South African Airways on KPMG Forensic Report

Public Accounts (SCOPA)

30 August 2010
Chairperson: Mr T Godi (APC)
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Meeting Summary

South African Airways had requested the chance to brief the Committee on issues resulting from a forensic investigation carried out by KPMG on certain issues involving the former Chief Executive Officer. The investigation found that Mr Khaya Ngqula had exceeded his authority in several matters and was liable for repaying at least R37 million. Criminal charges had also been laid. Further investigations would probably lead to further charges as evidence became available.

Members welcomed the actions taken by the Board. However, they were critical of having the investigation undertaken by a private company at great expense when there was a state Special Investigating Unit equipped for such investigations. Members also questioned the lack of any probe into the actions of the previous Board despite a number of warnings of gross financial mismanagement.

Members questioned the use of an outside company to fulfil the internal audit function. This was a very expensive contract and the company had not provided the service required. Their role in failing to alert management to mismanagement was also questioned. The Committee was assured that corrective measures were in place and internal capacity would be developed.

Meeting report

The Chairperson welcomed the delegation from South African Airways (SAA) who introduced themselves. Members had received an executive copy of the KPMG report into allegations of misconduct in SAA. He understood that certain legalities had prevented the distribution of the full report. SAA was an important public entity. The Committee had engaged with the leadership before. The Annual Report presented by SAA was not good. In previous meetings the Committee had been told that everything was under control.

Ms Cheryl Carolus, Chairperson of the SAA Board, said that a number of matters addressed in the KPMG report were of concern to the Committee. Indeed they were of great public concern. She wanted to make the information available to the public. During 2007 and 2008 a different Board had been in place. The new Board had been appointed in tranches. The last member had been appointed in April 2010. It was a well-rounded body.

Ms Carolus said that the process of investigation was pretty well concluded. A trade union member had gone to the then Public Enterprises Minister Mabandla and had raised seven matters of concern. KPMG had been appointed to investigate the allegations. Their investigation was substantially concluded by September 2009. The Board had taken legal advice, and had been advised that they had a legal responsibility to act.

Ms Carolus said that most of the staff of SAA were honest and proud South Africans. They had maintained the airline's status as one of the best in the world. This was demonstrated by six international awards which SAA had earned.

Ms Carolus said that the failures were mainly in the area of procurement and wasteful expenditure. An extensive and costly investigation had been launched which had cost approximately R20 million. The Board realised that it needed to draw the line and hand matters over to the authorities. She was confident that SAA would recover enough of the money in question to cover its costs. It had to fix the failures in corporate governance.

Ms Carolus said that SAA had requested an interview with the former Chief Executive Officer in October 2009. Mr Ngqula had stipulated conditions to such an interview. By December there had still been no engagement and the Board had been forced to proceed without Mr Ngqula's input. Specific allegations were in contravention of Section 234 of the Companies Act and Section 15(3) of the Public Finance Management Act (PFMA). Mr Ngqula had allegedly exceeded his authority. This had led to irregular expenditure.

Ms Carolus said that the first allegation concerned the payment of retention bonuses. In 2007 the Board had approved the payment of retention bonuses to key and critical employees. These were to be paid over a period of time and the beneficiaries would have to repay the bonus should they leave the employ of SAA. Monthly payments were made. A monetary limit was set. The bonuses were administrated by Mr Ngqula and an executive member. The KPMG investigation found that Mr Ngqula had allowed the bonuses paid to exceed the agreed limit by R27 million. He had no authority to do so. Action was being taken for the recovery of this amount. A summons had been served on Mr Ngqula.

