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PUBLIC ACCOUNTS STANDING COMMITTEE
21 August 2007
FIDENTIA / TRANSPORT EDUCATION TRAINING AUTHORITY (TETA) INVESTMENT: INTERROGATION
Chairperson: Mr T Godi (PAC)
Documents handed out:
Presentation by Transport Education Training Authority
The Committee permitted the Transport Education Training Authority to give a short presentation on the background to the investment that it had made with Fidentia. The Financial Services Board had become aware of and notified the Authority of the misappropriation of the funds invested. The Committee interrogated the circumstances surrounding the investment and asked upon what criteria the investment in Fidentia had been made, the stage at which TETA had become aware of a possible misappropriation, and the steps taken for recovery of the funds before appointment of the curators. Further questions were asked around how TETA perceived its fiduciary duty with regard to this and other investments, the nature of any other investments and the reasons why investments were being made, apparently contrary to its prime mandate. The Committee also asked what disciplinary actions had been taken against Board members and employees of TETA, and interrogated the possibility of recovery of the funds.
Interrogation of investment by the Transport Education Training Authority (TETA) with Fidentia
The Chairperson welcomed the delegation and Members. He indicated that in view of the close inter-relationship between the Department of Labour and the Sector Education and Training Authorities, including the Transport Education Training Authority (TETA), he would permit a short presentation, although this was not usual in this Committee.
The Chairperson also expressed his concern that the curators of Fidentia were not present. He indicated that when a parliamentary committee such as SCOPA required persons to appear before it, they should do so, no matter that they were only indirectly concerned with the subjects under discussion. If necessary he would utilise the parliament's powers to enforce attendance.
Presentation by Transport Education Training Authority (TETA)
Mr Van Mkosana, Director General of the Department of Labour, thanked the Chairperson for the opportunity to be present.
Mr June Dube, Chairman, TETA, stated that a written presentation had been tabled. It was not possible to provide more specific details than were contained in this overview. Other processes and investigations had been put into operation after the emergence of the scandal, and subsequent reports would contain details of the results of these investigations.
Dr Johan de Beer, Acting CEO, TETA, noted that the TETA had the function of providing education, training and quality assurance on training in the transport sector.
Mr Dube stated that Fidentia had been placed under interim curatorship in February 2007 and the curatorship order was made final in March 2007. The executive officers of Fidentia had then been arrested. The curators appointed by the Court had called for the attendance at a meeting of all involved with Fidentia, whether as creditors, debtors or holding executive positions in Fidentia, and subsequent to their enquiries had begun a process of liquidating the assets of Fidentia, in particular the movable assets. A further meeting with the curators would be held on 24 August, when further interim reports were expected and it was also hoped that there would be further clarity on the situation.
Mr Dube stated that TETA began internal investigations, and held an extraordinary meeting of the TETA Board on 24 February 2007. As a result of this meeting the auditing firm KPMG had been mandated to perform a forensic audit of TETA. This had been followed up on 3 May 2007 with a progress report and a full report was produced on 7 June 2007. HE requested that the full content of the report should not be publicised as this could well hinder, if not jeopardise, further ongoing investigations.
The Chairperson agreed, and appealed that there should be no leaks of the report.
The Chairperson asked whether any disciplinary steps had been taken against any TETA employees, and what the status of any disciplinary measures might be.
Mr Dube continued that KPMG had agreed to co-operate with all other bodies, especially the Scorpions, in the ongoing investigation of Fidentia. At this stage it was not known what precise role the CEO had played, other than that he had been involved in placing the investments. He had been placed on special leave pending further investigations and was not present at the premises nor in contact with the other employees of TETA.
Dr de Beer conceded that to date it had been established that R177 million had been lost from funds under the control of TETA. However, he claimed that TETA was still able to perform its mandate. Currently TETA was working in co-operation with the Department of Transport to develop programmes and skills in the transport sector, in readiness for round-the-clock transport facilities throughout the 2010 Soccer World Cup in all places connected with it. It was expected that at the end of the present financial year there would be a balance of R120 million available for the usual activities of TETA, notwithstanding the loss incurred by the investment in Fidentia.
Mr Van Mkosana, Director General, Department of Labour, said that from that Department's point of view there was close co-operation with the National Treasury regarding the Fidentia events. The Department was also in co-operation with the curators for the recovery of the monies invested. It was also involved in implementing revised systems and processes to prevent recurrence of such mishaps. This was being extended to incorporate the other Sector Education and Training Authorities (SETAs) but there was a need to strike a delicate balance between administering and monitoring the situation while not interfering in the activities of the SETAS. If necessary, administrators could be appointed.
