Special Audit report on Covid-19 expenditure in municipalities: AGSA briefing; Investigation into Covid -19 PPE procurement by state institution: SIU briefing
08 July 2021
- SIU: Proclamation R23 of 2020 Local Government Investigations Presented by Advocate Andy Mothibi
- AGSA: Third Special Report
- AG: Financial management of covid-19 municipal relief funding
- Media Statement: Committee to Call Muncipalities to Acount on AG’S FINDINGS on Money Allocated for PPE
Auditor-General South Africa said the third Special Audit Report on Covid-19 expenditure focused on municipalities. It would be an empowering tool for the Committee. The focus was on how internal controls should be strengthened to ensure that there is accountability and transparency when money is spent. The presentation detailed which municipalities in each province were audited. It noted how funds made available were underspent to implement initiatives. There was a failure to realise the value of a project plan for saving time, money and avoiding many challenges. Significant deficiencies in procurement and contract management processes, as well as inadequate controls to ensure payments were made only for goods and services properly delivered. There were clear signs of overpricing, unfair procurement, potential fraud and non-compliance.
The Committee noted the usefulness of the Auditor-General’s findings and recommendations for when it met with municipalities. It asked about a misrepresentation of information by the City of Tshwane on some Covid-19 spending. Members asked if the Auditor-General thought that there might be use for an inspector-general to investigate in real-time tender irregularities as those allegations arose. They asked why AGSA conducted fraud risk assessments on only 12 municipalities? What would AGSA do about the 15 municipalities that did not submit spending information on Covid-19 relief funding. They asked about consequence management and how many officials were involved. They asked if AGSA would conduct a land audit in municipalities.
The Special Investigating Unit (SIU) briefed the Committee on the investigations into Covid-19 PPE procurement. It discussed Proclamation R23 of 2020 investigating all state institutions for all State of Disaster spending, Covid-19 expenditure statistics, matters finalised per province, limitations facing the SIU, contracts still under investigation, actual outcomes and observations. Total actual Covid-19 expenditure by municipalities was R5.1 billion from April 2020 to May 2021. The total value being investigated by SIU was R835.3 million. Of the R835.5 million under investigation about R507.8 million had already been referred to the Special Tribunal in order to set the contracts aside and recover losses. The number of PPE contracts under investigation by SIU by local government was 735. These contracts were awarded to 477 service providers. As a percentage of the number of contracts under investigation, 51% have been finalised, 38% were currently ongoing and 11% have yet to commence.
The Committee thanked the SIU for the detailed presentation. Members noted that many of the cases recommended to the National Prosecuting Authority by SIU involved section 173 of the MFMA financial misconduct offences. How many of those recommendations included municipal managers and how many involved councillors? It was often middle management or senior officials who were prosecuted while in fact the municipal manager signed off on the tender. They asked how much of the R507 million in irregular contracts had the Special Tribunal set aside. They noted that taking contracts on judicial review through civil litigation was extremely complicated, expensive and protracted and very often the service provider who benefitted from the irregular contract pleaded innocence. The Committee asked for the overall amount for all three spheres of government that SIU was investigating to which it replied R14.2 billion. A member from the EFF noted that the system of tenders and contracts had once again proven ineffective. It was only there to empower private companies and was not beneficial for the people of South Africa. People obtained tenders depending on their proximity to officials and politicians. Due to time constraints, the SIU was not able to respond to all the questions which would be responded to in writing.
The Chairperson said today’s meeting came almost a year after the President had tasked several agencies, including the SIU and Auditor-General South Africa (AGSA), to investigate allegations of abuse of Covid-19 funds. The Committee had started raising concerns on the matter as far back as April 2020 when allegations on the looting of disaster relief food parcels by some ward councillors surfaced. The Committee condemned this alleged corruption in the strongest terms and called for the justice system to intervene. The Committee also met with the South African Local Government Association (SALGA) to discuss this.
The audit scope of the AG’s first and second special reports on the financial management of Government’s Covid-19 initiatives also covered the distribution of food parcels but mainly those that were delivered by the South African Social Security Agency (SASSA). The other key Covid-19 initiative that was of great interest to this Committee was the funding for municipalities for emergency water supply, sanitation, food and shelter for the homeless. This included basic services for the indigent and community services. Soon after the President had announced R20 billion support to municipalities, in mid-April 2020, the Committee convened a meeting with the Department of Cooperative Governance and Traditional Affairs to unpack the details on the allocation and distribution of its funds. Having seen the abuse of the food parcels distribution process, the Committee was concerned that this funding might undergo a similar fate. At that stage some Committee members had witnessed the delivery of fewer water tanks than promised or that were delivered but not dispensing any water.
The AG’s audit findings made it clear that the Committee’s initial suspicions were confirmed. The provision of temporary residential units to decongest high-density informal settlements was another Covid-19 initiative. The Committee had discussed this last year when it interacted with the nine provincial governments to ascertain their Covid-19 response plans. The Committee recalled the embarrassment of the housing units in some of the hostels in the country. There was public outcry over the quality and value for money of those units. The Committee called the provincial governments to come and account.
What was exciting was that the AG’s audit scope covered the de-densification initiative even though it was later discontinued. The audit findings would inform the Committee’s follow-up plan. The AG’s three special reports would empower the Committee to execute its oversight mandate with a better insight into how the Covid-19 funds had been spent. However, the AG’s presentation focused on the disaster relief funding to municipalities. In the near future the Committee would like AGSA to brief the Committee in detail on the findings of these other Covid-19 initiatives. It was not enough for the Committee to know how Covid-19 funds had been misused and abused. The Committee needed to see to it that there were civil and criminal actions against the perpetrators.
