South African Post Office: hearing with Minister

Meeting report

South African Post Office (SAPO) Annual Report and Financial Statements 2014/15 hearing
The Chairperson said SCOPA had sought an engagement with SAPO some weeks ago and this failed. Another date was agreed upon for the engagement and when the date arrived, the SAPO board chairperson was not available .It was agreed that the absence of the requisite leadership would not help the process. This was the first meeting with SAPO to process the Annual Report and it establish the issues that needed to be sorted out. SCOPA dealt with ‘what killed the patient’ - what happened, why and how, so as to look to the future. The SAPO board accounted to Parliament. The task of SCOPA was to interrogate the board and it was interested in finding out from the Department how it played its role as the mother hen. The Post Office had been in the news for all the wrong reasons. SCOPA was very happy to have this engagement and was interested in to see how public money was managed in departments and public enterprises.

Mr M Hlengwa (IFP) said the Post Office had received an unqualified audit opinion in 2013/14. It regressed substantially in 2014/15 to unqualified audit opinion with a stream of findings. The current SAPO board chairperson, Mr Simo Lushaba, who was then the Administrator made reference to heavy strike actions as the reason. In the organogram of hierarchy, who was striking?

The SAPO board chairperson, Mr Simo Lushaba, replied that the Post Office had four strikes in 2014. It was mainly workers at the mail centres and also satellite depots at Germiston and Roodeport in Gauteng that were affected.

Mr Hlengwa asked if the internal audit was intact at the time and if it was affected.

Mr Lushaba replied that it was intact and not affected by the strikes.

Mr Hlengwa asked if the internal audit was effective.

Mr Lushaba replied that the internal audit conducted the audit and did what it was supposed to do. The management had not implemented a number of internal audit findings. At the level of making a difference in the organisation, it was not effective.

Mr Hlengwa asked why the management did not implement the internal audit findings.

Mr Lushaba replied that when he joined the Board on 7 November 2014, the management system had collapsed. The Executive Committee of SAPO ought to have had 12 members but there were only three at the time. Some were having two jobs. For instance, the Acting Chief Executive Officer also doubled as the Chief Operations Officer (COO). SAPO was already in shambles.

Mr Hlengwa said the SAPO board chairperson should not say when he arrived because he was responsible for the year in its entirety. In the audit on page 62 of the Annual Report, item 4 (effectiveness of internal controls) it was acknowledged that management’s efforts had not yielded the requirements. On 22 September, the Minister wrote to the Speaker about the late tabling of the Annual Report and the reason was that processes had not been completed. There was a bottleneck in the system. Why was the report not submitted in time?

Mr Lushaba replied that the only reason was the ‘going concern’ issue. Everything else had been done but the auditors had not signed off as they were concerned that SAPO was not a ‘going concern’.

Mr Hlengwa said on page 75 of the Annual Report, item 58 said the internal audit had not evaluated the reliability and integrity of the SAPO group performance targets as required by Treasury regulations. Why was that not done?

Mr Mdu Zakwe, SAPO Director, replied that the internal audit was supposed to look at the integrity of the financials. Because the financials were not ready on time, the process could not be concluded. This was the reason for the Auditor-General’s finding that the internal audit had not evaluated the integrity of the financials.

Mr Hlengwa questioned why the internal audit was not ready on time as they were part of the due process

Mr Lushaba replied that the management system had collapsed. Performance reports came from the management. This limited the ability of the internal audit if the management did not provide the necessary reports on time.

Mr Hlengwa asked if the same situation related to item 59.

Mr Lushaba replied that it did as the work that needed to be evaluated on expenditure had not been provided on time.

Mr Hlengwa asked the board chairperson to explain IT on page 38 of the Annual Report on the 2014/15 Risk Register. Item 2 said inherent risk was very high, control ratings were weak, and residual risk was very high.

Mr Lushaba replied that he struggled for the word to use as IT infrastructure in the Post Office was a mess. There should have been a disaster recovery programme in the event that the system went down. It should be in a position to switch to a back up. The backup was in the same room. It had not been installed in a different geographical environment as required. In effect there was no control if it went off at the same time as the main system. He said he could not explain why it was in the same room.

Mr Hlengwa said the reason was because of the collapse of management and where no one was responsible for anything, this was bound to happen.

