RAF Financial Performance: AGSA briefing; SIU investigations into PRASA & RAF

Meeting report

The Chairperson welcomed Members, officials from the Special Investigating Unit (SIU) and the Auditor-General of South Africa (AGSA), and said the meeting would consist of a briefing by the SIU on the investigations into the Passenger Rail Agency of South Africa (PRASA) and the Road Accident Fund (RAF), and a briefing by AGSA on the RAF.

SIU: Update on PRASA investigation

Adv Andy Mothibi, Head of the SIU, introduced the presentation on the PRASA investigation, and handed over to Ms Zodwa Xesibe, Chief National Investigations Officer, SIU, to deliver the presentation.

Ms Xesibe said that the courts had set aside both the Swifambo and Siyangena contracts. The investigation focused on identifying irregularities in the tender process, and the officials and board members responsible for the irregularities.

Swifambo had been contracted to provide 88 locomotives to the value of R3.5 billion over a five-year period. PRASA had paid Swifambo an amount of R2.65 billion. From this amount, R1.87 billion was paid to Vossloh on a 100% sub-contracting agreement. Only 13 locomotives had been delivered to PRASA. The SIU had been advised that PRASA was in discussions with the liquidators of Swifambo, with the goal of obtaining the six locomotives already in South Africa as part of payment in distribution, and the 17 locomotives that were in Spain – already paid for by Swifambo -- as a dividend. Swifambo had paid the remaining R776.7 million to 28 entities, including 16 directors.

The SIU had identified a payment of R110 million to company ‘A’, of which one of the directors was the former chairperson of the PRASA board. The SIU was in the process of following the money. It had identified company ‘B,’ which had received R1.5 million from Swifambo, and one of the directors had also been a director of Swifambo at the time of payment.

Regarding Siyangena Technologies, two companies had been contracted to upgrade two train stations next to the conferred stadiums, and these companies had sub-contracted Siyangena. For the 2010 World Cup, PRASA extended this contract directly to Siyangena for an additional seven train stations' upgrade, and later to a further 69 stations. Siyangena had been contracted for an amount of R5.632 billion from 2010, and PRASA had paid R3.347 billion to Siyangena. PRASA was in the process of evaluating the work done to determine the value for money. Once this report was completed, the SIU would determine if an independent evaluator would be appointed to assess the report.

Regarding fraudulent liability claims, the SIU found that between the 2012 and 2014 financial years, PRASA's insurance department had recorded, processed and paid 51 193 payment records (299 insurance liability claims) making the total liability paid R1.497 billion. The SIU had 226 files open for investigation. To date, 76 matters have been identified and are undergoing legal review to be submitted to the civil litigation unit for consideration to prevent loss and/or recover monies on behalf of PRASA. There was a potential saving of R57. 541 million, and a potential recovery of R1.002 million. Referrals to the National Prosecuting Authority (NPA) and Legal Practice Council (LPC) would be made once the pending reconciliation of evidence was complete.
On the issue of ghost employees, the SIU had established that the Ziveze Project had identified 1 277 ghost employees for which PRASA had been processing salaries. According to the Ziveze Report, PRASA had lost approximately R20 million a month due to ghost workers.

In terms of maladministration and governance issues, the SIU was investigating the board in respect of the Swifambo and Siyangena tenders.

Adv Mothibi said that the main issues arose out of procurement. The current proclamation focused on major procurement processes. The 2019 proclamation also focused on procurement. Each area of the procurement process was meant to achieve a certain business improvement. As SIU conducted investigations around governance failures and maladministration, there would be a pronouncement on the failure of management – the executive and the board.

Following the 2019 proclamation, PRASA took a number of actions, including dismissing a number of senior management officials. There were serious issues with document management at PRASA, either deliberate or neglectful. The SIU should not end here -- the matter should rather be taken further. For example, the SIU had to investigate under whose custody the documents were meant to be, and what the document-keeping processes were. If the processes were not done, who should be held accountable for this. In the various investigations, it became easy for the organisations to indicate that they could not find the documents. This was the easiest way to frustrate and hinder investigations. It was important to monitor procurement processes and check whether controls and systems had been put in place to monitor the procurement space. Where human beings were involved, there would likely be elements of collusion. This had to be monitored.

Insurance was a big area of PRASA. There were fraudulent claims, which had similar elements to medico-legal claims. The insurance space needed to be monitored.

The issue of ghost employees was a human capital management issue. There were elements of maladministration and corruption. The SIU teams would conduct a number of verifications. This was an area of vulnerability in PRASA.

SIU would continue to do investigations, and the investigation had been reopened. The SIU would report accordingly once outcomes or results were available.

(See attached document for details)

Discussion

The Chairperson thanked SIU for the presentation. He suggested that the SIU should proceed with the next presentation, so that Members could engage with both presentations. Members would have an opportunity to ask questions or make comments after the RAF presentation.

The Chairperson referred to slide 19, bullet point two, which indicated that money had been paid to Vossloh based on a 100% sub-contracting agreement between Swifambo and Vossloh. Did this mean that PRASA had contracted Swifambo, and Swifambo had sub-contracted Vossloh to fulfil the requirements of the tender? This meant that Swifambo was only a ‘middle man,’ and had not done any of the work.

