Department of Correctional Services 2018/2019 financial statements, deviations, expansions, irregular, fruitless & wasteful expenditure

Meeting report

The Chairperson welcomed the delegation from the Department of Correctional Services (DCS), which included Minister of Justice and Correctional Services, Mr Ronald Lamola, Deputy Minister of Justice and Correctional Services, Inkosi Sango Patekile Holomisa, as well as representatives of the Special Investigations Unit (SIU), National Treasury (NT) and the Auditor-General of South Africa (AGSA). He observed that the Department received its third consecutive qualified audit opinion in 2018/19. He said that the meeting would look at (one) irregular expenditure, (two) commitments, (three) fruitless and wasteful expenditure, and (four) deviations. As it happened, only irregular expenditure was discussed and the outstanding matters were scheduled for a meeting on 27 November 2019.

Minister Lamola introduced the large delegation from the Department. He acknowledged that both corruption and capacity challenges had a part in the Department’s inability to comply with certain prescripts of governance. The oversight of the Committee was viewed as an opportunity for the Department to find a way forward.

Mr Arthur Fraser, National Commissioner of Correctional Services, said the Department prioritised the investigation of irregular expenditure. Out of 875 cases of irregular expenditure, amounting to about R3bn, 750 were investigated. 580 cases were finalised and a further 170 cases were investigated but were still awaiting disciplinary action. 125 cases were not dealt with. Three cases, totalling 80% of the irregular expenditure, were carried over from previous years. One of these cases was investigated by the SIU, which referred its findings to the Department. There was R159m of new irregular expenditure in 2018/19.

Mr Fraser said that the root causes of irregular expenditure at the Department were a lack of understanding of relevant laws and Treasury prescripts, and unqualified officials working in Supply Chain Management (SCM). The Department prepared a procurement manual and adopted due diligence processes. The Department was using NT’s central suppliers’ database to detect officials who were doing business with the state. Prior to awarding bids, the bid evaluation committee verified that restricted bidders, or tender defaulters, were not awarded contracts.

Discussion
The Chairperson asked if employees upskilled to SCM positions were vetted, in accordance with the Cabinet resolution of 2014. How many?

The Chairperson drew attention to an official named Mr Morgan Govender (head of maintenance in KZN), whose name appeared numerous times in connection with tender irregularities, and yet no official had been disciplined due to time constraints. It begged a question about the efficiency of the Department’s consequence management.

Mr Fraser replied that there was a backlog of disciplinary matters. The Department had been caught in the issue of prescription.

The Chairperson said that this same challenge was raised before. It looked less like a backlog and more like inaction. Had actions been taken against senior officials?

Mr Fraser said the Department had applied for a proclamation in one specific area. He would reflect on the matter of holding senior management accountable.

The Chairperson said that action needed to be taken on inherited matters. What was Mr Morgan Govender doing now? Why was he not disciplined? Who was the official who was supposed to discipline him?

Mr Nick Ligege, Chief Financial Officer, DCS, explained that there were maintenance challenges in Kwazulu-Natal.

The Chairperson objected to this. The question is where is this official? He is still part of the establishment?

Mr Ligege confirmed this.

The Chairperson said that something was fundamentally wrong.

Mr Ligege said that a final written warning had been issued to Mr Govender and an associate named Dlamini.

The Chairperson was not satisfied. If a warning was issued, why did the document then say no officials were disciplined due to time constraints? Was the Department withdrawing the explanation given in the document?

Ms B Van Minnen (DA) said that prescription was a mechanism involved in debt collection. How was it related to disciplinary action?

Mr S Somyo (ANC) (Chairperson of the Standing Committee on Auditor-General) observed the number of finalised cases varied according to province. Was the Department happy with the level of internal investigative capacity? If it was happy, how could there be some provinces where no cases were finalised? If it was not happy, what was being done?

Ms V Mente (EFF) asked if Mr Govender, and other officials implicated in irregular expenditure, were vetted. One official rented an office without a lease, quotations were not obtained, and contracts expanded in excess of 20%. These were serious breaches. If the officials involved were vetted, what had the results of the vetting been?

The Chairperson noted that the same matters were raised sharply in 2017, and the answers had been just as shady.

