Letter to the Iterim Report April 2012 - Sept 2012.pdfNational Department of Public Works 8 National...

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Integrity | Cooperation | Effectiveness | Professionalism | Drive | Equality

Poised to strike against corruption | Special Investigating Unit Interim Report April - September 2012

Letter to the Speaker of Parliament

The Honourable SpeakerMr Max Sisulu

Parliament of the Republic of South AfricaP O Box 15Cape Town

800031 July 2013

Dear Mr Sisulu

Special Investigating Unit Interim Report for April 2012 to September 2012

On behalf of the Special Investigating Unit, established by Proclamation R118 of 2001 in terms of Act No 74 of 1996, it gives me great pleasure to submit the SIU’s interim report for April 2012 to September 2012 as envisaged by section 4(1)(h) of Act No 74.

The report provides an overview of the Special Investigating Unit’s performance and achievements during the period under review.

Yours sincerely

_________________________________N MokhatlaActing Head of the Special Investigating Unit

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VALUES

Integrity

Cooperation

Effectiveness

Professionalism

Drive

Equality

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TABLE OF CONTENTS THE SIU INTERIM REPORT

GENERALList of abbreviations 4

Proclamations 6

Background to the Special Investigating Unit 7

National Department of Public Works 8

National Department of Human Settlements 9

National Department of Social Development 11

National Department of Rural Development and Land Reform 12

South African Police Service 13

Department of Health: Gauteng 15

Department of Education: Mpumalanga 16

Department of Public Works: KwaZulu-Natal 17

Department of Education: Eastern Cape 18

Department of Local Government and Traditional Affairs: North West 19

Former Department of Roads and Transport: Eastern Cape 25

Tshwane Metropolitan Municipality 26

Ekurhuleni Metropolitan Municipality 30

Limpopo Intervention 32

Kopanong Local Municipality 33

Midvaal Local Municipality 34

George Local Municipality 35

Stellenbosch Local Municipality 36

Oudtshoorn Local Municipality 37

Swellendam Local Municipality 39

South African Social Security Agency 41

Eskom • AV8 Helicopter: Eastern Cape 42

Eskom • Hendrina Power Station Fencing 42

Multi-agency Working Group (MAWG) 43

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List of Abbreviations

ACC Anti-corruption Command

ACTT Anti-corruption Task Team

AFU Asset Forfeiture Unit

AGSA Auditor-General of South Africa

AOD Acknowledgement of Debt

BAC Bid Adjudication Committee

BeC Bid Evaluation Committee

BNG Breaking New Ground

BsC Bid Selection Committee

CBC Cape Bar Council

CCMA Commission for Conciliation, Mediation and Arbitration

CFO Chief Financial Officer

CidB Construction Industry Development Board

CiPC Companies and Intellectual Property Commission

CoGTA Cooperative Governance and Traditional Affairs

DDG Deputy Director-General

dPCi Directorate of Priority Crimes Investigation (Hawks)

dPP Director of Public Prosecutions

dPW Department of Public Works

DPSA Department of Public Service and Administration

drdLr Department of Rural Development and Land Reform

ECDoH Eastern Cape Department of Health

eMPd Ekurhuleni metro Police department

eNatis Electronic National Traffic Information System

FIC Financial Intelligence Centre

GDoH Gauteng Department of Health

GHA George Housing Association

GSC General Services Contract

HOD Head of Department

iCd Independent Complaints Directorate

idP Integrated Development Programme

IGR Intergovernmental Relations

it Information Technology

MAWG Multi-agency Working Group

MeC Member of the Executive Council

MFMA Municipal Finance Management Act

MIG Municipal Infrastructure Grant

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NDoHS National Department of Human Settlements

NHLS National Health Laboratory Services

NPA National Prosecuting Authority

PFMA Public Finance Management Act

PHP People’s Housing Process

r/d Return to Drawer

rdP Reconstruction and Development Programme

SAPS South African Police Service

SARS South African Revenue Service

SASSA South African Social Security Agency

SCCU Specialised Commercial Crimes Unit

sCM Supply Chain Management

SITA State Information Technology Agency

SIU Special Investigating Unit

SIU Act Special Investigating Units and Special Tribunal Act (Act No 74 of 1996)

SLA Service Level Agreement

sMs Senior Management Service

soCPeN Social Pensions System

tor Terms of Reference

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PROCLAMATIONS

The following proclamations were issued by the President in terms of the Special Investigating Units and Special Tribunals Act, Act No 74 of 1996 (SIU Act), during the period under review:

• Proclamation R48 of 2012, dated 7 September 2012 (Government Gazette No 35649) (State Information Technology Agency), directed an investigation into alleged serious irregularities in the maladministration of the affairs of the agency for the period 7 October 2003 to 7 September 2012.

• Proclamation R49 of 2012, dated 7 September 2012 (Government Gazette No 35649) (Department of Public Works: KwaZulu-Natal), was issued as an amendment to Proclamation R43 of 27 August 2010, extending the end date of the investigation period from 27 August 2010 to 7 September 2012.

• Proclamation R55 of 2012, dated 21 September 2012 (Government Gazette No 35691) (Guardian’s Fund: KwaZulu-Natal/Gauteng), directed an investigation

into alleged serious maladministration of the affairs of the Guardian’s Fund by the KwaZulu-Natal and Gauteng offices of the Master of the High Court for the period 1 January 2001 to 21 September 2012.

• Proclamation R53 of 2012, dated 21 September 2012 (Government Gazette No 35691) (National Department of Rural Development and Land Reform), directed an investigation into alleged serious irregularities in relation to procurement services and the maladministration of the affairs of the department for the period 1 April 2003 to 21 September 2012.

• Proclamation R54 of 2012, dated 21 September 2012 (Government Gazette No 35691) (National Department of Water Affairs), directed an investigation into alleged serious irregularities in relation to procurement services and the maladministration of the affairs of the department for the period 1 January 2004 to 21 September 2012.

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The Special Investigating Unit (SIU) is an independent statutory body that is accountable to the President and to Parliament in terms of its activities. The SIU was established by the President to investigate corruption and maladministration in government. The SIU is funded through the Department of Justice and Constitutional Development.

The SIU was set up by the President in terms of the Special Investigating Units and Special Tribunal Act, Act No 74 of 1996 (SIU Act). Its primary mandate is to recover and prevent financial losses to the state due to various acts of corruption, fraud and maladministration. The SIU also assists departments with systemic improvements that will improve service delivery.

The SIU is a public entity with powers of investigation and litigation. Following the issuing of a presidential proclamation, the SIU has powers to subpoena, search, seize and interrogate witnesses under oath. The SIU can take civil action to correct any wrongdoing it uncovers in its investigations. For example, the SIU can obtain a court order to compel a person to pay back the wrongful benefit received and consequently recover the money for the state. The SIU also works with the department concerned to cancel contracts when the proper procedures were not followed, and to stop transactions or other actions that were not properly authorised.

While it does not have the power to arrest or prosecute offenders where criminal conduct is uncovered, it will bring the matter to the attention of the Directorate of Priority Crimes Investigation (DPCI) (Hawks) in the South African Police Service (SAPS), as well as the National Prosecuting Authority (NPA). It works closely with these two entities to ensure that there is effective investigation and prosecution in criminal matters identified through its investigation. The SIU also works closely with the Asset Forfeiture Unit (AFU) in the NPA, where its powers are more appropriate or effective in recovering the proceeds of crime.

The SIU may investigate any matter set out in section 2 of the SIU Act, including the following:

• Serious maladministration in connection with the affairs of any state institution

• Improper or unlawful conduct by employees of any state institution

• Unlawful appropriation or expenditure of public money or property

• Any unlawful, irregular or unapproved acquisitive act, transaction, measure or practice that has a bearing on state property

• Intentional or negligent loss of public money or damage to public property

• Corruption in connection with the affairs of any state institution

• Unlawful or improper conduct by any person who has caused or may cause serious harm to the interest of the public

The SIU applies a project-based approach and concentrates on processes, people and financial losses in departments. It offers a unique and integrated service, including the following:

• Conducting forensic audits and investigations• Instituting legal action, such as civil, criminal and

disciplinary or other remedial action• Recommending processes and systems for

improvement

BACKGROUND TO THE SPECIAL INVESTIGATING UNIT

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Brief overview

The Department of Public Works (DPW) requested the SIU to assist it in identifying, investigating and redressing suspected improprieties within the Supply Chain Management (SCM) system. The SIU reviewed a number of reports that were made available by the DPW and other sources. The DPW faced serious challenges, particularly in the procurement of services requiring investigation and resolution. Vulnerabilities within the SCM process appear to have led to abuse of the system. This investigation is anticipated to continue for a further three years.

Focus areas

• Specific contracts and tenders • The leasing of buildings for client departments• Prestige accommodation• General procurement irregularities

LeasesThe investigation into irregularities related to leased accommodation is a major focus area with 19 different leases being investigated. The SIU has provided assistance to the Lease Intervention Team appointed by the Minister of Public Works and National Treasury.

Findings

Criminal cases The SIU has registered four criminal cases involving fraud, corruption and maladministration, some of which are currently being investigated by the Anti-corruption Task Team (ACTT) and the SAPS’s Commercial Crime Unit. These cases involve 31 contracts relating to leases, capital projects and renovations to “prestige houses”. The collective value of these contracts is approximately R733 million.

Referrals Eight cases have been referred to the Director of Public Prosecutions (DPP) that relate to fraud, corruption and maladministration pertaining to leases and water delivery projects.

Civil actionThe SIU has made recommendations and assisted the DPW with the institution of civil action in three matters:

• The setting aside of a lease agreement contract valued at R138 million

• The issuing of a summons against a contractor and three other individuals/entities to the value of R50 million

• The signing of an Acknowledgement of Debt (AOD)

Three AODs to the value of R752 072,58 were signed in respect of outstanding rentals pertaining to concluded lease agreements.

Disciplinary actionThe SIU made recommendations to and assisted the DPW with the institution of disciplinary action against five DPW employees ranging from a Deputy Director-General (DDG) to SCM officials. The DDG was found guilty on 13 charges of corruption and awaits sanction. One of the SCM officials was found guilty of having been in a corrupt relationship with a landlord and was dismissed. The other official who committed the same offence elected to resign prior to the disciplinary hearing. The hearing against two other senior officials is ongoing.

Recommendations

The SIU makes recommendations that seek to close systemic gaps through interventions that safeguard systems from possible future abuse. This will assist the state in saving funds and delivering key services. The SIU issued eight reports to the DPW, identifying the following key control weaknesses and systemic recommendations:

• Non-adherence to procurement policies and procedures

• Incorrect preparation of tender documents• Disregarding tender requirements, such as

conducting off-risk assessments on the highest scoring entities and evaluating tenders based on price only

National Department of Public WorksProclamation R38 of 2010, published on 30 July 2010

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Brief overview

The National Cabinet approved the Comprehensive Plan for the Development of Sustainable Human Settlements, known as Breaking New Ground (BNG), which required the National Department of Human Settlements (NDoHS) to establish a Departmental Investigative Unit to deal with fraud and corruption in respect of the implementation of the National Housing Programme.

Focus areas

Numerous irregularities in the low-income housing delivery arena have been highlighted by the Auditor-General, as well as private forensic consulting firms. Instances have been identified of non-delivery as a result of negligence, fraud, corruption and/or other misconduct. These matters have resulted in substantial losses, as well as associated reputational damage to the NDoHS.

The focus areas for this investigation are the following: • Fraud • Corruption• Maladministration

These focus areas are in relation to the development and delivery of low-income housing in South Africa by national and provincial departments, local authorities (and agents) and housing development boards.

