Mpumalanga progress on Covid-19 Expenditure Audit

Meeting report

The Chairperson welcomed the Mpumalanga Provincial Government delegation led by the MEC of Finance Mr Vusi Mkhatshwa and accompanied by the MECs for Health, COGTA and Human Settlemento. The Premier had submitted an apology as she had prior commitments. Apologies were noted from the Minister, who was attending a cabinet meeting, and Deputy Minister.

MEC of Finance Remarks
Mpumalanga Finance MEC Vusi Mkhatshwa thanked the Committee for the opportunity to appear before it and account for the AG’s findings on Covid-19 expenditure on PPE by the province and its municipalities. The provincial government has committed itself to addressing the areas of concern identified by the AG about non-complying departments and municipalities. 29 municipalities were identified for excessive payment to suppliers of PPE. Appropriate actions have been taken and the Competition Commission and National Treasury have received reports to institute further investigations. The procurement process of municipalities are being investigated by law enforcement agencies and arrests have been made.

The MPG with the support of SALGA and districts have established an integrated municipal support programme to monitor and support municipalities in a differentiated focused approach. Accounting officers and authorities have been provided with the necessary guidelines and support to finalise their investigations into wasteful and irregular expenditure and non-compliance with legislation. It is the view of the provincial government that all recommendations made in investigations must be implemented to strengthen internal control mechanisms and that consequence management will be applied where necessary in a fair and transparent manner. MPG continues to strive for clean and effective governance and to deal decisively with corruption.

Mpumalanga Provincial Government presentation
Department of Cooperative Governance and Traditional Affairs
Mr Sam Ngubane, COGTA HOD, said municipalities were not following the required procurement process for Covid-19 expenditure.

One of the pertinent municipalities was the Nkomazi Local Municipality which had appointed a service provider for fumigation services for R2.620 million. The AG flagged that the appointment of this service provider did not follow due process as there was no audit evidence of fairness and transparency in obtaining quotations from possible suppliers nor was there a reasonability study on the final price awarded to the supplier. The supplier was not registered on the Central Supplier Database (CSD) nor was it tax compliant. There is no supplier history on the municipality records, the nature of the supplier’s business could not be confirmed or if their business aligned to what they were appointed for.

The AG recommended that municipalities must follow Treasury circulars when procuring PPE items and that tender specifications and quotations should be aligned to the prescripts of the World Health Organisation, the Department of Health and the Department of Trade, Industry and Competition. Additionally, only potential suppliers who have signed a declaration of interest form should be allowed to be considered for tenders.

Of the 33 municipalities, 29 were identified as paying excessive fees to suppliers for PPE items. Out of the 29 municipalities, 19 accounting officers indicated that they will rely on National Treasury’s directive when procuring PPE services in future and excessive prices will be reported to National Treasury, SIU and the Competition Commission for further investigation. The Hawks are currently investigating municipal procurement processes with arrests being made and the COGTA has conducted an s106(1)(b) investigation as per the Municipal Systems Act.

The multi-disciplinary intervention plan called Integrated Municipal Support Plan (IMSP) will aid municipalities with key aspects such as improved financial reporting, establishing strong internal control environments and sound financial management policies, implementing Audit Action Plans and avoidance of unauthorised, irregular, fruitless and wasteful expenditure (UIFW). Additionally consequence management needs to be fully implemented and effective and independent oversight structures established.

A key component of the Covid-19 response efforts was to provide water tanks in affected communities to combat the spread of the virus. The municipalities were responsible for ensuring that the installation of the water tanks was cost-effective and ensured that the communities were readily able to access water. Unfortunately, despite the measures that needed to be followed, a total of R775 017 was overpaid to suppliers split between Bushbuckridge, Mbombela and Nkomazi municipalities. This is due to separate service provider appointment letters; incorrect or inflated rates being charged and a lack of specification on the amount of water that service providers were to transport. There have been instances where water has not been delivered to affected communities, leaving them without water during the peak of infections. However, due to a lack of key documentation such as logs and schedules, a full assessment could not be conducted. Some of the affected communities include Majejane village where none of its five water tanks was filled.

It was recommended that management should compile, implement, monitor, and evaluate a water provisioning plan to ensure that available water tanks and tankers are equally allocated to provide water in affected areas.

Department of Education
It was found that stock management deficiencies resulted in PPE items being delivered late to schools and education districts mainly due to not following time deadlines thus affecting learners' ability to return to school. In some instances, masks delivered did not fit the learners however they were not replaced despite informing the Department. DoE has since opted for schools to handle their own procurement as per the guidelines and support provided by Department to avoid a similar situation from occurring.

