Meeting SummaryThe Annual Report and Financial Statements for 2010/11 of the Road Traffic Management Corporation (RTMC) had raised some major concerns on the part of the Auditor-General. The Committee tried to understand why there had been recurring problems in the categories of irregular, fruitless and wasteful expenditure, and compliance with laws and regulations, amongst others. It was established that some of the senior management staff were unqualified, while the previous Board had been dissolved two years before due to mismanagement. The dissolution of the Board left a kind of “legal vacuum” in terms of the RTMC’s empowering legislation. In place of the Board, a Shareholders’ Committee had operated, consisting of the Minister of Transport and the MECs of each of the nine provinces. Under the direction of this committee and the Ministerial Task Team it mandated, RTMC had made some positive changes to its overall dysfunctionality over the course of the preceding year. The Chairperson of the Portfolio Committee on Transport reported that most of the recommendations that had been made by the Task Team were being implemented, and that Committee was satisfied with the progress being made. Both SCOPA and the Portfolio Committee on Transport agreed that the legislative arm needed to act to address the institutional arrangement that RTMC had found itself in. RTMC had taken different forms of disciplinary action against a broad range of people. The Committee requested a list of what action was being taken, against whom, where and when, and the RTMC undertook to provide such list. The Committee had been concerned that the position with the RTMC had become stagnant, so it was encouraged to see that particular advances had been made, including the decision to appoint a Board and the appointment of a permanent CFO. When looking at the report in the context of the preceding two years, it set out an “almost anarchic” situation, one in which the shareholders had been obliged to move in to address. There had been officials who were “in it for themselves”, and were responsible for “pure wastage”. RTMC needed to focus on the quality and the orientation of the people who were procured as staff. RTMC had a deficit of R200m that it was hoping to receive from the National Treasury. SCOPA had attempted to ensure that the standards of RTMC’s internal audit and audit committees had been raised.
The Chairperson welcomed delegates from Road Traffic Management Corporation (RTMC) and the Department of Transport, including the Minister of Transport, Mr Sbu Ndebele. The Committee had engaged with RTMC the year before, and during that hearing, some important issues had been raised. The Committee felt that it still needed to pursue some of those issues with a view to getting things to a level where everyone was comfortable with the way things were managed within RTMC. The Minister would later be given the opportunity to address any issues that had not yet been dealt with during the hearing.
Mr N Singh (IFP) was tasked with making enquiries about trade and receivables; property, plant and equipment; and intangible assets. Those three areas had mainly given rise to the qualification and the adverse audit opinion that the RTMC had received. From previous years, the number of areas in which the Auditor-General had given an adverse opinion had increased to five. When reading the annual report and the opening remarks from the Acting CEO, Mr Singh had noted that the Acting CEO had said that the challenges facing the RTMC were embedded within the DNA of the RTMC. The Board of Directors had not met as often as they should have done, and maybe this was the root cause of some of the problems highlighted by the Auditor-General’s report. He asked the Acting CEO to elaborate on that comment.
Mr Collins Letsoalo, Acting Chief Executive Officer (RTMC), said that the issues raised were related to the core mandate of the RTMC. Traffic was an exclusive legislative competency of the provinces. As such, a lot of the functions that RTMC was responsible for were conducted by provinces. Section 18 of the Road Traffic Management Corporation Act of 1999 set out 10 functions, and the RTMC itself was currently responsible for about six of those.
Mr Singh asked whether the fact that RTMC did not have control over all 10 functions as enumerated in the Act was the reason for the report of the Auditor-General being what it was. Mr Letsoalo replied that it was probably not directly related.
Mr Singh stated that the basis of the Auditor-General’s adverse opinion was set out on page 110 of the report, which showed that there was an amount of roughly R6m for which recovery was “doubtful”, based on the past payment history of the specific debtor. He asked the RTMC to speak about this specifically.
Ms Portia Mngomezulu, Chief Financial Officer (RTMC), said that there was an agreement in place that made RTMC responsible for the South African Postal Service account that paid for all infringements. At the time of reporting, there was still a large amount owed by the Johannesburg Metro Council. Because they had not paid in the period covered by the previous two reports, and an amount of about R78m was still owed, the Auditor-General felt that their ability to repay the amount was doubtful. RTMC, on the other hand, felt that the money was in fact recoverable, and did not want to write off the amount. RTMC had engaged in due process to recover the amount.
Mr Singh said that the agreement with the Johannesburg Metro Council was but one of the pilots in place. If monies owed from that metro was not recoverable, he asked what was to stop this from happening in future in dealings between the RTMC and other municipalities and metros. Mr Letsoalo said that RTMC was currently in the process of resolving the problem through inter-governmental processes. Mr Singh retorted that SCOPA had heard about the very same problem the previous year, and asked what mechanisms were in place to stop it from happening again in the current financial year. Mr Letsoalo replied that in terms of the Intergovernmental Relations Frameworks Act of 2005, RTMC was obliged to follow all possible avenues to recover the monies. RTMC had done so, and now intended to formally declare a dispute in terms of Section 41 of that Act.
Mr Singh questioned whether there was not a problem in the policies and procedures and the relationship between the RTMC and the Johannesburg Metro Police Department (JMPD) from the very beginning. Mr Letsoalo replied that when the pilot was started, a lot of concessions were made that “by law” were not supposed to have been made, in hopes of getting the pilot off the ground. For instance, there was an agreement with the then-management that RTMC would pay for postal fees on behalf of the JMPD. From 1 April 2010, RTMC had stopped paying those postal fees. RTMC did not think it would be a problem going forward. Mr Singh said that when these things appeared before the Committee year after year, it was quite problematic. SCOPA wanted some type of assurance that this type of thing would not continue. Mr Letsoalo said that once the matter was reported as an inter-governmental dispute in terms of the Act, the matter would move forward to settlement. Mr Singh wanted to know what the Minister had to say on the topic. The Chairperson noted that the project was still in the pilot phase. He questioned whether the same problems were not going to arise if it were to be rolled out to more municipalities.
Minister Ndebele said that back in 1998, it was determined that traffic management could not be run on three different levels without a unifying body for traffic management such as the RTMC, made up of all three spheres, to serve as a regulatory entity. The level of commitment from all levels of government to make RTMC work the way it should was not yet in place, and the pending declaration of a formal dispute with another sphere was evidence of that.
