UNSAVOURY AUDITS

A tender for SAA’S in-flight savoury snacks shows just how internal and external audit processes, and forensic services, can go awry

Open Secrets’ “Corporations and Economic Crime” report paints a dismal, if unsurprising, picture of the failure of a host of outside experts and internal divisions at SAA, showing almost comically how wrong things can go.

It all started with a cracker — the sort you’re served with a lump of cheese as part of SAA’S in-flight meal.

In 2014 Simon Mantell, the owner of confectionery business Mantelli’s, was informed by SAA catering subsidiary Air Chefs that his company had won a tender to provide biscuits to the airline.

But Mantell’s delight turned to consternation a few months later, when Air Chefs made an alarming U-turn. The company informed him that there had been a miscommunication, and that the contract should never have gone out to tender in the first place. Instead, the contract with the incumbent — a company called Ciro, which was part of Anglovaal Industries (AVI) — would remain in place.

Mantell, however, was not to be blown off that easily, and vowed to get to the bottom of the “suspicious reversal”. He started by asking questions about which companies had actually submitted valid tenders, and were therefore in the running for the bid. It took a year for AVI to confirm, through its lawyers, that Ciro had indeed done so.

But Mantell was perturbed to learn that the tender register had been backdated by a week, meaning some bids may have been submitted after the due date.

So he asked SAA’S chief audit executive to look into the matter. This resulted in the launch of an internal probe, and a request for outside assistance to investigate the matter.

Unsurprisingly, the internal probe, within a matter of weeks, found everything to be above board.

The external report by Indyebo Consulting, however, concluded that the tender was irregular.

SAA’S chief audit executive would later testify to the parlous state of the airline’s internal audit processes, describing how audit files were compiled using handwritten notes that often excluded key findings, or did not indicate who had worked on the file and when. There was also no system for archiving audits, meaning anyone could access and change the records without authorisation.

So chaotic was the state of the company’s records that the chief audit executive had to “reconstruct” the tender documents in 2016, as the working papers had been thrown away two years earlier.

But if SAA’S internal audit process was a mess, the external process doesn’t seem to have been all that much better.

Back in 2011, Deloitte noted in its audit report that serious “control deficiencies” existed with regard to SAA’S procurement and contract management. Yet the following year, after PWC and Nkonki were appointed external auditors, “no such concerns” were noted, according to Open Secrets.

From 2012 onwards, the annual reports claim the entity was fully compliant with the Public Finance Management Act, meaning its affairs were in order and taxpayers could sleep tight in the knowledge that all the money being thrown at the airline was being properly accounted for.

In 2017, when the auditor-general’s office took over the audit function, it found that PWC and Nkonki had not identified eight major misstatements in the intervening years.

Still determined to get to the bottom of the matter, Mantell, with jaws clenched, filed a complaint with the Independent Regulatory Board for Auditors about Pwc’s performance. It did not go well for PWC, which was found to have “not appropriately responded to the risk related to procurement” and “failed to disclose noncompliance with legislation”.

The firm was given the maximum sanction of R200,000, with a quarter of that suspended.

More than just auditing issues, the Mantell saga shows gaps in the forensics processes supposed to buttress accountability and corporate governance.

Back in 2015, a report compiled by the National Treasury had concluded that Mantelli’s had, in fact, been the only valid tender. As a result, SAA called in ENS Forensics, a division of law firm Ensafrica, to conduct an investigation and establish whether Ciro’s bid was valid.

But when asked to review and discuss the draft report with the forensic team, Mantell said it fell far short of a proper investigation and left numerous questions unanswered — leading the director of the firm to apologise for the “superficial” investigation.

The next time Mantell saw a version of the report was in 2020, at the Zondo commission of inquiry into state capture, when it was handed to him after he’d described his engagements with SAA over the biscuit tender.

That version, referred to as a draft report dated October 13 2016, recommends that Air Chefs “retain the services of a procurement specialist” and that corrective training should be provided.

ENS did not respond to Open Secrets’ request for answers on what happened, stating the information is “confidential and privileged” and the issues were addressed in a “comprehensive submission” to the state capture inquiry.

Mantell has still not seen the final report.