SAA on the KPMG Report: Key findings, recommendations and corrective measures

Meeting report

Chairperson of the SAA Board on the forensic investigation
Ms Cheryl Carolus, the Board Chairperson, said that the investigation had been vigorous, fair and transparent. The investigation had commenced in February 2009, when trade unions had made allegations of wrongdoing. It was concluded the previous October by KPMG, the auditing concern appointed to investigate the allegations. From that date until the previous December, Dr Khaya Ngqula, the former CEO, kept asking for more information, until it was finally decided to conclude without the benefit of a response from him. The SAA had appointed lawyers to advise the Board. A senior counsel had been appointed. Findings could be shared, although the investigation had not been concluded. There would be further steps taken, based on more information.

Ms Carolus emphasised that although there were instances of wrongdoing, the SAA had maintained its world-class status. The SAA had performed excellently during the World Cup, with encouraging feedback received. The Board was grateful for the performance of SAA staff. R15 million had been spent on the investigation, but that had to be viewed as the price of justice. There had been failures of procurement and wasteful expenditure. The previous Board enquired why there had been non-compliance with the PFMA.

Ms Carolus proceeded to outline the matters investigated, and steps taken with regard to them.

Retention bonuses
Dr Ngqula had exceeded the maximum financial limit imposed for the scheme, by over R27 million. It had been beyond the power of Dr Ngqula to expend such monies. The Board was currently taking action against Dr Ngqula for the money. A summons had been served on him the day before.

Sport sponsorship agreements
Dr Ngqula had concluded a number of sport sponsorship agreements, with values in excess of his delegated authority. There had been a sponsorship agreement with the golfer Angel Cabrera to the value of R21 million, and with the Association of Tennis Professionals (ATP) to the value of R120 million. The Board was discussing claims against employees with attorneys. She wished to state clearly that Cabrera and the ATP were in no way implicated. Those parties had acted in good faith, and the SAA was contractually bound to them.

The African Open
A consortium and/or companies in which Dr Ngqula and his wife had an interest, obtained rights to a Sunshine tour golf event held in 2008, which became known as the African Open. He was involved in securing sponsorships for the event, inter alia from a competing airline. The Board was weighing up what could be recovered, but it seemed not advisable to run up costs.

Junkets to friends and associates at SAA’s cost
At a cost of R500 000 to the SAA, overseas trips were undertaken to the 2006 Soccer World Cup; the 2007 Rugby World Cup, and the 2008 ATP tennis tournament. Actions would be taken against Dr Ngqula for an amount of R500 000.

Hospitality suites
Dr Ngqula had concluded leases to the amount of R3,3 million for hospitality suites at four stadia around the country. That had been done against advice based on the company’s then financial position. There would be actions to recover the money from him.

Reinstatement of Voyager Miles
The report revealed no substance to allegations made of irregularities regarding the re-instatement by Dr Ngqula of the expired voyager miles or the voyager accounts of a service provider.

Awarding of jet fuel contracts by SAA to a supplier in which Dr Ngqula had an interest
A supplier in which Dr Ngqula held a significant indirect interest, was awarded a portion of the contracts. Although there was not a financial impact, Dr Ngqula would be held accountable for non-disclosure of interest.

Tender in respect of regional and domestic in-flight catering services and the disposal of air chef’s assets
The process followed in respect of the tender evaluation breached the requirements of SAA’s  Procurement and Supply Chain Manual. A local and an overseas consortium had tendered, The tender had been terminated, and the local consortium had objected. SAA lawyers were disputing the terms.

Tender of the outsourcing of SAA’s call centres
The process followed for evaluation of the bids with respect to that tender, fell short of the requirements of SAA’s Procurement and Supply Chain Manual. The Board decided not to question the award to the bidder. However, one of the directors of the SAA board had failed to disclose an indirect interest in a member of the consortium which had been awarded the contract.

Ms Carolus then discussed steps taken to conclude the investigation. The findings of the report and steps taken by the Board were taken to the Auditor General. Steps taken were informed by that. The Board had asked to go to Scopa. Steps were taken to institute criminal actions. The PFMA required recovery of losses. Possible grounds for criminal actions had to be reported to the criminal authority. Such had been lodged with the Commercial Crimes Unit. The Board did not have the authority to investigate allegations, and had to co-operate with investigative authorities. Finance and risk management had to be improved, and Board oversight strengthened.

A committee had been set up to investigate necessity of expenditure. The tender process had to be restructured. Fruitless and wasteful expenditure had to be reported, and the delegation of authority reviewed. The new CEO was reviewing job specifications in the SAA. Systems for finance and risk management would be reviewed and refined.

