The Committee met to interrogate the 2010/11 Annual Report of Transnet, and both the Minister and Deputy Minister of Public Enterprises were in attendance. The first issue raised related to fruitless and wasteful expenditure, and questions were asked as to why the costs of derailments as a result of cable theft were not included in the Report. Questions were raised on what had led to the fruitless and wasteful expenditure of R36 million, whether any fraud was suspected, whether employees had been investigated or if disciplinary action was taken. Questions were raised on a further report of fruitless and wasteful expenditure of R6.5 billion, including whether the organisation outsourced services, particularly those of consultants, what had led to the fruitless and wasteful expenditure related to staff accommodation, and whether the organisation should not be looking again at its supplier specifications. Members also interrogated the steps followed, in general, for disciplinary matters and noted that some employees had resigned before the disciplinary steps were instituted and that Transnet was considering whether it could prevent this happening in future.
Members asked why no reporting on the organisation’s internal controls had been done by the auditors. A Member asked about the composition of the Board, and why it included those who did not have financial skills, whether any conflicts of interest had been noted as a result of Board Members holding other directorships, and heard of the policy around this. Members asked what assistance it provided to its HIV-positive employees. They asked whether the monthly R213 allocated for post-retirement was sufficient and whether this would increased. They also questioned whether Transnet had restraint of trade policies, and whether it was aware of any of its employees conducting business with other entities of departments. The Chairperson asked whether the outsourcing of services was cost-effective.
Transnet Annual Report and Financial statements 2010/11: Interrogation
Procurement, Contract and Expenditure Management
Mr N Singh (IFP) asked why certain information, such as the costs of derailments as a result of cable theft, were not included in the Report.
Mr Brian Molefe, Group Chief Executive Officer, Transnet, answered that the inclusion of derailments in the Annual Report was largely dependent on the size of these derailments. There was a system in place that analysed the number of derailments. However, only the larger ones were reported.
Mr Singh asked whether there were figures to give an indication of how much cable theft happened, and how much its knock-on effects cost the organisation.
Mr Molefe answered that the Group Risk Sub-Committee reported on each derailment as well as opportunity costs. These figures could be made available to the Committee.
Mr Benedict Martins, Deputy Minister, Department of Public Enterprises, added that the Department of Public Enterprises was also informed abound the occurrence of all serious derailments.
Mr Singh asked what had led to the fruitless and wasteful expenditure of R36 million.
Mr A Singh, Acting Chief Financial Officer, Transnet, answered that this was as a result of the collapse of a pneumatic ship loader in
Mr Singh asked who had been responsible for this decision.
Mr Molefe answered that eight employees had been identified and that disciplinary processes against these employees were currently under way.
Mr Singh asked whether any fraudulent activities were suspected, and when these investigations were likely to be concluded.
Mr Molefe answered that although he could not answer this with any certainty until the investigations had been finalised, which was expected to happen in around May or June 2012, the preliminary indications were that this seemed to have resulted from a genuine error.
Mr Singh asked whether these employees were under criminal investigation or were being subjected to disciplinary action.
Mr A Singh answered that both these processes were under way.
Mr Singh asked what processes were followed if criminal activity was found.
Mr A Singh answered that all normal disciplinary processes were followed and that all such cases were taken very seriously by the organisation.
Mr Singh asked what had resulted in the fruitless and wasteful expenditure of R6.5 billion.
Mr A Singh answered that this amount had accumulated over a number of years and was related to three contracts, all of which were for the provision of engineering, procurement, construction and maintenance (EPCM) services. The contraventions related to either to the non-adherence to Transnet’s internal processes for the awarding of tenders, or the fact that the person who signed the contracts did not have the requisite authority to do so. In all three of these contracts, however, the organisation did derive value for money. The signing of the contracts also took place in the early stages of the Transnet turnaround strategy, and improved controls had since been put in place. These events were due to the overall breakdown in controls that was prevalent at the time. Tender processes were followed, but the person who had signed the contract needed the counter-signature of another person, and this was not obtained.
The Chairperson said that this was reflective of other incidences of non-compliance.
Mr A Singh replied that there had since been significant improvements in this area.
Mr Mafika Mkhwanazi, Chairperson of the Board of Directors, Transnet, added that procurement processes were being tightened to prevent similar occurrences in the future.
Mr Singh said that, given the worrying escalation in costs of the multi-purpose product pipeline, the matter of officials signing contracts without possessing the requisite authority to do so needed to be looked into.
Mr Molefe replied that these employees had left the organisation before any disciplinary action against them could be taken. Transnet needed guidance on the policy, and was unsure whether it still could take recourse against these individuals.
Mr Mkhwanazi added that despite the resignations of the employees, Transnet had still conducted investigations into those matters. It was also looking again at its internal policies to determine whether employees would be permitted to resign before disciplinary processes could be instituted against them, or before investigations into their activities could be completed.
