THE standing committee on public accounts (Scopa) on Tuesday heard that the state arms manufacturer, Denel was unable to sell some of the non-core assets within its portfolio as part of the conditions of the R3.4 billion bailout it had received.
Last week, Defence and Military Veterans Minister Angie Motshekga told Scopa she had concerns about the weaknesses in Denel that are impacting on the performance of the country’s military leading to army personnel having to wait long periods to receive new vehicles or have their existing vehicles repaired.
Denel board chairperson Gloria Serobe said the entity had promised to look at non-core assets that could be disposed of as a condition of the bailout but the sale of the non-core assets was not supported by the Department of Defence.
She said the sale of Hensoldt and Rheinmetall Denel Munition (RDM) shares was no longer taking place and that the defence department had raised concerns particularly about RDM as there were issues of missiles linked to the entity.
“They could not be in a position to say yes, you can sell RDM to a third party because it actually takes it away from our control.
“If you look at some of the property assets of Hensoldt, that property while looking idle... internally there was a key point in that property for the missile business. It meant you can’t let go of that,” she said, adding that the Denel board agreed they could not touch those assets.
A presentation shared with Scopa stated that Denel will continue to explore viable options to commercially use dormant assets such as buildings and land.
It will also attempt to acquire majority control in associated companies.
Serobe confirmed that there were delays in the auditing of Denel’s finances due to the untimely submission of financial statements, including failure to prepare a corporate plan, annual performance report and shareholder compact for 2020/21, 2021/22 and the 2023/24 financial years.
This was blamed on staff resignations and the entity losing critical staff due to non-payment of salaries.
“We don’t have a good audit. We now have a group CFO and internal audit to deal with all these matters,” Serobe said.
She also said the process of finalising the 2023/24 annual report was impacted by professional finance staff constraints, but the financial statements were submitted to the Auditor-General.
Serobe said on the issue of corruption, Denel like any other entity had ‘lots of money issues’, but the most severe was theft of intellectual property and intellectual capital.
“We had issues around payment of salaries and top brains left. It was difficult to get that capacity back. I can only report we are quite pleased we managed to get a top chartered accountant in the country for our Group CFO. We also have a permanent CEO.”
She said all the layers of management were being dealt with, including ensuring an internal audit, which the Auditor-General had complained about.
Serobe told the MPs that they had received the bailout from the now late and former minister Pravin Gordhan.
“The severity of the liquidity crisis, cash crunch, not being able to pay salaries and all of that, he had to hold our hands in Parliament and make sure we get obvious support which we actually got. We did get the recapitalisation money but with strong conditions.”
But, EFF MP Veronica Mente questioned why Denel’s finances were not in good shape and yet they had asked for a bailout when they could not account for funds.
While Denel sought to explain the “technical things” in the audit findings, Serobe said, the money was accounted for and as the board they could not sit and not ask for help even though there had been wrong doings previously.
“There was no other option, but to ask for financial support,” she said.
CFO Tsepo Monaheng said they were doing everything possible to normalise Denel.
“We are normalising Denel to operate like a normal business,” Monaheng said, adding that the auditing for the 2023/24 financial statements should be done to enable Denel to be on track and to carry on with its mandate.
Meanwhile, Motshekga on Tuesday painted a bleak picture of the Department of Military Veterans as being in a “serious problem”.
“We have a situation where their entire senior management is absent and the whole staff is not fit for purpose. We have adopted an attitude of addressing challenges faced by the department,” Motshekga said.
She said steps were being taken to act on the weaknesses and material irregularities picked up by the Auditor-General.
“Though the department is faced with quite a number of challenges, work has started, including appointment of an audit committee and outsourcing the audit function to an audit firm.”