Findings of KPMG Report: Nala Municipality Investigation

1. BRIEFING TO THE SELECT COMMITTEE ON CO-OPERATIVE GOVERNANCE & TRADITIONAL AFFAIRS: NATIONAL COUNCIL OF PROVINCES FINDINGS OF KPMG REPORT: NALA LOCAL MUNICIPALITY THE STATUS OF RAMATHE-FIVAS FORENSIC INVESTIGATION AND SECTION 106 INVESTIGATIONS: MATJHABENG LOCAL MUNICIPALITY MEC: MS MLAMLELI 12 FEBRUARY 2013

2. PART 1: KPMG Forensic Report: Nala PART 2: Ramathe Fivaz Forensic Report: Matjhabeng PART 3: Section 106 Investigations (Selesho Commission):Matjhabeng OUTLINE OF THE PRESENTATION

3. Background Nala received a very negative Audit Report for 2008/09 Section 139 (Constitution) Intervention followed (Dec 2009) Transaction verification conducted as part of the Intervention Decided to focus further investigations on 15 Projects Main emphasis on SCM policy and associated process During investigation also diverted to some other allegations PART 1: KPMG FORENSIC REPORT: NALA

4. Approach to Investigation 1. Conducted Interviews with: Creditors selected from the database where possible irregularities were identified in the scoping review. Officials in the SCM department to obtain an understanding of the SCM policy and its application. Members of the community that were identified as possibly having received irregular payments. Individuals forming part of the tender process. PART 1: KPMG FORENSIC REPORT: NALA (CONT.)

5. 2. Site Inspections: Undertook site inspections to verify that work claimed and paid for was completed 3. Conducted Searches: Searched the SCM department after it became evident that all requested information had not been handed over to the investigation team. Searched other Offices for missing documentation. 4. Analysed and Perused: Tender documentation of selected tenders to confirm that the selection processes followed was in terms of municipal policies Minutes of tender meetings relating to the selected tenders PART 1: KPMG FORENSIC REPORT: NALA (CONT.)

6. Limitations of Scope Access to Information: Limited to: Documentation and information under the control of the Municipality Documentation and information at the disposal of third parties whom were consulted with and were willing to make available extracts from their records Documents under their control and information that is available in the public domain • Corporate memory: • Potential witnesses could not recall the circumstances surrounding issues investigated and/or the persons did not have access to information to provide proper information • Some of the officials already left the employ of the Municipality to whom the Investigators did not or were not able to gain access • Accounting records: • Not completely reliable • Affected by the migration of the accounting records of the Municipality • There is evidence that the migration processes as well as the data that was used in the process was not in all instances reliable • Investigations mainly focused on the documentation underlying transactions and not in the manner those have been accounted • Document Control: • Documents that should be at the disposal of the Municipality were not available • Records were stored in such a manner that it did not provided the Investigators with the assurance that they had access to all available documents • The Investigators have reason to believe that some documents may have been purposely destroyed • Witnesses: • Witnesses and potential witnesses were not in all instances open and honest • Suppliers may be affected by the fear of losing their positions as suppliers to the Municipality and, as a result, would rather withdraw from providing evidence . • Validity of documents: • Documents were created in the process to substantiate transactions opposed to the factual situation. The existence of so-called cover documents is evident. • Preparation of such documents may have been the work of officials in the Municipality or at least with the knowledge of such individuals • Overall control environment: • Sets the tone of the municipality in providing the necessary discipline and structure and should be seen as a foundation for all other components of risk management and control. • The findings noted in this report indicate that in the SCM environment there was generally a lack of proper internal and accounting control. • General: • General lack of attention to accosting and internal controls at the Municipality • Persons were in positions and accepted the responsibility and accountability in such positions but with no proper delegations and authority levels.

7. PART 1: KPMG FORENSIC REPORT: NALA (CONT.) Mandate of the Investigation: • Integrated Municipal Financial Management System • Bucket Eradication Program • Waste Water Treatment Plant • Kgotsong Paved Road Phase 1 – 3 • Monyakeng Paved Road Phase 1 – 3 • Kgotsong Multi Purpose Centre • Valuation Roll • Upgrading of the Wesselsbron Taxi Rank Phase 2 • Electrification of 500 households • Meter reading services • Kgotsong landfill site • Monyakeng landfill site • Naledi Clinic

8. Summarised Findings: Contravention of the SCM Policy Manipulation of the SCM process Lack of performance by the contracted parties Amendment of documents prepared and utilised in the SCM process Breaches of Internal control procedures Poor value for money Contravention of the MFMA PART 1: KPMG FORENSIC REPORT: NALA (CONT.)

9. Other alleged issues: Allegations of premature invoicing to solicit bribes Documentation destroyed in anticipation of Investigation Payments made to temporary workers (R705 000.00) cannot be confirmed and substantiated 207 vehicles fueled at cost of Municipality (R160 000.00) that do not appear on vehicle list provided to Investigators No ghost employees found – instances where some staff received duplicate payments Security wall at Mayoral Residence – Council not specify an amount (R230 000.00 paid to contractor) – SCM not followed Credit cards – source documentation not always available and could not be provided with Policy No SCM followed to provide Mayoral vehicle PART 1: KPMG FORENSIC REPORT: NALA (CONT.)

