The state-owned Coega Development Corporation (CDC) has not yet published its annual report for the year to March 31, 2018.
I emailed a list of questions in this regard to its group head of marketing, brand and communications, Dr Ayanda Vilakazi.
In response to whether Coega had tabled the report in parliament, Vilakazi said: “It is important to note, the Coega Development Corporation (CDC) as a state owned entity, is subject to the oversight of the Portfolio Committee on Economic Development and thus appeared before the committee on November 15 2018 as required in terms of legislation.”
I inquired as to when the report will be published, to which Vilakazi replied: “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 will the results be published.” [sic]
‘No challenge’ of AG’s opinion
Is Coega challenging the auditor-general’s qualified opinion? He responded: “No it is not true that the CDC is challenging the ‘Auditor-General qualified opinion’. As a Chapter 9 institution, the CDC holds the office of the Auditor General and other government institutions including those charged with governance responsibility in high regard, as they play an important role in discharging their duties and responsibilities.”
I also inquired under which Act Coega was challenging the auditor-general (AG) question, and his response was to refer me to the above.
And finally, I asked whether there were any other reasons why Coega had not yet published its 2017/8 annual report. He responded: “As already stated, 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 will the results be published.” [sic]
In the Coega 2016/2017 Report of the AG to the Eastern Cape Provincial Legislature, the AG noted that the following key financial ratios of Coega had deteriorated: cash flow from operations, creditors’ payment days, and the available cash balance.
Millions in fruitless and wasteful expenditure
Further, Coega had incurred fruitless and wasteful expenditure of R40.8 million in 2017 relating to South African Revenue Service (Sars) penalties, interest, and interest on overdue trade payables.
The AG also observed that: “The accounting authority did not always exercise adequate oversight responsibilities to ensure the annual performance report submitted for audit is free from material misstatements and that noncompliance with legislation is prevented.”
The Public Finance Management Act (PFMA) decrees that a state-owned enterprise (SOE) must submit its annual financial statements for audit to the auditor-general within three months of the end of that financial year. The AG must complete the audit within six months of the financial year – September 30 in this case.
What is so difficult about this? Yet many SOEs are struggling to meet this goal, and the hapless AG seems to be taking the brunt of the blame.
Why doesn’t the shareholder – the state – start cracking the whip?
If an SOE does not have adequate financial records, or enough appropriate and sufficient audit evidence to verify the figures, the AG will issue a disclaimer of opinion. If the SOE has racked up a large amount of irregular, fruitless and wasteful expenditure, or is faking short of meeting the going concern test, the AG will issue a qualified opinion. Some SOEs will then try to delay the audit report for as long as possible.
Unfortunately, the number of SOEs resorting to this tactic is increasing.
In addition to Coega, the following high profile SOEs have not yet published their 2018 annual reports: SAA, Safcol, SA Express. Why not? Are they not relying on taxpayer funds to keep operating?
In a media release dated November 21, auditor-general Kimi Makwetu announced that the results of the audited SOEs continued to regress from the previous two years. Makwetu remarked that: “Considering that most of the SOEs where audits had not yet been completed are facing going concern challenges, the financial outlook for most SOEs is bleak.”
Makwetu observed that challenges to audit findings increased in 2017/18, leading to the delay of some audits: “It is acceptable for those we audit (auditees) to question and challenge the outcome of audits, based on evidence and solid accounting interpretations or legal grounds. We also acknowledge that many of the accounting and legal matters dealt with in the audits are complex and often open to interpretation.”
Audit teams pressured
Makwetu affirmed that the AG audit teams were pressured to change negative audit outcomes such as the disclosure of irregular expenditure, and appealed to the leadership to set the tone for accountability.
Meanwhile, last Thursday (March 21) Coega was awarded the Investor of the Year Award at the SA Premier Business Awards ceremony in Sandton. The awards were presented by the Department of Trade and Industry, Proudly South African and Brand South Africa. These government departments don’t appeared to be too concerned about the unavailability of annual reports. But one would expect investors to be.
Finance minister Tito Mboweni has promised that his department will work closely with National Treasury and the AG’s office to ensure that government improves its governance systems.
The first step is to ensure that annual reports are tabled on time, and made publicly available.