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Broadband Infraco still mired in crisis

Nov 08 2011 17:34
Cape Town - It will take time and possibly further poor audit results before the corporate governance crisis at Broadband Infraco is resolved, the company's acting CEO conceded on Tuesday.

"It will take time to clean up. We may still have to table irregular expenditure going forward," Andrew Shaw told parliament's portfolio committee on public enterprises.

"It is not that next year we are going to get a glowing report."

Broadband Infraco received a qualified audit in February due to irregular expenditure of R151m and fruitless and wasteful expenditure of R1.9m.

The state-owned company is meant to lower communication costs by making infrastructure available to competing private sector players.

CEO David Smith and non-executive director Tumi Magasa left the company the same month.

Broadband Infraco registered a financial loss of R207m - a situation Shaw said would not be reversed rapidly either as the nature of the business meant more investment before the balance sheet grew.

"It will take four to five years to become profitable. But we don't want people to think that we are not successful because we are not making money."

Chief financial officer Ramasela Magoele said the new management was inundated by demands for payment from creditors, without knowing whether their predecessors had concluded legitimate contracts with these companies.

Wasteful expenditure

"The knowledge of the PFMA (Public Finance Management Act) at Infraco was at a shocking level. People did not have an understanding of what is irregular and wasteful expenditure," Magoele told the committee.

"We are finding suppliers calling for outstanding payments and the suppliers have more information about the contracts than we have internally. Every week we get two emails from creditors."

Magoele said the company had no choice but to verify the details of the contracts and delivery levels, which took time and meant it incurred interest on its accounts.

She said the delays also created a likelihood that Infraco could face "legal cases" from impatient creditors.

Shaw said while he found the PFMA "onerous", he had to concede Infraco would still have fallen far short of finance management standards had it been a private company.

"A number of staff got away with not doing their work properly."

He said the remaining staff were plagued by low morale, a situation not helped by the decision to cancel all performance bonuses last year.

"People are feeling scarred."

Infraco received a tongue-lashing from Public Enterprises Minister Malusi Gigaba in September. This was after he studied the damning audit report and an anonymous letter sent to the presidency and the public protector. The letter alleges further rot at the company.

Last month, the minister filled four vacancies on the company's board and replaced three non-executive board members as part of a wider shake-up at parastatals.

Three of the 11 board members reportedly had shares in companies which were awarded contracts with the parastatal.



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