The Committee welcomed the establishment of the Fusion Hub to allow the Auditor-General to have close collaboration with SIU and other agencies. This was why the Committee would be hearing from SIU as it received a specific mandate in Proclamation R23 of 2020 to investigate procurement of goods and services for the National State of Disaster and to recover losses suffered by the state. The Committee will recall the initial leaking of invoices claiming R4.8 million from OR Tambo Municipality for door-to-door Covid-19 awareness campaigns. The Committee has since had a series of engagements with that municipality and was assured that SIU was looking into this matter. She was pleased to learn that the investigations had since been completed and that civil and criminal proceedings were underway.
In the Committee’s interaction with the provincial governments, the Committee had identified potential red flags on provisioning of quarantine facilities and procurement of personal protective equipment (PPE). The SIU scope covered more than 50 Covid-19 related allegations of impropriety involving 189 state institutions. Tonight was an opportunity for the Committee to engage with SIU on these investigations.
AGSA Special Audit Report on Covid-19 expenditure in municipalities
Ms Alice Muller, AGSA Acting National Leader: Audit Support, said this was the third special report AGSA would be sharing with the Committee on local government. The intention was for it to be an empowering tool for the Committee to take the matters forward. The AGSA focus was on how internal controls can be strengthened to ensure there is accountability and transparency when money is spent. When leaders were responsible for people’s lives then every rand should be spent with care. That was the cornerstone of this report. The presentation detailed which municipalities in each province were audited. The key findings dealt with infrastructure, personal protective equipment (PPE) and goods and services.
Funds available were underspent to implement the initiatives. There was a failure to realise the value of a project plan for saving time, money and avoiding many challenges. There were significant deficiencies in procurement and contract management, as well as inadequate controls to ensure payments were made only for goods and services delivered. There were clear signs of overpricing, unfair procurement processes, potential fraud and non-compliance. AGSA had provided recommendations to municipal managers on its findings. AGSA encouraged all role players to diligently execute their responsibilities, abide by the applicable rules and take full accountability. The lessons learned will empower them to tighten controls to prevent a recurrence in future transactions.
Mr C Brink (DA) said that Ms Muller noted that there was a misrepresentation of information by the City of Tshwane which repurposed a conditional grant and then spent the conditional grant on matters that were not authorised by the set conditions. He wanted the particulars, when it happened and when discovered as it sounded quite serious. There was usefulness in AGSA findings and recommendations. AGSA was an important standard bearer that held up the mirror when municipalities were not meeting the standards, when internal controls were not in place and governance was not at the level required. The drawback of an audit is that it always happened ‘in the rear-view mirror’. It was months after irregular, wasteful and fruitless expenditure occurred that AGSA makes the findings about what should have happened. Only then would remedial action be taken. That was the nature of the audit.
Did the Auditor-General think there might be use for an inspector general or a body that could investigate irregularities, especially tender irregularities, as those allegations arose? These matters could be referred to that body to make recommendations before an irregular contract is concluded or before a tender irregularity leads to an irregular transaction. Irregular transactions were extremely difficult and expensive to undo in a court of law. Even if AGSA made a finding that a contract was irregular, that did not mean that the state institution could walk away from that contract. The state institution would have to go to court and that process is expensive and prolonged.
Ms H Mkhaliphi (EFF) thanked AGSA and the Committee was always stressed when it received bad news like this. It was the Committee’s job to receive bad news as an oversight committee. AGSA stated that fraud risk assessments were performed at 12 out of 257 municipalities. Why only 12 municipalities – what informed that decision?
On water infrastructure in municipalities, it stated someone in eThekwini Municipality benefited as proper procedures were not followed. It noted aging infrastructure aging was a problem in eThekwini. The Committee agreed that was one of the challenges based on its oversight visits and this was getting worse. She wanted clarity on AGSA powers. The Committee knew very well that someone was not doing the job of ensuring this kind of corruption was not happening. What was AGSA going to do according to its powers? The Committee received this information and then what? Infrastructure was aging in eThekwini. Everyone was worried as people did not receive water services. Even if the people wanted to engage about the lack of water there was no answer from the municipality. After the investigation what had AGSA done to deal with such disturbing information? Fifteen out of 257 municipalities did not submit spending information on their Covid-19 municipal relief funding. Which municipalities were these; what were the stated reasons for non-submission and what was AGSA planning to do about this?
Mr B Hadebe (ANC) noted the presentation had only ten slides and requested AGSA submit its detailed Third Special Report on Financial Management of Covid-19 Initiatives. He referred to the City of Cape Town temporary shelter at Strandfontein which AGSA found had inflated prices. How much was the inflated price and for how many days? On money not used for its intended purpose, the same applied to the City of Cape Town for the shelter for refugees. He asked how much money was spent on the refugee shelter and for how many days? Who were the officials that authorised such expenditure? Was the expenditure recorded as fruitless, irregular, wasteful or unauthorised expenditure?
Mr Hadebe said the Committee was dealing with a real-time audit. The Committee needed to know whether consequence management was effected. How many officials were involved? He wanted clarity on the limitation of its scope. Which municipalities, other than Nelson Mandela Bay, had challenges of providing supporting documents? Were the officials responsible for the supporting documents identified? What had been the consequence management to date? The presentation was ten slides. He wanted to get the detailed information.
He noted there were water tankers with no water. In which areas where those tanks were installed? He referred to the temporary shelters and the poor quality of infrastructure. The presentation raised more questions than answers. AGSA would have to furnish the detailed report. This presentation should have contained that information and details. That would make the Committee’s life easier as it would then be able to follow-up with those municipalities who showed a disregard for the procurement process.
Mr K Ceza (EFF) said that the report was empowering. The people of Ward 30 in Dr JS Moroka municipality still did not have water during this crucial period. In that municipality some of the boreholes were inside a councillor’s property. Was this featured in this report? The country was on Lockdown Level Four and during this time there was a dire need of water for consumption. Was the Community Work Programme (CWP) PPE scandal featured in this report? Could AGSA provide the Committee with details on their findings of the PPE allocation in the CWP programme? There was a shelter facility that allegedly belonged to the family of the Eastern Cape MEC for Transport. Why was this not featured in the presentation? Would AGSA consider conducting a land audit in municipalities as government was sitting with a problem there. Every time AGSA came to local municipalities then certain people would take leave and run away from their office. Would AGSA probe that matter in the future?
