Department of Transport, PRASA, Railway Safety Regulator on their 2015/16 Annual Reports with Auditor General input

Meeting report

Briefing by Auditor-General of South Africa (AGSA)
Mr Vinay Ramballi, Senior Manager: AGSA; said the presentation would focus on the financial statement of the Department and its entities in order to check whether there were any qualifications. The role of the AGSA is to reflect on the audit work performed to assist the Portfolio Committee in its oversight role in assessing the performance of the entities taking into consideration the objective of the Committee to produce a Budget Review and Recommendations Report (BRRR). The AGSA is also aimed at providing the Committee with applicable information and guidance on the Transport portfolio’s 2015/16 audit outcomes so that the Committee can ensure effective oversight to focus on areas that will lead to good governance. The portfolio’s overall outcomes have improved due to the Cross-Border Road Transport Agency (CBRTA) and Road Traffic Management Corporation (RTMC) improving their audit outcomes from unqualified audit opinion with findings to unqualified audit opinion with no findings. There was a regression in the outcome of Road Accident Fund (RAF) from unqualified audit opinion with no findings to unqualified audit opinion with finding on compliance with laws and regulation.

The rest of the portfolio maintained their audit outcomes of the previous year. The annual report of the Department was not tabled at the date of preparation of this presentation and hence excluded. There was a slight improvement in the area of compliance with laws and regulations. The key areas of non-compliance remain Supply Chain Management (SCM) resulting in repeated incurrence of irregular expenditure and material misstatements in the financial statements submitted for audit which are identified in the audit process and corrected by management which lead to the portfolio, with the exception of the Department, achieving financially unqualified audit opinions. There was a regression in the area of reliable performance reporting. Annual Performance Plans of Passenger Railway Agency of South Africa (PRASA), Railway Safety Regulator (RSR), Road Traffic Infringement Agency (RTIA) and South African Maritime Safety Authority (SAMSA) were either incorrect or not supported by appropriate sufficient evidence to confirm the accuracy and reliability thereof.

Mr Rambali indicated that the level of assurance provided reflects an improvement from the assessment in the prior year, especially with regards to internal audit functions and audit committees. Senior management’s efforts in developing implementing post audit plans and audit recommendations are evident in some of the entities but more still needs to be done in other entities. Internal audit, audit committees and the Minister have provided assurance and contributed towards sustained key controls. However, the focus of these governance structures must be intensified in the area of compliance with laws and regulations. The assurance provided by senior management of SAMSA and PRASA was assessed as “limited to no assurance” mainly due to repeat findings raised on material misstatements on their annual financial statements and performance report as well as no-compliance with laws and regulations. Assurance provided by the Executive Authority was also assessed as limited to no assurance in the instance of SAMSA due to slow response to appoint members of the accounting authority and to take action to ensure stability in the Accounting Authority. The Accounting Authority of SAMSA was appointed during the 2015/16 financial year. However, the impact of their oversight will be fully effective from the next financial year after they had time to monitor the implementation of the action plans of the entity. Focused interventions and commitments are still required in order to improve the current status of the overall audit outcomes. Dedication is required by those entities who received unqualified audit opinions with findings on material misstatements, non-compliance with SCM practices resulting in irregular expenditure and reliability and usefulness of performance information.

Mr Rambali highlighted that the AGSA discovered that a total of 33% of the targets of South African National Road Limited (SANRAL) were not specific, in particular the objective of providing safe roads. There was also a concern that a total of 50% of targets were not specific and measurable. It was also mentioned that a total of 25% of indicators for SAMSA were not well define, as some of the targets were not consistent with those in the approved annual performance plan. A total of 20% of the targets for RSR were not specific or time bound because adequate and reliable corroborating evidence could not be provided for the reported achievements against planned targets of 20% of indicators. There were no material findings that were reported in RTIA precisely because the reported achievements against planned targets of 67% important indicators were not reliable when compared to the source information or evidence provided.

The AGSA noted that there had been an improvement from 69% in 2014/15 to 42% in the material misstatements in submitted annual financial statements. There had been a regression from 62% in 2014/15 financial year to 75% in the prevention of authorised, irregular and or fruitless and wasteful expenditure. There had also been a regression from 8% in 2014/15 financial year to 50% in the 2015/16 in the management of procurement/contracts. It was also concerning that there had been a regression from 15% in 2014/15 financial year in consequence management to 17% in 2015/16. Auditees who avoided qualifications due to the correction of material misstatements during the audit showed that outcome if not corrected was 58% for with no material misstatements and 45% for those with material misstatements. The outcome after corrections showed 100% qualification with no material misstatements. The portfolio incurred a total of R297 million on fruitless and wasteful expenditure. This was an improvement from R579 million in 2014/15 financial year. There was also an irregular expenditure of R16.2 billion in 2015/16 compared to R2.2 billion in 2014/15.

Mr Rambali stated that the portfolio will need to focus more attention in ensuring that action plans are implemented to address prior year audit findings. A sustainable solution is needed to prevent a recurrence of findings in the area of compliance with key applicable legislation and performance. Vacancies and stability of leadership at PRASA and SAMSA continue to pose significant challenges regarding the operations of these entities and the creation of a control environment to ensure that basic financial, performance reporting and compliance with laws and regulations are enforced. AGSA believed that consequences for unsatisfactory performance and transgressions should be enforced. AGSA met with the Minister on 21 July 2016 and the outcomes were discussed with the Minister and the status of the implementation of the commitments that were made were followed up with the Minister. New commitments were solicited from the Minister and certain of the prior year’s commitments were reinforced. 

In conclusion, Mr Rambali believed regular monitoring of the action plans to ensure that the identified deficiencies are addressed to avoid repeat findings and continued non-compliance. The Committee must request management to provide feedback on the implementation and progress of the action plan during quarterly reporting. There is a need for regular assessments of the status of internal controls, especially regarding financial statement and performance reporting preparation and filling of key vacant posts to ensure stability of leadership, must be undertaken by management to address deficiencies as and when they arise. The Committee must request management to provide quarterly feedback on status of key controls. The accounting officers, authorities should intensify their focus on ensuring that transgressors are held accountable and that action is taken as required by the Public Financial Management Act (PFMA). Action taken against repeat transgressors should be done so in a timely manner, in order to eliminate repeat findings. List of action must be provided quarterly to the Committee, so as to be able to do a follow up.

Discussion      
Mr C Hunsinger (DA) commented that non-compliance, particularly in the SCM resulting in reoccurrences of irregular expenditure and material mismanagements, remained key areas of concern and this was really related to the issue of procedure and controls. There was also a problem of repeat findings in consequence management and this was closely linked to the problem of management. It would be important to hear if there is any misalignment or improper design in terms of financial management, Key Performance Indicators (KPIs) and targets. The Committee should be focusing on the appropriate design in terms of KPIs in an attempt to ensure that there is realignment that seemed to be missing. It was concerning to see that there had been increases in senior management salaries and bonuses while performance seemed to be going in another direction. There should be concerted effort to also address this realignment where the issuing of bonuses would be based on the incentives and performance.  

