SIU Investigation into SAA & DENEL

Public Accounts (SCOPA)

03 March 2021
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary

Video: Standing Committee on Public Accounts, 03 March 2021

The purpose of the virtual meeting was for the Committee to receive a briefing from the Special Investigating Unit (SIU) on its investigations into the state-owned companies, Denel and South African Airways (SAA).  

Among the issues the SIU raised about Denel was that the appointment of a new Board of Directors in 2015 did not follow the normal process for state-owned entities and that an associate of the Gupta family appeared to have submitted a list of proposed board members.  

The investigation also focussed on allegations that Denel did not follow proper processes in procuring services for IT security, legal services and the development of a White Paper.

The Committee heard that the appointment of VR Laser Services for the manufacture of military vehicles was irregular and involved significant conflicts of interest. Members were also told that the SIU was investigating the serious crime of misappropriation of intellectual property at Denel, which included allegations of sending missile data packs to Saudi Arabia and the United Arab Emirates. It was alleged that the intellectual property belonging to the institution was misappropriated in cohesive criminal conduct to abet foreign state companies.

The Committee was told that for the 2019/20 financial year, Denel’s assets amounted to R8.53 billion, and its liabilities amounted to R10.8 billion. Denel was technically regarded as heavily insolvent, and if it was not financially backed up by the government, the entity should be closed

Committee Members expressed concern that the briefing by the SIU had highlighted that many officials from Denel were colluding for their own gain. They were concerned that implicated officials at Denel could not be held fully accountable because they were no longer in Denel’s employ.

At SAA, the SIU investigated allegations concerning agreements for the purchase and lease of aircraft. The Committee was told that contracts had been referred to Senior Legal Counsel for setting aside, and the recovery of R300 million was a possibility. There were possibilities of criminal referrals.

Another focus area related to procurement processes for maintenance and technical repair contracts. The SIU reported that the contracts were beset by irregularities such as inflated pricing, fronting, conflicts of interest on the part of SAA staff, fictitious vendors, fictitious work orders, fictitious bank accounts, overpayments, non-delivery and non-performance. 

The SIU also investigated the procurement of legal services by SAA. It was alleged that a Board Member of SAA was rendering legal services to SAA through his firm of attorneys, that there was a conflict of interest in the awarding of a contract and that the company awarded the contract had no experience in aviation law.

Other investigations involved the abuse of travel benefits and irregular payments to vendors.

 

Committee Members said the issues raised by the SIU had been coming for years. They described SAA as a disintegrating entity. They said it was worrying that, among those employees being laid off, would be implicated officials who would be walking away with massive severance packages

Meeting report

The Chairperson convened the virtual meeting and welcomed Members and the delegation from the Special Investigating Unit (SIU). The delegation consisted of Adv Andy Mothibi, Head of the SIU; Mr Leonard Lekgetho, Chief National Investigating Officer of the SIU; and Ms Zodwa Xesibe, Provincial Head of the SIU for the Eastern Cape Province, and also the lead investigator in both investigation projects involving South African Airways (SAA) and Denel SOC Ltd.

The purpose of this virtual meeting was for the Committee to receive a briefing from the SIU on its investigations into Denel and its investigations into SAA.

Briefing by the SIU on its investigations into Denel

 Ms Xesibe presented the briefing to Members: 

Introduction and the mandate of the SIU
Members were told that the investigations into Denel emanated from a complaint received by the SIU during October 2018. Some of the allegations emanated from the audit findings for the 2018/19 financial year. The SIU had been authorised to investigate allegations against Denel, and the scope of its investigation had been extended to include additional matters. Currently, the SIU was authorised to investigate serious malpractices or maladministration that were ancillary or directly connected to the matters included in Proclamation R32 of 2019, which was published on 5 July 2019.

The SIU’s investigation focused on six crucial areas. Four areas related to procurement processes for IT security assessment services, services to develop a White Paper, contracting for legal services, and the contracting for steel fabrication services and steel fabricated goods. The other two areas related to the awarding of bursaries by Denel, and unlawful, irregular, or unapproved measures relating to the misappropriation of proprietary and intellectual property of Denel.

