Auditor-General Kimi Makwetu. Picture: GCIS

Cape Town - The auditor-general (AG) Kimi Makwetu called on government leaders to take urgent action to halt the trend of disappointing audit results, restore accountability and prevent mismanagement of public funds.

Releasing his 2018/19 general report for national and provincial government and their entities, Makwetu says political leaders, accounting officers and authorities, as well as oversight structures “must take immediate action to restore government’s accountability to the people of South Africa.

"This could be done by acting on the outcomes of the recent audits, dealing effectively with material irregularities (MIs) that have been identified, and implementing preventative controls to turn the tide of undesirable stewardship over public funds”.

His report – themed 'Act now on accountability' – reveals “disappointing” audit results for 2018/19, and “slow progress” over the five previous financial years. Makwetu attributes the stunted growth towards the desired audit outcomes largely to those charged with governance being slow to implement, or totally disregarding, audit recommendations made by his office.

At a briefing on Wednesday, Makwetu painted a picture of administrators and authorities who had largely failed to implement audit counsel and recommendations from his office.

“Our recommendations did not require more than what accounting officers and authorities were legally obligated to do by existing laws such as the Public Finance Management Act. 

"We simply re-emphasised basic accountability measures such as proper planning and budgeting; establishing internal controls; effectively dealing with transgressions; keeping proper records; as well as credibly reporting on finances and performance,” says Makwetu.

Makwetu said executive authorities and oversight structures did not lead by example in setting the correct tone “that would enable accountability, transparency and good governance”.

The audit outcomes at a glance.

Among its key findings, Makwetu’s report reveals the following:

  • Overall, the audit outcomes regressed since 2014-15 with only 80 auditees improving and 91 regressing. Only 100 (26%) of the auditees managed to produce quality financial statements and performance reports and to comply with key legislation, thereby receiving a clean audit. In 2014-15, 106 auditees had clean audits.
  • There were serious weaknesses in the financial management of national and provincial government that had not been addressed over the past five years.
  • The financial health of auditees continued to deteriorate – with departments in particular struggling to balance their finances.
  • Unauthorised expenditure remained high at R1,365 billion.
  • There was an emerging risk of increased litigation and claims against departments. Over a third of the departments 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. 

Preventing poor-quality financial statements and performance reports, non-compliance and MIs is more effective than having to deal with the consequences thereof. 

A proactive approach aimed at identifying risks and requiring assurance from accounting officers and authorities that these risks are being mitigated through preventative controls will have a positive impact on the control environment of auditees.

Makwetu said: “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. 

"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.”

The in-year status of records reviews that the AGSA performs and engages on with accounting officers and authorities provide an early warning system whereby accounting officers and authorities are alerted to matters that can potentially lead to undesirable audit outcomes.

AGSA reports and briefings will be a good source of information in this regard, but the AG also strongly encourages engagement with the chair of the audit committee and the head of the internal audit unit on their perspective, as they have a key responsibility to assess risk and control.

Makwetu said that Parliament and legislatures – through the portfolio committees and standing committees on public accounts – can also play a pivotal role in strengthening preventative controls.

Makwetu concluded that as the audit office they remain committed to working tirelessly within their new mandate to strengthen financial and performance management in national and provincial government, emphasising the need for accountability and doing the basics right. 

"We encourage Parliament and the provincial legislatures as well as the political and administrative leadership to play their part effectively and without fear or favour to ensure accountability for government spending and improvement in the lives of the citizens of this country.”

The full report can be accessed here.

IOL