NECSA RECEIVED UNQUALIFIED AUDIT OPINION FOR 2014/15 AND 2015/16 FINANCIAL YEARS COMMUNIQUE.
The South African Nuclear Energy Corporation (Necsa) received unqualified audit opinions on its Annual Financial Statements (AFS) for both 2014/15 and 2015/16 financial years from the Auditor-General of South Africa’s (AGSA) office.
The results for the two financial years were released a week ago and were both tabled in Parliament on 23 and 29 September 2016, as required by Statutes. The delay in the tabling of the 2014/15 audited AFS was due to the audit process taking longer than envisaged due to differing opinions on liability with regards to how past historical decommissioning and decontamination costs of the nuclear facilities are determined, financed by government, accounted for and how the financials are spread over time in the Necsa books.
Necsa, citing the relevant clauses of the Nuclear Energy Act, opposed both its accountability (i.e. accounting for and funding thereof) for liabilities that were incurred long before it was incorporated and reflection of these envisaged costs in a lump sum manner and with immediate effect as this exaggerated its financial liability and would have adversely affected significantly the solvency of the company. It argued for a phased approach that included amongst others, an international benchmarking exercise with its counterparts with the view of understanding the full scope of the process, determining costs, obtaining Cabinet approval and realistic timeframes for implementation as per prior agreed programme with AGSA. The dispute was only resolved when all parties agreed to rely on an Senior Counsel opinion obtained by the Department of Energy which concluded that whilst Necsa should account for the liabilities as the current operator, the funding thereof is the responsibility of Government.
The CEO of Necsa, Mr Phumzile Tshelane, said “It is pleasing that AGSA and Necsa ultimately found each other on the decommissioning and decontamination liability issues. This is a milestone worth celebrating as it clears ambiguities on who accounts for this and how it should be done moving forward.”
Necsa is now in a position to move forward after AGSA audit opinions as these also reflect well on its financial reports and outlook. Mr Tshelane further commented that “The financials speaks for themselves and show an organisation that has proper internal control mechanisms and accounting systems.”
In his opinion AGSA emphasized and drew readers’ attention to “irregular expenditure” incurred by Necsa and “going concern issues”.
The irregular expenditure arose mainly from the AGSA’s assessment of the invitations to bidders where the functionality criteria specified on the Request for tender template was in his opinion “not clear and specific” as required by section 4(3)(c) of the Preferential Procurement regulations. The same template had been used consistently by the organisation over the previous periods which were audited and not found to be irregular.
To test the differences in interpretation Management obtained an opinion from the National Treasury regarding the Auditors view. In their response, the National Treasury, inter alia, indicated that the section 4(3)(c) of the Preferential Procurement Regulations (PPR) was ambiguous. As a result, in the revised draft, the National Treasury has removed section 4 (3)(c) of the evaluation criteria from the PPR.
Despite the differences in interpretation that resulted in the irregular expenditure, all suppliers were treated consistently using the same template such that no bidder was prejudiced by using this template. With emphasis on the consistent and equal application of the template to all bids, it is concluded that the tender process was fair, equitable, transparent and consistent in line with s217 of the South African Constitution.
Although the purchases constitute irregular expenditure in terms of the Preferential Procurement Regulations’ interpretation by the AGSA, there was no financial misconduct and no losses were incurred as a result of such expenditures for which Necsa benefited full value for money.
In conclusion, Necsa Management has adapted its functionality evaluation criteria template as per AGSA’s advice to ensure that it is clearer. Effective steps were thus taken to prevent recurrence of such irregular expenditure.
Necsa SOC Limited (company and not Necsa Group) incurred a net operating loss which prompted AGSA to emphasize the existence of financial sustainability challenges (going concern uncertainty).
Necsa is a creation of a Statute (the Nuclear Energy Act) to carry out the nuclear mandate of the State. The Act prescribes that Necsa will be funded by both government grants and external commercial revenue it generates. Government grants have been diminishing in real terms and now constitute only 35% of total income. Necsa is thus exposed to the inherent commercial risk and global economic realities. Necsa’s intellectual property and its main operations are considered strategic to the Republic, hence the Government’s direct involvement in ensuring its continued existence.
No evidence exists to suggest Government intends discontinuing Necsa’s operations. Whilst operating in a complex environment, growing external revenue is a strategic direction Necsa is vigorously pursuing, however the results cannot be immediate. Capitalising Necsa could accelerate the growth trajectory.
In conclusion, Necsa achieved unqualified audit opinions for 2014/15 and 2015/16 financial years which sets a firm foundation required to be taken seriously by stakeholders when exploiting commercial opportunities. Necsa Board, Management and staff will work tirelessly to continuously improve its image, reputation as well as its overall financial sustainability, operational excellence, compliance and performance status.
Communication & Media Liaison
South African Nuclear Energy Corporation (Necsa)
Tel: +27 12 305 4452
Fax: +27 12 305 4451
Cell: +27 82 628 0875