Outstanding 2016 Annual Reports: Departments' reasons for non-submission

Public Accounts (SCOPA)

01 November 2016
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Committee met to discuss the position of the government entities that had not submitted their Annual Reports to Parliament as required. Invitations to appear before SCOPA had been sent to four departments and two entities. The Department of Environmental Affairs was absent, informing the Committee that it was still engaging in ongoing mediation with the Auditor-General and suggested that this should run its course before being required to present to SCOPA. Members decided to request the Senior Parliamentary Legal Adviser to look into the matter and provide some further advice, as they were of the view that the legal requirements could not be departed from. The Department of Public Enterprises had reported to the Chairperson explaining that this meeting clashed with a special Cabinet meeting on State Owned Enterprises (SOEs) and therefore it will not be able to attend. There was no communication from South African Express in writing about its attendance (although the officials did finally appear an hour later), merely a letter to say that the Auditor General South Africa (AGSA) was not satisfied with the “going concern” requirement.  complied with the “going concerns” requirement and there were still more engagements with the Auditor-General pending.

The Department of Human Settlements set out the reasons for the non-submission of the report which was to do with the disbanding of the Social Housing Foundation, in order to set up the Social Housing Regulator. This process had been ongoing since 2012. Although the liquidation processes have been completed, it appeared that the Department had not followed up on the confirmation of delisting by the National Treasury. It was requested to do so.

The Department of Public Works explained that late submission was due to the complexities surrounding the asset registry and interpretation of the exemptions. The Members were not satisfied with the reasons, which were based on a highly technical explanation about dates when it was agreed that the asset register should be regarded as completed. There was a suggestion that the audit opinion had not been entirely agreed. The main area of contention was that the Department was not satisfied as it seemed that AGSA may have been put into a corner. Members asked who was responsible for making the interpretation, commented that clarity was needed from those who set the standards. They did, however, note the comments of the Minister and Deputy Minister that this would not be a recurring problem.

The Department of Home Affairs set out the history of the main problem; how the foreign revenue should be dealt with in the books of this department and the Department of International Relations and Cooperation, which actually collected the money. There had been rulings by National Treasury and AGSA, to the effect that the modified cash standard should be applied in full in the 2015/2016 financial year. However, NT had issued a different directive and the financial statements had to be amended, to include notes on the revenue. That meant that the first set of financial statements were no longer relevant, and had to be redrawn after technical independent advice was obtained. A new agreement was then reached on 29 July 2016 to the effect that DHA would follow the system that had been used in around 2004/2005. NT withdrew its earlier directive on 26 May 2016, of not recognising the revenue.
Members were satisfied with the reasons given and did not raise any concerns.

The Department of Transport explained the difficulties on reporting as far as Inathi assets are concerned given the ongoing legal battle with Tasima as a result of an illegal extension by the former Director-General. The Chairperson commented that Inathi is a huge entity, and because of the absence of political leadership when the extensions were ongoing, there was now a huge challenge. Members asked for more detail on the contract and took note that this matter had been to the High Court, the decision was reversed on appeal and there was a Constitutional Court application pending. Some Members commented that the size of the department meant that even more accurate management was required, and suggested that the Minister be asked to engage with the Committee for more thorough discussion on the issue. It was also noted that investigations into the Passenger Rail Agency were still ongoing but DoT was willing to discuss the issues.

When SA Express finally appeared, the Committee expressed its strong dissatisfaction and were not satisfied either with the reasons given around the non-cashing of a prior guarantee and failure of the SAX to meet the going concern requirement. It was mentioned that the Annual Report might be ready after 2 December but the Committee insisted that it must be prepared and submitted before that date. Members felt that there was no justification for the non-submission and that non-compliance with the Public Finance Management Act was a serious transgression. They expressed frustration and enquired whether the SAX had the capacity to produce financial statements and an annual report, and that its failure to do so was undermining the Committee.

