The PRASA Interim Board and executive management were called to explain why PRASA failed to comply with the Public Finance Management Act (PFMA) requiring the submission of annual financial statements to the Auditor-General, as well as an Annual Report to Parliament.
PRASA explained that it did submit the financials to the Auditor-General on 31 May 2017 as required by law but the Auditor-General could not proceed with the audit as the financials had not been endorsed by a quorate board.
It was the first meeting between the Committee and the new PRASA interim board which had been constituted after the term of office of the previous board came to an end in July. The new board apologised for its failure to appear before the Committee on its scheduled date of 14 November 2017 explaining that it was because it had not had the time to familiarise itself with the operations of the entity and the issues surrounding it, and that the Auditor-General was still conducting the audit.
Members were concerned about the many outstanding matters particularly the outstanding investigations on questionable contracts that PRASA had entered into and allegations of state capture as well as the cost of the investigation done by Werksmans Attorneys, with the cost soaring to an alleged R150 million. Members asked why the Hawks had not been employed to conduct the investigations together with National Treasury as that would have been much cheaper and more effective as the Hawks had more powers to conduct investigations. Members wanted answers on publicised allegations that PRASA signed a R57 billion contract for a rail construction project with the Export-Import Bank of China in the absence of a board. They also sought answers about the irregular expenditure of R550 million and fruitless and wasteful expenditure of R19 million. Committee members explained they had been waiting for answers for over a year which explained their level of anxiety. Members also demanded that the previous Board members pay back the fees for holding meetings which had not been budgeted for.
On allegations of state capture, the PRASA board reported that PRASA was never mentioned in the Public Protector "State of Capture" Report but PRASA was the focus of the 2015 Public Protector "Derailed" Report. The PRASA Board Chairperson said the State of Capture Report focused on one family which allegedly had a close relationship with the President and resulted in corruption in state entities. The board understood the phrase “state capture” was being widely as in corruption at state entities as being capture by any person or group of persons. It was possible that PRASA was captured but not by the family that many suspected. It was possible that it was captured by contractors or employees or another group of persons.
The Chairperson said the Committee had experienced a number of challenges with PRASA in the past and recently it had failed to present its Annual Report. The Minister had indicated that there were several ongoing investigations and she hoped that those investigations would be concluded so that a way forward could be charted. With the previous board, it was even agreed that all SOE budgets would be approved except the one for PRASA.
The Chairperson reported that the PRASA interim board chairperson, Adv Nana Makhubele, SC, had just been appointed as a judge in Gauteng and that she would be assuming her new role on the bench on 1 January 2018. She invited the board chairperson to address the Committee.
Adv Tintswalo Annah Nana Makhubele said she was still an Adv and should be referred to as such until she gets a formal letter from the President. The interim board was appointed on 19 October 2017 and the members present were Prof John Maluleke, Dr Natalie Skeepers, and Mr Mkhacani Maluleke. She was not sure if it was a requirement for all the board members to be present or whether only a few were required to make representations on behalf of the entire board. She introduced the acting CEO, Mr Lindikhaya Zide, and the acting CFO, Ms Yvonne Page.
She asked if the Committee had received the letter which contained an apology from the board for not being able to appear before the committee on 14 November 2017. The interim board met for the first time on 18 October 2017 and the invitation from the Committee came two days later. As the board was new and was just acquainting itself with the operations of PRASA, a request was sent the Minister of Transport to convey the apology. The board could not honour the invitation to appear before the Committee not because it did not want to but because it wanted to fully understand the issues surrounding PRASA. It was felt that the board could only answer questions and make meaningful contributions after being fully informed.
She read a letter, dated 28 September 2017, that was authored by the Minister of Transport, Mr Joe Maswanganyi, and addressed to Speaker Baleka Mbete, explaining why PRASA could not account before Parliament as required by section 65 of the PFMA. The Minister indicated that there was a delay in the finalisation of the financial statements and audit report as the AG was still seeking a legal opinion on section 49(2)(b) of the PFMA to determine if the acting group CEO could accept the audit report as the accounting authority in the absence of the board. Once the AG was satisfied with the interpretation of this provision, the final report would be issued. Prior to that letter, the previous board had submitted draft financial statements to the AG and attached a letter dated 31 May 2017. On 2 June 2017, the AG acknowledged receipt of the draft financial report and confirmed that he would proceed with the audit of PRASA. There was a change of mind by the AG who then on 21 July 2017 informed PRASA that they were withdrawing their engagement with PRASA. The reason was that the report was not approved by a duly constituted board and that the audit would only be resumed once a board was constituted. The board term of office ended on 31 July 2017. When the interim board assumed office, the AG had already agreed to resume the audit and the financial statements were submitted on 9 October 2017. The audit is still proceeding and will be concluded on 30 November 2017.
