PRASA implementation of Auditor-General findings

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08 March 2016
Chairperson: Mr G Radebe (ANC) (Acting)
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Meeting Summary

Passenger Rail South Africa (PRASA) presented the remedial action taking to resolve the Auditor-General findings contained in the PRASA 2014/15 Annual Report, particularly irregular and fruitless and wasteful expenditure. The Chairperson of PRASA, Dr Popo Molefe, and Mr Nathi Khena, Acting PRASA Group Chief Executive Director led the presentation.

The Committee was concerned about PRASA’s expenditure patterns, particularly for the last quarter of the financial year. It suggested that the Department of Transport brief them on the performance of its agencies, on what has been spent to date, what it has been spent on, and the implications of disputes, roll-overs and possible recovery. The Committee noted the media reports that Chairperson of PRASA had said that the Committee was interfering with the internal affairs of PRASA. Dr Molefe replied that he had been misinterpreted and his apology was accepted by the Committee. Members complained that employees accused of irregularities were getting off with a slap on the wrist. There were also too many senior staff in acting positions and they asked questions about the Group CFO and her long absence. The Chairperson pointed to the appointment of independent finance experts, saying PRASA should be trying to employ these skills from within the Department of Transport, rather than outsourcing these.

PRASA will return to Parliament on 15 March to discuss rolling stock; the lack of maintenance of train lines; stations that have been closed due to lack of maintenance and other matters.

Meeting report

The Chairperson noted that the last time that Passenger Rail South Africa (PRASA) met with the Committee on 24 November 2015, the meeting was disturbed by the protest action of striking parliamentary staff. The Committee was not able to engage its oversight responsibility. In that meeting PRASA had raised quite a number of issues before the Committee could discuss those. It was important for the Committee to address those outstanding issues as well as get an opportunity to freely engage with the documents that PRASA had supplied for that day’s meeting.

Dr Popo Molefe, the Chairperson of PRASA, introduced his team and mentioned that various staff who were directly involved in PRASA’s running and management were present at that meeting, including the Chair of the Human Capital Committee Board; the Chairperson of the Safety, Health, Environment and Quality Assurance Committee; and a representative of the Director General of the Department of Transport.

The Committee had requested that PRASA bring the CEOs of its subsidiaries and divisions to the meeting and they were all there. As there are many issues that relate to supply chain management, PRASA had asked the Acting Chief Procurement Officer to attend and inform the Committee on what progress PRASA is making in that regard. The Chairperson of the Audit and Risk Committee because of her other involvement with the government had been sent to do audit work and is traveling abroad. The Director General was unable to attend the meeting because they had to brief the Minister of Transport who was required that afternoon to answer oral questions in Parliament. The PRASA delegation included Mr Mbulelo Gingcaca, the Acting Chief Procurement Officer at PRASA; Rasheed Mohamed, from Group Internal Audit; Bongani Kupe, Acting CEO of Autopax; Eddie Chinnappen, CEO of PRASA Corporate Real Estate Solutions (CRES); Tara Ngubane, CFO of PRASA CRES; Patrick Gombert from Intersite Africa Investments and Victor Dlamini, a spokesperson for PRASA.

The Chairperson noted apologies from the Director General and Minister of Transport as well as a standing apology from the Chairperson of the Committee as she was not well.

Mr L Ramatlakane (ANC) noted that there was a backlog with regard to dealing with the last report submitted by PRASA due to the strikers disturbing the meeting. He wanted to raise the shortfall of R600 million. This is a deficit and the Committee needed to have an engagement with the Board on that. He had access to a report that was tabled at the Western Cape Provincial Legislature by the Metrorail regional manager, which detailed the status of Metrorail. That report detailed a very worrying state of affairs in terms of the existing challenges and emerging challenges within Metrorail.

Mr Ramatlakane said the Acting Group CEO had mentioned at the last meeting that PRASA was considering a remodel, including the managing functions. This suggested moving towards centralisation. The Committee had then asked PRASA what was going to happen to the employees that are currently responsible for running branches when centralisation happened.

The last issue that the Committee needed to give attention to is PRASA’s expenditure patterns, particularly for the last quarter of the financial year. He commented that the Committee needed to ask the Department of Transport to come and brief them on the performance of its agencies, on what has been spent to date, what it has been spent on, and the implications of things like disputes, roll-overs and possible recovery. The Committee needed to know this as these aspects have implications for the sector going forward. He therefore wanted to raise this at the beginning of the meeting, as the Committee may not have a chance to deal with all those issue today but it did need to discuss them with PRASA very soon.

The Chairperson thanked Mr Ramatlakane and asked if any other Members wanted to raise questions.

Ms S Xego (ANC) said that before PRASA gave their presentation to the Committee that she would like clarity on a matter of principle. The media had reported that Dr Molefe had said that the Committee was interfering with the internal affairs of PRASA. She asked the Chairperson if Members could be cleared of this allegation as it is Members’ responsibility to follow monies that are appropriated to the Department of Transport and to PRASA. This allegation is unfair. She wanted to know from PRASA what the Committee was doing to interfere so that Members would be clear about what the entity expected of them and they could be confident when carrying out their responsibilities.

The Chairperson asked PRASA to respond to the concerns raised by Members and then to give their presentation so that the Committee could engage with them on issues that were concerning them.

Mr M Maswanganyi (ANC) suggested that these questions should be placed on the agenda. He was not denying that these were important issues but so that the meeting could continue in a structured manner.

The Chairperson said that he had started the meeting by reminding PRASA that there are still outstanding issues from the meeting in November and that they should therefore begin by engaging with those issues.

Mr Maswanganyi said that it was not practical for the Committee to continue to engage with PRASA in that day’s meeting on the issues included in the report from the previous meeting.

