The Standing Committee on Public Accounts (SCOPA) met to hear and deliberate about the irregular, fruitless and wasteful expenditure at the Passenger Rail Agency of South Africa (PRASA).
The meeting was told that PRASA was the most worst performing government entity when it came to irregular expenditure. Transparency had been lacking, adequate expenditure controls had been virtually non-existent and there seemed to be no consequence management to reinforce all of those accepted accounting practices. The Public Protector in August 2015 had revealed non-compliance on a scale that had never been seen in the country. The nature of the irregularities was about the disregard for legislative requirements in PRASA’s contracts. The total amount of irregular expenditure was R14.6 billion
The chairperson of PRASA’s board, its Acting Group Chief Executive Officer and Acting Group Chief Financial Officer were questioned extensively about the financial transgressions which had been identified by the Auditor General of South Africa (AGSA) at the entity. They acknowledged that these had taken place, but said that the transgressions were related to controls and investigations that had uncovered irregularities which in the past had not been picked up by AGSA. The current leadership of PRASA had exposed them as part of creating transparency and adopting measures to correct the situation, as some of issues were legacy matters, and not only matters that had occurred in 2014/15.
PRASA’s 2015/16 annual report had indicated that about 100 cases of corruption were being investigated by the National Treasury (NT), and others by Werksmans Attorneys, and about 39 were being investigated by the Directorate for Priority Crime Investigation (DPCI). So far R108 million, had been spent on the Werksmans investigation. They had investigated 142 contracts and were also responsible for preparing the litigation against Swifambo Rail Leasing in relation to the Afro 4000 locomotives.
Members asked about the progress in the investigations, and sought answers as to which employees were specifically responsible for the transgressions, and who was ultimately accountable. What action was being taken to recoup the money which had been wasted illegally? Were those responsible financially able to repay the money? What was being done to fill positions permanently to replace executives in acting positions, in order to strengthen the leadership of the organisation? Why had PRASA not provided the DPCI with the information it had requested for its investigations? They said the failure of PRASA’s audit and risk committee to assist the entity to comply with the Public Finance Management Act (PFMA) was something the Portfolio Committee took seriously, and someone had to “walk the plank” and be held to account for the very high fruitless and wasteful expenditure.
The Chairperson said the hearing would focus mainly on the Passenger Rail Agency of SA’s (PRASA’s) irregular expenditure. The Committee had wanted to engage with PRASA because it had the biggest amount in irregular, fruitless and wasteful expenditure compared to other Government departments and State Owned Companies (SOCs). From the submission the Committee had received from PRASA, it was concerned with the very relaxed sense from PRASA officials in responding to issues of financial misconduct. The Committee had made the attendance of the Directorate for Priority Crime Investigation (DPCI/Hawks), the Auditor-General South Africa (AGSA) and National Treasury (NT) a permanent feature so that if during discussions there was cause to believe there were acts of criminality in the expenditure by PRASA, the Committee could make referrals there and then.
He then said Mr D Ross (DA) would deal with irregular expenditure followed by a brief discussion so that thereafter Mr M Hlengwa (IFP) could speak to fruitless and wasteful expenditure.
Mr Ross said it was a sad day for SCOPA to note that PRASA was amongst the six entities responsible for 50% of total irregular expenditure. Was PRASA aware of that?
Mr Popo Molefe, PRASA board chairman, replied that he was aware of that fact.
Mr Ross said transparency had been lacking at PRASA, adequate expenditure controls had virtually been non-existent and there seemed to be no consequence management to reinforce all of those accepted accounting practices.
Mr Molefe said he agreed, but there was a context because the position was, as reported in AGSA’s report due to interventions, related to controls and investigations that had uncovered irregularities which in the past had not been picked up by AGSA. The current leadership of PRASA had exposed those things as part of creating that transparency and adopting measures to correct the situation, as some of things were legacy matters and not only matters that had occurred in 2014/15.
Mr Ross suggested that in 2012 it had been the South African Transport and Allied Workers' Union (SATAWU) that had found those transgressions. However, in 2013/14 and 2014/15 there were AGSA reports. Was it PRASA’s assertion that AGSA never found those irregular expenditures in PRASA’s audit reports during that time?
Mr Molefe said he was not saying that, but there were matters that had emerged through the forensic investigation that were in the wake of some of AGSA’s findings and the Public Protector’s (PP’s) report, which had then raised the number of irregularities to the current percentages.
Mr Ross asked whether the forensic investigation had been internally instituted or called for by the stakeholder?
Mr Molefe said after the board of PRASA had received AGSA’s report, and mindful of its obligation to the Public Finance Management Act (PFMA), had resolved to institute the investigation. Of course, the Minister had also been appraised of that AGSA report as well, whereupon she had also advised that the investigation be undertaken in July 2015.
Mr Ross commented that indeed the PP in August 2015 had revealed non-compliance on a scale that had never been seen in the country. Who had initiated the forensic investigation?
Mr Molefe said it was the board of PRASA that had commissioned that investigation.
Mr Ross asked what the timelines were.
Mr Molefe responded that he thought the investigation commenced with effect from July 2015.
Mr Ross said the total amount of irregular expenditure had been R14.6 billion, and asked if he could be given the amount allocated to the entity annually by the Department of Transport (DoT).
Ms Yvonne Page, Acting Group Chief Financial Officer (AGCFO), replied that PRASA had received about R4.8 billion as the operational subsidy and R14 billion as the capital subsidy for the 2015/16 financial year (FY).
Mr Ross said he wanted to clarify that PRASA had received R14 billion as capital expenditure (CAPEX) and R4.8 billion as operational expenditure (OPEX). With a total of R18 billion, there had been an amount of R14.6 billion in irregular expenditure. Was that over two years or one, or was the irregular expenditure only R4 billion for the 2015/16 financial year?
Ms Page said that according to the notes in the financials, the R14 billion had been allocated over a few years and therefore there had been only R3.9 billion irregular expenditure for the 2015/16 FY, and the rest had been for periods prior to that. Due to the fact that the irregular expenditure had been picked up in the 2015/16 FY, PRASA had then gone back to prior years to see what the expenditure was.
Mr Ross said the reason for this question was to establish whether there was a trend of recurrence in terms of irregular expenditure. Did PRASA expect the trend to continue in future, or could one expect to see better results? However, if there had been irregular expenditure of R3.9 billion against the operational expenditure of R4.8 billion, that did not bode well for PRASA’s financial management.
Ms Page responded that if the Committee observed the condonation process which PRASA had to go through, the state-owned company (SOC) could not condone expenditure unless the investigations had been concluded. Therefore the irregular expenditure guidelines dictated that those matters found at audit had to be shown as irregular expenditure until such time that it had been condoned. For the next FY (2016/17), where the investigations would still be ongoing, PRASA foresaw that the irregular expenditure would remain high until all the condonation processes had been concluded.
Mr Ross asked if Mr Molefe would agree that if there was a 20.7% of irregular expenditure off the total allocations from the DoT to PRASA, that was disappointing?
Mr Molefe agreed it was indeed an undesirable and disappointing situation, but again the matters had to be contextualised regarding the nature of operations at PRASA. It would have detailed in its report to the Committee that it was dealing with legacy issues, some of which were germane to the operations of PRASA. For example, irregularities were committed pertaining to procurement of overhauls, supply of spares, and maintenance of coaches of trains where contracts were signed. If PRASA were to ignore the implications of what the stopping of these irregular contracts would be for ordinary South Africans, it would paralyse the country and its economy, and would lead to protests against those in authority. Therefore if PRASA just stopped everything, there would be no maintenance, as procurement was irregular and there would be no general overhauls, whereafter it would have to start procuring afresh, and this would take approximately six months to conclude. There would also be far reaching consequences, as those with irregular contracts would go to court as well over the terminations of contracts.
