SIU update on medico-legal claims & impact on the health sector; AGSA briefing on Transnet’s financial performance and related matters

Meeting report

Opening remarks

The Chairperson welcomed the members and the delegation from the Special Investigating Unit (SIU), led by Adv Andy Mothibi, to the meeting. He then took the members through the agenda, noting that the SIU would brief the Committee on medico-legal claims and later the Office of the Auditor-General of South Africa (AGSA) on Transnet’s audit outcomes.

He said the first time he got a sense of the extent of the medico-legal claims issue was when his cousin, who works in the public health service in Nelson Mandela Bay, sent him a video of the SIU arriving to take away cars and computers, including the equipment of the executive of the hospital. This impacts the health system, especially considering the extent of the legal and financial liabilities for various reasons, some valid and some questionable. It is about working out valid and questionable issues and dealing with wrongdoings to protect South African citizens from corrupt individuals who abuse the legal system for money.

Special Investigating Unit (SIU) Presentation

Adv Andy Mothibi, Head, SIU, said that around 2015, the Health Sector experienced an explosion of medical practice litigation cases directed against health institutions and individual medical practitioners in both public and private practice. The possible solutions were classified into three (3) broad areas: Patient Safety, Administrative solutions, and Legal solutions. However, the Department of Health noticed several claims that were completely out of sync and made no sense. Some claims were fraudulent. For example, a claim was submitted in which the claimant demanded R70 million for a supposedly botched circumcision by a doctor in a hospital in Limpopo Province. Upon investigation of this claim, it was found that no such circumcision had ever been performed. It was found that the patient was treated for a very serious genital infection. The hospital saved his life.

The Special Investigating Unit (“SIU”) was then called in to investigate these suspicious claims. In 2017, the SIU started their work by targeting provinces with the highest share of claims. These were in Gauteng and the Eastern Cape Provinces. By then, the Eastern Cape contingent liability for medico-legal claims amounted to R15,9 billion; in Gauteng, the figure was R21,2 billion. This meant that should all the cases be won in court by the litigants, then the Department of Health would have to pay these staggering amounts.

Most of the claims were targeting cerebral palsy, a condition in which babies develop some form of brain damage due to deprivation of oxygen during the process of birth. While it is recognised that cerebral palsy is a very debilitating and unfortunate occurrence to come from the healthcare system, it is a matter of very serious concern that legal practitioners abuse it due to sheer greed. The level of abuse was such that the SIU found that some of the claims were made on behalf of patients without their knowledge. Elderly people who are taking care of their grandchildren in the absence of their mothers were tricked into signing the Power of Attorney to sue, whereas they were told that they were signing SASSA forms for child support grants. This simply means that legal practitioners or their scouts were masquerading as social workers.

In the Eastern Cape, most medico-legal claims emanated from one Johannesburg-based law firm, Nonxuba Attorneys Incorporated. The SIU can name the firm today because it has already been charged in court. In 15 years, from 2012 to 2017, this law firm submitted 44 medico-legal claims totalling R497 million against the Eastern Cape Department of Health.

Most of their claims were for children supposedly born with cerebral palsy. Cerebral palsy is not necessarily a homogenous condition. This means that the effects of brain damage are not the same for all individuals because different parts of their bodies may be affected. However, the claims submitted by Nonxuba for each of the nine children for whom claims were submitted were identical in that they demanded R15 million for each claim. This was suspicious and indicated a lot of cut-and-paste on the part of this legal firm. Between 2010 and 2016, medico-legal claims increased from 46 to a tune of 529 claims in the Mthatha High Court alone.

There is evidence of collusion between attorneys, touts, nurses, and doctors in public and private healthcare. Sometimes, nurses stole medical records and illegally handed them over to attorneys. The attorneys would then apply through PAIA (Promotion for Access to Information Act) for the same records they illegally possess. Naturally, such records would not be found, and the lawyer would then claim fees from the Department for failing to provide records. Unfortunately, there was also collusion involving some officials in the Office of the State Attorney, whereby out-of-court settlements for hefty sums were entered into without the mandate or even the knowledge of the department.

