ero THENGA: 012358 0947 r; i a I COUNCIL: 29 August 2012. It: tllii [qt/ )1 35kg if" a} sweetie a. AUDIT AND RISK DEPARTMENT Win was? REPORT ON THE ALLEGED IRREGULAR EXPENDITURE OF LOCAL MUNICTPALITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 (Pram the Sectien re Standing Cermnittee: Rubiie Aceounts: "lai- dune 20t3 and 10 August 2013) 1. PURPOSE To give an Independent opinion with regard to an account of the alleged irregular expenditure of Kungwini Local Municipality for the financial year ended 30 June 2011 to the City of Tshwane Municipal Public Accounts Committee (MPAC). The report is submitted to MPAC for their further deliberations and reporting. 2. STRATEGIC OBJECTIVE To promote sound governance. 3. BACKGROUND The Council meeting held on the 27 October 2011 resolved to refer a report on the irregular expenditure of Kungwini Local Municipality for the financial year ended June 2011 to MPAC for further scrutiny and investigation, and it be resubmitted to the Council meeting on 26 January 2012. A report to give an account of the alleged irregular expenditure of Kungwini Local Municipality (KLM) for the financial year ended 30 June 2011 to the City of Tshwane Municipal Public Accounts Committee (MPAC) has been made available to internal audit to give an independent opinion on the contents of the report. The report recommends as follows to the Municipal Public Accounts Committee (MPAC): a) That the report of the AGSA on Kungwini Local Municipality Financial, Administrative and Operational Affairs for the period ended June 2011 be noted by b) That a report tabled at MAYCO on 21 September 2011 and subsequently to Counoii on the 27 October 2011 regarding irregular expenditure of Kungwini Local Municipaiity be withdrawn; and c) That the Accounting Officer develop an action plan to address the matters raised by the AGSA in the reports of the four merged Municipalities including the 6. Therefore, it was based on the above that the internal audit was requested to give an independent opihion regarding the matter. . DISCUSSION DELIBERATIONS Based on ITEM ALLEGED EXPENDITURE OF KLM FOR FINANCIAL YEAR ENDED 30 JUNE 2011 which was discussed during council meeting held on 27 October 2011, it was alleged that the following took place which resulted to irreguiat expenditure: a) That in processing creditors and expenditure payments of Kungwini Municipality; the following noncompliance with supply chain policy regulation 36 (1) and MFMA section 112(1) and 116(1); (3) were found resulting in municipality incurring irregular expenditure due to the following payments requests to be made by a Payment were requested to be made by without proper supporting documentation such as contracts and relevant quotations required by supply chain policy; Payments were requested to be made by COT without contracts at all or where contracts had expired; 9 Payments were requested to be made on the contracts that had expired but renewed without following a competitive bidding process Oi? section 116 for amendments of contracts; Payments were requested to be made on deviations to contract that does not comply with supply chain management poiicy regulation 36(1); and *3 Payments were requested to be made with no adequate reports written and approved by relevant level of authority to motivate the procurement of services or goods. It was further alleged that the total irregular expenditure incurred by the municipality as a result of the above mentioned non?compliance with supply chain policy totals to the amount of R16 385 321.23. COMMENTS OF THE STAKEHOLDER DEPARTMENT Not applicable as this is the Group Audit and Risk response on the request to provide an opinion on the allegations of Irregular Expenditure. IMPLICATIONS 6.1 FINANCE No financial implication. 6.2 CONSTITUTIONAL AND LEGAL FACTORS Not applicable. Li.) 6.3COMMUNECATION Not applicable. 6.4PREVIOUS COUNCIL AND MAYORAL COMMITTEE RESOLUTION Not applicable. 7. CONCLUSION It is concluded that Municipal Public Account Committee (MPAC) takes note of the contents of this report in respect of the conclusions and the recommendations made. IT WAS RECOMMENDED (TO THE SECTION 79 STANDING COMMITTEE: ACCOUNTS: 14 JUNE 2013): 1. That the City Manager consider the findings, recommendations and conclusions per the report. 2. That MPAC take note of the contents of the report. 