Mr M Mabika (NFP) agreed with Mr Maswanganyi that the meeting follow the agenda. The Committee had raised other matters that were not on the agenda. Instead of being able to give the presentation listed in the agenda, PRASA would now have to deal with matters that they might not be prepared on.

Ms D Carter (COPE) said that because Dr Molefe had to leave at 12 o’ clock that day that the Committee should urgently begin with his presentation as Dr Molefe was only going to be in the meeting for another hour and a half. She was not suggesting that the Committee does not discuss the issues from the last meeting, but that another meeting be scheduled to deal with those issues.

Mr C Hunsinger (DA) said that he appreciated any dialogue with PRASA, and that the Committee should urgently get on with the meeting, whether on issues from the last meeting, or the presentation.

Passenger Rail Services South Africa (PRASA) presentation
Dr Molefe said that in that day’s meeting PRASA was responding to the request to come and give an update on actions taken on the findings of the Auditor General.

Mr Nathi Khena, Acting Group Chief Executive Director of PRASA said he would give the Committee feedback on the findings that the AG had raised in the audit report, particularly irregular expenditure; and fruitless and wasteful expenditure.

To deal with the AG’s findings, the PRASA Board has commissioned a forensic investigation into the irregularities and fruitless and wasteful expenditure; and directed management to institute extensive reviews of policies, processes and procedures to prevent irregular expenditure; and fruitless and wasteful expenditure. The AG also asked PRASA to review its supply chain management (SCM) policy as there were shortcomings, and for PRASA to monitor the irregular expenditure and fruitless and wasteful expenditure.

Management has developed a matrix to monitor steps taken to deal with the irregular; and fruitless and wasteful expenditure. These steps include condonation; disciplinary action; and possible recovery. In going through each of the instances of irregular; and fruitless and wasteful expenditure, the Committee would see that some of these were in the process of being submitted for condonation, some had been condoned and some had resulted in disciplinary action being taken against the individuals concerned. Very few of these disciplinary procedures were still outstanding.

The issues highlighted by the AG included:
- Compliance
- Implications on B-BBEE. This related to the improper application of the B-BBEE code.
- Risk management
- Records management and a lack of proper record keeping
- Management of business agreement
- Capacity management
- Monitoring and evaluation, specifically as it pertains to supply chain management.

From a management point of view PRASA has looked at the necessary interventions that need to take place.

On retraining of employees, PRASA felt that certain employees have been trained in managing their system, but because it is a dynamic system, employees’ training needed to be refreshed. PRASA has a plan for this retraining and a specific budget has been put aside for that.

On the difference in labeling of a particular payment, there was an agreement with the AG that it was going to be labeled as a pre-payment and PRASA had therefore initially submitted documents that indicated such. The following year it was decided that this payment should be labeled as a pre-payment. This is the accounting treatment, however, the AG had an issue with that.

The list of capital is now going to be compiled on a quarterly basis to ensure that PRASA monitors it. PRASA has been engaging with financial experts to ensure that the trial balance is correct before it is submitted to the AG.

PRASA is ensuring that they are applying the required interventions strictly. Some of the standardisation, integration and optimisation activities PRASA is currently engaging in, and will continue to do include:
- Standardising functions across divisions, commodities and regions
- Standardising reporting templates
- Ensuring seamless hand-over between divisions
- Consolidating reporting cycles and execution
- Ensuring that the process is system enabled
- Performing all functions according to strategic and proactive management principles
- Managing the utilisation, value and condition of assets
- Fulfilling service level agreements and delivering what has been agreed upon
- Pioneering creative solutions to exceed the expectations of its shareholders.

An Office of the Chief Procurement Officer (OCPO) intervention was designed to be implemented over a period of twelve months, but if there is a need to extend that intervention PRASA will consider doing so. The intervention focused on stabilisation within SCM by at least August 2016, which included putting the minimum processes and enablers in place, as required by the AG; performing all functions stipulated in the applicable regulations; and implementing processes to begin to control and strictly monitor compliance of activities. There is also a second phase of this intervention to ensure that PRASA does not find that it has good practices on the one hand and imperfections on the other hand.

The AG also raised some human capital management issues. One of these concerned verifying a potential employee’s qualifications before they are appointed. Others aspects included: employees acting outside of policy, people being employed in acting positions, recruitment policies, the management of people and holding people accountable for their actions that are outside of the policies. To deal with these PRASA had identified risks and instituted mitigations and follow ups are going to be made to try and mitigate these risks.

The going-concern status of Intersite Asset Investments (Pty) Limited, a subsidiary of PRASA, has been resolved by approving a business plan that will ensure that Intersite is a going concern. Material mis-statements in the annual financial statements were due to disagreements with the Office of the AG resulting from different interpretations. The appointed independent service provider continues to provide advice on the treatment of technical accounting transactions so that these are not experienced in the middle of an audit in the future. A review of capital commitments is currently being performed on a quarterly basis.

The AG’s findings on PRASA’s information and communications technology (ICT) include the lack of or inadequate policies and procedures; lack of a disaster recovery plan; and effecting programme changes in a production environment. PRASA’s response is it has asked the Chief Information Officer to approve operating procedures that are necessary in the ICT space. A suite of draft policies necessary in the Information Technology space have been completed and sent to the Board Committee for processing and approval by the Board. It is expected that all of these will be finalised by the end of this financial year.

To deal with the Manhattan System password shortcomings, short term mitigation has been put in place through regular user access review. Based on their access level granted, employees would be able to do a number of things on the system and this access will be continuously reviewed to ensure that employees do not deviate from the access granted. PRASA has engaged with SAP and the long term Manhattan System is to be replaced by SAP Real Estate in December 2016.

