REPORT ON AN INVESTIGATION INTO ALLEGATIONS OF THE MISAPPROPRIATION OF PUBLIC FUNDS, IMPROPER CONDUCT AND MALADMINISTRATION BY THE EASTERN CAPE PROVINCIAL GOVERNMENT AND OTHER ORGANS OF STATE IN CONNECTION WITH EXPENDITURE INCURRED IN PREPARATION FOR THE FUNERAL OF FORMER PRESIDENT NELSON ROLIHLAHLA MANDELA

Executive Summary

(i) This is a report of the Public Protector issued in terms of section 182(1) (b) of the Constitution of the Republic of South Africa, 1996 and section 8(1) of the Public Protector Act, 1994.

(ii) It relates to an investigation into allegations of the misappropriation of public funds, improper conduct and maladministration by the Eastern Cape Provincial Government (ECPG) and other organs of state in connection with the expenditure incurred for the funeral of the late former President Nelson Rolihlahla Mandela (President Mandela) that was held in Qunu in the Eastern Cape Province on 15 December 2013.

(iii) The Public Protector received several complaints in 2014 from members of the public in connection with reports that appeared in the print media about the misappropriation of public funds in the procurement of goods and services for the funeral of President Mandela.

(iv) In essence, it was alleged that:

(a) The Buffalo City Metropolitan Municipality (BCM) paid an amount of R6 million to a service provider to transport mourners around East London and King Williams Town to attend memorial services from 10 to 12 December 2013;

(b) The King Sabata Dalindyebo Local (KSD) Municipality incurred expenditure in excess of R31 million to procure goods and services for President Mandela’s funeral;

(c) An amount of R22 million was paid for the procurement of goods and services for the funeral from “a R330 million infrastructure grant the provincial treasury channelled to the ECDC (Eastern Cape Development Corporation) as the department’s implementing agent after the mid -term budget adjustments last September.”

(d) The funds were meant for the provision of running water, electricity, sanitation, ablution facilities, replacement of mud-schools and refurbishing of hospitals.

(e) “Correspondence between provincial treasury head Marion Mbina-Mthembu to Mase makes it clear ECDC was the provincial ‘project host’ or ‘paymaster’ for the funeral and all related logistics;”

(f) Several members of the public filed complaints raising concerns about what they perceived as excessive, unconscionable and unnecessary use of public funds in the Eastern Cape in connection with the appointment of service providers to assist in the preparations for the funeral of the late President Mandela. The complaints were lodged between 14 January 2014 and 24 June 2014.

(v) The Public Protector also took note of media reports alleging that public funds in the amount of R250 000 were deposited in the personal bank account of the former MEC for Provincial Planning and Treasury in the Eastern Cape, the Honourable, Mr. Phumullo Masualle.

(vi) It was also reported that the Eastern Cape Parks and Tourism Agency (ECPTA) incurred irregular expenditure in excess of R2 million of public funds for the funeral.

(vii) On analysis of the complaints and the allegations contained therein, the following issues were identified and investigated:

(a) Whether the Eastern Cape Provincial Government (ECPG) improperly diverted public funds amounting to R300million placed in the custody of the ECDC, which were appropriated for purposes of accelerating social infrastructure delivery in the province, to use them for the memorial service and funeral of President Mandela and if so; whether such a conduct was improper and constitutes maladministration;

(b) Whether the procurement process followed by the ECPG in the appointment of service providers to assist in the preparations for the funeral of President Mandela was in accordance with a system that is fair, equitable, transparent, competitive and cost effective;

(c) Whether the Provincial Treasury irregularly transferred an amount of R250 000 of public funds into a personal bank account of MEC Phumulo Masualle and if so; whether such conduct was improper and constitutes maladministration;

(d) Whether the ECDC acting in its official capacity as a Project Host and Paymaster caused the ECPG to incur irregular, fruitless and wasteful expenditure of public funds for the memorial service and funeral of President Mandela and if so; whether such conduct was improper and constitutes maladministration;