Mr Ross pointed out that in the final analysis, in the nature of the irregularities it was about the disregard for legislative requirements in the contracts that had created the irregular expenditure, as irregular expenditure was non-compliance with legislation. The background in the presentation had no clear statement of intent, which was to say there was no admission that PRASA intended to prevent the irregular expenditure which was a core purpose of an accounting officer in a SOC. In the bigger contracts, there seemed to have been a deliberate attempt for non-compliance in Supply Chain Management (SCM). He asked for some clarity in this regard.
Mr Collins Letsoalo, Acting Group Chief Executive Officer (AGCEO), PRASA, conceded that there had been a general collapse in controls at PRASA in all areas of the business. From SCM, financial management and even Human Resources (HR), there had been no controls and in areas where there were controls, they were inadequate.
Mr Ross said the Committee accepted the concession by the AGCEO, but another area of disappointment was the weak pronouncement of consequence management, because the second paragraph of the ‘background’ reads: ‘Once these investigations were concluded it would be determined if anyone needs to be held accountable for the breaches and action would be taken against transgressors including recovering of some of the amounts where no value for money was obtained’. He asked if Mr Letsoalo also conceded that inadequate action in terms of consequence management had been followed by the administration or the board, and perhaps that political oversight had been absent as well.
Mr Letsoalo said that indeed, PRASA conceded, and if one looked at the trends from 2012 -- at least up until 2014/15 FY -- there had been a lack of consequence management. He would not extend that to a lack of political oversight, because there was an accounting authority as determined in terms of section 51 of the PFMA, which was the board, which had to ensure that controls were there. Therefore the political oversight would not have known whether irregular expenditure would have been found or not. What the Committee could take solace in, was that the irregular expenditure had been found and there was consequence management which had been unfolding, which PRASA would show the Committee.
Mr Ross asked about the status of PRASA’s financial reports over the last three years according to the findings of AGSA.
Mr Letsoalo said all of them had been unqualified, with findings that had been addressed.
Mr Ross said that if those findings were binding, they could be quite severe in that they indicated that the money involved was quite excessive. Did he agree with that?
Mr Letsoalo conceded that there had been findings regarding the R14.6 billion in irregular expenditure, and PRASA was making the Committee aware that it had an action plan (AP) to deal with those findings which were reviewed with AGSA quarterly during its audit committee meetings.
Mr Ross referred to the GO contracts in the presentation, and asked if Mr Letsolao also found it deplorable that no evidence had been provided that competitive tendering processes and SCM prescripts had been complied with for the initial appointment of contractors?
Mr Letsoalo conceded that it was deplorable.
Mr Ross asked for more information in that regard, in terms of there being no tender processes implemented at all, and that the amount was approximately R6.8 billion regarding GO contracts.
Mr Letsoalo said GO contracts were awarded to different contractors, like Commuter Transport Engineering (CTE), Goldex Engineering & Maintenance, Naledi Rail Engineering, Rolling Stock repair services, Transnet Rail Engineering, Union Carriage & Wagon and Wictra Holdings. What had occurred was that over the lifetime of a train set, one needed to carry out intensive general overhauls to ensure that the lifetime of an asset was sustained or prolonged. In the 2007/08 FY, PRASA had gone out on tender, following which the board in 2014/15 had decided to extend that contract without necessarily subjecting it to procurement processes. The extension then became irregular expenditure, as the expiry of the contract had required going out to tender for renewal.
Mr Ross asked what his recommendation would be if the following scenarios could be implemented in terms of PRASAs action steps:
- Would he say, in respect of the R6.8 billion contract, that there had been criminal intent and therefore criminal procedures should be undertaken, or would he recommend that only disciplinary steps be taken?
- Would he recommend suspension if the people involved were still within PRASA, and what would be the consequences in terms of these legislative requirements?
Mr Letsoalo said that an irregularity did not translate to criminality unless there was an investigation which found that there was a level of criminality, which then would need law enforcement to get involved. To date there had been nothing suggesting criminality at that time, save for what would be found by an intense investigation. The decisions that were made at that time were in terms of section 16 (a) 6.4 of the National Treasury (NT) regulations, where one was allowed to go and procure without necessarily following processes, but where one recorded the reasons for not doing so. One would then sit with AGSA, who would state that they did not accept those reasons, which made the procurement an irregularity. PRASA had agreed with AGSA on that irregularity, but that did not make it a criminality.
Mr Molefe referred to PRASA’S internal processes and to the extent it had found that some officials had deliberately used the so called ‘confinements’ contrary to NT regulations to favour particular businesses, and said such individuals had been taken through disciplinary processes. Some had, of course, resigned while disciplinary processes were under way.
Mr Ross said that if he understood correctly, Mr Letsoalo ‘had commented that there was an inconsistency between AGSAs findings and the NT regulations, which was something the Committee should look at.
Mr Letsoalo responded it was a matter of interpretation. According to Section 16 (a) 6.4, one was allowed to go out and not follow the process, provided one stated the reasons for doing so. The board had followed that process, and AGSA had said the reasons did not hold water as there was no hindrance for PRASA not to have gone out on tender. PRASA had agreed with AGSA.
The Chairperson commented that it was therefore a matter of application, because PRASA was then applying the rule, but the incorrect application made the expenditure irregular.
Mr Ross asked what the current status of the investigation was, seeing that the board chairperson had alluded to officials that had resigned during the disciplinary processes.
Mr Letsoalo said the discovery of the irregular expenditure had happened only in July of the 2015/16 FY. PRASA had then extended the scope of work which Werksmans Attorneys were doing, to see whether there was any criminality.
Mr Ross said he would like the Committee to recommend whether the matter should be referred to law enforcement agencies. The Siyangena Technologies contract was also concerning, as the irregular expenditure was R3.2 billion. He asked if PRASA would say there had been deliberate non-compliance with SCM processes.
Mr Letsoalo a level of criminality was suspected, as the Werksmans investigation had uncovered a high level of irregularity.
Mr Ross asked what his views would be on the Siemens contract.
Mr Letsoalo said PRASA had not found anything yet that would suggest any criminality, though the investigation was ongoing.
Mr Ross asked whether ‘ad hoc maintenance contracts’ referred to a group of service providers. How many contractors did it refer to?
Mr Letsoalo said there were many. They included Isphikeleli Senyoni Manufacturing and Trading, Bakara Engineering, Mizana Engineering and Services, Hamisa Engineering and Mining, Raisibe Rail Engineering and Mechanical Services, and others. The Committee had the list.
Mr Ross asked whether any preferential tender allocations had been done in respect of those contracts?
Mr Letsoalo said there had been, and criminality had been found in that regard.
Mr Ross asked if he would support the Committee if it referred those contracts to the Directorate for Priority Crime Investigation (DPCI).
Mr Letsoalo said PRASDA had referred some to the DPCI already.
Mr Ross asked him to elaborate on the Siyaya Energy contract, as he believed it involved diesel.
Mr Letsoalo replied that there had been a deviation from proper procurement processes, where the pricing had been exorbitant, and PRASA believed that there had been irregularity and suspected criminality as well.
Mr Ross asked what had happened with the second ad hoc maintenance contracts for them to be categorised as irregular.
Mr Letsoalo said they had been similar to the first group of irregular ad hoc maintenance contracts.
Mr Ross asked what his views on the SA Fence and Gate contract were.
Mr Letsoalo said what had been found was that though the works were done, the bill of quantities had been grossly understated. Consequently that meant a need for extension, which then made the contract irregular. The question then was, if the bill of quantities had been understated, how had they been awarded the contract compared to other bidders?
Asked why the tender was not evaluated in terms of the bill of quantities, Mr Letsoalo said the tender had been evaluated, and there had to be a consideration from a functionality perspective of whether the bidder had the ability to do the work. It had been discovered that they could do the work, and when the pricing came in, PRASA had found that it was well below other bidders, so SA Fence and Gate was allocated the tender. In the implementation, the bidder had discovered that the bills were not enough to cover the work they had tendered for.