Key objectives of the SIU’s investigation

The SIU identified five key objectives relating to its investigation into Denel. This included the following:

- A review of its compliance with the prescribed legislation in respect of the procurement processes followed;

- The collection of lawfully admissible evidence with a view to facilitating the institution of criminal or disciplinary proceedings against complicit parties;

- The collecting of lawfully admissible evidence to approach the courts to set aside the contracts entered into between Denel and service providers;

- The identification and quantification of losses incurred by Denel and the recovery of such losses;

- To provide recommendations on improvements to systemic weaknesses identified within Denel.

Appointments to the Board of Directors of Denel

The Committee heard that during 2015, the former Minister of the Department of Public Enterprises appointed a new Board of Directors replacing the previous Board of Directors of Denel. However, the appointment deviated from the normal process that was followed when appointing Board members for state-owned entities, including Denel. A list of what seemed to be proposed new Board members was submitted by a certain Gupta associate to the Minister’s office. The proposed names differed from a list already submitted through the normal governance process and it was the same list of names that was later presented to the Cabinet for approval. The Cabinet approved the proposed list of Board Members for Denel. The new Board of Directors made changes, including the removal of the then Group Chief Executive Officer, and the Group Chief Financial Officer.

The appointment of Telspace Systems

The first focus area was on the procurement processes followed for IT security assessment services. This related to Denel’s appointment of Telspace Systems. It was alleged that Denel did not follow any formal procurement or competitive bidding process prior to the conclusion of the contract with Telspace Systems. No purchase order was issued as required by Denel’s policy on Supply-Chain Management (SCM), and no request for any deviation was submitted to or approved by the Group SCM Executive. It was further alleged that whilst Denel was a National Key Point, it failed to involve the South African State Security Agency in the appointment of Telspace Systems for security assessment.

The SIU reported that this procurement of IT security assessment services was to the value of R6.6 million. A proposal was concluded between Denel and Telspace Systems to render services described as ‘Security Assessment – Red Team Penetration Testing’. The procurement processes followed were irregular. There was a pending civil claim against Denel for R1.9 million as the outstanding payment, after the advance of R4.6 million had already been paid to Telspace Systems. There was a possibility for the civil recovery of R1.9 million from a settlement agreement, and the possibility for a criminal referral of the former Group Chief Executive Officer regarding contraventions of the law. There was no possibility for disciplinary referrals as all of the implicated officials had already left the employ of Denel.

The appointment of Tulavax

The second focus area was on the processes followed for the procurement of services to the value of R5.7 million to develop a White Paper. The Committee was told that the appointment of Tulavax followed approval for the deviation from normal procurement procedures. During 2017, Denel experienced severe cash flow problems and in order to pay salaries, they approached the Armscor Armaments Corporation to relax some of the risk of non-compliance guarantees to free up some credit banking facilities. There was an urgent need for development of a White Paper for a funding model. The SIU reported that there was no possibility for civil recovery of funds, or for disciplinary or criminal referrals, as no irregularities in the processes followed were found.

The appointment of Khampa Attorneys

The third focus area was on the procurement processes followed for the contracting of legal services to the value of R10 million. The SIU determined that the procurement process followed was irregular as no contractual agreement was signed and the fees were negotiated outside of normal SCM processes. The legal department of Denel was not involved, and no instruction files were kept by Khampa Attorneys. With regard to civil recovery, the SIU stated that the account would be referred to the Legal Practice Council for taxation. Criminal referral would be enacted against the former Group Chief Executive Officer regarding contraventions of the law. Possible disciplinary referrals would be enacted against the representatives from Khampa Attorneys in terms of the Legal Practice Council and Code of Conduct for legal practitioners.

