The auditor-general (AG) has laid bare the financial and management mess at the struggling SA Post Office (Sapo), issuing it with a disclaimer — the worst possible audit outcome — and raising doubt about its ability to stay afloat in the face of crippling losses.
In Sapo’s annual report for the year ended March 2022 tabled in parliament this week, AG Tsakani Maluleke said she was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on Sapo’s consolidated and separate financial statements. This means its accounts cannot be relied on.
Maluleke did point out, however, that Sapo is technically insolvent. It incurred losses of at least R2.2bn [down from about R3bn the previous year] and its liabilities exceeded total assets by over R4bn. It was further unable to pay debts when they were due.
Pushing for a bailout
The postal service is meant to be a key medium of communication, especially in rural and remote areas, but it is one of a long list of state-owned entities (SOEs) reliant on government bailouts to keep operating. Sapo has accumulated financial losses for the past 16 years — it last reported a profit in 2006. That together with management problems have brought it to the brink of collapse. Sapo is currently pushing for a R1.6bn government bailout.
Its dire situation has brought into sharp focus the chaos at SEOs, many of which are failing to deliver on their mandate. This week, the AG also highlighted that the SABC — which along with Sapo falls under the department of communications & digital technologies — is struggling to stay afloat. It received a qualified audit opinion, with the AG raising concerns about irregular expenditure and whether it can continue operating as a going concern.
On Sapo, Maluleke said the financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records, as required by the Public Finance Management Act (PFMA), which regulates financial management in government and aims to ensure that all revenue, expenditure, assets and liabilities are managed efficiently and effectively.
Further, effective and appropriate steps were not taken to prevent irregular expenditure amounting to R611m as required by PFMA. Similarly, little was done to prevent fruitless and wasteful expenditure.
“As reported in the basis for disclaimer of opinion, the value of R242.6m disclosed in note 50 of the financial statements does not reflect the full extent of the fruitless and wasteful expenditure incurred,” Maluleke said.
Some of the goods and services were not procured through a procurement process, which is fair, equitable, transparent and competitive, as required by PFMA. Similar non-compliance was also reported in the prior year.
Maluleke said she was unable to obtain sufficient evidence that disciplinary steps were taken against implicated officials.
At a critical point
In the annual report, Sapo acting chair Sipho Majombozi said the effect of the overall negative economic growth was especially felt in the postal sector in SA.
The Covid-19 pandemic also greatly accelerated the migration to digital alternatives, sustaining the continued move away from physical mail, the main source of revenue for Sapo.
Majombozi said despite declining revenues across most of its product lines, Sapo has not adapted its operating model and costs have continued to rise. Staff expenses comprise approximately 61% of all expenses, followed by security and property expenses at 9%.
“A restructure is currently being finalised to address organisational inefficiencies and the cost structure,” he said.
Financial statements submitted [by Sapo] for auditing were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records, as required by the Public Finance Management Act.
Sapo CEO Nomkhita Mona said the organisation is at a critical point in its existence.
She said the post office of tomorrow, the entity’s new turnaround strategy, seeks to revise the role of Sapo from a traditional conveyor of letter post to an integrated logistics and eCommerce service provider.
DA MP Dianne Kohler Barnard on Wednesday called for urgent action to stop the rot at Sapo and the SABC.
Highlighting issues at Sapo, she said what is more worrying is that only 68.36% of mail got delivered. In the space of one year, 146 branches closed across SA, leaving millions of grant beneficiaries with nowhere to go.
“Meanwhile, messages are flooding in from desperate current and retired employees whose medical aid has been stopped [as the company struggles to keep up with payments], while accompanied by threats of thousands of rands they have already paid being taken from their pensions,” Kohler Barnard said.
“The DA will call for an urgent committee meeting following the R5bn in irregular expenditure at [Sapo] and [the] SABC alone.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.