Western Cape Government Quarter 1, 2 & 3 investigation: Provincial Forensic Services briefing

Meeting report

Provincial Forensic Services (PFS): Briefing and discussion

Mr Ruthven van Rensburg, Chief Director (CD): PFS said there were 37 cases up for reconciliation as at 31 December 2017. These consisted of 21 cases in progress and 16 cases that had not yet being started. The cases closed between 1 April and 31 December 2017.

An additional 29 new cases had come up in quarters 1, 2 and 3 of 2017/18, of which 28 cases were closed and one case was referred. The cases referred to fraud, corruption, irregularity and non-compliance.

Mr D Joseph (DA) asked him to clarify if the sum of old cases and new cases was 66, and out these 37 cases were at hand as at 31 December 2017. Why had he referred to cases “as at 31 December,” when the reporting principle involved using financial years? He asked what PFS had observed in its outcomes.

Mr D Mitchell (DA) asked what PFS meant by the phrase “financial implications, Rand amount not applicable,” and the other kinds of status that could be generated. What did this term imply because if an allegation of fraud was levelled, then the fraud case would have a monetary value attached to it?

Ms C Beerwinkel (ANC) expressed concern that the report had shown that some Departments, such as Health and Education, were always investigated for a case within the period of quarters 1, 2 and 3 of 2017/18.

Mr Van Rensburg said he had used a cut-off date of 31 December 2017 because the PFS was reporting only on the quarters 1, 2 and 3 of 2017/18, and not a particular financial year.

He clarified that the terms fraud, corruption, irregularity and non-compliance were observed as outcomes of the cases investigated. He said a status of “not applicable” was given, depending on each case. Therefore, after investigating an allegation of fraud and it was found that fraud did not occur, it was given the status of “not applicable,” and then it was a preliminary investigation. An investigation could also yield a status of non-compliance when finances were not involved.

Mr Mitchell asked why a fraud and corruption case had been given a theft, irregularity and non-compliance status.

Mr Van Rensburg said the case had been peculiar to a local government, and after the investigation FPS had reported to the Member of the Executive Council (MEC), but had not proceeded further because it involved another sphere of government. The PFS did not proceed further if a case involved local government officials.

Mr Mitchell asked Mr Van Rensburg to clarify if the report had been handed over to the relevant authority to deal with the charges, and not to the SCOPA.

Mr Van Rensburg said that after an investigation, PFS would hand the report over to the local government. It also involved filing a complaint with the South African Police Service (SAPS), and PFS could forward the reports on the investigation to SCOPA.

Mr Mitchell asked Mr Van Rensburg to clarify if was all the time that a forensic report did not get to the Municipal Manager.

Mr Van Rensburg replied that when FPS concluded investigations, it sent the reports and recommendations to the head of department (HOD), and the HOD took a decision on the disciplinary action to be taken. Hence FPS recommended consequences for all action or inaction of officials. When a department continued to deviate and cases were investigated, depending on the status after presenting a report to the HOD, FPS went further by involving SAPS or the Hawks, and following-up with each line of reporting.

Ms Beerwinkel said she could picture a report that was not revisited, so she asked PFS to clarify how it would confirm to SCOPA that action had been taken in a case, since PFS followed up with each line of reporting.

Mr Van Rensburg confirmed that PFS followed up on its lines of reporting and convened meetings to ensure that action was taken, and that it gets an outcome of such actions. The outcome was then fed into the PFS fraud risk assets management system.

Mr S Tyatyam (ANC) expressed concerns that Departments of Education and Health were of the opinion that they could move funds and have irregular expenses. Why had both Departments moved the funds?

Ms Beerwinkel said SCOPA had observed that big Departments like Transport did not move funds like the Departments of Education and Health, as Mr Tyatyam had observed, so she also wanted the PFS to indicate why both departments had moved the funds in question.

The Chairperson asked PFS to elaborate on why some small Departments got away with irregular expenditure and non-compliance.

Mr Van Rensburg said the Department of Education (DoE) moved funds between schools all the time to ensure that certain projects were carried out. In the case of the small Department (Cultural Affairs and Sport) mentioned, the allegation had been a collusive relationship, but the PFS investigation had revealed that no collusion had occurred. The findings were that procurement had not followed an open tender process, so it had been a non-compliance with supply chain management (SCM) processes. The PFS had met with the Department of Cultural Affairs and Sport and confirmed that consequence management had been implemented.

The Chairperson asked PFS how many times the lapses had occurred, how many transactions had been affected, and why it been a long time before this had been noticed, because it involved big amounts.

Ms Beerwinkel remarked that it was unacceptable, because every year National Treasury (NT) reported that officials attended training on SCM processes, so no department should record such SCM violations.