Adv Mothibi confirmed this, saying that it was a serious anomaly. Ultimately, this meant there was no need for Swifambo, as they had sub-contracted 100% of the work to Vossloh. Why was Swifambo contracted if they could not do the work?

Ms Xesibe confirmed that Swifambo had sub-contracted 100% to Vossloh. Swifambo did not have the capacity to do the work.

SIU: Update on RAF investigation

Mr Leonard Lekgetho, Chief Operations Officer, SIU, presented the update on the RAF investigation.

The presentation highlighted the issue of duplicate claims payments made to attorneys, claimants and sheriffs. Duplicate payments were allegedly effected by the sheriffs who executed upon writs of execution, and received funds on behalf of the instructing attorney. The SIU was investigating 102 law firms that had received duplicate payments amounting to approximately R340 million. Several legal practitioners had opted to cooperate with the SIU and sign an acknowledgement of debt. The RAF and SIU had managed to recover funds amounting to R41.6 million.

Regarding recruitment and tender irregularities, the SIU was conducting investigations into seven contracts which had been awarded to certain service providers by way of procurement processes.

It was found that RAF employees who were key to the investigation were no longer employed by the RAF.

The SIU had made several systemic recommendations, including periodic bank reconciliations to prevent and detect duplicate payments, performing checks and balances to see whether there had been any writs of execution of claims before effecting payments, and a review of the claims payment process.

Adv Mothibi said there were areas where the RAF needed to improve. The Minister of Transport had called on the RAF to reduce the backlog, and there was a contract which was under investigation, to reduce it. The finding was that the contravention of Section 217 (slide 30) essentially meant that the procurement process had not been followed. There was a risk that this contract would be set aside. Where there was a need to recover, this would be done. The impact on the business was immense. The issue around duplicate payments by the legal practitioners was a concern.

(See attached document for details)

Discussion

The Chairperson asked how prevalent the problem of poor record-keeping across the system was. Was this an issue that SIU came across often? Was the destruction or concealment of documents, evidence or government documents, a criminal offence?

He said that there appeared to be deeply systemic issues involving the legal profession right across the board. If the cases against government that were manufactured or defective were quantified, the amount of money would be staggering. This was something that needed to be addressed.

Mr N Maduna (ANC) referred to the 100% sub-contracting by Swifambo, and said he had never seen something like this in his experience in conducting internal audits. Was the money paid directly to the sub-contractor, or was the money paid to Swifambo? If the money was paid to Vossloh, what documentation was in place, as the tender had been given to Swifambo? If this was the case, it was pure corruption.

He referred to the issue of ghost employees, and commented that in government, there was normally an act or a regulation that regulated the way things had to be done. For example, in human capital management, there were processes to guide employment -- before a person was appointed, there was a guide as to what documentation was required. If there were ghost employees, this meant that there was an official who had signed an employment letter for this "ghost." All of the people involved should be held accountable, not just the ghost employee. How did the ghost employees get into the system? When payments were made, they had to be approved at multiple levels by various superiors – how could someone then be paid as a ghost employee?

Mr Maduna highlighted the issue of document management. Had the SIU established who was responsible for particular documents, especially in cases where documents were not received or submitted? There was no such thing as poor record management – officials and entities had chosen not to provide certain documents.

He said the lack of professionals at the RAF was a problem, but the bigger issue was the amount of corrupt officials in healthcare, legal practitioners, etc. What was the role of the statutory entities that these officials were registered with? How could these entities ensure that this could be addressed and alleviated? Were these entities assisting the SIU?

He said that in many instances, a person was awarded a contract and paid in advance, and the person delivered less than what had been paid for. For example, the contract that was meant to deal with the backlog had dealt only with minimal cases, but had been paid a huge amount of money. How did it happen that someone had been given a tender and paid upfront?

Mr Maduna referred to reconciliations at the RAF. It had been recommended that monthly bank reconciliations be done. As the RAF was a cash business that dealt with making payments, it was expected that reconciliations would be done weekly to check that all payments that had been approved had been paid. How was the RAF operating its bank account? This would provide an idea of where adequate internal controls were lacking.

Mr K Madlala (MK) commended the work of the SIU. South Africa came from a history where the apartheid regime was of the belief that black people were incapable of governing a country, and the great level of corruption being experienced, validated these sentiments. The high level of corruption was an embarrassment and disrespectful to those who had fought for democracy. He felt that a ‘soft glove’ approach was being taken when discussing the inability or incapability of referring to blatant corruption, and acts of blatantly disregarding processes. Recommending systems, document recording, training, etc, was an easy way out for officials.

Members had to operate from the premise that if officials were at an executive level of the state or an institution, they knew what had to be done. These officials should not have to be retrained or mentored on what has to be done. For example, human capital recruitment processes should be enough to ensure that the right people are in the right positions. It seemed that a major cause of the challenges being experienced was because recruitment processes were being infiltrated -- for example, officials were employing their friends in positions. This approach had to be changed.

Record-keeping was a basic task, and there had to be consequences for those who failed to submit or provide the relevant documents, and these consequences should be as harsh as what would have been delivered, based on the findings of the documents.

Mr Madlala requested that in the PRASA report, the timeline of when the recommendation was made to the National Prosecuting Authority (NPA) or to PRASA should be included. This would allow for a traceable timeframe of who was lagging in terms of concluding matters, or reaching an outcome. Members needed to know when a particular matter was reported, and when the report had been concluded and sent. This would assist the Committee in understanding who should be held accountable.