Mr Lushaba said he fully agreed with Mr Hlengwa.

The Committee Chairperson commented that it was an elementary solution and risky not to do so. If there was an accident, everything would be lost.

Mr Hlengwa asked if there were consequences for dereliction of duty as it would be worrisome if there were none. Correction must be accompanied by consequences for the individuals who were responsible.

Mr Lushaba replied that a number of people had been taken through disciplinary processes and some people had resigned. In the years between 2012 and 2015, the Post Office had had 3 CEOs, 4 CFOs, 3 COOs and 3 Chairs. There was huge instability in the leadership of the operation

Mr Hlengwa said SCOPA should be furnished with the list of people disciplined and those who had resigned beforehand so that they could be fished out.

The Committee Chairperson asked if the list could be made available to SCOPA by next week.

Mr Lushaba replied that the Board would furnish the list.

Mr Hlengwa said the four different strikes were as a result of a hierarchy of management that was out of touch. It was born out of a collapsed management. He added that on page 74, under Item 56, the board chairperson should explain why money was borrowed without approval of the accounting authority and what it was used for.

Mr Lushaba replied that the CEO had a delegated authority to borrow up to R50 million for working capital purposes and the Board up to R100 million. The CEO and CFO went to the Board with a request to increase the overdraft to R400 million based on operational needs. It then went to the Executive Committee because it had exceeded the limit of the CEO and the Board.

Mr Hlengwa said he was worried that transactions of this nature went through an entire process without being stopped in their tracks. It was an abuse of delegated authority.

The Committee Chairperson asked how those on the board screened and evaluated those that were appointed to management positions. The whole transaction was illegal. Simple instructions were not followed. There was a problem of integrity.

Mr Hlengwa asked what action was taken by the Board to correct this because if such people migrated elsewhere, they migrated with this kind of behaviour. Where were these people now?

Mr Lushaba replied that the CEO was put on suspension in September 2012 by the previous Board. He was investigated and charges were laid against him. In February 2015 the CFO was put on suspension. Both the CEO and CFO had since resigned as the disciplinary processes were taking very long. The former resigned in December 2015 and the latter in February 2016 after being on suspension for one year.

 Mr Hlengwa asked why the suspension had taken such long period. What were the terms of the suspension?

Mr Lushaba replied that the two officials were suspended with pay as a result of labour law. The hearing process took were very long as the Board had to use external chairpersons for the hearing because of the seniority of the people involved. These chairpersons were not readily available. The Board was only able to get two and one half week per month of the chairpersons’ time. The CFO requested all the correspondence with the bank and the minutes of board meetings. The advocates for SAPO were costing the entity a lot of money.

Mr Hlengwa said the most senior personnel runs SAPO into the ground and he was still paid for doing that. How did the Board put itself in such situation and failed to see the process through.

The Chairperson asked how much the disciplinary processes cost SAPO.

Mr Lushaba replied that it was about R3 million for the CEO and R2.7 million for the CFO. The cost was related to the time that the whole process took.

Mr Hlengwa asked who was involved in item 57 on page 74 of the Annual Report as it was worrisome.

Mr Lushaba replied that it was part of the charges against the CEO, CFO, and the Company Secretary.

The Chairperson asked by what yardstick people were put into high positions and what level of integrity did the Board look for before putting people into positions of authority.

Mr Hlengwa said item 55 on page 74 said the accounting records of the Company’s liabilities and obligations were not accurate as required by Section 28(1) of the Company Act. Did the people that were employed have the necessary qualifications. There was no system and management in place and the organization ended up losing R5.7 million. The asset register must be updated. The core functions and elementary things were not done. Responsibility must be entrenched as a norm. Where was the monthly and quarterly reporting? All the boxes must be ticked. The senior officials were not working and were still being paid. People who refuse to shape up, should be shipped out.

The SAPO board chairperson agreed with Mr Hlengwa. The Business Performance Review Committee was no longer meeting. It was totally unacceptable. There was no asset management in place as not even one body was responsible for that under the CFO.

Mr Hlengwa asked if it was in the year under review or in the current year.

Mr Lushaba replied that was it was both in the year under review and the current year as there was still no asset manager but the Asset And Liability Committee (ALCO) was now meeting in the current year. The process was carried out by various managers. It overstretched the CFO. Work was being done but the Board had to plug the holes to hold people accountable.

