SIU investigations; DWS financial statements: AGSA briefing

Public Accounts (SCOPA)

08 June 2022
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary


The Standing Committee on Public Accounts met on a virtual platform for a briefing on the status of the Special Investigating Unit's (SIU) investigations into the Department of Water and Sanitation.

The presentation covered all proclamations and the status and outcomes of all the SIU's investigations. This included incomplete projects, outcomes, consequence management outcomes, consequence management, referrals made by the SIU, specific observations made by the SIU on the extent of irregularities and maladministration, and the evidence of corruption and new allegations received by the SIU.

The Committee was pleased with how comprehensive the presentation was and commented that the findings were very concerning. It was also concerned with the slow pace of consequence management and requested that the SIU, when dealing with the amounts of money spent, attach percentages to put the figures into perspective.

The Committee said that they would deal with all water portfolio-related matters in August. They appreciated the work of the SIU.


Meeting report

The Chairperson said he was visiting the Eastern Cape with the ad hoc committee on food disaster relief and recovery. If he became unavailable during the meeting, Mr S Somyo (ANC) would chair the meeting.

He said that the briefing by the Auditor-General on the audit outcomes of the Department of Water and Sanitation (DWS) would be postponed to next week due to a delay in the completion of the report, which would be tabled in Parliament on Friday.

He requested the Special Investigating Unit (SIU) to proceed with their presentation. He commented that water-related matters had been suspended during the COVID19 pandemic due to the magnitude of the work that needed to be done.

Adv Andy Mothibi, Head of the SIU, introduced his team, including Mr Leonard Lekgetho, Chief National Investigations Officer, and  Ms Gina Beretta-Pretorius, Lead Investigator.

He said the SIU's legislative mandate and operating model had been covered. The presentation would start with the proclamations and then deal with the status and outcomes of all SIU investigations. The presentation was comprehensive and would cover the incomplete projects, which, based on the SIU's findings, were a cause for concern. The presentation would also cover the outcomes, consequence management, referrals made by the SIU and specific observations made by the SIU on the extent of irregularities and maladministration and the evidence of corruption and new allegations it had received. All the findings and referrals would be incorporated into the Presidency framework that monitored SIU referrals.

Status of SIU's investigations involving the DWS
Adv Mothibi provided an overview of the outcome of all SIU proclamations.  

Civil litigation instituted in the SIU's name included:

Vuwani -- R95 million;
Gauteng Department of Human Settlements (GDHS) -- R108 million;
Lepelle Northern Water (LNW) relating to LTE Consulting Engineers -- R2.2 billion;
DWS relating to System Applications and Products (SAP) -- R1.1 billion (contract set aside by the special tribunal on 15 March 2022; R331 million to be repaid; R691 million savings to the DWS).
LNW regarding Legodi -- R1.1 billion

There had been 52 asset forfeiture unit (AFU) referrals and 101 National Prosecuting Authority (NPA) referrals.

Evidence of criminality referred to NPA and AFU
There had been 53 disciplinary referrals. These included the official dismissal of three officers, one final written warning and the resignation of four officials.

Evidence of other transgressions had been referred to relevant authorities such as the Institute of Directors, the Independent Regulatory Board for Auditors (IRBA), the South African Revenue Service (SARS), various regulatory bodies and the Finance Intelligence Centre (FIC). There had been 45 black listings, 20 SARS referrals and three Construction Industry Development Board (CIDB) referrals.

Presidential report presented to the Office of the President

Proclamation R35 of 2008; the final report, 30 April 2013.
Proclamation R54 of 2012; the final report, 15 December 2016; the supplementary report on Vuwani, 28 October 2018.
Proclamation R22 of 2016; the final report to GDHS, 21 September 2018; the interim report on LNW 31, October 2018.
Proclamation R35 of 2008; Mhtatuze Water Board.

Mhlathuze Water Board: Summary of Findings

Correct supply chain management (SCM) processes were not followed.
Controls and policies in place were not sufficient to mitigate the risk of financial loss suffered by the Mhlathuze Water Board.
Documentation critical to the investigation was either lost or destroyed negligently or intentionally, which hampered the investigation.
The Mhlathuze Water Board had failed to keep records of financial transactions, which reflected that R9 977 577.50 of payment vouchers were untraced.
The majority of original contracts for tenders awarded, totalling over R19 million, were not found and/or did not exist.
The entity failed to protect its records, thereby contravening section 50(1) and section 51(1)(a)(i) read with section 86 of the Public Finance Management Act (PFMA).
Failure to enter into a written contract with its suppliers contravened section 32 of the Water Act (Act 103 of 1997).

