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The indaba between SOEs and the president

A fly on the wall …

President Ramaphosa recently met with the executive leadership of some 20 state-owned entities (SOEs) to hear views on the challenges that they confront and the opportunities they have identified.

These views have not yet been made public, so let me guess what was likely to have been said …

Possible gripes (challenges)

Judging from the number of external audit reports of various SOEs I have studied over the last couple of years, I would imagine that challenges include:

1. The regulations for identifying and reporting, and then quickly condoning, fruitless, wasteful and irregular expenditure are far too onerous and time consuming.

2. The auditor-general is interfering with the business practices of the SOEs, and his demands for proper systems of internal control and sufficient audit evidence are resulting in qualified audit reports that make the executive management of the SOEs look bad.

3. This has necessitated many of the SOEs to take the auditor-general report on review, which delays the publishing of the annual report, and this again puts the executive management of SOEs in a negative light.

4. The auditor-general appears to be taking a hard line on the financial sustainability of struggling SOEs. After all – a government guarantee is a rock-solid guarantee, and then there is always the emergency fund. No?

5. A common refrain: “The tough economic conditions made it difficult to achieve the budgeted revenue.” (Huh? And the massive sum wasted on fruitless wasteful and irregular expenditure?)

6. Another common refrain: “With regards to the financial sustainability driver, (insert SOE) was operating in very difficult market conditions, following the slow economy.” (Time to take out that teeny weeny violin.)

7. And another. Everything is ok because: “The assets in (insert SOE) far outweigh the liabilities …” (And that massive fair value adjustment to the assets?)

8. A real gem: “It is hoped that the Public Finance Management Act (PFMA) will introduce a timeframe in terms of reporting so as to provide certainty to entities on the parameters for identifying and reporting on this.” Timeframes? Seriously? The PFMA defines irregular expenditure as “expenditure, other than unauthorised expenditure, incurred in contravention of or that is not in accordance with a requirement of any applicable legislation, including (a) this act; or (b) the State Tender Board Act, 1968 (Act No. 86 of 1968), or any regulations made in terms of that act; or (c) any provincial legislation providing for procurement procedures in that provincial government.”

9. Coega has not yet published its 2018 annual report. Neither have SAA and SA Express. In reply to my question in March as to what the delay was, Coega responded: “There are ongoing engagements between the CDC’s accounting authority, office of the auditor-general and the executive authority. Upon completion of all due processes, the results will be published.” Coega is now well into the 2018/19 financial year.

10. The office of the presidency (OP) observed that “several executives highlighted the need for a better definition of the respective mandates of state-owned companies and for government policy to better support their achievement”. As an irritated taxpayer, I would expect the government to appoint executives who have experience in running a real business with at least some knowledge of the law. (In particular the PFMA, National Treasury regulations and King IV).

11. The OP further observed that: “The executives raised a number of concerns about the legal and regulatory environment within which SOEs operate, which is often ill-suited to the specific needs of entities and constrain innovation.”

Read: President meets state firm chiefs after resignations

Identifying opportunities to strengthen the sector

Many SOEs must be so consumed by trying to deal with staff constraints, no internal control, sub-standard accounting systems, that all they would want is a big bag of money. One can imagine their frustration:

1. The government is really dilly-dallying over nationalising the South Africa Reserve Bank. This should be executed as soon as possible, and then the SOEs will have a bottomless pool of money to tap into. Not so?

Read: ANC: Policy on central bank role has not changed

Fiddling and fighting while the economy withers

2. Remove the various legal constraints mentioned above, and no doubt the SOEs would turn into hotbeds of activity and innovation. Pipe dream?

The SOEs who attended the meeting were: Acsa, Alexkor, Armscor, ATNS, Central Energy Fund, DBSA, Denel, Eskom, IDC, Land Bank, Necsa, PetroSA, Prasa, Rand Water, SA Express, SAA, SABC, Safcol, Sanral, SA Post Office, Trans-Caledon Tunnel Authority, Transnet and Umngeni Water.

I am not going to name all those SOEs who received qualified reports. More on this at another stage. However, the auditor-general’s comments taken from various reports are staggering. Qualifications include:

• Material impairments;
• Restatement of corresponding figures;
• Lack of internal control;
• The auditor-general having to complete annual financial statements;
• Insufficient appropriate audit evidence;
• Effective steps were not taken to prevent irregular expenditure;
• Effective steps were not taken to prevent fruitless and wasteful expenditure; 
• Credit cards were not used for permitted purposes;
• No disciplinary steps were taken against officials who had incurred irregular expenditure;
• There was a lack of adequate oversight responsibility regarding financial reporting, performance information and compliance and related controls as material misstatements were identified for irregular expenditure and reported performance information;
• There was a lack of adequate review and monitoring of compliance with laws and regulations, which resulted in instances of noncompliance with supply chain management processes and irregular expenditure;
• The public entity did not have a proper record management system to maintain information that supported the reported performance in the annual performance report.

