SA Post Office's financial crisis worsens — it’s now technically insolvent

The SA Post Office (Sapo) has joined a growing list of state-owned entities that have been declared financially insolvent by the Auditor-General because the company is loss-making, cash-strapped, and battles to honour its debt payments when they become due.

Sapo has published an annual report for its financial year 2019/20, which shows that the entity’s crisis has worsened — at leadership, operational and financial levels.

At a leadership level, Sapo has faced an exodus of executives, while the state-owned entity didn’t have a permanent CEO (Nomkhita Mona was recently appointed), and the CFO and COO positions are yet to be filled. The executives who have left Sapo in recent months include Mark Barnes (CEO), Lindiwe Kwele (COO), Khathutshelo Ramukumba (a CFO who resigned after three months), and more than four people have resigned from the board. 

The leadership crisis at Sapo has spilled over into its banking subsidiary, Postbank, as three top executives were placed under suspension in February 2020, and have since not returned to the subsidiary.

Read: Postbank suspends three senior executives

At an operational and financial level, Sapo’s financial losses have significantly widened during the year to 31 March 2020, extending its money-losing streak to about 14 years. During the reporting period, Sapo recorded financial losses of R1.76-billion and its current liabilities exceed assets by R1.49-billion — rendering the company technically insolvent.

This has been confirmed by the Office of the Auditor-General, which said Sapo is “commercially insolvent” because it is also unable to pay its total debt of more than R5-billion when portions of it become due to lenders at various stages. Sapo’s financial crisis is so severe that it failed to pay on time the more than R3-million in value-added tax payments due to the SA Revenue Service in January 2020.

The Auditor-General report

The Auditor-General has penned a report on the veracity of Sapo’s financial statements — a report that accompanies the company’s annual report. In a further blow to Sapo, its financial statements received a “disclaimer of opinion”, meaning that the Auditor-General could not obtain enough evidence to sign off the accounts with a clean bill of health.

Sapo joins state-owned entities SA Express, Denel and Land Bank that were also slapped with a “disclaimer of opinion” by the Auditor-General. 

In Sapo’s case, the adverse audit opinion is more worrying because its functions are tied to the welfare of SA’s most vulnerable citizens: the 8.1 million social grant beneficiaries who depend on its operations every month. Since 2018, Sapo has been responsible for paying social grants to beneficiaries, who use cards issued by the SA Social Security Agency and Sapo’s Postbank. Social grant beneficiaries can withdraw their payouts at Sapo’s more than 1,500 branches across SA.

A reading of the Auditor-General’s report on Sapo’s financial statements indicates that, in some instances, rookie mistakes were made by its accounting/finance department on reporting numbers.

The Auditor-General found an “inadequate status of accounting records and lack of sufficient appropriate information” at Sapo, which undermines its ability to determine the accuracy of its cash flow and liabilities. Put differently, Sapo faces a “poor status of accounting records”. The value of its assets cannot be properly and reliably determined, its financial statements were not prepared in accordance with the required law (the Public Finance Management Act), and Sapo incurred irregular expenditure of R215.8-million — expenditure that didn’t follow proper rules and laws.

Sapo CEO responds

The new Sapo CEO, Mona, has responded to the Auditor-General’s findings, saying the company’s problems are caused by “an obsolete business model” and worsened by the Covid-19 pandemic. Top of Mona’s priority list is curing Sapo’s inability to pay its lenders on time. 

“We continue to engage Sapo’s creditors to acknowledge our indebtedness and willingness to honour the commitments,” she said.

Mona said the Minister of Communications, Telecommunications and Postal Services, Stella Ndabeni-Abrahams, who oversees the governance of Sapo, is in the process of appointing a team of turnaround experts to work with the board and executive team to develop “a bankable turnaround plan, in line with the requirements of the post-Covid-19 economy”.

“In the long term, we are confident that we have the opportunity to build a world-class, commercially viable postal service — with no heavy reliance on the national fiscus.  However, in the short to medium term, we fully expect that the national government will support Sapo’s efforts in dealing with these legacy issues.”

In the interim, Sapo will still knock on the government’s door for more taxpayer-funded bailouts. BM/DM