Gauteng Department of Education Forensic investigation: Glenvista High School Executive Summary to Final report R21412-21637F
KPMG Services (Pty) Limited KPMG Wanooka Place 1 Albany Road Parktown, Johannesburg South Africa, 2193 Tel +27 (11) 647 1111 Fax +27 (11) 647 8263 Private and confidential Mr William Makgabo Director: Risk and Compliance 111 Commissioner Street Johannesburg 2001 Dear Mr Makgabo Executive Summary to the Factual Findings Report: Forensic investigation into allegations raised at Glenvista High School This executive summary has been prepared to provide you with a high level overview of our findings pertaining to our forensic investigation at Glenvista High School and should not be used for any other purpose without our prior consent. Our detailed findings are contained in our factual findings report dated 9 June 2015. Please do not hesitate to contact me or Patricia Gabriel should you require any clarification on our report. Yours faithfully KPMG Services (Pty) Limited Shirley Ivason-Wagener Director Policy Board: Chief Executive: TH Hoole KPMG Services Proprietary Limited is a company incorporated Under the South African Companies Act and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Services Proprietary Limited is not a Registered Auditor In terms of the Auditing Pr5ofession Act, 26 of 2005 and does not Provide audit services as defined in Section 1 of this Act. Registration number 1999/012876/07 Executive Directors: N Dlomu, M Letsitsi, SL Louw, NKS Malaba, MM Mapaya, M Oddy, CAT Smit Other Directors: ZH De Beer, LP Fourie, N Fubu AH Jaffer (Chairman of the Board), FA Karreem, ME Magondo, AMS Mokgabudi, GM Pickering, JN Pierce, T Rossouw, M Saloojee, GCC Smith The company s principal place of business is at KPMG Crescent, 85 Empire Road, Parktown, where a list of the directors names is Available for inspection.
Background and Scope Background and Scope The (GDE) received various complaints / allegations of maladministration and financial irregularities at Glenvista High School (GHS). GHS was established in 1988 and is incorporated under Section 21 of SASA. GHS has an enrolment of around 1350 learners with an annual budget approximating R24 million. The allegations included the following: Financial mismanagement SGB receiving financial benefits and potential conflicts of interest S38A payments made without approvals Procurement irregularities, including lease agreements Payments made for expenses not in the ordinary course of school activities, ie air travel Recruitment irregularities Budget tampering Principal received payments for classes that he/she had allegedly not conducted Scholarships and exemptions were not authorised/granted without obtaining the relevant approvals Fixed assets not accounted for in the accounting records Repayment by educator of staff loan was not accounted for in the accounting records of GHS Purchases of Cellphones/Tablets for the HODs without obtaining approvals. We were further required to extend our mandate to include the following allegations: Misrepresentation by the SGB to the parents relating to findings of the forensic investigation conducted in December 2013; Construction of the Pavilion and Mine your Mind center did not comply with the relevant legislation and policies; Irregular appointment of coaches and the potential conflict of interest with educators; Payment by learners for the matric dance; Payments made to the former Principal for personal expenses; and Alleged anomalies regarding the lease payments for equipment. 2
Findings and Conclusions Based on the available evidence, we found instances of financial mismanagement and other irregularities as described herein. Income and Expenditure GHS operated more than one bank account and required prior approval in that regard from GDE in terms of SASA. It was confirmed by GHS that no approvals from GDE were obtained; GHS failed to comply with the school s finance policy in that in most instances, the three quotations process was not followed; There is a trend of under budgeting of income and over budgeting of expenditure which influences the amount of school fees per learner upward. This presents an opportunity for a potential buffer for transactions that were not budgeted for. The accounting records were in the main not properly maintained by the school. There were significant reallocations and reversals to the transactions noted in the General Ledger (GL). Furthermore, there is no system for the management of petty cash in that there are no records kept for petty cash transactions. Management was in the main solely involved in the financial decision making. It is apparent that the SGB had no or very little oversight in the financial affairs of GHS; and The school s financial records, ie Annual Financial Statements (AFS), GL and Bank Statements, do not reconcile. In this regard. there is a potential for misrepresentation of the AFS. Investment Account The former SGB Chairperson was part of the GHS Fincom that approved the decision to invest in the Glacier Fund. The Glacier Fund was administered by the former SGB chairperson in his capacity as a financial planner on behalf of the appointed investment company. In this regard, he