Department of Transport & Cross-Border Road Transport Agency: Interrogation of 2005/6 Audit Report

STANDING COMMITTEE ON PUBLIC ACCOUNTS
14 February 2007
DEPARTMENT OF TRANSPORT & CROSS-BORDER ROAD TRANSPORT AGENCY: INTERROGATION OF 2005/6 AUDIT REPORT

Chairperson: Mr T Godi (PAC)

Documents handed out
Cross-Border Road Transport Agency Annual Report (C-BRTA) 2005/2006 [available later at www.cbrta.co.za]

SUMMARY
The Auditor-General’s audit opinion of the financial statements of the Department of Transport for 2005/2006 was qualified. This was due to fruitless and wasteful expenditure, irregular expenditure, poor governance arrangements, internal control weaknesses and non-compliance with Public Finance Management Act and Treasury regulations. The Department was questioned on these matters and generally acknowledged that there had been bad financial management. The Department went a step further and resolved to address the concerns.

The Cross-Border Road Transport Agency was called to account for the qualified audit opinion they received from the Auditor-General for the financial year 2005/2006. The qualification was due to the lack of internal auditing, weaknesses in the Agency’s corporate governance and non-compliance with policies and procedures. The Agency was confident that since receiving the qualified audit opinion, it had competently dealt with the weaknesses highlighted in the audit report. The Committee was emphatic that the Agency needed to increase its revenue generating operations as it did not appear to be a viable entity at this time.

MINUTES
Department of Transport (DoT): Auditor General’s report on 2005/6 financial year

By way of introduction, Ms A Dreyer (DA) warned Ms M Mpofu, Director-General (DG) at DoT, that the Committee would be less sympathetic to her than last year. She rationalised that the DG no longer had the excuse of being new to her position because she had been at the helm for an entire financial year.

Ms Dreyer claimed that the Department received a qualified audit because it continued to be plagued by capacity problems and lack of financial skills. It was unacceptable that the Department had to pay interest, amounting to R12 000, to a service provider because nobody bothered to pay on time.

The DG admitted that there had previously been poor contract management capacity at the Department. This had subsequently been resolved. The Department had an agreement with the service provider that the interest would be waived.

Ms Dreyer accused the Department of not implementing contracts and policy properly.

The Chairperson sought clarification whether the Department had paid the interest or not.

The DG responded that the matter had been resolved with the service provider. She repeated that the Department had strengthened its contract management capacity.

The Chairperson reminded the Department that it had had to pay interest (R958 653) to a service provider in the previous financial year. He accepted the DGs assurances and hoped that the matter was sorted out.

Ms Dreyer regarded the payment of R66 000 due to non-arrivals and cancellations as fruitless expenditure. She queried whether individuals in the Department were held accountable for this.

The DG answered in the affirmative. The Department had instituted measures, such as a deduction in salary, if individuals could not justify their actions.

Ms Dreyer expressed concern that the Department had shown more irregular expenditure.

The DG explained that part of this irregular expenditure arose out of a contract with an engineering concern.  

Ms Dreyer observed that the Department continued to disregard the Public Finance Management Act (PFMA) and Treasury regulations. Why did the Department not take disciplinary action against certain individuals?

The DG replied that the Department had achieved finalisation in certain cases but made less progress in others. The Department was still in the process of investigating unresolved cases and would only take appropriate disciplinary action at the conclusion of this process.

Ms Dreyer interrogated the Department’s plan to address its high vacancy levels (32%).

The DG admitted that the Department had a capacity problem. They were having on-going discussions with the Treasury to increase capacity in line with strategy. Capacity problems persisted because the Department had not finalised its restructuring strategy. This strategy was critical because it would identify and define positions before filling them.

Mr D Gumede (ANC) raised concerns about the incompleteness of income for driver’s license registration.

The DG acknowledged that the Department had been grappling with this particular problem for many years. The Department could not resolve the matter because the Inspectorate of the Drivers License Training Centres could not provide complete receipts and records. The DG proposed that legislation be amended to 1) strengthen the inspection arm of the Department and 2) to allow for provincial audits.

Mr Gumede wanted to know when this matter would be resolved.

The DG hoped that this would be resolved in six to nine months.

Mr Gumede stated that the judgement against Mr Schabir Shaik raised questions about the Department’s contractual arrangement with the Prodiba consortium.

The DG responded that the Department had noted the Supreme Court of Appeal judgment against Mr Shaik. The Department had received legal advice concerning this matter and would act on it by the end of the week.

Mr Gumede queried whether the Department had taken any steps to improve its contract management system.

The DG answered that the Department had taken the necessary positive steps. She made a commitment that the Department would not proceed with contracts without proper management.

Mr Gumede asked the Department whether it had resolved problems in its Trading Account.

The DG replied that this had been resolved in November last year.