Mr Singh made reference to an amount of roughly R3.5m relating to infringement fees. He referred to note 14 on page 111 of the Annual Report.
The Minister added to his previous point, and said that what was really being spoken about was postage stamps, and that issue was currently occupying the attention of SCOPA. RTMC sent infringement notices by registered post at a cost of R18 per letter in postage, while the relevant Metro should have rather have paid. Those amounts had added up to “huge amounts” when looking at the quantum of notices that had been sent out. That was the type of thing that required a level of consciousness and commitment that had not been shown.
The Chairperson said that the Minister’s statement reinforced the point that the sense of “collective ownership” of RTMC was not in place, and that was why disputes were happening about things as small as postage fees.
Mr Singh said that the postage fees had added up to R6.2m. He asked how RTMC reconciled the fines as they were originally charged with those amounts that were eventually collected. He asked how RTMC’s reconciliation system worked.
Mr Letsoalo said that there were two reconciliation systems in place. Gauteng used its own system and JMPD used its own system, but that had resulted in a situation in which RTMC did not always know what and how much was being received. RTMC had centralised the payment process so that payments would be reflected on the Electronic National Administration Traffic Information System (ENATIS) system. There were 242 issuing authorities. If RTMC was going to roll out the system on a national basis, it had to be centralised. The National Contraventions Register would be used to keep track of infringement notices. The two could be linked, so going forward, the same problem would not occur again. It was an “issue of the past”.
Mr Singh said that the Auditor-General conducted sample audits. He asked whether some of the amounts that had been discussed were the real amounts, or whether the true amounts could be much more. Mr Letsoalo said that the amounts should be the same. The infringement notices would not be outside the ENATIS system, and from May 2011, the amounts should have been completely reconciled and would not pose a problem.
Mr Singh moved on to another area that had led to qualification and adverse opinion, namely property, plant and equipment, and said that he hoped the answers would be different from those given to the same questions the previous year. RTMC did not review residual values of office equipment, furniture and fixtures and computer equipment. He referred to note 7 on page 179 of the report, and asked why that did not happen, and who should have ensured that it happened.
Ms Mngomezulu explained that RTMC had undergone a move to new premises. When prompted by the Chairperson, she said she thought that the failure to properly reflect assets in the asset register after the move had been the result of “improper planning”. Mr Letsoalo said that at the time, there were a lot of assets that were waiting to be disposed of, and which had depreciated. When RTMC moved to the new, larger building, people went to the store, and took assets that were supposed to have been disposed of for use in the new building.
The Chairperson agreed that there had indeed been a lack of proper planning. He said that the move had been planned, but there had been no corresponding plan for the asset register. Mr Letsoalo agreed that it was a “mistake”. When people took things from the stores, they did not inform anyone, and that led to the inconsistency between the asset register and what was on the floor. Mr Singh said that those people had names. He asked who was in charge of keeping the asset register. Mr Letsoalo replied that there were people in the finance department, but it would be unfair to blame them alone, because they could not have known what people were busy doing. The Chairperson said that the inconsistencies in the asset register spoke of improper management and supervision.
The Minister said that there was a need to distinguish between a mistake, an offence and a crime. In this case, the entity had moved from a 5000 square metre building to a 4000 square metre one, in which there was not enough space for all of the movable assets. He gave the example of an official who helped himself to a chair that had been “disposed of”, by for example, obtaining a chair without requiring RTMC to buy a new chair. He asked whether that was a crime, or whether the person doing so had not in fact saved RTMC money. Mr Singh said that it spoke to a lack of controls. It was the principle that was more important than the actual item involved. The person responsible for keeping an asset register should have been doing their job. He asked whether it would be fair to blame the Acting CEO for the lack of controls.
The Chairperson did not want to belabour the point. He said that the CFO had captured the point when she said there was a lack of proper planning. The fact that the Auditor-General had reported on it raised it as an issue of concern. SCOPA was not going to treat it like “murder” but the Committee needed to understand what had happened. Planning should have taken place before the move.
Mr Singh said that the amounts were quite high. He asked whether the situation was the same for the other amounts in question. Mr Letsoalo said that there were assets found on the floor that had not been captured in the asset register, which was why the office of the Auditor-General was not able to verify the amount RTMC had given, which was R10m. Mr Singh asked how the asset register was being run in the current financial year, and who was responsible for it. Mr Letsoalo said that now an asset register was being kept by floor, by block, and by office. There was now also an asset list of what should be in each office.
Mr Singh moved on to intangible assets, and asked why the amount of R1.2m had been reported. Ms Mngomezulu responded that RTMC had contested that assessment by the Auditor-General. The Auditor-General felt that an IT specialist should have conducted a computer software assessment, but at the time that the audit was conducted, that assessment was in fact happening. The reason that it had not happened earlier was because the IT specialist had not been available. At present, the assessment had been completed.
The Chairperson sought clarity as to the point of contestation with the Auditor-General had been. Mr Letsoalo said the asset had not yet been brought to production at the time, and it was not clear from the report that the assessment had been underway at the time of auditing.
A representative from the office of the Auditor-General said that the audit report mentioned that the assessment needed to be done, in terms of the applicable accounting standard, whether the intangible was ready for use or not. Mr Singh said that meant there was no contestation, as that was the way things should have been done in terms of the accounting standard. Mr Letsoalo stated that the assessment had now been completed. The Chairperson opened the floor to questions.
Ms M Mangena (ANC) said that if things were conducted in that manner, in which movables were taken from storage without telling anyone, it would cause chaos, and stressed the need for communication. The Chairperson said that the state of the asset register had now been satisfactorily explained.
Mr P Rabie (DA) said that the report of the Auditor-General had mentioned a strategic asset plan. He asked how much progress had been made with the plan, and whether the role of the internal audit committee had been defined in that respect. He said that it appeared that the audit committee had not been running properly. The Chairperson said that topic would be covered later in the meeting.
