Passenger Rail Agency of South Africa (PRASA): Public Protector's findings & plan of action

Meeting report

Presentation from PRASA
Mr Nathi Khena, Acting GCEO for PRASA, said 37 complaints were made to the Public Protector by the South African Transport and Allied Workers Union, SATAWU, about PRASA in 2012 and these complaints were taken over by the National Transport Movement. The complaints were directed at the previous GCEO, Mr Lucky Montana. The general tenor of the complaints was improper award of tenders, maladministration, and corruption, conflict of interests, financial mismanagement, nepotism and improper treatment of whistle blowers. The Auditor-General’s 2013/14 audit report preceded the Public Protector Report. The AG’s report was presented to Board on the 30 July 2015. It highlighted irregular expenditure and fruitless and wasteful expenditure in excess of R500 million.

The Public Protector Report found the scope of some tenders was extended beyond what was advertised, contracts with service providers were terminated without notice, advance payments were made, employees were paid whilst not at work, employees were improperly suspended, employees implicated in R8.1 million worth of fraudulent transactions were not disciplined and fruitless and wasteful expenditure was incurred.

Recommendations by the Public Protector Report for disciplinary action to be taken by the PRASA Board against the responsible officials, to review the effectiveness of PRASA’s internal controls, the R350k threshold for competitive bidding process to be reviewed, the Board to report to National Treasury and AG any financial misconduct, and Treasury to be commissioned to conduct a forensic investigation of all contracts above R10 million since 2012 to 30 June 2015.

Using external legal advisors, the legal opinion of the Public Protector Report was the following: contracts concluded irregularly are unlawful and invalid from the onset.

Disputed contracts will be treated on their own merit; where value has been given, PRASA does not propose to pursue the matter further. Where no value was given, and PRASA will institute legal proceedings to recover monies paid.

Contracts concluded irregularly in contravention of the SCM policy and law are unlawful and invalid from the onset. Thus, all payments made in the past and future are without lawful cause. Ongoing disputed contracts that are not critical to the business of PRASA will be discontinued immediately. Those that are critical will be allowed to run their course before termination, recovery of the funds will be pursued where prices are inaccurate.

PRASA has initiated a process to review its supply chain management (SCM) policies and has engaged with Treasury to second an experienced supply chain practitioner to assist in reviewing the SCM framework.

PRASA will be reviewing its disciplinary actions to rectify any discrepancies.

Discussion
Ms D Magadzi (ANC) stated that SA people deserve affordable, safe and reliable transport. A letter was received regarding a Worcester station that has been closed. Fisantekraal is also on the verge of being closed. This is about the bigger picture that PRASA provides safe, reliable transport for all. PRASA needs to tell the public and media that training will be done; signals have been mended etc. Jobs need to be created via transport networks. What is the impact of these allegations about service delivery? Where were PRASA's internal HR, monitoring teams, audit committee and board when all these matters discussed in the Public Protector Report were going on? What was really happening down the line of leadership, what was happening to the CEOs and CFOs in the subsidiaries? How much financial delegation is given to the CEOs and CFOs? Let’s have a positive story coming out of PRASA, the Mamelodi situation was a success story. There are a lot of other towns that are asking for assistance. The transport as found in these positive stories is comfortable and well insulated from the weather. One cannot allow fraudulent transactions, PRASA must guard against any actions that will halt service delivery. Can the Committee visit a board meeting at PRASA, can the committee get a list of the board meetings? There were matters of emphasis raised last year by the AG. Most of the issues raised are being repeated. Why is this happening? What really happened with the R2.4 billion tender contract? Does it affect service delivery? The GCEO has 48 working hours to respond in writing to these questions. Since March, PRASA has been in the newspapers. The PRASA board has disregarded the Committee from the beginning. The Committee needs more time to engage on this topic. PRASA should allocate more time to go though the Public Protector (PP) Report line by line. The PRASA news items are seen in the newspapers and the Committee collects this information and it will be used against PRASA, if they do not communicate properly.

Mr G Radebe (ANC) stated that the Committee should have a phase 1 and a phase 2 approach to engage with this briefing. He asked for clarity on slide 10 about the forensic investigation of contracts over R10 million by Treasury. Why only over R10 million, even a small contract warrants an investigation? PRASA must deal with the deeper issues. On slide 13, discontinuing contracts that will not affect the daily business of PRASA, what is the legal implication of this? On a point of order, the board chairperson cannot tell the Committee what and when they should be asking questions.