He emphasised that a different approach to dealing with corruption was needed. Members were constantly overwhelmed by the scourge of corruption, and a more radical approach was needed. Certain amendments needed to be made in order to do this.

Mr G Skosana (ANC) referred to the issue of ghost employees at PRASA, and referred to the cases of KwaZulu-Natal (KZN), Gauteng and East London. It seemed that there were employees classified as ‘ghosts’ who had previously worked at PRASA and had been in the system, some of whom had retired or resigned but were still in the system. Was it a record-keeping issue that these people were still in the system? Were these people still being remunerated, or were they still captured in the system only due to a lack of updating? Were people who had been employed at PRASA and were still in the system being remunerated?

He referred to officials who had already left PRASA while the SIU was dealing with the investigation, and therefore no recommendations for discipline could be made against them. What were the powers of the SIU in this regard? If a person had left the employment of PRASA and was no longer employed at any state entity or institution, what powers did the SIU have to hold them accountable?

Mr Skosana referred to the R30 million insurance premium being paid by PRASA. He said the insurance only covered claims of over R100 million. Many of the claims submitted were below the R100 million threshold. This did not seem right. It seemed nonsensical to have such expensive insurance that could cover only very rare claims. This meant that the insurance did not cover the majority of claims. Was there any foul play involved in PRASA acquiring this insurance?

He highlighted the issue of fraudulent liability claims. The total liability paid was approximately R1.497 billion between 2012 and 2024. The report highlighted a potential saving of R57 million and a potential recovery of R1 million. Why was such a small amount earmarked for potential recovery?

Ms H Neale-May (ANC) referred to PRASA and the issue of insurance fraud, and said there was a lot of collusion with attorneys, and investigators needed to look at the insurance companies in this regard.

She referred to the qualifications of the executives. Recently, the Chief Engineer had been jailed for fraudulent qualifications. He earned a salary of R2.8 million and was friends with the Chief Executive Officer (CEO). What implications did this have for projects that had been signed off by the former Chief Engineer who had fraudulent qualifications? The specifications of the trains that had been ordered had huge implications involving engineering challenges. What was being done about the challenges that had been created due to the fraudulent qualifications of the Chief Engineer? What was being done about checking the qualifications of executives? This was a historical problem. How had something like this been allowed to take place?

Ms Neale-May referred to RAF and said that attorneys and members of the legal fraternity had been engaging in systematic corruption. Over the last week, there has been a clear indication of systematic corruption from the legal fraternity and supply chain management. There needed to be a comprehensive look at the board and the executive.

She asked what the SAP information technology (IT) licences were. She said the capacity of those running state-owned entities (SOEs) was a major problem. Was it possible for the RAF to be placed under administration?

Ms T Bila (ANC) referred to the duplication of payments at the RAF, and asked if it was possible for the claimants to go straight to the RAF and make a claim, instead of approaching attorney’s or lawyers. In some instances, it had been found that the lawyer or attorney received a bigger portion of the claim than the claimant.

Mr P Atkinson (DA) said there appeared to be a link between the medico-legal claims, RAF claims and PRASA claims, whereby claims were left un-investigated. On the matter of the medico-legal claims, it had been indicated that people had died and not been to the hospitals as had been claimed. The same thing was being seen with PRASA, where claims went un-investigated and money was paid out without investigating the claims – and in some instances, the people did not even exist. He was hopeful that following the SIU investigations, a process would be put in place that all future claims had to go through an investigation process, so that checks could be in place. For example, if someone had car insurance and made a claim for even R15 000, the insurance company would conduct visits to ensure that the claims were valid, that the accident had been reported and that all the correct processes had been followed. Compared to the amount being dealt with by PRASA and the medico-legal claims, this was a minuscule amount, and yet there was no checking or investigations done by these entities.

He referred to the situation where documents had gone missing or were stolen. It was very convenient that certain documents were no longer available or could not be found. The only way to resolve this issue was to digitise the record-keeping process. It was concerning that there was still a major reliance on paper documents and records. This reliance on paper records created significant issues and left entities vulnerable to people who had ill intentions. If documents were digitised, it would be more difficult for people to access, lose or steal documents.

Mr D Skosana (MK) referred to the SIU's findings and pending findings. The investigation into the issue of Swifambo had been ongoing for many years. The SIU was probably aware that there was a court application by PRASA at the High Court asking it to allow PRASA to use the trains. The PRASA affidavit was signed by the acting chief executive officer (CEO), stating that the trains were switchable for network and could be used. PRASA was requesting that the court allow it to take delivery of the remaining locomotives as a way to account for the R2.6 billion that had been paid for the locomotives. It was attempting to address public perceptions that the trains were not switchable.

Sometimes, some things were not factual in the media, and some journalists were very political. A title a person was labelled with in the media would stick with that person for many years. Sensationalising issues without evidence was a serious concern. He noted the statements made that in the past, black people had been viewed as incapable, but corruption was not an issue of colour. For example, there was the case of Mr Markus Jooste. Corruption was corruption, regardless of colour, and existed everywhere – in Parliament, political parties, the executive, etc.