Meeting report

Chairperson's opening remarks and explanation on apologies
The Chairperson told the Committee that invitations to appear before SCOPA had been sent to four departments and two entities. The Department of Environmental Affairs was absent. The Department of Public Enterprises had reported to the Chairperson explaining that this meeting clashed with a special Cabinet meeting on State Owned Enterprises (SOEs) and therefore it will not be able to attend. There was no communication from South African Express in writing about its attendance. However, the last paragraph of a letter stated that this entity had not yet satisfied the Auditor-General South Africa that it complied with the “going concerns” requirement and there were still more engagements with the Auditor-General pending. The Department of Environmental Affairs told the Committee that there was ongoing mediation with the Auditor-General, which was at an advanced stage and it requested that this process should run its course before being required to present its Annual Report to the Committee.

Mr M Hlengwa (IFP) asked the Chairperson to follow up on the reasons why SA Express (SAX) was not in attendance. He expressed discontent with Department of Environmental Affairs (DEA), saying its reasons were not acceptable, it was not meeting the requirements, and that the Committee cannot operate in that way. He emphasised that they should comply with the rule of law and asked why it was seeking to use the mediation process as an excuse for not submitting the report and being accountable.

Mr M Booi (ANC) reminded the Committee that all parties are governed by laws, and asked for the particular law being used to justify the non-submission of the reports by the DEA and SAX. These entities had been given the whole year to account and he too agreed that excuses were being used in an attempt to justify their lack of accountability.

Mr C Ross (DA) agreed with Mr Hlengwa and said he was also extremely concerned about the lack of annual reports from SAX and DEA. This meeting was a chance for both to explain. Out of thirty-eight departments, four did not submit but 183 entities in total managed to do so. He thought it particularly serious that neither failed to take the opportunity to appear and explain themselves.

Mr E Kekana (ANC) agreed with other Members, suggested that the Committee should deal with the departments present and then go back to this point.

The Chairperson agreed that SAX and DEA were out of order; they could not attempt to bargain with the Auditor-General (AG). In some other countries, comparable committees to this one were dealing with reports dating back ten years, as a result of systemic delays and South Africa prided itself on dealing with new reports every year, apart from the odd exceptions in terms of section 65 of the Public Finance Management Act (PFMA). He said that the Members all agreed that they were not satisfied with the explanations given.

Social Housing Foundation
Mr Neville Chainee, Deputy Director General, Department of Human Settlements, described the sequence of events for the Social Housing Foundation (SHF) between 2012 and 2016. SHF had been an entity of the Department of Human Settlements (DHS) but was set to close in 2010. Closure functions commenced, all liabilities were settled and debts were collected by 2012 and the main strategy was to transfer all assets to the Social Housing Regulator (SHR), which is now functioning as an entity. Staff members were given the option to be either retrenched or redeployed to the DHS.  The Special Resolution to wind up was registered with the Companies and Intellectual Property Commission on 4  April 2013, and a liquidator was appointed on 23 May 2014. Bank accounts have been closed and all funds were transferred to the liquidation account in terms of the National Treasury financial template, which was submitted to the Auditor-General (AG) in September 2014 . The Master of the High Court confirmed the liquidation and distribution account, R3.8 million was paid to the Department in March 2015, then transferred to the National Revenue Fund and confirmed by the National Treasury (NT). Interest was earned on the balance, advertised to comply with the South African Revenue Services  requirements. The liquidator launched a supplementary L&D account on the 18 November 2015, which was confirmed on 11 February 2016. The balance of R45 958 was transferred to the DHS in February 2016. The SHF is now considered to be finally liquidated. A letter had been sent to the NT for the delisting of the entity. Mr Chainee thus noted that there was no obligation to report since the entity is considered as de-listed.

The Chairperson noted that this was a satisfactory explanation, but this should have been communicated,  so that there would not be any necessity for this meeting.

Mr Booi raised a concern that the entity had not accounted to the AG and asked why

The Chairperson reminded the Committee that the entity was no longer in existence

Mr Booi made the point that there was still an obligation to account.

Mr C Ross (DA) commented that liabilities were settled in 2016, a long time after the liquidation and to him the main concern was the time frame. He suggested that there should be a fuller briefing to explain the process.