Mr C Hunsinger (DA) said he was pleased to meet the new interim board for the first time. He expressed the high hopes that the Committee had in the interim board of getting PRASA back on the rails. He was confident in the competence of the board members. His concern was whether the board had enough time to fulfil their mandate as they had a lot of issues to resolve. The AG had expressed concerns for many years about procurement management, contract management, leadership and administrative management, and performance management at PRASA and there appeared to be a trend of these same problems related to decision making and oversight. He asked if the members of the board would be able to face up to the challenges they face.
Mr L Ramatlakane (ANC) observed that according to the PFMA, the submission of annual financial statements to the Auditor-General should be done before 31 May and he wondered why that was not done before the term of office of the previous PRASA board expired. The explanation about the lack of a financial report authorised by the board can only be accepted once this question is answered. He asked if the new interim board would meet to sign off on the audit report once it is completed by the AG on 30 November 2017. He also asked the board chairperson if the Annual Report would then be submitted to Parliament.
Mr Radebe welcomed the new board and regretted that they had to face a baptism by fire. He also congratulated Adv Makhubele on her appointment as judge. He asked if the interim board had had an opportunity to look at the draft financial report because they needed to understand what had been happening. Pressing questions had been raised by the Committee which they had wanted the previous board to deal with before the end of July. He asked if the interim board was aware of those questions and if they had been briefed by the previous board. Among the issues the Committee had raised was that Werksmans Attorneys should stop the PRASA investigation as it had not been giving value for money.
Mr M Sibande (ANC) expressed regret that the previous board had disregarded the Committee from the very beginning and also expressed disappointment that all the new interim board members did not make it to the meeting as it would have been an opportunity for them to make a courtesy call and introduce themselves to the Committee. He asked, by law, when a board is supposed to start to start accounting. How long would it take the new board to start accounting? There are things which are supposed to be authorised by the board and he wondered what was happening with that. There are guidelines on how often a board should meet and the Committee had concerns that the last board was meeting more times than stipulated and then drawing salaries. Subsequently, the former board members were instructed to pay back money that was paid to them for the added meetings.
The Chairperson said the main issue was non-compliance with the PFMA and good management practices. She complained that most of the recommendations made by the Committee were never fulfilled by the previous board.
Adv Makhubele addressed the composition of the interim board. She explained that as chairperson of the board she was a legal expert, Prof Maluleke was a transport expert, Dr Skeepers was an expert in safety together with Mr Mkhacani Maluleke from the Department of Transport, and among the members that were absent, one was a financial expert, so the team was well balanced. She admitted that the time factor was also a worry for the board as their letters of appointment simply indicated that they had been appointed until further notice. If they were to meet quarterly, they would have only have met in October and then in January which would have been very difficult for them to do their job. So they agreed to have more meetings to get to the bottom of the issues affecting PRASA. Personally, as a person who was in between jobs, she had more time to work with management on a number of issues. The board members were being proactive by raising matters in line with their own expertise with management, but they would also welcome the Committee's concerns. As a board they are aware of a number of issues that out in the public domain and in the media, but they would appreciate it if the Committee could raise issues, not in general, but specifics that could assist the board. She affirmed the board’s commitment to work despite the busy schedules of the board members.
On the release of the audit report, she clarified that it would be the audit that would be completed on 30 November 2017 and not the audit report. She said she could not tell when the audit report would be ready.
Mr Hunsinger said that her remarks were giving hope for the future, but he found it disturbing that Adv Makhubele was asking for information of which there was a track record of concerns that had been raised by the Committee. With all due respect, the Committee was in a state of anxiousness for answers on those issues which were already on record. He expected the board in taking over responsibility to be aware of those matters. The Committee was at a point where, for instance, they were thinking of holding an emergency meeting on Metrorail operations. The Committee is bombarded with questions over such matters. Our accountability responsibility gauge is already in the red in terms of pressure as we are dealing with commuters and service delivery that is not meeting expectations. The Committee was expecting a recovery plan and not requests for issues.
Adv Makhubele corrected the impression created by her request saying that they were already aware of the issues which they were working on but if the Committee wanted to assist they were free to do so. She said she was even spending time at PRASA with executives and individual units at risk of her board being labelled an operational board because they were equally anxious to get to the bottom of the challenges and find solutions.