There was R29.056 million irregular expenditure in the procurement of PPE supplies. This is because DoE had deviated from usual procurement process in contravention of Treasury regulations. This irregular expenditure has since been referred to the SIU and Hawks for investigation. The responsible official, being the former Acting Head of Department, has since been arrested and charged.

Department of Social Development
The AG found that there were concerns with how the Department identified Social Relief beneficiaries, particularly the distribution of food parcels. The PPE was distributed to departmental officials and not to beneficiaries. The officials were identified by the District Directors and Chief Directors in the Provincial Office. These officials were instructed to sign for the receipt of the PPE and the registers are available in the department.

See presentation for further detail

Discussion
Mr K Ceza (EFF) asked if there should not be an alternative approach to the current tender system in procuring goods and services as per the PFMA and the MFMA. The reason is that the current system is not only plagued by corruption, but it seems to benefit the private sector and connected individuals which in turn disempowers departments and communities. There is undue price inflation whereas if government and provincial departments were to insource this function, the prices would be in accordance with market value. An example is when the provincial state transports 10 000 litres of water to affected areas, the cost is about R250 compared to R2800 charged by an external supplier.

Would insourcing then be a viable option to benefit communities and employees who work within departments? The likely answer would be no as employees are not properly employed in these departments as they have no employee benefits, and they are hired at low wages while officials and their associates earn exorbitant amounts in programmes that are meant to help employees and communities such as PPE supply. To date, the province is not able to account for the distributed PPE as its distribution cannot be traced. How will the PPE be recovered and who will be held liable for its disappearance?

Mr Ceza named the company which was appointed for PPE distribution despite being non-tax compliant. Competitive bidding as per the MFMA was not followed. There are reports that arrests are being made and similar cases being investigated. How many cases are outstanding as the province makes no mention of this? The Provincial Treasury report shows that the Mpumalanga Department of Health had addressed an audit finding showing it had procured PPE at 10% more than the prescribed prices without authorisation. How much money did the department lose and has it been recovered from the liable parties?

MEC Mkhatshwa stated that the province wants to run a clean government. However, what has MPG done in addressing concerns in the Steve Tshwete Local Municipality where Mr Kgosi Makwathi was petrol bombed in his house and sustained injuries because he was leading workers in a disputed strike against the municipality. The municipality received a clean audit while there were constant power cuts and water pipes being constantly repaired despite promises of no water shortages in municipalities. How is it possible that the municipality obtained a clean audit when there are discrepancies in rates and taxes where residents, including Mr Ceza, are charged exorbitant amounts for services such as water? When these exorbitant amounts are challenged at the municipal office, they were immediately scrapped without an explanation of where these high rates emanated from.

There are several incomplete projects in Mpumalanga such as the Schoemansdal Stadium which has been incomplete for 15 years. The stadium has now become a criminal hot spot which should not be the case considering such situations escalate gender-based violence. What the MPG project monitoring and evaluation process and why has such a project been left for so long which essentially amounts to wasteful expenditure?

What is also of concern is that the Provincial Education Department, particularly Kwamhlanga Secondary School, had spent over R42 000 on 32 face shields for 26 teachers and 6 non-teachers. Who was held liable for this and what is the consequence management for such situations?

Mr A Matumba (EFF) said that the MPG presentation should have been accompanied by annexures to give a full scope for the Committee to play its oversight function.

What the presentation seems to suggest is that there is a failure of political leadership which gives room for provincial management to do as they please without consequences. As a result, the easiest scapegoats become service providers as if service providers are corrupt instead of provincial management.

He referred to Nkomazi fumigation service provider who was not tax compliant and had no internet presence. Did the Department go to the supplier’s address or did they leave it to an internet search which suggests an unwillingness to investigate further the whereabouts of the supplier? What is of interest to the Committee is if there was value for money on services procured? The names of suppliers should be mentioned in the report to answer questions that their constituencies about who the suppliers are.

On the finding of procurement non-compliance and potential fraud in the Nkomazi Local Municipality, is it the municipality, the service provider or both? The Committee needs to know who must be held accountable. MPG seems not to have effective consequence management tools and defers them to other investigative bodies such as the SIU, the Competition Commission and National Treasury. The MFMA states that there should be a process of recovering misappropriated funds however there seems to be no political will to follow this route. The MFMA states that should the funds not be recovered from the service provider, the political office bearer of the municipality will be held responsible and be liable for the wasteful expenditure.

What does MPG mean that it will develop effective and independent oversight structures? Have they already been established and does this mean they replaced section 79 committees? The provincial government is not forthcoming with information about these structures nor about the process it will follow to hold responsible parties accountable or about decisions made by provincial councils.

