Proclamation: SIU investigation into PRASA
PRASA 2018/19 Annual Report
PRASA 2017/18 Annual Report
PRASA 2016/17 Annual Report
The Committee held a hearing with Prasa to review the entity’s 2018/19 financial statements. The Minister of Transport, as well as his Deputy, was in attendance.
The entity had regressed from an unqualified audit with findings in 2015/16, to a qualified audit in 2016/17 and 2017/18, followed by a disclaimer in 2018/19. The Auditor-General (AG) had highlighted that 11 material findings led to the disclaimer and these included: property, plant and equipment (PPE); change in accountancy policy; fare revenue; risk management; irregular expenditure; fruitless and wasteful expenditure; cash flow statements, amongst others.
Part of the Committee’s mandate was to oversee the prevention of further regression and collapse of the financial management of the entity.
During the hearing, Members criticised the Board for its inability poor record keeping.
According to the AG’s report, the entity’s inadequate recordkeeping went far beyond the Board’s abysmal minutes. The Committee highlighted that the minutes were meant to reflect the resolutions that had been taken. Without credible minutes, these resolutions could not be tracked or authenticated. Such poor administration delegitimised the Board’s functionality and did not inspire confidence in the Board’s competence for an institution of PRASA’s magnitude.
Members were not persuaded by the Board’s attempts to distance itself from the problems that led t the poor audit. They highlighted that this Board had been in effect for the full complement of the year under review and assumed full responsibility. It should thus not absolve itself but account for the state of the entity, notwithstanding the maladministration of its predecessors.
Members were unsatisfied with the entity’s responses about whether action had been taken against those officials who had been implicated in wrongdoing.
Members asked the Ministry to evaluate the Board and take action against it where necessary.
The Committee agreed to convene and discuss the events of this meeting and make appropriate recommendations to the House. The Board was asked to go back and thoroughly prepare another presentation and detailed responses to the Members’ questions.
Opening Remarks by the Chairperson
The Chairperson welcomed the Members, the Ministry, PRASA delegation and all other attendants. He then introduced the agenda of the session.
He briefly announced a review of the state of PRASA, as compiled by the Committee support staff. The entity had regressed from an unqualified audit with findings in 2015/16, to a qualified audit in 2016/17 and 2017/18, followed by a disclaimer in 2018/19. The Auditor-General (AG) had highlighted that 11 material findings led to the disclaimer and these included: property, plant and equipment (PPE); change in accountancy policy; fare revenue; risk management; irregular expenditure; fruitless and wasteful expenditure; cash flow statements, amongst others. It was critical for the entity to apply consequence management where necessary on account of these findings.
Remarks by the Minister
Mr Fikile Mbalula, Minister of Transport, said that in contextualising the challenges facing PRASA and its performance, it was important to briefly reflect on the performance of the Department in the 2018/19 financial year. This performance reflected an organisation that had no permanent leadership at management level.
For the last two years, the Department did not have a Director-General (DG) and had to rely on acting incumbents. Similarly, out of the eight Deputy Director-Generals (DDGs), five of them were acting. When the current Ministry came into office, it committed to speedily address the high vacancy rate in the Department. A full-time DG, Mr Alec Moemi, was hired within the first two months. He had since advertised the vacant positions of various DDG portfolios and the process was nearing completion. High vacancy rates in the current economic climate, characterised by high levels of unemployment, were not only unacceptable but also hindered the ability of the Department to deliver on its mandate. This was equally true in respect of PRASA and all other entities of the Department. The Ministry would tackle this challenge decisively, with the necessary urgency.
He assured the Committee that the processes to finalise the appointment of a permanent Group CEO would be finalised by the end of the financial year. Progress had been made with the appointment of other executives, with the appointment of a Chief Financial Officer (CFO), a Chief Procurement Officer (CPO) and a Group Executive for Human Capital Management, on 01 September 2019. The newly appointed executives were all women; this was an affirmation of government’s commitment to women empowerment and recognition of women excellence.
The Department was also finalising the process appointing a permanent Board whose first order of business would be to take extraordinary measures to stabilize PRASA’s operations and ensure that it delivers its mandate. The conditions of the entity were exacerbated by the fact that it had not kept a record of Board meetings and resolutions of subcommittees.
