SOE Audit Outcomes 2019/20: engagement with Auditor-General

Public Accounts (SCOPA)

03 February 2021
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary

DBSA Annual Report 2019/20
PRASA Annual Report 2019/20
Denel Annual Report 2019/20
Eskom Annual Report 2019/20
Transnet Annual Report 2019/20
SABC Annual Report 2019/20

In this virtual meeting, the Auditor-General of South Africa briefed the Committee on the audit outcomes of 6 state owned enterprises for the 2019/20 financial year: DBSA, PRASA, Denel, Eskom, Transnet and the SABC.

The overall audit outcome of the DBSA for the 2019/20 financial year was financially unqualified with no material findings on compliance with legislation and predetermined objectives. The audit outcome of PRASA in the current audit cycle had stagnated with a ‘disclaimed with findings’ outcome. The audit opinion of Denel on financial statements for the year ended 31 March 2020 was a disclaimer. The audit outcome for Eskom for the current period and the past 3 years has been a qualified audit opinion. During the financial year under review the regulatory authorities and the accounting authority conducted investigations into alleged irregularities, fraud and corruption within the procurement environment and other areas of the entity. The audit outcome for Transnet had remained unchanged and did not improve over the past three years. The public entity annual financial statements were qualified for the past three financial years based on the fact that the auditors could not obtain assurance on the completeness of irregular expenditure reported. The SABC audit outcomes remained stagnant for the 2019-20 financial year as the entity obtained a qualified audit opinion, with findings on compliance with laws and regulations. Each of the presentations detailed how the State-Owned Entities had deficiencies with internal control management. There were generally concerns in areas such as supply chain management as well as weaknesses noted in the area of procurement and contract management. The financial management and leadership of the SOEs were also brought into question.

The Committee members were concerned by the state of SOEs. The Committee raised concern with DBSA receiving a clean audit while there were so many irregularities in an organisation. The Committee noted that there were serious problems within the DBSA. The DBSA could not be trusted to do a forensic investigation or appoint a team to do a forensic investigation because there were serious problems in the organisation. The Committee needed to understand and unpack the problems in the DBSA. It was also raised that DBSA had provided a loan to SAA. The Committee noted that the presentation on PRASA painted a very bleak picture. It was recommended that the Committee prioritise PRASA and perform an oversight visit. The Chairperson said that the state of SOEs keep on going from bad to worse to worst. He had no words for the implosion that happened at Denel. It was a catastrophe to say the least. The Committee noted that irregular expenditure and fruitless and wasteful expenditure had been growing year on year. They asked what powers did the AGSA have over these entities? What steps did the AG take to make sure that these audit findings were being addressed? Did the AG have any power over what needed to be done by these entities in such cases? The members also raised concern over the turnaround strategy at the SABC. Was the turnaround strategy presented to the auditors? The Committee asked if the AG exercised the new authority that Parliament has granted it? That was very crucial because that new legislation was clear that once a material irregularity was identified the AG now had the option of issuing certificates that management needed to pay. The Committee noted that the state of SOEs were in dire straits. There were a myriad of issues which confronted the SOEs.

There was no presentation on SAA but the Committee resolved to hold a meeting with the Department of Public Enterprises, Minister Gordhan and the business rescue practitioners. The Committee noted with concern at how the business rescue practitioners had treated it with disdain. The business rescue practitioners had been at SAA for 14 months. It just did not make sense how this process continued unabated. The Committee would prioritise SAA and the other SOEs.

Meeting report

Opening Remarks

The Chairperson welcomed the members to the meeting on the briefing by the Auditor-General on the audit outcomes of some of the State-Owned Entities (SOEs). He welcomed the Auditor-General to the meeting as this was her first appearance before the Committee since assuming office in December 2020. The Committee wished her well in the execution of her duties and responsibilities. The Committee was quite confident in her knowledge, skills and expertise. That was evidenced by the unanimous support which she received from the House when her nomination was presented. He hoped that the healthy working relationship that the Committee has had with the AG institution would continue. The Committee relied on the Auditor-General as its ‘alpha and omega’ in terms of the work that the Committee did. He congratulated her on her appointment. He had no doubt that the work of the AGSA was in good hands and that the Committee’s trust was not misplaced. He also welcomed the AG’s team to the meeting. He handed over to the AG to make their presentations.

Remarks by AGSA

Ms Tsakani Maluleke, Auditor-General of South Africa, thanked the Chairperson and Committee for their message of congratulations. She was aware of the Committee’s expectations. She wanted to be a part of this meeting because it would be her first one since taking office. Hopefully soon she would be able to meet the Committee in person. She asserted her intention to maintain the quality of interaction, the regularity of interaction, the responsiveness of the Office, the accessibility of the teams and the healthy collaboration that has occurred over the years. She had the benefit of having served eight years in the Office of the AG. She was able to learn first-hand the importance of maintaining a collaborative relationship with SCOPA. She assured members that the quality of the work and engagements that the Committee was used to would continue. If the AG was to slip the Committee should be the first to alert her on this because that was certainly not her intention. She had the benefit of a very strong team that worked for the Office. The colleagues in the meeting were people that the Committee had interacted with before. They would be doing the briefings on the SOEs today.

She proceeded to introduce the delegation from the Office of the AGSA. She provided some clarity on the PFMA 2020 cycle. Normally by now the AGSA would be talking to the Committee about the consolidated outcomes for PFMA, the year that ended on 31 March 2020. However, the cycle has been particularly challenging. There was a delay by two months of PFMA financials submissions. They were submitted at the end of July rather than May. That was in response to the pandemic, lockdown provisions and the practical challenges that this created. The AGSA had to conduct audits under the most challenging conditions. Indeed, the entire world was operating under the most challenging conditions. Auditing in the context of COVID-19 has had its own challenges. There was that tension between having to keep staff safe and making sure that the work gets done has been quite an endeavour. The AGSA has had to manage the safety of its own teams and the safety of the auditees and their staff. There was the challenge of access to information with limited physical interaction. There was also the natural disruption that occurs when offices have to be cleared out when there were possible infections. That was why the audits were later than usual. The AGSA was currently busy finalising the analysis of these outcomes, consolidating them and engaging with key stakeholders on these outcomes.

The AGSA would be able to talk to the Committee about the consolidated outcomes in the latter part of March. Today’s focus would be on the DBSA, PRASA, Denel, Eskom, Transnet and the SABC. The Office had taken over the responsibility of signing off the audits of these entities over many years. In the last six or seven years the AGSA had increasingly taken on these audits. The only SOEs in the list that the Committee sent, that the AGSA did not sign-off was Transnet and Eskom. The Transet audit would be signed-off for the year end in March 2021. The AGSA was currently working on a partnership with private sector auditors, SNG. These audits had been completed with engagements with the management of the entities, the boards of the entities as well as the executives responsible for those entities. The AGSA ensured that those responsible for running those entities were fully briefed on the contents of the audit report and the outcomes of our work on the year end audit. She reminded the Committee that while SAA was on the list of SOEs to talk about the AGSA had not completed an audit of SAA since the 2016/2017 financial year. There had not been an audit of SAA this year while the entity had been engaged in the business rescue process as well as the restructuring exercise. Unless members had specific questions on SAA that they want answered the AGSA did not have a briefing on SAA because there has not been an audit for a number of years.

