Department of Transport: hearing

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Meeting Summary

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Meeting report

22 May 2002

[This is a transcript of the meeting, produced by the Public Accounts Committee Secretariat.]



Chiba, Mr L
Gerber, Mr P
Gumede, Mr. D
Mothoagae, Ms. K
Nair, Mr. B
Smith, Mr V


Bruce, Mr N
Lowe, Mr M
Pillay, Mr S


Beukman, Mr. F (Chairperson)


Koornhof, Mr G


Kannemeyer, Mr B
Ndou, Mr R S
Woods, Dr. G
Hlangwana, Ms N L
Dudley, Ms C
Lowe, Mr C

In attendance

Auditor-General's Office

Mr. P Mosaka

National Treasury

Mr N Marais

Department of Labour

Prof M Rwelamira, Acting Director General: Department of Transport;
Mr J Mokokoane, Deputy Director General of Transport Policy and General Transport Operations: National Department of Transport;
Mr D Pretorius, Chief Financial Officer: National Department of Transport;
Mr H Van Tonder, General Manager of Road Traffic Management: National Department of Transport;
Mr M Hitge, Acting Director of Economic Services : National Treasury
Mr Negota, Chairperson: Cross Border Road Transport Agencies


The Chairperson welcomed members of the Committee, the Auditor-Generals Office, National Treasury and the Department of Transport. He confirmed the agenda and it was adopted as circulated.

Discussion on Department of Transport and Related Agencies
Prof M Rwelamira, Acting Director General: Department of Transport; Mr J Mokokoane, Deputy Director General of Transport Policy and General Transport Operations: National Department of Transport; Mr D Pretorius, Chief Financial Officer: National Department of Transport; Mr H Van Tonder, General Manager of Road Traffic Management: National Department of Transport; Mr M Hitge, Acting Director of Economic Services : National Treasury

[Chairperson (Mr F Beukman)] Welcome to everyone.

[Mr D Gumede] I would like to welcome the team from the Department of Transport and perhaps in the way of introduction to say that we will be having a Hearing here because of repeated irregular expenditure year after year. This is one of the reasons. Secondly, there is a continued non-compliance with the PFMA and regulations within the Department of Transport, amongst other things. Having said that, we wanted to ask a question around the late submission of the Auditor-General's Report and the replies to preliminary questions. But, rather than delve on that we are just going to express it as a concern and go to the first question. Our first question is around transfer payments. Our understanding is that 92% of your budget is transfer payments. Therefore, the process of transfers, because of the magnitude in relation to your budget of these transfer payments, I think, has got to be tightly controlled. Our problem is that there are conditions that are prescribed by the PFMA and there were conditions prescribed previously under the Exchequer Act by K5 regulations and which then makes transfers a matter of routine rather than something that is new. Given that the conditions of the PFMA are less stringent than the K5 requirements - why does the Department transfer payments to entities that time and again are not compliant to the PFMA conditions?

[Prof M Rwelamira]
Let me start by thanking yourself and the rest of the Committee for giving us an opportunity to explain some of the financial transactions that have taken place in our Department. We will also like to start of by seeking your indulgence and the indulgence of the Committee. I have been acting for a short while myself, so most of the statements or the reservations that are being made on the accounts that are at issue, most of them may not be in my personal knowledge. So I will rely very extensively on my colleagues who have personal experience to respond to most of the questions and then intervene in those areas where I have my own experience, which is indeed very limited since I have been acting for only five weeks. The issue of transfer payments, indeed, is a matter of major concern for us. We are currently in the process of reviewing that particular process. With regard to the specific issues that were raised by Mr D Gumede, I will ask our Chief Financial Officer (CFO) to respond to some of those concerns.

[Mr D Pretorius] I have been appointed as the CFO for the Department since 16 April 2002. Relating to the question of transfer payments - they do comply with 94% of our budget. Firstly, where the Department continued making transfer payments to entities that did not comply, particularly with the previous Treasury instruction K5 - our transfer payments are mainly in relation to bus subsidies and public transport subsidies. In the past there was a requirement that financial statements must be received from an entity within six months from the end of that entity's financial year-end, as well as required that the Internal Audit had to be applied by the recipient of transfer payments. On those two issues we have consistently over some years not been able to comply with the previous Treasury instruction K5. Although on the other requirements, the previous instruction K5 with respect to whether the set objectives were met by the recipients of transfer payments and whether funds were utilized for the purpose of the transfer payment, we have been able to comply. The last year when K5 still applied to the Department, the year ended in March 2000 for all the transfer payments that we made where we could not comply we have been able to obtain Treasury approval except for two cases, the details of which I will just have a look at and report back on that. We issued circulars to ensure that proper controls are in place with respect to transfer payments. Those circulars also required that the stipulations of the Public Finance Management Act (PFMA) and Treasury Regulations are complied with. In the cases of transfer payments for the year under review - for only two transfer payments made we have not been able to receive the certificate of compliance at the time of compiling this Report. I have not been able to verify whether those have been received since. The controls - we require contracts to be entered into before a transfer payment is made. We changed some of the checks and balances to require that the Manager of Financial Administration must sign off each transfer payment before the transfer payment is made. For that reason we have not had an instance in the latest Audit Report relating to transfer payments.

[Mr D Gumede] You say that you are taking steps to ensure that transfer payments to the MDCT are based on the requirements of the PFMA now?

[Mr D Pretorius]
Yes, that is correct.

[Mr D Gumede] We will check that in the next Auditor-General's Report. Then we go to the Regional Services Councils (RSC) - the payments that you make to the RSC. We understand that this matter, according to the Reports and your replies, has been referred to the State Attorney. When was this matter first referred to the State Attorney?

[Mr D Pretorius]
If I remember correctly, this issue was discussed at a Hearing of this Committee during September 2000. At the time we already received the State Attorney's opinion on the whole matter and to provide a summary. Just to give the Committee members a background. The RSC received an one-cent fuel levy through the Customs of Excise Act. The Department of Finance at the time issued a circular, which had a formula, by which RSC had to calculate from that one-cent fuel levy a contribution towards bus subsidies. The Department was to receive these one-cent levies from RSC and utilize this for bus subsidies in particular, because the RSC in most instances had to pay more over than they received from the one-cent fuel levy they disputed this whole issue. We received an opinion from the State Attorney and the major opinions of the State Attorney were as follows. Firstly, that no agreement existed between the Department of Finance and the RSC regarding the portion; that they had to pay over in excess of the one-cent fuel levy. The Councils always maintained that they are not prepared to use their own funds to finance commuter subsidies and for that reason never agreeing to the Department of Finance to pay the difference. You might be aware that this situation deteriorated to such an extent that the Customs and Excise Act was amended. Since that time we also received an opinion from the Treasury, because we wrote to the Treasury and requested that Treasury for the write-off of these levies. At this stage I must point out there are no amounts reflected in the Department's financial statements. No debts were ever taken on, because of the contention at the time. The Treasury responded to us mainly that with respect to the circular issued by the Department of Finance that circulars cannot be regarded as prescribed law, because they do not originate from the rule of law and therefore, do not spell out what the consequences are for failure to adhere to directives of such circulars. Further, that this principle applies in this case that when this particular circular was distributed to RSC no principles governing the failure of their expected contributions was set out. There was also no agreement between the RSC and the Department of Finance to pay over these one-cent fuel levies. The Treasury then concluded in their letter to refer to Chapter 11 of the Treasury Regulations, which authorizes an accounting officer to write off a debt according to certain guidelines. That is where this issue ended as far as the Treasury is concerned. Subsequently in February 2002 the Management for Financial Administration wrote a letter to the Office of the Auditor-General to ask their opinion, but basically mentioning that the amount cannot be written off by the accounting officer, because there is no amount in the financial statements. That is where we are at the moment. I have my own opinions on the matter, but I do not think they are relevant to this Committee.

[Mr D Gumede] You said that you did not record the debt in the financial statement, because it was not a contention at the time. Could you please elaborate on that? Why was the debt not recorded in the financial statements and you said it was not a contention at the time? Please just unpack that.

[Mr D Pretorius] The Department never took up the debt. Whatever the Department received it utilized for bus commuter subsidies. It supplemented at the time its bus subsidies by continuously, and this goes back to up to 1997 by requesting additional funding from the Treasury from time to time for bus subsidies, because the Treasury allocation was not enough to fully fund bus subsides. It was a contentious issue and for that reason no debt was taken up in the records of the Department.

[Mr D Gumede] This question is to the National Treasury. Is this in line with the Management of the Treasury's money?

[Mr M Hitge]
It is in line with Treasury guidelines.

[Mr D Gumede] Then we go to the question of paragraph 2.2.1 that is late submission of audited financial statements. Here we are not going to ask why, but what we want to know is whether you are giving us an assurance that for the year 2001/2002 we are not going to have a late submission? If not, you tell us why not?

[Mr D Pretorius]
The reasons for that late submission in the previous financial year were responded to, except for one issue of contingent liabilities which were not taken up in the financial statements. The rest of the adjustments, which were necessary, were technical in nature. At the meeting of the Treasury we were told that amendments mostly of this kind requested by the Auditor-General when they are not material and when they do not influence the audit opinion will not be regarded as a late submission as it was in the past. We have noted the concerns and the Department assures that the financial statements will be submitted to the Auditor-General by the end of May 2002.

[Mr D Gumede] You say that in about a week's time we are going to get that submitted. Then we go to paragraph 3.1 on page 38 under Emphasis of Matter - the Suspense Account: National Traffic Information System (NaTIS). Here the Department made payments pertaining to the NaTis telephone lines to Telkom on behalf of the provincial authorities. The provinces, however, did not refund the Department in this regard and there still appears to be uncertainty regarding the recoverability of more than R2.5 million owed to the Department. This amount originated before 1995 and the Department could still not indicate how the money would be recovered. This matter was reported in the previous two Audit Reports, so there is a recurrence once more. What steps have been taken to recover the amount owed to the Department? What corrective measures have been put in place to avoid recurrence of this?

[Prof M Rwelamira] I will ask my colleagues to fill in. The information that we have is that the provinces who have once again been contacted with regards to this particular matter and those approaches are being made to the National Treasury to write off the amount. It would appear that the response of the provinces at this point is that they do not have the necessary funding on their budget to be able to cover this historical cost. In fact, their view is that these amounts should be written off.

[Mr H van Tonder] I am the General Manager of Road Traffic Management for the Department of Transport. This telephone account is dated back from approximately 1994/1995. That is when we started with the NaTIS. At that stage the Department were arranging the Telkom lines to be connected and the Department sort of administrated Telkom to make sure that the lines are available for the deployment of the system countrywide. At that stage the provinces had their own systems running and they then simply said that they have not budgeted for this amount. The Department then had to pay Telkom and then numerous letters were written to the provinces to try and recover the money from them. Then they responded by saying that the Department of Transport should be dealing with this themselves. This whole amount was made good during the last financial year, so the matter is closed. What then happened is all the provinces became responsible together with local authorities to pay the Telkom accounts. If they did not pay the Telkom accounts then, of course, normal processes are followed and Telkom in certain instances even switch off the services and then they had to step in and pay the account. So, the reoccurrence of this, it will not reoccur in future again. It cannot reoccur, because they are held directly responsible for paying this account. This is now the only information system for the registration of vehicles and they do not have their own systems still in place. If they have not paid their accounts there is no communication in the system. Therefore, transactions like vehicle registration, licensing and driving licenses etc cannot continue. It is something that will not occur in the future.

[Prof M Rwelamira] The Department has subsequently written off the debt in accordance to the provisions of the Treasury Regulations Act Section 11(4). This was done in the last financial year.
[Mr D Gumede] I just want to confirm with Treasury once more. Is this in line with Treasury Regulations?

[Mr M Hitge]
It is in line with Treasury Regulation Chapter 11.

[Ms K Mothoagae] My first question is on page 37 around monitoring of drivers license centres. There is a reply from you, Director-General, whereby a database has been established for payment received from the Driving License Testing Centres (DLTC) as captured. Is this database reliable? We are not sure how you are operating it. Can it be manipulated? One would think that a database system is better.

[Mr H van Tonder] When a transaction is concluded at the DLTC the authorization for the issuing of the driver's license is done in the NaTIS system. Then this information is electronically transferred to the Manufacturing Bureau in Pretoria. The hard copies of the documentation are then forwarded to the Manufacturing Bureau. At the Manufacturing Bureau we have all the data relevant to the issuing of new driving licenses. If it is authorized in the system, the system will proceed in manufacturing the driving license. If it is not authorized then there will be no detail in the system. What is meant by this database? We have got all that information, and on top of this, in the NaTIS system we have written another program feeding information into this database where you could enter the beginning and end date and all the transactions relevant to the issuing of driving licenses during that time period will then be summarized and typed into this database. The reliability of this database, I think, is very high, because it is actually capturing what is happening out there and if a driving license or a learners license is not issued the information will not appear in this database. If it is, indeed, issued, it will definitely appear in the database.