Mr M Sibande (ANC) firstly wanted to thank the office of the AGSA for briefing the Committee on the performance of the portfolio as this was really helpful. It was indeed worrying to see that there had been this realignment between the KPIs and the targets. There was an indication as far back as 2010 on the perennial problem of non-performance of the entities of the Department. What steps had been taken against people who were not complying with rules and regulations? The matter of instability and vacancies in leadership was particularly concerning, particularly at PRASA where it was identified that there are still a number of challenges due to the number of vacant posts. What are the measures that had been taken to address the problem of lack of consequence for poor performance? There was a recommendation from the current Public Protector with a particular focus on the entities of the Department. It would be interesting to hear from the AGSA on the implementation of the recommendations that had been made by the Public Protector.

Mr Sibande asked if there are measures that had been taken to deal with the problem of poor record keeping in some of the entities as this was identified as one of the contributing factors to poor performance. The AGSA office should be specific and guide the Committee on this problem of poor record keeping. It would be helpful to hear the response of the AGSA concerning the King III and guidance on remuneration and the allegations that some of the entities are giving themselves huge salaries and bonuses. There is also a guideline in King III on the number of meetings that are supposed to be attended by board members. There are also allegations that board members are attending a lot of meetings in order to “suck more money” or get exuberant money. The slow response by the management itself is another contributing factor to the problem of non-performance. What steps that had been taken to address this problem of slow response by the management in addressing challenges?

Mr Sibande pointed out that the AGSA had raised important emphasis on matters relating to SANRAL, SAMSA, CBRTA and RTMC and PRASA and RAF. It would be important to hear if these entities were complying with those emphases on matters that had been flagged by the AGSA. There are instruments that are supposed to be utilised in order to minimise some of the challenges that had been identified by the AGSA, like the internal audit and audit committees. It was unclear if these entities did have those instruments in place. The issue of risk management is another contributing factor to the failure of many entities to comply with Treasury regulations. The capacity is linked to vacant posts within the Department and its entities. It was concerning to see that most of the critical vacancies within the Department were occupied by people in acting positions as this was also contributing to lack of accountability.     

Mr G Radebe (ANC) asked about the financial year and the entities that were involved in tenders that were awarded unfairly and irregularly through the procurement process. The Committee should be provided with the list of entities or officials that had failed to declare financial interests in the SCM as this would allow Members to ascertain whether this was a deliberate attempt or mistake in the declaration of interests. It was appalling to witness that there had been an increase in irregular and fruitless expenditure and this could explain why students are protesting for a free higher education as they see the amount of money that goes to waste unnecessarily. Which entities that were involved in unauthorised, irregular and fruitless expenditure?

Mr Radebe emphasised that it was already known that it was not just PRASA alone that was facing the problem of instability in terms of vacant posts as SAMSA and the Department was facing this similar problem. There is lack of leadership and responsibility in the Department and the Committee had been raising this issue in the previous BRRRs. It seemed like there is no proper solution on ways to create leadership stability and taking full responsibility within the Department. The State President mentioned that government departments and their entities should be able to fill up all the vacancies, especially the major vacancies. What are the measures that could be implemented to ensure that this issue is addressed? It seemed like the Department was not taking the Committee very seriously in terms of moving with speed in creating leadership stability.

Mr Radebe commented that the Committee always tried to do a follow up on some of the proposed commitments that had been made but it was extremely difficult to get responses from the Department and its entities. PRASA still owed the Committee minutes and reports as agreed upon in the last engagement. The board members should be able to take responsibility of their jobs and being held accountable for their actions. The Committee was trying its best to ensure that there is a level of accountability and this is evident from the recommendations that had been made in the previous BRRRs.

Ms S Xego (ANC) asked about the person who was acting on behalf of the acting Director-General as this was a question that should have been clarified at the beginning. The presentation that had been given to the Committee was not giving any different picture to the one that had been observed by Members when interrogating these various entities. It was worrying to see that the AGSA could sometimes regard a particular expenditure as irregular and fruitless expenditure because of lack of proper documentation as this was basic accounting. The Committee should meet up with these entities and the Department in order to directly address those matters that had been flagged by the AGSA.

Ms D Carter (COPE) asked about the name of the entities that formed part of the 8% of those that had outstanding audits in the 2015/16 financial year.

The Chairperson commented that it was critically important for the AGSA to also respond to the questions that had been asked by Members that are related to Human Resource (HR) as any entity or a department was likely to fail to deliver on the expected mandate without the necessary resources. There was an indication from the Department that the Treasury had “frozen” some of the posts as part of the cost-cutting measures that had been implemented but there are certain posts that had been funded already. It was unclear if the entities are able to manage the human resource aspect that is in these entities in order to deliver on the expected mandates. What could be the real cause of this misalignment between the KPIs and the stipulated targets? What is the impact of this authorised expenditure which is so huge within the Department and its entities, particularly on service delivery?
 
Mr Rambali responded that in relation to the question on financial management and alignment of KPIs with targets, those are financial management and when AGSA is looking at performance reporting, the focus is on those KPIs and targets that are linked to service delivery. The AGSA was not focusing more on those targets that are linked to financial management but it is something that had had been included in the recommendations that had been made by the AGSA. The AGSA was also looking at whether the portfolio was doing a reconciliation of KPIs with targets that had been set and this is normally assessed on the evidence that could support the achievement of a particular target. It is indeed true that it should be a normal practice for bonuses and increased salaries to be linked to performance as non-performance should not be rewarded. However, this was not something that was being done directly by the AGSA in the audit process.

Mr Rambali replied that in relation to the question on steps that had been taken by the AGSA to deal with the problem of non-compliance, again this is not something that the AGSA could directly involve itself in. The role of the external auditors is to identify non-compliance and report on that in the engagement with various stakeholders. It is dependent on the leadership within the entity to take action to deal directly with the problem of non-compliance and this was where it was pointing to consequence management.

Mr Thami Zikode, Business Executive: AGSA; responded that the AGSA was also focused on the issue of internal audits and risk management and the portfolio was doing fairly well in this regard especially when one is looking at the levels of key control. The focus should be on the frequency of testing the areas of SCM and contract management. The internal audits are working on a different format, as they normally do a pre-rolling plan and this is where there could focus on the issues of concern on a regular basis. In relation to the question on the impact of irregular expenditure, there is a guideline from the Treasury that talks to irregular expenditure and irregular expenditure does not mean the service was not obtained. Service might be obtained, well above quality but the problem might be on legislation or part of the law that was not complied with in rewarding a particular contract. That is why, in terms of the guidelines there is a need to thoroughly investigate before taking a further step of either disciplining people or taking those individuals for training so that they know the laws and regulations of SCM and PFMA.

Mr Zikode added that the slow response by management refers to a number of areas; one might be referring to an area where one would need to take the SCM staff to the required training as people need to be aware of new regulations that are being introduced by the Treasury. There are instances where officials who declared their financial interests still involved in the awarding of procurement contracts. It must be made clear that the term irregular expenditure was not immediately inferring that the service was not rendered. It would require a thorough investigation for one to arrive at a conclusion of overall impact of irregular expenditure. The right action to be taken would either to condone the action or to recover the amount of money.

