KPMG, Congress of the People Parliamentary Caucus and Constituency Fund Draft Final Report: Forensic Investigation at Congress of the People Parliamentary Caucus and Constituency Fund 2 November 2010, November 2 2010

1 Executive Summary

1.1 R5 000 000 payment to COPE

In January 2010 COPE effected a payment of R5 000 000 from the Parliamentary allowances to the COPE political party bank account. According to the Treasurer-General of COPE, this payment was used to settle pre-election debt that the Party had incurred. This payment was allocated to travel and accommodation, conference, catering, and stationery expenses in the COPE parliamentary allowances accounts.

This payment constitutes twenty-five percent of the allowances received from Parliament, and should not have been used to settle pre-election debt of the party. This constitutes a contravention of the [Parliament's Policy on Political Parties and Allowances] and a misrepresentation of the financial statements provided to Parliament as to the actual nature of the expense.

This matter should be reported to Parliament and corrective action should be taken to accurately account for this transaction in the AFS. COPE should also obtain legal advice regarding the inaccurate audited financial statements that have been presented to Parliament.

1.2 Expenses paid in contravention of the Policy

We identified the following expenses which are not permissible in terms of the Policy: Legal expenses of R254 202, which were paid from the Party leader and administrative allowances.

Travel and accommodation expenses of R85 460.48, which were paid from the party leader and administrative allowances.

Conference expenses of R2 068 696, which were reported as an expense for the Constituency allowance.
Travel expenses of R35 000, which were paid to Uniglobe from the Parliamentary allowances to settle the personal liabilities of JJ Tabane.

These matters should be reported to Parliament and corrective action should be taken to accurately account for these transactions.

Accommodation related expenses of R2 134 157.21, which were paid from the party leader and administrative allowances in the current financial period, i.e. April to August 2010. We suspect that these accommodation expenses are related to the First National Conference, which would not be permissible expenses in terms of the Policy.

1.3 Possible fraudulent and /or irregular expenditure

The following expenses appear suspicious:

A payment of R580 474.43 to C-yoyo for various branding-related items. This included R166 500 for A4-size picture frames and R173 050 for branded carpets. C-yoyo is owned by Booi, the COPE youth secretary.

A payment of R35 000 to Uniglobe from the Parliamentary allowances to settle the personal liabilities of JJ Tabane.

We also discovered that Bloem's signature was forged to effect a bulk payment totalling R169 072.49 on 7 May 2010. This matter should be reported to the South African Police Force.

Petty cash expenditure of R69 262.46 which cannot be substantiated.

1.4 Further irregularities / misrepresentation to Parliament

A signed declaration by the Chief Whip was submitted to Parliament, indicating that the party has in place effective, efficient and transparent financial management and internal control systems. This declaration contained a representation confirming the above by Anton Louw of Visser Louw. Louw has distanced himself from this representation stating that he did not confirm that the party has effective, efficient and transparent financial management and internal control systems in place. Our investigation has established that this declaration does not reflect the actual state of affairs, as set out in more detail in the paragraph below.

1.5 Other administrative contraventions of the Policy

COPE does not have adequate systems of control over certain key organisational processes, including people, procurement, assets and finance. In most instances, we discovered inadequate or absent supporting documents and financial records to validate items reflected in the financial statements for the Parliamentary allowances.

This has resulted in a number of contraventions of the Policy, as well as other possible statutory contraventions. These include:

Section 8.9.2 of the Policy, which requires contracts of employment to be entered into before staff are engaged. We could find no employment contracts for many employees who were being paid a monthly salary.

Section 8.12.3 (b) of the Policy, which requires the Party to provide a summary of all Party support staff employed at 1 April of each year. We could find no employee listing at COPE, and the Party has failed to provide this information to Parliament before the deadline of 30 April.

Section 8.13.2 of the Policy, which requires that the Party Leader or chief Whip or most senior whip maintain adequate records of account for all Parliamentary allowances. In most instances, we could find no supporting records of account for the Parliamentary allowances of COPE.

Section 8.13.3 of the Policy, which requires that the records reflect all transactions, assets acquired and commitments entered into for all Parliamentary allowances. In most instances, the records at COPE were missing or not of an adequate standard.

COPE has not been registered with the South African Revenue Services and has not deducted any income tax payments from the monthly salaries paid to employees. This is a contravention of the Income Tax Act, and creates significant potential for tax liabilities and penalties being levied against the organisation. COPE needs to regularise its tax affairs and should seek the assistance of Parliament and the South African Revenue Services in this regard.

1.6 Overall responsibility and accountability

Section 9 of the Policy requires that:

"a) All parties must appoint the Leader of the Party or Chief Whip or the most senior Whip as accounting officer to manage their Party Leader, Party Administration and Constituency Allowance receipts and to properly administer disbursements from these allowances.

b) The accounting officer 's responsibility is to account for the moneys allocated to the party, and includes the duty to ensure the party 's compliance with the requirements of this policy, and in particular, to ensure that the moneys are not spent for purposes not authorised by this policy. "

Mr Shilowa, by his own admission, fulfilled the role of accounting officer for the Parliamentary allowances. Our findings indicate that both Section 9(a) and Section 9(b) of the Policy have not been complied with.

It should also be noted that in terms of Section 5, the Policy applies to the Party, its leaders and support staff.

1.7 Consequences of breaches of the Policy

In terms of Section 10 of the Policy:

"a) Failure to provide the Secretary to Parliament with any of the information required, will result in the suspension of all party allowances until such time as the applicable documentation in the required format is produced or such other remedial actions as is prescribed by the Presiding Officers is effected.

b) If a party fails to give the required reports, statements, contracts and certificates pertaining to all allowances paid to political parties, the transfer of these funds to those parties will be subjected to conditions and remedial measures requiring those parties to establish and implement effective, efficient and transparent financial management and internal control systems or such other actions as the Presiding Officers decide. No allowances may be paid to a party in respect of a year until audited financial statements in respect of the previous year have been received. "

1.8 Potential recoveries

The party should consider recovering the following potential monies and/or assets paid for from the Parliamentary allowances:

The payment of R96 015.11 for travel expenses relating to WCSF. This appears to be a COPE party-related expense;

An overpayment of R70 000 to Hentiq as a deposit for the lease of a constituency office; Petty cash paid to De Wet totalling R69 262.46, which have no supporting vouchers or receipts;

A payment of R18 221.19, which was used to purchase a laptop for Blaai.

A payment of R18 550.00, for personal security services provided to Shilowa in respect of a visit to Langa;

Legal expense of R254 202, which were paid to Qali Attorneys in relation to a legal dispute involving Bloem and Tolo;

Payments of R2 134 157.21, which appear to be in relation to accommodation in connection with the First National Conference held in May 2010.; and

Possible payments and/or expenditure incurred in relation to stationery, furniture and equipment for non-Parliamentary offices.

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