Municipal officials lose properties, cough up millions as metro starts collecting wasted tax money

A year ago, the Supreme Court of Appeal, in a judgment that made legal history, clarified that Section 32 of the Municipal Finance Management Act means that municipal officials can be held personally responsible for intentionally or negligently incurring unauthorised, irregular, fruitless and wasteful expenditure.

The Nelson Mandela Bay metro currently has the highest amount of irregular, unauthorised, fruitless and wasteful expenditure in the country, at R30-billion.

The National Treasury is also currently threatening to withhold the municipality’s equitable share due to its failure to address unauthorised, irregular, fruitless and wasteful expenditure.

Read more: Treasury threat to withhold NMB’s December equitable share over R22bn wasteful expenditure

Read more: Treasury threat to withhold NMB funding puts salaries and services on the line

Lawyers have previously argued that municipalities can only act against officials if it can be proven that the entity itself had suffered damages.

But the court ruled that this was too wide an interpretation. Writing on behalf of the court, Supreme Court of Appeal Judge Ashton Schippers explained: “The meaning conveyed by the wording of Section 32 is clear and unambiguous. Liability arises as soon as an official intentionally or negligently incurs unauthorised, irregular, and fruitless and wasteful expenditure: [It] is not conditional upon a municipality sustaining loss or damage.”

He said this interpretation of the law gave effect to the intention of Parliament: to secure sound and sustainable management of the fiscal and financial affairs of municipalities, by holding political office bearers and municipal officials personally liable for the intentional or negligent incurrence of the defined expenditure.

Read more: Landmark SCA ruling opens door for Nelson Mandela Bay to reclaim millions in wasteful expenditure from officials

In 2015 the municipality received a R2-billion grant from the National Treasury for the creation of an Integrated Public Transport System. Almost from the start, the whole project became steeped in controversy, mismanagement and criminality.

Investigations conducted by the Treasury, former National Director of Public Prosecutions Advocate Vusi Pikoli and forensic auditors Deloitte, all lead to a series of damning findings with fingers being pointed at municipal officials, lawyers and business people being complicit in the looting of the grant. Their criminal trial for racketeering and fraud will continue in January, according to National Prosecuting Authority spokesperson Luxolo Tyali.

One of the accused before the court is Farhaad Fakir and his company, Erastyle, trading as Stratcomm. The company was given a R6-million contract that later increased to almost R7-million. It was not disputed during litigation that the contract was awarded without a tender process or supply chain management regulations being followed.

Erastyle’s contract was to provide communications and a marketing strategy for the Integrated Public Transport bus system (IPTS). The appointment was made by deviation as another company called Distinctive was already appointed to do this work. The trial court heard that the acting city manager at the time, the late Mamisa Chabula-Nxiweni, was warned not to sign Erastyle’s contract, but it was pushed through when the permanent city manager was away.

The officials who were ordered to pay back the money are: Former city manager Advocate Mpilo Sakile Mbambisa; former executive director for public health and acting city manager, the late Dr Mamisa Chabula-Nxiweni; former project manager for the IPTS Mhleli Mlungisi Tshamase; the former chief financial officer (CFO) Trevor Harper; the former chief operating officer Mzwake Clay; the former head of communications Roland Williams; and the former executive director for infrastructure and engineering Walter Shaidi.

Lawyers for the municipality argued before the high court and the Supreme Court of Appeal that approving the appointment of Erastyle was a violation of the Constitution and the supply chain management policy. Further decisions to approve the R6-million payment, lift the cap on payments to Erastyle and a decision to increase the contract value from R6-million to R6.9-million were unlawful and invalid.

Former Nelson Mandela Bay metro mayor, Athol Trollip, and former city manager Johann Mettler spearheaded these efforts in February 2016.

Last week, responding to a question by Trollip on whether the municipality had recovered the funds as the court ordered, the Minister of Cooperative Governance and Traditional Affairs, Velenkosini Hlabisa, said he was informed by the metro as follows: “The Nelson Mandela Bay Metropolitan Municipality (NMBMM) has confirmed that recovery processes are under way in compliance with the Supreme Court of Appeal judgment.”

The minister then explained that several civil recovery proceedings were under way.

These include:

• Erastyle (Pty) Ltd, Mbambisa, Tshamase, and Harper are jointly and severally liable for R5,263,179.89, plus interest and costs.
• Erastyle (Pty) Ltd, Mbambisa, Tshamase, Harper, Clay, and Williams are jointly and severally liable for R1,390,800.00, plus interest and costs.
• Erastyle (Pty) Ltd, Mbambisa, Tshamase, Harper, and Shaidi are jointly and severally liable for R984,197.21, plus interest and costs.
• In total, Mbambisa, Tshamase, and Harper are indebted to the municipality for R7,638,177.10.

Hlabisa said the municipality declined settlement offers and proceeded with writs of execution against immovable properties owned by Mbambisa, Williams, Clay and Harper.

“In the case of Harper, his immovable property has been sold, and a tracer has been appointed to locate additional assets. Properties linked to Shaidi and Tshamase are subject to restraint orders by the high court. The municipality has formally notified the National Prosecuting Authority of its interest in these properties and requested to be informed should the National Director of Public Prosecutions apply to have these unfrozen, to enable the municipality to make representations.

“The municipality is undertaking processes to act on and recover the specific funds; the details will be submitted once the processes are finalised,” Hlabisa added.

In a further development to keep errant officials accountable, Auditor-General Tsakani Maluleke last week also issued the first certificate of debt against a municipal official holding them liable for wasted taxpayers’ money spent on overpayment for water tanker services.

The certificate, for the amount of R4,616,074.66 and interest, was issued against Ngaka Modiri Molema, the accounting officer for a district municipality in North West province. DM