Mr George said that the RTMC Ministerial Task Team Report showed that very little seemed to have happened. There was R200m unrecovered from local authorities as a result of problematic collections, which the National Treasury did not want to write off. He asked for an explanation. Mr Letsoalo said that RTMC had used R200m as a result of the process by which RTMC made collections and eventually handed them over to the Department of Transport. The management at the time had used those transaction fees to pay for the internal costs of RTMC. That money could not be recovered. It was a liability on the books, and contributed to the liabilities of RTMC being greater than their assets. The Chairperson asked what would happen now, and what the process was for having the amount written off by the National Treasury. Mr Letsoalo said that RTMC had spoken to the Department of Transport and the Treasury, and they RTMC was waiting for the amount to be written off. When asked by Chairperson, the Director–General, Mr Mahlalela, said that discussions with the Treasury were “ongoing”, and that although the Treasury had raised concerns about writing off the amount, the Department was hoping that the matter would be resolved the matter in the “shortest possible time”.
The Chairperson said that the same issue had been discussed at the SCOPA meeting the previous year. It was an issue of non-compliance. The money was used for things other than what it was meant for. That was why the Auditor-General had raised it as an issue of concern. He wished the Department “good luck” with those engagements with the Treasury. Mr Mahlalela agreed with Chairperson, and said that the task team had dealt with the matter, and disciplinary processes had followed. In the view of the Department, the problem was that the outstanding amount was not available, so it was still appearing on the balance sheet, and that was creating problems on the balance sheet.
Mr George said that SCOPA had gotten an indication from Treasury that they were not inclined to write the amount off. He asked what the contingency plan was in case the National Treasury did not write it off, and if there were plans to tighten belts, either within the Department, or within the entity. Mr Letsoalo said RTMC was hopeful that the Treasury would write off the amount. If they did not, RTMC had tried everything within its power impose to impose cost-reduction measures within the entity, but their budget simply did not allow for repayment of the outstanding R200m.
The Chairperson said that RTMC was not reflecting a proper approach to the issue, and it needed to look at viable alternatives to sort out the problem.
Mr S Thobejane (ANC) said that the excuses being raised had no place in terms of the Public Finance Management Act of 1999. It was clearly a case of “dereliction of responsibility by officials”. When someone was employed, they were told what they were expected to do. When RTMC planned to move offices, at least one person should have been put in charge of the fixed asset register. The fact that it did not happen was not a “mistake”, but rather, a punishable offence. The accounting officer should ensure that the person who was responsible was held accountable. There was no mistake and someone must be held accountable.
The Chairperson said that SCOPA dealt with “what killed the patient”. The Committee appreciated that there was now a comprehensive asset register in place. It needed to remain that way.
The Minister said that while he accepted what was being said, he felt that there was no need to be “mechanical”. If the audit took place within the period that RTMC was moving to a new building, that fact should be taken into consideration. It should not be a case of “wanting to find fault no matter what”.
The Chairperson said, while moving on, that that explanation had failed to convince the Auditor-General. The CFO had been right when she attributed the problem to a lack of proper planning. People knew that they were moving, and that it would occur during the audit, as the audit cycle was a fixed one. Now that the matter of the asset register had been attended to, RTMC had to keep things in order, so that it would not need to be raised again. It was not the first time that property, plant and equipment had received an adverse opinion. Even before the move, the issue had been a problem. Now that the issue was fixed, it should remain fixed.
Ms N Bhengu (ANC), the Chairperson of the Portfolio Committee on Transport, said that the purpose of appearing at SCOPA was give an explanation of how things had happened, and to discover whether remedial action had been taken to address a given issue. In her view, an explanation had been given, and remedial action had been taken. SCOPA was looking at the “previous situation” while the Portfolio Committee looked at the “present situation”.
The Chairperson said that SCOPA accepted the explanation given, and appreciated that things had changed. Still, it “should not have happened”, and it should not happen again.
Mr R Ainslie (ANC) said that the matters in which he was tasked to ask questions, namely: restatement of corresponding figures; going concern; irregular fruitless and wasteful expenditure; and material losses, did not result in any adverse opinions, but were contained in the report of the Auditor-General. They were big “red flags” regarding financial management that had to be noted by RTMC to avoid a qualified opinion from the Auditor-General.
With regard to the restatement of corresponding figures, on page 111 of the report, he interpreted the report as showing that there were errors, which were only discovered by the Auditor-General. He interpreted the report to reveal that errors had been made in the accounting system, and asked why those errors consistently occurred under the watch of RTMC’s financial management. It was not the first time those issues were being raised, which led him to ask if people in financial management were unqualified or if they lacked capacity.
Mr Letsoalo said that there was a “dearth of skill” in the financial management team, as had been discovered by the Ministerial Task Team. Only five of the finance team had tertiary qualifications, and of those, only three had relevant ones. It was something that RTMC had inherited, and was working on. There were now people in place who had been trained, with the assistance of the Indian government. There was also the issue of natural attrition. When people resigned, they were duly replaced by competent people, including the CFO, who had been appointed in December 2011.
Mr Ainslie said that this information answered a lot of questions, and explained why there were recurring adverse opinions. There were only three properly qualified staff on the top management team of 25. He remarked that it was no wonder that there were these recurring problems. He asked if people were being trained adequately and if proper staff was being retained. Mr Letsoalo said that RTMC felt comfortable that people were being trained at a proper rate, and that as a result, the same problems would not come up again.
Mr Ainslie made reference to page 131 of the report, which indicated that RTMC had a problematic relationship with the JMPD. The two parties were currently engaged in a dispute that had serious repercussions on the financial statement of RTMC, which was apparent on page 132. He asked what happened with regard to the information that was allegedly sourced from the JMPD.
Mr Letsoalo replied that when there was an infringement, a fee was issued, and if it that fee were paid within 32 days, the debtor would qualify for a 50 percent discount. JMPD was only entitled to 50 percent of the fee paid. In cases where the fines were paid after 32 days had elapsed, the additional 50 percent that was paid should be paid to RTMC. Going forward, RTMC wanted to put all payment data into a centralised system that would show how much each party was entitled to.
Mr Ainslie asked whether the matter had been resolved, and what steps had been taken to ensure the issue would no longer arise. Mr Letsoalo said that the matter had formally been declared an inter-governmental dispute. Going forward, the matter should not arise again, because the contested information would be available on the centralised system.
