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Auditor-general calls for action as public finance audit outcomes worsen

Says the control environment has not changed in the past five years.

Government spending is out not only of control, it’s also getting worse according to the 2018/2019 national and provincial audit outcomes report released on Wednesday.

The report marks the fifth consecutive year of regression in accountability for government spending and compliance with legislation.

As a result of the continuously “disappointing” audit results, Auditor-General (AG) Kimi Makwetu themed the latest results “Act now on accountability” – a call to political leaders, accounting officers and oversight structures to deal effectively with the outcomes of the recent audits and to establish and adhere to the internal controls and supply chain processes.

Little to no improvement 

Of the 383 departments and entities whose audits were completed by the time of the cut-off date, only 26% or 100 entities received clean audits.

Irregular expenditure, where there was no compliance with legislation or procurement processes in the lead-up to a payment, increased to R62.6 billion from R51 billion in the previous year.

Fruitless and wasteful expenditure, which refers to money that is expected to be lost to government, also continued to rise, with 223 auditees losing 849 million in 2018/2019. When one takes the full five years of little to no improvement into account, the amount of fruitless and wasteful expenditure sits at R4.6 billion.

“Government cannot afford to lose money because of poor decision-making, neglect or inefficiencies, however, we continue to see a rise in fruitless and wasteful expenditure,” said Makwetu. 

The lack of consequences and slow implementation of the recommendations by the office of the AG were again root causes of these deteriorating outcomes, with Makwetu saying it is indicative of the fact that “the control environment of yesteryears is almost similar in the current year”.

The recommendations speak to the basic responsibilities of accounting officers and authorities, and don’t require more than what they need to do in terms of the Public Finance Management Act and other legislation. But those responsible for governance at the majority of these government departments and the 14 state-owned entities [SOEs]  were either slow to implement or completely disregarded the recommendations, said Makwetu.

Downward spiral

Makwetu said departments were struggling to balance their books and their financial health was “continuing on a downward spiral”. Out of 15 departments that were identified as needing urgent intervention, 13 “disclosed in their financial statements that they would find it difficult to continue to operate”. 

SOEs were in no better shape, with Makwetu stating that they “require urgent attention”. None of the SOEs had clean audit opinions and their financial health “remained under significant pressure”.

The AG’s reports state that entities – including the SABC (which recently received a R3.2 billion bailout from government), Denel (which received a R1.8 billion bailout), the Petroleum and Gas Corporation, South African Express Airways and the SA Post Office – had “material uncertainties” as to whether they would be able to operate without future financial assistance. 

“Considering also that most of the SOEs where audits had not yet been completed are facing going concern challenges, the financial outlook for most SOEs is bleak,” the report states. 

What’s worse is the 10 departments that are responsible for overseeing the governance and financial management of SOEs were not consistent in their mandate and “most did not adequately plan for their oversight function and report thereon in their performance reports”.

More bite 

The consolidated national and provincial audit outcomes report is the first one since the AG’s extended powers came into effect as a result of amendments to the Public Audit Act.

The new powers allow the office of the AG to report on material irregularities such as theft, fraud or breach of fiduciary duties, and to take further action when accounting officers and authorities fail to act on these irregularities.  

The AG now has the power to refer issues of material irregularities to officials, make binding recommendations, and issue certificates of debt for failure to implement remedial action if financial loss was involved.

“You will recall in the past we would issue the report with the management letter and recommendations and persuade, almost to no end, an accounting officer to please make sure they implement these recommendations,” said Makwetu, adding that in some of the cases this has gone on for half a decade.

The AG had identified 16 departments and entities out of 432 auditees to pilot the material irregularities process, and was able to uncover R2.81 billion in financial losses arising from material irregularities at eight of these auditees. The bulk of this, R2.2 billion, is a result of the irregular purchase of locomotives by the Passenger Rail Authority of South Africa. 

“We have not made an estimation as what this could have meant had we selected everyone – it would be difficult, but what it does say is that there is no shortage of material irregularities in this public financial management system,” said Makwetu.

