Minister of Public Works progress report on corruption and financial misconduct investigations

Meeting report

Briefing
The Deputy Minister, Mr Jeremy Cronin said the meeting was a follow up to an oversight visit by the Committee to the Department in August and was an update on the progress of disciplinary cases.

Mr Mziwonke Dlabantu, Director General, provided details of internal investigations for cases reported between 2009/10 and 2012/13. There had been 200 reported cases, 15 of which had been referred to the Special Investigating Unit (SIU) and South African Police Service (SAPS), 7 were still in progress, 12 investigations had not started, 23 had been referred to other DPW business units and provincial departments as it was felt that they did not warrant investigations and were operational deficiencies, 54 investigations were finalised and at the reporting phase and 89 cases had been completed. Of this 89 cases, 31 reports recommended taking 67 disciplinary actions, 11 recommended criminal proceedings be opened and 3 reports recommended 5 civil proceedings be opened, 29 cases were found to have insufficient evidence to substantiate claims and 12 reports recommended business improvements to internal control. The criminal cases were around misrepresentation, bribery and fraud.

He then moved on to the second presentation around financial misconduct, what the extent of it was, what the Department had done and what the Department was going to do.

He said that as at March 2013 irregular expenditure for the Department was R1b and for the Property Management Trading Entity (PMTE) R2,6b making a total of R3,6b. An analysis of the DPW expenditure of R1b reveals that 40,164 transactions accounted for R317m while 4 transactions accounted for R157m and 28 transactions accounted for R241m. An analysis of the PMTE expenditure of R2,6b reveals that 15,458 transactions accounted for R782, 5m while 14 transactions accounted for R620, 9m and 50 transactions accounted for R478m. The predominant cause of irregular expenditure in the DPW was because of Supply Chain Management (SCM) processes not being followed in 39,630 transactions which accounted for R670.9m. It was the same for the PMTE with SCM processes not being followed in 11854 transactions which accounted for R1.5b

Fruitless and wasteful expenditure for the Department was R124m and for the PMTE R254,6m making a total of R378,6m. An analysis of the DPW expenditure of R124m reveals that 145 transactions accounted for R2, 2m while 2 transactions accounted for R109m and 9 transactions accounted for R11m. An analysis of the PMTE expenditure of R254,6m revealed that 1251 transactions accounted for R44,9m while two transactions accounted for R120,5m and 4 transactions accounted for R56m. The biggest amounts for fruitless and wasteful expenditure in the Department was for the cancellation of the Skilpadhek border post which accounted for R68.8m and the implementation of the SAAS IT system which accounted for R48.7m.  94% of the fruitless and wasteful expenditure in the PMTE amounting to R239.8m was for rentals paid on unoccupied buildings.

In the three-year period 2009/10 to 2012/13 there had been 1.3m financial misconduct transactions totalling R96.9b. The action plan to combat irregular expenditure was to review all transactions for 2012/13. This had been completed in May 2013. A circular would be issued calling for a cut in irregular expenditure. This had been circularised.  A new SCM database had to become operational. This was still in progress. The plan also called for approval of a new policy on financial misconduct; to review all disclosed irregular expenditure according to Treasury guidelines; to complete the analysis of irregular expenditure; to allocate responsibility for irregular expenditure; to establish the investigative capacity to investigate reported cases; to establish a condonement committee; to formulate a condonement framework and to request approval to condone finalised cases. All new cases would be validated within 30 days and investigated within 30 days of being validated. Training would be intensified to prevent irregular expenditure. All reported cases had to be reported to Treasury on a monthly basis. Disciplinary action would be taken against officials.

The Minister of Public Works, Mr Thulas Nxesi, said he wanted to assure the Committee that no stone would be left unturned to investigate fraud and corruption and to put in place necessary checks and balances and would punish transgressors. They were developing new SCM and new risk management systems and capacitating internal capability of investigation units to investigate cases while continuing to work with the SIU and taking up their recommendations and implementing it. He said officials who were being charged took the Department to court and were represented by top lawyers, which meant the Department had to respond in kind, this was a waste of resources and sometimes cases were protracted.