PRASA’s performance remained dismal, having achieved only 26% of its annual targets for the year; albeit an improvement from 21% in the previous year. This was an unacceptable state of affairs which required drastic action. The Department would strengthen its oversight instruments to include early warning systems that would enable timeous interventions and to ensure that PRASA was able to deliver on its predetermined objectives.
Over the last 5 years, PRASA’s revenue declined by 48%, resulting in an untenable situation where its operating deficit reached unacceptable levels of R1.8 billion. The entity employed 16 350 employees at a cost of R5.6bn; this constituted 49% of its overall budget. The entity remained constrained in its ability to spend its capital budget, resulting in the reduction of its capital budget baseline. While this reduction had significantly affected PRASA’s capital projects, it had not affected the rolling stock fleet renewal programme, signaling and the general overhaul of Metrorail and Mainline Passenger Service coaches. During the year, the General Overhaul (GO) programme reinstated 351 Metrorail coaches – one coach short of the target. A total of 47 Shosholoza Meyl coaches were overhauled during this period; this was the actual target of the GO commitment.
Despite this, post year-end PRASA was unable to finalise the award of the new GO contract, which was central to sustaining the current system and accelerating the return to service of coaches that underwent maintenance and refurbishment. Similarly, the deployment of the new trains was delayed by the slow progress in delivering requisite infrastructure for identified corridors. These challenges must be understood against the context of rampant criminality and lawlessness of the environment in which the entity operated. In the year, 762 coaches (17% of the entire fleet) were affected by acts of vandalism, theft and arson. Incidents of torching of trains were particularly prevalent in the Western Cape.
The AG noted irregular expenditure as one of the major reasons for the disclaimer. PRASA was ranked as one of the top offenders in terms of irregular expenditure in the public sector, incurring over R3bn in FY2018/19. This resulted in an accumulated figure of R27.3bn, including FY2017/18. The expenditure may have been higher than reported because the systems of detecting it were deemed inadequate. The Department vowed to put measures in place to arrest this situation and strengthen prevention interventions. These would include closely monitoring the expenditure of the entity and providing support to enable it to investigate maladministration and take appropriate action.
The AG further noted the cumulative fruitless and wasteful expenditure of R383.5 million, including R41.7 million from FY2018/19. A total of R20.9 million was due to interest and penalties while R20.2 million was due to incorrect rate of Sunday time paid to employees; R3.5 million was for procured assets which were not in use. The bulk of the expenditure related to transactions where value for money could not be justified. The DG would closely monitor action taken against officials implicated in the incurring of this expenditure across all the Department’s entities, including PRASA. These actions would include disciplinary action and recovery of the money incurred, with a zero tolerance approach. Consequence management would be incorporated as a deliverable when the Department revised the Shareholder Compacts with all its entities; it would be one of the focus areas when evaluating the performance of the Board.
The Chairperson indicated that the structure of the hearing was to be segmented into three focus areas which would each be led by designated Members, supplemented with follow-up questions from the rest of the Members. This was done to thoroughly address each area because the Committee was displeased with the state of the entity. The Committee’s role was to assist the entity in its road to recovery.
Given that the PRASA Board was the Accounting Authority of the entity, it should field the questions from the Committee. The Minister, DG and the PRASA Executive could only make interventions in support of the Board.
Mr B Hadebe (ANC) acknowledged the Minister’s remarks and indicated that his probe would focus on expenditure management. He noted that the institution leadership had been destabilised by its high vacancy rate but the acting incumbents were given full responsibility to act in their positions with all the powers and should account for the state of the entity.
According to the AG, the entity’s annual financial statements (AFS) did not reflect the full extent of the irregular expenditure, as per Public Finance Management Act (PFMA) requirements. PRASA was ranked as one of the top offenders in terms of irregular expenditure in the public sector. For the year under review, the irregular expenditure amounted to R3.037bn – of which R2.5bn was incurred on competitive bidding processes and R167 million was due to contract extension costs without approval; R118 million was for contracts that continued beyond their cut-off dates. The recommendation by the AG was: “Management should develop and implement a system to prevent, detect and report all noncompliance matters. All irregular expenditure should be disclosed in the register. Consequence management should be implemented for officials who permitted or caused noncompliance with law and regulations.”