Litigating attorneys would even sue for one case in two different courts. A variation of that is a situation where two different lawyers would claim for the same patient using identical details. Notably, the two attorneys will claim for vastly different amounts, whereas the patient is one person. One attorney would claim R7,5 million and the other R25 million for the same patient and same condition. This indicates the arbitrariness of the claims. After these findings in the Eastern Cape, the National Health Council (NHC) decided that the SIU should investigate all provinces.

The SIU submitted a motivation for a proclamation and a revised motivation for a proclamation concerning the matter to the Department of Justice and Constitutional Development (“DOJ”) on 24 March 2020 and 15 September 2020, respectively. The SIU had previously assisted various provincial Departments of Health, including, amongst others, the Gauteng Department of Health (through the Gauteng Office of the Premier). Allegations pertaining to certain affairs of the National and Provincial Departments of Health and “public health establishments” as defined in the National Health Act No. 61 of 2003 (“T Health Act”) (collectively referred to as “the Institutions”) were to be investigated.

Mr Leonard Lekgetho, Chief Operations Officer, SIU, provided a detailed breakdown of the investigations in the nine provincial Departments of Health.

(See Presentation)

The Chairperson said there appeared to be many systematic failures as medical conditions appeared vulnerable to these kinds of claims. He expected that the various Departments of Health had records of patients who had those conditions, whether there were claims or not. In that case, the government could be proactive in deciding the level of care to invest in those patients given the conditions because most babies are born with cerebral palsy in state hospitals. The second systematic failure was at the State Attorney’s office, the third in the courts' administration, and the fourth in the Legal Practice Council. Specific things could be done to reduce the number of claims. The other problem is that the legal system takes long to recover the lost funds. In a case where an attorney has embezzled or diverted funds away, what is the recovery method? Does the case go to the Tribunal or follow the normal court procedure?

The Chairperson said he spoke to the Chairperson of the Health Portfolio Committee and the Chairperson of the Standing Committee on Appropriations regarding the Minister of Health coming to Parliament to deal with the issues. However, several entities also need to explain themselves beyond the Health Minister, and the Committee must consider those entities and how it will move forward in that regard.  

Discussion

Ms V Mente-Nkuna (EFF) noticed that the SIU referred to the involvement of health professionals in these cases and wanted to understand the extent of their involvement because she wanted to get a clear picture of the specific hospitals involved as well as the number of staff members implicated. Cerebral palsy is a real issue that affects real people, so these hospitals must be mentioned by name so that people can avoid going to them. She also wanted to know the names of the legal firms implicated besides Nonxuba Attorneys, whether there is a relationship between them, and what the legal bodies have done about their operating licenses. The ones who withdrew their claims are like those who resign once investigations commence, so what will happen to them? Had there not been investigations, they would have probably won these claims.

Regarding the systems within the Department of Health, she said there should not have been a need for the SIU to investigate to see the fraudulent cases because even in car insurance claims, there are investigations that happen before the claimant receives a pay-out, so why did the Department of Health not conduct its investigations before the claims were paid? What procedures were supposed to be taken for those claims to be taken forward, and who was responsible for the loss of money through these fraudulent claims?

She was impressed with how the SIU handled the case of forced sterilisation and felt answers would soon be received on the whereabouts of the women's files. She wanted to know the involvement of the Public Protector, the Gender Commission, and the Human Rights Commission in this case. Lastly, she wanted to know how the SIU assists in fast-tracking the correct measures and compensation for the rightful victims of negligence and theft.

Mr M Blose (EFF) said the SIU said it identified 130 cases in KZN, which amounted to about R2.4 billion, and the SIU managed to finalise many of those cases, which must be applauded. He said it will be important for the SIU to have a memorandum of understanding (MoU) with the National Prosecuting Authority (NPA) to solve these cases expeditiously. Lastly, the SIU proposed an overhaul of the entire health medical aid system, so what is their proposed alternative, and how can SCOPA assist?