Mr Ross turned his attention to On Board Services, and said the comment from the presentation was quite important as it pertained to contracts that exceeded certain amounts where there was a split of quotations and the contract then fell into a different category. Did PRASA think there was criminal intent in that contract that needed to be referred?
Mr Letsoalo said there were different ways in which PRASA could have classified things, and there certainly could have been criminality, but he could not apply himself until the investigation had been concluded. The issue was that AGSA had felt that planning at PRASA had not followed the proper planning processes, as PRASA had known that with On Board Services the amounts would exceed R350 000 over a period. Instead of splitting contracts at a group level, it had been done at a regional level, where regional managers had decided to go on a quotation which they saw as a splitting of bids. When PRASA had looked at it at the group level, the issue had really been about not doing the quotation at a centralised level where it was supposed to have been, because that would have given PRASA economies of scale and it would have made it easier to get pricing in the market. That hadthen created the irregularity.
Mr Ross said that as he concluded on the contracts, he wanted it noted that as per the list, irregular expenditure for the 2015/16 FY was estimated to be R4 billion. It was only when the law was stringently applied, there were strong internal controls and regard was given to the recommendations of AGSA that fruitless and wasteful, irregular expenditure and unauthorised expenditure could be decisively dealt with, and which if left unattended, became pathways to corruption, maladministration and unethical behaviour.
Mr Letsoalo said he fully supported this statement.
Ms T Chiloane (ANC) asked how long the AGCEO and AGCFO had been in office. Where was the process of permanently appointing officials to those positions?
Mr Molefe said PRASA had had different AGCEOs since Mr Montana left PRASA in July 2015. The first AGCEO was Mr Nathi Khena, whose acting position of six months had been extended by another three months at expiry. Subsequently, Mr Letsoalo had been appointed AGCEO and cumulatively, between the two of them, they had acted for 15 months. The AGCFO position had been for about two months, and it was position PRASA had had difficulties in filling.
The challenge with filling of these positions was that they were required to go through the Cabinet, led by the relevant Minister, and then through the relevant Committees, because PRASA had submitted its report to the Executive Authority (EA) as early as March 2016 in this regard. It had subsequently engaged the Minister, and the current status was that PRASA may have to re-advertise the vacancy. It had said in the past that PRASA was suffering because of this, and it did not sit comfortably with the board to constantly be told that it was failing to turn around the SOC when it needed stable leadership at the executive level. It had been told that it was undesirable to meet more than four times in a quarter, but when there were all these challenges in an organisation with the kind of history that PRASA had, it was inevitable for the board to meet more than it would ordinarily. However, all these matters were being dealt with, as PRASA had just returned from a serious strategy discussion as an organisation, which had produced very clear action plans across all the areas of concern.
Ms Chiloane asked if the stakeholder could elaborate on the input by the Mr Molefe regarding the stability of the executive senior positions and their status.
Mr Mathabatha Mokonyana, Acting Director-General (ADG), DoT, said that around the time of the process of appointing the CEO of PRASA, the Minister had started receiving disturbing reports about the challenges at the SOC. She had then discussed and agreed with the board of PRASA about the secondment of Mr Letsoalo as AGCEO of PRASA to stabilise the organisation, so that by the time a permanent CEO was appointed, some stability would have been brought to the organisation. The DoT was were beginning to see changes at PRASA since Mr Letsoalo’s appointment, especially regarding the areas of concern. The secondment was scheduled for six months, when it would be assessed again as to whether Mr Letsoalo stayed at PRASA or returned as DoT CFO.
Ms Chiloane said PRASA’s 2015/16 annual report (AR) spoke about 100 cases of corruption that were being investigated by the NT, others by Werksmans, and about 39 being investigated by the DPCI. How much had been spent on the investigations by Werksmans, and was there a limited period by which the investigation had to be concluded? What was different about the investigation by Werksmans in comparison to the investigations by the NT and DPCI?
Mr Letsoalo said that so far R108 million had been spent on the Werksmans investigation. They had investigated 142 contracts and were also responsible for preparing the litigation against Swifambo Rail Leasing in relation to the Afro 4000 locomotives, and there was also an issue around Siyangena Technologies as well. Werksmans was also responsible for those contracts PRASA had applied to be set aside.
The Werksmans investigation was different from the others because the NT investigation was a consequence of the remedial action called for by the Public Protector’s investigation and report, which asked the NT to investigate every PRASA contract from 2012 which amounted to R10 million or above. Therefore, where Werksmans picked up anything that related to the NT investigation, there was interaction between the two bodies. In investigation where criminality was found, Werksmans had to send the information through to the DPCI.
Ms Chiloane asked how much the 142 contracts being investigated amounted to.
Mr Letsoalo replied that the total amount was approximately R24 billion.
Ms N Mente (EFF) said the board chairman of PRASA had indicated the current challenges, including the irregular expenditure, was a matter of legacy and that the nature of PRASA’s business made it impossible for the expenditure to not be irregular. During audit, AGSA normally required cooperation from entities in the supplementing of documents pertinent to audit functions -- had PRASA supplied AGSA with all the relevant information to allow AGSA to make a reasonable audit finding?
Mr Molefe said that because AGSA interacted with the chairperson of the audit and risk committee and the executive management team, all the documents available would have been given to AGSA for purposes of auditing. In its detailed investigation, PRASA would show that in the past documents had been destroyed and others hidden by particular managers who were in office, and which had been discovered only through the forensic investigation. There would still be some documentation that AGSA would not have been able to access, because the board and management also did not have those documents. Among the big challenges identified was document management within PRASA in terms of internal controls, which it was addressing.
Ms Mente said that therefore AGSA would have interacted with the audit and risk committee together with audit executive management, but AGSA had said there were:
- Material inconsistencies in the annual report. The auditor was required to read the annual report to identify material inconsistencies, if any, with the audited financial statements. The draft annual report was not provided and as a result he was unable to determine if there were material inconsistencies.
- Supplementary information issues. The supplementary information set out on pages 1 to 34 and 46 to 84 did not form part of the financial statements and was presented as additional information. He had not audited these schedules, and accordingly he did not express an opinion on them.
The statements of the Mr Letsoalo and Mr Molefe contained the legacy challenges to which AGSA alluded in the above statements. Nowhere here had PRASA reported to AGSA that the current leadership had been dealing with legacy issues, which was why AGSA had pointed out that the current leadership was failing in consequence management. Why had PRASA not supplied the information which AGSA alluded to in PRASA’s AR?
Mr Molefe responded that indeed, AGSA dealt with the current leadership of an entity, and he would not know all the information AGSA had required of PRASA, but the head of internal audit, and the AGCFO and AGCEO could speak to whether they understood the exact nature of the information which AGSA required.
Mr Letsoalo said the last matter relating to supplementary information on pages 1 to 32 of the AR was where PRASA would give additional information on all its sub-entities for information purposes, and not necessarily for audit purposes. AGSA was therefore expressing an opinion that they would not have gone through that information as part of the audit. There followed a part about material inconsistencies in information, and indeed there were instances where PRASA thought information was available, and when it checked it was not there, so AGSA also could not access it. In other instances, there would be PRASA managers who would promise to deliver certain documents to AGSA without ever following through and handing the information over. Senior management had intervened to the extent that documents could be provided, in and in some cases that was done and in others it was not done. For example, with the 2007 GO contracts, because of the time lapse, some information could not be found. AGSA had then made a finding on the financial statements, stating that though that information had been found, there was no way of verifying whether all the processes had been followed.
The Chairperson asked whether what Mr Letsoalo had said applied to matters of the past, or did it include the past 12 months under review?
Mr Letsoalo said it referred to matters of the past.
