Denel says its annual financial statements are all in order


Denel has strongly refuted allegations that all was not in order with its annual financial statements presented to a Parliamentary oversight committee earlier this week.

Following the tabling of the state-owned defence and technology conglomerate’s annual report during a meeting of the Portfolio Committee on Public Enterprises, the opposition Democratic Alliance (DA) quickly picked up on a letter written by Auditor-General (A-G), Kimi Makwetu. He indicated there were concerns regarding the financial audit done by Sizwe Ntsalabu Gobodo (SNG).

Responding to the allegation Denel said: “All matters relating to irregular expenditure incurred in the 2017 financial year have been fully disclosed in note 35 on page 202 of the integrated report. This report was thoroughly reviewed by SNG prior to them signing off their audit report on July 31, 2017.
“SNG has been the external auditor for Denel for the past five years. They have extensive knowledge of the business and key risk areas requiring focus within Denel with irregular expenditure one of them. In the 2017 financial year, SNG conducted an independent audit taking into account their standard operating procedures without interference from Denel management. All information and accounting records were made available to SNG in order to conduct the audit during the period starting in February 2017 to July 2017.
“Following an extensive audit process, SNG concluded their audit and presented their report and opinion at the Denel Audit and Risk Committee meeting attended by an A-G representative. This Board sub-committee meeting following a thorough review of the annual report with no objections from neither SNG nor A-G recommended the annual report to the Board for approval. Subsequent to Board approval SNG signed its audit report as reflected in Denel’s integrated report.
“Unless there is a material event that occurred during the audit which was not disclosed to SNG and became evident subsequent to signing the audit report – there is no basis for the proposed change to the report. Extensive information with regards to irregular expenditure was made available to SNG to enable them to complete their audit and arrive at conclusions reflected in the audit report they signed.
“We engaged SNG with the view to understand what material information subsequently came to light which was not made available during the audit that led them to amend their audit opinion and up to now have not been furnished with that response. Furthermore, if this was as a result of an error on their part, the amendment of such audit opinion must be on the basis of the undisclosed information being material which in this case cannot be, given that Denel had already disclosed all this information in its integrated report.
“Denel presented its integrated report to the Annual General Meeting as approved by the board on August 25, 2017. This report, in the presence of the auditors, was adopted by the AGM with an instruction that Denel and SNG must resolve their differences,” said the Denel statement, which is not attributed to either the acting chief executive, Zwelakhe Ntshepe, or the chief financial officer, Odwa Mhlwana.

DA shadow public enterprises minister, Natasha Mazzone, said she would ask for Denel to “urgently be brought before the committee to account for this transgression”. She pointed out the State-owned defence and technology conglomerate was possible in breach of the Public Finance Management Act adding there was a need to ensure audits are transparent in view of corruption.

The Sandton, Johannesburg, headquartered auditing company states in the latest Denel annual report; “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)”.

Fin24 reported SNG managing director Aaron Mthimunye as saying the issue of irregular expenditure was brought to the attention of senior Denel management ahead of the annual general meeting “but there was considerable resistance from Denel’s chairman and CFO to release the adjusted audit report”.