The appointment of VR Laser Services

The fourth focus area was on the procurement processes followed for the contracting of steel fabrication services and steel fabricated goods. Members were told that during November 2014, the former Denel Group Chief Executive Officer appointed VR Laser Services for the manufacturing of different variants of Hoefyster vehicles, despite the strategic requisition of the company, LMT, by Denel for the manufacturing of the Hoefysters. In early 2015, two Memorandums of Understanding were concluded that appointed VR Laser Services as a single source supplier for all steel fabrication and steel fabricated goods for the next 10 years. The process followed was irregular, and involved significant conflicts. of interest. There was no possibility for disciplinary referrals as all of the implicated officials had already left the employ of Denel. In addition, there was no possibility for the civil recovery of the lost funds as VR Laser Services was currently under business rescue. However, there was the possibility for criminal referrals against those officials implicated, and the evidence of corruption was currently under review. 

Bursaries awarded by Denel

The fifth focus area for the SIU related to the awarding of bursaries by Denel. The SIU reported that it was alleged that certain officials had breached Denel’s Study Scheme Benefits Policy, the duty of care, and the duty to always act in the best interests of Denel. This related to allegations that these officials, during 2017, played a role in the irregular awarding of bursaries to three individuals for their studies at an air school.

The first bursary involved was awarded to Mr Oarabile Mahumapelo. It was to the value of R1.16 million and was for a Jet Pilot Programme. The bursary agreement was signed on 1 February 2017. This was in breach of Denel’s Study Scheme Benefits Policy. Mr Mahumapelo was issued with a termination letter in June 2018 after his exclusion from the air school, and he therefore failed to adhere to the bursary conditions. Denel had already paid R881 270.30 to the bursary holder. Of this amount, R559 990.65 had already been credited to his study program. The balance was credited to Mr Sanele Ndlovu’s account without any approval from Denel. The SIU was in the process of recovering this remaining amount from the air school. The civil recovery of this irregular bursary award involved a recovery of R559 990.65 from Mr Mahumapelo, and the possible recovery of R 321 279.65 from the air school. There was no possibility for criminal or disciplinary referrals as all of the implicated officials already left the employ of Denel.

The second bursary involved was awarded to Ms Sibulela Damane. It was to the value of R793 308.90 for an Integrated Commercial Pilot Licence Course, and she signed the bursary agreement on 15 May 2017. This was in breach of Denel’s Study Scheme Benefits Policy. Ms Damane was issued with a termination letter in November 2017, after her exclusion from the air school, and she therefore failed to adhere to the bursary conditions. Denel had already paid R641 683.90. Of this amount, R234 413.31 had already been credited to her study program. The balance was credited to Mr Sanele Ndlovu’s account without any approval from Denel. The SIU was in the process of recovering this remaining amount from the air school. The civil recovery of this irregular bursary award involved a summons to recover R234 413.31 from Ms Damane, and the remainder from the air school. There was no possibility for criminal or disciplinary referrals as all of the implicated officials had already left the employ of Denel.

The third bursary involved was awarded to Mr Sanele Ndlovu. It was to the value of R 801 927.30 for an Integrated Commercial Pilot Licence Course, and he signed the bursary agreement on 15 May 2017. This was in breach of Denel’s Study Scheme Benefits Policy. Mr Ndlovu completed his course. At this time, Denel had already paid R 510 335.50 towards Mr Ndlovu’s study program and the entire amount was credited to his tuition fees. The balance of the contract amount was taken from credits of the other bursary holder accounts and paid to his account. The civil recovery of this irregular bursary award involved the recovery of R 182 229 from the air school. The SIU reported that there was no possibility for criminal or disciplinary referrals as all of the implicated officials already left the employ of Denel.