Mr Joseph asked PFS to confirm what the consequence management procedures had been for the Department of Education (DoE), and to clarify if the school governing boards were under the DoE.

Mr Van Rensburg said the SCM violations that involved the Department of Cultural Affairs and Sport (DCAS) had involved three transactions. PFS recommends disciplinary actions, but the decision to implement them depends on the HOD. It receives allegations of fraud in schools, but investigations reveal that either an educator, staff or governing body member is involved. If a staff member or educator is involved, the PFS recommends punishment for such, but because it does not have a mandate on governing body members, it follows up only. In this case, the PFS had received an allegation and after investigation, it had found out that the staff member had already being punished, so it had not followed up.

Mr Tyatyam asked PFS to state what the three transactions related to, and to clarify if it had been the same staff who had not adhered to SCM procedures. What had happened to the staff involved?

Ms Beerwinkel remarked that if the case had been dealt with in the 2016/17, SCOPA should have been briefed, but she did not recall any such brief. She asked PFS to give feedback on the case and to clarify the functional sign-off at the DoE to ensure that the books were not ‘cooked’.

The Chairperson commented that the cases looked similar, because it seemed as if they had occurred in more than one Department. He therefore asked if the recommendations and measures put in place to curb such activities had been effective.

Mr Van Rensburg said in the 2016/17 case, the allegation at the Department of Health (DoH) had involved an official who had access to the electronic procurement portal. The official had changed values and contravened several procurement rules. PFS had recommended disciplinary action and had recommended measures to curb the trend, but the disciplinary action was still pending.

At the DCAS, the allegations related to the procurement of library services and the purchase of goods, but disciplinary action had been taken internally and sadly it involved the same official. The school governing board approved certain transactions, but the actual sign-off occurred in the school.

Ms Wendy Hansby, Director: Forensic Investigations Cluster A, said the financial statements were presented in the school.

Ms Beerwinkel said the financial statements were the final report, but within the year funds allocated for construction could be used to procure books to favour a party. She expressed concern that the response by the PFS showed that fraud could be electronic, despite assurances that passwords were expected to be safe.

Mr Van Rensburg said non-compliance differed from case to case, but the PFS pooled the cases together after investigation and made recommendations to tighten the system.

Mr Joseph asked PFS to confirm if corruption, theft and fraud had decreased with the anti-corruption hotline that had been introduced.

Mr Tyatyam asked how the same official could commit the same offence three times at the DCAS and get away with just progressive discipline. What did the term “progressive discipline” mean, because it did not come across as a deterrent measure?

Ms Beerwinkel asked PFS to clarify if the Department carried out its recommendations in the same way they were recommended.

Mr Van Rensburg said the anti-corruption hotline that had been introduced worked well, and it constituted about a third of the cases treated by PFS. The frequency of cases had remained the same over the years. It would be concerning if the cases were low, because it would mean the whistle-blowing process was not good enough.

PFS meets with the Department of Planning, Monitoring and Evaluation (DPME) regularly to share good practices. It did not influence the disciplinary process directly, but did so indirectly by including a statement that the Department must dismiss any official involved in proven fraud cases. This had worked in two cases investigated by PFS, and the both members of staff had been dismissed. In the case at DCAS, there had been progressive discipline which had not resulted in dismissal.

The departments did not always carry out recommendations made by PFS. Out of 18 disciplinary action recommendations as at 30 June 2018, only seven had been implemented, six could not be implemented and five were still pending. The seven recommendations implemented involved dismissals, written warnings and suspension without pay. Six could not be implemented because the officials had resigned, and in two cases two suppliers had refused to give evidence. In most cases, the departments carried out the recommendations.

Ms Beerwinkel reminded Mr Van Rensburg that Mr Tyatyam had asked PFS to define the term progressive discipline, because in the case investigated the official had defaulted three times but had not been dismissed.

Mr Van Rensburg said progressive discipline could be administered if the default involved non-compliance, and in this case sanctions such as warnings, final written warnings or counselling were administered.

Ms Beerwinkel asked PFS to state its recommendation in the case.

Mr Van Rensburg said the recommendation of PFS was to take disciplinary action, but in cases where fraud was proven, PFS would recommend dismissal.

Mr Tyatyam asked whether PFS would recommend progressive discipline in a situation where the same official defaulted three times, because each of the disciplinary actions had not deterred the official.

Mr Van Rensburg said the facts of each case should be considered, as not following SCM rules could be a mistake or negligence. Not following SCM rules could be an offence when the official received monetary gains. He gave an example of such a case, where a disciplinary hearing was still in progress against the official.