Ms Carolus said that the second issue was one of sports sponsorships. Mr Ngqula had been authorised to approve sponsorships of up to R1 million. This limit was increased to R2 million on 26 November 2006. Mr Ngqula had approved a sponsorship of a minimum of R21 million over a three year period for Argentinian golfer, Mr Angel Cabrera. This did not include performance bonuses. Between 2006 and 2009 SAA had sponsored the Association of Tennis Professionals (ATP) tour to the tune of R120 million. This was still a matter of concern. SAA had referred the matter to its attorneys to see if the money could be recovered. There was possible criminal liability. No impropriety could be attributed to Mr Cabrera or the ATP as they had assumed the sponsorship negotiations were in good faith and that Mr Ngqula was properly authorised. SAA still regarded itself as bound to the agreement with Mr Cabrera. The ATP sponsorship had run its course.

Ms Carolus said that the third matter involved the African Open golf tournament. This tournament had been arranged by a company in which Mr Ngqula and his wife had an interest. Mr Ngqula had arranged sponsorships for the event, one of which was from a competing airline. At the same time, Mr Ngqula was organising the termination of SAA's sponsorship of the South African Open golf tournament. The Board did not feel that it would be cost-effective to pursue this matter. It was a question of whether it was worthwhile to spend R20 to recover 10c.

Ms Carolus said that another related issue was junkets which Mr Ngqula had arranged for friends and associates. Mr Ngqula had used SAA resources to take friends to three events, namely the 2006 Soccer World Cup in Germany, the 2007 Rugby World Cup in France and an ATP event in Monte Carlo in 2008. There were no benefits for SAA. An amount of R500 000 had been spent. The Board felt that this was a clear case to pursue the recovery of the money. A summons was being prepared.

Ms Carolus said that Mr Ngqula had arranged the hire of four suites at stadiums in the country. This had been contrary to advice from both inside and outside of SAA. The cost to SAA was R3.3 million. The suites had hardly been used. The Board had instigated legal action to recover the money.

Ms Carolus said that the fourth matter related to SAA Voyager miles.  Mr Ngqula had illegally re-instated expired Voyager miles for a service provider to SAA. The current Voyager policy was too vague too make a case out of this matter. The Board had addressed the issue and would review the Voyager policy.

Ms Carolus said that the fifth matter related to contracts for the purchase of jet fuel. Between 2004 and 2009 SAA had awarded three tenders for the supply of jet fuel. A supplier in which Mr Ngqula had a significant indirect interest had been awarded a portion of the contracts. There was no evidence that SAA had been prejudiced in the award of the first two tenders. It would still be investigated as a matter of urgency should such information emerge. The tender of 2008 had been negotiated by an independent expert. This had been favourable towards SAA. However, there was still a problem in that Mr Ngqula had not disclosed his interests.

Ms Carolus said that the sixth matter involved the Air Chefs subsidiary of SAA. A tender was issued for catering services on SAA's regional and domestic network and the disposal of the assets of Air Chefs. The Board had identified a preferred bidder even though the process was a bit flawed. This bidder was a consortium of local and foreign entities of which the foreign entity had the majority interest. This foreign entity had subsequently withdrawn its tender. The Board had then withdrawn the tender and terminated the process. The local company objected and threatened to take SAA to court. It was still unclear if any litigation would result from this.

Ms Carolus said that the seventh matter raised in the KPMG report was in relation to the outsourcing of SAA call centres. The report found that the process of awarding the tender for the call centres was not compliant with good supply chain management principles. One director had failed to disclose an interest, and had failed to recuse him or herself from discussions on the award of the tender. The Board had however felt that it could proceed with the tender. While it was clear that the director had failed to disclose his or her interests, the preferred bidder had made a valid bid. It was the only company that could provide the service in time. This was in the period leading up to the 2010 FIFA World Cup. They also had offered the best price. No harm had been done to SAA in respect of finances or skills. The company was providing a much improved service to SAA's customers. The call centre had been established in Parktown.

Ms Carolus said in conclusion that serious systematic weaknesses had been exposed. Measures had been introduced to prevent a recurrence. SAA had searched globally for a new CEO. The top five candidates had been identified including four South Africans. Employment equity at executive and management level was no longer an issue as SAA was fully transformed. There was no need to look for a candidate from a specified demographic group.