The Chairperson noted the issue of SAA and said that it was a perennial headache. The Committee would have to continue its engagements with the Department and the business rescue practitioners. There had been quite a number of developments at SAA including, but not limited to, the very exorbitant amounts that were being paid to the business rescue practitioners. The Committee would flag the SAA headache and consider how it would move forward on that matter. The Chairperson noted Ms Maluleke’s comment. The Committee was understanding as this was a matter that had been before it for quite a while.

Briefing by the Auditor-General on DBSA audit outcome

Mr Polani Sokombela, Business Executive, AGSA, briefed the Committee on the Development Bank of Southern Africa (DBSA) audit outcome for the financial year 2019/2020. The presentation detailed the audit opinion history and provided an overview of audit outcomes. The irregular, fruitless and wasteful expenditure of DBSA was also discussed. The Committee was also briefed on the progress of investigations into the Cranbrook Group transaction.

Overview of the development loan book

The gross loan book as at 31 March 2020 is R96.4 billion and the loan portfolio increased by R14.bn year on year. The impairment (expected credit losses) recognised on the gross loan book is R10.2 billion resulting in a net loan book of R86.2 billion.

Audit opinion history

The overall audit outcome of the DBSA for the 2019/20 financial year was financially unqualified with no material findings on compliance with legislation and predetermined objectives. The audit outcome improved compared to the prior year where material findings were noted on compliance with legislation. The details of the audit outcome and improvement is covered in the next section.

Overview of the audit outcomes

The audit outcome improved in the current year, as management implemented the commitments made on the audit recommendations on material findings made in the prior year, which contributed to the entity regaining its clean audit status. The Supply Chain Management (SCM) policy and procurement processes were revised in line with the recommended best practice including the Preferential Procurement Regulations, National Treasury instruction notes and guidelines. Furthermore, management enhanced their review controls around the annual performance report which had material changes that were identified during the audit process for one indicator. This control includes the use of internal audit to review the annual performance report which improved the consistency of reporting actual achievement of planned indicators and targets compared to the corporate plan.

Irregular, Fruitless and Wasteful expenditure

DBSA’s Irregular expenditure increased by R2.3 million compared to the prior year. The increase in irregular expenditure is attributable to contract payments that continued post their expiry date and contract price variations that were not approved by the delegated authority. The instances of irregular expenditure highlight the internal control deficiencies around contract management within DBSA. DBSA has not incurred any fruitless and wasteful expenditure in the past two years. The fruitless and wasteful expenditure incurred during the 2017/18 financial year related to interest on late payments and theft of foreign currency used on an international travel trip.

Cranbrook Group transaction

The AGSA received a protected disclosure memorandum from a whistle blower on 17 July 2020. This raised concerns relating to a request submitted to the Audit and Risk Committee (ARC) of DBSA by management to write-off the Cranbrook Group related loans that were issued between 2007 and 2009, amounting to R259 million.

The AGSA communicated to management the limitation of our audit scope relating to this transaction. We further recommended to management and the ARC to verify the processes followed for origination and monitoring for all the Cranbrook Group loans through the ongoing forensic investigation being performed by the internal audit unit. DBSA is currently performing a forensic investigation on the life cycle of these Cranbrook transactions and the investigation was still in progress at the conclusion of our audit in September 2020. The AGSA conduct a follow up on these matters in the following audit cycle, and once the investigation was concluded, will review the outcomes and its impact on the audit of DBSA.

Discussion

The Chairperson said that he would have to look at the annual report of DBSA more extensively and read it against the presentation. The presentation was raising issues but the DBSA got a clean audit. He was battling to reconcile the two.

Mr M Dirks (ANC) welcomed and congratulated Ms Maluleke on being appointed the first woman Auditor-General in South Africa. The country was struggling with the representation of women and this appointment was a step in the right direction. He said that maybe auditors did things differently but from a political point of view it was very difficult to reconcile that an organisation can get a clean audit when there were so many unresolved issues. He understood that these were legacy issues but from a political point of view he would say that those issues should have been flagged as audit queries year on year in order for DBSA to deal with those irregularities. The AGSA gave them a clean audit while the DBSA had not dealt with the mass of the problems. He would have liked for those problems to be identified as audit queries instead of classifying DBSA as having a clean audit. There were serious problems in DBSA.

He then discussed the Holomisa Minute (see here and here) that was presented to the Committee. He was not sure if the AG had a look at it but perhaps the Committee should send that report to the AG for assistance. The AG should also look into the issues that Holomisa had raised because the issues raised were about ID documents that could not be found and directors that could not be found. In the Holomisa Minute all those people have been exposed and ID documents have been found yet DBSA said it could not find that. He had a serious problem with DBSA not having documentation available.

The Committee also needed to understand from the AG, and from the investigation, who were the directors of Cranbrook and all its subsidiaries? The Committee needed to understood who were the people involved? Once the Committee and AGSA knew who was involved then they would be able to ‘connect the dots’ about why there was no documentation. He was concerned. In the presentation it was said that there was a forensic investigation that was almost complete. He had a serious problem when there were so many irregularities in an organisation and that organisation was allowed to appoint forensic auditors to do forensic investigations. The investigation should be taken outside of DBSA to the Auditor-General or some other external organisation to then conduct a forensic investigation. The DBSA could not be trusted to do a forensic investigation or appoint a team to do a forensic investigation because there were serious problems in the organisation. The Committee needed to understand and unpack the problems in the DBSA. Mr Holomisa had done great work on it and presented to the Committee but it still needed to be unpacked further. This presentation was one of the steps taken to understand what was happening in the DBSA. The Committee did not believe that the DBSA had a clean audit. The Committee needed to understand and unpack the situation at the DBSA.

Mr A Lees (DA) said that he was sorry the presentations started with the DBSA because there were major issues there. He echoed the surprise of Mr Dirks that DBSA had received a clean audit given the issues that most people were aware of, one of which was the Cranbrook issue. He had a concern with the presenter continually using the word ‘about’ when he quoted figures. He assumed that was just a figure of speech and that the figures that were presented to the Committee were exact figures. He was sure that was the case but perhaps it should be clarified. The issues at the DBSA were very concerning. One of the issues that he assumed would have been audited by the AG, given that it took place during the year under discussion, was the R3.5 billion loan given overnight to SAA. He had attempted, through PAIA and through questions to the Finance Minister, to get details of that loan and he had hit a brick wall in both cases. DBSA refused to give him information. The Minister of Finance declined to give him information because apparently the Department did not get involved in the financial affairs of the DBSA. This issue was very much in the public domain and the AG must have been aware of this particular issue long before the audit was started. Was the procedures and due diligence of awarding this loan to SAA in any way compromised by political interference? Was it conducted thoroughly? Was there a record of the due diligence? Was there a record of the relevant committees discussing this and making a properly informed decision? He wanted the AG to give the Committee information about that transaction which the Committee had been unable to get from the Minister of Finance or directly from the DBSA. That was the main issue that he wanted to be dealt with. He also would like to comment, at stage during the meeting about SAA.

