2011-2012 Consolidated General Report on National and Provincial Audit Outcomes

The South African Auditor-General, Terence Nombembe, released the 2011-2012 Consolidated General Report on National and Provincial Audit Outcomes on 12 March, 2013. Whilst Nombembe’s address may have come across as being positive, his sentiments were contradicted by many negative audit outcomes. He stated that “although the set of audit outcomes for the period under review showed slow progress towards total clean administration, (he) was encouraged and convinced that the tangible remedial measures recently announced by the government would go a long way in addressing the public sector’s current administrative and governance deficiencies”.

Who are the National and Provincial Auditees?

The national and provincial governments comprise of 536 departments and public entities (government business enterprises, constitutional institutions and trading entities), all of which must be audited in terms of the Public Finance Management Act (PFMA) or any other applicable legislation.

Highlights of the 2011-2012 Audit Report

A direct comparison between the 2010-2011 Report is problematic as 523 entities were audited in that year. This is different to the 2011-2012 audit outcomes as 536 entities were audited.

The Report found that;

• 117 (22%) of the 536 auditees were financially unqualified with no findings.
• 297 (55%) entities were financially unqualified with findings.
• 74 (14%) auditees were qualified with findings.
• 17 (3%) auditees had adverse opinion or disclaimers expressed.
• 31 (6%) auditees had audits outstanding highlighting late or nonsubmission of annual financial statements.
• 292 (58%) auditees submitted financial statements with material misstatements.
• Only 2 public entities had an adverse opinion which has moved them from a qualified and disclaimed opinion in the previous year.
• The 3 public entities with adverse opinions in 2010-11 moved to disclaimed, qualified and unqualified opinions respectively.
• The annual financial statements of 27 departments were qualified again, 15 of which had failed to obtain financially unqualified audit reports for the past three years.
• 12 departments and 8 public entities improved their financial statements and received an unqualified opinion.
• 60% of government departments were able to meet their basic administrative requirements
• The meeting rate between Nombembe’s office and government officials has climbed to 78%
• Unauthorised expenditure has dropped to R2.9-billion
• Irregular expenditure has risen to R28.3-billion.
• Fruitless and wasteful expenditure has risen to almost R1.8-billion.
• Provincial departments account for 73% of irregular expenditure and 55% of fruitless and wasteful expenditure .
• “The top three areas of non-compliance , relate to material misstatements in submitted financial statements, prevention of and addressing unauthorised, irregular as well as fruitless and wasteful expenditure, and procurement and contract management… which together account for 57% of all findings on compliance.”

Findings

Throughout the Report it was evident that top management was criticised for not fulfilling their responsibilities by taking control of their respective entities. There was failure to fill key positions within the auditees, and often these positions remained permanently vacant because they were not advertised. Top management  was also criticised for failure to act against civil servants who displayed poor performance and who engaged in the misappropriation of state resources. Nombembe stated that the leadership “did not set the right tone in leading change in their respective portfolios”.

Another key observation Nombembe reported was that the Presidency , among a number of other auditees, never made the time to meet about the ministerial portfolios with the Auditor-General in the last financial year so this has therefore created a gap in accountability and transparency.

When it came to the review of the provinces, too many provincial institutions did not receive clean audits. An example of such poor performance was highlighted in the Report. Of all eligible auditees in the North West province, only one had achieved a clean audit; its provincial gambling board. No other entity managed to achieve this there.  National government departments were criticised for having spent more than 10% of their budgets at the beginning of this financial year. The report stated that this kind of expenditure could have negative repercussions on budget expenditure later on in the year due to a lack of adequate budget controls.

The Report also highlighted that the link of patronage was growing stronger. R600 million in tenders were awarded to suppliers who were family or friends of state employees. Tenders found to be unfair were seen to have increased across all entities. Worryingly, entities responsible for service delivery were also seen to be fraught with mismanagement. School text books were not delivered throughout many areas of South Africa and that in 7 of the 9 provinces, it was noted that medical waste was inappropriately disposed of. Funds for the teaching of HIV and AIDS life skills were not properly used, exacerbating the fact that this project has taken over 10 years to affect any change.

Comment

It is unclear what exact figures relate to audited entities. The Report and media release indicate that there were 536 entities audited while 31 (6%) of entity audits were outstanding. Elsewhere, the Report and media release indicate that National and Provincial government comprises of 671 auditees. These figures need to be clarified further.

It is perturbing that there are no substantial consequences for officials within the civil service who fail to comply with the rules governing expenditure and appropriation.

As the 2011—2012 audit report has highlighted, top-level management needs to develop and implement guidelines which employees must follow. This must be done to ensure that the management of public funds and resources is done is a transparent, accountable and cost effective way. This would ensure compliance with section 217 of the Constitution which governs procurement. Top-level management needs to play more of an oversight role in controlling ministerial portfolios to ensure development and service delivery. It is vital to fill vacant positions so that maximum outputs can be achieved. A system of checks and balances is key to ensuring the credibility of all auditees. This can be achieved through submissions of monthly reports, compliance with Nombembe’s office and the adherence to the tangible measures government is putting in place to deal with supply chain management and public sector governance. These measures include the Presidency’s Performance Monitoring and Evaluation whereby to “assist departments with the development of further improvement plans”.

Nonbembe highlighted that the report has shown noticeable progress from many of the auditees and the continued usefulness and reliability of the Annual Reports has aided in this improvement. However, he also states that the current situation is one of “stagnation and regression” .  The results over the last 3 years have seen a decline of clean audits of these entities, resulting in a less positive outcome and contradiction. The weakness that this Report has highlighted, mainly that of leadership maladministration, directly affects the rights of citizens who depend on these entities for the delivery of services. The management of public money is integral for development, transparency and accountability, of which entities are currently failing.

Ashleigh Fraser - ashleigh@hsf.org.za
Intern
Helen Suzman Foundation