Umvoti Municipality on Sale of Mr Mkhize’s House: briefing

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
17 May 2005
UMVOTI MUNICIPALITY ON SALE OF MR MKHIZE’S HOUSE: BRIEFING

Chairperson: Ms N Ntshulana-Bhengu (ANC)

Documents handed out:
KPMG Forensic Report, 25/01/05: Conclusions and Recommendations (Appendix 1)
Letter from Umvoti Municipality Financial Department (Appendix 2)
Draft Committee Report on Department Budget

SUMMARY
Members met to hear submissions from relevant parties on the attachment and sale in execution of Mr Mkhize's property within the jurisdiction of the Umvoti municipality that occurred in December 2003. Input was received from Mr Chetty, the father of the municipal credit controller, the Sheriff of Umvoti, a representative of KPMG Ltd., a representative of attorneys Nel and Stevens and the municipal Chief Financial Officer (CFO).

Numerous questions were raised by Members, including the conflict of interest involved; reasons for failure to attend previous meetings; the power of attorney arrangement between Ms Khan and her brother; procedures around the sale of the property; the role of the Sheriff; the nature of the investigation conducted by KPMG; the attitude of municipal management towards the affair, and proposed corrective measures to be taken.

MINUTES
Committee Report on Department Budget
Mr S Mashudulu (ANC) was appointed Acting-Chairperson in the absence of the Chairperson. He asked that Members consider the Department Budget (Vote 5) Report before commencing with the planned agenda. The Budget Review was based on the previous year’s resolutions as determined by Parliament. Government and other stakeholders had a duty to implement the resolutions in an effective manner. Members had to check omissions and additions to the original programme and determine whether certain key resolutions remained. The purpose was to weigh delivery against pre-determined resolutions. Members had to perform the oversight role on a long-term basis

Mr P Smith (IFP) stated that the report appeared soft and was largely descriptive. Previous Committee inputs derived from debate appeared to have been omitted and critical comments were absent which was contrary to tradition.

Mr Mashudulu agreed that certain resolutions should be re-instated by Members as derived from study trips undertaken by Members. Previous resolutions remained and could not be ignored. Members should intervene where necessary to ensure compliance.

Mr M Nonkonyana (ANC) suggested that a clause be inserted at the end of the report stating that previous resolutions would be attended to and not ignored. He recommended that the report be adopted with the proposed amendment.

Mr Smith asked for clarity on the date for adoption of the report as increased allocation of time could result in a more vigorous debate and enhanced substance.

Mr Mashudulu stated that the report was a correct reflection of previous deliberations and oversight was a difficult process that demanded a long-term approach.

Mr Smith supported the proposal to adopt the report. The report was adopted.

Ms N Ntshulana-Bhengu (ANC) returned as Chairperson.

Follow-up on the Umvoti municipality issue
The Chairperson stated that the intention of the meeting was to serve as a follow-up on the Umvoti municipality issue. Certain parties had been invited to provide inputs. Members were obliged to monitor implementation of legislation and assess the impact in order to suggest where amendments were required. Laws could not be implemented in a disjointed manner and policy could not be misinterpreted. Legislation had to remain within Constitutional parameters. Members should ensure that legislation was not implemented in an arbitrary fashion to the detriment of citizen rights. The Committee had invited certain parties that had not been present previously. Ms N Khan was unable to attend due to illness but would attend in the near future. KPMG would provide background on certain issues within the investigatory report. The Sheriff of the Court would provide an explanation on the auction process that resulted in the sale of Mr Mkhize’s house. Mr S Chetty, the father of Ms N Khan, would explain the process around the sale of the house and events thereafter. Representatives of SALGA could obtain relevant information to assist in devising appropriate systems to transform local government. Members of the Kwazulu-Natal legislature could contemplate the amendment or repeal of particular pieces of legislation to enhance local government and promote service delivery.

Mr Nonkonyana asked that the attending parties provide reasons for their previous failures to attend scheduled meetings.

Mr Mashudulu stated that such reasons were valuable in determining the attitude of certain parties towards Parliament, i.e. whether avoidance had been a deliberate decision.