failed to recuse himself when the decision was made to appoint the investment company for the Glacier Fund thus placing himself in a potential conflict of interest situation; The former SGB Chairperson received a financial benefit from the investment in the Glacier Fund which was not in line with SASA. Furthermore, the SGB failed to obtain approval from GDE for the investment in the Glacier Fund. Timeshares Timeshares donated to the school were not used for fundraising as intended. In this regard, these timeshares were for the benefit of the Staff of Glenvista. One set of timeshares were transferred to the Glenvista Trust. This is not in line with the requirements of SASA; The school paid the levies for the timeshare accommodation from the income that was earned by the auctioning of the timeshares to the staff. However, the income from the auctions did not cover the levies due on the timeshares. The school incurred costs on the timeshares which does not constitute expenses for educational purposes as required by SASA; and The timeshares were not disclosed in the AFS. Furthermore, the levy costs were included as administration costs. In this regard, the AFS may be misstated in respect of the disclosure of assets. Payments in favour of the former Principal Payments were made on behalf of the former Principal for levies on his holiday home, installation of a carport and hunting fees. In this regard, payments were not for the benefit of GHS. The former Principal therefore did not act in the best interest of the school when he instructed these transactions to be paid for his personal benefit. 3
Findings and Conclusions Air travel expenditure Expenditure for air travel was for the personal benefit of the former Principal and not for educational purposes. The former SGB Chairperson instructed the purchase of the air tickets. There was however no SGB approval for the transaction. The aforesaid expenditure was accounted for in the Sports Awards ledger account, which does not relate to the sports awards. Purchase of cellphones and tablets for the HODs The allegation pertaining to the purchase of cellphone and tablets for HODs was unfounded. Conflict of interest of SGB Member The debt collecting company appointed at the school belonged to a former SGB member and was appointed at the time when she was an SGB member. In this regard, the former SGB member received a financial benefit from GHS in respect of the recovery of outstanding debtors fees, which is not in line with SASA. Matric dance There was no proper record keeping of income received for the matric dance event. In this regard, there is a potential for misuse of funds received. Section 38A payments There was non-compliance to SASA in respect of the Section 38A applications for the period 2012 and 2013 in that: Payments made for GDE appointed individuals for which applications were submitted and approved exceeded the approved S38A application; and Payments were made to GDE appointed individuals for which there was no approved S38A applications. Payments received for classes not provided The Principal received payments for accounting classes that she did not provide which was is in contravention of her employment contract. Recruitment There was no recruitment policy in place at the school. The absorption of SGB members, as educators, into the system may pose potential risks for GDE as these educators were appointed by GHS without following proper recruitment processes and there are no documentation supporting whether proper pre-employment screening was done and whether the said educators did in fact meet the relevant criteria. Appointment of Coaches There is no specific formalised process followed in the appointment of coaches. The former deputy principal was responsible for the appointment of coaches which included the appointment of his daughter as a coach. He failed to recuse himself from the process and avoid a potential conflict of interest. The appointment of coaches were not approved by SGB. 4
Findings and Conclusions Building plans There was approval by the SGB for the construction of the Pavilion and Mine your Mind centre. However, the school failed to obtain the relevant permissions from GDE. There is a potential risk of non-conformance to GDE standards which may have a financial impact on the school. Procurement and leases Procurement We noted that there was non-compliance to the procurement policy in that three quotes were not obtained for all transactions procured except for lease of the whiteboards. We noted that GHS uses preferred service providers, however there is no processes followed in the selection and appointments of preferred service providers. Not all service providers have contracts in place which poses a risk that the school will have no recourse should the said service providers not be able to deliver. There is no approval by the SGB for the appointment of service providers. Leases There are no quotations for the procuring of the leasing services for equipment from the suppliers, ie the finance company and the broker used in this regard. The lease agreement entered into between the finance company and GHS reflect the term of the contract as five years and that the