Mr Ainslie said that the Auditor-General had raised the question of whether RTMC was a “going concern”. Currently, the total liabilities of RTMC exceeded its total assets, which led to the question of whether RTMC was a “going concern” or not. He made reference to page 116 of the report, in which RTMC stated that they were “technically insolvent”, while in reality, their liabilities far exceeded their assets. He remarked that it was almost as if RTMC were “in a state of denial”. Mr Letsoalo replied that RTMC was still trading, and that the term “technical insolvency” was used as a result of the R200m that was owed to its shareholder, the Department of Transport. Mr Ainslie said that it was an assumption that they were going to get that money back, but that was probably not going to happen. Mr Letsoalo said that it might not happen in the current financial year, but that the problem was still “manageable” at the present phase, and that was why the term “technically insolvent” had been used.
Mr Ainslie referred to the same part of the report, which revealed that RTMC was very confident that it would receive government grants. He asked what exactly those grants were, and what amounts were involved. He questioned whether their confidence was not perhaps misplaced. Mr Letsoalo replied that that view had been informed by the Ministerial Task Team report. It was on that basis that RTMC hoped to receive grants. It would eventually depend on how much they were granted. Mr Ainslie asked again whether the confidence expressed by RTMC was misplaced. Mr Mahlalela said that the confidence was not misplaced. The Department of Transport, along with RTMC and Treasury were looking at different options and tariffs a sustained funding model for RTMC. He said that “in the shortest possible time” they would be able to resolve the problem. The Department was convinced that those matters would be finalised by the early in the next financial year.
The Chairperson referred to the “various options” and models for funding that Mr Mahlalela had referred to, including “tariffs”, and asked what those “tariffs” were. Mr Mahlalela said that there were various revenue raising mechanisms available. An administrative fee levied on every fine that was issued would help to raise revenue for RTMC. They were also looking at the possibility of selling information through various revenue sharing mechanisms. The Chairperson sought clarity on how the administrative fee would work.
Mr Ainslie said that the idea of the administrative fee amounted to asking the public to pay a fine plus a levy, to which Mr Mahlalela said that the Department believed in the principle of “the infringer pays”. Mr Ainslie asked what the other sources of funding would be. He referred to page 117 of the report, which listed sources of income, and noted that the trend had consistently declined since 2010. He remarked that there could not be any additional sources of funding. Page 118 showed that finance revenue was down, and cash generated by operations was down. He asked what additional sources of funding were currently being explored.
Mr Letsoalo said that the Road Traffic Infringement Agency (RTIA) had previously been under the RTMC. Part of that revenue used to be given to RTMC, but it was now being used to fund RTIA instead.
Mr Ainslie asked whether the infringement levy would be a percentage of the fine charged, or a once-off amount, or whether it would depend on the offence in question. Mr Letsoalo said that it would probably be a once-off fee, but that decision had not yet been finalised.
Mr Ainslie moved on to irregular, fruitless and wasteful expenditure, with reference to page 144 of the report. He said there had been a massive increase in that category, and cited an irregular lease agreement amounting to R15m and an irregular purchase of IT equipment amounting to R9m. He asked if further internal controls were put in place when irregular lease agreements were discovered. He also wanted to know what action took place when such irregularities were discovered.
Mr Letsoalo responded that RTMC prided itself on the fact that irregular expenditure from the previous year, which had amounted to R316m, had now been reduced to zero. The lease in question had taken place the previous year, and the Ministerial Task Team had now dealt with the lease issue. The irregular lease had been part of the reason for the move to new premises. The IT helpdesk had been irregularly procured. Most of the software systems it used had been found to be unsustainable, and were written off. The hardware was kept. The same person who procured the lease had also irregularly procured the IT helpdesk.
Mr Ainslie asked whether any disciplinary steps or criminal charges had been taken against anyone responsible for the irregular procurements. Mr Letsoalo answered that five executives, including the then-CEO were suspended, and two were dismissed. There was currently an amount of roughly R17m that RTMC was seeking to recover in a civil case. A forensic report had been submitted to the police to determine if RTMC could press criminal charges against any entity or individual involved. Mr Ainslie said that those were decisive steps.
The Chairperson sought further clarity on issue of employees who were put on suspension. He asked when they were suspended, how many had had their processes concluded, and how many were still being processed.
Mr Letsoalo said that seven staff members had been implicated, and they had been dismissed. That process was completed because the Commission for Conciliation, Mediation and Arbitration (CCMA) had cleared all of those dismissals. Two senior executives had been dismissed, and those matters were currently before the CCMA for confirmation. The CEO had been dismissed with a severance package.
Mr Ainslie referred to page 144, regarding the irregular procurement of the Accident Reporting System. He asked for an update on that matter. Mr Letsoalo said that the Ministerial Task Team had dealt with the matter. The Accident Reporting System had not been useful and had been declared fruitless and wasteful expenditure.
Mr Ainslie said that it amounted to R54m having been spent on something that was useless. He asked who had been in charge of that decision, and who was being held accountable. Mr Letsoalo said that the matter had been turned over to the police, and RTMC was seeking legal advice as to whether the amounts were recoverable in civil court.
Mr Ainslie asked whether the companies that were under investigation had been blacklisted. Mr Letsoalo responded that RTMC had not yet blacklisted them, and that it was currently engaging the National Treasury on the matter.
The Chairperson asked about the R163 000 listed in the report as interest paid for the settlement of supplier invoices. According to the report, the matter was still being investigated. He asked what stage RTMC had reached with that investigation. Mr Letsoalo said that when the previous management had been taken over, it was uncertain whether all suppliers had been paid. Some did not even have contracts at the time. As a result, the new management held back payment of suppliers, and that resulted in RTMC having to pay penalties and interest.
Mr Ainslie said that it had emerged that in the previous year, some employees had been paid after they had resigned. He asked why some of those amounts were written off, instead of suing people to recover outstanding costs. Mr Letsoalo said that some of the former employees were currently unemployed, and they had no money available for recovery purposes. In the previous year, the Department of Transport had paid RTMC employees on behalf of RTMC because RTMC did not have a payroll system. RTMC had now implemented a proper payroll procedure with stringent control measures.
The Chairperson pointed out that there was difference between the two amounts as reflected on page 145 and asked for clarity in that respect.
Mr Letsoalo said that R163 000 was the amount he had been referring to, while the amount of R82 000 had arisen in the previous financial year.