Mr P Gerber (ANC) remarked that the DG had inherited an albatross in Prodiba. He wanted the DG to provide a cost benefit analysis of this contract.

The DG responded that this analysis had previously been supplied to the Committee.

The Chairperson and Ms Dreyer persisted in interrogating the status of the Prodiba contract.

The DG confirmed that she had received clear legal advice and would act on it. She refused to elaborate further.

Mr G Madikiza (UDM) expressed concern that Drivers License Testing Centres (DLTCs) did not comply with the requirements of the National Road Traffic Act (NRTA). He sought clarification regarding the percentage of municipalities which did not implement the recommendations of the DLTC Inspectorate.

The DG stated that 42% of municipalities failed to implement the recommendations. Legislative amendments were needed to empower the Inspectorate and provincial Transport MECs.

Mr Madikiza enquired what steps the Department had taken to review the legislation.

The DG replied that the Department had started reviewing the NRTA in its entirety. The Department had already devised certain options for amending the Act.

The Chairperson asked how long this process would take.

The DG hoped to conclude the process later this year.

Mr Madikiza highlighted that the provinces had a history of poor record keeping.

The DG did not dispute this. It was however not within the Department’s mandate or power to correct misfiling at provinces. She repeated that legislative amendments, which required provincial audits, were necessary.

Mr Madikiza believed that the Department had extensive internal control weaknesses and thus did not comply with Section 38(1) of the PFMA.

The DG contradicted this insisting that the Department did apply stringent internal control measures. However, she conceded that there was a need for a cultural change to make managers more responsible and accountable. Employees were aware of the expected standards and the subsequent threat of disciplinary action.

Mr Madikiza wondered whether the Department had an efficient and suitable internal audit team.

The DG announced that the Department had sufficient capacity in this area. Internal auditors were in demand and were thus constantly poached across all government departments. She was confident that she had appointed a competent internal auditor.

Mr Madikiza asked whether the Department had engaged the Department of Public Service and Administration (DPSA) concerning the poaching issue.

The DG confirmed that she had consistently raised this matter at the forum of DGs. The IT sector also suffered a similar problem.

Mr Madikiza sought reasons why senior managers did not consistently apply the supply chain management system that the Department had established in 2004.

The DG argued that these managers were simply inefficient and could not plead ignorance.

The Chairperson asked whether non-compliance was due to capacity or attitude.

The DG answered that it was the latter. Senior managers needed to undergo a cultural change to become more accountable and to be subjected to decisive action when transgressions occurred.

The Chairperson opined that there was a steady decline in the control weaknesses of the Department. He advised the Department to address all the concerns raised by the AG. The DGs responses were encouraging.

Cross-Border Road Transport Agency (C-BRTA): Auditor General’s report on 2005/6 financial year

Mr Gerber asked the Department whether it was reluctant to fund the Agency.

The DG answered that the Department was not reluctant. The Department preferred to deal with its turnaround strategy and restructuring before providing any financing to the Agency.

Mr Gerber voiced concern about the adverse opinion the Agency received from the AG. He lamented that the Agency had never appeared before the Committee because its financial statements were always late. He asked how many border posts existed.

Mr S Mngqibisa, Chief Executive Officer of the C-BRTA, replied that there were 32 commercial border posts.

Mr Gerber queried how many vehicles moved through these posts.

Mr Mngqibisa answered that he did not have that information available.

Mr Gerber asked whether the Agency had 77 inspectors.

Mr Mngqibisa replied in the affirmative.

Mr Gerber noted that the Agency showed a steady decline in revenue from permits and penalties. He observed that the Agency’s failure to increase tariffs (since 2002) contributed to this decline.

Mr Mngqibisa replied that the Agency had been advised by the industry not to increase its tariffs. South Africa already had the highest tariffs in the Southern African Development Community (SADC) region. Lastly, he preferred that the Agency focus on service delivery for the time being.

Mr Gerber pointed out that the Agency had commissioned the Garry White and TRAINMATIC consulting agencies to overhaul its human resources structure. What were the costs of these studies?

Mr Mngqibisa said the former study cost R350 000 and the latter R601 000.

Mr Gerber asked whether it was deliberate that the Agency had a reduction in staff by the end of the financial year.

Mr Mngqibisa answered that it would employ more staff once it had completed its overhauled structure.

Mr Gerber identified that the Agency had shortcomings relating to the recording and accounting of fixed assets.

Mr Mngqibisa promised to remedy this matter by the 2008/2009 financial year.

The Chairperson appealed to the Agency to deal with this matter more urgently.

Mr Gerber queried the identity of the staff member who did not review reconciliations.

Mr Mngqibisa admitted that he was guilty of this oversight.

Mr Gerber listed the rest of the internal control weaknesses identified in the AGs report and asked whether this had been attended to.