The Chairperson said that the Committee would deal with SAA at the end of the meeting as a standalone item. The Committee needed to discuss the SAA matter so that it could see how to move forward.

Ms V Mente (EFF) said that her satisfaction would only come when the Committee had both parties, DBSA and the Auditor-General, on the same platform. When she looked at the audit findings and the concerns that were raised by the Auditor-General, it did not relate to the findings of the company. Looking at how these occurrences were taking place, she was concerned that in the next five years the Committee would be confronted with the same findings of people not being found, of loans being prescribed and “in duplum”. This was going to occur over the next five years. It did not balance very well and she was not comforted at all. She asked Mr Sokombela if he had comfort with the documentation presented to him with regards to existing loans. Did the AG get comfort from the findings under the written-off loans and the findings of Cranbrook? Was the AG provided with surety and certainty that all the people who were signatories of these loans could be found? Were the proper processes for borrowing from DBSA followed thoroughly? If that was not the case then in five years’ time the Committee would be confronted with the very same report that said in the last five years these were the loans provided to the companies and that the AG was not able to find directors, loans were in duplum and then there would be prescription. Those were also the things that the Committee needed to deal with regarding DBSA. The AG took the reasoning of the DBSA to be satisfactory and gave it a clean audit. She was not comfortable. The AG would have to explain this much better to the Committee. She would be satisfied once both parties were on the same platform to explain exactly what they were talking about when it came to these findings.

Mr S Somyo (ANC) said that the matters were a bit glaring. He acknowledged that the audit was framed within a particular framework and standard. Then the matter of a write-off arose and then that matter was consolidated as part of the current audit. What was the meaning of that? Did that mean that the reporting contained elements of the findings in as far as that item was concerned? The Committee needed to determine the justification of arriving at the AG’s finding of a clean audit for DBSA.

He then raised the issue of the Cranbrook loan book. It looked like there has been an appetite for the application of a number of loans. There were loans for R124 million, R125 million and R10 million irrespective of whether it came from subsidiaries, the extent thereof and then thereafter the write-off. One of the allegations in that correspondence that the Committee received from Mr Holomisa was that there is a board member who happened to be part of such a group. There was a difficulty of finding out where to locate them. There was an individual who was a board member who participated on the deliberations to decide such write-offs. What was the meaning of that? He acknowledged the difficulty the AG had in locating documentation and all other substantive matters that related to this loan and the legacy nature of the loan. Even though the audit was not an in-depth investigation the elements of it were raising a number of concerns. His other question was on liquidation which had been a process identified as well. It was mentioned that the write-off was not Cranebrook but rather on the subsidiaries. What was the meaning of that taking into account the loan amount? It was discussed in the presentation that DBSA had undertaken forensic investigation on the matter which was a necessary step of accountability. That would require the Committee to have a meeting with both parties. There would be a need for the DBSA and the AG’s Office to be on the same platform. For the Committee to deal with these matters to determine the scale and the depth of these gross levels of findings, specifically the transaction itself, and leading to elements of what Mr Holomisa briefed the Committee on. The Committee needed to be ready to contribute quite proficiently on the matter at hand.  

Mr B Hadebe (ANC) echoed the sentiments of the other members in the concerns raised about the clean audit given to DBSA. He wanted the Committee to propose a way forward on this matter. He welcomed the fact that there was still forensic investigation still under way. It would not be ideal for an Auditor-General to express an opinion at this current juncture while the forensic investigation has not yet been completed. He proposed that the Committee deal with this matter as a separate item and once the forensic investigation has been complete the Committee should get those forensic investigation reports. The Committee should summon both the AG and DBSA to appear before it. The Committee should appeal to whoever is dealing with the forensic investigation to treat this matter as a priority and expedite the process so that the matter could be dealt with as soon as possible. For now, it would be a futile exercise for the Committee to delve into a matter and deal with the merits and demerits of the case while there was still forensic investigation under way. The honourable thing to do would be to wait and highlight the Committee’s dissatisfaction and concern. All those serious questions of concern from the Committee were not lost because the AG indicated that this matter will still find expression in the next audit. That gave the Committee comfort that this was not water under the bridge.   

Ms O Maotwe (EFF) welcomed the presentation from the AG’s Office. She had an issue with the Cranbrook loan book which was also the concern of other members. When she listened to the presentation she thought to herself that these transactions happened between 2007 and 2009. Now 13 to 11 years later a whistle-blower brings this matter to the AG and only then was this matter being investigated. There has been audits conducted all this time and this issue was never picked up. The AG’s Office needed to be enabled to pick up these issues early enough because there were audits done from 2007 to date and the issue was only picked up when a whistle-blower came forward. That indicated to her that maybe the AG was not enabled to do investigations to unveil some of these issues. This matter could have been dealt with much earlier. The Office of the AG was intended to strengthen democracy through accountability and through auditing. Could it be that the process of auditing was limiting the AG’s Office to notice these issues early enough? This was a legacy project because it occurred more than ten years ago and yet the audits were being conducted all along. She had a problem with that. Perhaps the Members of Parliament needed to look at how to enable the AG’s Office to unveil these issues. It was concerning that the AG was compelled to come to a non-conclusion. The recommendation said that due to lack of evidence the AG could not come to a conclusion whether there was compliance or non-compliance because of the limited information that the AG was given. Management was allowed to do wrong things and hide information from the AG knowing that the AG would not have a conclusive report. What was then the recourse thereof when information was unrecovered so that the AG could not conclude its investigation? For her, the audit was inconclusive. The AG could not tell whether there was compliance or non-compliance because it was provided with limited information. She understood that this issue was now under investigation but it was still a problem for her. The presentation said that for 2019/20 there was a clean audit but there could be several issues that would only appear later on because the process of auditing limits the AG’s Office to unveil some of these issues. The Committee needed to look at whether the AG was limited and if it was to seek assistance from a Department to perform investigations. She asked the Committee to imagine if there was no whistle-blower. The process limited the AG to a certain extent.

The Chairperson said for the next session he would be stricter on time because there were a number of presentations to get through. He handed over to the AG to respond to the questions. He was sure that some of the questions asked would be relevant for the other presentations as well. The Committee did have the Holomisa Minute on DBSA related matters which the members were still in the process of working on and seeing how it would be taken forward. The Holomisa Minute was a whistle-blower anchored presentation that was presented to the Committee last year which was still on the Committee’s radar and will be dealt with this quarter.

Ms Maluleke said that there were a number of questions around the AG’s audit process regarding DBSA. She reminded members that this was the third year of the AGSA auditing the entity. The DBSA had been through management changes so the AGSA struggled to get things from a decade ago. She responded to the questions raised about how the AGSA looked at the entities loan book.

The Chairperson asked who had audited the DBSA before if the AGSA had only been doing it for the past three years?

