Muni's under scrutiny

KNYSNA NEWS - The Public Protector (PP) has released a damning report of an investigation into allegations of improper conduct and maladministration by the Knysna Municipality relating to the procurement of services from Knysna Tourism.

In it the PP recommends that criminal charges be laid in respect of irregular expenditure by the municipality. Knysna Municipality in turn has denied that any wasteful and fruitless expenditure has occurred.

Based on an analysis of a complaint initially lodged by Ms S Campbell on 3 July 2017, the issues under consideration were whether the procurement of tourism services by the municipality from an independent concern, Knysna Tourism (KT), was in accordance with the relevant laws and prescripts. And whether the conduct of the municipality was improper and constitutes maladministration or not.

The report, which placed under scrutiny a total amount of over R58-million that the municipality paid to Knysna Tourism between 2000 and 2018, concluded that the allegation is substantiated.

It said that the procurement of tourism services by the municipality from Knysna Tourism was not in accordance with the relevant laws and prescripts, was at variance with local government regulations and was "improper, constitutes maladministration and resulted in irregular expenditure".

Complaint

The complainant contended that procuring the services from Knysna Tourism was not in accordance with the municipality's own supply chain management (SCM) policy. Further, that despite having a legal opinion stating that the service level agreement (SLA) between the municipality and Knysna Tourism would be illegal if it was extended, the council nevertheless resolved on 29 May 2017 to renew it for an additional 12 months.

A petition in 2015 by activist Michael Hampton, which led to Campbell's complaint in 2017, stated that municipal funding to Knysna Tourism was not in accordance with the municipality's "grant-in-aid" policy, as applications for such funds were to be assessed by an ad hoc municipal committee. According to the policy, grant-in-aid funds are to be granted to outside organisations or bodies which are not commercial or business concerns.

The PP's report relates that the agreement between the municipality and Knysna Tourism for a period of 15 months commenced on 1 July 2015 and was to expire on 30 September 2016.

It states that R4-million was allocated from the municipal grant-in-aid. In October 2016, an addendum to the agreement extended its operation to 30 June 2017. When the agreement was again extended in 2017, Campbell submitted a complaint with the PP.

According to the report, the further extension of the agreement was done in May 2017 - after the municipality had obtained a legal opinion from Messrs Cliffe Decker Hofmeyr Attorneys on, inter alia, the legal constraints on funding Knysna Tourism as a legal entity outside the sphere of government.

Commercial, not aid

The complainants stated that the funding to Knysna Tourism was done by way of grant-in-aid even though Knysna Tourism had never applied for a grant, and the municipality's grant-in-aid committee thus never had the opportunity to consider any application as is required.

The municipality contended during the investigation that the funding was provided as a separate line item budgeted for tourism-related services within the municipality's annual budget for the years referred to in the complaint.

According to the PP report, Messrs Cliffe Decker Hofmeyr Attorneys concluded in their opinion on 23 May that the services specified in the agreements between the municipality and Knysna Tourism since 2000 amount to the provision of commercial services to the municipality, which means that the payments in relation to those services fall outside the scope of section 67 (1) of the Municipal Finance Management Act (MFMA).

According to the supply chain management regulations and policy, such agreements are required to "follow a fair, equitable, transparent, competitive and cost-effective tender process and only to deviate from it, inter alia, in an emergency".

Deviation

The report states that, during the investigation, the municipality submitted an unsigned copy of a document dated 6 July 2017 and titled Application for deviation in terms of section 36 [sic] of the SCM Policy, which purported to be an application to be approved by the municipality's supply chain management (SCM) division, chief financial officer and municipal manager.

In the broadest terms, the document was an application to deviate from the SCM policy for tourist-related services on the strength that the Knysna wildfire disaster in 2017 constituted an "emergency" that necessitated the deviation.

On 11 July 2017, the municipality entered into a service level agreement with Knysna Tourism which expired on 30 June 2018. On 11 August 2017, the municipal manager at the time, Kam Chetty, submitted a memorandum to the then chief financial officer, Mbulelo Memani, informing him that he had authorised and approved a deviation from the municipality's SCM policy.

The following note appears on the memorandum under Chetty's signature: "Comments and concern: SCM manager places on record that the instruction from the MM was executed, but I do not agree with reasons for deviation. KM (Knysna Municipality) cannot show any process for competitive bidding although the legal opinion was obtained some time ago already and various discussions re this matter have taken place and it was agreed to go out on tender."

Even though the deviation was not supported by the SCM manager, the municipal manager was the decisionmaker (in terms of Regulation 36), and the accounting officer "dispensed with the official procurement process, of which the payment of the funds was already approved by Council on 26 May 2017", the PP report noted.

According to the report, Chetty stated that the municipality included the amount for Knysna Tourism in its annual budget in accordance with the MFMA and the budget was consulted and approved by Council. Chetty said the allocated funds were used for its intended purpose in terms of the SLA. In another legal opinion dated 22 June 2017, which was sought from attorneys Sonn and Partners, it was argued that if the above processes were followed, then section 67 of the MFMA is permissible and lawful, and many municipalities in South Africa have used this to support their local tourism.

Define 'emergency'

According to Chetty, the agreement with Knysna Tourism on 11 July 2017 was intended to act in the public interest after one of the country's most devastating fires, to urgently create employment and economic activities to reduce the hardship and misery faced by the Knysna communities.

