The Department of Public Enterprises (DPE) has received an abysmal audit report from the Auditor-General (AG), which highlighted basic failings in its oversight of state-owned companies from ineffective turnaround plans to failing to fill vacancies and spend its budget.

The AG also singles out the South African Airways (SAA) transaction as problematic, saying that the due diligence performed on preferred partner Takatso was poor and that the valuation of SAA's assets should be redone.

The DPE itself met only 58% of its targets for the year and spent only 74% of its budget, mostly due to a failure to fill vacancies and critical positions. The department received a qualified audit with findings while five of seven entities that report to it had not finalised their financial statements six months after the close of the financial year. There were no clean audits.

Says the report, "Overall, the audit outcomes have remained stagnant with no notable improvement in outcomes in the current year … The portfolio indicates an environment that is failing to implement a robust financial management system that could produce credible financial reporting."

The report comes as the true state of State-owned companies has begun to dawn on the government and the African National Congress (ANC), with some performing worse than during the days of State capture.

The AG says that the key contributors to the audit outcomes were:

• Instability in leadership and high vacancy rates in key positions;
• Ineffective audit action and turnaround plans;
• Poor record keeping resulting in limitations of scope;
• Lack of accountability on improvement in financial and performance reporting; and
• Poor consequence management on compliance with legislation and poor credible financial reporting.

"The entities' slow recovery will persist unless leadership diagnoses and responds promptly to the weaknesses noted [by] the Zondo Commission," says the AG report.

One of the basic failures of the DPE was that it had not signed shareholder agreements with most of its entities and that turnaround plans were not backed up with substance or effectively monitored.

Responding in a presentation to the Standing Committee on Public Enterprises, acting director-general Jacky Molisane said that the high vacancy rate in the department was being addressed but that new cost-cutting measures would make this difficult. The department didn't want to "appoint for the sake of it".

The DPE had signed shareholder agreements with Safcol, Eskom and Alexkor, she said, while others were in progress.

MPs across the political spectrum expressed dismay over the picture presented by the report.

Said the ANC's Sibusiso Gumede: "There are buzz words that we talk about – like restructuring, roadmap, and turnaround – ever since we joined this committee we talk about these. But we have never come to a situation where we say State-owned entities are fine, they can do their work. "

The Democratic Alliance's Ghaleb Cachalia said that while the AG normally speaks in measured tones, on this occasion, there was no need to read between the lines.

"What I have heard now is quite clear: we are in deep trouble. It’s a dire situation that needs remedying, but we need to understand that in every single part (of the system) - the entities, their boards, the shareholder, and the department – there had been significant failure."

The ANC's Jabu Mkhwanazi said the committee had to acknowledge the facts.

"The facts that are presented here are not showing us a good state of affairs … I think we are not making any progress, in fact, we are declining as the report is saying," she said.