PRASA is managing changes to a three tier system of Dev; QA and Prod for Non SAP. There were challenges relating to acquiring additional hardware resources. The required hardware infrastructure has been provided for in 2016/17 as part of the hardware refresh, procurement is underway and PRASA has budgeted accordingly. A Disaster Recovery Plan had also been implemented so that information is easy to recover should there be a need to recover it. This plan has been divided into two phases: a short term phase and a medium to long term phase. In the short term phase PRASA is ensuring that it is properly backed up, so it will be easy to recover information should there be a need to do so. In the long term, PRASA will complete a business impact analysis and appropriate Disaster Recovery Plan; invest in appropriate hardware and facilities and maintain the plan and resource it appropriately.

Dr Molefe then addressed the irregular expenditure. He said that PRASA had been through each of these cases with the Committee a number of times before but would do so again now. Management has dealt with 70% of these outstanding cases and is busy finalising the outstanding 30%. An internal audit has also been conducted to confirm that the claimed 70% has in fact been accomplished, so the Committee can be assured that when PRASA says that it has dealt with a specific case that it has in fact done so. He went through a number of instances of irregular expenditure; and fruitless and wasteful expenditure. These included:
- Swifambo, a transaction for the purchasing of new locomotives. This case is under forensic investigation; the contract is on hold and legal proceedings are underway.
- SA Fence and Gate: contract extended prior to obtaining approval from the delegated authority.
- Datacentrix: supply of photocopying machines and their maintenance. There was overspending on a contract for printing prior to obtaining approval from the delegated official. This transaction was condoned, when PRASA investigated the transgressor provided an explanation that was acceptable to management and there was no disciplinary action taken.
- Baran: feasibility study and testing of the market was not conducted prior to the consideration of the supplier ICT project’s unsolicited proposal. It is clear where the irregular expenditure emanates from as engagement with Treasury was not done.
Destiny catering service: the bid documents of this winning bidder were accepted after the time for submission had elapsed. Management has investigated and is preparing disciplinary charges against two individuals. These individuals have been asked to give reasons disciplinary action should not be taken against them. Management is preparing a condonation application for this irregularity.
- Batalala Construction CC: there was an undisclosed conflict of interest by a member of the BEC. Disciplinary action was instituted and the employee concerned was dismissed in November 2015. Management is preparing a condonation application for this irregularity.
- KE Daniels: the extension was not approved by the relevant, delegated official. There were two individuals involved in this irregularity. The SCM manager was suspended in September 2014 and then resigned in January 2015. The Finance Manager was suspended in September 2014. The disciplinary process with the Finance Manager is ongoing. Disciplinary processes continue for such lengthy periods of time because defendants exploit the legal loopholes in these processes.
- Havas Worldwide: this supplier of marketing services was appointed without following the correct SCM processes. The two officials involved resigned.
- Sherwoods Humansdorp: concerns fuel supply. The end-user authorised the transaction without following the correct SCM processes. Both employees implicated were dismissed in March 2015.
- Sasol in Turfloop: This is not a dedicated refueling site. The driver was disciplined and given a final written warning valid for six months for utilising the wrong fuelling station.
- Hilton Hotel Accommodation: PRASA has a charter service which is different from the normal services that it runs; and the drivers for this service are given accommodation. These drivers had used the wrong accommodation, earmarked for schedule services, without authorisation. When the fleet controller responsible for charters was investigated he chose to resign.
- Upington Convention Centre: This is not a dedicated Sasol refueling site. Now and again drivers deviate from the refueling policy and refuel at unauthorised sites. Unless the employee can provide a plausible reason for the transgression they are disciplined for deviating from this policy. This driver was able to give a plausible reason and therefore no disciplinary action was required.
- Micasa Hotel: Charter drivers used accommodation earmarked for schedule services without authorisation. When employees start to be investigated they ‘jump ship’ and this was yet another instance in which the charter fleet controller responsible for charters chose to resign.
- Hlalanathi: This also concerns the accommodation of drivers. An investigation was completed and no disciplinary action was taken. However, in future all charter movement needs to be planned properly in accordance with the standard operating procedures.
- Beach View: Again, charter drivers utilised accommodation earmarked for schedule services without authorisation.
- Engen Riverside: This is not a dedicated Sasol refueling station. Employee dismissed in April 2015.
- Equestra Heavy Lift: Appointed without following the correct SCM process for extension. No action was taken as the employee resigned.
- G4S cash collection services: Payment of this supplier happened even though there was no contract as it had expired. Due process was not followed to renew the contract. This was condoned.

There were a number of payments that were made without supporting documents. In the Annual Financial Statement these were grouped together but for ease of reference they are detailed individually in the document. Some of these payments included:
- Chakela Hotels: An unfair advantage was awarded to this winning bidder and the AG was also not provided with all the necessary documentation. This transaction was condoned and disciplinary action took place.
- LAU Investments CC: This related to corporate gifts given to Board members. The Chief Procurement Officer (CPO) was within his rights to make a motivation for these but that motivation should have been taken to the Group CEO, especially as this happened during challenges in SCM.
- CHM Vumani Computer: A quotation was received after the closing date for request for quotations. This service provider then won the bid. The transaction was condoned because PRASA did get value from this transaction but disciplinary action took place against the employee implicated.
- Salimisa Holdings supply lighting systems. This was emergency work, but after the work was done, the necessary authority should have ratified that situation. The documentation did not flow to the necessary authority. Disciplinary action was taken against the finance manager.
X-link is one of those legacy contracts: Management realised that the contract had expired after they had paid X-link. PRASA did however get value from this transaction. This transaction has been condoned based on the reasonable explanation given and no disciplinary action has been taken.

