Department of Water and Sanitation investigations: SIU status report

Meeting report

The Chairperson noted the need for SCOPA to be briefed by various actors on the investigation into the Department of Water and Sanitation (DWS). Towards the end of its term, the Fifth Parliament undertook to conduct a parliamentary inquiry into DWS but that report was outstanding.

Special Investigating Unit (SIU) investigation into DWS: status report
Adv Andy Mothibi, SIU CEO, said that the SIU had sought to be as detailed as possible in its presentation. He noted new allegations levelled at Amathole and Lepelle Northern Water Boards which had been added.

Once the SIU reached an investigation outcome, it could introduce civil litigation in its own name, refer criminality to the NPA, refer misconduct to the accounting officer, refer other transgressions to relevant regulatory authorities, and finally present a report to the Office of the President.

In the case of the Lepelle Northern Water Board, the SIU was of the view it may have cause to institute action against the Board of Directors. The SIU would pursue officials employed elsewhere in government who had resigned from the Department to avoid disciplinary action.

Ms Gina Howes, SIU Programme Manager, noted three DWS matters were before the courts, and SIU had referred seven cases to the Asset Forfeiture Unit and 23 to the National Prosecuting Authority (NPA). Her presentation was ordered according to the proclamation allowing the SIU to begin each investigation:

Proclamation R35 of 2008: Allegations at the Mhlathuze Water Board
This proclamation was made in 2008 and the SIU found Supply Chain Management (SCM) processes were not followed, controls and policies were insufficient, documentation was destroyed or lost and the Mhlathuze Water Board did not keep proper financial records.

A criminal case of fraud and corruption had been opened against an employee and service provider. A criminal case of contravention of the Public Finance Management Act (PFMA) was opened against board members of the Water Board. Three implicated employees had resigned before completion of the investigation.

Proclamation R54 of 2012: Various allegations at the Department of Water Affairs
The SIU had conducted an investigation into 34 allegations, all of which were completed with successful outcomes, and the final Presidential Report was submitted in December 2016. Prior to finalisation of the report, the SIU received new allegations about the Vuwani Steel Pipeline, and a final report on this aspect was submitted in October 2018.

From the R54 investigation, 58 different referrals were made and the SIU has regularly followed up with the National Prosecuting Authority (NPA) to determine their status. The SIU and NPA have signed a Memorandum of Understanding.  The NPA has also appointed a dedicated capacity to track progress on all the SIU criminal referrals to see them through to prosecution.
The SIU regularly meets with the DWS Internal Consequence Management Team and liaises with the Acting DG to obtain updates on the status of the disciplinary referrals made by the SIU

On the matter of Mr Senokwane, a SAP consultant on contract with DWS, his criminal prosecution was fast tracked. The accused transferred R2.8m of DWS funds into his personal bank account due to access to the SAP system. The accused was sentenced to seven years’ imprisonment and the SIU pursued recovery of the money which was unfortunately unsuccessful given Mr Senokwane was imprisoned and his business had been liquidated.

In the Sundays River Valley Municipality matter, the SIU investigated a DWS-funded R18m upgrade to the Patterson Bulk Water Supply project through the Amatola Water Board. The Municipality failed to utilise the funds correctly and was unable to account for R7.9m which it had used for salaries due to financial issues. The SIU assisted DWS in declaring a formal intergovernmental dispute. Mediation in 2014 led to a repayment agreement. The SIU continued to monitor recovery until R5.8m was repaid.

The proclamation also dealt with conflict of interest where nine officials had businesses which traded with DWS to the value of R8.9m. Only one of nine investigations had not been concluded.

There were seven disciplinary referrals as a result of supply chain management (SCM) investigations for fraud or dishonest awarding of contracts. Disciplinary action had been initiated against all seven cases, and two had been finalised. Ms Howes highlighted the cases of two officials who had resigned from DWS and been reemployed elsewhere in the public service and the disciplinary case had been forwarded to their current department for consequence management. The Public Service Act allows for this.