Mr Zikode clarified that slow response by the management was mainly when the AGSA was reporting the same issue year-in-year out without implementing the recommendations that had been made to a particular management. The management was given an ample time to correct the problem that had been identified before the problem is regarded as slow response by management. The issue of lack of stability at PRASA and the recommendations of the Public Protector, the only recommendations that would have been considered is where there is a problem of irregular expenditure as this would negatively impact on the financial statement to be audited. The audit is dealing with three aspects; the first one is the presentation of the financial statement in line with the applicable frameworks. The second key focus is on compliance areas and the main key focus here is on the expenditure on the allocated budget and compliance with all the relevant legislations in order to deliver the service. The AGSA did not go and test the report of the Public Protector whether it is implemented or not as the focus was on the areas of irregular expenditure.

Mr Zikode responded that the AGSA was also looking at whether a particular meeting did occur as required and the minutes for that particular meeting and the resolutions that had been made. This was however not “ticked-off” against King III. In essence, King III is not part of the scope of what was being audited. The board and the minister or anyone who is involved in that process of meetings could reach an agreement on the number of meetings to have on a particular year. The focus of the AGSA was on looking at whether the planned meetings did occur and this was basically where the scope was limited to.

Mr Solly Segooh, Corporate Executive: AGSA; responded that the picture on financial statements was a fair picture but the AGSA was still particularly concerned about the general performance of the portfolio on the area of compliance with legislation. Slide 12 and 13 of the presentation provided an overall analysis of the quality of annual performance plan and the quality of submitted annual performance reports and the name of the entities that still required some attention. 

Mr Rambali replied that in relation to the awards that had been given to other state official, this was an issue that was mainly on RSR and SANRAL and this is an issue of the declaration by service providers on the possible state employees that had been employed. This was clearly a system problem as it is not being picked up in the system and needs to be dealt with at an overall level in order to be able to identify the instances of non-compliance.  The problem of lack of leadership stability at SAMSA was a main concern and was mainly affecting the entire portfolio. The AGSA was recommending an engagement with the affected entities in order to ask them about the key posts that had not been filled, the number of those that are still vacant and action that was being taken to fill in those vacant posts. The issue of the emphasis of matters, the AGSA had identified those entities that still had emphasis of matters on slide 9.

Mr Rambali responded that the main concern is on financial health of these entities like SAMSA and RTIA and this was still on-going for the AGSA. It would be important to know if those vacant posts have performance contracts, and whether performance evaluations would take place and whether performance would be directly linked to remuneration. These are the matters that the Chairperson of the Committee could take forward to the Department. The assessment of the AGSA in terms of the cause of this misalignment between the APPs and the annual targets was that this misalignment stem from leadership instability where it was likely that accountability would slip if there are more people in acting positions. The annual report of the Department has not been tabled as yet and this was a matter to be looked into.

The Chairperson indicated that the Department at executive level had about ten posts - only three posts were filled and the other seven people were acting. The Committee would keep on looking at the impact of this type of approach to service delivery. There are instances where the CFO of the Department was also acting as a CEO in another entity. The Minister had been on record in this Committee that these posts needed to be filled but it was unclear if those posts had been advertised.  It was completely unacceptable to have a kind of situation where the Department does not have a stable executive management that takes decisions as this was impacting negatively on accountability. The Department and its entities were getting these authorised expenditures precisely because there is nobody that is accounting to anyone.

Mr Ramatlakane wanted to know if the function of auditing had already taken place within the Department as this was not clear from the response that had been provided. It would be important for the Committee to be provided detailed information in regard to assurance providers (first level) per level as reflected in slide 10. What are the steps that could be taken to ensure that senior management and accounting authority was able to provide assurance in dealing with the recurring problems. 

Mr Hunsinger asked if it was not possible to refine audit reporting in order to distinguish between “non-compliance light” and “non-compliance regular” so that the evaluation from that could be presented in range. The problem of non-compliance within the portfolio should be investigated so that proper action could be taken by an independent body. It was concerning to see that there is a consistent problem of underperformance within the portfolio. It was really impossible to regard the current acting people as incapable of addressing these issues that had been flagged by the AGSA.                    
 
Ms Carter enquired if the AGSA was considering having a findings register so as to be able to determine the repetitive findings that are found within government departments and their entities.

Mr Sibande asked about the criterion that was being used in terms of accounting to those people who tend to be slow in the submission of annual report. Was this not the tactic of hiding something that must not been seen or detected by the AGSA?

Ms Xego wanted to know the view of AGSA on the internal audit unit of the Department and its entities as some of the issues that had been flagged are supposed to have been picked up by the internal audit unit.

Mr Zikode responded that it was impossible to share the audit outcomes of the Department at this stage. The audit of the Department had been completed and the Department opted to notify Parliament through a letter in terms of the PFMA. The PFMA did allow any government department or entity to write a letter to Parliament if it was unable to table the annual report at the required time. The AGSA does not want to go ahead and publish the audit outcomes of the Department as this would impinge on the process that had been followed by the Department. The AGSA has tried to refine the reporting by actually laying out all the non-compliances that were related to uncompetitive bidding and unfair procurement process and all other matters. The determination of the seriousness of the irregular expenditure would be known after the results of the investigation of the irregular expenditure and this process has not taken place as yet. It was the onus of the Department and its entities to investigate the seriousness of irregular expenditure and take appropriate action based on that.

Mr Zikode clarified that the AGSA was trying to keep its independence by merely reporting what is on the floor, however, all these entities have executive authorities and people who are at the forefront of these entities to undertake any form of investigation. In relation to the issue of findings register, those are the things that could be arranged with the Department and its entities. It was concerning to see that the concentration of most entities was to deal with the findings instead of the root cause of the findings. The focus should change on the control breakdown or the root cause that would deal with the systemic problem.

Mr Segooh responded that the AGSA usually focused on the repetitive findings and whether there is a  clear action plan in order to arrive at the conclusion on whether the Department could be able to move from yellow (provides some assurance) to green (provides assurance). There is also a focus on determining whether there is consequence taken by the senior management on the transgressors.

Briefing by Passenger Railway Agency of South Africa
Mr Collins Letsoalo, Acting Chief Executive Officer (CFO): PRASA; mentioned that the Group had received an unqualified audit report for the 2015/16 financial year. The Group posted a shortfall of R312 million, compared to R714 million for 2014/15 financial year and this was mainly due to a transfer of R800 million from capital to operational subsidy. The income of fare revenue remains a concern as the fare revenue for 2015/16 is R205 million or 7%less than prior year. There had been an increase of 10.1% in expenditure on property, plant and equipment and 34.7% increase in prepayment for capital expenditure. There had been an increase of 6.1% in operational subsidy compared to the previous financial year. The fare revenue had declined -7.0% while the lease income had increased by 18.3%. The entity had experienced an operational shortfall of -26.9% and cash shortfall of -9.3%.

