Towards the end of June the parliamentary standing committee on public accounts (Scopa) received an update from the Special Investigating Unit on its investigations into the Department of Water and Sanitation (DWS). Cases discussed included Mhlathuze Water Board, Vuwani Steel Pipeline, Lepelle Northern Water, Gauteng Department of Human Settlements, the DWS SAP licence contract, Umgeni Water, and Thukela Goedertrouw Transfer Scheme.
In Money Down the Drain, our report into corruption in the water sector, published earlier this year in collaboration with the Water Integrity Network, we specifically highlighted the goings-on at the Lepelle and Mhlatuze water boards. The latter is also noted for the fact that its erstwhile chairperson is Dudu Myeni, who headed Mhlatuze at the time a dubious merger was proposed between it and Umgeni Water. Umgeni, the country’s second largest water board, has long been targeted by unscrupulous businesspeople seeking to partner with public officials to make a quick buck.
We discussed the DWS’s SAP contract, awarded in 2018 and then worth R950-million. The contract was for software that water boards neither needed nor wanted – but their opinions were not sought at the time. In addition, the procurement of additional SAP licences was unnecessary and unplanned for, and there was no money to pay for them.
The Department of Human Settlements also made it onto the pages of our report. This involved a contract awarded to LTE Consulting for the construction of water and sewage reticulation. LTE is a consultant for engineering companies, but was inexplicably awarded the reticulation tender for 2 689 stands in Sweetwaters’ Kanana Park Extension 6, even though it did not have the capacity to do the work.
Prosecutions taking too long
Scopa is concerned that investigations and prosecutions are not happening quickly enough. The committee said it would communicate with the National Prosecuting Authority (NPA) and the Anti-Corruption Task Team to discuss ways in which to speed up the rate of prosecutions, and to ensure prosecution was pursued.
In the briefing the SIU revealed new allegations of fraud and maladministration for emergency procurement and drought relief procurement at Lepelle Northern Water and Amatola Water Boards. In both cases the SIU has sought proclamations, as well as in connection with allegations about the War on Leaks Programme and Sedibeng Water Board.
Scope members were particularly interested in the shenanigans at the Lepelle Northern Water Board, where the SIU had had to use its search and seizure power to obtain information. This method, said SIU CEO Advocate Andy Mothibi, was used as a last resort because the SIU expected co-operation, and usually got it. The situation, the MPs noted, was unfortunate as it indicates “a deliberate effort to frustrate the process of investigation”.
The Lepelle case relates to the improper awarding of a R2.2-billion contract to LTE Consulting. In our report we noted that LTE was involved with former minister Nomvula Mokonyane in several questionable deals. With regard to Lepelle, that water board had received orders from Mokonyane to appoint LTE to work on the proposed Nandoni pipeline in Giyani, which would bring water to households in the region. LTE in turn appointed two associated companies, Khato Civils and South Zambezi to build the project, also without any formal procurement process to ensure value for money. What’s more, LTE grossly overcharged for the work done by their associates.
Unwilling to uncover the truth
Later, Lepelle board members and officials attempted to obstruct the SIU investigation, forcing the investigating unit to invoke its search and seizure power.
Mothibi said that once the SIU reached an investigation outcome, it could introduce civil litigation in its own name, refer criminality to the NPA, refer misconduct to the accounting officer, refer other transgressions to relevant regulatory authorities, and finally present a report to the Office of the President.
In the case of the Lepelle Northern Water Board, the SIU was of the view it may have cause to institute action against the board of directors. With regard to Umgeni, Mothibi was of the view that there was extensive maladministration by officials.
Importantly, the SIU said it would pursue officials employed elsewhere in government or who had resigned from the DWS to escape disciplinary action. MPs welcomed this approach, saying it should be institutionalised in the public service.
Scopa would keep the DWS in its sights, said MPs. The department had been brought to its knees, and Scopa could not ignore this. The committee asked for SIU’s continuing assistance with the parliamentary inquiry into DWS.
Status of investigations
Presenting the investigations status to Scopa, SIU programme manager Gina Howes noted three DWS matters were before the courts, and SIU had referred seven cases to the Asset Forfeiture Unit (AFU) and 23 to the NPA.
In the discussion committee members also asked whether any whistle-blowers had come forward with information about the 19 000 water tanks bought and distributed at the beginning of lockdown – none of which held a drop of water to this day. The SIU said it had received no complaints or information from the public regarding the tanks.
Previous investigations
Proclamation R35 of 2008: Allegations at the Mhlathuze Water Board
This proclamation was made in 2008 and the SIU found supply chain management (SCM) processes were not followed, controls and policies were insufficient, documentation was destroyed or lost and the Mhlathuze Water Board did not keep proper financial records.