Discussion
Mr M Sibande (ANC, Mpumalanga) congratulated Ms Carolus on a dynamic report. He found it important that the exercise had to send a clear message. It was most important in terms of the country’s image. He was concerned about the capacity for risk management that existed. It had taken a long time to see the dynamics on the ground, in that case. There had been an initial outcry from the unions about Dr Ngqula, and it had taken a long time to respond to that. It appeared that Dr Ngqula had foreign interests and connections, and that he had investments abroad. Risk management had to be strengthened. It had taken too long to establish the non-compliance of Dr Ngqula with the PFMA.

Mr Z Mlenzana (COPE, Eastern Cape), said that it was a good report. He was convinced that there had been an advance. A turnaround strategy had been outlined. However, he wished to encourage the Board to dig still deeper and to avoid exclusive focus on one person. Dr Ngqula had been targeted by the SA, but many others could be involved. R15 million had been spent on the investigation, but it had been for a good cause. It could serve as a lesson to other entities, and also to government. He commended the fact that the Board had gone back in time to investigate tender practices. There was reason to be proud of SAA performance during the World Cup.

Mr P Van Dalen (DA) commended the Board for setting a precedent for parastatals. He supported efforts to recoup money. It had to be borne in mind that the Board ruled, and not the CEO. A message had been conveyed that theft from parastatals would not be tolerated. He asked about the effect of fuel contracts on the hedging of fuel, and possible insider trading.

Ms Carolus replied that fuel contracts and hedging were bank issues. Hedging related to who the SAA bought from.

Mr S Van Dyk (DA) asked about the amount of R8 million given to Dr Ngqula. Was it the proverbial golden handshake, or based on contractual obligations? That, added to the R15 million for the investigation and the R31 million to be recovered from Dr Ngqula, amounted to a total of R54 million down the drain.

Ms Carolus replied that the issue had been resolved contractually.

Dr G Koornhof (ANC) said SAA had provided a groundbreaking initiative that sent out a clear message to the SAA against self-enrichment. Corruption would not be tolerated. A good example had been set. The report revealed flaws that had to be addressed. He supported taking investigation into the past, but the future also deserved attention. Systems had to be rectified, to make SAA a sustainable business.

Dr Koornhof continued that a CEO could not be permitted to be a law unto himself. He asked for information about how a CEO was appointed. It could not be allowed that a CEO would not listen to the Board. There had to be procedures for good governance. He asked if it could be stated that the previous Board had acted in good faith. There had been negligence and transgressions like not declaring interest. Boards had to operate within the law. A message had been sent out to individuals in state owned companies to not tolerate malpractice.

A Member referred to the investigation as a brave move. A plethora of parastatals existed, and no sound database across ministries was available. A good message had been sent out. He remarked about a culture of conspicuous consumption and access to perks that left no room for conscience or discretion. It angered the public. It had been a bold move to launch the investigation. Newly appointed Boards should not be afraid to reveal the past. It would not suffice to adopt an attitude of forgetting the past. He was satisfied that the report had been produced speedily.

Mr M Nhanha (COPE) said he believed in clean governance. The investigation had been an unprecedented action. Not everyone had the guts, as he put it, to do a thing like that. He wished to caution the Board that Dr Ngqula was not a non-supporter of government, hence the Board’s actions might be viewed with suspicion. He referred to Mr Mlenzana urging the Board to dig yet deeper. Allegations of corruption had been made when the SAA was under the oversight of the previous Board, led by Professor Garbers.
The Board had a duty to keep an eye on the CEO. If Dr Ngqula were to be seen as corrupt the Board would have to take the flack, as he put it. A balance had to be struck. He had urged the Minister to act on the sticky issue of airbuses ordered by the SAA. A new deal had been made with the manufacturer, but nothing had been done about the man who had ordered the airbuses.

Ms Carolus responded that there was a belief that the previous Board may have set people up for failure. The new Board wanted to keep the book open, but also wished to close it in some respects. The previous board had initiated the investigation, and had to be given credit for that. The KPMG had found that there had been one instance of non-disclosure, but no allegation that members of the previous Board had benefited. There had not been transgression in terms of the PFMA and the Companies Act.

Mr Nhanha referred to transgressions involving hospitality suites, linked to Dr Ngqula. For a company as big as the SAA, it was not uncommon to have such. He asked how much the Board had spent on that for the World Cup. R15 million had already been spent on the investigation. Dr Ngqula would defend himself. He asked if the Board was able to estimate the court costs of suing him. Ms Carolus had stated that it was not worthwhile to spend R10 to recover R2. He appealed to both Committees to give Transnet Board the same support as had been given to the SAA Board. He concluded that as a country, justice had to be seen to be done when allegations were pursued.