The Chairperson asked whether the two amounts had occurred in the same context, to which Mr Letsoalo replied that they had not. The amount of R82 000 had arisen as a result of people failing to adhere to the 30-day rule in the Public Finance Management Act.
Mr Singh referred to page 145 of the report, which referred to the acquisition of the Oracle ERP system at a cost of R17m, which had also been discontinued.
He asked whether it had been a completely wasteful expenditure, or whether it could it be explained. He also wanted to know how long it would take for the Task Team recommendations to be finalised. Mr Letsoalo replied that many of the recommendations of the Task Team had already been implemented, including the taking of disciplinary measures and imposition of financial controls. The Oracle-based ERP system had been very expensive, and it would have cost R12m a year to maintain. RTMC had now obtained an ERP system that did the same work for less than R0.5m.
Ms Chiloane referred to the analysis of the current year and the previous year, and asked whether RTMC had the ability to recover outstanding amounts from former employees who had left, and those who had been suspended. Mr Letsoalo responded that recovery could only be done by way of civil suite. One case for R17m had been instituted, and seemed very likely of being won. RTMC needed to balance legal fees against possible recovery when considering such action.
Mr George remarked that there were no official figures on which officials went to the Confederations Cup, at great expense to RTMC, and asked who had gone to the Confederations Cup. Mr Letsoalo replied that the previous CEO had gone, and that no register had been kept detailing who else had gone.
Mr Rabie referred to page 143 of the report, which set out leasing costs, and noted that there was a yearly escalation of 9 percent. He pointed out that astronomical amounts were being spent on photocopier service agreements, with escalation costs of 15 percent, which was far above inflation rate. He asked what could be done to address those costs. Mr Letsoalo replied that when going out on tender, the lowest price that was offered was the price that had to be accepted. The lease as negotiated had an escalation rate of between 11 and 12 percent, and that had been negotiated downwards to nine percent.
The Chairperson said that the Committee required the comfort of knowing that the current management was actively seeking to secure the best deals for the benefit of the state. Mr Letsoalo explained that the contract had been negotiated downwards. The lease agreement had originally stipulated higher escalations, which had negotiated down. In addition, RTMC negotiated the lease agreement so that it would include maintenance by the lessor. RTMC was currently working to reduce the costs of the leases for the photocopiers.
The Chairperson noted that RTMC should take action on the photocopier lease contracts in time, as some had just expired or were about to expire. Mr Letsoalo said that RTMC was trying to use the current contract as little as possible. RTMC was currently seeking to secure the best deal to replace the leases that were about to expire.
Mr Ainslie asked whether the Department of Public Works had anything to do with RTMC leases. Mr Letsoalo replied that it did not, as RTMC was an entity, to which Mr Ainslie replied that was “quite a relief”.
Mr Thobejane asked why there had been an acting CEO for two years. Minister Ndebele replied that democracy was a very good thing, but it had its own costs, including rights, obligations and duties. The previous CEO was put on suspension and charged. It had taken two years to finalise matters with the outgoing CEO, and relief was only granted in December 2011. The position had been advertised for, and there was a panel in place for interviews.
Mr Thobejane said that the executive management committee was supposed to be comprised of ten people, including the CEO. He asked why there were a total of five acting positions on that committee. Mr Letsoalo said that the situation was partly explained by what the Minister had said, as some people had only been dismissed later on. Positions could only be filled when there were actual vacancies.
Mr Thobejane said that meant that four of the members of the executive management committee had been undergoing disciplinary proceedings. Mr Letsoalo answered that most of them were undergoing disciplinary proceedings. In the process, two positions had become vacant seven months after those officials had been suspended. A CFO had now been appointed. The CCMA was still reviewing the case of the head of corporate services.
Mr Thobejane moved on to compliance with laws and regulations generally, and specifically, RTMC’s failure to comply with Treasury regulations. He pointed out that RTMC had failed to provide a strategic plan for to an accounting authority for approval six months before the budget, and asked why that was the case. Mr Letsoalo said that the strategic plan had been done, and should have been signed off by then-Board. Because the Board took longer to sit, it had not been able to sign off within the allotted time.
Mr Thobejane asked the Minister how was the Board was appointed, and whether it was discretionary, or by law. The Board had been dissolved in 2010, and to date there was no proper existing Board. Minister Ndebele replied that shareholders dissolved the Board because it “could not stop the rot”. He cited the examples of the improper expenditure used for Confederations Cup tickets and overseas travel. The Board was currently being restructured. For the interim period, a Shareholders Committee had replaced the Board. The Committee was comprised of the Minister of Transport and the nine MECs, who had effectively taken over the tasks of the Board.
Mr Thobejane said that the question still stood, and asked again why, from 2010 to date, there was still no proper Board of Directors. He asked whether Board members were appointed by law or by discretion.
Mr Mahlalela replied that the Shareholders’ Committee operated as the Board in the absence of a Board of Directors. Part of RTMC’s problem had been the Board. The Shareholders’ Committee had determined that it needed to assess whether it was necessary to have a Board moving forward, or whether the Shareholders’ Committee would be sufficient. After the assessment, as part of the restructuring, the Shareholders’ Committee had decided that it needed to mandate a separate team of people to act as the Board. It was not a legal vacuum, because the Shareholders’ Committee had been in place.
The Chairperson asked whether the absence of a Board impacted on the functioning of the entity in respect of the role the Board was supposed to play in the affairs of RTMC.
Mr Thobejane said that there was a shortfall in the legislation, which did not specify the period of time within which a Board should be comprised in cases such as this one. He said that in the absence of shareholders, and the absence of a Board of Directors, it left the managers accounting only to the Minister, the Deputy Minister and the Director–General of the Department of Transport. There was no Board of Directors, and in essence, the Shareholders’ Committee was accounting to the ministerial unit. That was why he raised the issue.
The Chairperson said that the most important element was ensuring that there was no negative impact on the work of RTMC as a result of the time that the Shareholders’ Committee acted as Board.
Mr Thobejane said that Section 8 of the Road Traffic Management Corporation Act stipulated the appointment and delegation of powers to the Board. The accounting authority had failed to submit a budget as required in terms of the Public Finance Management Act. He referred to page five of the Acting CEO’s statement, which said that underfunding was a problem for RTMC, and asked how it could expect funding without following the applicable legal requirements.
