According to the latest report on the audit outcomes of the national and provincial government by the Auditor-General (AG), Tsakani Maluleke, the FDC board was disbanded in June 2021. The chairperson position on the FDC board was previously occupied by a close ally of former Free State Premier Ace Magashule, being businesswoman, Hantsi Matseke. The country’s AG says without a board, the entity cannot improve its financial standing, which according to the report is in a state of disarray.

Maluleke and company advise the Free State Department of Economic, Small Business Development, Tourism and Environmental Affairs (Destea) to prioritise appointing a competent board that will implement a turnaround strategy for the entity, and to fill vacancies. The report also alludes to issues with the Chief Executive Officer position at the entity, but does not delve into said issues whatsoever.

Meanwhile, the AG’s office has reported the entity to the Hawks for investigation regarding irregularities in their financials. The FDC has for the second consecutive year received a disclaimed audit opinion, which is deemed the worst opinion an auditee can get, because it means they couldn’t avail evidence for most of the amounts and disclosures in their financial statements. The AG has, in the light of their findings on the entity, recommended that the management of the FDC look into resolving the material irregularity that could not be probed or dealt with by the Hawks. Overall the AG has also reported the South African Post Office (Sapo) and the Department of Defence, in addition to the FDC, to the Directorate for Priority Crime Investigation, known as the Hawks.

FDC is in a liquidity crisis

Maluleke and company have also highlighted some of the revenue challenges that are negatively impacting the FDC presently. For one, the entity earns revenue by leasing out the commercial and residential properties it owns in the province, and also by charging interest on the loans it offers to small, medium and micro enterprises. The entity allegedly doesn’t receive many financial grants from Destea because it is meant to be self-sustaining, but it isn’t. In order to improve its cash flow, the FDC needs to recover its long-outstanding debt from tenants and loan recipients - 96% of which has been deemed irrecoverable. A part of this debt was paid to a billing and collection service provider procured by the FDC. However this service provider ended up going into voluntary liquidation, and now owes the FDC over R100 million of the funds recovered. 

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“The entity should also use its in-house legal department to recover the long-outstanding debts owed by tenants, instead of paying external parties to do so,” says the AG.

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