Ms Carolus said that the Board had chosen a black woman for the post of CEO. She was the best candidate for the position. Ms Siza Mzimela had the longest experience in the aviation industry apart from one candidate. She had spent seven years as a senior manager at SAA. She had come from a banking background. She had served as CEO of South African Express Airways. This airline had not been hit by strikes nor required any bail-out from government. She had served in that position for seven years.

Ms Carolus said that the new Board had established a sub-committee to deal with procurement. Legitimate demands would be considered. This sub-committee would oversee the award of tenders and contracts. Restructuring was proceeding. The Board now wanted reports on all fruitless expenditure no matter how small the amount might be. Delegations of authority had been renewed and staff members had been educated. A new financial control and reporting system was in place.

Ms Carolus said that internal disciplinary action had been taken. Nothing could be done to those members who had left SAA's employment although some might still be charged with criminal offences. The Board wanted to lay the applicable charges now rather than wait for a full investigation. The current situation was not the last word. SAA was en route to closure of the issues. Systems were being addressed. The Board would not hesitate to take what steps were needed.

Ms T Chiloane (ANC) asked what role the previous Board had played in the investigation.

The Chairperson agreed with this question. The KPMG report had been more about the allegations against the former CEO.

Ms Carolus replied that the report had been instigated by the previous Board. That Board had handed over its duties to the current Board before the investigation had been completed. No Board member had been found guilty of any offence except for the one director who had not disclosed an indirect interest.

The Chairperson said that the Board was accountable. In fact, the investigation had been triggered by a trade union and not the Board.

Ms Carolus replied that the Board had taken the allegations to a forensic auditor. The former CEO had been the head of management. She could not second guess the actions of the previous Board.

Ms Chiloane asked what the Board's intention was in appointing KPMG to conduct the investigation. R20 million had been spent when the Government had its own Special Investigating Unit (SIU).

Mr Zakhele Sithole, SAA Board Member, was chairperson of the audit committee. He said that the report had been given to the shareholder, namely the Department of Public Enterprises (DPE). The DPE had taken appropriate legal action.

The Chairperson said that the previous Board had not done its work well. The SIU was a public institution and their costs would be much less than those of a private company. He asked why public entities had to go to a private company. He was not convinced that it had been a prudent decision.

Ms Carolus replied that Mr Sithole had gone to the Auditor General (AG) and the Treasurer General. He had wanted to draw a line. He had also spoken with the then Chairperson of Standing Committee on Public Accounts (SCOPA).

Mr R Ainslie (ANC) commented that he was a very critical flyer but SAA was a good airline. He had recently flown on seven different international airlines and found SAA to be the best. He asked why the current Board had not ordered a probe into the activities of the previous Board. He quoted from a report received by the Committee in 2007. This had been full of warning lights but had been ignored by the previous Board. In 2008 the audit committee had been reported as being dysfunctional. The previous Board must answer for this. He was surprised at the laissez-faire attitude of the current Board.

The Chairperson found this situation unacceptable. The KPMG report indicated that the previous Board had not done its work.

Ms Carolus replied this was a matter for the shareholder to address. It was not for one Board to criticize another.

The Chairperson accepted that some breaches might occur. However, he asked what the point was of appointing a Board if management could do just as it pleased. The previous Board had been criticized harshly in the report quoted by Mr Ainslie. Members of the previous Board had all been serving on at least twenty other boards.

Mr Andrew Shaw, Acting Director-General, DPE, said that the unions had approached Minister  Mabandla and presented a dossier. This dossier contained several allegations but no evidence. The KPMG investigation had been instigated at the request of the shareholder. The current Minister of Public Enterprises, Barbara Hogan, had called for improved governance in the State-Owned Entities (SOEs). The DPE had identified all the boards on which the members of the previous SAA Board were serving and had compiled skills profiles. The Department had identified the candidates for the current Board. They had looked for people with the specialised skills to manage an airline. The audit committee was adequately represented. One member of the previous Board remained on the new one. There had been a need for dramatic alteration. This could only be handled by putting in a capable team. A substantial document had been given to the Minister. There was no direct evidence against any Board member.

