Failure to pilot properly means soes have very little runway left nutrition facts apple

Another budget and another bad-news story from the former finance minister, known more for his sartorial elegance than for his understanding of matters financial. It was best illustrated by malusi gigaba’s comments post budget that "the private sector has to share in the risks, the debt burden and the responsibility to capitalise state-owned enterprises [soes] and that a massive restructuring is required which will bring the private sector on board".

Evidently gigaba was not alert to the fact that the private sector and the individual taxpayer, via taxes and the negative effects of ratings downgrades — largely due to SOE mismanagement — have in effect shouldered all the risk and debt burden of soes, while the indigent continue to suffer hardship due to reduced social budgets.

Large restructuring is indeed required to correct the governance and executive management failures, as well as the endemic operational inefficiencies and disproportionately high salary and wage bills relative to the economic output of these soes.Internal control


while the governance and executive management shortcomings can be more easily resolved it is unlikely that there will be a quick fix in employment and operational restructuring owing to the conflicting interests of the alliance partners in the government.

Public hearings on maladministration at eskom included responses from evasive executive management to nonexecutive directors and a cabinet minister whose astounding admissions displayed a lack of understanding of their governance and fiduciary duties.

Pathetic governance at soes has resulted in weak and at times dysfunctional internal controls, forming a cancerous alliance with procurement and corruption. Most expenditure at soes relates to procurement, and many unscrupulous senior and executive managers, with tacit and sometimes overt assistance from the board, have plied their parallel trade with corrupt private sector partners in this area.Nonexecutive directors the high noncompliance at major soes confirms that internal control within these institutions is poor.

SOEs lurch from one financial year to another with neither executive management nor the boards being held to account. SOE annual financial statements are trotted out in which directors brazenly confirm full compliance with the public finance management act regarding internal control. There is no way to describe these representations as anything other than lies. Given that the companies act draws no distinction between executive and nonexecutive directors, one has to ask why the nonexecutive directors participate in this charade.

Perhaps it is because of naivety, incompetence and ignorance or board fees. Whenever the media identifies procurement and governance issues at these soes, the relevant board only reacts when the pressure of public opprobrium becomes big. Inevitably, the board’s pressure-release valve is the public relations exercise of appointing an independent investigation to placate the public and the media that the truth will out.Internal control but the executive management appoints the forensic service provider and sets the scope of the investigation so that the management controls the investigative process to obtain the desired outcome.

In the unlikely event that the executive management is unhappy with the forensic findings, the fall-back position is to play for time by providing piecemeal feedback on the original draft report. The draft report goes through various iterations and is never finalised and the news cycle moves on.

The forensic service providers, ever eager for repeat business, sacrifice principle at the altar of fee income and become complicit in the process of smoke-and-mirror investigations, draft reports and the absence of hard-hitting final versions. They feast on the largesse of soes and if they are ever questioned about the quality of their findings, their favourite refrains are limited scope, client confidentiality and that fraud and corruption are so hard to identify and prove.Internal control

Yet procurement corruption is so obvious and elementary that even a dim-witted investigator could join the dots, which former finance minister pravin gordhan alluded to in 2017.

Hundreds of billions of rand are wasted in irregular procurement and hundreds of millions of rand are wasted on sham forensic investigations, resulting in no board and executive accountability. This is best illustrated by the dearth of dismissals and the absence of any criminal prosecutions or convictions of senior and executive management in terms of sections 83 and 86 of the public finance management act and other applicable statutes.

Two tasks await gordhan as public enterprises minister: the extremely complex financial and operational restructuring of soes and the less complicated restructuring of SOE boards.

Financial restructuring will amount to naught if internal control and accountability are absent. If the rotten apples at board, executive and senior management level are to be cleared out, it will require forensic investigations unlike the hitherto contrived ones.Internal control

It will be vital to populate SOE boards with hard-nosed and capable independent nonexecutive directors who have a sound understanding of legislation governing soes, and who have an excellent grasp of internal control and its practical implementation so that they are able to ask executive management tough questions and obtain truthful answers. These board members must also exercise exacting and independent oversight over the scope of work, as well as the performance of forensic consultants appointed by the executive management.

SOEs have run out of road as far as navel-gazing useful idiots are concerned, and one hopes gordhan will apply a most liberal scalpel during the crucial board restructuring exercise.