Postbank Annual Reports 2019-2022: AGSA & Department input; SA Postbank Limited Amendment Bill; with Deputy Minister

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Communications and Digital Technologies

15 November 2022
Chairperson: Mr B Maneli (ANC)
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Meeting Summary


The Auditor-General of South Africa (AGSA) and the Postbank briefed the Committee in a virtual meeting on the audit outcomes and financial statements of the Postbank following its separation from the South African Post Office. Although the liquidity ratio was satisfactory, concerns were raised around the lack of implementation of recommendations by the AGSA to correct information technology, record keeping and the financial processes of the entity.

As the leadership of the institution was one of the contributing factors to transgressions, the appointment of the new board and the lifting of the staff appointment moratorium was welcomed by the Committee.

The finalisation of the SA Postbank Limited Amendment Bill was cited as essential to the next step in the Postbank becoming a fully functional bank. This was, however, dependent on the bank being able to fulfil the requirements of the Reserve Bank.

It was agreed that regular reporting to the Portfolio Committee would be required to ensure the implementation of the AG's recommendations and to satisfy the Committee that the Postbank was indeed able to fulfil its mandate as a state bank. In this regard, deliberations with the Standing Committee on Finance would also be held to ensure full compliance.

Meeting report

Postbank audit outcomes

Mr Andries Sekgetho, Business Unit Leader, Auditor-General of South Africa (AGSA), said that due to Covid, as well as the fact that the Postbank was a newly established institution since its separation from the South African Post Office (SAPO), there had been some delays in the submission of the financial statements.

Ms Joyce Nkonyama, Engagement Manager, AGSA, said that the qualification areas for the Postbank had increased over the years from 2019-20.  The areas of concern included action plans that were not adequately implemented, responses to address prior year audit findings and key internal control deficiencies identified had been slow, and there was a lack of proper record keeping that would ensure complete, relevant and accurate information was accessible and available to support credible financial and performance reporting. There had been inadequate risk management processes, and regular reconciliations were also not always adequately prepared during the year. There was also an overreliance on SAPO for critical information technology (IT) services. Meanwhile, SAPO’s infrastructure was old; it faced instability in key vacant positions and had weak internal controls, thereby spreading to Postbank as well. There were also poor controls on the Integrated Grant Payment System (IGPS), leading to issues such as duplicated user accounts, inadequate user profile roles, disabled general ledger tests, negative balance transactions and no transaction logs.

Some of the issues inherited from SAPO were still a concern. The key root causes and drivers for unfavourable outcomes included other deposits. The South African Social Security Agency (SASSA) leftover grants remained a major concern, as no progress was made in resolving the findings. In determining the other reserves figure, Postbank had also deducted the liability of the other deposits (grants). Since the AG could not verify the liability of other deposits (grants), the balance of other reserves was also not verified.

The prior year's limitations on transaction and service fee incomes were on both Union Bank of Switzerland (UBS) and IGPS transactions. All prior year UBS-related limitations had been resolved, and there were no unresolved material findings in the current year for UBS. The issues on transactions and service fees were therefore now isolated to IGPS.

The AG could not confirm the completeness of the reported material loss due to the cyber security incidents that led to records being deleted, and the significance of internal control deficiencies identified on key systems. There were no material issues identified in the current year which were not resolved. Therefore the current year figure was misstated from an opening balance perspective. The number of unresolved prior issues had also slightly decreased, so there had been an improvement on how the records were prepared in the current year.

The delay by the Postbank in addressing the IT concerns and obtaining secure IT systems had affected the revenue growth, as no additional services could be offered.

The annual financial statements (AFS) were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records. Material misstatements of current assets identified by the auditors in the submitted financial statements had been corrected, but the supporting records that could not be provided resulted in the financial statements receiving a disclaimer of opinion.

Effective and appropriate steps were not taken to prevent irregular, fruitless and wasteful expenditure. The majority of the irregular expenditure was caused by the entity approving an agreement without following proper processes. The majority of the fruitless and wasteful expenditure was caused by assets procedures not being followed, and interest incurred due to late payment to creditors.

