Tag Archive | standing committee on public accounts

SAPO – one big bungle at taxpayer’s cost

Total management failure…..

The horror story of the uncontrolled mess in the South African Post Office (SAPO) and how this state entity,
without forSAPOmal management control to speak of and facing imminent danger of structural collapse, was reported upon in Parliament recently

The route to near bankruptcy was recounted to the Standing Committee on Public Accounts (SCOPA) by current SAPO board chairperson, Mr Simo Lushaba, who had been summoned to explain the crisis at SAPO, accompanied by the new CEO of the Post Office, recently appointed Mark Barnes.  Comments were added by Minister of Posts and Telecommunications, Siyabonga Cwele.

Previously Mark Barnes had tried to respond to the call by SCOPA to report but the meeting had to be abandoned, incurring the ire of the Committee, since it is the chairman of the board of the state entity in question, in this case Simo Lushaba, who can only respond to a SCOPA call as the nominated person in terms of parliamentary procedure was unavailable.

Rulings are clear on this, as is the Public Finance Management Act (PMFA) in the case of SOEs.

Poor management

Immediately, it became evident in the meeting that whilst the worst period of poor management in SAPO had occurred in the last two years culminating in four strikes in 2015, although not necessarily connected issues, the common factor was a collapsing management hierarchy over a number of years beforehand.

Senior officials, it appears, throughout the organisation were totally out of touch with employees and no overarchingSimo Lushaba managerial directives were passed according to any form of plan. The disastrous current situation was a culmination of “systemic mismanagement over a long period of time”, said Lushaba.

The SAPO board chairperson said SAPO did not have the cash available to continue with legal disciplinary proceedings against the former CEO and CFO, both persons having received a total of R5.7m in salaries whilst suspended for a year, during which it was alleged that they were responsible for the chaos when in control of SAPO.

The SAPO board had decided to cut its losses and halt the legal proceedings with regard to the legal case. “It was not an ideal outcome but unfortunately it was just taking too long, plus we did not have the money to follow the case through”, said Lushaba.

Ship with no rudder

When asked for sum up comments by MPs of the SCOPA committee towards the end of the meeting, new CEO Barnes said that SAPO, as an entity, was currently suffering a loss of about R125m a month. He told sapo queuesparliamentarians that twenty-five post offices had been closed down, some of them because of rent arrears.

Despite a further allocation of R650m in terms of the last Budget allocation, “this came nowhere near to eliminating the mountain of debt which amounted to more than R800m by March 2016”, he said.

With a balance sheet such as this, he said, “a government guarantee was no longer sufficient to persuade banks to lend SAPO money, despite Treasury agreeing to extend on its repayment loan date.” An immediate cash injection was the only route, he said, and that was on its way as agreed to by the Minister of Finance and Treasury. “This means that SAPO can pay its some of its creditors within the next few days”, he said.

Compromising with creditors

“The very existence of SAPO under threat on a daily basis is evident as creditors understandably want simple proof of future income which is extraordinary for a state entity”, Barnes said.

“Every month the delay in paying creditors has made it increasingly difficult to continue operations and negotiate commercial contracts on favourable terms since there is a total lack of trust on the part of suppliers.”

CEO Barnes said there was now a plan in place to turn around the organisation, with an estimated loss of R1.5bnsapo3 expected for the current year, adding to the R1.2bn loss for R2014/5. By the end of 2017/8 there could be a small gain reflected on the balance sheets. But the plan still hangs in the balance awaiting decisions from banks, he said at the time.

He also said he was “disturbed by the fact the banking sector did not automatically accept government guarantees”. This fact was slowing the downturn around and the plan was losing momentum. He suggested that the state should take another view on their relationships with the banks and enormous sums of cash they receive from the state to pay public servants.

SAPO was already three months behind in its strategy to achieve future successful financial outcomes whilst the banks made up their minds and Treasury despatched the cash on a painfully slow basis, he noted.

Oligarchy over

He stated that never again should SAPO ever be “a one man one show business.” It could indeed be rescued, he said, and made profitable in the next three years but no sooner and it could become a valuable asset in five years.”

This could be achieved by doing vigorous work to identify every source of loss, he said. The memory of the postal strike was also very evident with all speakers, still not resolved in entirety.

Mark Barnes“The Public Finance Management Act is the challenge”, CEO Barnes noted. “The competitors of SAPO make decisions in three to six minutes whilst SAPO made decisions in three to six months.” It was clear he included Treasury in this remark.

He stressed that PostBank was unaffected by SAPO’s trading deficit since it was an entirely separate enterprise holding some R7.3bn in cash in the form of savings. In this area lay the future, CEO Barnes said, adding that SAPO had to turn from a postal operation to a faster and cheaper package/courier service for the citizens of South Africa.

Minister weighs in

Minister Cwele added to this comment when he noted that reckless trading decisions had been made when globally mail volumes were going down. There were far too many post offices in unprofitable areas paying enormous rentals to developers all resulting from the days when it was “the hype to have a post office in every major shopping centre.” This was bad management and bad thinking at the time, the Minister said.

cweleHe pointed out that Parliament had passed the Post Bank Act and the PostBank could eventually work as a limited savings banker and bank operator in post offices, especially in unreachable areas where the private sector did not wish to venture, if not in small towns as well.

The Minister said that at some stage strategic decisions needed to be taken on such issues and also such matters as government officials being paid through PostBank. The Minister echoed the view that post offices should become competitive, low cost, courier service providers as well as handling smaller volumes of mail now being experienced and be run individually on a profit basis.

Where the money is

A recent survey had been conducted of post offices running at a loss and those most profitable, the Minister said. The most profitable were in the old Transkei area in the Eastern Cape and the one post office running at the biggest loss was the Sandton Post Office, he concluded.

Chairman Lushaba explained that the service called PostBank was a division of the post office. There was a risk osapo7f talking of the organization as a whole. For example, the disaster recovery IT programme of PostBank had worked well but the IT problems of post offices itself were still causing high risk. For example, he said, the entire post office backup system was on its own system and there was no separate system to switch to. He wondered how such elementary mistakes had been made.

Bad record

During the debate on a litany of irresponsible financial decisions, absent financial systems and even the lack of a working asset register, it emerged after a full day of reporting and cross questioning by MPs that a call had to besapo5 made for upgrading of IT and general management skills, Treasury officials present took a dim view on the future unless this was done, they said.   The question of basic training was also seen as an impediment as was the lack of broadband facilities to improve the IT position.

SCOPA demanded, as a committee, that the previous CFO and CEO be brought to book since, besides matters involving the rejection of the auditor general to undertake an audit; the inability to produce a balance sheet and ignorance of the Public Finance Management Act in all matters of procurement, criminal charges should be investigated as a matter of course and with speed.

Previous articles on category subject

Lack of skills hampering broadband rollout – ParlyReportSA

The big SA cabinet crunch – ParlyReportSA

Broadband allocation on its way – ParlyReportSA

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