The South African Institute of Chartered Accountants (Saica) and the Auditor-General South Africa (AGSA) hosted a panel discussion on Friday, February 4, on the outcomes of the Public Finance Management Act (PFMA) 2020/2021 audit outcomes.
Panellists included Natashia Soopal (Saica senior executive: public sector and enabling competencies), Bongi Ngoma (AGSA head of audit), Mkhuleko Hlengwa, chair of the Standing Committee on Public Accounts (Scopa), Lindy Bodewig (National Treasury chief director), and Wayne Duvenage, CEO of the Organisation Undoing Tax Abuse (Outa).
The AGSA is responsible for carrying out annual audits of national and provincial government departments, municipalities and municipal entities, and certain public entities.
Every year AGSA has to contend with the late submission of annual financial statements, poor quality financial statements, pushback from auditees on audit findings, as well as poor record-keeping by the auditees.
Only 117 of 425 (27%) auditees received a clean audit (2020: 109 out of 418; 26%).
State-owned entities (SOEs) as well as the key service delivery departments of health, education, housing and public works are lagging behind.
Of 15 SOEs that were audited, only one received a clean audit.
Four received unqualified audits with findings.
Irregular expenditure reported in the financial statements increased to R166.85 billion (2020: R109.82 billion).
High levels of fruitless and wasteful expenditure continue, with 224 auditees losing a total of R1.72 billion in the current year.
The AGSA was unable to audit R2.14 billion worth of contracts because information was missing or incomplete, while 69% of auditees materially did not comply with legislation (2020: 71%).
The poor financial management of the key service delivery departments of health, education, housing and public works directly affects their ability to deliver services to citizens. There are no consequences for contractors who don’t perform. Further, contractors are not paid on time.
Provincial health departments did not keep adequate records to defend themselves in medical negligence claims – and paid out R1.76 billion for such claims, while the estimated settlement value of unpaid claims at year-end was R124.15 billion.
A massive 92% of auditees had a weak IT control environment, 81% had weak IT security controls, 62% had weak disaster recovery controls, and 63% had weak IT governance practices. This while cyberattacks on government are on the rise, as government systems become more automated.
Scopa chair not impressed
Hlengwa voiced his concern over the lack of consequence management, actions taken against responsible officials, and the absence of political will.
He said Scopa submits reports to the president, but there are reports going back many years that have not been addressed.
He said this laissez-faire attitude towards consequence management emboldens the enablers of corruption.
Speaking on the skills deficit, he cautioned that the people who loot know what they are doing, and therefore the skills base must be able to match them. He added that ensuring accountability requires enforcement, and stressed that the anti-corruption task team must be resurrected.
He mentioned that tenders are the bane of supply chain management, and that the government must clamp down on or relook the current tender system. More must be done to protect auditors and whistleblowers.
Scopa has collaborated with various law enforcement agencies, including the Special Investigating Unit (SIU), the South African Police Services’ Directorate for Priority Crime Investigation (the Hawks), and the National Prosecuting Authority of South Africa (NPA) to follow up on cases investigated.
“Cadre deployment is wrong,” said Hlengwa. “Employment on the basis that a job has been secured for you is wrong.”
Duvenage said the AGSA report reads like a horror story.
“If these were listed companies they would be delisted.
“The trust deficit gets wider, and our tax money gets used and abused.
“What we need to emphasise is that it is not good enough if 27% of auditees have clean audits, we need 100%.
“Even if we add the 31% [of clean audits with findings], it is diabolical – it is outrageous.”
Bodies such as the SIU and Scopa must be ruthless in performing their duties against the accounting officers, he said.
Duvenage asked why the lack of consequence for bad management continues, why many individuals are simply suspended on full salary, and why many who are found guilty move on to other positions.
Duvenage also mentioned the worrying trend of many departments raising their own revenue, for example, the Department of Transport charging for drivers’ licences.
“These are additional taxes” and departments are building their own empires, he said.
He added that a lot of money flows into departments, away from treasury oversight – “they throw money at people”; CEOs of departments can earn salaries go up to R10 million. “It goes from bad to worse.”
Duvenage said the country needs more oversight, transparency, and more accountability.
He turned to Saica’s Soopal and said there has been so much errant behaviour by chartered accountants – and that there are more Anoj Singhs out there.
Anoj Singh (former Transnet CFO) appears to be the only CA(SA) implicated in state capture who has been stripped of the CA(SA) designation).