(e) Whether the Eastern Cape Parks and Tourism Agency (ECPTA) incurred irregular and fruitless and wasteful expenditure in the procurement of goods and services relating to the funeral of President Mandela and if so, whether such conduct was improper and constitutes maladministration;

(f) Whether the Buffalo City Metropolitan Municipality (BC) improperly procured the services of and paid Victory Ticket 750cc an amount of R5 985 000.00 of public funds to transport mourners to four venues where the memorial services of President Mandela were to be held and if so, whether such conduct was improper and constitutes maladministration;

(g) Whether the King Sabata Dalindyebo Local (KSD) Municipality incurred irregular and fruitless and wasteful expenditure of public funds in procuring the services of various service providers to assist in the preparations for the funeral of President Mandela and if so; whether such conduct was improper and constitutes maladministration;

(h) Whether the OR Tambo District Municipality (ORTDM) incurred irregular expenditure in procuring goods and services for the funeral of President Mandela and if so; whether such conduct was improper and constitutes maladministration;

(i) Whether the Nelson Mandela Bay Metropolitan Municipality (NMBMM) incurred irregular expenditure in procuring goods and services for the funeral of President Mandela and if so; whether such conduct was improper and constitutes maladministration;

(viii) The investigation process was conducted through interviews with role players, inspection of relevant documentation; inspections in loco, analysis and application of the relevant laws, policies and related prescripts.

(ix) Key laws and policies taken into account were principally those imposing the standards that should have been complied with by the organs of state involved and are the following:

 (a) The Constitution of the Republic of South Africa, 1996 (the Constitution);

(b) The Public Protector Act, 23 of 1994 (the PPA);

(c) Local Government: Municipal Systems Act, 32 of 2000 (the Municipal Systems Act);

(d) Local Government: Municipal Structures Act, 117 of 1998 (the Municipal Structures Act);

(e) The Eastern Cape Development Corporation Act, 2 of 1997 (the ECDC Act);

(f) The Eastern Cape Parks and Tourism Agency Act, 2 of 2010 (the ECPTA);

(g) The Public Finance Management Act, 1 of 1999 (the PFMA);

(h) The Local Government: Municipal Finance Management Act, 56 of 2003 (the MFMA);

(i) Promotion of Administrative Justice Act, 3 of 2000 (PAJA);

(j) The Preferential Procurement Policy Framework Act, 5 of 2000 (the Preferential Procurement Framework);

(k) The Prevention and Combating of Corrupt Activities Act, 12 of 2004 (the PCCAA);

(l) The Eastern Cape Appropriation Act, 4 of 2013; and

(m) The Eastern Cape Adjustments Appropriation Act, 6 of 2013.

(x) The Public Protector made the following observations during the investigation:

(a) There was no properly coordinated plan for all the different role players in the funeral and related activities, from the level of National and Provincial Governments to Local Government and Public Entities.

(b) Despite the fact that there were earlier discussions and a plan at national level for the funeral of President Mandela, it did not translate into advance and coordinated planning by the ECPG, the municipalities and public entities involved.

(c) There was no operational centre where daily meetings were held and feedback was given on the status of the logistics.

(d) Accordingly the related expenditure was not budgeted for resulting in the taking of what was regarded as emergency measures, both for funding and the procurement of goods and services. That was mainly the cause of unauthorised, irregular and fruitless and wasteful expenditure.

(e) This weakness was explored and capitalized upon by some service providers that took advantage of the situation and inflated prices. Some submitted invoices and were paid for goods and services, the delivery of which was not or could not be verified. For an example the costs for t- shirts were inflated and it could not be verified whether they were actually delivered and where. The number of people that were transported to public mourning venues and memorial services could also not be verified.

(f) In some instances there appeared to have been improper collusion between officials and service providers at the expense of the organs of state involved.

(g) Some of the service providers used were not on the list of registered suppliers (supplier database) and seemed to have appeared from nowhere.

(h) Millions of Rands of public funds earmarked for service delivery and social infrastructure development were used for a state funeral because of a lack of coordinated planning and non-compliance with the legislation and other prescripts regulating procurement.