Some of the contracts were not awarded in an economical manner and/or the prices of the goods or services were not reasonable, as required by the Public Finance Management Act (PFMA). Disciplinary steps were not taken against officials who had incurred irregular and fruitless and wasteful expenditure. This was because the investigations into irregular and fruitless and wasteful expenditure were not performed.

Effective and appropriate steps were not taken to collect all revenue due, as required by the PFMA. This was mainly due to SASSA-related revenue not collected from another entity within the portfolio.

Irregular expenditure had grown to over R90 million. However, inadequate consequence management efforts were identified, and no internal processes were established to deal with consequence management.

There had been non-compliance or contraventions through legislation, fraud, theft or breach of fiduciary duty that had resulted in, or was likely to result in material financial losses of material public resources, or substantial harm to a public sector institution. The AGSA may now refer material irregularities to relevant public bodies for further investigation, recommend actions to resolve them as outlined in audit reports, take binding remedial action for failure to implement recommendations, or issue a certificate of debt for failure to implement remedial action if financial loss was involved.

Such failures included failure to maintain an effective system of internal control over the safeguarding of customer bank cards issued. There were financial losses incurred due to the inventory of cards that were unaccounted for that had been written down, and there was a failure to implement effective controls on the card management and SASSA beneficiary payment process. Cards had been written off due to compromised issuer master keys (IMKs).

Postbank’s mandate was to promote universal and affordable access to banking services to rural and lower-income markets. It was also involved in SASSA distributions, which were of critical importance to the public. A series of control weaknesses resulting in cyber breaches continued to be reported to management. The weaknesses also formed the basis for the variation order issued by the South African Reserve Bank (SARB) in December 2021, which warned that a failure to implement its recommendation might result in the bank’s privileges being revoked, thereby posing a threat to its ability to render these services. Should the Postbank licence application be denied, this might result in SASSA grants not being able to be paid out, and therefore impacting millions of peoples' critical source of income.

Postbank had made a surplus for the year, which indicated that it would not struggle to pay its debts as and when they became due. Although the performance, positions and cash flows were sound, the Postbank operated in a highly regulated environment. The AGSA had noticed a trend in fraudulent transactions that had resulted in increased material losses mainly due to weaknesses in its core banking systems and control environment. There had also been limited growth in the business of Postbank, with SASSA grants contributing the most.

The Postbank had shown poor IT, governance, access and application controls:

Grant payments were made to invalid beneficiaries.
SASSA cards were cloned to withdraw grants intended for legitimate beneficiaries.
Creation of ghost/fraudulent users on IGPS to commit fraud.
Laptops without biometric verification capabilities allowed third parties to access the IGPS network and perform fraudulent actions.

One of the biggest failures in the current system included the ability for individuals to delete transactions and the ability to designate multiple roles to one official.

The overall root causes of significant findings included inadequate internal controls in place to prevent material non-compliance findings. Management did not implement adequate review and monitoring controls over the preparation of the financial statements, and was ineffective in developing and monitoring the implementation of action plans/turnaround strategies.

Mr Philly Mapulane, Deputy Minister of Communications and Digital Technologies, informed the Committee that a number of the problems experienced by the Postbank had been due to the board not being at full capacity, and the majority of the executive staff were acting in their positions. Cabinet had approved the appointment of the board members, and it was now fully capacitated.

Mr Thabile Wonci, Postbank Board Chairperson, acknowledged that the institution's internal control was weak and had been open to malpractice. The appointment of the board and the filling of executive positions, which was currently in progress, would go a long way in starting the implementation of corrective measures. It was essential that they made it the "people’s bank," fix the systems and modernise the IT systems. It was also his goal to drive cost management within the institution.

Postbank on its future role

Mr Lucas Ndala, Interim Chief Executive Officer (CEO), briefed the Committee on the history of the Postbank, as well as what they saw as their role as a bank for the people and partner to government.

Postbank's strategic outcomes for the next financial year served as the blueprint that would transition the Bank into a fully-licensed retail and business bank. They would like to attain this status by acquiring a banking licence to establish retail and business banking capabilities, and enhancing organisational productivity by improving customer experience, implementing IT modernisation and capacitating the bank with key skills.