Ms Maluleke said that before the AGSA took on that audit it was Nkonki Inc that was auditing DBSA. The AGSA took over the audit at the time it withdrew the audit mandate for Nkonki on this audit amongst others back in 2017. That was the context in which the AGSA took the DBSA audit. She discussed how the AGSA looked at the loan book and the comfort levels it had around whether or not there was adequate provision for any expected losses or whether it was comfortable that which has been disclosed as recoverable was indeed recoverable. Accounting reporting standards have changed over the last couple of years. Much more rigour was required on the part of the auditee in terms of what they disclose as revenue and then what they disclosed in their balance sheet as recoverable loans. That has a consequential impact on the responsibilities that the auditor has. She said that the confidence of auditors has increased quite significantly given these particular changes. Even though the AGSA did not audit DBSA up until three years ago the work that the auditors were doing now required much more rigour in terms of understanding the controls that support the disclosures on expected losses, on revenues and on specific loan balances. Having conducted the audit this year the AGSA has a reasonable comfort level that the controls that underpin how these loans were being managed were firm. She would welcome an engagement with SCOPA that incorporated the AGSA and the management of DBSA so that the Committee could get the assurances it was looking for in terms of how the loans were being managed. Ultimately, the DBSA was the ultimate custodian of the loan book and was the point of accountability in terms of how it manages the affairs of the entity so it would be useful to hear from it. The AGSA would continue to look at this area and give the Committee the comfort it was looking for. She then discussed one other question that was raised about why the AGSA included its assessment on the old transaction in the current year audit. The current audit looked at this year’s financials which incorporated last year’s financials as well. The AGSA would not ordinarily go back ten years. In this context the AGSA was aware of the whistle-blower because it had interacted with this individual. The AGSA was aware that SCOPA, as the primary recipient of its reports, was interested in this matter. That was the context in which the AGSA highlighted the issue and not because it had an impact on the financial reporting requirements or compliance and performance information for this year.

She then discussed the appropriateness for DBSA to conduct the forensic investigation and not the AGSA or somebody else. When this matter came up in the DBSA it was the management team that undertook the forensic report. The AGSA thought that it was still appropriate because the DBSA was the primary point of accountability and ought to be the ones that drive consequence management. DBSA needed to assess what the facts were and then take the appropriate action following that. The AGSA’s job was to follow the matter and confirm that the action that has been taken was indeed appropriate and adequate. The AGSA would report to the Committee once it was able to do that. The AGSA would welcome the Holomisa Minute and any information that the Committee believes would assist it. The AGSA would look at it and how it measures up to the information that it had. The AGSA would use that information to deepen the work that has been done. The AGSA believed that the clean audit outcome that had been awarded to DBSA was justifiable and an appropriate conclusion having looked at the current year’s financials, having looked at the internal control environment and having looked at the compliance matters within the entity. The matters from ten years ago were on the agenda mainly because of the whistle-blower and because of the interest the Committee had registered on the matter.

Mr Sokombela responded to the question about the loan DBSA granted to SAA. The audit office did look at this transaction as part of its procedures. The DBSA was approached by National Treasury to consider providing an amount of R3.5 billion which was a 6-month bridge facility loan to SAA. The proceeds of the facility were going to be utilised to fund SAA’s operation cost until the end of February 2020. The facility was repayable in full on or earlier than 31 July 2020 or on completion of the business rescue plan and the date of commencement of the liquidation proceedings. What happened was that the facility was secured by an irrevocable and unconditional Government guarantee. The Government was planning to recapitalise SAA, at the time, by 31 July 2020. SAA required funding on a more urgent basis. Government indicated that there would be a disposal of certain non-core assets at the time and proceeds which would be used to recapitalise SAA. That was part of the deliberations. SAA was to use those proceeds to repay the amount owed on this facility. The DBSA was willing to lend SAA the amount of R3.5 billion as a bridge facility. It was subject to the conditions and the facility agreement provided in the guarantee that was issued to DBSA. There was a proceeds account that was seeded to DBSA that was pursuant to a session agreement so that DBSA could be protected. He then responded to Mr Lees’s question whether due diligence was performed. The AGSA inspected that there was due diligence of the transaction that was performed and the transaction was approved by the board investment committee of DBSA as per DBSA’s delegation of authority. The transaction was within the mandate of the DBSA and its mandate because South African Airways was in the transport sector which was one of the target sections of the DBSA. The funding was provided to prevent market failure which was in line with section 3.1(a) of the DBSA Act. This transaction was an equity bridge to Government. The Government was, from a credit perspective of the loan, the borrower rather than the legal borrower who was SAA. The credit risk was performed by DBSA on Government and was used to grant credit to SAA. This facility was paid by Government to DBSA on 31 July 2020. There was an allocation that was made to SAA and so the R3.5 billion has been paid back to DBSA. He discussed the previous auditors, Nkonki, of DBSA. Nkonki was auditing DBSA from 2013 till 2017 and before that it was SNG and before that it was KMPG. There were various firms that were auditing DBSA during those years.

The Chairperson said that the Committee wanted the explanation on SAA in writing. The Committee wanted to capture it correctly for the purposes of moving forward with issues.

Mr Lees thanked the Chairperson about this instruction to the AG about SAA but could the Committee please get a copy of the due diligence that was done?

The Chairperson replied yes and the Committee would make a list of information it wanted after this meeting.

Briefing by the Auditor-General on PRASA audit outcome

Mr Sokombela briefed the Committee on the Passenger Rail Agency of South Africa (PRASA) audit outcome for the financial year 2019/2020. PRASA received Government subsidies from the Department of Transport amounting to R8.4 billion for operations and R8.1 billion for capital expenditure during the 2019/20 financial year. In addition, PRASA group generated revenue of R1 billion in the form of fare revenue, operating lease rental income of R726 million, other income of R274 million and interest received of R1.5 billion.

Audit opinion history

The audit outcome in the current audit cycle had stagnated with a ‘disclaimed with findings’ outcome. Once again the entity has been plagued with instability at both the Board and key management level including the positions of the Group CEO and Group CFO. This instability, coupled with the numerous acting incumbents at senior management / executive level and the complacent attitude, lack of accountability and, lack of effort of some executives to address significant matters that have been reported over the previous audit cycles, has negatively impacted on the entity making any progress in addressing significant matters previously reported.

Overview of the audit outcomes

The entity continues to have instability at both the Board (discharged in December 2019) and key management level including the positions of the Group CEO and Group CFO. The High Court judgement of 25 August 2020 to set aside the appointment of the Administrator by the Minister, once again resulted in another functionary in the position of Accounting Authority until a permanent board was appointed. The new board was announced by the Minister on 22 October 2020 but still does not constitute in accordance with the requirements of the Legal Succession Act as there are unfilled board positions. During the 2019/20 year, 2 officials have acted in the position of the GCEO. Over the last 5 years there has been multiple incumbents in the position of the Minister of Transport, the Board, the GCEO and GCFO and this instability has overall contributed to the demise of PRASA.

