Despite "intensified contestations" by some state entities, Auditor General Kimi Makwetu on Wednesday released the financial report for the country’s national and provincial departments, as well as government entities for the 2016/17 financial year.

The audit report reflects progress made since 2014 on the financial and performance management of national and provincial departments, such as education and health, as well as state-owned enterprises such as South African Airways (SAA), the South African Broadcasting Corporation and the Armaments Corporation of South Africa.

A total of 422 departments and entities were audited for 2016/17, 37 more than the 385 auditees in the 2015/16 financial year.

Irregular expenditure up 55%

The findings also showed that irregular expenditure was up 55% to R45.6-billion. However, this amount could be higher as there are still ongoing audits for auditees like the Passenger Rail Agency of South Africa.

About 25% of auditees disclosed there had been irregular expenditure, but did not clarify the amount. Taking into account all these factors, irregular expenditure could be as much as R65-billion.

Supply chain management weakness remains the culprit driving irregular expenditure.

In an effort to “follow the money”, Makwetu said the AG had started looking at the management and delivery of key programmes, which are being implemented on the back of allocated budgets. These include water infrastructure development, school infrastructure and housing development finance, among others.

“The area of programme delivery is still a weakness.” There has been a lack of accountability for these projects, Makwetu explained.

“Some of the projects funded through these programmes showed serious weaknesses in terms of delayed delivery, poor quality work and mismanagement.”

Contestation

The AG on Wednesday noted there had been a trend of "contestation" against his office’s audit findings by some entities, which led to the delay of some audits.

One of these related to the South African Revenue Service (Sars), which had gone so far as to consider taking the AG to court to dispute its audit finding.

Makwetu previously told Parliament that Sars had failed to table its financial report.

Sars commissioner Tom Moyane had written to the chairperson of Parliament's oversight committee on finance, Yunus Carrim, indicating that Sars would be able to present this annual report at the end of November, Fin24 reported.

Speaking at the briefing in Pretoria on Wednesday, Makwetu said the issues with Sars were related to disagreements on the revenue service's own accounts, and not the “bulky” revenue accounts relating to taxpayers or their refunds.

"There are two sets of accounts that are run at Sars. One is the revenue accounts set, which consists of excise duty collection, VAT collection, income tax collection," he said.

"This matter has zero to do with that. Then there is another account for things like buying milk, tea, rental and employee costs.” The AG said the dispute related to the latter account.

Makwetu had questioned who could sign off on Sars bonus payments, which is currently Commissioner Moyane.

“You have a disagreement and you try to meet each other on a particular disagreement and it does not come through as you expect,” he said.

This ultimately led to Sars considering legal action, he explained.

But Makwetu assured that after consultation with Sars, legal action had “come off the table”.

Under pressure

Makwetu also unpacked the nature of disputes with other auditees. They are contesting outcomes as they “feel robbed” of the opportunity to get a good audit outcome, he said.

Some auditees have been putting pressure on his office’s audit team to change conclusions to avoid negative audit outcomes, or the disclosure of irregular expenditure.

“Others are under pressure to produce what they promised in terms of audit outcomes. If they feel it is not coming, they push back on us,” he said.

In the past, these auditees never used to promise that they would achieve certain types of audit outcomes in their departments. But since the AG has been issuing annual reports, it appears that some have been forced to achieve certain audit outcomes, he told Fin24.

“If they see they are not going to achieve their target, it will hit their pockets. If they lose that clean audit, it will probably be the entire department that loses the bonus.” On the other hand some auditees are contesting so as not to receive another bad audit, he explained.

The AG said that, while auditees could contest an audit opinion, they should be discouraged from insisting on a different audit conclusion “despite not having the evidence” to support it.

He added that disputes often arose over the interpretation of contracts of expenditure. While the AG may consider these as irregular, the auditee would dispute it.

Improvement

The AG's latest findings showed an overall improvement in the national and provincial audit outcomes over four years.

Of the 422 auditees for 2016/17, there were unqualified audit opinions with no findings for 30% of auditees.

This was a slight increase from from 29% for the 2015/16 year.

The number of auditees with outstanding audits increased from 1% to 6% of auditees, he said. The main reasons for this was late or non-submission of financial statements and other requested information.

Nine of the outstanding audits were as a result of public entities within the SAA group, and some in the transport and public enterprises portfolio. These entities were resolving their going concern status, the report explained.

The audit opinions of state-owned entities (SOEs) continued to regress, mainly due to inadequate controls, monitoring and oversight.

A total of 19 SOEs were audited.

“The accountability for government spending at SOEs is an area receiving attention in the public, as government funds and guarantees are being used to sustain some of the SOEs,” Makwetu said.

Only 26% - or a total of 5 - of audit opinions for SOEs were unqualified with no findings, while 47% (9) were unqualified with findings, 16% (3) were qualified with findings and 11% (2) were adverse with findings.

Makwetu said there was no single approach to the level of oversight by the different departments to which SOEs reported.

“The political leadership was also inconsistent. At some SOEs there was a high level of involvement, while at others the required decision making and policy direction was not adequate.”

Of the 253 public entities audited, 22% improved audit outcomes and 14% regressed.