“From the crooked timber of humanity, nothing straight can ever be obtained!” Adam Smith.
Before it applied for bankruptcy, Enron, the American energy company, would claim revenues of up to 101 BN USD. It was at the time employing 20,000 employees. It was listed by Fortune Magazine as “America’s most innovative Company!” Its “creative” bookkeeping forced a rethink of the operations and reporting standards of Federal Companies and new legislation to ensure stricter regimes and compliance. The Congress enacted, an immediate reaction the Sarbanes Oxley Legislation. (SOX)
Part of the opportunity for the, bewildering, fictitious, and dubious accounting practices that Enron deployed was the use of special purpose vehicles to hide its liabilities. These off- balance sheet liabilities gave an impression of a larger income and less liabilities; consequently bloating the worth of the companies and misleading investors.
As mentioned in the earlier article, when Uganda Electricity Board faced challenges it was sold off hook, line and sinker to the South African Company Eskom. Eskom was formed in 1923 as the Electricity Supply Commission. It is among the top ten electric power generation companies in the world and 9th in terms of sales. According to their website the company, is a expert in electricity generation management and anticipates the concession to grow in line with GOU target of 80% of Uganda’s population by the year 2040! How they suspect they will be in charge of this process is, as befuddling as the accounting practices that necessitated the SOX legislation.
Let us consider, albeit briefly, and in generic terms corruption. The Ernst and Young 2012 Global report on Fraud “South African and African Executives showed a greater propensity to use entertainment or personal gifts to win or retain business. The report further showed high indices of widespread corruption in rampant growth markets: Brazil 84%, Nigeria 72%, South Africa 64%. The importance of this is to first red flag that we are not dealing with angels and Saints. If further proof be needed, one is not lacking from the reports coming from down SA:
2017 Business Day: “Stunning reversals, a shocking confession, and elaborate justifications were among the responses from Eskom’s top three officials to questions on key controversies surrounding the company!” To the dimwitted a reversal means to back peddle on a previous declaration; it means between the two statements one is a lie, a fib, deceit.
In another paper, “ESKOM CEO saga signaled a failure of accountability and corporate governance in the public sector!”Quite telling! It was further telling that only a threat recalling debt, arm twisting, ESkom as it were did the company find it fit to fire its Chief Finance Officer Anoj Singh over dodgy activities.
The South African equivalent of Electricity Regulator Authority denied an application by Eskom to increase tariffs by 19% in 2018! The reasons for denying the increment are well documented:
Inefficiency, Inaccurate forecasting, and costs overrun at Eskom. It noted an over 6000 unneeded employees costing the company R3.8 Bn annually! (over 300Mn USD).
The example of America and how it mitigated and learned from the excesses of Enron is telling. We must also put in place mechanisms to deal with our not so saintly associates. After all, it is said when sleeping with a hunchback you use different blankets!