Findings

• Fruitless and wasteful expenditure incurred amounting to R615 million (three matters)

• Potential losses to the respective provincial departments regarding expenditure incurred versus value created on the ground amounting to R37 million (one matter)

• Civil recoveries identified amounting to R609 million (three matters)

• Irregular expenditure incurred amounting to R292 million (five matters)

• Disciplinary matters (misconduct) to be further investigated and dealt with by the relevant provincial departments (five matters involving 28 officials in the relevant provincial administration)

• Criminal matters/referrals related to transgressions regarding section 86(1) of the Public Finance Management Act (PFMA) (three matters involving four heads of departments) and fraud (one matter with six charges)

Systemic findings• Lack of project application and appropriate

contractual arrangements in compliance with the National Housing Act and National Housing Code

• Non-compliance with the project payment system in terms of the provisions of the National Housing Act and National Housing Code with regard to the progress payment and/or tranche payment systems

• Non-adherence to the provisions of section 40(1)(a) of the PFMA regarding the retention of documentation and safeguarding of departmental assets

• Non-adherence to the provisions of the National Housing Act and National Housing Code relating to the prescripts of the relevant subsidy instrument utilised

• The irregular awarding of tenders to service providers

• Contractual non-compliance and inadequate monitoring of contractual terms

• Inadequate project monitoring management

National Department of Human SettlementsProclamation R7 of 2007, published on 25 April 2007Extended by Proclamation R35 of 2010, published on 30 July 2010

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People’s Housing Process investigationsPeople’s Housing Process (PHP) investigations undertaken in the Western Cape include the following:

• A total of 41 out of 44 initial investigations were finalised.

• Various systemic inadequacies were identified and reported.

• One new matter regarding the theft of low-cost housing subsidy funds amounting to R5.7 million (involving 12 PHP projects) has been referred to the provincial offices of the DPP with evidence of potential criminal activity.

• One accounts administrator was found guilty of theft of low-cost housing subsidy funds amounting to R470 608.

• One confiscation order of R397 000 was brought before the court by the AFU and granted by a magistrate (in terms of section 18 of the Prevention of Organised Crime Act, Act No 121 of 1998).

The Western Cape Department of Human Settlements has implemented various recommendations made by the SIU with reference to systemic inadequacies identified, and

subsequently implemented a revised provincial PHP Policy to ensure legislative compliance in line with the SIU’s findings and recommendation.

Matters of significance identifiedDue to the SIU’s investigation into the Cala/Elliot low-income housing project in the Eastern Cape, the relevant provincial department instituted civil proceedings against the relevant contractor amounting to R61 million. This matter is currently still sub judice.

Furthermore, the relevant provincial department pertaining to the Bethelsdorp North Area C low-income housing project in the Eastern Cape will not enter into any further agreements with the private developer (who was appointed in terms of the first two phases of the project) in respect of Phase 3 as per findings and recommendations made by the SIU. The potential amount involved is approximately R568 million.

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Background

This proclamation mandated the SIU to investigate the payment and/or receipt of social grants or benefits by unqualified beneficiaries. It includes the irregular or unlawful conduct of government officials and/or agents responsible for the administration and/or payment of social grants or benefits. The South African Social Security Agency (SASSA), custodian of the administration of social grants nationally, joined the partnership in 2006 to address fraud, corruption and maladministration in the system.

Focus areas

The SIU has committed itself to achieving the following:

• Deterring and dissuading irregular beneficiaries• Recovering losses• Enhancing savings

Investigations and findings

The investigation not only identified irregular beneficiaries for removal from the Social Pensions System (SOCPEN), and disciplinary and criminal action, but deterred and dissuaded others (private individuals and public servants) from accessing irregular grants. The Unit also recovered losses to the state through the civil recovery of illegal benefits obtained through irregular grants. The SIU’s involvement included identifying systemic gaps and implementing improvements to SOCPEN. The preventative future saving to government is determined according to a formula approved by the Auditor-General.

AchievementsApril to

September 2012

Total new cases before court 808

Convictions 772

Disciplinary actions prepared 461

Total AODs 1 029

Value of AODs R16 240 529

Recommendations for removal from SOCPEN

1 029

Actual savings R5 454 140

Preventative savings R49 212 000

National Department of Social DevelopmentProclamation R18 of 2005, published on 6 April 2005Amended by Proclamation R5 of 2007, published on 30 March 2007

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Brief overview

The proclamation mandated the SIU to investigate allegations of irregularities in the application, awarding and administration of grants and funds under the Land Reform Programme of the Department of Rural Development and Land Reform (DRDLR). The allegations included possible fraud and corruption levelled against employees of the DRDLR, as well as irregular, unauthorised, fruitless and wasteful expenditure.

During the period 1 April to 30 September 2012, the investigation continued in KwaZulu-Natal, the Western Cape and Gauteng. During the period under review, the SIU expanded its investigative capacity and the focus of the investigations into Limpopo, North West, Mpumalanga, the Eastern Cape and the Free State.

Focus areas

• DRDLR Land Reform Programme• Irregular, unauthorised, fruitless and wasteful

expenditure

Since the inception of the project, the SIU has continued its investigation into approximately 60 different matters, all related to funds paid out in the form of land grants intended for thousands of beneficiaries across the country under the department’s Land Reform Programme. The total value of the grants under investigation was estimated to be in the region of R699 million.

The SIU has to date uplifted, scanned and reviewed several thousands of documents and obtained affidavits from more than 2 000 individuals.

Findings

• Inflated number of beneficiaries• Non-existent/false beneficiaries• Duplication of beneficiaries across projects• Beneficiaries that were unaware that they were

beneficiaries to a particular grant• The forgery of valuation documents • Allegations of officials soliciting bribes/benefits from

property owners• Officials’ family members being listed as

beneficiaries• Officials and their family members being registered

as owners of properties acquired through the DRDLR• Previous owners of the farms never having moved

off the property after the property had been purchased by the DRDLR

• Inflated prices paid to service providers for services rendered

• DRDLR officials fraudulently certifying that services were satisfactorily rendered when in fact no services or only partial services had been rendered

National Department of Rural Development and Land ReformProclamation R8 of 2011, published on 18 February 2011

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Brief overview

During May 2009, the Head of the Independent Complaints Directorate (ICD) formally requested the SIU to investigate allegations of unlawful and/or irregular conduct within the Expert and Facility Management Services of the SAPS, insofar as it applied to 33 specific SAPS building and/or renovation projects.

Subsequent to the request by the ICD, the National Commissioner of the SAPS further requested the SIU to extend the investigation to include allegations of SCM irregularities within other divisions of the SAPS. The SIU then motivated the need for a proclamation, and Proclamation R42 was subsequently gazetted on 10 August 2010. Allegations included improper or unlawful conduct by some officials and members of the SAPS. They are alleged to have interests in private entities that conducted business with the SAPS and/or conducted other private business without the required authorisation.

Allegations of collusion between the service providers and officials were identified and also allegations relating to National Police Day 2010/11 in that the proper procedures were not followed during the procurement of goods and services for these events and/or the goods and services were not provided.

Focus areas

• Data collection and analysis• Investigation of “red flags” identified during data

analysis (conflict of interest)• Investigation of specific allegations:

- Thirty-three police stations (four police stations identified for investigation)

- National Police Day 2010/11- Procurement irregularities

Findings

Conflict of interestSeventy employees have been identified as having a direct interest in 73 entities allegedly undisclosed, which are registered as suppliers on the SAPS supplier database. The 73 entities identified have done business to the value of R31 million with the SAPS.

Twenty-two employees have been identified as having a direct interest in 48 entities that have not been disclosed and are not registered on the SAPS’s supplier database.

Ninety-nine entities have been identified as being allegedly directly linked to SAPS employees and have done business with the SAPS to the value of approximately R21 million. No investigation has been initiated in this regard.

Approximately 27 000 SAPS members are alleged to be active directors of private companies. It is still to be determined if these interests have been disclosed or not.

Police stationsThe current focus is on four police stations: eSikhaweni, Brighton Beach, Hazyview and Pienaar.

The Devolution of Powers Investigation Report reveals that the SAPS did not have the required authority to construct its own police stations. As a result, all expenditure incurred by the SAPS for the construction of the police stations amounts to irregular and/or unauthorised expenditure. The SIU has established that the following amounts have been paid out so far towards the construction of these police stations:

- R55 million (eSikhaweni) - R45 million (Pienaar)- R35 million (Hazyview)- R16 million (Brighton Beach)

Analysis of the documentation obtained has revealed various irregularities that are currently under investigation. Irregularities identified include the following:

• No tender procedures followed for threshold amounts as per PFMA requirements

• Potential abuse of the three-quote procedure• Potential conflict of interest between suppliers and

officials• Potential splitting of orders• Potential cover quoting and inflated billing

South African Police ServiceProclamation R42, published on 10 August 2010

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National Police Day 2010/11It was established that the following amounts were paid out towards the two National Police Days:

- R29 million (2010) - R80 million (2011)

Based on investigations conducted to date, it appears that no budget was set aside for the National Police Days and that urgency and/or emergency procedures were adopted. As a result, all expenditure incurred by the SAPS for the 2010/11 National Police Days may amount to unauthorised expenditure. Irregularities identified include the following:

• No tender procedures followed for threshold amounts as per PFMA requirements

• Potential abuse of the three-quote procedure• Potential conflict of interest between suppliers and

officials• Potential splitting of orders

Procurement irregularitiesThis involves a tender of approximately R900 million for the supply and installation of a Tetra communication network for the Eastern Cape. Irregularities identified include the following:

• It appears that the State Information Technology Agency (SITA) should have been used to conduct this procurement exercise as it involves a private telecommunications network. This may amount to irregular expenditure.

• Potential conflict of interest was identified between suppliers and officials.

• Potential fronting took place.• Potential fraud took place in that misrepresentations

were made in the tender documents.• It appears that mandatory requirements were not

met and were overlooked by officials.

Other procurement contracts A number of contracts are currently being investigated and, to date, the following have been identified:

• Possible fraudulent tax clearance information submitted

• Manual price alterations on tender documents• Different requirement standards applied to bidders

tendering for the same contracts• SCM processes not being followed in the awarding of

some tenders • Contract management irregularities

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Brief overview

National Treasury requested the SIU to conduct an investigation at the Gauteng Department of Health (GDoH). This is after the March 2008 report of the Auditor-General of South Africa (AGSA) and an investigation conducted by a private forensic firm highlighted irregularities in the department’s financial affairs.

Focus areas

• Procurement irregularities• Irregularities in tender processes • Fruitless and wasteful expenditure

Findings

The final report relating to the 2007/08 AIDS Conference was handed over to National Treasury and the GDoH for their action. Final reports on three other matters are being drafted and will be handed over to the relevant stakeholders upon completion. One further matter is registered with the Anti-corruption Task Team. The investigations continue.

Department of Health: Gauteng Proclamation R21 of 2010, published on 14 May 2010

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Brief overview

An amendment to proclamation R2 of 2009 was granted and issued on 2 March 2012 under proclamation R14 published in Government Gazette No 35117. The extension of the proclamation to further look into findings contained in the report of a Commission of Inquiry released in November 2010 was at the request of the Premier.

Focus areas

The following four focus areas have been prioritised:

• Different kilometres claimed for the same route• Different service providers submitting claims on the

same route• Service providers submitting claims with rates higher

than R0,35 • Service providers submitting more than one invoice

per month per route

During the period under review, the investigation had only two focus areas:

• Different service providers claiming on the same route

• Service providers submitting more than one invoice per month per route

Findings

All evidence relating to the Commission’s findings were obtained and verified or analysed according to the department’s payment vouchers, invoices, BAS payments, extension letters and bank accounts of various service providers.

Different service providers claiming on the same routeThe top 53 companies identified by the Commission of Inquiry were reviewed. Payment vouchers submitted by the service providers were scrutinised in order to confirm if different suppliers had claimed on the same route and had been paid. So far, the investigating team identified a few claims amounting to R64 200, where service providers had claimed on the same route. The investigation on this focus area continues.

Service providers submitting more than one invoice per month per routeThe investigation identified duplicate invoices amounting to R371 000 during the review of invoices of the top 53 companies identified by the Commission of Inquiry. The investigations are continuing.

Department of Education: MpumalangaProclamation R2 of 2009, published on 21 January 2009Amended and extended by Proclamation R14 of 2012, published on 2 March 2012

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Brief overview

The SIU, in consultation with the Head of Department (HOD), developed a business proposal to assist the DPW in identifying, investigating and redressing improprieties. This included, but was not limited to fraud, corruption and maladministration in the SCM processes of the KwaZulu-Natal DPW.

Focus areas

• Procurement irregularities • Collusion between personnel and contractors• Fraud and corruption• Fronting

Findings

General procurement irregularities with regard to identified top tendersThe files and all available documentation have been analysed and possible SCM, tender irregularities and PFMA contraventions have been identified. The uplifted files have been captured onto various databases for analysis. The total value of the projects in question is R902 million.