He then discussed fruitless and wasteful expenditure that had been detailed in the AG’s report. There were three items that had been detailed in that regard: interest and penalties of late payment of creditors account; process not followed on dismissal of executive; and advisory contract for former executive. The reason for the late payment of creditors was a weak cash flow management plan. This has been strengthened to avoid a repeat finding. On the deficit budgets, PRASA is preparing a funding model which it is going to take to the Board, then take it to the shareholder and the Department of Transport for approval.

On the dismissed executive that then returned as a consultant, due process was not followed when this executive was dismissed and the court therefore ruled that the executive had to be reinstated.

Mr Khena noted that this former executive had been reinstated on an advisory contract but that this contract has since been terminated.

Dr Molefe said that with regard to the money, there is no money that PRASA needs to recover arising from that process. In fact, the matter became one between the complainant and the Group CEO at that point, and they agreed to settle it out of court so there is nothing for PRASA to pursue.

Dr Molefe said that the point that PRASA wanted to make at the end of the presentation is that they have done a lot of work and have concluded 70% of the work required as per the management letter from the AG. That 70% has been subjected to an internal audit to verify that it is indeed 70% as is claimed. PRASA is therefore dealing with the outstanding 30%. PRASA understands the seriousness of these issues and has been doing an elaborate amount of work to deal with them. By the time the next annual financial report is submitted, PRASA would have concluded many of these and they would not be repeat findings in the next AG’s report.

Mr C Hunsinger (DA) thanked PRASA for their presentation and the positive sound of the direction they are taking. However, the Committee was still having to deal with issues from the past. While PRASA had given a presentation that implied that they were dealing effectively with the issues raised in the AG’s report, from where the Members sat, the picture was not all good, and they needed to ask some difficult but necessary questions, as they represented voters who would ask the same questions.

The possible recovery of irregular and fruitless and wasteful expenditure is an important aspect. Therefore Mr Hunsinger would have liked to have seen a column in PRASA’s matrix showing the amount which is recoverable and the date by which it could be recovered. In other words, what could PRASA get back?
A current loss of R1.1 billion is listed in PRASA’s Annual Report. It is therefore not enough for PRASA to say that it is 70% done with the AG’s findings as it needed to do a lot more and needed to implement the suggestions made by the Standing Committee on Public Accounts (SCOPA) as well.

On page 15 of the presentation it states that the AFS reported amount for the SA Fence and Gate depot deal is R58 million. However, the Committee knows that there is an additional R250 million that should be added to this amount. He asked why this had not been included in the document and shared with the committee. It is almost the end of the financial year and this amount would just have to be included in the agenda of the next committee meeting that PRASA. He asked why PRASA could not just list the additional amount in this document so that the Committee could deal with it from the outset.

Mr Maswanganyi said that he welcomed the report and commended the progress in PRASA. He spoke of a lack of proper record keeping which is a serious and dangerous problem because PRASA would lose cases in court if they could not produce the needed documents. He warned that it is also illegal for PRASA staff to destroy documents because documents of the state have to be archived for a particular period. So whether documents are deliberately destroyed or go missing for other reasons it is an offence. It is therefore not acceptable that when PRASA had a qualified company secretary who is paid to keep records that there is no proper record keeping system and something has to be done to change that.

In a previous meeting PRASA’s Group CEO told the committee that before the end of the financial year critical positions will be filled, and yet in that day’s meeting many of the PRASA staff were in acting positions and he was unsure if any progress had been made on the promise to fill positions in the organisation. The Committee needs to be briefed as to why they are not filling those positions because they have been budgeted for. The financial year was coming to an end in a few weeks and he was concerned that this would still be a problem next time the Committee met with PRASA.

On page eleven of PRASA’s presentation, he wanted clarity on whether there is a lack of policies and procedures for dealing with information and communications technology (ICT), or whether these policies and procedures exist but are inadequate. PRASA had stated this as being the same finding but a lack of policies and procedures and inadequate policies and procedures are not the same thing.

On page 22 it states that an employee was dismissed for refueling at a station that is not a dedicated Sasol refueling site. However, page 19 states another driver who was guilty of the same offence was given a final written warning. Where is the consistency in such disciplinary actions? He was not sure if the first employee had already been given a final written warning before being dismissed but the Committee needed clarity.

He said that PRASA had referred to the Chief Procurement Officer (CPO) at many different points in the presentation but had not referred to the Chief Financial Officer (CFO). He asked the Group CEO if the CFO actually existed because she did not seem to feature at all in the operations of PRASA. What is the status of the CFO? Relating to remedial action, many executives had to be dismissed from PRASA but the CFO did not seem to feature in these actions.

Mr Mabika (NFP) commended PRASA's Board for trying to deal with irregular, fruitless and wasteful expenditure. However, the presentation did not deal specifically with the lack of controls. If there had been controls, some of these cases could have been avoided. It was not sustainable for PRASA to keep disciplining and firing people. Where are the people responsible for making sure that policies and procedures are adhered to? These issues are a result of a lack of adequate management. He was also concerned that many positions are not permanently filled. He wanted to know what was happening with the position of the Group CEO as the person currently in that position is also there in an acting capacity.

Mr T Mulaudzi (EFF) noted that PRASA had given this presentation to SCOPA two weeks previously. He said that the Committee appreciated that the Chairperson of the Board had tried to explain to the Committee thoroughly what had happened in all of the instances that the AG had highlighted. However, he wanted to know about the capacity of the entire PRASA Board because these things were happening when the current Board and Group CEO were there and should have been monitoring the entity. It was only after the AG had submitted the audit report that the Board seemed to be trying to fix all the problems in the entity. He was concerned that if the AG had not intervened, that PRASA would have continued with the status quo and the trend of not holding people accountable might have caused PRASA to collapse, despite having a board that should have been monitoring the entity. The Board was trying to explain all the reasons these issues had happened in the past but what he wanted from them was assurance going forward that these would not occur in the future. He said that the CEO had been in the entity’s employ, if under a different title, when these matters were occurring. Why had he not been able to recognise these issues then, when the former Group CEO was doing as he wished. This caused Mr Mulaudzi to doubt the capacity of PRASA’s Chairperson.

