PRASA 2014/15 Annual Report: hearing

Meeting report

Passenger Rail Agency of South Africa (PRASA) 2014/15 Annual Report interrogation
Passenger Rail Agency South Africa (PRASA) was interrogated by the Committee on its financial statements and Annual Report for 2014/15. Because the meeting started earlier than scheduled, PMG's notes on the first part are not available.

The Chairperson noted that as the questions were posed, the responses could explain how the challenges faced by PRASA came about, and how PRASA was addressing these issues or challenges. He cautioned that he would not like to hear contradictions in the responses.

He noted that Members were concerned with the management of the public entity.

Mr E Kekana (ANC) asked who the Chairperson was of PRASA, and Mr Popo Molefe responded that he was.

Mr Kekana therefore sought clarity on Mr Molefe's role, particularly in regard to the financial expenditure. He expressed his concern about illegal, wasteful and fruitless expenditure and asked what the Chairperson of PRASA had done to prevent that from happening.

The Chairperson commented that issues to do with the annual financial statements and audit committee would be dealt by Mr C Ross (DA). Mr Kekana had been asked to deal with issues related to procurements, contracts management and unsolicited bids.

Mr Kekana sought clarity on why, in respect of the unsolicited bid, PRASA did not inform National Treasury about the unsolicited bid proposal, to the total value of R91 million, that was in contravention of the policies.

Mr Molefe responded by noting that there were two requirements that needed to be fulfilled in respect of bids. The first was the feasibility study and the second related to testing the market. The feasibility study had found that the project was viable. In relation to testing of the market, PRASA found that there was only one person who would be able to fulfil the requirements. PRASA could have approached the National Treasury to approve this bid, but in fact PRASA management did not do so. He could not deny that he was aware of the policies and knew what should have been done, but the fact remained that the correct steps had not been followed. Mr Molefe indicated that he could come with only one answer: and that was that he had disregarded what the rules said should have been done. From a procedural point of view, this meant that there was now an unsolicited bid proposal that did not follow the correct steps.

The Chairperson sought clarity on which people had been responsible for this unsolicited bid proposal.
Mr Molefe responded that they were the Chief Procurement Officer and Chief Financial Officer. Both had left PRASA.

Ms T Chiloane (ANC) sought clarity on what the main areas of focus were.

The Chairperson responded that the way he understood it, the focus was on finding individuals who could be held liable for the problems that PRASA was facing.

Ms Chiloane said that her questions would be asked in an attempt to get further clarity on the irregular expenditure, fruitless and wasteful expenditure and financial health of the organisation.

Referring to page 55 of the PRASA’s Annual Report 2014/15 she firstly sought clarity on irregular expenditure, which totalled R550 million. She asked how this happened.

A Business Executive from the Office of the Auditor-General South Africa (AGSA) responded that the R550 million related to investigations that PRASA had spoken of earlier in the meeting. In that particular incident, certain procedures were not followed and complied with. There were problems with signing contracts. Other problems stemmed from the unsolicited bid proposal. PRASA's new management had refrained from doing any more spending on most of these projects, instead choosing to institute investigations into them. These were still ongoing.

The Chairperson sought clarity on whether it was “most of them” or “all of them” in which investigations were happening.

The AGSA official responded that all instances of irregular expenditure were stopped and appropriate actions had been taken with regard to most of the instances of irregular expenditures that were picked up by the Auditor General. Appropriate actions were based on forensic investigation. That included disciplinary action and seeking condonation of the irregularity. She explained that even though spending may be said to be strictly speaking irregular, an individual’s actions could be condoned in  cases where his or her action yielded good results, irrespective of the fact that the correct formal procedures were not complied with.

The Chairperson suggested that instead of dealing with all instances as one, a particular amount of irregular expenditure should be mentioned, and PRASA should then brief the Committee on what had been done to try to resolve the problem.

Ms Chiloane stated that she had identified ten areas of irregular expenditure, on which clarity was needed. The internal audit report made reference to R357 million and R13 million worth of irregular expenditure, and she had made a short list of questions that sought to ascertain how these amounts were arrived at. If PRASA were to give only a general response without answering each question, she was afraid that she would not receive satisfactory answers.

The Chairperson said that the PRASA had the short-list of questions that Ms Chiloane had wanted to pose. However, Ms Chiloane could pose further specific questions if she wanted to solicit immediate answers.

Mr Molefe responded that all of this had started when PRASA concluded a locomotive contract worth R357 million.

The Chairperson sought clarity on whether the R357 million was investigated and what measures  were taken.

Mr Molefe said that the main issue here was that the expenditure was irregular. It was indicated that if there was a consortium, a consortium member ought to submit a contractual document. The bidder who won the bid did not follow that procedure, even though there was a consortium. Again, this contract was wrongly evaluated. No disciplinary action was taken because the person responsible had left the entity. However, there were a number of issues that were still under investigation. Individuals under investigation included the former Chief Financial Officer.