Ms Beerwinkel asked if investigations by PFS involved cases where a Service Level Agreement (SLA) had been signed.

Mr Van Rensburg said that a department would sign an SLA only when a procurement process had been followed. If the procurement process involved monetary vales of R500 000, a tender had to be followed, but at a municipality the value would be lower. The municipal by-laws would show when deviations could occur.

Ms Beerwinkel asked if a municipal by-law could supersede SCM rules.

Mr Van Rensburg said procurement at the municipalities was derived from Section 217 of the Constitution, the Municipal Finance Management Act (MFMA), and the policies did not overwrite the SCM rules, but rules of lower thresholds were set at the local government level. SLAs could be signed only when the procurement process was competitive, in line with government prescripts. The thresholds at the provincial government level had certain low values -- between R20 000 and R500 000, and a competitive process and the sign-off was based on the best service provider. In some cases, departments may use the SLA of another department if there were emergencies, but certain rules had to be followed.

Government Motor Transport (GMT): Briefing

The Chairperson welcomed Ms Jacqui Gooch, HOD: Department of Transport and Public Works (DTPW), to brief the Committee on Government Motor Transport (GMT). He said Members had been debating amongst themselves if there was a need for GMT, so he had asked the team to present the benefits that the departments derived from using GMT.

Ms Beerwinkel commented that the Committee had just met with a department on fraud cases, so she wanted to know if the GMT implemented the recommendations of FPS after it presented its report on cases of fraud.

The Chairperson said SCOPA had invited GMT and DTPW to brief the Committee on the arrangement, as determined by the National Accountant General, on the lease payments to GMT within one year, between two to five years, and more than five years.

Ms Gooch said the DTPW always considered the reports and recommendations of PFS, but there were times that PFS did not recognise the environment in which the GMT operated, so the recommendations would not always be appropriate. In such situations, the GMT did not accept the recommendations of PFS and took different disciplinary measures. However, when it took a different approach, it explained why to PFS.

Advocate Chantal Smith, Deputy Director General: Finance, DTPW, said the Department engaged PFS after it had taken a disciplinary action. There were different units in the department, and each operated under different procurement rules, but PFS had capacity challenges so it was not possible for it to research all the different procurement rules of the DTPW for all its motor transport agreements. The DTPW did not follow the general procurement rules, so it was difficult for PFS to understand sub-contracting procedures under infrastructure, as the general rules were not appropriate. The recommendations given by PFS on its investigation were not blindly implemented because in most instances the wrong official was implicated.

Mr Riaan Wiggill, Director: Fleet Finance, GMT, said overall leases were signed through SLAs but there were certain requirements concerning the Generally Recognised Accounting Practice (GRAP) process. The accounting steps were lease classification GRAP 13.10 – 21, which applied at the inception of the lease, and test for finance lease GRAP 13.13 – 14.  The finance lease was for the major part of the vehicle’s economic life, lease payments substantially captured all of the fair value, and “leased asset” referred to the specialised nature of the vehicle.

The first test for a finance lease was applied if it did not fall in this category, and then it defaulted to an operating lease. The lease was based on judgment, and lease assumptions were made. Disclosure for finance leases was based on GRAP 13.42, while the lease commitments distinguished between finance and operating leases and were split into leases of less than one year, greater than one year, less than five years and greater than five years. The commitments were also determined by the comparative period, the description of lease and assets, and the restrictions imposed.

The lease payments were charges and tariffs. Charges were determined through Treasury rule TR 19.5.2, while tariffs were determined through TR 19.5.3. The daily tariffs included capital costs and fixed overhead costs, while the kilometer tariffs involved variable vehicle operational costs. The costing method for capital costs involved direct costing, which was straight line over the useful life, while the costing method for fixed overhead costs was activity based costing, i.e. total fleet days. He outlined the GMT tariff increases for 2013/14, 2014/15, 2015/16 and 2016/17 respectively, and remarked that they could be the same as the medium term expenditure framework (MTEF), or lower.

The rules were that lease commitments must be disclosed and the lease commitment (per vehicle) was calculated as a daily tariff, multiplied by the remaining useful life (calculated in days multiplied by annual tariff increases in cases where the lease extended past 31 March). He gave a summary of finance lease commitments for one year, two to five years and five years respectively for all departments within the Province. He also gave statistics of vehicles in the provincial fleet and the total financial obligations for 2015/16/16 and 2016/17 respectively.