[Ms K Mothoagae] With regard to the 3% of levies that has not been paid for more than five years by one province - which province is this?

[Mr D Pretorius]
This query was on the Audit Report for the past number of years. Since then, in the last financial year, what has happened is that the amount paid over to the Department by the DLTC are now compared with the license issued on the NaTIS system. So for current licenses being issued there is a system in place that matches the 3% that the Department must receive to the licenses actually issued. For the past amounts due the Department has been able in the 2000 financial year to recover some monies, but it is still not able to verify whether all funds, outstanding monies were collected or to verify exactly what those outstanding amounts are.

[Ms K Mothoagae]
I did not get the name of the province.

[Prof M Rwelamira] Mr Chairman, maybe with your indulgence we can look into that question. We are not in a position to provide it.

[Ms K Mothoagae]
If that is the case does that mean that the system is not reliable if you cannot know which provinces. The Auditors picked it up. I will await the reply to that one. The Department has replied on the Internal Audit component that there are inadequacies around collection of spending monies, because of Inspectorate appointments. Somewhere in the body of these Reports the Department has under spent by not appointing people in the posts that were vacant. The Department is indicating here that they will employ people for the financial year 2002/2003. What is the timeframe, because already there is this under spending in the Department?

[Prof M Rwelamira]
Yes, the shortage of inspectors has been an issue of concern, but since 1999 a number of efforts have been made to appoint more inspectors in this regard. The figures that we have is that a study which was done by the Organization Development Component in the Department made a recommendation for additional 16 posts in the section of inspectors. In this regard five inspectors were employed in the year 2002. I would then employ in 2002/2003 and 2003/2004 and an additional 6 in 2004/2005. This recommendation has been approved and if these appointments are made inspectors will, of course, be able to visit as many Driving License Testing Centres at least four times a year in the proposed period of Road to Safety, which is between 2001 and 2005.
[Ms K Mothoagae] Can I have a timeframe for the appointments of the inspectors? It is June next month. So this inspectors that you are talking about, we are talking two financial years. I am not sure whether the Department understands me?

[Mr H van Tonder] As the Director-General indicated, the approvals were made for the additional inspectors this year and the process of advertising for the post is currently underway. Hopefully, the appointments could be made somewhere towards the end of July for the first five inspectors, because of budgetary constraints we will not be able to make the appointments of the other inspectors before the next financial year. Since we have already obtained approval we will appoint those inspectors as soon as possible in the 2003/2004 financial year which could be then, basically during the first week of April, then the same procedure will be followed for the next financial year.

[Ms K Mothoagae] One question still arises from my side as whilst they are trying to put these people in place, the liabilities. As we are talking now we could be having people that are driving without valid drivers licenses. Should it happen that the State is sued against that - what do we whilst we are still awaiting these other processes that you are trying to put into place?

[Mr H van Tonder] The functions of these driving license inspectors is to make sure that the driving testing facilities do comply to the minimum statutory standards and that the testing of drivers is being conducted also in accordance with statutory standards. Provinces have started to develop their own units to make sure that the local authorities are indeed doing their work in accordance with the law. On top of this, because a big problem in the past was the compliance of the infrastructure, the Department was proactive and concluded business plans with all nine provinces to upgrade the Driving License Testing Centres to comply with the minimum standards. This project is underway and the Department has made R21.5 million available for this. I think, with the inspectorate also interacting with the South African Police Services etc, it is not a situation that is out of control. I think we will be managing with the people that we have and that we will be appointing right now, because we do receive the cooperation from the provinces as well in this regard. It is not because of the numbers of the inspectors right now and that is not the only thing that we are attending to to ensure that testing is being conducted in a legal way. This is how the program will unfold. Unfortunately, there is not much room to accelerate this particular program for the employment of additional people.

[Ms K Mothoagae] Whilst we are on the provinces, as the speaker has just said, the question of recommendations - you are coming with plans that we are going to do this, but the recommendations that the provinces are not in the position to implement. What is the Department doing about it?

[Mr H van Tonder]
This whole thing is a big package. There is consideration given to amend the Road Traffic Act and to implement a regime where the inspectorate will have more powers than what they have at the present moment. At the present moment the inspectorate may only recommend certain remedial measures to the MEC and then it is up to the province to implement the remedial measures. In future this is also embodied in our Road to Safety strategy. The intention is to give the inspectorate more powers so that they can register and even re-register the Driving License Testing Centres. Of course, this goes hand in hand with the additional personnel that we require in that inspectorate. We are strengthening the inspectorate and we are paying attention to these additional powers and we are in the process of consulting this with the provinces before we can be able to finalize this whole new system.

[Ms K Mothoagae] With regards to the SABS, the legal actions that can be taken that is mentioned in the reply of the Department - what is the timeframe around that?

[Mr H van Tonder]
I am not quite sure the reference to the South African Bureau of Standards (SABS).

[Ms K Mothoagae] Can I assist you? On page 38 the SABS was appointed as the inspectorate of vehicle testing stations. The Department was not monitoring the activities of the SABS. They indicated that the appointment did not include any conditions such as a number of inspectors or reporting procedures, nor did it protect the Department against litigation or liabilities in the event of legal action. What is the Department doing currently that the SABS will submit a statement of fees and cost incurred?

[Mr H van Tonder]
This is one of the areas that we are in the process of restructuring in the Road to Safety strategy. Certain recommendations were made. One of the recommendations made was to start with an inspectorate unit for vehicles within the Department of Transport. The other option is to continue with the SABS, but to amend the Road Traffic Act to provide more powers to the Minister of Transport over the inspectorate of vehicle testing stations, in this particular instance SABS. The Minister, of course, has got the power to end an appointment, but should that be done at this stage there will be nothing to replace it. At the moment we have opted for the route to engage with SABS to improve their inspectorate functions. The Department of Transport also is busy with a total program together with SABS to work out how best the responsibilities given in the Act to the SABS can be monitored. This project has been started with, but the completion date of this would be somewhere, I am speaking under correction, towards September this year.

[Ms K Mothoagae] A reply was given around NaTIS. There is a reply from the Department around the province which was not on the system of NaTIS which the Department has indicated that they are in the progress. In fact, there is some money that was commissioned about R72 000. What is the progress with regards to this thing of NaTIS in the Northern Cape?

[Mr H van Tonder]
Yes, this is indeed true. I think, the question is that some of the places in the Northern Cape has not got direct access to NaTIS was thoroughly investigated and, indeed, more than R7 000 was made available to the Northern Cape. They are now busy and in the process of procurement. The progress in this regard is that they have already forwarded to their Department and the Committee the submission for approval tenders on the NaTIS equipment. After they have completed that the Department will be involved in the deployment of the equipment and to get it live onto the NaTIS system. According to the program that we have given to the Northern Cape the deployment will be completed at all 19 places within four months after they have finalized the procurement of the hardware.

[Ms K Mothoagae] My next area would be around the Internal Audit on page 39. It is indicated from your reply that the function of the Internal Audit has been established. Do you regard the Internal Audit as serious?

[Prof M Rwelamira]
We do regard the Internal Audit as an important component in our work. We must, however, admit that it took quite a bit of time to have the risk assessment done in terms of the requirement of the PFMA. We put out a tender last year and at the moment we have the firm of Deloitte and Touche doing risk assessment. We hope to get the final Report from the firm by the end of May 2002 that will enable the Department to come out with a detailed risk plan, because the earlier one was not approved by the Audit Committee, because it was not risk assessment based. Yes, we do take the issue of Internal Audit quite seriously. We must apologize for the delay in getting this process going, but we hope to be up and running by June 2002.

[Ms K Mothoagae] The last area is on page 39 around the Moving South Africa Project. It was indicated that approval is awaited from SCOPA. I am worried. We are not the body to approve what you have suggested in your reply. Because, in operating this thing the other agencies failed the Department and SCOPA cannot condone any action by the Department and maybe, I think, this time the Department of Treasury can assist us.

[Mr M Hitge] On this issue I would suggest that the Department submit a request to the Office of the Accountant General, that is situated in our office, that they can decide or condone the opening of these Suspense accounts.

[Ms K Mothoagae] I still have a question around transfers on page 52 of the Annual Report. There are about 4 historically white universities that are receiving capacity building funds. That is the University of Natal, Stellenbosch, Pretoria and Rand Afrikaans. I am just interested as to why those universities, I mean with this transformation that historically black universities are not benefiting. Just clarity why these 4 universities were chosen?

[Mr J Mokokoane]
I am the Deputy Director-General in charge of Transport Policy and General Transport Operations. I just want to give an outline to the transfers that has been set out to the academic institutions. In the Department we have an arrangement where we have an agreement with the universities and technikons in as far as assisting us on capacitating the transport sector generally along the lines of transport skills and expertise. We have grouped the technikons and universities into areas, for instance, we have the Centre for Development in the northern side of the country where in Pretoria is our contact point. But, with Pretoria being part of that then we have the University of the North, for instance, as part of that. Collectively these universities and technikons come up with proposals in terms of our agreement with them in as far as areas of interest where in we would like to see an advancement on transport expertise. We have technikons like Durban Westville, for instance, as a point of reference where we will be saying that maybe let us look at the expertise around maritime. Then you will in a year or subsequent years say all the students which are interested in advancing their careers around maybe maritime, those universities and technikons could be the one that can be of assistance. We have not been able to cover all universities and technikons, especially the ones from the historically disadvantaged institutions in this regard. However, we have just started a program where in we have made visitations to the universities. As we speak now our capacity development component has been making visitations to high level education, especially the historically disadvantaged ones, to discuss with them about their intentions of extending the career lines which deals with transport. We are hopeful that this maybe could assist us to say that as we look into transport engineers or civil engineers, for instance, if we look into the capacity of aviation, if you look into the issues around transport economists, we will be in a position then now to expand the area of contact with them. One would also mention that along these lines there is also a planned restructuring of higher education. We would hope that as the process are rolled out due consideration will be given with due regard to our interest also that learners who are coming from historically disadvantaged communities will be given such exposures. The other line that we are trying to be doing, and which we have been accelerating the year before last, we made donations to schools, especially targeting the historically disadvantaged ones in a sense of trying to bring some awareness of what transport is. We were donating computers which we thought were not having the necessary capacities to carry the transactions within our own Department which needed high volumes of transaction. However, we utilized a program of partnering with other institutions to advance our approach to such schools so that we also make them aware of the existence of transport careers. Our road traffic management branch have a programme where in we at a primary level contact and make arrangement for learners at that level, be aware of road traffic ……………limit. We are of the option that to the broad extent to our interaction with this levels of education we are installing a sense of the importance of transport and what it contributes to the economic of the country and to their personal advancement also. We may not have covered the scope and level of equity that could be expected post 1994 up to now.

[Prof M Rwelamira]
In addition to that, I think, we are also currently concerned about the way in which we channel our work, particularly if we want to infuse ……………….. for transformation. What we are currently doing is even to look at the framework within which we cooperate with the centres of development. For instance, we find that most of our work tend to be of a very high technikon nature and sometimes we do not have the expertise in historically black institutions, for instance, or other institutions to be able to manage those kinds of work. We are currently trying to see whether we can come with a model probably which will facilitate some kind of a consortium so that even where we give a project to the University of Pretoria or to CSIR there would be an element which attracts expertise where they exist from historically black institutions. We believe that this would provide at least a gateway, some kind of window for other historically disadvantaged universities and institutions to be able to access the work that we actually do.

[Mr D Gumede] My question is around the computer audit. It was found that vital information on the system sometimes just included chassis numbers or vehicle identification without files for registration numbers and therefore, vagrants were not completely identified and as a result in some instances a number of vehicles have the same registration number and different chassis and body numbers. How did this arise? What plans do you have to stop this in your information systems situation? What concrete actions have already been taken?

[Mr H van Tonder]
When we started with this NaTIS system we had to take into the system the existing data of the provinces. At that stage it was still the 4 old provinces and at a later stage we also had to capture from mainly hard copies the information of the vehicle registrations and even licensing of the erstwhile TBVC states and also some of the south governing territories. Now in many of these systems transactions recorded in the system when it was, for instance, the colour of the vehicle that is unknown, sometimes the capturing of the VIN number or the chassis number, as we normally know it. It was also entered as unknown, so we inherited that data into the National Traffic Information System. Then we had a very difficult decision to make. We could have decided that every re-licensing of a vehicle that all the information on the vehicle be captured correctly, but at the registering authority they are only working with paper documents. They do not have the vehicle physically at the vehicle registration office for certain reasons. The procedure that we have developed was that if the vehicle has all the duplicates, if the vehicle is resold, therefore, must be re-registered and if the information system detects a duplicate, for instance, all unknowns will be detected in the system as a duplicate. That vehicle then has to be taken to the South African Police Services. The South African Police Services then investigate this vehicle and then record the VIN or the vehicle chassis number and that will then be entered in the new registration transaction. Should there have been tampered with the VIN number it is also then the duty of the South African Police Services to investigate that, because it could have been a stolen vehicle or something like that, some irregularities. If they are satisfied that they have sorted out the history of this vehicle they may then proceed and stamp the engine with a new number and also a new chassis number. Then those details are fed into the system. The choice that we have right at the beginning was to do it all at the first re-licensing of vehicles. There was simply not the capacity countrywide to do this, so the decision was to make it at the re-registration of the vehicle. This is now gradually being phased out, because without each re-registration of the vehicle the details are being rectified and the right details are fed into the system. This is, therefore, not a system controls aspect. It is not the system not doing validations on transactions. It is purely the information that was inherited from the old system. So at the moment we believe that there is no necessity for the re-programming of the system. The time scales, the numbers are going down with each re-registration. It is very difficult to make a forecast when all the suspect data will be removed from the system.