The Chairperson asked if therefore, in the past 12 months, there had been no such issues. AGSA was not going back 15 years, because they would have audited 2013/14, 2014/15 and this AR was for 2015/16.
Mr Letsoalo said AGSA had gone back, but PRASA could answer for itself. It had audited the year under review, having applied itself to what had been happening historically with the organisation.
Mr M Booi (ANC) cautioned Mr Letsoalo that he was an accounting officer, and therefore could not tell the Committee to ask AGSA a question put to him. He asked him to answer the Committee.
The Chairperson said the Committee was dealing with historical irregular expenditure, as it was being investigated, but when reading the 2015/16 AR it had found irregular, fruitless and wasteful expenditure which had been recorded for the year under review. It therefore did not want to deal with matters happening in 2015/16 being brought to Parliament in five years’ time.
Mr M Hlengwa (IFP) said Mr Letsoalo had stated that supplementary information had been given to AGSA without necessarily the information being audited, but he wished to draw his attention to the following:
- The auditor was required to read the annual report to identify material inconsistencies, if any, with the audited financial statements. The draft annual report was not provided, and as a result he was unable to determine if there were material inconsistencies.
AGSA further said that:
- supplementary information set out on pages 33 to 34 did not form part of the annual performance report and was presented as additional information
He concurred with the Chairperson that the pertinent information had to do with the 2015/16 AR.
Ms Mente said the irregular expenditure had been divided into two, where R9 billion irregularly spent had been in the previous years where information was required by AGSA to make a sound finding in terms of whether that had been sorted out, and whether condonation should be sought. The Committee could not be told that the information AGSA needed may or may not be available when they expressed an opinion on exactly that.
Legacy and operational matters had to be accompanied by documentation as evidence to show that particular things were not intentionally done as acts of corruption, but to keep the trains operational. Without such information the same finding would be made by AGSA.
On the same page, AGSA referred to the adjustment of material misstatements, and had said it had identified material misstatements in the annual performance report submitted for auditing. These material misstatements were on the reported performance information of the positioning rail as the backbone and mode of choice for public transport, and the introduction and extension of integrated passenger rail services linking high volume corridors into an effective service. As management subsequently corrected only some of the misstatements, it identified material findings on the usefulness and reliability of the reported performance information. She asked how was it possible that the internal audit function of PRASA had provided AGSA with materially misstated information.
Ms Page there was some issues in the 2014/15 FY identified by AGSA as misstatements, where PRASA had agreed with AGSA. For example, there was the Eskom lease, where PRASA agreed on how it was supposed to account for that for the 2014/15 FY. In the 2015/16 FY, more documentation had been provided to AGSA which had resulted in the Eskom lease having to be reversed. That difference in opinion had been remedied, and the figures involved had been quite big.
Ms Mente said she heard what was being said, but when there was a misunderstanding with AGSA and the issue was resolved during the audit, that did not lead to incorrect information being provided to AGSA on the basis of a difference in opinion. When that happened, it led Parliament to see PRASA as a vehicle for corruption. The AGCEO had agreed with Mr Ross that though services were being provided under irregularity, there had been only one instance where there had been no criminality in the contract, and all the others had had that element. If PRASA’s internal audit team could not simply find instances where people were ballooning prices or were preferentially being favoured by their friends in tender allocations, and whether there was value for money in particular tenders, then PRASA would continue bleeding money, as the AGCEO and board Chairperson relied on PRASA’s internal audit to find these things.
Regarding leadership in the AR, AGSA had referred to what PRASA’s chairperson had mostly alluded to in senior executive management, and it could be seen that a lot of cases were already with the DPCI, and discipline in terms of financial and performance management could not still be a finding under his leadership. Her concern was the slow response in consequence management by the leadership in terms of the Public Finance Management Act (PFMA) -- why was AGSA lamenting that point?
Chairperson said he wanted the Committee to keep to the irregular expenditure contained in the documents before them, and not to generalise too much regarding the 2015/16 AR.
Mr Letsoalo apologised if it had come across as if he were instructing the Committee to seek answers from AGSA, as that had not been his intention. The delegation could never come to Parliament and present themselves as knights in shining armour rescuing PRASA from its troubles, as that would be a big misstatement from their side. They were sorting out the problems at PRASA. He had been there for five months and the work was difficult, mainly because it had 17 000 employees, and it ran in four regions and was quite a big organisation. When systems collapsed that really happened, and AGSA was saying that what it had said was not a fallacy, because those things had indeed happened.
There was irregular expenditure that had been incurred in the 2015/16 FY under their watch, and it had occurred mainly from contracts that been signed irregularly, so any expenditure associated with them would continue to be irregular though PRASA was regularising them.
In areas where internal controls were in existence, other people could have found a way around them, making the effectiveness of the internal audit compromised, and this was in fact what had happened.
Mr Booi said the board of PRASA had to tell the Committee what it was going to do to steer it in the right direction. The 2015/16 AR stated that:
- The Group was currently managing its liquidity risk as there was a probability that financial obligations may not be met when they fall due. The management of this risk includes engagement with National Treasury with the view to transfer funds from capital subsidy to funding our operating activities, as had been done in the 2013/14 and 2015/16 financial years. The Group was on continuing engagements with our Shareholder and National Treasury.
So the PRASA being spoken about was already in financial trouble, and did not exist as affirmed here:
- The Group’s approach to managing liquidity was to ensure, as far as possible, that it would always have sufficient liquidity to meet its liabilities
Added to its R46 billion of irregular expenditure, PRASA’s current assets exceeded its current liabilities by R3.2 billion. The fact that R108 million had already been spent on Werksmans means that PRASA’s board had no confidence in government institutions like AGSA and the DPCI to handle the same investigation as Werksmans. Could the AGCEO say whether state institutions were not up to that task, and what the liquidity was?
Mr Letsoalo said PRASA did have a liquidity problem, with R1.8 billion losses on its Operating Expenditure (OPEX) and a managed and funded Capital Expenditure (CAPEX). The main issue had been the runaway OPEX costs PRASA had accumulated. This had started around 2011/12 and mainly in 2012/13, when big losses had been made. There had been a large leap in OPEX energy costs, which had increased by 52%, while security had increased by 33% and personnel costs by around 20%. Those things had become embedded in the baseline, and consequently PRASA had also been mandated to take on an entity called Mainline Passenger Services (MPS), which was a long distance rail service, on an unfunded mandate. This had compounded its losses, and it sat on its OPEX to date. Currently, therefore, PRASA was not in a position to pay its creditors, which then took it more than 30 days to pay them. This was not in line with the PFMA, which also resulted in fruitless and wasteful expenditure.
Mr Booi said that though PRASA conceded all of these things, it was not out of trouble, and asked it to elaborate on liability management as alluded to in the AR, where it had been stated that credit cards, not used for permitted purposes as set out in Treasury regulation 31.2.7, had been obtained in contravention of Treasury regulation 31.2.5.
The Chairperson said he thought that this would fall under fruitless and wasteful expenditure when the Committee got to it.
Mr E Kekana (ANC) asked for clarity on the number of regions PRASA had, and whether each had its own SCM policy, separate from PRASA’s group SCM policy and regulations. Some of the issues which Members were raising today had been raised already, before Mr Letsoalo’s appointment as AGCEO. Could the Committee be given an estimate of when the investigation would be concluded?
Mr Letsoalo said PRASA was a big organisation that was also fragmented. Everyone used the same policy, but the interpretation depended on where a region was in terms of SCM development, so there were regional SCM units in all regions. The difference was in cases where a region wanted components. For instance, if KwaZulu-Natal (KZN) and the Western Cape (WC) both needed components, the cost could be R1.5 million at a group level, whereas one could find that the WC would get someone to give a quotation of the same components from their region separate from the group, with KZN doing the same. PRASA corporate did not play its role in ensuring the consolidation of procurement and seeking economies of scale, and at a conglomerate level that would go beyond quotations, where possibly PRASA would have to go out on tender. It was correcting that by ensuring that the things it knew it was going to need more of, it was consolidating at the conglomerate level with the assistance of NT. In other cases, it had decided to use transversal contracts, as that helped the whole institution.
