The South African Post Office (SAPO) has acknowledged years of financial mismanagement, irregular expenditure and failure to meet contractual obligations. These issues continue to hinder its ability to recover, even under a court-approved business rescue plan.

Presenting to parliament’s Standing Committee on Public Accounts (Scopa) on Tuesday, SAPO CFO Lenny Govender confirmed that irregular expenditure stood at R2.6bn for the financial year ending March 2024.

Govender said the majority of irregular expenditure was due to noncompliance with National Treasury regulations.

“In most cases, contracts ended and were extended without following a competitive bidding process,” said Govender.

He explained that many of the irregular contracts related to services such as security and cash-in-transit (CIT), with one contract valued at R924m.

“Even if there are only two service providers, SAPO was still supposed to follow a competitive bidding process. The mere fact that we continued to extend those contracts made them irregular. There was a lot of failure, improper contract management,” he said.

Scopa chairperson Songezo Zibi questioned whether such contract mismanagement could be seen as innocent shortcomings.

“I wouldn’t say it’s an innocent shortcoming. There was a lot of improper oversight,” said Govender.

Govender highlighted fruitless and wasteful expenditure linked to prolonged suspensions of employees.

“Since the average was 122 days, several employees were sitting over two and a half years on suspension,” he said.

This resulted in SAPO paying salaries to suspended staff while also paying acting allowances to replacements.

Deputy minister of communications and digital technologies, Mondli Gungubele, criticised this practice.

“Creditors accepted 12c per rand and statutory creditors 18c. Liquidation would have wiped out up to 12,000 jobs and cut off access to basic postal services for millions,” said Gungubele.

The business rescue plan was approved on December 7 2023. However, only R2.4bn in government support was provided, leaving a funding shortfall of R3.8bn, Gungubele said.

“The government has not been able to provide R3.8bn, which I suspect is due to the fiscal situation,” Gungubele said.

Despite the funding gap, SAPO managed to cut operating costs by R425m, matching the R405m revenue decline.

Staff costs alone were reduced from R3.7bn to R2.9bn.

Govender said SAPO needs to transform its business model entirely.

“SAPO now relies totally on mail. If we do not change the business model, SAPO will probably have no future. The infrastructure must be modernised and made available for broader government use.

“To drive any turnaround plan, you need a capable team. Now, the entire executive team is acting, and we need permanent leadership with the right skills to execute the recovery,” he said.