[Chairperson] Thank you very much. I think that is the end of our time. We will be contacting you soon, maybe with regard to other information.

Auditor-General's Report on Cross-Border Road Transport Agency's Financial Statements Mr Negota, Chairperson : Cross-Border Road Transport Agency, Mr P Mosaka, Officer of the Auditor-General

[Chairperson] We will then immediately go to the Cross-Boarder Road Transport Agency (CBRTA) headed by Mr L Chiba.

[Mr L Chiba] Thank you very much for the opportunity to pose a few questions to you. I am dealing with this Report, CBRTA that was signed-off by the Auditor-General in July 2002. I would like to make a general comment which is noted here that in the 1998/1999 financial year for that particular year the Auditor-General had actually expressed a disclaimer of opinion. Secondly, for the financial year ending 30 June 2000 the Auditor-General had actually qualified both the financial audit, as well the compliance audit. As far as this Committee is concerned, we would like to express our very deep concern at this particular situation that obtains at the CBRTA. My first question is about the non-compliance with GAAP. On page 2 of the Auditor-General's Report it is stated that the financial statements did not comply with GAAP. The reasons have been stated. I am not going to go into that. What corrective measures have you actually taken to ensure that the financial statements in future will comply with GAAP? If these measures have been implemented what has been the impact? If not, what are the reasons for not taking corrective measures? By when do you envisage taking such corrective measures?

[Mr Negota] The question of non-compliance, as it has been indicated by the Auditor-General, is as a result of our movement from the Department of Transport. When we started with the Agency we were certainly not aware of certain of the requirements. It was not an intentional move not to deliberately comply with the accounting standards. In so far as we are concerned now having realized that there was this omission we have as a Board, first, and also as management, directed our attention to those requirements. We have appointed an external Auditor to chair the Audit Committee to make sure that our requirements are subjected to an independent person. So we promise that at our next appearance here there will be full compliance.

[Mr L Chiba] This Committee actually welcomes your assurance that you have taken the necessary corrective measures and that such a qualification will not appear in the next Audit. On page 2 of the Auditor-General's Report it is reported that the calculation of depreciation was done incorrectly, that the depreciation of revalued assets was made through the income statement, that the digit balance at the end of the year was overstated and the bonus provision was un-provided. These are rather draining errors and it leaves us with the impression that the Finance Department at the Agency lacks the necessary skills of the personnel, the expertise to deal with such transactions very effectively and competently. What steps have you taken to ensure that the staff is adequately trained to carry out the correct transactions correctly? If you have not taken any steps, what are the reasons for not doing so? When do you envisage that you will actually take the necessary steps to ensure that there is competent staff to do deal with these issues?

[Mr Negota] When this error was brought to our attention we also researched to find out why was this omission. We accept that there has been an error in the calculation of the provision of depreciation. It is a factual error and that was due to depreciation being charged on newly acquired assets for the whole year when it should have been protracted. This error will not occur in future when we deal with depreciation. It becomes also difficult for us to pick that up when you had placed your faith and trust on the professionals that they will deliver according to the required standards. We are more ways than none than we were before this error was committed.

[Chairperson] With regard to the qualifications and the expertise or experience of the people dealing with that matters in your Department - can you give us a short overview?

[Mr Negota] There is a history behind this error. We founded the Agency in 1998 and we appointed a financial controller. Hardly seven months later he disappeared. That was the first problems that we experienced. Then we employed another person who was actually given to us by our internal Auditor. We could not get any greater of him and he also left. Then we employed another person to continue. When we were just about to pick up he died in a car accident. So we had this trail. That is why some of these errors which are coming up here we were never at the capacity of discovering them. This is really the history behind this, which we see as petty, but it is serious errors.

[Mr V Smith] I am listening to the answers that you are posing and your answers are this error will not happen again in the future. I do not think that is acceptable to us that this error will not happen again in the future. I think, what we are asking you are is what measures have you put into place to ensure that it does not happen in the future? When you say something like somebody miscalculated depreciation and you come back to me and you say that it is not going to happen in the future, I think, this Committee wants you to make us feel comfortable that there are steps in place that it will not happen. Whether the steps are monthly reviews or something to that effect, but, just to say that it will not happen in the future and a year later, indeed, it does happen, then we would not have done our job proactively as a Committee. I am appealing to you that we cannot accept blank answers like it will not happen. We rather want to know what it is that you are doing to make it not happen.

[Mr Negota] We have introduced a system where we reconcile every month. We do have reconciliation and we have put the Financial Committee in place. I have introduced Mrs Thema here as the Chairperson of the Financial Committee. She works very closely with our staff in the Finance Division to make sure that when the Financial Committee sits all the requirements that will take care of problems such as this are addressed. We do have an Audit Committee, as I have indicated, which is chaired by an external Auditor. The two Committees, we believe, will be able to assist us to come out of this process.

[Chairperson] I think you did not really answer my question correctly in the sense what have you got at this moment at time in terms of experience and people with qualification now to deal with those matters?

[Mr Negota] As I have indicated that the man we had trust on died in a car accident. We have managed to get somebody who was working within the Audit of Transnet, who is joining us at the end of this month, to head our Finance Division. We are attracted to him, because of the background of his qualifications, the ability and the fact that he was more or less doing morally the same thing within Transnet which gives us security that we shall not be in the same problem again.

[Mr L Chiba] I just want to follow up on some of the answers. I am not too happy. What you are trying to say is that at the end of next month somebody is going to come to replace the person who tragically died in the accident and who was actually carrying out these functions. What are you doing now at the current moment to ensure that nothing goes wrong again? Things are not properly depreciated, not properly calculated and the transactions are not correctly done. I know what you are going to do at the end of next month and I know what will happen at the end of next year. This Committee needs that assurance. I think, the Chairperson referred to it, the previous contributor actually made the point what are you doing now. This is the issue, when we leave this afternoon after this Hearing we must be comfortable that everything is going to be okay at this particular Agency and that we do not have to worry. I do not think that the Office of the Auditor-General and the Members of this Committee are going to walk away with the types of answers that we are receiving at the moment.

[Mr Negota] I have indicated that we have instituted the Finance Committee and they serve the person who sits with me here. They are working very closely with the staff and they have got an Audit Committee. We are making a follow up to make sure that these type of things do not happen. We are doing the reconciliation. How we operate is that our monies are paid from different border posts and at times our monies are held by the Department of Justice. If you look into our financials you will see Receivable Accounts. Those are monies which are lying all over which to us has to be brought to the Head Office. We have through the committees started the process of reconciliation; the process of collection, so the unit is working very well. By far different from what it used to be. With regard to the reference of the COF, the person who is coming, it was to show there would be an internal leader, because people who are in charge now are the Chairperson of Committees. By virtue of their qualifications we are working closely with the unit. I can assure the Committee that something is being done and that this type of things will not happen again.

[Mr L Chiba] The third aspect that I want to deal with is the question of a disclaimer. A disclaimer or opinion was expressed as a result of the fact that reliance could not be placed on the opening balances of the 1998/1999 financial year. Has this particular matter been corrected? If not, what has been the reasons for the delay in not rectifying the issue? By when will the matter be satisfactorily addressed? This Committee actually is posing this question for the simple reason that it is concerned that if the matter remains un-rectified then the subsequent Audit opinion will also be qualified.

[Mr Negota] We are struggling to find out the disclaimer that you are making reference to.

[Mr L Chiba] That is for the financial year 1998/1999. If you remember correctly, I pointed out earlier that there was a disclaimer previously.

[Mr Negota] The record that we have here is 1999/2000.

[Mr L Chiba] There was a disclaimer expressed by the Auditor-General in the 1998/1999 financial year and that disclaimer had come about at a result of the incorrect opening balance. Now when you start a new financial year those opening balances are already incorrect. How is that going to be rectified?

[Mr Negota] We were looking at 1999/2000, but we are going to take care of that question and will provide the answer. What I can say is that when we started our records around 1998/1999 would have something to do with our founding within the Department. So most of the things were still very much confusing and until we formalize. I can only respond to that question once we have gone through it, because at the moment we do not have those records with us.

[Mr L Chiba] I do not have any problems with that. We welcome your undertaking that at some point in time, let us say within the next two weeks or so, you will give us a written submission on that particular issue. May I request the Office of the Auditor-General to make a comment on this, so they are clear exactly what is actually required from them.

[Mr P Mosaka] The issues that we refer to is on page 2 item b of the Auditor-General's Report and also on the financial audit opinion and it is basically that, because of the opening balances accumulative, it cannot be, unless that original balances are cleared, accepted and validated there is a continuation and the Report does indicate that. Because of the reliance of the previous we could not rely on the opening balance hence, the continued adverse failing present statement on page 2.

[Mr Negota] We are going to respond to that question by writing. We shall provide you with the answer.

[Chairperson] With regard to the Audit Committee or the Financial Committee - how many times does meetings take place? Do you look through these documents for preparation in terms of coming to SCOPA?

[Mr Negota] We do, we prepared the questions, but the question that was raised apparently is the one that we were not aware of. We have prepared.

[Mr L Chiba] I think we will just wait for the written submission on this particular issue and we will handle it then. We will evaluate the response and see what actually happens. The next question that I want to deal with is about the CEOs. The Committee stands to be corrected here on this particular issue, but it appears that the Audit Report was finalized without being discussed with the CEO. It also appears that there had been a very high turnover of CEOs in your Department at the Agency during the past year, year and a half. Have you analyzed this situation? What are the reasons for this high turnover in CEOs? Are the positions of the CEO as well as the CFO vacant? If so, have they been filled with permanent staff? If not, kindly furnish reasons as to why this has not occurred? When do you actually envisage filling those particular vacancies? I would like to have a brief response on that please.

[Mr Negota] The first CEO left us within a year. What has happened is, if you look at some of issues that were picked up by the Auditor-General, there was negligence on the part of the CEO when he bought the equipment without going through the Procurement Committee. We called external Auditors to look into our books and they found out that a number of cellular phones were given to outsiders without the knowledge of the organization and money was not collected accordingly and as a result the Agency was paying for cellular phones which were not used for the business of the Agency. The external Auditors in their investigation found out this matter. The matter was discussed and it was also referred to the Department of Transport. We warned the CEO, because of that expenditure. Seven months thereafter he repeated the same thing. We discovered that the Agency had also suffered some losses. What is reflected here in the document, in the Auditor-General's Report, as rental expenditure, is in fact an error. It is not rental expenditure. It was the amount that was spent by the CEO without going through the correct procedures. He was brought before the disciplinary Hearing the consequence of which was dismissal. The Agency continued for two, three months without a CEO and then another CEO was employed to take the objective of the Agency forward. Also, there was a problem with his leadership style. He came from the bank. The Agency works with neighboring states together with officials of the Department. The Agency's officials participate in activities in Zimbabwe, Botswana and Lesotho where we provide leadership in so far as the movement of goods and passengers into and from South Africa are concerned. We had a problem with his authorization. He refused several times. Our people were not appearing at meetings where they were supposed to chair in Namibia and Zimbabwe. There was a complaint from neighboring states about the change of style of the Agency which although it was supposed to chair in the region it was no longer chairing. People were not arriving at meetings. The complaint came through the Department of Transport to us. As a Board we were not aware and we discussed this matter with the CEO. He promised to change, but within the same month it happened again. He would give authority to people to go in the morning when the meeting was in Lusaka at 2.00 when the request was made three weeks before time. This was an issue that we made him to appear before the disciplinary Hearing and he was found guilty and he was discharged. As it is now, we have advertised the position and the recommendations are with the Minister of Transport. We would have liked to have a person by the beginning of the month of April 2002. Apparently, the difficulty is with presenting it before the Cabinet. The recommendation has been made to the Minister, because in terms of the Act he is the one who is to appoint. The appointment was initiated through external consultants who recruited and the person was interviewed. We had more than ten applications. We are finally satisfied with that person and the Minister will make the announcement at the appropriate time. That is the reason why we have Mr Piet Gerringer as an acting CEO.

[Mr L Chiba] I just a very brief follow-up question in connection with the dismissal of the first CEO - did you just terminate his services as disciplinary action, was he fined, was the matter reported to the South African Police Services, because that is fraud and corruption? What did you actually do? Did you dismiss him without any penalties?