3. That MPAC engage on the findings, recommendations and conclusion?s and report to council on their resolutions. Before the Chairperson put this item for discussion at the meeting of the Section 79 Standing Committee: Public Accounts of 14 June 2013, he declared that the meeting would resolve itself in committee and requested all officials to leave the Council Chamber, except for the following: The City Manager The Chief Financial Officer The Chief Audit Executive The Strategic Executive Director: Group Legal Services; and The Secretariat. The Chairperson hereafter requested the Secretariat to distribute the confidential report to be considered by MPAC. The Chairperson subsequently put this matter for discussion, whereafter Mr Thenga, Chief Audit Executive, was given the opportunity to lead the Committee through the report. The Chief Audit Executive then highlighted certain issues addressed in the report, whereafter as a high level summary indicated that, inter alfa, proper processes were not followed and that payments were made in certain instances without supporting documentation. Further, that several requests were made by the forensic auditors to the Accounting Officer, Mr Kekana, and also to Mr Baloyi, to furnish them with the outstanding supporting documents, to no avail. He then referred the committee to the detail of the Conclusions and Recommendations of the forensic report. In conclusion, the Chief Audit Executive also indicated that Recommendation 8.1 of the Forensic Auditors might change should the supporting documentations are submitted. Hereafter the members of the Committee were afforded the opportunity to pose clarity seeking questions. Councillor Prof Khalo indicated that he had a problem with recommendations 1 and 3 of the report of the Chief Audit Executive upon which Councillor TV Rambau posed the question as to what should be done in cases were companies benefited from their appointment. Councillor BR Topham was however of the opinion that the City Manager should proceed with the commencement of the disciplinary processes as proposed in the final forensic report with due regard to the further information and evidence the former Acting Municipal Manager, Mr Kekana must still provide. The Chairperson added that the City Manager should report the findings of the disciplinary actions to the Public Accounts Committee whereafter the Committee will, after consideration thereof, report the outcome to the Council. The City Manager, for clarity purposes, emphasized the fact that the submission of the outstanding documentation and evidence by Mr Kekana, as required by the Forensic Auditors, would have a bearing on the recommendation to institute disciplinary actions against Mr Kekana. Councillor Topham was, however, stiil of the opinion that, as there was enough evidence that the MFMA and the Supply Chain Management Regulations were breach, Council has a prima facie case and that the City Manager, in consultation with the forensic auditors, should decide as to whether another 30 days be given to Mr Kekana to provide them with the outstanding supporting documents prior to the finalisation of the forensic report. The City Manager hereafter requested whether he could, in his discretion, in the above period, clarify whether the breach in the Supply Chain was as a result of those companies which was appointed and whether the services that we paid for or goods that we bought were actually delivered and received. The Committee indicated its agreement in this regard. (While the City Manager was addressing the Committee, Councillor AWF Middelberg joined the meeting upon which the Secretariat provided him with the report under discussion.) The Chairperson hereafter requested the Secretariat to recollect all reports relating to the matter under discussion from the members of MPAC and indicated that the City Manager would be excused from the meeting due to other urgent commitments. Councillor Middelberg then indicated that he would hand in his document as soon as he had the opportunity to peruse it, whereupon the Chairperson informed him that, prior to the discussion of this item, there was an agreement that the said document would be handed in after the Committee had dealt with it. U1 After Councillor Prof Khalo pleaded with Councillor Middelberg to adhere to the Chairpersons request, the Chairperson again appealed to Councillor Middelberg to return the said document as had been ruled by him (the Chairperson) prior to the discussion of the report. Councillor Middelberg then stated that he wanted to place on record that a only Council has the authority to declare documents to be confidential; and it although he understood that there was a ruling, he wanted to look at the document to understand what the issues were and what the Committee decided on. Councillor Middelberg concluded by indicating that he would abide by the Chairperson's ruling, but that he would take the matter further. He thereafter handed his document to the Secretariat. The Committee agreed to the inputs given by Councillor Topham and the Chairperson and resolved as set out below. IT WAS RESOLVED (SECTION 79 STANDING COMMITTEE: PUBLIC ACCOUNTS: 14 JUNE 2013): 1. That MPAC take note of the contents of the report and the forensic inves?ga?on. 2. That the City Manager consider the findings, recommendations and conclusions per the Fina! Forensic Audit Investigation Report into the alleged irregular expenditure in the Kungwini Local Municipality. 