SANRAL & Road Traffic Management Corporation Annual Report 2021/22

Meeting report

South African National Roads Agency Limited (SANRAL) Annual Report 2021/22
Ms Lehlohonolo Memeza, Acting CEO, SANRAL, provided an overview of the Agency’s spending, media relations, human resources and corporate performance. Expenditure on road development, improvement, strengthening, and maintenance decreased for the third consecutive year. The total amount spent, R11.8bn, was 7.8% lower than the previous year. 42% was allocated to capital projects while the balance secured routine and periodic maintenance. R9.1bn was spent on non-toll roads while 2.7bn was spent on toll roads. 11.8% of SANRAL’s road network was in very good condition, while 8.4% was in poor or very poor condition. 14 out of 20 performance targets had been achieved: there had been under-performance in road maintenance, transformation, community development, job creation and road safety. The underperformance was mainly attributed to delays in awarding new contracts.

Ms Inge Mulder, Chief Financial Officer (CFO), SANRAL, presented an overview of the Agency’s finances and commented on the audit report. The total value of SANRAL’s assets had increased from R480bn in 2021 to R565bn in 2022 due to spending on the road network. Revenue had increased from R12.6bn in 2021 to R14.8bn in 2022 due to an increase in the contribution from National Treasury, and the increase in the total comprehensive income from R8.7bn in 2021 to R68bn in 2022 was mainly due to revaluations totalling almost R60bn.

SANRAL had received an unqualified audit opinion for 2021/22 with one material uncertainty and one emphasis of matter. The Auditor-General of South Africa (AGSA) had been satisfied that the revaluation of the road network, expected credit losses on toll debtors and revenue from the Gauteng Freeway Improvement Project (GFIP) had been reasonable and appropriately disclosed in the annual financial statements. AGSA had however drawn attention to SANRAL’s ongoing dependence on “positive developments to resolve the e-toll impasse by Cabinet”, which indicated a material uncertainty about SANRAL’s ability to continue as a going concern. There had been one new case of irregular expenditure, valued at R415m, relating to non-compliance with tender pre-qualification criteria. A tender applicant should have been disqualified for failing to submit a bank confirmation letter.

(See presentation for further details)

Discussion
Mr T Mabhena (DA) argued that as much as 48.2% of the road network could be considered in desperate condition. It was critical that this was dealt with because it led to fatalities on the roads. There had also been a decrease in non-toll road expenditure. What proportion of SANRAL’s finance costs were related to the GFIP? In which provinces had the road safety education initiatives been conducted, and were they face-to-face events or media campaigns? Why had SANRAL continued processing a tender application that had failed a pre-qualification criterion? There was also another R72m of other irregular expenditure. At the same time, SANRAL had invested just R6.3m in scholarships and bursaries. The R72m could have provided scholarships and bursaries to more than 2500 students. What had the board done to address this irregular expenditure? There should have been internal mechanisms to prevent it. Had there been any consequence management, and was there any reason that the CFO should not be held accountable for it?

Ms F Khumalo (ANC) observed that the presentation mentioned job creation. She was more interested in proper jobs in construction and government, rather than jobs like waving warning flags at the side of the road. How many jobs created by SANRAL were proper jobs, set aside for women, where they had the opportunity to employ other women?

Mr M Chabangu (EFF) said that SANRAL had been advertising on the walls of certain businesses in the Free State. What criteria were used to choose these businesses and how much were they paid? Did bursary holders work at SANRAL to pay back the money? Did they work for a certain period to gain experience, or did SANRAL just leave them to see what they want to do on their own? He asked for an update on the e-toll situation. Were they being scrapped or were they going to continue?

The Chairperson asked SANRAL to reply to this question in writing.

Ms M Ramadwa (ANC) asked whether the current CEO was an acting or permanent appointment. If the CEO was only acting, then when would the position be filled permanently? The presentation made mention of irregular expenditure and AGSA cited non-compliance. Did SANRAL have a mechanism to implement AGSA’s recommendations? Were there systems in place to ensure that SANRAL was able to comply with supply chain management (SCM) prescriptions?

Responses
Ms Memeza said that the percentage of the road network in poor or very poor condition was below the international standard of 10%. The road safety education and awareness initiatives had been face-to-face. She undertook to provide a written response on the provincial breakdown. She acknowledged the drop in maintenance spending but said that there was a turnaround strategy in place. She said a consequence management process was in place for irregular expenditure. The expenditure was reported to the loss control committee that assessed whether there was a need for condonation. A portion of the R72m had already gone through this process, and a report was being compiled to be presented to National Treasury, applying for condonation. She said it was difficult to answer the question relating to advertising on the walls of businesses in the Free State without more information. SANRAL had been in consultation with the Minister of Transport and the Minister of Finance on the issue of e-tolls. Information had been provided to the ministers to allow them to make a decision. Some of the people who received bursaries made it into the technical excellence academy but were not compelled to work for SANRAL after completing their studies. SANRAL had measures in place to ensure that AGSA recommendations were implemented, including an annual audit response plan that looked at all the findings raised and the action plans being put in place. This action audit response plan was monitored on a quarterly basis and sent to the audit and risk committee. The internal audit team also reviewed all findings raised by AGSA to ensure they were being adhered to and issues were closed before the beginning of a new audit at the end of the financial year. She emphasised that although the R72m did not adhere to SCM prescripts, value for money had been obtained, and it was on this basis that SANRAL was applying for condonation.