The Chairperson agreed that the full AGSA Report would be forwarded to the Committee before the end of the meeting. The Committee would then make a decision about those municipalities and provincial departments which had findings. The Committee was assured by the municipalities appearing before it over the past year that all Covid expenditure was above board. The Committee needed to call back those municipalities and provinces listed in AGSA report and compare notes. Those municipalities would have to account to the Committee especially those who had already appeared before the Committee. Now that the audit reports were out, it was a different picture to what the Committee had been told. The City of Tshwane contracts were given to companies that had the same directors. The Committee did foresee that this was going to happen because it was unprecedented in South Africa for people to dispense such huge amounts of monies without following those tender procedures. The system was subject to abuse but the Committee would deal with that. To assist SIU and AGSA, the Committee would call in those municipalities who had serious problems.
Ms Muller apologised as she assumed the Committee had the Third Report tabled last week. AGSA would ensure that the Committee received it. It was not a thick report; less than 80 pages. It would make for very interesting reading. She was sure Members would enjoy that report.
On page 70 of the report, AGSA identified the City of Tshwane fraud risk in the misrepresentation of information. This was included in its special adjustment budget as money ring-fenced for Covid expenditure that was then used for normal operating expenditure. One was an expenditure amount for R18 million, from own funding, that was not related to Covid, that was included in the special adjustment budget. There was a misunderstanding where the department in the Metro was requested to report on Covid expenditure. The other line item was R80 million which was not Covid expenditure but was used for day-to-day operations. The report will clarify that and give the Committee insight.
On the question about an inspector general, it was not something that AGSA had considered. At any municipality there was an internal audit even before AGSA stepped in at the end of the year. Fortunately, this special audit was a real-time audit so AGSA did it while the expenditure was occurring. She believed that the investment should be in ensuring the internal auditors were able to identify these control deficiencies and report this to council or to the province for intervention. There was an opportunity to strengthen the role of internal audit.
The other intervention AGSA would like to put on the table was a dedicated focus on preventative controls. For each one of these findings the question to as is: ‘what could have prevented this from happening?’. Then the municipality needed to ensure that people were tasked with the responsibility to check calculation errors did not happen before they processed payments. The internal controls needed to be continually strengthened. AGSA had designed a Preventive Control Guide last year. This guide was designed to help both oversight and accounting officers prevent problems from happening. It was expensive to go back and do investigations and take disciplinary action. That guide was available on the AGSA website. She would send it to the Committee.
The fraud risk assessments were done at 12 out of the 43 municipalities that AGSA had identified. AGSA did not do this audit at all municipalities due to limited resources for real-time audit as well as the normal audits. AGSA confined it to the eight metros and then the provinces who did not have metros AGSA selected municipalities in those provinces to get to the 12. As part of the normal audit for 2021, AGSA would look at the fraud assessment. The sample sounded small if one looked at the full population of local government but it was just the sample AGSA took for the real-time audits.
On water infrastructure, it was important to highlight that at this stage AGSA was not only talking about aging infrastructure but talking about infrastructure that was procured recently, like last year. The infrastructure already showed signs of deficiencies. It was concerning to AGSA that this infrastructure would not last. Government paid for something that was already either bent or corroded or non-functioning or not strong enough to hold a water tank. The municipalities would most likely have to redo that work. The municipalities would repay somebody to re-strengthen that infrastructure. Action needed to be taken against suppliers paid to deliver a service who did not do it properly. Action needed to be taken internally in municipalities against officials who paid for that infrastructure but did not inspect it. There was work that needed to be done after this audit.
She discussed what AGSA would be doing going forward. In the report AGSA indicated that it was doing two things. One was where it identified red flags and where it noted that there was a criminality element to it. That matter would be handed over to the Fusion Centre for further investigation. In terms of its own powers AGSA had already issued a material irregularity finding to a District Municipality in KwaZulu-Natal. The material irregularity had been issued to the accounting officer for corrective action. Every province was now analysing their findings and would issue their material irregularities during the year. The material irregularity process did not have a stop and start. It was a continuous process. AGSA could sign off an audit report today and issue a material irregularity notification tomorrow. There was no stop start to that process. AGSA would continue to issue those material irregularities.
A number of financial losses were identified. That needed to be noted to the accounting officer in a separate process. The accounting officer needed to now do an investigation to determine who should be held accountable for those losses and how that money could be recovered. That process was ongoing. AGSA made a firm commitment to both Parliament and the citizens that it would follow-up on these material irregularities as a matter of course.
Those municipalities that did not submit financial information for 2019/20 AGSA could not express an audit opinion and AGSA issued a disclaimer and those were unaudited. In some cases AGSA could not audit and that was why it had limitations. The information for 2020/21 was unaudited information. In the Third Covid-19 Report it noted two municipalities, in Mpumalanga and the Northern Cape, that did not submit information. Their information was not included in the financial analysis provided.
On page 45 of the Third Covid-19 Report, AGSA provides information about what happened at the Strandfontein temporary shelter. In short, the municipality had three temporary shelters in Strandfontein, Wingfield and Culemborg. AGSA determined in its audit that the amount spent at the Strandfontein shelter was significantly higher than the other two shelters. That was how AGSA raised its finding. The report provides that information. There was additional information available. The report detailed how much was spent per tent in the Strandfontein shelter. The municipality rented six marquee tents and AGSA calculated how much it cost per tent. That was how AGSA got to the conclusion of excessive pricing for that shelter.
On money not used for its intended purpose for refugees, the City of Cape Town had indicated that they were not responsible for the shelter for refugees as the mandate sat with the Department of Home Affairs. The City of Cape Town would disclose that amount as irregular expenditure. When the City of Cape Town responded to that AGSA finding it already acknowledged that it would be included as irregular expenditure.