Mr Kekana said that Mr Molefe surely meant the Chief Executive Officer, and not Chief Financial Officer.

Ms Chiloane noted that it was then unlikely that definitive answers could be given, since most of the issues were still under investigation. However, on another point, she wanted to note that there was one supplier who was appointed and not disqualified, but who did not have a permit.

Mr Molefe agreed. He noted that the fact of the on-going investigations was hindering PRASA from finding viable solutions immediately. The initial procurement was supposed to be from Europe, in the sum of 3000 Euros, but this would not have met the bid standards. A Dr Mutimukuru, who was heading an engineering department, had changed the bid. However, he repeated that since all these matters were still under ongoing investigation, he did not want to speak to them until PRASA had got the bottom of what had been happening. The fact was that after changing the bid, PRASA had gone ahead and procured, for 4   000 Euros, with the bid being changed to that amount. There had been a number of fraudulent actions. This included changing the requirements of the bid, so that the qualification criteria also changed. Most of these issues had come to light when PRASA started to probe, and this was why he was referring constantly to the ongoing investigations.

The Chairperson reiterated that the PRASA could have placed issues into categories and spoken to the finalised investigations and ongoing investigations separately. 

Mr Kekana commented that Members should try to find the best way for this meeting now to proceed. He suggested that the meeting should break for a recess to discuss the issue and that the delegates should try to discuss how to deal with the matters being raised in the meeting.

On resumption of the meeting, the Chairperson announced that the Committee would like to make some observations and recommendations

Committee Observations and Recommendations

The Chairperson conveyed the decision of the Members to the meeting. Members would like to postpone the hearing now. When the Committee resumed sitting in 2016, the engagement with PRASA would be prioritised. For that engagement, the Committee would like to see the Minister of Transport and the Director General of the Department of Transport also present. The executive authority ought to be present. The Committee’s intention was to ensure that PRASA was brought on track again, and in order to do that, all role players should be on board. He stressed that all stakeholders ought to understand all challenges.

The Committee had concluded that it would be extremely difficult to proceed with the meeting as it had originally been planned. This was due to the fact that most of the issues were still noted as being under investigation and PRASA delegates were showing some degree of resistance to bearing the responsibility for the situation and were tending to argue that everything that went wrong took place before they had assumed their positions, so that fingers were essentially being pointed to only three people. He suggested that they needed rather to acknowledge that PRASA had structures from whom the Committee sought accountability. The new leadership could not be exonerated from providing definitive responses. The interactions in this meeting so far had clearly illustrated that Members could not get the clarity they were seeking, due to the new leadership’s instance that matters were still under investigation. The major issue that arose from that was that no time frame appeared to be set for conclusion of those investigations. The Chairperson noted his serious concern, that there should be any investigation that did not have a set time frame, in order to ensure that the investigations did not drag on and that they would be concluded.

The Committee fully understood that the investigations would cost money and any private investigation entities would obviously not be worried about perpetuating the time scales for investigation as this would be advantageous to their charges. For this reason also, PRASA needed to set some strict time frames. He noted that not all investigations would need the same time frames.

He asked that by the end of the following week, PRASA must communicate all matters under investigation to the Committee, listing them as “closed” and “still under investigation” cases. PRASA management should aim primarily at avoiding any further damage.

The Chairperson indicated that the decision to postpone this hearing was not taken lightly and that Members had spent some time deliberating on whether to do this. Members knew that postponements were costly and this would cause further expenditure. However, the Committee was beginning a process that it was determined to see through – and that was that PRASA was to be held accountable and questions asked until there was full accountability on all things that had been done. The Committee simply wanted to get to the bottom of any wrongdoing. Issues that had been identified should be resolved.

Mr Molefe thanked the Chairperson and Members of the Committee. He said that he respected and accepted the decision of the Committee. The Committee’s intention was clear, and this was aimed at ensuring productive engagements in the future. In relation to the timeframes, he noted that he was engaging with investigators and would revert back to the Committee with such time frames. He drew the Committee’s attention to other matters that were before the Court. Some matters were extremely sensitive to the extent that people were even under threat to their personal safety, and he said that this fact must be acknowledged. PRASA would do whatever it could to help the Committee to understand the sensitivity and complexity of the issues.

Mr Molefe did want to stress that new management at PRASA was committed to accountability. It was ready to work hand in hand with the Committee to find all people who were responsible for wrongdoings and to decide how these individuals could be dealt with. A list of cases that were filed with the courts would be provided to the Committee. These cases dealt with matters of corruption, racketeering and money laundering.

The Chairperson expressed his concern again about the need to ensure that any private investigations were carried out within a strict time frame, and not allowing any matters to begin without time frames being established, for the absence of time frames may contribute enormously to irregular expenditure and non-finalisation of the matter at hand. 

He thanked PRASA delegation for its time and for appearing before the Committee.

The meeting was adjourned.