A criminal case of fraud and corruption had been opened against an employee and service provider. A criminal case of contravention of the Public Finance Management Act (PFMA) was opened against board members of the water board. Three implicated employees had resigned before completion of the investigation.
Proclamation R54 of 2012: Various allegations at the Department of Water Affairs
The SIU had conducted an investigation into 34 allegations, all of which were completed with successful outcomes, and the final presidential report was submitted in December 2016. Prior to finalisation of the report, the SIU received new allegations about the Vuwani Steel Pipeline, and a final report on this aspect was submitted in October 2018.
From the R54 investigation, 58 different referrals were made and the SIU has regularly followed up with the NPA to determine their status. The SIU and NPA have signed a memorandum of understanding, while the NPA has also appointed a dedicated capacity to track progress on all the SIU criminal referrals to see them through to prosecution.
The SIU regularly meets with the DWS Internal Consequence Management Team and liaises with the acting director-general (DG) to obtain updates on the status of the disciplinary referrals made by the SIU
On the matter of Mr Senokwane, a SAP consultant on contract with DWS, his criminal prosecution was fast tracked. The accused transferred R2.8-million of DWS funds into his personal bank account due to access to the SAP system. The accused was sentenced to seven years’ imprisonment and the SIU pursued recovery of the money which was unfortunately unsuccessful as Senokwane was imprisoned and his business had been liquidated.
In the Sundays River Valley Municipality matter, the SIU investigated a DWS-funded R18m upgrade to the Patterson Bulk Water Supply project through the Amatola Water Board. The Municipality failed to utilise the funds correctly and was unable to account for R7.9-million which it had used for salaries due to financial issues. The SIU assisted DWS in declaring a formal intergovernmental dispute. Mediation in 2014 led to a repayment agreement. The SIU continued to monitor recovery until R5.8-million was repaid.
The proclamation also dealt with conflict of interest where nine officials had businesses which traded with DWS to the value of R8.9-million. Only one of nine investigations had not been concluded.
There were seven disciplinary referrals as a result of SCM investigations for fraud or dishonest awarding of contracts. Disciplinary action had been initiated against all seven cases, and two had been finalised. Howes highlighted the cases of two officials who had resigned from DWS and been reemployed elsewhere in the public service and the disciplinary case had been forwarded to their current department for consequence management. The Public Service Act allows for this.
There were 28 criminal referrals and 13 referrals were made to the South African Revenue Service (Sars). A total of R40-million worth of contracts was referred to the AFU.
The SIU has written to the DWS DG about concerns on delays in consequence management.
Vuwani Pipeline Matter
Prior to the finalisation of the presidential report new allegations were received by the SIU about the procurement process of the Vuwani Steel Pipeline, which the SIU started investigating in late 2014 under the same proclamation. There was no water going through the pipeline, 3km of it was damaged and unrepaired, and parts of the pipe lining were loose and needed repair. Poor project and financial management was evident.
The final presidential report was submitted in October 2018. The R50-million contract was awarded in 2012 to Ascul Construction for completion in 45 weeks. When the SIU became involved, the company had already received R29-million. Ascul failed to meet its deadline – but instead of DWS imposing penalties, it waived penalties and the company received a further R16-million, in contravention of both the contract and PFMA.
Other developments:
- In 2016 SIU advised the director-general to halt an R8.5-million transfer to Ascul.
- R13-million already paid to Ascul was fruitless and wasteful expenditure.
- Evidence against Ascul Construction for potential fraud was referred to the NPA.
- A disciplinary referral was made about a deputy director-general (DDG) at the Water Trading Entity and closing arguments set for April 2020 were not completed due to lockdown.
- Three Sars referrals were made against Ascul Construction and two DWS officials.
- SIU initiated civil litigation for damages of R95.6-million. The parties include an Ascul director and a former DWS DDG and CFO. The case was ongoing at Pretoria High Court.
Current investigations:
Proclamation R22 of 2016: Lepelle Northern Water and Gauteng Department of Human Settlements (extended by R39 of 2019)
SIU investigations revealed serious maladministration and malpractice in the Lepelle Northern Water (LNW) case. There was no water connection, an excessive price for boreholes and non-functional water treatment plants. SIU was undertaking a full value-for-money exercise with expert engineers. It conducted a search and seizure at LNW to obtain documents for the value-for-money exercise.
Mothibi noted that LNW was attempting to obstruct the SIU investigation. The current board had withdrawn from litigation, but the previous board had been involved in attempting to seek an interdict against the SIU.
Developments:
- It was clear that LNW continued with the services of LTE Consulting despite a summons issued against it, increasing the value of the contract from R2.2-billion to R3.3-billion.
- The SIU issued summons in 2018 to have the R2.2-billion contract set aside as unlawful.
- An NPA referral was made in 2018 for PFMA contravention.
