The Department of Cooperative Governance and Traditional Affairs (Cogta) is responsible for rolling out the Covid-19 regulations in South Africa. As a result, it now has a high profile.
How appalling then, that the Auditor-General (AG) issued a disclaimer of audit opinion on the annual financial statements for the financial year ended March 31, 2019 as he was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
The audit report details a shocking lack of internal controls, non-compliance with legislation, and hundreds of millions of rands lost – including through payments made to wrong suppliers, ghosts, and non-qualifying government employees.
The general poor governance and lack of leadership makes a mockery of Cogta’s vision to be “a functional and developmental local government system that delivers on its constitutional and legislative mandates within a system of cooperative governance”.
- Irregular expenditure stands at R1.3 billion (2018: R1.9 billion) but this figure could be higher due to lack of audit evidence.
- Goods and services amounted to R3.6 billion (2018: R3.3 billion). However, accurate and completed timesheets were not provided for payments made to Community Work Programme (CWP) implementing agents. Some material invoices were not provided to justify expenditure, and payments were made to some who were deceased.
- Moveable tangible capital assets amounted to R227.9 million (2018: R67.9 million). However, there wasn’t sufficient appropriate audit evidence to support expenditure, and not all assets could be traced.
- Prepayment and advances amounted to R188.7 million. There wasn’t sufficient appropriate audit evidence for prepayments, and advance payments were made to the implementing agents with no invoices to back this up.
- Accruals and payables not recognised amounted to R147.5 million. The department did not have adequate systems to maintain records of accounts payable for goods and services received but not yet paid for, resulting in accruals being understated by R63.3 million. Further, there was insufficient appropriate audit evidence for the amounts disclosed as accruals.
- Assets under investigation amounted to R13.6 million (2018: R43.1 million). The amount was reduced in 2019 without the auditors being supplied with the appropriate audit evidence to support the reduction.
- Restatement of corresponding figures: the corresponding figures for March 31, 2018 were restated as a result of errors in the financial statements.
Report on the audit of the annual performance report
The AG is required to report material findings on the reported performance information against predetermined objectives for selected programmes presented in the annual performance report.
The AG selected regional and urban development and legislative support, institutional development, and the CWP, and found that there was a lack of audit evidence to support the reported achievement.
Material findings on compliance
- Non-compliance with the Public Finance Management Act (PFMA): financial statements were not submitted for auditing within two months after the financial year-end.
- Non-compliance with the PFMA and the reporting framework: the financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and the PFMA. Supporting records were not provided.
- Non-compliance with National Treasury regulations in regard to expenditure management: effective internal controls were not in place for approval and processing of payments, and payments were not made within 30 days or an agreed period after receipt of an invoice.
- Non-compliance with the PFMA in regard to consequence management: disciplinary steps were not taken against line officials who had either incurred or permitted irregular expenditure.
Significant internal control deficiencies
- Leadership did not implement proper governance. There was inadequate and insufficient oversight to ensure compliance with key laws and regulations. There weren’t effective action plans to address prior-year findings. Financial and performance reporting was not supported by appropriate audit evidence.
- Management did not implement proper record-keeping; there were no controls over daily and monthly processing and recording of transactions; regular, accurate and complete financial and performance reports were neither prepared nor supported by reliable information.
Material irregularities identified during the audit
The lack of effective internal controls for the approval and processing of payments will result in material irrecoverable losses:
A municipal infrastructure grant of R183.5 million was paid to the wrong recipient. An amount of R104 million remains irrecoverable!
The matter has been reported to the Special Commercial Crimes Unit of the Directorate for Priority Crime Investigation (the Hawks) and the Special Investigations Unit for further investigation.
- Payments were made to ghosts (deceased participants in the CWP).
- Payments were made to non-qualifying government employees on the CWP.
- Prepayments were made for goods and services that were not received at CWP sites.
- Project management fees were paid to implementing agents in the CWP for services not received in 2018 and 2019.
A total of R401.7 million (2018: R287.8 million) was paid to consultants, and a total of R2.6 billion (2018: R2.4 billion) was paid to contractors. The total expenditure for the year amounted to R81.9 billion (2018: R76.4 billion).
With the lack of internal controls, poor governance, and illicit payments – to ghosts, to wrong suppliers and for goods not received – exactly how much has funded corruption? How many people, living in abject poverty, have passed away due to the lack of funds?
Cogta has a lot to answer for. Its lack of governance and disregard for the poor should not be swept away by the Covid-19 tide.
The spirit of Batho Pele (‘People First’) has dissipated.