In a virtual meeting, the Committee was briefed by the Auditor-General of South Africa (AGSA) on the 2019/20 audit outcomes of the Department of Transport and entities in the portfolio. An overview of the last five years showed a slight improvement in audit outcomes across all entities, although the Road Traffic Infringement Agency’s audit was still outstanding, and the disclaimed opinion on the Passenger Rail Agency of South Africa (Prasa) for the second consecutive year remained a concern. The problems in the entity were serious and spanned the entire breadth of the organisation. Across all entities, there had been slight improvements in credible financial and performance reporting. Non-compliance with applicable legislation was the main cause of qualified opinions. Consequence management was not always implemented effectively and record-keeping also needed some attention. The Public Audit Amendment Act of 2019 had expanded the mandate of AGSA beyond auditing and reporting to include taking action in response to material irregularities. AGSA could refer material irregularities to public bodies for further investigation, take binding remedial action where AGSA’s recommendations were not implemented and, as a last resort, issue a certificate of debt to recover the financial losses. Nine material irregularities had been identified at the Passenger Rail Agency of South Africa in 2018/19, and the Special Investigations Unit had been commissioned to investigate these matters in July and August 2020 in terms of the Act.
Committee Members were dismayed at the state of the PRASA and called for greater oversight. They observed that many audit outcomes were unchanged or had regressed from previous years, including a lack of effective leadership and consequence management in certain entities. They asked for more detail on the implementation of the Auditor-General’s expanded mandate in the light of the Zondo Commission, the Public Protectors 2015 “Derailed” report and the 2018 ten-year review of the Department. They expressed concern about the level of irregular expenditure by the PRASA and suggested that spot checks were an effective way to combat corruption.
Deputy Minister of Transport, Ms Dikeledi Magadzi, said that the Minister could not attend the meeting as he was attending a Cabinet meeting.
The Chairperson accepted apologies from Members. He asked the Committee and officials present to observe a moment of silence on behalf of the victims of the road accident on the N3 the night before.
Mr L McDonald (ANC) expressed condolences to the families of the victims.
The Chairperson congratulated Ms Tsakani Maluleke on her recent appointment as Auditor-General.
Mr Solly Segooa, Corporate Executive, Auditor-General of South Africa (AGSA), said that he was excited to be part of the historic appointment of South Africa’s first female Auditor-General. He explained that only five entities had tabled - these were the Department of Transport (DoT), the South African Civil Aviation Authority (SACAA), the Airports Company of South Africa (ACSA) and Air Traffic Navigation Services (ATNS). He asked Mr Polani Sokombela, Business Manager, AGSA, to begin the presentation.
Mr Sokombela said that 2020 had been a difficult year and AGSA had had to adapt to unexpected challenges. He expressed appreciation for the support of the DoT. He noted that an unqualified audit did not necessarily imply that an entity was succeeding in service delivery. It was just a statement about financial management. Governance failures did however impact negatively on service delivery. An overview of the last five years showed a slight improvement in audit outcomes across all entities, although the Road Traffic Infringement Agency’s (RTIA) audit was still outstanding, and the disclaimed opinion on the Passenger Rail Agency of South Africa (Prasa) for the second consecutive year remained a serious concern. The problems at Prasa spanned the entire breadth of the organisation. There was an attitude of complacency among management, exacerbated by leadership instability, and the root causes were not being addressed. There was a steady decrease in revenue and its infrastructure was falling into disrepair. Prasa was insolvent, non-compliant with legislation and did not keep good records. There were also some governance challenges at the South African Maritime Safety Authority (SAMSA) and the South African National Roads Agency Limited (SANRAL) was facing liquidity challenges related to the financing of the Gauteng Freeway Improvement Project (GFIP). The biggest challenges across all the entities were the effective implementation of internal controls and irregular expenditure.
Ms Mary-Ann Whitford, Senior Manager, AGSA, provided greater detail on the audit outcomes of the various entities. Overall, there had been slight improvements in credible financial and performance reporting. Non-compliance with applicable legislation was the main cause of qualified opinions. Consequence management was not always implemented effectively and record-keeping also needed some attention. Senior management needed to be held accountable to provide AGSA with assurances. There was material uncertainty as to whether SANRAL, Prasa’s subsidiary Autopax and the Road Accident Fund (RAF) could continue to operate in future. There had been no unauthorised expenditure in 2019/20 and irregular, fruitless and wasteful expenditure had all decreased slightly although they were still significant. Prasa was the biggest contributor. Compliance with supply chain management processes remained a significant issue in several entities. The root causes of audit qualifications were slow responses by management, a lack of appropriate skills among key officials, and a lack of consequences for poor performance and transgressions.
