Joint Democratic Alliance press statement by
Mmusi Maimane and John Mendelsohn
DA National Spokesperson and DA Spokesperson for Municipal Public Accounts in Johannesburg
Parks Tau must answer for Sinking Fund irregularities
24 October 2012
The Democratic Alliance (DA) has received information from an anonymous whistle blower on Johannesburg’s sinking fund.
The City of Johannesburg uses this fund to put money aside to repay future debts. Currently it holds more than R2 billion and is managed by a private company, Regiments Capital. This company has been hired to manage the fund in order to grow its value over time. But the DA has received a fax from an anonymous source, wherein several damning claims are made. Our source alleges that:
• Regiments Capital has allegedly fraudulently charged excessive fees for administration of the fund since 2006.
• That these withdrawals have been made with the cooperation of corrupt officials in the City of Johannesburg’s Treasury.
• That the fund has been mismanaged, in effect producing a negative return on investment due to mismanagement and looting.
• That an amount of R1 billion has allegedly been siphoned from the fund since 2006.
• That the tender process to appoint the fund managers for the next term was allegedly rigged in Regiments’ favour.
• That KPMG conducted an investigation into the fund and produced a damning report that was never released or acted upon.
Under normal circumstances, the DA would not act on the allegations of one whistle blower. But there is significant circumstantial evidence that points to our source’s credibility, and that point to general irregularities in the management of the sinking fund.
Firstly, we have been able to determine that the alleged report does exist. In correspondence with DA councillor John Mendelsohn, KPMG acknowledged the existence of the report, but refused to grant the DA access to the report due to confidentiality agreements with the City.
Secondly, the City of Johannesburg simply ignored a PAIA request for the report we submitted to it. The City seems to be actively concealing this information.
Thirdly, KPMG said that they could not be certain whether the right to access to information in the public interest overrode their confidentiality agreements in this case. This implies that there are in fact “public interest” matters in this report.
KPMG argue that the PAIA gives them the right to refuse access to the information under these circumstances. We are currently consulting legal council on this matter, to determine whether KPMG’s interpretation of the act is in fact correct, and whether they are within their rights to refuse access to the report on this basis.
Here is the timeline of our PAIA requests submitted to both the City and KPMG:
18 July 2012: PAIA request to City of Johannesburg to gain access to the KPMG report.
30 July 2012: PAIA request to KPMG directly.
29 September 2012: KPMG responds to our request, saying that they cannot disclose the information without consulting with “affected third parties”. In accordance with the PAIA, they have 21 days to consult with third parties.
12 October 2012: The City of Johannesburg’s 90 day deadline expires, with no response to our PAIA request beyond an initial acknowledgement of receipt.
22 October 2012 (KPMG’s 21-day deadline): KPMG refuses to grant access to the report.
Fourthly, a series of reports in the Mail and Guardian in the last two weeks indicate that the process to appoint fund managers for the next term was rigged in Regiment Capital’s favour. This backs up the claims made by our whistle blower long before these reports were public, further strengthening the credibility of his or her other claims.
Finally, the Mail Guardian has also reported on Regiments’ political connections to the ANC through Regiments Capital’s involvement in the Coral Lagoon Consortium. It is also disconcerting that Parks Tau’s wife is intricately involved with Regiments and the Coral Lagoon Consortium – directly linking the mayor, and former MMC for finance, to a company which is alleged to have been party to looting the sinking fund to the tune of R1 billion.
When the allegations of a conflict of interest in the awarding of the sinking fund tender to Regiments Capital came up two weeks ago in the Mail and Guardian, Mayor Tau’s spokesperson denied all wrongdoing saying that the Mayor did not serve on the tender adjudication committee. That argument holds very little currency as he could easily have exerted his significant influence on the committee without actually serving on it.
But the context of the case has completely changed now. This is no longer just about the rightful awarding of the tender to run the sinking fund. In addition to the questions about the rightful awarding of the contract, there are now very serious questions about the alleged irregular management of the fund; the Mayor’s wife’s alleged involvement in those irregular activities; the Mayor’s possible knowledge of these irregular activities; and most importantly, the suppression of this internal KPMG report which allegedly points to massive irregularity in the sinking fund.
Two weeks ago, Mayor Tau invited the public protector to investigate him so that he could clear his name of wrong-doing on the allegations of tender irregularities. But there are new questions that need answering, and there is a faster and easier way to settle this issue.
We are formally and publicly challenging the Mayor to fully disclose all information at his disposal, and at the City’s disposal, with regards to the sinking fund and Regiments Capital’s management thereof.
If Mayor Tau and Regiments is innocent in all of this, he should be able to easily answer the following questions:
• Is there a KPMG report on Regiments Capital’s management of the sinking fund? If so, provide the report to the council.
• Has any other audit or investigation of the sinking fund ever been conducted? If so, please provide those reports to the council.
• What is the City’s cumulative contribution to the sinking fund?
• What are the total cumulative fees withdrawn from the sinking fund by Regiments Capital?
• What is the fund’s financial performance since inception?
• Would the mayor invite a full investigation by the public protector, and the financial services board, of the tender process followed in the appointing and reappointing of Regiments Capital as well as the general financial performance and activities of the fund and Regiments’ management thereof since 2005?
The DA has now publicly issued a challenge to the Mayor. We have already written him to challenge him in writing. The letter has been sent to his personal assistant’s e-mail address (email@example.com).
Last week he said in reference to the allegations in the Mail and Guardian that “It is important that when such allegations arise, we should subject ourselves to scrutiny.”
We are now holding him to that standard and asking that he answer these questions, and provide the council with the report KPMG has provided.
We cannot allow corruption to take root in our City, because it steals money away from the services our people need most. These kinds of allegations therefore must be answered and we challenge Mayor Tau to come forward and answer all of these allegations as comprehensively as possible.