NCOP: SELECT COMMITTEE ON CO-OPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS

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NCOP SELECT COMMITTEE ON CO-OPERATIVE
GOVERNANCE AND TRADITIONAL AFFAIRS BRIEFING ON
THE FINDINGS OF THE FORENSIC INVESTIGATION IN
TERMS OF SECTION 106 OF THE MUNICIPAL SYSTEMS
ACT, 2000 28 October 2014

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PURPOSE
To brief the Selected Committee on the Findings
of Forensic Investigation in terms of Section 106
of the Municipal Systems Act (Act 32 of
2000) NCOP Select Committee on Co-operative
Governance and Traditional Affairs

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BACKGROUND AND CONTEXT

• Investigations in terms of Section 106(1)(b) of
  the Local Government Municipal Systems Act, 2000
  (Act 32 of 2000)
• In terms of Section 106(1)(b) of the Municipal
  Systems Act the MEC must if the MEC considers it
  necessary, designate a person or persons to
  investigate allegations of maladministration,
  fraud, corruption or any other serious
  malpractices when it occurs or is occurring in a
  municipality.
• Attention is drawn to the fact that this report
  does not cover the written notices issued in
  terms of section 106(1)(a) of the Local
  Government Municipal Systems Act, 2000 (Act No.
  32 of 2000).
• Herewith are investigations instituted by the MEC
  in terms of section 106(1)(b) of the Local
  Government Municipal Systems Act, 2000 conducted
  during the period of April 2009 to date, namely

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• Mpumalanga COGTA Initiated Investigations

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Thaba Chweu Local Municipality September 2009
Issues Findings/Recommendations Status
Allegations of irregular appointment of service providers Disciplinary action to be taken against implicated officials including the Municipal Manager as well as the Chief Financial Officer and the municipality to obtain legal opinion on the possible termination of certain contracts. Recommendations implemented Municipal Manager and Chief Financial Officer resigned before the conclusion of the disciplinary hearing Certain contracts were terminated.
Allegations of fraudulent transfers of money Disciplinary action to be taken against implicated officials including the Municipal Manager as well as the Chief Financial Officer and the municipality to obtain legal opinion on the possible termination of certain contracts. Recommendations implemented Municipal Manager and Chief Financial Officer resigned before the conclusion of the disciplinary hearing Certain contracts were terminated.
Allegation of non-compliance to policies. Disciplinary action to be taken against implicated officials including the Municipal Manager as well as the Chief Financial Officer and the municipality to obtain legal opinion on the possible termination of certain contracts. Recommendations implemented Municipal Manager and Chief Financial Officer resigned before the conclusion of the disciplinary hearing Certain contracts were terminated.

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Mkhondo Local Municipality October 2009
Issues Findings/Recommendations Status
Allegations of fruitless and wasteful expenditure Action to be taken against implicated officials for, inter alia, abuse of position of authority and /or fruitless and wasteful expenditure and / or fraud and / or theft. The Municipal Manager, Chief Financial Officer and Head of Co-operate Services resigned as result of investigation 10 (ten) other officials found guilty during hearings and process concluded 2 (two) Councillors recalled as result of RDP houses findings.
Allegations of Supply Chain Procedures not followed Action to be taken against implicated officials for, inter alia, abuse of position of authority and /or fruitless and wasteful expenditure and / or fraud and / or theft. The Municipal Manager, Chief Financial Officer and Head of Co-operate Services resigned as result of investigation 10 (ten) other officials found guilty during hearings and process concluded 2 (two) Councillors recalled as result of RDP houses findings.
Allegation of abuse of the municipal credit card Action to be taken against implicated officials for, inter alia, abuse of position of authority and /or fruitless and wasteful expenditure and / or fraud and / or theft. The Municipal Manager, Chief Financial Officer and Head of Co-operate Services resigned as result of investigation 10 (ten) other officials found guilty during hearings and process concluded 2 (two) Councillors recalled as result of RDP houses findings.
Allegation of irregular appointments of staff Action to be taken against implicated officials for, inter alia, abuse of position of authority and /or fruitless and wasteful expenditure and / or fraud and / or theft. The Municipal Manager, Chief Financial Officer and Head of Co-operate Services resigned as result of investigation 10 (ten) other officials found guilty during hearings and process concluded 2 (two) Councillors recalled as result of RDP houses findings.
Allegation of misuse of municipal funds Action to be taken against implicated officials for, inter alia, abuse of position of authority and /or fruitless and wasteful expenditure and / or fraud and / or theft. The Municipal Manager, Chief Financial Officer and Head of Co-operate Services resigned as result of investigation 10 (ten) other officials found guilty during hearings and process concluded 2 (two) Councillors recalled as result of RDP houses findings.
Allegation of irregularities with the allocation of RDP houses. Action to be taken against implicated officials for, inter alia, abuse of position of authority and /or fruitless and wasteful expenditure and / or fraud and / or theft. The Municipal Manager, Chief Financial Officer and Head of Co-operate Services resigned as result of investigation 10 (ten) other officials found guilty during hearings and process concluded 2 (two) Councillors recalled as result of RDP houses findings.