Mr Letsoalo highlighted that the bulk of the expenditure for PRASA was going to employee benefits (52%), followed by energy expenses (11%), security (6%) and municipal charges (4%). The material expenses and insurance claims were both sitting at 3%. The other 12% was based on computer expenses (2%), train control officers cost (1%), professional fees (2%) and insurance premiums (1%). PRASA had recorded irregular expenditure on a number of procurement contracts and these included in the rolling stock general overhauls (R6.8 billion), Swifambo (R715 million), SA Fence and Gate (R231 million) and Siemens (R646 million). There was also an irregular expenditure of R3.2 billion in Siyangena Technologies and R148 million in Siyaya Energy. In relation to audit findings, the entity continued to experience challenges in Information Technology systems, especially in terms of service continuity and the capturing of leave provision. There were also other challenges in Human Capital Management (HCM) in regard to overtime payments, suspensions and the payment of acting allowances. There were also inconsistencies in predetermined objectives and this was impacting negatively on the operation of the entity.  

Mr Letsoalo stated that in order to address the findings raised, PRASA Board and management had taken the following measures:

• Instituted reviews of policies, processes and procedures in SCM, HCM and ICT Policy
• Re-aligned current existing organisational structures to increase efficiencies and enhance controls environment
• Introduced and implemented proactive assurance in key processes

Discussion

Ms Carter commented that the Committee would be able to have a better view of the Department’s report if Members were afforded an opportunity to get all the documents that had been requested and have an explanation of the decisions that had been taken in various meetings. It would be important to hear from the Department in regard to the plans in place to address the audit findings. The Committee should be provided with the findings register and the clear outcomes of those findings as this would assist in determining the recurring findings in the past five years. It was unclear as to why there is a repeat finding on procurement and contract management. Was there any consequence process that had been put in place for staff that had failed to comply with procurement processes and legislation? It would be important for the Committee to be provided with progress in regard to the negotiations and discussions with Transnet when it came to haulage fees (2%) and train control cost (1%). What was the explanation that could be provided on the expenditure of 2% for professional fees? What is the total percentage of the budget that was utilised for the 26 targets that had not been achieved? Was there any mechanism in place that was taken to redirect the funds or ensure that funds were saved?     

Mr Hunsinger asked if it was possible for the financial management report of PRASA to “get thinner” considering that the current Chairperson of the Board was only appointed in August 2014. What was the main reason for the transfer of R800 million from capital to operational subsidy? Was this because of initial budget allocation or change in programmes of the entity? What are the main features in this problematic situation where the income on fare revenue remained R205 million or 7% less than prior year? Was this based on recovery problem or subsidy increase? It would be useful for the Committee to get an explanation in regard to the fluctuation between operational shortfall and cash shortfall. In terms of procurement of goods and services, there was a necessity to implement the preference point system which is a part of very important Act of Preferential Procurement Policy Framework Act. However, there is clear failure towards seeing this Act being implemented despite the strength of the Act. What was the problem that was causing the failure of this Act to be successfully implemented? There were issues of approval of disciplinary processes in cases where consequence management was addressed. It was confusing as to why the approval of the disciplinary processes was not enforced by the senior management.

Mr Ramatlakane asked if there was any particular reason as to why the entire Board of PRASA had not been present in the meeting as this was not the first time this had taken place. The entire complement of the Board should have been present in the meeting in order to account to the Committee as per their responsibilities. It was now the second time that the Committee was only seeing the two representatives from PRASA. What was behind what the Committee was noticing as a bad trend? Was this something to be worried about? The meeting today was one of the most important meetings in a calendar of a functioning Board. It was unclear if the Committee was even obliged to take the presentation that had been made by this very thin Board or pause and demand that the other Board members should be present in the meeting. It would be in the hands of the Chairperson to decide on whether to proceed or not on the meeting. The problem that the Committee was noticing was indeed gravitating towards the undermining of the Committee and it should not be allowed to continue unabated.

The Chairperson stated that the question that was being asked by Mr Ramatlakane was a very important question as it clearly linked to other problems of outstanding reports that PRASA was supposed to be giving to the Committee. It would have been helpful for the Committee to get all the reports that had been requested in the previous meeting with PRASA. It looked like Mr Molefe was the only one doing the job of the entire Board and this should not be allowed to continue. The Committee should find out from the Chairperson of the Board on why there is always this absence of other Board members.        

Mr Popo Molefe, Chairperson: PRASA; started by saying it had never been the understanding of PRASA that the entire Board needed to be here and present the report. The invitation comes directly from the Department and the invitation was clear that it is the Chairpersons, CFOs and the Group CEOs of the entities who are invited in the meeting and PRASA operated in accordance to that instruction. There is absolutely nothing that lies behind this absence of other Board members as it is simply about following the stipulated instruction.   
   
The Chairperson stated that the Committee would never stipulate in the invitation on the people who should be present in the meeting. The invitation is usually directed to the entities and it would be up to them to decide on the important people to be present in the meeting.

Mr Radebe said that it had always been a norm for PRASA to come with other Board members when invited in the Committee but it was relatively unknown as to what had suddenly changed. It looked like the other Board members are “setting up the current Chairperson on fire” as they are running away and not accounting to the Committee.

The Acting Director-General mentioned that the PFMA is very clear in terms of who is the accounting officer and the Board as a whole is supposed to be accounting to the Committee. The reality is that all the entities of the Department never come with the whole Board. There would be a need to have discussions on the instances where it would be critical important for the full complement of the Board to be present in the meeting. It has not been communicated effectively for the Department to always come with the full complement of the Board when presenting to the Committee.

Mr Sibande proposed that the Committee should continue with the meeting as this was an important meeting. The Committee still wanted to clarity in regard to the media statement that was made by the Chairperson of PRASA about the African National Congress (ANC). The Committee resolved that the Chairperson needed to go to the media and clarify the wrong statement that was made about the party involved.

Ms Carter agreed that there was no need for the entire Board to be present in the meeting as this is a norm in other committees as well and therefore the Committee should continue with the meeting. It was unclear as to what the Board members were doing to be earning salaries that are ranging from R800 000 and R900 000 while they cannot even make it to the meetings.

Mr Molefe reiterated that the Board of PRASA was given guidance by the Department that the Chairperson, CFO and the Group CEO should be present in the meeting. The meeting was to primarily focus on the matters related to PRASA and not as a study group of the ANC or a caucus of the ANC. All the matters that are affecting the ANC do not belong in this Committee as there are officials of the ANC who could set up a meeting with him to account to what had been alleged. The statement was very clear from the last meeting that there was no one that issued a statement that said “any party received the money, including the ANC”.

Mr Sibande insisted that the Chairperson of the Board still needed to provide evidence regarding the allegation that was made in the media about the ANC.

Mr Ramatlakane asked about the time in which the AGSA was allowed to change the auditing outcomes and auditing scope. The assumption was that the auditing outcome and the auditing scope was decided upfront before the auditing was to be undertaken. It would be important to ascertain if the R800 million that was transferred from capital to operational subsidy was meant to cover the deficit within the entity. Where exactly was the R800 million transferred from? Which of the amount from the irregular expenditure had been regularised? The previous Group CEO indicated that there was a process to look at which irregular expenditures were likely to be condoned. It is clear that there is a recurrence in some of the issues that had previously been identified by the AGSA, like the financial misstatements. How many PRASA staff members are still serving suspension with pay and matter not being resolved? Was this matter already resolved? Are the suspensions older than three months?

