Denel under fire for refusing to account for irregular expenditure

Auditor-general Kimi Makwetu has expressed concerns regarding the financial audit that auditing firm SizweNtsalubaGobodo (SNG) did on state-owned arms manufacturer Denel.

According to a letter he submitted to Parliament's public enterprise committee‚ the auditor-general found that SNG failed to properly account for irregular expenditure in its report of Denel’s financials.

SNG requested that Denel amend the flawed reports‚ but according to the A-G‚ Denel resisted this request and proceeded to table the incorrect financials.

Democratic Alliance spokesperson on public enterprises Natasha Mazzone said it was disconcerting that the auditor-general had to write a letter to an audit firm to request that it reconsider its audit opinion.

"How secure are we that the other audits done by SNG are correct and transparent and free from political interference or massaging of the truth?" Mazzone said.

"It is completely unacceptable that a board and the executives of a public entity would see it fit to not only submit incorrect financials but also deliberately refuse to follow an instruction by an auditing firm‚" she said‚ adding that this might have been in contravention of the Public Finance Management Act.

Mazzone wants Denel to be called before the committee "to account for this transgression". She said the DA shared the auditor-general's concerns as SNG had also audited the financial statements of Transnet and Eskom.

"Given the fallout from the KPMG scandal and credibility concerns with the audit profession in general‚ we trust that the A-G will go over the audit outcomes of Eskom and Transnet with a fine tooth comb to check for similar errors‚" Mazzone said. "Corruption is rife within our state-owned enterprises‚ and we need to ensure that auditors are transparent."

Former finance minister Pravin Gordhan also raised grave concern over the issue.

SNG MD of assurance Aaron Mthimunye told the committee there was a disagreement over the irregular expenditure between Denel and its auditor. The auditor-general had to ask the firm to include the reference to irregular expenditure in its audit of Denel.

This will change the audit opinion from a clean audit to one that is unqualified with irregular expenditure‚ Mthimunye said after the meeting at which the auditor-general's report of the company was addressed.

The irregular expenditure was covered in the annual report as a note to the financial statements‚ Mthimunye said.

"We brought the issue of irregular expenditure to the attention of Denel's senior management before its annual general meeting but there was considerable resistance from Denel's chairman and CFO to release the adjusted audit report‚" he said‚ adding that the correct audit opinion including the irregular expenditure was submitted afterwards.

- BusinessLIVE