Mhlathuze Water Board: Outcomes

A criminal case of fraud and corruption had been opened against an employee of the Mhlathuze Water Board and the service provider who paid a gratification. The case was reported at Richards Bay (CAS 164/11/2010 refers).
A criminal case of contravention of section 50(1)(a) and section 51(1)(a)(i), read with section 86 of the PFMA, was opened against the board members of the Mhlathuze Water Board. The case was reported at Richards Bay (CAS 227/03/2010 refers).
The Directorate for Priority Crime Investigation (DPCI) was handling these two criminal investigations.
Three implicated employees of the Mhlathuze Water Board had resigned prior to the completion of the investigation.
During the period of the investigation, which was from 1 January 2004 to 4 September 2008, there were two different boards.
The SIU's final Presidential report was submitted on 30 April 2013.

Proclamation R54 of 2012: DWS

General procurement findings
There was procurement of goods and services by the DWS, which were not fair, transparent or equitable, and a conflict of interest of departmental personnel in entities contracting with the Department. In respect of this, the SIU had found evidence during the investigation that indicated fruitless and wasteful expenditure, irregular expenditure, fraud and theft, corruption, officials who appeared to have defrauded the Department by being complicit in the manipulation of the procurement processes concerned to their personal benefit, and a contravention of section 17(1) of the Prevention and Combating of Corrupt Activities Act No. 12 of 2014.

There was a contravention of paragraph C4.5 of the Public Service Regulations of 1 July 1999. Dishonesty/fraud had been involved in the contravention of the code of good conduct for the Public Service C. 4. 5, by engaging in any transaction or action that was in conflict with or infringed on the execution of his official duties, and by using his official position to obtain private gifts or benefits for himself during the performance of his official duties and accepting gifts or benefits that may be construed as bribes.

Vuwani Pipeline
The Committee was given the status of the SIU's Vuwani investigation -- Contract W0497 WTE (Part B) Luvuvhu River GWS: Construction of the 800mm diameter Vuwani steel pipeline.

The SIU investigation had been completed, and the final Presidential report on the Vuwani pipeline investigation was submitted to the Office of the President on 26 October 2018. The contract was awarded in 2012 with a value of R50 048 759 and a construction completion period of 45 weeks. A total of R29 million has been paid to Ascul Construction to date.

Subsequent to the award of the contract, from 6 July 2012 onwards, Ascul Construction failed to perform on time. Instead of enforcing the penalty clauses, the Department had allegedly unlawfully entered into a supplementary agreement which made provision for waiving the penalties. The agreement had also provided for a R16 million advance payment to Ascul Construction to improve its cash flow. The extension was alleged to constitute complete disregard or contravention of the provisions of the original contract and the PFMA.

Proclamation R27 of 2018 contracts awarded by DWS to SAP

Status of DWS SAP investigation outcomes
On 15 March 2022, the Special Tribunal (ST) had ordered that the 2015 and 2016 contracts valued at R1 104 240 752 be declared constitutionally invalid and set aside. The court had further ordered that SAP repay an amount of R413 121 283, which represented the total amount received pursuant to the 2015 and 2016 contracts, less a set-off amount of R68 337 036 owing to SAP for yearly maintenance fees in terms of the 2012 agreement.

The disputed amount of approximately R83 million for third party costs incurred by SAP and the no-profit principle would be adjudicated by the ST, and a further order would be made to repay any further portion of the R83m to the DWS. Savings amounting to R691 123 914 were incurred for the DWS, and the Department received the payment of R263 282 173 on 18 March 2022.

There had been an NPA referral on 4 November 2019 for PFMA contraventions of the former Acting Director-General (DG), and an AFU referral on 31 January 2020.

There had been disciplinary referrals against:

The DDG on 17 October 2019. The status of this referral was that the official had been served with the charges, and the hearing had been set down for 28 April 2020 and had been concluded. The DDG was found guilty on nine of the ten charges. The sentence was expected in July 2022; and
The Chief Director on 15 June 2020. The DWS was in the process of appointing an initiator and a chairperson.

Other actions included a broad-based black economic empowerment (BBBEE) referral on 29 August 2019; a SARS referral on 9 July 2019 for tax discrepancies and verifying VAT registration, which had been delivered to SARS on 9 July 2019 (SARS had confirmed that they would review the matter); and an NPA referral on 15 March 2022, for the commission of offences in terms of the Prevention of Organised Crime Act (POCA) No 12 of 2004, the Companies Act No 71 of 2008, and offences of fraud and/or corruption.

