Just over a month ago the JSE (finally) suspended the listed bonds of the City of Johannesburg. The basis for the suspension is the city’s failure to submit its financial statements to the JSE.
The city is required to submit its financial statements to the JSE within seven months of the end of its financial year, which is June 30. The relevance of the submission is that bondholders, who have essentially advanced money to the city, need to know the state of its finances at any point in time.
As the bonds pay interest at regular intervals, understanding the financial state of the city is fundamental to the decision-making process of the bondholders. In the absence of such information bondholders are stuck in decision paralysis, where they are unable to decide whether the prospect of repayment remains as strong as it was when they initially invested in the bonds.
The reason advanced by the City of Johannesburg for the non-submission of its financial statements was an ongoing dispute with the auditor-general regarding the 2025 financial statements. Such disputes mean there is a prevailing material difference between the auditor-general and the city.
If the former believes the treatment of particular transactions or disclosures of pertinent information is inadequate, it can issue a report that reflects this. Such reports have consequences for municipalities that issue bonds, especially when conditions attached to the bonds include the requirement to maintain unqualified audit opinions.
If the auditor-general issued a report with a qualification, the bondholders would seek to recall their funds, which would create a cash crisis for the municipality. The fact that the auditor-general’s powers can have such wide-ranging implications implies its stature as an institution of accountability is strong.
Unfortunately, this understanding is not as pervasive as it needs to be. A few weeks after the suspension of Johannesburg’s bonds, SAA headed to parliament armed with one of the most dire audit reports possible. According to the auditor-general, the state of finances and accountability at SAA is so shambolic it has received disclaimers for two of its six entities and a qualification for one.
According to the auditor-general, the state of finances and accountability at SAA is so shambolic it has received disclaimers for two of its six entities and a qualification for one.
The other three have not submitted financial statements and their audits remain outstanding. The range of issues encompasses poor liquidity and leadership, governance instability and persistent operating losses, all underpinned by deficiencies in management discipline and adherence to internal controls, and a continued culture of noncompliance with laws and regulations.
A report of this nature is the type of thing no entity would want to receive and publish. For bond issuers such as the City of Johannesburg, it would be the type of report that triggers a cash crunch the city cannot afford, though we can’t tell for sure in the absence of financial statements.
How can an entity like SAA survive after such a report? It comes down to inconsistency in the accountability structure in South Africa. While Johannesburg would experience actual quantifiable financial consequences if its audit reports were this bleak, SAA accounts to a parliament whose track record of overseeing accountability is tentative at best and nonexistent at worst.
On presenting such a report the custodians of SAA do not expect much more than a call to reflect on the problems inherent in the institution. Whether they take such commands seriously must be measured by whether any improvements materialise.
The evidence presented by the auditor-general — that disclaimers remain in place from year to year and no improvements are on the horizon — means everyone across the room knows what is at play. This is a public institution that is financially and operationally adrift, reporting to politicians whose ability to hold anyone to account for anything is as robust as the state of SAA’s finances.
• Sithole (@coruscakhaya) is an accountant, academic and activist.
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