The Chairperson agreed that such explanation would be of benefit to Members as the Committee had subpoenaed certain parties to be present. She stated that such action was drastic but within the powers of the Committee as determined by the Constitution. The failure to attend a meeting without adequate reasons could be perceived as a lack of respect. The government sought to promote co-operation between various entities in the public interest.

Mr S Chetty stated that he had not attended previously due to the lack of an invitation. He stated that he had heard of the auction while attending court on another matter. He decided to follow his attorney to the place of sale and proceeded to bid for Mr Mkhize’s property that he secured at R8 000. He intended to purchase the property for his son, and his daughter signed the deed of sale on behalf of his son. The daughter had power of attorney over his son. Apparently Mr Mhkize approached Mr Chetty one month after the sale to attempt a buy-back and an offer of R35 000 was made but Mr Mhkize did not pursue the matter. The price would have been paid in monthly installments of R1 500. Mr Chetty claimed that he placed details of the offer in the Greytown Gazette to no avail. The son then proceeded with the transfer of the property as related costs were escalating and the property in question was subsequently acquired.

Mr Nonkonyana asked for the date of the auction and whether the conditions of sale had been read to Mr Chetty and signed by him. Detail was sought on the daughter’s role as regards the sale and the power of attorney arrangement. He asked whether the house was still available to be returned to Mr Mhkize.

Mr Mashudulu asked whether Mr Chetty was aware of Mr Mhkize’s financial situation when the offer to repurchase was made.

Mr Chetty responded that the auction took place during December 2003 and Ms N Khan was his daughter currently employed by the Umvoti municipality. The power of attorney arrangement involved his daughter signing on behalf of his son. The house was no longer available and had been transferred into his son’s name. Renovations had been undertaken at a cost of R180 000 and the property had been sold at a price of R350 000. The proposal to allow Mr Mkhize to make monthly payments was based on the rent arising from the house prior to transfer into his son’s name. Attempts had been made to accommodate Mr Mhkize but were unsuccessful.

Mr Mashudulu reiterated whether Mr Chetty had been aware of Mr Mhkize’s financial situation at the time the offer was made.

Mr Nonkonyana asked whether Mr Chetty had signed the deed of sale and sought confirmation on the power of attorney arrangement. He asked whether an attempt was made to establish the attitude of Mr Mkhize regarding the proposed resale. He asked for detail on the time period involved from the initial offer to the transfer of the property.

Mr Chetty replied that he did not sign the deed of sale and that the Sheriff of the Court had been aware of the power of attorney arrangement. He felt that an oral agreement was reached with Mr Mhkize that he should have accepted. Accusations of alleged impropriety made against him by Mr Mkhize at the time implied a lack of intention to continue with the offer.

Ms M Gumede (ANC) asked for clarity on the time period between the auction and the offer to resell and what had persuaded Mr Chetty to make the offer. She asked whether Mr Chetty would have accepted the situation if the roles had been reversed.

Ms S Makotoko (Department Chief Director) felt that Mr Chetty should explicitly state that his relationship with his daughter had not influenced his decision to participate in the auction.

Mr Chetty stated that the transfer into the son’s name had occurred in January 2004 thus resulting in a time period of approximately one month between the auction and the transfer. He stated that Mr Mhkize had approached him to make an offer to resell at R35 000 that he regarded as fair. He stated that he had no prior knowledge of the auction until the morning of the sale and the relationship with his daughter had no influence on proceedings.

Mr Mtalane (SANCO) asked why the daughter had not been present at the sale in question which was the norm in terms of the credit controller function. He found it difficult to accept that the daughter played no role in the affair leading up to the auction.

The Chairperson concurred that an explanation of the daughter’s role was crucial in enhancing an understanding of the situation.

Mr Chetty reiterated that his daughter had played no role in the attendance of the auction.

Ms P Bhengu (ANC) stated that Mr Chetty should not expect Members to believe that his daughter had played no role as this was an ‘unbelievable statement’.

The Chairperson noted the conflict of interest involved in a credit controller participating in the purchasing of a defaulter’s property. The role of a credit controller as a witness to an auction and signing the deed of sale on behalf of a relative was highly irregular. The Municipality suffered from a negative image and Members had to apply their minds to the issue to address governance implications.

Mr Nonkonyana asked why Mr Chetty had not signed the deed of sale at the auction as he was the purchaser. He stated that the daughter should not have signed the deed as she was not the buyer. He asked whether Mr Mkhize had been the highest bidder on the day.

