Private Security Industry Regulatory Agency (PSIRA): follow-up meeting

Meeting report

Private Security Industry Regulatory Agency (PSIRA): Financial presentation
Mr Thula Bopela, Chairperson of the PSIRA Council, introduced the members of the delegation and welcomed the opportunity to address outstanding questions following the previous meetings.

Mr Nick Ligege, CFO of PSIRA, began by providing some background to PSIRA, notably that it did not receive any form of government assistance. He went on to outline its revenue stream, including annual fees from Security Providers and active Security Officers fees, payable monthly. There was also revenue from services rendered, including registration fees, disbursement fees and fines issued at code of conduct enquiries.

The budget variance report for 4th Quarter 2011/12 was then presented. The total variance of -19% was due to increased fees which were intended to occur in 2011 but did not take place until 2012. There was an operating surplus of R9.8million due to non-appointment of employees, expenditure savings and deferment of planned activities. Total operating expenses had a variance of 12%. Surplus for the quarter was 615%.

1^st Quarter 2012/13 generated total revenue that was only R216 551 short of its intended budget, a statistically insignificant variance, since the fees regulations had been approved. Total Operating Expenses and employee related costs showed a -60% variance due to deferral of planned activities. The vast majority of this was made up of debt impairment, where there was a total variance of -477% because of provisions of bad debt in light of an ongoing court case. Many members of the Security Industry Alliance (SIA) were paying in terms of old annual fee rates on a monthly basis in terms of a court interdict. Operating surpluses showed a 60% variance. It was forecast that debt impairment would reduce over the course of the year from R48m to R33.7m as a result of payments to be received on a monthly basis. Revenue was estimated to be below budget by 4% due largely to penalties and interest that had been suspended and estimates indicated a surplus of R3.4m at year end.

Collection trends were indicated on a graph with a large spike at April 2012 in invoices and a smaller one in January 2012.

PSIRA Human Resources presentation
Mr Manabela Chauke, PSIRA CEO, presented figures for the remuneration of the Council for the past three years. Only the full time chairperson was receiving a salary which began at R1 237 875 in 2010 and was adjusted for inflation to R1 390 045 in 2012. The numbers of employees and council numbers were shown as being 214 in 31 March 2012 and 210 in June 2012 with a movement of negative four. There remained only three council members.

Discussion
The Chairperson observed that the 2009/10 personnel budget was R36.76m and that in 2010/11 it was R55.51m, constituting a R18m increase. The 2011/12 budget was R60m and for 2012/13 R75m had been budgeted. However, 2010/2011 saw only a five member increase (statistic taken from previous a presentation). At the time it had been put down to re-evaluation of job description, following a ministerial intervention team. 2011/12 saw nearly R5m increase, which amounted to 8% which was higher than the standard cost of living correction applied to public servants. There had been a 25% increase to the current year in personnel costs, despite no new numbers of employees, in fact four had been lost. She asked why there was a trend of tremendous increases in salary without proportionate increases in employment.

Ms D Kohler-Barnard (DA) requested that the two presentations given be conflated and questioned whether or not PSIRA had the staff capacity to actually implement its impressive strategic plan that had previously been presented. R82m had been written off as bad debt, an amount that would lead to bankruptcy in a private company. She asked if there was an actual plan to collect the outstanding debt. The previous head of Human Resources had been fired and faced criminal charges for stealing from the entity, but there had been insufficient evidence. She described herself as “gobsmacked” by this apparent injustice and questioned if there was not someone to blame and whether the outstanding debt was not simply history repeating itself.

Ms M Molebatsi (ANC) asked for how long PSIRA members would be paying the old annual rates. Fines issued at code of conduct enquiries were listed as a revenue source and she asked for clarification on this.

Mr V Ndlovu (IFP) questioned the revenue stream from security providers and officers, asking for explanations of the categories of revenue sources. He asked if the 477% variance in debt impairment was a loss, and if so how it would be recovered. Finally, he asked for the statistics on the reduction of debt impairment to be elaborated on in laymen terms.