assets remain the property of the broker unless the school applies and pays an additional amount for ownership; The cost for the lease of the equipment appears to be exorbitant. The Principal and SGB failed to apply their minds when entering into these lease agreements in that the school does not own the assets at the end of the lease term. In this regard, these costs may be regarded as fruitless and wasteful expenditure or not incurred in the best interest of the school; and The agreements were entered into for five years. This does not comply with the requirements of GDE / SASA that the term of the lease should be in line with the term of office of the SGB of 3 years. Misrepresentation relating to the forensic investigation conducted in December 2013 The statement issued by the SGB to the parents, reflected findings of a poor control environment and made no mention of the various contraventions and irregularities depicted in the report. The chairperson of the SGB failed to provide correct and accurate information to the parents the status of the school s governance and financial matters. 5
Recommendations Based on our findings and conclusions, the following high-level recommendations are made: Disciplinary and/or appropriate corrective action GDE should provide our detailed factual findings report to their legal team for consideration of appropriate action and / or disciplinary action to be instituted against the relevant officials on the respective irregularities as identified during our investigation. Furthermore, GDE should implement our recommendations on the improvement of controls, policies and procedures as detailed in our factual findings report. Civil action and recoveries We further recommend that GDE considers the recovery of payments made in respect of those matters that were not in compliance with SASA, specifically in regard to: SGB members who received a financial benefit; Overpayments on S38A payments; and Payments made on behalf of the former principal. Criminal action We recommend that criminal action is considered in light of certain findings which may indicate potential criminal activity. 6
Disclaimer This executive summary report ( report ) has been prepared by KPMG Services (Pty) Limited ( KPMG ) exclusively for the benefit, information and internal use of GDE for the based on a forensic investigation conducted under our mandate letter dated 25 July 2014, and neither this report nor its content thereof may be used for any other purposes without KPMG s prior written consent. This report is a high-level summary of our detailed final report dated 9 June 2015. In preparing this report, KPMG has relied upon and assumed, without independent verification, the accuracy and completeness of any information provided to, and/or gathered by KPMG whether from public sources or otherwise, and accordingly KPMG express no opinion or make any representation concerning the accuracy and completeness of any such information contained in this report. The procedures carried out to date by KPMG, do not constitute an audit, examination or review in accordance with generally accepted auditing standards and, therefore, KPMG do not express an opinion and/or make any other form of representation regarding the sufficiency of the procedures that KPMG performed. KPMG s findings shall not in any way constitute advice or recommendations regarding any commercial decisions associated with this report. All relevant issues may not have been identified, and only those issues that have been identified as part of our review are included in this report. The information contained in this report is based on information as at. KPMG has not undertaken to nor shall KPMG be under any obligation to update the report or revise the information contained in the report for events or circumstances arising after and the presentation or any information contained in the presentation shall not amount to any form of guarantee that KPMG have determined or predicted future events or circumstances. This report cannot be copied, published, quoted, referred to or disclosed by GDE to any other third party, without KPMG s prior written consent. No party, other than GDE, may rely on this report, either in whole or in part. KPMG and/or KPMG Inc, including its directors, employees and agents, and any body or entity controlled by or owned by or associated with KPMG or KPMG Inc (collectively KPMG) accepts no liability or responsibility whatsoever, resulting directly or indirectly from the disclosure or referral of this report to any third party and/or the reliance of any third party upon this report or the contents thereof, either in whole or in part and GDE agrees to indemnify and hold KPMG harmless in this regard from and against any and all claims from any person or party whatsoever, expenses, liability, loss or damages arising from or in connection thereto. 7
Shirley Ivason-Wagener Director KPMG Services (Pty) Limited Wanooka Place 1 Albany Road Parktown 2193 Tel: 082 714 0278 Patricia Gabriel Associate Director KPMG Services (Pty) Limited Wanooka Place 1 Albany Road Parktown 2193 Tel: 082 713 8044 2015 KPMG Services (Proprietary) Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).