The Chairperson supported the line of questioning and asked why Mr Chetty did not appear in any documentation related to the sale.

Mr Chetty confirmed that he was the highest bidder at the auction and reiterated that he bought the property for his son. He told the auctioneer at the conclusion of the sale that his daughter would sign on behalf of his son.

Councillor Ntuli (SALGA) asked whether Mr Chetty was aware of the price of the property at the commencement of the auction. He asked when his daughter had signed the documentation and whether he was aware of the default action against Mr Mkhize by the municipality.

Mr Chetty claimed that he was not aware of Mr Mkhize's house being put up for auction prior to his arrival at the site of the auction. He stated that the Sheriff had read out the conditions of sale that described the status of the property concerned but he had no pre-existing knowledge of the value of the property. He stated that his daughter had signed on the afternoon of the auction and that he was aware of the rates owed as a result of the conditions of sale.

Mr J Mchunu (MPL-Kwazulu-Natal) asked whether Mr Chetty had knowledge of default procedures due to past personal experience. He asked where his daughter had been employed when his own property had been attached two years previously and whether he understood the role played by his daughter as credit controller of the Umvoti municipality. He asked whether Mr Chetty would state categorically that he had no knowledge of the role of his daughter. He asked for detail on the type of security company employed to guard the property after the auction.

The Chairperson asked for detail on the length of involvement of the security company and the amount of costs incurred after the auction.

Mr J Aulsebrook (MPL-Kwazulu-Natal) asked whether Mr Chetty was an unrehabilitated insolvent and was therefore unable to sign the deed of sale.

Mr Chetty replied that his property had previously been attached and his daughter had been the credit controller at the time. He reiterated that his daughter had not influenced the purchasing of the house in any way. He stated that Mr Mkhize had approached him regarding a resale in late January and that numerous costs had arisen during this period. He stated that a breakdown of costs could be provided in the near future if required.

The Chairperson noted the serious nature of the situation and sought to establish the extent of similar occurrences within local government as a whole. Many complaints had been received from the general public on a regular basis. She asked whether the offer made to Mr Mkhize to repurchase the property was intended to recover accumulated costs.

Mr Chetty confirmed that security had been present at a certain cost but could not provide detail of other legal costs due to lack of knowledge.

The Chairperson asserted that Parliament was the highest decision-making body in the country and the Chetty family was uncooperative in providing information to resolve the matter that had dire consequences for local government and governance. She stated that the failure to provide an address for the son was a delaying tactic that was unacceptable. She claimed that Ms Khan acted in her own interests in an arbitrary manner and could not hold the country to ransom. She stated that the presence of the son would have provided vital information for Members on the accumulated costs after purchase. She asked for clarity on the current financial status of Mr Chetty.

Mr Chetty replied that he had not been liquidated but had endured a sale of execution undertaken by an attorney.

Mr Nonkonyana asked for an explicit answer on the reason for the failure to sign the deed of sale despite being the successful bidder.

Mr Chetty confirmed that the reason for not signing was the presence of existing debts.

Mr Nonkonyana asked whether misrepresentation had not occurred when Mr Chetty failed to disclose his intention to make use of his daughter at the conclusion of the auction to sign the deed of sale.

Mr Chetty responded that he had not disclosed his intention to utilise his daughter as a signatory to the document at the beginning of the auction but had informed the Sheriff at the end.

Ms L Mashiane (ANC) asked whether this was normal practice at an auction.

Mr Chetty replied that this was acceptable practice and people often purchased properties on behalf of other parties.

Councillor Harie (SALGA) asked whether Mr Chetty was aware of a conflict of interest on the part of his daughter in signing the deed of sale and whether the actions were a regular family arrangement.

The Chairperson concurred that the signing of purchase papers by the credit controller of a municipality involved in the attachment of a house to recover monies owed was a clear conflict of interest.

Mr Chetty replied that he could not answer on behalf of his daughter and she would have to attend a Committee meeting to provide explanations.

Ms Makotoko (DPLG) agreed that Mr Chetty had placed his daughter in a conflict of interest situation.

Mr Chetty reiterated that his daughter signed on behalf of his son. He agreed that a conflict of interest scenario had arisen.