The Chairperson said that it was not a question of a Board member being accused of anything. The question was whether the Board had made bad decisions.

Mr Shaw replied that he was not privy to Board meetings. The internal audit and audit committee functions had a role to play. There was also an external audit process.

Mr Ainslie concluded that Mr Shaw did not have the answers. This renewed his concern that there had been no probe into the previous Board. The Board had not practised good corporate governance. There was a clear case of gross negligence.

The Chairperson said that the CEO was under the board and the shareholder. His actions were their responsibility.

Mr P Pretorius (DA) asked what the role of the internal audit function was. It was a bad reflection on SAA. They had had to rely on the workers to expose the malpractices. Internal audit was in disarray. He asked why internal audit had not reported the situation to the Board. He asked if the internal audit group and the CEO were acting in cahoots. The report had not investigated their relationship.

Mr Sithole replied that the new Board had looked into this. The audit committee had highlighted weaknesses in the system and had used the internal audit to address the issues. The internal audit had become a part of management and had assisted management.

Mr M Steele (DA) said that there was a question of how much had been recovered and if anyone would be prosecuted. He was hearing the same old story. An SOE could not prosecute those who had left their employment and it was too expensive to recover the money. Mr Ngqula's actions had been very public. The junkets arranged for his friends and the stadium suites would have been general knowledge within SAA. Everybody knew that there had been massive wastage of money. He asked if SAA knew how much public money had been wasted between 2006 and 2009.

Ms Carolus replied that SAA was now taking the first step. Mr Ngqula was being sued for R37 million. Criminal charges had been laid. SAA had every intention of pursuing the matter. The case could become even bigger. At present, action was only being taken where hard evidence had become available already. SAA intended to recover all of the unauthorised expenditure. The Board was keeping a rigorous watch. It would act as more evidence was uncovered.

Mr N Singh (IFP) said that the report was an eye-opener. The Committee's work was often concerned with revelations after the fact. He asked why the previous Board had not acted on earlier reports. Political leadership must act. Members of a Board had an obligation to devote quality time to that company. The SAA Board members must say how much time they were devoting to the other boards on which they served. The past was the past and SAA could only try to recover what it could. There was a matter of principle. They must determine who had done wrong. The entire focus of the report was on one individual. He asked who were the others involved. A director had been mentioned but not named. He asked if the same things were happening on the other boards. He asked if Ms Carolus as Chairperson of the Board and Mr Sithole were satisfied that precautionary matters were watertight. The Committee needed concrete assurances.

Ms Carolus said that there had been very strong considerations. The Minister was clear that directors had to have enough time available to serve SAA effectively. The Annual General Meeting (AGM) would be held soon. A detailed report would be provided on which Board members had attended each meeting. The director named in the report was Ms Louisa Mazonda, who was a legal counsel.

Ms Carolus said that the Board was required to meet a minimum of four times a year. The current Board had held nine meetings in the previous year. She said that it had seldom happened that even one member was absent from any meeting. The same situation applied at the sub-committees. In addition to Board meetings, each member was expected to serve on one of the five sub-committees as well as serving on the Board of an SAA subsidiary. This was going beyond the norm. Attendance of meetings must be published and she had no doubt that the Minister would take action against any member who failed to comply. Regarding management staff, no person could serve on the board of another company without the permission of the SAA Board. The CEO, for example, served on the Board of South African Tourism.

Mr M Mbili (ANC) said he was asking questions on information which he would have expected to have been provided freely. He asked about the role of other management staff such as the Chief Financial Officer (CFO). There had been an internal audit function resident in SAA for two years. He was sure that they had been well rewarded for their services but had said nothing about what was happening. This was the very role of the audit committee. He understood that the current Board had inherited the problem. He asked what the role of the audit committee and other staff members was.