In light of these recommendations, has the PRASA management implemented the system that would prevent, detect and report non-compliance? Has the entity disclosed all irregular expenditure in its register? How many officials have been taken through disciplinary action? Which of these officials are in top and senior management executive positions? Are there any who have been suspended or dismissed? Has the entity laid any criminal charges against these culprits? Has the entity instituted any civil litigation to recover the money?
Mr Lesibana Fosu, CFO, PRASA, responded that the entity had not been preparing its AFS along with the supporting information; it did so for the first time at the end of FY2018/19 before the AG came. This was the root cause of the misstatements because there was no system which was consistent throughout the year to ensure that all statements, along with their supporting information, were prepared according to required standards. Since the AG noted the incompleteness of the irregular as well as fruitless and wasteful expenditure reports, the entity had established an external audit tracking system. This system would be used to track the progress of addressing each material finding, starting with identifying the source of each finding. The entity also developed a reporting mechanism to limit fruitless and wasteful expenditure henceforth; this would involve training individuals to detect this expenditure and prevent it as much as possible. The initiatives would be a continuous process and the impact of these systems would take some time to reflect because the leadership was rebuilding the organisation.
Ms Khanyisile Kweyama-Khanyile, Chairperson, PRASA Board, said that when the Board was appointed, investigations had already been done at PRASA on those who were responsible for the irregular as well as fruitless and wasteful expenditure. Disciplinary processes had begun and 11 cases were handled during 2018/19; two people were dismissed, one resigned on the day of the hearing and about six were in the various stages of the processes. The entity also committed to investigating all of the AG findings.
In August 2019, the President issued a proclamation at PRASA for the Special Investigating Unit (SIU) to investigate irregular expenditure at the entity for the year and hitherto. The SIU was present for about six months at the entity and had composed an initial report which implicated about 30 senior managers and executives who should be held accountable for the cumulative material irregularities at PRASA. The Board had since adopted the report and began instituting the disciplinary hearings.
Mr Hadebe interjected and asked the PRASA chairperson to only respond to the questions he asked about irregular expenditure. He asked if the entity had identified officials who had embarked on bidding processes that were not competitive.
The Chairperson said that the point of departure was the context he had outlined in his opening remarks. The schedule that had been presented to the Committee was incomplete and did not directly trace transactions back to specific individuals.
Mr Moemi said that much of the PRASA delegation comprised of incumbents who had just joined management and the Interim Board had been newly formed in September 2019. The culprits who were responsible for the failure of the entity were not present at the meeting. The Board inherited two incomplete AFS reports from its predecessors. There were books which had not been submitted to the DG’s office and were only concluded during the AG audit process.
The Minister had fallen short of placing the entity under administration because of its organisational collapse but had since introduced a mechanism called a “War Room” which was set out to improve the interface between the Department and the entity. Through this intervention, the Minister indicated the specific tasks that the Department had to achieve in trying to help stabilise the entity.
The Chairperson appreciated the context outlined by the DG but maintained that it did not absolve the PRASA Board. This Board had been in effect for the full complement of the year under review and assumed full responsibility. It should thus not absolve itself but account for the state of the entity, notwithstanding the maladministration of its predecessors. As an Accounting Authority, the Board had to reflect on the root causes and understand them.
Ms Kweyama-Khanyile said that the bulk of the R3bn which Mr Hadebe inquired about related to security contracts, general overhaul contracts, signalling and legal costs. Although these payments were made in 2018/19, the contracts thereof had been awarded in the previous financial years. The AFS for 2018/19 was signed off in September 2019 before the entity had its Annual General Meeting (AGM) with the shareholder. The entity was still undertaking the process of identifying more proponents of the irregular expenditure, who would be taken to disciplinary and civil claims courts.
The Chairperson informed the Committee that the Board Chairperson had asked to be excused from staying for the duration of the meeting due to prior commitments which coincided with the change of meeting time. Despite requesting beforehand, her absence as the Board chairperson would affect the proceedings. Having been in office for the entire year, the remaining Board members should actively participate in the engagement.