The Chairperson stated that the entire process had placed the municipality under intense scrutiny as an employee had signed a deed of sale for a property under attachment.

Mr Mashudulu referred to the presence of divided loyalty between family interests and municipal employee duties. He reminded Members of a credit controller's access to confidential information.

Mr Chetty reiterated that the sole intention to use his daughter was as power of attorney for his son.

The Chairperson stated that Ms Khan had been instructed by the Mayor to deal with complaints received from Mr Mkhize after the sale that contributed to the conflict of interest. The arrangement would not have provided Mr Mkhize with a fair opportunity to address wrongs committed. She asked for detail on Mr Chetty's previous financial difficulties.

Mr Chetty replied that he had owed an insurance company money after losing a court case which resulted in the attachment of his house.

Mr Adendorff (Sheriff-Umvoti) provided a brief account of his involvement in the Mkhize case confirming the date of the auction and the involvement of Mr Chetty in securing the highest bid. He confirmed that advertisements detailing the sale of execution had been placed in the local media by Nel and Stevens as attorneys for the municipality. He stated that Mr Chetty had indicated after securing the bid that his daughter would sign the deed of sale as purchaser. He confirmed that Ms Khan had signed the deed of sale shortly thereafter and paid the required deposit. He confirmed that the relevant documentation had been sent to Nel and Stevens to initiate the transfer of the property.

The Chairperson referred to a recent submission to Members by Mr Mkhize that mentioned a subsequent meeting with the Sheriff at a shopping complex where a discussion on the affair took place.

The Sheriff stated that he did not recall meeting Mr Mkhize after the sale.

Mr Nonkonyana asked whether the Sheriff knew Mr Mkhize prior to the auction. He asked whether a description of the property to be sold had been forwarded to the Sheriff beforehand. He asked who had furnished a Rule 38 security on the property on behalf of the municipality. He asked whether proper procedure had been followed in allowing Mr Chetty to notify the Sheriff of his daughter's role after the auction.

The Chairperson asked whether the Sheriff should have allowed Ms Khan to sign the deed of sale given her role as a credit controller in the municipality involved. She asked what action the Sheriff had taken on discovering this fact.

Mr Adendorff replied that he knew of Mr Mkhize who had worked as an ambulance driver in the town for many years. He stated that he did not recall meeting Mr Mkhize after the sale. He confirmed that a description of the property had been contained in the writ of execution received from Nel and Stevens and had been signed by the municipality's Chief Financial Officer (CFO) and Ms Khan as a witness.

The Chairperson asked whether the Sheriff had not thought it strange that Ms Khan signed as a witness and subsequently as the purchaser.

Mr Adendorff replied that the signing by Ms Khan as a witness was not strange as she was an employee of the municipality. Regulations decreed that Mr Chetty could name a principal as the purchaser of the property after the auction had ended.

Mr Smith asked for detail on the costs incurred after the completion of the auction and whether the purchaser had paid the outstanding amount. He asked who received the R8 000 arising from the sale.

Mr Adendorff replied that the cost structures had been drawn up by the attorneys and his duty was to ensure payment to the creditor. Therefore, the R8 000 had been delivered to Nel and Stevens.

The Chairperson asked whether the summons had shown the amount owed.

Mr Adendorff replied that Mr Kruger of Nel and Stevens would have this information.

Mr Aulsebrook inquired whether the price achieved for the property was fair.

Mr Adendorff responded that he did not regard the value attained as fair but the law did not permit him to prevent the sale.

Mr R Bhoola (MF) asked whether the Sheriff was aware of the amount outstanding at the time of sale and whether representatives of the attorneys were present. He asked whether the Sheriff was aware of Ms Khan's role as the credit controller.

The Chairperson referred to the conflict between signing as a witness and also as a purchaser.

Mr Adendorff replied that he was aware of the outstanding debt that was reflected in the warrant of execution and stood at R17 384. He confirmed that a representative of Nel and Stevens had been present at the auction and stated that his duty did not involve a consideration of the use of the power of attorney by purchasers. He knew of Ms Khan's role as credit controller, but could not halt the sale as the law did not empower him to do so. Regulations stipulated that the Sheriff had to sell the property to the highest bidder and ensure payment to the creditors.