Mr Louw Kannemeyer, Engineering Services Executive, SANRAL, confirmed that the condition of the road network was within international norms. However, in some provinces, the percentage of the network in poor to very poor condition was as high as 66%. He reported that of the 9 129 full-time equivalent jobs created, 2 482 had been for women and 4 483 for youth.

Ms Mulder said that it was important to recognise that, although there had been irregular expenditure, SANRAL had been able to prove that it had received value for money. Irregular expenditure did not necessarily mean that there had been fraud. The consequence management process followed whenever there was an irregular expenditure. The process started with an investigation, after which the loss control committee made recommendations. On average, SANRAL received almost 2 500 tender submissions every year, each of which had sixteen compliance checks. This added up to a large number and it was simply the case that sometimes there was a slip-up. SANRAL had added proactive assurance by its internal audit committee to assist, especially on big projects, and there were also independent people checking the processes.

Follow-up discussion
Mr Mabhena did not dispute that SANRAL had received value from irregular expenditure. The issue was that the audit had identified a flawed process. It was something SANRAL had not done as far as compliance was concerned. It was a very simple thing to get a bank confirmation letter. It could be done in seconds. How could it be that at an organisation as big as SANRAL, no one noticed a missing bank confirmation letter for a contract worth as much as R415m? Someone had not done their job. Someone had neglected to read the compliance manuals. What consequence management did SANRAL follow? There has now been an application for condonation. He stood by his argument that the fact that this irregular expenditure was noted made it an issue: it would not have been reported if it had not been an issue.

Ms Mulder said that the goal was to always have zero irregular expenditure. The consequence management process was specifically defined according to National Treasury regulations. The reporting on the consequence management was part of the process and was also submitted to AGSA for review. The AGSA mentioned irregular expenditure because of non-compliance with a treasury instruction, which is the issue. The systems in place were specifically designed to ensure that irregular expenditure did not happen.

Ms Memeza added that SANRAL was looking at the root causes of irregular expenditure to prevent it. If it continued to happen in the future, corrections would be made.

Mr Themba Mhambi, Chairperson of the Board, SANRAL, confirmed that management understood the seriousness of irregular expenditure. He assured the Committee that its inputs were taken seriously. SANRAL was satisfied that the Minister of Transport, Minister of Finance, and government would broadly assist in dealing with the e-toll issue. National Treasury, in particular, had been engaging deeply with the issue. The President is also personally involved. The appointment of a new permanent CEO might be finalised within a month. He expected an announcement to be made by the Minister imminently. At the same time, he did not think SANRAL had experienced any instability from having an acting CEO.

RTMC Annual Report 2021/22
Prof Maredi Mphahlele, Board Member, RTMC, said that reducing road traffic fatalities by 50% by 2030 remained one of RTMC’s top priorities. As a signatory of the United Nations Road Safety Collaboration (UNRSC), its contribution to this goal was implementing a road safety strategy. The board had given management a clear mandate to digitise the licensing system and was happy with the progress made on that front. The board was also satisfied with the statement of financial position presented in the report. Of 21 annual targets set for the period under review, 20 had been achieved. This was an impressive improvement over the previous financial year, when just 57% of performance targets had been met. This remarkable performance has been crowned by the clean audit from AGSA. This was yet further evidence that the RTMC was a resilient organisation that could bounce back from setbacks. He expressed gratitude to the entire Shareholders Committee, Minister of Transport Mr Fikile Mbalula and Deputy Minister of Transport Ms Sindisiwe Chikunga for their resolute support. He also thanked the Department of Transport (DOT), stakeholders, and other sister agencies for their collaborative efforts. He also thanked the management and staff of the RTMC itself for ensuring that objectives were achieved. Sadly, during the year under review, RTMC continued to lose so many lives on the roads, which was regrettable. He expressed heartfelt condolences to all of those families.

Ms Liana Moolman, CFO, RTMC, said that RTMC had opened two new driving license testing centres (DLTCs), in Centurion and Midrand. She went on to outline the RTMC’s performance per programme, human resources, finances, audit outcomes and the audit and risk committee report.

- Programme 1 (Operations): The programme achieved its planned targets. Four road safety programmes were implemented, and various training modules were delivered to existing traffic officers, trainees and road safety practitioners.

