As SOEs flout rules, SA sinks

2016-10-16 10:55
Eskom CEO Brian Molefe

Eskom CEO Brian Molefe

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Most of our state-owned enterprises (SOEs) are showing poor leadership and are failing to inspire confidence.

This is glaringly apparent in the results of the 2014/15 financial year, which was characterised by instability, poor leadership and lack of financial control in most of these entities, resulting in their current near-dysfunctional state.

The Standing Committee on Public Accounts (Scopa) noted that entities such as Eskom, Transnet and Denel were not audited by the Auditor-General, but by independent auditors.

It is important to note that, although the Auditor-General sets standards and guidelines for these audits, its involvement for purposes of proper parliamentary oversight is limited.

The level of detail and amount of information given were absent in the audit reports.

Therefore, Scopa has advocated strategic companies such as SOEs being audited by the Auditor-General.

It should be remembered that private auditors do business, whereas the Auditor-General’s office – a constitutional body – provides a public service.

The latter is not looking to renew a lucrative contract, hence it is not conflicted in carrying out the audit.

Scopa has also expressed concern that most SOEs submitted their annual reports late, which showed noncompliance with the law and poor leadership.

Entities such as SAA, SA Express and the SA Post Office did not submit their financial statements for audit on time, so their audit outcomes were not included in the Auditor-General’s 2014/15 report.

The instability of key staff – particularly with regard to qualified finance personnel – at these institutions is worrying.

This lack of competence is at the centre of all noncompliance with the Public Finance Management Act and Treasury regulations.

Increases in financial losses, noncompliance with the 30-day payment policy, irregular expenditure, fruitless and wasteful expenditure, and negative audit findings are all pointers to weaknesses in financial management capabilities.

SOEs have been used as cash cows by corrupt individuals.

It suits such individuals to have underqualified people working in these bodies to enable their nefarious schemes.

There is no way an entity can employ financially illiterate personnel and still hope to have proper systems and capabilities to manage its finances.

The boards and ministries overseeing these entities must take full responsibility and be held fully accountable by Parliament for these basic failures.

In the 2014/15 financial year, entities such as Eskom, Transnet and the SABC incurred irregular expenditure – to the amount of R713 million, R322 million and R389.2 million, respectively.

Scopa has also noticed that government departments are not playing their role in ensuring that measures are in place for SOE activities to comply with their legislative mandate.

Whenever Scopa has called an SOE and its parent department, seldom do we find the department exercising active monitoring in terms of holding the SOE seriously to account.

SOEs seem to be a law unto themselves – with departments becoming helpless onlookers.

When management fails because the board and the department concerned fail to intervene effectively, it raises questions about their complicity.

In some instances, board members fail to give quality focus to the company’s fiduciary duties because they serve on so many boards.

Scopa believes it might be necessary to curb the number of boards a person can serve on, considering how prettily it pays to be a board member.

There is also the matter of non-adherence to shareholders’ compact.

This refers to agreements between a government department as the shareholder and a particular SOE.

Non-adherence has resulted in limited shareholder oversight on the achievement of strategic goals, especially financial self-sufficiency.

So, shareholder compacts become mere paperwork compliance, rather than the basis for monitoring and holding boards and management to account for financial mismanagement and losses.

This might also point to the lack of a coherent and properly thought-out policy on SOEs.

In the absence of proper leadership and clear goals, personal agendas of officials set in, plundering the resources of SOEs and plunging them into financial meltdowns.

Scopa is also concerned with the many acting positions that exist at key leadership level in SOEs, as this adds to the instability at these entities.

Lack of stability at the top is one of the main sources of poor financial management in the public sector.

Narrow political considerations and interference seem to underscore the chopping and changing of senior managers.

We at Scopa have always pointed out that it is not possible to build an organisational culture of compliance and adherence to good practices in supply chain management when there is a constant change of managers.

SOEs serve a public purpose and, if mismanaged, that purpose is defeated.

We believe the state must play its role in the provision of public services, with SOEs as its driving force. To achieve this, a strong and efficient public sector is essential.

Godi is chairperson of Scopa in Parliament

Read more on:    state-owned enterprises

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