Ms Carolus replied that this was a valid question. The internal auditor was Ernst and Young. The Board was trying to work out if SAA was getting value for money. Ernst and Young were on contract. SAA would manage their performance.

Mr Sithole said that SAA was reviewing its mandate to Ernst and Young. They had called for a new audit plan. The question was on how to handle the situation going forward. They were being paid an annual fee of approximately R17 million. SAA was considering steps to develop its internal capacity.

The Chairperson asked what Ernst and Young were doing to earn this fee.

Mr Sithole replied that Ernst and Young performed internal audit functions. They had swayed from their mandate and were fixing problems instead of acting as consultants. They were becoming assistant management.

Ms M Matladi (UCDP) asked about the retention bonuses and if SAA was satisfied with the steps to recover the money. It seemed that their plans were loose-ended. She asked about the state of transformation. She knew what the legal issues were.

Ms Carolus replied that the legal process was now out of SAA's hands. They were a slave to democracy. They wanted to put the issue behind them as soon as possible.

Ms Matladi asked about the sports sponsorships. They had been referred to an attorney. She asked what the legal issues were.

Ms Carolus said that they had heard the allegations. Mr Ngqula had the right of reply. Staff members and some external agents had been working under instructions from the CEO. Engagement was taking place through the lawyers. The law was the law. Action on the sponsorship of Mr Cabrera would be taken later. The contract with the ATP had not been renewed.

Ms Matladi had expected a list of names.

The Chairperson said that a low-ranking worker like a cleaner might follow the instructions of the CEO without thinking. Management-level members should know better.

Ms Carolus replied that due process must be followed. Money could not be recovered at gunpoint - as much as she would like to see more direct action. SAA had used its initiative to report to the Committee.

Ms Matladi asked about the African Open. It had not been considered cost-effective to pursue this matter. She asked what costs had been involved. Municipalities had been involved. She asked which municipalities had been involved and how.

Ms Margie Whitehouse, SAA Board Member, said that the event had in fact run at a loss. SAA could not claim anything. SAA had been advised by their lawyers not to name the other parties involved, including the municipalities.

The Chairperson was not favourably disposed to information being withheld. Ms Whitehouse's response was not acceptable.

Ms Carolus asked the Committee to bear with them. The same restriction on imparting information also applied in the case of the junkets Mr Ngqula had arranged.

The Chairperson said that the fact that SAA had come to Committee on a voluntary basis was not an issue. When they were at Parliament, they must disclose the information requested by the Committee despite their proactive stance. It would not prejudice the case if the municipality was identified. Parliament needed the information. It would not comment on a case that was already sub judice.

Ms Carolus said that dockets had been opened. SAA was fully committed to full disclosure. It was an extremely difficult situation. Mr Ngqula had totally refused to talk to the new Board. SAA did not intend to withhold information but did have every intention to win its case.

Ms Matladi asked what the costs of the African Open were.

Ms Whitehouse replied that SAA was not involved. The tournament had been arranged by a private company in which Mr and Mrs Ngqula were involved. However, Mr Ngqula had used SAA's time and resources to put the tournament together. It was difficult to say what SAA could claim.

Ms M Mangena (ANC) said that SAA was claiming R37 million through the courts. She asked how much SAA had really lost. She asked what the value was of the golden handshake that Mr Ngqula had received. She asked why he had been given a settlement if SAA knew that he owed them money.

Ms Whitehouse said that the settlement was approximately R8.9 million. The settlement contract made provision for the possible recovery of money from Mr Ngqula. The Board had felt that Mr Ngqula could not remain in office while the case was being investigated.

The Chairperson asked why the Board had not rather suspended Mr Ngqula.

Ms Mangena asked why a settlement had been given if SAA was really sure that Mr Ngqula was guilty of embezzlement.

Ms Carolus replied that Ms Mzimela had been appointed by the Board. Mr Ngqula had not felt that he was accountable to the Board. He had been appointed by Cabinet. This was a grey matter that was also a concern with other SOEs.

