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- Scopa chair Mkhuleko Hlengwa has slammed the late submission of annual financial statements of by state-owned enterprises like Denel, South African Airways and Alexkor.
- He described it as "the highest level of disdain", adding that something was clearly "rotten" among SOEs.
- In addition to lamenting the "disdain" displayed by SOEs in late submissions, Hlengwa called for a crackdown on the problem.
- For more financial news, go to the News24 Business front page.
Standing Committee on Public Accounts (Scopa) chair Mkhuleko Hlengwa has slammed the late submission of annual financial statements of by state-owned enterprises like Denel, South African Airways and Alexkor as "the highest level of disdain", adding that something was clearly "rotten" among SOEs.
This came as the Auditor-General of South Africa (AGSA) briefed Scopa in Parliament on Tuesday, including on the status of the external audit of state-owned arms manufacturer Denel and its subsidiaries.
AGSA gave an update on the affairs of state-owned mining company Alexkor on the same day, as well as the Land Bank and Sassa.
READ | Alexkor audit delayed as high staff turnover leaves finance dept unstable, AG tells Parliament
Alexkor's audit of its 2020/21 financial year was only concluded in 2022 as it faced high staff turnover in its finance department, among others, while Denel submitted its financial statements for 2020/21 a full 18 months late. It submitted its statements for 2021/22 eight months late in January 2023. AGSA told Scopa that its audits for these two years were still outstanding as a result.
In addition to lamenting the "disdain" displayed by SOEs in late submissions, Hlengwa called for a crackdown on the problem.
"It is the absence of consequence management which is concerning in itself. Something is rotten in the state of SOEs, and I hope the AGSA does not fall into this kind of late submission being normalised.
"There have to be tighter controls in what can be delayed and what can be endorsed," said Hlengwa.
Hlengwa further said there had to be sound explanations for any delays.
"Submission of annual financial statements cannot just be delayed with a one page-letter that says nothing. We will prioritise the need for discussion between Scopa and the DPE, especially about Denel."
Denel falls under the Department of Public Enterprises (DPE). According to Denel's last audited financial statements - for 2019/20 - its remaining issued bonds total R100 million and are held by Aluwani Capital partners. These bonds mature in September this year.
In February 2022, Denel's listed bonds were suspended from the JSE because of it failed to submit annual financial results for the 2020/21 financial year. The suspension means the bondholders cannot trade Denel's bonds on the JSE, nor can Denel sell more debt.
Should the remaining investors call on their bonds, it will be against the government guarantee.
According to AGSA, continued operational and solvency challenges caused "an exodus of skills" at Denel and led to it not having the capacity to produce credible financial statements.
"The government has acknowledged the challenges faced by Denel and committed to implementing strategic initiatives to strengthen its governance. However, there is slow progress in the implementation of reforms. This creates policy uncertainty and a struggle for Denel to deliver on its mandate," the AGSA told Scopa.
"Ad hoc bailouts from Treasury do not provide the policy clarity and certainty that investors and markets need. We encourage Denel's board to implement sustainable measures to restore the credibility of its financial reporting system by ensuring timeous submission of quality financial statements in future."
The AGSA is working with Denel to finalise the outstanding audits as soon as possible - hopefully by July or August this year, it said.
In response to Hlengwa's comments, the AGSA said it was equally concerned as the late submissions also impact its own accountability and oversight.
In its briefing on Sassa, AGSA said the former had received an unqualified audit with findings for the 2021/22 financial year. Sassa had material findings on compliance with legislation and the audit of performance information.
Effective and appropriate steps were not taken to prevent irregular expenditure of R54.6 million, AGSA said.
Of the irregular expenditure closing balance of R994 million, R652 million related to 362 cases submitted to the National Treasury for condonation, and Sassa is awaiting the response on these cases. Meanwhile, Sassa's Fraud Management and Compliance unit conducted various investigations, which saw 37 cases, all relating to grant fraud, referred to the SAPS for investigation. These investigations are still under way.
* This article has been updated with details on the audit outcome for Sassa.