Chetty further declared in his statement during the investigation that, while the municipality may have had sufficient time to enter into another agreement with Knysna Tourism, none was taken on his advent in July 2017 and said failure to enter into an agreement for a limited period of time would have resulted in misery.

In its report the PP states that the national treasury defines emergency cases as "cases where immediate action is necessary in order to avoid a dangerous or risky situation or misery". However, the municipality was aware of the fact that the SLA which had been signed on 11 July 2017 was to expire on 30 June 2018 and could therefore have taken steps to timeously enter into another agreement with the service provider. Instead, it waited until the expiry date of the 2017/2018 agreement before a deviation report was submitted in terms of Regulation 36 of the supply chain management policy.

The PP report stated that the disaster in the Knysna area in June 2017 did not constitute an emergency as contemplated by paragraph 36 of the municipality's SCM policy in respect of procuring tourism related services. No immediate action was necessary to avoid a dangerous or risky situation or misery. No evidence was found that a competitive procurement process could not have addressed the need for tourism services at the time.

In terms of Regulation 12 (1) (d), the supply chain management policy of a municipality must provide for a competitive bidding process for procurements of goods and services of a transaction value of above R200 000 (Vat included) and the procurement of long-term contracts.

The following findings were made by the Public Prosecutor:

"The allegation that the procurement of tourism services by the Municipality from KT was not in accordance with the relevant laws and prescripts regulating the procurement of goods and services by the Municipality, is substantiated.

That the conduct of the Municipality in procuring services from KT from 2000, was at variance with the provisions section 217 of the Constitution of the Local Government: Municipal Finance Management Act (MFMA) as well as the supply chain management regulations and policy - in terms of which it was required to 'follow a fair, equitable, transparent, competitive and cost effective tender process and only to deviate from it, inter alia, in an emergency'.

More than R58-million was paid by the Municipality to KT for services rendered.

Furthermore that the conduct of the Municipality was thus 'improper, constitutes maladministration and resulted in irregular expenditure, as contemplated by section 1 of the MFMA'." The report also stated that the "conduct of the municipality accordingly constitutes improper conduct as envisaged in section 182(1) of the Constitution and maladministration in terms of section 6(4)(a)(i) of the Public Protector Act".

Knysna Acting Municipal Manager Dawid Adonis.

PP recommendations

The report recommended that:

• the appropriate remedial action is taken in terms of section 182(1)(c) of the Constitution. The speaker of the municipal council must take the appropriate steps to ensure that the council refers the irregular expenditure incurred by the municipality in this matter to the relevant council committee to determine in terms of section 32(2) of the MFMA whether it is recoverable or not, and if so, that action is taken accordingly within 30 days from the date of the report.

• the speaker ensures that criminal charges are laid in respect of the irregular expenditure (in terms of section 173 of the MFMA) within 30 days from the date of the report.

• in terms of section 32(4) of the MFMA, the acting municipal manager report the irregular expenditure by the municipality to the executive mayor, the Western Cape treasury, the Western Cape MEC for Local Government and the Auditor-General South Africa in writing within 30 days from the date of the report

• in terms of section 171(4) of the MFMA, the acting municipal manager takes the appropriate steps to investigate whether any of the municipal officials who were involved in the irregular procurement of the services of KT should be held accountable for financial misconduct, and if so, ensure that disciplinary action is instituted against them, within 30 days from the date of the report.

• the municipal manager ensures that all municipal staff involved in the SCM processes for the procurement of goods and services attend an appropriate training course on the provisions of section 217 of the Constitution, the MFMA, the regulations, the SCM policy and the grant-in-aid policy within 60 days from the date of the report

• the acting municipal manager submits a report to the municipal council on the recommended actions within 60 days from the date of the report.

Knysna Municipality's Manager of Legal Services, Melony Paulsen.

Mayor comments

In a national press conference this week, Knysna Mayor Elrick van Aswegen confirmed that the municipality had received the report from the Public Protector.

"I must emphasise that no party or individual had benefited illegally during the process of procuring services from Knysna Tourism," he stressed. "I maintain that no wasteful or fruitless expenditure occurred and the funding was used expressly for the marketing and development of tourism in the greater Knysna area. Knysna Tourism was contracted for 15 years and the funding was never questioned by the Auditor-General, and we received unqualified audit reports during this time.

"Yes, R58-million was paid to Knysna Tourism for services rendered from 2002 to 2017. This equates to R4-million per year as specified by the SLA. Every rand was utilised in marketing the greater Knysna area as a preferred tourism destination and developing and supporting this industry - the industry that undoubtedly carries the area's local economy. Knysna Tourism submitted regular expenditure reports that illustrated how these funds were used in promoting the area, its industry members and events; and developing emerging tourism products."

Tourism has long since been the driving force of the local economy as well as the biggest local employer, second only to the municipality,

Van Aswegen said. "We will always be dedicated to supporting and developing this industry within the legal parameters. That is why we ultimately ended the SLA with Knysna Tourism, and why we have entrusted this function to Wesgro. Thank you to those individuals and organisations who endeavour to work with the municipality in building a stronger, united Knysna," he said. "We must work together today to ensure a better tomorrow for all."

Knysna Mayor Elrick van Aswegen Photo: Blake Linder