Ms N Khunou (ANC) asked whether it was possible for a government entity to be liquidated.

The Chairperson noted that the entity is to be replaced by the Social Housing Regulator.

Mr Booi made the point that the DHS should be answering but the Chairperson noted that he was merely now linking the presentation with the questions .

Mr M Hlengwa (IFP) commented that the chronological sequence makes sense, and asked why the entity was regarded as not having submitted. Better communication would have meant that the DHS would not have been called before SCOPA. He asked if National Treasury had responded, and how this happened as surely there should have been some concluding financial statements. 

Ms Khunou asked whether there would be changes with the new entity. It seemed to be run by the same staff.

Mr Chainee explained that SHF was registered as a non-profit company, then dissolved and the reason for the voluntary liquidation was to facilitate the Social Housing Regulator. The main issue was the de-listing letter. The Master of the Court had confirmed the supplementary Liquidation and Distribution account. He would consult with NT and follow up on the delisting.

Mr Booi asked why the AG apparently did not realise what the reasons were for not accounting.

The Chairperson noted that matters had to be brought to finality.

Mr Chainee in response explained that the Department completed the Public Entity template, which was submitted in September 2014. Liquidation processes were completed between September 2014 and February 2016. During then it was assumed that the delisting would happen.

The Chairperson asked if there was follow up on confirmation of de-listing.

Mr Chainee confirmed that the DHS did not follow up on confirmation of delisting with the NT.

The Chairperson suggested that SHF should now approach the NT and get back to the Committee.

Department of Public Works
Mr Thulas Nxesi, Minister of Public Works, reminded the Committee that prior to this meeting a letter had been written to the Speaker requesting an extension of time for submission of the annual report, which had by now been submitted. He noted the concerns of the Committee.

Mr Paul Serote, Head: Property Management Trading Entity, Department of Public Works, acknowledged that indeed the Annual Report had been delayed, and a letter was written to the Speaker. He said he took the matter very seriously. In  2012 the Department of Public Works (DPW) had embarked on a turnaround process, which started with the stabilisation of the Department. The setting up of the Property Management Trading Entity (PMTE) was core to the stability programme, and was the follow up to a Cabinet resolution of 2006. The programme involved the transfer of functions from the Department to the PMTE and development of the immovable assets register, which was completed on 31 March 2016. The financial statements were made available for auditing on 31 May 2016.

He wanted to put some context to the asset register. The asset register consists of 31 000 land parcels and 90 500 buildings, and this is comparable to the largest listed real estate company. The complexities are huge in relation to the Generally Accepted Accounting Principles (GAAP) standards. The transfer was a first time adoption of standards for transfer of a very large magnitude of property. It seemed that the standards had not adequately catered for a transfer of functions of this magnitude. Furthermore, it occurred over two reporting years. Clarity was required from all parties. Major interpretation was needed on paragraphs 6, 56 and 57 of the directive, which speaks of a three year exemption. The exemption was related to the presentation of annual reports and audit opinions specifically for the immovable assets register.

There had been numerous engagements, but the final clarity was received in the last week of September 2015 and was followed up in writing by National Treasury on 30 September. This was the date when the PMTE should have tabled its annual report. The Minister, in his communication, confirmed that the issues were being finalised and tabling was to be done by 31 October. That had happened.

Ms Khunou asked whether there was now a completed asset register.

Mr Serote confirmed that the asset register was finalised on 31 March 2016.

Mr Ross said that there is a budget of R6.2 billion. PMTE is a huge entity that bears a large responsibility but received an audit opinion with findings. These included the fact that the annual report was not prepared in accordance with PFMA, material misstatements, internal audit not functioning properly and R40 million irregular expenditure.

The Chairperson urged the Committee not to get into the merits of the Annual Report which was not relevant to the discussions today.

Ms N Mente (EFF) asked for clarity on the two year exemptions that Mr Serote referred to in his explanation. She commented that non-accountability cannot be justified. It had received disclaimer or qualified reports from 2012 to 2014, and only accounted when SCOPA reminded it of its obligations. She did not think the DPW was being entirely truthful. She wanted very specific reasons for the non-submission.