Mr Fraser acknowledged there were challenges. Some of the matters involving Mr Govender were referred for disciplinary action - it was unclear why this was not captured in the document. Some of the references in the document were out of date, too.

The Chairperson replied that the majority were not referred or out of date. The Department has simply not acted. The written warning was a cop-out to cover the Department’s inaction. Which case involving Mr Govender was the written warning issued on?

Mr A Lees (DA) observed that the delegation was one of the biggest he had seen, and yet it could not even answer simple questions.

Mr Ligege said that it was a case involving plumbing and miscellaneous services.

The Chairperson was surprised that Mr Govender was only disciplined on one case, and was still working. Why did it seem like he and Dlamini were untouchable? The Department had simply accepted the situation.

Ms Portia Mandisa Seipati Matjele, Director: Inspectorate, DCS, said that numerous cases against Mr Govender were investigated. They were closed on the basis that they related to the same transgressions for which the officials had been issued final written warnings.

The Chairperson did not accept the explanation. Where was the consequence management? Were they charged for 100 cases and found guilty on one? Did the Public Finance Management Act (PFMA) not apply to Mr Govender?

The Chairperson raised the issue of vetting again. Had SCM managers been vetted?

Mr Fraser said that the specific information was not readily available to him.

The Chairperson asked a representative from human resources to respond.

Adv Moeketsi Mashibini, CDC: Human Resources, DCS, replied that vetting was the responsibility of Security Standards.

The Chairperson asked a representative from Security Standards to respond.

Mr Fraser said he would have to get the information from the documents submitted by the vetting fieldwork unit. There were no representatives of Security Standards in the delegation.

The Chairperson requested specific numbers.

Mr Lees asked if all relevant officials were instructed to supply the information needed for vetting to be done.

Mr Fraser confirmed this.

Mr Lees asked if they had all supplied it.

Mr Fraser said that a few had not.

The Chairperson said that officials who had not submitted should be the first to be investigated.

Ms Mente asked for information about the level of officials who were being vetted. Some were making decisions, even if they were not in management.

The Chairperson said the CFO should know about officials not complying with vetting requirements. Were they still at work? Something did not add up.

Mr B Hadebe (ANC) said the AGSA found the Department did not have adequate systems for identifying irregular expenditure. This was not addressed in the document - the figures were the same as the ones given to the AGSA. Had the Department addressed this? There could be no management without measurement.

Mr Ligege acknowledged t the figures were incomplete. More irregular expenditure was detected after the audit and would be reported at the end of the year. Many cases involved services procured without contracts.

The Chairperson asked why contracts had not been signed in these cases.

Mr Ligege said there was a time when the Department was facing challenges of irregular expenditure and procurement in the regions were found to be irregular. The due diligence system was implemented where before contracts were awarded, the documents were reviewed. It was found that in some instances the process was flawed and the tender was cancelled. This meant the Department would have to buy through quotations but the volume and the value really requires the services to be bought through contracts on a fixed term. The AGSA says that expenditure over R700 000 must be awarded through contracts and when this is not done, it is regarded as irregular.

The Chairperson asked what the flaws in the procurement process were in these cases.

Mr Ligege replied that some of them had to do with the preferential points system, and others were administrative errors such as opening tender documents without witnesses.

The Chairperson asked what consequence management had followed the correction of these flaws.

Mr Ligege replied that where irregular contracts had been prevented from being awarded, no consequence management had followed.

The Chairperson was not happy with this response. Even if an irregular contract was avoided, officials acted irregularly, possibly with intent. They must have known they were not supposed to open tender documents without witnesses, for example.

Mr Hadebe said that non-compliance at senior management level could not be tolerated. Of the finalised cases of irregular expenditure, how many had resulted in a criminal case being opened?

Mr Ligege said that none had resulted in criminal cases being opened.

Mr Hadebe asked if this was because Mr Ligege considered none of the cases to involve fraud or corruption or any criminal activity.

The Chairperson asked if any of the cases had been referred to law enforcement agencies.

Ms Matjele confirmed that none had been found to involve fraudulent activity or been referred.

The Chairperson asked if this included cases involving non-compliance with the State Information Technology Act.

Ms Matjele said that these cases were either under investigation or under litigation.