The Chairperson claimed that Members were acquiring valuable information to assist in understanding the depth of the problem within municipalities and to devise meaningful interventions to address the shortcomings. Members had a responsibility to prevent insensitive application of the law and contribute to the improvement of people's lives.

Mr Mashudulu indicated that the attachment of property of defaulters contained serious consequences for them and Members had a moral obligation to consider the effect.

Ms Mashiane stated that the presence of Ms Khan on the same document as a witness and as a purchaser was highly irregular.

Mr Smith noted that the name of the principal, namely the son, did not appear in the document at all.

Mr Adendorff stated that he could not question the name of the purchaser as stipulated in the document but the person named would be held responsible for the conditions of sale.

The Chairperson noted that Ms Khan's name appeared in the KPMG report as the purchaser despite Mr Chetty claiming that he purchased the property on behalf of his son.

Mr Chetty stated that he informed the Sheriff that his daughter would sign on behalf of his son.

The Chairperson stated that there was a clear difference between purchasing and signing on behalf of somebody else. She asked that the Sheriff clearly state what Mr Chetty said at the time.

Mr Adendorff stated that Mr Chetty claimed at the time to be bidding on behalf of his daughter.

Mr T Wright (Director, KPMG) provided background on his firm's role within the investigation stating that an initial meeting with the municipality had occurred on 4 January 2005 and the investigation initiated on 10 January 2005. A number of concerns were focused on including the existence of a verbal agreement to repay between Mr Mkhize and the municipality, various irregularities involved and whether Mr Mkhize had received rate accounts. Meetings were held with various parties and a report was submitted on 25 January 2005.

Mr Smith noted that the report indicated the correct following of ordinances by the municipality but this was questioned by DPLG during previous submissions.

Mr Nonkonyana questioned the impartiality of the firm in conducting the investigation and asked for clarity on the nature of the investigation.

Ms Makotoko asked whether the conclusions of the report remained in place.

Mr Wright replied that the report indicated the regulations considered by the investigators and that he had assisted with visits to the affected parties and the drafting of the report. He stated that the purpose of the investigation was to acquire relevant information in accordance with forensic requirements.

Mr Nonkonyana questioned the independence of the report and alluded to an impression of bias within certain sections and the possibility of protection of certain individuals.

The Chairperson reminded Members of the importance of governance issues and the impact of the events in question beyond Umvoti municipality. She stressed the importance of KPMG in maintaining a neutral position as regards the investigation to ensure objectivity and efficacy. The report made no mention of irregularity with regard to the signing of the deed of sale by Ms Khan. She observed that Ms Khan appeared to hold great power within the municipality and behaved in an improper manner.

Mr Wright agreed that the integrity and independence of the firm was of critical importance and that these values had driven the investigation. He stated that the investigation was conducted within a tight scope and an impartial and independent report was produced.

Mr Nonkonyana stated that the report contained glaring omissions regarding clear irregularities that took place. He stated that the report indicated that Ms Khan should not be dismissed which was not part of the original brief.

Mr Mtalane referred to a meeting on 15 December 2005 where Ms Khan was cleared of irregularities prior to the commencement of the investigation. He stated that KPMG acted as the internal auditors of the municipality and should not have conducted the investigation.

Ms Mashiane asked whether KPMG had considered constitutional principles when conducting the investigation and claimed that such principles should be incorporated into future activities.

Ms F Batyi (ID) referred to the municipality's code of conduct and asked whether these conditions had been taken into account. She stated that Section 195(1) of the Constitution was relevant detailing provisions around the personal gain of employees. She asked whether Ms Khan had disclosed the power of attorney relationship with her brother to the municipality.

The Chairperson stated that the payment of a debt indicated a commitment to pay and should have been considered when contemplating attachment of Mr Mkhize's property.

Mr Mashudulu noted that Mr Mkhize's name appeared more often within the report and was portrayed in a negative light. He stated that such a report should not express personal opinions and build a case against one individual. He concurred that the Constitution should have been referred to and municipal ordinances should not be used in a selective way.

The Chairperson reminded Members of overpayments that occurred within Mr Mkhize's municipal files which should have been identified by KPMG. She added that the effort made to repay by Mr Mkhize should have been taken into consideration.