[Mr Negota] We went through the proper disciplinary mechanisms. There was no proof that he had personally had benefited from the mishap, but it was a question of knowing and the systems as suggested, for example, not following the procurement rules. Our rules are clear and when they were designed he was part of the process, but he was just not following them. We could have taken the matter to the Police if there was proof that he has personally benefited, but there was no proof of such. He was just cheated by people who came with the Y2K 2000, he would forget the rules and just bought the equipment.

[Mr L Chiba] Again on page 2 of the Auditor-General's Report of expenses amounting R1.24 million had been incurred, but not within the framework of the Agency's delegation authority and then assets were also acquired amounting to R413 000, again, not within the framework or the authorized Agency's delegation authority. That actually resulted in unauthorized expenditure. Can you furnish the Committee with an explanation why this actually occurred? Why this has happened, firstly? Did you apply for ex post facto approval for the unauthorized expenditure? If you have not applied, what are the reasons for your non-application? If you have applied, what type of response have you received to your application?

[Mr Negota] The amount referred to is part of the amount that I have already referred to which the CEO at the time expended without the approval of the Procurement Committee. It is not rental. I think there has been an error on the part of those who were going through our books. This is the amount that he spent on the website, cellular phones and consultants without going through the Procurement Committee. With regard to the R403 000 - this is also the amount which was spent without authority. It falls within those equipment and consultants. What we have done, realizing this, and after the disciplinary action, the Board then rectified this expense. We rectified it to make sure that our books are correct. I think when the Auditors went through this they did not look at the resolution of the Auditor-General. The Board later on rectified these expenses.

[Mr L Chiba] Thank you very much for your answer. I think your answer disturbs this Committee. You know when expenses of this nature is made which is highly questionable and then the Board goes onto rectify the expenses, it is something that I find very disturbing. I think all Members of this Committee must find it disturbing. I would like to make a proposal to you. You see, after this Hearing we will be formulating a resolution and this resolution will have to address the issue of unauthorized expenditure. This Committee will have to make a recommendation to Parliament whether it is going to recommend it to the effect that whether it approves or does not approve. We will have to make that recommendation. So, what I would like your people to do in great detail, would you not kindly submit to this Committee the circumstances, the decisions etc around which the Board actually rectified the expenses. We would like to have that submission say within about a period of two weeks. We need to examine your written submission, so we can actually be very well informed how to take the process forward in our resolution. I think that I will end that issue there. There is just one more question. Does the Agency have an Internal Audit section? If not, why is there not an Internal Audit section? You did mention something about it earlier on. If you do not have a properly constituted Internal Audit section, what are the reasons for that? When do you think you will establish a perfectly functioning Internal Audit section?

[Mr Negota] We do have Internal Auditors. When we started the organization we started with both Internal and External Auditors to guide us. What we established later was the Internal Audit Committee, which is now being chaired by the External Auditor who has got no relationship with our Internal or External Auditors. So we do have those systems. I will respond to the questions of the Member.

[Mr L Chiba] I do not think that you should answer the question now. It is unrelated to the question that I actually posed and you are going to make a written submission, so let us leave it at that. I would like to make a follow-up on what you have answered on the question on the Internal Audit issue. Is your Internal Audit unit totally independent? Is there any limitation placed on the scope of their work?

[Mr Negota] The Internal Auditors are independent. We do not impose any limitation on the scope of the work that they do. In fact, we tend to rely upon their guidance, because we believe we enable people in so far it is concerned.

[Mr L Chiba] Thank you very much for your answer and that completes my section.

[Chairperson] Thank you very much for your attendance. We have note with great concern certain deficiencies within the Department and we as a Committee will look at your feedback that we asked for and then we will have a discussion with regarding to the resolution. In the end of the day it is SCOPA's duty to look after taxpayers money and see to it that it is spent in accordance with the relevant regulations. In that spirit we will hope that we can interact in the future again.

Mr H L Kgomongwe,
Chief Executive Officer: Road Accident Fund; Mr S Mokale, Chief Information Officer: Road Accident Fund; Mr J Rabie, Manager : Finance: Road Accident Fund; Mr S Fakie, Auditor-General

[Chairperson] We welcome all to this meeting. We will first start with the Road Accident Fund.

[Mr D Gumede] Our concerns around the Road Accident Fund (RAF) are the entities going concern status; internal control and internal audit. What we would like to know would be whether in the replacement of the Board in the year 2000 a core group will remain in the Board when you change your Board in 2003? That is a question around government.

[Mr H L Kgomongwe] I will deal with the issues as raised by Mr Gumede of going concern; internal controls and internal audit and corporate governance issues surrounding the composition of the Board. The issue of going concern is triggered by the ongoing actuarial deficit that the Fund is experiencing. This Committee may recall that on account of our impression that we made to government the Minister of Finance, on 20 February 2002, announced a fuel levy adjustment of two cents per litre. The reality is that the source of income is defined. We have no control over the income that accrues to the Fund and it is predictable what sort of monies the Fund will get on a monthly basis. The rate of accidents it is something that the Fund has no control over, despite the fact that we are in partner with the Department of Transport to embark on the road safety programmes to try and deal with the carnage on our roads. The deficit is also pronounced by the incidents of fraud that is quite pervasive. To that extend we have embarked on a programme to try and eliminate that fraud. You may have picked up in the media of our gains on that score. We believe that we are effective in the reduction of fraud. Fraud was also exacerbated by our internal processes, because we had to concede that the way the Fund manages itself in the past indirectly contributed to the perpetration of fraud. That is why from the middle of 2001 we embarked on a programme to re-engineer our operations and make it very difficult for fraud to be perpetrated, but at the same time to streamline our operations and thereby reducing the cost of operation. As a going concern the Fund is able to meet its cash flow requirements. It is not like the Fund cannot honor its obligations on an ongoing basis. It is just that in the event that we may have to pay all at once all the claims that are in the pipeline and even those that are not reported yet, we will find ourselves falling short. We have made a few proposals to the Board regarding changes to the legislation. It is a basket of twelve amendments which will greatly improve our cash position. As oppose to disbursing in the region of R3.2 billion in 2002, if those legislations go through our liquidity would improve by R1.9 billion. That is the actuarial estimation of the effectiveness of this basket of legislative changes. We have just held public debates where all stakeholders were invited to look at this proposed changes to the Act. It was a three-day comprehensive symposium. The outcomes will be communicated to the Minister in the very near future.

[Mr V Smith] Around the ongoing concern - I listened to the issues raised now and it covers quite a lot. We are seeing that the trends of the deficit are going in the wrong direction. That is moving from 1997 to 2001 that split the table. Again, you also correctly indicated that the trends of the claims are going up also in the wrong direction. You further also indicated that if we close business today there will be a problem in the RAF, because we have claims outstanding and/or not lodged yet. We have the outstanding claims as per the Auditor-General's Report. What is the age analysis of those claims? For me, if claims are outstanding for a week, it is fine, but if we have claims that have been outstanding for a good couple of years, then we need to deal with it. I want to understand what is the age analysis of those claims? What are the reasons that we are unable to settle our claims, because it is a contingent liability for such a long time? When are we going to be able to reduce the contingent liability in the books of the RAF?

[Mr H L Kgomongwe]
The average period that it took the Fund to settle a claim was in the region of 18 months. There are some claims that have a very long tail of about five years. What needs to be born in mind is that we have what we call finalise claim and settle claim. Some claims that are appearing in our books as unfinalised could well have been settled, but they stay open because either the bills of cost are still not sorted out or for some reason an undertaking has been given and they stay open as such. On average, I think, it is saver to say 18 months was the norm. Our drive for now is to reduce the turn around time to comply with the dictates of the Act which says that after 120 days the claimant can issues summonses against the Fund. Four months, in my view, is a reasonable period within which to assess the liability of the Fund; to negotiate an agreement with the claimant on the merits of the case; to conduct our own investigations on the merits and whether an accident did happen.

[Mr V Smith] Could you talk a little bit about the trends of the deficit? You indicated earlier on that the income is from a defined source. I can understand that. I am saying that the trends are showing that where there are claims lodged it is going up. I am saying that is an untenable situation. Is the Department doing something to deal with that? I am saying that at the end of the day if we do not do something about that, you will find out that our income, and it is also because it is from a defined source, just will not be able to cover our claims. Is there something conscious being done, whether it is asking for an increase in our revenue etc? Is something being done to reverse the trends, both of the deficit and of the monies that are coming in to cover the accidents?

[Mr H L Kgomongwe]
What we will do is continue to, like we did this current year having gone to government to present the growing seriousness of the situation and to ask government to intervene and inject some cash into the system. We believe that the real direct gains that we will get and those gains will produce a reduction in the deficit would be management of road safety. Towards that end we are fully committed to work with the Department to reverse the carnage on our roads. Over and above the provision that we made in our budget for this year of R50 million to be transferred to Arrive Alive, we have set aside another small fund that will compliment the efforts of the Department to reduce the carnage on our roads. I think that is a true trend strategy. We have initiated a project called Look at the Facts which is a project that will enable us at a very early stage to have a proper record of the accidents that happen; the trends; where they are happening; at what times they are happening and to put us in a better state to correctively attend to the medical needs of the people that are injured. We believe that if we come in very early in the process as oppose to sitting back and only receiving a claim two years after the accident had happened and in the meanwhile the physical condition of the injured person may have worsened which will result in more costs to the Fund of dealing with the rehabilitation. Look at the Fact is a project that has been launched internally in association with the Department of Transport. I believe the legislative reform that we are proposing will have a direct impact on our solicit position. The same thing that we have done to try and deal with the rate of fraud which we estimate to be in the region of R300 million per annum, the steps that we are taking to deal with that, we are satisfied that it will contribute to the improvement of the cash position of the Fund. We are also working very hard to not only to go to government with cap in hand and say please, please, we are asking for more whilst our house may not be in order. Our internal processes are being streamlined. We worked very hard to bring in order and discipline into our operations, so that the cost of delivering the service to the society should be lowered. It is a compliment, all these various strategies and approaches that we have embarked upon. Collectively it must bring about an improvement.

[Mr N Bruce] I hope you do not think this is a star chamber that you come here to be necessarily put under an enormous pressure. I think everybody here sees the social need for the Fund that you are administering and would like to see it in a sound financial situation. What concerns us is what your plans are to get it into that sound financial situation. You have talked about the question of cash. You have covered your cash situation. When you come up with an answer like that it does rather give the impression that you are not very much worried about your actuarial loss what you are showing that are growing. The fact that your investments are going down all the time and the fact that you have very little control over either parameters, because in the increase in the income of the Fund is not in your hands or the Minister. It is in the hands of the Minister of Finance. So constantly you have to go cap in hand to him. I want to come back to that in a minute. The other thing is that you could manage down the cost of running your Fund, trying to get the fraud under control. What commitment do you have from the Treasury to meet your actuarial loss? Is there a firm commitment or is it a loss just hanging there? Is it taken for granted like the Fraud Cover position of the Reserve Bank that the Treasury will actually meet that amount? What happens if it is not going to meet that amount?

[Mr H L Kgomongwe]
The way our Act is worded does not suggest that the government guarantees to cover our deficits. We have checked this with our internal legal resources. What they advise is that there is that broad understanding that this funding is a creature of statute. The government will ensure that it stays afloat. I believe the appointment of the Area of Commission, the recommendations of which will be issued during the course of this year, should be a very good way of getting government to state its position quite clearly. As we speak, as far as I can figure out, we do not have that guarantee from Treasury.

[Mr N Bruce] You mentioned this Commission, this Judge Satchwell, she is being doing it for three years, does she need another three years? She is your employee, I understand. Could you explain the background on what Judge Satchwell is doing and what you expect from her and whether it is going to address the financial situation of the Fund?

[Mr H L Kgomongwe]
The Judge Satchwell Commission was appointed in 1999. Its terms of reference are very specific. The Commission is suppose to look into a financing model. I think the terms of reference are all to do with the solvency of the Fund. It is going to come up with recommendations that spell out how the Fund can be made to be sustainable, a compensation model that is affordable. That will eventually improve the financial position of the Fund. The last term of the Commission was supposed to have been just one year, but the Commission did not complete its task and a further extension was given for 2000. Another extension was given for 2001. I just believe that this year will be the time that the Commission actually produces the report. The Commission is not the Fund's employee. The Commission was appointed by the President. It is completely independent of the RAF.

[Mr N Bruce] In that case, are you relying on Judge Satchwell to come up with an answer for your situation or do you yourself have a definite plan? Not only are you a huge actuarial deficit, but your investments are declining rather steeply. We are dealing with from R1.3 billion down to R2.8 billion. That is a substantial decrease. In fact, there does not seem to be any indication other than your suggestion that there are legislative changes. What are the legislative changes? What is your plan to get this Fund onto a sustainable basis and over what period? I assume that you do have a plan.