Proclamation R22 of 2016

Lepelle Northern Water: Contract awarded to LTE Consulting (Pty) Ltd

An NPA referral was made on 3 April 2018 for contravention of the PFMA by the former CEO. A referral was also made in respect of one official on 20 September 2018 for collusion and fraud, particularly forgery. A blacklisting referral was under review. The SIU was assisting the Hawks with the criminal investigation, and the investigation concluded. The SIU team was finalising the final Presidential report to be submitted to the Presidency.


LNW had abused the directive from the Minister in that they had decided to appoint all service providers by deviation instead of following normal procurement processes.
Even though billions of rands had been spent on the project, the project was still incomplete. As a result, the people of Giyani were not getting any water from the project.
There had been overcharging by service providers.
The project was initially stopped because of a payment dispute between the service providers and the Department. LNW and the Department had terminated the service provider's contract.
There was poor project management on the part of LNW and the DWS.

Proclamation R27 of 2019

Lepelle Northern Water: Contract awarded to Blackhead

An extension to the proclamation was applied for and granted on 5 July 2019.


LNW had abused the directive from the Minister to appoint Blackhead on a deviation based on urgency, even though the project was not urgent.
Seven years later, the project remained unfinished.
The project's purpose was to increase the water capacity of the Tzaneen dam. The dam's spillway was demolished in 2016, meaning its capacity was now lower than it used to be. It remained like that since the project had not yet been completed.

Proclamation No R28 of 2019: Thukela Goedertrouw Transfer Scheme

Investigation status -- project performance and expenditure

Counsel had drafted papers to the Special Tribunal seeking civil remedies to declare the contract unlawful, set it aside and recover the losses suffered by the Department.
A financial report of the analysis of AECOM, CMC bank statements and identified officials to identify possible links between officials and the service provider has been submitted.
An analysis of property information (movable and immovable) of the service provider and the sub-contractor in preparation for the civil case has been submitted.
The final report, with findings and quantum of loss, had been received from the quantity surveyor after site assessments were conducted to complete the value for money exercise.
The closeout report to the President had been submitted for final review.

Proclamation R4 of 2019: Umgeni Water


The SIU was in the reporting phase of the project. The final Presidential report had been drafted and was in the final review process at the SIU. The project end date was 31 May 2022. The investigation was complete, and the project would be extended to 30 November 2022 for the support phase and to institute civil proceedings in the Special Tribunal.

The SIU was motivating for an extension to the proclamation as more allegations had been uncovered during the investigation.

Proclamation R33 of 2021: Four contracts awarded to EOH

Status of the investigation

The investigation had kicked off on 10 August 2021. The SIU had collected and analysed the relevant documents concerning the contracts under investigation. The SIU had considered an offer by EOH but could not accept it. The SIU had quantified the amount payable to the DWS as R236m. It had appointed counsel intending to approach the Special Tribunal.

The SIU informed EOH of its findings, and EOH had undertaken to consider the findings and revert to the SIU. The SIU was currently conducting lifestyle audits on implicated officials from the DWS.

Proclamation R23 of 2020: Amatola Water Board

Matters under investigation

The SIU investigation had covered a total of 118 contracts, listed hereunder as follows:

36 service providers for the supply, delivery and installation of rainwater harvesting tanks;
17 service providers for water carting trucks;
20 service providers for water tankers through a National Treasury (NT) transversal contract;
eight service providers for drilling and equipping of boreholes; and
37 service providers for a rapid response unit.

There had been findings on all these matters.

There had also been new allegations reported to the SIU with respect to Lepelle Northern Water Board and the Amatola Water Board. The SIU had assessed the allegations and had applied to the President for a proclamation to investigate these matters.

Concerns in other focus areas

The SIU was aware of various allegations and concerns voiced in the media and elsewhere regarding the "War on Leaks" programme, "Drop a Block," and the Sedibeng Water Board.
The SIU had requested and reviewed reports from the AGSA, the Organisation Undoing Tax Abuse (OUTA), Parliament and the DWS to thoroughly assess the matter and the allegations around the billions of rands of irregular and unauthorised expenditure.

The SIU had assessed the allegations and had applied to the President for a proclamation to investigate these matters.

Adv Mothibi's closing remarks

Adv Mothibi said the presentation was a comprehensive briefing that contributed to SCOPA's monitoring of needed improvements in the Department of Water and Sanitation.

Most of the investigations had been completed, and the presidential records were prepared and would be submitted. The outstanding matters were the outcomes, consequence management and recoveries through civil litigation, and the referrals for actions, including criminal actions to the NPA.

As indicated by Ms Beretta-Pretorius, the SIU had observed traction with the Department's dealing with disciplinary matters. However, the concern was the widespread maladministration, wanton disregard of the procurement process, unauthorised procurement processes and non-compliance with the PFMA, abuse of emergency provisions and poor project management.