PRASA’s performance

The breakdown in controls at the entity, failing infrastructure together with the repeated incidents of accidents, theft, vandalism, delays and security issues have impacted negatively on rail commuters and the ability of PRASA to effectively discharge its mandate. PRASA’s performance has continued to be in a downward spiral with the entity only achieving 17.5% of its planned targets. This is the lowest achievement over the past 8 -years.

PRASA’s poor performance, together with declining passenger numbers (Metrorail passenger numbers achieved 132.65 million vs target of 246.35 million and Mainline Passenger Service (MLPS) passenger numbers achieved 205 884 vs target of 463 000 passengers) and unrealised revenue targets (Metrorail revenue achieved R563.94 million vs target of R1 075.96 million and MLPS revenue achieved R66.94 million vs target of R140.772 million) demonstrates that the entity is in a downward spiral with regards to its service offering to rail commuters.

Irregular, fruitless and wasteful expenditure

Irregular expenditure increased by R1,3 billion from the prior year. The irregular expenditure was mostly as a result of contravention of supply chain management prescripts.

Fruitless and wasteful expenditure has increased by R48.3 million from the prior year and comprised mostly of interest and penalty on late payments (R34.4 million) and incorrect overtime payments (R12.3 million).

No investigations were carried out for all instances of fruitless and wasteful expenditure reported in the 2017/18 and 2018/19 financial year.

Non-compliance matters identified during 2019/20 were still under assessment to determine whether any has resulted in or is likely to result in material financial losses. Should it be concluded that there is any that meets the definition of a material irregularity, a notification will be issued to the accounting authority in due course.

Discussion

Mr Hadebe said that the presentation painted a very bleak picture. He proposed that the Committee prioritise PRASA. He wanted the Committee to make a follow up with PRASA and have the new board account before the Committee. He welcomed the report. It was detailed and provided a clear sense of the issues that needed to be focused on. The Committee needed to treat this matter as its number one priority. The board had been newly appointed but whether it was duly constituted will have to be ascertained by the Committee. The board needed to appear before the Committee. It was quite concerning that there was a decline and decrease in passenger numbers and expenditure in relation to PRASA. All those questions would be answered when the board appeared before the Committee.

The Chairperson said that the members were in agreement with that. The Committee had been dealing with the PRASA matters before and it was due to come back to the Committee before the end of 2020. He highlighted the interventions around the dissolution of the interim board and the findings. The Committee would have to read the 2019/2020 report with the 2018/2019 report because the issues will overlap. Those annual reports will have to be read together alongside the detailed briefing by the AG. He thought there was a necessity to consider an oversight visit on PRASA related matters considering the state of disrepair. There were certain things that were reported on paper but if they were evaluated on sight it would be a different matter.

Mr Hadebe agreed with the Chairperson that there was a necessity for the Committee to perform an oversight visit, particularly to the two lines that were not functioning in the City of Cape Town, the central line, and the one in Pretoria to get a sense of disarray in PRASA. He recommended strongly that the Committee consider that.

The Chairperson said that when it was time for oversight visits the details would be worked out. PRASA would be on the Committee’s radar.

Ms N Tolashe (ANC) asked if it would be too much for it to be compulsory for the Shareholder to be a part of the meeting. The Shareholder must be represented by Minister so that the Committee would be able to deal with all of the issues at the same time. That was her request.

The Chairperson said that was appropriate and it would be done. The Shareholder must be present. It would help the Committee not to duplicate issues.

Briefing by the Auditor-General on Denel

Ms Zolisa Zwakala, Business Executive, AGSA, briefed the Committee on Denel SOC Limited (Denel) and its subsidiaries audit outcome for the financial year 2019/2020. Denel has a R3.430 billion 5-year Government guarantee from National Treasury expiring on 29 September 2023, which was provided for the Domestic Medium Term Note Programme (DMTN) Programme. The debt portfolio consists of government guaranteed commercial paper and bonds totalling R3.415 billion, which is sponsored by Nedbank as part of the DMTN Programme and is listed on the JSE. In 2019, Denel requested recapitalization by the Shareholder to the value of R2.8 billion, the business was recapitalized by R1.8 billion on 31 August 2019. Denel received R1.8bn recapitalisation. The remaining R567 million was released in 2021 financial year to settle DMTN debt and interest, R271 million of which being released in September 2020 to settle outstanding salaries.

Audit opinion history

The audit opinion on financial statements for the year ended 31 March 2020 was a disclaimer. This meant that audit opinion had remained unchanged over a period of three years. Significant weaknesses in the internal controls were the main driver for the disclaimed audit outcome. In the absence of a strong internal control environment management was unable to produce credible financial statements.

Irregular, fruitless and wasteful expenditure

The increase in irregular expenditure was due to prior years’ irregular expenditure identified during the year under review. Although the irregular expenditure balance disclosed was qualified on the basis that it was not complete there was a steady decrease in irregular expenditure incurred in 2019/2020 (R174 million) as compared to 2018/2019 (R321 million) and 2017/2018 (R910m). The total balance of irregular expenditure was R3194 million.

Fruitless and wasteful expenditure was mainly penalties and interest charged on overdue accounts. The total balance of fruitless and wasteful expenditure was R169 million.

Key recommendations

It was recommended that the Committee follow up with the board on why the turnaround strategy did not materialise as envisaged and obtain the updated plan. This plan, together with remedial action plan and progress on liquidity and solvency positions of Denel should be monitored through submission of reports verified by internal auditors and signed off by the audit committee.

Discussion

The Chairperson said that the state of SOEs keep on going from bad to worse to worst. He had no words for the implosion that has happened at Denel. It was a catastrophe to say the least. It was shambolic. It was depressing. He assumed that Denel would be prioritised in light of that presentation. The Committee would read the presentation with the annual report.

Ms Maotwe noted the situation at Denel but was not surprised. She sat in the Portfolio Committee of Public Enterprise so this matter was familiar to her. She noted that there were not many issues identified in the presentation on the leadership side. The financial statements submitted by the accounting authority however they lacked credible financial reporting, lack of adequate and regular review by the leadership, inadequate and inappropriate ways of addressing internal controls. There were a lot of issues presented but in the recommendations the AG was silent on what needs to happen to the leadership. It did mention asking the board about the turnaround strategy but very little was said about the leadership itself. The situation of Denel and its subsidiaries was a disclaimer. It was bad and the leadership needed to take responsibility.

Mr Somyo referred to the non-responsiveness of the board in terms of leadership, the failure to implement their own strategy and the issue of being going concern and asked if the AG would define the current situation as closer to reckless trading.

Mr Dirks said that members were not saying anything when they were listening to all these disclaimers about what was happening at all these entities. What should one actually say? That was the dilemma that members were facing. 2021 should be declared the year of consequence management. All he could say was that there had to be consequences. There had to be consequences for what was happening there or else the Committee will be rendered totally useless. He mentioned how the Zondo Commission said that Parliament was not playing its oversight role. Parliament should never be in the situation where it got accused of not playing its oversight role. Consequences needed to be the order of the day. He remembered when he was in local government and in a meeting where the Premier, who was the Chair of the ruling party, gave the local government a clear line of march that if they received a disclaimer they would not even dismiss the management. They would demand a letter of resignation if there was a disclaimer. Today people just do what they want to do. People receive disclaimers and just continue in their position because there were no consequences. Parliament needed to seriously concentrate on consequence management.