(i) A similar occurrence of impropriety and maladministration can and should be avoided by all the organs of state that will be involved in state funerals in the future by ensuring that proper plans are made in advance, funds are accordingly appropriated and that the activities of everyone involved is properly coordinated and monitored.

(xi) Having considered the evidence uncovered during the investigation against the relevant regulatory framework, the Public Protector makes the following findings:

(a) Whether the ECPG improperly diverted public funds amounting to R300million placed in the custody of the ECDC, which were appropriated for purposes of accelerating social infrastructure delivery in the province, to use them for the memorial service and funeral of President Mandela and if so; whether such conduct was improper and constituted maladministration:

(aa) The allegation that the ECPG improperly diverted funds amounting to R300million appropriated to the ECDC for the acceleration of social infrastructure development to be used for the funeral of President Mandela, is substantiated.

(bb) The Head of the Department of Provincial Planning and Treasury, Ms Mbina- Mthembu recommended to Eastern Cape Provincial EXCO on 6 December 2013, that funds appropriated to the ECDC should be utilized for the funeral of President Mandela. Her advice to the Provincial EXCO was based on Treasury Regulation 6.1.3(c).

(cc) However, Treasury Regulation 6.1.3(c) did not apply as it was reliant on the application of section 43 of the PFMA that required consideration and a decision by the Head of the DEDEAT in respect of the virement of funds between main divisions, as stipulated in the Eastern Cape Appropriation Act, 2013.

(dd) Two requirements had to be met in order to invoke the provisions of section 43:

(i) Firstly, there had to be a saving in the amount appropriated under a main division within a vote; and

(ii) Secondly, the virement must have been be intended to defray excess expenditure under another main division within the same vote.

(ee) Neither the Board of the ECDC, as the accounting authority, nor the Head of the DEDEAT was involved in Ms Mbina-Mthembu’s decision to propose the variation of funds appropriated to the ECDC for social infrastructure development, for the purposes of expenditure to be incurred for President Mandela’s funeral.

(ff) The evidence does not show that there was any saving under a main division of an amount appropriated in terms of the Eastern Cape Appropriation Act, 2013.

(gg) Further, the expenditure that the virement was supposed to cover, had not been incurred when the decision was taken and there could therefore not have been any “defrayment of excess expenditure”, as contemplated by section 43(1) of the PFMA.

(hh) Ms Mbina-Mthembu accordingly misdirected the Eastern Cape Provincial EXCO in this regard. Her proposal was irrational and unlawful.

(ii) This resulted in an irrational decision by the former Eastern Cape Provincial EXCO that culminated in an expenditure by the ECDC that was unauthorised as contemplated by the PFMA. (The funds were never voted for purposes that they were used for)

(jj) Ms Mbina-Mthembu’s conduct was improper and constituted maladministration.

 (b) Whether the procurement process followed by the ECPG in the appointment of service providers to assist in the preparations for the funeral of President Mandela was in accordance with a system that is fair, equitable, transparent, competitive and cost effective:

(aa) The allegation that the procurement process that was followed by the ECPG in the appointment of service providers to assist in the preparations for the funeral of President Mandela was not in accordance with a system that is fair, equitable, transparent, competitive and cost effective, is substantiated.

(bb) The Head of the Department of Provincial Planning and Treasury, Ms Mbina- Mthembu was involved in discussions with other organs of state in connection with the planning of the funeral of President Mandela, from at least 2011.

(cc) Yet, when President Zuma announced on 5 December 2013 that a state funeral would be held for President Mandela in the Eastern Cape, there was no provision for the associated expenditure in the provincial budget.

(dd) There was also no costed plan in place for the procurement of goods and services by the ECPG that would be required for the arrangements and preparations for President Mandela’s funeral.

(ee) This resulted, as concluded above, in a decision taken by the Eastern Cape Provincial EXCO on 6 December 2013, on the recommendation of Ms Mbina- Mthembu, to appoint the ECDC as paymaster for all the procurement of goods and services that had to be done in relation to the preparations for the funeral.

(ff) It also resulted in Ms Mbina–Mthembu addressing an instruction to the Heads of Provincial Departments and the Municipal Managers of the KSD and OR Tambo on the procurement process that had to be followed.