Mr C Gololo (ANC) said that he wished to add to the applause for the bold step taken under the stewardship of the Chairperson of the Board. He found the account to be elaborate. It was hard to ask questions. The status of the report was influenced by the fact that matters were before court. That could blunt the urge to investigate further.  He was satisfied that the Board was headed in the right direction, and advised it to follow that compass. The investigation could stand as a lesson to those who would use their skill and qualifications to steal from the nation. He referred to another member who had mentioned that steps had to be effected to address deficiencies observed in systems. Corrective action had to be based on that. On the question of interests, the report was still incomplete. He asked about a time frame for the completion of proceedings. Regarding hospitality suites, he enquired if leases signed by Dr Ngqula, had lapsed, and how the R3;3 million could be recovered.

Ms Carolus said losses had to be recovered. The matter had been handed over for criminal investigation. The Board had gone to the Auditor General, and would yet approach Scopa. It would do what the law required. Regarding time-frames, she said that the Board wanted to urge closure. It would not do to have a sword hanging over SAA employees. Tight support systems were being created, systems of accountability and equity of reward. Concerning the hospitality suites, she said that Dr Ngqula had signed the World Cup contracts. A deal had been done with the sponsor of the suites, from which the Board could not extricate the SAA. There was an auditable list of who had been accommodated in the suites. Those included top selling travelling agents and highest account holders. There was also staff nominated by passengers on a weekly basis for good services.

A member asked if the new Board would continue sponsorship programmes. Regarding the catering tender, he asked about the position adopted to allowing foreign tenders to compete.

Mr R Tau (ANC, Northern Cape) said that the key issue was the mandate of state entities. He considered it a mistake to grant a mandate to operate as business entities, instead of one geared to development objectives. Conspicuous consumption was related to the desire to generate profits. State entities had to review their programmes in terms of development. For him the question was if Dr Ngqula was acting outside of the broad mandate of the previous board, or whether there had been some collaboration.

The KPMG had not looked at the role of the Board, only at the actions of the CEO. In terms of the PFMA, the buck stopped with the CEO, which might be why the previous Board was not investigated. It was understandable that a new Board would be cautious about investigating a previous one. But labour had been saying all along that there was corruption. There had been an antagonistic relationship, with the previous Board unwilling to listen to labour. The relationship with labour had to be enhanced. He would have liked to see an amount like the R120 million that went to ATP, employed to develop tennis in townships and rural areas. The support for ATP was partly developmental, but it amounted to spending on settled people. He noted that hospitality suites were embroiled in the outcry over sport development.

The Chairperson noted that responses from members showed much appreciation. She shared that on account of the fact that the SAA Board had approached both the NCOP and the Portfolio Committee. Portfolio and Select (NCOP) Committees had a common goal.

Ms Carolus said the SAA Board was just doing its job. The aim had not been to pursue individuals. The chief concern had been with SAA as a company. Money from taxpayers had been involved. The government owned SAA for developmental reasons. Parliament was seen as a body deserving respect, because it helped the country work. Accountability was crucial.

Ms Carolus proceeded to pay tribute to the new CEO of SAA, Ms Siza Mzimela. She said that the new CEO was a quiet person who did not draw attention to herself. There had been a global search for a new CEO, which involved considerable debate over the kind of person required. Ms Mzimela had a track record in business. She understood money and she understood South Africa. Four out of five shortlisted candidates had been South Africans. The representative weighting of SAA management indicated that South Africa had top management skills. It was encouraging to see a black South African woman emerge as the CEO.
Ms Mzimela had 14 years of experience in aviation. She had been Executive Manager of SAA for 7 years, and 7 years as CEO for South Africa express. It was good to have someone with that much experience of aviation, seeing that the average experience of the field among managers was three and a half years. There was a general lack of institutional memory.

At South African Express, there had been no strikes during her term as CEO, whereas SAA experienced endless strikes during that period. Ms Mzimela was in favour of human resource development, rather than the industrial relations approach. Recent interactions with pilots had been non-controversial.
The new CEO also had experience of working for a bank, and hence knew about interest rates and hedgings. The Board was happy with her actions up to that point. She concluded that values were of great importance to the new Board. There was a need to live the values embedded in the Constitution. The new CEO was keen to pursue such values.
Criminal investigations would complete their course. There was a legal obligation to recover losses. The programmes instituted by the former CEO were not all flawed. A strategic plan would be presented to the Board in October of the current year.

The Chairperson remarked that the report would be studied and recommendations made by both Committees. The new Companies Act would be studied. She urged that there be a move beyond investigation towards bringing things in line with international best practice.

The meeting was adjourned.