Auditor-General (AG) Kimi Makwetu on Wednesday lamented that accounting officers and authorities had been slow in implementing his recommendations.
He also called on government leaders to take urgent action to halt the trend of disappointing audit results, restore accountability and prevent mismanagement of public funds.
Makwetu released the national and provincial government’s audit results for the 2018/19 financial year on Wednesday.
The report revealed “disappointing” audit results for the year, and “slow progress” over the five previous financial years.
Makwetu attributed the lack of progress in reaching the desired audit outcomes mainly to those charged with governance being slow to implement, or totally disregarding, audit recommendations made by his office.
For the first time, the general report gave a status update on the first year of implementing the enhanced powers given to the AG through the amendment of the Public Audit Act (PAA).
These became effective on April 1, and the AG began implementing these at 16 selected auditees, with these to be rolled out continuously over the coming years at others auditees countrywide.
Briefly touching on the lapses in governance and failures in basic internal controls that led to Parliament unanimously voting to amend the PAA, Makwetu highlighted administrators and authorities who had largely failed to implement audit counsel and recommendations from his office.
He indicated that these did not require more than what accounting officers and authorities were legally obligated to do under existing laws, but simply re-emphasised basic accountability measures.
Makwetu indicated that executive authorities and oversight structures had not led by example in setting the correct tone that would have enabled accountability, transparency and good governance.
Among its key findings, the report revealed that, overall, audit outcomes had regressed since 2014/15, with only 80 auditees improving and 91 regressing.
Only 100 (26%) of auditees managed to produce quality financial statement and performance reports and to comply with key legislation, thereby receiving a clean audit.
In 2014/15, 106 auditees had had clean audits.
The report also indicated that there were serious weaknesses in the financial management of national and provincial government that had not been addressed over the past five years.
Also, the financial health of auditees continued to deteriorate – with departments in particular struggling to balance their finances.
Unauthorised expenditure remained high at R1.37-billion.
There was an emerging risk of increased litigation and claims against departments. Over a third had claims against them in excess of 10% of their next year’s budget.
A total deficit of R62.06-billion was incurred by the 31% of public entities whose expenditure exceeded their revenue – 90% of the total deficit related to the Road Accident Fund.
Fruitless and wasteful expenditure continued to rise, with 223 auditees losing R849-million in the current year. Over the five-year period, R4.16-billion of government expenditure was fruitless and wasteful.
Irregular expenditure increased to R62.60-billion from the R51-billion reported last year.
When accountability measure are failing, the amended PAA gives the AG a mandate to report on material irregularities (MIs) detected during audits, and to take further action if accounting offices and authorities do not adequately deal with these.
For the period’s audits, 16 national and provincial government auditees were identified for implementation of the MI process.
Makwetu said the auditees were selected based on their audit outcomes and their history of having incurred irregular expenditure.
Auditors had completed 12 of these audits by the date of the report, owing to limited time from the PAA becoming effective, the complexity of some matters, and the time given to accounting officers and authorities to respond to the identified MIs.
The report reveals that a total of 28 MIs was identified at eight of the auditees, which resulted in a financial loss of R2.81-billion.
Of the known loss of this amount, R2.2-billion is money expected to be lost as a result of the irregularities in the purchase of locomotives by Passenger Rail Agency of South Africa.
The most MIs – ten – were identified in the human settlements department in the Free State.
The financial health of auditees in most provinces either improved or remained unchanged, with the Eastern Cape, Free State and North West showing a regression. There are still a significant number of auditees in the Free State that need urgent attention.
The financial health of departments showed a further slight regression in 2018/19 – continuing on a downward spiral since 2014/15. The departments with a good financial health status represented only 15% of the expenditure budget of departments.
Included in the 57 departments with a good financial health status in the current year, are 26 departments that were able to maintain their good financial health status from the previous year and when compared to 2014/15. These departments are most prevalent in Gauteng (eight), Western Cape (five) and national government (five).
Overall, 13 of the 15 departments that the AG identified as requiring urgent intervention disclosed in their financial statements that they might find it difficult to continue to operate.
Makwetu is encouraged by the enthusiasm displayed by the sixth administration’s leadership towards improving the governance lapses his office has been flagging for years now.
He said after extensively engaging with the new leadership at provincial and national level (both administrative and oversight) “to prepare them for the introduction of the MI process and the urgency for accountability, the opportunities for progressive and sustainable change are evident to us based on the enthusiasm and commitment by this new leadership. If we can turn this into tangible action by acting on accountability, we can go a long way in turning the current state of undesired audit outcomes.”
There has been a similar positive response to Makwetu’s emphasis on the value of preventative controls to proactively manage public resources.