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Emalahleni Local Municipality November 2009
Issues Findings/Recommendations Status
Allegations of irregular expenditure The Municipal Manager to implement stricter measures to ensure accountability at directorate level for over expenditure at a line item basis. Such measures could include disciplinary action where considered appropriate The Municipal Manager must put greater pressure on Directors to ensure compliance with virements on a main expenditure line item basis to prevent over expenditure at this level which should in turn prevent over expenditure on a vote and sub-vote basis as well as instances of unauthorised expenditure Disciplinary action should be considered against certain officials for financial misconduct in terms of section 171(3) of the Municipal Finance Management Act, 2003
Allegations of poor financial management controls The Municipal Manager to implement stricter measures to ensure accountability at directorate level for over expenditure at a line item basis. Such measures could include disciplinary action where considered appropriate The Municipal Manager must put greater pressure on Directors to ensure compliance with virements on a main expenditure line item basis to prevent over expenditure at this level which should in turn prevent over expenditure on a vote and sub-vote basis as well as instances of unauthorised expenditure Disciplinary action should be considered against certain officials for financial misconduct in terms of section 171(3) of the Municipal Finance Management Act, 2003
Allegations of possible conflicts of interest between the suppliers and municipal employees The Municipal Manager to implement stricter measures to ensure accountability at directorate level for over expenditure at a line item basis. Such measures could include disciplinary action where considered appropriate The Municipal Manager must put greater pressure on Directors to ensure compliance with virements on a main expenditure line item basis to prevent over expenditure at this level which should in turn prevent over expenditure on a vote and sub-vote basis as well as instances of unauthorised expenditure Disciplinary action should be considered against certain officials for financial misconduct in terms of section 171(3) of the Municipal Finance Management Act, 2003
Allegations of abuse of overtime The Municipal Manager to implement stricter measures to ensure accountability at directorate level for over expenditure at a line item basis. Such measures could include disciplinary action where considered appropriate The Municipal Manager must put greater pressure on Directors to ensure compliance with virements on a main expenditure line item basis to prevent over expenditure at this level which should in turn prevent over expenditure on a vote and sub-vote basis as well as instances of unauthorised expenditure Disciplinary action should be considered against certain officials for financial misconduct in terms of section 171(3) of the Municipal Finance Management Act, 2003
Allegations of invalid employees (ghost employees). The Municipal Manager to implement stricter measures to ensure accountability at directorate level for over expenditure at a line item basis. Such measures could include disciplinary action where considered appropriate The Municipal Manager must put greater pressure on Directors to ensure compliance with virements on a main expenditure line item basis to prevent over expenditure at this level which should in turn prevent over expenditure on a vote and sub-vote basis as well as instances of unauthorised expenditure Disciplinary action should be considered against certain officials for financial misconduct in terms of section 171(3) of the Municipal Finance Management Act, 2003

