Finance Minister Enoch Godongwana has made a final determination that Eskom not be granted a partial exemption from disclosing irregular, fruitless and wasteful expenditure and material losses from criminal conduct in its annual financial statements, the National Treasury said on Wednesday.
This comes after Godongwana in April withdrew the controversial exemption granted to Eskom following a public outcry, also in a bid to allow for a period of further engagement and written technical input from all relevant stakeholders on the matter.
In a statement, the Treasury said it had engaged with the auditor-general and considered all 56 public comments received covering a broad spectrum of accounting and reporting, auditing, governance, legal principles, and public interest issues.
The Treasury also engaged with audit firms, professional auditing and accounting bodies, a rating agency, and other relevant authorities to discuss the challenges and seemingly onerous compliance reporting requirements applicable to state-owned entities (SOEs) such as Eskom.
Although irregular expenditure does not automatically equate to fraud and corruption, the Treasury said many comments submitted view irregular expenditure as an indicator of how SOEs were managing their finances.
According to the Treasury, accounting and auditing experts noted that SOEs were currently subject to more onerous accounting and reporting standards than commercial companies, as they were required to comply with both the Public Finance Management Act (PFMA) and the Companies Act, as well as the International Financial Reporting Standards (IFRS) and JSE Debt Listing Requirements.
In addition, as part of the Eskom debt relief arrangement, the Minister of Finance has instituted additional reporting obligations on Eskom, which the entity will be required to submit to Parliament and oversight structures.
The Treasury said Godongwana recognised the commitment of the Eskom board and management to fight and expose fraud and corruption, and the additional compliance and reporting burden facing Eskom and other SOEs.
However, it said Eskom needed to do more operationally to reduce the scope of fraud and corruption before such exemption can be considered, and for it to be effective.
It said Eskom needed to ensure that its anti-corruption strategy was credible and has the support of key stakeholders such as investors, lenders, suppliers, customers, and the public as it attempts to recover from the devastating impact of state capture.
“The National Treasury remains committed to upholding the highest standards of financial governance in the management of Eskom’s finances and not compromising the ethos of the PFMA,” it said.
“Treasury will continue to assist Eskom to strengthen its mechanisms to prevent, detect and investigate any financial irregularities, and ensure that acts of fraud and corruption are fully and properly reported, regardless of the reporting requirements.
“The National Treasury remains of the view that SOEs are facing legitimate technical challenges regarding compliance reporting, and the need to differentiate between corrupt and suspicious transactions and expenditure made in good faith but not necessarily complying with the plethora of financial and non-financial laws and rules.
“The comments from professional bodies and experts provide the basis for further engagement on the accounting and compliance reporting challenges, and to assist in developing a better framework for compliance reporting in SOEs.”
The Treasury said it would also continue to work with the auditor-general to develop a revised irregular, fruitless and wasteful expenditure framework to form part of the PFMA reforms and address these and other financial and compliance reporting challenges, which will be finalised after an appropriate consultation process, for implementation in 2024 and after.