On page 21 of the report there was a full list of the municipalities that did not provide information. All of them were listed together with the amounts and what information was asked for that was not provided. It was important to note the scope of the AGSA audit. AGSA did not do a detailed investigation to find out who the officials were and who were the people that did not provide the information. For any of its findings AGSA did not go deeper and do an investigation. The Covid-19 special audit was a quick real-time audit while the audit teams were busy with the 2019/20 regular audit. The aim was to surface the findings quickly so that corrective action could happen and for those investigations to commence without delay.
She noted Mr Ceza had referred to a specific case about a borehole being inside a councillor's property. That was not part of the AGSA findings and it did not pick that up. It might just be because it was not part of the sample AGSA selected or part of the visits to these municipalities. AGSA did not include the CWP PPE as part of the audit. AGSA specifically focused on PPE procurement for the employees of the municipalities. Mr Ceza noted a case where a shelter facility was linked to the family members of the Eastern Cape Transport MEC. This was not identified as part of AGSA findings. It would be good for Mr Ceza to share that information with AGSA so it could investigate the matter in its next audit. Unfortunately, fraud is meant to be hidden and as AGSA did a quick audit it did not surface all these findings. These matters could be flagged for specific attention when AGSA did the 2021 audit in that province.
On the suggestion of a land audit, AGSA did audit property, plant and equipment of a municipality. It would like to have more insight into Mr Ceza’s concern. It would be good for him to share some examples with AGSA so that it could incorporate that into its audit processes. AGSA could look at it as a national intervention. It was not something AGSA considered as part of this audit.
The Chairperson thanked Ms Muller who had adequately responded to the questions. The Third Covid-19 Report had been sent to Committee members.
Mr Hadebe thanked the Chairperson for sending the report. AGSA indicated that this audit was quick and happened in real time so that corrective action could be taken. In the AGSA recommendations and corrective measures, did it include consequence management and identification of the culprits which could then lead to disciplinary action? Did AGSA highlight the responsibility of the MEC of Cooperative Governance to ensure all those recommendations were followed up and consequence management was effected? Were there to be any recovery of funds or to ensure that such did not occur in the future? Perhaps what he was asking was contained in the report but he asked that Ms Muller assist. The Committee’s responsibility was to follow-up on culprits. This was a post facto audit and the Committee dealt with the aftermath. In doing so the Committee would want to prevent such occurrences from happening in the future. The only way that the Committee could do that was if those who initially broke the law were held accountable for their actions. There had to be consequences for actions that did not follow the prescripts of the law.
Mr Ceza said that he had a full document on the land and the borehole water matter. He would forward those two issues to AGSA. He wanted to know how AGSA categorised councillors who had claimed that at the time of securing a tender they were no longer a councillor while still registered as a state employee? Did AGSA investigate that as irregular tender fraud? He provided an example of Bandile Mbewu who used to belong to the Democratic Alliance and jumped to the African Transformation Movement party. Mr Mbewu’s company was awarded R7.5 million. The Committee needed to know what was the action in this case. Was the former councillor allowed to receive a tender given the fact that he had been a public representative? Was that not some kind of influence? What was the position of AGSA on that case?
The Chairperson said that the Committee regularly engages with AGSA if Members wanted to make follow-ups. When the Committee needed to receive support from AGSA the Committee would receive it.
Ms Muller replied to Mr Hadebe about AGSA recommendations. When AGSA issued a material irregularity, the aim was to hold people accountable and recover the loss as far as possible. AGSA recommendations asked the accounting office to investigate the cases and determine who should be held accountable even long before it issued the material irregularity. That was part of the AGSA recommendations to the accounting officers. The municipal findings were shared with the Premier of the province, the MECs of Finance and of COGTA. They had been briefed on the Covid-19 Special Audit Report as well.
She replied to Mr Ceza’s comments about councillors, saying when AGSA identified a finding it raised the finding with the accounting officer. If an explanation was provided it would be assessed by AGSA against the law. Should the activities be allowed then AGSA would not raise the irregular expenditure. If the activities were disallowed, then AGSA would raise the irregular expenditure. It was really done on a case by case basis. She was hesitant to provide a general answer on the matter. At each municipality when AGSA identified findings, it dealt with them at that stage.
The Chairperson thanked AGSA saying she was sure the Committee would meet with it again soon. She appreciated AGSA continued support given to the Committee.
Special Investigating Unit investigations on Covid-19 PPE procurement by state institutions
Adv Andy Mothibi, SIU Head, briefed the Committee on the investigations into Covid-19 PPE procurement by state institutions.
Dr Jerome Wells, SIU: Chief Legal Counsel, briefed the Committee on the civil litigation matters. The presentation detailed the schedule to Proclamation R23 of 2020, Covid-19 expenditure statistics, matters finalised per province, limitations facing SIU, contracts still under investigation, actual outcomes and observations. Total actual Covid-19 expenditure from April 2020 to May 2021 was R5.1 billion. The total value investigated by SIU was R835.3 million. Of the R835.5 million under investigation, about R507.8 million had already been referred to the Special Tribunal to set the contracts aside and recover losses. The number of PPE contracts awarded for Covid-19 related services under SIU investigation for local government institutions was 735. These contracts were awarded to 477 service providers. Of the contracts under investigation, 51% of these contracts have been finalised, 38% are currently ongoing and 11% have yet to commence.