Mr M Booi (ANC) remarked that SCOPA knew only the SAPO board chairperson and not the other officials in SAPO. He was responsible as the accounting officer and should accept the responsibility.

Mr Hlengwa said overstretching people would result in failure in the meeting of responsibilities. The SAPO board chairperson was the Administrator for a large portion of the year under review. The internal audit, asset management and IT collapsed because management collapsed. It was not acceptable to hide behind the strike action. It had been established that senior managers convened at work during the strike action, wasted time and money and action should be taken against them. There was failure to institute consequence management which had resulted in the mess SAPO had found itself.

 Mr Booi said because of these senior managers, R3 million of taxpayers’ money had been wasted. What were the consequences and what disciplinary processes were in place?

Mr Lushaba replied that that a committee conducted a disciplinary hearing. There were external advocates because the officials concerned were senior managers. He had signed the charges as administrator and since he was the most senior in the establishment, the Board had to look outside SAPO for an advocate. It was not done to waste money but for fairness in conducting the hearing and to ensure there was enough evidence. The waste was as a result of lack of conclusion of the disciplinary process. SAPO had had to work with a number of Chapter 9 institutions and there had been a lot of investigations and findings as a result.

Mr Booi asked if SCOPA would get the money from the SAPO board chairperson as he had allowed the officials to resign without consequences.

Mr Lushaba replied that it was precisely because R3 million was already a lot of money and going further would have escalated this cost. It was not an ideal situation. It was regrettable and it was neither the fault of the Board nor the board chairperson. The process was taking too long and the organisation did not have the money. He added that the people running the hearing complained that they were not paid on time and therefore limited the time given to SAPO. The Board had had every intention of holding the officials accountable

The Committee Chairperson told the Minister that it boiled down to the calibre of people employed and their attitude towards the public and the state.

Ms T Chiloane (ANC) asked how long Mr Lushaba was the administrator before being appointed as the SAPO board chairperson.

Mr Lushaba replied that he was appointed as administrator on 7 November 2014 and continued until August 2015.

Ms Chiloane asked what kind of asset register SAPO had and what was an example of a heritage asset.

Ms Nichola Dewar, SAPO Acting CFO, replied that an example of heritage asset was historical buildings and items in the museum.

Ms Chiloane said there was a high vacancy rate in the internal audit and asked if the current management had addressed that.

Mr Hlengwa said he tried to reconcile page 38 as it concerned IT infrastructure with page 50 where it was stated that SAPO IT had achieved significant progress towards achieving its mandate. On the one hand the Annual Report was speaking of high risk on page 38 and on the other hand, significant progress on page 50. It was confusing on so many levels and it bothered him about the reliability of some of the information.

Mr Lushaba replied that at the bottom of page 50, there was mention of an infrastructure refresh programme which dealt with all the issue of legacy. It was not stated on top of page 51 that the project was still outstanding. It was progress but did not necessarily result in everything being completed. As a result of the nature of the bank, it was absolutely critical that the progress of Post Bank was safeguarded. In the year under review, the Acting Chief Information Officer (CIO) of SAPO left and the CIO of the Post Bank was called to replace him. There was improvement although SAPO was not close to putting the IT infrastructure on the strong footing where it ought to be.

Mr Hlengwa asked the SAPO board chairperson to explain infrastructure refresh on page 50 of the Annual Report that stated that the platform commissioning was 95 % completed and yet there were outstanding applications that needed to be migrated and upgraded to supported versions.

Mr Lushaba replied that it was part of a broader package as he tried to explain with Disaster Recovery on page 51.The Post Bank was a division of the post office. The risk was talking of the organization as a whole. The disaster recovery IT programme of Post Bank had been sorted but that of the Post Office was still at high risk.

The Committee Chairperson remarked that page 50 of the Annual Report referred to the Post Office broadly.

Mr Lushaba replied that it was so.

Ms V Mente (EFF) asked if the Board sought any legal advice about the Chief Information Officer (CIO) that left before the disciplinary hearing was concluded. Had the CEO and CFO been paid out already as the state could recover the money from the payout of the two officers? Did SAPO report to any Committee of Parliament on the four terms of the 2014/15 financial year as there was no way a Committee would not have picked up on any of these happenings?

