SOE's plagued by meddling under Ramaphosa, Gordhan

Cape Town - The Office of the Auditor-General South Africa (Agsa) has painted a bleak picture of state-owned entities (SOEs) failing since President Cyril Ramaphosa’s administration took office.

MPs on Wednesday heard that some SOEs, under Public Enterprises Minister Pravin Gordhan, have not submitted financial statements for 2021-22 and others were exempted from disclosing irregular expenditure for auditing purposes.

Briefing the public enterprises portfolio committee, Agsa deputy business executive Fhumulani Rabonda said the department inherited audits that had not identified material irregularities in the first year of Ramaphosa’s administration.

Rabonda said the picture had now changed to mostly “not so good” in the 2021-22 financial year.

“The department could not manage to retain good audit status. “They are no longer clean but they sit with unqualified audit financial statements with findings on compliance,” he said.

“They are joined by Safcol, which managed to improve from qualified to unqualified, and Transnet also managed to improve from qualified to unqualified,” Rabonda said.

He noted that the improvement recorded at Transnet could not be directly linked to internal controls, but exemption given to it by the Minister of Finance.

Rabonda said Agsa was concerned about outstanding instances of financial statements that were still to be audited in five SOEs.

MPs heard that audits of SAA had been outstanding since 2018-19 due to business rescue proceedings.

“The annual financial statements for the past four years have been recently submitted and the audits have commenced,” according to a report.

South African Express Airways, which has now been liquidated, had not submitted for three financial years.

The financial statements for Mango Airlines, which is under business rescue, were still being awaited.

Denel has for the past two years not submitted statements due to financial and operational challenges.

“The entity has committed to submit 2020-21 annual financial statements by November 30 2022.

“The entity is currently in contravention of the PFMA and the Companies Act, having failed to submit financial statements for auditing for two consecutive financial years,” read the report.

Eskom’s audit was delayed as a result of various issues, including late submission of information and adjustments of misstatements identified during the audit.

Alexkor’s prior year audit was signed off late in March 2022.

“There were also delays with the reappointment of the auditors.”

Rabonda said although the department had reported that it was working with Denel to implement a long-term turn-around plan which requires restructuring, there were no clear plans to address the immediate liquidity requirements of the entity.

He also said the now liquidated SA Express was formed to promote frequency of services on lower-density routes and expand regional air service capability in South Africa, “Its liquidation left a gap that is yet to be filled in the market it served,” he said.

Mango Airline, which was grounded and undergoing business rescue, had left a gap in the low-cost traveller market which is currently under-serviced.

Rabonda said there was slow progress in the implementation of key reforms such as the Shareholder Management Bill and funding criteria for SOE.

“This creates policy uncertainty in the SOE environment with SOEs struggling to deliver on their mandates,” he added.

ANC MP Nkosinathi Dlamini noted with concern that SA Express Airways had since been liquidated and FlyCemair moved quickly into the space it left vacant.

“This suggests that there is some- thing in our system at the level of public enterprises. Maybe, there is too much political interference or something,” Dlamini said.

He said very soon there could be a growing concern that SOEs were run in such a way that they were handed over to the private sector.

“The SOEs are not failing because there is no business out there. They fail because of other reasons. Let us zoom into those reasons,” Dlamini added.

EFF MP Omphile Maotwe said she concurred with Dlamini that failures in SOEs could be attributed to political interference.

“It does not make sense that other businesses are prospering and our SOEs are not, yet we share the same market and routes,” Maotwe said.

DA MP Farhat Essack said funding criteria remained a huge policy uncertainty.

“We struggle to deliver on the mandate within SOEs. The fact remains that we are not globally competitive,” Essack said.

Cape Times