AG flags criminal conduct at Eskom

Eskom’s audit outcomes have revealed a disturbing financial mismanagement trend, with R6.7m lost to criminal conduct in just a year.

The auditor-general (AG) presented these findings before the standing committee of public accounts yesterday, saying the power utility had struggled to detect and record these losses in real time.

“Losses due to criminal conduct included inadequate systems of internal control to timeously detect and record these losses and inventory [reworking and transfers] written off as unexplained losses,” read the AGs report.

“The current and historical audits found that Eskom does not have appropriate systems, processes and controls to quantify irregular, fruitless and wasteful expenditure, as well as losses due to criminal conduct. These are indicative of areas of significant financial drain through which Eskom continues to lose money and fails to quantify how much was lost.” 

The audit report also uncovered a fraudulent prepaid electricity token scheme that siphoned off revenue. It also found weaknesses in Eskom’s prepaid IT system – which allowed for the illicit creation of tokens.

“The audit concluded that a material breakdown of internal controls within the prepaid IT ecosystem had occurred. Significant control deficiencies identified included inappropriate user access controls, dated systems with a lack of available data logs, inadequate back up procedures, and limited understanding by Eskom staff of the prepaid environment, including hardware and relevant systems.

“The significant control deficiencies resulted in an inability to determine the full extent of illicit prepaid tokens created. In addition, assessing whether the illicit prepaid tokens created have been utilised by outside parties is a manual process of inspecting meters.”

Beyond the fraudulent token scheme, Eskom’s financial statements for the 2023/24 financial year were found to contain material misstatements, leading to a qualified audit opinion. The report said weak internal controls and a lack of oversight contributed to significant financial losses. Inventory write-offs were listed as “unexplained losses,” further highlighting the lack of accountability within the entity.

Irregular expenditure stood at R4.1m, with the audit pointing to procurement irregularities and non-compliance with supply chain management regulations.

Contracts were awarded to parties outside of original agreements, and the deviation process was frequently abused. “Some of the goods, works and services were not procured through a procurement process that is fair, equitable, transparent and competitive, as required by section 51 of the PFMA [Public Finance Management Act]. Tenders for contracts above R30m, which has a condition for mandatory subcontracting to advance designated groups, were awarded to bidders who did not submit evidence of subcontracting agreements,” read the report.

The AG found that municipal debt remains a serious problem for Eskom, with municipalities owing the utility R86bn by March 2024.

A key concern raised by the AG is the lack of accountability for financial misconduct.

“The commitments made over the years by those charged with the government to address these matters have not materialised due to lack of accountability at various levels in the organisation, inadequate oversight and monitoring processes and ineffective consequence management,” said the AG.

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