State-owned forestry company Safcol received a qualified audit opinion for its 2016-17 financial statements because it failed to record all irregular expenditure incurred during the year.

Two amounts of irregular expenditure of R270m (for the group) and R32m (for the company) were understated by R108.4m and R30.9m, respectively.

The auditor-general noted that Safcol had not taken effective steps to prevent irregular expenditure, which was due to "significant internal control deficiencies".

Procurement processes were not fair, equitable, transparent and competitive, and proper control systems to safeguard and maintain the group’s assets worth R4.7bn were not implemented.

Notwithstanding the negative audit findings, the group’s revenue for the year exceeded R1bn for the first time, and it achieved an after-tax profit of R114m compared to the previous year’s loss of R43m.

In his statement in the annual report tabled in Parliament, acting CEO Gabriel Theron said that management was "very disappointed" by the audit outcome and "have, as a matter of urgency, strengthened controls and processes in the affected areas of our operations. Obtaining an unqualified audit opinion in the 2017-18 financial year will be one of the management team’s key performance targets over the next 12 months".

Theron said Safcol currently participated only in 12% of the forestry value chain. "We are exploring a model in which we partner with the industry and communities to drive true transformation in the industry, to ensure our own sustainability." Various opportunities to increase revenue were being explored such as treated poles, bio-energy production and timber-frame structures.

Theron also said Safcol was working with the state to expedite the land claims process with regard to the land it leases from the state, 57% of which is subject to pending land claims by communities. The annual report noted that these claims presented a material risk to the longevity and sustainability of the group’s operations.

"We are developing a mutually beneficial strategic partnership model in which both Safcol and the communities will be sustained in the long term," Theron said.

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