Identified “red flags” are being further investigated to determine what course of action should be taken. To date, the following irregularities are suspected:

• Non-delivery • Construction Industry Development Board (CIDB)

fraud• Inflated prices • Cancellations of contracts where guarantees,

penalties and damages can be recovered • Cover quoting• Fronting where preferential points were awarded • Splitting of orders • Preferred service providers• Corruption • Subcontracting more than 25% of the work • Variation orders exceeding 20% of the project

Collusion The analysis of data and documents has identified possible collusion between officials and service providers. This has resulted in the need to conduct financial profiling of officials and the compilation of charges in consultation with a senior forensic lawyer

FrontingSpecific allegations of fronting have been identified and are under investigation. These relate to the awarding of projects to two companies. One company was awarded 50 projects at a total value of R140.2 million and the other company was awarded 20 projects at a total value of R55.2 million.

Non-deliveryA quantifiable amount of R7.6 million owed to the department for alleged non-delivery relating to 37 projects was identified during the investigation. The SIU is finalising its reports, which contain allegations of fraud, non-delivery and cover quoting by a contractor. Six officials are implicated in these allegations.

CorruptionAlleged corrupt payments to three KwaZulu-Natal DPW officials by contractors have been identified in the Ladysmith Region and Southern Region. A case of fraud has been registered in a separate matter involving officials based in the Ladysmith Region to the value of R45 902. This matter has been handed to the Commercial Crime Unit, Pietermaritzburg, for criminal action.

Inflation of pre-tender estimateThe SIU has identified two matters where the estimate used to adjudicate the awarding of the tender was inflated to include the pre-tender cost estimate of professional fees, escalation and contingency fees. As a result, the KwaZulu-Natal DPW adjudicated the tenders and awarded these based on the inflated estimates. Certain bidders may have been irregularly disregarded for having tendered at a price too far below the estimate. The total inflation of over R2.5 million may have resulted in a loss to the KwaZulu-Natal DPW and these two projects are being investigated further. Misrepresentations to the KwaZulu-Natal DPWBetween 1 April 2012 and 30 September 2012, eight criminal cases where the KwaZulu-Natal DPW is the complainant were registered with the SAPS. These cases included the following:

• Fraud relating to false misrepresentations to the CIDB

• Fraud with regard to the submission of the fraudulent or inflated CIDB grade to the KwaZulu-Natal DPW in order to secure construction projects

• Corruption involving the payment of monies for the benefit of a CIDB official.

Department of Public Works: KwaZulu-NatalProclamation R49 of 2012, published on 7 September 2012

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Brief overview

The scholar transport team has completed the investigation with regard to the Mbizana District Office in relation to the following allegations:

• Fictitious learners on the scholar transport systems• Fictitious routes used by transport providers• Fictitious vehicles used by transport providers• Inflated number of kilometres claimed• Duplicated numbers of learners• Double claims

Findings

A total of 3 741 payment vouchers were analysed. The total value of the captured payment vouchers amounted to R118 086 451. Of those vouchers, 732 payment vouchers to the value of R34 million were unauthorised. The payment vouchers were investigated and the SIU found that some service providers owed the department, and that payment was due. forty-nine service providers were approached and agreed to repay the money owed to the department. The total value is R1.3 million. The SIU obtained 19 AOD’s from the service providers.

Department of Education: Eastern Cape Proclamation R37 of 2010, published on 30 July 2010

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Brief overview

The investigation into the 24 North West municipalities began in January 2010 with emphasis on the four prioritised local municipalities of Madibeng, Ventersdorp, Greater Taung and Mahikeng. The SIU is investigating allegations of irregularities in various functions, including supply chain management and human resources, at the municipalities. The project was estimated to be conducted over a period of three years.

Focus areas

• Supply chain management• Human resources• Fleet and asset management• Financial mismanagement• Non-service delivery• Alienation of land• Municipal Infrastructure Grant (MIG) funding

Findings

Madibeng Local Municipality

The SIU has found an additional two companies not registered with the South African Revenue Service (SARS) as VAT vendors but claiming VAT. The total amount of VAT claimed amounts to R5.8 million. Reports detailing findings made regarding all four service providers were handed over to SARS. Requests have been made to the municipality to restrict the companies from doing business with the municipality in terms of Treasury instructions.

Grass cuttingThe initial findings related to sundry payments of approximately R16 000 made to a service provider allegedly belonging to a sibling of the former Executive Mayor. Upon further investigation, the following was established:

• The service provider was awarded a tender but no Service Level Agreement (SLA) was signed between the municipality and the service provider. The municipality has made payments to the service provider amounting to R5.4 million.

• The investigation confirmed that the director of the company is related to the former Executive Mayor and that no declaration was made during the bidding process.

• There is no functional rotation on the supplier database and it was discovered that tenders are not allocated according to a fair supply chain management system.

• The service provider claimed for VAT to the amount of R1 074 248 despite the company not being registered with SARS for VAT.

• Irregular expenditure of R705 868 was identified, as well as fruitless and/or wasteful expenditure to the amount of R274 207.

The investigation has been finalised. The SIU will refer the evidence collected to the NPA for possible prosecution against both the SCM Manager and former Municipal Manager for contravention of the Municipal Finance Management Act (MFMA). The SIU also recommended disciplinary action against the SCM Manager, the Acting Coordinator: Sports, the Acting Horticulturist Specialist and the Policy Coordinator for recommending and authorising payments not due to a service provider. Recommendations were made for the systemic improvement of the supplier database, annual vetting of both officials and service providers, and SCM training to improve SCM processes.

High mast lightsThe investigation with reference to the MIG High Mast Lights Project has been finalised and the report with findings and recommendations is currently under review. R20 million was initially budgeted for the project, but the total expenditure amounted to R22.6 million. The consulting engineer was appointed to plan, design, settle documentation and provide construction supervision to the project. The former Municipal Manager subsequently had the consulting engineer’s mandate extended through a council resolution to procure the manufacturing, supply, delivery and erection of the high masts. The analysis of the evidence revealed that the consulting engineer’s appointment of subcontractors was contrary to the municipality’s SCM Policy.

The municipality issued a tender for the construction and electrical engineering part of the project. The tender was awarded to a joint venture on 10 December 2007. The initial scope of the project was the installation of 133 high mast lights. This was subsequently changed to 110 high mast lights and street lights. During the execution of the project, the municipality indicated that an additional 14 high mast lights should be installed. The total value of the contracts (prior to the request for the additional high mast lights) amounted to R8.9 million. The audit conducted of all the high masts installed further revealed that four high masts had not been erected, but 124 high mast lights were paid for, resulting in the municipality incurring a loss of R390 271.

Department of Local Government and Traditional Affairs: North WestProclamation R72 of 2009, published 10 November 2009

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During the investigation, the SIU found that the scope of the High Mast Project was extended by the Municipal Manager to include the upgrading of the 11 KV Brits Municipal substation. During this process, a service provider was appointed to render professional services as consulting engineers. Professional fees of approximately R1.3 million were approved by the municipality.

The analyses of the evidence revealed that the service provider was appointed contrary to the municipality’s SCM Policy. The SIU discovered irregular expenditure to the amount of R10.2 million with regard to the appointment of the three subcontractors and the service provider. The SIU will refer the evidence collected against the former Municipal Manager to the NPA for possible prosecution and also to facilitate a civil recovery to the amount of R390 271. The SIU uncovered additional unauthorised, fruitless and wasteful expenditure including the following:

• An amount of R24 904,69 was spent on funerals and, in some instances, payments were authorised to companies that do not provide funeral services.

• Account descriptions were used to sort and analyse payments where 12 companies that did not fit the profile of training institutions were identified as having been paid R177 834 for training services.

• R349 490 was spent on liquor for various municipal functions. R27 718,85 was spent in March 2008 alone.

The outcomes of finalised investigations include the following:

• Out of 351 officials, 341 face disciplinary action for non-declaration of business interests and conflict of interest amounting to R4.9 million. The disciplinary process against the other 10 officials has not yet commenced.

• The former Municipal Manager, who successfully appealed his dismissal at the Commission for Conciliation, Mediation and Arbitration (CCMA), fraudulently awarded and authorised payments for work not done (20 companies for the cleaning of streets amounting to R243 000). This disciplinary action was handled by a private law firm and the SIU played a supporting role in providing documentation.

• Irregular purchasing of IT software programs and the transfer of funds amounting to R473 000 took place. An official was placed on suspension. A disciplinary charge sheet was completed, but the disciplinary action was withdrawn and the official was reinstated in his position regardless of criminal evidence collected.

• The SIU obtained an AOD of R30 000 for stolen fuel. No disciplinary action was instituted against the official. A criminal case was registered.

Moses Kotane Municipality

The SIU has finalised an investigation into the irregular payment of R109 000 made by the former Municipal Manager to Madikwe Radio Station without Council approval. It was established that the funds were used for the launch of the Madikwe Radio Station. The former Municipal Manager was found guilty during a disciplinary hearing and was dismissed. The investigation has been finalised.

The SIU investigated alleged non-delivery of the seven septic tanks for which payment was made by the municipality. One tank was erected, but no maintenance was done. However, the supplier invoiced the municipality for maintenance work. The evidence collected has been referred to the SAPS Commercial Crime Unit, Klerksdorp. Court proceedings were instituted by the DPP. The investigation has been finalised.

A number of contracts that were entered into between the service provider and the municipality were found to belong to the spouse of the dismissed SCM Manager. No disclosure was made in this regard by either the manager or the spouse who was the director of the company. Further findings indicate that requisitions were submitted to and quotations received from only three companies on a number of occasions. These companies were tied to the spouse, the cousin and another relative of the former SCM Manager. The investigation established that the service provider fraudulently used the name of a cleaning lady at the municipality as a director of the company. A criminal case has been registered and the case referred to the NPA for decision. The investigation has been finalised.

The SIU investigation found that R11 000 was paid for catering services not rendered at a Mayoral meeting. An AOD for this amount was obtained from the official for losses incurred. Disciplinary charges were brought against the official involved. The investigation has been finalised.

The SIU has finalised the investigation into excessive legal fees paid to a service provider despite the municipality having its own legal department and a dedicated lawyer. The fees invoiced to the municipality were based on an agreement between the Municipal Manager and the legal firm and no irregularities were thus identified. However, fruitless and wasteful expenditure in relation to legal services formed part of the charges brought against the former Municipal Manager and for which he was subsequently dismissed.

The SIU investigated allegations of the theft of two cheques worth R252 000 from the office of the credit controller in February 2010, which were not reported. A disciplinary case is being prepared against the credit controller. The investigation has been finalised.

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An irregular acting allowance amounting to R60 000 was paid to an official who claimed to have been requested to perform certain duties as procurement officer by the Municipal Manager. A review of her personnel file revealed that no such appointment had been made as no record of an appointment letter could be found. This formed part of charges against the former Municipal Manager who was dismissed. The investigation has been finalised.

An allegation has been made that a senior official utilised a municipal vehicle to transport personal items to his home near Venda. On return from Venda, the truck had a breakdown and the municipality incurred the cost for the repairs to the gearbox. The disciplinary charge sheet has been drafted and reviewed by the SIU’s legal representative. The criminal docket has been registered at the SAPS. The investigation has been finalised.

The SIU investigated allegations that the former Municipal Manager appointed a service provider for the construction of Phase 2 of the civic centres without following SCM processes. The investigation found that the appointed service provider had an undisclosed friendship with the former Municipal Manager. The value of the contract was R20.2 million and the municipality effected payments to the amount R14.3 million. The municipality was invoiced and made payments to the amount of R1.6 million for steel that was not delivered for the construction of the roof of the steel dome. The SIU will facilitate the recovery of losses and refer evidence collected to the NPA for possible prosecution.

The former Municipal Manager has already been found guilty and dismissed and a disciplinary process has been recommended against the Chief Financial Officer and the Chief Director who authorised these payments.

The SIU discovered that work was not completed according to the schedule and the penalty clause of R4 100 per day was never affected. This amounted to a loss of R1.1 million in 289 days. The service provider also claimed VAT for an amount R1.1 million despite not being registered with SARS as a VAT vendor. The evidence has been referred to SARS for further investigation. SARS has confirmed that it has already commenced with the investigation with regard to all entities registered in the contractor’s name for purposes of recovering the VAT paid out. The SIU will facilitate the recovery of losses from the Municipal Manager and refer evidence collected to the NPA for possible prosecution. The SIU recommends that the service provider be restricted from conducting business with the municipality. The investigation has been finalised and a report with findings and recommendations is being drafted.

