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Prasa’s financial management out of control

Consequence management? None actually …
The state-owned passenger rail company is ‘almost broken, and fraught with issues and challenges’, according to its new board chair Khanyisile Kweyama. Image: Moneyweb

Finance minister Tito Mboweni’s words from his 2019 budget speech should be ringing in our ears:

‘We must prune and pluck away at the rot until there is growth.’

Let’s consider the case of the Passenger Rail Agency of South Africa (Prasa). A new board was appointed after the March 2018 year end, and therefore cannot be held responsible for what happened before. However, it will be held responsible for cleaning up the mess – notably irregular, fruitless and wasteful expenditure of R25.2 billion (2017: R21.3 billion). It will also be held responsible for introducing a proper accounting system, asset register, and adequate risk and governance controls.

There was no consequence management in the year ended March 2018. Perhaps this new board will surprise us in this regard.

The board is committed to refocusing the organisation on its core objectives of providing an affordable, reliable and safe passenger service. New chair Khanyisile Kweyama admits to inheriting an organisation that is “almost broken and is fraught with a myriad of issues and challenges”, including allegations of maladministration and corruption, poor internal controls, and the slow rollout of its capital programme.

Read:

Prasa should stop operating immediately – regulator

‘Unsafe’ Prasa defies Railway Safety Regulator

The auditor-general’s report to parliament was signed on September 21, 2018. However, the annual report was only recently made available on its website.

AG’s report is dire

According to the report, there was no proper system in place to identify and disclose all irregular, fruitless and wasteful expenditure.

The group did not properly account for property, plant and equipment (PPE). The accounting records (including the fixed asset register) were inadequate. Some assets were not recorded, other assets could not be verified. This raises a question mark over the recorded value of the group’s PPE in the balance sheet of R40.5 billion, as well as the operating expenses of R10.4 billion.

The fare revenue of R1.2 billion cannot be verified as the fare revenue system was not fully operational from August 2017 to March 2018. Trade and other receivables could be overstated by R839 million, and impairment losses recognised could be understated by R839 million.

Losses

There is a material uncertainty relating to the going concern status of the group. It incurred a loss of R924 million (2017: loss of R927 million). Bear in mind that Prasa received an operational subsidy of R5.8 billion in the financial year.

While the group’s current assets exceed current liabilities by R7 billion, capital expenditure commitments will wipe out most of the cash reserves.

There is ongoing litigation in regard to the locomotive saga (see update below). In the meantime, the group has a material commitment of R66.6 billion relating to its fleet renewal programme.

For the period November 2016 to February 2018 the board of Prasa did not have a representative from National Treasury. This contravened Section 24 of the Legal Succession to the South African Transport Services Act.

In regard to the audit of the annual performance report, the auditor-general was generally “unable to obtain sufficient appropriate audit evidence for the various achievement targets”.

Non-compliance

The failures of governance just get worse and worse. The auditor-general reported that financial statements were not submitted for auditing within the required time limit, further, they were not prepared within the correct financial reporting framework, nor were they supported by full and proper records.

Strategic planning was not carried out within the required framework set out by Treasury regulations.

The Public Finance Management Act (PFMA) was contravened in a number of instances. The procedures to be followed to prevent irregular, fruitless and wasteful expenditure were not followed. There was non-compliance with supply chain management. Effective steps were not taken to collect all revenue due. Procurement and contract management had too many contraventions to list in this article.

Consequence management

Consequence management? According to paragraph 52 of the auditor-general’s audit report, there is none.

And paragraphs 59 to 61 are damning on the lack of leadership within the company, but also lay the blame at management’s door:

* “There was a slow response by senior management to reviewing and updating the information technology strategic documents and governing policies …”

* “The inadequate controls within the information technology environment over network access and security management contributed to the collapse in the internal control environment.”

Investigations

The rot within Prasa has been building for years. The Public Protector issued a report in August 2015 on allegations of financial mismanagement and tender irregularities that occurred between 2010 and 2012. The investigation is ongoing.

A forensic investigation was carried out on procurement matters arising out of the 2014/15 audit. The final report was issued on July 31, 2017, but little has changed.

National Treasury also instituted a forensic investigation, and this is still in progress.

