AUDITOR-GENERAL (AG) Tsakani Maluleke has made damning findings against the Department of Defence for incurring irregular expenditure to the tune of R2.1 billion, in the 2020/21 financial year.
The department obtained a qualified audit opinion because Maluleke was unable to obtain sufficient appropriate audit evidence on sensitive projects’ expenditure and related investments.
“I was unable to determine whether any adjustments were necessary to sensitive projects expenditure included within the expenditure of R14.26 billion and investments for special defence activities included in the investment amount of R182.16 million,” she said.
Maluleke disclosed this in her 10-page audit report tabled in Parliament, along with the department’s annual report.
In her report, the AG also found that the department did not fully record irregular expenditure.
“This was due to inadequate systems to detect, record, and appropriately disclose this expenditure in the financial statements.
“Consequently, I was unable to determine the full extent of the understatement to irregular expenditure, stated at R10.40 billion, as it was impracticable to do so,” said Maluleke.
Maluleke blamed the fiasco on failure to take effective and appropriate steps to prevent irregular expenditure, with the disclosed R2.18 billion not reflecting full extent of the irregular expenditure incurred.
“The majority of the irregular expenditure disclosed in the financial statements was caused by the compensation of employee budget being exceeded without approval from the Minister of Finance,” she said.
Some of the irregular expenditure included:
• R1.775 billion in compensation of employees;
• R33 million for importation of Cuban medicine, without authorisation from the South African Health Products Regulatory Authority;
• R102 million was incurred for 11 different procurement deviations within the Sensitive Projects environment.
• R105 million for the asset verification project awarded in the 2017/18.
• R39 million for an Information Communication Technology contract awarded in 2019/20.
• R37 million was incurred for Covid-19 Personal Protective Equipment (PPE) procurement, against National Treasury’s instruction, and;
• R37 million was incurred when the department followed an unfair bidding process in awarding the fuel contract for the North-West and Gauteng provinces, among others.
Maluleke found that payments were made before goods or services were received, in contravention of National Treasury regulations.
Procurement of goods and services were also done outside the legislative prescripts, including non-compliance with obtaining the required price quotations and inviting competitive bids.
“Similar non-compliance was also reported in the prior year,” Maluleke said in her report.
The prices for PPE items were found to be higher than the prices prescribed in National Treasury instructions.
In a shocking finding, Maluleke said she was unable to obtain sufficient appropriate audit evidence that disciplinary steps were taken against officials, who had incurred irregular expenditure.
“This was because investigations into some irregular expenditure were not performed. Disciplinary steps were not taken against some of the officials, who permitted irregular expenditure,” she added.
Defence secretary Sonto Kudjoe said the most challenging component of the department’s budget was the compensation of employee (CoE) budget allocation.
“Unfortunately, due to the underfunding of the CoE, the specifically appropriated CoE amount will be exceeded, since the actual feet on the ground, within the department, must be compensated on a monthly basis.
“The compensation of the feet on the ground will result in the recording of irregular expenditure over the medium-term, as defined in terms of the Public Finance Management Act,” Kudjoe said.
She also said she has engaged Maluleke to assist the department in identifying areas where governance and internal controls should be enhanced.
“It is clear that much work needs to be done to ensure a reduction in the audit findings against the department. I am adamant that consequence management for transgressions must be instituted,” she added.