The misappropriation of intellectual property

The sixth focus area for the SIU was investigating the misappropriation of intellectual property. The SIU stated that it was investigating the serious crime of misappropriation of intellectual property at Denel, which included allegations of sending missile data packs to Saudi Arabia and the United Arab Emirates. It was alleged that the intellectual property belonging to the institution was misappropriated in cohesive criminal conduct to abet foreign state companies. The involved foreign state companies were Saudi Arabia Military Industries (SAMI), and Barij Dynamics, a state-owned company in the United Arab Emirates. The SIU reported that these matters involved unlawful, irregular, or unapproved measures or practices in relation to the misappropriation of proprietary and intellectual property rights in Denel’s Air-to Air Missiles, Stand-off Weapons, Surface Target Missiles, Air Defence, and Unmanned Aerial Vehicle-systems.

Regarding SAMI, the SIU’s findings confirmed that certain data packs belonging to Denel were unlawfully downloaded from Denel’s server to other devices. These data packs were for Mkhonto, Ingwe, and Mokopa missiles. SAMI had been interested in South African missiles, and forwarded a business proposal to Denel following which a meeting took place on 19 February 2018. This meeting ended as a result of SAMI’s failure to sign a non-disclosure agreement, which was a condition before any information could be shared. Instructions were later given to junior members to download the confidential information. It was reported that three former senior officials who resigned and joined SAMI were implicated in the process. The SIU reported that there was no possibility for civil recovery but indicated that five criminal referrals were possible through the invocation of extradition treaties to ensure the implicated officials returned to South Africa to be criminally charged. There was also the possibility for the disciplinary referral of one official of Denel.

Regarding Barij Dynamics, the SIU reported that this matter involved a joint venture between Denel (owner of 49 percent of the shares) and Barij Dynamics (owner of 51 percent of the shares). The investigation into the unlawful transfer of intellectual property to Halcon, a company that succeeded Barij Dynamics in the joint venture, involved P2 and P3 missiles. The transfer was done under the guise of a letter signed by a former member of Denel who was involved in the stealing of data packs for SAMI. Another official at Denel signed off the meeting minutes of the Board of Directors of Barij Dynamics that authorized the transfer of the P2 and P3 missiles to Halcon. The SIU reported that there was no possibility for civil recovery but indicated that three criminal referrals were possible through the invocation of extradition treaties to ensure the implicated officials returned to South Africa to be criminally charged. There was also the possibility for the disciplinary referral of one official of Denel.

The SIU deemed it necessary to involve the Directorate for Priority Crimes Investigation (the DPCI) and the National Prosecuting Authority (the NPA) to coordinate a multi-disciplinary approach to the investigation, given the nature of the allegations and findings. For these reasons, the implicated officials had not been approached and no arrests had been made as of yet. The Financial Intelligence Centre of South Africa ( FIC) had been assisting the SIU with financial profiling. Due to the involvement of a foreign institution, the FIC had requested more time to follow legal processes in respect of foreign funds.

Income statement and balance sheet of Denel

The total revenue of Denel for the 2019/20 financial year was R2.72 billion. The total cost of sales was R2.15 billion, and the operational costs were R2.23 billion. This resulted in a R 1.96 billion loss for Denel during the 2019/20 financial year, showing an increase in the deficit from previous years. The Committee was told that Denel had been operating at a loss since the 2017/18 financial year. It was clear that Denel’s revenue had drastically decreased over the last few years with its operational costs continuing to increase. The high volumes of operational costs needed to be curtailed, and profit margins and sales volumes needed to increase as a matter of urgency.

For the 2019/20 financial year, Denel’s assets amounted to R8.53 billion and its liabilities amounted to R10.8 billion. Denel was technically regarded as heavily insolvent, and if it was not financially backed up by the government, the entity should be closed.

Outstanding activities, limitations, and challenges

The Committee heard that while most of Denel executives and employees had left its employ, the SIU was currently in the process of obtaining and reviewing evidence to assess whether there was a sufficient legal basis to consider criminal and civil proceedings to recover losses suffered by Denel. The COVID-19 pandemic and resulting restrictions had resulted in the unavailability of personnel and staff. The unavailability of Denel personnel was also a result of termination of contracts and resignations. The SIU was currently in the process of identifying officials that were responsible for the record-keeping relating to the issue of the unavailability of documents and would refer these officials who were implicated for disciplinary hearings.