The Chairperson and Mr Hadebe expressed incredulity that R3.3bn of irregular expenditure included no fraudulent activity.

The Chairperson wondered why the repeated non-compliance of Mr Govender and Ms Dlamini had not aroused suspicion. Was there a contractor that they were regularly involved with?

Ms Matjele said that there was.

The Chairperson asked why this had not triggered any suspicion.

Mr Fraser explained the Department’s investigative capacity was limited. Where a pattern was detected, a submission to the SIU for proclamation was issued.

The Chairperson asked Adv Andy Mothibi (Head, SIU) to confirm the SIU’s receipt of the submission.

Mr Mothibi confirmed that it had been received.

Mr Fraser continued that the Independent Development Trust (IDT) matter was referred to the SIU and was in court. A matter related to the Giyama audit, involving R158m, was also referred to the SIU, and the Directorate of Priority Crime Investigation (DPCI) had also opened an inquiry into another matter. He had asked for investigators to be seconded to the Department to upskill its capacity. Two senior managers in the investigative unit had resigned this year, he added.

Mr Mothibi added that the value of the IDT contract was about R2.2bn.

Mr Hadebe asked if any money was recovered from irregular expenditure, or was everything just condoned or removed from the register. Had any senior officials been found guilty?

Mr Ligege replied that some fruitless and wasteful expenditure was recovered but no irregular expenditure because no loss to the state was detected where investigations took place.

The Chairperson did not agree that there could be no losses to the state when, for example, less than three quotes for a service were solicited.

Mr Ligege replied that he was referring to cases that were finalised. In these cases, investigators looked at the reasonableness of the prices paid for services, and no unreasonable costs were found.

The Chairperson said this seemed to sidestep the PFMA, which called for three quotes. What was the legal basis for the determination of reasonableness?

Mr Hadebe asked why 125 cases could not be investigated.

Mr Fraser explained these cases would be investigated. Capacity was the only reason they were not investigated yet. Timelines were in place to complete these investigations.

The Chairperson observed there would not be so many capacity problems if the Department had investigated matters when they arose. He asked the Commissioner to cease using it as an excuse. Underlying matters needed to be determined.

Mr Fraser said there was misalignment of the Department’s security structures. This impacted on the effectiveness of investigations. The Department had now aligned its security organisation, but the backlog remained a challenge. A “service delivery model” was being put in place and a draft counter-corruption strategy was developed for preventive and detective measures.

Mr Lees asked if the 580 finalised cases included any of the cases mentioned that was referred to the SIU.

Mr Fraser said it did not.

Mr Lees asked if any matters arising from the Bosasa operation was referred to the Department for disciplinary action.

Mr Fraser replied that the SIU had referred some matters.

Mr Lees asked what action had been taken in these matters.

Mr Fraser replied that the implicated officials had already left the Department.

Mr Lees asked if criminal action had been taken against them.

Mr Fraser referred the question to the SIU.

Mr Lees asked if the requirement of the PFMA for the Accounting Officer to refer, within seven days, did not apply when matters were dealt with by the SIU.

Mr Fraser replied that Bosasa and its management had been blacklisted as requested.

Mr Lees asked if there had been any referrals in the IDT matter.

Mr Fraser said that the IDT matter did not involve officials in the Department.

Mr Lees asked if any of the other matters flagged by the AGSA were fully investigated, or if any charges were laid.

Mr Fraser said that the officials had left the Department.

Mr Lees observed that officials seemed to leave as soon as there was any suspicion of wrongdoing.

The Chairperson asked what levels of officials had left in this way.

Mr Fraser said they included a National Commissioner and CFO.

The Chairperson asked when Bosasa had been blacklisted.

Mr Fraser said it was earlier in 2019.

Mr Somyo asked what action was taken against a list of 115 departmental officials cited in connection with irregular expenditure. He asked the CFO how long he had been in his position. How firm was the inspectorate? What was being done to strengthen it?

Mr Ligege replied that he had been the CFO for four and a half years. Bid-checking procedures were strengthened. However, some contracts, such as food supply contracts, could not simply be terminated, and the Department asked Treasury for exemptions in these cases. The contract with African Global Operations was terminated and, working with Treasury, the Department developed a new nutrition services contract. He acknowledged that the inspectorate needed to be strengthened by recruiting extra capacity.