A member of the Committee stated that in his view it was totally unacceptable that the curators of Fidentia had not responded to the request for their attendance at this meeting. He also felt it was incorrect that TETA was not being regarded as a prior creditor, especially in view of media reports that the creditors were contemplating a payment to creditors of 20c or 40c in the rand. Additionally he was concerned that the process was protracted. He wished to hear from the curators why it had been decided to adopt a curatorship rather than an insolvency procedure. He also would like to know the final anticipated costs of the curatorship, as it must be remembered that public money was at stake. He also thought the curators could be more transparent in their public statements.
The Chairperson reiterated that of prior importance was clarity on this matter, and confirmation that members of the Boards of the SETAs would be working in the best interests of the stakeholders, who were the public.
Mr Mkosana stated that that was what the Department of Labour was attempting to do.
The Chairperson then asked that the questions and answers should confine themselves to the narrower issues. SCOPA required an explanation of the incident, as opposed to the TETA policies. It was not so much concerned with what had happened as to elucidate how it had happened and who was going to take responsibility and accountability for the decision to invest in Fidentia, which had no track record, was largely unknown, yet was offering rates over 2% more than established investment agencies. There were questions surrounding the involvement of the Board in the series of events.
Mr Dube said that these points had been explained, and the events should be examined in the light of the guidelines provided by the National Treasury (NT) and the guidelines and policies adopted by the TETA Board.
Mr V Smith (ANC) said it seemed that the NT policies were adapted by the Board and applied as an investment policy. In terms of these policies, all proposed investments in excess of R100 million were to be debated and voted on by the TETA Board. However, this appeared to be the current policy, which amounted to shutting the stable door after the horse had bolted. He noted that ultimately the Board held responsibility and must be accountable. The role of the Chief Executive Officer (CEO) was being investigated, but he personally felt that the CEO must not be made a scapegoat. The CEO would doubtless claim to have been merely part of the entire process. The Board had apparently approved the processes, which seemingly had been followed.
He took note of the fact that the CEO had been effectively suspended on full pay, and the process, however long it took, was presumably following its course. Whatever the outcome of that would be, there would be some unhappiness.
The Chairperson asked Mr Dube, as leader of TETA, whether he accepted accountability for the investment in Fidentia.
Mr Dube replied that it was the Board in its entirety that was accountable.
The Chairperson agreed that it seemed that responsibility fell squarely on all Board Members. He asked whether the Members of the Board had applied their minds to the questions before them at the time of the investment, as it seemed to him that they had not done so properly and fully. The crisp question was how the Board had approved of the investment in Fidentia, and whether that approval was in line with approved policies. guidelines and regulations.
Mr Mkosana stated that there was a difference in policy and regulations for investments above and below the figures of R100 million.
Mr Dube said that the investment sub committee had reported to the Board on the benefits to be secured by investing in Fidentia. The finance sub Committee of the Board had considered the ramifications. The full Board of TETA had confirmed the investment in Fidentia. He noted, however, that the TETA Board as constituted in 2003 differed from the present TETA Board.
Mr Dube stated that the disciplinary process against the CEO would be a long process, in order to comply with all relevant requirements, and the TETA Board awaited the response from the CEO, who could use every legal right afforded to him in terms of legislation.
Mr George Strauss, TETA Board Member, intervened to point out that at the time of the investment TETA had a Council and not a Board, and that the Council had a different composition and powers. Additionally he felt that the outcome of the KMPG and other enquiries were needed before taking any further action.
Mr P- Gerber (ANC) wished to have clarity on the differences in ratios between short term, medium term and long term investments in 2006. With regard to medium and short term investments, he asked what institutions had been used for investments and what percentage had been placed at which institution. He also asked for an indication of what percentage of investments, whether short, medium or long term, had been directed to Fidentia.
Mr Dalpat Naran, CFO, TETA, stated that all short term investments had been honoured.
Mr Gerber said that this did not answer his question, which had called for specific information.
Mr Naran then replied that R177 million had been invested in Fidentia. After addition of interest this was expected to rise to R251 million. Fidentia had received 60 % of TETA’s investments.
Mr Gerber asked whether this meant that 40 % had been invested with other institutions.
Mr Naran confirmed that the other money was held with Standard Bank
Mr Gerber said that he was not interested in current or cheque accounts, but merely wanted information on TETA's investments.
Mr Naran conceded that the only investment was through Fidentia, the other monies being TETA normal funds.
Mr D Gumede (ANC) wanted to know whether the TETA investments were done in terms of Treasury regulations and upon what criteria the decision to invest in Fidentia had been taken.
