Tighten the leash on regressing SOEs, says Auditor General

Departments responsible for state-owned entities must strengthen their oversight, Auditor-General Kimi Makwetu said as he announced on Wednesday that the audit outcomes of SOEs in the 2017/18 financial year had continued to regress from the previous year and from 2014/15.

The Independent Development Trust received a disclaimed opinion for the third year in a row and the South African Broadcasting Corporation (SABC) regressed from an adverse opinion to a disclaimed opinion. 

Only the Development Bank of Southern Africa, which was audited by the AGSA for the first time, obtained a clean audit opinion.

As in the previous year, a significant number of the SOE audits had not been completed by the September 30 cut-off date.

This was "due to financial statements and audits that were delayed because of the auditees struggling to demonstrate that they were going concerns".  

This applied to the South African Airways group, the Denel group, the South African Nuclear Energy Corporation group and SA Express.

Slight improvement

In the case of SA Express, the last financial statements and audit report published were for the 2015-16 financial year, and the 2016-17 audit was finalised only recently.

Makwetu said there had been a slight improvement in the financial health of the SOEs, but the SABC, the Petroleum Oil and Gas Corporation and the South African Post Office disclosed that there was significant doubt about whether they could continue with their operations in future without financial assistance. 

"Considering that most of the SOEs where audits had not yet been completed are facing going concern challenges, the financial outlook for most SOEs is bleak," Makwetu said. 

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There were weaknesses in the performance reporting processes and an increase in non-compliance at the 16 SOEs audited by AGSA –  88% had material findings in this regard. 

These entities also disclosed R1.9bn in irregular expenditure, but the amount could be even higher, as three SOEs – the SABC, South African Forestry Company and Komatieland Forests – were qualified on the completeness of their irregular expenditure disclosure. 

The irregular expenditure of the SOEs not audited amounted to R28.4bn, which included R19.6bn at Eskom and R8.1bn at Transnet, AGSA said, adding that the report raised concerns about vacancies in key positions and instability at board and management level at these entities. 

Inconsistent oversight

The report also highlighted that the 10 departments responsible for overseeing the SOEs did not have consistent oversight practices. The majority of these departments did not adequately plan for their oversight function and report on it in their performance reports. 

Makwetu stressed that "SOEs play an important role in South Africa, and they need to be supported by the state, but also called to account".

"Accountability in government is important in ensuring that public officials are accountable for the decisions and actions taken while executing their roles and responsibilities. 

"There have been a number of positive changes to improve the oversight and governance of SOEs, including increased oversight by parliamentary committees and addressing the leadership challenges at board level. However, most of our recommendations from our previous report have not yet been implemented at all SOEs."

Makwetu addressed the media on his report while minister of Public Enterprises Pravin Gordhan testified before the judicial commission of inquiry into state capture that government is "recapturing" the state, but facing not insignificant pushback.