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Emalahleni Local Municipality November 2009
Issues Findings/Recommendations Status
Allegations of irregular expenditure Measures should be introduced to ensure effective and timeous compliance with the Supply Chain Management process to expedite the appointment of consultants, contractors and commencement with the capital project Staff shortages, high staff turnover and a lack of required skills in senior level positions results in poor decisions being made. Including budgeting, actual expenditure and strategic guidance of the various directorates The issue of non-compliance to the Basic Conditions of Employment Act, 1997 and policy in respect of overtime payments has historically been problematic in the Municipality The Municipality instituted disciplinary process which resulted in the Municipal Manager charged and dismissed. Disciplinary cases were further instituted against five (5) other officials and concluded. However, procedural recommendations and criminal related charges were not implemented.
Allegations of poor financial management controls Measures should be introduced to ensure effective and timeous compliance with the Supply Chain Management process to expedite the appointment of consultants, contractors and commencement with the capital project Staff shortages, high staff turnover and a lack of required skills in senior level positions results in poor decisions being made. Including budgeting, actual expenditure and strategic guidance of the various directorates The issue of non-compliance to the Basic Conditions of Employment Act, 1997 and policy in respect of overtime payments has historically been problematic in the Municipality The Municipality instituted disciplinary process which resulted in the Municipal Manager charged and dismissed. Disciplinary cases were further instituted against five (5) other officials and concluded. However, procedural recommendations and criminal related charges were not implemented.
Allegations of possible conflicts of interest between the suppliers and municipal employees Measures should be introduced to ensure effective and timeous compliance with the Supply Chain Management process to expedite the appointment of consultants, contractors and commencement with the capital project Staff shortages, high staff turnover and a lack of required skills in senior level positions results in poor decisions being made. Including budgeting, actual expenditure and strategic guidance of the various directorates The issue of non-compliance to the Basic Conditions of Employment Act, 1997 and policy in respect of overtime payments has historically been problematic in the Municipality The Municipality instituted disciplinary process which resulted in the Municipal Manager charged and dismissed. Disciplinary cases were further instituted against five (5) other officials and concluded. However, procedural recommendations and criminal related charges were not implemented.
Allegations of abuse of overtime Measures should be introduced to ensure effective and timeous compliance with the Supply Chain Management process to expedite the appointment of consultants, contractors and commencement with the capital project Staff shortages, high staff turnover and a lack of required skills in senior level positions results in poor decisions being made. Including budgeting, actual expenditure and strategic guidance of the various directorates The issue of non-compliance to the Basic Conditions of Employment Act, 1997 and policy in respect of overtime payments has historically been problematic in the Municipality The Municipality instituted disciplinary process which resulted in the Municipal Manager charged and dismissed. Disciplinary cases were further instituted against five (5) other officials and concluded. However, procedural recommendations and criminal related charges were not implemented.
Allegations of invalid employees (ghost employees). Measures should be introduced to ensure effective and timeous compliance with the Supply Chain Management process to expedite the appointment of consultants, contractors and commencement with the capital project Staff shortages, high staff turnover and a lack of required skills in senior level positions results in poor decisions being made. Including budgeting, actual expenditure and strategic guidance of the various directorates The issue of non-compliance to the Basic Conditions of Employment Act, 1997 and policy in respect of overtime payments has historically been problematic in the Municipality The Municipality instituted disciplinary process which resulted in the Municipal Manager charged and dismissed. Disciplinary cases were further instituted against five (5) other officials and concluded. However, procedural recommendations and criminal related charges were not implemented.