The Chairperson asked, how some of the legal requirements had been fulfilled in the absence of the Board, when the political leadership had taken charge. Mr Letsoalo said that the budget had been submitted, but the Auditor-General could not find evidence that the budget had been submitted.
The Chairperson asked what evidence the Auditor-General had sought that had not been forthcoming. Mr Letsoalo replied that the missing evidence included minutes, and a document that had been signed off to say that the budget had been submitted. There were two processes that RTMC focused on. The process as set out in the Road Traffic Management Corporation Act stipulated that a Shareholders’ Committee may appoint a Board. In cases where they chose not to appoint a Board, the CEO would report to the Shareholders’ Committee, of which the CEO was also a member. The decision that had taken by the Shareholders’ Committee was to not appoint a Board, as they had to determine whether they had the power to do so. The Shareholders’ Committee had determined the day before the meeting that it could and would appoint a Board.
The Chairperson asked how, in the absence of the Board, RTMC functioned.
Mr Letsoalo replied that all budgets had been finalised, meetings were called, and resolutions taken. The dissolution of the Board had happened mid-financial year, with the result that processes since then had been delayed, and the Shareholders’ Committee had taken time to sit.
The Chairperson asked whether a meeting had ever occurred to ensure that RTMC’s obligations were met, and whether the strategic plan had ever been submitted.
Mr Mahlalela said that there had been challenges in terms of meeting quarterly. When there were urgent matters, the Shareholders’ Committee had been able to convene. In addition, the Chairperson had convened special meetings. Four meetings a year, however, had posed a challenge. That was why the Shareholders’ Committee had decided to go back to the original Board formation. Before that, it had been not made sense to involve the Board, since they had been part of the problem.
Mr Thobejane stated that it was very clear that in the absence of a proper monitoring structure, it made it difficult for RTMC to operate. He asked when the Shareholders’ Committee had last met, and when it had met prior to the last meeting. Mr Mahlalela replied that the Shareholders’ Committee had met the day before, and that before that, its last meeting had been in October 2011.
Mr Thobejane said that the issues surrounding the Board and its reconstitution raised the consideration that the Portfolio Committee on Transport might want to review the applicable legislation.
The Chairperson said that it was important where these issues resided, because in the case at hand, a unique situation had been created. In that state of affairs, instead of the buck stopping with the Minister, it effectively stopped with “everybody”. He was sure that all of the members of SCOPA would vote for a change if the matter came up for a vote. The Minister said that it was a valid question, and it was a “serious matter”. There were certain objective problems that had to be considered. RTMC was a unique entity. It was only one of the 11 that fell under the auspices of the Department of Transport. The members of the Shareholders’ Committee sat as equal partners because of the national and provincial powers as set out in the Constitution. RTMC was formed two years after the Constitution was adopted, and it had been a problem child from that time onwards. The MECs who sat on the Shareholders’ Committees had different portfolios, and furthermore, were not always available to meet at the same time. RTMC was not like the other normal entities, and it was a difficult one. He asked the Committee to embrace that understanding, which, he felt, would elicit more patience.
Mr Thobejane said that the accounting authority had failed to submit the annual financial statement in line with what was required. There had been a failure to submit full and proper records, and in the view of the Auditor-General, that was a cause for an adverse opinion. He asked why RTMC had submitted financial statements that were not in compliance with the law.
Mr Letsoalo said that problems in the statements could be traced back to various sources, including the “dearth of skill” referred to earlier. RTMC had tried its “level best” to train more people.
Mr Thobejane wanted to know how it happened that statements were submitted that were materially incorrect, and who was responsible.
The Chairperson said that when something in the Department went wrong, the matter could not be left at a collective level. Individuals had to be named and dealt with. Where there were no consequences or actions taken, the same problems would arise again. That was why issues needed to be dealt with specifically, instead of on a generic level.
Mr Thobejane asked why there was no audit committee. Mr Letsoalo said that the audit committee was a sub-committee of the Board. When the Board was dissolved, there was consequently no audit committee. RTMC now had an independent audit committee duly appointed in terms of the Public Finance Management Act (PMFA).
Mr Thobejane said that the audit committee was regulated by the National Treasury regulations, not the PMFA. He asked RTMC to respond in terms of the regulations. Mr Letsoalo said that according to his understanding, the audit committee established in terms of the PMFA and in terms of the Treasury regulations were one in the same thing. He was aware that in the RMTC there was an internal audit committee that functioned properly. There was supposed to be an audit committee that the internal audit committee reported to, which was established in terms of the Treasury regulations as well as the PMFA. The issue for him was the audit committee, which was now in place.
Mr Thobejane said that he was talking about two different things. He made reference to paragraph 31 of page 113 and paragraph 39 of the report. Paragraph 31 spoke about non-compliance, while paragraph 39 dealt with internal controls and related issues.
The Chairperson said that when dealing with contraventions, and when the Committee was trying to get to the rationale behind a particular decision, in the absence of the actual person who was there, it was difficult to understand why certain decisions were taken. Since the beginning of the hearing, SCOPA had been made aware of challenges related to the Board and the former CEO. The fact that the former CEO was not present at the hearing to explain himself left a gap in terms of accountability, because not all of the people present at the hearing were around to account for the rationale of the decisions that had been taken. While he supported Mr Thobejane’s line of questioning, he also had sympathy for the current leadership, who were unable to properly explain the decisions that were taken. He asked Mr Thobejane to leave it at that point. The people who were in charge now had gone out of their way to supply the relevant requirements. Mr Thobejane respectfully disagreed with the Chairperson.
The Chairperson opened the floor to questions.
Ms Bhengu raised the issue of the institutional arrangement that RTMC found itself in. She said that it was agreed by the Portfolio Committee that it was an area that the legislative arm needed to deal with in order to allow the entity to function in a much better way. With regard to the management of RTMC, she said that most recommendations that had been made by the Ministerial Task Team were being implemented. The Acting CEO had been responding to some of the problems that were not created during his term of office, and which he was put into place to deal with. The PC was satisfied with the progress that was being made and the leadership of the CEO.