Mr Lushaba replied that when the Acting CIO resigned, there were no charges preferred against him. The finding was that the Acting CIO had not been responsible for the wrongdoing in IT but the Operating Manager. The Operating Manager was undergoing a disciplinary hearing. The CFO was paid R1.8 million which included accumulated leave. The CEO was not paid anything. It was reported to the Portfolio Committee as he had attended the Committee meetings on two occasions and a number of issues were discussed.

Ms Mente questioned how a person could accumulate leave amounting to R300 000. Where did that leave come from?

Mr Lushaba replied that at that time SAPO did not have a column for forfeiture for outstanding leave days.

Mr Booi asked if the SAPO board chairperson was implying that SAPO had no policy. How was the institution regulated?

Mr Hlengwa questioned the exact figure. He said first it was R1.8million and now it had changed. Can we get the figures properly presented?

Mr Lushaba replied that R1.8 million was the total paid to CFO at the time of his exit. The R300 000 was a sub component of the R1.8million.

The Chairperson asked for the breakdown of the amount and the leave policy

Ms Mente asked if the Board sought legal advice. Can the Board get the former officials to pay back from their payout.

Mr Lushaba replied that what was paid was based on legal advice.

The Chairperson asked if the former members of the Board had resigned.

Mr Lushaba replied that they had resigned on their own. The Board turned down their resignation twice in order to conclude the legal action.

Ms Mente said with all the findings, was the management fit for the purpose?

 Mr T Brauteseth (DA) said surely the figures should be at the finger tips of the SAPO board chairperson.

Lack of Proper Asset Register
Mr C Ross (DA) said there was the lack of an asset register in SAPO and the organization had approached the government for equity injections. When an organisation like SAPO had no asset register it was a serious indictment. What were the plans to address that?

Ms Dewar replied that the Post Office had an asset register but there was an issue with its completeness and accuracy. Its basis had not been paid attention to and the actual methodology had not been spelt out. It was a serious issue and was being addressed seriously.

Property, Plant and Equipment
Mr Ross said the Auditor-General had noted that SAPO did not review the useful life of its property, plant and equipment. How could that be in this modern age that one did not review this? How could the depreciation be determined at R1.3 billion if there was no review?

Ms Dewar replied that there were a large number of assets recorded at R1. Since such assets were still in use, the current value had to be reassessed. Secondly the policy governing how SAPO managed its fixed assets was not specific enough.

The Committee Chairperson said the Board had an obligation to ensure that these things were put in place and what were the consequences for this failure to have this in place.

Mr Ross said the non-existence of an asset management unit should have been reported to the Board and the Minister. It was an elementary exercise. There was a track record of dysfunction in the organisation.

Mr Lushaba replied that on the accounting of the assets, he only became aware in July 2015 when the Auditor-General gave its management letter to SAPO. He was aware of the collapse of the management system but not the accounting details. The CFO was charged and put on suspension.

Mr Booi said Mr Lushaba was responding like the Administrator and not the Board Chair that he was.

The Committee Chairperson remarked that when Mr Lushaba was the Administrator during the time under review there was no Board in place. He added that he foresaw a situation where all subsequent questions would hit the brick wall of ‘management collapse’.

Mr Booi asked if the SAPO board chairperson had the potential leadership to lead the organisation.

Mr Ross said there should be consequence management. What had been done about the lack of functionality of the asset management unit and who was responsible for this collapse? What were the names of those involved?

Mr Lushaba said he would provide the report on the collapse of management and link it to names and the disciplinary action that had been taken. Suffice to have say, the Exco members that had left had been under disciplinary processes that resulted in their exit.

Site restoration provision
Mr Ross said in terms of international accounting standards, no provision had been made as the Auditor-General was not able to determine what adjustment should have been done. Had it now been done?

The Acting CFO replied that the provision was raised in the last financial statements. The current year was better because SAPO was more rigorous. Hopefully SAPO would not have the qualification again.

Mr Booi asked how long the Acting CFO had been in SAPO.

Ms Dewar replied that it was six years. She was the CFO of Post Bank and became the Acting CFO of SAPO in July 2015.

Mr Ross asked if the landlords of SAPO were happy.

The Acting CFO replied that the landlords were happy. What was needed was to get the payment up to date.

Mr Ross asked what the outstanding amount was that was owed to the various landlords currently.

Acting CFO Dewar replied that it was R80 million.