Ms T Marawu (ATM) asked if an audit intervention plan was in place, and what monitoring mechanism was in place to avoid repeating the same mistakes. Is there a functional internal audit team? She asked for a timeframe on outstanding cases. She observed the Department had brought a very large delegation and still complained about capacity problems. Only the Commissioner and CFO were answering questions - the remainder of the delegation was just warming seats.

Ms Jane Masite, chairperson: audit committee, DCS, replied there was a new action plan. The existing plan did not address root causes. The committee was also looking at the financial statements. It requested the appointment of an independent risk committee chair. There was an internal audit team, and the organogram was being reviewed to include internal auditing as an arm of governance.

Mr Fraser explained the delegation included technical experts in certain fields, based on expectations of what the Committee would ask about. The Department was aiming to complete the investigations into the 125 outstanding cases by the end of 2019/20.

The Chairperson was surprised at the rosy picture painted by ythe audit committee in the Annual Report, at odds with AGSA’s findings.

Ms Mente said the Department needed to return to the Committee soon and be better prepared. The fact that out of the 580 cases finalised, not one had found any guilt, created a narrative that irregular expenditure could not be recovered. Irregular expenditure was a room for corruption. The narrative needed to change. She asked to see a list of the 580 cases indicating the merits of each case. What happened to the official who rented an office without a lease? She pointed out an item in the register of irregular expenditure which indicated the bid adjudication committee was issued with written warnings, but the names of the officials involved were ‘to be revealed during investigation.’ There was a contradiction. Why were they only given a written warning? Why were the names not given?

Mr Fraser said all members of the adjudication committee were given written warnings. This took place before he was appointed.

The Chairperson said the question was why it had just been a written warning. And why was the Department seemingly unable to dismiss people? Why were the names of the implicated not included in the document? Were the officials still employed?

Mr Fraser said that they were.

The Chairperson asked again why the names were not in the document. If it was possible to name Govender and Dlamini, why were these officials not named?

Mr Fraser asked if the names could be provided at a future meeting.

The Chairperson did not allow this.

An official from National Treasury noted that it raised concerns about the particular tender involved, but it was awarded anyway.

Mr Fraser said the officials were Chief Deputy Commissioners.

The Chairperson asked if this was why they were not named.

Mr Fraser did not think this was the reason.

The Chairperson asked for the names again. Why were they only issued with a written warning? Who presided over their disciplinary process?

Mr Fraser asked again if he could return with the names at a future meeting.

The Chairperson refused. He said the Committee would wait.

Mr Fraser consulted with his delegation. The bid adjudication committee was chaired by the CFO, he said.

Mr Ligege said the national bid adjudication committee included himself, Mr James Smalberger, Ms N Mosupye, Mr T Mokoena, Ms B Rotmann and Mr M Ngubo.

The Chairperson welcomed the names, but was strongly critical of the conduct of the officials, who ignored the input of Treasury, as well as the document provided to the Committee, and the conduct of the delegation, which both seemed to be designed to protect their identities. He did not see why the Committee needed to dig and probe this when those present could just be honest. It was clear officials were trying to protect each other. He warned the delegation that it would be a serious problem if it did not engage with the Committee in good faith. The department was stuck with the Committee for the next five years. He took strong exception to the way this part of the meeting was handled. How could an official ignore Treasury and get away with no more than a written warning? Whoever presided over the disciplinary process was also responsible for aiding and abetting the committee’s non-compliance. The Committee would need a full day to go through the documents and cases one by one. The Chairperson said that to say he was irritated would be an under-statement. The principle was about conviction and adherence to the law.

Mr Fraser accepted responsibility and apologised for the absence of names in the document. There was no intention to hide anything.

Mr Hadebe took exception to this response. Some names were included while others were omitted. It must have been deliberate. He could not accept the apology without knowing why certain names were omitted.

The Chairperson asked who had presided over the disciplinary process.

Mr Fraser replied that it had been the Code Enforcement Unit (CEU).

The Chairperson asked who prepared the document.

The Head of SCM for the Department stated his name for the record and confirmed he was responsible for preparing the document.

The Chairperson asked why the names had been omitted.

The official said that he had not received the names from the CEU.