[Mr H L Kgomongwe] We do have a plan. What we are doing is we operate within the framework of the existing legislation. The plans are the ones that I have just outlined. We are saying that R300 million is being defrauded. We have put systems in place to deal with that effectively. As a result of our media campaign on warning the public and all those that are involved in the NVA environment that fraud is something that is going to be tackled very aggressively. We are seeing a reduction because people are coming forward to withdraw certain claims. We believe that alone is a net contributor to our cash position. The plan that we have, and this is not a plan, because these things are being implemented as we speak, is the re-engineering of our processes. We believe that our first prize is not only to speed up service delivery, but we want to do it in a cost efficient fashion. To do so we have re-engineered our processes. We are test piloting in one of the branches that very model which we are rolling out to the other branches of the Fund. Internal controls is another plan. It is something that has been implemented. We have increased the capacity of our internal audit to make sure that all those kind of activities that do not add value to what we are established for are eliminated. That will bring down also the cost of service delivery. You want to know what sort of legislative changes we are proposing. We have submitted those proposals to the Transport Portfolio Committee. There are twelve of them. One of the key ones would be to, as oppose to paying upfront for future loss of income for somebody that cannot continue to work as a result of the accident, we propose that we pay over the balance of the life of such a person the salary that he or she lost. The practice now is to just do an actuarial estimation of the future loss of income and pay that in one lump sum. The same goes for future medical expenses. If some major operation is anticipated to take place in five years time the current practice is to do an estimation of what it would cost to do that operation in five years time and to pay the money out now. What we are saying is why not do it at the time that the person must undergo such an operation. We are looking at foreigner's claims, because the practice now is that we pay in foreign currencies for foreigners that get injured on our roads. They do not take out any special cover when they come to our country. Given the status of our rand versus other currencies, it turns out very expensive for the Fund, even though we do take out re-insurance cover. We believe that we have to have some cap on the amount that the foreigners can claim. The top-up would come out of the special insurance that they take out. Some of the changes are not only meant to try and improve the liquidity of the cash flow position of the Fund. Some are really just constitutional imperatives such as our view that this cap of R25 000 on certain categories of passengers should be removed completely. What are your inner taxi? Your claim should not be restricted to R25 000, because other people who are not paying passengers etc get unlimited claim amounts from the Fund. We believe that that provision was somewhat discriminatory and will not pass the constitutional test. Those are some of the legislative proposals that we are putting on the table.

[Mr N Bruce] I am a little puzzled by this, because deferred expenditure might improve your cash situation. It is not going to reduce your actuarial liability. It seems to me that you do not actually have a plan. That you have a vague notion that Judge Satchwell will sometime report and tell you how to save yourselves. You do not know whether government is going to meet the legal claims against you or not. You have left that in the air. I do not know how long you have been with the Fund. Now you are talking about deferred expenditure. That is not a comprehensive way of actually dealing with the deficit that you have which is in billions. I mean, with the greatest respect, does that sound to you to be a plan with a time scale? How soon are you going to do these? It is all good and well to say that we are going to reduce fraud, but how quickly are you going to do this? It is not in the public interest for this sort of hang over to remain indefinitely. It seems to me, I hope I am wrong, that you are putting undue faith in Judge Satchwell. I do not know who she is or what her skills are. Does she have an actuarial background? Would you in running a private business accept the plan that you have just put to us here?

[Mr S Mokale]
I am having the same frustration and collectively as Management we are also aware that there is life even before Judge Satchwell. We need to admit that there was a window of inactivity at the beginning when the Satchwell Commission was appointed and progressively it was realized that we have to do something, because Judge Satchwell is not coming out of the starting blocks. The plans that we are outlining here today are actually not even a year old. They are plans that came on board when we started strategizing as of August 2001. We are hopeful and we are fairly optimistic that we are on the right track. One agrees that deferred expenditure is not a saving, but in terms of the going concern major of an organisation it will help in effective cash flow management. We can, in the meantime, use some of those funds to generate profit in terms of investment long before the Satchwell Commission comes. In fact, we are hoping that we are on the right track such that eventually when her Report comes out it may to a large extend be relevant, because we share the same concerns that you also share. We cannot sit back and watch an organisation perpetually in self-destructive mode and us as Management not doing anything about it.

[Chairperson] Could you indicate whether there has been delays in any information that was requested by the Road Accidents Commission to be provided by your Management? Could you tell the Committee about those delays?

[Mr H L Kgomongwe]
I am not aware of the delays that we caused the Commission or as and when we receive queries or requests for information from the Judge. Most of the information that she asked from us is the kind of information that needs a little bit of research going out of one's way to try and put it together. She sometimes does not ask for certain information, once in a week or something like that. There could be a tendency to really flood the Fund with ten or fifteen faxes in a day asking for information. Given the limited resources that we have sometimes it does take a little while to put together our responses, but we have no interest to try to frustrate her activities. We do the best we can to respond to all her queries. The latest, of course, is that about ten days ago she asked for further information, a 36 page set of questions and queries. Again, we are doing our best to try to respond by due date. She had asked us to respond to those things in a period of ten days, but we said it is impractical. We asked for an extension until the end of this month. Everybody is doing everything possible to try to respond to those.

[Chairperson] According to your version there was no delays in the past. Is that what you are saying?

[Mr H L Kgomongwe] Yes.

[Mr N Bruce] I would like to go onto the question of expenses, which I think is a matter of going concerns. I would like to refer you to your RAF Annual Report on page 2 where you show a very interesting table. You have got cash expenditure and under that claims paid which have increased from 1.226 in 1997 to 2001 where you have a figure of 2 495. Then a little bit down you have got administration costs and it have gone up from 57 to 170. Now in my crude arithmetic, your costs in relation to what you pay out have deteriorated from 21.5 to 14.6. Why have the internal costs gone up like that? What are you doing about it? Linked to that is the question of your investments. How are they being managed? Why have they gone down to the extend that they have gone down? If your actuarial loss is simply increasing what is the money being spend on? What are you doing about putting them into the hands whereby they can be managed to a degree that they do get down if this is the management of the Fund that is causing the problem and it is not a draw down?

[Mr H L Kgomongwe]
On the question of administrative costs - I will ask our Finance Manager to respond to that. Perhaps I could respond to the question raised on investments. As I have explained earlier, our outgo out stretch our income. What we are doing is we have started to dig into those reserves. We are driving down our investments. It is this kind of picture that we presented to the Board and eventually to government and said the financial position is deteriorating. We have come up with our own internal processes the best way we can to contain these things, but at the same we have gone to government on the question of the fuel levy top-up.

[Mr J Rabie] On the issue of administration expenses - in 1997 we took over the last agents that handled claims for the RAF in the past. Prior to that we had a lot of items like Santam, Old Mutual, a lot of insurance companies handling claims for the Fund and we reimbursed them on a weekly basis for the payment on claims. They did that at a specific handling fee. At that stage it was about R1 000 plus VAT per claim that they handled. In 1997, as mentioned, we took over the last agents. The Fund has since grown. When I started at the Fund in 1992 we were 65 people. The Fund now has a staff compliment of about 1 600 people, if I am not mistaken. Seventy five percent of that administrative expenses is personnel related in staff costs and 25 % of that is real administrative expenses like stationery, rental of buildings etc. If you look at the percentage and if you compare it to the total outflow of the Fund, the percentage is only 7% of the total outflow of the Fund. So I think it is not that high at this stage. I can assure you that we can try and save 10% on our administrative expenses and that will not cover the problems of the Fund, because our claims expenditure at this stage is round about on average R11 million to R12 million per day.

[Mr N Bruce] With regard to staff costs and this increase in the Fund -. I assume it is partly because your agents are now out of the Fund and you are compensated and you are trying to get rid of the fraud and mismanagement. What about your salary bill? How many senior managers do you have earning as much as or more than R60 000 a month? Do you have anybody getting a salary of R75 000 a month or are these figures entirely wrong?

[Mr H L Kgomongwe] With regard to the R60 000 per month salary, I would not be able to tell you off-hand what is the numbers of such people. I think it is the Executives, the Finance Executive, our Chief Information Officer, our Chief Information Executive, the Human Resources Executive and my predecessor who is now the Corporate Legal Services. The salary of R75 000 - that was the salary that was earned by the CEO of this Fund four years ago. That is the salary that I am earning as the CEO right now.

[Mr N Bruce] I would have thought of salaries like that I would make a firm plan to get the Fund out of its particular mess would be a prerequisite of anything like that. With those sort of salaries can we look at what skills are available. This Fund has existed for a long time. You have a new Board of Directors. I assume that the men earning these sort of salaries have some depth of experience. Could you tell us what experience in running a fund like this in actuarial science, in the question of being able to judge, making insurance judgements, underwriting judgements - what is the depth of experience of the men, particularly who are earning these salaries and who are members of the Board?

[Mr S Mokale]
The issue of salaries is always an emotional thing. And sometimes, especially us as Management actually get mad when we are projected as incompetent and overpaid etc, forgetting conveniently that the Fund has been in existence for over 40 years. I think it is important what the CEO said earlier that he is earning the salary of his predecessor four years ago. So in actual fact there has not been an adjustment with the salary of the CEO in four years. Our Finance Executive is a qualified chartered accountant who has been in business for over 30 years. Myself, as the Chief Information Officer, I do have collectively over 18 years experience in IT, both at management and executive level. I do have a post graduate degree in information technology and management. I was an Executive Manager of the State Information Technology Agency. I only joined the Fund last year. The extent to which all these changes that we are talking about, I think it is important to note that these are the changes that are now happening because of the recent employment of these people. The CEO became CEO in August 2001. I joined in August 2001. The Finance Executive joined in August 2001. So the mess that the Fund was in is not of our creation. We inherited this mess. To a large extend we were attracted by this mess, because we believe that we can turn this Fund around. I believe we are doing that.

[Mr H L Kgomongwe] The Board determines the salaries of the Executive staff members. The Board has appointed a subcommittee, a Remunerations Committee. On that committee the Board has co-opted an independent expert on remunerations to serve on that Remunerations Committee. And over and above that, the Board goes out and get independent consultants to advise it on the appropriate remuneration levels of people on the senior and executive management, including that of the CEO. This is the process that is, in everybody's view, in my view especially, quite elaborate and objective. We do not write out our own pay cheques. We negotiate and accept what the experts say.

[Mr N Bruce] Could I refer you to page 4 of the Chairman's Review. I accept the fact entirely that you are highly paid because you are going to rescue the Fund. I accept that that is the normal way of going about it. I would just like to see what progress has been made. I do not detect any progress since August 2001. On page 4 you have your total income, the fuel levy in 1999 was 2.183, leaving out the zeros. There has been an increase in the fuel levy from then. It is now reflected in 2001 as 2.164. That is a substantial increase. Can you explain how that came about?

[Mr J Rabie]
The Fund, if you look at page 3 of the Report - you will notice that the Fund got its last increase prior to the 16.5 cents on 2 February 1998. Fuel sales decreased a lot during the period up to 1999 to 2001. You will notice that in 1999 - 2183 against 2001 - 2001 it is R2 billion 164 million. If you look at the expenditure side - claims increased annually by about 15% to 17%.

[Mr N Bruce] We are not talking about the claims. I am talking about the fuel levy itself.

[Mr J Rabie] In 2001 they increased our fuel levy, but against the increase of the fuel levy we must now give a discount to certain sectors of the environment like the agricultural, fishery and forestry sector etc. That discount for the 2001/2002 financial year runs at R193 million.

[Mr N Bruce] Can I have clarity on that? Do you mean to say that when there is an increase in the fuel levy not everybody has to pay it?

[Mr J Rabie] No. The agricultural sector do not have to pay it. They pay it upfront, but they get a 80% discount on the diesel.

[Mr N Bruce] Between 1999 and 2001 - has that discount increased or decreased?

[Mr J Rabie]
It did not exist before.
[Mr N Bruce] So the farmers are being subsidized. Who else besides the farmers, fisheries and forestry etc gets the discount? How is this currently? Do you agree with this?

[Mr S Mokale]
We do not agree for obvious reasons, but there are also valid reasons ventured by themselves as well. For example, if a boat capsizes in the ocean whilst fishing it is not considered a road accident and therefore those people cannot come and claim from us.

[Mr N Bruce] Is this a matter for your Minister or for the Treasury? Who decides matters like this?

[Mr S Mokale] Treasury.

[Mr N Bruce] There are lots more. In particular I would like to go into the principles behind the Fund. Perhaps at some other stage we could examine in more detail what the real answer is to this Fund.