Investigations, by their nature, could go on for a long time if not managed properly, and that was worse when it was done by consultants, as they create work for themselves. Therefore in cases where PRASA suspects criminality and has some evidence, it referred it to the DPCI. The two cases which had been opened were on that basis, and there was a level where NT was doing some work regarding the investigation where PRASA would not duplicate the work. The Werksmans report dealt with a lot of other issues and PRASA had agreed that in the next six months they would have to conclude their investigation. They had been asked them to give PRASA their work plan, what it entailed and tell it their estimate of how much that would cost, so that PRASA could conclude all these matters.
The Chairperson argued that that should have been done at the beginning of the investigation.
Mr Letsoalo said they did have a mandate letter which outlined what Werksmans would investigate and how much they could charge.
Mr E Kekana (ANC) asked if he was saying that Werksmans had an open mandate, and that there were no terms of reference in a contract that stipulated by when and how long should the investigation should be.
Mr Letsoalo admitted that Werksmans currently did have an open mandate, but management had agreed to curtail that mandate to be within an affordable limit, and to not take too long.
Mr Kekana asked if there had been any briefings with the investigating teams to keep management abreast of all developments in the investigation.
Mr Letsoalo said the board had given management those briefings and they did engage with the teams, as it had been run at board level before September 2016, but had since been run at both management and board level.
Mr T Mulaudzi (EFF) asked if Mr Mokonyana could get the Minister to write to the Committee regarding when PRASA would be assisted with the filling of those senior executives positions where there were acting officials currently. Acting CFOs were highly concerning, because the Committee did not know whether PRASA’s CFO was still on sick leave or suspended.
What was the board saying about the irregular expenditure incurred through unnecessary board meetings, which directors of PRASA have undertaken to pay back?
Had PRASA efficiently institutionalised document management for future reference when AGSA required them?
Was the current board fit to continue at PRASA when R24 billion had been irregularly spent under its watch?
Mr Molefe said they could talk “until we were blue,” but if some of the things they had said were not understood or heard by Members, there was little they could do. They had given a detailed written response in respect of the investigations on irregular expenditure. Mr Mulaudzi had said the Committee had stated repeatedly that the R24 billion figure had been revealed through the investigations, and that it stretched far back before the time of the current board of PRASA. To say the current board was suspected of having a hand in the maladministration of that amount was very disconcerting, because that amount was not even in AGSA’s 2015/16 report. PRASA was mentioning that because the current board and PRASA senior management had uncovered that through investigations, and that would be reflected in AGSA’s following audit report.
Regarding remuneration for extra board meetings, the meetings had not been unnecessary. The discussion the meeting was currently having highlighted very well how difficult an organisation PRASA was. It had very weak management and a low work ethic. When management was required to account as an accounting authority and things did not happen, the board and its committees were compelled to meet as much as it was necessary to try and find answers. In the normal workings of even listed companies, when directors did extra work, they were paid for that in accordance with the application of the baseline as contained in the remuneration policy. In the context of an SOC, PRASA expected that before remuneration for extra work was done, there should have been an engagement with the Minister, where consent would be sought for such an action. In the PRASA instance, the Remuneration Committee (REMCO), following many discussions held with Minister Dipuo Peters, had set up a sub-committee to investigate the remuneration of directors. As the sub-committee had been doing that, it had identified a policy section and paragraph 17.2 which stated that the work of a board sub-committee had to be distributed equitably and that there should be a supplementary payment.
Mr Booi said his point of order was that Members had a Parliamentary obligation to ask questions, and they simply wanted to know about the irregular expenditure by the board, and nothing else.
The Chairperson asked Mr Molefe to clarify his statement about unnecessary meetings as he finished his response.
Mr Molefe continued that the REMCO, relying on that provision, had concluded that the directors of PRASA’s board qualified to be paid for extra meetings. That had happened after two years of labouring without any claiming extra remuneration. There had been a dispute with AGSA which followed on the basis of interpretation of that policy, where the board had then said that because of the dispute, let us pay back the money and when the dispute has been resolved we could then be reimbursed, should the resolution conclude the board had rightly been remunerated for the extra work. He said that was why he had started paying back, because it was the right thing to do.
Ms N Khunou (ANC) said she was glad the Acting DG of the DoT was in attendance, as she wanted to know what the DoT planned to do about the filling of vacancies at PRASA’s senior management level. The AGCEO he had been referring everything to the board chairperson, and she had asked herself what the job descriptions were for board directors and the AGCEO. She asked for clarification as to what the board chairperson’s job was, and what the AGCEO was supposed to be doing.
Mr P Sibande (ANC) reminded Mr Molefe that he had told the Portfolio Committee on Transport that he was doing the extra board meetings at PRASA voluntarily. Who was in the audit and risk management team at PRASA? How many cases of criminality had been concluded since the investigations started?
Mr C Hunsinger (DA) asked if part of the objective with the Werksmans investigation was to recover some of the R 24 billion irregularly spent, or was the aim criminal proceedings only.
Since the transgressions at PRASA varied from very serious criminal cases to non-compliance with SCM policy, had this happened in spite of an SCM policy being in place or had it been because of an absence of detail in the SCM policy? Was the policy a failure, or the execution of policy?
Are the measures as outlined in the presentation the only proposed solutions to the dilemma at hand or were there more plans?
Mr Letsoalo explained the division of labour between the board chairperson of PRASA and himself, and said he thought that some questions, as they were being posed, as the leader of the organisation, the accounting authority would answer them, especially questions that were specifically about board matters. In terms of operations, he was responsible, which was how they had divided the work.
The risk management function remained a big concern which PRASA was working on, and it believed there had not been a consistent focus in driving that function in the way it had to do its work. It had also been compromised in some areas -- either both risk mitigation strategies had been absent, or where they had existed they had been very weak in ensuring PRASA did not have realised risk. It had now employed a method where it identified emerging risks every quarter and checked the ones that had been realised and their impact on the work it was doing, and then put mitigation strategies in place.
As earlier alluded to PRASA was curtailing investigations that went on unabated, but he also did not want to leave the Committee with the perception that there was R24 billion in irregular expenditure that was coming in the future. There were investigations of contracts to the value of R24 billion, and there would be others where there was no irregularity at all, and others where there would be irregularity depending on the outcome of the investigation. There were only four contracts where PRASA had found elements of criminality, and these were being processed while others were still being investigated.
At PRASA, there was both a failure of policy and negligence. Between R350 000 and R500 000, where a quotation was supposed to have been sought, people had sought quotations instead to the value of R50 million. Why that had happened, no one could explain, though the SCM policy was quite clear. There was no adherence to the policy, and there were weaknesses in the SCM policy itself that had been identified and which PRASA was now fixing. For example, someone would be given a letter of award and before signing the contract, the individual would have started the work. Then when there were disagreements between the parties, there would be nothing to go back to in document form. Those issues of ensuring there was a contract signed before work started were being fixed.
Mr T Brauteseth (DA) said the R24 billion in irregular expenditure had been declared by AGSA and PRASA was investigating any criminality involved. If prescripts of the PFMA had not been followed, the expenditure was irregular no matter how long and what type of investigations there were. He said Mr Letsoalo’s tone had been quite cutting when saying that Members did not understand criminality from irregular expenditure, and he took offence to that.
Mr V Smith (ANC) said the AR showed Ms Zodwa Manasa as chairperson of the audit and risk committee, and asked when she had started at PRASA and whether she was still there in that capacity.
