Slight improvement in SOE audits is ‘nothing to celebrate’

Earlier this month, South African Airways’ (SAA’s) business rescue practitioners Siviwe Dongwana and Les Matuson told parliament’s Standing Committee on Public Accounts (Scopa) that the airline’s 15-month-long business rescue process has been successful.

The pair however did not present parliament’s watchdog with any financial statements to verify their claims.

The airline and its subsidiaries – Mango, SAA Technical and Air Chefs – have not produced any financial statements for the past three years, making it difficult for auditors to assess their financial health.

ALSO READ: Pilots union issues strike notice to SAA with unusual demands

On Wednesday, Auditor-General Tsakani Maluleke flagged SAA, LMT Products (a subsidiary of state arms manufacturer Denel) and South African Express Airways (under provisional liquidation) as some of the state-owned entities (SOEs) whose audits for 2019/20 could not be completed because of the failure to produce financial statements.

The office of the AG is responsible for the audits of 32 SOEs but was able to analyse only 14 for the 2019/20 financial year. The latter account for an expenditure budget of R30 billion.

Going-concern doubts

In their financial statements, many SOEs disclosed uncertainty as to whether they will be able to continue as going concerns.

These include:

• PetroSA (Petroleum Oil and Gas Corporation)
• The SABC (South African Broadcasting Corporation)
• Denel and three subsidiaries (Densure, Denel Aerostructures and Denel Vehicle Systems)
• The Independent Development Trust
• The Land and Agricultural Bank of SA
• Pelchem
• Necsa (South African Nuclear Energy Corporation), and
• Eskom.

Poor form

The financial statements of 17 public entities were not reliable enough for financial analysis – this includes seven technical and vocational education and training colleges, the Passenger Rail Agency of South Africa (Prasa) and four provincial public entities in North West province, the report says.

This outcome is only slightly better than the 73% of the previous year.

During the release of the 2019/20 audit outcomes on Wednesday, Maluleke said despite the slight improvements in audit outcomes, management of public finances is still plagued by long-standing issues of mismanagement and other irregularities.

“Accounting officers and authorities should do everything in their power to get the most value from every rand spent and manage every aspect of their finances with diligence and care,” she said.

Maluleke added that her office “cannot yet see the progressive and sustainable improvements required to prevent accountability failures and deal with them appropriately and consistently across national and provincial government”.

The main reasons for the improvements were the filling of critical vacancies; the strengthening of internal controls, including the implementation of preventative controls; greater involvement of accounting officers in internal control processes; and the implementation of the AG’s previous recommendations.

Slight improvement in clean audits

Just 111 of the auditees (26%) managed to produce quality financial statements and performance reports and to comply with key legislation, thereby receiving a clean audit; a slight improvement from the 98 (23%) in the previous year.

The 111 auditees represent 17% of the expenditure budget of R1 706 billion managed by national and provincial government.

The remaining 74% of auditees received unqualified audit opinions on their financial statements, a slight improvement from 71% in the previous year.

Irregular expenditure

Maluleke says irregular expenditure among national and provincial government departments decreased to R54 billion from R66 billion the previous financial year.

“If the full irregular expenditure was disclosed there would not have been a decrease from the previous year,” she said.

“The year-end balance of irregular expenditure that had accumulated over many years and has not yet been dealt with stood at R262.03 billion.”

This story first appeared on MoneyWeb.

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