There were 28 criminal referrals and 13 referrals were made to SARS. A total of R40m worth of contracts was referred to the AFU.

The SIU has written to the DWS Director General about concerns on delays in consequence management.

Vuwani Pipeline Matter
Prior to the finalisation of the Presidential Report new allegations were received by the SIU about the procurement process of the Vuwani Steel Pipeline, which the SIU commenced investigating in late 2014 under the same proclamation. There was no water going through the pipeline, 3km of it was damaged and unrepaired, and parts of the pipe lining were loose and needed repair. Poor project and financial management was evident. The final Presidential report was submitted in October 2018. The R50m contract was awarded in 2012 to Ascul Construction for completion in 45 weeks. When the SIU became involved, the company had been paid R29m already. Ascul failed to perform in time – instead of DWS imposing penalties, it waived penalties and the company was advanced a further R16m, in contravention of both the contract and PFMA. In 2016 SIU advised the DG to halt an R8.5m transfer to Ascul. R13m already paid to Ascul was fruitless and wasteful expenditure. Evidence against Ascul Construction for potential fraud was referred to NPA. A disciplinary referral was made about a DDG at the Water Trading Entity and closing arguments set for April 2020 was not completed due to lockdown. Three SARS referrals were made against Ascul Construction and two DWS officials. SIU initiated civil litigation for R95.6m damages. The parties include Ascul director and a former DWS DDG and CFO. The case was ongoing at Pretoria High Court.

Current investigations:

Proclamation R22 of 2016: Lepelle Northern Water & Gauteng Department of Human Settlements
This was extended by Proclamation R39 of 2019. SIU investigations revealed serious maladministration and malpractice in the Lepelle Northern Water case. There was no water connection, an excessive price for boreholes and non-functional water treatment plants. SIU was undertaking a full value-for-money exercise with expert engineers. It conducted a search and seizure at LNW to obtain documents for the value-for-money exercise. It was clear that LNW continued with the services of LTE Consulting despite a summons issued against it, increasing the value of the contract from R2.2bn to R3.3bn. The SIU issued summons in 2018 to have the R2.2bn contract set aside as unlawful. An NPA referral was made in 2018 for PFMA contravention. An NPA referral was also made for collusion and fraud. The interim Presidential Report was submitted in 2018. Challenges at LNW included LNW CEO has using state funds to delay and challenge the SIU investigation with parallel investigations, lawyers letters, and interdict.

The Gauteng DHS-Sweetwaters investigation had been concluded. SIU found an irregularly awarded contract and evidence of corruption by the company and officials. SIU instituted a R108m civil litigation. Referrals were made to the NPA for the former Director General and other officials as well as to the AFU and SARS. Disciplinary charges were avoided by the officials resigning. The civil and criminal action will continue to be pursued by SIU.

Proclamation R27 of 2018: DWS contract award to SAP (extended by R44 of 2019)
Allegations were received that SAP licences for over R500m were procured which were unnecessary and not properly tendered. This included a R35m kickback. The SAP contract value was R950m excl VAT – R450m for licences and R450m for maintenance. No needs analysis was conducted and no budget for the purchase was made. SITA advised DWS against the contract.

An Interim Report would be submitted in August 2020. Civil litigation would begin in Q2 of 2020. SIU applied for an order declaring the decision irregular and to set it aside. The 2015 SAP Agreement was due to a clear misrepresentation of an expiration of licences. There had been no budget for it and DWS did not comply with its SCM policy.

SIU found evidence a 2016 Agreement was irregular as DWS procured IT software for entities without authority to do so. The DWS IT experts did not support the procurement. DWS did not receive services and incurred R285m in wasteful expenditure.

