Pikitup helps pile up Joburg debt

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An executive at Pikitup allegedly lied about having authorisation to circumvent national procurement legislation regarding the supply-chain management processes, leading to the City of Johannesburg’s waste management entity losing about R1.3  billion.

A forensic investigation by law firm Malatji & Co Attorneys showed that Pikitup chief financial officer Litshani Matsila lied to senior managers when he said a board resolution mandated him to usurp fleet and creditors management functions in awarding more than R1.26  billion to 18 companies to provide 124 vehicles at four waste management depots.

The report, dated November 2022, was commissioned by Pikitup’s former board, whose term ended in February. 

Pikitup has to use external companies for its waste management operations because it has only 24 vehicles, but 130 are required to do the work properly. 

The Mail & Guardian reported last week that the investigation showed that Pikitup’s payments to the 18 companies, from 31 August 2021 to 1 September 2022, were double the amount the entity paid to rental company Avis during its 32-month contract with the city. In the 2018‑19 and 2019-20 financial years, Avis charged Pikitup R448.1 million and R497.6 million, respectively, underscoring the forensic report’s findings that the 18 external firms charged “exorbitant” fees that did not correlate with the work done. 

The alleged wasteful and irregular expenditure highlights what Johannesburg MEC for finance Dada Morero said in his budget speech on Tuesday, when he painted a bleak picture of the city’s finances and that there was “an increase in the number of key municipal entities in overdraft positions”, including Pikitup. 

Tabling the city’s R80.9  billion budget, Morero said Johannesburg had recorded a loss of R2.1  billion during the 2022-23 financial year against a budgeted profit of R1.1  billion, leading to its cash balance falling from R6.6  billion in June 2021 to R3.8  billion a year later.

“In the current financial year ending June 2023, the city will be required to repay over R3  billion of its debt. The current cash level and poor revenue collection has placed the repayment of the debt at a significant risk,” Morero warned on Tuesday. 

Meanwhile, Johannesburg residents will be saddled with a 7% hike in refuse tariffs in the 2023-24 financial year to make up for the losses made by Pikitup, Morero announced.

“Pikitup is a labour-intensive business and the bulk of its cost structure is based on staff costs. In determining a cost-reflective tariff structure, various options are being explored on waste management and landfill capacity,” Morero said.

‘Abuse of power’

Despite the strained finances Johannesburg is expected to contend with over the next three years, Pikitup’s Matsila saw it fit, according to the investigation, to flout the Municipal Systems Act, the Municipal Finance Management Act and the entity’s fleet management standard operating system, among other violations, in significantly increasing its vehicle hiring budget. 

The report said Matsila, in “collapsing the city’s internal checks and balances” to pay the ad hoc or external providers, lied that he had board approval. The investigators labelled this an “abuse of power”. 

“We requested the written authorisation and/or board resolution authorising [or] mandating the CFO [chief financial officer] to take over the management of ad hoc fleet services, to no avail. To that end, we were informed that there was no such authorisation, mandate [or] resolution,” reads the report.

“During our investigation we could also not locate such authorisation/mandate/board resolution in the extensive bundles of documents that were provided to our offices.

“That being the case, the only reasonable conclusion to draw is that the CFO was not mandated [or] authorised by the board to take over the management of ad hoc services from Pikitup’s fleet management department.

“It further means that the CFO acted in a grossly dishonest manner in purporting to be authorised [or] mandated by the board to take over the management of Pikitup’s ad hoc fleet services and in performing duties not specifically assigned or delegated to him,” the report added.

The City of Johannesburg appointed a new board in March which renewed his contract after Matsila’s first four-year term ended, despite receiving the damning investigative report and a recommendation for Matsila’s dismissal after a February disciplinary inquiry.

The investigation into Matsila found that he used a “phone and email-based” system to deal with the service providers. 

This was contrary to a clause in Pikitup’s standard operating procedure, which requires that a motivation form be filled out detailing the type of vehicle, the activity and specific working hours required for outsourced services. 

None of this was followed by Matsila, who allowed the external firms to charge amounts that did not correlate with the work done. 

Despite an above-inflation increase in refuse tariffs to make up for Pikitup’s failing financial management, spokesperson Nthatisi Modingoane, responding on behalf of the city, the mayoral committee and Pikitup, called the company “the best-performing entity”.

Modingoane rejected the assertion that Johannesburg resembled a dumpsite, with rubbish piling up on street corners.

“During the evening, the city is clean; however, immediately when people start arriving in the CBD [central business district] in the morning, then the city becomes dirty as shops would be opening and garbage [is] thrown to the street,” he argued.

“However, marketing campaigns are planned to be rolled out to ensure that every citizen of the city is sensible enough regarding handling the waste.”

Modingoane further denied that the city lost nearly R1.3  billion, saying the Mail & Guardian “could be incorrect”.

“This amount was not lost and is also not irregular. Your statement is incorrect. These contracts are audited … by the internal audit unit, and by the AGSA [Auditor General of South Africa] — they are not declared irregular or wasteful,” he said. 

On the report itself and Matsila’s subsequent dismissal after a board-commissioned inquiry, the city spokesperson said the process followed by the previous board in initiating the forensic investigation was “unprocedural”, without elaborating.

Modingoane added that Matsila’s contract was renewed because the new board was waiting for the completion of the investigation by the city’s internal investigative unit into Matsila before deciding on his future.

“Therefore, the city and entity have not ignored the allegations levelled against senior officials but have sought to follow processes to protect the city from financial, legal, and reputational risks,” said Modingoane.