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Former eThekwini city manager Miike Sutcliff. Picture: Terry Haywood

Former eThekwini municipal manager Michael Sutcliffe failed to report fraud and corruption in the municipality to the police and did not take “reasonable” steps to prevent irregular expenditure, say the authors of a report into affairs at the eThekwini municipality.

And they say that former mayor Obed Mlaba irregularly and unlawfully influenced the awarding of a multibillion-rand landfill tender.

The forensic investigation report released in Durban on Tuesday by Co-operative Governance MEC Nomusa Dube calls for disciplinary action to be taken against high-ranking officials and for the city to take urgent steps to recover money lost by the municipality as a result of corruption and fraud.

Dube commissioned forensic auditing firm Manase and Associates to do the investigation in March last year, after allegations of tender fraud and financial mismanagement at eThekwini.

The probe was commissioned a year after Durban accounting and forensic investigations firm Ngubane and Co conducted an investigation and also called for disciplinary action and further investigation into the city’s financial affairs.

The Ngubane report was dismissed by Sutcliffe and was never made public.

Ngubane and Co had found that the awarding of the R6.3-million Chatsworth Housing Rehabilitation project to Dr Khumalo Construction was irregular. They were vindicated by the Manase report.

The Manase investigation also found that the Burbreeze Housing Project had been estimated to cost R18m, but had escalated to R57m.

The contractor appointed was not registered with the National Home Builders Registration Council (NHBRC), and poor workmanship had been identified by the council on the project.

Similarly, the cost of the Hammond’s Farm Housing development in Verulam had escalated from the estimated R68m to R351m. Poor workmanship was again identified by the council, resulting in 22 units being demolished because of stability problems.

The Manase probe also revealed that the municipality’s handling of the controversial Revenue Management System (RMS) – which has cost the council R474m to date – was flawed as it failed to adhere to its own supply chain management processes.

The cost of developing the system had ballooned from an estimate of R90m to R150m at inception in 2003, to its current R474m.

The report recommends further investigation with powers to subpoena third-party individuals and documentation to be performed on the project as the variations from the initial estimates had been done without complying with the Municipal Finance Management Act.

The report says “further significant costs are likely to be incurred by the municipality on this project”.

In addition, it was found that Sutcliffe had contravened section 34 of the Prevention and Combating of Corrupt Activities Act by not reporting certain fraudulent and corrupt activities reported to him in the Ngubane report to the police.

The report says that Sutcliffe only reported the fraud and corruption two years later.

The fraud and corruption resulted in a R1.1m loss to the municipality.

It was recommended that eThekwini take urgent steps to recover the money and that action be taken against the companies and individuals involved.

According to Auditor-General Terence Nombembe, eThekwini incurred R532m in irregular expenditure and a host of supply chain management contraventions in the municipal year ending June 2010.

Of the total, R428m related to the city’s housing unit, headed by Cogi Pather.

The Manase investigating team said it was not given any compelling evidence of disciplinary action taken against those involved in the irregular expenditure in the housing unit.

A sample of four contracts were selected for further investigation from the irregular expenditure mentioned by Nombembe.

Three contractors were awarded contracts under Section 36 of the supply chain management policy – used in exceptional cases where it was impracticable or impossible to follow the official procurement process.

However, despite requests for explanation, the investigators were not provided with reasons for the use of Section 36 in awarding the contracts.

It was found that the three contractors had been given appointment letters before they had submitted tender documents and two of the contractors had not issued proper tax invoices, as required by the VAT Act.

The report also recommended that disciplinary action be taken against city treasurer Krish Kumar, for failing to take reasonable steps to prevent irregular expenditure, and deputy city manager for infrastructure Derek Naidoo, for failure to comply with supply chain management policies and failure to exercise due care and diligence in dealing with matters before the bid adjudication committee.

The report says that Jacquie Subban, the head of the municipality’s geographic information and policy unit, irregularly awarded two section 36 contracts to H2O Networks (South Africa) Pty Ltd for the installation of fibre optic cable.

It was recommended that disciplinary action be taken against her for this reason, and also for negligence which resulted in duplicate payments of R2.6m being made to Dimension Data on September 2 and 10, 2008.

However, the transaction was subsequently reversed.

Reacting to the report, Naidoo said he would not comment on the matter until he had seen it.

Kumar welcomed the report, although he had not had sight of it, and said people should be brought to book if any wrongdoing was found.

“I have no issues with Manase. I have not done anything untoward but, at the end of the day, we are all accountable… I believe in clean governance,” he said.

Mayor James Nxumalo said the municipality would comment on the report on Wednesday.

The Mercury was unable to reach Sutcliffe, Subban or Pather for comment.

Dube said the investigation was not a witch-hunt against certain individuals, as some had sought to portray it.

“It was intended to confront head-on some of the ills bedevilling this municipality and arrest the rot before it collapses this institution,” she said.

Dube gave the municipal leadership 21 days to respond to the Manase report, which was tabled and adopted during a full council meeting at the city hall on Tuesday.

“All disciplinary issues must be instituted and finalised within three months upon receipt of this report,” she said.

Dube’s department would then assess whether the action taken by the council was adequate. - The Mercury