The SIU discovered that the Municipality does not capture “return to drawer” (R/D) cheques on the debtor’s system, thereby incurring losses. A total of 33 R/D cheques were discovered in the municipality from 2004 to 2009. The transactions relating to each of the identified R/D cheques were traced to the debtors’ subledger. Of these, five cheques had not been correctly processed in the debtors’ ledger, resulting in the municipality incurring a loss of R59 493.

A further 17 R/D cheques could not be traced to the accounting records and therefore could not be verified. These untraced R/D cheques are valued at R1 million. The SIU recommended that the municipality implements a system to capture and track the R/D cheques. This has been done and the investigation has been finalised.

The SIU has finalised an investigation into the procurement of the Mayoral house. The initial allocated budget of R1.5 million was increased by R200 000. A service provider was appointed for the refurbishment of the Mayoral house and no proper SCM process was followed. Only R500 000 was budgeted for this service. However, the investigation found that an amount of R998 000 in submitted invoices was paid to the service provider. No Council resolution could be obtained authorising the additional amount of R498 000 to be spent on the refurbishment of the house.

The municipality could not provide any further invoices or payment requisitions for the furniture. An analysis conducted on a computer printout of payments made revealed two duplicate invoices being submitted and payments being effected on both invoices. This also forms part of the charges against the Municipal Manager. A report with recommendations for civil recoveries, disciplinary actions and criminal cases is currently being drafted.

Other outcomes of this investigation include the following:

• The Director of Community Safety’s theft of R10 000 from municipal sports clubs (AOD has been obtained), unauthorised entry into a municipal building after hours, breaking into tender boxes and removing tender documents. A charge sheet has been drafted and the director will face a disciplinary hearing. A criminal case has been registered.

• Maladministration and negligent performance of duties by the financial officer with regard to R/D cheques. An AOD of R88 955,98 has been obtained to recover the losses. The officer pleaded guilty and received a final written warning.

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• The Municipal Manager was found guilty and was dismissed for the following:- Irregular appointment of officials - Maladministration - Nepotism - Fruitless and wasteful expenditure

(Civic Centre) - Unauthorised expenditure (Madikwe Radio

Station) - Insubordination (non-compliance with council

instructions)• Several conflicts of interest matters were

investigated, charge sheets for the municipality to act have been developed and criminal cases are to be registered. The Speaker awarded a contract to her daughter and failed to declare it to the municipality, and the Chief Whip conducted business with the municipality and failed to declare interests.

Investigations into the irregular appointment of officials have been finalised. Four officials were identified to have been appointed into positions where recruitment processes were not followed. These include those of the position of Director: Housing, where a niece of a Councillor was appointed with no formal qualification or experience, as well as that of the Chairperson of a Portfolio Committee. Disciplinary action has been recommended for these irregularities and some of the charges formed part of the disciplinary action against the former Municipal Manager who was found guilty and dismissed.

Bojanala District Municipality

The SIU discovered that 279 bursaries were awarded irregularly by the Municipality in some instances. Interviews were conducted with several bursary holders and officials from various tertiary institutions, and non-compliance with the municipal bursary policy was found. In certain instances, the tertiary institutions have confirmed that the bursary holder is no longer a student or has never been a student of the university. The SIU is formulating a report on its findings and is making recommendations for the institution of civil recoveries against bursary holders.

Rustenburg Local Municipality

The SIU investigated allegations of the irregular awarding of a security contract to a service provider who was not the preferred service provider. According to the Bid Selection Committee (BSC), the recommended 90/10 principle was applicable but the Bid Evaluation Committee (BEC) awarded the contract on the 80/20 principle to advantage the service provider. An undisclosed conflict of interest of the municipal official involved in the awarding of a contract was found.The official was a former security manager who authorised payments to the service provider, despite breach of the terms of the SLA, which included incidents of theft of municipal property.

The SIU has referred the collected evidence to the SAPS and has recommended the suspension of the procurement officer for failing to ensure compliance with the SCM Policy and MFMA requirements.

Irregular expenditure was identified due to the awarding of this contracts amounting to R8.7 million over a period of 24 months. The municipality terminated the contract, but the service provider successfully sued the municipality. This matter has been finalised and a report with findings and recommendations is currently under review.

A criminal docket has been registered with the SAPS for the theft of R360 000 from a municipal safe, allegedly by a municipal official. This matter is considered finalised and will be closed.

Ventersdorp Local Municipality

An SIU investigation was conducted into the appointment of the same official in the position of Integrated Development Programme (IDP) Manager and Intergovernmental Relations (IGR) Manager. It was alleged that the Municipal Manager instructed the Human Resources Department to make the combined appointment at a higher salary scale. This resulted in a loss of R375 206,31 as the appointed person failed to perform the IGR duties. An AOD plus interest was obtained with the former Municipal Manager. An investigation report leading to a disciplinary file for misconduct will be prepared against the Municipal Manager.

The SIU finalised an investigation into the irregular reinstatement of two officials who were found guilty in court and dismissed by the municipality. However, they were reinstated before their appeal against dismissal was finalised. Disciplinary action has been recommended against Human Resources officials for the irregular reinstatement of the dismissed employees.

It is alleged that the former Municipal Manager entered into various lease agreements to the value of R19 million on behalf of the municipality. It is further alleged that some equipment was stolen from the municipality and was not reported to the SAPS.

The service provider appointed for the rehabilitation of the Waste Water Treatment Works tender in Ventersdorp was appointed as a subcontractor and then invoiced the municipality for an amount of R50 000, but was paid R116 000. The investigation revealed that fraudulent acts of forgery and altering of the invoices had taken place in an attempt to cover up the overpayment. The matter was reported to the Hawks.

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Greater Taung Local Municipality

It is alleged that the contract for the fencing of the Taung taxi rank was irregularly awarded to a service provider owned by the former Mayor’s son-in-law. It is also alleged that the contractor left the project unfinished as the gates included in the quotation were not erected. The investigation is ongoing.

A Director of Technical Services allegedly sat on the panel for interviews where his relative was interviewed. The relative was ultimately hired by the municipality as a general worker within his department. The investigation has been finalised and a report is currently in draft with findings and recommendations.

The SIU finalised investigations into a number of matters and is currently preparing reports with regard to these matters. The matters include the irregular issuing of Reconstruction and Development Programme (RDP) houses and awarding a tender to the former Mayor’s son. No irregularities were found in this investigation. The SIU has made a number of recommendations in the case of the irregular appointment of an official and the irregular annual salary increase of a newly appointed manager in the office of the former Executive Mayor. In some cases, investigations into irregular appointments could not be properly investigated due to missing employees’ files. The SIU also identified one matter involving the irregular awarding of a tender for branding. There is possible recovery of losses to the municipality.

Ramotshere Moiloa Local Municipality

The SIU is investigating allegations of cheque fraud to the amount of R428 246. The municipality issued a cheque to SARS, but it was deposited into a different account. The evidence collected has been referred to the SAPS for further investigation.

Investigations have just commenced at the municipality relating to the irregular allocation and spending of MIG funds.

One of the allegations involves an amount of R1.4 million that was paid out for a jazz festival in Zeerust. The SIU has been informed that the matter has been referred to the SAPS for a criminal investigation and SIU investigators are currently working with the SAPS’s investigating officer.

Mahikeng Local Municipality

The SIU has finalised investigations into the following matters:

• The irregular use of the municipal credit card by the former Executive Mayor. Evidence collected will be forwarded to the SAPS for a criminal case.

• A disciplinary case against the former Mayor was discussed with the Presidency.

• Renovations of the Mayoral house, which was refurbished twice. The losses could not be

quantified. As a result, the investigation was closed as no documents regarding this matter could be traced, nor were any payments made against a specific vote number.

• The irregular appointment and extension of the employment contract of the Legal Manager.

• The irregular payments for a strategic planning session to a service provider (no irregularities were established).

Recommendations have been made to the municipality to prevent future incidents.

Dr Kenneth Kaunda District Municipality

The SIU has closed investigations into the following matters:

• The irregular extension of the employment contracts of five officials. The municipal lawyers are dealing with the case.

• The irregular use of the municipal credit card. The municipality has laid criminal charges against the former Municipal Manager. Council has revoked the credit card.

Moretele Local Municipality

The SIU was requested to investigate an allegation of the irregular appointment of the Chief Operating Officer by the Mayor. The official appointed was also the Chief Executive of the Moretele Development Agency, which operates within the municipality. The investigation established that the official had been previously arrested in a tender fraud case. A copy of the docket was received from the Commercial Crime Unit, Klerksdorp, and is currently being reviewed. The Human Resources personnel file of the official was analysed and no declaration of business interests was found in his file.

Although an advertisement for the position of Chief Operating Officer in the Mayor’s Office was found, it was established that no other relevant recruitment process was followed (no interview notes were found and no panel had been appointed). An appointment letter was issued in 2009, despite the appointment being made in 2007.

Furthermore, an allegation was received that a number of employees had interests in various business ventures and did not disclose such interests. It was also alleged that some of the companies were conducting business with the municipality. A list of all employees was obtained from the Human Resources Department. A search was conducted with the Companies and Intellectual Property Commission (CIPC), which confirmed that 74 employees have companies. A search on the financial system confirmed that payments were made to these companies for services rendered. A review of the personnel files of these officials revealed that no declarations of any business interests were made. The SIU was also unable to locate any forms completed by these officials in which they requested permission from the municipality to have such business interests.

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It was established that 33 councillors also conducted business with the municipality. An interview was conducted with the manager in the Office of the Municipal Manager regarding declarations for councillors. According to the manager, no councillor declarations have been filed in the office. Investigations are ongoing.

It has been alleged that some of the local municipalities within the Bojanala District do not properly utilise their MIG allocations. It has further been alleged that the quality of work produced is very poor and incomplete, but that contractors still receive payment.

The MIG allocation budget was obtained from the Chief Financial Officer (CFO). The database reflecting payments, together with the payment vouchers that were made out of the MIG account, were obtained. The SIU is still awaiting further documents to investigate these allegations further.

Lekwa-Teemane Local Municipality

The municipal officials have been uncooperative in the SIU’s investigation. They have refused to hand over the necessary documents required to conduct investigations. The Municipal Manager ignored all notices served and has dishonoured a subpoena for him to appear before the SIU in person and to be questioned under oath. A criminal docket with charges for violation of the section 5(2)(b) and (c) notice is currently being prepared.

One of the matters under investigation involves the appointment of a traffic officer who has a criminal conviction for assault and malicious damage to property. It has been established that the official had a criminal conviction and that she did not disclose it to the interview panel as they had not asked her if she had a criminal record. The municipality did not conduct any further vetting on her before she was offered the position. It was also established that the criminal record was later expunged.

Ngaka Modiri Molema District Municipality

There has been an allegation that a municipal official has interests in a company that conducts valuations on behalf of the municipality. It is alleged that the company was appointed on an urgent basis, which appears to have been instigated and influenced by the identified official. Interviews were conducted with various senior municipal officials and the owner of the company, who has refuted all the allegations. The owner has requested some time to collect supporting documents to refute the allegations.

The preliminary findings indicate that the contract was irregularly awarded. It was further established for over one year that the municipal official was granted use of a luxury car, which belonged to the company. Investigations are continuing.

The municipality was awarded a grant of R2.2 million in 2005 and appointed a service provider to drill and equip 17 boreholes in the Kagisano area. It is alleged that the company only drilled seven holes, which were not done according to specifications. Further allegations are that the service provider inflated claims for the work done and claimed for boreholes already in existence prior to its appointment.

A statement has been obtained from the main witness together with copies of supporting documentation. Original documents of this contract have been formally requested and are currently awaited.

MIG and conflict of interest investigations

Investigations have commenced at the Tlokwe, Ditsobotla, Kagisano, Kethlengriver, Ratlou and Naledi local municipalities and at the Dr Ruth Mompati District Municipality on allegations of irregular MIG allocations and officials conducting business with their respective municipalities and/or having undisclosed interests in businesses.