[Mr V Smith] I am going to put two questions simultaneously and if you answer them I would be satisfied in terms of the effectiveness or otherwise of your internal controls. Reading through the Annual Report there is an indication that in some instances we have a high turnover with the result that about 40% of staff have an experience of less than one year. I do not know how prevalent that is, but certainly it is in the Report there. It then begs the question - if just less than half of the staff have an experience of less than one year with all the effective controls that we have on paper, I am not sure that those controls would derive the desired outcome. One, because the turnover is so high, and linked to that, what is the vacancy rate now? It is one thing to have a bible of what we must do, but if there are not any individuals to do that, physical warm bodies, or if the warm bodies that are there have been in the organisation less than one year, then I think we have a problem on our hands. The other question is the actual claim process. Is that totally computerized or is it computerized and manual, a mixture of the two, or is it manual? Again, if it is totally computerized then we have a staff turnover. Even those computer systems - how effective are the people that are actually processing those claims? I do not believe that fraud is an one-sided thing only from the people outside of the RAF. People outside the RAF would submit a fraudulent claim. Somebody inside the RAF must process that claim. This somebody inside - has there been any disciplinary measures taken - whether it is because of conscious inside business, in other words they were party to the fraud, or whether it was negligence? I think, in both instances, we cannot tolerate negligence of millions of rands. We either fire the person and if that person is doing it consciously then we arrest that person. If you could answer those questions for me it will give me a sense of how effective your internal controls are currently.

[Mr S Mokale] Your questions go to the heart of exactly what formed the foundation of what we term the "year of accountability for the RAF". I can proudly say that for the first time in the life of the RAF we now have a Business Plan. All our operations are contained in that Business Plan. A copy can, at the end of this month, be distributed to the Members as well. The question of staff turnover - it is a fact. It was one of the basic things that we had to deal with right at the beginning. The causes are simple. It is because historically all people that deal with claims handling have been recruited from the law profession. They systematically used the Fund as some kind of a training ground and predictably most of them after two years leave the Fund, either to establish themselves out of the Fund or to join other legal firms outside to work against the Fund. Strategically we have sit down as Executives and said do we really need a legal degree for a person to be a claims handler. We agreed that that is not necessary. It is one of the issues that we are addressing. We are in the process of entering into an agreement with the University of South Africa where they have designed a course about the component of the legal requirements in the process of handling a claim. Over and above, we are the only insurance that employees graduate to handle claims. We do not believe any more that that is the case. In that respect we believe that we are on the right track. As part of our process re-engineering - we have revisited and re-evaluated all the processes and looked at what I would like to call "claims life cycle". Every component of that life cycle has been documented and it is captured in our quality management system. We are in the process of being accredited by the South African Buro of Standards to check our compliances in terms of the international standards organisation. The audit has been done and non-compliances have been identified. I am expecting by the end of May 2002 to get final feedback of whether we are in compliance or not. The beauty of the business benefit of having a quality management system is that right at the forefront when you employ somebody new you can directly out of your quality management system indicate to that person what their job descriptions are and what exactly are the activities that they are suppose to do. It will provide a person with some kind of self-pace to acquaint a person with their responsibilities as well. In that respect, I believe, we are winning as well. The whole claims process, as I have indicated, has been relooked and we have redefined the entire process. Conventionally we had a situation where when the claim is lodged it is registered, and after the point of registry it is handled by the claims handler up to the point where a settlement is made with an attorney. So there was no division of responsibilities. The situation created opportunities for people to really commit fraud. That is going to be stopped as well. We have created distinguishable steps that each of which at the end of each of the processes there are clear deliverables, quality controls and checks and balances. That whole process is in the process of being computerized. It will be a workflow process. It will be paperless in the sense that all claims will then be imaged. From the point where we have created an electronic copy of a claim up to the point where a settlement is made, all the processes will be work flowed and everybody will be working on images. We are currently running a pilot of that at our Johannesburg branch. According to our project plan we should have the first pilot run by the beginning of August 2002. Currently one must admit that one does not want to waste a lot of money trying to streamline old processes. We would rather concentrate on the new processes. However, at the same time we are saying where the leak is big let us address that simultaneously whilst we are coming up with a new process. To that extend I believe we are winning as well. In conclusion, let me also add that in order to add quality measures to the processes as well, we have entered into negotiations with various other external stakeholders, for example, the Department of Home Affairs. We now have a direct link with their population register system, so that right at the beginning of the process we can check the validity of the claim and do proper verification. We are also linking our systems. We are interfacing with the Unemployment Insurance Fund, as well as the Compensation Commissioner. We are talking to the Law Society so that we can have a direct access to their database of attorneys as well. Unfortunately, they do not have a database. I have actually offered to develop one for them. We are talking to the South African Medical and Dental Council. We have identified all the stakeholders with whom we can have alliances who can upgrade our processes. I think it is important to mention that in analyzing the processes we have discovered it cost about R47 000 from the beginning of the claim up to the point where it is concluded. That was one thing that influenced the need to compartmentalize these processes. Because we have been doing validation and verification right at the beginning of the process we will ensure that every claim that goes into the process is a valid claim. So right at the beginning we will be eliminating fraudulent claims and those that do not substantially comply etc.

[Mr H L Kgomongwe] I think my colleague has eluded to the reasons behind the high turnover. The other thing that cause this restlessness amongst staff members of the Fund was this continued statements made by influential bodies and people that the Fund is going to be scrapped; that they were overpaid; inefficient; beaurocrats and all the negative sentiments expressed. What I have done with the collective as a part of the Executive Management is to get them focused; to communicate with them quite intimately and to give them a sense of hope that there is a future; that they are not useless; that they are high regarded people with the necessary qualifications. We also had interviews with them and on many occasions they have withdrawn their resignations, because of the direction, hope and faith that they are beginning to have. The vacancy rate - I am afraid I am not able to give you the numbers now, but they are very low. The turnover has dropped quite substantially to something like 6% per annum. I believe that with a more concerted effort we will be able to retain our people. You are right that fraud is not only perpetraded by outside parties, but internal staff members as well. You may have seen in the papers that two of our staff members individually got a ten-year prison sentence. We have about ten or eleven that are on suspension and internal disciplinary hearings are being conducted. Some of these guys will be handed over to the SCORPIONS. We are working with the Police, because they are in cahoots with external parties. We are sending out a very strong message to our staff that there is zero tolerance for nonsense. I am glad that some of the fraudulent claims are really being picked up by staff. They come forward and say we suspect that something is going on here. So they are very pro-active. We reward them. We pat them on their backs and they need to be commended for that.

[Mr P Gerber] On page 23 in your cash flow statement it says there is the proceeds of disposals of fixed assets of R169 000. On page 27 it is also disposals totaling R1.1 million for 38.2 - 2001 and totaling R266 000 for 38.2 - 2001. What are you selling and to whom? Do you use State Tender Regulations or do you have your own set of regulations when you do this? For instance, the computers that you have sold - according to this document it is R954 000. We were told two weeks ago by Parliament that if you sell computer equipment then it is normally obsolete. So obviously these things must have been able to be used for something. If you cannot give me the answer now then maybe you can supply the Committee with the answer later on.

[Mr J Rabie] The proceeds from disposal of fixed assets mainly come from we had a lot of theft on computer equipment in the past couple of years. We are insured, so the insurance normally pays the current market value of computer equipment. That is normally a profit to the Fund. We do not deal in trading of fixed assets. It is mainly fixed assets like office and computer equipment that contributes to this specific figure in the financial statements.

[Mr N Bruce] Have you refurnished your offices recently? Have you been buying new furniture, selling old furniture and things like that? Perhaps that accounts for the expenditure.
[Mr H L Kgomongwe] Obsolete furniture, broken chairs and desks, those we have been donating to charitable institutions, to impoverished schools in the rural areas. Furniture and appliances that are still usable, we do not dispose of. We buy new furniture and other office items because the Fund is getting more people on board.

[Chairperson] What is the amount your organisation spends on buying furniture for senior management per person?

[Mr H L Kgomongwe]
For Executive Management - we say that it is about R48 000 and it is everything in the office, desks, cupboards, paintings, computer etc. It depends on the individual how he wants to furnish his office.

[Chairperson] Is your Internal Audit Department up and running? Is the Auditor-General's Office satisfied with the progress?

[Mr H L Kgomongwe] I believe the Internal Audit Department is now well up and running. We have restructured the Department. It used to be staffed by people with legal qualifications. Those people have been absorbed into the claims process. We have appointed people with the appropriate skills. The appointments were conducted early in January and February 2002. There are three legs of the Internal Audit function. There is a leg that deals with compliance and they focus on the core business. There is the financial audit leg that deals with financial and asset matters at Head Office and support Services departments and the IT unit of the Audit Department. It has a staff compliment of 30 people.

[Mr S Fakie] We concur with the comments that were made. The financial statement under review for that period - we were not able to rely on the work of the Internal Audit, and hence the reason for restructuring the whole Internal Audit Department. We will only be able to evaluate the current structure with the next lot of audit that we will do.

[Chairperson] Thank you very much. We will come back to you with certain issues.

22 MAY 2002

Mr N Alli,
Chief Executive Officer : South African National Roads Agency Ltd (SANRAL);

[Chairperson (Mr F Beukman)] We welcome you Mr Alli.

[Mr P Gerber] You would obviously have the salaries of the Directors and of the consortiums and so on. The percentage that eventually goes back into maintaining the roads is to me a bit of a problem. For instance, in the one that you have proposed for the Western Cape, our studies have shown to us that, for instance, in the Drakenstein Municipality area it will take up R18 million of income out of that basket which has quite a big effect on the economies. Therefore, Mr Allie, I would like you to rethink the whole principle of tolling existing roads. I also get the impression, and I need to get that also off my chest telling you as the CEO, that that was a sort of a haste in moving with this thing. I think the public participation process was a bit flawed and, I think, that the Cape Town office was not very consumer friendly in supplying information. Various studies has been done in terms of, for instance, this road that propose the R300 to the N1 and the N2. Has a study been done of what the effect will be of the extra traffic that will be generated now onto the existing routes in the Western Cape which are not alternate routes, per sé, because they are already in a bad situation? Has that been quantified looking at the whole thing in a wide perspective?

[Mr N Alli]
Perhaps I should start off by also saying to Mr Gerber that this whole issue about whether it is toll roads or the manner in which we give information to each other, hopefully it is all about building relationships. It is very important for us to do that. In the Agency we do believe that we are here to serve the country as a whole. I think we need to look at the issue of our toll roads very unemotionally. It is extremely easy for us to become emotionally involved in this. Perhaps we should look at the challenges we face as a country in terms of providing road infrastructure and I am going to confine myself to road infrastructure. At present, no matter which way you look at it, if you look at it in our informal settlements we require 200 000 kilometers of roads. These are informal settlements which do not in most instances even have a track to call a road. A road does not just serve the purposes of the motorist. If you look at in our townships, in our informal settlements and even in our suburbs roads serves another social purpose as well. Secondly, if you look at our rural roads, I am talking about our villages, there as well exists a large problem. I do not think that it is necessary for me to remind the Members over here as to what the needs are as far as roads are concerned, even in our villages. The question then arises, given the pressures on our taxpayer's revenues, how do we meet these challenges of making sure that we have a vibrant economy which meets the challenges of the globalization which is taking place on the one side? What role does transport and road infrastructure in particular play in making sure that we have that economy and we safeguard the economy? Also, understand, on the other dimension that roads in many instances are regarded as a social good and not necessary an economic good. Given those challenges that we face up there, government has embarked from quite a while now since the 1980's in terms of implementing toll roads. Toll roads are not just implemented willy-nilly. A number of studies get done. You also just informed the House, at present we have 526 000 kilometers of roads in South Africa of which 100 000 are surface roads. If we do our projections in terms of the growth of our economy and that, we believe at most that we will be able to toll is anything between 6 000 and 7 000 kilometers of roads. That will not happen immediately, that may happen over a 10 - 15 year period. Maybe in ten years time we are all going to change our minds in terms of how to fund infrastructure in our country and toll roads may not be the way that we are going to need funding. We need to put this in its proper prospective as to what we are talking about over here. Yes, when we embark on a toll road feasibility studies are first carried out and we do a socio-economic impact study, as well as part of the studies that we carry out. We do look at it in terms of a network of roads in terms of what the fact by tolling a particular road would have on the adjacent part of the network. That is all part of the feasibility study that one has to take into consideration. My personal belief is that if we had a better funding mechanism in terms of roads, which I know that our Minister is working on together with Treasury, the issue about how do we maintain the other roads which are then used by people will not be such a major problem for us. We will always have a diversion of traffic, for any reason, taking place. Other things that we are finding as well, there is a suppression of traffic that takes place with the motorists when we start the toll roads. Yes, we do go through a public participation process. We try and do it as thoroughly as humanly possible, but what we are finding is that there will always be somebody, when we are doing a public participation process, that feels aggrieved and left out. I would welcome suggestions in terms of how to improve the public participation process. The manner in which we do that is we put out adverts in local and national newspapers informing people of the process. You put out press releases, whether it is to the television or radio stations in terms of informing the public as to the process that is being followed. We have put up notices at libraries. These things do become available for people to pass comment. I call public participation processes. Those of us who are interested in a particular subject matter are those that we will participate in. The rest if it does not affect me directly, you know, we do not need to participate in. That is part of the challenge that we face as far as the public participation process is concerned. Let us turn our attention to the issue about funding and the money that leaves the country. I am no expert in terms of money leaving the country and what people earn. I think the recent work that people have been doing around the Rand, the collapse of the Rand and no collapse of the Rand and what is responsible and how much left the country and how much came into the country, there may be a few lessons for us to be learnt from that. The issue that we need to ask ourselves is do we want foreign direct investments or not. The toll roads that we have done to date is over R6 billion invested from the private sector, one of it has come from overseas and there is no foreign exchange risk taken at toll on these projects.