The Chairperson asked how the official could have known that written warnings were issued without knowing who they were issued to.

The official said the CEU had not provided this information.

The Chairperson asked the official if was comfortable submitting the document, knowing its shortcomings. Had he not thought of indicating where information was withheld?

The official said he had prepared the document based on the information he received.

The Chairperson asked if it did not seem strange that certain senior officials’ names were withheld, while others were provided.

Mr Hadebe asked the official if he was uninterested in the names of the officials. What if they repeatedly contravened the law? Was that ethical leadership?

The official said he was not uninterested in the names, but could only update the register based on the information received.

The Chairperson asked the official if he was vetted for his position.

The official confirmed this.

The Chairperson asked who had not been vetted in the official’s unit.

The official said that he did not have that information readily available.

The Chairperson was unsatisfied with this. He said the document was not prepared in good faith. The information it contained was cherry-picked. The official had not asked the necessary questions. Had he done this deliberately or had he been under pressure or instructions?

The official said that it was not deliberate. He requested the information from CEU but they said it was confidential.

The Chairperson was surprised. Should the document not have included that information? Had Mr Ligege revealed confidential information when he gave the Committee the names?

Mr M Dirks (ANC) asked why the names of the senior officials could be confidential while the name of Mr Govender was not confidential.

Mr Somyo suggested the Committee have a few minutes to discuss things privately with the National Commissioner. It seemed as if some DCS officials responsible for the shortcomings of the document were present.

The Chairperson declined the suggestion. He wanted to uncover the origins of the document and its shortcomings.

Mr Dirks approved of Mr Fraser’s ownership of the document, but observed that DCS officials seemed to have misled him, and they should not be excused.

Mr Hadebe asked who had approved the document, given that it had been authored by the SCM unit.

The Chairperson noted the National Commissioner had accepted responsibility for it. He wanted to find the root causes of its shortcomings, though. Who had classified the officials’ names as confidential?

The DCS SCM Head was not sure but said that the information was requested from the CEU.

The Chairperson asked who the head of the CEU was.

Mr Fraser said the head of the CEU was not present. He asked if he could look into it and bring the information back at a future meeting.

Mr Hadebe asked if Mr Fraser was the Accounting Officer referred to in the Auditor-General’s report as having failed to exercise oversight and establish effective communication to enable effective internal controls.

Mr Fraser confirmed this.

The Chairperson asked when he had received the document.

Mr Fraser replied that he had received it the Friday before.

Ms Mente asked to see copies of the warning letters. She also wanted to know what the charges had been.

Ms B Zibula (ANC) said that Mr Fraser was owning and disowning the report. There were big problems among the officials present. The Committee had to believe what the Commissioner said, and took an oath to tell the truth. There were huge challenges. Money had disappeared. How could the Commissioner be trusted?

Ms Mente asked for an official to be named as responsible for emailing the warning letters and providing other names omitted from the document to the Committee.

The Chairperson supported this request. He asked Adv Mothibi to give information on its investigations at the Department.

Adv Mothibi began by discussing Proclamation 44 of 2007, which had investigated the Department’s business with Bosasa. It consisted of several different tenders. The investigation was concluded in 2013. It recommended disciplinary action as well as civil litigation against Bosasa. He pointed out the Proclamation occurred before changes to legislation which enabled the SIU to pursue civil litigation. The Department had not pursued civil litigation. The former National Commissioner, CFO and some Bosasa staff were referred to the National Prosecuting Authority (NPA), which had recently brought charges against Bosasa staff members Mr A Agrizzi, Mr P Gillingham and former National Commissioner, Ms L Mti. The CFO had resigned during the disciplinary process.

Adv Mothibi then discussed Proclamation 18 of 2016 which concerned Engineered System Solutions. The investigation was completed in November 2019. Tender award irregularities were discovered and disciplinary action against the former National Commissioner, the Director of Supervision, the Deputy Director of Monitoring, the bid specification committee and the bid evaluation committee were recommended. Some matters were also referred to the Private Security Industry Regulatory Authority (PSiRA), who appointed an inspector to investigate further. 26 referrals to the NPA were made, recommending criminal proceedings.

