Industry organisation Agri SA has expressed concern about the status of the Land Bank’s financial sustainability, following a damning report published by the Auditor-General (AG) of South Africa Tsakani Maluleke.

“Whoever was responsible for the financial loss of R2.8-billion must be held accountable. This and other challenges had compelled the AG to express serious doubt as to the bank’s ability to continue operating as a going concern,” the organisation states.

News organisation Daily Maverick on January 3 reported that the Land Bank’s financial losses had widened by 211% to R2.8-billion in the year ended March 31, 2020, compared with a loss of R902-million in the prior year.

The Land Bank is important for South Africa’s food security system as it provides 28% of the country’s agricultural debt.

Fin24 cites the AG saying the bank needs a R7-billion government bailout to ease a cash crunch, keep operating and enable it to take on new clients, as well as meet existing clients’ needs.

Agri SA says the adverse audit opinion cannot be ignored and that heads must roll at Land Bank’s management and governance level, as well as at the National Treasury, since it is responsible for oversight of the entity.

The AG had attributed the problems at Land Bank to an exodus of competent managers, a lack of oversight by the National Treasury, the downgrading of the bank’s credit rating by Moody’s and drought conditions which had made it difficult for farmers to repay their loans.

"This, however, is merely the tip of the iceberg. The AG’s report also refers to a lack of internal control measures  implemented by management to effectively offset credit losses or a decline in the value of extended loans or the collateral offered when loans are applied for.

"The AG further mentions that the financial statements submitted for auditing were not presented in accordance with the prescribed financial reporting framework and were not supported by complete and proper records as required by law," Agri SA points out.

Agri SA cites the AG reporting that there was a lack of sufficient and appropriate audit evidence to serve as basis for an audit opinion. “Whoever was responsible for compiling the statements should be held accountable. This means that the leadership did not exercise adequate oversight with regard to financial reporting, compliance and related internal control measure,” Agri SA notes.

In her report, the AG refers to insufficient internal control over and management of instruments and models for monitoring expected credit losses. These were not regularly calibrated and updated with reliable credit input data, which meant that the AG was unable to confirm the assessment of expected credit losses by alternative means or whether adjustments were required to net loans and advances.

Agri SA explains that the management members of the bank, therefore, did not adequately oversee the  development, implementation and monitoring of action plans to address shortcomings in terms of internal control relating to the security required for loans, as prescribed by international financial reporting standards.

According to the AG report, in terms of procurement and contract management, some goods, works or services were not procured in accordance with a fair, transparent and competitive process. In certain cases where contracts had expired, appropriate processes were not followed to appoint new service providers and no approval was granted in this regard.

Agri SA laments that the Land Bank management failed to implement an effective human resource management strategy to ensure stability in and adequate succession planning for key positions, with the result that the control environment of the Land Bank was negatively impacted by the number of resignations in these positions.

“Management failed to check and monitor compliance with the relevant laws and regulations and also did not follow the Treasury's instruction in terms of the renewal and extension of contracts with service providers that manage the  indirect loan book on behalf of the bank.

“Moreover, appropriate risk management activities were not conducted to ensure that risk assessments, including the consideration of liquidity and credit risks, were properly performed,” Agri SA states.

The organisation adds that it is no wonder the Land Bank’s cash reserves or funds held for short-term and emergency financing purposes had declined by almost 80% to R700-million, compared with R3.2-billion in the previous year.

“This level of incompetence cannot be overlooked and allowed to continue.”