Retirement benefits obligation
Mr Ross said it was a shame that SAPO had failed to disclose its own retirement benefits. Did the provident fund provide for 100% payout?

The Acting CFO replied that the provident fund evaluated specific issues. The proposals were going to the Board in a week as to whether or not the fund would be closed. The retirement plan disclosures were inaccurate and she did not anticipate this being repeated in the 2015/16 FY.

Mr Ross asked if there were any obligations in terms of Post Bank.

The Acting CFO replied that currently the same obligations applied to Post Office and the Post Bank but there had been a request for separate evaluations for Post Bank.

Mr Ross asked if the Acting CFO could provide the Committee with the current status of the benefits.

Acting CFO replied that this could be done.

Mr Booi asked the Acting CFO what financial systems were in place in the establishment. It was obvious management had collapsed. Where would the Acting CFO get this information to give the Committee as it was obvious the SAPO board chairperson had failed to do so?

Acting CFO Dewar replied that in terms of the retirement fund there was a good and well managed Post Office retirement fund. She said she was not aware of the disclosures that were required as she was not looking at the group overall. She added that she had been in charge of Post Bank.

Mr Booi asked if that was the type of management that SAPO had. A management that was not aware?

The SAPO board chairperson replied that this had been an established accounting policy in the organisation for many years. He was not aware of accounting issues. The audit report came in on 31 July 2015 and it was then an action plan was developed that would prevent repeat audit findings.

Mr Hlengwa asked how many of the SAPO staff were employed directly and how many through labour brokers and agencies.

The SAPO board chairperson replied that all the staff at SAPO worked within SAPO. The entity broke away from labour broking in 2012.

Mr Booi said Mr Lushaba was promoted as the SAPO board chairperson because he was a good administrator. Why would he not know what was going on?

Mr Lushaba replied that the accounting for retirement benefits and for a number of issues discussed were year-end processes. He would only know at the end of the financial year. These processes were incorrect according to accounting standards and the board chairperson was not aware of this until then.

Irregular Expenditure
Ms T Chiloane (ANC) noted the Auditor-General had said there was irregular expenditure due to contravention of supply chain management policies where SAPO had understated the requirement as regards R15.5 million. Why was there an understating of the amount?

Acting CFO Dewar replied that the Auditor-General identified items as irregular which had not been identified as such by management and secondly, SAPO systems were potentially irregular and not as strong as they were now. SAPO had misinterpreted some of the National Treasury regulations. Now the processes had been changed and the controls around that had been fixed.

Ms Chiloane asked why the management did not follow the legislation by doing what it was supposed to do.

 

Mr Lushaba replied that this was correct and that was one of the reasons why the former CFO was charged. This was a flaw in the policy. The Board, that approved the policy, and the managers had erred.

Ms Chiloane asked why the documents were not kept by supply chain management; hence there was not any supporting evidence. It meant documents had disappeared.

Mr Lushaba replied that a lot of procurement that was less than R30 000 took place at the regional offices. The lack of documents was because of a total breakdown in the management system. This was an area that had not been understood in the policy of SAPO. He added that supply chain management reported to the CFO.

Ms Chiloane said R576 million was wasted expenditure for 2012/13 to 2014/15. There should be a person who was responsible. It should not be condoned. It was like money being thrown into a river.

Acting CFO Dewar replied that the irregular expenditure of R576 million was huge. The reason was due to two things. The procurement processes were slow because they were extremely protected organizational processes. Secondly, SAPO was finding it hard to regularise contracts as suppliers were not ready for new contracts until there was payment for the existing ones. SAPO was forced to engage in monthly contracts.

The Committee Chairperson said the investigation was to determine what was condoned. He asked for detailed accounts of each of the components of the investigations into irregular expenditure.

The Acting CFO replied that it was submitted in the information pack.

Ms Chiloane said SAPO should talk to their document.

Mr Booi remarked that there seemed to be an unstable leadership that was unaware of what was going on. It should not be seen as condoning the behaviour of the management.

The Committee Chairperson asked who was responsible for the R576 million irregular expenditure.