Mr Hadebe said that the responses to his questions were unsatisfactory, considering that the AG had reported similar non-compliance issues in previous years. There was a lack of accountability from senior management to address the repeated findings. It was unacceptable for the Board to say that it was still in the process of addressing irregular expenditure given that the entity’s audit outcomes had regressed from unqualified to disclaimer, over the past four years. The Committee was not comforted by the progress made by the entity.
The AG had pointed out that there were some goods and services which were procured through processes that were not fair, equitable and transparent. An example was the R3.5bn contract awarded to Swifambo Rail Leasing in June 2012 for the purchase of locomotives; the contract was non-compliant and was subsequently terminated. Out of the R2.6bn already spent, R2.2bn was impaired and irrecoverable, according to the AG. The AG recommended that an appropriate action should be taken to ensure that the second phase of the investigation would be concluded promptly. Effective disciplinary measures should be taken against the employees found to be responsible. Having been in office for 18 months, has the Board been able to identify the officials who were involved in the adjudicating and awarding of the contract? How many are they? What positions do they occupy? Are they still adjudicating tender processes?
Mr Louis Wessie, PRASA Board member, said that the Swifambo contract had gone through the entire investigative process until it reached the Constitutional Court. The Constitutional Court dismissed an application by Swifambo for leave to appeal a decision to set aside its R3.5 billion contract with the state-owned rail transport entity. The case involved several legal disputes but PRASA eventually won the case. The technicality of the legal process was that the assets could not be traced back to PRASA because the entity had already paid the money and received some of the goods, although locomotives were still in Spain. The matter ended up at High Court where the contract was declared null and void, in favour of PRASA. The entity attempted to recover the money by liquidating the assets that were already part of its register but that process did not yield equivalent returns because of depreciation and other associated costs.
Mr Hadebe said that Mr Wessie only highlighted the first phase of the processes but this phase had already been concluded. However, the AG had recommended that the entity should expedite the second phase of the process – identifying the culpable officials and instituting disciplinary action on them. Has the entity acted on these recommendations?
Mr Sango Ntsaluba, PRASA Board member, said that the Board had not taken any steps but was hindered by the fact that the audit report from the AG was only finalised recently.
Mr Hadebe said that this tender dated back to 2012 and it had been ongoing matter since 2015, when the investigations were initiated. The fact that the audit report was only recently completed did not justify the lack of consequence management over the cases and accountability on the Board’s part. Attending the court cases was an acknowledgement that the tender had been awarded illegally.
The Chairperson added that the Committee would not accept the Board’s reasoning for not having executed the AG’s recommendation because although the audit report was only recently finalised, the contract had already been on the PRASA financial books for a few years. If the excuse was that the AFS had not be completed then that would beg the question why this had not been done.
Dr Nkosinathi Sishi, Acting Group CEO, PRASA, said that the entity had failed to submit the 2016/17 and 2017/18 AG audit reports and it was therefore dealing with three reports, including that of 2018/19. Management was currently engaging on a process of developing a tracker that would identify repeat findings.
There were numerous investigative reports that were with the entity and one of them was a Public Protector’s report. There were officials who were implicated in multiple reports. Eleven officials were charged, three were dismissed and a number of them were found guilty on an average of five charges each; none of the ones who were charged were able to defend themselves. It was important to note that the PRASA leadership was trying to stabilise the organisation while addressing all of these cases. Some of the very same officials who were meant to address the case had to defend themselves where they were implicated. This caused incapacity to efficiently and effectively resolve the cases.
The Chairperson rejected the Acting CEO’s input. The Board had been in office for the whole of 2018/19 and the Committee was more interested in hearing about the action steps that were taken by the Board during the year; the process of stabilising the entity was secondary to the meeting agenda. The Public Protector report had been issued in 2015 and was inherited by the current Board at least 18 months prior to this meeting. The Committee had a full appreciation of PRASA’s problems but the Board had to account for the work it had done during its tenure. If management was to spend time appraising the Committee with futuristic plans, there had to be context of the progress that had been made hitherto.
Mr Hadebe said that the Committee had met with the AG and received his report. There seemed to be no tangible outcome from PRASA in delivering any of its recommendations. There was no consequence management that had been done on the material irregularities found by the AG. The Committee was being hampered from effectively exercising oversight over the entity.