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Brief overview

The proclamation mandated the SIU to investigate the following:

• Loss of state funds as a result of the irregular awarding of procurement contracts

• The conduct of officials, employees and service providers or their appointed agents responsible for or involved in the administration of the department

Focus areas

The investigation focused on the following allegations:

• Irregularities reported at the Kei Rail project.• Awarding tenders and extending the contracts to

three entities providing IT-related services without following proper procedures. The department’s officials used these entities to employ friends and relatives without following the recruitment process. The awarding of these three tenders for ICT services resulted in irregular payments, totalling R60 million, to service providers in the Port St Johns Municipality.

• Awarding a tender to a training entity with questionable accreditation to train traffic officials.

• Corruption, fraud and maladministration against a senior official of the Alfred Nzo District Office in relation to community-based transport.

• The irregular awarding of tenders to three entities for the construction and repair of seven emergency and eight non-emergency roads for approximately R30 million between 2005 and 2009. Some of the roads were not constructed or repaired.

Findings

• No arrests have been made so far. • No disciplinary action has been recommended yet.• No contracts have been set aside.• The investigation is in its final stage.• The SIU is currently drafting the final report on

closing most of the matters due to uncooperative departmental officials and lack of documentation. Therefore, nothing of substance has been found with regard to most of the allegations referred to the SIU.

FORMER DEPARTMENT OF ROADS AND TRANSPORT: EASTERN CAPEProclamation R34 of 2011, published on 20 May 2011

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Brief overview

Proclamation R62 mandated the SIU to conduct an investigation into allegations of irregularities at the Tshwane Metropolitan Municipality. These include the recruitment, selection and appointment of staff into positions that they were not qualified or otherwise best suited for, mismanagement of the affairs of municipal entities, the irregular procurement of goods or services by or on behalf of the municipality or its municipal entities and alleged interference by the City Manager in pending disciplinary proceedings against employees.

Focus areas

Irregularities have been identified in the following areas:

• Supply chain management• Service delivery• Good governance• Recruitment• Financial mismanagement• Technical support• Waste management

Findings

Procurement

Financial mismanagementOverpayments to the amount of R1.5 million for the construction of water and sewer networks in Soshanguve should have been recovered from the municipal entity when it became aware of it in 2007. A case was opened at the Northern Gauteng High Court, Pretoria.

The non-compliance with PAYE contributions by employees led to SARS imposing penalties on the municipal entity. Investigations have revealed that three employees from the entity were collectively indebted to SARS in the amount of R644 278,82. The investigation has further identified a donation to the value of R66 402,72, which was provided to the Soshanguve East Youth Forum during its Youth Month celebration, for which no supporting documentation could be found. One of the senior officials of the municipal entity enriched himself in the amount of R70 000 by writing out a cheque to himself in the entity’s chequebook. Investigations further revealed financial mismanagement, with an amount of R200 000 being overspent in fees paid to universities. A criminal case is being registered.

Irregular procurement processes in the awarding of a contract to a service provider not recommended by the BACInvestigations revealed that the service provider misrepresented information in the bid application form relating to Human Development Index status and area of municipal location for which preferential points were awarded. Analysis of the bank statements revealed that the service provider was overpaid R293 145 and R182 856 respectively.

Two payments of R97 715,10 and R195 430,20 were paid to the service provider for additional services that were required after the contract between the municipality and the service provider expired. Investigations revealed that a deviation report was not filed with the City Manager. One payment of R97 715,10 was identified as an overpayment made to a director who acknowledged the overpayment and signed an AOD to repay the money.

The bank statement analysis further indicated an amount of R182 856 that was paid to the service provider for services rendered in respect of the preparation of the annual report for the Communication, Marketing and Events Department. This payment was a result of a deviation filed through the office of the City Manager. Further investigations revealed that the deviation was irregular in that the Communication, Marketing and Events Department did not follow SCM policies and procedures in procuring the service. A criminal case of fraud was registered against the service provider for the misrepresentation made.

Irregular appointment of service provider for the upgrade of a library (electrical contract)The scope of the electrical work changed from the original budgeted amount of R90 292,73 to R282 636. This led to the Municipality separating the electrical work from the original tender awarded. No competitive bidding process or deviation process was followed when the electrical work was procured and awarded to the service provider. The service provider was verbally appointed without a contract. The irregular appointment thus constitutes irregular and unauthorised expenditure as no authorisation was given by the Council or the City Manager for the work to be done. Disciplinary action has been recommended against the project manager and the deputy director in the department for non-compliance with SCM processes, and for not taking all reasonable steps within their respective areas of responsibility.

It has also been recommended that criminal action be instituted against the project manager for gross negligence as section 173(3) of the MFMA was contravened.

TSHWANE METROPOLITAN MUNICIPALITY Proclamation R62 of 2010, published 8 November 2010.

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Conflict of interest A DDG in the Department of Energy entered into a further contract with the Tshwane Metropolitan Municipality for the electrification of the Olievenhoutbosch extension 36 development. It was established that the service provider was appointed for a contract to the value of R7.4 million for 1 000 house connections according to the bills of quantities. A month later, a contract was concluded and a new bill of quantities signed for double the amount, R14.9 million and for 2 000 connections. A verbal instruction to purchase an additional 960 metres of cable was then issued, which was not supplied against an approved bill of quantity and thus exceeding the approved contract value by R1.5 million. Later, an additional eight houses were identified where electrical cabling had to be done amounting to R47 310, which was also not authorised. Four officials are to be charged and a disciplinary and criminal case for unauthorised and irregular expenditure is to be registered. This matter was also referred to the Department of Energy for action to be instituted against the DDG.

Procurement matter within the Metro Police The investigation has confirmed collusion between a senior procurement official within the Metro Police and seven service providers who were awarded contracts to the value of R77.7 million between 1 January 2007 and 8 November 2010. The official received gratification to the value of R16.1 million during the same period from the service providers as a result of the corrupt relationship that existed. Civil action will be instituted against the official for the recovery of the R16 million benefit received.

Soshanguve Giant Stadium and Hammanskraal Stadium A preliminary financial analysis conducted indicates that an amount in excess of R286 million has been spent on the construction of the Soshanguve Giant and Hammanskraal Stadiums, but the stadiums have not been completed. The SIU has requested the service of a quantity surveyor to assess the scope of work completed and to establish value for money on payments already made.

CCTV investigationThe SIU received information of possible irregularities in the tender issued for the installation of CCTV cameras. A senior official within the Metro Police confirmed that the report with recommendations submitted by the Bid Adjudication Committee (BAC) was changed to appoint a service provider that was not recommended. From 30 April 2010 until January 2012 (excluding the month of August 2011), the municipality paid R73.9 million against a contract amount of R121 million within a period of 13 days. The service provider invoiced the municipality for an amount of R27 million. This was close to the financial year end and the service provider informed the investigating team that the municipality had requested an invoice on items on the bill of quantities before the financial year end as the department had funds left in its budget. It has been established that the service provider invoiced the municipality and payments were approved by the senior official on fraudulent invoices to the amount of R1.4 million.

Irregular awarding of tenders and overspending on an original tender amountThe original tender amount was R12.4 million. Payments identified to date exceed R40.3 million. A former employee became a director of the company subsequent to the awarding of the tender.

Irregular appointment and payments made to the service provider for the Home of Jazz FestivalDeviation was approved but no work was done on the project although payments were made. A total of R8.1 million has been invoiced and paid to the service provider to date. The first three invoices, totalling R416 170, pertain to the Home of Jazz Festival programme, and thus these invoices fell within the scope of the Terms of Reference (TOR) stipulated in the contract. It has been established that eight invoices submitted totalling R7.7 million were made for projects that fell outside the TOR stipulated in the contract, resulting in unauthorised and irregular expenditure. It was further established that no competitive bidding process was followed for the eight payments made as all were above the R200 000 threshold. Disciplinary charges have been recommended against four officials. A criminal case will be registered for the irregular expenditure against the officials who authorised the payments. A criminal case of fraud will also be registered against the service provider for submitting invoices when no services were rendered.

Service provider appointed irregularly through deviation and fraudulent invoices submitted on inflated working hoursInvestigations have confirmed that the service provider was irregularly appointed despite an instruction that a proper procurement process should be followed. This was not done and the service provider was appointed through a deviation. Despite the instruction, the former City Manager signed off on the appointment letter of the service provider. A total of R3.2 million was invoiced by and paid to the service provider. In addition to the above, the service provider inflated hours worked and billed the municipality for 144 hours within a six-day period, alleging that three employees worked for 20 hours per day. Disciplinary action has been recommended against four officials. Criminal charges for the irregular expenditure are to be instituted against the former City Manager and the director who irregularly appointed the service provider.

Service provider paid for no services rendered in the Department of Economic Development It was discovered that an amount of R600 000 was paid to the service provider without the service of an international music event being rendered. The South African artists who were supposed to perform at that event were not able to fly to Washington DC because of visa-related issues. However, the actual reason for the fruitless expenditure related to the fact that the service provider did not pay the travel agency the amount received. The delegation of the City of Tshwane was due to depart for Washington DC for the event, but could not do so due to the late arrangements of the service provider.

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The SIU prepared a report recommending that the full amount be recovered from the service provider. Recommendations have also been made for disciplinary action to be instituted against the officials who recommended and authorised the payments. Irregular awarding of a contract in the Department of Community Safety It has been established that service providers were appointed through deviations based on preference of the senior officials within the department and no fair process was followed when the contracts were awarded. It has further been established that these contracts were awarded as a result of deviations caused by poor planning. This resulted in emergency situations being created on the part of the heads of the department. A report recommending disciplinary action against the officials involved for negligent performance of duties, as well as systemic recommendations, is currently in draft. Irregular appointment of service provider by the former City Manager The City Manager disregarded SCM procedures and entered into direct negotiations with a service provider. This process was approved by the project manager. This deviation was not reported to the Council. The municipality incurred irregular expenses of R4.2 million. Disciplinary action will be recommended against the project manager. A criminal case is to be registered against the former City Manager for the irregular expenditure. Financial mismanagement

One-time vendor accountInvestigations into the one-time vendor account have been finalised and a report with recommendations has been completed. Stricter control measures have already been put in place to prevent any further abuse of the account.

IndigentsThe SIU conducted data analysis on the registered indigents and established that 8 002 applicants who are currently receiving the grants are deceased. Additionally, 911 applicants are registered on PERSAL (the government’s payroll system), indicating that they are state officials and were consequently not entitled to the grants. The SIU requested applications from the municipality to use as evidence in criminal proceedings and recovery of losses and is awaiting further information to proceed with the cancellation of the grants. Data and documentary proof is also being awaited. PERSAL information that was obtained confirmed that applicants were found to be state employees.

Unauthorised expenditureIt was alleged that an amount of R75 million was incurred without authorisation from the Council as is required by section 32(2) of the MFMA. Fifteen investigations are currently underway. The investigation has finalised six matters, two of which have been referred to the SAPS for criminal action. One matter will soon be added.

The three criminal matters involve fraudulent payment of salaries by a syndicate using five employees. The municipality has recovered R150 336,66 from its insurance.

Cable theft to the amount of R 589 915 was reported to SAPS, as well as the irregular appointment and payment of a service provider to organise the New Year’s celebration. It is alleged that an official requested the service provider to include an additional R490 000 in the final invoice of R553 360 recommended for the service. A recommendation will be made for the recovery of the full amount from the service provider. Disciplinary action is to be instituted against the two officials involved. A criminal case of fraud will also be registered against the officials and the service provider.

Other investigations into unauthorised expenditure include the following:

• Supply of fuel to the contractor by the Department of Housing and Sustainable Human Settlement Development: Disciplinary investigations against the official who supplied fuel to a contractor to the value of R 1.1 million are underway. Investigations identified a number of “red flags” when purchasing requisitions were analysed.

• Unauthorised trip to Namibia by an official in the Office of the City Manager: It has been established that an official went on an unauthorised trip and incurred expenses to the value of R57 414.

• Petty cash: An amount of R756 was written off during 2008/09. Investigations have been finalised.

• Theft of a laptop which an employee failed to register as an insurance claim to the amount of R24 200: A departmental hearing was held and the employee signed an AOD. An amount will be deducted from his salary. This investigation has been finalised.

