Pro­posed Eskom probe will be more smoke and mir­rors

The Star Early Edition - - OPINION & ANALYSIS - Si­mon Man­tell Si­mon Man­tell runs the Man­telli’s Bis­cuit Fac­tory.

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.

The writer says 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 Pub­lic Fi­nance Man­age­ment Act.

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