SAA pilotless amid turbulence
A report reveals that weak financial controls are at the centre of the airline’s woes
SSAA employees failed to declare interests in contracts worth more than R600-million in the financial year ending March 2017, an internal draft report by the auditor general says.
The draft report uncovers several weak financial controls that resulted in serious procurement and contract management lapses. Some of these were later confirmed in the airline’s financials that were tabled before Parliament in March this year.
The financials were presented a year late; auditors refused to sign off on them because they had failed solvency and liquidity tests set out in the Companies Act.
The new revelations give an inside picture behind the airline’s R5.6billion loss, its sixth consecutive loss and a qualified audit finding. A qualification means SAA — which has blown millions in salaries and fees for executives and consultants in chief executive Vuyani Jarana and chief restructuring officer Peter Davies’s offices — gave financial statements that are fairly presented albeit with some misstatements.
directors or had close associations with directors of companies that concluded R646-million worth of business with the airline;
were flagged as noncompliant; and
were procured from suppliers without valid tax clearance certificates from the South African Revenue Service.
According to the report, some of the employees occupy senior positions and include two senior captains, a senior first officer, an acting head of flight operations, a chief pilot and the company’s Public Finance Management Act (PFMA) compliance specialist. Unlike civil servants, employees at state-owned entities are not barred from doing business with the state but they, and the companies involved, are required to declare a conflict of interest.
“There was a lack of oversight by the entity’s leadership to prevent noncompliance with the relevant supply chain management laws and regulations,” the report stated. “This resulted in material noncompliance concerning the procurement of services bringing into question the tone set at the top.”
The auditor general also recorded difficulties with compiling the report because SAA’s officials did not maintain a proper record of financial information and assets, including property and aircraft.
According to SAA, R533-million of the R646-million procurement went to a jet fuel supplier, while the balance is shared by 12 other entities.
“We are currently looking at the total supply base and employees of SAA to look at conflicts of interest and this forms part of an exercise that goes beyond what the auditor general was looking at,” SAA spokesperson Tlali Tlali said.
He added that the airline’s commitment to compliance and clean governance dated back to before the audit. “We took steps and appointed a procurement specialist who will lead SAA in addressing the issues we had identified,” he said.
“We conducted forensic investigations that resulted in suspension of a number of employees including senior officials, disciplinary hearings and in some cases, dismissals. We appointed a board ad hoc committee whose mandate is to focus on fraud and corruption and have, among other things, focused on revising our supply-chain management policy to facilitate compliance with the PFMA.”
Of the 52 awards totalling R1.6billion to companies without valid tax certificates, Tlali said: “There were major commodity [jet fuel] suppliers involved and one of them had a contract value of R1-billion. SAA and the AG [auditor general] had disputes regarding copies of tax clearance certificate or [whether] prescribed process of national treasury regarding tax clearance certificates [were followed].”
The report also showed that SAA’s deficit, at March 2017, had grown by R3.6-billion from the same period in 2016 to R4.9-billion.
As a group, SAA recorded fruitless and wasteful expenditure to the tune of R46.2-million, as well as R113.4million in irregular expenditure.
In the introductory passages of the draft report, the auditor general noted a “very weak” control environment as a result of vacancies in the executive committee.
At the time, 40% of the airline’s executive positions were occupied by acting personnel.
At the entity’s annual general meeting SAA chairman JB Magwaza was reported to have said that lack of capacity, a shortage of skilled staff and debt were part of key elements weighing the airline down.