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Emalahleni Local Municipality November 2009
Issues Findings/Recommendations Status
Allegations of irregular expenditure The Municipality should consider implementing a shift system. Such a system would result in the Municipality paying employees for time worked at standard rates The Unions and Municipality to engage with Employees with the aim of recovering excessive amounts paid for overtime The Municipality must institute disciplinary action against all Directors, Senior Managers and officials who contravened the BCEA, overtime policy and/or Municipal Finance Management Act, 2003 Pay office must not process payments on overtime claim forms that do not comply with the applicable policy and internal procedures.
Allegations of poor financial management controls The Municipality should consider implementing a shift system. Such a system would result in the Municipality paying employees for time worked at standard rates The Unions and Municipality to engage with Employees with the aim of recovering excessive amounts paid for overtime The Municipality must institute disciplinary action against all Directors, Senior Managers and officials who contravened the BCEA, overtime policy and/or Municipal Finance Management Act, 2003 Pay office must not process payments on overtime claim forms that do not comply with the applicable policy and internal procedures.
Allegations of possible conflicts of interest between the suppliers and municipal employees The Municipality should consider implementing a shift system. Such a system would result in the Municipality paying employees for time worked at standard rates The Unions and Municipality to engage with Employees with the aim of recovering excessive amounts paid for overtime The Municipality must institute disciplinary action against all Directors, Senior Managers and officials who contravened the BCEA, overtime policy and/or Municipal Finance Management Act, 2003 Pay office must not process payments on overtime claim forms that do not comply with the applicable policy and internal procedures.
Allegations of abuse of overtime The Municipality should consider implementing a shift system. Such a system would result in the Municipality paying employees for time worked at standard rates The Unions and Municipality to engage with Employees with the aim of recovering excessive amounts paid for overtime The Municipality must institute disciplinary action against all Directors, Senior Managers and officials who contravened the BCEA, overtime policy and/or Municipal Finance Management Act, 2003 Pay office must not process payments on overtime claim forms that do not comply with the applicable policy and internal procedures.
Allegations of invalid employees (ghost employees). The Municipality should consider implementing a shift system. Such a system would result in the Municipality paying employees for time worked at standard rates The Unions and Municipality to engage with Employees with the aim of recovering excessive amounts paid for overtime The Municipality must institute disciplinary action against all Directors, Senior Managers and officials who contravened the BCEA, overtime policy and/or Municipal Finance Management Act, 2003 Pay office must not process payments on overtime claim forms that do not comply with the applicable policy and internal procedures.

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Chief Albert Luthuli Local Municipality January
2010
Issues Findings/Recommendations Status
An alleged fraudulent cheque of R 596 856.44 has gone through the Municipalitys bank account on 26 April 2008. Disciplinary action should be taken against the implicated officials The Chief Albert Luthuli Local Municipality did implement the recommendations as per the report, and one implicated official was dismissed subsequent to the disciplinary processes. However the criminal case against the recipient of the fraudulent cheque was never concluded.
An alleged fraudulent cheque of R 596 856.44 has gone through the Municipalitys bank account on 26 April 2008. The Municipality must improve on its internal controls The Chief Albert Luthuli Local Municipality did implement the recommendations as per the report, and one implicated official was dismissed subsequent to the disciplinary processes. However the criminal case against the recipient of the fraudulent cheque was never concluded.
An alleged fraudulent cheque of R 596 856.44 has gone through the Municipalitys bank account on 26 April 2008. The Municipality should sign the insurance release form to recover the amount of R141 120.00 The Chief Albert Luthuli Local Municipality did implement the recommendations as per the report, and one implicated official was dismissed subsequent to the disciplinary processes. However the criminal case against the recipient of the fraudulent cheque was never concluded.
An alleged fraudulent cheque of R 596 856.44 has gone through the Municipalitys bank account on 26 April 2008. It was recommended that the current limit of indemnity under both the Money and Fidelity Sections of the insurance policy should be reviewed. The Chief Albert Luthuli Local Municipality did implement the recommendations as per the report, and one implicated official was dismissed subsequent to the disciplinary processes. However the criminal case against the recipient of the fraudulent cheque was never concluded.

