Transnet.
Transnet.

Irregular spending goes off the rails

By Siphelele Dludla Time of article published Oct 26, 2020

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JOHANNESBURG - Transnet on Friday reported that it had incurred irregular expenditure of R9.965billion in the 2019/20 financial year as the legacy of non-compliant procurement continues to have a lingering effect on the business.

The state-owned freight and rail group said past procurement practices that were not in accordance with the Preferential Procurement Framework, dating back to the 2011/12 financial year resulted in a significant increase in reported irregular expenditure.

The group said cumulative irregular expenditure, including the 2019/20 year, amounted to R114.3bn, confirming the challenges facing the company to arrest the procurement non-compliance.

It said the process to identify and accurately report all irregular expenditure was largely manual in nature and continued to result in reporting inaccuracies.

The group has to go through 13000 past contracts manually to determine whether they contain any irregularities.

The resultant concern relating to the completeness of the reported irregular expenditure has resulted in the external auditors issuing a qualified opinion for the 2019/20 year.

Transnet chief financial officer Nonkululeko Dlamini said the qualification had no bearing on the financial strength and sustainability of Transnet.

Dlamini said Transnet was strengthening its integrated assurance and lines of defence in order to clear up all outstanding matters raised by the auditors.

“Immediate corrective actions to address the quantum of irregular expenditure entail the review of previous remedial plans to close gaps and address the backlog in its implementation, as well as identifying sustainable solutions to address present and historic challenges,” she said. “This includes the complete overhaul of Transnet’s procurement and finance functions.”

Transnet reported an increase in revenue of 1.3percent to R75.1bn for the year ended March 31, supported by the weighted average tariff increase of 2.9percent.

The group reported that earnings before interest, tax, depreciation and amortisation increased by 0.7percent to R34bn for the year.

Net profit for the year plunged by 34.9percent to R3.9bn.

Capital investment increased by 3.5percent from the prior year to R18.6bn.

The financial impact of Covid-19 on Transnet will be reported on in the group’s forthcoming interim results.

Chief executive Portia Derby said Transnet was embarking on a “zero-based” budgeting approach that would justify every single expenditure item on its own merit.

Derby said although the zero-based budget will not be complete for the next couple of years, it would manage Transnet’s cost-structure by addressing the issues of legacy projects.

“One of my core missions at Transnet is to bring down the cost of doing business in the country. By zero-basing our budget, we will have to justify every single cost on its own merit,” Derby said.

Public Enterprises Minister Pravin Gordhan applauded Transnet for posting “excellent results”.

“For once, we can talk about an SOE without talking about bailouts. I’m very confident that Transnet will, in the next few months, be setting a whole new direction for itself,” Gordhan said. “The outlook of Transnet is important, as it aligns with the plans of the Presidency.”

BUSINESS REPORT

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