The purpose of the PRASA investigation, from the SIU's perspective, was that the tribunal had to rule on how to recover the funds. The investigation could not go on forever. The investigation has been ongoing since 2018. There were probably capacity and resource issues affecting the conduct of the investigation. Some may say that the findings of the investigation were irrational, because of the various accounting authorities. These matters needed to be finalised. The investigation could not be prolonged continuously. Such a lengthy investigation meant that some offenders could pass away before the investigation was completed, and would not be held accountable.

Mr Skosana referred to the Siyangena matter. The presentation stated that the High Court of Pretoria had ruled that PRASA and Siyangena should appoint an independent engineer to determine the actual work done by Siyangena. The report of the independent engineer had been placed before the High Court. The findings of the independent engineer ran counter to the findings of the SIU. The report proved beyond a reasonable doubt that the work had been done, and the servicing of equipment and infrastructure had been carried out. The report showed that PRASA had got the best deal – and paid less for Siyangena. He was unsure whether the SIU report had considered the report of the independent engineer, and if so, why was it continuing with a witch hunt. Some people viewed the investigation as a witch hunt -- he may not hold this view, but others did.

Mr Skosana said that some people believed there was a double standard regarding SIU investigations. The first proclamation had implicated the former Transnet board chairperson, Mr Popo Molefe, and Ms Zodwa Manase, who were responsible for the payment to Werksmans Attorneys of  R400 million for an unlawful and irregular contract, yet there had been no consequences. There was no indication that Werksman Attorneys would be blacklisted. These findings had disappeared. In 2016 and 2017, the Auditor-General (AG) had made findings about Werksman Attorneys. When would the tribunal be approached for the recovery of this R400 million?

He said the abuse of resources by Werksmans and the investigators operating at PRASA were milking state resources. What was the plan to address this and ensure that Werksmans Attorneys were held accountable for these irregularities? Werksmans Attorneys had been in the office for two to three years, and the findings had been there in the first proclamation. There should not be a witch hunt against particular companies. R400 million was a lot of money, and it had to be recovered.

Mr Skosana said that the issue of whether the trains were really unsuitable, as proclaimed in the media, had to be clarified. The media had indicated that the trains were too big to be used, and yet they were on the railways.

Referring to the RAF, he said the issue of doctors and lawyers collaborating was a major issue. Perhaps there should be a policy for people to be paid directly, and not through a third-party. When third parties were involved, there were instances where money had been lost and put in trust accounts, rather than being given to the claimants. It was difficult to believe that an attorney could take a large sum of the claim, while the claimant received only a fraction of the money due to them.

The Chairperson indicated that the Committee would be doing oversight at PRASA. This would allow it to get a better understanding of the issue regarding the trains.

Mr T Kubheka (MK) referred to the PRASA investigation, and said the SIU team had to be very careful with the perceptions being created and shared with South Africans. At times, SIU seemed to focus on certain individuals in their investigations. He referred to the comments made by Mr Skosana about Werksman Attorneys regarding the R400 million. He indicated that another amount of R170 million had been paid to Werksman Attorneys. It was alleged that value for money had been realised for the R170 million, yet there was no mention of the tender being irregularly awarded. Did the fact that there was value for money stop the irregular aspect – was this now disregarded because there was value for money? Which aspect was more important – irregularity or value for money? Would the investigation be stopped because there was value for money, despite the tender being irregular?

Mr Kubheka referred to the inability to unearth evidence due to missing records and documents, companies being liquidated, and people leaving or dying. Had these circumstances brought the investigation to an end? Would the SIU look into the matter further? Document mismanagement was a deliberate mechanism for hiding and destroying evidence.

He said the duplicate claims issue at RAF had involved an amount of R340 million, which was shocking. People meant to protect the entity were accepting duplicate payments and claims. How had the SIU dealt with this? Once attorneys cooperated with the SIU and signed an acknowledgement of debt, was this the end of the process? What happened after an acknowledgement of debt was signed? Were these attorneys arrested? He highlighted that of the R340 million, R317 million had already been recovered, and commended the SIU for this.

Ms V Mente-Nkuna (EFF) referred to the matter of PRASA and the Swifambo tender process. Swifambo did not have capacity and had outsourced 100% of what they had been appointed to do. Who had been involved in the Swifambo tender, and how were they convinced that Swifambo had capacity? When Swifambo outsourced the entire contract, what did the PRASA board do? There should have been an intervention once the PRASA board picked this up.

She highlighted the issue of trains that could be recovered. She felt this was a secondary concern, as they were remedies for addressing the wrongdoing and trying to recover money and value.

She said that once the panel of attorneys at the RAF collapsed, there had been a high number of judgments. Ordinarily, the RAF's processes did not get to this point. The investigation should look at how the system had failed to the point where it got to these judgments. It seemed that the panel of attorneys had not done much. Once there was a spike in judgments, it meant that someone was engineering these problems. She felt that the issues being experienced had been designed so that there could be a failure of the entity, which would require a panel being brought in to ‘save’ it. This rendered the leadership of the institution useless. What abnormalities were picked up related to the spikes? The panel had been informed by practices and patterns that had been picked up. There seemed to be a definite engineering of the problems which had pushed the state to say that the leadership was failing and that money was being lost.

