State companies cling to cash as financial challenges bite, Treasury warns

National Treasury warned Parliament's Standing Committee on Appropriations on Tuesday morning that a number of state-owned entities were accumulating cash from departmental transfers as operational challenges hurt their revenue.

Additionally, the committee heard, not all accounting data provided by public entities could be verified. 

In recent years, National Treasury and government have consistently set the goal to get to grips with the cost of assisting struggling state-owned entities. 

Clinging to cash

Speaking to the standing committee on Wednesday, National Treasury deputy director general for public finance Mampho Modise said the Passenger Rail Agency of South Africa (PRASA) continued to grapple with its procurement and governance challenges and had therefore held onto 5.8% more cash than expected.

"Cash flow from investing is 66.9%, or R2.1 billion lower than projected, because the agency continues to struggle with the implementation of its capital programmes as a result of supply chain management challenges," said Modise.

Modise said cash paid to stakeholders by PRASA was 20.1% or R983m higher than expected, driven by a higher rate of spending on goods and services at R1bn, as the entity made greater than expected payments on repairs, maintenance, security and insurance.

She said at the same time, cash received from stakeholders was 5.1% or R246.9 million lower than expected, due to fare evasion and declining passenger numbers. Employee compensation was lower than expected by R46 million.

Cash balances remained high because the agency was slow in implementing capital programmes, she added.

More than expected

Modise said the South African Revenue Service’s cash at the end of the second quarter of 2019-20 was R315.2 million higher than projected as a result of cash flow investments of R80.6 million for buildings, machinery and equipment, and other fixed assets.

She said cash available at the South African National Roads Agency was 55.8% or R5.1 billion higher than expected at R14.3 billion. She said SANRAL cash from operations was R8 billion higher than expected due to high transfers from the Department of Transport, which were sent earlier than planned.

However, she added, cash SANRAL paid to stakeholders was 22.5% or R1.7 billion lower than expected during to lower than projected payments to service providers for road maintenance. Cash flow from investing was 40.5% or R2.1 billion lower due to construction delays on major projects.

Verification problems

Modise said the data provided by some public entities to executive authorities and national Treasury was not on the Basic Accounting System and could not be verified.

"In relation to capital expenditure in public entities, only the portion of funds that will be spent is recognised as expenditure while the rest is accounted for on the balance sheet as deferred income," Modise said.

Modise said departments used a modified cash accounting standard while state-owned entities used accrual accounting. The cash method accounts for revenue only when money is received for expenses while accrual accounting records revenue and spending even if the cash is not received.

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