SA Post Office alleged irregular expenditure: Department of Telecommunications & Postal Services report

NCOP Public Enterprises and Communication

15 October 2014
Chairperson: Ms E Prins (ANC; Western Cape)
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Meeting Summary

The Department of Telecommunications and Postal Services presented a brief report on the allegations of irregular expenditure at the South African Post Office (SAPO). It was stated, at the outset, that this expenditure occurred in respect of the 2012/13 financial year and the final audited figures for 2013/14 were not available, so the Department wanted to stress that the reports of the media had been incorrect on the dates. The Department said that the allegations had to be seen in context, related to the SAPO operations, and later the General Manager explained that this was in fact not a purely financial issue, but was related to how "irregular expenditure" was defined. When the allegations were made, a review had been conducted of the contracts and it was noted that some contracts had expired, but action was still running on them, that some stock items had been procured without formal contracts, and that there were other contracts that did not have a fixed term. The R2.1 billion was the total of a figure of R1.1 billion from the 2011/12 financial year and a further amount, and the SAPO audit report had noted concerns about the ineffectiveness of steps to counter irregular expenditure. The Department had since introduced corrective measures, including reviewing and improving supply chain management, alignment of policies and legislation, regularising or terminating irregular contracts, strengthening contract management and asking the Special Investigating Unit to look into various areas of concern. The Department reported - but did not specify how - the figure of R2.1 billion was subsequently reduced to R212. 8 million irregular expenditure.

Members asked for more detail on the reduction, and wanted a full breakdown of exactly what was included in the initial and revised figures, pointing out that even if the reports emanated from the Special Investigating Unit to the Minister, this Committee must also be kept informed. They wanted to know what the Board had done, whether there was any failure on its part, what irregularities had been picked up by the Board and what measures the Board and Department had taken. More detail was requested on the nature and extent of the contracts affected. Members also wanted to hear whether this had had any effect on the pension rights of works,  and wanted more detail on the Postal Services strike, the Postal Services Pension Fund and why the standard operating procedures had not been aligned to the legislation. They also wanted to know what the Department planned to improve the operations and ensure that SAPO was financially viable. Members also wanted an update on the payment of salaries of the SAPO workers, a report on the acting allowance, and a report on all contracts, and asked if any disciplinary actions were pending.


Meeting report

South African Post Office (SAPO): Allegations of irregular expenditure: Department of Telecommunications & Postal Services briefing

Ms Rosey Sekese, Director General, Department of Telecommunications, offered a preview of her presentation stating the purpose, the problem statement, clarification of context, legislative context, historical background and an overview of the South African Post Office (SAPO) irregular expenditure. She also explained that this presentation was an update to one provided to the Select Committee on the allegations of irregular expenditure to the tune of R2.1 billion, to clarify certain issues that had been of concern to the Committee.

Ms Sekese said that the allegations about irregular expenditure emanated from the 2012/2013 audited financial reports, and not the 2013/2014 financial statement as the media had suggested. The Department of Telecommunications and Postal Services (the Department) had not yet finalised the audited financial statements of this latter year.

She explained that once the allegations were raised, the Accounting Authority was mandated to identify the irregular expenditure and take effective steps to prevent further irregular expenditure. However, she urged that this irregular expenditure was to be understood in the context of SAPO’S historical back ground. Upon reviewing a list of expired contracts in 2012/2013  three points were noted:
- Contracts that had expired, but were still being used
- Stock items procured without formal contracts
- Contracts that did not have a fixed term.

The breakdown of the R2.1 billion was a “consolidation of the balance of R1.1 billion from 2011/2012 and a further R1billion.  SAPO’S 2013 audit report raised concerns on the ineffective steps taken to counter irregular expenditure. 

In an attempt to cap irregular expenditure, the Department introduced corrective measures which included reviewing and improving the chain of supply, aligning policies with relevant legislation and practices, regularisation and termination of irregular contracts, strengthening of contract management processes and giving space to the Special Investigating Unit (SIU) to investigate issues of concern.

Ms Sekese concluded that the R2.1 billion irregular expenditure was reduced to R212.8 million, on the basis of the draft financial reports for 2013/14, but mentioned that these reports for 2013/14 were still in draft and subject to final audit.

The Chairperson asked what the board had done when signing off on the decisions made by the CEO, suggesting that the board possibly failed on its mandate in this regard. She asked what irregularities had been picked up by the board, and asked for more specifics.

Mr M Rayi (ANC, Eastern Cape) asked what measures the Department of Telecommunications and Postal Services (DTPS) had taken in response to the irregular expenditure. He also asked whether the issue of irregular expenditure was proven, or whether it remained merely an allegation. He asked what had happened that allowed the contracts that had exceeded their timeframe to continue, and wanted more detail on how many there were, and who was involved.

Mr J Parkies (ANC: Free State) said he was looking forward to seeing the breakdown of the R2.1 billion allegations, and more detail explaining how the SAPO audit had managed to reduce the irregular expenditure from R2.1 billion to R212,8 million. He asked if the figure of R2.1 billion in fact represented irregular expenditure.

He sought clarity on the workers’ pensions, and asked if any SAPO workers were affected.