Mr L Ramatlakane (ANC) said that when the previous annual report was presented, the Committee had stated that PRASA had the most clarity on the issues facing SA and where the country must go. If transport does not succeed, it affects the whole of government and the country will be hampered by poor public transport. Today's report is thin on a number of aspects; but perhaps it is based on what the Committee asked. There are a whole range of issues not covered. The R2.4 billion tender corruption is not covered by this report. The part 2 engagement needs to be broader. The R2.4 billion tender needs to be looked at in the following engagement. A big concern is issues that may bring PRASA to a standstill. If it is grounded, nothing can happen. This report is going to entail a lot of money and a long legal battle. There are other mechanisms to deal with this issue. The image of the organisation has been dented in the public eye. On PRASA and the locomotives, there were various tenders and it was heavily contested, so those involved in the software and legal advice are they being vetted? The irregular expenditure, there is a process for dealing with this via the PFMA. The fact is that if the work was done, then the contract needs to be paid. How are the disputed contracts going to be discontinued immediately, how is this going to be dealt with? State organs have been  working together on this, including National Treasury, ring fencing certain amounts of around R53 billion. There have been many matters of emphasis in the audit report for a number of state organisations. However, PRASA did not have many qualified opinions. How is PRASA going to deal with these matters of emphasis? How many of these fraud cases have been reported to SAPS? Some employees were meant to face suspension, what has happened to them, are they being pursued for misconduct? Mr Ramatlakane was worried about the stability of the organisation. There is an allegation that there is a desire to purge the organisation of certain employers, is this true? Will the board plan not be affected by the future PP second report? The Committee is not blind; they will watch that no one is purged. Mr Steenkamp’s statement let the cat out of the bag. There is an anomaly in that there are CEOs and CFOs in incorrect positions, the next step is obvious. An ad hoc board is an executive board, they are overlapping in their duties. What are the consequences of the ad hoc process of duplication? The Committee will be robust in looking at PRASA.

Mr M Sibande (ANC) stated that most of the issues are sub judice. The board is busy with remedial action, the PP is busy with remedial action and the AG is busy with remedial action. The PRASA board must concern itself with South Africa first. This is going to affect the public. The Committee’s concern is stability and service. Those contracts that are not critical to the business will be terminated immediately – what are the financial and legal implications of this? On slide 10 and 4, there is a contradiction. The one mentions contracts in excess of R500 million and the other one says R10 million. Risk management is vital, referring to the PFMA, it states clearly why it is important. Where were the internal people that were meant to be in place to prevent a fire according to the PFMA? There are people who are meant to monitor the board and provide information, where have they been? The board must not play into the media’s hand, now it feels like nothing is right and everything is wrong at PRASA. The board must talk about the positives too with the media. This is all very disturbing. How long will an ad hoc board be in place? In response to the PRASA board asking to be excused early and that the Committee focus on the brief given to PRASA by Parliament, Mr Sibande said: Do not tell the Committee what they can and cannot ask.

Mr M De Freitas (DA) commented that there is pervasive and deep corruption; bad mismanagement and maladministration within PRASA - there must have been a network of people for this to be so large and deep. How was a network of this magnitude allowed to develop? This was brought up beforehand by Treasury and it was ignored. The PP has announced there will be a second report, what mechanisms are to be put in place to improve the situation? The people that have resigned due to fake qualifications, are they going to be pursued legally? How did unqualified people get into the top spots, there must have been collusion? Why was a check not done in the first place? There were many instances where tender processes were not adhered to; this can only be sustainable if there was a network of people. There needs to be a new culture and systematic change as these people are still within the organisation. Is PRASA saying that for payments made illegally, outside companies should repay this money? The suppliers and companies should be pursued legally.

Mr C Hunsinger (DA) stated that the scope of the investigations include about 37 allegations dating from 2008 to 2012. Does this mean that PRASA will ignore all contracts before 2012? He would like to see all contracts below R10 million and before 2012 also investigated. A comment made by PRASA board chairperson, Dr Popo Molefe, stated that the board only found out about all the problems in March 2015. However, such problems were mentioned on pg 56/57 by the AG previously, so the accounting authority did not take the necessary steps to prevent wasteful expenditure. Financial statements were not presented correctly, there were contraventions of supply chain management, this was mentioned in the 2013/14 audit report. How can Dr Molefe be surprised about this in 2015 when it was reported much earlier? The serious allegations should not be discounted as perceptions by the Group CEO. All the board members are not new. Why did they not react sooner, why did they wait for the PP report?

Mr J Maswanganyi (ANC) stated that PRASA applies Treasury regulations which require internal controls and an internal audit committee. Does PRASA have an internal audit committee? What is the state of PRASA’s internal control measures? Slide 9 refers to the threshold of R350k, other departments threshold is R500k. Will this threshold not hamper the functioning of the organisation? Amongst the issues raised was that of irregular remuneration. If the Board had an investigative HR person, this would have been discovered. If the illegal contracts are terminated, will PRASA come to a standstill? Terminating a contract is not as easy as described in the report. If the investigation is being given to Treasury and the AG, what comes first? Is it the investigation, wait for the outcome and then terminate a contract or will PRASA be terminating contracts before the investigation? This must be done properly so that PRASA does not shut down. The narrative that "the board knows nothing", this did not come from the Committee. These statements must be qualified. The Committee is not questioning the board’s ability. The Committee is charged with oversight, they do not have to follow a legal line of questioning, the board must not feel as if they have been ambushed.