Acting PRASA GCEO, Mr Lindikhaya Zide, responded about the PFMA requirement for annual financial statements to be drawn up by 31 May. He confirmed that the annual financial statements were duly submitted to Auditor-General South Africa (AGSA), but that the board was not quorate. A letter was written by the board chair to the Transport Director General and Minister that despite the board not being quorate, PRASA would submit the financial report to the AG. The AG acknowledged receipt of the financials on 2 June and proceeded with the audit until 21 July when the AG stated that it wanted a board that was quorate.
Mr Mkhacani Maluleke, PRASA board member, referred to Mr Ramatlakane's query, and said that questions on the board should be addressed to the Minister of Transport who is the responsible authority. He stressed that it was not the responsibility of the PRASA officials or the current board.
Mr Ramatlakane said that he was disturbed by Mr Maluleke's response as it was running away from answering the question. The Department of Transport has a direct representative on the PRASA board and he asked who that person was.
Adv Makhubele responded that it was Mr Maluleke himself.
Mr Ramatlakane told Mr Maluleke that he could therefore not answer in that manner when he had a functional responsibility on the board. There was nothing wrong for him to give even the Minister advice if he saw that there was something wrong with the board. It was wrong for him to ask that the question be directed to the Minister. He still demanded an answer and asked the board chairperson what would happen after the audit was completed on 30 November.
Adv Makhubele replied that meetings were already scheduled beginning with the audit committee on 5 December, the governance committee on 6 December and finally the board would sit on 13 December.
The Chairperson asked Mr Maluleke what his role on the board was since he represented the Department of Transport. According to her understanding he was in a position to respond to Mr Ramatlakane’s question.
Mr Ramatlakane said they were going to have a long day with the responses they were getting. Looking at Mr Maluleke’s response, it meant he was in the meeting as a robot with no brains saying nothing. He asked why the Minister does not sit directly on the board since he has no brains. He asked him which rule, authority or Act informs him that he cannot respond to the questions.
Mr Maluleke replied that it was the Public Service Act. He was employed to serve the Minister and not to be the Minister.
Members spontaneously responded with “no”.
Mr Maluleke continued that he was indicating what Members needed to know.
This response angered the Members and Mr Maluleke pleaded with the Chairperson to be protected.
The Chairperson said he was protected and she called on committee members to hold on as they murmured in indignation. She asked that they allow him to finish what he was saying.
Mr Ramatlakane said Mr Maluleke was insulting them.
Adv Makhubele, PRASA board chairperson, requested the Chairperson to restate the question that had brought the meeting to that situation so that she could understand it.
The Chairperson said it started when Mr Ramatlakane asked why the financial statements had not been submitted by 31 May as required by the PFMA. Mr Zide explained that the AG received the financials but then suspended the audit because the board was not quorate. It was at that point that Mr Maluleke said that all questions to do with the board must be addressed to the Minister and that is why questions were raised about the role of the Department of Transport representative on the board. A representation would be made to the Minister that his representative was proving to be a challenge as he is referring every query to the Minister and was not contributing meaningfully to the meeting and that it was futile having him on the board.
Mr Radebe asked the board chairperson to bear with the members of the Committee because there was a history of the previous board not being cooperative and Mr Maluleke’s conduct was reminding them of that.
Mr Radebe then addressed Mr Maluleke telling him not to play games with the Portfolio Committee. He knew that Mr Maluleke could be rude and they would not mind chasing him out of the meeting and urged him to behave. He told Mr Maluleke to conduct himself accordingly and not to tell them that he was employed according to the Public Service Act. If that was going to be his behaviour they would also treat him in a manner he would not like. He requested Mr Maluleke not to patronise the Members. They were raising issues because it was their responsibility to raise them. He said many officials were not even representing the Minister but their own jackets. He warned Mr Maluleke not to do that and informed him that they would not hesitate to tell the Minister that he was not doing his duties.
Mr Sibande told Mr Maluleke that they did not anticipate anyone to teach them about protocol. They understood why he was deployed and they were asking questions about the board because they wanted clarity on why PRASA did not comply with the financial requirements and why no Annual Report was submitted. He warned him not to push them in a corner. Committee members did not have powers to expel a person from the board, but they had powers to recommend the removal of a board member. They did not want to go that far.