Mr George said that on the issue of accountability, he agreed that it was not practical to ask questions of people who were not present. However, SCOPA had the power to call anyone, and it should think about doing so. He asked whether Apple Mac computers were bought for staff that already had Microsoft licences, and then required Mac licences. Mr Letsoalo said that when his team arrived at RMTC, they looked at the systems in place throughout the entire entity with a view to standardising according to what RMTC could afford at the time. A lot of money had been saved during that process, but if it was necessary to purchase software to make the equipment workable, that was done.
Mr George asked the Minister whether RTMC management or members of the public had brought issues of maladministration to his attention. Minister Ndebele replied in the affirmative. Some complaints had been brought forward anonymously, and some were brought by members of the Shareholders’ Committee. Those issues were being dealt with now.
Mr Singh asked whether there was anything RTMC wanted to add about investigations. He asked how RTMC had responded to the Task Team report. He stated that performance bonuses had not been listed. Page 19 of the report showed that the senior staff compliment was quite large, but that did not seem to link up with what had been said earlier about the lack of appropriately skilled staff. He asked where exactly the “dearth of skill” was reported. Mr Letsoalo replied that the recommendations of the Task Team had been implemented, where possible. The issues of skills were currently in the process of being addressed, and RTMC was reporting regularly to the Portfolio Committee on Transport in that respect. The issues surrounding staff that were currently occupying “highly skilled” positions were also currently being addressed.
Mr Rabie said that a number of senior management posts had been suspended. He asked how many middle-management posts were currently under suspension, and whether the payment of bonuses and salary increases had been approved. Mr Letsoalo replied that suspensions and dismissals were governed by the Labour Relations Act, 1995 (Act No. 66 of 1995). Forensic reports had pointed to certain individuals and all action that had been taken was in line with those reports. It had been discovered by the Ministerial Task Team that some people had received two increases in one year, and that the second increase was irregular. As a result, some people had been irregularly promoted. RTMC had been taken to the CCMA on grounds of unfair labour practices, where the matter had been arbitrated, and the Commissioner had found against RTMC. RTMC was told to resolve the situation by either paying those employees who had not received the second irregular increase, or by recovering the money from the people who had been irregularly paid. RTMC was engaged with labour in the process of recovering the money from those who had been irregularly paid.
Mr Ainslie said that RTMC seemed to have taken action against a broad range of people, and that action had taken different forms. He requested that the Committee be given a list of what action was being taken, against whom, where and when. The Chairperson agreed that the information should be made available.
Ms Mangena asked whether the four senior officials who were no longer with RTMC were still receiving salaries. Mr Letsoalo replied that they were not. Some had taken severance, and others were dismissed.
The Chairperson said that the list as requested should be forthcoming within a few days. The Committee had been concerned that the position with the RTMC had been stagnant. It was encouraging to see that particular advances had been made, including the decision to appoint a Board and the appointment of a permanent CFO. The steps that were being taken would serve to strengthen the entity. However, when looking at the report in the context of the preceding two years, it set out an “almost anarchic” situation, one in which the shareholders had been obliged to move in to address. There had been officials who were “in it for themselves”, and were responsible for “pure wastage”. Decisions taken around leadership became very critical in cases such as this. RTMC needed to focus on the quality and the orientation of the people who were procured as staff. He wished RTMC all the best in their negotiations with National Treasury with respect to the missing R200m. SCOPA had attempted to ensure that the standards of RTMC’s internal audit and audit committees had been raised. Those were critical institutions that were meant to assist management before the Auditor-General came to do his work. Throughout the course of the year, there should continue to be some interface between the Minister and the chairperson of the audit committee. In that way, internal controls would be strengthened.
Minister Ndebele thanked the Committee for the interaction, and said that it would help the Department to focus on solving the problems that existed within RTMC. It was most welcome. He had been passed a ball that already had a red flag attached to it, in the form of Gauteng Freeway Improvement, but that was part of the issue of responsibility that he must take. The challenges of the Greater Johannesburg Metropolitan Council (GJMC) had been tormenting the Department since its inception in 1998. The GJMC had experienced a turnover of four CEOs in seven years. When he started as Minister, he was inundated with complaints about its then management, as well as possible mismanagement within RTMC. The then-Board of RTMC had assured him that everything was in good order. In February 2010, he received further information, which was also submitted to the Portfolio Committee on Transport. He then took a decision to appoint a Task Team to look into the affairs of the Task Team, and appointed an Acting CEO. The then-CEO was placed on special leave until his suspension in April 2010. Afterwards, he received a report from the Task Team confirming some irregularities. Subsequently, the Board’s term was not renewed, because of findings that indicated a dysfunctional board, which had failed to provide the necessary oversight to the entity. The Task Team released its report in August 2010, which unearthed irregularities and mismanagement issues, ranging from lack of skilled personal, inadequate financial controls to absence of supply chain procedures. The forensic confirmed most of the alleged irregularities. As a result, four executives were suspended and charged for various transgressions of the PMFA, Treasury Regulations, and dereliction of duties.
The resultant forensic report had been handed over to the South African Police Service for possible criminal charges against various individuals and companies that were implicated. There was currently a civil case underway to try to retrieve taxpayers’ money that had been found to have been wasted. The South African Institute of Chartered Accountants (SAICA) had been brought on board when it was discovered that the firm Deloitte & Touch had been hired, irregularly, to assist in a “financial cleanup project” to make the financial report “look good”, at a cost of R11m. There was something amiss when a firm of Deloitte & Touch’s status was hired to do the kind of work that resulted in the taxpayer being duped. As per the provisions of the Labour Relations Act, internal processes ensued, which included former employees taking RTMC to the Labour Court. This led to delays, which created a challenge with the finalisation of the applicable procedure. The report of the Auditor-General had shown some serious lapses in management and abuse of procedures. That had led to R360m of irregular expenditure. Due to the timing of the Task Team Report, some of the irregular expenditure was only detected too late to be included in the financial report under discussion with SCOPA that day. The turnaround of RTMC had been a “daunting task” but together with the Shareholders’ Committee and the Portfolio Committee, there had been improvement, and a return of the RTMC to its core business. Irregular expenditure had been reduced to zero. While it was not possible to claim that all was well, there had been a “remarkable improvement” as a result of two-and-a-half years of hard work to turn the entity around. The day before, at the Shareholders’ Committee meeting, the members had agreed to finalise the appointment of the Board, and to appoint a full-time CEO. The Department was hopeful, that going forward, an RTMC would emerge that delivered safe roads in South Africa that were up to the expectations of South Africans. He requested that SCOPA look at this historical context when receiving the financial statements of RTMC. He called on the Committee to be critical of RTMC, but with a view to building the important entity.