[Mr L Chiba] I do think the Wilbur submission that the gentleman is actually putting, it may be very interesting, but we have a whole list of questions to pose and, I think, we should settle down on that issue. If you would like to make a written submission at some stage or another explaining the background and all that it would be highly appreciated, but you can do so within the next two weeks. At the moment we are to concentrate on the questions and get proper answers to those questions. May I appeal to you, Mr Chair, if we can get on with the business?

[Mr P Gerber] In page 31 of the Annual Report it says that in terms of the National Road Agency that all properties has to be registered in the name of the SANRAL, and it looks as if this is a complicated matter. Although this is probably law, how feasible is this? If you look at other departments and parastatals that has property which they use, for instance, Denel, and I can think of quite a couple of other parastatals and departments who do not require these properties to be specifically registered in the name of that company or that parastatal. I know that it is legislation. Is this practical or should one re-look at this?

[Mr N Alli] It depends on what view you take on this thing. It is our opinion that it is practical and that is how we have embarked on this. As Mr Gerber has rightly pointed out, it is a requirement of legislation. We did make a submission to this particular Committee awhile ago suggesting some things that we needed to do and hoping for some guidance. I would appreciate that.

[Mr P Gerber] I saw last week in the papers that there is a new toll road being planned between Pretoria and Johannesburg and it says there that the norm for toll fees is anything between 22 cents and 25 cents per kilometer. If you take that into account then there are some of these toll roads that is charging quite a lot more than the norm. Maybe the norm of 22 - 25 cents per kilometer is not your norm in terms of your calculations and research. Maybe it is something that comes from somewhere else. I would like some clarity on this. What is the norm per kilometer for these things? In places like, for instance, the Huguenot Tunnel where you pay R15 per vehicle for a thing that is 4 kilometers long - does the money go to the NIA or does it go to a consortium or the profit or a portion of it?

[Mr N Alli]
This is the norm within in the country in terms of long distance travel. When you go through the Huguenot Tunnel you are not only paying to go through the tunnel, but there is a toll road attached to it on either side and by the time you take what you have paid divided by the distance that you have traveled that is where this thing comes out. We need to redo our sums on that, because it has not taken into account the recent inflation.

[Mr P Gerber] I would like some clarity on the whole concept of unsolicited bids. I would just like to know how does this in practice work. Does the Department identify a potential route to be tolled? How does it work from day one?

[Mr N Alli]
It is a fairly simply process. This policy has been in place since 1997 and revised again in 1999, so there are documents available to the public. The simple process that it works is that somebody outside of the Agency identifies a potential project and comes to the Agency. If the thing is fine we will develop it. I want to assure the Members over here thereafter it goes to a full tendering process.

[Mr P Gerber] If I get you correct Mr Alli, it means someone outside the Department identify a possible project. It says here on page 19, "the Agency identified a number of potential toll schemes and initiated financial feasibility studies". Are these the same ones?

[Mr N Alli]
No, we have two types of toll roads in South Africa. Those that are funded by the Agency and those others which are funded totally and entirely by the private sector.

[Mr P Gerber] Just a local question in terms of your Report. You make on page 17, the procurement process - it says here that it is done very publicly and Affirmable Business Enterprises (ABE) are given a fair chance and Previously Disadvantaged Individuals (PDI) and all those kind of things. I drive to Cape Town from Wellington, not everyday, but some days, and it always bothers me that the people who are cleaning the N1, whether trimming the trees or picking up the papers and beer cans whatever lying around, normally their vehicles are either registered in the Free State or Gauteng. Do you take on contracts in the regional interests so that we can have that money spent in the province for that sake?

[Mr N Alli]
I think this a difficulty we always face, is it not. One that I do not want to toll a road in the Cape, but have the money spent elsewhere, but I want money spent in my province, but seriously. We do take into account, but we must also recognize that we are a National Department, so we cannot restrict people. A few years ago when we used to use the term "local" we were actually being accused of re-implementing influx control.

[Mr P Gerber] I want some more clarity on the Report. On page 20 it says, for instance, the N4 Maputo project creates 5 677 jobs and the N3 - 1 182 jobs and other contracts. Are these permanent jobs or are they just for the construction phase?

[Mr N Alli]
The construction activities are such that it does create direct jobs and then there is a multiply effect. I do not believe that there is doubt any longer that there is a multiply effect. The debate is always about whether there is four or six times. Those are the direct jobs created at that time. Unfortunately, in our country we do not do sufficient research to see how many of those that actually becomes permanent at the end of the day.

[Mr P Gerber] The other thing that I want some clarity on is the whole thing about the properties of the Agency. It says here that Intersite is handling the property portfolio. I do travel by train a lot to Parliament and I also live next to a station and there are certain companies that I would not want to handle those things. Are you happy with this arrangement? Do you think that you get good expertise there? Or is it not something that the Agency should build the capacity and eventually handle themselves?

[Mr N Alli]
I would like to clearly state that the Agency do not need to build this capacity. We have a contract with Intersite, Intersite are the experts in this particular field. It is important, and I hope we do monitor the contract arrangements properly with Intersite. When there are problems we will actually deal with it at the management level, and if need be, escalate it to the Board or even the Ministerial level, because Intersite also reports to our Minister.

[Mr P Gerber] According to the Auditor-General's Report the Agency intended issuing 4000 shares of R1 each at a premium of R272 760 a share which give you a value of R1.09 billion. How was this value derived at?

[Mr N Alli]
When the Agency was being proposed to set up way back in 1998, the then Roads Board together with the Department derived that particular value in terms of the premium.

[Mr P Gerber] Some government grants are treated as operating revenue, for example, the R599 million, note 13. Should SARS declare SANRAL a tax paying entity? How would grants be treated for tax purposes?

[Mr N Alli]
On that one over there, we are waiting for SARS to give us the ruling. It is very unfortunate, four years down the line and we still have not got a ruling on this, but we are revisiting the whole issue.

[Mr P Gerber] The next question is on the financial audit. Has the contract with the Minister been finalized so as to facilitate confirmation of the value of the Government Loan and the value of the land, buildings, roads payment, roadbed and equipment disclosure in the AFS (Annual Financial Statements)?

[Mr N Alli] Yes.

[Mr P Gerber] How is that impacting on your finances bearing in mind that they have not sorted out the tax situation in SARS?

[Mr N Alli]
It is not impacting adversely at all in terms of our day-to-day life. It does impact us in the kind of qualifications rightly that the Auditor-General makes.

[Mr P Gerber] Why is there a difference in the value of assets disclosed by the Agency and those recorded in the financial statements of the National Road Fund in respect of the 1998 financial year? This has impacted the Annual Financial Statement of the Agency for the years 1998 to 2000. When will this be addressed? It is on page 30.

[Mr N Alli] Yes, that is because, at that time, of the outstanding issue in terms of their shares. Now that, that has been dealt with you will not see it any longer.

[Mr P Gerber] I would like to come back to the land issue. The land recorded in the register has not as yet all been verified and properly recorded and, therefore, the ownership of the land apparently could not be verified. When will the investigation into the land purchased on behalf of the South African Roads Board, to whom which the South African National Road Agency Ltd is successor in title, be completed?

[Mr N Alli] If you look in the same Report we have also said that this is a long term project, unfortunately. The question which was raised earlier regarding whether one should deal with the manner that we have done in the property or not, again, we will wait for guidance on this.

[Mr P Gerber] Just a practical question on this and it might have an effect on property tax which is slowly being introduced to especially rural areas where a portion of a farm might have been expropriated by just a to ……………..registered against it and the property then stays in the name of the owner and the ………. is just an entry on the title deed. How can the Agency make sure that he traces all these ………………… that has been registered through the past many years?

[Mr N Alli] That is always a difficult one to deal with and we do not know how properties change in that. But, eventually you find that when property changes hands and especially when there is an other department take over the job, or buying the thing, it does come out, but we rely heavily on the Deeds Office to keep us informed.

[Mr P Gerber] There was an issue of expropriation in the Annual Report on page 32 of an amount that was paid in 1990 to build the road K14, north of Pretoria. Apparently there was some discrepancy there and it has taken about six years to get to anything. What is the situation on that at the moment?

[Mr N Alli] This is 12 years old and I am paying for the sins of 12 years ago, but there is a road, the K14 does actually exist. It was an administrative problem. I do not believe that honestly we are not going to solve this thing unless we try and find some legislative way to have done this thing.

[Mr P Gerber] The Outdoor Advertising that has been in the pipeline and regulations has apparently been advertised for comment. Could you just give us a bit of background? Does the Agency foresee that it could become quite a sizeable source of income? How is this going to be synchronized within the environmental impact in such a way that we do exploit this potential source of good revenue?

[Mr N Alli] There is a bit of myth about how much one can earn as an Agency out of Outdoor Advertising. We do not go out and actually ask the various companies to advertise on the billboards. We are only responsible for saying yes or no. What we are responsible for is making sure that the applicant complies with the regulations which have been promulgated, and that is all that we are responsible for. Yes, we charge a fee for checking that it does comply with it. If you look at the regulations, we have written in the requirements of the environment as well, because the whole issue of advertising was taken from two sides. One is the road safety and one was the environment and then we worked very closely with the Department of Environmental Affairs. It is all embodied in those regulations.

[Mr P Gerber] Then on page 38 there is some proceeds on disposal of fixed assets. The year 1999 was R818 000 and the year 2000 was R641 000. What disposals was this? What method did you use of disposing it?

[Mr N Alli] The only fixed assets that we have disposed of would be land. The manner in which we do that is we have a policy document as well in terms of how to dispose of land. If there is no access at all from the neighboring sides and there is no serve……………… to register or anything, then the first choice is that it is offered to the neighboring owners of the property. Otherwise, it goes through either auction or a tender process.

[Mr P Gerber] Could we perhaps get some more information on those lands that was sold, maybe by means of a letter or in writing later on?

[Mr N Alli] We are quite happy to send a policy document again. How far back do you want us to go?

[Mr P Gerber] The policy can go back a year or two, the ones that I have mentioned for 1999 and 2000. On page 54 it speaks of a Liquidity Buffer Investment and the Market Making Investment. Could I have a bit more clarity on this?

[Mr N Alli] The toll roads that we spoke of earlier, the ones funded by the National Roads Agency, are funded by raising money from the capital and money markets. We have a treasury in which we outsource to a private company, which does the treasury but reports directly to our company. In as part of the market making process one requires a liquidity buffer in case there is a run on the bonds issued by the South African National Roads Agency.

[Mr P Gerber] Apparently there is a problem that they are experiencing with the quality of the air in the Huguenot Tunnel. Is the Agency covered against any potential claim, or whatever, that someone might just one day would like to institute and the same with other similar cases?

[Mr N Alli] Just to comment on the quality of the air. We have recently refitted the whole of the tunnel, which is less than a year old, so hopefully the quality of the air would have improved now. We have insurance even for completed works. That was perhaps one of the other sides of becoming an Agency and our Government never takes out insurance.

[Mr P Gerber] Mr Alli you must be a very busy man. Is there a specific reason why you do not get involved in the Audit Committees of your Management?

[Mr N Alli] It is very simple, it is for good governance. A CEO, in my belief, should not attend an Audit Committee and the other members of the Audit Committee should feel intimidated. Of course, I get summoned to the Audit Committee to go and answer to the Audit Committee and, I think, the Auditor-General can vouch for that.

[Mr P Gerber] Thank you very much. I have fielded a lot of questions in a record time. Believe me, I am not exhausted by my questions on the plea. If there are any other questions from any of the other Members it is fine.

[Chairperson] It has been mentioned by you that you do not attend the Audit Committee meetings. One of the factors we see making negative impact on many government departments is the fact that the CEO and the CFO is not really working at tandem or there is sometimes a lack of communication and so on. Could you tell us about the relationship in your Agency with regard to the CFO. The CFO is not here today. What is the feedback system? What is the interaction? It is just maybe a perspective for the Committee.

[Mr N Alli] Perhaps one can describe the manner in which the Agency works as a collegiate manner, one of mentorship with each other. We do not have in terms of the manner in which we work a bossy type of attitude, a hierarchy type of attitude. There is a strict hierarchy in terms of the reporting where the buck stops, because we have learnt within the Agency that you will always take care of the responsibility and the tasks that you have been given and you will be responsible for your actions, but the buck stops at the end of the day by me.

