Transnet awards biggest audit contract to black firms

25 March 2013

State-owned transport and logistics firm, Transnet SOC Ltd, has appointed home-grown accounting and professional services firm SekelaXabiso to lead its internal audit function for the next five years, the company announced on Monday.

Transnet's internal audit contract is arguably the biggest outsource contract of its nature in the world.

Following a rigorous, open and public tender process run by the Audit Committee of Transnet's Board of Directors, the company decided to appoint three firms -SekelaXabiso, another home-grown and black firm, Nkonki Inc, and one of the "big 4", KPMG. The three will have a 40%, 20% and 40% share of the work during the first year respectively. By the fifth year, Nkonki's share will rise to 35%, while SekelaXabiso's share will peak at 45%.

The award follows last year's appointment of SizweNtsalubaGobodo, another blackowned accounting firm, as Transnet's external auditors - a move hailed as a major milestone in the transformation of the country's financial services and accounting industry. The external audit account is worth approximately R450 million over the next five years, while the internal audit contract is close to R1,3 billion over the same period.

This will take the total value of audit work performed or lead by local firms for Transnet to nearly R2 billion over five years.

Both SekelaXabiso and SizweNtsalubaGobodo are mergers formed while sub-contracting audit work (internal and external respectively) at Transnet. The consolidation gave the two firms the critical mass required to service an account of Transnet's size and complexity.

Speaking at the historic announcement in Johannesburg, Mr Mafika Mkwanazi, Chairman of Transnet's Board of Directors said: "The two appointments are just two of the examples by which we at Transnet, as a state-owned entity, are providing the blueprint for meaningful and broad-based empowerment and skills development targeting black people, especially black women."

"With its stable financial footing, a solid management team and massive infrastructure projects, Transnet is at the forefront of government's drive to transform the economy in a sustainable manner as dictated by the objectives of the New Growth Path," Mr Mkwanazi added.

Transnet is rolling out a massive R300 billion rolling 7-year infrastructure investment programme to revamp and expand its port, rail and pipelines infrastructure - the Market Demand Strategy (MDS). To ensure that Transnet achieved its empowerment, transformation and supplier development objectives, the company split the tender into two. Option A was for 60% of the work and reserved only for majority black-owned firms - with at least 51% black ownership. Option B, which was 40%, was open to traditional firms with international experience.

The company received 12 bids, including all major firms except current service provider Ernst & Young and SizweNtsalubaGobodo, the company's external auditors.

Commenting on the process, independent director and chairman of the Audit Committee of the Board, Mr Israel Skosana, said the contract has stringent skills and Intellectual Property transfer requirements. "Throughout the duration of the contract, the two local firms will be expected to strengthen and enhance their expertise in areas like Information Technology as well as infrastructure and engineering related processes to enable them to service accounts like Transnet's on their own," he said.

In addition, SekelaXabiso and Nkonki are expected to grow and develop other black firms and SMMEs in line with Transnet's supplier development commitments, Mr Skosana concluded.

About Transnet Internal Audit

Following a review of the then Transnet Group Audit Services (TGAS) in 2005, Transnet decided to disband its in-house Internal Audit Department and outsource the Internal Audit function to an external service provider.

Some of the key reasons for the decision were:

• The desire to achieve globally-competitive status in terms of internal controls, risk management and governance (one of the pillars of the four-point turnaround strategy) in the shortest possible time;
• An in-house function would be much less effective in leading the organisation to a "world class control environment" than an external provider (A Big 4 Firm) with access to a wide range of professionals, methodologies and tools;
• To implement sustainable best practice methodologies and frameworks in line with international standards; and
• To provide local black firm/s with the opportunity to partner with one of the big 4 firms, and gain expertise and knowledge on the latest internal audit frameworks and methodologies in order to enable them to potentially bid for future contracts with Transnet.

The external service provider was to, over the period of the services, allocate a minimum of 15% of the work to a local black firm, and grow this percentage to 30%. Ernst & Young and its consortium of local sub-contractors were awarded the outsourced internal audit contract for five years to 2010. The contract was extended for an additional three years to July 2013, with the Board Audit Committee and Board of Directors approving the decision.

About SekelaXabiso

SekelaXabiso is one of the leading South African majority black-owned professional services firms.

The company was created in 2012 through the merger of Sekela Consulting and Xabiso Chartered Accountants. With a staff compliment of 300, the firm operates from four provinces: Gauteng Mpumalanga, KwaZulu-Natal and North West.

Sekela and Xabiso have been part of the Transnet Internal Audit since 2005 as subcontractors to Ernst &Young. Their share of the work has risen from a combined 10% (5% each) to the current 30%.

SekelaXabiso has been appointed as the lead auditor, taking into account their technical capability, their previous experience at Transnet within the internal audit environment and Transnet's own risk evaluation process.

About Nkonki Inc

Nkonki Inc was founded in 1993 and is one of the few black accounting firms that stepped into an unknown territory, even before the era of democracy in South Africa.

This audit firm is 100% black-owned and majority women-owned. 20 years later Nkonki has a capacity of 30 partners and more than 400 staff members with offices in five provinces - Gauteng, Western Cape, KwaZulu- Natal, Eastern Cape and the Free State.

About KPMG

KPMG operates as an international network of member firms offering audit, tax and advisory services. The firm works closely with its clients, helping them to mitigate risks and grasp opportunities.

KPMG firms are some of the world's leading providers of audit, tax and advisory services. The firm boasts 145 000 outstanding professionals working together to deliver value in 152 countries worldwide.

Statement issued on behalf of Transnet by Mboniso Sigonyela, Spokesman, March 25 2013

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