The RAF's processes required that a claim had to be submitted within a certain period and had to be finalised within a certain period, and if it was not finalised the lawyers would step in. Why were people not being held accountable to ensure that it did not get to this stage and prevent matters from going to court?

Mr M Blose (EFF) highlighted the issue of insurance fraud, and described the SIU’s phrasing of insurance fraud as "not fit for purpose." The SIU should make it clear that it was fraud. He indicated that the monthly premiums may amount to more than the claims, and requested a report on this. The insurance covered a certain benchmark, but the organisation still had to pay claims that fell below the benchmark. The majority of the claims fell below the benchmark. This was systematic.

Regarding ghost employees, the SIU had indicated that the Zivese campaign was not properly coordinated and communicated. Was this a deliberate miscommunication from PRASA? Did the SIU find any evidence of deliberate miscommunication by PRASA?

He referred to the duplicate payments at the RAF for attorneys, claimants and sheriffs. This was similar to the situation with the medico-legal claims. The same approach was being used whereby people looked at the system, identified loopholes, and used these loopholes for personal gain. When the SIU came in, many legal practitioners signed an acknowledgement of debt, and some money was recovered. Was this sufficient in terms of accountability – did the process end there? Were the offenders referred to the relevant statutory bodies for further accountability? What happened after people paid back money? It was indicated that the 180-days system allowed for duplication, so he suggested that a change of system had to be proposed. Had the SIU considered this?

Mr Atkinson referred to the RAF, and indicated that there had been a contract for a call centre. Was this being investigated by the SIU? He had heard that only 3% of the claims that went through were properly registered with the RAF. This left it badly exposed for claims that could be incorrect. Who would deal with the backlogs at the RAF?  

SIU's response

Document management

Adv Mothibi referred to the comments and questions regarding document management and the destruction of documents. This was something that the SIU had come across in various other state institutions. The loss or destruction of documents became an easy way to hinder an investigation. When documents were requested, the institutions would indicate that they were unable to locate the documents. Previous SIU reports would indicate that the institutions were not able to provide certain documents, and that was the end of the process. When SIU was confronted with such a response from institutions, the SIU now had to go further. There had to be an inquiry into where the documents were kept, who was responsible for the documents, why the documents were not stored safely, etc. This would allow the SIU to determine further consequences and accountability related to the failure to keep and store documents. There were laws and regulations related to archiving and document storage, and these laws needed to be observed. Failure to do so should result in a situation where all those responsible for the document and document keeping were held responsible and accountable. This would extend to all levels of institutions, including the boards and executives.

He noted the comments that digitisation was a necessary step forward in terms of document management. The SIU would include this in its recommendations. Digitisation required substantive state action to indicate that digitisation was the way to address the issue of poor document management and the deliberate destruction and theft of documents.

Swifambo 100% sub-contracting
Adv Mothibi said that the contract had been awarded to Swifambo, who had sub-contracted 100% of the work to Vossloh. This was a big anomaly.

Ms Xesibe said that payments had been made to Swifambo. Swifambo, in turn, had a 100% sub-contract with Vossloh. PRASA paid Swifambo (the main contractor), and Swifambo paid Vossloh (the subcontractor).

Adv Mothibi said that whether the appointment was irregular or not, it would also impact on whether there would be recoveries. If there was potential recovery, civil litigation would come into play against the main contractor and sub-contractor.

Ghost employees

Adv Mothibi said that the investigation highlighted irregularities in the provinces. The employees had been employed by PRASA previously, and had then resigned or retired. The issue was that payments to the individuals who PRASA no longer employed had to be stopped. It appeared that the system did not have the controls, either deliberately or negligently, to stop payments. The investigation should go further, in that if payments were made to ghost employees, it had to be established where payments went – did they go into the individual’s original account, and what had ultimately happened to the money that had been paid. Were people benefiting from these payments? Was the money being siphoned from the accounts? This had to be established by the investigation. SIU should be able to report on this when it engages with the Committee next.

Document management

Adv Mothibi responded to the question of whether the SIU knew who was in charge of documents. He said the SIU should determine who was responsible for document management. Ultimately, the accounting officer or the board was responsible. The SIU should check if there were any delegations of authority. It should be clear who should be held responsible for the documents.

Professional bodies

Adv Mothibi said that the SIU had had interactions with the Legal Practice Council (LPC), and was satisfied that the LPC was taking action against the implicated legal professionals. There had not been any physical interaction with the Health Professions Council of South Africa (HPCSA), but matters had been formally referred to these bodies. The LPC had considered the referrals made by the SIU.

RAF backlog

Adv Mothibi said that the contract had been found to be irregular. The contract did not meet the procurement process requirements. The SIU’s role had been to investigate the allegations that the contract had been irregularly awarded. It had done this, and the contract would be set aside. Operationally, the RAF had to begin the process and ensure that it was done appropriately in terms of appointing someone to address the backlog.

RAF reconciliations

Adv Mothibi said that the expectation was that reconciliations should be done. The investigators could elaborate further on this issue.

Ms stated that SIU noted that there were challenges. As part of SIU’s systematic recommendations, SIU had advised RAF to look into this matter to ensure that reconciliations were performed to avoid duplicate payments.

Adv Mothibi reiterated that reconciliations were expected. In RAF’s banking system there should be reconciliation processes. Failure to do so was maladministration on RAF’s part.