Dr de Beer said that TETA was required to make two types of payment to its creditors in terms of its mandate. Mandatory payments were initially made twice a year but they were now made quarterly, when the relevant parties notified TETA that there had been compliance with the training requirements, thus triggering the payment in terms of the contractual obligations. These payments fell outside the normal operating expenses. The second type of payments were discretionary payments, which were made twice a year. These were termed "discretionary" to cover payment for producing persons with scarce skills.
The Chairperson asked whether such payments came from the general kitty.
Mr Gumede wished to know at what point such payments became due.
Dr de Beer stated that the payments would be made on satisfactory conclusion of the relevant training programme.
Mr Gumede wished to know the criteria for satisfactory completion of the programmes.
Mr Naran replied that these were the same as they had been in the past. On conclusion of the programmes, the mandatory payments fell due.
Mr E Trent (DA) wished to know about the accountability of the TETA Board Members. The investments might have been made in terms of policies and regulations, but he would like to know who bore the final accountability or responsibility. He also asked what precisely the TETA Board had done in relation to the investments when notified by the Financial Services Board (FSB) that Fidentia seemed to be questionable. He asked how the TETA Board had reacted to the information from the FSB and what damage control measures had been implemented.
Mr Dube answered that the Board's mandate was to invest with the "big four": South African banks. There were no supplementary documents, however, and what Fidentia had been reporting was taken at face value.
Mr Trent noted that he was essentially saying that Fidentia was producing untruthful reports. He reiterated that the FSB had reported its concerns about Fidentia in November 2006, and he asked specifically when, if at all, had TETA done anything in response to those concerns.
Mr Strauss said that Fidentia had been placed on one side as soon as TETA was aware of this.
Mr Trent asked whether copies of the documentation from Fidentia were available.
Mr Strauss stated that there had been full compliance with the requirements, insofar as it was understood that the investment was being done through the A-rated banks. However, Fidentia did not do what it had undertaken to do, and also did not report correctly on what it was doing. The TETA Board had accepted at face value the information presented by Fidentia.
Mr T Mfokeng (ANC) referred to the forthcoming meeting with the curators, and asked for elucidation on the purpose of the meeting. Additionally he enquired whether the Board of TETA had specifically applied its mind to the subject of investment in Fidentia.
Dr de Beer replied that scheduled meeting with the curators of Fidentia was intended to ascertain the amount, and the time frame, of payments to be expected arising from the curatorship work of the curators. A firm of attorneys had been appointed to work on behalf of the TETA Board with the curators.
Mr Trent was of the opinion that there were still questions to be answered by the TETA Board.
The Chairperson referred back to a previous comment, and wished to know what was the difference between the Board and the previous Council for TETA.
Mr Dube replied that he had been a delegate from a Trade Union, and had served on the Council of TETA in that capacity. .
The Chairperson replied that this explanation did not distinguish between the duties and obligations of a Council and a Board member.
Mr Dube said that a Council was set up while a Board was appointed, in terms of legislation, with more extensive powers.
The Chairperson noted this answer. He said that it seemed that the Board had made a decision based on an incentive to invest.
Mr Dube stated that the investment decision had been taken in accordance with policies and guidelines. If the amount to be invested was less than R100 million the decision could be made by the CEO, with the support of the Board. If the amount for investment exceeded R100 million then it was required that the whole Board meet and consider the options.
Mr M Stephens (DA) wished to know what arrangements there had been for obtaining access to the invested capital, prior to maturity of the investment.
Mr Naran stated that the minimum investment period was 12 months, and the investment period ran from November to November.
Mr Stephens wanted to know how this affected the liquidity of the investment.
Mr Naran stated that the investment was required to be with the "big four" of the AAA banks and that there were 30 day, 60 day and 90 day periods during which notice could be given for the repayment of the investment.
Mr Stephens asked whether this meant that all the capital could have been withdrawn after 30 days.
Mr Naran said that in terms of the contractual arrangements R35 million could be withdrawn after 30 days, and R65 million could be withdrawn after 60 days.
Mr Stephens wished to know what action had been taken by TETA in November 2006 when the FSB had first alerted TETA to the possibility of complications. He also asked whether any actions had covered the full R251 million expected from the investment. He further enquired when the Council was converted to a Board.
Mr Dube said that he had only become involved in 2004. The Board had not been told that the investment was in Fidentia. It understood that the money was invested in the major banks. Quotations had been placed before the Board. These showed an expected 8% return from Standard Bank, 8.5% from ABSA Bank and 10,5% from Fidentia. No alarms were raised at the time about the additional 2%. R177 million capital was invested, and the expected return at the end of the investment would have increased this amount to R251 million.