Ms Kohler-Barnard requested an explanation for the rental of R1m a month for the head office building and who had given permission for it. She stated that there were known members of PSIRA that had criminal records, one was even a clinical psychopath. She asked if members were properly checked for such records. Finally she drew attention to the figures relating to the remuneration of the council, especially that the Chair was paid R1.3m as a salary but other council members were paid nothing. She asked if they did not exist or if they were just not paid.

The Chairperson complained that the minutes of the council meeting – where the deviation from National Treasury in the lease deal had been discussed – had not been given but had been requested. In terms of the R1m building rental, the proper channels were not taken and she asked if Treasury had given authority for deviation on this issue. She stated that R5.7m had been paid in the first two years for the property, in the third year R50m, in the fourth year R60m and in the fifth year R80m. This was not including operational costs, for example air conditioning upkeep that amounted to R10 400. She then ran through a number of other costs such as ad hoc consultancy and legal costs that seemed exorbitant, but the details of which had not been disclosed, despite having been queried months earlier. Treasury had already raised serious concerns over PSIRA’s prospects.

Mr Chauke began PSIRA’s responses by addressing the question of capacity for implementation of the strategy plan. The answer was that there was insufficient capacity, and the reason for this was lack of funding. The strategy had to be constantly reviewed so that it could be adapted to circumstances. The plan to collect the debt was in process, a debt collector has been appointed and inspectors had been assisting in this. Those in debt did not receive services at first but the court interdict was preventing this. New measures were being developed to put pressure on debtors such as distinguishing the court interdict from applying to certain debtors such as individual security officers.

Mr Philani Mthethwa, Deputy Director of PSIRA, said that the ability to raise fees to a certain level was a major source of revenue but that the court interdict was undermining this. Diminished revenue led into the lack of capacity to implement the strategy and if the case was won and the fees were raised, the strategy would probably be successful.

Mr Chauke addressed the problem of the previous head of Human Resources, saying that PSIRA was fully compliant with the investigation. Comprehensive interviews had been conducted and they had been assured that the case would proceed successfully. The National Prosecuting Authority (NPA) would need to give account for the failed prosecution.

Mr Ndlovu asked if there had been an appeal or if PSIRA had merely accepted the acquittal.

Mr Chauke revealed that PSIRA had not appealed. When asked to give feedback they had contacted the NPA to determine the outcome. There were no specific grounds made clear to them that would justify an appeal. Without knowing the reasons for the original acquittal, he could not say for sure why the NPA had not appealed. He then moved on to say that the period for which PSIRA members would continue to pay old fees would also be subject to court action. The decision of the Minister to issue the regulation that raised the fees had been challenged and this led to the interdict following PSIRA’s withholding of services. The members would continue to pay old fees until the matter was decided in court and this was being pursued by PSIRA.

Mr Ligege discussed the queries over revenue streams, stating that security businesses operating for private gain paid according to the number of security guards they employed. Above that they paid annual fees. Individual security officers also paid fees in the form of salary deductions. This was in terms of the PSIRA Act. The 477% variance in debt impairment had already been discussed, but for accounting purposes the amounts owed were assessed in terms of likelihood of payment. After three months, the likelihood of collecting outstanding debt was considered to be very low which is why the figure was so high. It did not necessarily mean that the money would not be received, it was merely a projection. 

Mr Chauke explained that the lease on the building was necessitated because the old building had been structurally condemned. The rental amounted to R110 per square meter over the full term of the lease, and it was observed that a five year lease was the standard period, even though the landlord, identified as MT Property Development, had sought a 10 year lease. The minutes that had not been provided were not withheld intentionally and he promised to make them available soon. The process followed for moving to the building was not part of a competitive bid, but it had been approved by council. Deviation from Treasury did not happen, they were informed and they noted the deviation, as required. The matter of auditing over the building had been cleared and the answers given were deemed satisfactory. The variance in terms of payments over the years for the lease of the building was due to deferment of annual rent. The move was not budgeted for so at the time of the move the full rental could not be paid and had been made up over the years since. The operational costs were usually payable in leases and were not determined on a monthly basis. There were many subcategories in this area of payment. The total area of the building was revealed to be 5 070 square meters, all of which was being used.

The Chairperson said that the Committee would await the Auditor-General’s report on the move.