Mr Martins added that this was a very serious matter, which was receiving significant attention.
Mr Singh asked to what extent the organisation outsourced services, particularly those of consultants.
Mr A Singh answered that a significant amount of the Transnet Capital Expenditure projects were outsourced in the past, but this had lessened as there had been skills transfer into Transnet.
Mr Singh asked for details around the fruitless and wasteful expenditure related to staff accommodation.
Mr A Singh answered that procurement processes had not been followed in relation to this matter. However, Transnet had investigated and was satisfied that no fraudulent activities had taken place here.
Mr Mkhwanazi added internal forensic investigations had been done.
Mr Singh asked whether Transnet should not be looking again at its supplier specifications.
Mr Mkhwanazi answered that, although there was more than one supplier, Transnet was currently looking into sourcing suppliers internationally, as well as at the localisation of its products.
Mr Singh said that there were concerns around its shareholder’s compact and the risk control environment.
Mr Tshediso Matona, Director General, Department of Public Enterprises, responded that, in relation to the shareholder’s compact, details that were previously not necessary to provide were now being obtained.
Mr Martins added that the Department’s oversight systems were being refined and improved annually.
Mr R Ainslee (ANC) asked why the auditors had not reported on the Transnet internal controls.
A representative of the auditing firm answered that the investigation into controls was limited to assessing whether those controls could result in a material misstatement of the figures reported.
Mr Malusi Gigaba, Minister of Public Enterprises, added that the matter of internal controls had been recognised as an important issue and for this reason was now being regarded as a priority.
for a while been an important issue and was, as a result, being made a priority.
Dr D George (DA) asked which members of the current Board were not financially literate, and if they were not, then what was the reason for their serving on the Board.
Mr Mkhwanazi answered that those on the Board who were not Chartered Accountants brought with them other sets of skills that were valuable to the Board.
Mr Martins added that the Department looked very closely at the different functions of the Board members, and what value individual members could bring to that board.
Mr George asked whether Transnet had noted any conflicts of interest as a result of Board members holding other different directorships.
Mr Mkhwanazi answered that this was monitored closely and that there was a policy to deal with it. Board members were required to declare all their interests.
Dr P Rabie (DA) asked what assistance Transnet provided to its HIV-positive employees.
Mr Molefe answered that the organisation provided support through telephonic counselling and also distributed anti-retroviral medication to the employees. Both of these services were outsourced.
The Chairperson asked whether any figures on this were available.
Mr Molefe answered that these figures could be forwarded to the Committee in writing.
The Chairperson asked whether the outsourcing of these services was the most cost-effective way of providing such services.
Mr Molefe answered that these services were outsourced as they were not a core function in the delivery of the Transnet mandate. In addition, he said that it was important that these functions be carried out by external service providers to ensure confidentiality.
Mr S Thobejane (ANC) said that he did not believe this answer was satisfactory; the well-being of any organisation’s employees should be of major concern.
Dr Rabie asked if the monthly R213 allocated for post-retirement was sufficient, and questioned if it was likely to be increased in the near future.
Mr Singh added that post-retirement benefits were governed by Fund rules, which the trustees were allowed to amend.
Ms A Muthambi (ANC) noted that the turnaround times for completion of investigations needed to be investigated.
Mr Molefe responded by apologising for this, and assuring the Committee that Transnet would work on making improvements.
Mr Ainslee asked whether Transnet had considered a restraint of trade policy for employees.
Mr Molefe answered that Transnet currently had a two-year restraint of trade policy in place but would need to look into a more effective option. This option would also hopefully cut across, and benefit, the entire public sector.
Ms T Chiloane (ANC) asked whether Transnet was aware of any of its employees conducting business with other entities or departments.
Mr Molefe answered that it was not aware of any such instances.
Mr Gigaba said that, although the organisation had made significant improvements, one particular area of concern was that it needed to improve productivity of both the rail and the ports. There had been significant improvements in rail. Stringent indicators were being put in place, which should see Transnet moving to a zero accident figure. It did have some challenges as a result of too few improvements and not enough maintenance of rail infrastructure over the years. Rail efficiencies also had to be extended to ports, where outdated equipment posed a significant challenge. More attention needed to be placed on the improvement of internal controls, particularly as these ultimately affected Transnet’s ability to deliver on its mandate. Proposals were also being formulated on how shareholders engaged with Transnet, and there were considerations about its structure. The shareholder’s compact was being made stringent enough for more effective delivery on its mandate. Consideration had been given to making the compact public, to work towards greater accountability. In addition, there was reconsideration of the size and management of the Board. The matter of employees tendering resignations before disciplinary action could be taken against them was also another area of focus. The remuneration of executives was also a matter that was currently under scrutiny, and a decision had been taken to hold all salary raises for executives until a new remuneration policy had been finalised.
The meeting was adjourned.
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