Mr Philip Masilo, Legal Advisor to the Minister, made a presentation on cases under investigation. Due to the sensitivity of the information, in that it involved criminal cases of fraud, a written presentation was not made available. The SIU had recommended in one instance that the Department approach the court. Nedbank, as a third party, had asked the case to be delayed as they had financed the landlord. The landlord had ceded the rental monies to the bank. The Department had filed notice to defend and intended to do so. They had suspended a former DG who had been found guilty and then dismissed. Another matter was the case of the property on 114 Vermeulen Street; they were awaiting the report of the chairperson which would be received in the following weeks. In another case an official had received payment  and failed to disclose this. He was found guilty and was dismissed and a criminal case was registered.  The SIU had found 16 leases were concluded irregularly with evidence of corruption and collusion. It had recommended that one official be dismissed and that criminal charges be registered. Other matters that the SIU investigated was the renovation of seven houses where irregularities were found in the supply chain processes. A director of a company had been charged and the matter was still under a disciplinary process. In the matter of the Skilpadhek border post contract, the SIU had investigated the cancelled contract in which R33m had been paid out irregularly. A summons had been issued for recovery of monies and a letter to defend had been filed. The Department was awaiting a court date. In the Umtata Water Project the SIU had opened eight cases. There were four cases of fraud against one service provider and there were cases of fraud, fronting and corruption against a quantity surveyor.

The Deputy Minister said the situation had been depressing and that the number of cases was significant. The huge quantity of transactions painted a grim picture but it was being dealt with and they were improving policies and processes to deal with the vast scale of the fraud.

Discussion
Mr R Ainslie (ANC) said the Department had compiled the first comprehensive report in five years.  He asked if they were dealing with the fundamentals of putting in place a system to deal with irregular expenditure. He said the latest Auditor General’s report  said the Department needed to identify and recognise irregular and fruitless and wasteful expenditure otherwise the problem would not be solved.  It said further that the strength of the governance structures, especially the audit function was not properly resourced and that there was no risk strategy in place. If the Department did not do this it ran the risk of treating the symptoms.

Dr P Rabie (DA) said that the Department had capacity problems and it was a complex department situated around the country. He said the DG who had received monies from contractors should be named and shamed.

Dr Dion George (DA) said that a picture of the wrongness was emerging. How did the Department know that the system was getting better and not just relying on whistle-blowers to provide information. Was criminal action being taken with regards to the renovations to the Nkandla residence of the President. How did the Department descend into the mess of irregular and fruitless and wasteful expenditure detailed in the second presentation. He wanted to know what the R36,000 fruitless and wasteful expenditure spent outside of the Ministerial handbook guidelines were for.

Mr I Mfundisi (UCDP) asked what the present status of the Skilpadhek investigation was. Was the border post closed or had a better place been found? What did the Department intend doing to curb renovations  of private residences?

Mr Dlabantu said that the internal audit issue was being addressed and DPW had established a governance, risk and compliance unit. A risk strategy had been developed and the department had a functional Audit Committee which met five times more than required. On the question of human capacity in the Department, they were having discussions on the structure and business model the Department would operate under.

Mr Masilo said, regarding Skilpadhek border post, that R1,264m had been paid to a former DG via a close corporation which he owned. Before construction on the project could begin it was established that the ground was not suitable to erect buildings and so the project was abandoned. 

Mr Cox Mokgoro, DPW CFO, responded to the question on procurement outside the Ministerial Handbook guidelines. The items that were purchased were outside of the responsibility of the Department to purchase. All had been subject to SIU investigations. All items purchased had been entered into the department’s asset register. Indications were that it was due to overzealous officials. Other Departments had confirmed in written correspondence that they had never put in requests.

Mr Dlabantu acknowledged that the Department had had a period of laxity.

The Chairperson said it was a period in which there had been a policy vacuum.

Mr Dlabantu acknowledged this and said this was what they were working on.

Mr Cronin said R206m had been spent on refurbishing Nkandla. It was a case of non-compliance with SCM processes and of not being properly budgeted for. A report had been tabled to Parliament before the Joint Standing Committee on Intelligence. The Public Protector was also investigating the matter. The Department was cooperating and looking forward to her report.. The delay was not on the part of the Department. Regarding Ministerial Handbook guidelines being overstepped, he said the evidence pointed to overzealous officials however it could also be a case of kickbacks and this had to be stopped. Fraud and corruption had to be tackled  whether they were big or small cases. The Handbook was being assessed with a view to being tightened.

A member of the Committee said that the turnaround strategy had resulted in the Department  moving from a disclaimer to a qualified audit opinion and thanked the Department for that.

A member of the Committee said that a lot needed to be done  regarding irregular and fruitless and wasteful expenditure. He asked why things had not been detected by the audit committee, the CFO the DG or the Treasury. There was a lack of compliance and a lack of monitoring. What was the Department doing to get officials to sign declarations of interest.

The Chairperson said the figures were staggering, especially for non-compliance and questioned the department’s internal controls and ability to prevent and detect. He said that the SIU reports showed that officials with discretionary powers were more likely to flout them.

Mr Cronin said middlemen were a problem as a cost to government as they just passed on the work contract. He noted that the Department had had 8 to 9 Directors General in the space of six years.

Mr Dlabantu said that the R36 000 had been spent on linen. He said all senior managers had submitted their declarations of interest forms.

The meeting was adjourned.