SAFCOL update on internal investigations against senior managers and board members

Meeting report

Opening remarks
The Chairperson of the Committee noted the apology of the Minister of Public Enterprises.

Mr J Parkies (Free State, ANC) noted the continued absence of the Minister from the Committee meetings.

Mr E Mlambo (Gauteng, ANC) asked why the Deputy Minister was also absent from the meeting.

The Chairperson reminded Members of previous discussions about the need to change some meeting dates if Cabinet Ministers were asked to attend, because the meetings of this Committee clashed often with Cabinet meetings.

 Mr Kgathatso Tlhakudi, Deputy Director General:  Manufacturing Enterprises, Department of Public Enterprises, advised that the Minister was out of the country on an official assignment.

SAFCOL update on internal investigations against senior managers and board members
Ms Trish Pillay, Chief Financial Officer, SAFCOL, began the presentation by giving an overview of SAFCOL business. SAFCOL conducts its primary business within the commercial plantation forestry industry, through the management of 15 prime softwood saw-log plantation assets in Mpumalanga, Limpopo and KwaZulu-Natal, covering a land area of 187 320 hectares. Revenue is generated from the sale of forest products, sawn timber and value added products. Komatiland Forests (KLF), a subsidiary, owns and operates the Timbadola Sawmill, a softwood processing sawmill located in Limpopo, and manages a custom-cut arrangement. Industrias Florestais De Manica (IFLOMA) is a Mozambique-based public limited liability company, which was established in the 1980s as a government initiative. 80% of its share capital was sold to Komatiland Forests (KLF) in 2004, with the remaining 20% of shares being held by the Institute for the Management of State Holdings (IGEPE). The total landholding of IFLOMA I is 31 754 ha, of which 16 178 ha is plantable. IFLOMA II has 69 000 ha, of which 45 000 ha is plantable.

SAFCOL operates mainly in rural areas and provides opportunities for economic development and participation for local communities. Approximately 61% of the land area is under land claim, in which SAFCOL is actively involved, and it is also supporting land claimants and other community members in other initiatives.

Mpumalanga Province has 20 claimants on an estimated area of 67 507ha. 16 of these claims are being investigated over an estimated area of 50 112ha and negotiations are ongoing over an estimated area of 17 395 ha with four claimants. In Limpopo there are 23 claimants over an estimated area of 32 459ha. Two of the claims are being investigated for an estimated area of 823 ha while negotiations are ongoing with 18 other claimants over an estimated land area of 24 237ha. Three of these claims have been settled. In KwaZulu Natal(KZN), there is just one negotiation over an estimated area of 6 013 ha.

In respect of the land claims and settlement models, the Lease-back Settlement Model was developed in line with a general forestry industry approach. The Shareholder and Board requested management to review the lease back and partnership models to contribute to the improvement of community livelihoods and continuation of forestry operations. SAFCOL is currently revising the model by the inclusion of communities and land claimants in business operations’ value chain and integration of Corporate Social Investment and economic development initiatives for communities within the forestry value chain.

Turning to the current situation, Ms Pillay noted that towards the end of 2015, the SAFCOL Board requested a due diligence exercise to be conducted, because some previous and existing investigations had not resulted in criminal proceedings or the implementation of recommendations, and the Board was uncomfortable with information provided by the Executives in order to make critical business decisions. This resulted in the establishment of a new body whose mandate was to evaluate all current and previous investigations and evidence, and to propose and action further recommendations. In addition, there would be a  review of internal controls, an asset verification would be conducted, and the body would evaluate the state of SAFCOL, verify all employees and assist with drafting affidavits, evidence and proposed charges to be handed over to the Hawks and the National Prosecuting Authority.

The investigation provided findings which led to a review of the minimum qualifications of workers, an improvement in the control environment, an assessment of fire claims and a review of the assets of SAFCOL. A summary of the review of investigations against SAFCOL executives and other senior management officials showed that 13 criminal cases were opened against 7 of the previous executives since 2011. Seven resignations were reported within this period. Six cases were opened by the Pretoria South African Police Services (SAPS), against 12 senior management officials. Three had been charged, six resigned, two were dismissed, and four were still currently employed. Two of the matters were resolved and there were two cases in progress. At the SAPS in Nelspruit, Sabie and Belfast, cases were opened against 18 other employees. Eight resigned, five were dismissed and five are currently employed. All of these matters were resolved in internal processes. The cases of misconduct and criminal offenses reported ranged through:
-irregularities in the appointment of a service providers,  and/or appointment of service providers not in line with SAFCOL’s procurement policies and procedures
- non-compliance with the Public Finance Management Act (PFMA)
- fraud
- non-compliance with internal policies
- failure to comply with the fiduciary duties
- corruption
- gross misconduct, gross dishonesty, or financial misconduct
- unethical conduct relating to the unauthorised disclosure of company information.

Discussion
Mr J Parkies (Free State, ANC) focused his question on the high level of resignations. He wanted more information on the timeframes of the resignations, the demographic information of the people who resigned and those who have been employed. He appreciated the need to rid the organisation of corruption but noted that it was worrying that all senior executives at SAFCOL resigned. He also asked for a clearer definition of what “misconduct” comprised, in the cases presented.