Ms Kohler-Barnard asked for the members of the council that had approved to move to the new premises to be identified as the previous presentation had showed that only one council member was actually being paid.

Mr Bopela revealed that he was the chairperson and his salary was determined by Minister of Police Nathi Mthethwa and the Minister of Finance. He directed concerns over this to them. The other members of the council were Lieutenant General Anwar Dramt and Ms Zelda Holtzman. Both were employed by Government and therefore were not entitled to draw a salary from another organisation and therefore could not be paid. The normal quorum for the membership was the chairman and three council members to comprise four. Members of the council were not appointed by the chairman himself but by the Minister. They were subsequently approved by Cabinet. There was general reluctance to do this work because it was time consuming but offered no remuneration.

Mr Chauke explained that the incremental increases in salaries were as the result of a job evaluative process between 2009/10. The actual salary increment to staff members was only 7%, but there were ripple effects from incremental salary increases such as on the pension fund and medical aid that had to be taken into account in the financial records.

The Chairperson noted that the previous year had had a R60.33 million budget for personnel costs, that this year the budget had increased by 25% to R75 million and that this was incompatible with the usual 5% increase due to living costs.

Mr Ligege explained that the number of vacant positions in PSIRA necessitated a greater budget in order to fill these positions. The increase in terms of the budget was therefore inclusive not only of the 5% for inflation but also a projection of the costs of filling all the vacancies. Since the sitting council came about, there had been a reduction in marginal changes in budget for living expenses, even though there had been an overall increase in budget.

Ms Kohler-Barnard asked when the council of three had last sat, how often they met and where the minutes for these meetings were. She gave details of the testimony of a previous council member who had resigned before the end of her term – out of horror at the goings on in the council.

Mr Chauke revealed that there had been three council meetings thus far in the financial year but that not all meetings were necessarily attended by all the members. He said that the minutes were confidential but not restricted and that if they were requested they would be given. The minutes of previous meetings under previous councils were still available even though not all had been signed. On the question of payment of salaries, he stated that Treasury published the rates that should be paid to such council members but that they were dependent on specific legislation. However, the current council was comprised of public servants and they were not entitled to remuneration for such work.

Mr Bopela clarified that although one of the members of the council was a retired Major of SAPS, she was still employed by the Presidency.

Mr Ligege said that a list of consultants with fees would be tendered to the committee presently.

Mr Ndlovu asked for specific details on which council members had been present in which meetings, particularly the one in which the decision to move to the new premises was taken.

Mr Chauke replied that the four meetings were attended by the chairperson and deputy chairperson and the other council members. By invitation he himself, as director, and deputy directors attended. The decision to move was not taken in these meetings but was taken in the previous year’s meetings. The sale of the building that had been vacated in Pretoria had been advertised and one organisation was interested, but the building had to be demolished so the property in fact amounted to a vacant plot. The council gave the go ahead for this on grounds that Treasury Regulations would be followed. It was being sold for R7million excluding the furniture which would be disposed of in an auction. The furniture could not be taken to the new building as it was not suited to an open plan set up which was required to accommodate the staff in the new building. The exact cost of the new furniture would be made available to the Committee that day, as would the name of the buyer of the old building. At that stage the process was not yet complete and the delegation was reluctant to publicise the identity of the bidder.

The Chairperson clarified that PSIRA had owned this building, as it had been bought and not leased. She then requested the following: The outstanding matters from 16 May such as the minutes of the council meeting that were still outstanding. The Committee wanted a complete, all inclusive cost analysis of the move from the old to the new building. The details of the sale of the old building had to be furnished. Details of the consultants used were also requested, specifically who they were, what they did and how much they were paid. Explanation of the use of debt collectors for the severe bad debt was also requested. The delegation was given two days to comply with these requests. The other outstanding issue was the filling of vacancies that were warranting increases in budget requirements. A week was given for a response to this issue. In closing, she stated that PSIRA faced serious challenges, one of which was financial. Spending patterns were seen as concerning. The PSIRA Amendment Bill was being awaited from the Speaker’s Office, but when it was presented to the Committee it would have to be looked at in an informed manner and the Committee would not hesitate to take necessary steps to rectify problems.

The meeting was adjourned.