Mr Ramatlakane asked about the progress that had been made in regard to the investigations that are taking place within PRASA in relation to various issues. There is a declared investigation of Treasury and the cost that Treasury spoke about was R25 million that was put aside for that investigation. There is also a declared investigation by the Hawks on the 39 cases that are being investigated. It would be important for the Committee to also get information on the work that had been done on those undeclared investigations. The Committee should also be briefed on the procedure that was followed in the appointment of Werksmans Attorneys. The Committee was quite worried about the appointment of the Werksmans Attorneys as their bill for investigation was now reaching R100 million. The AGSA was still particularly worried about leadership and the financial management issues within PRASA. What are the steps that had been taken to address these problems? The Committee should have an engagement about the management letter that was brought forward in terms of a range of matters in regard to PRASA and financial management.

Mr Sibande expressed concern about the low level of compliance within the leadership of PRASA as there are indeed recurring problems that had been identified by the AGSA. The Committee requested PRASA in 2014 to provide a written plan on the Turnaround Strategy to address the AGSA recommendations and the plan on introducing the new rolling stock, but this was not received. Again, the Committee requested PRASA in 2015 to report quarterly on the progress that had been made in the implementation of the rolling stock, but this was also not received. It was concerning to see that there is a significant emphasis on matters which were raised by AGSA in 2014/15 financial year. It was quite clear that the problem of irregular expenditure was going up instead of going down. The problem of PRASA targets which are not specific or measurable was particularly worrying as this was impacting on service delivery. What are the measures that had been put in place to address the perennial problem of targets that had not been achieved?

Mr Sibande said it was confusing as to how it was possible for Chairperson of the Board to talk about the entity being technically insolvent while irregular expenditure had been skyrocketing. It was good to see that the Board was able to be honest on the some of the challenges that had been experienced instead of trying to “cover each other up:” It was also mentioned that the 52% expenditure on employee benefits was not sustainable. What was being done to address this problem? There is clearly some duplication of responsibilities between Transnet and PRASA as it was indicated in the presentation that some of the responsibilities that were being undertaken by PRASA actually fell under Transnet. It is high time for the Committee to try and amend some laws that would do away with this problem of duplication of functions. The problem of vacant positions within PRASA was something that had to be taken forward. There were also so many people who were in the acting positions and it was unclear as to when this would be resolved. It is not the first time that the Committee had spoken out about the problem of vacant positions within the Department and its entities, but there was nothing that was done to address this problem. It was impossible to achieve all the stipulated targets without stable leadership that would be able to ensure accountability. What had been done to improve the staff morale within the Department and its entities?

Mr Radebe asked about the progress made in cutting the cost on security, which was currently sitting at 6%. What would be a desirable percentage on expenditure for security? It would be important to perhaps ask PRASA if it is sustainable to spend 52% on employee benefits as the entity would face serious challenge if there is no concerted effort to try and curb this huge percentage. What are the steps that had been taken to address the problem of those individuals that had not declared their financial interests in the SCM? It is worrying to see that PRASA was not taking into account of some of the findings and recommendations of the AGSA as this is proven by recurring audit findings. The AGSA should have been present in the engagement with PRASA so as to talk to the Committee on a number of topical issues. The Committee was still to have a “second bite” with the AGSA and this is where PRASA could also be present in that meeting.

Mr Radebe wanted to know if AGSA was not providing PRASA with a clear document containing guidelines for the entity to operate in addressing the audit findings. What are the financial implications on the process of realignment of the current status of the organisation? Was this process of realignment likely to save money or cost additional money? Why was the Group CFO not present in the meeting?

Ms Xego also expressed concern that the meeting with PRASA was only attended by the Group CEO and the Chairperson. There should be a pending meeting with PRASA where the Committee would invite the full complement of the Board. How old is the current Group CEO of PRASA? The Committee should be provided with information on how long the current Group CEO had been with PRASA as this was to determine whether he had over-performed or underperformed. Who was hiring the train control officers? It had been observed that 50% of the targets of PRASA are not following the smart principles. There was also a qualification that PRASA received on vacancies and leadership stability. What are the plans in place to improve the overall performance of the entity, particularly in regard to addressing the repeat findings? PRASA should be commended for indentifying the error in the exclusion of the financial officer in the procurement process.

The Chairperson asked about the implications of the technical insolvency of PRASA on service delivery as this was a matter of concern to the Committee. What was the progress with those companies that had issues in terms of how the tenders were renewed up to where it led to the situation where PRASA had problems? Was there any one who was found to have done any wrongdoing?

Dr Molefe responded that in relation to the problem of insolvency, the entity was at the point where it would be able to pay all the monies owed to companies but in the long-term that situation would not be sustainable. When one is looking at the balance between the expenditure and income, the expenditure is more and it extends beyond the period that the entity is able to pay the creditors. Companies are required to conduct what is called liquidity and solvency test to determine whether in the coming twelve months the company is able to pay its creditors. PRASA would need to deal vigorously with improvement in the operations, cost containment measures and the control of wastefulness of the resources. Mr Letsoalo had been doing a lot of road-shows where the focus is on efficiency and the general improvement in the operation of PRASA. It had already been said to this Committee that it was unsustainable for PRASA to be given a mandate to operate mainline passenger services, but there is no adequate subsidy to cover this service.

Dr Molefe clarified that PRASA ended up taking funds from railway operation to fund mainline passenger. PRASA had been repeatedly told of the need to open the Moloto Corridor but the reality is that this is an unfunded mandate and PRASA was finding it extremely difficult to include this on annual plans as it was not under the control of PRASA to make it happen. There would be a concerted effort that would be focused on the redesigning the security systems and dealing with the monitoring and surveillance of cable theft. PRASA was spending a lot of money on cable theft and this was impacting negatively on the budget. There is also a challenge of unauthorised and unilateral and change of scope of work that is impacting negatively on the company. Many of the factors that are contributing to almost a billion of irregular expenditure are things that had been covered through various investigations. It is also clear that this problem of irregular expenditure had to do with the historical poor contract management within PRASA. There is nobody that was supervising whether contracts that are issued are issued regularly and following all the legislations and SCM prescripts. There are almost about 100 irregular contracts which were done in the context of so-called “confinement”. This “confinement” was done in violation of Treasury regulations and SCM prescripts. There are a number of people that had been charged and they are appearing for disciplinary charges. It was concerning that a number of employees that had been charged had opted to tender their resignations.

Dr Molefe replied that the issue of financial management report was dealt precisely by the management and not the Chairperson of the Board. There is an expectation that the management report would be reduced as the Board had now dealt with the issues of SCM and there are systems in place to detect fraud and corruption in the awarding of contracts. PRASA was also dealing with issues of HCM, where there are still challenges in the capturing of leave provision, overtime and acting allowances. There is also a problem of people who appear like “ghost employees” and PRASA was struggling with who those people were reporting to. The AGSA was clear that some of the issues that had been flagged were historical matters but needed to be included in the report. There are quite a number of irregular expenditures that had been condoned but there are those that were unlawful and therefore could not be condoned. 