Ms T Chiloane (ANC) cited section 40 of the PFMA and said that the accounting officer did not submit the report as required. This had affected the whole Department, and she asked for steps to be taken against the accounting officer.

Mr Booi reiterated that the Committee is interested in the role of the accounting officer and reasons for not having done his job. The Committee had to satisfy itself that work had been done, and that the entity would be able to table the report on 31 October. He asked if there was any correspondence with the Chairperson.

Mr Hlengwa noted that the asset register had been completed on 31 March 2016, but asked for specific reasons why it had not been tabled as it appeared that there was time to do so.

Mr Kekana (ANC) did not understand the reason given and asked that it be clarified. He understood that there was disagreement between the DPW and AG, but there is an agreed procedure that the Department is supposed to follow when preparing financial statements. When reading some of the reasons given by the Department, it is clear that there is lack of capacity in the Department. Other reasons given by the Department do not make sense and asked whether it was for the first time the Department was preparing the financial statements. He wondered if it had outsourced this important function.

Ms Khunou said that last year the DPW presented the very same reasons. This implied that it was not listening to or taking the Committee seriously. The asset register, AG's report, and the Department in general had been problematic for a while. This department received a very large slice of the budget and this raised questions on whether there had not been failure to manage the money properly, particularly in view of the irregular expenditure and the failure to account on time. It had to improve.

Mr Booi said he had just re-read the letter to the Speaker. The letter made reference to the accounting officer, and he asked where that person was.

The Chairperson noted that the issues were the three year exemption and whether it had expired for the current financial year.

Mr Nxesi confirmed that the three year exemption had not expired, and it was the main reason for the differing interpretations. Although it was a three-year deal the question was when the three year period began to run – whether this was the date from which assets were transferred, or from date of agreement. DPW regarded it as running from date of transfer of assets.

The Chairperson asked when this should be clarified.

Mr Nxesi said that this had now happened and the issue would not arise in the next year. It had taken a long time to resolve as the DPW had not been aware of the difference of opinion until right near the expiry date. In answer to the Chairperson who asked for more clarity on reasons given by Mr Serote he said that Mr Serote could explain, notwithstanding “other things”.

The Chairperson asked what those “other things” were as they seemed to have given rise to the delay.

Mr Nxesi clarified that the main one was the date dispute.

The Chairperson noted that the main difference was the interpretation of the commencement of the exemption, and asked for the Department's perspective.

Mr Nxesi responded that the exemption is dealt with in terms of paragraph 56 of Directive 2, which states that the effective date for calculating the exemption will be on transfer of function. In 2013, the Department effected some transfers to take effect at the financial year but the totality of the function-shift  only happened on 18 November 2014. This would make a huge difference from an accounting perspective.

The Chairperson asked if the transfer had actually been effected on 18 November 2013.

Mr Nxesi said that DPW wanted this to happen from 1 April 2013. The third year of the exemption was thus running from 1 April 2016. The substance of the exemption related to whether to measure plant and property from 31 March. DPW,  on the basis of paragraph 56,  claimed the exemption for ”property plant and equipment not measured in accordance with the requirements of the standards.

The Chairperson asked for further explanation on the significance of these dates.

Mr Nxesi said that the simple impact was that since the exemption applied still, the AG should not have expressed an opinion on the asset register as of 31 March 2016.

Mr Cox Mokgoro. Chief Financial Officer, DPW, added that this interpretation was correct. The asset register had been done. The financial year ends on 31 March each year, and departments have two months in which to conclude the accounts, for submission to the AG on 31 May. The Department submitted its accounts together with the asset register. The AG had the period from 1 June to 31 July to audit and submit a report. It was not that the DPW did not submit the financial statements. The main issue was the extent of the asset portfolio and the Directive 2 – whether the exemption applied up to and including March 2016.

