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

Financial Mail - - COVER STORY - War­ren Thomp­son thomp­sonw@busi­nesslive.co.za

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.

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