Mr Jerome Wells, Chief Legal Counsel, SIU, added that the SIU was seeking a declaration of invalidity of the contract, as well as equitable relief to recover losses suffered by the Department. It was awaiting the judgement of the High Court.

Adv Mothibi then discussed Proclamation 20 of 2016. The investigation was completed in June 2018. It found procurement irregularities in a contract in which the DCS ‘piggy-backed’ off a contract of the Department of Education – this was found to be inappropriate. The former National Commissioner was referred and disciplinary action was recommended against the acting CFO. Civil litigation to recover R470m was pending in court.

Mr Wells added that the SIU was at an advanced stage of litigation. Heads of argument were filed and they were waiting for a date from the deputy Judge President. The SIU was seeking a declaration of invalidity of the contract, as well as equitable relief.

Adv Mothibi then discussed Proclamation 28 of 2017, which related to a fencing contract involving the IDT. The investigation was expected to be completed in March 2020. To date, 13 recommendations for disciplinary action were made, and 18 contraventions of the PFMA were discovered. Civil litigation to recover money from the R2.2bn contract was being prepared. One referral for fraud was made to the NPA.

Mr Wells added that the SIU was seeking similar relief in this matter.

Adv Mothibi then discussed Proclamation 10 of 2018, which related to DCS in KZN. The investigation was expected to be completed in February 2020. To date, eight officials implicated in 18 tenders were recommended for disciplinary action, 41 service providers were referred to the NPA for criminal proceedings, and six were recommended for blacklisting by DCS. The assets of the regional commissioner were also being investigated.

Ms Mente asked if any of the finalised investigations had been communicated to DCS.

Adv Mothibi replied that the report on Proclamation 44 was sent to the Department. The report on Proclamation 18 was sent to the President. The report on Proclamation 20 was submitted to the President but he could not confirm whether the Department had received it. In all cases, however, the Department had not waited for the President to release the report to begin acting on it.

Mr Lees observed that the Department had received the Bosasa report more than six years ago, but had not instituted civil proceedings at the time. Had anything been done since?

Mr Fraser said that no civil proceedings had been instituted.

Mr Lees asked who was responsible for these proceedings now that the law had changed to allow the SIU to institute civil proceedings.

Adv Mothibi said the SIU’s legal department was exploring its options. A process was also under way to have a proclamation issued on all of Bosasa’s contracts with government.

Mr Lees asked who was the National Commissioner and CFO in 2013, when the Bosasa report was published.

Adv Mothibi recalled that it was an acting commissioner. He asked for a few minutes to find the names.

Mr Fraser said that a submission to Treasury concerning blacklisting of Bosasa was made on 18 March 2019. He confirmed he would email the letters the Committee requested. Only five senior managers received vetting clearance.

The Chairperson suggested completing the meeting on 27 November 2019 to deal with commitments, fruitless and wasteful expenditure and deviations, which they had run out of time to address.

Mr Somyo asked the SIU to assist DCS and follow through referrals made. Was the National Commissioner prepared to accept the assistance of the SIU in the completion of disciplinary processes?

Adv Mothibi assured the Committee that the SIU was willing and able to assist in this regard. It was unable to chair proceedings or present on behalf of the Department but it could give evidence.

Mr Fraser said the Department had a good relationship with the SIU.

Ms Mente asked the Department to bring the list of senior officials published by the Public Service Commission, including information on their vetting status, such as who had refused and whose vetting was in process.

Mr Lees told the Department not to bring such a large delegation to the next meeting.

The Chairperson asked who presided over the CEU when it issued the written warnings to the bid adjudication committee.

Mr Fraser said it was the National Commissioner.

The Chairperson observed the Committee was tasked with following the money. It emerged this was not enough - it had to follow the behaviour, conduct and compliance of individuals too. The outcome of the meeting did not inspire confidence that things were being done properly. The Committee was not going to allow a runaway train of non-accountability. He warned the Department not to withhold information from Parliament.

Mr Fraser took responsibility for the tabled report and reiterated there was no intent at any point to mislead the Committee. He thanked it for the robust oversight.

Deputy Minister Holomisa said it was unfortunate that the Minister was not present to hear the revelations of the meeting. The Ministry had raised the same questions to the Department, and received the same vague answers. He pledged to work with the National Commissioner to address the problems.

The meeting was adjourned.