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High staff turnover at state-owned mining company Alexkor – notably in the finance division – has created instability in key operations, including financial reporting, the Auditor-General of SA (AGSA) told Parliament's Standing Committee on Public Accounts (Scopa) on Tuesday.
Alexkor's core business is diamond mining along South Africa's northwest coast.
Alexkor's audit for 2020/21 was significantly delayed and only concluded in May 2022. This was due to the late submission of consolidated and separate annual financial statements for audit by management.
The audit for 2020/21 still contained material misstatements, including regarding environmental rehabilitation liability, inventories, trade and other payables; as well as taxation, net cash flow from operating and financing activities, and disclosures of the impact of prior period errors for property, plant and equipment and intangible assets, Scopa heard.
As a result, Alexkor received a qualified audit opinion for that year.
INSTABILITY
ACSA said the high staff turnover had impacted Alexkor's timely submission of annual financial statements for audit.
Moreover, it led to an impaired ability to ensure appropriate monitoring of financial reporting. Key positions like that of chief financial officer (CFO) should be filled urgently, said the AGSA.
It recommends the implementation of "disciplined financial reporting structures based on solid accounting and financial management knowledge".
Currently, Alexkor does not have an internal audit capability, and the AGSA recommends establishing such a unit urgently to support the board's audit committee with oversight.
The challenges with financial reporting led to Alexkor struggling with compliance with legislation, and the AGSA says it finds repeated material misstatements in the financial statements submitted for audit.
"The controls around the prevention of fruitless and wasteful expenditure should be strengthened as we have noted an increase in these, as well as irregular expenditures," it told Scopa.
"The root causes lie in the weakness in the internal controls in financial reporting and monitoring, an inadequate audit action plan, instability in the finance department as well as instability in governance structures to enable appropriate oversight over the preparation and review of the financial statements."
At the same time, the AGSA told Scopa that Alexkor is solvent. The unaudited figures for 2022 show a significant increase in revenues and a good outlook, mainly due to the lifting of Covid-19 restrictions which allowed mining operations to continue.