The Chairperson said that if Mr Ngqula had been appointed as CEO by Cabinet then it was up to Cabinet to dismiss him. This was in the midst of the investigation. He asked why the Minister had released him. A political response was needed.

Mr Mbili had the image of the CEO sitting with a book full of blank cheques in his desk drawer. He did not believe that Mr Ngqula was signing the cheques alone. The CFO must have had a major role to play in payments.

Ms Whitehouse admitted that there was a lack of stability in the team. A CFO had been appointed in 2006 but had only lasted seven months in office. An Acting CFO was then in office for less than eighteen months. The current CFO had been appointed at the end of 2008.

Mr Mbili asked if the current CFO had been the Acting CFO under Mr Ngqula.

Ms Whitehouse replied that Mr Patel, the current CFO, had come from Telkom.

Mr Mbili said that there had been a management vacuum at SAA. He asked with whom Mr Ngqula had been working.

Ms Carolus replied that there had been shocking instability. Only Mr Ngqula could say what he had done. The buck stopped with the CEO. There were many questions for Mr Ngqula to answer. Matters raised before the Committee would not happen again. These things would not happen on the current Board's watch.

The Chairperson pointed out that Mr Ngqula and one of the management team were to oversee the retention bonus scheme. Other people also had a responsibility. There was an organisational culture affecting governance processes.

Ms Carolus was worried about skills levels. The legal section was hopelessly deficient. The new CEO was beefing up this department. People had not lived up to expectations. The holes were being plugged.

Ms Whitehouse said that internal steps had been taken. There had been a number of disciplinary actions, with sentences ranging from warnings to suspensions. A procurement agent had been suspended. Some actions were still to be completed. On the question of where the rest of the team was, the Board was still expecting Mr Ngqula to respond. KPGM had not brought these to the surface. SAA was expecting more names to come up.

Mr Mbili asked if SAA was getting value for money from Ernst and Young. The company would be involved with SAA for four years at a total cost of R68 million. They had been brought in because SAA had not had any internal capacity. He asked if the airline was now better organised.

Mr Sithole said that SAA was in the process of addressing these issues. The mandate given to Ernst and Young had changed. The audit committee was considering how to develop internal capacity. R17 million would be a healthy budget. He could not say what exactly SAA was getting out of it.

Ms Carolus said that SAA was not getting a lot of value from its arrangement with Ernst and Young. They would not allow the situation to continue. Performance management was in place.

Mr Mbili asked why the relationship was being maintained.

Ms Carolus replied that there was a contract with Ernst and Young. They were briefed by the CEO and CFO. Ernst and Young were not doing what SAA expected of them. They charged the airline by the hour. SAA's audit plans were being rewritten.

Mr Mbili was very frustrated with the situation.

The Chairperson asked when the contract would expire.

Mr Sithole thought the contract had one year left. SAA was following due process. The internal audit function would be put out to tender.

The Chairperson said that the question was why it was necessary to employ an outside company for internal audit.

Mr Sithole said that internal capacity could not be obtained overnight. A year might not be enough to develop such a capacity.

The Chairperson said that the Committee did not subscribe to the principle of a minimalist state. They did not want to encourage outsourcing. He was sure that SAA could employ enough people to develop an internal audit capacity.

Mr Sithole assured Members that the process had started. SAA should have adequate capacity by the end of the Ernst and Young contract.

The Chairperson wanted to see due process being followed with a correct tender process. It was clear that SAA would not have an internal function capacity within a year. The Committee wanted to see this happen.

Ms Carolus said she would look at shortening the time of developing an internal capacity. There was a general need to build capacity in the public sector. She revealed that Buffalo City was the municipality that had worked with Mr Ngqula on the African Open.

Mr Ainslie felt that the new Board had the heart but not the capacity. What they were seeing was the tip of the iceberg. He wanted to know with whom Mr Ngqula had been dancing the tango. The amounts being claimed were vague and might be much more than R37 million. Huge sums had been quoted in an earlier report. He asked why the SIU had not been called in. This was a classic case for their intervention.

