Dear Comrade Minister
We have in recent months learnt of institutionalised corruption at South African Airways (SAA) and in the past week or so, at Treasury. We have learnt of this runaway corruption at these institutions through a forensic audit compiled by Ernst & Young for SAA and an internal audit report at Treasury. I have no doubt you’re privy to these documents. SAA presented this report to Parliament’s Portfolio Committee on Finance last year.
White-Owned companies at centre of corruption at these institutions
Mr Minister, in both these institutions, which are under your stewardship, corruption is rife in the procurement area. SAA spends R24bn of which only 2% goes to black suppliers. The E&Y report said 60% of the contracts sampled have been conducted corruptly (my words). They maintain 60% of these contracts which are the longest running and the highest in value – have not been attained through proper procurement channels. In ordinary speak this is corruption. If only 2% of procurement goes to Black companies, it stands to reason that the bulk of the fraud that takes place and is indeed the cause of the rampant losses at SAA as identified by the E&Y report, is done by these white-owned companies.
On the other side, at Treasury, all the looting exposed in the internal audit point to a small group of white-owned companies that have been the beneficiaries of contracts which have not followed due process. In fact, some of the tenders have been awarded without contracts. The report shows large sums of overpayments.
The same story applies at SAA. There are a number of companies whose contracts have long lapsed and are operating on the basis of memoranda of understanding (MOUs) only. Some have been overpaid and possible collusion is cited in some of the cases.
Am I suggesting that the corruption ought to be happening with Black-owned companies? Not in the least. I raise the ownership for two reasons; in the context of a country and Constitution which is supposed to promote BEE; and the possible reason why there could be the reluctance to act against these organisations by just about all the oversight bodies – Treasury under former Finance Minister Pravin Gordhan included.
Cases of Failure to follow correct tender processes, overpayment, no explanations for payment & collusion at SAA. These are just a few Mr Minister…
- There’s an overpayment in the case of Kintetsu World Express (KWE) whose contract was “concluded informally” on 28 August 2014 and evidence of possible collusion between SAA officials and KWE
- Overpayment in case of SAA’s contract with Societe Internationale de Telecommunications Aeronatiques in 2013
- Failure to follow correct tender processes and overpayment in respect of Air Chefs’ contracts with ADJ Maintenance, Vizzini Motors, First Garments.
- CAE Inc was paid R1.1m while invoices for 2013 reflected R8.2m. Where is the explanation?
- Havas Worldwide overpaid by R53, 767, 139.64
- There are allegations that the MOU between SAA and AAR and the awarding of the contract was based on a potentially corrupt relationship between AAR and SAA officials. The E&Y’s preliminary investigation has found there is merit in the allegation and recommends further investigation. In his resignation letter, SAAT board member, Barry Parsons said, in reference to this deal…”There is clearly a hidden agenda somewhere in this relationship and it requires urgent independent investigation.
- The Independent Group a few days ago reported on a case of SAA executives who had manipulated procurement procedures to benefit a contractor who got a R1.4bn tender. https://www.pressreader.com/south-africa/the-sunday-independent/20170528/281487866300860
- The number of companies whose contracts have been extended without due process is endless.
- There has been a total amount of R705,582,427.38 which can be classified as “irregular expenditure” at SAA
Mr Minister, SAA received a draft of the E&Y forensic report in 2015 giving it ample time to implement corrective measures. The question is whether it has. According to a whistleblower who spoke on condition of anonymity, nothing much has changed at the national carrier. It therefore took me by surprise when on the eve of leaving Treasury, now former Director General Lungisa Fuzile told Parliament that SAA was recovering. I then sent an email to Treasury’s media department to establish what had been implemented to warrant this opinion. I didn’t get a response.
SAA Ticket Sales
- Mr Minister, you will know that the sale of SAA tickets through Checkers and Pick ‘n Pay has become a contentious and political hot potato but it also has a direct impact on the customer in terms of price. Who owns Checkers? Christo Wiese in the latest Forbes list of rich people is the third richest man in South Africa.
- There are many areas contributing to SAA’s losses in ticket sales; incorrect ticketing, ineffective interline agreements and so forth. Have these loopholes been closed already?
- Of the 7959 employees, 754 are pilots. Pilots salary costs for 2015/2016 were approximately R2bn while the total salary cost was approximately R5.5 bn. Pilots salary cost constituted 34%.
- The Citizen newspaper recently reported on the exorbitant lifestyle of SAA pilots at the expense of the organisation. They received luxurious five-star accommodation and benefits costing the company a whooping R697m per annum. http://citizen.co.za/news/news-national/1294377/pampered-saa-pilots-bizarre-perks-and-salaries-cost-r2bn/
Offices in the US where SAA does not operate
Mr Minister, why does SAA have offices in the US where it does not operate? What are we doing with an office in Miami Florida where we employ 76 American nationals at a salary expense of R4.965m. This is an average of approximately R65 000 per employee per month.
Conflict of Interest & Complete abuse of PFMA
At both Treasury and SAA, there has been cases of gross conflict of interest and abuse of the Public Finance Management Act (PFMA) but what is even more disturbing is the fact that the tentacles of Treasury’s preferred bidder have now reached SAA and other government institutions including SASSA. Blitz Technologies, trading as Abacus Advisory is at the heart of the Integrated Financial Management System (IFMS) saga raised in Treasury’s internal audit. Most of the management at Abacus had in one capacity or another, prior to getting the IFMS tender, been involved with Treasury as advisors, consultants, and are said to have worked very closely with Fuzile. Abacus Advisory recently partnered with U.S consulting firm Bain & Co to advise Treasury on the Restructuring & Turnaround Strategy for SAA. Sources say there was no open tender for this and the appointment was itself unlawful as only the Board of SAA could have legally made the appointment.
It is heartening to hear you will be investigating allegations of misconduct and maladministration at Treasury which from the audit report can only be described as corrupt activity. I therefore implore you to do the same at SAA.
Comrade Minister, we are not dealing with flimsy reports based on media reports but hard evidence by forensic experts. They have recommended remedial action and have in some cases in SAA, cited reluctance by executives. When you look at the extent of the rot, you understand why.
Corruption impoverishes the small business players Mr Minister. It impoverishes the citizens of this country. It will deny South Africa that seemingly elusive quest to close the inequality gap that so plagues our country. You have appointed Professor Chris Malikane to advise on radical economic transformation. It cannot be realised with corrupt officials in State Owned Entities (SOEs) peddling all the business to white-owned companies.