More headaches for Denel: financials in chaos, after finance staff jump ship

Arms manufacturing company Denel is feeling the consequences of loss of skills in its finance department and is therefore unable to correct its financial statements for 2019/2020.

Staff left the company in droves after they did not receive full salaries for the past 18 months.

Denel said in a Sens statement last week that it is still working on correcting the financial statements after it received a disclaimer from the auditor-general. It has since published quarterly updates on progress made “in relation to the issues that resulted in the disclaimer opinion as contained in the audit report for the financial year”.

A disclaimer means that the company could not provide reliable evidence to support its financial statements. Denel is audited by the auditor-general because it is a state-owned company.

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Audit Fix Plan

According to the statement, Denel has developed an Audit Fix Plan to address matters dealing with revenue recognition, inventory and trade and other receivables which were some of the major areas that contributed to the disclaimer audit opinion.

Management has focused on ensuring that all relevant documentation/audit evidence is readily available to avoid inefficiencies leading to limitation of scope, including responding to the auditor’s queries within the required time.

Denel has contracted a service provider that developed a reporting consolidation tool to ensure that all consolidation findings raised by auditors have been addressed and the statement points out that Denel entities are still populating the consolidation tool to conclude the consolidation.

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Loss of skills in finance department

The company says in the statement that while it still engages with the external auditors and has started working on the consolidation tool, work was slowed down “due to delays within Denel as a result of the loss in skills within the finance department”.

Denel says it has formulated a new operating model that will deliver a streamlined and refocused Denel to be financially sustainable and profitable in the next five years, with its campuses optimised to reduce their footprint and contain costs.

The plan will be supplemented by further reductions in the executive cost structure, as well as the implementation of a shared services model in areas such as supply chain management, human capital, IT and finance to allow for common enterprise resource planning to ensure improved financial control and reporting.

According to the statement, engagements with government as the shareholder are on-going and Denel is confident that it continues to have support from the shareholder in resolving the current liquidity challenges faced by Denel.