10. Current Implementation Status Report presented to Council on 14 November 2011 Disciplinary proceedings were instituted against former Municipal Manager and Manager Technical Services – both no longer in Service Disciplinary proceedings ongoing against Official implicated in misuse of vehicles and petrol cards Criminal proceedings commenced, dossier opened with SAPS (Hawks Pretoria) Case No. CAS 167/01/2012, Investigating Officer, Warrant Officer E Crouse PART 1: KPMG FORENSIC REPORT: NALA (CONT.)

11. Current Implementation Status Full Report also handed to National Treasury who pledged support with further expertise and investigative work, if required Speaker re-paid R 10,000 back misappropriated on Council’s Credit Card In process of appointing Quantity Surveyor to access cost of wall erected at former Mayor’s private residence with a view to recover Preliminary “means assessments” done on contractors who did not perform. Nulla bona returns expected in some cases, but Department is negotiating with private legal firms to support Nala with civil recoveries PART 1: KPMG FORENSIC REPORT: NALA (CONT.)

12. Current Implementation Status Payroll review / investigation under way as part of Financial Recovery with a view to discipline staff involved and recover irregular salary related expenses Public Protector visited Nala on 6 February 2013 and expressed satisfaction with progress thus far made. Also pledged assistance and support in resolving outstanding issues PART 1: KPMG FORENSIC REPORT: NALA (CONT.)

13. Background: Matjhabeng Local Municipality appointed Latitude and Ramathe-Fivaz Forensic and Investigation Accounting Services to investigate root causes of previous processes undertaken which did not result in desired outcomes / organisational efficiency PART 2: RAMATHE - FIVAZ FORENSIC REPORT: MATJHABENG

14. Approach to the Investigation Conducted Interviews with: Senior Management of Municipality Other Municipal Officials identified to provide information on allegations of irregularities Other parties outside the Municipality who held interest or information or benefited in an irregular manner Analysed and Perused Relevant legislation, policies and procedures, Codes of Conduct, Organisational Structures and directives Relevant records and supporting documentation both hard copy and electronic PART 2: RAMATHE - FIVAZ FORENSIC REPORT: MATJHABENG

15. Site Inspections Undertook site inspections and verifications of work claimed and paid, also verified Municipal property and assets PART 2: RAMATHE - FIVAZ FORENSIC REPORT: MATJHABENG

16. Limitations of Scope The absence of large volumes of supporting documentation, especially on procurement and bidding The investigation relied on company and director searches on CIPRO, which may not have been current and accurate No findings of investigation was presented to former Councillors and Officials to test their reactions, responses or explanations The investigation in certain areas did not progress to a satisfactory level where it could be included in a Report (Waste Management Dept. and Appointment of Wright Guard Security Services) PART 2: RAMATHE - FIVAZ FORENSIC REPORT: MATJHABENG

17. MANDATE FOR THE INVESTIGATION Issues of false Rate Clearance Certificates Cash pay points Bad debts and debts written off Mechanical Stores Electrical Stores Supply Chain Management Sale of land and assets Waste Management Verification of Municipal properties PART 2: RAMATHE - FIVAZ FORENSIC REPORT: MATJHABENG

18. Summarised Findings: The Municipality suffered loss and damage on account of; Incompetence in Supply Chain Management The absence of adequate Contract Management Non-compliance with the Local Government Legal Framework governing operations Reliance on poorly structured Service Provider Agreements and incorrect legal opinions Incompetence in the Finance Department Poor oversight Weak Project Management especially on infrastructure projects PART 2: RAMATHE - FIVAZ FORENSIC REPORT: MATJHABENG

19. Position of the former Municipal Manager Municipality and its operations were adversely affected by historical events and transactions which placed it in financial distress and resulted in losses as contracted services were not of desired standard Certain agreements were terminated through negotiations and / or arbitration before the investigation, while others were terminated as such based on findings of the investigation It became also apparent that the Municipal Manager was under political pressure at times to accede to and / or effect certain decisions, as Councillors threatened to remove him from office In particular instances the Municipal Manager could also not rely on staff, as his signature on some agreements were found to have been forged PART 2: RAMATHE - FIVAZ FORENSIC REPORT: MATJHABENG

20. Position of the former Municipal Manager (cont.) Sensitive and confidential information were leaked to the media and other parties in an ongoing manner, which further compromised the Municipality and the Municipal Manager The Municipal Manager was moved into a position where he had to rely on wanting advice from persons that caused adverse publicity for the Municipality in the first place The Municipal Manager was increasingly isolated in his efforts to remedy difficulties facing the Municipality PART 2: RAMATHE - FIVAZ FORENSIC REPORT: MATJHABENG