Concluding remarks on Denel by the Head of the SIU

Adv Andy Mothibi, the Head of the SIU, stated that the financial situation at Denel was dire, and the SIU needed to pronounce on the extent of maladministration within the state-owned entity. There was a serious need for intervention, otherwise the continued sustainability of Denel would be at risk. The SIU would continue to document and report on the cases and investigations related to malpractice and maladministration within Denel. There were serious security risks to South Africa because of confidential information being shared with other countries.

Discussion

The Chairperson said he appreciated the briefing by the SIU. He stated that something ‘is rotten’ within Denel, and that all was not well with the state-owned entity.

Ms B van Minnen (DA) stated that the briefing by the SIU had highlighted that many officials from Denel were colluding for their own gain. The agreements involved were simply incidents of corruption. Money was being lost and people were getting away with stolen government funds. It was of concern that the implicated officials at Denel could not be held fully accountable because they were no longer in Denel’s employ. Settlement agreements to avoid criminal investigations of perpetrators were highly problematic.

Ms N Tolashe (ANC) welcomed the briefing by the SIU. She stated that the findings regarding the SIU’s investigations were clear, as were its implementation plans for the way forward. Why had the Chairperson of the Board of Directors not been charged for his involvement in the maladministration within Denel?

Ms B Swarts (ANC) stated that it was concerning that most companies involved in the corruption at Denel were under business rescue. Was the SIU pursuing civil matters against the directors of these companies? It was a grave concern that there were intermediaries involved in state procurement processes.

Mr B Hadebe (ANC) stated that the Chairperson of the Board of Directors at Denel had resigned the previous week, and the SIU should follow up regarding the potential to hold him accountable for the part he played in the corruption and fraud within the entity. It was concerning that the SIU had reported that even the appointment of the Board of Directors of Denel was through irregular processes. The root causes of the problems experienced at Denel started with the irregular appointment of the Board of Directors. The person in charge of appointing the Board of Directors at Denel must also be held accountable and subjected to consequence management. Investors in Denel immediately started disinvesting after the appointment of its Board of Directors. How was the SIU addressing these issues of holding the right people accountable? He asked for clarity on the scope of the SIU and whether it enabled the SIU to investigate the origins of the corruption.

Mr S Somyo (ANC) stated that there was a depth of maladministration, corruption, and criminality that could be seen in the report by the Auditor-General of South Africa (AGSA). The situation at Denel was possibly even worse than the SIU presented, given the limitations on the SIU’s scope and mandate. He urged the SIU to look into the matters of poor governance within Denel.

Responses

Adv Mothibi agreed that the root causes of the problems experienced at Denel started with the irregular appointment of the Board of Directors. The SIU was committed to ensuring that everyone was held accountable for their wrongdoing at all levels within Denel’s organisational structure. The investigation into the irregular appointment of Denel’s Board of Directors was ongoing and was scheduled to be completed by the end of June 2021. He stated that the SIU did not accept business rescue submissions as a ‘get out of jail free card’, and the issues were explored in detail by its legal teams. The SIU would determine the responsibility of the whole Board of Directors and consequence management would be implemented where appropriate.

He agreed with the concern expressed that the implicated officials from Denel could not be held fully accountable because they were no longer in Denel’s employ. Effective consequence management required that there be further actions after employees terminated their employment with Denel. This aspect spoke to the organisational management of Denel in its failure to ensure that there were measures to mitigate these types of situations. These types of risks should be managed on a proactive basis. He stated that it was disheartening that wrongdoers took advantage of the slow course of the legal process in this regard.

Ms Xesibe responded that the SIU’s core mandate related to the recovery of misappropriated funds through civil litigation, which included declaring the involved contracts invalid. The investigation into Denel was scheduled to be completed by the end of June 2021. The SIU was working around the clock to ensure that the funds were recovered. The SIU would investigate the former Chairperson of Denel for ratifying irregular appointments and contracts. Regarding the issue of companies contracted to Denel filing for business rescue, she stated that the SIU’s legal teams were currently in the process of determining the amounts that were paid to intermediaries in the contracts. She confirmed that the appointment of Denel’s Board of Directors was done by irregular processes and not in line with the requirements of the Department of Public Enterprises.