[Chairperson] In terms of corporate governance - I see yourself and the Chairperson serves on the Remuneration Committee of the Board or is that not correct?
[Mr N Alli] It is not correct. In fact, the Remuneration Committee is another one of these Committees, which I am not a member of, because we do not want to unduly influence the remuneration.

[Mr P Gerber] With regarding the contingent liability of the employee compensation - the when and how of the shortfall in the Government Employee Pension Fund of staff taken over from the Department of Transport be finalized and how will that be done?

[Mr N Alli] We had submitted to this Committee as to suggestions in terms of how that can be done. I am glad to report that the GEP has finally seen the reason as to making sure that the people who resigned, because all us who have joined the Agency actually resigned, and that the transfers can take place under, I think, Rule 14(2). Do not quote me on the rule please, but there is a rule. We are just waiting for the money to come down and it is four years down the line. We need to recognize that our colleagues who have served for a long time within the Service had to wait a long time on this thing, but hopefully, it will be resolved within the next few months, if they do not cancel the next meeting again.

[Chairperson] Thank you very much then for your attendance. We appreciate it.

[Mr N Alli] Thank you very much to you and the Members for listening to me and if you need any information please shout.
22 MAY 2002

Prof M Rwelamira, Acting Director General : Department of Transport; Mr J Mokokoane, Deputy Director-General of Transport Policy and General Transport Operations ; Department of Transport; Mr D Pretorius, Chief Financial Officer ; Department of Transport

[Chairperson] We will ask Mr B Nair to lead with regard to the Urban Transport Fund.

[Mr B Nair] In the first place, an observation was made by the Auditor-General and also the Agency itself previously over the past year or so as to whether there was any reason why the Agency should continue to function. That is because, you will find particularly over the past year 2000 to 2001 that no new projects were undertaken by the Agency. What has happened is actually the old projects were completed and no new projects were actually undertaken. The question that arose is about the feasibility of continuing with the Agency. When I refer to the Agency I mean the Fund. According to the Auditor-General's Report the Fund should continue to function, but no reasons were actually afforded to the Auditor-General's Office as to why it should continue. Does it serve a purpose? On your response will follow a series of questions about the 2001 Auditor-General's Report. Why was the Fund allowed to continue? In fact, suggestions were made that we should deregister the Fund, because it was not serving an useful purpose. Why involve yourselves in massive expenditure etc and not finding adequate personnel?

[Prof M Rwelamira] I will ask my colleague who has been responsible for the management of the Fund, certainly in that particular year, to give a response.

[Mr J Mokokoane] Just in short in terms of responding to the question that relates to the extension of operation of this Fund. In terms of the Act that put this Fund into place, strategically the Department wanted to target areas of development in the country, especially metropolitan areas which have been proclaimed to deal with transport related functions. Having said that, it is true that the Fund has not been operational during 2000 and 2001 as indicated. We only had existing multi year capital related projects which were introduced years before that financial year. We agreed to say that it was going to serve us best if this Fund could be deregistered. In a way what it could be saying is that we could be requesting for the Urban Transport Act to be either amended or else we in a way recommend that its purpose seem not to be responding to the needs on the ground. From the point of the Department, we have made that assessment. We are convinced that the Fund was established with a purpose to serve the area that I have already indicated. On that basis we have extended about 3 critical projects which we think are important. We have started a process of extending the rail line here in the Western Cape, Khayelitsha rail line, which is going to cost us in access of R79 million. We have already advanced with the designs thereof and R20 million has been set-aside for us to roll out that process. Secondly, we had an unexpected incident in the Ukulele area, the Kwazini rail line there we had to suspend its operation, because we had some incidents from the community around there that resulted in the system being tampered with. We subsequently as a matter of quick response had to respond for the national interest. Out of that we had to fast track about R5.9 million to respond to that. Lastly, the border between the Gauteng province and the North West province has historically what we call the Mabupane station which is an interchange transport facility that service both bus, taxi and rail. It has been in a position which we think is not acceptable. The level of service, the investment that has been placed in it was not equated, because of its historic background. The site of this station which fell under the then Bophuthatswana government was really in an unaccepted level and the one that was falling under the central government there had been upgraded to a comparatively advanced level and for national interest and to reflect the ethos of the current government we had to respond to that. In a way just to indicate what we think there we could be doing to address the current situation. We are of the opinion that the Fund should still be continuing. Secondly, the Fund, however, does not respond to areas which are seriously depressed, especially the former homeland areas. We are of the opinion that as we continue with this Fund, which ever form that it should take, it should bring on board those areas which have been left out. Now recently we are able to fund the Free State area in terms of assisting them in upgrading a taxi facility there. In the past it was not going to be possible for us. We are of the opinion that places like Mpumalanga, Limpopo and the North West we still need to respond. Though we agree that the other spheres of government have a responsibility, we are of the opinion that the National Department of Transport also needs to intervene on matters of interest.

[Mr B Nair] This is closely linked to what I was trying to dovetail all the questions together rather certain questions together. The problem is this; there is a whole host of problems that arise. You have a separate fund dedicated to urban problems. Could this not, instead of dispersing your funds in several directions and being controlled by several agencies, be titled by the Department itself? I tell you why. If you set up a separate Fund and it meets all the requirements of PFMA you will have to have an officer to be in charge. Now what you had from the Reports that we have had is that you had the Director-General of Transport being forced to handle it at this Agency and you have followed on that. You have a whole string of other problems when you do not have internal controls, proper checks and balances as to what is going on. For instance, this theft probably of copper wire, you mentioned this in the Kwesi railway line just now, demonstrates what could go wrong. You can 20, 30 different agencies, but do you have proper personnel to handle it? Or do you have to have secondment from the Department of Transport from time to time to handle it and then you have problems compounding. This is linked to real problems that the Auditor-General draw attention which will reinforce the argument that you have actually posed which you have dealt with at the top whether the Fund was a viable proposition. Should it continue to exist? You have justified it by saying that yes, you are. There are requirements for this Fund to deal with the Free State, Mpumalanga and other areas and Khayelitsha as well. Now you take the requirements of the Generally Accepted Accounting Practise (GAAP), you cannot fulfill the obligations of GAAP. Did you not take note whether the staff compliment is properly trained, whether you have an adequate number of people to actually run the Fund? This follows from what I have just now said. Do you have staff, at all, that is independent? Does the internal control component exist? Because of the independence of the Fund all this follows the requirements of the PFMA. Then you take the Chief Executive Officer and other seniors - are they appointed? Then you take the question of proper guidelines, and all the instructions, the strictures under which the Fund and staff must operate - are they there? Is there a need for it? Are they there at all? Are they being complied with? Is there a training process? The last financial statement was submitted refers to the year 2000, since then 2001 has not been submitted. The 2000 statement has been qualified both in so far as the financial aspect and the compliance of the appointment. We may have a repeat performance in the current one, which is due, not submitted again. In terms of the PFMA you were supposed to have actually submitted this by a certain date. This was not done. What one sees quite clearly is that there are serious problems relating to the Fund, I thought I would compress this all together, because they are interrelated and it follows. In light of all the questions that we are posing and the fact that you are unable to comply with all the requirements, whether the Fund should continue to exist or whether you should not have a dedicated individual, or groups of individuals, located in the Transport Department to deal with the problems.

[Prof M Rwelamira] I will make some general response and my colleagues will address some of the specific concerns that you raised. You are right that the UTF (Urban Transport Fund), I do not think it has been managed in a way that is envisaged under the PFMA or even under the legislation itself. Having admitted that, I think, one has also to see those references in terms of its history. As we all know, I think, with the foundation of the South African Road Agency you no longer have the route of the Roads Board which was supposed to provide an oversight mechanism over the Fund. I think, that in itself, did introduce a lot of uncertainty in the management of the Fund. You are also correct, I think, when you say the present management is unsatisfactory. It is true that the Board of the Fund now is vested in the Director-General, although we are looking at a way of getting around that. My only response, however, would be that as much as one recognizes the limitations in the management, I do not think that one can question the need of the Fund, I think the need of the Fund probably still is more valid than it was before. The question may well be raised whether we should, in fact, be only confined to the other issues or whether it should be expanded? I think the need or the argument for the Fund remains as compelling as it was at the time. I think the issue of how we manage it is something that, I think, we would need to address and give some kind of firming up as we implement various projects. Maybe my colleagues could address some of the specific issues.

[Mr J Mokokoane] We went out for a tender in order to outsource the Internal Audit function. The question was raised that we did not have the necessary capacity internally. We have appointed KMMT to be our Internal Audit Company starting from April 2002. They have not yet started their responsibilities. Secondly, we have completed a procurement and procedure manual, so that at a policy framework to guide officials who are being set aside to deal with the administration of this Fund in terms of what are acceptable practices. Thirdly, we have appointed an individual at the level of a Deputy-Director solely dedicated to see to the management of the Fund. Having said that, I need to indicate that, basically and broadly so, the Fund has very few transactions and our transactions are further transfers when we need any projects to be implemented, for instance, the project that I have listed are more related to rail. We use our agency, the South African Rail Commuter Corporation, to do those projects on our behalf based on a submission of a Business Plan and required processes that they would follow to make sure that they implement such a project. In other instances we make transfers to provinces and local government. A point in …………….. reference is now that we completed a transfer of R1.8 to deal with the Koega Corridor. We received a proposal and out of that we assessed it and then respond in terms of furthering that transfer to them. As they advance with the project in terms of our contract with the related agency in this regard they then respond to us as to how they are progressing. Thirdly, in March we have just appointed two engineers in the Department falling under this Fund. Previously we did not had such capacity. The reason for that is that we are of the opinion that a number of our projects are capital related and it will be good for us to be able to monitor and assess the value that has been put on projects that has national interest. These two engineers are being assigned to go and monitor a project that we are putting outside our Agency or other provinces. One need to also indicate that we have appointed a bookkeeper last year, a bookkeeper after we realized, and as the Director-General has indicated, that the Fund is not properly monitored. We separated the bank transaction of this Fund to be outside the Department's banking system. Currently as we speak, the Fund run outside the Department's banking system and it is being administered by a dedicated bookkeeper. As I have indicated, we have now appointed an official at the level of a Deputy-Director. Finally, I need to indicate that it is true that our attempt at this far have not covered all the requirements of the Public Finance Management Act. Our attempt in this regard, up to thus far, as one has indicated there, the issues that I have raised is to make sure that we respond to the requirement of the Act and to satisfy the compliance thereof. We are optimistic that our attendant can assist in terms of responding to the needs that is on the ground.

[Mr D Pretorius] I can make some more comments on the non-compliance of the Urban Transport Fund. It had a history, the Fund was going to be incorporated in the Land Transport Fund which was going to be created. In the end this Land Transport Fund was not created and the decision was taken to continue with the Urban Transport Fund. At the time the records was still integrated with those of the Department of Transport as a separate Vote Fund. Since then, as was mentioned, a completely separate accounting system was created; a new bank account was created; all the account balances were transferred into the Urban Transport Fund; records; chartered accounts was drawn up; a person was trained to run the financial package and so on. Although all of this culminated into the Urban Transport Fund for the past two years not completely complying with generally accepted accounting practices as well, because it did not accrue for the expenditure; it did not provide for depreciation; it did not have an asset register etc. Because of all these problems we have not yet attended the Urban Transport Fund and we have not yet attended to all the problems with respect to the PFMA. It has now created a fixed asset register and it compiled a set of internal controls and procurement procedures which identified a number of risks and also identifies certain processes to be followed for the receipt of revenue and making expenditures. So certain control matters have been attended to. The next steps would be that we should attempt to get the departmental Audit Committee to be shared between the Department and the Urban Transport Fund and to share certain other issues like our risk assessment and fraud prevention rights.

[Mr B Nair] The following observation following from what the Auditor-General reported - you take the budgetary process - it is not zero based. You have certain funds that are carried over and there is no proper budgetary process. There was an admission just now that asset registers could not be produced at all. One does not know what assets you have got or whether this has actually been stolen. Computers, for instance, could disappear and you would not know, because of the cash basis of accounting. All assets bought are regarded as paid for and finish, no asset registers, nothing, I think fixed assets were depreciated wholly two years running - R40 million and depreciated fully and similarly in 1999 depreciated fully. It does not exist. You do not have a cash register thereby. It raises a whole lot of problems. Ours is now confined to oversight over your financial management. We do not want to get into policy issues that is not our mandate as the Public Accounts Committee, but we will have to comment on this. We also take into account the justifications that you have made for the continued existence of the Fund.

[Chairperson] We have reached the end of this session. I do not know if there is any response from your side?

[Prof M Rwelamira] We appreciated the concerns that have been raised by the Members of the Committee on the UTF. We are equally concerned in the Department about the manner in which it is being processed and managed. It may well be that our approach has been incrementalist, but we are definitely committed to insuring that as much as possible the requirements of the PFMA are complied with. As we indicated, we are already making some steps to implement those requirements, but we do take the point that, I think, maybe we need to accelerate that initiative in our fight and that is the undertaking we can make to the Committee.

[Chairperson] Thank you very much for your attendance.



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