Proposed Eskom probe will be more smoke and mirrors
IF THE PUBLIC Protector’s State of Capture Report served to highlight what appear to be possible criminal breaches of governance at board level of the power utility, then the #GuptaLeaks and the report of the external auditor contained in the 2017 Eskom annual financial statements (AFS) simply reaffirm these breaches.
Unsurprisingly, the minister of public enterprises and the Eskom board have sat on their hands since Advocate Madonsela released her report in November 2016 and have largely ignored the widespread civic opprobrium of board malfeasance suggested in #GuptaLeaks until the qualified audit report game changer included in the 2017 Eskom annual financial statements (AFS) which resulted in a number of banks, in line with their own governance requirements, threatening to withdraw credit facilities should action not be taken.
It was the banks’ economic gun pointed at the Eskom board which became the catalyst for the ministers of public enterprises and finance to find their voices with their urging of the board to “expedite a transparent investigation” and the admission that the “issues raised in the audit findings are serious and affect the lenders’ and ratings agencies’ view of governance at our stateowned entities.”
Whilst the suspension of the chief financial officer of Eskom is a start, in all likelihood, the problems are far greater than the R3 billion disclosed as irregular expenditure in the 2017 AFS and were it not for the tragedy of the depths to which corporate governance at Eskom has plumbed, there would certainly be wonderful material for Trevor Noah’s daily show.
Breached statute
The upshot of the economic squeeze applied by the banks is that the Eskom board which the external auditor has confirmed has breached statute will, at the behest of Minister Brown, be entrusted with the management of a forensic investigation at Eskom.
The current interim board, notwithstanding the new appointments, appears light on corporate governance and audit knowledge and it is counter-intuitive that board members responsible for the 2017 financial debacle and who have remained on, will be capable enough or even willing to dig up real dirt which could have serious ramifications for them in terms of the Public Finance Management Act (PFMA), the Companies Act and the Prevention and Combating of Corrupt Activities Act.
This lack of capacity is further confirmed by the inability of the Eskom board audit and risk committee to manage or report accurately on internal control at Eskom in the 2017 financial year and it is most optimistic to believe that a newly constituted audit committee will have the ability to properly manage a forensic investigation process.
Surely, the board members, who have remained, are terribly conflicted and short on the necessary technical experience to interrogate all aspects of the proposed investigation and the sad reality is that scope of the investigation will be severely limited and the numerous drafts will eventually be massaged into a final report is which is compatible with Eskom’s desired version of events.
If it is argued that the prognosis expressed above is incorrect and that the forensic investigation and report will indeed pass muster, then the counter to this must surely be to look to the track records of the individuals driving the investigation?
It is apparent that while the minister of public enterprises as the shareholder’s representative and the minister of finance will be required to closely monitor the situation, the investigation will be the responsibility of the Eskom board.
A good track record is normally measured as the sum of previous performance and solid proven experience.
Specialised and industry specific qualifications often tilt the scales, but they are not deal breakers when individuals have exceptional ability.
Ms Brown has been the shareholder’s representative of Eskom since 2014 and during this time there has been absolutely no evidence that Minister Brown has taken any effective steps to stem the tide of malfeasance at Eskom and her inability to grasp the key issues in the on-off Molefe R30 million retirement, retrenchment and re-employment saga is indicative of someone ill-suited for a portfolio of national and strategic importance.
Although the responsibility of appointing the independent forensic auditors and the provision of scope for the investigation will rest with the Eskom board of directors, it will be the minister who will be required to provide critical oversight on behalf of the public.
It all becomes more alarming when one considers that three directors remain on the board which the external auditor in the 2017 AFS confirmed as being in breach of the PFMA (with potential criminal ramifications) and that one of them now serves as interim chairperson.
It must not be forgotten that these directors carry the responsibility for the failed internal control as well as the responsibility for the R3bn of irregular expenditure disclosed in the AFS which could be far larger owing to the fact that the auditors were unable to verify or validate the quantum.
One can only wonder how the board ever signed off the 2017 Eskom AFS and how any of them could have served on the audit committee and how they could have sanctioned the Molefe retirement millions.
It seems that there is only one newly appointed director with the pre-requisite knowledge of statute and audit requirements and he appears to be a former chief executive of the audit firm Gobodo, which merged into SizweNtsalubaGobodo who are responsible for the audit of Eskom.
Independence is real as well as perceived and would the appointment of a director with no historical links to state owned entities or to the current auditor not have been more advisable?
And what of the forensic firm appointed to conduct the investigation?
Malfeasance
This question is most relevant given the overwhelming evidence of malfeasance in the public domain at state-owned enterprises (SOEs) which must be juxtaposed with logic defying clean audit opinions expressed by audit firms of their SOE clients. One must wonder at what appears to be a collective lack of desire to dig deep into the rotten underbelly of procurement which is where almost all corruption occurs.
Perhaps this lack of urgency is motivated by the requirement to protect and sustain fee income necessary to cover the glamorous cutting edge Sandton and Midrand head office overheads knowing full well that a high octane investigation could be the death knell of future lucrative assignments on behalf of state owned entities?
Nothing less than full disclosure to the media of the scope of investigation, the proposed investigative methods prior to the commencement of the investigation, the disclosure of evidence collected and all draft report versions, their amendments and the full final report together with annexures will suffice.
Eskom belongs to every South African citizen and if the Eskom board does not take the public into its confidence immediately, then it is probable that any report flowing from the proposed investigation will cost tens of millions of rand and qualify as further wasteful expenditure in terms of the PFMA.
History confirms that prospects of a thorough investigation and resulting prosecution are bleak at best and one would have thought that our citizens, especially the indigent, deserve better than that.
It is all very tragic.
It is… optimistic to believe that a newly constituted audit committee will have the ability to properly manage a forensic investigation process.