The Chairperson said he agreed. It was an accurate assessment. The Committee needed to look at the Denel and PRASA matters with focus and urgency.

Ms Maluleke responded to the questions on the role of leadership and whether the AG assessed the matters of reckless trading. It was a difficult question to answer directly. The funding issues at Denel were quite serious as the audit report demonstrates. The difficulty of implementing the turnaround strategy would have been exacerbated this year by the liquidity issues that Denel faces as well as the leadership changes. The CEO has not been in place for a long time. There was an Acting CEO at the moment. The CFO was not there for the full financial year and those were just two key people who would be relevant for the financial reporting responsibilities. It was difficult for her to confirm whether or not there had been reckless trading. That was a question that would best be answered by Denel. The fact that the AGSA made a comment in the audit report around going concern affirmed that the AGSA was also concerned about the financial viability of Denel. The capitalisation and funding issues needed to be resolved fairly quickly.

Ms Zwakala commented on the leadership weaknesses. In the audit report in the summary of the internal control deficiencies the AGSA put the ‘ball exactly where it needs to be’ right at the doorstep of the board. The board, in terms of the PFMA, was the one that was to submit financial statements that were credible. All the internal control deficiencies that the AGSA raised in the report spoke to issues that happened on the ground and summarised them quite well. She said that the discussions about whether Denel was financially distressed were ongoing up to board level. The AGSA asked the board to do that assessment and come to a conclusion whether it believed that Denel was financially distressed or not. That was a precursor to an entity triggering business rescue. The board declared that for the period under review it did not think that Denel was financially distressed. That was the assessment made by the board itself.  

The Chairperson said that Denel would be prioritised for a hearing and the Shareholder would have to be present.

Briefing by the Auditor-General on Eskom

Mr Siyakhula Vilakazi, Chief Audit Officer, AGSA, briefed the Committee on the Eskom audit outcome for the financial year 2019/2020. Eskom raised R50.9 billion against a target of R46.2 billion in 2020. New funding of R35.9 billion was secured through cash drawdowns and a R15 billion credit facility agreement was extended with a consortium of banks. The sustainability of Eskom’s liquidity position and medium-term ability to raise funds remains at risk.

Audit opinion history

The audit outcome for the current period and for the past 3 years has been a qualified audit opinion. During the financial year under review the regulatory authorities and the accounting authority conducted investigations into alleged irregularities, fraud and corruption within the procurement environment and other areas of the entity. As at the reporting date, some of these investigations were still ongoing.

Overview of the audit outcomes

The audit outcome of Eskom in the current audit year has not improved as a qualification was reported with regards to completeness of irregular expenditure reported. Further, a material uncertainty relating to going concern was reported in the audit report. This follows four financial years of a stagnant position of ‘qualified audit opinion with findings’.

The operational, technical and financial performance of the utility was marked by the following key factors that had a negative impact on its going concern and sustainability:

  • system constraints that lead to load shedding
  • COVID-19 and the downgrade by credit rating agencies
  • liquidity constraints and increasing debt levels
  • flat sales and an increase in overdue debt

Liquidity remains one of the biggest short-term challenges hampering Eskom’s ability to achieve financial and operational stability and posing a risk to going concern. Access to cost-effective funding remains restricted, while inadequate price increases granted by the National Energy Regulator of South Africa (NERSA) as well as escalating municipal arrear debt further contribute to liquidity constraints. Eskom has restricted its cash requirements to improve liquidity through targeted savings on operating and capital expenditure. However, cost savings alone will not be sufficient to resolve liquidity constraints and the electricity price must migrate to cost reflectivity.

Irregular, fruitless and wasteful expenditure

Irregular expenditure of R11.2 billion was reported in the current year for the group as Eskom continues with its governance clean up. Irregular expenditure will continue to be incurred on open contracts until the related transgression have been condoned. The total balance of irregular expenditure was R33 billion.

Fruitless and wasteful expenditure of R2.3 billion and losses due to criminal conduct of R2.2 billion were reported during the year for the group. The total balance of fruitless and wasteful expenditure was R2.9 billion.

Drivers of internal controls

The accounting authority did not exercise adequate oversight responsibility regarding compliance with applicable legislation and related internal controls that resulted in the lack of proper procurement and contract management processes as well as effective consequence management practices. Action plans developed to address internal control deficiencies were not, in all instances, adequate.

Discussion

Mr Somyo asked a question in reference to the listed matters which were as a result of the Zondo Commission process. A number of companies were part of an exposure in the hearing tabulated by the auditors except for one company: Glencore. It was not listed as part of those companies. Was there any reason for that?

Mr Vilakazi replied that there was no reason. The AGSA did identify those but at the end of the report it stated that there was an incomplete register of irregular, fruitless and wasteful expenditure. With that reportable irregularities the AGSA was attempting to include all other companies that had not been specifically mentioned. He would have to go and check whether Glencore had already been listed because there were a number of companies that were listed in the RI. He would have to go back and check.

Ms Maotwe said that irregular expenditure and fruitless and wasteful expenditure had been growing year on year. What powers did the AG Office have over these entities? For example, it was reported that this year there was R2.9 billion fruitless and wasteful expenditure and R33 billion irregular expenditure and then the report provided recommendations. Some of the things were classified as emergencies when they were not emergencies. What was the recourse there? What steps did the AG take to make sure that these audit findings were being addressed? Did the AG have any power over what needed to be done by these entities in such cases?

Ms Maluleke said that she would let Mr Vilakazi respond as the firm were the appointed auditors. The AGSA just collaborated with them on some aspects of the audit. They had taken the primary responsibility for signing off the audit. The dispensation under which they audit is that which prevails in the private audit sector and that was why they dealt with reportable irregularities rather than the follow up as per the PAA Amendment.

Mr Vilakazi said that there must be investigations there that must take place. Once the report was out pressure would be applied and follow ups would be made on what was being done in terms of consequence management and recovering that money. The other portion of the R2.4 billion related to compensation events. He gave an example of what that was. If a contractor was doing some work on a site and there was something that disturbed them from making progress, like a strike by Eskom workers, the contractor would still bill Eskom or make claims from Eskom for any costs they incurred as a result of that delay. Those kind of claims that were identified were about R2.7 billion which should not have been accepted by Eskom. The contracts that were finalised with contractors needed to be looked at. Did they make sense to Eskom? Were they not one-sided benefitting only the contractors? There was evidence that some of these contracts were not dealt with thoroughly when they were being finalised. Contract management needed to be improved and before contract management there needed to be proper contracting. Until Eskom addresses those issues there would continue to be fruitless and wasteful expenditure. Eskom accepted claims that it was not supposed to have accepted just because someone did not pay enough attention when contracts were being drafted. Highlighting the issues, following up and putting the entity under pressure when action was not being taken was what the auditors could do at this stage.