Mr Mtalane asked who made the decision to sell the property.

Mr Wright questioned whether an agreement to pay had existed between Mr Mkhize and the municipality. He stated that such an arrangement required a written agreement indicating acknowledgement of debt and a structure of repayment. He concluded that no such arrangement had existed.

The Chairperson stated that the act of paying should be considered an agreement to make payments and firms such as KPMG should be sensitive to the First World-Third World division within South Africa.

Mr Wright agreed that the statement pertaining to the reinstatement of Ms Khan should not have appeared within the report and reconfirmed that the firm first knew of the request to investigate on 4 January 2005. He stated that the role of the firm as internal auditors of the Umvoti municipality would have to be discussed with the firm's Durban office as he was not certain of the arrangement.

Mr Van Der Merwe (Umvoti municipality-CFO) stated that KPMG was employed to conduct a specific task and the firm did not serve as ongoing auditors. He stated that the firm had considered internal financial controls and the use of relief labour.

Mr Wright acknowledged that the principles of the Constitution had not been considered in compiling the report that had been conducted in accordance with narrow strictures.

The Chairperson asked whether the firm did not have a role to play in pointing out shortcomings to the municipality discovered during an investigation such as irregularities in the default procedure. She stated that a failure to change the terms of reference of an investigation resulted in an inferior final product.

Mr Wright agreed that an altered scope of investigation would have resulted in a different final report and Members should accept that certain limitations existed within the report. He responded that the code of conduct of the municipality had been considered when compiling the report.

The Chairperson stated that the Municipal Systems Act code of conduct should also have been consulted and the investigation should have focused on the conflict of interest between the role of credit controller and purchaser. She asked the CFO of Umvoti municipality whether Ms Khan had made any mention of a conflict of interest.

Mr Van der Merwe stated that Ms Khan had not been prepared to rescind the sale after Mr Mkhize had approached the Mayor to complain despite numerous requests to reconsider. No disciplinary measures had been taken against Ms Khan up to this point due to a lack of adequate evidence. He stated that the Council was awaiting a report from the provincial government before considering further action.

The Chairperson asserted that the lack of action on the part of the council implied a weakness in governance and a lack of necessary will to rectify the situation. She stated that the CFO should have taken firmer action to ensure that Ms Khan reconsidered the sale.

Mr Van der Merwe responded that he did not instruct Ms Khan to alter the arrangement but merely to reconsider the sale and act in the best interests of the municipality.

The Chairperson stated that the duty of the municipality was to implement laws correctly and not fail to govern in the required manner. The CFO had the necessary power to have taken firmer action against Ms Khan but had declined to do so. She was concerned that similar activity might be occurring in other municipalities.

Mr Nonkonyana pointed out that the events indicated a lack of concern on the part of municipal management that adversely impacted on the image of local government.

Mr Mtalane asked Mr Kruger of Nel and Stevens whether he had checked to determine repayment on the part of Mr Mkhize before agreeing to participate in the sale of execution.

Mr Kruger replied that he had investigated the matter but the official line was that no arrangement was in place governing repayment. He stated that the final decision to proceed with the sale occurred on the morning of the auction and emanated from Ms Khan. He referred to a recent High Court decision in Gauteng that confirmed that a municipal employee or councilor could bid for property at an auction. He recommended that legislation would be necessary to alter this scenario. He reminded Members of the current practice where properties were sold for nominal amounts and banks as the principal creditors resold the properties at exorbitant profit.

The Chairperson reminded parties present of the principles of the Freedom Charter and the priorities of the government in improving the lives of all citizens. She stated that all professional bodies had to move away from the old approach of merely applying the law in a rigid manner and include new values and principles in practice. She claimed that the recent High Court ruling regarding employees would have to be revisited in the public interest. She reminded Members of their duty to identify gaps in current legislation and make necessary amendments. She implored professional officials to interpret the Constitution in their daily activities and contribute to an improvement of legislation. She stated that an intention to repay debt should not be solely determined by the existence of a written agreement but should hinge on the act of repayment. She declared that the treatment meted out to Mr Mkhize was unacceptable and the credit control policy as practised by local government needed to be reconsidered. She implied that DPLG had much work to do in this regard.

The meeting was adjourned.