The Acting CFO replied that R197 441 million was for the current year and rest was for previous years. The extra report talked to these two line items. There were a number of root causes. Some items identified were contracts that were evergreen and therefore had no termination date. This had been regularised as SAPO currently had only one such contract which was also in the process of being regularised. The travel policy was changed and that picked up one item. There was a contract supplier that could not produce a valid tax clearance certificate and SAPO again let down the net. There was a supply with South African Airways (SAA) for overnight parcels and since there was no contract in place with the airlines SAPO went for a tender process which was also counted as irregular. There were 22 items with no valid contract in place.

The Chairperson said it was important that the Committee had copies in order to establish the trend and pick out specific contracts. It was fine that SAPO had given the Committee some sense of what was happening but it was not the last SCOPA was hearing about it. Who was responsible? SCOPA did not want people to take advantage of the mess in the entity to help themselves and their friends.

Ms Chiloane asked if there was a procurement plan for strategic sourcing of contracts or if SAPO was planning to have one.

Ms Dewar replied that the Post Office had submitted a corporate plan. The CFO was working on finalising the procurement plan with the goal to not have irregular expenditure. Processes were being followed to maximize economies of scale in terms of bulk buying and National Treasury was assisting with that.

Ms Chiloane said R10.6 million was paid to some consultants. What was the money for?

The Acting CFO replied that the consultants were used to review the procurement policy. Recommendations had come out of that and it would be presented to the Board for approval soon.

Fruitless and wasteful expenditure
Ms Chiloane remarked that concerning fruitless and wasteful expenditure on the attached note that was presented that day, she was not sure if it was the trend but R15.7 million was spent on an expenditure item that was not disclosed. Can the Acting CFO talk about that?

The Acting CFO replied that it was related to a court matter. SAPO had to pay money into a trust account. It was stated that way because the physical cash had been parted with. The finance team was working with the supply chain. There were some systems changes that the entity was introducing.

Ms Chiloane said the Auditor-General had said there was a court order.

The Acting CFO replied that a settlement agreement had been signed. It would only be after the appeal before it could be ascertained that the settlement agreement was final.

Ms Chiloane asked why the contract was not honoured.

Mr Lushaba replied that there was a long history to the matter. SAPO entered into a contract with Nasasa Cellular which was never executed. It concerned the sale of cell phone products through the Post Office. Nasasa Cellular took the Post Office to court for not honouring the contract. There were talks about settling out of court. The management went to the Board in 2012 with a proposal to settle. The Board said the proposal should be explored and feedback brought to the Board for a decision. Nothing was brought back. Six days afterwards the CEO was asked why he should not be suspended. A settlement was signed by the CEO who was later suspended. This was brought to my attention in January 2015. Nasasa Cellular went to court for an order against SAPO which tried to get a court interdict twice. SAPO had not defended the order in December 2014. The court found SAPO in error and the latter had to appeal.

Ms Chiloane said the Auditor-General had said there was inadequate contract management and what was the disciplinary action?

Mr Lushaba replied that it was as a result of the mess he had referred to as there was no finance department in effect.

Ms Chiloane asked if SAPO had tried to recover any money from the CEO and CFO who had left.

Mr Lushaba replied that no money had been recovered yet but a number of legal processes had been instituted not just against the CEO and CFO but a number of other people that were involved. These were outcomes from the Chapter 9 Institutions that SAPO was working with.

Mr Booi asked what leave was paid out to CFO. Was it capped leave or long service leave? Where did the money come from and what policy guided the Board?

Mr Lushaba replied that there was no system at the time but the leave policy had now been changed and leave had been capped at 15 days. The leave payment was for 39 days that had accumulated and this amounted to R220 501. He added that the CFO’s gross salary was R2.385 million

Material losses
Ms Chiloane said there were material losses of R6.7 million which was incurred as a result of criminal conduct. The other for the past financial year was as a result of commercial crime. How many cases of criminal conduct and commercial crime were discovered?

Acting CFO Dewar replied that there were 801 incidents of commercial crime, 563 violent crimes, and 355 non crime discrepancies. There were two major incidents that amounted to R6.7m. One was as a result of fraud when the Oracle banking system was upgraded. This was R3.9 million. The majority of it was recovered. The second was the theft of stock at one of the divisions of R2.7 million.

Investigations
Ms Chiloane asked how many investigations did SAPO have arising from the past.

Mr Lushaba replied that investigations were conducted by the SIU, the Public Protector and internal investigations conducted by investigating units within SAPO. The first and second have now been concluded and the reports had been provided. SAPO was working with the institutions on their recommendations and the remedial actions.

