The Auditor-General’s damning report on the status of the Land Bank’s financial sustainability necessitates an urgent intervention.
Whoever was responsible for the financial loss of R2,8 billion must be held accountable. This and many other challenges have compelled the AG to express serious doubt as to the ability of the Land Bank to continue operating as a going concern.
The adverse audit opinion cannot be ignored – heads must roll at management and governance level! This also applies to Treasury, which is responsible for oversight. It is unlikely that they were unaware of what was coming because the financial crisis at the Land Bank did not occur overnight. In her report, the AG attributes the problems at the Land Bank to an exodus of competent managers, a lack of oversight by the National Treasury (which represents the South African government as sole shareholder of the bank), the downgrading of the bank’s credit rating by Moody’s, and drought conditions which had made it difficult for farmers to repay their loans.
This, however, is merely the tip of the iceberg. The AG’s report also refers to a lack of internal control measures implemented by management to effectively offset credit losses or a decline in the value of extended loans or the collateral offered when loans are applied for. The AG also mentions that the financial statements submitted for auditing were not presented in accordance with the prescribed financial reporting framework and were not supported by complete and proper records as required by law! According to the AG, there was also a lack of sufficient, appropriate audit evidence to serve as basis for an audit opinion.
Whoever was responsible for compiling the statements should be held accountable. This means that the leadership did not exercise adequate oversight with regard to financial reporting, compliance and related internal control measures! Material misstatements were identified in the financial statements that were submitted. Effective control measures were not implemented in relation to monthly processing and reconciliation of transactions of external service providers used to manage the indirect loan book. In her report the AG refers to insufficient internal control over and management of instruments and models for monitoring expected credit losses.
These were not regularly calibrated and updated with reliable credit input data, which meant that the AG was unable to confirm the assessment of expected credit losses by alternative means or whether adjustments were required to net loans and advances. Management, therefore, did not adequately oversee the development, implementation and monitoring of action plans to address shortcomings in terms of internal control relating to the security required for loans, as prescribed by international financial reporting standards! In terms of procurement and contract management, some goods, works or services were not procured in accordance with a fair, transparent and competitive process. In certain cases where contracts had expired, appropriate processes were not followed to appoint new service providers and no approval was granted in this regard.
The Land Bank management failed to implement an effective human resource management strategy to ensure stability in and adequate succession planning for key positions, with the result that the control environment of the Land Bank was negatively impacted by the number of resignations in these positions. Management failed to check and monitor compliance with the relevant laws and regulations and also did not follow the Treasury instruction in terms of the renewal and extension of contracts with service providers who manage the indirect loan book on behalf of the bank. Moreover, appropriate risk management activities were not conducted to ensure that risk assessments, including the consideration of liquidity and credit risks, were properly performed. No wonder the Land Bank’s cash reserves or funds held for short-term and emergency financing purposes had declined by almost 80% to R700 million compared to R3,2 billion in the previous year! This level of incompetence cannot be overlooked. Heads must roll. This situation cannot be allowed to continue.