Mr Naran elaborated further, saying that the R251 million figure was a year on year end result. Although the expected contribution to the balance sheet was R251 million, the capital paid to Fidentia in this investment was in fact R174 million. An amount of R15 million, which fell below the R100 million mark for Board approval, was paid to Fidentia by TETA in September 2003.
Mr Mfokeng said he was concerned about the CEO being on paid leave until his disciplinary hearing, as he felt that this was misuse of public money. He believed that if the payments to TETA extended past August 2007 the Committee might well later have a problem with the Board of TETA.
Ms N Hlangwana (ANC) asked why these steps had been followed.
Mr J Dube said that because of the magnitude of the amount of money involved and the questions raised, it would be necessary for the disciplinary proceedings to be procedurally and factually correct. Therefore the TETA Board had been painstaking in their investigations and preparation for the hearing. The charges were served on the CEO the previous Saturday and the hearing was set down for the forthcoming Friday. It was unknown at this stage whether there would be any applications for postponements.
The Chairperson was pleased to hear of the careful approach to the disciplinary proceedings.
Mr H Bekker (IFP) enquired whether the R177 million was paid as one amount or a number of smaller amounts.
Mr Naran said that R71 million was paid over in April 2003, R50 million in July 2003 and a further R50 million in April 2004.
Mr Bekker asked if the whole Board had approved of the investments, whether any Board member had expressed reservations or had voted against such investment. He asked if the decision to invest was unanimous, and, if not, who had voted against it.
Mr Strauss responded that no one had been opposed to the investment, as it had seemed to be a good investment and since all the preliminary vetting of Fidentia had been favourable.
Mr Trent was concerned that the warning from the FSB in November 2006 seemed to have been ignored. Despite the fact that money could have been withdrawn after 30 and 60 days, as stated earlier, nothing had been done to withdraw from the investment with Fidentia. He asked whether the Board Members had not heeded the warning, and whether they had conducted a probity examination of Fidentia.
Mr Strauss said that these investment were placed in 2005 and Fidentia was only investigated in 2006.
Mr Stephens enquired as to the opinion of the State Law Advisers on the differences in the implications between curatorship and liquidation of Fidentia. He commented that 20c or 40c in the rand seemed a very low payment, and commented that the curatorship might well be protracted. He did note that a firm of attorneys had been appointed to assist.
Dr de Beer said that there had been discussions with KPMG and the attorneys regarding the differing benefits offered by curatorship or liquidation, and the best approach to adopt. The decisions were taken in the best interests of TETA. It now seemed that Fidentia had laundered money but the exact details were not yet known. It had been the advice of the legal advisers to proceed with an application for curatorship rather than liquidation.
Dr de Beer added that the lawyers had been hired on a contingency basis, and they would be paid 2.5% of whatever amount was recovered. If nothing was recovered then they would receive nothing.
The Chairperson pointed out that this did not in effect change matters, as TETA would still not be repaid.
Dr de Beer stated that whatever contingent fee would be paid to the lawyers, if anything at all, was not included in any budget and would not therefore affect TETA's operational costs. If anything was recovered, then the payments to the lawyers would be deducted from that money.
Mr Gerber was concerned that any amounts paid to the lawyers could amount to a substantial figure, and he pointed out that this money would be money that TETA did not benefit from.
Dr de Beer said that there would be greater clarity after the forthcoming meeting with the curators.
Mr Mofokeng was of the opinion that in future TETA should look to its history in investing, and properly assess the risks associated with the investment and the investment advisers before embarking on any action.
Mr Strauss said that whilst the investigation processes and the disciplinary actions were long and involved, they could not be short circuited. Despite the opinion of SCOPA that the Board was responsible, he stressed that the members of the Board had taken the decision in good faith on information presented.
Mr Dube added that there would be greater clarity on many issues after the hearings, disciplinary procedures and criminal prosecutions.
Mr Stephens wished to know where the suggested figures of 20c or 40c in the rand came from.
Mr Dube said that these amounts had first been provided at a meeting with KPMG in February 2007 .
Dr de Beer added that these might not be the final figures. Although they were mentioned at an early stage, the final outcomes of the curatorship investigation would determine the amounts.
The Chairperson stressed that he wished the SETAs to deal with their money in the way intended, and that the benefits should ultimately go to the widows and orphans who had suffered. He reminded those present that the ultimate aim was a better life for all.
The meeting was adjourned.
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