He was also concerned that many of the employees who had been investigated for transgressions seemed to ‘jump ship and run away’. He wanted to know what happened after these people resigned.

Mr M De Freitas (DA) said that he had a few questions that he wanted to link up with the meeting that had happened two weeks earlier with SCOPA, because that meeting had been very pertinent to what was being discussed in this meeting. At the meeting with SCOPA, PRASA had committed to investigate the lack of record keeping of meetings, contracts and so forth and to find out how these were not being recorded. PRASA also said that it would report back to SCOPA. He wanted to know if they had reported back to SCOPA and if they had, if the Committee could also have access to that report. At the SCOPA meeting, PRASA had spoken about the training of board committee members. Had that training taken place because he sensed that the Board was not fulfilling its duties, especially its fiduciary duties.

He questioned the fact that some of PRASA’s current top leadership had been in the organisation under the old Group CEO and had not recognised these items then, but were only recognising them now, as these were not new matters. He felt that PRASA was engaging in a kind of ‘tap dancing’ around these matters with the Committee. He was also concerned at the lack of time frames for dealing with them. The Minister of Transport had asked for PRASA to conduct investigations on specific issues in August or September last year and unless he was mistaken, these investigations had not yet been conducted. This worried him greatly as it seemed that even the Minister could not get responses from PRASA. PRASA had mentioned an amount of R1.1 billion that had been incurred in irregular expenditure. What is being done to recover that money? He asked how employees that had transgressed were being censured in their personal capacity. In some cases these employees had resigned or had been fired but he wanted to know if these employees had been charged or were being censured in their personal capacity in any way.

Ms Carter said she was excited that PRASA was using such a matrix as she had been advocating the use of matrices, because ISO standardised matrices would improve the performance of all public institutions. However, she thought that PRASA needed a more detailed matrix. Their matrix needed to include columns indicating by whom activities must be done and when they must be done by. She wanted PRASA to update the Committee on these details for the document that it had just presented. In relation to this, it was important for them to indicate when the review of policies, processes and procedures would happen and when they would be completed; who was undertaking the review and how far along PRASA currently is in these reviews. If PRASA included these in their matrix the Committee would not then have to ask them for all these details.

She was very concerned about all the condonations that PRASA had listed. The Committee needed more details on these as it seemed that people that transgressed were simply given a ‘slap on the wrist’ and then the issue was considered to be resolved. But these issues were not resolved in this way.

She was worried about the lack of proper record keeping and asked what is being done to correct this. Had the secretary responsible for minutes been replaced? She asked how many people are currently suspended throughout PRASA and what the monthly cost of all the salaries of these suspended people is.

She referred to page 9 which detailed property, plant and equipment and corrections that were made. She wanted to know on what specifically the corrections had been made.

On the issue with SA Fence and Gate, she agreed with other Members who had stated that it was not only the amount of R58 million that needed to be listed as the contract had been extended at a cost of over R200 million. What made her, and she was sure the rest of the Committee, incredibly anxious is that at the meeting with SCOPA, PRASA had not seemed to know who SA Fence and Gate was.

She asked which of the old board members are serving on the current board. How many board members were also serving on other boards because PRASA’s board members served on boards “all over the show”.

On page 17, it notes that the finance manager was suspended in September 2014 and the disciplinary action is currently ongoing. It is 2016 and this manager is still earning a high salary while this case is ongoing.

On the bidders who had submitted their tender bids after the closing date, she asked how these late tender bids affected the bids submitted before the closing date. Service providers submitting bids after the closing date had an unfair advantage as they could then bid at a lower cost than all the other bidders. This would then allow an employee to justify the decision for having chosen that service provider as it was the cheapest.

She asked who had received corporate gifts and how much those gifts are worth.
Mr M Sibande (ANC) commended PRASA for at least having done what the Committee had asked it to do by bringing important role players from subsidiaries and divisions with to the meeting, as it was not just the Group CFO that the Committee was anxious to meet. The Committee had been making this request of PRASA for years but unfortunately they had never complied in the past. He emphasised that the committee should not be perceived as following SCOPA because the Committee is supposed to be leading SCOPA. There were also some issues that were raised before the presentation. One of these was the comment from PRASA that the Committee was meddling in its internal processes. He said that the Committee needed an explanation on this and PRASA needed to clarify how it wanted the Committee to respond to its issues, as it was no secret that PRASA had been pointing a finger at certain Members of the Committee, even though it had not mentioned specific names.

He asked if PRASA had a risk management policy, because it is when entities do not have a risk management policy that things go wrong.

On the issue of accounting, it was obvious to the Committee at the meeting with SCOPA that the entity does not have a culture of accounting, which is why it does not even have proper record keeping procedures.

He asked what PRASA's plan is to correct the instances of irregular expenditure; and fruitless and wasteful expenditure detailed in their document from pages 15 to 27.

He asked why employees in acting positions were not employed in those positions if they were performing well. He asked how long employees would occupy acting positions before someone was appointed to the position on a permanent basis. As long as people feel that they are not directly responsible for the entity’s performance, which they might do if they are merely in an acting position, that this is where PRASA is going to experience problems. Another issue that worried him was the executive that had been dismissed but had then returned to PRASA as a consultant.