Mr Molefe responded that Ms Manasa joined PRASA on 1 August 2014 and remained the chairperson of the audit and risk committee, having being there since the start of the current board.
Mr Smith quoted from the AR, which said that internal audit’s focus at the procurement environment was aimed at giving management a reasonable assurance that procurement was conducted in a manner that resulted in fair, equitable, transparent and competitive processes, in line with applicable legislation. Ms Manasa was responsible for this, and Mr Letsoalo had admitted that the internal audit function was not working properly, which was an indictment on Ms Manasa, and if what he had said was indeed true, the board responsible for audit and risk had been with PRASA for at least two years. The interpretation was that she had failed in her fiduciary duties and according to the Companies Act, there were serious implications for that.
There had been split quotations of R55 million in previous years, and R8 million in the 2015/16 FY which Mr Letsoalo had explained to be a consequence of separate orders from region to region, which was not intended to be breaking of the law. If that was so, how was it that one contract amounted to R63 million from one supplier? In responding to that, PRASA had one GCFO so wherever a purchase was made, that individual would arguably be responsible for the budget management.
Mr Letsoalo said there were six CFOs in PRASA. There was the GCFO, there were the CFOs of the two subsidiaries, and three divisions also had their own respective CFOs.
Mr Smith said the 2015/16 AR was the responsibility of the accounting authority -- would it have six CFOs reporting to it?
Mr Letsoalo said only the GCFO reported to the accounting authority.
Mr Smith repeated his question, that on the basis of the report, that the splitting of quotations was as a result of unilateral decisions taken at the regional level. How had it been possible that only one service provider was awarded a R63 million contract? Had all the regions called to seek a quotation from one supplier?
Mr Letsoalo referred the Committee to the irregular expenditure register for 2015/16 in Annexure A, which showed the companies involved in the R63 million contract.
Mr Smith said he was referring to the presentation.
Mr Letsoalo said the presentation did refer the Committee to Annexure A, as it was a summary.
The Chairperson suggested Mr Letsoalo should have said that On Board Services was the name of a service provided by multiple service providers, and was not the name of a single service provider, because had had also read the presentation similarly to Mr Smith.
Mr Letsoalo said he also wanted to refer to PRASA’s previous structure. The chief procurement officer (CPO) did not report to the GCFO, but directly to the GCEO. This had been changed when he arrived in July. Before then, the GCFO had nothing to do with procurement.
Fruitless and wasteful expenditure
Mr Hlengwa said the audit and risk committee had stated:
- We have met with the Auditor-General of South Africa. We concur with and accept the Auditor-General of South Africa’s report on the Annual Financial Statements, and are of the opinion that the audited Annual Financial Statements should be accepted and read together with the report of the Auditor-General of South Africa.
AGSA had said:
- Financial statements, performance and annual reports: The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework as required by section 55(1) (b) of the PFMA.
- Financial and performance management: An inadequate document management system, together with a lack of financial and performance reporting discipline and compliance monitoring by senior management, contributed to the material findings raised.
PRASAs own audit and risk committee concurred with AGSA that there had been that dereliction of duty which he was inclined to believe led to the fruitless and wasteful expenditure of R255 million.
How long had Mr Montana’s term of office been as GCEO?
Mr Letsoalo said Mr Montana had been with PRASA from 2006 until July 2015.
Mr Hlengwa asked how the Committee could be clarified as to how R218 million had been spent in vain?
Mr Letsoalo said that amount referred to the buying of the Afro 4000locomotives which PRASA currently could not use for a variety of issues, including their procurement, as there was no contract in reality. The other work which needed to be done and had been paid for, PRASA had not derived value from. That was all contained in PRASA’s filing papers, which was why the R218 million had been declared fruitless and wasteful expenditure.
Mr Hlengwa asked if the R218 million had been spent on locomotives which were no compatible with South Africa’s conditions?
Mr Letsoalo said R3.6 billion had been spent, of which R218 million was declared fruitless and wasteful expenditure.
Mr Hlengwa said PRASA’s number one risk as an entity was the risk of not meeting financial obligations (liquidity and solvency) as per the AR. Additionally, there had been a failure to manage exchange rate fluctuations in transactions, identified in the group risks profile. To what extent were these linked to PRASA’s actual expenditure?
Mr Letsoalo said that as stated earlier, PRASA’s risk function was currently dysfunctional. This was why he had reported that it had now employed a method where it identified emerging risks every quarter and checked the ones that had been realised and their impact on the work it was doing.
The Chairperson asked who looked at these risks if PRASA’s risk committee was dysfunctional.
Mr Letsoalo responded that in the year under review, that had not been done, so PRASA was implementing that dynamic method only currently.
The Chairperson asked what the practical function of the risk Committee before 2016/17 FY was.
Mr Letsoalo said it had been ineffective.
Mr Hlengwa commented that assuming the buck had to stop somewhere, where and to whom did one apportion blame?
Mr Letsoalo said that ultimately it would be his office as accounting officer, and from an accountability purpose it would be the board of PRASA, as it was responsible for the entity.
Mr Hlengwa said there had been approximately R15 million of fruitless expenditure for uninstalled hardware. Why had it not been installed, and what hardware was it?
Mr Letsoalo said there had been a system which had been bought while at the development stage for a division called MPS and AutoPax, with the aim of developing a booking system. The hardware for that booking system was bought before the system had been tested for user acceptance. That hardware could therefore not be used, as the system had not been tested and was not user accepted, and consequently that amount had been impaired. This had resulted in the fruitless expenditure.
Mr Hlengwa said that as part of PRASA’s risk, Information Communication Technology (ICT) was listed in the AR as a serious risk. How had that happened and why was PRASA not responding to its own risk analysis? Was he correct to assume that PRASA was not taking its own risk assessment seriously?
Mr Letsoalo replied that he would be correct.
Mr Hlengwa asked why this was so.
Mr Letsoalo said it depended on the interpretation of risk management. Other people saw risk management as a compliance exercise, but the reality was that if there were objectives and risks being taken that would make one fail to reach them, they needed to be managed quite tightly and closely. Unfortunately, that had been managed well at PRASA, as he had already said. The hardware was not supposed to have been bought before testing of the system in the first place, because the system was still failing at development phase.
Mr Hlengwa asked who was responsible for that purchase.
Mr Letsoalo replied that it was under investigation, but so far it had been established that the service provider had brought the proposal to PRASA that they would provide the hardware.
Mr Hlengwa put it to Mr Letsolao that an outsider had proposed to PRASA that the entity buy hardware before completing its own exercise.
Mr Letsoalo agreed this was the case.
Mr Hlengwa asked who the service provider had proposed this to.
Mr Letsoalo reiterated that that was what was being investigated.
Mr Hlengwa asked whether the investigation of that R15 million was part of the Wersksmans probe. When did the six months lapse? Had any criminality in this regard been picked up?
Mr Letsoalo said the investigation did fall under the Wersksmans probe, though PRASA had not picked up any criminality. The six months ended in April 2017.
Mr Hlengwa said one of the biggest challenges in South Africa, according to the Department of Planning, Monitoring and Evaluation (DPME) in the Presidency, was the non-payment of accounts within 30 days. PRASA had incurred R6.2 million in penalties and interest for late payments of creditors’ accounts. Why was that happening?
Mr Letsoalo it was a consequence of the liquidity of PRASA. The organisation had an accumulated loss of R1.8 billion, which meant it was unable to pay creditors on time. Additionally, on other contracts where cases had arisen where PRASA had not met its obligations, there was an interest portion that was charged, which was the amount referred to.
Mr Hlengwa asked how many of these invoices could be attributed to small, micro and medium wnterprises (SMMEs).
Mr Letsoalo said it was mainly municipalities. There was a portion which PRASA also owed Transnet, but he was unsure about SMMEs.
The Chairperson commented that he did not think that SMMEs would file for interest, as they would be only too happy to receive whatever little they could get.