Mr L Gaehler (Eastern Cape, ANC) also expressed concern with the spate of resignations at the company. He asked about the financial losses which resulted from the resignations and what was being done to recover these monies. He noted that these losses stood at R44.1 million.

Mr E Mlambo (Gauteng, ANC) wanted clarity on the land claims. He wanted more information on the negotiations carried out with respect to the claims.

Ms Z Ncitha (Eastern Cape, ANC) noted that only two provinces were mentioned in the presentation, and she enquired whether these were the only provinces with land claims issues. She also noted that SAFCOL has reported losses for two consecutive years, and she therefore questioned whether the executives received bonuses within this period; if so, then she wanted to know the value. She noted the mention of 20 young people trained by SAFCOL, and asked from which provinces they were drawn. She also requested more information on the minimum qualifications for employees.

Mr O Sefako (North West, ANC) expressed his disappointment at the absence of the Minister and Deputy Minister. He asked if SAFCOL had an internal mechanism to carry out oversight functions. He also stressed the need for the Committee to be taken seriously, which is why it had asked for the Executive to be present.

Ms C Labuschagne (Western Cape, DA) asked for more information on the land claims settlement model, and the anticipated time frames for that.

Mr Lungile Mabece, Chairperson, SAFCOL, responding to the question on demographic of executives at SAFCOL. When he had been appointed in August 2015, there were four executives, being one white male and three black females. Both the Chief Executive Officer and the Chief Financial Officer had resigned and the Board accepted their resignations on 15 December 2015. One of the challenges the Board had with these executives was their sharing of information; for instance, management had refused to share crucial information about the assets of SAFCOL with the Board. There was a minority shareholder, which was also problematic. The Board had attempted to solve these problems but the management could not provide documentation or information for the Board, thus prompting the board to appoint an independent body to help garner that information. The appointment of the new body was the incentive for both the CEO and CFO to resign. Then the Chief Operations Officer and Executive: Human Resources were both suspended and there were charges were laid against them. The main issues were the non-cooperation of the executives with the Board. The Auditor General listed some challenges that had to be sorted out. Much had been done between January 2016 and now to address those issues.

Mr Parkies noted the good work of the current Board but said that the information provided in the presentation was speaking only to the executives of SAFCOL. He also observed that there had been a gap between the service times of the past Board and present Board, and sought clarification on this.

Mr Tlhakudi responded to the question of oversight, by saying that the issues reported in the presentations were brought to the attention of the Department of Public Enterprises (DPE) only two years ago. Some of the issues needed a forensic investigation. Some people were identified who had engaged in committing serious crimes, but the previous Board was lax in dealing with them. The Department, through the Ministry, raised the issues with the past Board but nothing concrete was done until the tenure of those board members had lapsed. The current Board had taken office when “this mess” had already been created.

He noted that the PFMA was the main tool used for carrying out oversight. However, it was not enough by itself, and so the DPE relies heavily on the reports from the Board to make informed decisions. Appropriate government mechanisms are needed to address these issues as they arise. SAFCOL now needs to take actions to recover the monies lost. Civil suits have also been launched not only the senior executives, but also the supervisors and managers who got involved in these irregular activities.

Mr Harvey Theron, Acting Chief Executive Officer, SAFCOL, spoke about the financial losses and told the Committee that the process of recouping the monies was in progress and all information needed for this had been handed over to the National Prosecuting Authority. He noted the question on why there was so much negotiation around land claims, and said that SAFCOL was having a lot of trouble in that regard, and any interventions from the Committee would be welcomed. He noted that the model presented was not sustainable. In relation to the time frames, he said that a meeting was held with the Deputy Minister and a task team had been put in place to align all the operations of SAFCOL to ensure that the communities could benefit to the full, as well as aligning the enterprise divisions.
He explained the situation with the Broad Based Black Empowerment (BBBE) discounts, where certain companies who were buying from SAFCOL did not have the valid BBBE certificate, prompting the cancellation of the discounts to them.

He noted that SAFCOL cannot be sustainable if all its raw materials were sold out. SAFCOL is interested in creating opportunities for other businesses to come into the industry. He also noted that the wood industry in South Africa was not growing and this could be attributed also to the fact that SAFCOL has no control over where the wood logs are being taken.

Ms Tamarin Jacobs, Acting Senior Executive: Human Capital Management and Transformation, SAFCOL, responded to the questions on the training programmes. These programmes are carried out only in the provinces and communities where SAFCOL has a presence. She confirmed that there had not been any performance bonuses  paid to the executives in the 2013/2014 financial year, but bonuses were paid in the 2014/15 year. An audit carried out showed that 18 employees out of the total of more than 300 employees did not have the minimum qualifications needed for their particular job.

Mr Sefako spoke of the irregular appointments in SAFCOL, and asked the delegation how it thought the Committee might be able to help in expediting transformation.

Mr Parkies asked about those employees who may not have been qualified when employed a few years ago and wondered if they were still on the payroll of SAFCOL.

Mr Gaehler suggested that a meeting be convened, to which the Department of Rural Development and Land Reform and the Department of Agriculture should also be invited, to discuss some of the issues raised.

Mr Mabece proposed the establishment of a dedicated team within the Department of Rural Development and Land Reform, which will look specifically at the issues of land claims at SAFCOL.

Minute adoption
The minutes of the meetings of 2 November 2016 and 9 November 2016 were adopted.
           
The meeting was adjourned.