Mr G Skosana (ANC) appreciated the work done by the SIU and congratulated them on tracking the cases of the capture of the Department of Health. He agreed with the Chairperson that there is a total failure of systems within the Department of Health, and he felt that some of his questions would be unfair to pose to the SIU because they should be responded to by the Department of Health and its Minister. These investigations started after 2012, and no one knows what might have happened before that, which is concerning because this is happening in multiple provincial Departments.

If medical practitioners are part of these scams, does that mean they put their real names in the system when they perform these procedures, or are there different names used in the claims? How many successful claims were made by Nonxuba Attorneys Incorporated? It is disappointing and concerning that officials from the Office of the State Attorney are involved in these scams. How is it possible that the Department paid money into the accounts of the Attorneys instead of the trust accounts that were ordered to be opened on behalf of the claimants by the courts? That means there is no monitoring of where the money goes and no systems to prevent fraud and corruption in the Health Department.

Mr N Maduna (ANC) said this is a fraud and corruption case because there are elements of bribery and money laundering involved, and he wondered how long it has been going. He wanted to know when the SIU started investigating these cases and whether they checked payments made before their investigations began. He said this situation brings to light the cloud that the entire South African professional system is under because medical and legal professionals are involved in this. The Committee must consider whether the Legal Practice Council is doing what it is supposed to do. How is it expected to handle serious matters if so many corrupt lawyers are under it? These people have a responsibility to ensure that things are done according to legal processes and procedures, yet they are the ones who deviate from their main duties.

In KZN, the SIU identified over two thousand cases and finalised about 107. Out of the 107 finalised cases, 76 relate to instances where the claimants are deceased. This means this is fraud and corruption. The investigation should be widened, and the consequence management actions must be serious for those involved in these scams.  

Mr P Atkinson (DA) said he hopes the attorneys involved in these scams are taught a lesson because their job is to uphold the law, yet they chose to play an instrumental role in breaking it. He said large amounts of money had been paid to claimants before the SIU started investigating these cases. Once they did, the amounts declined rapidly, proving the case for fraudulent claims that were made and that happened because of the system's failure. He said he once worked at a community hospital years ago, and he noticed that the record-keeping system in that hospital was very chaotic, so clearly, these scammers take advantage of such record-keeping systems to succeed in doing these scams. There should be an intervention for better record keeping in public hospitals to prevent such scams from happening, and it must be strictly monitored. 

Mr K Madlala (MK) said that when looking at the pictures of the houses as shown in the presentation and comparing them to the money that was taken in those claims, it shows a lack of humanity from the attorneys and the medical practitioners who claimed on their behalf because that behaviour is un-African. The entire country must introspect and think about the kind of system it has created where it produces people who think and act in such a manner. The systems are flawed, but they are caused by individuals who are a product of a particular thinking. New systems and recommendations will be considered and implemented to prevent this. The reality is that these people will find ways to manipulate those new systems to work to their benefit and advantage.

He supported the recommendation to have a vetting system because it is embarrassing that two different claims from one complainant could be picked up automatically. This is a deliberate action because none of this is a coincidence, and these people are deliberately cheating the system regardless of how well it works.

Mr D Skosana (MK) wanted to know if a translator was available for the meeting because he could not express himself clearly in English.

The Chairperson said no translators or interpreters were available, and they would probably start working in two years when the new building is completed.

Mr Skosana said these professionals, in their various capacities, had a well-orchestrated plan to scam the Department of Health, and they were heartless for their behaviour. He thanked the SIU for its work and assured them that the Committee would continue to support them.

Mr T Kubheka (MK) said the SIU should be commended for the work that they are doing and the fact that they brought back a report to the Committee on what they found during their investigations. Regarding the theft of medical records, he asked if the Committee could request the SIU to provide the list of the people involved so that they could be named and shamed, including the doctors, nurses, staff, and even the legal practitioners and hospitals involved.

Another issue is that of illiterate patients and parents of patients who are coerced into signing powers of attorney that they do not understand. How can that be dealt with? How can it be ensured that these people will not be exploited in the future? A collaboration between the Department of Public Works and the Department of Health as well as the SIU so that there could be direct and immediate assistance to people living in dire conditions, as displayed in the presentation as a result of these cases instead of giving out large pay-outs. Is the SIU collaborating with the Asset Forfeiture Unit (AFU) to deal with the scammers? Would it be possible to meet with the SIU, the Department of Health and the Department of Justice to deal with these issues?