They aimed to achieve financial sustainability through revenue growth with existing customer segments, selling new products to new and existing customer segments, generating revenue in new market segments, retaining its existing revenues and customer base, and maintaining an optimal cost-to-income ratio.

They would increase business accountability by improving Postbank’s corporate governance capabilities, strengthen accountability at all levels of the organisation, and contribute to small, medium and micro enterprises (SMMEs) and cooperatives development.

The transition milestone to a state bank included the finalisation of the amendment to the Postbank Act, the update and submission of the Section 16 licence application, envisaged for the fourth quarter of the 2023 financial year, the finalisation of the modernisation of the bank's IT platforms to comply with banking legislation and regulatory requirements, and the implementation of the channel strategy. It would provide expanded services on a cost effective basis to benefit its customer base.

Going forward, Mr Ndala would like to increase the focus on the effective implementation of action plans of the entity to ensure AGSA’s recommendations were tracked and preventative internal controls were strengthened. This would include the implementation of proper record keeping and reconciliations for all quarterly reports, which would effectively feed into the financial statements; compliance with regulations relating to procurement, contract management and performance information; and implementation of preventative controls on Postbank processes over SASSA grant transactions. The bank would focus on implementing the updated initiatives (turnaround strategies) to implement the IT modernisation strategy, to ensure the financial viability and sustainability of the entity. It would also ensure that proper actions pertaining to consequence management processes were implemented for perpetrators to be held accountable, and would monitor the current vacancies to ensure stability of leadership.


Mr T Gumbu (ANC) thanked the various presenters, and said it seemed to be a workable scenario.

Ms D Kohler Barnard (DA) was of the view that the audit outcomes were catastrophic, and asked the AGSA what they could do if their recommendations were not implemented. Further action seemed to be necessary in light of the two disclaimers and the increased irregular expenditure. She requested clarity from the Deputy Minister around the appointment of the board, as he had reported that Cabinet had approved the board, and not Parliament.

She requested a breakdown of the cost of items, like automated teller machines (ATMs), additional offices – the full bank set-up- and where this financing would come from.

According to the AG’s report, record keeping and the IT system were problematic. Further, qualification had areas increased because the AG could not confirm information, which actually meant the records did not exist.

She requested that the Postbank report to the Committee on a quarterly basis, and that the new team first prove that they could deal with matters before becoming a fully licensed bank.

Ms Z Majozi (IFP) commented that the presentations left one wondering if this would work. She did not hear any mention of internal controls that were being implemented, no mention of an internal audit unit, and no records that had been kept previously. Nowhere was there any mention of what had changed and how transactions were recorded differently.

She asked if it was the same staff, the same management and the same systems, and how there would be a different outcome. She raised a concern that only 29% of outcomes had been achieved, and asked for clarity on the stability of the management.

From the presentations, it seemed like SASSA was the main income of the bank. What else would the bank do for revenue, and where would their financing come from to become a fully licensed bank?

She supported the proposal of Ms Kohler Barnard that regular reports must be submitted. She was of the opinion that the transition should be considered only if they had reached 80% of their targets.

Ms T Bodlani (DA) said the meeting showed how much work needed to be done before the process could move forward. She appreciated the new board, but was concerned that the previous board had left without any consequences for their actions.

Based on the presentations, her biggest concern was how the Postbank would be self-sustainable.

Mr L Molala (ANC) said that the finances were not satisfactory. He was pleased that the moratorium on appointments had been lifted and that the board was appointed. He supported the proposal that there must be consistent interaction between the Postbank and the Committee until the next financial year to ensure compliance with the AG's recommendations.

He acknowledged that the move to become a state bank would have challenges and that there was room for improvement. He asked that there be consequence management, especially around the money that had been lost. He also enquired about the Postbank's expectation of financing from the state fiscus.

Mr V Pambo (EFF) raised his concern at the lack of controls over the SASSA cards, and would like details of the measures that had been put in place to prevent a repeat of the previous incidents.

The Chairperson said that if the bank did not get its licence, the payment of SASSA beneficiaries was at risk. He asked if there was any relation between the lack of capacity and the number of people in acting positions.

