Special report: How Magalies Water allegedly ignores Treasury, does its own thing

It is alleged that irregularities at Magalies Water have reached such alarming proportions that when National Treasury turned down their application to deviate from tender processes, they simply went ahead anyway in violation of the Public Finance Management Act (PFMA).

Magalies Water provides bulk water and secondary services directly to municipalities, mines and other industries. Based in Rustenburg, the state-owned entity operates across three provinces: North West, Limpopo and Gauteng.

It is claimed – and supported by reams of documentary evidence The Citizen has seen for both this and other allegations – that a project consultant was flagged by the Auditor-General as having been irregularly awarded work due to the entity’s failure to obtain deviation approval from either the Bid Adjudication Committee or National Treasury.

A reliable source told The Citizen: “Magalies Water management’s response was that they have not yet paid and the tender with the company will be revoked. But by the time the contract was eventually cancelled the company had netted almost R10 million despite Treasury turning down the deviation.”

The board is also alleged to have failed to follow company policy when approving a R2 million junket to attend Water Week in Sweden in 2017. The delegation from the entity is said to have included board members and two junior employees – a  public relations officer and business development worker –to the exclusion of the then chief financial officer (CFO).

At the time this trip was approved, it is alleged the finance department warned the board there was only R480,000 available for international travel and it needed to be used more frugally.

The founding director of a private accounting firm previously worked as a financial manager at the organisation and is understood to have resigned in February 2016. In August 2017 she is said to have been appointed using the three-quotations system as a financial consultant for three months despite Treasury declining the deviation application on this appointment.

“In the declaration form she failed to diclose that she was previously an employee of the organisation and when the then CFO resigned the consultant was appointed as interim CFO without following proper recruitment procedure. For the time that SCA offered Magalies Water finance services she was paid R150,000,” the source told The Citizen.

READ MORE: Magalies Water gets its financial services from company owned by former employee

The Citizen was told that during the interviews for the CFO position “board members were surprised that there was an acting CFO and questioned her presence. Only the CEO and chairperson were aware that she has been appointed and as a result she was asked to attend the interviews as an observer and not score candidates.”

The Citizen also learnt that the current company secretary, who is not listed on the entity’s website, was previously a board administrator. It is alleged that in November 2016 the company secretary was moved to Supply Chain & Compliance in a decision that deviated from policy despite the general managers of corporate services and finance declining to approve the deviation. It is claimed the CEO approved the appointment.

After the former board administrator was appointed as interim company secretary in December 2016, it is alleged the entity waited for her to graduate with an LLB before they advertised the position. She was then offered the position towards the end of 2017.

“They shortlisted people who did not qualify. The other shortlisted candidate did not bother pitching for the interview. The culture at Magalies Water is to shortlist people who don’t meet the minimum requirements,” said one well-placed source who requested anonymity.

It is also alleged that the current general manager of the Project Management Unit was a 24-year-old with a diploma in mechanical engineering when she was appointed despite the advert for this position requiring a candidate with 10 years’ working experience, five of which should have been at managerial level.

“The advert specified they wanted someone with civil engineering qualifications and she had a mechanical engineering diploma. Some of the candidates overlooked were highly experienced graduates up to PhD level and members of the Engineering Council. When management realised their earmarked candidate did not meet the requirements they sought a legal opinion to say they needed to employ a female candidate,” the source revealed.

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Another concern raised was that a whistle-blower report implicated the chairperson of the board, the CEO and the current company secretary, along with some of the executive managers. Instead of that report being investigated by PriceWaterhouseCoopers (PWC), the allegations were investigated by an “internal investigating committee”.

“The board and executive management and Magalies Water investigated themselves. This was the only case where an external investigator was not used,” the source said in reference to the report that exonerated all implicated parties The Citizen has seen.

The entity is also alleged to have outsourced, once again through the three-quotes system, a security tender for which Treasury declined to approve another application for deviation. Procurement above R499,000 would normally have to go out on tender, and not be allowed to be awarded through the three-quotes system.

After admitting in a parliamentary response that The Citizen has seen that Magalies Water has no internal audit capacity, which resulted in PWC being remunerated R4 million to carry out the function annually, the entity is now alleged to be engaged in a “jobs-for-pals”, project, as it has now advertised for the position of an internal audit executive with an annual salary of R1 million per annum, with the earmarked candidate allegedly already identified.

The Citizen was further told that a recommendation by Shuping Attorneys that the supply chain manager be dismissed was not implemented. There is also another alleged recommendation by a PWC forensic report that the marketing manager’s case be referred to the Hawks or SAPS for prosecution, and this has not been observed.

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Alleged human resources transgressions within the organisation include an irregular salary increase the Auditor General recommended be recovered.

The Citizen has also seen a circular released by former water and sanitation minister Nomvula Mokonyane recommending that the CEO of the entity only be remunerated about R1.8 million, but Magalies Water allegedly bumped its CEO’s salary to more than R2 million.

The Citizen sent our first media query on these allegations to the entity on the 7th of March with a supplementary list of questions on the 8th of March.

Bertie Grobbelaar, an attorney with Van Velden-Duffey Attorneys, responded with a letter that quoted the Press Code, in which he raised concerns about the tone and objectivity and unreasonable deadline of the questions and then “advised” The Citizen to seek legal advice before publishing any allegations.

The Citizen responded by agreeing to allow more time for all allegations to be addressed as completely as possible, and, on the 9th of March, Grobbelaar was sent the 15 allegations levelled against his client and was asked to respond by the 14th of March. On the agreed date, he responded that “we are involved as attorneys of record in an application on behalf of our client Magalies Water, which is enrolled for Friday 16 November 2018. As we will only be able to consult with our client on Monday 19 March 2018, we will therefore not be in a position to respond to your correspondence before 20 March 2018. Our formal response to follow on 20 March 2018. Our client’s rights as set out in our correspondence of 8 March 2018 remain reserved.”

Any right of reply from Magalies Water will be published once it is received.