Consequence management
Adv Mothibi noted the comment that SIU took a ‘soft glove’ approach. This was a call for consequence management to be in place and handed out. In the main, consequence management took the course of the recovery of funds, cancelling contracts, disciplinary action against officials, and NPA referrals against those guilty of criminal offences. It was important that consequence management was meted out the same way in all categories.

Adv Mothibi said that when attorneys signed an acknowledgement of debt, it was an easy way out, especially if the offender had the money to pay the debt. The consequences should not and did not end at this point. The acknowledgement of debt was not signed without the consideration of other factors. These factors involved the civil litigation aspect, where the goal was to recover what was due to the state institution at all costs, and that there should be no other damages that were overlooked. If the SIU was satisfied that the acknowledgement of debt would deal with the civil litigation aspect of recovering the money, it would be signed, as it saved legal costs that would have been incurred. However, signing an acknowledgement of debt did not exonerate the perpetrator from criminal action or any other professional referrals. The SIU did refer perpetrators to professional bodies. Perpetrators should not be given an easy way out.

He agreed that there should be consequence management for those who failed to keep documents, or under whose authority documents went missing or were stolen. This was an aspect that had not been a focus area in the past -- for example, where documents were not provided and the matter had been let go. This was no longer the case. Those who failed to keep documents would be held to account.

Timeline for referrals
Adv Mothibi said that SIU would update the presentation to indicate when referrals were made to the NPA. This would ensure that progress could be tracked.

Ghost employees
Adv Mothibi responded to the question of ghost employees in KwaZulu-Natal and East London. These employees had been in the system but had resigned or retired. Internally, it seemed that there was no system or controls to ensure that when employees retired or resigned they were removed from the system and to ensure that these employees were no longer paid. The investigation should go further to understand whether there were any irregularities or corruption in this regard. Who was getting the money paid to ghost employees? It appeared that the system had not been updated to exclude former employees. The investigation should determine if the systems and controls had been ignored, or if there was any management override. In terms of employees resigning or retiring, it was sometimes the case that employees knew they were being investigated and therefore, left the entity. Resignation or retirement should not absolve employees from civil or criminal consequences. Employees who resigned should not be allowed to join other state institutions. The register of offending employees needed to be strengthened to monitor offending employees who moved to other institutions.

Adv Ntuthuzelo Vanara, Chief Legal Counsel, SIU, said that if an employee had engaged in misconduct and then left the entity, unfortunately, that was the end of the matter. However, a referral to the NPA would be made if the misconduct had caused damages or losses for the entity due to criminal conduct. The SIU would also move to attach the employee’s pension benefit through the pension fund the employee belonged to, for the fund to withhold the pension. If the pension fund refused to exercise this discretion, the matter would go to court to preserve the pension benefit. When the amount of the damage or losses exceeded the pension benefit, the SIU then considered other properties or possessions that could be forfeited. If there was none, that was the end of the matter. The SIU did refer these offending officials to professional bodies for further consequences.

Insurance risk
Adv Mothibi referred to the risk of defrauding insurance. This was a vulnerable area at many state institutions. The SIU had identified this as one of the focus areas at PRASA. The investigation should work to uncover the real nature of the exposure.

In terms of the process of how the insurance programme ran in state institutions, he indicated that there were claims processes, and it was expected that these were processed and monitored. Ordinarily, when insurance claims were made, there was some form of investigation and checks that the insurance company conducted before paying claims. It did not seem that such processes were taking place in state institutions, and where they did take place, they were not robust enough. As the SIU investigated this area, it was likely that experts would be required to be able to make proper recommendations.

He confirmed that fraudulent claims had been identified. Fraudulent claims were a problem.

Qualifications of executives
Adv Mothibi said that the qualifications of executives were a very important area. Concerning the Chief Engineer of PRASA, the investigation had to look at this issue as objectively as possible. There had been a conviction. The extent to which the individual, due to the misrepresentation of qualifications, had caused damage and losses to PRASA, had to be quantified. The individual was serving a sentence, but civil litigation still had to be done in terms of recovery of funds. Regarding the trains that had been bought, the investigation would determine whether there was value for money. There would have been a business need to purchase the trains, and PRASA would have depended on certain officials to ensure that the procurement was appropriate and that it got value for money. When the SIU investigated, it explored whether state institutions got value for money. A response on the matter would be communicated to the Committee once the matter had been concluded.

RAF SAP licences
The lead investigator indicated that the SAP licences had been procured for human capital, particularly for performance management systems. It had not been used.

The Chairperson requested clarity – had the system been procured and not utilised?

The lead investigator confirmed this.

RAF duplicate payments
Adv Mothibi said that the issue of duplicate payments had been raised by SIU in numerous engagements with the RAF. The recommendation regarding the 180-day system would be made to RAF. It was for the RAF to attend to this issue and put processes and capabilities in place to avoid duplicate payments. The SIU had indicated to RAF the basis of the duplicate payments. It was expected that the RAF would put controls in place to prevent future duplicate payments.

RAF payment process
In terms of claimants going straight to the RAF with claims, rather than through a third party, Adv Mothibi indicated that, ideally, this would be the process. As far as possible, the ‘middle man’ or third party should be eliminated. The state should be able to create the capacity to directly assist the public. This was in the policy realm, but it was the SIUs investigation that indicated that this should be an imperative.