Briefing by the SIU on investigations into South African Airways

Ms Xesibe presented the briefing to Members:

Introduction and the focus areas for the SIU
The Committee heard that the SIU had been authorised by Proclamation R2 of 2020, which was published on 31 January 2020, to investigate allegations made against South African Airways (SAA). The SIU reviewed five forensic investigation reports by the SAA Forensic Division and confirmed its findings. Evidence pointing to criminal activities was referred to the NPA. The SIU also appointed Senior Legal Counsel to review the evidence. The five investigation reports related to the sale of ground power units, the Ballorè investigation, the aircraft tyre contract, and the paint contract.

Key objectives of the SIU’s investigation

The SIU’s task was to investigate the procurement or contracting in seven crucial focus areas. The first four areas related to procurement processes for an Airbus aircraft; maintenance and repair services operating as the SAA Technical Team (SAAT); legal services obtained; and the service providers contracted to support and expedite the implementation of the SAA Turn-Around Plan. The last three areas of focus for the SIU’s investigations related to travel rebate benefits; payments made to the vendors of SAA; and the implementation of a 30 percent B-BBEE supplier imitative set aside regarding the supply of jet fuel.

The SIU identified seven key objectives relating to its investigation into the SAA. These were:

- A review of its compliance with the prescribed legislation in respect of the procurement processes followed;

-The identification of irregular or unlawful conduct on the part of officials from SAA;

- The identification and quantification of losses incurred by SAA and the recovery of such losses;

- Identification of evidence pointing to corruption;

- The collecting of lawfully admissible evidence to approach the courts to set aside the contracts entered into between SAA and service providers;

- To facilitate the institution of criminal or disciplinary proceedings against complicit parties;

- To provide recommendations on improvements to systemic weaknesses identified within SAA.

The procurement of Airbus aircraft

The first focus area related to procurement processes for Airbus aircraft. The SIU reported that its investigation focused on the allegations received that SAA entered into a purchase agreement with Airbus SE for the purchase of 15 airframes for which payments were delayed. Further new A320-narrow-body Airbus aircraft were leased. However, due to the conduct of the key officials involved, the delivery was delayed by four months and had a negative financial impact on SAA. The SIU reported that it had prioritised six contracts for investigation. There were 44 contracts in total under investigation by the SIU.

During 2016, the South African Airways entered into a lease agreement with Flyfofa Airways for the lease of second-hand cargo charters. The procurement process followed was irregular to the value of R172.26 million. The conditions of the lease agreement were not adhered to. One aircraft was grounded for eight months in 2019, despite SAA continuing to pay for the services. During July 2019, SAA extended the contract by 36 months. The contracts were referred to Senior Legal Counsel for the setting aside of the contracts, and the civil recovery of R300 million was a possibility. There were possibilities of criminal referrals, but no disciplinary referrals were possible for these contracts.

The procurement of maintenance and technical repair contracts

The second focus area related to procurement processes for maintenance and technical repair contracts. The SIU reported that the allegations referred to 84 contracts procured by SAA relating to maintenance. The contracts were beset by irregularities such as inflated pricing, fronting, conflicts of interest on the part of SAA staff, fictitious vendors, fictitious work orders, fictitious bank accounts, overpayments, non-delivery, non-performance and no value for money.

There were 84 ongoing investigations, and two contracts had been prioritised for investigation. The Mahle Wonke Primary Cooperative Ltd (Wonke) was awarded a contract for the supply of staff transport to the Cape Town, Johannesburg, and East London stations. The SIU identified irregularities in the procurement processes. After the award, the company failed to deliver in terms of the contract and SAA incurred fruitless and wasteful expenditure of approximately R824 000. The contracts were referred to Senior Legal Counsel for the setting aside of the contracts and the civil recovery of R824 000 was a possibility. No disciplinary or criminal referrals were possible for these contracts.