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Thembisile Hani Local Municipality March 2010
Issues Findings/Recommendations Status
Allegations of irregular appointment of service providers The Municipal Manager to be held responsible for unauthorised irregular, fruitless and wasteful expenditure, unsafe custody of documents and for the abrogation of his duties and disciplinary actions be taken against the Municipal Manager Disciplinary action to be instituted against 8 (eight) other officials for various misconducts. The Municipal Manager was subsequently dismissed, 3 (three) officials resigned before the disciplinary hearings were concluded, 2 (two) received written warnings and 1(one) official passed away before the finalization of the disciplinary hearings. The Municipality further opened 10 criminal cases with the South African Police Services and 3 (three) officials were arrested without an option of a bail.
Allegations of fruitless, wasteful, irregular and unauthorised expenditure The Municipal Manager to be held responsible for unauthorised irregular, fruitless and wasteful expenditure, unsafe custody of documents and for the abrogation of his duties and disciplinary actions be taken against the Municipal Manager Disciplinary action to be instituted against 8 (eight) other officials for various misconducts. The Municipal Manager was subsequently dismissed, 3 (three) officials resigned before the disciplinary hearings were concluded, 2 (two) received written warnings and 1(one) official passed away before the finalization of the disciplinary hearings. The Municipality further opened 10 criminal cases with the South African Police Services and 3 (three) officials were arrested without an option of a bail.
Allegations of nepotism during appointments of staff. The Municipal Manager to be held responsible for unauthorised irregular, fruitless and wasteful expenditure, unsafe custody of documents and for the abrogation of his duties and disciplinary actions be taken against the Municipal Manager Disciplinary action to be instituted against 8 (eight) other officials for various misconducts. The Municipal Manager was subsequently dismissed, 3 (three) officials resigned before the disciplinary hearings were concluded, 2 (two) received written warnings and 1(one) official passed away before the finalization of the disciplinary hearings. The Municipality further opened 10 criminal cases with the South African Police Services and 3 (three) officials were arrested without an option of a bail.

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Ehlanzeni District Municipality August 2010
Issues Findings/Recommendations Status
One of the major allegations investigated was irregular payment regarding an overseas trip undertaken by both councillors and officials Implicated councillors and officials to pay back the money used during the mentioned overseas trip and The Municipal Manager be charged for such irregularities payment The municipality deducted the money on a monthly basis on all implicated councillors and officials. However not all councillors are honouring their debts due to them not returning as councillors after 2011 LG Elections

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Govan Mbeki Local Municipality October 2013
Issues Findings/Recommendations Status
Allegation of fraudulent transactions amounting to R40 million transferred from the Municipalitys bank account. An amount of R39 million about to be transferred was stopped by the bank, Hawks, SAPS and the Municipality Of the other R2,7 million stolen R2,2 million was recovered IT fraud prevention strategy be implemented 1 (one) municipal official and his accomplices arrested by Hawks. Hawks investigation on-going Internal controls were tightened around the IT environment. Draft IT fraud prevention strategy compiled.

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Nkangala District Municipality November 2013
Issues Findings/Recommendations Status
Allegations of maladministration, possible abuse of power and irregularities, involving the appointment of staff members The Executive Mayor and the Municipal Manager must be held accountable for irregularities and maladministration that occurred within the Municipality The Municipal Council must take disciplinary action against the municipal Manager and any other officials implicated in this investigation Human Resources related Policies to be reviewed and implemented. MEC still to table the findings to council

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Mbombela Local Municipality November 2013
Issues Findings/Recommendations Status
Procurement irregularities and irregular payment made to suppliers and service providers Irregular appointment of staff and non-implementation of council resolutions. Disciplinary actions be instituted against the Municipal Manager and 3 (three) other officials Allegations on irregular appointment of staff unfounded Further investigations to be done on all AFCON 2013 Suppliers The Municipal Manager was dismissed subsequent to the disciplinary hearings and there is a pending appeal. The sanctions handed over against the other 2 officials were implemented accordingly and the other 1 remaining official hearing is still pending. Investigations regarding the AFCON 2013 were concluded and disciplinary actions taken as indicated above

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Gert Sibande District Municipality December 2013
Issues Findings/Recommendations Status
Allegation of fraudulent transactions amounting to R9.7m transferred from the Municipalitys bank account. The Municipality did not suffer any loss as the transactions were discovered promptly for the bank to reverse the transactions The Municipal staff, including Chief Financial Officer and the Deputy Chief Financial Officer charged for failing to ensure that effective control measures and segregation of duties are in place. Recommendations have been implemented and the Chief Financial Officer and the Deputy Chief Financial Officer were suspended and later reinstated Police investigation still to be finalised.

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Victor Khanye Local Municipality March 2014
Issues Findings/Recommendations Status
Allegations regarding abuse of power and non-adherence to HR processes, Supply Chain Management processes Non-implementation of council resolutions The Municipal Manager be charged for irregularities regarding the disposal of municipal properties beyond the market related value as we as contravention of Supply Chain Management Policy The Municipal Manager has since resigned.