It appeared that persons in positions of authority believed that the declaration of a ‘national state of disaster’ meant that all procurement was automatically conducted on an ‘emergency’ basis, and without compliance with any of the normal prescripts regulating public sector procurement, but without realising that even ‘emergency’ procurement must still be conducted in accordance with certain minimum prescripts to ensure such processes remain fair, equitable, transparent, competitive and cost-effective as prescribed by the Constitution. Various officials merely rubber-stamped decisions and accepted and gave effect to ‘unlawful’ instructions from officials more senior than them, which resulted in a complete breakdown of the checks and balances. Political pressure played a role in PPE procurement. It appeared that the names of service providers were determined before any SCM process commenced. There was delivery of substandard PPE that did not comply with the technical specifications contained in the invitation to submit quotations. PPE was not packed according to predetermined standards. There was no attempt to negotiate with suppliers in bringing prices within the thresholds suggested by Treasury. This resulted in overpayment for goods. Certain state institutions lacked basic control measures to establish correct product delivery. In several instances there was under-delivery or receipt of incorrect items.
The Chairperson appreciated the SIU comprehensive presentation was. The Committee wished that other entities presented to the Committee as SIU had just done.
Mr Brink thanked Adv Mothibi for the marathon presentation, detailed information and commitment to this cause. Section 173 of the MFMA established statutory criminal financial misconduct. In theory this had a lesser evidentiary burden than fraud and corruption. It was easier to prove criminal financial misconduct than outright fraud and corruption. This was because it could be established based on gross negligence and not intent. An accounting officer who in a grossly neglectful way failed to take reasonable steps to prevent irregular expenditure or implement the supply chain management policy or contravened the fiduciary responsibility in the MFMA could be charged with criminal financial misconduct. Many of the cases recommended to the National Prosecuting Authority by SIU involved section 173 offences. How many of those recommendations included municipal managers? How many involved councillors?
It was important to establish that because very often it was middle management or senior officials, not the municipal manager, being prosecuted while in fact that Municipal Manager signed off on the tender process. Whatever the delegations were, the fiduciary responsibility was with the municipal manager in the MFMA. Adv Mothibi mentioned the recommendations made to National Treasury on the blacklisting of service providers. There was a similar provision in the Municipal Systems Act for officials. Section 57A(9) provided that the COGTA Minister must maintain a record of all staff members that had been dismissed for misconduct or resigned prior to the finalisation of disciplinary proceedings which record must be made available to municipalities as prescribed. The MFMA details how officials in these circumstances were then prohibited from working for other municipalities for a prescribed period of time. Was Adv Mothibi willing to share those cases that fell under this especially the officials he mentioned resigned prior to finalisation of their disciplinary hearing? Could he provide the COGTA Minister with those details so they could be added to that list of officials who should not be recycled in the system?
R507 million in irregular contracts were referred to the Special Tribunal for a decision to set aside those contracts. How much of that R507 million had been set aside by the Special Tribunal? He took special interest in the creature that was the Special Tribunal. Taking contracts on judicial review in civil litigation in the courts was an extremely complicated, expensive and protracted matter. Very often the service provider in the irregular contract pleaded innocence and say it did not know the municipality did not follow correct internal procedures. Then there needed to be a judgement setting aside the contracts as unconstitutional and irregular. Then there was a just and equitable remedy. Very often in a just and equitable remedy, those who clearly knew that they were doing business with the state on bad terms got away on technicalities. It would be interesting to see what came of the decisions of the Special Tribunal in setting aside irregular contracts.
On the matters investigated but found to have no substance or not enough grounds to proceed with a recommendation, the first was the City of Tshwane and the homeless shelters. Adv Mothibi indicated that the matter was found to be without substance and not ripe for a recommendation as there was no contract and no payments were made. That did not mean that no obligations had occurred. If these homeless shelters were run and food provided even if there was no formal contract or process followed, some service providers might pop up and claim payment against the invoices. Even though SIU recommended to Tshwane not to pay them, there might be irregularities and criminal financial misconduct that should be pursued. He asked for comment.
On the two complaints about Moses Kotane Municipality, the first complaint was from two political parties about Covid relief money being abused for election canvassing purposes. The second complaint was about contracts being irregularly awarded. The slide gave only the SIU response on the irregular contracts but not about parties using Covid-relief funds for political party canvassing. This was a serious matter. In the Zondo Commission similar testimony was given about how SASSA, and even the State Security Agency, were abused for political party purposes. This was an example of how widespread this problem was. He asked why SIU found this to be baseless or not appropriate for a proper investigation.
Mr Hadebe also thanked Adv Mothibi for the detailed marathon presentation. His interest was in the limitations SIU indicated such as the lack of original documents. The second limitation was the destruction of evidence. A number of witnesses interviewed refused to sign witness statements. This was defeating the ends of justice – especially those who deliberately destroyed document evidence. He hoped SIU would explain how it dealt with this matter. He viewed this as a serious criminal offence. Which municipalities conducted the serious offence of destruction of state information? This interfered with SIU’s ability to conduct its work effectively on the Covid-19 contracts. How many officials were involved in these shenanigans? Had SIU recommended that disciplinary action be taken? Were these officials still occupying key positions in supply chain? If the officials had the audacity to destroy state information then he did not think they deserved to occupy those offices. Those officials could potentially contribute to maladministration and misappropriation of funds.
SIU indicated that actual expenditure for the municipalities was R5.1 billion. Only R835 million was being investigated. Did that mean that the remaining R4.2 billion used for procurement was done above board? Were there no concerns about the R4.2 billion that was not investigated? Taking into account the R5.1 billion of municipal expenditure and combine that with the provincial and national spheres of government, what was the total amount being investigated for Covid-19 contracts? At some stage the amount was sitting at R13 billion. He thanked the SIU Head for always availing himself and giving the Committee a clear sense of direction about these municipalities.
Ms Mkhaliphi referred to slides 14 and 15. There was a report dated 5 February 2021 that the value of the matters being investigated amounted to R13.3 billion. The report indicated that R30.7 billion was actually spent on Covid-19 related transactions from April to November 2020. Although those figures were not yet verified and audited. Today’s presentation indicated Covid-19 expenditure from April 2020 to May 2021 was R5.1 billion and SIU was investigating only R835 million. Which figure should the Committee rely on? She thanked Adv Mothibi for the detailed, very informative presentation.