He added that the DPW decided to backdate the adoption of functions to the beginning of the financial year, rather than November 2013. This would then mean that the third compliance report was due on 1 April 2016. In answer to the Chairperson's question whether there was a precedent for this, he said that there had always been an understanding that in the last year it would have to be fully compliant.

The Chairperson asked what the AG understood the position to be; he wanted to find whether the DPW felt it had effectively been bullied into this audit opinion.

The representative from Auditor-General South Africa (AGSA) said that this was not a question of interpretation, because it did not do that. There was a delay in getting everyone to clarify, which happened in September. If PMTE had actually taken control of the assets on 1 April 2013, this meant that it would have to express an opinion on those assets as at 1 April 2016. However, if not, and the control happened on 18 November 2013, the AG would only have to express the opinion as at 1 April 2017. The main issue was whether the Directive and standards had been correctly applied.

The Chairperson summarised that the main area of contention was that the Department was not satisfied with the AG application of standards.

Mr Mokgoro conceded that was the main issue.

Mr Serote conceded that with hindsight, when GAAP was put into effect and the Department decided to back-date the transfer, it may have been over-zealous.

The Chairperson asked whether the date of transfer was based on departmental interpretations.

Mr Booi said that these matters dealt with reputation of the Departments, costs involved and accountability. If it was a matter of interpretation would have been resolved in Parliament. The money being used belonged to the public, and the public wanted to know the costs involved. There had to be consequences for the public and Parliament being misled. Who was responsible for non-compliance?

Mr M Hlengwa remarked that if the issue was not settled, it would set a bad precedent. AGSA had been put into a corner and clarity was needed from those who set the standards. The DPW seemed to have been bullied into negotiating about the interpretation of the dates.

Mr Serote said that DPW was perhaps overly-ambitious as the asset register was a complex exercise. The DPW intended to be fully GAAP-compliant. AGSA must express an opinion, but the DPW had thought that this would happen only in the following financial year.

Mr Jeremy Cronin, Deputy Minister of Public Works, conceded that the brief of the Department was too short and both Annual Reports were tabled on 31 October 2016. The DPW wanted the assets to be audited, but AGSA had not been faced with such a challenge before, with assets valued at R120 billion. The audits will ensure that the property is properly managed, in the public interest.

Mr Nxesi encouraged the request by Mr Hlengwa that the Committee verifies the information. He emphasised that the DPW was not misleading Parliament as all information was documented. The DPW had, in line with the PFMA, given its explanation because it had not managed to submit the Annual Report on time. He did not understand the question that Mr Booi raised about the costs because the Department had merely been meeting the minimum standards but had not managed to do everything that it had hoped.

Mr Booi said that the work done by Parliament was done in the interests of the public.

Department of Home Affairs (DHA)
Mr Mkuseli Apleni, Director General, Department of Home Affairs, indicated that a letter was submitted to the Speaker explaining the reasons for non-submission. National Treasury (NT) granted the Department of Home Affairs (DHA) a departure in relation to the modified cash standard of accounting in respect of foreign revenue, as well as the assets.

He reminded Members of the history. In 2013/2014 SCOPA took a resolution that NT must lead on the process of finding a solution in relation to revenue collected abroad. On 25 May 2015, the matter was followed up with NT. A meeting was held with AGSA on 7 December 2015, and AGSA ruled, in respect of the revenue, that the modified cash standard should be applied in full in the 2015/2016 financial year. This included comparative information also to be accounted for in terms of the modified cash standard.

It was agreed that the DHA would have an agent/ principal relationship with the Department of International Relations and Cooperation (DIRCO), and that DHA should not have recognised revenue in the financial statements, because it does not collect that revenue.  Therefore, DHA should add a narrative. Effectively, DIRCO would collect the revenue and deposit it into the National Revenue Fund (NRF). DHA would not record the revenue in its books as such, but would merely refer to it in the note to the financial statements.

On 14 April 2016 NT had confirmed the AGSA directive. On 14 May 2015 DHA wrote to NT enquiring how the revenue collected by DIRCO that was not yet paid into the NRF will be accounted for, and whether amounts collected by DIRCO and not paid over, as well as the receivables, could be used as source documents. On 26 May 2016 NT issued a directive to the effect that DHA should not recognise any revenue in its books, but it should insert a narrative in the financial statements. It should also record revenue previously collected by DIRCO as receivables.