Mr Ntsaluba replied that the Board relied on management of PRASA and was therefore unable to execute its mandate because of the high vacancy rate. Being non-executive, the Board could not convey recommendations for consequence management where there were no incumbents. Most of the management, including the head of human capital and the CFO, were newly appointed.
Mr Hadebe asked if Mr Ntsaluba was suggesting that the current Board was not willing to act on its capacity although it had been empowered to do so.
Mr Ntsabula maintained that the current management mostly consisted of newly appointed officials.
The Chairperson said the hearing was for reviewing FY2018/19. The transactions listed on the schedule were dated within the tenure of the Board. What did the current Board do? How many times did it convene during the year?
Mr Wessie said the Board met at least once after every quarter of the year.
The Chairperson asked if the Board met only four times during the year.
Mr Wessie said that there were numerous other instances which called for the Board to convene for meetings.
The Chairperson could not believe that the Board only met four times given the crisis in which the entity found itself. This meant that the corrupt officials, who were responsible for implementing the recommendations of the AG, would be left to their own devices, enabling them to abet and aid further collapse of the entity. How many times did the Board meet and for what purpose? It would be astonishing if the Board did not keep any record of its meetings.
Mr S Somyo (ANC) asked if there was a shareholder compact that existed between the Executive and the PRASA Accounting Authority. The compact needed to be applied more effectively because there were still some glaring concerns such as the lack of the Board’s meeting minutes.
Minister Mbalula indicated that the shareholder compact did exist, in the context of holding the Interim Board accountable for the work it did. This compact informed the interaction between the Department and the Board. He asked to elaborate on his response during his closing remarks.
The Chairperson quoted page 72, item 20, of the PRASA Annual Report: “PRASA did not maintain complete governance records, including minutes of meetings of the Board, its subcommittees and executive committee. This had a negative impact across the audits as resolutions and other decisions taken could not be confirmed, including those taken subsequent to year end.”
This statement referred to the Board that was present at the meeting and could not be refuted because it was included in the AG’s report and was approved by the Board itself. It was a major indictment to the Board.
Mr Ntsaluba confirmed that the statement was factual but said it was one of the reasons why the entity dismissed its previous company secretary as part of consequence management.
Ms B van Minnen (DA) expressed concern that the entity had no permanent leadership for several years. It appeared to have not taken any corporate responsibility and only achieved 26% of its goals for the year. The entity’s system had collapsed and the delegation did not seem prepared to account and respond to the questions posed by the Members. PRASA was responsible for multitudes of citizens and its organisational condition was therefore unacceptable. She asked why the entity was not under administration.
Ms N Mente (EFF) said that ordinarily, the first agenda item of each subsequent meeting was to consider the minutes of the previous meeting. It therefore did not make sense for the Board to say that the entity resolved to part ways with its secretary at year end, based on discrepancies found in the minutes taken during the course of the year. Section 55 of the PFMA stipulated that Accounting Authorities of public entities had the responsibility of keeping full and proper records of the financial affairs of the entities. As soon as the minutes were found to not reflect the entity’s books, the Board was supposed to take action – considering that the entity had been a looting zone for corrupt officials. It was inexcusable for the Board to not have picked up these errors having met four times.
Mr R Lees (DA) pointed out that the Chairperson of the PRASA Board attended 22 meetings during the year and was paid an average of R57 682 for each meeting. It was beyond comprehension that the Board was deflecting the blame to the company secretary for its inaccurate meeting minutes.
The Chairperson wanted to know when the entity dismissed the company secretary.
Mr Wessie explained that whenever the Board convened it would always request minutes of the previous meeting from the secretariat. The Board realised that the secretariat was deteriorating and allowed the then CEO to take charge of addressing the matter by even outsourcing secretarial services.
The Chairperson asked at what point the CEO outsourced the secretarial services.
Mr Wessie replied that it must have been sometime in 2018.
The Chairperson said it was unacceptable that the Board was not able to accurately recount some its key processes. After how many meetings did the Board recognise that there were problems with the minutes of its meetings? On what basis did the Board discuss the follow through of its resolutions? Which minutes were adopted?