(gg) Due to the fact that there was no costed plan in place and no associated provision made in the provincial budget, and as the funeral was to take place in a matter of days, Ms Mbina-Mthembu decided that all procurement will have to be made in terms of a deviation process, based on urgency to be approved by the respective accounting officers and that all invoices had to be submitted to the Provincial Treasury for approval, upon which it would be presented to the ECDC for payment.

(hh) Despite the fact that this was not adhered to, Ms Mbina-Mthembu instructed the ECDC to make payments.

(ii) The conduct of Ms Mbina-Mthembu in approving and authorising procurement of goods and services relating to the funeral was in violation of the provisions of section 217 of the Constitution, section 38 of the PFMA, Treasury Regulations 8.1, 16A3.2, and 16A6.4.

(jj) Her conduct was improper and constituted maladministration.

(kk) There is no provision in any of the said legislation and other prescripts that allows for a situation where procurement of goods and services becomes the responsibility of the Provincial Treasury (except its own) and that it would be paid for by a public entity from funds that were appropriated for a different purpose.

(ll) It was also noted that the Board of the ECDC, as its accounting authority, played no role in the process that was followed to procure goods and services and the payment for it by the ECDC. There is no indication that it was ever raised with the Board by Mr Sentwa, who was at the time the Acting CEO, and CFO.

(mm) The conduct of the CFO of the ECDC in approving and authorizing payments by the ECDC for goods and services procured by other organs of state was in violation of the provisions of section 217 of the Constitution, section 57 of the PFMA and Treasury Regulations 8.1 and 16A6.4.

(nn) His conduct was improper and constituted maladministration.

(c) Whether the Provincial Treasury irregularly transferred an amount of R250 000 of public funds into a personal bank account of MEC Phumulo Masualle and if so; whether such conduct was improper and constitutes maladministration:

(aa) The allegation that the Provincial Treasury irregularly transferred an amount of R250 000 into the personal bank account of MEC Masualle is substantiated.

(bb) Ms Mbina-Mthembu, as the accounting officer of the Department of Provincial Planning and Treasury, approved an irregular payment of public funds into the personal bank account of the MEC and subsequently the opening of a special departmental account with a debit pay card issued to him, which gave him access to public funds.

(cc) Neither of the two transactions are allowed by the provisions of the PFMA, the Treasury Regulations and the Ministerial Handbook.

 (dd) Ms Mbina-Mthembu’s conduct was therefore in violation of the provisions of section 38 of the PFMA and Treasury Regulation 8(1) and resulted in irregular expenditure.

(ee) Her conduct was therefore improper and constitutes maladministration.

(d) Whether the ECDC acting in its official capacity as Project Host and Paymaster caused the ECPG to incur irregular, fruitless and wasteful expenditure of public funds for the memorial services and funeral of President Mandela and if so; whether such conduct was improper and constitutes maladministration:

(aa) The allegation that the ECDC as the project host and paymaster caused the ECPG to incur irregular and fruitless and wasteful expenditure of public funds for the memorial services and funeral of President Mandela, is substantiated.

(bb) The PFMA that regulates management of revenue expenditure, assets and liabilities of, inter alia government departments and public entities, includes the Treasury Regulations and is an Act of Parliament.

(cc) Both the PFMA and the Treasury Regulations require of the accounting officer of a department and the accounting authority of a public entity to establish and maintain a proper competitive procurement system.

(dd) Ms Mbina-Mthembu, the Head of the Department of Provincial Planning and Treasury and Mr Sentwa, who was the Acting CEO and the CFO of the ECDC at the time, held the view that the strict provisions of the Constitution, the PFMA and the Treasury Regulations pertaining to competitive procurement and expenditure management could be overruled by a resolution of a Provincial Executive Committee.

(ee) This misconception resulted in the acceptance of a process where the ECDC paid for procurement of goods and services that it had no control over, had not verified delivery of and had not approved. It relied on the approval of the Provincial Treasury that in some instances were not even involved in the procurement.