Mr Mngqibisa assured the Committee that all these matters had been attended to.

Mr Gerber sought to establish how the Agency intended to improve its debtor’s reconciliation system.

Mr Mngqibisa admitted that the lack of follow up created this problem. The publication of the AGs report moved him to instruct the Chief Inspectors at all the offices to do follow ups.

Mr Gerber queried whether the Board and Directors of the Agency were required to disclose their financial interests and to declare when a conflict of interest arose.

Mr Mngqibisa replied that the Board and Directors were required to declare any conflict before any tender contracts were discussed. The Agency also kept a register of interests.

Mr Gerber wanted clarification about the composition of the Board.

Mr Mngqibisa clarified that the Board comprised of eight members; two from the freight industry, two from the passenger industry and four others appointed by the Minister.

Mr Gerber asked whether the two members from the freight industry participated in discussions concerning the increase of tariffs. He was worried that this would represent a conflict of interest.

Mr Mngqibisa confirmed that these members participated in those discussions. While they were still involved in the freight industry, they were not involved in the cross-border part of the industry and were therefore not in conflict.

Mr Gerber raised concerns about the viability of the Agency because it appeared that all its money went into salaries.

Mr Mngqibisa confessed that the Agency was not generating sufficient revenue. He expressed unease with the fact that the Agency generated its income from law enforcement. The Agency did not benefit greatly from the cross-border permits because there were more vehicles entering the country than leaving the country.

Mr Gerber suggested that the Agency would not need funding from the Department if it increased its tariffs by 7%.

Mr Gerber noted that the administrative expenditure of the Agency experienced a huge spike when compared with the previous financial year.

Mr Mngqibisa indicated that the spike was not that significant when one considered that the figure printed in the previous report was a misprint.

Mr Gerber enquired who had given the Agency a donation.

Mr Mngqibisa replied that the Department had donated R2 million to the Agency.

Mr Madikiza sought to establish why the Agency requested a legal opinion from the State Attorney regarding the status of the current board members.

Mr Mngqibisa answered that the operators wanted to know whether the Board had been legitimately appointed.

Mr Madikiza asked what procedures were followed in the appointment of the Board.

Mr Mngqibisa replied that the Board was appointed in terms of the C-BRTA Act. The Minister had called for nominations and then published the short list in the Government Gazette.

The Chairperson asked whether the Board was in fact legitimately constituted.

Mr Mngqibisa answered that he could not guarantee that the proper process was followed because he could not find the necessary Gazette number.

The Chairperson asked the Department whether the Board was properly constituted and if they had the Gazette number.

The DG was convinced that proper procedures were followed. The Department would provide the Gazette number to the Agency.

Mr E Trent (DA) found it unacceptable that the Chairperson of the Board, who was the accounting officer, was not at this meeting.

The Chairperson underlined this sentiment.

Mr Madikizi noted that the Agency did not have an audit committee in the period leading up to the AGs audit. He asked whether this had since been remedied.

Mr Mngqibisa confirmed that an audit committee had since been established.

Mr T Mofokeng (ANC) opined that the Agency did not worry about debt and relied heavily on the Department. He sought an explanation concerning the non-approval of the strategic plan.

Mr Mngqibisa answered that approval had been delayed because a new Board had to be constituted. Only the Board had the authority to approve this sort of plan.

Mr H Bekker (IFP) asked whether the Agency turned down a lot of permit applications.

Mr Mngqibisa answered that because of non-compliance, the Agency usually declined applications from taxi and bus industries. Permit applications from the freight industry were usually granted.

Mr Bekker wanted to establish whether the Agency also issued penalties for unroadworthy vehicles.

Mr Mngqibisa answered in the affirmative.

Mr Bekker asserted that the Agency did not fulfil its income generating potential. He was not convinced that the Agency could justify its existence.

Mr Mngqibisa replied that the Agency’s creation was based on a SADC protocol. The Department previously handled the cross-border function internally, but now preferred that this be handled separately.

Mr Bekker persisted that the Agency was not sustainable and could therefore not justify its existence.

Ms Dreyer noted that there was a high turnover of senior managers and wanted the CEO to declare his commitment to the Agency.

Mr Mngqibisa announced that he had resigned and would be leaving the Agency in the next month.

The Chairperson proclaimed that this engagement was a waste of time because it was useless interrogating someone who was already on his way out.

Ms Dreyer argued that the Agency was a rudderless entity and that it required immediate intervention from the Department.

The DG responded that the Department was fully aware of the Agency’s challenges. The Department had initiated the process to change the Board. The Agency could be a revenue generating operation.

Mr Gerber agreed that the Agency had the potential to be a revenue generating operation.

The Chairperson stated that there was a lack of leadership at the Agency. He also identified operational capacity as an area of concern.

The meeting was adjourned.