Mr Wessie said he could not recall when the previous CEO officially left office. However, the existing problems were accumulative governance underperformances, extending from prior years.
The Chairperson maintained that it was intolerable for the Board to not be certain about key events of the entity such as changes in its leadership.
Mr Wessie said that the CEO left office in May 2018.
The Chairperson asked Board Member when the company secretary was dismissed. What process was followed?
Dr Sishi indicated that he assumed the Acting CEO position on 01 March 2019. The company secretary was placed on special leave and an investigation was instituted. He was not only being investigated in relation to inaccurate meeting minutes but there were about five charges in total.
The Chairperson said that Dr Sishi should focus on the issue of meeting minutes because it was what led to the mess of the Board’s unaccountability and absence of resolution.
Dr Sishi indicated that the PRASA executive discovered that there was a history of secretaries interfering with the Board minutes and doing other corrupt actions. The termination of the previous secretary took place under his administration.
Mr Hadebe said that minutes were ordinarily subject to approval by the Board at a subsequent meeting. Did the Board approve the minutes of each of its meetings as confirmation of what transpired? Were the approved minutes the corrected versions?
The Chairperson said it was absurd for the meeting to degenerate into a discussion about elementary executive responsibilities which were prerequisite to competence. The Board’s default position in accounting for the minutes could not be hinged on the manipulation of minutes by the former company secretary.
Mr Hadebe said that the AG could not thoroughly conduct his investigations because of the entity’s incomplete records; the Board thus contributed to the disclaimer audit outcome.
Mr Somyo said that the Board was a legal body and all its decisions ought to be reflected in its meeting minutes. The Board was mandated to make resolutions on instances that would consume the fiscus and other general matters of procurement; these ought to be contained in the minutes for the purposes of records and referrals. The appointment of each Board member should also be confirmed by the minutes. He asked if there were any minutes that confirmed all the appointments during the PRASA AGM.
Ms N Tolashe (ANC) said that the bottom line was that there were individuals who were paid to ensure the accuracy of the meeting minutes. This maladministration was effectively a means of stealing from the public purse. The Board should take full responsibility and impose consequences on the delinquents.
Mr M Dirks (ANC) said that the Ministry should evaluate the Board and take action against it where necessary. The state of the entity was inexcusable and there must be consequences imposed for this.
Ms Mente quoted section 86(2) of the PFMA:
“An accounting authority is guilty of an offence and liable on conviction to a fine, or to imprisonment for a period not exceeding five years, if that accounting authority wilfully or in a grossly negligent way fails to comply with a provision of section 50, 51 or 55”
The Board did not fulfil its mandate in respect of the requirements set out by the PFMA and National Treasury.
The Chairperson said that the meeting minutes of the Board were meant to reflect the resolutions that had been taken. Without credible minutes, these resolutions could not be tracked or authenticated. To make matters worse, the Board members ordinarily receive the minutes prior to the Board meetings and would be expected to detect manipulation of the minutes.
According to the AG’s report, the entity’s inadequate recordkeeping went far beyond the Board’s abysmal minutes. Such poor administration delegitimised the Board’s functionality and did not inspire confidence in the Board’s competence for an institution of PRASA’s magnitude. It was an indictment on its efficiency and effectiveness. This was intolerable and would impact how the Committee would interact with the Board henceforth.
The Committee could not vouch for the credibility of the entity’s annual report because recordkeeping was in shambles. There was no substantive basis upon which the Board was meant to be operating; hence why even the irregular expenditure of the entity was unquantifiable. The Committee would convene to deliberate on whether the current Board was fit and proper to execute its mandate and subsequently issue a recommendation to the Minister’s Office.
Mr Dirks pointed out that the current Board had a poorer audit outcome but claimed to have inherited a mess from its predecessors. His background involved working for a municipal government, where a disclaimer outcome resulted in the instant dismissal of the top three officials, without any discussions. The Minister had to impose consequence management on the Board, else he would have to come and account before the SCOPA.
Mr Hadebe highlighted that there were contracts that the AG brought to the Board’s attention which needed to be addressed urgently; these included the provision of security, drone surveillance, bus services in the Western Cape as well as the control of vegetation contracts. The Board had made a commitment to the AG to institute independent investigations on these contracts.
