KRA demands action on R93m decision by Knysna council

* Gratz has since responded to the allegations. Click here.

APOLOGY | 26 AUGUST 2020

KPH wishes to clarify a previous article we published concerning Dr. M Gratz who was the former Acting Municipal Manager of the Knysna Municipality. In the article we may have unintentionally impugned Dr. M Gratz's good name and reputation and led the readers to believe that she, as opposed to the Knysna Council, was responsible for writing off large sums of money. We unreservedly apologise to Dr. Gratz for any such allegations or innuendos that could be read into the article. We also apologise for publishing an online article on the topic on August 17, 2020, without requesting Dr Gratz's comments beforehand.

KNYSNA NEWS - The Knysna Municipality council's resolution to write off irregular expenditure totalling R93-million in May following a recommendation by then Knysna Municipality acting municipal manager Dr Michelle Gratz has prompted the Knysna Ratepayers’ Association to formally request the mayor and other relevant parties to urgently bring the matter up in council for the “illegal decision” to be rescinded by council.

This transpired in a statement released by the association on Sunday 16 August, which reads as follows:

On the 28th of May 2020 the Knysna Council, on the recommendation of the then Acting Municipal Manager, Dr. Gratz, unanimously resolved to write off irregular expenditure totaling R93 Million. This included R41 Million that had been spent in connection with prepaid water meters.

This expenditure was written off, despite a recommendation from the Disciplinary Board that a forensic investigation into the conduct of the CFO, in connection with the water meters contract, be conducted. Council’s unlawful decision to write off the expenditure may compromise the forensic investigation.

We have therefore written to the Mayor and all relevant parties requesting Council to rescind the unlawful decision. An abbreviated version of our request to Council is included below:

BACKGROUND

1. FINDINGS OF THE AUDITOR GENERAL
During the audit for the 2018/2019 financial year, the Auditor General (“AG”) identified irregular expenditure in respect of the so-called “piggy-back” contracts in an amount totaling R93 761 895.

Piggy-back contracts deviate from a competitive bidding process and merely rely on a tender process from another municipality.

The total amount included irregular expenditure in an amount of R41 187 138.98.

This expenditure was incurred in respect of the contract for prepaid water meters, which had been awarded to Sakhikhaya Suppliers CC, based on a tender with the City of Cape Town.

The full findings of the AG and management’s response thereto can be accessed from page 66 via this link.

Section 32(2) of the Municipal Finance Management Act (‘MFMA”) provides that a municipality must recover irregular expenditure from the person liable for that expenditure, unless a committee of council has investigated the matter and the expenditure has been certified by the council as irrecoverable and written off by it.

In Knysna the relevant committee of council is the Municipal Public Accounts Committee (“MPAC”).However, the irregular expenditure incurred as a result of the piggy-back tenders has not been investigated by MPAC to date.

2. COMPLAINTS AGAINST THE CFO
During the period January to March 2020 various complaints relating to financial misconduct were submitted against the CFO, Mr. Mbulelo Memani, by the MM, Dr. Vatala, Knysna United and the Black Business Forum.

The complaints included the CFO’s involvement in the contract for the prepaid water meters, which, as described above, had been awarded to Sakhikhaya Suppliers CC, without a competitive bidding process, by using a process that had “piggy backed” on a tender that had been awarded by the City of Cape Town.

During March 2020 Knysna’s Council resolved that the complaints against the CFO had to be referred to the Disciplinary Board for a preliminary investigation.

Prior to the Council meeting of 28 May 2020, the Disciplinary Board delivered a report with its findings to the municipality. Dr Gratz was in possession of this report and therefore must have been aware of the findings and recommendations.

The Disciplinary Board found inter alia that the allegations against the CFO relating to the Sakhikhaya contract had merit and recommended a full forensic investigation into the alleged acts of financial misconduct by the CFO.

3. COUNCIL MEETING 28 MAY 2020
Despite the fact that Dr Gratz knew that the Disciplinary Board had recommended a full forensic investigation into the Sakhikhaya contract and other allegations against the CFO, and that the irregular expenditure had not been investigated by MPAC, she nevertheless submitted an item to Council in which she recommended that the full amount of R93 761 895, including the amount of R41 187 138.98, which had been spent on the water meters, be approved as irrecoverable and be written off by Council.

In support of her recommendation, Dr. Gratz submitted a report prepared by the CFO, who is the subject of the investigation into the irregular expenditure and therefore has a glaring conflict of interest. In the report the CFO argued inter alia that the AG was incorrect in determining that the expenditure was irregular. Some of arguments advanced by the CFO are both irrational and, unfortunately, arrogant.

When the item was considered by Council, Dr. Gratz did not inform the councillors of the recommendation of the Disciplinary Board that a full forensic investigation into the alleged acts of financial misconduct by the CFO be conducted.

Dr. Gratz’s recommendation essentially steered Council in a direction defying the AG, contravening the MFMA and making a decision to illegally write off irregular expenditure of a whopping R93 761 895.

Following the recommendations by Dr. Gratz, Council unanimously resolved as follows:

[a] That the report on irregular expenditure as a result of SCMR 32, be noted;

[b] That management never use SCMR 32 again and that tenders/quotations be invited for the procurement of all services and goods within the Municipality;

[c] That the expenditure as mentioned in [a] above be deemed irrecoverable and be written off; and

[d] That National Treasury be approached to condone the current and prior year’s potential irregular expenditure, due to retroactive application of MFMA section 170(2).

Whereas many councillors may not be familiar with the provisions of the MFMA, we would have expected those councillors with legal or financial qualifications and experience to speak out and advise their colleagues against voting for an unlawful resolution.

4. SPECIAL COUNCIL MEETING OF 11 JUNE 2020
On the above date Dr. Gratz submitted the report from the Disciplinary Board to Council and Council resolved that the CFO should be investigated in connection with the water meter contract and other allegations.

Despite this development, the councilors did not instruct the AMM that the item, on which they resolved in May that the irregular expenditure, that was now the subject of a forensic investigation, should be deemed irrecoverable and written off, be brought back to Council for that resolution to be rescinded.

Ms Campbell contacted Mayor van Aswegen telephonically shortly after the meeting of 11 June and expressed her concern about the fact that the irregular expenditure had been deemed irrecoverable and written off. The Mayor assured Ms. Campbell that Council had resolved to refer the matter to MPAC.

When Ms. Campbell studied the Agenda for the Council meeting of the 6th of August 2020, she saw that the minutes from the meeting of 28 May 2020 confirmed her recollection that the expenditure had been written off. The minutes were approved by council. No councillor asked that the patently unlawful decision be rescinded.

During the meeting Council resolved to approach the Western Cape Provincial Government Department of Local Government to assist with either the appointment of a specialist forensic investigator or the funds to appoint such investigator to conduct a full forensic investigation in the various complaints received by the municipality, including three separate complaints relating to the Sakhikhaya tender for the water meters.

Despite the resolution that a forensic investigator needed to be appointed to investigate the Sakhikhaya tender and other complaints, the councillors still did not deem it necessary to ask for the illegal decision, to write of the expenditure, to be rescinded.