After audit, Nxesi says: The rot runs deep

2014-07-20 15:00

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An empty six-storey office block in Pretoria, a shopping centre in Heidelberg that contains no government agencies, and a strip mall in Lenasia that houses a supermarket, a grocer, and a car sound business.

These are just three of the 120 buildings the public works department paid rent for, which are either empty or occupied by private companies.

After his budget vote this week, Public Works Minister Thulas Nxesi ordered a fresh forensic audit of how long the department has been ripped off to the tune of more than R60?million a year by the owners of empty buildings and even vacant plots that were supposed to house government officials.

Nxesi told City Press this week “the rot runs deep” after the audit, jointly conducted with the Treasury, of 2?162 privately owned buildings leased by various government departments in major towns and cities, found that:

»R5?million a month was blown on 108 empty buildings;

»R1?million a month was spent on 12 offices occupied by private businesses – including a “lotion factory”;

»578 lease agreements were invalid and payments to landlords couldn’t be substantiated;

»1?742 leases were negotiated directly with landlords and not put out to tender;

»Three building leases were for vacant land; and

»For 644 properties, annual rent increases exceeded market value by as much as 30%.

This, according to Nxesi, was just the beginning. Government still doesn’t know how much it has paid over the years as there were no lease agreements in many cases.

Now they are preparing for a massive court battle with “powerful” property owners to get the money back.

“This rot is demoralising and disappointing, but it’s equally exciting that we are discovering these things.

“It shows that the turnaround strategy is working because we are digging up the dirt,” Nxesi said.

Although government has stopped paying the irregular leases, the public works audit showed that in 356 of them, it paid for more space than was actually occupied by government agencies.

The audit also found that government was charged higher annual increases compared with other tenants, with the rents of 644 properties found to have been hiked by 30% more than market value.

Port Elizabeth had the most leased properties – 134 of them – whose annual rent increases were 30% higher than the market rate, followed by Pretoria with 92 and Mthatha with 78.

The report also expressed concern about the many leases negotiated directly with landlords, which were “open to poor business practices, financial risks, lack of objectivity and manipulation”.

Public works’ Durban regional office had the highest number of these at 302, followed by 235 in Port Elizabeth and 180 in Cape Town.

The report also found that 33 leases, valued at more than R500?000 each, were signed without officials obtaining three different quotes per property, as the law demands. Of these properties, 29 were in Mthatha and two each in Kimberley and Mmabatho.

Nxesi said that after the forensic investigation, lawsuits would be brought against property developers found to have defrauded the state.

“Property owners and officials have to repay this money,” Nxesi said, blaming the rot on the fact that his department had hired officials without the “technical” skills needed to manage leases.

“The rot has exposed that there are problems with the systems in the department, financial controls and lack of skilled people to run a technical department,” he said.

“When a property company signs a contract with us, they bring with them their banks, property economists, lawyers, actuaries and accountants. But we only bring our deputy director-general.”

Nxesi said he would propose to Cabinet that government buy its own buildings rather than lease privately owned ones. He would like the state to own at least 80% of the buildings it uses.

“We’re moving towards a point where government should build its own precincts where you find all the state services. A precinct for the justice cluster can have offices for social development, police and home affairs all in one place so that people don’t move around to get services. That’s a long-term vision,” he said.

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