Mr T Mpanza (ANC) said even though his colleagues had spoken on the matter he felt that his intelligence had been insulted. When Members ask questions, they know what they are asking. He made an appeal to the board chairperson that while the board was having meetings and developing plans, there were immediate things that the board could do. Their experience with the previous board was still fresh and they wanted things to start moving instead of ending at the making plans stage. He cited the filling of senior positions as an example as the CEO and CFO were still in acting capacities. Advertising of positions does not need development plans. The process of paying service providers also needed to be started, as some of them provided their services a long time ago and have not yet been paid. Operational issues should continue as long-term plans are being devised.
Mr Hunsinger referred to the role and function of a board member who also happens to be a representative of the executive. He read section 22 of the Public Service Act. It is a challenge for public service officials appointed to serve on boards to remain independent in view of their official duties to their employers and executive authorities. Although these authorities have been appointed as ex officio members, they are still fully liable as board members. He told Mr Maluleke to read that section as he was fully liable as a board member.
Adv Makhubele apologised for the manner in which the meeting had progressed and that they did not come to the Committee to cause trouble. She was expecting a cordial meeting. On Mr Sibande’s question as to when the board begins to account, she said it was immediately when you fill that position. The person assumes both the good and the bad. On the work of board in authorising documents and filling vacant positions, these were some of the matters that were under investigation and the board was being careful in giving authorisations. It was also addressing the question of whether the right people were in the right positions. The human resources committee would be sitting to address that on 27 November 2017 as the majority of the executives were in acting capacities. On payment of service providers, she replied that the board was working on this to ensure that all outstanding payments are settled.
On allegations of state capture at PRASA, Adv Makhubele said she had seen correspondence in which PRASA was directed to investigate this matter in July. However, PRASA was not featured in the Madonsela State of Capture report. A special investigation was carried out by the Public Protector on maladministration, procurement irregularities, conflict of interest, nepotism, human resource mismanagement, improper conduct and victimisation of whistle-blowers. A report based on the investigations is in the public domain and was issued on 24 August 2015. Audit issues had been identified such as irregular expenditure totalling R550 million, and fruitless and wasteful expenditure totalling R19 million. A firm of attorneys called Werksmans had been appointed to carry out investigations into this irregular expenditure. Treasury also undertook investigations of its own based on the Public Protector’s Report. The board meeting scheduled for December will discuss these reports and consider the findings and recommendations. A comprehensive plan will then be submitted on how the board intends to implement those recommendations. The board will also review how the recommendations have so far been implemented. She was also aware that the Committee had requested to have access to the Werksmans Report, but since it was a forensic report permission needed to be sought from Werksmans. There were also questions on the cost of the Werksmans investigations.
The Chairperson said the Werksman investigations had been a bone of contention - how the firm was appointed without a tender, the terms of reference and the cost of the whole exercise. All the questions that had been raised by the Committee had not yet been answered.
Mr G Radebe (ANC) said he wanted board chairperson to explain her statement that she needed to get permission from Werksmans for the report to be availed to the Committee. The Committee wanted to establish if the investigations were value for money. He compared the cost of the Treasury investigation which only cost R20 million to the Werksmans investigation which cost R150 million. Why was there such a big difference in costs and what were the outcomes of the reports? He asked if the board members of the previous board had repaid the money they had been paid for the meetings that were not budgeted for.
Mr Zide confirmed that the former board chairperson had repaid the whole amount but there were some board members who had refused to repay the money.
Mr Hunsinger said that it was important that a framework was sketched of the investigations to determine their scope. The Public Protector report had clear instructions and directives about what needed to be done and who needed to do specific things. There were also instructions by the Deputy Speaker directed to the Committee about allegations of state capture. The Committee was anxious to proceed on those. He asked if there were any conditions on the mandate of the board considering that it was an interim board. Was the board given terms of reference for investigations? He was aware that a report was released on 14 November which said that former minister Peters would be involved in the investigations. He asked for clarification on that point. While all these matters are being settled, the business still has to run and there is the R57 billion deal with the Export-Import Bank of China (Exim Bank) for the development of a rail development corridor. The board needs to get a grip on that deal as the legitimacy of the contract was in question.
Mr Sibande asked the board to follow up on a number of old and questionable contracts like the Werksmans contract. He requested the board furnish the Committee with details about the pending investigations so that they could have a clear idea of the financial implications of those investigations. He requested information about the grants given to the provinces, especially those that were intended for the Metros. It is alleged that some of the grants were not being properly utilised.
Mr Sibande was keen to know about the money received by the board members of the previous board for meetings that were not sanctioned and if they had repaid this money. He was aware that some had repaid the money, but others were still defiant. He wanted to know those that had not yet paid so that an amicable solution could be found.
