Sudden deficit means NHLS may no longer be a 'going concern'

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The National Health Laboratory Service (NHLS) received a qualified audit for 2016-17 after its auditors, SizweNtsalubaGobodo, highlighted irregular expenditure of more than R1bn and cast doubt on its ability to continue as a going concern because it reported a R1.879bn deficit for the year. According to a Business Day report, the deficit represents a significant swing into the red, as the NHLS reported a surplus of R273m the year before.

The NHLS provides all the tests used for diagnosing and monitoring diseases among state patients and is thus considered the backbone of the health service. It also provides tests to the private sector including some highly specialised tests that private providers do not offer.

The report says the irregular expenditure highlighted by the auditors included R574.9m paid for expired contracts, R209.6m paid for contracts that exceeded the delegation of authority and R195m paid to suppliers without contracts in place and NHLS board chair Eric Buch is quoted as saying that the board was extremely concerned about these issues.

"The board had identified most of the problems … in the audit and taken action against those responsible. That is why it suspended the CEO, CFO (chief financial officer) and head of internal audit, as well as the supply chain manager and facilities manager, who both resigned in the face of their disciplinary charges," Buch said.

The report says the CEO Joyce Mogale and chief financial officer Sikhumbuzo Zulu were suspended at the end of February. Their disciplinary hearing was delayed but is now expected to go ahead at the end of October.

Buch said the NHLS was in a better financial position than that reflected in its 2016-17 annual report, as it was making progress in reaching agreements with KwaZulu-Natal and Gauteng to settle historic debts. "However, the auditor required us to make provision for doubtful debt as the (disputed amounts) had continued for so long. This meant our operating expenses went up," he said.

Debts, which are largely provincial, owed to the NHLS stood at R6.28bn, according to the annual report. However, the effective debt owed by all nine provinces stood at about R3.6bn, Buch said. Provinces had made significant contributions to their outstanding bills in the current fiscal year and had paid R1.3bn towards their arrears, he said. "The NHLS does not need a bail-out. It is a going concern as long as provinces pay for the tests they have ordered."

The auditor’s report says a debt of R1.8bn was confirmed by the office of the accountant-general as payable by KwaZulu-Natal for services provided between 1 April 2010 and 31 March 2014 and discussions for payment arrangements were under way. It does not detail the debt owed by Gauteng.

The report says acting CEO Kamy Chetty, who took the helm at the beginning of October after former acting CEO Shabir Madhi resigned, did not respond to a request for comment. Madhi said he had resigned to pursue his academic interests.

Business Day report

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