- Programme 2 (Law enforcement): Both law enforcement interventions (4752 planned, 5864 actual) and inspections (325 000 planned, 359 890 actual) targets had been exceeded.

- Programme 3 (Traffic intelligence and security): All reported fraud and corruption complaints had been investigated, and 160 self-initiated fraud and corruption cases had been investigated.

- Programme 4 (Strategic services): Four research studies were planned and published, and 120 learner’s license testing centres were computerised (against a target of 100).

- Programme 5 (Support services): Four talent management initiatives had been implemented, and revenue had increased by 9% from the previous year against the planned 13%, resulting in a non-achievement of this target. RTMC had received an unqualified audit report with no significant findings. All internally reported incidents of corruption had been investigated and an action plan to address audit findings had been developed and monitored.

The vacancy rate as of 31 March 2022 was 6%, compared to 26% in the previous year. Spending had increased from R1.18bn in 2020/21 to R1.43bn in 2021/22 against a budget of R1.33bn. Strategic services were the largest contributor to overspending (R54m). According to economic classification, the largest contributor was compensation of employees, while capital expenditure had underspent by 5% due to a delay in the finalisation of the acquisition of land. Revenue collection was 7% below the budgeted amount, attributed to the delay in implementing the online registration service.

The audit and risk committee held four scheduled and four special meetings. It continued to monitor key strategic risks and mitigations on a quarterly basis. It was of the view that the system of internal controls was adequate, although there was room for improvement. It was also satisfied that the internal audit function maintained an effective internal quality assurance programme. It agreed with and accepted the AGSA’s clean audit opinion and confirmed that it was actively involved throughout the audit process.

Discussion
Mr Mabhena congratulated RTMC for its unqualified audit with no findings. When good things were done they should be acknowledged, such as the two newly-launched DLTC centres in Centurion and Midrand. RTMC should take pride in the services being delivered to the citizens. They are actively redefining how citizens interact with government services and civil servants. He hoped that what was done here could be transferred to all other services that civil servants were performing. He observed that RTMC had said that all corruption complaints had been investigated and closed, but it had not said the outcomes of the cases: had arrests or prosecutions been made? Had anyone been fired? Information about the actual cases should have been given. He noted that 120 learners license testing centres had been digitised, but pointed out that during a recent oversight visit, only two out of eight computer terminals at a digitised learners license centre had been working. There was therefore a gap between the reported success and the reality on the ground. Digitisation was welcomed but how many of these 120 centres were actually performing at 100%? Were there backup systems to keep the centres running during power cuts? He asked for clarity on what the RTMC’s review of the salary scale and salary normalisation entailed. Did it mean there had been employees not being compensated appropriately? He questioned the explanation given for underspending in Programme 3. Why had it budgeted for leasing vehicles if it could achieve its targets using internal vehicles? Had the audit and risk committee’s meetings take place at board or executive level? If the former, there would have been cost implications.

Mr P Mey (FF+) asked what the situation was with the renewal of driving licenses, especially in small towns where there was no Pick ‘n Pay or DLTC. Why could driving schools not be given power to renew licenses? He said he had visited the DLTC in Joubertina, which had been closed down. It was expected to open again in 2023.

Mr Chabangu congratulated the RTMC for achieving a clean audit. He asked whether the driving license renewal backlog had been cleared, and whether people were now able to renew their licenses in good time.

Responses
Ms Moolman said that several arrests related to corruption had been made and these had been reported in the news. In several provinces, there had been big arrests programmes running with the Hawks. Learner license stations were equipped with uninterruptible power supplies to ensure that a test kept running in the event of a power cut. There were also generators at DLTCs. It did sometimes happen that non-functioning units were deliberately not reported to facilitate fraud and corruption. There was also a turnaround time to dispatch technicians to fix the units. The reason that vehicles were sometimes leased under Programme 3 was to preserve the anonymity of undercover units. The audit and risk committee meetings took place at a committee level and did not have a bearing on costs because the committee was paid a retainer fee. The renewal of driving licenses lay with the provincial government, and therefore RTMC was not in a position to make regulations on this issue. The license renewal backlog was the reason that the two additional DLTCs had been opened. The problem now was that members of the public were not showing up. Nevertheless, the backlog had decreased.

Ms Nompumelelo Ramutle, General Manager, RTMC, said that a 2021 study had analysed the salaries of employees against the approved salary scale and normalised those that were found to be relatively low. The RTMC also funded a group life scheme that covered employees in the event that the employee died on duty. There was also funeral cover for all employees as well as their beneficiaries.

Prof Mphahlele accepted the Committee’s comments on the validity of the performance indicators and would ensure that in the future, the report was more comprehensive and very explanatory on its own, without the need for follow-ups to provide detail. The RTMC noted the comments and the well wishes. It would report on fraud cases.

The meeting was adjourned.