Mr Ramatlakane said the last time they had engaged the Minister of Transport, he indicated that there were a number of legal investigations that had mushroomed and the Committee asked about the purpose and number of those investigations. The PRASA budget did not have money allocated for those investigations and there was concern as to where money for those investigations would come from. The Committee had asked the Minister who would pay for those investigations and the service providers would be carrying out those investigations. Could the GCEO shed light on those questions as Mr Zide was not present when the Committee had that discussion with the Minister.
Mr Ramatlakane requested information on the decentralisation of some PRASA operations to the Metros. He made reference to the board chairperson’s remarks that the Treasury investigation had been completed and he asked when the Committee would be briefed on the results. There was a committee report on PRASA which the Committee was supposed to present to Parliament which had been outstanding for two years because of gaps in that report which had been occasioned by the investigations. The previous board had been hesitant to provide the Committee with answers to some of the questions they had. Suggestions had also been made to the Minister of Transport when the investigations were commenced that they should be given to the Hawks instead of private firms as there were limitations as to what private investigators could do. It could have also been a cost saving measure if the Hawks had collaborated with Treasury in the investigations. He asked the board to confirm how many investigations had been consolidated and been brought under the Treasury and the Hawks. There was a reluctance by the previous board to hand over some cases to the Hawks for investigation. He was mindful that some of these were new questions and that the board may not be in a position to answer them but he requested that they be recorded. He hoped that some of these questions could be responded to in January 2018 when they would meet again.
Mr Hunsinger said it was very important for Adv Makhubale to understand the anxiousness of the board because on 29 November 2016 the Committee was addressed by the Acting CEO Mr Collins Letsoalo who informed them that the scope of the forensic audit had widened to include R24 billion in contracts and it was from there that the Committee became aware of the investigations. At the same meeting, the collapsing systems specifically for procurement practices at PRASA placed committee members in a state of worry. They were aware of reports from the AG that there was R13.9 billion in irregular expenditure and 250 million in fruitless and wasteful expenditure. It was also disclosed that there were suspicious transactions of R30.9 million and since then they had been waiting for answers.
The Chairperson said since most of the questions were new, they would request the PRASA board to respond in writing at the board’s earliest convenience.
Adv Makhubele said that the board did not require any permission from Werksmans to release a report that they had commissioned, but that she was merely indicating that she needed to go through all the proper procedures such as ascertaining the letter of appointment and the terms of reference, the scope of work and the appointment process. Most of the questions raised by the Members are the same ones that she wanted to address. The answers to the questions would be contained in a report that the board would submit to the Committee and would be the substance of the meeting that the board would have with the Committee because they did not want to work on speculation. The board did not want to cast aspersions on Werksmans or any entity that had been appointed by PRASA. The board was intent upon gathering hard facts that would confirm or dispel the suspicions. Questions on appointments and how the appointments were done, the procedures that were followed, how much money had been spent, the terms of reference and other important issues would be contained in the report.
On the question of the mandate of the current board, she explained that it was not an acting board but an interim board which meant that full powers had been vested in the board. On allegations of state capture, she reiterated that PRASA was not mentioned in the investigations or report on state capture. The report focused on one family which allegedly had a close relationship with the President and resulted in corruption in state entities. The board understood the phrase “state capture” in the sense that it was being widely used and not in a technical sense. Corruption at state entities is referred to as state capture. Capture by any person or group of persons was capture. It was possible that PRASA was captured but not by the family that many suspected. It was possible that it was captured by contractors or employees or any other group of persons.
Mr Zide replied about the contract that was signed in the absence of the board on 15 September. A Mail and Guardian journalist wrote a story with the headline “Board-less PRASA has inked a deal worth 57 billion with China”. He wrote to the Mail and Guardian editor asking them to interview him and produce the alleged contract. On 27 October, the newspaper retracted the story and wrote an apology to PRASA admitting that PRASA did not sign the alleged R57 billion deal. On the decentralisation of the Metros, a written response would be issued.
The Chairperson said that the Committee would send inquiries to the board on a number of questions that were not responded by the previous board.
Mr Hunsinger said there were a number of investigations that were supposed to be carried out by the Hawks. He requested that the Hawks be asked to appear before the Committee to establish exactly which investigations had been undertaken by them.
The Chairperson thanked the new board for agreeing to take up the challenge of putting PRASA back on the rails and assured it of the Committee’s support.
The meeting was adjourned.
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