3. That the City Manager call on Mr Kekana to provide the outstanding information and evidence as set out in the final forensic report and that the City Manager subsequent to the receipt or non receipt of the required information, determine whether any other courses of action is required from him (City Manager) going forward, which might, among others, involve disciplinary measures as recommended by the Forensic Auditors. 4. That, in View of 2 and 3 above, the City Manager must submit a further detailed report to regarding his findings, conclusions and recommendations following the steps he undertook in terms of the Final Forensic Audit investigation Report into the alleged irregular expenditure in the Kungwini Local Municipality. FURTHER REPORT OF THE CHIEF AUDIT EXECUTIVE The revised report was issued dated 30 .June 2013 addressing recommendations made at MPAC on 14 June 2013. it was indicated by the Forensic investigators that even though instances were identified where procurement processes were not tollewed, services were rendered and goods were delivered. It was also indicated that Mr Kekana provided all outstanding information requested by auditors. ANNEXURES: 1 . Final Report: Forensic Audit investigation into alleged irregular expenditure. 2. Payments made by the City of Tshwane on behalf of Kungwini Local Municipality as at 2 September 2011. 3. Revised Final Report: Forensic Audit investigation into alieged irregular expenditure issued on 30 June 2013. RESOLVED: 1. That as none of payments appear to be cause of loss to the but more iack of compliance with the provisions of the and the MFMA in terms of missing documentation, no recovery is recommended from Mr Kekana or other officials. 2. That such amount as indicated in the Revised Final Report dated 30 June 2013 is written off in the books of the if not already provided for in the AFS of 30 June 2011. WW gnaw?" MM as? "Imjd?NI-m??b Page 113. RT FORENSIC AUDIT INVESTIGATION INTO ALLEGED IRREGULAR EXPEDITURE PERTAINING TO KUNGWINI LOCAL MUNICIPALITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011, ON BEHALF OF CITY OF TSHWANE METROPOLITAN MUNICIPALITY r??mgm Ferensic Audit Report, ?ared June 203.3: Forensic audit Into alleged irregular expenditure by KLM for FY ending 30 June 2911 178 Page 2 Mr (3de Thenga Chief Audit Executive Greer: Audit and Risk Department City of "tshwane Metrepelitan Municipality 05 June 2013 Dear Mr. Thenga FORENSIC AUDIT CONDUCTED INTO OF IRREGULAR EXPEDITURE PERTAENENG T0 KUNGWENE LOCAL FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011, ON BEHALF OF CITY OF TSHWANE We have been appointed to conduct an independent Forensic Audit into allegations relating to irregular expenditure pertaining to Kungwini Local Municipality for the financial year ended 30 June 2011, on behalf of the City of Tshwane Metropolitan Municipality This report is strictly private and confidential and is not intended for, nor may be relied upon by any third party. its content deals with issues which are confidential. It may not be used for any other purpose or disseminated to any person without our prior written We have documented the findings as at the time of writing this report. However, should it come to our attention that material information has been withheld, or were not available at the time of writing this report, or additional information is brought to our attention, we reserve the right to amend our report accordingly. Yours sincerely, Mr McComb TayEor Forensic Audit Services SekelaXabiso (Pty) Forensic Audit Report, dated 05 June 2013: Fm'ensic audit into aileged irregular expenditure by KLM for FY ending 30 June 2011 179 Page I3 1. . i3. 2. ABBREVIATIONS AND TERMINOLOGYS 4. PURPOSE OF SCOPE AND OBJECTWE 8 5. APPROACH AND PROCEDURES PERFORMED 9 6. DETAILED FINDENGS 10 Forensic Audit Report, dategi 05 Jum 2013: Forensic audit into aileged irregular expenditure by KLM for FY ending 30 June 2011 180 Page 14 1. EKHIBETS Wentm?a-asr?n: A war .. . . man-Jar 2., a itm?w?kwn'lr?'t' Wiesel Exhibits The report dated 10 September 2012 from Mr. Kekana (Kungwini Local Municipality?s Municipa Manager) submitted to MPAC (CDT) on 21 September 2011 The report dated 27 October 2011 from Mr. Dyakala CFO) tabled at MPAC on 21 September 2011 The management report from the Auditor General of South Africa for financial year ending 2011 regarding the Kungwini Local Municipality which includes the KLM Annual Financial Statements at 30 3une 2011 a Communication between the SKX forensic team and the Kungwini Locai Municipality staff and Mr. Kei