• A R57 023 820 application for transfer of funds in the adjustment budget: This was not approved for the Department of Economic Development.Bus service: Overtime claims submitted by officials are under investigation. It is alleged that the overtime was not approved prior to the overtime being worked.

Human resource investigations

Fraudulent qualificationsCriminal action has been instituted against the four officials identified as having submitted fraudulent qualifications. Court proceedings against three of these officials have already been finalised. All three were found guilty and received sentences of a R12 000 fine or 24 months’ imprisonment suspended for three years, and a R10 000 fine or 18 months’ imprisonment suspended for five years. The third matter has been postponed for sentencing, as the accused pleaded guilty.

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Fraudulent identity numbersInvestigations have been completed and three reports with systemic recommendations with regard to 29 officials are being drafted.

Social grantsAll investigations have been finalised with regard to applications submitted in Gauteng and North West. A total of 42 AODs amounting to R538 020 were signed by officials who admitted to knowingly receiving grants they are not entitled to. A report is currently being drafted.

Metro Police pound investigationOn request of the Strategic Executive Director and the Community Safety Department, the SIU assisted the municipality’s Forensic Investigation Services in this matter. Pound registers were audited and 696 irregular cost-free releases of vehicles were detected.

Fifty-nine of the vehicles were irregularly released by the commander of the pound. As a result of the failure to collect the tow-in and storage fees, the City of Tshwane suffered a loss of R36 432,30. Twenty-five affidavits were obtained and a draft charge sheet was generated. The matter was reported to the Executive Director: Forensic Investigation Services and disciplinary action is in progress. A final report was generated by the Forensic Investigation Services and forwarded to its Executive Director. The SIU has completed its part of this investigation and the outstanding cost-free releases will be investigated by the municipality’s Forensic Investigation Services.

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Brief overview

The terms of reference of the investigation as set out in the proclamation are as follows:

• The irregular procurement of goods, work or services by or on behalf of the municipality or its municipal entities and payments made in respect thereof

• The procurement of goods, work or services by or on behalf of the municipality based on material misrepresentations made by contractors, suppliers, service providers or bidders with regard to any preference to be afforded to them in terms of the supply chain management or procurement processes made in respect thereof

• The mismanagement, misspending or misappropriation of the finances, funds or assets of the municipality and the resulting losses suffered by the municipality

Focus areas

Irregularities have been identified in the following areas:

• Supply chain management• Asset management• Service delivery• Financial mismanagement• Waste management investigation

Findings

Waste management investigationThe disciplinary hearing against a Regional Executive Manager is still ongoing. The charges include failing to disclose interest in one of the companies awarded a waste management contract and irregular expenditure in excess of R8 million. The disciplinary investigations against a further three officials are also still underway. Three further contracts have been investigated and two of these investigations have been finalised.

Irregularities in the management of a pilot project and abuse of power by municipal employeesIt has been established that proper labour practices were not followed by municipal officials. Investigations have also revealed that the project manager and administrative clerk intentionally overpaid community-based contractors and acquired such payments as their own (also known as “Pay and Return Scheme”). These officials have been suspended pending their disciplinary hearings. The charges of unlawfully and improperly misappropriating municipal funds and non-performance of duties have been brought against them.

It has further been found that Provident Fund and medical aid contributions were not made to some of the project workers, or to beneficiaries of deceased project workers.

Cover quoting – contract for the hiring of specialised vehiclesCases of VAT fraud against two service providers who claimed for VAT of R51 996 and R18 326 respectively in invoices submitted to the municipality by using inactive VAT numbers have been registered with the SAPS. The SIU has prepared reports to be handed over to SARS for further action.

Fraud (cover quoting) A case of fraud (cover quoting) against a director who did not disclose his interests in two entities that submitted quotations for the same work has been registered at the Benoni SAPS. Two other entities were awarded work without being registered on the municipality’s supplier database. Quotations from phantom companies were submitted by one of the service providers and the employee who submitted the quotations was interviewed. A case of fraud is to be registered against the owner of the company. The same owner used fraudulent registration numbers of trucks in invoices submitted to the municipality.

ICT contract• Meropa Sechabeng Technology CC: The matter

is still ongoing in the Gauteng High Court. The AFU forfeiture application was executed in April 2012 and assets to the value of R27 million were seized at six properties belonging to the three accused persons.

• Technology Corporate Management (Pty) Ltd: The disciplinary hearing against the Director of Infrastructure: ICT is still ongoing. He has been suspended pending the finalisation of the disciplinary hearing. He has admitted to signing off on invoices to the value of R12.3 million for services not delivered. The criminal investigations are well underway.

• Security contract: Investigations have been completed and a report is in draft. Losses to the municipality have been quantified and amount to R15.1 million.

• 2010 contracts: The investigation found that R35 million was paid for 30 sportsfields that were to be upgraded, but work was only partially performed. It has been established that learner contractors were used by the main contractor to conduct the upgrades. Preliminary findings indicate that learner contractors were paid different amounts for doing the same work. The learner contractors were used for paving the roads, lighting, installation of stalls, etc. by different departments during this period. Site visits of the different sportsfields for the 2010 legacy project were conducted and it was found that most of the facilities have been vandalised.

EKURHULENI METROPOLITAN MUNICIPALITY Proclamation R63 of 2010, published 8 November 2010

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The irrigation system does not work, pressure pumps were not installed and the groundwork was not properly done. All the work was paid for by the municipality. Investigations are still ongoing.

• Upgrading of the Katlehong Stadium parking lot: The municipality paid R20.3 million for the upgrading of the Katlehong Stadium’s parking lot. The consulting company’s report on behalf of the municipality shows that there was a lot of unforeseen groundwork that needed to be done. The contractor needed about R2 million to complete the work. However, the investigations found that payments in excess of the original contract amount were paid to the contractor. The SIU has been unable to locate the original tender documents as they have been misplaced by the municipality’s project manager. Investigations are still ongoing

• Licensing fees: The investigation identified six officials who were involved in the money-rolling scheme. These officials face disciplinary action for non-compliance with the prescribed daily reconciliation procedures. A total of 77 fraudulent cheques to the amount of R1 million from six different companies and individuals were compared with the documents completed by the six officials and electronic National Traffic Information System (eNaTIS) audit reports. The officials that were found to have received these fraudulent cheques substituted them for cash and they were subsequently used for the registration and licensing of motor vehicles. Criminal cases of theft have been registered and are still under investigation by the SAPS. The SAPS also referred the case to the AFU.

Four additional officials who were involved in the money- rolling scheme with the fraudulent cheques will face disciplinary action on charges of non-compliance with the prescribed daily reconciliations. The investigation has been finalised and the SIU is preparing its report on this matter.

Ekurhuleni Metro Police Department (joint investigations)• Employment: The criminal records of 1 993 officials

have been verified. There were 219 officials with possible criminal convictions. The Metro Police Chief decided to appoint a senior director to approach all these officials and give them the opportunity to apply for expungement of their records from the Department of Justice and Constitutional Development. This process is still ongoing.

• Cover quoting: An investigation was conducted into allegations of cover quoting by an Ekurhuleni Metro Police Department (EMPD) official. It is alleged that an official in the procurement section created fraudulent quotations for services and goods to be rendered or supplied to the EMPD to a value in excess of R1 million. The quotations were accepted and official orders were registered for the work to be done or the goods to be delivered. The official also allegedly created fraudulent invoices and processed them. A case of fraud was registered. The suspect’s official desktop computer was seized and handed over to the SIU’s Cyber Forensic Unit for analysis. A cyber forensic report is awaited and further criminal action will be instituted.

Water meter contract This investigation does not fall within the municipality’s proclamation. Therefore, all relevant affidavits and evidence were handed over to the municipality’s internal auditors. A criminal case was registered with the SAPS’s Commercial Crime Unit, Germiston. The municipality has instituted departmental action against five officials who have subsequently been suspended. The contract with the service provider was also cancelled. A final report has been drafted and will be handed over to the municipality.

Valuation roll investigationThe project manager informed the investigating team that the procurement of the Value Assist software formed part of a separate tender. Details of this tender have been requested from the municipality’s Tender Department in order to verify its veracity. The SCM processes were not complied with as required. Financial analysis to date has revealed that e-Valuations was overpaid in excess of R15 million on the negotiated price agreement.

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Brief overview

On 24 January 2012, National Treasury requested the SIU to assist with investigations into allegations of procurement irregularities, fraud, corruption, financial mismanagement and misconduct relating to five provincial government departments in Limpopo.

Focus areas

• Ad hoc matters The SIU also received eight matters through whistle-

blowers and from the administrators. These matters range from allegations of fraud and corruption to failure to comply with administrative regulations.

Department Matters received

Provincial Treasury 2

Education 2

Public Works 3

Roads and Transport 1

Health 0

• AGSA matters and deviation reports The SIU received the AGSA reports for 2011 and

2012 and deviation reports on the five provincial departments in Limpopo under investigation. These documents will be reviewed to identify “red flags” and possible matters that need investigation. Possible “red flags” will also be cross-checked with the information received from the Financial Intelligence Centre (FIC).

National Treasury matters (private firms)The SIU is also investigating cases that were investigated by private firms appointed by National Treasury with the purpose of preparing disciplinary cases for the Department of Public Service and Administration (DPSA).

The matters currently under investigation by the SIU include the following:

DepartmentNumber of matters

received from private firms

Health 8

Education 6


Public Works 1

Provincial Treasury 0 The SIU is also assisting the ACTT in a total of 39 cases emanating from the intervention.

Findings

Conflict of interest/non-declaration of Senior Management Service officialsData analysis revealed conflict of interest matters and 305 senior officials who did not declare their financial interests. thirty four officials were found to have contravened section 17 of the Prevention and Combating of Corrupt Activities Act (this section deals with officials who are linked to a business entity that is trading with its own department of employment).

Department Total conflict of interest matters

Contravention of section 17

matters

Health 92 13

Education 52 14

Roads and Transport

31 7

Public Works 90 0

Provincial Treasury

40 0

The following disciplinary matters were referred to the DPSA in order to institute the necessary disciplinary steps:

DepartmentNumber of matters

referred for disciplinary action

Health 14

Education 7


Public Works 3

Provincial Treasury 16

AGSA reports and deviation reportsThe 2011 and 2012 AGSA reports and relevant deviation reports are currently being scoped with the aim of prioritising individual matters for further investigation.

National Treasury matters (private firms)The matters referred to the SIU to identify possible disciplinary action are currently under investigation.

LIMPOPO INTERVENTIONProclamation R21 of 2012, published on 23 March 2012

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KOPANONG LOCAL MUNICIPALITY Proclamation R58 of 2011, published on 12 October 2011

Brief overview

The Executive Mayor and the Acting Municipal Manager of Kopanong Local Municipality requested the SIU to investigate allegations of irregularities in the appointment of consultants at the municipality. The investigation covers the period 1 July 2006 to 31 March 2009 and involves an estimated R7.8 million in transactions.

Focus areas

• Procurement irregularities• Financial mismanagement

Findings

It is premature to announce all findings, but the investigation has thus far revealed the following:

• The prescribed statutory provisions, including National Treasury instructions and guidelines for the procurement of consultancy services, were not followed by the former Municipal Manager, and there are indications that this has resulted in irregular, unauthorised, fruitless and wasteful expenditure.

• In excess of R2 million was paid by the municipality to a consultant who provided incomplete and substandard work. This is corroborated by assessments made by the Auditor-General and KPMG. The SIU has recommended civil action for the recovery of the payments made. The SIU will assist the municipality in this regard.

The SIU has discovered that no less than seven consultants appointed by the municipality had claimed and were paid VAT amounting to an estimated R724 094, while they were not registered with SARS as VAT vendors. The SIU obtained three AODs amounting to R205 325,76.

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Brief overview

The SIU was mandated by Proclamation R33 of 2011 to conduct an investigation into alleged maladministration, irregular procurement of services and irregular and wasteful expenditure at the municipality.

Focus areas

• Supply chain management• Asset management• Service delivery• Good governance• Recruitment• Financial mismanagement

Findings

Procurement of Legal ServicesInvestigations have established that, during the period January 2002 to June 2012, a legal firm acted on behalf of the municipality as council attorneys and debt collectors. However, the municipality did not enter into an SLA and/or contract with the service provider from 1 January 2002 to 30 June 2006. A tender for council attorneys and debt collection services was advertised for the first time in 2006. All the payments made to the service provider for the period 1 January 2002 to 1 June 2006 were made with no authorisation as there was no contract or SLA in place.