Adv Mothibi said that checklists in terms of payments were necessary. The payment process required additional checks and attention. The process needed to be re-mapped, and capacity needed to be created to monitor the payments so that the state would not lose money.

Swifambo
Adv Mothibi said that the SIU was aware that the courts had ruled on the matter. It had focus areas that it looked at, such as whether there had been maladministration, whether there were any processes that had failed, etc. The new proclamation was informed by the outcomes of the Zondo Commission, which had indicated that further investigation was needed. The investigations were ongoing. A further update would be provided at the next engagement with the Committee.

It was important to note that the SIU had agreed that the investigations could not go on for an extended period of time. The 2018/19 proclamation had been concluded, and the report had been submitted, except for the allegations that had been recently received. The 2019 proclamation has been concluded. The 2024 proclamation was a result of the Zondo Commission. The SIU would work to speed up the investigations and come to findings so that the matter could be concluded.

Werksmans Attorneys
Adv Mothibi indicated that the contract was found to be irregularly awarded. The investigation indicated that the chairperson of the previous board had been interviewed, and an update could be provided if the matter was concluded.

The lead investigator indicated that all information had been gathered on the appointment of Werksmans Attorneys, but there were still some documents missing in relation to pinpointing the exact people responsible for the appointment. Werksmans Attorneys were found to have sub-contracted other forensic investigators who had worked along with them to produce a number of reports that had been submitted to PRASA. The investigation was at a stage where investigators were trying to identify who was responsible for the irregularity.

The Chairperson asked what was irregular about the contract. What was the purpose of the work?

Adv Mothibi responded to the comment regarding the perception created that the SIU was targeting certain people. He assured the Committee that the SIU worked as objectively as possible. It did not want to be misdirected by any perceptions. The investigations were based on allegations that had been made. The findings were supported by evidence. The SIU was aware that its findings were challenged in courts and the special tribunal, and therefore worked to ensure that its findings were informed by evidence.

He had noted the statement that the problems being experienced were being deliberately engineered. This would be taken into account during investigations.

Ms Xesibe said that the SIU was looking at the procurement process. Once the investigators had concluded the process, an update would be provided.

Mr Lekgetho indicated that the SIU was wrapping up the investigation. It was interviewing the previous board and all those involved to understand the rationale of what went wrong. It had not yet been able to conclude on the matter.

Adv Mothibi said that SIU would take the issue of human engineering and deliberate intervention seriously.

He responded to the comments of the insurance being ‘not fit for purpose.’ PRASA had to ensure that the insurance that was acquired or in place was fit for purpose, in terms of claims that would usually be received, and the exposure to which it was exposed. He agreed that there was insurance fraud, and as a result, there had been a call to review the insurance programme.

Zondo Report

Adv Mothibi said he was unable to confirm as to whether the Zondo Commission Report was on review. He would check and report back to the Committee. There had been reports that some of those implicated had taken the report on review.

The Chairperson said that what had been taken on review was a specific finding pertaining to an individual. The Committee should check on this matter. To his knowledge, the entire report had not been taken on review, but there were instances where people were challenging the findings on them. The courts would make a determination on this.

Mr Skosana (MK) said there were 11 applications challenging the State Capture Commission in the high court. This alone indicated that there were issues around the Commission. He found it very strange that there were people who had been prosecutors who had now joined the SIU.

The Chairperson said that Mr Skosana was directing his input at the wrong entity.

Adv Mothibi indicated that the prosecutors had joined the National Prosecuting Authority (NPA).

Call centre contract

Adv Mothibi said it seemed that the call centre contract was not part of the scope of the investigation. If there were any allegations related to the call centre contract, the investigation team would look into it.

Advance payments

Adv Mothibi said the Public Finance Management Act (PFMA) did not allow for advance payments. If any advance payments had been made, it would be contrary to the PFMA.

The Chairperson said he would ask the Committee researchers to look into the matter, and find any information regarding advanced payments and contracts at PRASA. This was historical information, and the matter had been ventilated in the litigation to set aside some of the contracts.

He thanked the SIU for their engagement. Any further questions would be forwarded to them for written responses. He excused the SIU from the meeting.

The Chairperson indicated that there may not be time for discussion and responses on the AGSA presentation, but there should be time for questions after the presentation. The Committee had requested that a written response be provided to the questions. The Committee would be doing oversight, and it was important to hear the AGSA presentation. He thanked the SIU and the AGSA for the work that they did.

Mr Kubheka said that it was important to find a way to capacitate the SIU to be able to prosecute.

The Chairperson noted this.

AGSA: Update on RAF investigation

Mr Lwazi Kuse, Senior Audit Manager responsible for the RAF audit, presented AGSA’s update on the RAF, focusing on the audit outcomes of 2022/23.

Ms Nompakamo Matanzima, Business Unit Leader, AGSA, indicated that the presentation would not include a briefing on the latest audit. The audit for 2023/24 had not yet been tabled. It would be tabled on 30 September.

Ms Matanzima referred to the question regarding the prevalence of poor record-keeping. In terms of Section 55 (a) of the PFMA, it was required that the accounting officer and accounting authority had to keep full and proper records of the financial affairs of the public entity. Failure to provide documents was a breach of this section of the PFMA. AGSA had noted a prevalence of poor record-keeping. In most cases, the reason for disclaimed opinions or qualified opinions was that there was an indication that financial information and evidence had not been submitted.