She wanted clarity on the timeframe. On slide 9, SIU mentioned the timeframe was January 2020 to 23 July 2020. Adv Mothibi stated that all the investigations were as a result of a 15 March 2020 decision about Covid-19. The Committee needed clarity as well as the people who were suffering. The Members were representing the people. Did SIU say it was intending to close the whole investigation in August 2021? Was the whole investigation going to be finalised by August? Was SIU going to be able to finalise everything? The Committee needed clarity as SIU was one of South Africa’s hopes in fighting corruption. Although the presentation was detailed and useful it was clear that at some point it was not updated which was worrisome. On page 30, it noted that the dates mentioned would be determined. These were very serious matters and SIU should go through the report and update it. The Committee and SIU needed to focus on fighting corruption that was on a rampage in the country.
She asked for clarity on finalised matters per province. Using the example of Mpumalanga, it stated there was one finalised matter and one contract of R5.6 million in slide 14. Was SIU saying that there was only one matter in Mpumalanga that had been finalised? Slide 15 stated Mpumalanga had 28 service providers and 30 contracts amounting to R3.4 million. Was SIU saying 30 contracts were still ongoing and only one matter had been finalised.
The Committee would like to see consequences for people who misused public funds. Slide 28 stated SIU was referring some matters back to the municipalities and a disciplinary board was established to deal with referrals in Nelson Mandela Bay. Had SIU satisfied itself the disciplinary board was functional? The Committee had knowledge of the dysfunctionality of disciplinary boards in many municipalities especially in the Eastern Cape. The Committee was engaging with municipalities and its finding was it seemed as if there was a coordinated effort to ensure those disciplinary boards are not functional.
The Municipal Public Accounts Committee (MPAC) was supposed to be the ears and the eyes of the people in the municipality. When SIU was doing its investigation, was it interviewing MPAC? The MPACs were compromising the whole situation as they were dysfunctional. The SIU report stated that sometimes it was difficult to do an investigation as people were playing hide-and-seek and using the pandemic as an excuse. As a result SIU was faced with delays. It was important for the Committee to get an understanding where MPAC was in all of this?
SIU stated that most people being taken to task where the staff members and officials in the municipality. She provided the example of OR Tambo Municipality. Where were the politicians in all of this? She remembered when the Committee engaged with OR Tambo District Municipality that the Committee noted that everything came back to the Speaker of the Municipality. If SIU was doing this good job then it should hold the municipal manager to account or otherwise take them to court. Where was the political head? Were the politicians not involved in all the reporting by SIU? Was it only officials employed by the municipalities? SIU was very careful when it mentioned politicians. It only mentioned ‘office bearer’. SIU should state if a Speaker or a Mayor that resigned so the Committee had a clear picture.
On slide 33 on Govan Mbeki Municipality, it stated that ‘8 acknowledgments of debt (AoD) were signed as service providers provided goods/services for a price more than what was regulated by Treasury. To date R700 has been repaid on the AoDs. Was this a mistake? SIU was dealing with billions here. Was R700 the correct figure?
The Chairperson noted on the same slide the value of R102.120 – it did not look correct.
Ms Mkhaliphi noted that 74% was to be finalised. She was very worried about the timeframe. On JB Marks Municipality, SIU noted that an official had his pension frozen. The amount was only R100 000. When SIU went to freeze this individual’s pension, it needed to measure if that R100 000 was going to help SIU recover what was misused by this municipal employee.
Mr Ceza said the presentation was comprehensive and detailed on the irregularities of procurement. He was mostly covered by Ms Mkhaliphi. He discussed state capacity to deliver services. As long as there was an overreliance by the state on external service providers there would always be external service providers defrauding public monies and some officials having influence on this. How was it possible for someone to form a company on 5 March 2020 and then have that company provide services? How did that company become so perfect? The system of tenders and contracts has once again proven ineffective. It was only there to empower private companies. It was not going to be beneficial for the people of South Africa. Tenders were given to people depending on their proximity to the officials and politicians. That would forever be the case as long as the system of tenders still stood. It was a very corrupt system. If the state had not realised that then South Africans would wake up to that reality. Even the money SIU was using to probe those companies was money that should have been allocated to conduct other corrective measures in building confidence in the delivery of services through the state. How did SIU link their findings to the section 106 forensic investigation reports in local municipalities where councillors were found to have been involved in fraud and corruption? Sometimes these officials were reemployed in other municipalities. This was the case with the North West when it appeared before the Committee. How did SIU link their findings to section 106 forensic reports?
The Chairperson said that the Committee appreciated the information given and it would assist the Committee greatly when it engaged with municipalities. The Committee had agreed previously to meet quarterly with SIU, NPA and the Hawks. SIU was always available to meet; but some of the other entities were not always available which rendered the quarterly meetings unable to happen.
The Chairperson discussed the limitations such as the non-availability of witnesses. Some witnesses feared victimisation. With the VBS heist there were instances where witnesses were killed. This fear of victimisation and feeling unsafe would hinder the work of SIU. Its remedial action was to protect the identities of some people. Perhaps the Hawks and Police should inform the Committee what it would do to make the work of SIU easier. She found it interesting when officials said they could not use digital technology and had ICT problems when SIU wanted to do virtual interviews. She described it as people running away from their responsibilities.
The presentation stated that SIU was investigating 735 contracts awarded to 477 service providers. Were there some contractors that received multiple contracts? In the City of Tshwane it was found that contracts were given to three different companies owned by the same people. She asked SIU to explain that.
