter pending, and then they might have to recover the payment. The dispute did not invalidate the mutual termination, so they had to get legal advice on the matter. It was an eye-opener for them, not just for the government. There had been no instructions from Government, only this court case, to clarify how one should handle this matter.
Misa were satisfied with the amount of work done by Siyenza, because they had strong project management capacity and the toilets in the Northern Cape were the best. With regard to the service provider doing due diligence, he would have to go back to the office and check what the terms of reference were and why the service provider had not picked up the tax clearance fraud at first. A report would be forwarded to the committee. Phakwe Consulting was the service provider that did the due diligence.
Answering the other questions, he commented on why they had appointed a contractor and given advice. This referred to the issue of the hard rock, which meant they had had to get specialised machinery, so Misa had been asked to assist with advance payments which would be paid back.
Ms M Tlou (ANC) asked why the toilets were so overpriced. She was checking the first page, and this was double pricing. Who were the people doing the pricing of these toilets?
The Chairperson asked Misa to clarify if there were any irregularities with the tender process, and whether they thought it necessary to initiate an investigation. Between 2015 and now, how many other section 32 projects had they allowed to other entities. Were these the only ones? Regulation 32 was being abused, left and right.
She criticised the CEO’s comment that there was no directive, because once Treasury issues a regulation it is very clear, and then no further directive should be needed. The regulation was made to clarify the matter, she said.
She pointed out that the CEO had said Siyenza had claimed R48 million rand after cancellation, yet in Misa’s annual report it states there is a R12 million contingent liability. What was the reason for this discrepancy?
The CEO said that, with regard to the R6 000 units, it was Amathole that did the pricing, and he was not in a position to explain how they arrived at that figure. They could get that information from Amathole and request a report from them. He did not want to mislead the Committee.
He added that they do not have any other projects in the Northern and Eastern Cape. Misa had only awarded Siyenza that contract for similar work, or any other work, and he was aware only of the Amathole and Northern Cape contracts.
Regarding Regulation 32 and how many agreements were allowed in terms of this, Mr Vimba said that there were what they caledl framework contracts which National Treasury issues for Government. Misa was tasked with the responsibility to put up framework contracts, but National Treasury issued standards for infrastructure procurement which allowed for putting up framework contracts to assist in efficiency. This was a programme they were running with municipalities, and those contracts were done in terms of these regulations.
The Chairperson said that they were supposed to cancel contracts to embark on a new tender process, but instead they had issued a tender notice. They had given these contracts to Siyenza, and she did not agree with the issue of citing urgency. There was a requirement that people had to be vetted, but here that was not done.
The Committee was going to pursue this matter with Amathole, and the Director General would come and would have to prepare a report. The Committee wanted to know what the DG had done since he got this report, up to today.
Ms Opperman said that she wants a feasibility study for the Northern Cape on the cost of the toilets.
The Chairperson said that that money had been used for site management.
Ms Opperman responded that it was a very expensive site
The CEO said Misa ought to have done a geological study to inform the pricing, but this had not been done. There had been weaknesses in the processes at Misa at the time. It had just been established and had no policies and procedures in place -- there were no procedures in terms of what one should do before appointing a service provider. They were relying on the existing law and did not know then how to run procurement. They had admitted this and had made huge strides to correct the gaps in the process. Hindsight was the best teacher, and they acknowledge the weaknesses from their side.
The vetting was not in the policy of Misa. There had been a recommendation made to do a due diligence check, but it had not been before the appointment.
The Chairperson queried this, asking if the vetting of vendors had not been a requirement at that time. She said it had been a requirement since the inception of the PFMA. It had been a requirement for years and some people had to take responsibility. The way forward was for them to tell the Committee who the members of the broad-based black economic empowerment (BBBEE) evaluation committee and adjudication committee in 2013 were, and who the members were now in 2019. She asked for this information.
She also asked for Misa’s supply chain policy in 2013 and in 2019. Who had been the appointing authority of this process that was not in line with the law? This matter was ongoing and was a work in progress. There was a public outcry because of the money that was involved that had not reached the intended beneficiaries -- and it was a lot of money.
Mr Brink said they also want the number of units, and a breakdown of the cost of the units.
Mr Mpumza said that they should not have been awarded the tender from day one, as there had been misrepresentation from them right from the very beginning. The other parties who did not get the tender could sue them, as they had been wrongfully overlooked. A lot of money was involved, so that was the issue.
Community Work Programme: Deloitte and Touche Progress Report
Ms Fiorah Nkoana, Acting Deputy Director General, Community Work Programme (CWP), opened the presentation and said that she was only in an acting position, and that this position had actually been vacant for six years. She handed the presentation over to Mr Lesego March, Director of the Community Work Programme.
Mr March said the Deloitte and Touche report involved a number of financial issues. The credible asset register gaps had been addressed, as per the notes of the auditors.