On disciplinary action, he appealed that PRASA must be consistent in the disciplinary action that it takes. They needed to apply the same disciplinary action against employees that had committed the same transgression. Employees were taking PRASA to court because PRASA was not applying disciplinary actions consistently. PRASA had to remember that when employees take PRASA to court that they are also talking the Committee to court.

Mr Ramatlakane wanted to make the point that many of the questions Members were raising in that meeting were on the future operation of PRASA. Members should rather use the meeting to ask questions about the present situation of PRASA. Questions should focus on whether the plans that PRASA had been implementing since the AG’s report, were producing results. And it was only possible to see if those plans were having the required results by engaging with the current financial year’s expenditure and processes. Therefore, if the Board is confident in stating that it has a turnaround plan then the Committee needs to give them the opportunity to implement that plan, which could then be reviewed the next time it met with PRASA. He asked if PRASA had an authority manual that outlines every person that has been delegated authority. Many of the issues that the AG highlighted had to do with employees taking decisions that they did not have the authority to take.

Dr Molefe replied to the question asked by Ms Carter, relating to a claim that he had received donations from Mr Nape from SA Fence and Gate. Dr Molefe said that he would like to get a report in which Mr Nape said that he gave Dr Molefe money. Dr Molefe said that he was aware that Mr Nape had made that allegation but Dr Molefe was adamant that he had not received money from Mr Nape. He was also adamant that he had not stated that he did not know Mr Nape, as he had known Mr Nape when he was younger. However he had not had any dealings with Mr Nape after Mr Nape became a businessman.

He told Members that the directors of PRASA do not make decisions about tenders or even adjudicate tenders, that this is a function of the supply chain management structure.

Members had also asked if PRASA was given leadership and if it has the necessary capacity. He responded that one could see that the Board is given leadership as the repeat findings from previous AG’s reports, from the time before the current Board came in to office, have now been addressed. The current Board had done 70% of the work that the AG had pointed out needed to be done. Most of the investigations that needed to be done concerned big issues that are currently in court and Dr Molefe was therefore not at liberty to go into the details of these investigations, but he did assure the Committee that these investigations were being done. PRASA had saved the fiscus over a billion rand by putting on hold certain transactions.

With regard to the Group CEO, it was PRASA’s intention to start the new financial year with the new CEO appointed, fully fledged and in place.

Dr Molefe noted that Mr Mabika had suggested that when a loss was reported in the matrix, that another column detailing what is recoverable is also added. He clarified that what PRASA meant when they said that money was possibly recoverable is that it might be able to try and appeal to someone in their personal capacity to pay back what they owe, or it could institute legal action to try and recover the amount. However, these were sometimes small amounts of money that were worth less than the amount of money it would cost in legal fees to try and recover them. If this money is recoverable and is worth the amount of money that it would cost to try and recover it then PRASA makes every effort to do so. For example, when employees lied about qualifications they had and were then paid a salary commensurate with those qualifications. Had these people disclosed that they did not have these qualifications, they would not have earned these salaries. These were therefore cases of fraud and can be considered to be commercial crime.

There are various reasons for the loss of R1.2 billion; however, this was largely as a result of the underfunding of PRASA, specifically the unfunded mandate of Shosholoza Meyl, which PRASA had been discussing for years. PRASA had requested the Department of Transport to approach Treasury for money for the underfunded mandates.

On the comment by Mr Maswanganyi about the illegality of destroying documents in public entities, Dr Molefe said that PRASA had found that someone had deliberately destroyed documents and wiped information off a computer. Through forensic investigation PRASA had been able to recover a lot of that information and was able to therefore see a lot of irregularities that this person had tried to hide. This was information that even the AG had not been able to recover.

Members had also warned PRASA that it needs to be evenhanded in dealing with transgressions of employees. PRASA did its best to be evenhanded but each case of misconduct was assessed on its own merits and that explanations were sought for each case. PRASA had to mete out punishment which is commensurate to the transgression. However, just because it found one person guilty of a transgression did not mean that all transgressions would be the same and that all people who had committed this transgression should be found guilty. That was how management dealt with the disciplinary issues.

Dr Molefe said that there are certainly PRASA board members serving on other boards, and he is one of those. However, he paid more attention to PRASA then he did to the other organisations on whose board he sat. He was confident that the other board members who sat on more than one board had the capacity to discharge the mandate of the company. This could be seen in the fact that repeat findings of the Auditor-General that had been detailed in the AG’s reports since 2012 had now been addressed, and the current board had put in place measures to address and monitor these.

On the Rolling Stock Recovery (RSR) report that was withdrawn, there were issues that arose with that report. Conditional approval had been given on certain things that needed to be done in the locomotives, such as the refurbishment of the assistant driver seats. However, this matter no longer arises because the contract with the service provider has been terminated. PRASA is currently in discussions with this service provider. PRASA had investigated this contract and had concluded that the process was flawed from the beginning and no contract exists. This is because at the time when it was awarded, the conditions precedent were not met, and specs were not adhered to. The specs that PRASA had agreed to were specs for the leasing of Euro3000, which complied in all respects with the safety regulator’s standards and also complied with Transnet standards. There was a departure from those specs to procure Euro4000 that was baptised to be Afro4000. PRASA therefore concluded that the contract should be considered not to have existed and therefore the court should be asked to set it aside and cancel the award of the contract.