The Vuwani pipeline was an old investigated project that his colleagues had discovered still not functional in preparation for the briefing. However, the DWS had taken over to ensure that it was completed. The Lepelle Northern Water project investigation concluded, and a high court date was set for 19 October. The SIU had tried to transfer all matters to the special tribunal, but this had not proved easy.

He noted that supply management was not being attended to as required, and due diligence was absent in ensuring the Department attached reasonable prices. He asked his colleagues to calculate the value of money. He said that Mr Lekgetho had presented on the Lepelle Water Project, and although percentages were not attached to the presentation, the calculated increase in cost was 116%, which was concerning. Blackhead Company had not completed their appointed project seven years later, and the Thukela Goedertrouw water scheme remained incomplete.

The SIU had found that payments were made even when projects remained incomplete, demonstrating a severe problem of poor project management. Investigations in other areas were being completed to check if corruption had not occurred.

When EOH had become aware of irregularities, they had done work on their part and had offered to settle at R52 million. He had told his colleagues that when corporates and private companies were quick to offer settlements, they must not be tempted to advise the DWS and themselves to accept the settlement without digging deeply into the actual loss the Department had suffered. The actual loss in the case of EOH was R236 million and their settlement offer was unacceptable.

He noted that maladministration had moved into the personal protective equipment (PPE) space when COVID-19 had struck at the Amathole Water Board. There was widespread maladministration, overpricing and other related findings.

Adv Mothibi said the SIU expected that the Department would consider their briefing when working on an improvement plan to ensure the issues raised were avoided. In addition, it had listened to the Department's Minister and executive authority, who were hard at work. He observed that through investigations, the SIU had found a problem with the public procurement system and was working with National Treasury to ensure the Procurement Bill considered its findings.

The Chairperson said the presentation set the scene for the Committee to continue their work of inquiry in the water sector, as instructed by the legacy report. Considering that billions of rands were involved, he noted the concerns with the slow pace of consequence management, which created an environment for corruption.

He said that dealing with this portfolio required effort and focus from the Committee, and its collaboration with the SIU was essential.

They would receive the Auditor-General's briefing on the DWS audit outcomes next week after they were tabled on Friday in Parliament. Mechanisms were needed to manage this portfolio.

Further engagements with the Presidency were needed on some  SIU reports related to the water portfolio so that these reports could be juxtaposed with the discussions from yesterday. In addition, oversight visit modalities and hearings could be worked out.

He noted the oversight week would be in August. He asked Mr Somyo to take over the meeting.

Mr Somyo thanked the SIU team for their presentation and its comprehensiveness, as matters of service delivery and value for money were essential to the Committee. He asked for comments and questions.

Ms B van Minnen (DA) said the SIU findings were shocking. She supported the Chairperson's decision to focus on this portfolio in August.

Ms N Tolashe (ANC) said the report was devastating and played an essential role in SCOPA's dealing with corruption. She requested that the SIU, in future presentations, when attaching the amount of money spent on projects that had not been completed, include the percentages too. This would make it easier for ordinary people to understand the role of corruption. She asked if the letter written by the Minister of Water and Sanitation was correct, as it had been used for the wrong reasons.

Mr Somyo referred to the errors made in negotiating the reports and the EOH matter. He commented that settlement engagements were huge matters which involved the acknowledgement of wrongdoing and asked how one would end up with such instances in the general perspective.

Adv Mothibi said SIU were prepared and willing to assist SCOPA. He agreed with Ms Tolashe that in many instances, such as in slide 66, the estimated cost was R6 million, and the actual cost had been R13 million. Showing the figures did not drive home the fact that there was a 116% increase between the estimated cost and the actual cost. He said Ms Tolashe's request would be implemented in the future.

He said the SIU had turned down the EOH's settlement offer of R52 million because the actual cost calculation was R236 million. This meant the offer was unacceptable. The SIU would ensure that over and above civil litigation, criminal charges against corporates were also taken into account.

The SIU shared that consequence management was slow, hence the need for continued engagements with the Department to ensure the process was speeded up. With civil litigation, the special tribunal was an available avenue which speeded up litigation and recovery.

The legal team instructed that matters instituted in the high court before the special court tribunal proclamation were to be pushed to the high courts. High court dates were being set. In the future, all matters would be instituted in the special tribunal to ensure they speed up the litigation and recovery process.

He noted that the Committee was interacting with the Presidency on the framework for monitoring the SIU referrals, as presented to the Committee yesterday. The recent briefing and other reports submitted to the Presidency were good. Therefore, these interactions and reports would be incorporated into the monitoring framework.

Mr Somyo thanked the SIU and members of the Committee for their attendance and contribution.

The meeting was adjourned.


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