The Chairperson said that Eskom matters had been with this Committee from day one. Eskom would also be prioritised for a meeting. The priorities of the Committee kept on growing and that should both the Committee. There should be a situation where there were less SOEs that were a priority.

Briefing by the Auditor-General on Transnet

Mr Alex Philippou, Head of Entrepreneurial Services: Assurance, SNG Grant Thornton, briefed the Committee on the Transnet SOC Ltd audit outcome for the financial year 2019/2020. Transnet generated revenue from contracts with customers through provision of rail freight services, engineering, ports and pipeline income and operating revenue of R72.4 billion was reported for the 31 March 2020 financial year. Other revenue consisted of lease income of R2.7 billion and Government grants (pipeline levies) of R53 million was also recognised by the public entity. Total revenue for the year amounted to R75.1 billion.

Audit opinion history

The audit outcomes have remained unchanged and did not improve over the past three years. The public entity annual financial statements were qualified for the past three financial years based on the fact that the auditors could not obtain assurance on the completeness of irregular expenditure reported. The significant plans that management crafted for the 2018/2019 and 2019/2020 financial years did not yield the intended results as the conclusions reached on the completeness in identification and reporting Irregular expenditure remained unchanged.

Overview of the audit outcomes

There was a lack of documentation of rationale supporting certain procurement decisions taken. In many instances, when procuring certain decisions are taken by the business, specific decisions and motivations behind these decisions were not clearly documented to allow for independent review on rationale for the procurement event.

The manual intervention and reconciliations being performed is certainly not ideal. Additional internal controls would be recommended in order to fully reconcile and report irregular expenditure that is sufficiently detailed, accurate and complete.

Irregular expenditure identified in the prior year were not recorded on the register. There are certain audit findings that have given rise to irregular expenditure stemming from prior periods. Such audit findings have been communicated to the respective divisions by both auditors and Transnet management. These audit findings identified in the previous reporting periods have yet to be addressed in the current period and in addition to this have not been reported as irregular expenditure as required.

Irregular, fruitless and wasteful expenditure

Irregular expenditure reported in the 2019/2020 financial year increased by R6.3 billion from the prior year. The irregular expenditure amounting to R56.2 billion identified and reported in the current year was mostly as a result of contravention of supply chain management prescripts. This irregular expenditure was mainly caused by the incorrect application of pre-qualification criteria applied in contravention of Preferential Procurement Policy Framework Act. The amount reported however needed to be considered in light of the fact that the completeness of the disclosed irregular expenditure could not be confirmed by the auditors which resulted in the qualification.

Fruitless and wasteful expenditure has decreased by R376 million from the prior year. The decrease was as a result of Transnet management that enhanced its processes in dealing with fruitless and wasteful expenditure by implementing a PFMA sanction guide to ensure consistency of sanctions imposed through the consequence management process, as well as in alignment with the National Treasury Guideline on fruitless and wasteful expenditure. There was a significant reduction in fines and penalties incurred as well as redundant inventory and assets from the prior year.

Leadership and governance

The accounting authority did not exercise adequate oversight responsibility regarding compliance with applicable legislation and related internal controls that resulted in the lack of proper procurement and contract management processes as well as effective consequence management practices. Action plans developed to address internal control deficiencies were not adequate. The accounting authority did not implement appropriate risk management activities to ensure that risk assessments are conducted and that adequate risk strategies are developed and monitored.

Discussion

The Chairperson said that there were a number of issues and the Committee still needed to meet with Transnet in the Sixth Parliament. The Committee did need to focus on Transnet. The Committee was interrupted by the lockdown because it had intended to interact with it. The issues would receive attention at a hearing.

Briefing by the Auditor-General on the SABC

Mr Andries Sekgetho, Business Executive, AGSA, briefed the Committee on the SABC audit outcome for the financial year 2019/2020.

Overview

The SABC audit outcomes remained stagnant for the 2019/20 financial year as the entity obtained a qualified audit opinion, with findings on compliance with laws and regulations.

However, there have been notable improvements as the entity was able to clear a prior year qualification on property, plant and equipment and improved their audit outcome on predetermined objectives, achieving no material findings after effecting material changes.

There were still concerns on the area of Supply chain management as significant internal control weaknesses were noted in the area of procurement and contract management.

Management did not fully develop and implement policies and procedures to facilitate an appropriate system of consequence management to address all the instances of irregular, fruitless and wasteful expenditure identified as required by the PFMA, resulting in material non-compliance.

Declining revenues and concerns on the limitations of costs containments measures however resulted in the group again reporting an operating loss amounting to R511 million. The SABC continued to project losses for the foreseeable future. Revenue was also projected to continue to decline due to the impact of COVID-19 and an inability to effectively implement the approved turn-around plan.

Audit opinion history

The entity received a qualified audit opinion for 2019/2020 and 2018/2019.

Irregular Expenditure

SABC was qualified in the current and prior financial years due to the incomplete disclosure of irregular expenditure incurred. Systems and processes implemented by the SABC could not prevent the incurrence of irregular expenditure and the entity continued to incur irregular expenditure of R202 million in the current year, resulting in a cumulative balance of R5.3 billion at the end of the financial year. These systems and processes were also not effective in detecting all instances of irregular expenditure to facilitate complete and accurate disclosure.

Going concern

A financial bailout of R3.2bn received during this financial year improved the cash position of the entity. The financial bailout is earmarked for specific spending on capital projects, acquisition of content and settlement of other operational liabilities.

It was projected that there would be continuing operating losses over the next 3 years. Negative operating cash flows were forecast until at least the 2022 financial year, being the period of the cash flow forecasts provided. The forecasted decreases in operating cash flows resulted in concerns that insufficient cash may be available to adequately cover the minimum forecasted operating expenses, including the salary costs.

Financial and performance management

Management did not adequately implement review and monitoring controls to prevent non-compliance with applicable laws and regulations relating to supply chain management. In addition, the lack of related internal controls on certain of these items were also highlighted to management as potential fraud risk indicators. Where controls did not prevent non-compliance with supply chain management legislation, detection controls were also deficient as not all irregular expenditure was disclosed.

Discussion

The Chairperson said that the SABC matters were ongoing and there were retrenchments. The Committee needed to approach the SABC matter with a particular caution so that it did not find itself embroiled in matters which were not in its purview. The Committee would look at those matters with the annual report once it was out. 

Ms Mente had a concern on the part of the report that discussed the going concern. She was satisfied with the explanation on other areas. In the going concern part it said that the losses will continue for the next three years if the turnaround strategy was not implemented. Was the turnaround strategy presented to the auditors? Was there an existing turnaround strategy that the AG was satisfied would have an impact on turning around the losses? Where were these losses in terms of the SABC? Did the AG have sight of the turnaround strategy?  

