Denel unqualified audit questioned

One of Denel's aeroplanes.
One of Denel's aeroplanes.

Cape Town - How can it be that the auditor general (AG) gave Denel a clean bill of health, although the state-owned entity did not comply with crucial sections of the Public Finance Management Act? 

Natasha Mazzone, the DA’s shadow minister on public enterprises, posed this question to the AG’s office on Tuesday during a briefing in which the entity gave feedback on the audit outcomes of the Department of Public Enterprises.

In its 2015/16 annual report, Denel received a clean audit opinion from the AG with no qualifications or findings.  However, in February this year, National Treasury red-flagged Denel for being in contravention of the Public Finance Management Act (PFMA) when Denel entered into a joint venture with a company VR Laser Asia

At the time National Treasury argued that the PFMA required a state-owned company to hand in a Section 54 application before entering into a joint venture, which Denel had not done. 

READ: Denel grilled over Gupta-linked joint venture

Denel’s failure to apply for this authorisation has been the subject of intense debate in parliamentary portfolio committee meetings. 

Early in September this year, Denel’s acting chief financial officer, Odwa Mhlwana defended Denel’s decision to go ahead with the joint venture, claiming the state-owned entity did not receive any objections from National Treasury within the required 30-day timeframe. 

In Tuesday’s briefing, Carl Wessels, senior manager at the auditor-general, said Denel should have first consulted National Treasury before entering into the joint venture. “Thirty days are not a lot of time for National Treasury to have responded.” 

Wessels said Denel should not have assumed they had Treasury’s permission when they didn’t get a response within 30 days. “National Treasury needs to be very firm on this.” 

He also said National Treasury and Denel are currently in negotiations about the VR Laser Denel and whether Denel had in fact transgressed in terms of the PFMA. “There’s disagreement in terms of how well the discussions are going. The outcome of the meeting will trigger the follow up in terms of whether Denel will receive a qualified audit, or not.” 

During a previous parliamentary meeting Denel maintained it had acted in accordance with legislation when entering into the joint venture. 

READ: ANC MPs see nothing wrong with Denel deal

“At that point (of Denel’s decision to enter the joint venture) it was 47 days since our formal application (to have the deal authorised) and 91 days from our initial submission,” Mhlwana told MPs. “But there was no comment. No ‘give us more time or information’ – nothing.” 

Mazzone told Fin24 after the meeting she was not satisfied with the AG’s response. “It’s obvious that the AG is treading carefully around departments, while it should be the other way round.” 

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