(ff) It was found that expenditure incurred by the ECDC was unauthorised. Moreover, even if the expenditure was authorised, the payments by the ECDC would have constituted irregular expenditure as it was not in accordance with the PFMA and the Treasury Regulations.

(gg) The Board of the ECDC as the accounting authority responsible for the expenditure, was not informed of the payments made under the authority of Mr Sentwa and at the request of Ms Mbina-Mthembu.

(hh) As the CFO, he should have been aware that the payments were made in violation of the PFMA and the Treasury Regulations. Yet there is no indication that he raised alarm or his concern with the Board, to whom he was accountable.

(ii) The funds from which the payments were made had not been transferred to the ECDC. At the time when the payments were made, the ECDC was therefore spending money that was allocated to them for different purposes in accordance with its mandate.

(jj) When a reconciliation was eventually done, the ECDC lost more than R22 million that was originally appropriated to them to accelerate social infrastructure development in the Eastern Cape. Money intended to alleviate the plight of the poorest of the poor was accordingly spent on a state funeral.

(kk) There is no indication in the evidence that the ECPG received value for the R5 million that the ECDC paid to Reagola Print and Mail. It accordingly constitutes fruitless and wasteful expenditure, as contemplated by section 1 of the PFMA.

(ll) Ms Mbina-Mthembu and Mr Sentwa acted in violation of the provisions of section 38 and 57 of the PFMA and Treasury Regulations 8.1 and 16A.

(mm) Their conduct was improper and constitutes maladministration.

(e) Whether the Eastern Cape Parks and Tourism Agency (ECPTA) incurred irregular and fruitless and wasteful expenditure in the procurement of goods and services relating to the funeral of President Mandela and if so, whether such conduct was improper and constitutes maladministration:

(aa) The ECPTA incurred irregular expenditure of R 500 000 and fruitless and wasteful expenditure in the amount of R970 000 in procuring goods and services relating to the preparations for the funeral of President Mandela.

(bb) This conduct was improper and constitutes maladministration.

(f) Whether the BCM improperly procured and paid Victory Ticket 750cc an amount of R5 985 000.00 of public funds to transport mourners to four venues where the memorial services of President Mandela were to be held and if so, whether such conduct was improper and constitutes maladministration:

(aa) The allegation that the BCM improperly procured the services of and paid Victory Ticket 750 CC an amount of R5 985 000 of public funds to transport mourners to four venues where the memorial services of President Mandela were to be held, is substantiated.

(bb) The Executive Mayor and Councillors Gomba and Simon-Ndzele of the BCM Municipal Council acted in violation of the Code of Conduct for Councillors by putting the interests of the ANC, instead of that of the BCM first. They acted dishonestly, without good faith and in a manner that compromised the integrity of the BCM.

(cc) The CFO of the BCM, Mr V Pillay failed to distinguish between financial matters of the BCM and the interests of the ANC. He acted in violation of the provisions of the Municipal Supply Chain Management Regulations and the Supply Chain Management Policy of the BCM. His conduct constituted financial misconduct as contemplated by the MFMA and the Municipal Supply Chain Regulations resulting in irregular expenditure for the BCM.

(dd) Mr Pillay’s conduct was improper and constitutes maladministration.

(g) Whether the King Sabata Dalindyebo Local (KSD) Municipality incurred irregular and fruitless and wasteful expenditure of public funds in procuring the services of various service providers to assist in the preparations for the funeral of President Mandela and if so; whether such conduct was improper and constitutes maladministration:

(aa) The KSD Municipality incurred unauthorised expenditure for the funeral of President Mandela in excess of R4,2 million.

(bb) This expenditure would also have constituted irregular expenditure, if it was authorized.

(cc) The KSD Municipality also incurred fruitless and wasteful expenditure of R1 470 812.

(dd) At the time when the KSD Municipality incurred the expenditure for the funeral of President Mandela, it was experiencing extreme financial constraints and was operating with a loan obtained from the ECPG.

(ee) There is indication in the evidence that, the payment of goods and services to certain suppliers was based on procurement documentation, the contents of which were incorrect or that did not refer to the items that were ordered.