Update on the tender awarded to rail leasing company

In 2016 the Johannesburg High Court ruled that the tender awarded to Swifambo Rail Leasing (SRL) be set aside and that R2.6 million be paid back to Prasa. On November 30 last year, the Supreme Court of Appeal (SCA) dismissed SRL’s appeal with costs, agreeing that “the High Court did not err in finding that Swifambo was a party to a fronting practice, and was not an innocent tenderer”. 

Post-budget 2019 woes

South African taxpayers have now been subjected to bracket creep, and the poor are worse off due to the so-called sin taxes, the knock-on impact of fuel levy increases, and last year’s Vat increase. This while state-owned enterprises (SOEs) continuously and flagrantly flout legislation and moral principles, and continue to rack up unsustainable levels of irregular, fruitless and wasteful expenditure.

The auditor-general is doing a sterling job in trying to audit these SOEs. It is time the state shareholder acted like one and demanded quarterly accounts in order to ascertain performance. Incompetent management should be replaced timeously, and not on an ad hoc basis with no consequence management. SOEs should also be required to submit a six-monthly report to parliament on ongoing litigation and the steps being taken to clean up their act.

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COMMENTS   12

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Ever since the ANC took over this previous national competence called passenger rail became out of control.

I don’t think ‘We must prune and pluck away at the rot until there is growth.’ but rather we need to do take out whole corrupt trees immediately otherwise the ANC corruption will fester like a cancer.

Is there an SOE that is NOT a looted, corrupted swamp donkey of an organisation??????

In the second to last paragraph, Barbara Carson has managed to explain exactly what South Africa’s socio economic problem is. Until the imbalance of punishing the taxpayer AND the disenfranchised poor but allowing SOE’s to rob the coffers, we will never have a fair and truly democratic South Africa and we will continue to create a breeding ground for a party like the EFF.

I live in Cape Town. Its has severe traffic congestion along the N1 and N2, essentially the only options to get into town. Millions of man-hours are spent on a weekly basis sitting listening to the car radio. Yet, Cape Town has a massive and very well sited railway infrastructure, coming in from the East (Strand) and North (Paarl) and everything in between. Of course, there is the southern line that ends up in Simonstown. In the City, the MyCiti bus system works well (DA run city) and Uber of course. So, in the name of all that’s holy, why does this Metrorail system not run cleanly, safely and efficiently? Firstly, it could be HIGHLY profitable and secondly it would reduce CT’s traffic by (in my guess) a good 30-50%. One word PRASA. Another disgraceful, klepto-ridden cesspit of immorality, greed and theft. Proudly brought to you by our resident mafioso state, dripping with the most venal and feral humans in the history of our fine country (yes, worse than the Nats)

Excellent summary !
If you had to calculate the monetary value of all the wasted hours people spend in traffic, on dysfunctional trains, on busses that have broken down because they have been stone or burned, it would run into hundreds of millions. And that is just the financial cost.

The problem is that “they don’t know what they don’t know” and that went all the way to the top! ANC need to admit this is the most important problem they need to face everywhere if they are ever going to get the running of our country remotely efficient!
We all all suffer the consequences and the brain-drain accelerates!

Also, go to any SOE or state department and witness the toxic mix of unqualified, unskilled and unwilling employees ducking and diving their responsibilities. Government must get rid of this attitude, before things will get better. And yes, incompetence is probably the biggest problem, but it also doesn’t help if employees are so focused on stealing that they just don’t have time during the work day to do the…, well, work.

ANC solution to inept and incompetent management – appoint a new board. When that fails – appoint another board.

Ad infinitum or until they go to the IMF with begging bowl in hand…

Good bye South Africa! We shall miss you when you’re gone.

There is only one reason for all this mess in our country INCOMPETENCE!!!It started way back in 1994 when all was going reasonably wall and then it started to deteriorate as the ANC power base increases. Today it is out of control because of job creation with no results but inadequacy!!!!! The greatest example of this incompetence is/was Jacob Zuma and his administration. There is light in the tunnel, I’m not sure if it is the biggest train smash coming or something hopeful in the form of President Cyril Ramaphosa and minister Tito Mboweni!!!!

SA is falling apart because of a lack of good management. In the early 90’s the association of business schools (22), approached the ANC and said that they will equip and train the ANC’s next generation of leaders with Masters and PHD degrees. The ANC refused – now we have the mess in every SOE.

Why study when you can rather steal the money to buy a fake degree ? Seems far easier to me. Think of all the wasted study hours when you could rather be partying it up around the firepool.

End of comments.

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