Bushbuckridge municipality made an overpayment of R228 800 due to a service provider adding 203 logs of water delivery. This should be reported. The council who must refer this overpayment for further investigation to the Section 79 committee and MPAC so a decision can be made by the provincial council. What political leadership was provided when it was established that there has been an overpayment?

Mr G Mpumza (ANC) asked how much money has the Mpumalanga Department of Health lost due to overcharged PPE supplies and has this money been recovered?

The Special Investigating Unit (SIU) February 2021 report made referrals against the manager and senior manager in the Department of Health. The head of the provincial health department had indicated that the referrals have been taken on review. What is the outcome of the review and what is the way forward on these two implicated officials?

When did the section 106 investigations into the Nkomazi Local Municipality commence and conclude and what were the findings and recommendations on the Covid-19 expenditure? Has the investigation report been tabled at the municipal council and have decisions been made about findings and recommendations?

Mpumalanga Provincial Government response
Mr Ngubane, COGTA HOD, replied that according to the provincial government’s records, there is no Schoemansdal Stadium as suggested by Mr Ceza. There are however several stadiums that do exist in the Nkomazi Local Municipality funded by the Municipal Infrastructure Grant (MIG). These are Mbuzeni Stadium, which was completed in 2016, kwaMshosha Stadium completed in 2017/18, Mangweni Stadium and NAS were completed a while ago. In Driekoppies there is also a completed stadium and there is a community hall that was commissioned and is now being implemented.

MPG commissioned the Nkomazi section 106 investigation which started in August 2021 and was completed in October 2021. This report was submitted to the provincial government and would be considered once the newly constituted council was formed after the local government elections in November 2021. The process government follows is appraising the municipal executive council which will be held at a later stage to gain feedback about the MPG presentation to the Portfolio Committee. Once there is feedback, the COGTA MEC will hold an appraisal meeting in which the investigation report will be tabled. There are systems in place where the municipal executive and the council will receive the report once the Provincial Executive Committee has been updated on the report and work to implement its recommendations.

Ms Busisiwe Shiba, COGTA MEC, agreed that there must be consequence management for guilty officials and suppliers. There are investigations underway by law enforcement agencies and once the recommendations are received, the Department will implement those recommendations. The Department will table the section 106(1)(b) report to the provincial executive and to the municipality to action the report findings. The Department will monitor the municipality’s action plan with the support of the departmental task team who will provide additional support.

Dr Savera Mohangi, Department of Health HOD, said that DOH is working with the SIU to recover the overpayments and mechanisms have been implemented to prevent similar scenarios in the future. Similarly, the Department is in the process of recovering funds from the company that was not tax compliant. The two officials implicated in the PPE procurement have since been suspended and their hearing is scheduled for 17-18 March 2022.

Ms Sasekani Manzini, Health MEC, said that DOH seeks to root out corrupt activities and those that have been using the pandemic to enrich themselves. It is working closely with investigative agencies to ensure that this is fulfilled and recommendations implemented. Some implicated officials are seeking to resign. The MEC is seeking guidance from SIU before accepting their resignations and what mechanisms they can follow to institute disciplinary proceedings and possibly recover the funds. The MEC assured the Committee that DOH is committed to rectifying these challenges and they are working to deter other officials who may seek to engage in corrupt activities in the province and the country.

Mpumalanga HOD for Education Ms Lucy Moyane said that DoE was able to recover the funds from the service providers for the overpayment of face shields. The state in line with the SIU report is recovering R87 million from the service provider.

The Department has changed its model of providing PPE in schools. Local suppliers are used as this has previously been flagged as a concern. Schools are now responsible for procuring PPE supplies as they have conducted need assessments to ensure the correct sizes of masks. The Department will provide the funds for them to make the purchases. This previously would be handled by the Department but is now the responsibility of the schools. The Department has developed a procurement guideline that outlines what needs to be procured and how to determine sizes for the learners as well as cost estimates.  

On consequence management, the SIU report has been referred to the Hawks and an official was arrested on 25 February 2022. There are no further updates since the arrest is recent.

Mr Mkhatshwa said that MPG is providing support to departments and municipalities to improve its internal control processes to identify misconduct before losses occur and empowering oversight committees so that they can ensure municipal officials are held accountable and develop preventative measures against wasteful expenditures and corrupt activities.

