Question marks over how auditors PwC and Nkonki 'missed' dire SAA financial situation

21 February 2020 - 12:45 By ZINGISA MVUMVU
PwC and Nkonki audited SAA during the tenure of Dudu Myeni as board chair.
PwC and Nkonki audited SAA during the tenure of Dudu Myeni as board chair.
Image: Veli Nhlapo

For five years back to back, SAA received clean audit reports courtesy of the globally acclaimed PricewaterhouseCoopers (PwC) and Nkonki Incorporated.

Then, when the auditor-general took over in 2016, the opinion immediately changed. The airline had an audit opinion that was qualified, with serious findings.

This was revealed at the state capture inquiry on Friday during the testimony of Polani Sikombela, a qualified chartered accountant from the office of the AG. Sikombela was part of the team that audited SAA in the 2016/2017 financial year.

SAA had been audited by PwC and Nkonki from the 2011/2012 financial year until the 2015/2016 financial year and, according to these auditing firms, all was well at the national carrier.

However, the AG found a completely different picture when it took over.

According to Sikombela, it would be difficult to understand how the two private auditing firms had missed the situation the AG found.

Among the startling discoveries by the AG's office were:

  • SAA classified its R1.3bn loan with Nedbank as "equity" instead of "debt" and interest paid was wrongly classified as "dividends";
  • No contracts with suppliers, the agreements based on letter of award given when a supplier has won a tender. A risk to SAA. "The credibility of the contract register itself was questionable," said Sikombela;
  • SAA had no proof of the validity of its aircraft dating back to 2002;
  • Poor record-keeping;
  • Outdated policies, with some not updated for a decade;
  • No compliance with legislation, particularity on irregular, wasteful and fruitless expenditure;
  • Irregular expenditure rose from R5m disclosed in the previous financial year to R125m when the AG took over;
  • Some officials in key positions in the state-owned company were clueless;
  • Ineffectiveness of IT infrastructure at SAA;
  • Instability; and
  • No one on the SAA board with aviation expertise.

These revelations led the commission chair, deputy chief justice Raymond Zondo to question how PwC and Nkonki would have consistently found SAA financial governance to be sound, given that the AG found it completely different in the first year of taking over.

"The chances are they [PwC and Nkonki] should have picked these things up if the situation was the same as the one we found in 2016/2017 financial year," said Sikombela.

"One important aspect is that these were credible firms. However, we did identify errors in the previous years' financial statements. But, chairperson, what I do not know is  whether or not the previous auditors were able to identify those errors and findings. I do not want to speculate," he said.

The appointment of the two private firms itself came under the spotlight.

The commission heard that the contract they were awarded in 2011 on a 60/40 split of workload in favour of Nkonki was for that single financial year.

However, they continued providing the services for five years without a new, open tender process.

Their continued stay was concurred to by the AG's office.

Sikombela defended the AG's decision to concur, saying it was a "tricky" situation.

He said this was because the Companies Act allowed for extensions under certain circumstance, adding that it was not possible for an auditor to be appointed for just one year in a company like SAA.

PwC and Nkonki audited SAA during the tenure of Dudu Myeni as board chairperson.

Dudu Myeni was taken to court by civil rights group Organisation Undoing Tax Abuse (Outa) for alleged misconduct during her time at SAA. She appeared at the Palace of Justice in Pretoria on February 20 2020. The aim of the case is to have Myeni declared a delinquent director in terms of the Companies Act.