The Chairperson thanked the Minister and the Director–General as well as the leadership of RTMC. The Committee appreciated the firm measures that were being taken, especially in respect of Deloitte & Touch, which had agreed to “do the dirty work of seeking to deceive Parliament”. SCOPA eagerly awaited the upcoming performance audit report on the use of consultants in government. SCOPA had always been critical about some of these companies, and the Minister’s report had serve as further confirmation of these instances of abuse which arose in the absence of proper supervision.
Meeting with Swedish Committee on the Constitution
The Chairperson welcomed the delegation from the Swedish Committee on the Constitution, which was on a study tour. The delegation consisted of eight members of the Swedish Parliament, from different political parties, as well as secretarial support. The Chairperson invited members of the delegation to engage with members of SCOPA about the work their respective committees did.
Peter Eriksson, the Chairperson of the Committee on the Constitution, explained that the Committee worked closely with both the executive and the legislative arms of the Swedish state. In Sweden, any member of the public could make a complaint to the Committee, which would then take it up with the government. Every year, they received between 20 and 25 reports, involving different Ministers. The Committee was primarily concerned with the issue of openness. They had a 200-year history that they were trying to maintain. Around half of the Committee were present that day.
The Chairperson provided a broad summary of what SCOPA did in light of South Africa’s governmental context. Mr Singh explained that SCOPA dealt mainly with public accounts, and that it responded to reports of the Auditor-General and his team, which audited all government departments and state entities, of which there were roughly 350, on an annual basis. Each department and entity provided financial statements with a summary of the findings of the Auditor-General. The Committee members were tasked with analysing all of those reports, and they then identified those departments or entities who had been had received adverse opinions, or had been qualified in some respect. The Committee then identified, in order of priority, which departments and entities it wished to invite to the Committee to answer questions about the Auditor-General’s report. Before that engagement, SCOPA would first receive a briefing from the Auditor-General’s office. In each case, the accounting officer was the Director–General of the relevant Department, while the Minister, now required to be present, was accountable politically. Questions were divided among the Committee members on an apolitical basis. Mr Thobejane added that members of SCOPA were all members of Parliament, and that the Committee used the Public Finance Management Act, 1999 (Act No. 1 of 1999) and the Constitution as guidance.
The Chairperson said that in terms of the processing of information, when annual reports came before Parliament, SCOPA dealt with the financial elements of those reports. SCOPA rated the reports in order of priority, starting with those that showed the biggest need for involvement. The Auditor-General’s office assisted in preparations for meeting with various departments.
Mr Eriksson asked whether the reports of SCOPA were presented to Parliament, and whether the reports were accepted as such, or debated. The Chairperson replied that there was usually a debate in the National Assembly when the reports were presented in that house, but that to date, Parliament had always adopted SCOPA’s recommendations as resolutions.
Mr Eriksson asked whether government listened to SCOPA’s input. The Chairperson said that there was very good cooperation between the executive and the legislature, but that there were still areas for improvement. In certain cases, SCOPA’s recommendations to were not always implemented as fast as they should be.
One of the delegates asked who decided which of the reports of the Auditor-General were sent to SCOPA. She wanted to know how SCOPA cooperated with other parliamentary committees during its preparations for their reporting to Parliament. Ms Chiloane explained that the various departments were given money from the National Treasury, which had to be accounted for. After the Auditor-General reviewed their respective reports, those reports were then referred to SCOPA. SCOPA then prioritised which hearings it would engage in. Mr Thobejane added that SCOPA had been trying to improve its relationships with the relevant Portfolio Committees. Mr Singh explained that SCOPA’s responsibility was specific to financial statements, while the Portfolio Committee dealt with all aspects relating to a department or state entity. That was why it was important to forge relationships with the Portfolio Committees, so they did not feel that their area was being trodden upon.
One of the delegates asked whether SCOPA was entitled to raise its own questions, or whether it was limited to the content of the annual reports. Mr George said that government was listening, but “not enough”. SCOPA did indeed have the power to raise other issues, and the arms served as an example of that. There was however, sometimes a reluctance to raise other issues.
Mr Sven-Erik Osterberg asked when SCOPA handled a report and finalised a hearing, whether there were differences of opinions as between the various Committee members, or whether they were generally unanimous in their opinions. Mr George replied that usually, when a report was submitted to Parliament, the members of SCOPA are had a consensus view. The Chairperson added that, during his tenure as Chairperson since November 2005, SCOPA had never sent a report to Parliament that was not agreed upon by all members. Mr Thobejane explained further that SCOPA did not promote the idea of affiliates. The Committee was trying to forge unity and common purpose in its work.
The Chairperson said that the Committee members were not naïve to reality that they were present as members of Parliament, representing a political process. The critical question remained how to overcome the problems brought before SCOPA. When the Committee received a bad report from the Auditor-General, it did not usually raise ideological issues.
One of the delegates asked whether the Committee members had other issues that they had to work with, to which the Chairperson responded that as SCOPA, the sole focus of the Committee, was the review of public expenditure. He added that some of the members of SCOPA sat on other committees. Mr Osterberg asked Mr Singh whether it caused problems for him to be on more than one Committee, to which he replied that it all depended on effective time management. Mr Thobejane agreed, and Ms Mangena added jokingly that the reason Mr Singh sat on so many Committees was because his party was a very minority one.
One of the delegates asked how often SCOPA met and how many reports they dealt with in a given year. Ms Balindlela responded that after the Committee had gone through a report with the relevant Department or state entity, SCOPA then held a follow-up meeting in which they came up with draft resolutions. Roughly 18 reports were processed in a given month.
A member of the delegation asked whether the hearings were open to the public, or if they were televised. Ms Balindlela replied that some meetings were televised on the Parliamentary Channel, and meetings were generally open to the public, depending on the space available. The Chairperson thanked the delegates for their visit. Mr Eriksson said that he was very impressed by the Committee and the important work it was doing to help SA be efficient. On behalf of the Swedish Committee on the Constitution, Mr Eriksson presented a gift to the Chairperson, who joked that it would not be declared. The meeting was adjourned.
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