Banele Ginidza

The office of the Auditor General of South Africa (AGSA) is preparing for a thorough examination of the Airports Company of South Africa (Acsa) following concerns raised by the Acsa Board regarding alleged irregularities in the entity's procurement processes.

This decision coincides with AGSA's formal acknowledgment of a request from Acsa and signifies its commitment to uphold transparency during the annual regularity audit for the 2024-25 financial year.

In a statement responding to inquiries from Business Report on Monday, the AGSA confirmed that it would be conducting a review of procurement processes at Acsa.

"Should there be any material findings discovered during that regularity audit, these will be reported in the audit report. The audit report will be made public through the normal annual report processes," AGSA said.

The Acsa board made headlines when it announced plans to hire an independent firm to conduct a forensic investigation into these procurement irregularities, which have significant implications for the governance and financial health of the entity.

Among the focal points of concern is the procurement process regarding the appointment of independent bid evaluators and the allocation of “additional resources” aimed at supporting the Acsa Supply Chain Management Department.

Acsa owns and operates nine of South Africa’s airports. These include Johannesburg’s OR Tambo International Airport, Cape Town International Airport, and Durban’s King Shaka International Airport.

According to Acsa's financial statements for the 2023/2024 financial year, major concerns included restatements to the 2022/23 and 2021/22 figures in the 2023/24 annual financial statements on property, which revealed that a review of useful lives revealed that certain assets had incorrect useful lives allocated to them and were therefore being depreciated over a shorter period than appropriate.

The correction resulted in the reduction in depreciation for the financial year ended 31 March 2023, and previous financial periods.

The results revealed that upon completion of capital projects, assets were transferred prematurely from work in progress to the relevant category. As a result, the depreciation and accumulated depreciation were overstated.

The 2023 and 2022 amounts have been restated to correct the error. The Group is required to rehabilitate land on which there are bulk aircraft fuel storage facilities at the O.R. Tambo, King Shaka, Cape Town, and Chief Dawid Stuurman International Airports.

Evidence of the obligation was available in the prior years and therefore the carrying amount of the Group's land, provisions, finance costs and operating expenditure were understated in the 2023 and 2022 financial year.

Some capital expenditure invoices had been erroneously duplicated. Consequently, trade payables and property, plant and equipment were overstated. Some intangible assets were not transferred from work-in-progress to the relevant category upon completion.

As a result, amortisation and accumulated amortisation for the 2023 and 2022 financial years were understated. Acsa's financials revealed that there are several tax disputes ongoing in the company.

Acsa's financial turmoil extends beyond procurement issues, also entangled in ongoing tax disputes, notably the disallowance of capital allowances concerning commercial buildings and airport assets dating back to 2018-2020.

The most significant pertains to the disallowance of capital allowances in respect of commercial buildings and airport assets for the 2018, 2019 and 2020 tax years. In the previous financial year, the company received a suspension of payment from South African Revenue Services (SARS), which was later settled in October 2023.

Although Acsa continues to object to the additional assessment raised by SARS, the financial statements have been restated to reflect the expenditure in the years in which the additional assessments were levied by SARS.

The restatement resulted in increases in penalties (operating expenses), current tax and finance expense.

The financials unearthed an error in the calculation of the inflation-linked bond, AIRL01, which resulted in an understatement of borrowings and interest expense. The correction has been made retrospectively.

BUSINESS REPORT

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Auditor-General set to scrutinise Acsa’s tenders amid growing financial discrepancies