The report had been concluded in 2017, and several issues such as retention fees, travel costs and the credibility of supporting documents had been identified.
Findings had been made by Deloitte and Touche on issues such as project management fees, assets and irregular expenditure. There had also been reference to piloting the biometric system and going digital..
The Department had recovered costs of assets that could not be confirmed and verified amounting to R13.7 million from various implementing agents.
A key issue was that of irregular expenditure, which had been outlined in the report. This had come about through duplicate invoicing, excessive claims for costs, advance claims. In 2015/16, this had amounted to R280.7 million.
Ms Opperman congratulated them on the biometric system they had, and asked how long it would be for asset verification. What had happened to the money allocated for skills training, if the training was not implemented? She also asked for the names of the suspended NGOs and for details of the implementation agents in Namaqualand. She said that since 2014 there had been no projects implemented, so there was no impact on the ground.
Mr Brink said that the report presented had covered only a small portion of the irregular expenditure, as the 2014/15 report referred only to Deloitte and Touche finding R115 million rand of it, but in 2016/17 it had accumulated to R1.3 billion, so the irregular expenditure was therefore in the region of R1.68 billion overall. He had got information from the annual report, and asked if the report they had presented was still relevant. Was its scope going to be extended to the 2017/18 years?
He commented that administrative leadership was absent, and wanted to know what the total irregular expenditure was to date. What had been recovered by the National Treasury?
In the annual report for 2017/18, on page 131, the Auditor General (AG) had noted that disciplinary steps had not been taken against officials in terms of the PFMA. He asked if disciplinary steps had now been taken. He asked specifically who had been suspended, who had been fired and at what level they were. He wanted details regarding the disciplinary processes and Deloitte and Touche’s findings, such as invoices predating supplier invoices, and so forth. This was serious stuff, and the Department had to give detail on whether officials had been found to be implicated.
Mr Ceza asked how they are going to recoup the money, and what happened to workers if so much money got taken away. He did not see how this had impacted on the people at all. He asked if the CWP was a sustainable programme that was aimed at changing people’s lives, or if it was to pacify the society where they were working, or if it was going to impact on socio-economic conditions. He asked them to describe how that was going to happen. The programme must impact people’s lives, or they were wasting their time.
Mr Mpumza said that at the information sharing session, the absences of management had been raised. The PFMA made provision for accounting officers to establish systems of management. They must be efficient and effective. He said that if they had provided the biometric system from the start, then their system would have been adequate to manage all participants and pre-empted all fraudulent thinking. They had placed a middle man in the system of implementing and managing, and they should think of an alternative way of managing the programme.
He said the Department was not stable if people were acting in managing positions for six years. The Department must sort out its house. They must not have acting positions if they want to achieve objectives.
Ms Tlou asked why they had appointed the employees implicated in irregular expenditure.
Ms Nkoana answered the question of whether the programme was sustainable, saying the establishment of the programme had a clear objective to provide a safety net for unemployed and underemployed graduates. The Department of Labour prescribed how much they should pay participants. Management need to the work schedules from two-day weeks to three-day weeks. They had a mandate from the Presidency, one of which was to engage other sectors to come on board.
Mr George Seitisho, Acting Deputy Director General: Community Work Programme, said that since the increase in irregular expenditure, they had started to implement the recommendations of Deloitte and Touche, They have already begun disciplining implementing agents, so it was a beginning. There was also a need for them to review the model, as it had its own shortcomings.
The Hawks were investigating 18 criminal cases that had been opened in the Northern Cape, where suppliers and NPOs were in cahoots on quotations and such activities, and they were looking at pressing further charges. Other implementing agents were difficult to find and locate. They were looking at getting rid of implementation agents as middlemen, because they do not like how much they had to pay them.
There were also other bad aspects to the programme, such as ghost employees, who operate in syndicates. People were devious. Regarding training, they had successfully trained a few community development workers, and needed government departments to absorb the trained staff. There was a hope they if they did not get better jobs, they could come back to the CWP.
He said that two NPOs had been suspended -- Out of the Box and Nthembe. The NPOs had been vetted – the CWP had checked all of them.
The Chairperson asked why the NPOs engage in corrupt activities after vetting.
Mr Seitisho replied that when people see millions of rands, they start misbehaving.
The Chairperson lamented the fact that despite the Deloitte and Touche report, there had been a continued ballooning of expenditure. What was wrong?
Mr Dumisani Ngutshama, Chief Audit Executive, said they had been given an instruction by National Treasury to appoint NPOs, and five of the nine were not properly appointed. A process was introduced after the Deloitte and Touche report was issued over non-compliance issues. It had also been highlighted by the Auditor General (AG). There were 250 000 participants in the programme, so it was impossible to administer. Some of them could not write. They had to deal with the voluminous timesheets that were submitted, and it was impossible to check the time worked.