The financial statements of 31 May 2016 did not report on the revenue, and there was a mere note. On 10 June 2016, AGSA issued an audit query because of the non-compliance with the modified cash standard of accounting, in relation to the foreign revenue. AGSA noted that the revenue was not recognised in either the financial statements of DIRCO or DHA. The application of the directive from NT therefore resulted in two different accounting systems being used in the same set of financial statements.

The technical team of the AGSA and NT engaged on how to deal with foreign revenue. On 18 July 2016 DHA was told that there had been agreement on this. The letter now indicated that DHA could not recognise foreign revenue collected by DIRCO as DHA revenue, because the money did not flow through the DHA bank accounts. Instead, AGSA said that DHA must recognise this on the face of the financial statements in line with the agreement now made between AGSA and NT. That meant that the first set of financial statements were no longer relevant. DHA was left with only 12 days to finalise everything. When DHA also consulted NT on how it should deal with prior foreign revenue amounts, it was agreed that technical independent advice would be sought on the application of

A new agreement was then reached on 29 July 2016. This was to the effect that DHA would follow the system that had been used in around 2004/2005. NT withdrew its earlier  directive on 26 May 2016, of not recognising the revenue.

On 24 October 2016, there was another issue between DHA and the AGSA, relating to implementation of the legacy issue. In the past, an immigration control account was managing repatriation, which meant that DHA would be changing the account. The main issue was how to bring the repatriation funds into the DHA financial statements. DHA had to write back to NT requesting permission, in line with the AGSA instructions, to bring those amounts into DHA's financial statements. Confirmation from NT was received shortly prior to this current meeting. DHA would, in a nutshell, have to find an appropriate accounting system.

The Chairperson commented that the issue with DIRCO is a long standing matter and the Committee needed to see  it resolved. The DHA brief was comprehensive and no questions were necessary.

Department of Transport (DoT)
Mr Mathabatha Mokoena, Acting Director General, Department of Transport, conveyed the apologies of the Minister and Deputy Minister of Transport. He stated that although the DoT did not table the annual Report to Parliament on time, the financial statements were submitted on time. A letter was written to the Speaker detailing the reasons for the non-timely submission.

He explained that during the last audit there was an agreement with AGSA and NT on tangible and intangible assets, in relation to the Inathi matter, where there had been ongoing litigation with Tasima, the service providers for Inathi. A High Court judgment last year ordered that the Inathi system must be transferred back to the Department. It was therefore agreed that in the 2015/16 statements, the figure would be disclosed as assets. However, the judgment was overturned on appeal, and the Supreme Court of Appeal ruled in favour of Tasima. Access to and management of the system was then back in the spotlight. During the current audit, the issue of Inathi was raised again. DoT told AGSA about the Supreme Court of Appeal judgment. More than 17 interdicts applied to prevent the DoT from accessing the system or doing anything that could be construed as” taking the system away” from Tasima.

He said that the modified cash standard of accounting that had been applied does not take the court interdicts into consideration. AGSA thus gave a qualified audit opinion but there was willingness from Tasima employees to assist with the assets. The Department wrote to request an extension of the audit period to August 2016, to enable a meeting with AGSA in relation to verification of the assets. Once again, legal issues were raised, saying that the DoT may not get access to Tasima's system.

AGSA took the approach that it could not take court orders into account; it must conduct the audit along defined principles. Standard setters agreed and noted that the DoT could not therefore tell AGSA that it must not audit and verify the assets of Inathi. In a meeting with AGSA on 2 September 2016 it was agreed that the matter be referred to mediation. In theory, complying strictly with the modified cash standard could result in the Departmental officials being in contempt of court since they were not allowed to deal at all with Inathi accounts. AGSA  requested the DoT to add notes on the issues into the financial statements. The Annual Report was finalised and then submitted to Parliament.