A SARS referral had been made, along with an NPA referral for the former Acting DG, an AFU referral in January 2020, and a Disciplinary Referral against the DDG and Chief Director in Approvals. R1bn was sought in civil litigation, as well as the setting aside of the contract

Adv Mothibi noted LNW was attempting to obstruct SIU investigation. The current board had withdrawn from litigation, but the previous board had been involved in attempting to seek an interdict against the SIU. He noted the SAP licences investigation was nearly concluded

Proclamation R4 of 2019 Umgeni Water
Advocate M Haroon said the proclamation dealt with procurement irregularities. Maladministration and unlawful and improper conduct by Umgeni Water Board were also in the mandate. The investigation was ongoing. SIU was at an advanced stage, foreseeing disciplinary and criminal referrals, as well as referrals to the AFU and civil recovery. The contracts dated back to January 2012. Many officials had left Umgeni Water, and 20% of documents could not be located. An initial lack of cooperation by officials had been dealt with. Lockdown had impacted the investigation. It was envisaged that the 30 November end date would be met.

Adv Mothibi stated that he had instructed SIU teams specifically on documentation. Where there was a lack of documentation there were challenges. SIU had to work around this, pursuing people who were non-compliant with legislation requiring them to hold onto documents.

Proclamation R28 of 2019 Thukela Goedertrouw Water Scheme (TGWS)
Ms Nozipho Jama, Project Manager, SIU, said the allegations reported to SIU included the irregular appointment of the service provider, and the pretence of an emergency that was not justifiable. The provider was paid without completion of the contract. SIU identified three major issues:
- Procurement of a panel of service providers (this was closed).
- Procurement of an emergency upgrade service provider – this review was ongoing as was the analysis of expenditure incurred by DWS.
- The tender was awarded to AECOM with a contract value of R559m. AECOM’s claimed invoices were R419.9m. AECOM issued a termination letter to DWS before the completion of its obligations. During the joint site visit by SIU, equipment crucial to the scheme was not on site. Incomplete work and exposure of materials to elements had degraded quality and would result in further expenditure. Both water storage tanks and pipelines were incomplete and subject to deterioration. A temporary dam built by the service provider needed to be removed, and the pump stations were empty or incomplete.
SIU intended to refer to the NPA and to disciplinary mechanisms, plus recover money through civil claims.

Adv Mothibi noted the revelations from the investigation showed a continuation of poor project management. A significant amount of money had been paid for incomplete work.

New allegations before SIU
Mr Pranesh Maharaj, SIU Senior Forensic Lawyer, said SIU had received allegations from a whistleblower on serious maladministration at the Lepelle Northern Water Board and Amatola Water Board.

- The LNWB appointment of drought relief and investigation services was alleged to be against S217(1) of the Constitution and LNWB procurement prescripts. One of the service providers was allegedly appointed on an expedited basis without cause and the procurement was not budgeted for. SIU had submitted a proclamation request.

- The same service providers were appointed in the same manner at Amatola Water Board. Allegedly 60% of the R230m allocated to AWB was set aside for this service provider. This procurement was not budgeted for. SIU had submitted a proclamation request.

- Adv Mothibi noted allegations from a whistle-blower about the War on Leaks Programme. SIU was requesting reports from the Auditor General and DWS about R2.3bn in unauthorised expenditure. SIU is assessing the allegations and will consider applying to the President for a proclamation.

- Allegations had been received about Sedibeng Water Board as well where SIU had identified R419m in irregular expenditure. SIU is assessing the allegations.

Discussion
Mr A Lees (DA) noted his sadness that SIU had to take bold steps to obtain information. What were the circumstances surrounding the LNWB search and seizure? Why was cooperation not forthcoming? Who were the board members  of the Mhlathuze Water Board criminally charged and what was the progress? Umgeni Water was an old institution and used to have a good reputation. Was it the view of SIU that the Umgeni Water Board was on a sound footing and the investigation was an aberration, or was there a deeper problem? He asked if there had been any tip-offs or whistle-blowing about the 19 000 water tanks bought and distributed at the beginning of lockdown, which stood empty to this day.

Ms V Mente (EFF) echoed the question about board members. She noted the list of disciplinary referrals for DWS officials. Was R8.9m the amount that the businesses of DWS officials had charged DWS? She requested this amount be broken down and allocated to each individual to see the size of each transgression. She noted a written warning to one official and other cases where matters were closed without charges.