The Acting CFO added that as regards internal investigations, nine were on going as at March 2016 when SAPO submitted the report on irregular expenditure and there were three additional ongoing investigations.

Ms Chiloane asked how SAPO responded to the findings of the Public Protector.

Mr Lushaba replied that SAPO had implemented remedial actions which included going to ask external parties for refunds. The findings were valid. SAPO had pursued legal action and sent letters of demand to landlords to repay rental paid before occupation of R22 million.

Ms Chiloane asked why the entity should wait for Public Protector to implore SAPO to pay a rental of R22 million.

Mr Lushaba replied that the money was paid between 2009 and May 2010. They were incidents that took place before the time of CEO and CFO who had left. SAPO was pursuing the R22 million legally.

The Chairperson asked if legal advice had been sought on this matter.

Mr Lushaba replied that both SAPO and SIU had sought legal advice and were working with the Office of the Auditor-General on this.

Ms Chiloane asked why labour brokers were employed irregularly from 2002 to 2012 and were still used even when their contracts had expired. These were historical issues and should be talked about.

Mr Lushaba replied that it was an unfortunate incident and cost process. SAPO still had 6 000 employees in the system. There were also employees in permanent part-time positions. In January 2015, it was R1.1 billion and an additional R700 000. It was a huge impact. SAPO was involved in talks with the organisation with a view of finding a way to deal with it because it was expensive and costly.

The Chairperson remarked that he had hoped it was a good lesson for the Minister to pick up on.

Ms Chiloane commented that SAPO was technically insolvent and practically not going forward. Should SAPO continue? How? She did not know. What needed to be done and what was the way forward?

Mr Booi referred the Minister and the Committee Chairperson to page 75 of the Annual Report and likened SAPO to a dead horse. He said the Auditor-General came to the conclusion that there was no leadership in the organisation. What was the turnaround strategy?

Mr Hlengwa said SAPO had become a one person show. The circumstances under which the CFO was let go were unsatisfactory. What recourse did the workers have when they were victims of labour brokers that were sourced improperly? Did they qualify for retirement benefits? What pensions did the workers have? He expressed his frustration that the internal audit raised the matter of the workers but management and the Portfolio Committee did not listen.

Ms Mente said it was an entity that had nothing in place. There was no asset register which meant there were no records. The absence of archives meant that SAPO did not know where it was going as there was no reference. SAPO lacked capacity. She asked why labour brokers were being used by government and if it was cheaper to use labour brokers than to employ directly into the entity.

Mr Ross said the issue of accountability had been dealt with massively in the meeting. SCOPA expected reports on those who had erred as people must not be allowed to get away with their wrongdoing. He questioned the issue of political leadership which started in 2012 and if the interventions were timely. He asked for the turnaround plan as it was a tough journey that was necessary.

Mr Hlengwa asked what were the terms, conditions and reference note put before the Administrator when he came into the entity. This would help in measuring against the findings of the audit outcome.

Mr Booi asked the Minister if he thought the turnaround strategy would resolve the problems and get SAPO out of the crisis as he was not so confident because of the findings of the Auditor-General

The Chairperson commented that he was interested in hearing the views of the Auditor General and National Treasury because the latter had issued guarantees of R1.6 billion which expired in December 2016 and a R2.5 billion letter of guarantee which expired in September 2017.

Ms Alice Muller, Corporate Executive, Auditor-General South Africa, replied that regarding the year under review, there was an exit of skills from SAPO and a breakdown of internal controls which related to the reported management issue. Regarding post year end, SAPO should ensure there were adequate controls in place that were properly managed. It would be over optimistic to say the entity would deal with the audit qualifications this year but she trusted that there would be progress in some areas.

Ms Marissa Moore, Chief Director, National Treasury, said the Ministry had specific requirements about personnel within the entity. The progress on those plans was not satisfactory. The use of SAPO assets was a key element on how to re-organise the entity going forward. There was also structural guidance on the use of new technology to get the entity back on its feet.

