Columns 27.4.2018 10:26 am

How corruption and maladministration are burying SAA

How corruption and maladministration are burying SAA

It is time that directors paid more than lip service to the King III Code and other governance legislation – but it may be too late.

SAA reluctantly published their audited 2016/17 annual report in April 2018, as they were winding up the 2017/18 financial year. The Auditor-General (AG) delivered a damning qualified report, and indicated that “a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern”.

It is perturbing that the 2016/17 annual report was only released in April 2018, even though it had been finalised and signed off on December 8 2017 by the AG. Minister Malusi Gigaba (then minister of finance), requested Parliament to approve the delay in filing the report, citing “technical accounting matters”, which had not been resolved. Really?

In my view, in a climate of no corporate governance, “technical accounting matters” cannot explain away the substantial restatement of financial figures, the inability to verify certain assets and values because of a lack of evidence, and not meeting the test of a going concern. The fact that the new board of directors spent some four months in delaying the publishing of this report meant they didn’t immediately start addressing critical concerns that are further eroding the broken business. These include: no corporate governance; lack of, or no systems of internal control; no, or poor records; not holding corrupt officials accountable; not implementing a proper accounting system; not implementing a proper procurement system; and not vetting top officials.

The 184-page annual report is plastered with unnecessary embellishments that do more to irritate than placate. For example, glowing reports on “the most revered brand in Africa” despite the fact that it is unable to produce a profit.

Getting down to the nitty gritty, I have summarised the most important AG qualifications below:

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Duduzile Myeni, the former chairperson, was only removed in October 2016. Phumeza Nhantsi, the CFO, was temporarily seconded from SizweNtsalubaGobodo (SNG) to SAA as interim CFO while she was a director of SNG, and subsequently appointed as CFO in March 2016. Nhantsi and Musa Zwane, the CEO of SAA Technical, were suspended in March 2018 pending a disciplinary hearing.

Our SOEs appear to be linked by the rotation of directors and senior executives, or close relationships between external auditors and senior executives. In this vein, it is to be noted that when Nhantsi was a director at SNG, she was the lead engagement partner of Denel,  and responsible for signing off the audit of the Denel Group, Denel Aviation, Denel Aero structures, as well as Denel Land Systems.

The joint external auditors of the 2015/16 SAA annual report, PwC and Nkonki Inc, only identified irregular expenditure of R5.4 million and fruitless and wasteful expenditure of R7.3 million. They had no other findings, signed an unqualified report, and were satisfied that SAA met the going concern test.

A new board was appointed in October 2017, with JB Magwaza as chairman and Vuyani Jarana as CEO. The new board perhaps spoke too soon when they vowed to take “SAA to new heights and are dedicated to returning the airline to financial viability”. It will take a lot more than this. Tough decisions will have to be made, and those responsible for running the airline into the ground should be charged.

On July 3 2017 I wrote that SAA was spiralling out of control, and required at least R44.5 billion to wipe out the accumulated loss and the debt.  SAA continued its downward trajectory, requiring constant government bailouts.

Going control test

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In my view, the current operating model cannot turn the organisation around, and produce enough cash flow to pay finance costs, let alone pay back debt. Unfortunately, the business model is not the sole problem. SAA must urgently address the following:

  • Employees responsible for maladministration and theft should be held to account.
  • These employees should not be allowed to resign (with full pension benefits) before they are charged.
  • Implementation of proper administration, asset management, financial and accounting systems.
  • Introduction of proper internal reporting systems.
  • Introduction of proper record-keeping systems.
  • Restructuring of the internal audit committee, hiring of competent staff, and introduction of an internal training programme. The audit committee should meet on at least a monthly basis. Minutes of their meetings should be kept.
  • The procurement sector must be completely overhauled, and proper control systems implemented.
  • Introduction of proper systems to monitor and control the loyalty programme.
  • Introduction of effective human resource management systems.
  • Abolition of all freebies, such as those given to SAA staff and other government departments.
  • Top officials must be vetted.
  • The directors should be held responsible for reporting on financial results within the stipulated time periods.

Fixing SAA will take more than ad hoc government bailouts. The AG must be commended for having carried out a proper audit of SAA, and for having the courage to reveal the rot. It is time that the directors paid more than lip service to the King III Code on corporate governance, the Companies Act, and the Public Finance Management Act. They need to implement the proper systems to pull the organisation back into line. This may, however, be too late.

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