As the erstwhile external auditors of SAA, PwC and Nkonki were responsible for, among other things, opining on the veracity of the airline’s financial statements, and identifying and reporting expenditure that flouted laws. 

PwC and Nkonki were the joint SAA external auditors for five years – from 2012 to 2016 – and were paid a combined R69.7-million over the period, according to figures provided by the Zondo Commission of Inquiry into State Capture. 

To identify and report unlawful expenditure at SAA, PwC and Nkonki didn’t have to look far. The Zondo inquiry heard on Thursday 16 July that their appointment as external auditors did not follow proper rules, thus rendering the millions of rand in audit fees they received over three years as “irregular expenditure”. 

This would put PwC and Nkonki in an awkward position because the firms would be required, by auditing standards, to blame themselves for receiving irregular payments and contributing to the airline’s mismanagement of funds. This would have to be disclosed in their audit report on SAA’s financial statements. 

The Zondo inquiry was probing the role of PwC and Nkonki in missing red flags in SAA’s financial statements at a time when the auditing profession faces criticism for aiding companies such as Steinhoff, VBS Mutual Bank and Tongaat Hulett to cook their books. But only PwC appeared at the inquiry. 

SAA was at the centre of looting during the nine years of the Jacob Zuma presidency. Today, the airline is bankrupt and fighting for its survival through a business rescue process. 

Appointment of PwC, Nkonki

SAA advertised a tender in 2011, seeking an external auditor that would express an opinion on the fair presentation of its financial statements. PwC and Nkonki responded to the tender and were jointly appointed. 

When advertising the tender, SAA said it only wanted its 2011/12 financial year statements to be audited – suggesting that the successful auditor would be appointed for one year. Testifying at the Zondo inquiry on Thursday, Pule Mothibe, a PwC audit partner who was assigned to the SAA audit between 2014 and 2016, conceded that the initial appointment of the firm in 2012 was for one year. However, for another four years until 2016, the appointment of PwC and Nkonki was successively extended without an open and competitive tender being launched. 

Because SAA is a state-owned entity, it has to comply with onerous procurement laws – mainly the Public Finance Management Act (PFMA) – when appointing service providers. The Zondo inquiry heard that PwC and Nkonki were required to be subjected to a competitive and open tender process under the PFMA every year for the additional four years (2013 to 2016) in which they were SAA’s external auditors. But the audit firms didn’t go through a tender process; instead, their appointment was automatically rolled over for four more years.

A government bid adjudication committee, which manages tender processes of government entities, raised concerns in 2013 about SAA external auditors (PwC and Nkonki) not being re-appointed through an open procurement process. The concerns of the committee were included in SAA’s tender documents, which PwC and Nkonki would have probably seen as their jobs included examining the documents to determine if there was irregular expenditure incurred by the airline. It’s not clear if PwC or Nkonki saw the committee’s documents or took demonstratable steps to act on the concerns.

Irregular expenditure 

Mothibe said although there was no tender process, the appointment of PwC and Nkonki was approved every year by the Auditor-General’s office and SAA’s board audit committee. Asked by the Zondo inquiry’s evidence leader, advocate Kate Hofmeyr, whether this would make PwC’s appointment and the fees it earned an irregular expenditure under PFMA, Mothibe agreed, but added a proviso. 

“When there is irregular expenditure, there is an opportunity for the entity to regularise and fix it… It would be correct [to consider payments to PwC and Nkonki as irregular expenditure] in so far as there was no process to regularise this,” said Mothibe, who wasn’t involved in the external audit of SAA when PwC was first appointed, but was involved from 2014. 

Beyond the manner in which the firms were appointed at SAA, another problem is that the quality of their work fell short of required auditing standards.

Since PwC and Nkonki externally audited SAA from 2012, the airline’s annual reports stated that the airline was compliant with the PFMA, meaning that its financial affairs were above board. But when the Auditor-General’s office took over the SAA audit process from 2017, it found that PwC and Nkonki failed to identify about eight financial misstatements over the five years they led the airline’s audit functions. DM/BM