May I suggest that the next time President Ramaphosa meets with a delegation of SOEs (there are some 1 000), that he is armed with a list disclosing the accumulated profit/loss, the debt level, the asset-liability ratio, the amount of fruitless, wasteful and irregular expenditure, and whether or not the audit report was qualified. In fact, it would really be helpful if the public was furnished with such a list.

Lastly, I would take out that teeny weenie violin and make the SOEs sing for their supper.

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I doubt we will ever hear anything of what was discussed. They did not have a quorum. You need 30 brain cells (as a collective)

Our problem is simple: We have mediocre leadership at all levels of society, elected by mediocre voters and this leads to mediocre results. This is exactly the same mediocrity which Africa has become so world famous for.

I believe you use the word ” mediocre” too loosely. We would be ecstatic with mediocre.What we see in South Africa today is nowhere close to mediocrity.

You are referring to “Africanacity”. All talk , no comprehension, f-all action.

SOE’s are so damn useless that they have been classed into the civil service mould. And the civil service is past ICU it is in the morgue.

EG. I applied to Eskom for a pre paid meter 14 months ago. It finally gets installed 4 weeks ago but it took 3 weeks to get registered for on line purchases. if I had lived 300km from my nearest Spar I would have been in the dark.

CEO of SOE to the president:
“Look Comrade President, we were deployed by Luthuli House to drive the Developmental State idea that was a congress resolution of the ANC. We were deployed under orders of Luthuli House and efficiency, service delivery, sound management and financial performance was nowhere on our job description. This idea that we must adhere to the financial constraints from Treasury is treasonous. Honestly, you guys in the top 6 should make up your minds. Do you want us to drive your socialist agenda, or do you want us to implement free-market policies?. You are confusing everybody, even yourselves, by saying in public that you will implement sound management and fight corruption while you know those things are part and parcel of socialism. The problem Mr Comrade lies in Luthuli House. The problem started when you changed the law to enable yourself to become a BEE billionaire overnight. Now, after you have eaten, you do not want anybody else to eat. Give back your BEE billions and we will also stop the corruption on our side comrade. You do not have the moral high ground to preach to us.”

Hello Sensei: You often refer to the President’s involvement with the BEE laws and how he has, and is, benefitting from them. I know too little about the subject to fully appreciate your view and shall be pleased if you would bring me and presumably many other readers, up to speed or just tell us where to read. Thanks very much.

Hi DriesBez. Thank you for the comment. I have great respect for president Ramaphosa. I believe he is the best president we have had so far. On a personal level, I do not have any problems with him. I am proud to refer to him as my president. I believe that he is honest in his pursuit of justice and prosperity for all citizens.

I do have a huge problem with the policies of his party. The ANC is a socialist organisation with outdated, naive and destructive ideas. Cadre deployment, EE, BEE, the Mining Charter etc are killing the economy and dumping citizens in poverty. The social grant is unsustainable under this government.

We all want our fellow-citizens to prosper. I will be most happy and proud when the previously disadvantaged are wealthier than me. Then they can carry their own tax burden. BEE is a socialist policy that is only implemented in South Africa. It is a destructive policy because investors and entrepreneurs are forced to part with 30% of their dividends to fund people who are not entrepreneurial nor investors. The president was instrumental in the writing of BEE legislation. He is involved with Shanduka, a BEE company. It basically is his company, although he does not own it in his personal capacity any more. The following articles will give you some background. Tell me what you think. ☺

https://www.iol.co.za/business-report/companies/how-lonmin-lost-billions-to-shanduka-1992607
https://www.fin24.com/Finweek/Business-and-economy/Lonmin-how-Cyril-never-paid-back-the-money-20151022
https://city-press.news24.com/Business/Lonmin-faces-BEE-dilemma-20151023
https://www.angloamerican.com/media/press-releases/archive/2004/2004-08-19

Fruitless and wasteful expenditure is just sugar coating the word ((looting))

Cr: ”Now listen here guys ,we need to tell evrybody a nice story so we can keep plundering, heh heh heh”

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