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Leadership instability, lack of accountability behind Prasa’s poor audit outcomes – AG

Instability in key executive positions at the Passenger Rail Agency of South Africa has negatively impacted financial management at the entity, according to the Auditor General of South Africa (AG).

Parliament’s standing committee on appropriations was on Wednesday briefed on the 2018/19 audit outcomes for Prasa.

The passenger rail services entity regressed in its audit outcomes, from having a qualified audit opinion in 2017/18 to a disclaimer of audit opinion. A disclaimer of opinion is given when there is a lack of sufficient evidence given to the auditor general on which it can base an audit opinion.

Material misstatements

“Prasa regressed from a qualified audit opinion from the prior year to a disclaimer in the current year due to significant material misstatements in the financial statements and the significant limitation of scope imposed on the auditors.

“The regression in the audit outcome is mainly due to instability at executive management level and lack of accountability by senior management to address repeat findings over the years,” the AG’s report read.

The AG highlighted that not having executives in key positions impacted on financial management, performance reporting and compliance monitoring processes. In the 2018/19 year alone, there had been three individuals in the acting position of Group CEO.

The AG noted that there were efforts by the Prasa board of control to turnaround the entity, with disciplinary processes at executive level. However, the instability at executive level and a lack of accountability to address matters which were flagged by the AG in previous years, “thwarted” the board’s efforts and resulted in the regression of the audit outcome.

Top offender of irregular expenditure

According to the AG, Prasa is one of the “top offenders” when it comes to irregular expenditure in the public sector. Irregular expenditure is incurred through non-compliance with legislative processes. Prasa’s irregular expenditure for 2019 grew by R3.037bn to R27.2bn, largely linked to the contracts awarded for infrastructure-related projects not complying with supply chain management legislation.

Among the material irregularities picked up by the auditor general include unfair practices in the procurement of locomotives – this particular R3.5bn contract awarded to Swifambo Rail Leasing in 2013 was set aside in May 2019 and now an investigation into the employees implicated is underway. “Of the R2.6bn prepayment made to SRL for the purchase of the locomotives, R2.2bn has been impaired and it is unlikely that it will be recovered,” the AG said.

Other examples listed by the AG include unfair procurement process followed in the appointment of signalling contractors.

“Multi-billion rand awards were made in 2012 in respect of the re-signalling contracts nationally for Gauteng, Western Cape and Kwazulu Natal.

“Work in respect of these contracts are currently all behind schedule. With regards to Kwazulu Natal, the contract was terminated in October 2018 however only 73% of the work was completed and 16% of stations commissioned where the new signalling infrastructure was rolled out,” the AG report read. The board of control has committed to launch an independent investigation.

The board will also launch independent investigations into competitive bidding processes which were not followed in awards relating to the provision of bus services in the Western Cape, surveillance services (drones) and security services.

Transport Minister Fikile Mbalula and Prasa’s acting CEO Dr Nkosinathi Sishi and board chairperson Khanyisile Kweyama were set to hold a briefing on concerns on irregular contracts as well as recent incidents of vandalism at several train stations across the country on Thursday, but the briefing was postponed.

This week, Park Station was stormed by groups of people who damaged property, News24 reported.

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