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• Municipal Requested Investigations

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Thaba Chweu Local Municipality July 2009
Issues Findings/Recommendations Status
Fraudulent transactions amounting to R3,2 million transferred from the Municipalitys bank account. Municipal staff to be charged for sharing passwords R2,3 million was recovered. The bank accounts to which it was transferred to were frozen and the money was later transferred back to the Municipalitys bank account. The Chief Financial Officer was charged for sharing passwords, found not guilty, but later resigned All the officials who shared passwords were arrested by the HAWKS, but the charges were later withdrawn, due to lack of evidence.

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Dr. Pixley ka Isaka Seme Local Municipality
August 2009
Issues Findings/Recommendations Status
Irregular appointments of staff and fuel card irregularities. Municipal Manager to be charged for an irregular staff promotion 2 (two) officials must be charged for fuel card fraud A case was opened with the SAPS. Municipal Manager went on early retirement 2 (two) officials resigned before they could be charged 5 (five) petrol attendants at the fuel station were dismissed SAPS case was closed due to lack of evidence.

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Thaba Chweu Local Municipality February 2010
Issues Findings/Recommendations Status
Irregular appointment of officials and payments to service providers who failed to perform. Disciplinary action be taken against the short listing panels for short listing candidates who did not meet the minimum requirements The Acting Municipal Manager be charged for fruitless-and wasteful expenditure and the money be recovered from him. Short listing panels were not charged, but the Acting Municipal Manager who gave instructions on who to appoint resigned before the disciplinary processes were concluded

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Dr. Pixley ka Isaka Seme Local Municipality
October 2010
Issues Findings/Recommendations Status
Misappropriation of funds through the cancellation of receipts. R1,9 million was misappropriated by the Head Income through the cancellation of receipts Disciplinary actions be instituted against the Head Income SAPS case to be opened and the matter be referred to the Special Investigation unit and the Asset forfeiture Unit to conduct a life style audit. The Head Income resigned during the hearing The Head Income was arrested and found guilty in court, serving a jail sentence. Case was never referred to the Special Investigation unit and the Asset Forfeiture Unit.

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Nkomazi Local Municipality February 2011
Issues Findings/Recommendations Status
Unauthorised expenditure Supply Chain Management policy not adhered to with the appointment of service providers Duplication of work with the appointment of service providers Disciplinary action be taken against officials who approved the unauthorised expenditure Disciplinary action be taken against officials who contravened the Supply Chain Management policy Disciplinary action be taken against officials who appointed companies for work already being done by another service provider. The Municipality did implement the recommendations as per the report The Chief Financial Officer, amongst others, was charged, but her contract expired during the disciplinary process and it was not renewed.

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Mkhondo Local Municipality June 2012
Issues Findings/Recommendations Status
Allegations of lte bankings in contravention of the Municipality Cash Management Policy, Allegations of total daily cash takings were not banked at all. Allegation regarding late bankings were proven R99 602.10 income received not banked Disciplinary action to be taken against the cashier and supervisor. The Cashier was charged and subsequently dismissed and the Cashiers Supervisor resigned during the hearing.

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Mkhondo Local Municipality August 2012
Issues Findings/Recommendations Status
Allegations that total daily takings or part of the daily takings for a specific cashier, at the licensing offices, were not banked. Initial investigation showed shortages of R915 000 by 4 (four) Cashiers Helpdesk files went missing when new Cashiers took over therefore the investigation was not properly concluded. All 4 (four) Implicated Cashiers were later suspended and the disciplinary processes are still pending.

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Emalahleni Local Municipality September 2013
Issues Findings/Recommendations Status
Allegations of irregular overtime payments. The irregular payment of overtime be stopped with immediate effect Officials who approved the payment of irregular overtime be charged Irregular overtime payments be recovered in accordance with the Municipal Finance Management Act, 2003. Only the irregular payment of overtime was stopped and all the other recommendations were not implemented by the Municipal Council.

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Questions
Comments
Inputs.
Suggestions.
Nothing.
Thank You