The audit outcomes of State-owned entities (SOEs) have regressed over the past financial year compared with both the previous year and 2014/15.
The 2017/18 general report for the Auditor-General South Africa (AGSA) said there was an increase in noncompliance of the 16 SOEs it audited. It also reported weaknesses in performance reporting processes.
As in the previous year, a significant number of the SOE audits had not been completed by the September 30 cut-off date. “This was due to financial statements and audits that were delayed because of the auditees struggling to demonstrate that they were going concerns,” said Auditor-General, Kimi Makwetu. This applied to South African Airways, SA Express, Denel and the South African Nuclear Energy Corporation.
The Auditor-General said there had been a slight improvement in the financial health of SOEs, although the SABC, the Petroleum Oil and Gas Corporation and the South African Post Office disclosed that there was significant doubt about whether they can continue with their operations in future without financial assistance.
“Considering that most of the SOEs where audits have not yet been completed are facing going concern challenges, the financial outlook for most SOEs is bleak,” the report said.
The SABC regressed from an adverse opinion to a disclaimed opinion.
“Of most significance was that the entity was commercially insolvent by year-end and we could not confirm whether it was appropriate for them to prepare financial statements on an ongoing concern basis,” said the report.
The Independent Development Trust, which assists government departments in implementing projects, received a disclaimed opinion for the third year in a row. Only the Development Bank of Southern Africa, which was audited by the AGSA for the first time, obtained a clean audit opinion.
The 16 SOEs audited by the AGSA disclosed R1.9-billion in irregular expenditure, although this amount could be higher.
Entities such as the Armaments Corporation of South Africa, the Land Bank Life Insurance and PetroSA regressed in their audit outcomes compared with last year.
The report raised concerns about vacancies in key positions as well as instability at board and management level at SOEs. It also highlights that the ten departments responsible for overseeing the SOEs do not have consistent oversight practices. The Auditor-General said the majority of departments did not adequately plan for their oversight function or report on it in their performance reports.
Makwetu said while SOEs need to be supported by the State, they also needed to be called to account.
“Accountability in government is important in ensuring that public officials are accountable for the decisions and actions taken while executing their roles and responsibilities.”
He said there had been a number of positive changes to improve the oversight and governance of SOEs, including increased oversight by parliamentary committees and addressing leadership challenges at board level.
“However most of our recommendations from our previous report have not yet been implemented at all SOEs.”
The Auditor-General said the irregular expenditure of the SOEs which his office did not audit, amounted to R28.4-billion, which included R19.6-billion at Eskom and R8.1-billion at Transnet. The AG report said while it had significantly increased the number of SOEs it audits over the past years, some SOEs were audited by private audit firms in accordance with the directives it provides. The audit firms are appointed by the boards of the SOEs.
“We continue to maintain a close relationship with the appointed audit firms, particularly those firms auditing the SOEs that we have categorized as so-called ‘significant risk SOEs’.”