Mr Mokoena indicated, in summary, that there was a High Court judgment which rendered the extension of the Inathi contract void ab initio. When Tasima appealed the SCA ruled in favour of Tasima and put the contract back into force.

The Chairperson requested Mr Mokena to address the arrangement with Tasima that led to the legal battle.

Mr Mokoena explained that the DoT had challenged what it saw as the illegal extension of a contract by the former Director-General. There were also court orders relating to the payments, in line with the Department’s view. The judgment of the Supreme Court of Appeal had been further appealed to the Constitutional Court, and if the conclusion there was that the Inathi contract was illegal, then the DoT would immediately take it over and begin to verify the assets there. However, if the Constitutional Court ruled against the Department, DoT would start a management transfer in terms of the contract.

The Chairperson asked whether a section 65 letter was submitted to the Speaker, and Mr Mokoena confirmed that it was.

Ms T Chiloane (ANC) enquired whether there were any other reasons, apart from the Inathi issues, affecting why the DoT failed to submit on time.

Ms Khunou asked for clarity on the terms of the agreement between DoT and Tasima.

Mr Mokoena clarified that the contract between the Department and Tasima was a five year contract, with transfer of management on the last day of the contract, which could take an additional five years to conclude. In essence, it was a build-transfer contract, where Tasima had to build the contract and transfer it back to the Department. When the initial five years ended there was an extension.

The Chairperson commented that Inathi is a huge entity, and because of the absence of political leadership when the extensions were ongoing, there was now a huge challenge.

Ms Chiloane made the point that the DoT seemed to suggest that Tasima had worked until the very last day, with no transfer, but to her mind it would have been impossible to achieve this anyway, from the explanations given.

Mr Mokoena explained that the monthly payments were made in terms of the main contract, before the contract was extended illegally. At the time when the High Court judgment was handed down, the Department had trained people and was ready to take over.

Mr Ross remarked that the Department has an immense problem. Its total budget was R53 billion, which required accurate management. Late submissions were, to his mind, always an indication of mismanagement. Whilst he thought the explanations can be accepted, he nonetheless suggested that the DoT must be called to the Committee, together with the Minister, to have a thorough discussion on these issues. 

Ms Chiloane noted that  the Annual Report will therefore not be tabled till the Constitutional Court finalises the matter.

Mr Booi  commented that there is pressure from the public for accountability. SCOPA relies on the AGSA and therefore had to find out the main reasons behind the issues raised by AGSA. The explanations about the court cases were heard, but the point he wanted to make was that non-submission of the statements effectively was resulting in fruitless expenditure.

Mr Mokoena reiterated that non-submission was due to the Inathi issues. Other problems within the Department related to Passenger Rail Agency South Africa (PRASA).The investigations here were still ongoing, but the DoT was more than willing to discuss the issues. He concluded that investigations have not been stopped and DoT is more than willing to engage on the PRASA issue.

South African Express (SAX)
Mr Inathi Ntshanga, Chief Executive Officer, SA Express, arrived an hour late for the meeting.

The Chairperson expressed concern over the letter that was sent, saying the Committee did not take kindly to the explanation given and to make it worse, the letter had been sent after hours.

Mr Booi said that this kind of conduct warranted consequences being imposed. He urged that the Committee needed complete clarity on the issues.

Mr Ntshanga indicated that SA Express had not been able to meet the requirements of “a going concern” as required by the Companies Act, and engagements with the AGSA are ongoing in that regard. There were issues around the guarantee received in March 2015 which SA Express had not cashed. SAX was saying it was required to provide proof that funds will flow on the back of the guarantee, whilst the funders were saying they require sign off by the AG in order to release the funds. The process was close to being finalised and it was anticipated that very soon there would be a flow of funds. The Minister of Transport had made a presentation to Parliament on 27 September, when concerns were also presented to the Speaker about the inability of SAX to finalise the financial statements on time. It was hoped that the “going concern” requirement would be met soon.

The Chairperson asked Mr Ntshanga to specify a date on which the Annual Report will be finalised.

Mr Ntshanga indicated that this report will be tabled after the Annual General Meeting on 2 December.

