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.”
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?
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.