Mr Letsoalo responded that the Committee could easily be given the schedule of audit findings as this was an important matter for Members. The management report has not been reduced and the document is estimated to be about 500 pages. The financial management report of the Department is less than 100 pages and this was giving everyone a sense that there are a lot of things that were done incorrectly within PRASA. The report of PRASA should be looked into the context of the fact that there were number of procedures that were not followed correctly and this was also linked to the problem of the increase in irregular expenditure. There is procedure of consequence management that has taken place within the entity, but there also other issues that need to be taken into consideration in the procedure of disciplining transgressors. The balance is whether people have committed a mistake in irregularity or it was intentional. The belief is that there is nothing wrong in making a mistake, as people who do not inherently work do not make a mistake. The problem comes when a mistake is not necessarily a mistake but an intentional irregularity to benefit somebody.

Mr Letsoalo added that the issue of Transnet needs a lot of looking into as PRASA had done a lot of issues with Transnet. It is quite clear that the discussions with Transnet are not going to solve the on-going issues. Some of the problems of PRASA are by design. The day Gautrain starts making any losses, that would ultimately come to PRASA as it looks like anything that is making losses, must be located within PRASA. It also looks like any entity that is making money must not be located within PRASA. The reality is that at times, PRASA finds itself taking money that would ultimately create the problems that are currently being experienced by the entity. For example, after PRASA had taken Autopax and was shown shares of Autopax but one of the depots in Pretoria was sold by Transnet immediately after the transfer, at non-core. The question now is why did Transnet take it, because it is non-core to them. PRASA would dedicate a full chapter on legacy matters as it was very important to do that. The 2% on professional fees was related to a number of legal issues and this included the matter of Werksman Attorney. The financial management report could be shared to the Committee although it was unclear if it could be easily shared with people who do oversight as it for the Board to look at other matters. There are also other issues that are admin in nature that are contained in the financial management report.

Mr Letsoalo replied that the R800 million from capital to operational expenditure was done after the realisation that PRASA had been given an unfunded mandate called Mainline Passenger Service (MPS). Historically, the amount was R600 million that was supposed to be put in there, the reality is that the services is coming down drastically and there has been few areas where PRASA has reduced services, so the cost of operational expenditure are not that much. It was indeed true that revenue generation remained a huge problem for PRASA and the problem is primarily because PRASA has an open system that is vulnerable to being easily damaged or torched and this could be linked to the issue of security. The stations where the rolling stocks are kept are also vulnerable and this problem was like a house without a fence. The recent incident in Langa township where the protesting people decided to damage the system of PRASA proved once again the problem of this openness of the system. It is true that some of the PRASA employees do steal money and they had been caught on camera on numerous occasions. There are also cases of staged robbery and this was impacting negatively on revenue generation of PRASA. There is a video that could be shared to the Committee of staged robbery, where PRASA employees are clearly colluding with robberies. PRASA has regressed in terms of revenue collection and the revenue that was currently collected now was equivalent to the revenue that was collected in the 2012/13 financial year. The problem is that is easier to use PRASA system without paying a cent as it normally happens.

Mr Letsoalo responded that the total shortfall of PRASA decreased and it was already mentioned that the R800 million injection has put PRASA in a better position. The issuing of a disciplinary approval is enforced but there is also a balance that must be taken into consideration. Corruption at PRASA was so endemic to the point that it was scary. The enforcement of the disciplinary approval could easily collapse. The scopes and objectives in the auditing process are almost the same thing. PRASA had been doing what is called development leases for years as a way of accounting but there is a new audit team this year and the rules that were being applied were different. PRASA currently had about R6.8 billion but the majority of the money is just directed towards capital expenditure. There is a need to understand that the acceleration of expenditure on capital is also followed by the excrement on maintenance. The budget on operational expenditure had been relatively the same while budget of capital expenditure has increased, meaning the cost on operational expenditure have to increase and this is something that needs to be understood going forward.

Mr Letsoalo replied that there is a very funny phenomenon in this upgrading of stations, as this was costing PRASA a lot of money. PRASA was hiring consultants to do maintenance of stations and most of these consultants prefer bigger stations as it means more money for them. There are stations that should not be as big as they are and PRASA was beginning to look at a better way of designing stations that would be cost effective and looking at full life-cycle costing. PRASA would need to avoid the situation of having bigger stations that would not be sustainable in the future. There is a draft of the Turnaround Plan and it would be brought before the Committee. The reality is that PRASA should also look at the 52% that was being spent on employee. There are a lot of vacancies within PRASA but the entity was already bloated. PRASA was looking at ways to reduce the bloated system and this would be reported to the Committee. The entity has indeed ballooned but this happened in areas where PRASA was not supposed to be. What is in the system of PRASA is more than the approved structure of the entity.

Mr Letsoalo added that PRASA currently has more people than the whole structure of the entity. There are about 300 to 400 people that are currently under suspension at PRASA. The problem is mainly on the dysfunctional employer and employee relationship. PRASA is always being taken to the Commission for Conciliation, Mediation and Arbitration (CCMA). The other reality is that there is always a “henchman” within PRASA that is willing to purge those who are considered as “talking a lot”. PRASA has gone out to the road-shows in trying in to deal with a number of issues including talking to the labour unions in order to improve the working relationship. There are also CCMA rulings that were not implemented. The majority of irregular expenditure at PRASA is through investigation and R12 billion comes from the Werksmans investigation. The Werksmans report has been declared to Treasury, which involved in the appointment of the Werksmans Attorneys. The decision has been taken that the management should be dealing with matters of investigation and this must be located within the management.

Mr Letsoalo responded that PRASA has written to the Treasury in order to ascertain whether the appointment of Werksmans Attorney was done properly and there are no irregularities. PRASA has also decided that matters with an element of criminality should be dealt with by relevant people. PRASA has already written a letter to the head of commercial crimes at the Hawks in order to see how far the unit was in terms of investigations. There are other matters that would need to be dealt with internally in order to resolve all the outstanding investigations and this was to reduce the cost of doing investigations. It might be slightly correct to say that there is a leadership problem at PRASA as the Board has been intricately involved in management matters. There is a reason why a management letter had not been tabled to Parliament and PRASA is willing to have an engagement on that matter. PRASA has not successfully dealt with the recommendations of the AGSA and this was proven by the repetitive findings on a number of issues. PRASA is meeting with the AGSA next week to make some commitments on issues to be done going forward. The other reality is that PRASA is “sick”, “very sick” and this “sickness” is both literal and figurative. PRASA was not only losing the revenue but was also losing the numbers. The number of commuters using PRASA was dropping although it was unclear if this drop in commuters was on those who are paying. The irregular expenditure was going up because there are more and more investigations that are being done. PRASA was indeed having a deficit budget and this was also one of the matters to be dealt with going forward. It would be important to ascertain whether it makes sense to fund the capital project using equity as this was the most expensive way of funding the capital project.

Mr Letsoalo added that it must be taken into consideration that PRASA has a system that was not invested in for the period of 50 years. The trains are breaking down everywhere and this was as a result of this lack of dedicated investment in PRASA systems. The Committee was absolutely required to criticise when the Board is not doing its work but this must not be done at the expense of those who are working extremely hard to keep the system going. It was already made clear that the issue of 52% was not sustainable but it would be incorrect to leave the Committee with the impression that PRASA was going to be cutting jobs. The jobs that would need to be cut must be at the senior management and the executive level.

