Dysfunctional SABS earns disclaimer from auditor-general

The auditor-general has issued a disclaimer on the financial statements of the South African Bureau of Standards (SABS).

The bureau was placed under administration a few months ago after the removal of its board and executive management by trade and industry minister Rob Davies.

The SABS plays a critical role in testing products and certifying quality and safety. Public confidence in the soundness of its testing is vital. But this has been shaken by poor performance resulting in the minister’s intervention.

Backlogs and delays of three to nine months in getting products tested meant companies were unable to fulfill orders within agreed-upon delivery times.

The termination by the SABS of partial testing of products has also caused problems for industry. Partial testing is important for companies that have already had a product tested and just require a new component to be tested.

The SABS also allowed its testing capabilities to deteriorate, which meant that industry could no longer rely on it to test its products.

The auditor-general’s report is included in the SABS annual report for 2017-2018, which was tabled in parliament this week, much later than the end-September deadline laid down in the Public Finance Management Act.

The auditor-general’s disclaimer opinion was due to his inability to obtain sufficient and appropriate audit evidence to provide a basis for an audit opinion.

It was also due to the inability of SABS to provide sufficient information to justify the “going concern” status of its subsidiary, SABS Commercial. Also problematic were the revenue and trade receivables that were recognised in one of SABS’s subsidiaries.

SABS recorded net losses of R44m in 2016-2017 and R48m in 2017-2018. This was on revenue of R501m and R516m, respectively.

The three administrators appointed by Davies — Jodi Scholtz, Tshenge Demana and Garth Strachan — said in a statement Wednesday that some of the reasons for the losses were the decision regarding testing regimes; serious operational failures related to the issuance of certificates and permits; and the lack of infrastructure renewal.

 “Such losses are clearly unsustainable and a short-term operational ‘turnaround’ plan across the organisation has been put in place by the administrators, after consultation with the shareholder,” the administrators said.

They are confident that an expedited turnaround plan can return the SABS to financial sustainability. The plan aims to prevent further institutional decline and to secure the growth of the institution. It will involve the immediate reinstatement of “customer-specific requirement” testing and the roll-out of testing capacity to meet this demand.

It will also involve the immediate investment in critical infrastructure/technology and capital equipment, a concerted effort to improve productivity and the establishment of local content verification capabilities.

The administrators said they were working to ensure that operational failures resulting in a loss of accreditation and a backlog of permits did not recur. Cost-containment measures were also being introduced to return the SABS to profitability.

- BusinessLIVE