(ff) The verification by the KSD Municipality of the delivery of the goods and services procured for the funeral was either not done, or was insufficient to have justified payment by the KSD Municipality.

(gg) The conduct of the KSD Municipality was improper and constitutes maladministration.

(h) Whether the OR Tambo District Municipality (ORTDM) incurred irregular expenditure in procuring goods and services for the funeral of President Mandela and if so; whether such conduct was improper and constitutes maladministration:

(aa) The ORTDM incurred unauthorised expenditure of R443 500 in respect of catering for the funeral of President Mandela.

(bb) Even if the expenditure was authorized, it would have been irregular as it was in violation of a directive of the National Treasury and not in accordance with the MFMA.

(cc) The conduct of the ORTDM was improper and constitutes maladministration.

(i) Whether the Nelson Mandela Bay Metropolitan Municipality (NMBMM) incurred irregular expenditure in procuring goods and services for the funeral of President Mandela and if so; whether such conduct was improper and constitutes maladministration:

(aa) The NMBMM incurred unauthorised expenditure of R110 300 in respect of catering for events relating to the funeral of President Mandela.

(bb) Even if the expenditure was authorized, it would have been irregular as it was in violation of a directive of the National Treasury and not in accordance with the MFMA.

(xii) The tragedy of the passing on of former Presidents or the current President passing, even unexpectedly is a reality that requires government to be prepared for a state funerals and the associated expenditure at all times.

(xiii) State Funerals are also not only held for Presidents, but also for other current and former political leaders.

(xiv) The Public Protector recommends in terms of section 6(4)(c)(ii) of the Public Protector Act that:

(aa) The Minister of Finance, as the head of the National Treasury, establishes a Task Team consisting of all the role players at all levels of government to develop a coordinated plan for the eventuality of state funerals provided for in the Ministerial Handbook;

(bb) Once the coordinated plan is approved, the Minister of Finance directs that it is issued as an instruction to all organs of state in terms of section 76 of the PFMA, to ensure the unauthorised, irregular and fruitless and wasteful expenditure in respect of state funerals is avoided in the future;

(cc) It be compulsory that the coordination of any activities in respect of preparations for state funerals be located strictly in the Office of the Premier in the case of Provinces and the Executive Mayor in the case of Local Government; and

(dd) It be compulsory that service providers appointed to assist in the preparations for state funerals are selected strictly from the supplier databases of the departments and municipalities involved.

(ee) As the custodians of public funds, it be compulsory that the National Treasury provide funding for state funerals and give guidance on how the funds will be accessed and spent.

(xv) The Public Protector takes the following remedial action in terms of section 182(1)(c) of the Constitution:

(aa) The Minister of Finance as the Head of the National Treasury, to request the President to issue a Proclamation in terms of section 2(1) of the Special Investigating Units and Special Tribunals Act, 1996 to investigate the:

1.1 unlawful appropriation or expenditure of public money or property;

1.2 unlawful, irregular or unapproved acquisitive acts, transactions, measures or practices; and

1.3 intentional or negligent loss of public money by organs of state and referred to in this report, with a view to institute civil action for the recovery of the loss of public money by organs of state in the procurement of goods and services for the funeral of President Mandela.

 (bb) The Provincial Treasury of the Eastern Cape to conduct an investigation into the financial misconduct conduct of Ms Mbina-Mthembu referred to in this report, in terms of Treasury Regulation 4.1.3, and to take the appropriate action;

(cc) The Municipal Managers of the BCM, KSD Municipality, ORTDM and the NMBMM, in consultation and with the assistance of the National Treasury to investigate the financial misconduct of officials of the respective municipalities referred to in this report, in terms of section 171(4) of the MFMA, and to take the appropriate action;

(dd) The Municipal Council of the BCM to appoint a special committee to investigate the conduct of Councillors Gomba and Simon-Ndzele referred to in this report in terms of the item 14.1 of the Code of Conduct for Councillors, provided for in the Local Government: Municipal Systems Act; 2000, and to take further action accordingly;

Issued by the Office of the Public Protector, 4 December 2017. The full report can be found here – PDF.