Mr F Essack (DA) said it is cruel that these individuals who are purported to be educated individuals take advantage of the poor people in society. He asked about the involvement of the South African Revenue Services (SARS) in this situation because he would assume that they play an important role in all of this through lifestyle audits and emphasised that if there should be any way forward or solution to this situation, SARS must be involved as an important role-player. In the presentation summary, he said that the SIU spoke about monitoring the litigation process and wanted to know who would take responsibility for all of this. If there is a huge inability and lack of capacity within the LPC, what is the urgent solution to this problem?

Adv Mothibi agreed with the Chairperson that the investigation discovered several systemic failures that the national and provincial Departments of Health must respond to. There are various interventions in the systemic recommendations from the SIU on the legal and legislative interventions that could help improve the challenges with patient records. The Office of the State Attorney is an office within the Department of Justice and is trusted with the state's litigation, and there are recommendations that the SIU made to them. The SIU team is still working on the recovery of the funds, and once that is done, the recovered funds will be returned to the coffers of the State Attorney and will remain public funds.

He agreed with Ms Mente-Nkuna that the SIU should provide the Committee with the hospitals where these scams happened and the number of staff members involved so that reoccurrences can be looked out for. In providing that information, the SIU will indicate whether those individuals have been charged. The legal firms would have made themselves guilty of fraud and corruption, and the SIU would make follow-ups for criminal processes and referrals to the Legal Practice Council so that the professional’s misconduct could be investigated. The LPC acted on the recommendations of the SIU, but the issues were mostly raised with the Office of the State Attorney. Those who withdraw cases do not end there; if they are assessed and criminality and professional misconduct are found, they also will face criminal charges.

Regarding the involvement of the Public Protector, the Gender Commission and the Human Rights Commission, he said various aspects of human rights are affected by the case, so the involvement of the various human rights institutions and the Public Protector will be considered. In terms of compensation for the claimants, he said the SIU involves itself upon discovering the amounts that were paid were not received by the claimants and ensures that the claimants receive those payments. One of the advantages of this investigation that led to the prevention of the loss of about R3 billion is that because some of these cases were identified as fraudulent, they were flagged to the Department to be on alert.

There is an active MoU between the SIU and the NPA, and the institutions work closely in the matters referred to. The MoU has been amended to include the Hawks to ensure that the matters are dealt with holistically and speedily. In terms of overhauling the system, he said the fundamental intervention would be to cut out the middle man/woman because the intermediaries are unnecessary. There must be a legal framework where the state can handle the claims on behalf of the affected public.

The investigation started after 2012, and the SIU first intervened in the provincial Health Departments of the Eastern Cape and Gauteng in 2015. When the proclamation was issued, the period covered by the proclamation was 2013 to 2022, but there were related matters that the SIU could look at post-2022. The Department could do a deep dive into the data to discover what happened before and even after the period covered by the proclamation. The doctors who perform the procedures do not put their names in the files. The SIU also found that in the private sector, in most instances, instead of performing operations in their facilities, they take the patients to public hospitals so that if anything wrong happens, the state can be sued, not the private facilities. This is a matter that can be confirmed with the Department of Health.

The SIU investigated the Office of the State Attorney and will, at the right time, appraise the Committee of its findings from that investigation. In terms of the orders issued by the court where the Department continued to pay in the trusts not established in the court orders, he said that is sheer negligence, lack of monitoring, and lack of establishing offices to ensure a trust is established. There is a need for administrative checks to ensure that every transaction is monitored. At an appropriate time, the SIU will present to the Committee the Corruption Prevention Framework that it is developing, which will have various interventions, including education, awareness, and integrity and will probably go a long way in changing the thinking of individuals.

