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Denel tables incorrect audit report

Oct 04 2017 12:14
Liesl Peyper

Cape Town – State-owned arms manufacturer Denel tabled an incorrect annual report, despite being told that the initial audit opinion had been amended, Parliament was told on Wednesday. 

The office of the auditor general told members of the portfolio committee on public enterprises that it requested auditing firm SizweNtsalubaGobodo (SNG) to change its clean audit opinion on Denel after irregular expenditure had come to light.

SNG, which was responsible for auditing the financial statements of Denel, Eskom and Transnet, had to change its audit opinion on Denel from a clean audit opinion to an unqualified audit with irregular expenditure.

The auditor general subsequently wrote a letter to Parliament, informing the institution of Denel's move to table an incorrect audit report, despite being informed that the audit opinion had been amended. 

"Denel's clean audit opinion was not supported by evidence and SNG's interpretation of the criteria to evaluate irregular expenditure might have been incorrect," the letter read. "We suggested that SNG reconsider their opinion which they duly did and the audit report has been amended.

"The amended report was sent to Denel for consideration, but Denel resisted the amended report and went on to table the initial report which is incorrect."

Natasha Mazzone, Democratic Alliance spokesperson on public enterprises, said during question time it is disconcerting that the auditor general had to write a letter to an auditing firm requesting it to reconsider its audit opinion.

“How secure are we that the other audits done by SNG are correct and transparent and free from political interference or massaging of the truth? I’m asking this in light of the KPMG saga,” Mazzone said. She vowed to relook all the audits done by SNG.

Former finance minister Pravin Gordhan, who was redeployed to the portfolio committee on public enterprises in May, said South Africa is currently experiencing a crisis of credibility in its auditing firms and auditors.

“SNG has done the audits for Denel from the 2014 financial year, expressing unqualified audit opinions. Are there any mistakes in these audit findings? Who is going to look at those?”  

Managing director of assurance at SNG Aaron Mthimunye responded, saying it has already picked up on the material non-compliance before the auditor general’s letter of notification.

“We brought the issue of irregular expenditure to the attention of Denel’s senior management before its annual general meeting, but there was considerable resistance from Denel’s chairman and CFO to release the adjusted audit report,” he said.

The correct audit opinion that contained the irregular expenditure was subsequently submitted, Mthimunye said.

Gordhan, however, pointed out that Denel’s clean audit opinion came from SNG. “What landed on the auditor general’s desk was a final audit opinion.”

He told SNG that it is dealing with entities which have been marred by serious corruption allegations.

“The technical material sounds fine, but it doesn’t reflect to the public what’s going on in these entities,” Gordhan said. “These things are in the public interest, yet what is before us is a clean audit opinion.” 

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