DPE failed to maintain good audit status, says AGSA

Auditor-general SA, deputy business unit leader Fhumulani Rabonda has painted a bleak picture of the financial standing of the country’s state owned entities.

Rabonda and his team appeared before the portfolio committee on public enterprises to present the audit outcomes of state-owned entities and the department on Wednesday.

The report was based on the outcomes of the SAA, SA Express, Denel, Eskom, Transnet, Alexkor and the SA Forestry Company Limited.

Rabonda said the current administration inherited three entities which had qualified financial statements. These were Transnet, Safcol and Eskom. Another three entities had a disclaimed opinions including Denel, Alexkor and SA Express, with one outstanding audit from SAA and its subsidiaries.

“The picture has changed to where we are right now. Mostly with not such good news, in that the department could not manage to retain their good audit status. They are now no longer clean, sitting with an unqualified financial statement that we find is incompliant.

“Safcol has managed to improve from an unqualified audit outcome to qualified and Transnet has also managed to improve.”

The AG’s office, said Robanda, was concerned about the increasing number of outstanding audits.

“The improvement of Transnet was a direct result of the exemption that the entity was given by the minister of finance.”

DPE was allowed to exclude the disclosure of PFMA-related requirements and this takes it away from the AG’s opinion, he said.

On the outstanding audits, he said, the audit outcomes for SAA and its subsidiaries has been outstanding since the 2018/19 due to business rescue proceedings.

“They have recently submitted financial statements for SAA in May this year, and we are still waiting for their other subsidiary Mango, which is in business rescue.”

SAA Express’ financial statements have been outstanding for the three years and the AG’s office is not expecting anything because the entity has since been liquidated. SAA submitted if financials in August, he said, adding that Mango’s delay was affecting the process of the ongoing audit.

“Denel is a thorny issue in that the financial statements have been outstanding for the past two years. That has led the entity to be in contravention of the PFMA and the Company’s Act, having failed to submit statements for two years.”

There were complaints and notices from the CIPC notifying them of the impact of failing to submit financial statements on time and the AG’s office has regularly engaged with the board and management of Denel on the challenges and to help them to submit financials.

“We have alerted them that the failure to submit financial statements on time is hampering the ability of oversight bodies to exercise effective oversight over this entity. It has suspended accountability and is obstructing the AGSA from performing its audit function.”

The failure to submit has led to the suspension of the trading of the bonds on the Johannesburg Stock Exchange and the entity’s ability to source funding from the market.

“We have advised the board to put measures in place to submit financial statements and they have committed in writing that they will submit financial statements by November 30.”

Eskom’s audit outcome is ongoing but it will be finalised next month and the audit is under way at Alexkor.

On the performance of the portfolio, all the entities that have completed their audits, submitted performance reports that contained mistakes and they were corrected during the audit process.

Rabonda said Transnet had only managed to achieve 39% of it targets, while Safcol achieved 86%.

“The department has embarked on a process of restarting SAA and ensuring its sustainability. There are some policy decisions that have been taken by cabinet, and one of the decisions was to dispose of 12% of the controlling stake of the entity.”

As part of the audit process of the department’s financial statements, Robanda said there was a need to engage with management and an agreement has been signed to determine the financial statement implications.

He said the office has picked up some observations which it has drawn to the attention of the DPE management.

“We understand management is processing those observations and they will need to determine the impact and how they plan to respond.”

The AG’s office identified material irregularities at both Transnet and Safcol.

“The processes of dealing with these material irregularities is ongoing with Safcol. Having concluded its investigation we are assessing that investigative report to determine the outcome of the investigation and whether there is appropriate action being taken to remedy these material irregularities.”

On Transnet, Robanda said disciplinary processes were ongoing but the process is taking long to finalise because of the complexities of dealing with employee and employer relations with employees lodging appeals against the cases reported against them.

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