According to the MoU that it has with the NPA and the Hawks, the SIU will continue informing the public on the outcomes of its investigations. The names of those involved in the scams will be included in the report submitted by the SIU. The overhaul of the system should also deal with how the vulnerable, illiterate, and destitute are taken advantage of by those in positions of power. He agreed that the SIU, the Department of Public Works, and the Department of Health could collaborate to ensure people are assisted. The SIU works closely with the AFU and has the power to search, seize, and recover independently. Collaboration with the Department of Justice and Health is also possible, and because various facets of government are affected, the plan going forward must be collaborative.

The SIU engages with SARS regularly and makes formal referrals for SARS to act, especially in cases where there are instructions relating to income tax. This specific case may require a list of all the players involved so that SARS can use it for proactive lifestyle audits. Monitoring the legislative process is required, and when the state is sued, the process requires improvement. The State Attorney’s Office also has a legal department, which should actively monitor these cases. The LPCs are active and recently provided the names of the people facing disciplinary action.

The Chairperson thanked the SIU and noted that the Committee was talking about the number of complaints that the SIU receives, which shows that people can see their work and trust that they will do the correct work. He then asked them to provide the information before the 11^th of September if possible because the Minister of Health will be coming to Parliament, and there will be a Committee sitting with the health portfolio on the same matter. This matter is important to the Committee because there are two sides to it: the crooks and the people who have valid claims, which get delayed, and some end up not getting payouts because of the corruption that happens.

Additionally, the Committee would also want the Minister to explain what the Department will do about the processes to ensure adequate care and all the other matters. Although the Department is also a victim, there is also significant accountability by the Department that must be heard. Finally, as the inductions are ongoing, the Committee might engage all the different portfolios, including the Portfolio Committee on Justice, to ensure that the various pockets of systemic failures are addressed adequately and as soon as possible. Following the hearing next week, there is an opportunity to send an urgent resolution and report to Parliament on this matter because it cannot be allowed to continue.

He thanked Adv Mothibi and the SIU team for the presentation and allowed the AGSA team to come in for a 10-minute body break.

The Chairperson welcomed the team from the Office of the AGSA and asked that they shorten their presentation so that the meeting could be adjourned by 13:30 as members had a Parliamentary Sitting at 15:00.

Mr Atkinson said he had a meeting at 13:00 and asked to be excused closer to the time.

The Chairperson noted Mr Atkinson’s request.

Auditor General of South Africa (AGSA) Presentation

Ms Madidimalo Singo, Business Unit Leader, AGSA, introduced the team from the Office of the AGSA.

Lindiwe Ndala, Senior Manager, AGSA, presented Transnet's audit outcomes to the Committee. She said the audit outcome for the current period remained stagnant compared to the previous year, being an unqualified audit opinion with material findings. Transnet faces challenges in producing credible financial statements that comply with the International Financial Reporting Standards (IFRS) and the Public Finance Management Act (PFMA) requirements.

Of notable concern is the increase in material misstatements on the annual financial statements (AFS) submitted for audit on 30 May 2024 compared to the previous financial year. These findings underscore the need for urgent attention and a comprehensive review of financial management and reporting processes to improve the overall financial management disciplines and control mechanisms that enable credible financial reporting at Transnet. Overall, the internal control environment has not improved compared with the prior year, as management could not prevent and detect material misstatements noted in the financial statements submitted for audit.

Furthermore, the AGSA also noted that some audit findings are recurring, indicating that the audit action plan implemented by management to address prior year findings was ineffective. There is reliance on the audit process to produce credible financial statements, which is not sustainable. Some of the root causes that contributed to the material misstatement submitted for audit included inadequate reviews conducted on the financial statements submitted for audit and, in some instances, the underlying records to the financial statements that supported the transactions recorded by management were not properly maintained.

Management estimates were found to be unreasonable on property, plant, and equipment (PPE), leading to material adjustments to the financial statements submitted for audit. The operational divisions (ODs) that contributed substantially to the material misstatements at the group are Transnet National Ports Authority (TNPA), Transnet Freight Rail (TFR), Transnet Group Treasury (TGT), and Transnet Properties (TP).

The AGSA encountered significant challenges and delays in understanding and obtaining relevant information regarding how Transnet ensured effective Outcome-Based Security services (OBS) monitoring.