- An NPA referral was also made for collusion and fraud.
- The interim presidential report was submitted in 2018.
- Challenges at LNW included its CEO using state funds to delay and challenge the SIU investigation with parallel investigations, lawyers’ letters, and interdict.
The Gauteng DHS-Sweetwaters investigation had been concluded. SIU found an irregularly awarded contract and evidence of corruption by the company and officials. The SIU instituted a R108-million civil litigation, while referrals were made to the NPA for the former DG and other officials as well as to the AFU and Sars. Disciplinary charges were avoided by the officials resigning, but SIU will continue to pursue civil and criminal action.
Proclamation R27 of 2018: DWS contract award to SAP (extended by R44 of 2019)
Allegations were received that SAP licences for over R500-million were procured which were unnecessary and not properly tendered. This included a R35-million kickback. The SAP contract value was R950-million excluding VAT – R450-million for licences and R450-million for maintenance. No needs analysis was conducted and no budget for the purchase was made. The State Information Technology Agency advised DWS against the contract.
Mothibi said the SAP licences investigation was nearly concluded. An interim report would be submitted in August 2020. Civil litigation would begin in the second quarter of 2020. The SIU applied for an order declaring the decision irregular and setting it aside. The 2015 SAP agreement was due to a clear misrepresentation of an expiration of licences. There had been no budget for it and DWS did not comply with its SCM policy.
SIU found evidence a 2016 agreement was irregular as DWS procured IT software for entities without authority to do so. The DWS IT experts did not support the procurement. DWS did not receive services and incurred R285-million in wasteful expenditure.
A Sars referral was made, along with an NPA referral for the former acting DG, an AFU referral in January 2020, and a disciplinary referral against the DDG and chief director in Approvals. The SIU is seeking R1-billion in civil litigation, as well as the setting aside of the contract.
Proclamation R4 of 2019: Umgeni Water
This proclamation dealt with procurement irregularities, as well as maladministration and unlawful and improper conduct by Umgeni Water Board. The investigation was ongoing. SIU was at an advanced stage, foreseeing disciplinary and criminal referrals, as well as referrals to the AFU and civil recovery. The contracts dated back to January 2012. Many officials had left Umgeni Water, and 20% of documents could not be located. An initial lack of co-operation by officials had been dealt with. Lockdown had impacted the investigation. It was envisaged that the 30 November end date would be met.
Mothibi stated that he had instructed SIU teams specifically on documentation. Where there was a lack of documentation there were challenges. SIU had to work around this, pursuing people who were non-compliant with legislation requiring them to hold onto documents.
Proclamation R28 of 2019: Thukela Goedertrouw Water Scheme
SIU project manager Nozipho Jama told the committee the allegations reported to SIU included the irregular appointment of the service provider, and the pretence of an emergency that was not justifiable. The provider was paid without completion of the contract. SIU identified three major issues:
- Procurement of a panel of service providers (this was closed).
- Procurement of an emergency upgrade service provider – this review was ongoing as was the analysis of expenditure incurred by DWS.
- The tender was awarded to AECOM with a contract value of R559-million. AECOM’s claimed invoices were R419.9-million. AECOM issued a termination letter to DWS before the completion of its obligations. During the joint site visit by SIU, equipment crucial to the scheme was not on site. Incomplete work and exposure of materials to elements had degraded quality and would result in further expenditure. Both water storage tanks and pipelines were incomplete and subject to deterioration. A temporary dam built by the service provider needed to be removed, and the pump stations were empty or incomplete.
SIU intended to refer to the NPA and to disciplinary mechanisms, as well as recover money through civil claims.
Mothibi noted that revelations from the investigation showed a continuation of poor project management. A significant amount of money had been paid for incomplete work.
New allegations before the SIU
SIU senior forensic lawyer Pranesh Maharaj said the organisation had received allegations from a whistle-blower on serious maladministration at the Lepelle Northern Water Board (LNW) and Amatola Water Board (AWB).
- The LNW appointment of drought relief and investigation services was alleged to be against S217(1) of the Constitution and LNW procurement prescripts. One of the service providers was allegedly appointed on an expedited basis without cause and the procurement was not budgeted for. The SIU had submitted a proclamation request.
- The same service providers were appointed in the same manner at AWB. Allegedly 60% of the R230-million allocated to AWB was set aside for this service provider. This procurement was not budgeted for. The SIU had submitted a proclamation request.
- Mothibi noted allegations from a whistle-blower about the War on Leaks Programme. SIU is requesting reports from the Auditor-General and DWS in connection with some R2.3-billion in unauthorised expenditure. It is assessing the allegations and will consider applying to the president for a proclamation.
Allegations had been received about the Sedibeng Water Board as well, where the SIU had identified R419-million in irregular expenditure. The organisation is assessing the allegations.