Mr Letsoalo clarified that there is no duplication of responsibilities between Transnet and PRASA. It was confusing as to why Transnet was still under the Department of Public Enterprise as this was supposed to be a temporary department in the first place. The bigger part of PRASA networks is maintained by Transnet and the Track Quality Index (TQU) that manages passengers and the freight is not the same. It is possible to carry freight in a debilitated infrastructure but the same can not be same about the passengers. He wanted to make it clear that he was not worried about being purged from PRASA as he still had the other job as a CFO within the Department. It is very difficult to cut down on security as PRASA had an open system. The country was clearly having a dysfunctional rail policing and some of the police even refused to get into trains and PRASA was having a discussion with the Commissioner of Police on this matter. PRASA is going to have to cut down on cost but this must be done carefully.  The 52% on employees and 6% on security was one of the areas that were being targeted. The reduction in energy consumption was also being targeted as PRASA was paying subsidy on energy but not tax and this was not a feasible thing.

Mr Letsoalo said that PRASA has a document management system that is dysfunctional, if it exists at all and this was being corrected as some people have left without any document. The realignment of the organisation would be done as this would save more money as it was really unsustainable to continuously make losses. The CFO of PRASA is sick, there is an acting individual in that position and this is a management issue. He is 40 years and has been at PRASA for about four months. The four months at PRASA had been a “baptism of fire” but there are a lot of strides that had been taken in the short period and the priority is to restore PRASA to where it was. The train control officers do not belong to PRASA but Transnet and PRASA is required to pay them for the service they render. PRASA was working together with the AGSA in trying to ensure that our targets are smart and linked to the KPIs. There are no vacancies at the top leadership of PRASA except the one of permanent Group CEO. There is a belief that PRASA could operate with 20 executives, there are currently about 65 executives, so there is a need to have 70% cut in executives. PRASA was working on addressing those repeat audit findings and this plan would be tabled to the Committee. PRASA would indeed move with speed in expediting matters of disciplinary process but also adhere to all the legal procedures.   

Ms Carter asked about the relationship between the investigations that are currently taking place especially those that had been instituted by the Treasury and those by the Werksmans Attorneys. How much of that 2% on professional fee was spent on Werksmans Attorney?

Ms Ramatlakane expressed concern that PRASA did not have the money but still incurred the cost of about R100 million on investigations. Was this R100 million budgeted for? Who approved the amount to be paid for investigation?

Mr Radebe asked the DG to comment on the matter of PRASA and Transnet as these were considered as “two elephants in the room”.

Mr Letsoalo responded that there are issues that the Hawks are dealing with; PRASA has provided the Hawks with all the required information. The investigation by Hawks is linked to the Treasury. There was no estimation that was done on the final amount to be paid for the investigators except for the rates that are being charged by the investigators. The R100 million was not budgeted for and it continued not to be budgeted for but it cannot be considered as an irregular expenditure. The irregular expenditure is condoned by the accounting officer and not Parliament.

Dr Molefe explained that PRASA had a meeting with the Minister of Transport and the DG and Treasury before the start of all the investigations. The agreement that was reached was that there is a need for the investigations to be coordinated in accordance with how the parcels of work are categorised. It was also agreed that those investigations that are currently happening would be channelled through PRASA and PRASA would report to the executing authority of Transport. The Hawks came into picture the realisation that there was a criminal element in some of the cases that were being investigated. The main concern with the investigation by the Hawks is that they had allocated only one officer to do the work and this was creating serious problems. The seriousness of irregular expenditure was about R14 billion.

Briefing by the Railway Safety
Mr Nkululeko Poya, CEO: RSR; mentioned that the entity had received an unqualified audit opinion for the 2015/16 financial year. The area of concern was on usefulness and reliability of performance information for strategic objective 4, procurement and expenditure management, inadequate compliance monitoring of SCM regulations. The AGSA was also particularly concerned that there was inadequate review and insufficient monitoring of compliance with procurement regulations relating to disclosures. There was also a problem of significant internal control deficiencies that resulted in the findings on non-compliance with legislation and lack of oversight in the indicators of performance reporting in the indicators approved on the APP. The entity has improved in terms of overall achievement of targets from 77% in 2013/14 to 85% in 2014/2015 and 90% in the 2015/16 financial year.
 

Mr Poya added that there had been a number of key achievements in the 2015/16 financial year and these included:

• Development of regulations to deal with human factors, railway reserves and security management 
• Establishment of level crossing committees
• Technology Review Gazette
• Establishment of  regulatory impact assessment
• Establishment of the partnership with Road Accident Fund, Premier Foods and Memorandum of Understanding (MoU) with the Department of Basic Education

Mr Poya stated that the operational occurrences had decreased by 8% from 4 632 in 2015/15 to 4 250 in the 2015/16 financial year. The safety related incidents decreased by 11% from 6 222 to 5 520. The top operational occurrence included collisions during movement of rolling stocks (26%), people related occurrence: platform and train interchange (15%) and people struck by trains during movement of rolling stock (13%). There had been a 4% decrease in the number of people killed, 24% increase in number of injuries and people who are struck by train are the main contributor. There had been an increase in injuries during collisions. Theft of assets accounts for 65% of all incidents largely affecting TFR operations. 21% involve Vandalism (including train fires), with PRASA worst affected. There had also been a slight increase in fatalities to 14 in 2015/16 from 12 in the previous 2014/15 period and a marked decrease in the number of injuries from 606 in the previous period, to 466 in the current 2015/16 period. The majority of fatalities and injuries are related to personal security on trains, at stations or in areas beyond the station platform.

Mr Poya added that there had been a 6% decrease in the number of people struck by trains. The number of people who are struck by trains account for 80% of all deaths in railway industry. Gauteng (34%), Western Cape (31%) and KwaZulu Natal (24%) are the provinces with highest number of people who are struck by trains. The reason for this high occurrence of people who are struck by trains could stem from close proximity of highly populated settlements, formal and informal, to railway lines and continued use of railway lines to gain access to passenger railway stations. The majority of people are struck during the period 18:00 to 20:00, or between 06:00 to 08:00 and this might suggest that suicide is not the reason people are being stuck by trains. A total number of 38 504 people were arrested for crossing the railway without authorization. The cable to value of R7 221 059.45  and 224 firearms were recovered during SARRP operations. Total cost equalled R331 million at an average cost per incident or occurrence of R131 263. The single most costly: derailment of a Shosholoza-Meyl train near Modderrivier station in the Northern Cape (R50 million). The overall the costs associated with train fires represented 53% of all occurrence and incident costs. The total cost R559 million at an average cost per occurrence or incident of R135 818, the costs associated with derailments represents 72% of all occurrence and incident costs on the three major economic corridors.

Mr Poya indicated that the vacancy rate within the organisation was currently sitting at 64% and this was an improvement from 73% in the 2014/15 financial year. There is a total of 50% women within the organisation. There are still challenges that had been identified and these included Safety Critical Grades – Delays in Regulation and engagement of industry and delays with publication of regulations. There are planned interventions and these included sstrengthening the RSR- Business Sweden Partnership (MTO Safety), introduction of Railway Specific Training Course, medical Practitioners and railway Safety Inspector qualification.

