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Flawed financials in Denel Annual Report

Questions have been raised over the audit of Denel.Parliament’s Public Enterprises Committee was today presented with a letter from Auditor-General Kimi Makwetu in which he expressed concerns regarding the financial audit the firm, Sizwe Ntsalabu Gobodo (SNG), did of Denel.

The Auditor-General (A-G) found SNG failed to properly account for irregular expenditure in its report of Denel’s financials.

SNG requested Denel amend the flawed reports, but according to the A-G, Denel resisted this request and proceeded to table incorrect financials.

“It is completely unacceptable a board and the executives of a public entity see it fit to not only submit incorrect financials but also deliberately refuse to follow an instruction by an auditing firm,” said Natasha Mazzone, opposition Democratic Alliance (DA) party shadow public enterprises minister.

“By doing so, Denel possibly breached Section 55 of the Public Finance Management Act (PFMA), which states “the accounting authority for a public entity must keep full and proper records of the financial affairs of the public entity and that financial reports fairly present the state of affairs of the public entity, its business, its financial results, its performance against predetermined objectives and its financial position as at the end of the financial year concerned”.

The DA will now write to the Chair of the Public Enterprises Committee, Zukiswa Rantho, to request Denel be urgently brought before the Committee to account for this transgression.

“The DA shares the A-G’s concerns, considering SNG has also done financial audits on Transnet and Eskom.

“Given the fallout from the KPMG scandal and credibility concerns with the audit profession in general, we trust the A-G will go over the audit outcomes of Eskom and Transnet with a fine tooth comb to check for similar errors.

“Corruption is rife within our state-owned enterprises, and we need to ensure that auditors are transparent,” she said.

In its 2016/17 annual report, Denel’s independent auditor Sizwe Ntsaluba Godobo Incorporated state: “In our opinion, the consolidated and separate annual financial statements present fairly, in all material respects, the consolidated and separate financial position of the group as at 31 March 2017, and the group's financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act no. 1 of 1999) (PFMA) and the Companies Act of South Africa, 2008 (Act no. 71 of 2008) (Companies Act).

According to Fin24, managing director of assurance at SNG Aaron Mthimunye said “we brought the issue of irregular expenditure to the attention of Denel’s senior management before its annual general meeting, but there was considerable resistance from Denel’s chairman and CFO to release the adjusted audit report.”

SNG has audited Denel since 2014 and was responsible for also auditing financial statements of Eskom and Transnet. Last month the company said it was resigning as auditors of Gupta-owned Oakbay Resources and its entities.

Late last month the Department of Public Enterprises, which oversees Denel as a state-owned entity, was given a clean audit for the 2016/17 financial year.

 
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