The provincial department, under the guidance of the Premier, is also working to address immediately suspected wrongdoing through robust investigations to ascertain the facts which will help find implicated officials and determine the correct process in instituting disciplinary and criminal action. This has resulted in officials being subject to disciplinary action, suspension or being arrested. There is a close relationship with law enforcement agencies to ensure that implicated officials face the full might of the law and are held accountable for their actions. Similarly, any funds lost to irregular and wasteful expenditure should be recovered. MPG condemns all acts of criminality, including the intimidation of whistleblowers who seek to report wrongdoing in the provincial government and municipalities. Whistleblowers should be protected and feel secure enough to share their information which will be taken seriously during investigations, without fear or favour. MPG is committed to stamping out wrongdoing so that residents can restore their faith in government, knowing that government is committed to using its resources to serve provincial interests.

Follow-up questions
Mr Ceza said that the concerns MPs bring to the Committee are real issues that they see and experience on the ground. The Schoemansdal Stadium does exist and the provincial government should know about it. Mr Ceza flighted pictures to the Committee illustrating its existence. The Chairperson asked if the picture shown is indeed the stadium or a building next to the stadium. Mr Ceza said that there is no aerial view of the stadium but that the officials should know there is a stadium’s existence based on the pictures shown.

How is MPG addressing corruption when the tender system is plagued by corruption? The tender system is abused by external suppliers who inflate prices. The tender system needs to be dealt with to find a permanent solution that minimises corruption and has effective consequence management tools. The tender system can continually be re-regulated or re-modelled however it will not address the abuse of a tender system. Karl Marx says it is still capitalism as it is about profit maximization for private individuals. How is this being addressed as citizens are not being told how the system works and how corrupt dealings are being addressed?

Mr Mathumba said that his questions were unanswered. He referred to the municipalities in the province that have consistent irregular expenditure. Section 32 of the MFMA outlines the process of addressing irregular expenditure which includes reporting it to the municipal council, the mayor, the MEC, the Premier and the Provincial Treasury. If there are acts of criminality, these should be reported to the police and other investigative agencies. Who identified these irregular expenditures – was it the municipalities through their own internal investigations or was it the Auditor-General? Similarly, who identified possible criminal conduct in such cases – was it the municipality or the SIU? Did municipal management report the UIFW irregularity to the municipal council? Did the council investigate and report the matter to the police? If they did not, there should be consequences for the council and the mayor. What did the MEC do once she became aware of unreported irregular expenditure and how did she go about implementing section 32? If she did not institute action, she needs to declare this so that the next steps outlined in section 32 can be followed. None of the reports speak to the role of political office bearers considering these aspects which the Committee needs to be aware of.

The Committee should remember the VBS saga in 2018 where municipal councils failed to identify that municipalities were investing in a bank that is not recognised by the MFMA and there has yet to be any consequence management for the implicated councils. What is unfolding before the Committee seems to be a reminder of the VBS saga where the executive municipal leadership and the councils should have acted to prevent these unlawful activities from occurring but had not done so. Part of the consequence management should be that the council, executive municipal committee, and mayor should face consequences for their failure to report and deal with these matters. It is critical to establish who identified the UIFW criminality. If it was the SIU, actions need to be taken against political office bearers and management for failure to identify these.

MPG response
Mr Ngubane reaffirmed that there is no stadium at Schoemansdal as per records of MIG approved projects. The images Mr Ceza refers to is an open ground that the community opened for itself. It contains a library and community hall. There is an open ground that is unaccounted for as infrastructure that government has delivered in that area. The community has made use of the ground for their own purposes and whoever said a stadium would be provided by government is misrepresenting the truth. The only stadiums that the department has on its records are the ones mentioned earlier but there is no record of stadium infrastructure in Schoemansdal.

On water delivery price inflation in the area, it was dealt with extensively including a visit from Minister Mchunu in the province from 7-8 December 2021 to address illegitimate water service providers which are having a severe impact on communities. The MPG position is that the water trucks will be eradicated as soon as water infrastructure is built in affected communities and the municipality will be responsible for ensuring water is delivered as it is not a trade-off item; it is a necessity. If there are entities that are making water a trade-off item and making ill-gotten financial gains from this, the provincial government, municipalities, and law enforcement agencies must put together their resources to bring these activities to an end. Water trucking is only an alternative to the permanent structures that are to be built in the communities and should not be a business profiting venture.

The investigative reports will be tabled at the Provincial Executive Committee at a later date as it was meant to take place at the same time as the Portfolio Committee briefing. However, once tabled, it will discuss the implicated officials and service providers and law enforcement agencies will be involved in ensuring that those implicated are subject to legal and criminal proceedings. The MPG and Provincial COGTA are following due process so that the process is not called into doubt before the courts thus jeopardising its efforts.