On the Minister not receiving replies from PRASA on things that she had asked for, Dr Molefe had been in a meeting when the Minister spoke about the qualifications, but the Minister had not indicated where she had and had not received replies. However, PRASA was working on this issue. The process of confirming the qualifications of PRASA’s management was delayed by the fact that PRASA was told by the Minister to use the South African Qualifications Authority (SAQA) to verify these qualifications; as they are a recognised authority. SAQA was taking much longer than PRASA would like them to do in verifying these qualifications. PRASA is going ahead with submitting the verified qualifications to the Minster as 84% of the work has been done. Most of the executives had submitted their qualifications for verification, there are just a few who have not done so. These executives will be considered to have dismissed themselves from the company if they had not yet provided their qualifications, as they had been given since August 2015 to do so.

On the Jazz Festival, he agreed with Ms Carter that indeed PRASA does not have money to fund the Jazz Festival and management has been looking into this matter. Funding the Jazz Festival was not a decision that the Board had made, in fact, such a decision would not even have come to the Board. The Board had only become aware that PRASA was funding the Jazz Festival when it had asked for a report on the entity’s sponsorship policies, detailing what is it that it may sponsor and may not sponsor, and what the value is that PRASA wanted to achieve out of sponsorships. To deal with this, the Board concluded that negotiations must be undertaken with the organizers of that Jazz Festival in the future as PRASA could not withdraw their sponsorship at such a late date, as the Jazz Festival was due to start in approximately two weeks and any court of law would declare PRASA unreasonable if it withdrew its sponsorship, causing the festival organizers to have to cancel the festival. PRASA would therefore have to engage with the organizers after the festival to determine if PRASA could sponsor the festival in the future as it could not spend money on sponsorships that it did not have.

Dr Molefe ended by saying that those are the issues that PRASA is dealing with. He was going to allow other PRASA staff to answer the other questions posed by committee members.

Dr Molefe said that it was clear that Members felt very strongly about the comment that he had made at the meeting with SCOPA, which had been misinterpreted as a complaint about the Committee meddling in the internal affairs of PRASA. He said that Members had a different interpretation of what he had said from what he had meant, however, he apologised if he had offended Members. He also wanted to explain the context of the comment. Firstly, he had not said that the committee was interfering with PRASA. PRASA would not have said this as it knows that it accounts to the Committee. What he had said, and the record would reflect this, is that PRASA was told that the directors and the Board are meeting too often, which is what the previous CEO of PRASA had interpreted as interference in internal operational matters. The Board and the directors are responsible for the efficient running of the entity and are accountable to the Committee, and therefore are required to meet as often as is necessary to do this. There are three laws that relate to a Board exercising its fiduciary duties, all of which state that ideally a Board should meet four times a year, things being normal; or as many times as is necessary for them to institute their fiduciary duties. He emphasised that things are not normal at PRASA currently as it is trying to deal with many issues that need to be resolved as quickly as possible. PRASA was therefore not stating that the Committee was interfering in PRASA’s internal operational matters, but rather that the Committee had expressed unhappiness that the Board was meeting many times. He however wanted to remind the Committee that the Board had to account to them and that when the Committee asked the Board for something, that they expected the Board to provide this to them as soon as possible. As such the Board might have to meet with management to discuss what needed to be done to ensure that the Committee received what it had asked for. He used the report for that day’s meeting as an example. He had spent the Sunday afternoon of the week before working with management so that the report was completed before PRASA came to the meeting. He had worked with management that weekend to ensure that the report was ready as he could not come to the meeting unprepared, cry and pass on the blame and say that management should have done it.

The Chairperson asked if Members were satisfied with the responses they had received from Dr Molefe.

Mr Maswanganyi said that the Committee did not have a problem with accepting Mr Molefe’s apology but that the Committee’s reputation had been damaged by this comment.

The Chairperson asked Members to accept Dr Molefe’s apology and the Committee could correct this misunderstanding in the media. He allowed Dr Molefe to leave for another engagement.

Mr Mbulelo Gingcaca, Acting Chief Procurement Officer at PRASA, replied to what PRASA was doing to fix the SCM problems, saying that PRASA had already developed some controls in the SCM arena. PRASA had identified this as very urgent and recognised that they needed to have an intervention in that arena.

Mr Khena said that PRASA had experienced critical challenges in the various regions. Gauteng province had actually been performing well as, on average, 85% of their trains had arrived on schedule. Unfortunately in the past weeks Gauteng had experienced adverse weather conditions and lightning had struck three of PRASA’s key substations. As a result, these substations were not operational and PRASA had to begin pulling power from the various corners in the East and from Germiston. This put too much pressure on the Germiston substation. To alleviate this pressure, trains had to be run in series, meaning that this corridor could only accept one train in a section at a time, to avoid the potential for power failures. This obviously resulted in delays if a station that normally admits more than one train at a time is only able to accept one train. Commuters had reacted very badly to these delays and criminal elements took advantage of that situation. In one instance, train drivers were assaulted by these criminal elements.

Mr Khena said that there are very specific challenges that are being experienced in the Western Cape, particularly in terms of asset ownership for Metrorail. In the Western Cape the rail network is mostly owned by Transnet, rather than Metrorail. Transnet therefore has the responsibility for passenger services in the Western Cape. There had been problems with services running from and to Bellville and Kraaifontein and surrounding areas as there were electrical power problems in those areas resulting in high tension burnouts in motor coaches. Twenty coaches had been lost as a result since November 2015. This reduced the capacity of services in that area and this had impacted on commuters directly. On the positive side, the Group CEO of PRASA had initiated a process that is investigating the asset split, as performance in other corridors in the Western Cape is also bad, depending on the Transnet network. Another challenge experienced in the Western Cape has been the cases of train arson in the last three months. PRASA normally runs with 89 sets per day but was currently running with 81 sets as the arson cases has actually led to PRASA losing an equivalent of four train sets. This impacted terribly on commuters.