In the transport portfolio, the audit outcomes for 2019/20 were:
-Cross Border Road Transport Agency: Unqualified with no findings
-DCLA: Unqualified with no findings
-SA Civil Aviation Authority: Unqualified with no findings
-Road Accident Fund: Unqualified with no findings
-Department of Transport: Unqualified with findings
-Road Traffic Management Corporation: Unqualified with findings
-Airports Company SA: Unqualified with findings
-Sanral: Unqualified with findings
-Railway Safety Regulator: Unqualified with findings
-PR: Unqualified with findings
-ANTS: Unqualified with findings
-Samsa: Qualified with findings
-Prasa: Disclaimer with findings
-Road Traffic Infringement Agency: audit opinion outstanding
Mr Segooa explained that the Public Audit Amendment (PAA) Act of 2019 had expanded the mandate of AGSA beyond auditing and reporting to include taking action in response to material irregularities. AGSA could refer material irregularities to public bodies for further investigation, take binding remedial action where AGSA’s recommendations were not implemented and, as a last resort, issue a certificate of debt to recover the financial losses. The new mandate was being phased in over a period of years. Among transport entities, it had been applied to Prasa since 2018/19 and expanded to SANRAL and ACSA in 2019/20. Nine material irregularities had been identified at Prasa in 2018/19, and the Special Investigations Unit (SIU) had been commissioned to investigate these matters in July and August 2020. AGSA’s recommendations to DoT were to fill vacancies with appropriately skilled personnel, develop action plans to address audit findings, monitor performance and consequence management, and implement disciplined financial reporting structures. The portfolio committee should request feedback on the implementation of action plans and enhance its oversight on Prasa.
Mr T Mabhena (DA) said that the details of Prasa’s audit outcome painted a bleak picture of passenger rail in the country. The level of underspending indicated a complete collapse of governance. The fact that there was a culture of impunity was even more concerning. The failure to follow procurement regulations and prevent irregular, fruitless and wasteful expenditure was another problem. The Committee needed to enhance its oversight. The quality of financial statements, even from the DoT, was such that they could not be relied upon. This was a problem, as the Department was supposed to be performing oversight on all of the entities. The unqualified audit of SACAA was welcome. The Committee had already raised concerns about the financing of GFIP the year before but had been rebuffed by the Minister. This programme was a threat to the fiscus.
Mr L Mangcu (ANC) said that AGSA seemed to be being diplomatic, as he did not see anything positive in the audit outcomes. He asked how many cases had been referred in line with the PAA Act. Was AGSA following up on the contents of the Public Protector’s “Derailed” report or the revelations of the Zondo Commission? What were the reasons for the regression of the Road Traffic Management Corporation (RTMC) from the previous year’s clean audit? He noted that material findings had not been quantified as they had been the previous year. Had they increased or decreased in 2019/20? Many of the problems AGSA identified were unchanged or had regressed from previous years, including a lack of effective leadership and consequence management in certain entities. What was going to be done? Findings on the poor financial health of SANRAL, RAF and DoT were also very similar to the previous year. What was going to change? How could unauthorised expenditure have decreased over the last two years given that the previous year AGSA had reported an increase? AGSA seemed to tone down fruitless and wasteful expenditure, which was problematic. Since Prasa had received a disclaimed audit, how had its contributions to fruitless and wasteful and irregular expenditure been determined? He recalled that the previous year’s presentation had made particular reference to fraud and the lack of consequence management. Why had this year’s presentation not included this? Among the root causes identified by AGSA, the most concerning was the lack of consequence management for poor performance and transgressions. He did not think that there had been an overall improvement in the audit outcomes. In fact, the Department seemed to have regressed.