Did SIU have funding to pay for the investigation of Nelson Mandela Bay or was it Nelson Mandela Bay that paid for these investigations? Since its establishment, there was a concern that SIU compiled and submitted reports and then it was dependent on the user department to implement SIU recommendations. For example, since 31 March 2021, the progress to date for Nelson Mandela Bay was a disciplinary board had been established. However, the term of municipal councils was coming to an end and nothing would be done. She raised the question of value for money. Was SIU given an allocation from the Department of Justice and Correctional Services? Or did SIU bill the organ of state as AGSA did? The municipalities had to budget and pay for audit fees. A lot of effort was made by SIU to ensure that it did its investigations from long distances. The investigations were costly yet in the end its recommendations just gathered dust. The information provided would be used by the Committee.
The Chairperson believed that SIU still had a report on provincial governments. The Committee would have to ask for that report separately. The Committee had received presentations on the Covid response plans from all provincial governments. When one looked at the column on progress to date it seemed as if there was no appetite for consequence management when it came to referrals. These were the concerns that needed follow-up. She asked for comment.
She gave the example of Umgeni Local Municipality where the referral letter had been received by the Mayor and was currently being "assessed" for further action. That was the attitude of the entity responsible to deal with the rot – what was it that needed to be assessed? It was not SIU who could answer that question; the Mayor of Umgeni needed to respond to the Committee.
She wanted to understand this matter in line with the amendments SIU had drafted. She asked SIU to explain the amendments to the Act that governed SIU. Did SIU have recourse when the recipients of referrals did not act? What remedial action could SIU take to ensure that the report did not gather dust? She believed that amendments to the legislation should empower SIU to act.
She discussed referrals for administrative action. In the case of the referral of a municipal executive member, that ended with the office bearer resigning. Did it mean that when the office bearer resigned that was the end of the matter? The municipality was taking the necessary steps but at the same time it confirmed that the office bearer had resigned. What was the update? This matter had been there since 12 November 2020. The Committee had done oversight in that area not so long ago. When the MEC comes to report on those municipalities, then the Committee would flag this item. In other instances when the Committee dealt with the provincial government with a lot of referrals for executive action, the Committee would want to understand what the role of the Premier to that effect. She hoped SIU understood the points she was trying to make.
She discussed the referrals for administrative action on slide 32. Here it was dependent on the other stakeholders like the Competition Commission and SAHPRA. She was interested in the mechanism put in place to ensure that these matters were finally resolved. She hoped SIU would provide the latest developments with National Treasury. There were instances where a company can be blacklisted in the province. That was good and this was saved in the National Treasury database. But when one went to another province that same company would be found that had been blacklisted. Did national government have a system to prevent companies blacklisted in one province from working in another province? She had not seen the mechanism of blacklisting work. She raised the rand value of potential loss. SIU had told the municipality not to continue to pay the service provider but this was the same municipality that did not implement the SIU report. Did SIU have a mechanism in place to ensure that the municipality followed the SIU advice? SIU might tell a municipality not to pay but because of vested interests the municipality still continued to pay the contractor. SIU should make the municipality sign a commitment not to continue to pay. How did SIU do it? She wanted to understand the practical implementation.
SIU was still going to produce another report at the end of August. Perhaps before then the Committee would schedule a meeting on the SIU provincial Covid-19 expenditure report. There were matters that SIU investigated but found there was nothing to report. SIU found that no procurement process was followed by the municipality and no payments were made to service providers. AGSA said earlier that the Tshwane Metro matter did not fall within the SIU ambit. AGSA reported instances of poor quality and market value such as sanitiser sold for R300 where the value was R195. How then did SIU link this to what AGSA was saying? In the City of Tshwane, PPE worth R71 was sold for R532. A litre of sanitiser worth R195 was tendered for R300. How did SIU reconcile that with what it was saying on slide 38? Now that SIU had the AGSA report on irregularities that were criminal in nature, how did SIU intend to deal with those it had already completed such as City of Tshwane? What was the role of SIU? She knew that Adv Mothibi would not be able to answer all the questions as it was late. Some could be responded to in writing.
Adv Mothibi agreed with Mr Brink on section 173. It was a section that created an offence based on the Municipal Finance Management Act. It did point to gross negligence and lack of fiduciary responsibility. In SIU’s view, similar to the PFMA, that created an offence. These offences were created for a reason. As SIU engaged with the NPA and the Hawks, the SIU view was that it needed to see prosecution based on those offences. If the officials saw prosecutions, SIU believed that it would be a deterrent. The officials would realise that for their responsibilities based on the MFMA or PFMA there would be consequences, with criminal or civil litigation or disciplinary. The percentage of prosecution for offences of this nature, if any, were terribly low. SIU’s view was that there needed to be prosecutions based on the MFMA and PFMA.
On referrals against officials,. SIU had used the titles senior management and middle management because the processes were not public yet. He confirmed that referrals were against Municipal Managers, CFOs, SCM Heads and so on. At an appropriate time and in an appropriate format SIU would put the names to the numbers and submit that to the Committee.
On blacklisting, SIU was emphatic on the outcomes being civil litigation for recovery, disciplinary process and criminal outcomes. SIU made referrals to other regulatory authorities. Blacklisting was an administrative action. That administrative action needed to be executed by the accounting officer or the accounting authority as the case may be. SIU’s role was to bring it to their attention that irregularities had been committed by a service provider. SIU would recommend that the accounting authority should take action to ensure the service provider was blacklisted. There were administrative law processes that needed to be followed and they were followed by the state institution at which this service provider conducted business. It was SIU’s view that that needed to be done by the accounting authority or the accounting offices. SIU provided the evidence pointing to irregularities, misrepresentation and fraudulent activities. SIU could provide the evidence that justified the blacklisting process.
On Section 57A(9) in the Systems Act, the Minister was able to have a record of officials who resigned to avoid disciplinary action to ensure there was no recycling. SIU agreed with that. There was a section within the MFMA. The MFMA was different from the Public Service Act. In the municipal area it was possible to list officials so that they were unable to resign in one municipality and pop up in another municipality. SIU was on record saying that when it became aware of an official it recommended for disciplinary action, had moved from one municipality to another that SIU did follow them. He provided an example of the Matlosana Municipal Manager. He resigned and was transferred from Moretele to Matlosana. This was the SIU finding as it was doing an investigation in Moretele as well. SIU had engaged with the executive authority and made the referral. The expectation was that the executive needed to act against that official. SIU would take the comments made by Mr Brink into account. SIU would provide a list to the Committee of all those officials it had made referrals on so this kind of record could be created as allowed by law. This should be done to avoid officials being recycled.