Dr Popo Molefe, PRASA board chairperson, stated that they were given a brief by the Committee to discuss the plan of action to deal with issues raised by the PP and the AG. The PRASA 2014/15 Annual Report will deal with a number of these deeper issues asked by Members. The board responded immediately to issues of irregular expenditure by putting into place controls and measures. The R10 million level was advised by PP, it is not a PRASA amount. If there is any suspect amount that is picked up, it will be investigated. PRASA has a very weak internal audit committee. The CFO has not been well for a long time, there have been many acting CFOs which has led to a weak financial capacity. This board is a very robust board with experience. It has uncovered all these items. The board will consider each aspect carefully. He asked that members have faith in this board, as the narrative has been very negative too date. Many board members have been part of government for a long time. The state entities that do receive money from the public purse, need to be accountable and above board.

Dr Molefe said each fraudulent case will be dealt with on its merits. The board looks at the impact it has on ordinary people and grants. Those who have received money via a tender must show the court what they received and paid. Those who were unduly enriched will need to pay back the money. The main focus is about the masses of rural people that require transport. The board is not reckless. Expert legal opinion is being utilised. Some are straightforward cases, and some cases may not be pursued. There will be instances when previous decisions by the board were made in good faith and the programme is so far along that it will not be helpful to close it. On the rolling stock programme, Treasury has given the go ahead with the modernisation programme.

On collusion about unqualified people, Dr Molefe said that fraud cases have been reported to SAPS, some have jumped ship. He does not know if there was collusion, the qualifications will now be verified through the South African Qualifications Authority (SAQA). Some individuals have work experience only and this needs to be taken into account. The board are recovering the money in the CCMA cases. The work is continuing for criminal cases requiring action. If the board finds out about fraudulent cases but does nothing, they are individually liable. The current board is not aware previous issues raised to the previous board. The board was not getting the required information it requested. The board has been accused of meeting too much. The board needs to meet to get things done. On the signalling system, the board have met with people in KZN and Western Cape directly to find out what is actually happening. Management has been giving the board false reports in the past. All the steps are about improving corporate governance and strengthening the human capital of PRASA.

Dr Molefe said that the chair of the audit committee is a chartered accountant and has extensive experience to deal with these issues. PRASA has a sense of urgency and will deal with things expediently and in the interests of SA. There was no tender awarded for the R2.4 billion. A recommendation came to the board; this would not be awarded without a property report. This report never came; the contract property report had expired. The board said that they will not go ahead with this tender as it is. To do so would be a dereliction of duty. Many issues raised will be discussed in the 2014/15 Annual Report. The investigation is going to be shocking, it is important that PRASA and the Committee do not send a message to the public that the board cannot do its job. It is a lie that an employee of PRASA paid R58 million for a contract. The employees that have been discharged on flimsy excuses have been reinstated. Many employees were suspended for long periods of time, 18 to 20 months. These have been rectified. PRASA wants the organisation to be stable. The law does not require that the State Security Agency vet the legal advisors who give opinions and advice. Only if the legal advisors are working in the department directly is this necessary. If required, the board can give a complete document of who they are using to the Minister.

The PRASA chairperson, Dr Molefe, asked that he be excused early and that the Committee focus on the brief given to PRASA by Parliament.

Mr Nathi Khena, PRASA GCEO, responded that the R51 billion for rolling stock and the project on the locomotives must be separated from these other issues. The modernisation and fleet renewal is on track. On the issue of the R500 million and the R10 million, he felt that the chairman has addressed this. PRASA has only lost two executives. The one executive was an engineer and the other a chief procurement officer. From a stability point of view, things are still in place regarding leadership. He will undergo a road show to the provinces to discuss PRASA with its employees. Many of the issues raised have been raised by the board with management. PRASA has had discussions with the head of transport, as the Railway Safety Regulator (RSR) gave a directive to fix certain things at the Gouda station such as the raising of the platform. This is a Transnet Freight Rail (TFR) owned station that is leased to PRASA and it would cost a large amount. PRASA is hoping to have things resolved within a week or two in this regard.

Ms Mashila Matlala, PRASA non-executive director and chair of the Finance, Capital Investment and Procurement Committee (FCIP), a sub-committee of the PRASA Board, stated that they have taken the stance of reviewing compliance structures. The audit committee has been engaged with extensively and fruitless expenditure will not be found going forward. The R350 million was an error by the PP. The R10 million level was set by the PP. For tenders less than R10 million, there will investigation at the end of the process. This will be done on a case by case scenario.

Ms Zodwa Manase, chair of the PRASA Audit Committee and non-executive director, stated that the responsibilities of CFOs and CEOs are being looked at. Everyone who has made a decision involving irregularities will be investigated and legal action followed. A draft policy will be finalised at the next board meeting.

Mr William Steenkamp, chair of the safety, health, environment, and quality (SHEO) assurance PRASA board committee, replied that commuters have not been abandoned at the Gouda station, where the trains are not running, buses are being provided. An ad hoc committee has been appointed with five board members meeting to meet once a fortnight to provide guidance to the Exco and to interrogate these issues. PRASA is  having workshops, strategic planning sessions and a security indaba. They will be looking at making sure that security is dealt with. During this transition, a nationwide road show has been undertaken to spread the message of stability. They have met with security to ensure that the state assets are protected. PRASA is stable, looking after its assets and there will be no purging of employees.

Meeting adjourned.