Ms Carolus believed that the amount could be higher, but they had to start somewhere.

The Chairperson pointed out that the SIU did the same work as KPMG and not the National Prosecuting Authority (NPA).

Ms Carolus was open to whatever further capacity was available to SAA. The airline could not arrest suspects or seize their assets.

The Chairperson said that the SIU could do the investigation. SAA wanted to reclaim R37 million from the former CEO. The sponsorship of Mr Cabrera had been R21 million instead of the R2 million that was within Mr Ngqula's discretion. There was a similar situation with the ATP partnership of R120 million over three years. He asked why the same principle was not being followed.

Ms Whitehouse said that a docket was being served in connection with the sponsorship of Mr Cabrera. Mr Ngqula was the only signatory on the contract. There were several legal issues connected to the ATP sponsorship but there was a high probability of proceeding. The problem was that the contract had been signed in 2006 and it might be difficult to reclaim these funds.

The Chairperson said that this sounded tentative. Mr Ngqula had exceeded the limit of his authority.

Ms Carolus said that SAA could not wait for another two years to complete its investigations. It was better to act now on what information was available. Charges would be laid as evidence came in. There could be significantly more charges.

The Chairperson said that it was a case of exceeding authority.

Ms Whitehouse said that the only question was the amount of unauthorised expenditure. She expected summonses to be served by the end of September.

Mr Pretorius asked if Mr Cabrera was still sponsored by SAA. He asked what the value of the sponsorship was.

Ms Whitehouse replied that the sponsorship had been paid in first and second tranches. The total amount was indicated in the document. Mr Cabrera had been under the impression that the CEO had the authority to authorise the amounts in question.

The Chairperson thought that the contract with Mr Cabrera was for three years. He asked when it was due to be renewed. He had seen the golfer in a shirt with the SAA logo.

Ms Whitehouse understood that the contract would run until February 2011. It would not be renewed.

Mr Pretorius asked about the junkets. He wanted to know how many people were involved. He asked if SAA had also paid for the accommodation of Mr Ngqula's guests.

Ms Carolus replied that SAA was still working on discovering the costs. Mr Ngqula had authorised free flights on SAA for business not related to SAA. First class tickets had been issued. They had checked SAA credit cards used by Mr Ngqula. Action could only be taken where SAA resources had been abused. There was nothing regarding accommodation in the credit card records.

Mr Pretorius asked about the jet fuel contracts. He asked if Mr Ngqula had already had the interest in the company involved when he joined SAA.

Ms Carolus replied that he had already had the interest.

The Chairperson asked how rigorous the process of declaring interests was.

Ms Carolus did not know how this could have happened. Members of the Board were asked to declare their interests at each meeting. There had been no conflicting interests so far with the new Board. Directors were also asked if their interests had changed vis-a-vis previously published declarations. She did not know how the previous Board had operated.

The Chairperson asked if both direct and indirect interests were covered.

Ms Carolus replied that the onus was on the director to declare his or her interest. The Companies Act made non-declaration a criminal offence.

Mr Shaw said the DPE had checked on the possibility of conflicts of interest and the time devoted to SAA business.

Mr Pretorius asked how much Mr Ngqula had made out of the jet fuel transactions.

Ms Carolus replied that fuel was the major expense of SAA. The contracts were worth billions of Rand.

The Chairperson asked if it was possible to quantify Mr Ngqula's interests.

Ms Whitehouse replied that Mr Ngqula's company did benefit. The investigation had gone back to 2001. SAA had worked with an expert in the field. Fuel was the largest expense. The company had in fact had a lower market share during Mr Ngqula's tenure at SAA. There was a full disclosure in the KPMG report. This was very detailed. SAA would provide the information to the Committee.

The Chairperson said that the fact of the matter was that Mr Ngqula had used his position to benefit himself. It went beyond a simple calculation of loss or gain for SAA. It was about the conduct of its staff. There had been similar conflicts of interest debated in Parliament resulting from the arms deal.