This was mainly due to the following reasons:

• Lack of a documented standardised OBS business process for the effective oversight and contract management of the solution-based security contracts.
• Different corridors maintain distinct monitoring systems, resulting in inconsistencies, effectiveness, and oversight.
• Some corridors appear to be more mature in their systems compared to others, which raises questions about uniformity in monitoring processes. The lack of standard operating procedures or defined processes essential for effective monitoring contributes to inconsistencies, which complicate the ability to ensure the quality of evidence collected, making it difficult to track and validate critical data.
• Additionally, we are concerned about data security, as some corridors reportedly stored evidence of performance management on unsecured systems such as WhatsApp, which poses a significant security risk.
• It is crucial to standardise monitoring procedures and enhance data security to ensure integrity and reliability across all corridors, thereby improving contract management processes.
• Concerns about data integrity identified in the OBS primary source system (TOMS).
• Significant deficiencies led to re-testing. Discrepancies in the monitoring of the solution implementation were found, which limited our ability to obtain information supporting the implementation.
• Additionally, in some cases, the provided information lacked details on how the solution was implemented for paid invoices.
• Further, significant deficiencies were noted in the performance management process as the data used to confirm (performance or non-performance) is unreliable.

(See Presentation)

Discussion

Mr Blose said Transnet has a leadership problem, and the Committee will need to deal with it when it meets with the entity next week because there are issues that it must explain to the Committee on its own.

Mr Skosana agreed that the main challenge with Transnet is leadership. There is no consequence management for unauthorised, irregular, fruitless, and wasteful (UIFW) expenditure, and a large chunk of it comes from procurement processes that they do not follow.

Mr Maduna said the presentation gave the Committee an idea of Transnet's financial state and internal environment. He said it would not be possible for Transnet's internal audit committee to adequately oversee finances and internal controls when they have not reviewed their own Audit Committee Charter. He wanted to know how long the management suspensions were. He noticed challenges with procurement and contract management and said it would be impossible to protect assets if there were issues.

The other cause for concern is the number of material misstatements for them to arrive at an unqualified audit opinion. He asked how the waiver of UIFW expenditure improves the internal control environment and what deficiencies result from it. He said someone must account for the ten projects that started and were cancelled when funds had already been spent. He noticed that in the annual financial statement audit, there was a green in the assets management. Still, he understood that asset management includes infrastructure and equipment, so he wanted to know what the green indicated. They also mentioned that the entity is struggling to protect its infrastructure.

Ms H Neale-May (ANC) asked if Transnet should still be allowed to borrow because they cannot manage their finances. They should not be allowed to go back into the market because they are borrowing to pay bills as their bank accounts show that they have borrowed about R15 billion, and there was a small amount from their own income. Their bank accounts do not reflect what is happening because they cannot account for the money they generate.

The entity must be put under administration because it cannot manage its operations, and it is not going anywhere with how it operates. It would help the entity if it leveraged the relationship with the BRICS nations like China and India because the rail networks of those countries work very well, and the entity is struggling. When will the AGSA and other relevant bodies pull the plug on Transnet's leadership because they are clearly out of their depth?

Mr Madlala said he is interested in Transnet’s performance systems and policies in terms of how they manage performance because the entity seems to have an incompetent executive.

Mr Kubheka agreed that Transnet has a management problem because it cannot be explained how the entity went from an R5 billion profit to an R7 billion loss in five years. He read a quote that says, “The standard technique of privatisation is to defund, make sure that things do not work and that people get angry, and then hand over to private ownership”, and said this is what is happening to Transnet. He said there are many people who were fired from Transnet when it was stable and making a profit, so there is a deliberate effort to sabotage the entity so that it can be privatised.

He disagreed that the Transnet board is stable and said the fact that there is a R7 billion loss is proof that there is no stability. He said the Minister responsible for this disaster must come to account for what happened in the past five years to the Committee. When is the SIU going to investigate these extraordinary findings at Transnet? Lastly, he said the South African Police are already overstretched to be able to deal with the protection of infrastructure at Transnet.