SAA awarded McKinsey a working capital contract and paid in excess of R12 million which was linked to performance. McKinsey offered to pay the entire contract value after appearing at the State Capture Enquiry. The SIU was assisting SAA with these negotiations for the settlement. On the other hand, as a consequence of the same contract, SAAT lost in excess of R600 million in stock which was declared obsolete. This matter was referred to the NPA and the Asset Forfeiture Unit (AFU) during the secondment agreement. The civil recovery of R12 million by SAA was possible. The possibility of disciplinary and criminal referrals was still being determined.

The procurement of legal services

The third focus area related to procurement processes for legal services. The SIU reported that its investigation focused on the allegations received that a Board Member of SAA was rendering legal services to SAA through his firm of attorneys. It was further alleged that one official of SAA failed to disclose his interests when one of his brother’s companies tendered for a contract. The company also failed to disclose its relationship with the employee of SAA when it submitted the bid. In addition, the company was appointed for aviation law work despite its lack of experience in this area. It was also alleged that this company received a disproportionate amount of work when compared to other legal firms on the SAA panel of attorneys. The SIU reported that there were no possibilities for civil recovery of misused funds or criminal referrals. Regarding disciplinary referrals, one senior official was suspended and was awaiting the outcome of a disciplinary process instituted.

Procurement for SAA Turnaround Plan

The fourth focus area related to procurement processes for SAA’s Turn-Around Plan. The SIU reported that its investigation focused on allegations that SAA followed an irregular process in appointing a service provider for Business Process Management Services and Revenue Assurance Management Services, valued at R70 million and R100 million. Two investigations were ongoing in this regard. Procurement irregularities were identified. During secondment, the SIU recommended the cancellation of the contract, which was done by SAA and saved the institution R130 million. Senior Legal Counsel had been appointed for the civil recovery of R78.7 million. One criminal referral and four disciplinary referrals against four officials were currently under review.

Abuse of travel rebates benefits

The fifth focus area related to alleged abuse of travel rebates benefits. The SIU reported that its investigation focused on allegations received that SAA employees were abusing the benefit on vacation travel that was provided by SAA to its employees and pensioners. The qualifying persons were able to travel across the world at SAA expense. Investigations regarding this matter were ongoing. The SIU reported that employees of SAA abused its Travel Rebates Policy resulting in the loss of R600 million during the 2018/19 financial year. Two investigations had been concluded with no irregularities found. A review of the Travel Rebates Policy was underway, and the possibility of disciplinary and criminal referrals was still being determined. The possibility for civil recovery was also being determined.

Allegations regarding payments to the vendors of SAA
The sixth focus area related to the payments to the vendors. The SIU reported that its investigation focused on allegations relating to red flags identified by SAA during a preliminary audit for the period 1 April 2016 to 31 March 2018. The following red flags were identified and referred to the SIU:

- Duplicate payments;

- Payments made over a weekend (the SIU was advised that staff dealing with payments only worked on weekdays);

- Invoices captured over a weekend;

- Various purchase orders were dated after invoice date;

- A total of 99 invoices exceeded the approved purchase order amount;

- Vendors that had the same bank account number indicating possible cover quoting).

The investigations were ongoing in this regard. The possibility of disciplinary and criminal referrals, and civil recovery was still being determined.

Investigations into the supply and delivery of jet fuel

The last focus area related to the supply and delivery of jet fuel. The SIU reported that its investigation focused on allegations that a SAA Board member, who was an attorney by profession, decided to utilise a B-BBEE holding company made up of approximately 60 businesses that had been identified to benefit from the set aside B-BBEE initiative. The idea was that these 60 companies would contract with SAA via this company, pursuant to its partnering with an established major fuel supplier. The investigations are ongoing in this regard. The possibility of disciplinary and criminal referrals, and civil recovery was still being determined.