Mr Hlengwa asked if the Committee could be furnished with a list of where and how those interest penalties had been incurred, as municipalities always complained about non-payment for services, which also spoke to their viability, as they were unable to generate revenue.
R4.7 million in fruitless and wasteful expenditure had been attributed to a lack of planning -- what was being referred to there?
Mr Letsoalo said that had been attributed to the cost of acceleration on a contract to a company called Grindrod Bakara JV. Consequently this had been declared as fruitless and wasteful expenditure because had PRASA planned, it would have known the timelines and adhered to them, which would have cost it R4.7 million less.
Mr Hlengwa asked what was being solicited from Grindrod?
Mr Letsoalo replied that it was a station upgrade. The timelines PRASA had given itself were more optimistic at the planning phase, but then it had got to a point where it had had to extend the timeline, which had financial implications.
Mr Hlengwa asked what interventions PRASA had made when it realised that it would not meet its own timelines
Mr Letsoalo said there was only a contract between PRASA and the service provider, where it had already agreed on delivery where it was also responsible for the delays. It then had to pay, as it had extended the contract, which had incurred costs accruing to PRASA.
Mr Hlengwa asked who had been responsible for the delays individually, or as the responsible office.
Mr Letsoalo this contract was among those being investigated, so when it was concluded PRASA could then give the Committee the names.
Mr Hlengwa said the finding that baffled him was that “process had not been followed on the dismissal of Executive.” Who was this executive and why was the process not followed, as PRASA had then incurred R2.5 million in fruitless and wasteful expenditure?
Mr Letsoalo said the dismissal of executives was in the realm of the GCEO, which would be that GCEO would have dismissed someone.
Mr Lindikaya Zide, Company Secretary, PRASA, said the executive had been a human resources official who had had a dispute with the former GCFO, Mr Lucky Montana. The circumstances were that Mr Montana had then issued a letter of dismissal to the executive, after which the executive had gone to the Commission for Conciliation Mediation and Arbitration (CCMA), which had found that no due process had been followed.
Mr Hlengwa said he would imagine the GCEO would have communicated his decisions somewhere, such as to the board. Had that been done, or had it been a unilateral decision by the GCEO?
Mr Molefe said that part of the problem was that these matters had occurred some time ago and this matter had never been served before the current board. He would imagine he would have reported that he had dismissed an official. He would have to check the minutes to find out what the board had thought about that decision.
Mr Hlengwa said there was also a salary paid to a former executive of R3.8 million. What were the circumstances around that?
Mr Letsoalo said the matter had gone to the labour court and had not been defended. It had then gone to the appeals labour court, as the outcome had not been defended, where it had been found that the dismissal of that executive had also been unfair, and the labour court view was upheld. PRASA was instructed to pay back the entire salary package the executive was supposed to have received, and he was reinstated.
Mr Hlengwa asked if the executive concerned had also been dismissed without following due process. Why was this particular executive dismissed?
Mr Letsoalo said that possibly the company secretary would know, but one could check the files as he really did not know why had the executive been fired.
Mr Hlengwa said was also an advisory contract to a former executive of R3.1 million, and asked for clarification on that as well.
Mr Letsoalo said this referred to the former GCFO who had been paid out of his contract and who had then come back into PRASA as a consultant. He was being paid a salary, but no one knew what he was doing as a consultant because the people he was supposed to have advised said they had never received any advice from him. That was why it had been declared fruitless as well, and because there had been no value derived, it had been decided that PRASA would apply to the court to have him pay back all that money. This process was under way.
Mr Hlengwa said it was well and good that the money was being recovered, but someone had sanctioned it and he believed that individual was civilly liable for that action. Who had sanctioned the employment of this ghost consultant?
Mr Letsoalo said the former GCEO had sanctioned it.
Mr Hlengwa referred to a service rendered by a supplier which had not added value to PRASA. Who was this supplier who had been paid almost R1 million?
Mr Letsoalo said it had been Deloitte Consulting, which had been engaged to do a policy review. They had submitted work which had not complied with the mandate given, and their work had been discontinued by the Acting Chief Procurement Officer (ACPO). PRASA was pursuing the then CPO to pay back this money.
Mr Hlengwa said there had been the re-advertisement of a tender due to an error in a national advertisement. What had happened?
Mr Letsoalo said a tender advert had been issued where no proper proofreading had been done. When the mistake had been discovered, PRASA had realised the tender could not continue and the tender was re-advertised, which had resulted in fruitless and wasteful expenditure.
Mr Hlengwa asked whether the people responsible for proofreading and issuing the tenders were the same people who were responsible for issuing the locomotives tender.
Mr Letsoalo said he was not certain and would be loathe to go into that, as the matter of the locomotives was sub judice.
Mr Hlengwa commented that if people had taken the extra minute to proofread the documents, the state would have been saved a lot of money as fruitless and wasteful expenditure seemed to have been incurred due to the absent mindedness of people.
What were the circumstances around the credit cards not being used for the permitted purposes as set out in Treasury regulation 31.2.7, and obtained in contravention of Treasury regulation 31.2.5? Who had the credit cards and what were they spending them on?
Mr Letsoalo said it had been the former AGCEO who had a travel expenses credit card when NT had issued a directive that said credit cards had to be closed. In this instance, that had not happened and it had resulted in fruitless and wasteful expenditure.
Mt Hlengwa commented that it seemed a lot had happened with the GCEO and AGCEO which had resulted in this fruitless and wasteful expenditure. He would implore PRASA’s board to look into the conduct, especially when it comes to the rands and cents of the GCEOs.
How were the fees of non-executive directors determined?
Mr Zide responded that the fees for board directors were determined through a letter PRASA received from the shareholder, which stated what the fees of the chairman, chairpersons of board committees and members of the various committees, would be.
Mr Hlengwa said the failure of PRASA’s audit and risk committee to assist the entity to comply with the PFMA was something the Portfolio Committee took seriously, and someone had to “walk the plank” and be held to account for this very high fruitless and wasteful expenditure.
Mr Smith said PRASA was an SOC governed by both the PFMA and the Companies Act, and the penalties for a director not carrying out his fiduciary duties were dire in the Companies Act.
The decision to buy uninstalled hardware that was not needed for R15 million had been preceded by R24 million for buying the same hardware in 2014/15. Had PRASA paid Blackstar Communications this R24 million for hardware that was unnecessary?
Mr Letsoalo said this was indeed the situation, and both cases were impairments and PRASA had accounted going backwards, where it had paid for the same contract.
Mr Smith commented that PRASA had paid Blackstar R15 million for useless equipment and at the same time it punished the creditors who had provided services to it by paying them late to the value of R10 million. The directors were not doing their work, and “South African Incorporated” loses out.
Was the R6 million in fruitless and wasteful expenditure for the dismissed executive in 2014/15 paid to the same individual who was paid out R2.5 million, or was it a pattern that PRASA unfairly dismissed people so that it would be forced by law to pay them out later on?
Even the ghost advisory consultant had been paid approximately R3 million over two financial years. How did the board justify why it had not complied with the Companies Act in all these instances?
Mr Molefe said he accepted that these things had happened and they were very disconcerting. If one were to go to the records of the audit and risk committee and the board, one was likely to find how the audit and risk committee had consistently raised with management the need to put in place the necessary controls. As directors, we could only raise matters of operation with management with the expectation they would be followed up. There were delegations of authority (DOA) at PRASA, where expenditure up to a certain level would not come to the board and therefore the board would not know. If the audit and risk committee also did not discover that expenditure, the board would become aware only when AGSA had discovered it.
Regarding the individual paid R6 million in 2014/15, the board had requested the contracts of all executives to understand what each was doing, and the nature of the contract signed. Of course, the previous GCEO had never given the board those, and it had been told that this particular person had been a special financial technical advisor. He had queried that, saying the GCEO could not have a special technical financial advisor. If there had been a need for that technical advisor, the GCFO would have sourced that. That was what had led the board to investigate and agree to terminate that contract. The board had complied with the PFMA and the Companies Act in discharging its fiduciary duty in respect of that matter.