Ms Carolus agreed that the situation was not appropriate. This was seen in hindsight. Standards had changed as a result of the revelations concerning Mr Ngqula.

Ms Chiloane asked about the call centre. She asked if the director who had failed to disclose an interest was a current member of the Board and if the CEO had been involved.

Ms Carolus replied that the director was on the previous Board. She had been interviewed by KPMG. She had interests in a subsidiary company of Dimension Data, the company that won the tender for the call centre. She gave KPMG her full co-operation. She was not aware of the connection between the company in which she had an interest and Dimension Data. In terms of the law, it behooved her to realise what that relationship was. She did not have decision making power and had not lobbied on behalf of Dimension Data.

Ms Chiloane concluded that the director had received nothing in return.

Ms Carolus replied that she had received no direct benefit. The link was indirect.

The Chairperson asked why the matter had been in the report if this was the case.

Ms Carolus replied that the Companies Act required full disclosure.

The Chairperson said that ignorance of the law was no defence.

Mr Pretorius said that the Committee had heard many promises of corrective measures. He felt a sense of deja vu. He accepted that things could and would change, but wanted to know if there was any guarantee that a future CEO could not repeat the actions of Mr Ngqula.

Mr Sithole
replied that the audit committee was looking at the skill sets.

The Chairperson said that the internal audit company had been doing the wrong things.

Mr Sithole said that the structures were being improved to ensure compliance. The approach would be more systematic.

Mr Steele asked if the new Board would be subject to performance management. The Board members of an SOE were subject to appraisal. He asked what was being done in this regard. He wanted to know where members of the old Board had gone.

Mr Shaw
replied that DPE had been working with SAA for some time. Procedures were in place. None of the members of the old Board were on the board of any SOE reporting to the DPE.

Mr Singh said that only one person was being sued. He must have acted in concert with others. He asked if anything had been done to prevent his resignation. Once he had left SAA he was no longer subject to disciplinary action. There were precedents. A Director General had not been allowed to resign by the responsible Minister in similar circumstances. He asked if Mr Ngqula had locked SAA into any medium or long term obligations, and if these could be quantified. He asked if SAA's ship was still afloat.

Ms Carolus
replied that SAA had contributed to the hosting of a world class World Cup. The new Board had hit the ground working hard. People had been shy to admit that they worked for SAA. But the staff were mainly honest people. There was a disciplinary process in place. SAA would not let people run off with money that was owed to SAA.

Ms Chiloane asked if there was any progress with other cases.

Mr Singh asked if SAA had any contractual commitments.

Ms Carolus
replied that the Board had acted on what had been unearthed. SAA would continue to take internal action. SAA was still afloat and would not need any further bail-outs. The airline was not falling apart. It was putting a stop to crookery. It would deal with further cases when they cropped up. The biggest expense was fuel, and the procurement process was now pretty watertight.

The Chairperson asked for a list of all the cases that had been referred to the NPA and those which were being investigated internally. The Committee needed to know who was involved. The information was needed by the following week.

Ms Carolus undertook to provide the information. Some disciplinary cases had already been concluded. SAA had a full record. A full report had been given to the NPA, who would decide if the cases warranted prosecution.

Mr Pretorius asked if the company in which Mr Ngqula was involved was still supplying SAA. He asked if Mr Ngqula was still benefiting.

Ms Carolus named Engen as the company. They offered the best prices and services. The only issue involving Mr Ngqula was one of non-disclosure.

The Chairperson said that any irregular practices were wrong. Corrective processes had to be followed. The CEO had had no business being in the position that he was. Something that was wrong could never be right.

Ms Carolus said that there was a difference between what was unethical and what was unlawful.

The Chairperson said the Committee had some interest in focusing on the CEO. He wished SAA well and hoped that things would improve. The role of the Board was important. The CEO could not have carte blanche. He trusted that good control would improve the airline's situation.

The meeting was adjourned.



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