During this period, the service provider paid the municipality R1.5 million in collected debt and invoiced R10.4 million for debt collection services. The service provider further facilitated 9 430 judgments and execution cases, 748 execution sales and clearances to the value of R13.5 million. This is seen as irregular expenditure. Investigations are ongoing, with financial analysis being conducted on the remaining invoices submitted.

Indigents investigationThe current list of indigents that was obtained from the municipality listed 2 020 registered indigents. Of the 2 020 listed indigents, 250 indigents were registered as business owners with the Companies and Intellectual Property Commission. The municipality also failed to conduct a proper verification on each application and indigents did not declare their interests. It has been confirmed that 323 indigents are classified as deceased by the Department of Home Affairs, but are still active on the indigent database. A total of 31 identity numbers could not be located by the Department of Home Affairs and these identity numbers are suspected to be false. Failure to verify these details amounts to maladministration by officials and could have led to further losses by the municipality. Further investigations will be conducted in this regard. Investigations are ongoing.

Sale of prepaid electricityCouncil’s failure to collect debt owed to it by a vendor who acted as an agent for the municipality by selling prepaid electricity to the value of R869 261 resulted in the agent applying for voluntary liquidation and the Council having to write off the debt. A criminal case is currently being investigated. Investigations have been finalised.

Asset management: Illegal disposal of graderInvestigations have revealed that no loss was suffered by the municipality when the grader was sold on auction. Interviews conducted with numerous officials revealed that the grader was classified as redundant. An official in charge of the auction list was disciplined for her negligence in allowing an asset that was not on the auction list to be auctioned. She received a written warning. This investigation has been finalised.

MIDVAAL LOCAL MUNICIPALITY Proclamation R33 of 2011, published 20 May 2011

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Brief overview

The Municipal Manager of the George Local Municipality and the Western Cape Member of the Executive Council (MEC) for Local Government, Environmental Affairs and Development Planning requested the SIU to conduct an investigation into various allegations at the municipality. The investigation has been completed and the SIU’s final report to the President has been compiled and submitted for review.

Focus areas

• Alleged irregularities pertaining to the establishment of the George Housing Association (GHA)

• Alleged irregularities pertaining to the approval of a multimillion rand development and the appointment of two contractors

• Overpayments made to a contractor for the con-struction of the George Municipal Fire Station

• Alleged irregularities in the sale of George municipal land

• The alleged irregular appointment of two contrac-tors for professional services and the construction of housing and infrastructure

• The alleged irregular appointment of and payments made to a company for professional services on two occasions

Findings

In the matter concerning the establishment of the GHA and related irregularities, the SIU found the former Municipal Manager and a former legal advisor to have been grossly negligent by taking an incorrect legal position with regard to the establishment of the GHA. Their conduct (and/or failure to act) resulted in the authorisation of three payments to the value of R5.1 million to the GHA, which was unlawful and/or contrary to the provisions of the Municipal Systems Act.

The SIU found that their conduct justifies the referral of the matter to the NPA (via the SAPS), as the evidence points to contravention of section 173 of the MFMA. The evidence also justifies the institution of civil action against the two officials responsible for causing the losses.

Investigation into the other matters revealed no indication of irregularities to the extent that any further action is required.

GEORGE LOCAL MUNICIPALITYProclamation R76 of 2010, published on 9 December 2010

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Brief overview

At the request of the Western Cape MEC for Local Government, the SIU conducted an initial review of concerns at the municipality. Pursuant to the review, the SIU wrote to the MEC recommending a full investigation. The SIU, with the support of the MEC, then requested the President to issue a proclamation mandating a full investigation. On 14 January 2011, the President issued Proclamation R3 of 2011 (Government Gazette No 33722), authorising the SIU to conduct a full investigation at the Stellenbosch Local Municipality.

The investigation has been completed and the final report to the President is being finalised.

Focus areas

• The alleged irregular and unlawful procurement of services at a cost of R777 550 for services at a Cultural Day that was staged in Kayamandi, Stellenbosch in April 2009

• The irregular and unlawful procurement of services at a cost of R180 000 for the demolition of a building situated on municipal land in Kayamandi, which was leased to another entity at the time

• The irregular and unlawful procurement of services from and/or contractual appointment of a coordinator for the Stellenbosch 2010 Soccer World Cup Project at a cost of at least R1.8 million

• Allegations of irregularities pertaining to the evaluation and awarding of seven tenders (to the value of R106 million) in 2006

• Allegations that the R13.5 million tender for the building of the Kayamandi Stadium was inflated

Findings

The investigation into the procurement of services for the Kayamandi Cultural Day has revealed evidence of fraud, corruption and contravention of the MFMA.

The former Municipal Manager, his brother, the CFO, the former Mayor, former Deputy Mayor, a councillor, two officials and a supplier have been implicated in these irregularities. The matter has been reported to the SAPS for criminal action. The municipality suffered a loss of at least R42 000.

The investigation into the demolition of a building has revealed evidence of fraud and contravention of the MFMA by the former Municipal Manager. The investigation has also revealed evidence of another municipal official’s neglect to declare his interest in the supplier concerned. This resulted in the contravention of the provisions of Schedule 2 to the Municipal Systems Act, Act No 32 of 2000, and section 17(1) of the Prevention and Combating of Corrupt Activities Act, Act No 12 of 2004) This official also failed to obtain permission from the municipality to do private work. The matter is with the NPA for action after having been reported to the SAPS.

The investigation into the Stellenbosch 2010 Soccer World Cup Project has revealed evidence of fraud, corruption, contravention of sections 4 and 5 of the Prevention of Organised Crime Act, Act No 212 of 1998, and contravention of section 173 of the MFMA and other statutory contraventions.

The investigation into seven tenders has revealed evidence of a conflict of interest on the part of one municipal official. The municipality has already intervened by taking civil action, and the matter has been reported to the SAPS.

The investigation pertaining to the building of the Kayamandi stadium has not revealed any evidence to substantiate the allegations made.

STELLENBOSCH LOCAL MUNICIPALITYProclamation R3 of 2011, published on 14 January 2011

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Background

On 4 February 2011, the President issued Proclamation R6 of 2011, authorising the SIU to conduct an investigation into various procurement issues at the Oudtshoorn Local Municipality. The investigation has been completed and the final report has been compiled and is being reviewed before submission to the President.

Focus areas

• Irregular payments made to a construction company with regard to a multimillion rand housing project

• Various irregularities pertaining to the services rendered by a law firm, including the alleged failure of the firm to pay debts collected over to the municipality, overcharging and/or undue payments made to it

• The alleged irregular and unlawful procurement of the services of a construction company to perform a survey

• The alleged irregular and unlawful appointment of a consulting company

• The alleged irregular and unlawful appointment of an information technology company

• The alleged irregular and unlawful appointment of a service provider for traffic offence management- related services

• Failure (by the Municipal Council) to appoint an Audit Committee

• Debts owed to the municipality by councillors.

Findings

Alleged irregular payments made to a construction company regarding the multimillion rand housing projectTwo former municipal managers deliberately and/or in a grossly negligent manner failed to take all reasonable steps to prevent irregular expenditure in authorising payments amounting to R7 million to the construction company. In addition, their conduct exposed the municipality to a R2.7 million civil claim.

A former Municipal Manager deliberately and/or in a grossly negligent manner failed to take all reasonable steps to prevent fruitless and wasteful expenditure in authorising a duplicate payment of R378 115,61 to the construction company concerned.

The construction company’s offer to stand in for a former Municipal Manager’s daughter’s tuition fees, as well as deposits made in favour of the Municipal Manager points to contravention of the Prevention and Combating of Corrupt Activities Act (involving the former Municipal Manager and a director of the construction company).

The SIU has reported the matter to the NPA (through the SAPS).

Services rendered by a law firmThe sole director of the law firm was related to a former Municipal Manager. The former Municipal Manager’s procurement of a legal opinion from the law firm at a cost of R95 000 in 2010 constituted irregular expenditure, fruitless and wasteful expenditure, and a contravention of the provisions of section 173 of the MFMA. In addition, back-dating of the deviation application by the former Municipal Manager constitutes fraud. By effecting the payment concerned with the requisite knowledge, another official contravened section 171 of the MFMA.

The law firm concerned and/or its director committed theft of municipal trust funds, overreaching and failure to pay debts collected over to the municipality. The losses as at 1 December 2011 amounted to R532 296,25 (excluding interest). The evidence also points to contravention of section 173 of the MFMA and/or complicity on the part of the former Municipal Manager.

The law firm concerned and/or its director fraudulently induced the municipality to make a further payment of R313 267,99, despite an earlier SIU report alerting the municipality to risks of doing business with the law firm. A subsequent Acting Municipal Manager wilfully (alternatively, in a grossly negligent manner) failed to take all reasonable steps to prevent this fruitless and wasteful expenditure.

The law firm continued collection of debts written off by and/or no longer owing to the municipality. This constituted theft to the value of R4 526 from the individual debtors concerned. Failure to disclose these collections and failure to pay these funds over to the municipality constituted fraud, alternatively theft of municipal funds.

The law firm concerned and/or its director’s failure to account for and to pay lawfully collected debts over to the municipality constituted fraud to the value of R7.2 million.

The former Municipal Manager’s arbitrary re-appointment of the law firm for debt collections and his persistent failure to act against them, despite intimate knowledge of the associated risks, constituted a contravention of section 173 of the MFMA.

The former Municipal Manager’s arbitrary appointment of the law firm to do ad hoc legal work, in blatant disregard of supply chain prescripts, constituted additional contraventions of section 173 of the MFMA.

OUDTSHOORN LOCAL MUNICIPALITY Proclamation R6 of 2011, published on 4 February 2011

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The municipality suffered losses in excess of R844 166,69 (plus interest) in the abovementioned cases. The matters have been referred to the NPA (via the SAPS).

Alleged irregular and unlawful procurement of the services of a construction company to perform a survey The services concerned were procured contrary to SCM Policy provisions at a cost of R559 648,42. In addition, the former Municipal Manager and an official deliberately and/or in a grossly negligent manner failed to prevent irregular and unauthorised expenditure of R559 648,42.

The construction company over-invoiced the municipality to the value of at least R49 020. A municipal official deliberately or in a grossly negligent manner failed to prevent fruitless and wasteful expenditure of at least R49 020. Councillors have been involved in the procurement process and even in the delivery process and/or execution of the project, which is unlawful. Evidence pointing to fraud and contravention of section 173 of the MFMA has been referred to the NPA (through the SAPS).

Alleged irregular and unlawful appointment of a consulting company to perform various servicesThe services were procured in an irregular manner at an eventual cost of R2 million. A former Municipal Manager acted grossly negligently in the process in contravention of section 173 of the MFMA. Fruitless and wasteful expenditure amounting to R237 600 and unauthorised expenditure of approximately R1.4 million was incurred, resulting in losses to the municipality of at least R76 650. The consulting company made fraudulent misrepresentations to the municipality in the process. The abovementioned evidence points to fraud and contravention of section 173 of the MFMA and has been referred to the NPA.

Alleged irregular and unlawful appointment of an information technology (IT) companyThe services were procured by a former Municipal Manager in contravention of SCM provisions and at an inflated cost (between R6.5 and R8.4 million over a five-year period). A former Municipal Manager acted in a grossly negligent manner in the process in contravention of section 173 of the MFMA. Irregular, as well as fruitless and wasteful expenditure aggregating R1.5 million was incurred.

The SIU obtained evidence that the IT company had made fraudulent misrepresentations to the municipality in the process. The abovementioned evidence also points to contravention of section 173 of the MFMA and has been referred to the NPA. Alleged irregular and unlawful appointment of a service provider to perform traffic offence management-related services The services were procured in an irregular manner, resulting in irregular expenses and losses to the municipality. A former Municipal Manager acted in a grossly negligent manner in the process in contravention of section 173 of the MFMA.

Failure to appoint an Audit CommitteeThe Municipal Council has, in contravention of section 166 of the MFMA, failed to appoint an Audit Committee for a period of longer than a year. The investigation identified debts of amounts exceeding R890 000 collectively owed by the councillors to the municipality over the period March 2003 to February 2012. The debts resulted from overpayment of cell phone allowances, failure to recover pension contributions, erroneous or unjustified travel and accommodation claims, etc.