Mr Molefe said he hated to appear as if he was lumping everything on those who came before him, but there had been rapacious lawlessness and impunity at the time, where if I was your boss and you made me annoyed, I would simply fire you. That was why PRASA had lost so many cases, and when this board became aware that many people had been unfairly and unlawfully dismissed, they had been reinstated. However, when a court or the CCMA had awarded a complainant, PRASA was obliged to pay. There had been no gross negligence intended by the board. PRASA would probably need to submit a report to the Standing Committee on Public Accounts and the Portfolio Committee of Transport in light of the repeat findings by AGSA and in light of the repeat questions on what work the board was doing to turnaround PRASA, especially the strategic corporate plan.
In respect of Blackstar Communications and the monies paid, this also fell outside the delegation of authority (DOA) of the board. However, they had featured in the ongoing investigations. What had to be determined, however, was whether the equipment, untested as it was at the time, would be what PRASA still needed for its ticketing system and if so, whether it was something that could be condoned and formalised to assist PRASA to realise its objective for enhanced revenue collection.
PRASA certainly needed to deal with paying SMMEs on time, as not doing so puts them out of business, which flies in the face of the whole strategic perspective of transformation and empowerment. PRASA would continued to address that in dealing with its solvency and liquidity challenges, and hopefully when it submit the report it would also have dealt with duplications inside the SOC which was causing it to lose money unnecessarily.
Mr Smith said the board of PRASA had to apply its mind to the DOAs when dealing with its turnaround strategy, because if Mr Molefe says R15 million and R24 million of fruitless and wasteful expenditure over two financial years did not even come before the board, as this was done at a management level, delegation does not absolve the accounting authority from its responsibility.
Mr Brauteseth said though he sympathised with the current leadership of PRASA, because the DPCI was involved and PRASA was investigating 142 contracts, he would like the Committee to be furnished with a progress report in that regard.
What was PRASA doing about Mr Montana, disregarding the fact that a court case against him was ongoing? It was high time that the DPCI investigated him and that he was held civilly liable for the matters he presided over.
Mr Molefe said a progress report on the investigation had been submitted to the Chairperson’s office, together with a detailed letter which had arisen from a discussion between PRASA’s management and the DPCI, which had been lodged with the DPCI. Apart from the two major cases, PRASA had handed the DPCI 67 additional cases. It did not want to single out Mr Montana, as his involvement straddled all these major cases.
Ms Khunou said both the new rule 245 of the National Assembly and also the constitution of SA allowed the Committee to investigate Mr Montana, and it certainly could and should call him to account to Parliament.
Was the AGCEO saying PRASA was pursuing Deloitte Consulting, or the official who had engaged the consultants for the policy review?
Mr Letsoalo said the claim was against the official.
Ms Khunou suggested there was a need to be practical, as they were trying to solve problems. If claims were being made against officials, was there a probability that they would be able to pay back these monies -- and what about the service providers? Mr Letsoalo, Mr ME Mooketsi and Mr Fenton Gastin were the officials who had received money from PRASA, and they had to pay back the money they had already received, as it amounted to undue benefits or unjustified enrichment. In cases where both the official and service provider were liable, both should be held liable.
Who had been the official responsible for the Delloitte Consulting fruitless expenditure?
Mr Letsoalo said it had been Mr Joseph Phungula.
Ms Khunou asked if he would have money.
Mr Letsoalo said PRASA had to claim against him and the courts would decide at a point whether PRASA must attach, and it would do so. It was expected to follow people that had been responsible for the fruitless and wasteful expenditure.
Ms Khunou said she understood that, but one had to be practical in finding solutions to these problems. She hoped that the report of PRASA on its corporate strategy would include most of the responses and possible solutions already outlined in the discussions. The Committee also needed to be furnished with a list of all the consultants that PRASA was currently using and their contracts with their termination dates. Could all of PRASA’s policies and regulations also be communicated with the Committee in writing as well?
Mr Kekana asked if the Committee could be furnished with a breakdown of the category ‘Other’ under annexure A, tab B, where the total was R424 449.
Mr Letsoalo replied that R359 602 under that category was due to traffic fines related to AutoPax, where busses did not have emergency triangles. R45 567 was related to an insurance liability claim of PRASA versus Mr Chauke. The third one was also an insurance liability claim of PRASA versus AB Kgasago. The fourth item was for the late cancellation of a catering order which, though consumed, had no added value.
The Chairperson asked if the Committee could find out how far the NT was with its investigations, and what was happening with the cases that PRASA had referred to the DPCI.
Mr Solly Tshitangano, Chief Director, NT, said Treasury’s verification process were the contracts that had been referred to them by the Public Prosecutor (PP). It had received ten reports, with three outstanding, which would be consolidated when everything had been submitted to it. It would then forward a report to the PP’s office, PRASA and Parliament by mid-January 2017.
Major General Mthandazo Ntlemeza, Head: DPCI, said it was currently investigating four cases which had been referred to it by PRASA. In September 2016, it had requested more information and PRASA had replied on 29 November with a letter containing none of the required information. No cases had been referred to the National Prosecuting Authority (NPA). Hopefully after this discussion, the complainants would assist it with speed on what it required.
The Chairperson said the chairman of PRASA had said a number of complaints had been referred. Had they been referred to a central place, or dispersed?
Mr Letsoalo said two cases had been opened in and around Johannesburg. A number of complaints had been contained therein, and PRASA had received the letter from the DPCI on what was needed. It would certainly review its reply to see what else it should have submitted which it had omitted in our reply to the DPCI, and would duly send through.
Mr Ross said the Committee appreciated that the accounting authority had conceded that great transgressions had been made at PRASA, but it was important that one did not overlook the political authority on this matter. The DA believed there had been a lack of political oversight on this matter.
Mr Booi said the impression had been created that PRASA had always reported extensively, but the DPCI was not moving with speed. Therefore the Committee had either been misled or there would never be consequences for those who were in the wrong, and there had also been no communication between PRASA and the DPCI.
Mr Kekana said the solution to this matter was simple, because PRASA said it had opened two cases, whereas the DPCI said it was four. When one opened a case, a case number was assigned. Could they compare notes on those case numbers, so the Committee was sure it was speaking about the same cases?
The Chairperson said he had six cases in front of him.
Mr Molefe said PRASA was not misleading anyone. It would wait to hear from the DPCI what questions it had not responded to. Certainly, PRASA had thought the correspondence would be limited to itself and the DPCI, given the sensitivity of the matter. It could certainly give the Committee the correspondence, though it would be circumspect about doing so. There had been several meetings between PRASA and the DPCI where PRASA had given the DPCI authority over forensic investigators who were tracking the money flows, because it was dealing with an impatient public and would like the investigations to be speeded up.
Mr Mokonyana said the Minister received regular reports from all DoT entities, and on the basis of those she then requested investigations, turnaround strategies and improvements where things were happening. Actions were triggered on the basis of such reports, and part of her interventions had been making available the DoT’s CFO, Mr Letsoalo, to go to PRASA. The DoT believed things were changing, though it would have wanted them to change faster. It would be waiting for the turnaround strategy, as the chairman of PRASA had reported they had had a strategic session recently. He also wanted to appeal to the Chairperson that time was allowed for a number of things, including the executive under the leadership of the AGCEO and the board, which had revealed some of the very complex problems at PRASA.
The Chairperson commented that as Mr Molefe had said, there was a very impatient public waiting. Governance at PRASA did not start with the current board. The fact that things had happened the way they had, did not take away the political responsibility and the need to speedily correct those issues which would continue to be condemned.
The hearing was adjourned.