The Office of the Auditor General (AG) has begun to use its new powers under the amendments to the Public Audit Law to send notices of corrective actions to four public sector entities, including the Agencia de Ferrocarriles de Pasajeros de SA (Prasa ), the Department of Defense, the Department of Human Settlements of the Free State and the South African Post Office.
This is revealed in the latest Audit Results Report (2020/21) for national and provincial departments, presented by AG Tsakani Maluleke in parliament on Wednesday.
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The amendments to the Public Audit Law empower the Attorney General to take binding corrective measures to quantify and recover financial losses within certain time frames, otherwise a debt certificate is issued to the responsible accountant.
Then, it corresponds to the corresponding minister, the provincial member of the executive council (MEC) or the municipal council to recover the loss of the accountant or authority.
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The two departments issued with directives (Defense and Human Settlements of the Free State) now have to deal with the financial loss on a stipulated date. If left unaddressed, “it could result in the issuance of a debt certificate,” the AG report says.
“We referred three material irregularities for investigation to the Hawks: one for the Department of Defense, the South African Post Office and the Free State Development Corporation.”
It adds: “We also included recommendations in the audit report of the Free State Development Corporation to resolve certain aspects of the material wrongdoing that the Hawks will not address.”
As of October 2021, the AG was dealing with 121 material irregularities with an estimated value of R11.9 billion.
The amended Public Audit Act, which came into effect in April 2019, requires the AG to do more than simply report on the audit results of public sector entities by giving it enforcement force.
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The main tool for dealing with material irregularities is the corrective action notice, followed by the debt certificate issued to the accountant or responsible authority.
Of the 425 public entities covered in the report, 115 achieved clean audits, representing 19% of the R1.9 billion spending budget administered by the national and provincial governments. Another 31 auditees are very close to achieving a clean audit, the report adds.
Maluleke said that one of the most encouraging aspects of the report was that 62 auditees maintained their clean audit status from the previous year.
While a clean audit is not always a good indicator of good service delivery, there is evidence that clean auditors have the controls and systems in place to deliver good service.
“When an auditee receives a clean audit, it means that his financial statements and his performance report give a transparent, honest and credible account of his achievements, failures, problems and risks. In other words, these accountability reports present the true picture of that auditee, good or bad, ”the report states.
“This enables all stakeholders in the auditee, particularly those who need to monitor the auditee’s performance and provide support for its success, to judge how the auditee is doing and to take action when necessary. It also means that the auditee complied with the important legislation that applies to him and, in the cases in which slip-ups occurred, they were rare or not material ”, he adds.
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The audit results of key service delivery departments within the health, education, human settlements and public works sectors were poor compared to other departments, and improvements were much slower.
These departments are responsible for almost a third of the spending budget and are critical in managing infrastructure and delivering essential services.
Poor quality financial statements
The Attorney General rebukes public entities that were late in submitting their financial statements, which he said are crucial to establishing accountability and transparency.
More than half of the public sector auditees submitted poor quality financial statements for audit. The misstatements detected by the AG greatly increased the number of auditees with unqualified audit opinions.
Without the intervention of the Attorney General, only 182 entities would have received unreserved opinions, as opposed to the 302 that finally received this result.
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Twelve public entities received denied opinions in 2020/21, including the South African Nuclear Power Corporation, the National Skills Fund, four technical and vocational education and training colleges, and Northwest and Free State development corporations. All 12 of these public entities also received denied opinions in 2019/20.
Nine other public entities that had previously received denied opinions had not submitted their financial statements for audit prior to the closing date of this report, or had submitted them so late that the audit was still ongoing.
SAA had not presented financial statements since 2017, before entering a business rescue.
Unauthorized expenditures totaled R3.21 billion, and almost a third of the departments ended the year in deficit, which reached a total of R41.7 billion. More than 60% of the departments did not have enough cash to settle liabilities at the end of the year, with a cash shortfall totaling R33.3 billion.
Key service delivery departments have the worst financial health of all, accounting for 90% of unauthorized spending and deficits totaling R15.6 billion. Five provincial health departments accounted for much of these deficits and paid medical malpractice claims of R1.76 billion, in addition to unpaid claims of R124 billion.
State-owned companies are in serious financial trouble, the report says.
Apart from SAA, Denel and SA Express Airways, South African Broadcasting Corporation and South African Nuclear Energy Corporation were unsure of their going concern status.
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“We hope to see more [of] such disclosures in some of the SOEs with pending audits, ”according to the AG.
“Some state-owned companies continued to request – and receive – government funds, diverting funds destined for the provision of primary services,” he added.
To make matters worse, 69% of those audited did not materially comply with the legislation, compared to 71% the previous year. This is not to say that there were no improvements in the audit results. There were, but it is clear from this report that we are a long way from a properly responsible public sector.