21. Background Commission constituted to investigate: Non compliance persistently reported Concerns on Matjhabeng’s ability to fulfill statutory obligations Concerns about institutional instability and governance in general Concerns on MIG implementation Possible mal-administration, fraud and corruption PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

22. Approach to the Investigation: Set up in terms of Sec 106 of the MSA Provisions of Commissions Act of 1947 also applicable Provisions of Free State Commissions Ordinance, 1994 further applied Commission could; Order submission of documentation / vouchers/ objects or materials Order or if need be, subpoena witnesses to appear before it PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

23. Limitations of Scope: The Commission did not conduct a forensic investigation as such The Commission was not a law enforcement agency or instrument The Commission was not a substitute for a Court of Law PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

24. Mandate for the Investigation: The Commission conducted inquiries in to the following: Performance of Council Interface between Council and Administration Administrative capacity and capability Implementation of MIG Projects Supply Chain Management Outcome of support provided by the Service Provider, Latitude to the Municipality Assessing the implementation status of Ramathe Fivaz Forensic Report Allegations of fraud and corruption made against Political Office Bearers and Senior Officials PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

25. Summarised Finding: Council Council did execute its statutory responsibility, but Standing Rules and Orders not properly regularised However, some critical governance structures / committees such as Audit Committee and Oversight Committee not fully functional Although good governance frameworks existed, these were not always fully enforced Council did not provide sufficient leadership and oversight over administration to a point of disfunctionality Council failed to enforce accountability from Senior Management over an extended period of time Councillors meddled and interfered in the Administration PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

26. Summarised Finding (cont): Council and Administration Interface Structures, systems, frameworks etc. to regulate interface were in place but not observed Council and Administration interface depended on relations between Executive Mayor and Accounting Officer 2 Executive Mayors tended to encroach on responsibility and authority of Accounting Officer Councillors meddled and interfered in administration without sanction from Council PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

27. Summarised Finding (cont): Administrative capacity and capability 50% vacancy rate and uneven spread of capacity High turn-over rate at Senior Management level with slow replacement rate. Critical position of Chief Financial Officer vacant for past 5 years, except briefly filled by irregular appointment Poor culture of public service and lack of supervision and management Weak strategic planning capabilities Culture of staff conflict deviates attention and energy away from priorities (especially factional conflicts) Inefficient business processes and delayed implementation Shortage of equipment, material and utilities, repairs and maintenance on especially infrastructure found wanting PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

28. Summarised Finding (cont): MIG and Infrastructure Chronic backlogs in housing, water, sanitation etc. Many MIG Projects implemented over past 4 years Some contracts awarded and paid irregularly Poor project management and subsequent losses and damages now addressed by PMU management consultancy PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

29. Summarised Finding (cont): Supply Chain Management The Commission findings corresponds with those of Ramathe Fivaz Forensic Report SCM consistently undermined in Municipality Bids awarded without following due SCM processes Contracts were entered into which were in contravention of Local Government Legislation SCM Unit poorly managed and staffed Contracts and Contract Management poorly executed and resulted in loss and damage for Municipality PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

30. Summarised Finding (cont): Latitude Helpful to extent that assisted with institutional assessment, long-term vision and financial recovery plan Some value added, but many challenges remains Contract could have been better managed - Commission recommended its termination. No longer on site, but considers claims against Council Clash of interest when Director of Latitude appointed as Chief Financial Officer Relationship terminated since and Municipality successfully defended litigation from Latitude Director appointed as Chief Financial Officer and dismissed shortly afterwards PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

31. Summarised Finding (cont): Ramathe Fivaz Forensic Report Identified risk areas and financial losses Identified weaknesses in financial management Identified weaknesses in Contract Management Some counter-productive agreements cancelled through negotiations and arbitrations PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

32. Summarised Finding (cont): Allegations of mal-administration, fraud and corruption Former Executive Mayor Findings point towards possible administrative interference in some cases Commission could not be provided with substantial evidence to proof allegations of fraud and corruption Municipal Manager and Senior Managers Some infringements of MFMA provisions (referred to Ramathe Fivaz for further investigation) majority of allegations could not be sustained PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

33. Current Status of RamatheFivaz Forensic Report and Selesho Commission Report Ramathe Fivaz Report presented to Council on 15 November 2011 Handed over to SAPS (Hawks) Colonel Dlova, Case number CAS 155/07/2011 Also handed over to Special Investigation Unit (SIU), Inspector D Human Report remains a Draft Report at this stage, requires further criminal investigative work as discussed with the SAPS Ramathe Fivaz successor Company , Open Water Advanced Risk Solutions presented a proposal to this effect to Accounting Officer and Executive Mayor, still awaiting approval Selesho Commission Report Was presented to Council by MEC on 15 November 2011 Detailed recommendations also made in respect to remedial actions to be considered and implemented on Commission’s findings PART 3: SECTION 106 INVESTIGATIONS (SELESHO COMMISSION):MATJHABENG

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