The Chairperson reminded Mr Ntshanga that Parliament is going on recess very soon. There was also an issue about the cashing of the guarantee, and the letter to the Speaker indicated that there is no confirmation that the “going concern” requirement will be met in the upcoming twelve months. Therefore, it seemed that SAX would be forced to cash the guarantee.

Mr Hlengwa enquired whether cashing a guarantee would inhibits the submission of the Annual Report, and asked if there was anything in any law that justified non-submission on the basis of a guarantee to be issued.

Mr Ross agreed with Mr Hlengwa that guarantees do not prevent the tabling of Annual Reports. He also wanted more information on the cash guarantee amounts.

Mr Ntshanga explained that the guarantee was R1.106 billion, reduced to R1.006 billion, to be further reduced by R150 million.

Mr Ross (asked for an indication on irregular expenditure .

Ms  Khunou agreed with Mr Hlengwa and suggested that whilst waiting for the report, SA Express should be taken as an entity that has problems, and added that poor service had been a problem since 2012.

Ms Chiloane commented that the main concern is that the processes are governed by the laws, and every time reports have to be tabled, all sorts of excuses are submitted. She thought the Committee was being too lenient and perhaps it should consider whether charges should be brought against anyone under the PFMA.

Ms Mente expressed frustration, and enquired whether SA Express has the capacity to produce the financial statements as well as the annual reports. If so, then why is the Committee being undermined, or given excuses each time annual reports have to be submitted? The law requires annual reporting and this should be done.

Mr Booi remarked that he is not concerned with what happened at the AGM, but why the annual report was not submitted to Parliament. He agreed that SAX was undermining the law. If AGSA had been satisfied on the reasons then SAX would not have been called to this meeting.

Ms Khunou commented that the fares have been raised and levels of service reduced and that should be addressed.

Mr Ntshanga indicated that the comments and submissions by the Committee have been noted. The challenge is that if the AGSA felt that SAX was not meeting the requirements of a going concern, then it should be liquidated. The Annual Report was almost completed; only the audit opinions were outstanding.
The Chairperson noted that the main concern is whether SA Express is “getting out of the woods”.

Mr Hlengwa thought that the CEO's answers were not justified in law, time lines were clearly not adhered to and that this set a bad precedent.

Mr Ntshanga indicated that there has been a huge improvement between 2015/2016. SAX had worked hard on austerity measures, renegotiations of contracts, and 50% reduction on catering which brought positive results on the financial side. The main problem is the ageing fleet of about 18 years old; whilst it is safe, it is expensive to maintain.

Mr Booi cautioned that the CEO was giving a report which Committee cannot verify, and the Committee relies on the AGSA.

The Chairperson commented that the law should be adhered to and there should be no excuses for non-submission. That report should be submitted by end November, not in December.

Department of Environmental Affairs
Members resumed discussion on this entity.

Mr  Kekana commented that non-submission of reports is a transgression of the law and enquired whether the Committee has a legal remedy to hold it accountable.

Mr Ross agreed that non-submission is a very serious transgression of the law and suggested this be discussed with AGSA.

Mr Hlengwa agreed that there had to be action against transgressors. The Department of Environmental Affairs should appear before the Committee to explain.

Ms Khunou remarked that the departments should take Parliament seriously. The main goal of the meeting was not reached, in that the departments came up with several excuses. She felt that the Committee should take a stern stance. Of even more concern was the possible liquidation of government entities.

Mr Booi suggested that the Committee take legal advice on the next steps, and Mr Kekana agreed, lest this Committee set a dangerous recent. The regulations are clear; there can be no excuse. He was not satisfied that the DPW had attempted to use an excuse of loopholes in the relevant Act to justify its actions.

Mr Ross suggested that the Committee should consult with Adv Frank Jenkins, Senior Parliamentary Legal Adviser.

The Chairperson indicated that the DEA should appear before the Committee and would be advised when it must do so. Any person may be summoned to Parliament. He agreed that legal advice would be sought as suggested.

The meeting was adjourned. 


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