“If you can find them among eight, having audited 432 institutions, you can imagine what you would have come out with.”

Prevention better than cure

Makwetu said that having gained experience and strengthened the office’s forensic capacity to conduct these audits, the number of entities that will be subjected to this material irregularity process will be increased to 89 for the 2019/2020 financial year, which ends in March. 

Makwetu again emphasised the need for preventative controls where a culture of compliance with regulatory and legal processes is institutionalised to prevent financial losses from happening.

“My message over the years has been that a strong control environment and processes are key to achieving strategic objectives, addressing risks, ensuring compliance with legislation, and managing public funds to the benefit of citizens,” said Makwetu. 

“I acknowledge that it takes time to institutionalise good preventative controls, especially in large and complex environments, but the accounting officers and authorities need to build their institutions towards accomplishing this in a deliberate manner.”

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Same old same old. A damming report with no consequences whatsoever. (On second thoughts there are consequences……it gets worse year after year)

I do not know why we have an Auditor General at all as his office is obsolete. (Just use last years report and change the date)

Absolutely right. Unless there is consequence management, nothing will change. But how to bring about consequence management if you have purposefully eroded institutional memory and culture, as well as management capacity.

Talk is cheap – action speaks louder than words.
The ANC needs to take action now – if they want to establish themselves as a worthy political party post Zuma.
Timing is the strongest opportunity for them – before the EFF grab another 100% votes increase and whilst the DA is in disarray. It’s perfect – they just need the leadership to act decisively.

@Mactheknife

I agree, actions speak way louder than words. Proof of that has been provided by the ANC for years. Say (promise) one thing and do another.

From what I see from various sources from different sides of the coin, the EFF is basically as big as it will ever get.
Let’s see how December plays out for them, the party might just eat itself in the near future over a power struggle.
With regards to the DA, there is evidence that points they (might) grow the most of any party from now to 2024 if they put their game plan into action.

Only time will tell of course. My bigger concern is not with the DA or any of the minority parties, I can’t help but wonder how long it will be before the ANC & EFF with their combined 68.3% of votes will fall below the 50% mark.

If you consider around 10-12% of votes will go to all the small parties with around 88-90% of votes going to the big three, that’s if the EFF remains, but let’s just count the ANC & EFF as one since their ideology is very similar and vastly different from the DA.

How many years will it take for the DA to more than double their 20% to around 45% and for the ANC & EFF to lose around 35% of its votes to drop to a combined 45%?

As things stand, I’ll be honest, I don’t see that happening by 2030 or 2040 or 2050, not if things continue at the same trend as it has in the last 25 years.

Zim in 2019 = SA in 2044?

An audit can be done each year, but if the recommendation/problem & weak control areas/fraud etc is not followed up immediately and corrected the audit itself, and the positive effect it should have had on the future of the audited entity is a 100% waste of time and money.
where an auditing firm is seen/met as an “enemy” or a “threat” by the management/staff of the entity to be audited, all the red lights are on immediately.

Shark with absolutely no teeth.
Other organs of state are just as in-effective Hawks, NPA , Public Protector, B Cele. All noise and rhetoric.

Well, as this delinquency continues unabated, we will move towards a tax revolt. I refuse to fund this from my taxes any further. No more tax dollars from me, until I see some consequence and plan to haul this lot in.

People get the government they voted for. Majority chose this. Majority are not the Funders.

Only way out is for Funders to stop funding or voters to change their habits… Which is more likely?

Bring back the death penalty and increase the scope to include economic sabotage and traitors.

@TryingToRetire

I suggest some reading up on the topic of the death penalty. It won’t be a solution to the countries problems, it could in fact just make matters worse.

Besides the constitution would need to be changed and that won’t happen, not in today’s world.

In my opinion the call for the death penalty is a non-starter.

Ever noticed that whenever the Finance Minister talks about belt tightening, within days ministers go and buy new cars well over the limits being talked about.

They feel nothing, this payback culture is there to stay. the only way is to let them beg for money and a third party actually signs the cheque.

