Necsa thumbs its nose at reporting obligations

The South African Nuclear Energy Corporation (Necsa) only published its March 31, 2018 annual report in February 2019.

The 2018 annual report wasn’t of much value, apart from indicating the unravelling of the state-owned company. The Auditor-General (AG) was not able to obtain sufficient audit evidence to verify anything, and was thus obliged to issue a disclaimer of opinion.

This year, Necsa has slid even further into the mire … that dirty opaque sludge that is obscuring, well, everything. Necsa hasn’t even produced its annual report. The AG’s report for the year ended March 31, 2019, has however been made publicly available, and it does not bode well for Necsa.

The AG has again issued a disclaimer of audit opinion for lack of evidence.

The AG’s findings are summarised below:

• There is a question mark in regard to whether Necsa still has going concern status, as the AG was not able to obtain sufficient evidence to verify the “reasonableness of cash flows”.
• The AG was not provided with written evidence from the accounting authority (the board of directors) that the accounts were prepared in accordance with IFRS (International Financial Reporting Standards) and that the AG had been given relevant information and access.
• Necsa did not have adequate systems of internal control.
• The AG could not find sufficient evidence to verify the decommissioning and decontamination stage 1 liability for 2019 of R3.6 billion (2018: R3.3 billion), due to the “numerous limitations placed on the expert in performing the calculations”. For the same reasons, the AG could not verify the decommissioning and decontamination stage 1 asset.
• The status of the accounting records were such that the AG could not verify revenue, the cost of sales at fluorochemicals producer and supplier Pelchem (Necsa’s wholly-owned subsidiary), other operating expenses, other financial assets, deferred income, the decommissioning and decontamination stage 2 liability and asset, trade and other payables at Pelchem, other income, trade and other receivables, investment income, inventories, finance costs, amounts received in advance or revenue (grants).
• Management had inappropriate methodologies and assumptions in performing the calculation of the Vaalputs after care provision (Vaalputs is SA’s radioactive waste-disposal facility).
• Management did not disclose prior period accounting errors.
• In issuing a disclaimer of opinion, the AG is unable to confirm whether any misstatement is due to fraud, or error.

Audit of annual performance and compliance with laws and regulations

Unsurprisingly, the AG report on the audit of the annual performance report, and the audit on compliance with legislation did not fare much better:

There were significant internal control deficiencies, and the board of directors did not exercise sufficient oversight regarding compliance with laws and regulations and related internal control.

“Senior management did not prepare accurate annual financial statements and a performance report that were supported and evidenced by reliable evidence, resulting in a disclaimed opinion on the financial statements and material findings on the annual performance report as well as compliance with applicable laws and regulations”. 

Once upon a time, Necsa was world class. It has now received two consecutive disclaimers of opinion from the AG in regard to the most recent annual reports.

Necsa has not released its 2019 financial report. Why? Does it think that if it hides in its murky mire it will get away with it? What an embarrassment. 

Should there be any concern about the status of its nuclear facilities?