The money recovered to date, as shown in the slides, the orders made totalled about R4.9 million. This was actual orders made. Adv Mothibi had instructed Dr Wells and his team that to get an order was one thing but it had to be executed. In the case of the OR Tambo Municipality the payment had been prevented so there was no need to execute the order to realise the money. The money there had been saved. The freezing of pension was a restraint order. It was an order that prevented an individual from accessing the pension until the civil litigation process was completed.
SIU agreed with Mr Brink that the civil litigation process was complex and so could take a while. Therefore SIU had motivated for the establishment of the Special Tribunal. SIU had found that in the Special Tribunal the orders move quite quickly. Where the finding had been made that the procurement process was irregular, SIU presented that to the Special Tribunal. The service providers, from time to time, would come with their defences including that they were not aware that the procurement process was irregular. SIU’s responsibility was to present that the procurement process did not comply with the Constitution or with MFMA or PFMA. SIU found that when it presented that case, the Special Tribunal or the High Court, when matters had been heard in the High Court, were able to find a judgement in favour of SIU and set the contract aside. After the contract had been set aside, there was then an argument about how much could be recovered. That was when the ‘just and equitable’ came in. There was an argument about what was just and equitable that needed to be recovered taking into account what the service provider put forward. What the service provider spent in performance was taken into account. It was quite a lengthy argument that SIU got involved in. A good percentage of SIU cases at the Special Tribunal had been ruled in SIU’s favour. All SIU needed to do was speedily convert the orders that had been given into money so that those orders were executed and money was recovered. That was the aspect that he had said to the legal team that SIU needed to quickly improve on. The legal capacity of SIU needed to be improved. Dr Wells was on record saying that the legal team would speed up that process. This would be done so that when SIU presented to the Committee it could show that the recoveries were increasing.
For matters where there were no irregularity as there was no contract or no payment, SIU needed to ensure that there was no legal risk of the service provider claiming a right in terms of the transaction. An example of this was the scooter case in the Eastern Cape where a contract was concluded but payment was not made. Another example was OR Tambo Municipality where a payment was not made but there was a contract. Even though there was no payment, it needed to be set aside so that there was no legal risk on the part of the municipality. In both instances SIU went to the Special Tribunal and set the contracts aside. There was an offer and an acceptance which created a contract. That was why the contracts were set aside.
SIU would double check on the Tshwane cases. When SIU submitted its written response, it would ensure that for any of the contracts, no payments were made. He noted the allegations of political parties in the Moses Kotane Local Municipality. However, his team informed him that all service providers were appointed in line with SCM regulations and no evidence was provided to substantiate allegations that the monies were used for political purposes. Without further evidence SIU could not make a finding.
SIU was equally concerned that the destruction of documents was defeating the ends of justice. He noted the concern about witnesses refusing to sign statements. SIU did have legal provisions that allowed it to interact with witnesses under oath. If the witnesses were called to give statements or questioned under oath then ultimately an affidavit was concluded. Where there was a refusal, SIU would ensure that it invoked those legal provisions. In one of the investigations they found that the witnesses did not tell the truth. In that case if an affidavit had been given then SIU would not just leave it there. SIU would ensure that actions were taken, criminal actions if need be, for perjury. He provided a few examples of where this had happened. SIU became aware of documents being destroyed because it was informed by whistleblowers. SIU would then interact with the witnesses and approach a judicial officer or magistrate to obtain a search warrant. In that case SIU did ‘search and seizure’.
SIU did the same ‘search and seizure’ when it received similar information in Matlosana. In Matlosana, SIU did a ‘search and seizure’ and that ended up with SIU collecting useful information that, according to the whistleblower, could have been destroyed. A similar situation occurred in Matzikama in the Western Cape. SIU did ‘search and seizure’ after it received information that evidence would be destroyed. SIU used its legal provisions to ensure that when information was received it would mitigate. In cases where the evidence was destroyed SIU ensure that it got the statements and evidence. SIU would invoke the criminal cases. In Cedarberg or Matzikama SIU had opened a criminal case against the municipal manager and it could provide the Committee with the case number.
In reply to Ms Mkhaliphi on the SIU investigation amounts, the overall amount for local government was R835 million. Ms Mkhaliphi referred to SIU report submitted to the President on 30 April 2021 where the overall amount under investigation was R14.2 billion for all organs of state – provincial departments, stated-owned entities, national departments and municipalities. Today SIU had extracted the amount for municipalities from the R14.2 billion. As of 31 May the overall amount for municipalities was R835 million. He had to stop there in line with the Chairperson’s request. SIU could provide the rest of the answers in writing to the Committee.
The Chairperson said that the meeting needed to end here for now with SIU submitting the outstanding answers in writing.
In response to Adv Mothibi asking for a deadline, the Chairperson said 13 July was fair.
Mr I Groenewald (FF+) said that SIU touched on the subject of Matlosana and ‘search and seizure’. He had laid a charge with SIU on 16 February about Matlosana. A week after that a high-ranked politician phoned him to ask if he could get the information. He had laid a charge with SIU to do an internal investigation. He was not sure how that information got out? He asked SIU to answer that in writing as well.
The Chairperson said that his question would be answered in writing by SIU. The feedback from SIU would be shared with the members. The Committee appreciated the information that SIU had given the Committee. The Committee looked forward to engaging with SIU again. This information would assist the Committee to do its oversight. She thanked the SIU team and everyone who had contributed to the meeting.
The meeting was adjourned.