The presentation indicated that the RAF had received an adverse opinion for 2022/23, with the financial statements containing material misstatements.

The AGSA indicated that the RAF had continued to use the International Public Sector Accounting Standards (IPSAS) 42 in formulating its accounting policy. It had achieved 88% of the targets planned for 2022/23, but it had been indicated that the indicators were not complete and were not aligned with its core mandate of payment of compensation, as per the RAF Act.

Compliance with key legislation remained a key concern for the RAF, particularly in the area of quality of submitted annual financial statements.

Regarding the litigation between the RAF and AGSA, it was indicated that on 19 April, the High Court dismissed the RAF’s legal challenge with punitive costs in favour of the AGSA. In May, the RAF had filed an application for leave to appeal, and this had been dismissed on 24 June. In July, the RAF had petitioned the Supreme Court of Appeal.

See attached for full presentation

Discussion

The Chairperson said the litigation between the RAF and the AGSA was a big issue. There should be a way of resolving the issue. He felt that the Minister had to brief the Committee on this. It was unbelievable that this ongoing dispute could potentially be elevated to the level of the Constitutional Court. The RAF was an entity that was accountable to the Ministry, but it appeared that it just did its own thing. He requested clarity and a simplification of the issue. What was at the heart of the issue? His understanding was that the situation was at the point where, in accounting terms, claims were recognised as a liability. The dispute was whether to recognise a claim when it was lodged, or when it was validated. He requested that AGSA provide a simplified version of the dispute. The Committee would be doing oversight at the RAF, and this would assist the Committee in terms of what questions to ask.

Mr Maduna said that RAF had achieved 88%, but this was not a part of their core mandate of paying claims. The 88% figure seemed useless. He indicated that the RAF’s deficit was decreasing despite the entity understating its liability. He asked if the RAF had a five-year strategy. If they did, was this strategy aligned with the RAF Act?

Mr Madlala said that the report suggested that part of the challenges was a failure to implement recommendations. The CEO of the RAF had been appointed in 2020, which meant that the same CEO had been in this position over the financial years.

Mr Skosana (ANC) referred to slide 7, indicating that in 2019/20, the RAF had received a clean audit. The following year (2020/21), it had received a disclaimer. What had happened? There had been a complete shift from a clean audit to a disclaimer. Usually, there were signs within entities and audit outcomes that there was movement towards a disclaimer. Entities usually moved from a clean audit to an unqualified audit, etc. However, within a year, the RAF's audit outcome completely changed to a disclaimer.

He said that in 2019/20, when it had received a clean audit, its overall performance was only at 57%. However, in 2022-23, when it received an adverse audit outcome, it had performed at 91%. When the RAF received a clean audit, was it because they had been specifically focused on getting a clean audit, and not on performance? It now seemed that the focus was on performance, and it did not care about the audit outcomes.

Ms Neale-May asked if the RAF had the same accounting standard that all government entities had. The way audits were done was the same across the board.

She said that it did not seem to make sense when considering the challenges RAF had and the audit. She agreed that the Minister should come and engage with the Committee to discuss the options to mitigate the dispute between the RAF and the AGSA.

Mr Atkinson said that the presentation had highlighted that the AGSA did not have sufficient information to be aware of the percentage of claims that had been paid. It appeared that the RAF had not been paying medical aids and foreigners. The RAF Act did not state that foreigners could not be paid. Was the RAF not going against the provision of the Act by not paying foreigners? Had the AGSA picked up anything in the audit in terms of why this was the case?

He said that only a small fraction of the claims were properly registered with the RAF. It had been indicated that a large portion of claims were not registered, and did not appear in the actual numbers. Did AGSA have any insight into this issue?

Ms Mente-Nkuna referred to the accounting standard. The RAF had insisted that their accounting standard was suitable for their mandate, and the AG disagreed. Previously, the Accounting Standards Board had briefed the Committee and had agreed with the AG’s viewpoint. Getting to the bottom of this issue and concluding the matter was important. Two government entities could not take each other to court over an accounting standard. What was the way forward? If the RAF was insistent on its accounting standard to the point where it seemed clear that it would pursue the matter until the Constitutional Court, the focus was being removed from its mandate and the audit outcomes. What interventions were necessary? This dispute between the RAF and the AGSA had been ongoing for some time and was detracting from the core business. How would this be remedied? It was no longer helpful for both the AGSA and the RAF to explain their perspectives. There had to be common ground.

She said the RAF’s system had a lot of loopholes, as indicated in SIU’s presentation. There had to be a way for people to engage directly with the RAF, and not through third parties. What was being done to pursue this?

Mr Blose said that when the Committee did its oversight at the RAF, it had to consider serious systematic changes to make the entity more efficient.

Closing remarks

The Chairperson said that the Committee would be in touch with the AGSA to ensure that a written response was received to the questions asked. He requested that the response be simple, for ease of understanding.

It was critical that the Committee engage with the Minister on the issue of the RAF.

He thanked the AGSA for the presentation, and suggested that the Committee may invite the AGSA to accompany it on its oversight visit.

The meeting was adjourned.