Embattled power utility Eskom is not only failing to keep SA’s lights on, it cannot even produce a register, for auditing purposes, of the Covid-19 personal protective equipment it has procured.
The auditor-general told parliament on Wednesday that it was difficult to determine the true state of Eskom’s finances and in particular its irregular expenditure because of poor record-keeping. This meant auditors could not test compliance with legislative requirements.
“We wanted to test proper procurement processes to ensure that fair, transparent processes are being followed but we couldn’t do that because documentation is not there,” said Siyakhula Vilakazi on behalf of the auditor-general.
Eskom received a qualified audit opinion for the 2020/21 financial year, in the main due to its irregular expenditure.
While the basis of the qualified audit opinion was related to irregular expenditure on a 2016/17 contract, the AG’s office said legacy contracts could no longer be blamed for this, as the entity was continuing to enter into new contracts which did not comply with policies and other legislative requirements.
“Availability of records to support procurement activities is a matter that requires intervention at Eskom. Our biggest challenge is that when we are selecting samples to audit, we are not finding information to support Eskom’s position that processes are being followed,” said Vilakazi.
He said when they had a finding, they did not get documentation invalidating that finding.
“This is an issue, because as management when you have an issue but you do not have documents, you do not know how that issue arose. It becomes a challenge to come up with action that would address the issue.
“Record-keeping is an issue to be addressed properly, before addressing all the issues around irregular expenditure,” he said.
Vilakazi said Covid-19 PPE procurement was among the items they could not properly audit.
“The first thing we asked was: ‘Give us a register of all Covid-19-related procurement.’ And you find that you can’t get a register of all of those.
“Even if you were to select a sample, you don’t know if you are selecting a sample from a complete register or complete population of a Covid-19-related procurement. So documentation is a big problem, because it makes it impossible for auditors to have compliance and for managers to know how to address issues that are coming back for many years,” he said.
Auditors could also not get any evidence of Eskom investigating the source of recent irregular expenditure or whether disciplinary action had been taken against offending employees.
Vilakazi told parliament’s standing committee on public accounts [Scopa] that besides the high-profile cases reported on by the media, there were no consequences for wrongdoing at Eskom.
MPs heard that R3bn was added on to the 2020 irregular expenditure. In the current year, relating to the same contract, there was an increase of about R1.2bn to a fuel-oil contract inappropriately procured through the emergency procurement process in the prior year, but which was only confirmed as irregular expenditure in the current year.
Vilakazi said it was proved that not all processes were followed in ensuring 100% compliance with the Public Finance Management Act.
While there had been a reduction as far as irregular expenditure was concerned in the current year, the AG said the disclosed irregular expenditure was not complete and accurate and that it was mostly as a result of the contravention of supply chain management prescripts.
In the year under review, irregular expenditure consisted mostly of the use of sole source (R2bn), incorrect classification as emergency procurement to the tune of R1.3bn, tender processes not adhered to and insufficient delegation of authority (R3.9bn), the Preferential Procurement Framework Act not being adhered to (R1.3bn) and a breach of more than one commercial requirement (R1.5bn).
Adding to Eskom's woes, Vilakazi reminded MPs that the power utility’s guarantees were coming up soon and it would have to find the money for repayments or again call on the public purse.
“While we do have guarantees now against which Eskom is drawing down, as far as funding is concerned, we are approaching that time when repayments are going to become a bit of pressure as far as Eskom is concerned.”
He said R152bn would have to be available to make sure that those repayments were made. About R125bn worth of interest repayments would also have to be made over the next five years.
The auditors said it was going to be important for MPs to get clear plans from Eskom on how these amounts would be repaid.
There were two ways the funds could be repaid, through Eskom's own money, based on cost-effective tariffs, or through government support.
“We know there are still challenges around Eskom getting approval for those cost-reflective tariffs ... and while there are still those challenges, then it means there will have to be government intervention or support in the next few years to ensure those repayments are done,” said Vilakazi.
Eskom only secured R18.9bn (2020: R50.9bn) in terms of its borrowing programme for the current year.
Delays in receiving government guarantees and limitation of foreign borrowing resulted in planned funding being postponed to 2022. Despite the postponement of funding, Eskom was able to navigate liquidity requirements through effective cost management and deferral of capital expenditure, according to an auditor-general presentation to Scopa.
The committed and drawn-down funding against the government guarantee of R350bn for 2021 was R304.5bn, with R45.5bn available for further use.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.