The Chairperson said the AGSA team should not respond to Ms Neale-May’s questions because they were policy-based. He said the new Transnet board was appointed a little over a year ago, in July 2023, and the Committee will need to ask the board to present its findings on the entity from when it started office and what it plans to do about it. The board is still new, and a new Corporate Plan has been approved by the new board. The entity also had a limited executive for a while as the CEO, CFO, and COO were acting and only recently became permanent in those positions. In essence, there is a new board, significant changes in executive management, and a newly adopted corporate plan.

Although Transnet has an unqualified audit opinion, the AGSA found further material misstatements in its financial statements. Issues pertaining to the security of the operating assets, the security and management of company information, serious ongoing concern issues, and debt issues also exist.

The issue of borrowing by the entities will need to be dealt with thoroughly by the Committee. Because the government guarantees a considerable amount of the entities' debt, the assumption is that when the commercial entities decide how much interest they should put in the agreements, they consider that the government will cover those amounts should the entities fail to pay them. For example, suppose Transnet fails to meet its debt obligations. In that case, financial institutions must make two decisions: whether to concentrate on the Cabinet and wave the breach, and the second is to ask for all their money back. This impacts the entity because it becomes a bad incentive for the work done at Transnet. After all, while dealing with the debt, they are also trying to get an unqualified audit and correct certain ratios to prevent serious financial implications with lenders.

Suppose the government refuses to honour that debt obligation on their behalf. In that case, the financial institutions want all their money back. When that happens, all the other lenders also want their money back, which makes the government further indebted to these financial institutions. The borrowing issue is very serious, and the Committee must be aware of that. The AGSA team says the government should inject money into Transnet's balance sheet or find it elsewhere. Still, it will be unsustainable for Transnet or any other state-owned entities (SOEs) to borrow more money.

He said he would write to the Minister of Public Enterprises and the management of Transnet to speak on borrowing, material misstatements, the waiver of irregular expenditure, and how it helps stabilise the control environment. He said the Committee will send about 15 questions to the Minister and Transnet so that they can answer them directly when they meet with the Committee.

Ms Singo said it would be important for the Committee to consider the events that led to the current state of Transnet when they engage with the entity, and this entails looking at what happened before the appointment of the new board and the new executive management team. Understanding those issues will also help the members get answers to their questions pertaining to leadership issues, infrastructure issues, etc. The Office of the AG is concerned about the escalating debt levels but only contrasts that against the organisation's performance. Debt is a normal part of running a business; there is nothing wrong with using debt to fund your business. The challenge only comes when you are making debt but you are not generating enough cash flow in your business to support that debt.

It is not in the purview of the Office of the AG to say whether there should be more debt or less debt because the government must make that decision. Still, there must be a continuous review of the institution's performance against the escalating debt level to see whether it is sustainable. It will be important to engage with Transnet to ascertain whether there is a performance improvement. Suppose there is no significant improvement compared to the debt being made. In that case, that means the business is unsustainable, so they will need to deal with the issues that impact the sustainability of the business.

The previous board developed a corporate plan, and management understood that due to infrastructure and organisational challenges, Transnet would not meet the corporate plan targets. A recovery plan would specify the interventions that must be implemented to stabilise the business.

Regarding the waiver of the UIFW expenditure, she said one of the conditions that the lenders had with Transnet was that the entity should not get a qualified audit opinion. When the AGSA took over the audit a few years ago, the entity was struggling with quantifying the extent of the UIFW expenditure. The AG qualified the audit opinion on that basis. Consequently, there was an engagement between Transnet and National Treasury to get an exemption, so Transnet was given a three-year exemption period to look into its internal control environment and prevent further non-compliance.

The suspension of 10 team members did not happen long ago; it happened in the current financial year, but Transnet can clarify it further. When examining asset management, the AGSA examines whether assets are recorded in the book and whether the amounts are correct. In Transnet’s situation, the AGSA was comfortable with the accounting of the assets even though there were small items that were not recorded correctly.  

The Chairperson thanked the AGSA for the presentation and said he would write the Minister a follow-up letter on the issues discussed in the meeting so that when the Committee meets with the Minister and Transnet, the issues can be answered directly. After that meeting, the Committee can build an oversight programme based on problems that need solving.

The meeting was adjourned.