SAA INCURS R23BN LOSSES IN JUST 4 YEARS
Auditor General makes damning findings against national carrier
IN JUST four years, national carrier SAA recorded losses amounting to R23.5 billion, according to its four sets of outstanding annual reports that date back to the 2018-19 financial year.
In letters to Parliament, Public Enterprises Minister Pravin Gordhan said Auditor-General South Africa was now auditing the state-owned entities 202223 annual financial statements.
“It is expected to be completed by April 2024,” he said.
However, SAA obtained a disclaimer of audit opinion for each of the financial years 2018-19, 2019-20, 2020-21 and 2021-22.
In her damning 2020-21 audit reports, Auditor-General Tsakani Maluleke said she was unable to obtain sufficient appropriate audit evidence regarding the consolidation of two SAA subsidiaries, SAA Employee Share Trust and SAA Travel Centre due to the non-submission of separate financial statements for audit.
“I was unable to obtain sufficient appropriate audit evidence relating to the elimination of intercompany transactions and reclassification associated with the two subsidiaries, as mentioned.
“I was unable to confirm the consolidation by alternative means. Consequently, I was unable to determine whether any adjustment was necessary to the consolidated financial statements,” Maluleke said.
She made similar findings for the three prior years on a number of aspects when auditing SAA’s finances.
These included matters related to airline revenue, airline lease costs, electronic data costs, employee benefit expenses, maintenance costs and investments among other things.
This also extended to irregular expenditure as well as fruitless and wasteful expenditure over the four financial years.
“I was unable to obtain sufficient appropriate audit evidence that investigations were conducted into all allegations of financial misconduct committed by officials as required by Treasury Regulation.”
The auditor-general also said she was unable to determine whether any further adjustments were necessary to airline revenue stated at R2.382 million and R1 407m to the corresponding consolidated and separate financial statements, respectively.
In all the four audit reports, Maluleke found that during and after the business rescue, there were no measures implemented to preserve skills and capacity in the finance department.
“This affected the credibility of the financial statements prepared as the experienced personnel with knowledge of the entities’ financial records left the company during the business rescue process.
“This was highlighted by the lack of ownership and accountability for accurate and complete financial records and financial reporting at a component level, which further indicates a lack of financial oversight, monitoring, and review of component financial information.”
She also said post the business rescue process, management and those charged with governance have not established an appropriate organisational structure to facilitate an effective control environment for reliable financial reporting and to ensure that financial statements and compliance activities are supported by appropriate records.
“Management did not implement effective action plans to ensure that all material prior-year audit misstatements and compliance findings are remediated appropriately.
“The accounting authority did not exercise adequate oversight over those responsible for the design and implementation of effective action plans.”
She noted that there were ongoing investigations conducted by the Special Investigating Unit into the affairs of SAA. “These investigations are still ongoing, while some identified possible
criminal activities have already been referred to the Hawks for criminal investigations,” she said.
Maluleke said the planned sale of SAA shares to Takatso Consortium indicated that a material uncertainty exists that may cast significant doubt on the public entity’s ability to continue as a going concern.
“As disclosed in note 44 to the financial statements, the shareholder is embarking on a process to dispose 51% stake in SAA and the preferred strategic equity partner has been identified.
“The sale is not yet finalised as there are outstanding regulatory approvals.”
But SAA said should the sale go through, the strategic equity partner will be able to advance SAA muchneeded cash for working capital.
It said from April 2022 to June 30, 2023, the government has provided R2.6bn funding to SAA to settle the legacy long-term debt and to fund receivership liabilities.
The SOE also said its assets of R8.9bn exceeded its liabilities of R5.8bn resulting in positive equity of R3.1bn after exiting business rescue.
SAA also said it received R1bn of the outstanding business rescue funds in April 2023 to settle the remaining business rescue obligations.
“SAA has also requested the shareholder provide the remaining balance of the business rescue funding amounting to R1.5bn during 2023/24.
“While there is uncertainty as to the extent and timing of further shareholder funding,
“SAA has analysed the cash requirements for the next 12 months based on its budget, and is comfortable that it will have sufficient cash to meet its operating requirements.”
It added that it has also identified and sold certain properties that were not core to the business.
“In addition, there are excess aircraft engines and spares that can be disposed of. SAA also has significant property assets that are unencumbered and could be used as collateral to raise funding if required.
“These properties were valued by an independent valuer at the end of the 2022/23 financial year and an increase in valuation of SAA’s properties of R2.4bn have been processed.”