The irregular alienation of municipal land with the purpose of erecting a mosqueIt was found that the sale and approval of the land concerned and the subsequent erection of the mosque was unlawful. It had been accompanied by numerous irregularities in the form of non-compliance with statutory requirements.

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Brief overview

The Minister of Co-operative Governance and Traditional Affairs (CoGTA), as well as the MEC for Local Government, Environmental Affairs and Development Planning in the Western Cape, requested the SIU to conduct an investigation into various allegations at the Swellendam Local Municipality.

Focus areas

Maladministration in the affairs of the municipality by its councillors, officials, employees or agents in relation to the following:

• The supply chain management system at the municipality

• The management of the municipality’s finances and assets

• Applications by developers for the development of the Swellengate and Swellenmark shopping centres and the municipality’s approval of such applications, including the causes of such maladministration.

Findings

Fruitless and wasteful expenditure: double salary payments made for same positionsA total of 11 employees were suspended. Nine of these employees were ultimately reinstated after settlement negotiations. It was alleged that, for eight months, the municipality had paid an amount of R887 968 to these nine employees who were not rendering a service to the municipality. In addition, it has been further alleged that this loss is essentially due to the Municipal Manager refusing to reinstate the initially suspended employees.

Non-complianceThe SIU conducted an investigation into the unauthorised expenditure pertaining to the appointment of staff without an approved budget. The investigation revealed various contraventions of the MFMA. The investigation found that the appointment of new staff, without the adjustment budget being approved by Council, had resulted in unauthorised expenditure to the amount of R305 760. The SIU has recommended the recovery of this amount from the Municipal Manager who approved this unauthorised expenditure.

Conflict of interestIt was alleged that the municipal councillor did private work for the municipality, without the necessary approval. The investigation found that the councillor had applied for permission to do private work. However, the required approval was still outstanding. Furthermore, the Municipal Manager obtained an additional legal opinion relating to the councillor’s application, even though an opinion had already been obtained from the province. This amounted to possible fruitless and wasteful expenditure of R8 957,55.

Irregular appointment of the Appeal Committee in a disciplinary matterAfter a disciplinary hearing on several charges, the Municipal Manager was found guilty on two of these charges. However, the Municipal Manager appealed the imposed sanction. As a result, Council was mandated to appoint an Appeal Committee.

The Council requested assistance from the Cape Bar Council (CBC) for guidance and referrals. The Mayor deviated from the referrals of the CBC and appointed three lawyers without following the SCM Policy and procedures. These lawyers were found to be from the same law firm. According to procedure, the Appeal Committee should be represented by independent individuals.

After a successful appeal, it was alleged that the Municipal Manager’s employment contract contains a clause that states that he may claim back any legal fees resulting from litigation against the municipality. These allegations need further investigation for possible recovery of legal fees paid if this clause is found to be irregular.

Irregular appointment of an engineering consulting agencyThe SIU conducted an investigation into the appointment of an engineering consulting company to do an assessment of flood damages. The investigation revealed possible contraventions of the MFMA. The total cost of the project, including all the subcontractors, amounted to around R46.4 million. The amount paid for the project is R10 million, which is potentially recoverable.

Irregular sale of municipal land: MalagasThe investigation into allegations pertaining to the irregular sale of municipal land known as Malagas has revealed no evidence of any irregularities. Information obtained from the Deeds Office confirms that the Malagas property is privately owned.

SWELLENDAM LOCAL MUNICIPALITYProclamation R12 of 2012, published on 29 February 2012

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Irregular appointment of ODS Consultants CCIt is alleged that an organisational development services company (ODS Consultants CC) was appointed without following proper SCM procedures. This company was appointed to facilitate the selection process for the section 57 and 56 appointments. The investigation revealed that the funding for the appointment of ODS Consultants CC came from the provincial government. This matter thus falls outside the scope of the mandate. This matter will be referred to the Public Protector for further investigation.

The application and approval processes for Swellengate and SwellenmarkThe SIU was mandated to investigate maladministration in relation to the applications by developers for the development of the Swellengate and Swellenmark shopping centre developments, and the municipality’s approval of such applications, including the causes of such maladministration. A review of the consolidated report and supporting documentation suggests that the bulk of the issues seem to be of a legal compliance nature, which are entwined with forensic issues. The SIU will be recommending that this matter is sent to senior counsel for a legal opinion and/or court for administrative review.

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Brief overview

The Internal Audit Department of the South African Social Security Agency (SASSA) approached the SIU to conduct a forensic investigation into suspected procurement irregularities in the ICT Department found during an internal audit review.

During the period under review, SASSA requested the SIU to conduct a forensic investigation into allegations of procurement irregularities relating to 21 ICT suppliers, valued at R610 million. The Unit was requested to determine whether there was a link between any SASSA officials and the suppliers or service providers who were awarded the contracts. The investigation had to look into whether any SASSA official or member of the BEC or BAC received unlawful benefits from any successful bidder. The SIU also had to evaluate whether contracts were awarded and managed in accordance with the principles of value for money, open and effective competition, ethics and fair dealing, accountability and report criteria. The Unit also had to determine whether the non-compliance identified during the internal audit review was intentional and whether any criminal and/or disciplinary transgressions were committed.

Focus areas

• Non-compliance with supply chain management policies and procedures

• Tender irregularities• Conflicts of interest• Unlawful/irregular conduct by employees• Fruitless and wasteful expenditure• Value for money

Findings

Eight investigations are in different stages of legal review. Irregularities identified thus far regarding the eight service providers/suppliers include the following:

• General deviation from and non-compliance with SCM policies and procedures

• Non-compliance with PFMA and other applicable legislation

• BEC and BAC established and members removed or changed contrary to policy and prescripts

• The awarding of contracts by the BAC to service providers contrary to and without considering BEC recommendations

• SASSA officials signing contracts beyond their delegated authority

• Possible double payments on contracts

• Change requests made without proper authorisation• Work commencing on projects prior to SLAs being

signed by both parties• Payments made to service providers prior to

contracts being signed by both parties.• Overbilling in respect of “value for money”• Lack of value for money• In one investigation, the amount paid for the

contract was increased (by more than R5 million) without the necessary approval

• Overpayment:- A discrepancy of over R1 million was

discovered between the amount of the bid and the amount awarded

• Conflict of interest: - The BEC recommended a company that was

R7 million more expensive than another bidding company

- One company was awarded a tender even though it did not score the highest during the evaluation process

- The BEC and BAC were chaired by the same person

- A contract was awarded to a company that was scored high by the BEC despite its shortcomings

• Fruitless and wasteful expenditure: - Overlapping of contracts for the same service- Unexplained scope variation in one contract- The contracting of two companies, but no

services were delivered (non-compliance in respect of contractual obligations despite payments made)

• Possible criminal action:- SASSA officials involved in the duplication of a

contract- Contravention of the PFMA by a SASSA official

• Possible disciplinary action against 24 SASSA officials in respect of all eight investigations

• Possible civil recovery of R28 million for all the eight investigations

SASSA requested advice and assistance with regard to an amount of R453 678 identified by the SIU. The SIU has made recommendations to SASSA to institute civil recovery processes against the service provider. SASSA has not yet instituted the civil recovery of this amount.

SOUTH AFRICAN SOCIAL SECURITY AGENCY Proclamation R27 of 2010, published on 8 June 2010

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Brief overview

The General Services Contract (GSC) between Eskom Holdings and a certain helicopter service provider was signed on 9 March 2009. The contract was for helicopter hire on an “as and when” basis in the Eskom Southern Region during the period 1 March 2009 to 28 February 2011. The contract value was R25 million.

The negotiations for the contract started when the chief engineer at Eskom identified a need for helicopter services within the Eskom Southern Region. Allegedly, the engineer failed to declare a conflict of interest during the procurement process. The engineer allegedly also attended all Procurement Tender Committee meetings during the tender process.

Focus areas

• Civil recovery: cancellation of the contract and possible recovery of payments made to the supplier for work not completed

• Disciplinary matter: initiation of a disciplinary process for non-disclosure of interest and negligence for failing to follow proper procurement processes

Findings

The investigation conducted by the SIU commenced in June 2012 and investigations are ongoing. No conclusive findings can be reported at this stage.

ESKOM • AV8 HELICOPTER: EASTERN CAPE Proclamation R2 of 2012, published on 7 February 2012

ESKOM • HENDRINA POWER STATION FENCING Proclamation R2 of 2012, published on 7 February 2012

Brief overview

Hendrina Eskom Power Station entered into a contract with a fencing contractor to procure and install perimeter fencing around the power station. The contract value, including modifications, was approximately R30 million. Allegations of maladministration and fraud were made against the officials and the contractor after the fencing project was concluded in 2009. The SIU’s initial review of the tender and contracts revealed a number of irregularities.

Focus areas

• Civil recovery: cancellation of the contract and possible recovery of payments for work not completed and possible recovery of double payments on the same invoices

• Disciplinary action: the initiation of disciplinary processes against officials for irregularities in the procurement process

Findings

The investigations conducted by the SIU commenced in June 2012 and are ongoing. No conclusive findings can be reported at this stage.

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Brief overview

The Multi-agency Working Group (MAWG) on SCM was established by the Minister of Finance in October 2009 to review and provide a set of recommendations to improve and strengthen the state’s SCM system.

The Eastern Cape Department of Health (ECDoH) was identified as the ideal site to implement a MAWG on a SCM reform pilot project. This project is focused on SCM system improvements and anti-corruption. The lessons learnt from the pilot project will be translated into protocols for SCM improvements and integrated functioning between the agencies participating in the MAWG.

Focus areas

• Secure the integrity of the system• Optimise the SCM system design and practice• Improve compliance and effectiveness of the entire

SCM system• Establish a multi-agency cooperation model for

government initiatives in the area of SCM

A set of recommendations emerged from a diagnosis of the functioning of the ECDoH’s procurement function.

Current progress• The basic procurement functions and architecture

have been developed.• A generic procurement manual has been developed

and submitted to the department for input.• Workflows and standard operating procedures have

been developed. Six procedures are currently under review.

• A framework and a tool have been developed to calculate the ECDoH’s resource, capital and consumable requirements.

• A Procurement Hub Concept has been developed to reduce the complexity in the current processes, as well as unnecessary bottlenecks.

• A framework has been developed to manage bids and quotes to effectively assist in monitoring all bids and rationalise procurement across the province.

• A framework has been developed to manage contracts.

• A number of items that are operationally critical or big-spend items were identified and analysed to determine whether such items are procured in a consistent and cost-effective manner throughout the province. In order to stabilise the current environment, the focus is on establishing three-year provincial transversal contracts for such items. This includes the following:- Obtaining a central view of the current

contracts in place, the aggregated demand for such items at a provincial level, and current and planned tenders

- Developing standardised specifications - Determining the appropriate tender strategy

at a provincial level- Developing the bid documentation - Determining budget availability

In this regard, the pilot project team is focusing on the following items:

SecurityA tool has been developed to calculate the number and level of guards required at a provincial level. Through application of this tool, a tender for security services covering the entire province has been advertised. The bid process is at an advanced stage.

Travel and accommodationA travel management framework, policy and procedures have been developed that can be used by other government departments.

Patient foodA patient food supplies management strategy has been developed, which includes standardised menus and specifications, quantification of requirements, clustering of institutions, the pricing structure, a supplies management strategy and goods receiving procedures.

Medical equipment (including maintenance of medical equipment)Medical equipment categorisation has been done. This will lead to standardised specification development and tender processes. A framework for maintaining medical equipment has been developed and a technical committee has been established, inter alia, to evaluate responses received from potential sole accredited service providers, in response to a request for information that was advertised during October 2012.

N95 masksA province-wide tender is at an advanced stage. It is estimated that this process will lead to substantial savings for the ECDoH.

National Health Laboratory Services (NHLS)A framework to manage the NHLS interface and testing requirements quantification has been developed. A contract between the ECDoH and the NHLS is currently being negotiated on this basis. In addition, the development of business requirement specifications for an order entry management system is at an advanced stage.

• The AGSA’s findings have been analysed and a plan to address the SCM-related findings is in progress.

• The development of a reporting framework for the procurement function is at an advanced stage.

Multi-agency Working Group (MAWG)

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