The Organisation Undoing Tax Abuse (Outa) has submitted written comments to the National Treasury on its proposal to exempt State-owned utility Eskom from disclosing irregular, fruitless and wasteful expenditure in its yearly financial statements for 2022/23 and the following two years.
A Government Gazette notice granting the exemption from the relevant section of the Public Finance Management Act (PFMA) and Treasury regulation was published on March 31; however, following public outcry, it was withdrawn on April 6 and replaced by a call for comments on the proposed exemption.
Outa notes that Eskom's debt is already at about R400-billion and that, removing the obligation for the utility to disclose irregular expenditure and fruitless and wasteful expenditure in its yearly financial statements, will create an environment for even more money to go missing and for accountability to be thrown out of the window.
“Instead of addressing the root causes that create the prime environment for irregular, fruitless and wasteful expenditure to multiply, government, in this instance, is continuing to feed the problem,” Outa states in its submission to Treasury.
An important aspect of ratings agencies and investment houses’ assessment of Eskom’s ability to manage its cashflow and service its debt obligations relies on trends of a company’s ability to manage and reduce irregular, fruitless and wasteful expenditure, Outa says.
“The exemption of such reporting will have the opposite effect from that intended, as it will send alarm bells to ratings agencies and lending houses. It suggests that these oversight entities would merely see the absence of reporting as equating to the absence of malfeasance, which we believe is most unlikely,” Outa avers.
The organisation says it considers the proposed exemption as an acknowledgement by government of excessive irregular, fruitless and wasteful expenditure at Eskom and the lack of Eskom controls to reduce or regularise this expenditure.
“We are also concerned that an exemption of this nature will now become a precedent for more reporting exemption requests from other entities and municipalities for similar reasons proposed by Eskom,” says Outa’s submission.
The objectives of the PFMA include transparency, accountability and sound financial management. The Auditor-General’s mandate is to act in the best interest of the public and investors rather than the entity, Outa outlines.
“It is therefore the accounting officer’s responsibility to act in the best interest of the entity and report on matters of irregular, fruitless and wasteful expenditure. The exemption from disclosing such expenditure completely defeats this purpose,” it states.
“We therefore call on Treasury to scrap the proposed exemption for Eskom. Should this stand, we will consider our legal options,” Outa warns.