The Office of the Auditor-General (AG) has called for greater oversight over the affairs of the Land Bank to ensure that its liquidity challenges are addressed and the “audit action plan to address the disclaimer is monitored and implemented effectively”.
The ailing state-owned agricultural bank received a “disclaimer of opinion” from the AG for the year 2019/20 because it could not express an opinion on the credibility of the bank’s financial statements.
In the previous financial year, the Land Bank received an unqualified audit opinion with findings, but has regressed to a disclaimer with findings in the latest financial year.
“The disclaimer of opinion is due to a going concern assessment not being submitted, material misstatements identified relating to the expected credit losses (ECL) and which ultimately affects the valuation of the loan book,” according to the AG’s presentation to Parliament’s standing committee on finance on Wednesday.
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“The bank is also experiencing significant liquidity challenges, as it has been unable to meet its obligations as they fall due, all of which has cast significant doubt over the ability of the bank to continue as a going concern from March 31, 2020.”
The bank has incurred a net loss of R2.4 billion in the current year. It has also incurred irregular expenditure of R769 million and fruitless and wasteful expenditure of R16.5 million.
The AG’s Polani Sokombela said the financial statements submitted for audit also contained “material misstatements” which were not corrected by management, adding that the Land Bank had a weak control environment “in the loans and advances account balance and its corresponding expected credit losses provision”.
“Over the years the Land Bank has lost a number of key management personnel [including] its chief financial officer and chief executive officer…that created problems because they couldn’t go to the capital market to raise funding,” Sokombela said.
Over the past year, approximately 26% of the key positions in executive management at the Land Bank were filled in an acting capacity.
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This is not the first time the AG’s office has flagged the Lank Bank’s financial statements. Over the past three years, the AG has been highlighting the weak internal controls, and soliciting commitments from management to address them.
The Land Bank’s subsidiaries, Land Bank Insurance Company (LBIC) and Land Bank Life Insurance Company (LBLIC) are also experiencing financial difficulties, as the parent company’s challenges have spilled over to the two companies.
The AG noted that the LBIC is no longer writing new life insurance policies and further suggested that the LBLIC should rather be given approval to be turned into an investment company and not only act as an insurance company.
This suggestion however was denied by the minister of finance, according to the AG’s office.
“With its dwindling insurance business the LBLIC might no longer be a viable business,” the presentation reads.
LBIC offers crop and asset insurance products to both Land Bank clients and other farmers.
This article first appeared on Moneyweb and was republished with permission.
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