The key capital projects, which included the rolling stock, signalling and modernisation programmes, were found to be all behind schedule. The primary contributing factor was identified to be the supply chain management processes of the entity. These issues needed to be addressed urgently. What has the Board done thus far?
Mr Wessie explained that the rolling stock programme was engaged with the Gibela Rail Transport Consortium. This contract was awarded to Gibela for the provision of 600 new train sets. The project was delayed from its inception due to the construction of the factory where the trains were to be built; this matter affected the delivery of the project. The Board then evaluated the possible consequences of these delays on PRASA operations and mechanisms were put in place to fast-track the processes. The project was being monitored and the Board was receiving a progress report monthly.
Mr Hadebe interjected, saying that the Committee was well aware of the background of the Gibela contract but wanted to know about the remedial actions in addressing the delays. The Board should expound on these actions.
Mr Wessie said that before the current Board came into office, there were programmes put in place to erect train depots but these programmes were cancelled for various reasons. The entity was in the process of reviving and accelerating some of them. Two implementation phases had been completed and the procurement process related to the third phase was being concluded. The signalling programme was done by three companies. In Gauteng there had been significant progress with the programme despite the interruptions and vandalism that the entity faced, where the cabling infrastructure had been stolen. There was an increasing need for security for these systems, especially the ones located within the Western Cape. This programme consumed a large of the modernisation budget and the AG regarded as one of the irregular contract.
Mr Hadebe said that the signalling contract was amongst the irregular contracts he inquired about. What has the Board done to undertake investigations into these contracts? Who are the service providers that were identified as culprits?
Dr Sishi indicated that the AG identified eleven irregularities towards the end of the year. The AG ordered investigations into the irregularities and the entity began instituting them. The register of irregular expenditures were categorised according to their types. The register consisted of several companies and none was standing out from the rest.
Mr Hadebe asked who the officials, involved in the bid adjudication process and the subsequent awarding of contracts, were. Have they been investigated and taken through disciplinary procedures?
Dr Sishi indicated that all irregular contracts were cancelled and were currently being investigated by the SIU; a total of 30 managers were already identified as corrupt. Some of the contractors were later discovered to not have the capacity to do the work they were contracted for.
Mr Wessie said that the officials who awarded the irregular contracts were no longer with PRASA. A lot of the contracts were authorised several years ago and the entity realised that the then contracts would soon come to an end and put other tender processes in place to ensure legitimate business continuity.
The Chairperson asked if the 30 managers who were identified as corrupt were still part of the organisation. What is their status? Are they provisionally suspended, on leave or working as normal? The Committee was not expecting the entity to name the managers; it should indicate if it did not know the answer to this question.
Mr Wessie said that he did not have a list of the names of the managers; he may have read an investigation report on the managers but could not recall them by name.
Dr Sishi explained that the SIU investigation was only instituted two months prior to the meeting, after a lot of preliminary work had been done. Therefore, the status of the report which was referred to was still a work-in-progress.
The Chairperson announced that the Committee would have a follow-up meeting and deliberate on the events of this meeting. It would take decisions and make recommendations to Parliament; the Committee had a 100% record in the number of times Parliament accepted its recommendations. The PRASA delegation should be forthcoming in its responses and not give shady information otherwise it could potentially be subjected to harsh consequences. Where are the 30 managers? In the first meeting of the Board, did the SIU presentation indicate that 30 managers were found to be corrupt?
Dr Sishi said that there had been no specific analysis done on the 30 managers; the delegation did not bring any data to the meeting.
The Chairperson came to the conclusion that the managers were still working at PRASA. The entity should have indicated this and saved a lot of the time that had been wasted on this matter.
Mr Dirks noted that the cancellation of two of the entity’s security contracts had been overturned by two courts – one in Pretoria and another in Cape Town. What is the resolution of the Board regarding these verdicts? He pointed out that lack of security was making PRASA’s property susceptible to vandalism and theft; the cost implications were being borne by PRASA and, effectively, the fiscus. This was unacceptable.
