Acsa: Auditor-General Flags R400M Irregular Expenditure

• Acsa reported R400.3 million in irregular expenditure for the year ending March 31, 2026, an increase from the previous year's R333.1 million.
• Despite receiving an unqualified audit opinion, the Auditor-General's findings on procurement non-compliance prevented Acsa from achieving a clean audit.
• A R36 million contract for explosive trace detectors, procured three years ago via emergency processes, was specifically flagged for irregularities and resulted in unused equipment.
• Acsa's CFO noted that complex regulations and emergency situations contribute to procurement challenges and irregular expenditure across South African state-owned enterprises.
• A new chief procurement officer has been appointed to address past and future irregular expenditures, reporting to Acsa's audit and risk committee.

Management did not implement adequate preventative measures over procurement and contract management to prevent non-compliance in this area, as well as the incurrence of irregular expenditure.

The Airports Company South Africa (Acsa), a state-owned enterprise responsible for managing the nation's nine largest airports, including key hubs like OR Tambo International, has recently faced significant scrutiny from the Auditor-General (AG) regarding its procurement practices. Despite its unique position as a profitable and self-funded entity, consistently contributing to the fiscus through dividends and taxes, Acsa's latest annual report reveals a concerning increase in irregular expenditure.

The Auditor-General's findings, detailed in Acsa's annual report published recently, indicate that irregular expenditure surged to R400.3 million for the financial year ending March 31, 2026. This figure represents a notable rise from the R333.1 million reported in the preceding period. Of the total R400.3 million, R146.6 million constitutes new irregular expenditure incurred within the current reporting cycle, while the remainder comprises historic amounts that must be continuously reported until fully resolved or remedied, as per AG requirements.

While Acsa did secure an unqualified audit opinion, signifying that its financial statements are fairly presented, the persistent issues surrounding irregular expenditure and non-compliance with public procurement rules prevented the company from achieving a clean audit. This outcome underscores ongoing challenges within Acsa's supply chain and procurement functions, despite its otherwise strong financial and operational performance, which saw it recover effectively from the impacts of Covid-19 lockdowns.

Acsa's Chief Financial Officer, Luzuko Mbotya, acknowledged that the challenges with irregular expenditure are not exclusive to Acsa, noting that many other South African state-owned enterprises (SOEs) grapple with similar issues. Mbotya highlighted the inherent complexity of procurement within the SOE landscape, which is governed by numerous rules and regulations, often making it more intricate than private sector procurement processes. He explained that situations requiring emergency procurement can sometimes lead to deviations from standard procedures, such as the requirement to obtain and compare quotes from multiple suppliers, which can be time-consuming in urgent scenarios.

A specific instance flagged by the Auditor-General involved a R36 million contract for explosive trace detectors, procured approximately three years ago. This contract was executed through emergency provisions rather than standard procurement processes, drawing particular attention from the AG. The Citizen reported that this particular contract became the subject of a court dispute, ultimately resulting in the acquired detectors not being utilized by Acsa, further highlighting the consequences of procedural non-compliance.

The Auditor-General's assessment was unequivocal, stating that "Management did not implement adequate preventative measures over procurement and contract management to prevent non-compliance in this area, as well as the incurrence of irregular expenditure." Mbotya clarified that irregular expenditure should not be automatically equated with corruption or theft, though he conceded that such instances still represent a failure to adhere to procurement rules, thereby falling short of expected governance and best practice standards.

The recurring nature of irregular expenditure at Acsa, as highlighted by the Auditor-General, signals a broader need for enhanced state-owned enterprise governance ZA. The AG's consistent criticism of Acsa's procurement non-compliance underscores the importance of robust internal controls and adherence to public procurement rules, particularly within entities that manage significant public assets and capital programs.

In response to these persistent findings, Acsa has taken steps to address the identified deficiencies. A new chief procurement officer, Macdonald Maluleke, has been appointed with the specific mandate to remedy both past and newly identified irregular expenditures. This officer will report directly to Acsa's audit and risk committee on the board, indicating a heightened focus on accountability and oversight in procurement and contract management. This development signals heightened scrutiny on public procurement processes and compliance within South African state-owned enterprises.

The Auditor-General's findings regarding Acsa's R400m irregular expenditure serve as a critical reminder of the ongoing challenges in ensuring financial discipline and compliance within South Africa's public sector. While Acsa stands out among SOEs for its financial independence and profitability, its struggle with procurement non-compliance demonstrates that even well-performing entities are not immune to governance issues.

The continuous reporting of historic irregular expenditures, as mandated by the AG, emphasizes the long-term accountability required from state entities. The focus on Acsa procurement non-compliance and the specific example of the R36 million emergency contract highlight the need for all SOEs to critically review their procurement policies, especially those pertaining to 'emergency' provisions, to mitigate risks of irregular expenditure and ensure full adherence to established regulations. This ongoing oversight by the Auditor-General is crucial for maintaining public trust and ensuring responsible use of resources within state-owned enterprises.

This development signals heightened scrutiny on public procurement processes and compliance within South African state-owned enterprises. Lawyers advising SOEs or private entities contracting with them should review procurement policies, particularly for 'emergency' provisions, to mitigate risks of irregular expenditure and ensure adherence to the Auditor-General's findings.

Source: Original reporting via Moneyweb