Ms Shiba said that there are Mpumalanga municipalities that have seen an improvement in governance as per the AG's report on the province. A copy of the AG’s report will be given to Committee to show that MPG in partnership with the Provincial Treasury is trying to assist municipalities to deliver on their objectives as guided by the Constitution.

The Committee has requested a report on the Steve Tshwete municipality. This is a complex situation as municipal employees embarked on an unprotected strike which resulted in services being disrupted and delayed. There was a misunderstanding on when the employees will appear before the Local Labour Forum. The employees wanted to discuss the SALGA Bargaining Council main collective agreement which is not their mandate.

Based on Mr Ngubane’s response about the supposed stadium in Schoemansdal, Mr Ceza asked that the Director-General investigate the pictures shown as he was part of an oversight visit that proves that there is a stadium structure.

The Chairperson noted that the focal point of the meeting was to unpack the management of the Mpumalanga Covid-19 initiatives as tabled in Parliament on 2 September 2021, 1 July 2021 and 9 December 2020. The Committee needs to find a way of verifying that there is indeed a stadium in Schoemansdal to address the discrepancies between Mr Ceza and Mr Ngubane.

The Chairperson agreed with Mr Mathumba that the sentiment throughout the country is that all spheres of government are taking a relaxed approach to dealing with corruption. The Committee must have a tough stance against corruption. The commitment from MEC Finance should be taken seriously about rooting out corruption. It is also important to find out who established wrongdoing during this period and if government or the service providers are the main culprits in wrongdoing. The MPG must be allowed to respond fully to these concerns including the alleged stadium and the strike at Steve Tshwete municipality which they must do so timeously as they account to both the Committee and the people of Mpumalanga. The Committee may at some stage go to Mpumalanga to interact with residents to gain further insight into aspects discussed in the meeting. The Committee is willing to support the province in ensuring that its commitments are fulfilled, especially the need for clean and good governance as it is demanded by residents.

MEC Mkhatshwa agreed with the Chairperson and said that the province will continue to subject itself to being held accountable to the Portfolio Committee. The Committee’s oversight function is welcomed as is an oversight visit to establish the facts of the stadium and other related matters. The Committee should be aware that there are new municipal councils emanating from the LGE which the MPG is taking advantage of in terms of capacitating councils and showing them how to follow due process. Provincial Treasury has embarked on a provincial road show to municipalities and political office bearers in addressing financial matters, especially UIFW so that processes are not flouted and implicated parties are held accountable. The MPG knows the legislation guides how to identify and report wrongdoing and continues to ensure that the legislation is followed. Municipalities, especially accounting officers, are aware that they should report suspected wrongdoing to their executive mayor and to the COGTA MEC and allow the necessary process to follow after such reporting. This forms part of the capacity building of each municipality and strengthens oversight committees in these councils. Local government is highly regulated as such, councils meet regularly to understand and implement the legislation that governs their office.

Mpumalanga is undertaking the procurement process as outlined by National Treasury which municipalities ought to follow. They cannot create their own procurement process as it is unlawful. A debate about the current tender system is encouraged so as to identify loopholes that enable corruption and how these accordingly. When dealing with corruption, both the supplier and the government official must be held accountable. The goal is to do away with corruption and create a capable developmental state to carry out their functions and responsibilities. MPG seeks to add multiple implementing agencies which creates competition among agencies to ensure that they deliver quality projects.

Provincial government requires monthly reports from municipalities on how Covid-19 funds have been used as an oversight function to address immediately any suspected wrongdoing or discrepancies in how funds have been used. Implicated individuals will be taken to task and misappropriated funds will be recouped. It is important for MPG to act in the best interests of the provincial residents.

Mr Mathumba agreed to the Schoemansdal stadium oversight visit and asked that the oversight visit also include the implementation of section 32 of the MFMA.

The Chairperson noted Mr Mathumba’s remarks and said that all concerns raised in the meeting will form part of the oversight visit including the report that the provincial government must submit on outstanding concerns.

The Chairperson thanked the MPG delegation for appearing before the Committee. The meeting dealt with a pertinent issue that affects the entire country and the next meeting will be a series of follow-up questions, reports and likely visits. It is hoped that the delegation understands the aspirations of South Africans for effective service delivery. Policy and executive functions will be engaged continually. The Committee is ensuring that the rights of citizens as per Chapter 2 of the Constitution are protected, respected and fulfilled. The Committee notes that the Mpumalanga provincial government is making consequence management efforts. Referrals to law enforcement and internal disciplinary mechanisms need to be amplified to minimise the negative perceptions society has about government being corrupt and ineffective.

The meeting was adjourned.