Further, the irregular appointment of attorneys seemed to repeatedly appear on the schedule for irregular expenditure. These legal services had monopolised PRASA at the expense of the public purse; some were said to benefit from political connections. The entity reportedly used the services of one of the attorneys who were implicated in the SIU investigations. How did this happen?
The Chairperson asked if there had been any suspensions within the organisation on the basis of involvement in irregular expenditure, financial misconduct and malfeasance.
Mr Wessie recounted that the years ago, the Siyangena contract was found to be irregular and the then Chief Procurement Officer (CPO) was taken through a disciplinary process and eventually dismissed from PRASA. The investigation into his misconduct revealed that he also partook in other maladministration matters.
The Chairperson reckoned that the problem with the delegation was that its members were not “singing from the same hymn sheet”. They were all speaking from their personal memory and were not united with a common cause. This inconsistency reflected inadequate recordkeeping at PRASA and unaccountability. The fact that the Board chairperson’s annual salary was nearly twice that of the other Board members implied that the answers to the Members’ questions vested with her.
He drew a parallel with SCOPA’s discussion with the Department of Correctional Services the previous day. National Treasury had advised the Department to proceed with certain courses of action but the Department insisted. The implicated DDGs were subsequently only given written warnings and were not dismissed nor were they taken through any disciplinary processes. It was shocking that PRASA had not conducted any consequence management on any of the 30 managers who were implicated in the SIU investigations. Although the efforts which were presented by the Board were commendable, the way it dealt with the root causes of its problems should be included its key focus areas.
Part of the Committee’s mandate was to oversee the prevention of further regression and collapse of the financial management of the entity. The Committee would convene and discuss the events of this meeting and make appropriate recommendations to the House. The Board must go back and thoroughly prepare another presentation and detailed responses to the Members’ questions that were prevalent in the meeting. When coming to Parliament, the Board should not be under the impression that it would only field policy-related questions from the Members. He hoped that the entity would subject itself to the guidance of the Department on matters.
The Chairperson appreciated that the Minister and Deputy Minister cooperated and stayed for the duration of the engagement. The Committee would continue to hold the Ministry accountable for its mandatory responsibilities over the Department’s entities, including PRASA. He hoped that the Minister had recognised the gravity of the entity’s problems and would make the necessary interventions.
In the next meeting, the Committee would not accept any apologies from absent delegation members.
Closing remarks by the Minister
Minister Mbalula responded to Mr Somyo’s unanswered question. The shareholder agreement did exist; it was signed between the former Minister and the current Interim Board in March 2019. The Minister’s office activated the War Room as part of its interventions; it also used the internal state capacity at its disposal to inject funds into PRASA to aid its capital budget. The Board was operating on an interim basis and a process of finalising its vacancies was under way.
The Minister reiterated that the entity was in calamity; the Ministry had full appreciation of the AG’s material findings. What was most astonishing about the hearing was the Board’s failure to account for its basic processes and to respond to the questions regarding irregular expenditure for FY2018/19. He assured the Committee that there would be severe consequences imposed in order to realise a turnaround of the entity for the better. He would not prevaricate and condone ineptness because the officials were professionals and were expected to demonstrate competence. When they appear before SCOPA they must account.
One of the crucial mistakes was that incoming Board members for the Department’s entities were not taken through an interview process; they would usually be appointed on consideration of the portfolios and recommendations. The Ministry introduced interviewing processes as a way of evaluating whether the candidates had the requisite skills. He met the PRASA Board in Cape Town and posed questions to it; the members were more elaborate in their responses than they were in this meeting.
The Minister appreciated the opportunity that was offered by SCOPA for the entity and the Department to address the Committee.
The Chairperson hoped that the Ministry would finalise the appointments of Board members so that the Committee would have more meaningful engagements with the entity.
He made Committee announcements and thanked the Ministry, Department and the PRASA delegation for attending the meeting.
The meeting was adjourned.
- Review of PRASA 2018/2019 financial statements, deviations, expansions, irregular, fruitless & wasteful expenditure 2
- Review of PRASA 2018/2019 financial statements, deviations, expansions, irregular, fruitless & wasteful expenditure 1
- Review of PRASA 2018/2019 financial statements, deviations, expansions, irregular, fruitless & wasteful expenditure 3
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