Regarding assets, the Department needed to hold NPOs responsible if they were losing assets. Sitting in Pretoria, one did not know what was happening in sub-sites. One first had to deal with the accounting issues, and then deal with the issues of the programme.
Mr March said they had completed the verification and validation of all assets. Assets they could not locate had to be recovered from the implementing agents.
On the question of what happened to unused funds, he said that in October and November they look into possible savings, and where participants were not coming to work, the money was redirected to allow other participants to work extra days to make up for the days being lost.
Regarding irregular expenditure, the new figures will be identified in the 2018/2019 report which the AG had just completed. They had still incurred irregular expenditure since the Deloitte and Touche report, and this had been listed in the new report. There were also figures not previously reported to the National Treausury that must still be condoned.
Ms Nkoana said that they were going fully digital to avoid the errors resulting in the irregularities incurred by the Department. By the end of the financial year they would be piloting the digital system. They would also try to see how they could speed up the biometric system.
Follow up questions
The Chairperson asked about the report indicating the cases that had been flagged. She asked how many criminal cases had been opened, and how many of those flagged cases had had their contracts extended.
Ms Opperman asked for details of the 18 criminal cases in the Northern Cape, and for a list of the implementation agents that they could not find.
Mr Brink again asked if disciplinary steps had been taken against officials of the Department for not complying with the PFMA -- were there suspensions, for example, or any civil action?
Mr Ceza said that the CWP budget was R4 billion, which was allocated to implementing agents. He asked for a breakdown of every cent of that R4 billion. Where did it go to? By having implementing agents, was the Department saying they did not have the internal capacity to do that work?
Mr Leitisho said the Deloitte and Touch report was related to previous contracts, not a current ones. The Department was trying to correct the mistakes, as set out in the Deloitte and Touche report, in the new contracts. Steps had been taken by the Department to verify the effectiveness of an agency prior to the procurement process.
He said that two implementing agents had not previously been awarded a contract, and four had been awarded new contracts and were still participating. Where there was money lost with the previous implementing agents, they would follow a civil procedure to recover the funds, and they would also implement criminal proceedings. The recommendations of the Deloitte and Touche report in respect of wrong actions and ghost employees had implicated certain officials of the CWP, and they would be dealt with.
Mr Brink said that the annual report had specifically stated that no disciplinary steps had been taken against officials. This was a problem that had to be seriously noted.
Mr Ngutshama said that letters had been drafted by the accounting officer requesting employees to respond personally if they agreed with the findings of the Auditor General or not. Thus, there was a process to establish the facts related to irregular expenditure in 2017/18.
The Chairperson said that the accounting officer had a responsibility to investigate irregular expenditure and to recover money. In essence, however, nothing had happened to the officials. There was a lack of consequence management in the Department, which was the issue that Mr Brink was raising.
She asked if the Department was saying that currently the implementing agents that had been appointed for the NPOs were all above board.
Mr Ngutshama said work had been done in the Department to implement consequence management, and it would be reflected in the report for the next period.
The Chairperson said that they should share this information with the Committee.
Mr Ngutshama said that he would prepare a report.
The Chairperson asked when, and he said it would be available at the next sitting. She said that he should do so within the next two weeks.
She said she had one last question regarding the tender that had been concluded in January, before the Deloitte and Touche investigation. She asked what the findings were, and how they had processed the recommendations.
Mr Ngutshama said that there was a process to investigate the procurement element. There were a number of recommendations in the report, and they would give feedback on progress in the report they submit to Parliament. They would summarise the findings.
The Chairperson said in two weeks’ time she wanted them to address the amounts paid and whether they had implemented the recommendations.
Dr Kevin Naidoo, Executive Manager, DCOG, addressed the Committee on updates. There had been initial engagements with the National Prosecuting Authority (NPA), the SIU, and the Hawks, but the law enforcement agencies had withdrawn. They would have to go back to the law enforcement agencies, and asked for one month to return to the Committee with an updated report.
The Committee was also briefed on the report by Dr Mmaphaka Tau, Head: National Disaster Management Centre, COGTA, on disaster risk reduction, and heard that there was a need for a disaster management colloquium. Its key role would be to oversee the co ordination of disaster management. To prepare for the colloquium, there should be a joint portfolio committee meeting to bring together different committees. Page 3 of the document being drafted would outline the purpose, for the Portfolio Committee to take stock of disaster management in areas such as water quality and dam safety. They should also look at epidemics, and similar threats. It was critical to discover risk areas, such as the Northern Cape, the Karoo, the Western Cape drought and fires in Mpumulanga, so that the Committee could understand the disaster hotspots. For example, Venda was a hotspot for foot and mouth disease. This document would be circulated after amendments had been made, and the Committee would be updated as time progressed.
The meeting was adjourned.
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