Mr Mark Barnes, SAPO CEO, said there was no doubt that mistakes had been made and there was a need to consider if there was a future for SAPO or not. The entity needed support and friends like the state in the transformation. There should be no IT challenges, labour brokers, dishonesty in approval processes. SAPO had engaged with the union and would be submitting a report to the Board. The future depended on getting the right kind of capital as the entity needed the political world to give it a chance. SAPO would settle the past and look towards the future. One man, one show was no longer the case with the Post Office. It could be rescued and made profitable in the next three years but no sooner and would be a valuable asset in five years. This could be achieved by doing vigorous work to identify every source of loss. The Public Finance Management Act was a challenge. The competitors of SAPO made decisions in three to six minutes while SAPO made decisions in three to six months. This made things very difficult.

The Chairperson asked for the intent of the decisions made by the stakeholders and asked why such decisions were anti state.

Minister Siyabonga Cwele said it was his first time appearing before SCOPA and he apologised for what happened about the last meeting. What should be done with this entity which was so strategic? The problems of SAPO started in the late 90s to early 2001. A public hype at that time was to have post offices in shopping malls which was very expensive. Labour brokers coupled with incompetent management and an attitude of saying unions were bad began reducing internal capacity within SAPO. These were the challenges that brought SAPO to its current situation. Funding was being cut to fulfil obligations. The financial crisis had not just arrived two years ago. In 2009, subsidies were reflected as income. All these items were being corrected moving forward. The President had instituted a SIU investigation. It was clear there were systemic problems. The workers were fighting themselves in 2011 as a result of the challenges. There was poor accountability. When appointments were made both the assets and the liabilities of the appointees were inherited. There was a lot of force but no work was done physically. The Annual Report ought to be tabled in August but by the end of that month there was no Annual Report. It was obvious there were serious problems. The Auditor-General gave the alert about the breach of the Company Act and SAPO Act through consistent and irregular findings of a subsidiary company called CFT. This caused a lot of delays in the annual financial statements because they had to be reported correctly. The Board was asked to personally explain and the answers were not satisfactory. The Board was totally dysfunctional and meetings were irregular and eventually the board members resigned and left. SAPO had been faced with serious and unending strike actions and the Board was not able to bring them to an end. Employees came to work, but refused to do their jobs and ended up being paid. The submission of financial statements was late. These were the major preoccupations. There were challenges of technical and managerial skills.

Minister Cwele said that the Minister was responsible for appointing the CEO, CFO and the COO. He also appointed the Board after consultation with Cabinet. SAPO remained a key strategic asset. The Ministry of Finance, Cabinet, and the Deputy President agreed that the entity needed an equity injection of about R3 billion. R650 million had been voted this financial year but this was just a drop in the ocean. Globally mail volumes were going down. Parliament had passed the Post Bank Act. There should be prudence and not recklessness. At some stage strategic decisions needed to be taken such as asking that government officials be paid through Post Bank and to use the Post Office as its courier service provider. There was a need for not only the qualifications but also the skills. SAPO would endeavour to bring competent and experienced cadres to do the work. A recent survey was conducted of Post Offices who were running at a loss and the ones that were most profitable. The most profitable post office was in Transkei in the Eastern Cape and the one running most at a loss was the Sandton Post Office because it was situated in a very expensive mall and was surrounded by strong competitors. Those who had erred would account. What sabotaged the case involving about R5.7 million was that the lawyers refused to continue with the case and the SIU investigation was not complete. A special board meeting was called where it was said that the former senior employees should not be given an opportunity to run away. The Minister said there was a concerted programme to continue to stabilise labour and civil cases were being pursued in court to nullify certain contracts. The Minister appreciated the input of the Committee and urged SAPO to provide information that would help SCOPA take a decision. The Department was working closely with National Treasury for a turnaround and the inputs of the Office of the Auditor-General were valued. The Post Office was important to the poor who could not attend university and were doing distance learning and also the small publishers who could not afford courier services. The Post Office would be taken out of the grave even if it was dead.

Closing Remarks
The Chairperson said SAPO should furnish the Committee with charges against the former CEO and CFO, outstanding rent charges, the Special Investigating Unit (SIU) reports as they already had the Public Protector’s report He was not promising but the Committee might pay the entity an oversight visit. He thanked the Minister, SAPO management and board and National Treasury and the Office of the Auditor-General for their presence. He reminded the Acting DG, Department of Telecommunication and Postal Services (DTPS), Mr Sipho Mjwara that the entities were under his office and he had the responsibility to ensure they were guided and monitored.

The meeting was adjourned.