Cape Town – South African Airways (SAA) chairperson Dudu Myeni questioned why her executive team is not implementing a draft plan to respond to an Ernst and Young (EY) forensics report that revealed 60% of the total procurement by SAA could be subject to weak business controls.
“The report has been considered by the executive and a draft proposed action plan provided,” she said in written answers to Parliament’s standing committee on finance on Friday.
“It remains in draft form and the question must be asked what is the executive doing about finalising this and putting in place actions to implement its recommendations.”
Her response follows a draft report that SAA revealed to the media on December 8 2015, a day before Nhlanhla Nene was fired as finance minister.
It said EY selected a total of 48 contracts across SAA, Air Chefs, Mango and SAA Technical to study. The purpose was to identify and - if applicable - quantify the losses caused by "failings" in either the procurement or contracting phase or implementation phase of the identified contracts.
The 48 contracts represent a significant portion of the largest contracts with SAA. The report shows that 28 of these 48 contracts (60%) are improperly negotiated, poorly contracted or weakly managed, according to the statement by SAA.
"A logical deduction must be that, if these - many of which are the largest contracts awarded - suffer these weaknesses, then the bulk of the smaller contracts will be at least (as bad), if not worse," said SAA.
Since the draft report was presented, SAA has become insolvent, following losses in 2015/16 of R3.5bn (revised up on Friday from R1.7bn) and R4.9bn in 2014/15.
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In September 2016, the government granted SAA an additional going-concern guarantee of R4.7bn, increasing its total guarantees to R19.1bn. The additional guarantee was approved after the new board was appointed, as Treasury refused to provide the amount while the board was not in place.
SAA is currently without a permanent CEO or CFO and the board said on Friday that headhunters are currently in the process of finding suitable candidates.
In the board’s response on Friday, it explains that Myeni was not satisfied with their answer to a question that asked why the EY report was submitted to the board and for six months was not seen by executives.
Myeni therefore provided an answer in her chairperson capacity. She said the acting CFO was present at the first presentation provided to the board by EY in February 2016.
“It is therefore not correct that the report was not disclosed as suggested,” she said. “At that meeting the board instructed that the same presentation be then provided by EY to the group executive.
“The report was then provided to the company secretary and the internal audit executive. For unknown reasons to me, some five months passed before the same presentation was provided by EY to the group executive.
“That meeting was aborted as the acting CEO considered it more appropriate that each divisional executive consider their own components first. I have no problem with that suggestion but it is inaccurate to suggest the delay was EY's doing. That process then took another month or two.”
Myeni said SAA must be “provided with unquestionable facts against allegations made”.
“We need to address allegations which are provided by credible independent professional service providers,” she said.
The majority of the board members said they became aware of this report on October 28 2016, the date of the annual general meeting.
“Management informed the board that it took a long time between the various iterations between EY, the board and its advisor to finalise the report.
“It was discovered during the course of the iterations that additional work would have to be done by EY, which had not been budgeted for.
“It should be noted that this was a board initiated process and management was supposed to be engaged after the finalisation of the investigation. The board was reluctant to share the report before the investigation had been completed. To date the report remains in a draft format.”