Mr Dirks wanted to pose a general question. Portfolio Committees perform their oversight role over these different entities over the year. The Portfolio Committees must ensure that the turnaround strategies were implemented. These matters all came to the Standing Committee and they were the last line of defence. He did not want the last line of defence to fail anymore in this Sixth Administration. The Portfolio Committees needed to deal with whether the entity was implementing its turnaround strategy and it was working. It was their duty and role to deal with that. 2021 would become the year of consequence management. There was new legislation that Parliament approved two years ago. Has the AG exercised the new authority that Parliament has granted it? That was very crucial because that new legislation was clear that once a material irregularity was identified the AG now had many other options of dealing with it. One way was the issuing of a certificate where it stated that the CFO and executive department was being held accountable. A certificate could be issued and money could be demanded from them. He was not speaking specifically to this presentation but to everything that has been heard this morning. Perhaps the Committee needed to sit with the AG in a follow up meeting and ask where it had identified material irregularities and what course of action it would embark on? The AG should issue certificates so that the money could be recovered. That would ‘put the fear of God into these people’. People had no fear because nothing was being done. The Committee and the AG needed to start making a firmer stand against everything that was happening in these entities. These were individuals and were not representing political parties. They were representing themselves and their pockets. Individuals were enriching themselves at the expense of political parties and the people of South Africa. He wanted a new approach where the new legislation was used come down on these people. That was the approach that needed to be adopted. Otherwise these issues will be spoken about and nothing will happen. Nothing has happened over the past two or three years. He wanted a new approach in dealing with these issues.

The Chairperson said that a broader discussion about the expanded mandate needed to happen. He was sure it was something the AG was exploring as well. He said times have become desperate and that there was need for the full implementation and exercise of those new powers and functions that the AG has. The Committee needed a comprehensive briefing on how the AG plans on implementing those new powers moving forward. He thanked the AG and her team for the briefings presented. He also thanked them for their cooperation. The Committee would receive the audit outcomes report once they were finalised.

Ms Maluleke said that this session had required resilience. She thanked the Committee for the opportunity to share the work that her Office had done over the past year. She welcomed the opportunity to work with SCOPA and would continue to collaborate with the Committee. She asked Mr Sekgetho to respond to the question by Ms Mente about the SABC and the turnaround plan.

Mr Sekgetho said that he was required to look at the turnaround strategy as it relates to what management purports how it will support the going concern assumption. Before the auditors signed off on the going concern assumption they look at all manner of initiatives and interventions management claim it would implement to turnaround the situation. The auditors did look at the turnaround strategy as it related to the particular principle. The auditors did provide some inputs to management. There were two areas in which a business could maximise their profits. The one way was to increase revenue or to keep costs down to maximise profits. The auditors looked at the turnaround strategy from those points of view. The details of the particular interventions and initiatives were management’s prerogative. The auditors input would be to evaluate the planning of the turnaround strategy by looking at the details and the history of the business. The auditors were able to evaluate the estimations in the turnaround plan. Once that input and the turnaround plan was finalised it was up to management to implement the turnaround plan. Often the challenge rested with the implementation of the turnaround plan. The auditors did provide inputs to the SABC during the planning phase and questions were raised with the SABC on how the implementation had been going. One area that the Committee needed to give more attention to was the interrogation of the proper implementation of that particular turnaround plan. One of the recommendations in the briefing note mentioned this. The Committee needed to do follow up work on the implementation of the turnaround plan. The auditors could not fault the plan now because there were amounts that were coming in and it did not adversely impact on the going concern principle.

The Chairperson said that response sufficed and if additional information was needed the Committee would send it through in writing.

Ms Maluleke discussed the material irregularities and the implementation of the expanded mandate of the Office of the AG. She welcomed an opportunity to share the outcomes of the PFMA cycle with the Committee. That would include a report on how the AG experienced the implementation of the material irregularities in the second phase of implementation. She welcomed the Committee’s support so that her Office could engage with the Committee on the outcomes on a consolidated basis as well as the status of the AG implementing the amended PAA.

The Chairperson asked the AG not to leave so that she could get a sense of the members’ thinking on SAA matters. The state of SOEs were in dire straits. There were a myriad of issues which confronted the SOEs. It was the worst of times. The Committee’s work was cut out. The Committee would be having very serious discussions and interactions with DPE and other line function Departments like Finance, Defence and Communications about the state of SOEs. It could not be business as usual. Something has to change. The picture was very grim. Oversights would ensure that the authority of Parliament was asserted. He thanked the AG and her team for the work they had done. The presentations given today was indicative of work that was thoroughly done. The members had raised the issue of SAA which the Committee needed to focus on.

Mr Lees said that one of the points that were critical about SAA was that the AG, about two years ago, went ahead and issued the audit report in advance of the annual report. If the last audit report was in 2016/2017 surely the 2017/2018 and the 2018/2019 audit reports were well done down the road? Neither of those would have been impacted by the business rescue process nor by COVID. He wanted to know what the position of those audits were? It was his view that the business rescue practitioners and the DPE and the Minister have treated this Committee with disdain when it came to the Committee’s oversight over SAA. It was urgent that the Committee have some kind of meeting. The Committee needed to have a robust discussion with the business rescue practitioners who were making a huge amount of money out of this process. The taxpayer just continued to bailout and bailout. Where were the audits for the two years? Could the Committee put some urgency into a full-blown meeting with SAA and the DPE?

Mr Somyo said that the members were quiet because there was no SAA in the meeting. The matters of SAA awaited the Committee’s normal engagements with the executive authority and the business rescue practitioners. There was nothing the members could comment on so far.

Ms Maluleke responded to the question of the audits. The AG started the audit of 2018, however, it could not be completed because there were no financials to work on. The AG started working and just could not complete it so the team was pulled out. It was for this reason that there was only an audit report from 2016/2017. Since then the AG had not received a final set of financials that allowed it to audit for 2018 and the AG had not received any financials to audit for 2019. There was not any work that the AG did that it could report on. This is consistent with the feedback that the Committee would have received to date. She did not have more to add at this stage.

The Chairperson said that there was no denying that the business rescue practitioners have somehow concluded that they were allergic to Parliamentary oversight or immune to Parliamentary oversight. There was a particular dragging of feet with regards to compliance with even the most basic of things. The situation continues to snowball into an unprecedented crisis which has got no end in sight. The business rescue practitioners have been at SAA now for 14 months. It just did not make sense how this process continued unabated. The Committee would prioritise SAA and would communicate with the executive authority and Minister Gordhan on these matters. The Committee would have the business rescue practitioners appear and explain themselves. There had to be finality to the SAA matter. It could not be open ended because the Committee needed certainty on whatever decision that would be taken by the Executive. It was the Committee’s responsibility to make sure that whatever decision the Executive takes was consistent with the law and the public purse was not constrained. This uncertainty that prevails and entrenches itself as the norm was highly problematic. The Committee would have to broaden the scope of its interaction and probably have a meeting with the Minister of Finance as well. The danger was that the SAA matter might set into motion undesirable precedents in how serious Parliament was taken. The Committee needed to nip in the bud the kind of attitude which characterised the business rescue practitioners outlook and interaction towards Parliament. The bill of the business rescue practitioners was nothing short of shocking. The Committee would prioritise SAA.

The meeting was adjourned.

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