Failed SAA faces rout such as that of Allied forces in Battle of France
In many ways, the continued failure of SA’s national carrier, South African Airways (SAA), can be likened to the routing of the British Expeditionary Force (BEF) and the French army in the Battle of France in May and June 1940 where poor training, weak man management and especially incompetent leadership sealed the Allies’ fate despite materiel superiority over the Germans.
Notwithstanding the warnings from Air Chief Marshal Hugh Dowding that every available fighter aircraft would be required for the coming Battle of Britain, perpetual political meddling demanded that critical fighter aircraft resources be allocated to the Battle for France, resulting in the loss of 195 fighter aircraft out of 261 sent to the continent. The chaotic events of the Battle of France culminated in the miracle of Dunkirk — snatching victory of sorts from the jaws of defeat.
Is the SAA shambles analogous to the BEF’s disastrous continental campaign and will a few inspired leaders with the support of "boat owners" prevent a domino effect further that would damage the economy and defer the dream of a better life for all?
The French generals, with few exceptions, were a disgrace in terms of leadership, which quickly translated into poor morale. Although the BEF had highly capable officers and men, that quality was interspersed with subpar units that were ill equipped and poorly trained. Added to the mix of bad communication and lack of trust between the leaders of the Allied forces, a doomed campaign was inevitable.
If British and French structures were ill prepared for the Battle of France, then nothing within SA’s political or SAA leadership inspires any confidence. There has been continual infighting over the past 15 years and too many turnaround strategies, which were either stillborn or characterised by failure.
That new nonexecutive directors accept their appointments and are prepared to sit on the board creates the impression that there are significant gaps in their understanding of their responsibilities in terms of the Public Finance Management Act, the Companies Act and other applicable legislation when they sign off annual financial statements. The laws require that they ensure that the statutory disclosures are correct and that the figures fairly reflect the SAA group’s financial position.
SAA chairwoman Dudu Myeni sounds off about corrupt management, but seems unable or unwilling to excise the aggressive cancer in SAA. At executive level, the frequent appointments of acting CEOs with bogus qualifications or those promoted from divisions within the SAA Group, where there are question marks over irregular procurement running into billions of rand should give any shareholder or creditor white knuckles.
Key service providers have also been missing in action, best illustrated by a recent investigation by the Independent Regulatory Board for Auditors into the performance of the external auditors of the SAA Group.
SAA chairwoman Dudu Myeni sounds off about corrupt management, but seems unable or unwilling to excise the aggressive cancer in SAA
The Public Finance Management Act places the responsibility on the board to ensure the company’s assets are responsibly managed and protected. The most effective way of achieving this is to have internal control systems designed and closely monitored by a chief audit executive and the internal audit department.
If an internal audit department is dysfunctional, internal control will collapse, which will lead to an entity’s assets including cash reserves, being looted in procurement. This is best illustrated by the malfeasance at Eskom. Imagine if the chief audit executive of SAA were to admit that his directors believed that he lacked accountability, and if he were to confirm that independent quality assurance reviews of SAA internal audit revealed significant weaknesses within its work flows?
And what if it were acknowledged that SAA internal audit working papers were inadequate for 2012, 2013, 2014 and possibly 2015? If this became the reality, would 2016 and 2017 be any different and would SAA not have jetted well past the crisis point?
The external auditors don’t seem to think so and remain unflinching and resolute in their audit opinions, which confirm that "we have considered internal control relevant to the audit and have not identified any deficiencies in internal control which are considered sufficiently significant for inclusion in the report of the auditors". It is a view that beggars belief even for those with only the most rudimentary understanding of audit procedures and internal control.
These external auditors have blithely accepted the SAA board’s disclosed irregular, fruitless and wasteful expenditure of a minuscule R12m (a tiny fraction of 1% of total procurement spend of R22bn) in 2016. Given the admissions by Myeni of rampant corruption, this figure is an insult.
The situation at SAA is far worse than that of the BEF in France in May and June 1940 and if SA is to have a Dunkirk miracle, certain steps need to be taken to rescue SAA from itself and to prevent economic contagion.
Nonexecutive directors must take a stand (like Dowding did in 1940), refuse to bow to political pressure and decline to approve the 2017 audited financial statements, which in all likelihood will have failures in statutory disclosure and misstatements similar to those of previous years and will justify their nonapproval. Should the political pressure be too great, they should resign en masse.
The external auditors have to interrogate all aspects of internal control and procurement. If the board is coerced into signing off the 2017 audited financial statements, it would seem that the pervasiveness and the materiality of admitted irregular and wasteful expenditure, with apparent internal control failure, will justify the most damaging audit opinion possible: an adverse audit opinion.
SAA has great cabin crew, excellent technical staff and world-renowned pilots. They are the limbs of a body with a rotten head
A refusal by the directors to sign off the audited financial statements or an adverse audit opinion will render it impossible for credit providers, in terms their governance requirements, to provide commercial funding to SAA.
The only option remaining would be for the finance minister to sell off assets such as Telkom and raid the government pension funds, which will result in the little boats of millions of state employees setting sail in revolt.
SAA has great cabin crew, excellent technical staff and world-renowned pilots. They are the limbs of a body with a rotten head.
Will SA throw good money after bad and risk falling into the dark abyss or will the country learn from Dunkirk and cut its losses, close down SAA, square off all its outstanding debt and live to fight another day on which a reconstituted national carrier may or may not have a future?
If SA is to have its Dunkirk miracle, the nonexecutive SAA board members and the auditors must be the inspired leaders the country needs and the little ships must be prepared to sail should there be any hint of the possibility of selling off the family’s silver.
• Mantell is a CA (SA) who served articles at one of the big four.