Mr Gingcana said that the value of the SA Fence and Gate tender was R209 million at the end of the financial year. The individual concerned had extended the contract as he had recognised that PRASA needed certain services that SA Fence and Gate could supply. However, in doing so, he needed to follow a certain procedure and he did not follow that procedure, which was why he was dismissed.

On whether it is lack of policies and procedures or inadequate policies and procedures, Mr Gingcana said that in some areas the AG had said that there is a lack of policies and procedures; in other areas, the AG had said that there are inadequate policies and procedures. In attempting to solve this, PRASA wanted to deal with both lack of policies and procedures as well as the inadequate policies and procedures.

On consistency in the discipline of employees, as Dr Molefe had said, each case was assessed on its own merits. In some cases, an employee had committed the same offence on more than one occasion, and PRASA had been disciplining them with progressive severity, up until the point of a final written warning. If that employee then continued in those transgressions he would be dismissed. That might have been the case with the dismissed employee. However, despite the fact that each transgression was dealt with on its own merits, management is very mindful of the need to keep disciplinary measures consistent.

On the absence of the Group CFO, she had been unwell but had recovered and was in that day’s meeting. She had returned to PRASA in February and has resumed her duties since then. She had been absent as she was unwell and had been medically boarded. Management had had issues with the medical report that had been submitted to request medical boarding and they had needed clarity on these issues. Management had therefore gone back to the organisation that had issued the medical report and had asked them for clarity. It took the organisation a while to give the report back to PRASA. When PRASA finally received this report, there were some grey areas that it felt it needed legal advice. Based on this legal advice, PRASA asked her to return to work and to monitor the situation. She had been back at PRASA since 1 February 2016 and had been fulfilling her duties accordingly.

On the comments made by Members about the current CEO and other executives being present when all of the irregularities were happening, this was not necessarily strictly the case. In December 2013, the Group Chief Operations Officer was sent to Autopax as it was having financial difficulties and it was felt that he should deal with that. He had been able to make them profitable again. However, he had been at Autopax for 18 months, up until July 2015, when he was then recalled to deal with the issues at PRASA. In dealing with these issues PRASA sometimes did talk to the previous board members who had sat on the board in the past and had asked them what had happened, what had gone wrong and what they had done about it.

PRASA had not yet reported back to SCOPA, it was finalising the report that SCOPA had requested.

The Chairperson asked if the Committee could be briefed on that report.

Mr Gingcana said that on the skills audit, from an organisational point of view, it was felt that a skills audit was necessary but PRASA wanted to finalise its structure to see what the organisation would look like after a restructuring, so that the skills audit would be informed by the organisation’s new structure. The skills audit would also be scrutinised by the board and probably also by the shareholder which is why the skills audit process could not be accelerated.

Mr Gingcana said all the old suspensions have been dealt with. There is only one that is ongoing and this case is currently in court. One of the challenges that PRASA experiences in suspension cases that go to court, is the use of delaying tactics by the defendants and their lawyers. PRASA had to tactically deal with these delaying tactics as is could not be seen to be interfering with the legal process. PRASA had to comply with the legal process and these delaying tactics within the confines of the law might cause a case that PRASA had thought would be finalised in a month, to take six months to be resolved in court. He said that PRASA could provide the Committee with a list of the suspensions that had happened in the current financial year. On who the corporate gifts went to, they had gone to Board Members.

The Chairperson then asked for the Group CFO to respond.

Ms Hunadi Manyatsa, the Group CFO, responded to the change in the reporting of a payment made to Swifambo for locomotives. This payment was initially categorised and listed as work-in-progress because of the nature of the transaction. PRASA had worked very closely with Swifambo and was intimately involved in the manufacturing process, which is why the payment was initially labeled as work-in-progress. In the following financial year it was then decided that this payment should not be labeled as a work-in-progress but rather as a pre-payment because PRASA was paying for an asset that had not yet been delivered. This different labeling of the same payment created an error in the accounting treatment. PRASA had therefore had to go back to deal with the first listing of the payment. This is why this payment read differently in the new financial report.

On the financial manager who was dismissed and then appointed as an advisor at a later date, Mr Gingcana said PRASA terminated his contract. However he had indicated he would challenge this termination in court.

The Chairperson thanked PRASA for their replies to the Members’ questions. He was concerned about the appointment of independent experts as PRASA should be trying to employ these skills from within the Department of Transport, rather than outsourcing them. However, he appreciated that he had finally met the Group CFO. The Group CFO had to be competent in appointing experts from within the Department of Transport (DOT), rather than outsourcing these skills, as there were people within DOT that have the necessary skills. He was glad that PRASA had addressed the train delays as this was a very serious problem and he was constantly receiving phone calls about trains that were stuck, and he was very concerned about this.

Ms Manyatsa replied about the use of independent experts, saying PRASA calls in an independent expert when a situation arises in which there is a difference of opinion between PRASA and the Auditor-General and PRASA has a strong argument for their opinion.

The Chairperson asked if PRASA could get an expert from within the Department of Transport. PRASA needed to explore all possible avenues for finding necessary experts before they outsourced such skills.

Mr Khena asked that the matters raised by Mr Ramatlakane be included in the Committee’s invitation to PRASA to attend the next meeting.

The Chairperson said that PRASA would be coming back to Parliament for another meeting with the Committee the following week to discuss rolling stock; the lack of maintenance of train lines; stations that have been closed because they have not been maintained and many other issues so that the Committee and PRASA could deal with these.

The Chairperson dismissed PRASA and said that the Committee would see PRASA on 15 March. If there were any matters Members wanted to include in the letter of invitation to PRASA to attend that meeting, they should notify the committee secretary, so PRASA could reply to these matters.

The Committee adopted the minutes of the previous meeting.

The meeting was adjourned.

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