He outlined the operating leases of the Western Cape Liquor Authority (WCLA) based on the GRAP financial reporting framework. There were five Toyota Etios vehicles in the fleet that were classified as operating leases, but these vehicle were not suitable for the client’s needs. Due to the urgency of the request, the GMT had had to source five VW Polos from the general hire pool and had allocated them to the WCLA to replace the Etios to meet its service delivery requirements. It was not practicable to disclose the future minimum lease payments because the leases were classified as contingent rentals due to uncertain lease periods and fluctuating tariff increases. Hence the operating lease payments were not subject to ‘straight-lining,’ and it was therefore not practical to disclose the future minimum lease payments expected to be received for each of the following periods, as required by GRAP 13.

He defined a finance lease, an operating lease, contingent rent, minimum lease payments and lease payments according to GRAP 13.6. The future minimum lease payments were contingent rent and it was not practical to disclose them because of fluctuating tariffs based on increases in the MTEF and useful lives, so it could not go through the straight line direct costing method.

The Chairperson asked the team to clarify if it was beneficial to use the GMT, or a private company, to acquire vehicles.

Ms Gooch said the benefits of the business model provided by GMT included the ability to absorb shocks, such as the consumer price index, better that service providers or in-house departments. Also, departments did not make vehicle maintenance payments at scheduled intervals, which made it difficult to replace the vehicle when due. The GMT collected maintenance tariffs from Departments and ensured that the vehicles could be replaced when they should. It also had the ability to buffer increases in vehicle costs, such as fuel. It responded to various vehicle requests from each department, despite its limited pool. Its tracking system deterred misuse, but if vehicles were distributed through other means, this would be difficult to manage.

The Chairperson asked for comments on the benefits of using GMT to acquire vehicles, as against a private company.

Mr Johann Jooste, Chief Director (CD): Finance, Department of Health (DoH), said the total finance lease commitment figures of departments as presented by GMT, showed the cost effectiveness of using its services.

Mr Leon Ely, CD: Finance, DoE said in his opinion, cost over time proved the efficiency of GMT. The DoE had asked officials in the Department to source vehicles on their own from service providers, but the cost was higher than that presented by GMT’s centralised pool. Also, GMT was more beneficial in terms of its vehicle operation terms.

Discussion

Ms Beerwinkel asked GMT to clarify if it enjoyed a financial benefit, as it had said it had a reserve in earlier meetings, because the function could be given back to the finance and transport sections of Departments. What was the reserve it had used for, and why did it provide shuttle services only for employees, and not for Members? She asked GMT to give more information on its lease commitments.

Mr Tyatyam asked GMT if it carried out a needs assessment before allocating vehicles to departments. How quickly could it make changes when its clients said a vehicle did not meet its needs? He asked GMT to state the number of vehicles in its fleet, and the agency that paid for the costs on extra vehicles.

Mr Joseph welcomed the report and appreciated GMT for its vehicle operation terms, and asked if all Departments had to make use of GMT. Could a Department source vehicles from a service provider if the vehicle was not in GMT’s pool? He asked for the budget of GMT and its links with community safety departments.

Mr Tyatyam asked if Ministries received their vehicles from GMT.

Ms Beerwinkel asked GMT to differentiate between its SLAs and normal client SLAs.

Ms Gooch said the GMT was not designed by law to make a profit but was designed to break even. The Departments did not allocate funds to GMT -- it funded its operations from the tariffs it collected from each department, so it did not receive transfers from any Department. GMT had built up reserves over the years and the reserves were needed to keep the entity as a going concern, so it withdrew specific amounts annually from the Provincial Treasury into the asset management fund to carry out its activities. The money was used to carry out its activities and was re-invested into GMT activities.

She shared some of GMT’s proposed relocation costs with SCOPA. She said that GMT could offer Members shuttle services if they paid the tariffs. MECs and judges received vehicles through GMT. All departments were required to use GMT and GMT’s team had tried to add value to its services. It would source the required vehicle any time a Department needed it.

Mr Wiggill gave more information on financial lease commitments and provided the statistics of vehicles released for provincial and national clients, and GMT pools. GMT replaced vehicles with a similar class of vehicles. It took four months to procure a vehicle if it was under RT57 for national clients, but it took about a month for provincial clients.

Mr Joseph asked about procurement arrangements with SAPS.

Ms Gooch said SAPS did not use the services of GMT.

Advocate Smith said the difference between its SLAs and normal client SLAs was that it was an asset management procedure, so all aspects of the procurement were handled by GMT and the department did not have contact with the service provider. Some transactions allowed judges to have a certain kind of vehicle, so the judges could upsize and pay the difference in price for that vehicle. It involved a specialised asset management procurement process from GMT.

Ms Beerwinkel asked GMT to clarify the term used to classify the tariff payments.

Ms Gooch said the tariff payments were referred to as lease payments.

The Chairperson said that the team had shown SCOPA the importance of GMT.

The meeting was adjourned.