Auditor-general slaps Prasa with disclaimer after R26bn in irregular expenditure
Utility did not maintain complete governance records, including minutes of key meetings
Auditor-general Kimi Makwetu has detailed the extent of the rot at the Passenger Rail Agency of SA (Prasa), finding that the troubled state-owned company has incurred R26bn in irregular expenditure.
The situation is so dire that minutes of board meetings were not adequately recorded, in contravention of the Companies Act.
Doubts also remain about Prasa’s ability to continue as a going concern.
Prasa, which is responsible for delivering rail services, a key ingredient to boost productivity and stimulate economic growth, has over the years been engulfed in allegations of corruption and mismanagement. This as the country’s rail services continue to flounder, with Cape Town rail lines being the hardest hit.
In Prasa’s delayed 2018/2019 annual report tabled in parliament on Tuesday, the auditor-general slapped the state-owned company with a disclaimer — the worst possible audit outcome. It received a qualified audit opinion in the prior year.
Annual reports should be tabled in parliament by September 30 in accordance with the Public Finance Management Act.
In a letter tabled in parliament on Tuesday, transport minister Fikile Mbalula said the Prasa annual general meeting concluded with the adoption of the annual report on September 26, and the auditor-general requested three days to read and finalise the report before tabling it in parliament.
The report only reached the ministry office at end of business on September 30 “which was late in terms of submission”, Mbalula said.
In the annual report Makwetu said Prasa did not maintain complete governance records, including minutes of meetings of the board, its subcommittees and executive committee. This, he said, has had a negative effect across the audit as resolutions and other decisions taken could not be confirmed.
“The lack of governance records … is a matter of significant concern and requires urgent intervention,” Makwetu said.
Minutes provide evidence that directors have met their statutory and regulatory obligations. It is therefore important that the minutes of board meetings are drafted in such a way as to demonstrate that the board members have observed their responsibilities to the company and complied with their legal and regulatory duties, Chartered Secretaries Southern Africa says.
Makwetu said the financial statements contained a significant number of material misstatements resulting in a disclaimer of opinion being expressed. This was despite an external consultant being engaged to compile the statements.
The group did not have an adequate system for identifying and disclosing all irregular expenditure and there were no satisfactory alternative procedures that could allow the auditor-general to obtain reasonable assurance that all such expenditure had been properly recorded.
He was thus unable to determine the full extent of the adjustment necessary to the balance of irregular expenditure stated at R26.2bn (R23.4bn in 2018).
Makwetu also said he was unable to determine the full extent of the adjustment necessary to the balance of fruitless and wasteful expenditure, stated at R333m. The figure stood at R1bn in 2018.
In the annual report, board chair Khanyisile Kweyama said the board had put in controls to stabilise the organisation and had taken remedial action, including disciplinary action, against those found to have flouted corporate governance regulations. It had also instituted civil litigation and criminal proceedings to recover monies lost by Prasa due to irregular, fruitless and wasteful expenditure and the awarding of unlawful contracts.
Kweyama said Prasa still faces a huge cash shortfall on its operational expenditure budget, which has accumulated over several years, caused by rising operational costs, declining revenues and a stagnant operational subsidy.
Total revenue was R13.7bn at the end of the financial year, compared with total expenses of R15.5bn.
The government subsidy has been increasing according to the inflation rate, while the group’s own revenue has been declining due to the lack of maintenance, vandalism and theft of assets, Kweyama said.