The Free State MEC for the Department of Small Business Development, Tourism and Environmental Affairs (Destea), Makalo Mohale, tells OFM News that the appointment was made in December 2021 – a few days after the Auditor-General (AG) of South Africa, Tsakani Maluleke, revealed that the entity was without a board and in the midst of a liquidity crisis. Whilst Mohale does not get into who the new board members are, he provides some insight into the entity’s recovery strategy.

Mohale says the FDC management recently presented their turnaround strategy to the executive committee (EXCO) of the province. The strategy entails ensuring that the entity has sufficient liquidity, by recouping money owed to it by local businesses indebted to it. 

Previously, Maluleke said without a board, the entity cannot improve its financial standing, which according to the report is in a state of disarray. The AG report alluded to issues with the Chief Executive Officer position at the entity, but did not delve into said issues whatsoever. Makalo says "the FDC has always had a CEO to date. It is only the Board that was affected by changes. Board have responsibility to implement the strategy". 

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. 

READ MORE: FDC board was disbanded in June 2021

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 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.  “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,” said the AG.

OFM News