Income statement and balance sheet of SAA

The total income of SAA for the 2017/16 financial year was R30.74 billion. The total operational costs amounted to R33.5 billion. This resulted in a R5.57 billion loss for SAA during the 2017/16 financial year, showing an increase in the deficit of the entity from previous years. The SIU reported that SAA’s operating expenses had been increasing dramatically, and the costs related to staff per airplane were too high compared to global standards.

For the 2017/16 financial year, SAA’s assets amounted to R15.92 billion and it was reported that its liabilities amounted to R33.72 billion. SAA was technically regarded as heavily insolvent, and if it was not financially backed up by the Government, the entity should be closed.

Outstanding activities, limitations, and challenges

Whilst most of the SAA employees and executives involved had left its employ, the SIU was currently obtaining and reviewing evidence to assess whether there was a sufficient legal basis to consider criminal and civil proceedings to recover losses suffered by SAA. 

The COVID-19 pandemic and resulting restrictions had a significant consequence of the unavailability of personnel and staff. Personnel were also unavailable as a result of termination of contracts and resignations. The SIU was currently identifying officials that were responsible for the record-keeping relating to the issue of the unavailability of documents and would refer officials who were implicated for disciplinary hearings.

Concluding remarks on SAA by the Head of the SIU

Adv Mothibi stated that the situation at SAA was a classic example of what happened when matters of corruption and maladministration were left to deteriorate within a state-owned entity. The limitations outlined during the briefing were very real and had a significant impact on the speed of the SIU’s investigations. It was predicted that many employees of SAA would be laid off. The SIU aimed to finish the investigations ahead of the deadline for completion in 2022.

Discussion

Mr A Lees (DA) thanked the SIU for its investigations and briefings to the Committee. The issues raised by the SIU had been coming for years. SAA was a disintegrating entity. It was worrying that some of the employees being laid off would be those implicated officials and wrongdoers, who would be walking away with massive severance packages.

Mr M Dirks (ANC) stated that he was impressed with the work done by the SIU. It was important that the implicated officials and wrongdoers were held accountable for their actions and the irreparable damage that had been done to the state-owned entity, SAA. 

Mr Somyo thanked the SIU for its investigations and briefings to the Committee. He stated that the losses of SAA were in all likelihood much more than reported by the SIU.

Mr Hadebe stated that the briefing by the SIU was a comprehensive overview of the root causes for why SAA had collapsed as an institution.

Ms Tolashe commented that the SIU had painted a devastating state of affairs showing the rotten core of SAA. Greed and corruption had an impact on the poor people of South Africa. A strong, unequivocal message must be sent to those who were found guilty of maladministration of the entity. It was unacceptable that the people who had gotten rich through crime were able to buy their way out of their predicaments and out of the threats of criminal prosecution and civil litigation.

Responses

Adv Mothibi stated that the SIU was engaging with business rescue practitioners regarding the employees that had left SAA who were implicated in wrongdoing. The SIU would deal with these employees by, among other measures, approaching the courts to freeze their pensions. This must be done in the interest of recovering the misappropriated funds. As with the SIU’s investigations into other state-owned entities, the appropriate directive was to determine what the composition of the Board of Directors was at the time of the alleged wrongdoing. He stated that the SIU’s role extended to having to safeguard against sending a wrong message to the South African public that the rich and wealthy were able to buy their way out of threats of criminal prosecution and civil litigation. The same applied to companies involved in the fraud, corruption, and maladministration at SAA who simply applied for business rescue to avoid consequences. He stated that all unanswered questions would be responded to by written submissions to the Committee.

Ms Xesibe responded that the SIU was investigating matters relating to SAA from over the past 18 years. A budget of R30.5 million had been allocated to the SIU for its investigations into SAA. The SIU would report on the issues presented to the Committee as soon as its investigations had been concluded.

The Chairperson thanked Members for their engagements and thanked the SIU for the briefings presented to the Committee. The meeting was adjourned.

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