Londiwe Buthelezi
Transnet wasted R82 million on fruitless contracts last year and had irregular expenditure in excess of R8 billion, reports from independent auditors and company directors have revealed.
A report by registered auditor Deloitte & Touche, enclosed in Transnet’s 2011 integrated report, showed that irregular expenditure on contracts and staff amounted to R8.3 billion.
The irregular and wasteful expenditure relates to spending that does not comply with Transnet’s operational policies and procedures. Irregular expenditure could be legitimate, except that prescribed procedures were not followed. Wasteful expenditure is spending that was of no benefit to the company.
The auditors reported R36 million in wasteful or fruitless expenditure that related to just one procurement contract. This wasteful expenditure alone doubled the R18m in irregularities reported in 2010.
The auditors reported only the R36m, as Transnet’s policy on the significance and materiality limits for reporting was R25m per transaction.
This meant that irregular and wasteful items below this limit could not be reported on.
However, the company directors’ report showed that there were 110 cases of fruitless expenditure below the materiality limit, and that they amounted to R46.88m. Immaterial net irregular expenditure came to R2.16m in total, while losses through criminal conduct cost the company R133.57m.
These were reported internally to the Transnet group executive committee.
These reports detailed expenditure accountable only to Transnet management and did not include costs incurred as a result of train derailments or cable thefts.
Transnet spokesman Mboniso Sigonyela said these contraventions occurred some years ago, when the contracts in question were concluded with suppliers of services to Transnet.
“These contraventions relate to the non-adherence to internal procurement processes of the company,” Sigonyela said.
“However, the company received value for the work performed by the service providers. Since the conclusion of these contracts, significant improvements have been implemented in the procurement procedures and controls, as evidenced by the internal and external audit reviews.”
Sigonyela said the contracts regarded as irregular expenditure had helped Transnet enhance its procurement policy and tender processing.
Ebrahim-Khalil Hassen, the editor of Zapreneur and an independent public policy analyst, said Transnet’s increasing expenditure, which was slowly getting ahead of the company’s income, was an indicator that the utility was beginning to deliver.
However, he said that one year of improvements was just a good start, and that several more years of improvements were needed to ensure good financial management and performance.
“The increase in ‘wasteful expenditure’ and ‘irregular expenditure’ points to areas where there is a need for much tighter controls. Transnet should be adopting a tighter set of financial controls and introduce greater transparency in its procurement processes.”
Political analyst Gary van Staden said parastatals’ wasteful behaviour indicated a need for discipline. “It’s clear evidence of disregard and lack of discipline among state-owned companies,” he said.
The chairman of the portfolio committee on public enterprises, Peter Maluleka, said the committee would meet with Transnet next month, when the company would be expected to explain these expenses.
Sigonyela said the utility cut costs on travel, energy and procurement expenses in the year, resulting in a saving of R2.1bn against a target of R1.1bn on operational expenses.