Mr S Somyo (ANC) focused on the AECOM investigation in the TGWS which exposed deficiencies and unfinished work, and asked what had been done about this. On the Vuwani pipeline, was SIU aware what had transpired since the report was handed over, since it had been almost two years? Were there other advance payments that had been reported to SIU?

Response
Adv Mothibi replied to Mr Lees that missing documentation was a key problem for SIU. It sought to understand what happened when documents went missing, which could be an easy way out. SIU establishes who was responsible for safekeeping of documents and had neglected their duty. Search and seizure was used as a last resort because SIU expected cooperation and usually got it. In his five years at the SIU, this was the only instance in which SIU had needed to use this provision for search and seizure. The LNWB CEO and board had deliberately attempted to frustrate the SIU investigation. SIU did communicate its intention to DWS for assistance. His view was that, if action was not taken, there was a reasonable risk that evidence would be destroyed. The search and seizure request was presented to a judicial officer and then executed. In the process of execution, there was cooperation, and SIU did get the information it sought. Evidence revealed that, despite the summons, there was a continued use of LTE Consulting, which spiked irregular expenditure by R1.1bn. The search and seizure avenue was taken out of necessity.

On the Umgeni Water Board, Adv Mothibi noted a possibility of deeper problems from the preliminary findings. He was of the view that there was extensive maladministration by officials.

SIU had not received any complaints on the water tanks provided by DWS.

Adv Mothibi noted that the Ministry of Public Service and Administration was taking action against officials doing business with the state. He would provide the detail requested by Ms Mente in writing about how much of the R8.9m each of the nine DWS officials was responsible for. He was of the view that the punishment should be commensurate with the charge.

He agreed with Mr Somyo’s concern about the R419m paid to a contractor that had not completed its work.  DWS might have to start afresh with the work. The company would be pursued as much as possible, especially if there were criminal referrals. He had instructed SIU teams to consider civil litigation against individuals, and not only companies, who had caused pecuniary prejudice to DWS.

He noted that the scale of advance payments was a general problem with a number of contracts.

The Vuwani Steel Pipeline investigation was complete and the report submitted. Civil litigation was ongoing.

The names of Mhlathuze Water board members would be submitted in writing. If the board as the accounting authority was implicated in neglect or incompetence, SIU would ensure action was taken.

The Chairperson requested SIU to furnish names of the Mhlathuze board members by the next week. He noted the need for a briefing on how reports had been processed and implemented by the Presidency. Multiple reports had been submitted to the Presidency by the SIU across departments. The Committee needed to understand how consequence management was implemented by the Presidency. The Committee would have to engage with the NPA to ensure prosecution was pursued where necessary.

The Chairperson remained fundamentally concerned at the slow pace of consequence management. He felt law enforcement agencies were seriously letting the country down on this matter. The public concern over lack of justice remained when the wheels of justice turned at such a slow pace. The Committee would schedule a meeting with the Anti Corruption Task Team. He noted his appreciation of the SIU pursuit of officials after they had resigned from a department and joined another one. This should be institutionalised in the public service.

The Chairperson proposed that the Department of Water and Sanitation remain firmly on the table. Whilst the Minister of Human Settlements, Water and Sanitation had appointed Adv Motau to investigate matters at DWS, SCOPA needed to devise a process to conclude the matters of the Fifth Parliament. He saw no harm in pursuing this work, but conceded the need to work out the modalities of this. Corruption at DWS ranked amongst the worst he had seen, as the department was brought to its knees in the midst of a drought. SCOPA could not ignore this, and would appreciate the SIU’s assistance in this.

The Chair asked if the process of SIU office moving from Pinetown to Durban had been concluded.

Adv Mothibi noted that the process had been concluded, and tenant installation was ongoing. The team would be settled by 10 July.

The Chair would correspond with the Advocate about employee health concerns at the offices. He thanked SIU for its work.

The Chair said to the Committee that the proposed oversight visit to Beitbridge was a work in progress.

Meeting adjourned.