AGSA's response

Ms Nkonyama responded that even if a full banking licence was not issued, the Postbank could still operate and make certain banking payments. If it failed to comply with the Reserve Bank's requirements, the deviation licence would be revoked. Grant payments involved a large amount of money and needed to be dealt with in an appropriate environment.

Leadership instability could be directly linked to negative outcomes. She was of the opinion that executive staff in acting positions lacked authority and innovation.

She admitted that it was not a good situation when the AG recommendations were not implemented. In the case of the Postbank, when the initial separation from SAPO took place, the two boards blamed one another for wrongdoing. Some matters have now been referred to the Directorate for Priority Crime Investigation (Hawks). There were regular meetings with the Hawks because they had a very distinct department. It had been decided to establish a steering committee with the relevant representation to investigate the SASSA fraud matter.

The AGSA had met with the board to discuss a forensic investigation, and would avail their findings to ensure an efficient investigation. They also met with the Reserve Bank to look at improvements and concerns. Agreement had been reached on implementing interim stop gap measures, with regular reflection and feedback on these matters.

Postbank's response

Mr Wonci said there were poor outcomes if an institution was not properly managed, but he was of the opinion that the entity was well poised to become an independent bank. The Postbank had never had a permanent CEO since its independence, as well as a number of senior positions that had not been permanent.

He said the Minister still had to look at the corporate plan to see what would be needed to become completely independent. He undertook to come back to the Committee on the financial assistance needed beyond the current projects. The Postbank itself could fund current projects.

He expressed his commitment to working with the AG to resolve outstanding matters.

Mr Ndala said that the 2018 security breach had involved the card system, and this was also when SASSA was taken on board. The Postbank was currently in the process of a complete card replacement exercise.

Concluding comments

Deputy Minister Mapulane confirmed that the Minister had appointed the board in consultation with Cabinet, as prescribed by the Act. He said that the board was competent, and a rigorous process with the involvement of the AG had been followed to appoint board members.

The Chairperson concluded the discussion with the undertaking that the Committee would meet with the Standing Committee on Finance to discuss overlapping matters, but Members had to bear in mind that the matter stayed with the Portfolio Committee.

Correspondence from Ms Kohler Barnard

The Chairperson referred the Committee to correspondence from Ms Kohler Barnard in which she had expressed her dissatisfaction with the Chairperson for approaching the Standing Committee on Finance regarding the bail-out funding for the SAPO.

He explained to the Committee that it was his view that it was a Committee decision, and that the Committee had mandated him to proceed with the matter.

Ms Kohler Barnard responded that the Chairperson had requested the political parties to get a caucus mandate, and was therefore not mandated by the Committee to proceed with such a request. She had repeatedly asked for the Committee to meet with the Standing Committee on Finance.

Mr Pambo said he had raised the matter of a bail-out and nobody in the Committee had opposed it, and he was therefore of the view that there was general consensus. He agreed with Ms Kohler Barnard, however, that the Committee never agreed for the Chairperson to be mandated to go on behalf of the Committee.

Ms Bodlani was of the view that the matter was never debated and agreed to, so she was not sure how this had become the Committee's position. There was never a firm resolution by the Committee.

Mr Molala said that the proposal was that the Committee should meet with the Standing Committee on Finance, and that they should engage with them. There had been no need for different party positions at that stage, as this Committee had always worked on the basis of consensus.

Ms Majozi supported Mr Molala’s view.

The Chairperson said a meeting was scheduled for the next day (16 November) for him to meet with the Standing Committee on Finance to discuss the financial injection. He would discuss the possibility of all Members attending this meeting with the Standing Committee, and would revert to them about arrangements.

SA Postbank Limited Amendment Bill

It was agreed that the Committee would first meet with the Standing Committee on Finance before considering the SA Postbank Limited Amendment Bill.

Committee minutes

The Committee considered the minutes of 8 November. Ms Bodlani proposed corrections to paragraph 4 (xvii) by replacing "Committee" with "Postbank," and reworking paragraph 4 (xiv).

The minutes were adopted as amended.
The meeting was adjourned.                      

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