Mr Parkies also asked why the SAPO policies were not aligned to the legislation. He cited the portion of the presentation that stipulated that SAPO, after reviewing the procurement contracts, had identified certain contracts that had expired, and certain that did not have a fixed term. These statements appeared to be contradictory, and he called for further explanations.

Ms C Labuschagne (DA: Western Cape) asserted that the presentation seemed to be offering a reason rather than an explanation for the irregular expenditure. She too wanted to know how the reduction in the amount of irregular expenditure was calculated, and asked whether this was done by condoning the irregularities, or whether it had been found that the initial calculations were faulty. She asked also why the 2013  corrections were not effective, how many cases were reported and how many were being investigated. She also enquired how long the investigation by SIU would take.

Mr  E Mlambo (ANC: Gauteng) asked who was mandated to follow up on the alleged irregularities.
The Chairperson wanted to know the status in regard to the latest SAPO strikes.

Ms Sekese said, by way of introduction, that the invitation to her to address the Committee had been very specific and asked her to shed light on the 2013/14 irregularities. She had asserted that the 2013/2014 finalised audit reports were not available, and had also stressed that the investigations were taking place in regard to the 2012/2013 financial audits. As a result of the financial audits by SAPO, the alleged R2.1 billion of irregular expenditure had been found to have been reduced to R212,8 million, or in fact only 67% of the figure initially assumed. 

The DTPS also took the issue to the SIU, asking that it investigate SAPO not only on irregular expenditure but on property issues and issues of procurement. The SIU only responded to the Minister and hence the board was not in a position to answer as to the outcomes of the investigation.

Ms Labuschagne asked if the investigation by SIU or any other person was going to show where the irregularities were.

Mr Parkies  reinforced the need for a comprehensive breakdown, and questioned again how it was that the audit had reached the final figure of R212,8 million as irregular expenditure.

Mr Andrew Nongogo, General Manager, SAPO,  said the challenge began in 2011 when it was realised that "irregular expenditure" was to be re-defined, and in 2012 the new measures to define "irregular expenditure" were put into place. At that stage, however, there were limited responses to the issues, and there was lack of capacity in the sense that there were no staff who had the capability to deal properly with third party contracts, and the possible profit or loss to be incurred. Corrective measures were being taken.

Ms Sekese noted that the investigations covered a wide breadth, as well as the property issues, dealing with the root causes of the irregular expenditure, and tests were also done as to whether there were elements of corruption that played a part.

Other Board members answered the question on the strike by saying that the strike was ongoing, with violent eruptions, and the Minister was engaging with staff and unions as well as the board in finding a solution. The challenges faced by SAPO needed more time to be resolved.

The Minister had facilitated the re-establishment of the Workers Forum. The board had called upon workers to return to work, as the strike had affected health services, tertiary education and businesses within South Africa.

Mr Parkies said the Committee did not condone violence, but instead expected productive resolutions to the strike, particularly since this implied that the only tool the workers could use to get their concerns addressed was to strike. It was  the expectation of the government that the public sector should offer quality jobs and not casual permanent jobs. Since SAPO was a para-statal there was a need for improved working conditions.

Mr Siya Qoza, Departmental Spokesperson, Department of Telecommunications and Postal Services, said there was no party that had declared a deadlock, hence citing further negotiations. The workers were now undertaking unprotected industrial action.

Mr Rayi said the Committee must be kept fully informed on happenings in SAPO, quite independently  of SIU investigations, and stressed that this Committee had the right to ask for and receive a detailed explanation on the SAPO activities.

A member of the SAPO board responded to the question on workers' pension rights by pointing out that the pension fund was an entity independent of SAPO, and was not affected. There had been a lapse in supply chain management. The main issue was to properly resource SAPO to ensure that there was no recurrence of irregular expenditure in the future. There had been a number of properties owned prior to 1994, but some of them were sold to individuals, and the board at the moment needed to find the title deeds of the properties that the SAPO still had, calculate the assert base, and assess how they could be managed, in order to assess how best to leverage the properties to the benefit of the balance sheet.

Mr Mlambo asked whether the properties were now registered. He enquired what had been the response from National Treasury.

Ms B Masango (DA, Gauteng) asked if the workers were paid their salaries by SAPO.

Mr Rayi  requested the board of SAPO to provide a report on the acting allowance and a report on contracts.

Ms Labuschagne asked if there was a plan to make SAPO financially viable

Mr Rayi asked if there was a platform for the Committee to meet with the entities, how frequently this could be done, and if there were any disciplinary issues pending.

A Board member answered that the board could not disclose whether there were any hearings pending. The salaries had been paid,although there had been a one-day delay, but this had been addressed. The board was looking forward to the SAPO workers returning to work, so that revenue could be generated to contribute to the payment of their salaries.

Other Committee business: Oversight
Mr Rayi said that there was a need for the Committee to firstly receive presentations on the annual reports before visiting any of the entities overseen by the Committee, as this would empower Members and put them in a better position to deal with matters.

Ms Masango quipped that the Committee should pass by her residence on the last day of the Committee's tour of institutions.

Mr Parkies pointed out that there were some quite restrictive requirements that affected the social and family life.

The Committee agreed that there was no need to visit Eskom, but instead the board should be asked to visit Parliament.

The meeting was adjourned.


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