Government finance must be centralized.

When – oh when – will the voting masses in South Africa wake up to the fact that THE ANC ROBS THE POOR?? It’s an absolute fact. Until stringent regulatory actions are taken – with severe penalties – the poor will continue to be robbed by fatcat ANC employees in positions of power, both in government and municipalities.

@Dougalan

The short answer to your question “When – oh when – will the voting masses in South Africa wake up to the fact that THE ANC ROBS THE POOR??”

Never, or at least not soon. South Africans have the shocking education system to thank for that. No critical thinking takes place and hence the masses will keep voting for the ANC (and EFF).

If you look at the 4 provinces with the highest number of voters it tells a story.

GAU Total Votes = 4.53 mil
ANC 2.4 mil = 53%
DA 1.1 mil = 24%
EFF 600k = 14%

KZN Total Votes = 3.65 mil
ANC 2 mil = 55%
IFP 500k = 14%
DA 500k = 14%

WC Total Votes = 2.11 mil
DA 1.1 mil = 52%
ANC 660k = 31%
EFF 88k = 4%

EC Total Votes = 2.02 mil
ANC 1.4 mil = 69%
DA 300k = 15%
EFF 155k = 7.7%

So country wide it looks as follows:

ZA Total Votes = 17.4 mil
ANC 10 mil = 57.5%
DA 3.61 mil = 20.7%
EFF 1.8 mil = 10.8%

So if you just look at the big 3, the DA would need to “steal” basically 4 million votes from the ANC & EFF just to get it on the same level.

((10 + 1.8) – 3.61)/2 = 4.095

Unfortunately at the current rate it would take many years and many elections for things to change if the ANC keeps the majority of people from getting a good education which will allow them to think critically and see and understand the false promises and the corruption.

R7 Million per hour 24/7/365 of Irregular expenditure well done to the Government…………..you managed this wonderful achievement by:

Allowing Unions to dictate cost……..With Zero KPI’s for performance based pay, Employing on Race rather than skill, Taking SOE’s and using them as tools to buy votes with employing huge numbers that productively add no value then having to outsource these functions while keeping them employed, then to proof how incompetent you really are you give Child subsidies encouraging more people to have children they should not and based on unemployment numbers wont find work and now demand free housing, free water, Electricity, free education etc etc etc and now free medical…………. ANOTHER BOTTOMLESS PIT for the dwindling TAX PAYER TO FUND.

Absolutely at the expense of every single person who is not family or a corrupt mate of a government official and it does not matter which party at this stage as they all seem to have some sort of corruption linked to them, but as the ANC has been at the helm for 25yrs this sits squarely on you.

In the light of government’s admissions of mismanagement and loss of financial controls in SOE’s and most government departments, both at local and national levels, which is worsening by the day, urgent action must surely be taken to replace those inept or corrupt individuals with well educated, qualified and practically experienced people who know what they are doing. In fact government effectively has become disfunctional across virtually all areas for which it is responsible. The parlous economic state is the result.
The questionable policy of appointing incapable people to positions they have no hope of successfully handling, must stop and the best people of whatever persuasion or hue, with proven track records of success appointed instead.
The country is at a crossroads, where ability must trump failed employment experiments, otherwise there will be no future to be shared at all.
As has been proven time and again, by visual evidence, people are asleep at the wheel, from members of parliament sleeping in their seats during sessions, in what ought to be the highest policy forming levels of State, to overstaffed SOE’s and local government repair and maintenance teams, where one or two members are actually working, whilst the rest loll about or lean on their shovels chatting.
Meanwhile systems collapse continues and billions are paid in unproductive salaries and wages. This doesn’t eve and no consequence management of any take into account the active waste of money due to avoidable errors , malfeasance and corruption.
The Auditor General is deeply concerned, but the mismanagement and waste continues unabated.
Radical tightening of controls and management competence is needed really fast and the tire kickers removed. The country cannot afford this endemic waste and incompetence any longer and no consequence management of any note applied.

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