Mr C Hunsinger (DA) acknowledged the marginal improvement in the overall audit outcomes. He hoped that it was a turning point and noted that big changes started small. He was encouraged by the evidence of AGSA’s expanded mandate but recalled a 2018 ten-year review report which had indicated that 80% of unauthorised, irregular, fruitless and wasteful expenditure had not been dealt with. Did this not call for a more urgent implementation of the expanded mandate? The Public Protector’s “Derailed” report on Prasa was already five years old. Did AGSA’s investigations and remedial actions differ from the contents of this report? He noted that the Committee had not received a reply to its recommendations to AGSA. The Committee had recommended that DoT should be assisted to strengthen supply chain management policies and that the feasibility study for the Moloto rail corridor should be prioritised, and had noted the liquidity problems at some entities.
Mr McDonald also wanted to know the extent AGSA to which had exercised the new powers granted to it by the PAA Act. He felt that AGSA was under-emphasising the ongoing irregular, fruitless and wasteful expenditure by Prasa. Irregular expenditure alone was more than R1.3bn. The DoT was also not meeting local content requirements and its management was guilty of responding slowly to problems.
Mr P Mey (FF+) said that service delivery was the most important thing. He suggested that spot checks were the best way to detect corruption. How did AGSA decide when it performed spot checks? How many criminal cases had been reported by AGSA to the police?
Ms M Ramadwa (ANC) asked what technical issues were preventing the audit of RTIA from being completed. She asked AGSA to clarify what it meant by ineffective consequence management. She asked AGSA to share the management report with the committee.
Mr Segooa noted Mr Mabhena’s comments and agreed that the Committee had an important role to play in addressing the problems at Prasa. He denied that AGSA was trying to be diplomatic. He explained that a key requirement for AGSA to exercise its new power of referral was that there was a criminal element. If the Accounting Officer was involved, then the matter was referred directly to law enforcement agencies. The nine material irregularities identified at Prasa had involved subordinates and had been referred to the Accounting Officer. He agreed that the need to implement the expanded mandate was urgent. The reason for phasing it in over a period of years was that AGSA did not yet have sufficient capacity. Once this capacity had been built it would become a permanent part of the organisation.
Mr Sokombela pointed out that most of the findings of the “Derailed” report on Prasa, such as the purchase of unsuitable locomotives, had already been raised by AGSA and shared with the Portfolio Committee before the publication of that report. He shared Mr Mangcu’s frustration that the same issues that had come up the previous year were coming up again. This pointed to a need for better consequence management, and the Portfolio Committee also had a role to play. He predicted that it would not be easy for some entities to maintain their financial health in the next year. ACSA, for example, would be affected by reduced air passenger numbers as a result of lockdowns, and the fuel levy was not adequate for the needs of the RAF. He was not aware of the recommendations that Mr Hunsinger was referring but he would look into it. There had not been any criminal cases referred to the police other than the nine material irregularities at Prasa. The reason RTMC had regressed was that they had had a technical problem with their asset management system and the financial statements had not been properly reviewed. The reason that the RTIA audit had not yet been completed was that there were approvals from National Treasury that could not be confirmed, and AGSA had received tip-offs that some officials were involved in document fabrication. This necessitated some additional audit procedures. The audit should be complete by the end of the week. He agreed that the level of irregular expenditure at Prasa was very high.
Ms Whitford undertook to follow up on the recommendations mentioned by Mr Hunsinger. She agreed that better consequence management would lead to greater accountability. It was one of the biggest areas of concern across all entities. The new powers granted by the PAA Act should contribute to greater accountability.
The Chairperson noted the calls for the Portfolio Committee to enhance its oversight on Prasa and undertook to discuss it with the Chair of Chairs. He agreed that the Department should lead by example in getting a clean audit. He noted the undertaking to respond to the letter mentioned by Mr Hunsinger. The financing of the GFIP should be escalated, and SANRAL should not fail because of something that was not of its own making. The provincial government of Gauteng and National Treasury were also involved with this matter. The Committee would play its role going forward without fear or favour. Prasa could not continue to be an issue, and the committee would be held responsible if it failed to correct its course.
Adoption of committee minutes and other matters
The Committee adopted its minutes of 28 and 30 October 2020.
Mr Mangcu suggested that the Committee keep a register of its decisions and resolutions, as the minutes did not enable Members to keep track of these. He also asked how individual Members should handle submissions they received directly from Members of the public.
The meeting was adjourned.
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