Discussion 
The Chairperson asked about the qualification level that would be offered by RSR on the Rail Railway Specific Training Course and railway Safety Inspector qualification. It was also not specified as to when the training programme would start.

Mr Ramatlakane mentioned that it was quite clear from the presentation that good work had been reported and this was impressive. However, the AGSA was particularly worried about some of the regressions that had been noticed in this particular financial year. What are the measures that had been put in place to address those concerns that had been flagged? What is it that was being done to address the problem of staff competencies? It was unclear as to how the organisation would be able to reduce the staff complement while there would be an addition of some of the functions. What are the plans in place to deal with the problem that had been flagged by the AGSA around the financials?

Mr Sibande also expressed concern around the issue of regression in some of the issues as identified by the AGSA.  What was being done to address the problems that had been detected in procurement? What are the measures that had been put in place to deal with numerous challenges like lack of supervision, negligence and lack of communication and infrastructure conditions? It was concerning to hear that the management was not adhering to the required standard in the prescripts of SCM as this was a leading cause to other challenges that had been identified. It was worrying to hear that the part of human nature was contributing about 60% to the train fatalities. Which provinces are the most affected in this regard? There should be an amicable plan that would deal with all the challenges around human factor. It was concerning that the entity was not taking quotations as this was part of the factors that are contributing to the regression.

Mr Radebe commented that there is a need to commend the performance of the RSR especially in regard to policy implementation that was promised to the Committee last year was appearing in the presentation. It was also encouraging to see that the entity was also addressing and taking on board some of the recommendations that had been made by the AGSA. It was indicated that there are other platforms that had not been completed by PRASA. It would be important for the Committee to hear about the progress report in that regard and what exactly are the delays. There should be an effort to deal with the challenge of human factor that is contributing to about 60% to the train fatalities that had been identified. It was disappointing to see that the entity had only spent about 1.67% on young people as the country was facing a very serious challenge within the youth aspect and it would be worse now that there is a #FeesMustFall movement.  

Mr Andre Harrison, Chairperson: RSR; responded that the Board has been very satisfied with the management intervention. Yes, the comments that had been made by the AGSA had been noted but those comments would need to be taken into context. The organisation has grown in terms of the number of people, the finances and the overall operation and this further creating other complexities. The entity has not repeated any audit findings, the organisation was learning from its mistake. There is a Quality Management System in place that is going to drive improvement in terms of how the entity was operating or doing the business at the operational level. The entity was moving forward and this was something that the Board was all working towards.

Mr Poya indicated that one of the findings of the AGSA was related to one of the employees of RSR having businesses with other government entities and it was the first time that this had been picked up. It must be highlighted that RSR was immediately taking action whenever there is a finding that had been flagged. The AGSA also found out that one of the employees of RSR did not declare their business interests and the entity had already taken an action in that regard. There are already systems in place in order to prevent fraud and corruption in the SCM. It is also good to remember the Committee that the AGSA did not pick up any emphasis of matters. In relation to the problem on the competency of staff, yes it is true that this was a major concern as the entity continued to grow its mandate, there was also a demand for competent employees to execute the mandate. There is indeed a Quality Management System that is aimed at increasing productivity to more than 40%. There are also plans to introduce training for the employees and doing competency assessment for all the senior management of the organisation. The entity was currently busy with acquiring a CFO with right competencies that would take the entity forward. The Board was very clear about the type of competencies that would be considered on the CFO.

Mr Poya responded that the staff reduction is the combination of change in strategies and the entity was very clear that adding the number of people on its own did not ultimately mean the organisation would be able to perform optimally. There are about 20 people within the organisation with master’s degree and the Board was encouraging them to be registered for their PhDs.

Mr Harrison clarified that there would not be any staff reduction within the organisation as there had been an increase in the number of employees. The projection of the number of staff that would be required had been reduced. There are no people that would be asked to leave the organisation but the organisation would be employing fewer people than originally intended and this was because of productivity, training and skilling. It is everyone’s fiduciary responsibility to ensure that resources are being used efficiently and productively.

Mr Poya replied that there is challenge of misalignment between the new rolling stock programme and the infrastructure programme from PRASA. The only organisation that allows people to get on and off of train stations is PRASA. There is cognisance of the fact that infrastructure takes a long time to be built and this is one of the problems that one was likely to have. It was likely that this problem of platform train interface would continue for the next 3 to 5 years. The reduction of train services was leading to the problem of overcrowding and less reliability of the service that is rendered and likely to increase the platform train incidents increasing. The organisation was working together with PRASA to ensure that there is realignment between the new rolling stock programme and the infrastructure programme. In relation to the concern around youth development, the organisation acknowledges that spending 1.67% on young people was not good enough. RSR was working together with the Department of Transport on coming up with strategies to deal with the empowerment of young people.  The training that is being offered is at National Qualification Framework level 6, which is equivalent to a diploma. It was precisely placed at this level so that school leavers could be able to choose those courses at tertiary level. The training would be available from 1 April 2017. 
            
Mr Ameen Amod, Chairperson of Audit Committees, stated that the Audit Committee of the RSR is constantly monitoring various aspects of the RSR on a quarterly basis, particularly looking at expenditure relative to the allocated budget. There is also a focus at looking at whether the entity would be able to meet its performance targets. The Committee was happy with the approach that has been taken by the management in addressing some of the issues that had been highlighted. It was true that there would be control lapses or deficiencies that would come about and the Audit Committee would also the relevant questions to the management whenever there are concerns or lapses in the control.

Mr Ramatlakane commented that there was no need to sugar-coat the fact that there had been a regression within the organisation. The AGSA is concerned about the increase in fruitless and wasteful expenditure. What are the measures that had been put in place to address this problem as it continued to increase?

Mr Poya maintained that the management was acknowledging that indeed there had been a regression within the organisation and this was something that the management was working towards. The organisation continued to have a lot of engagement with PRASA around ensuring that those conditions of permits are met and failure to comply with those conditions would obviously be a serious matter and this was something that PRASA was well aware of. It was already indicated that about 60% of the incidents are related to human factor and this was also a matter that would need to be address with urgency. The organisation was concerned about the number of vacancies at safety critical levels. It was impossible to run a system with vacancies at safety critical levels. PRASA had been able to deal with the problem in regard to poor signal as this was one of the contributing factors in the train derailment in Booysens station. The RSR team was currently working on the safety management system and there is a meeting that is going to take place this coming Friday with PRASA executive. RSR was concerned about the Shosholoza Meyl business and there were a lot of non-compliances within that particular business. All security incidents, in terms of the regulation must be reported to the regulator and this was even if they happened in a depot area. There is a lot of non-compliance within the security regulator in the country and the role of the RSR is not to duplicate that. There is a challenge in regard to irregular and wasteful expenditure as this problem had increased. The organisation had already explained it to the AGSA on the technicality that resulted in the increase in irregular and fruitless expenditure.

The meeting was adjourned.