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Irregular expenditure jumps to R45.6 billion - Eastern Cape, KZN, Free State, Limpopo the main culprits

Nov 1, 2017
Irregular expenditure jumps to R45.6 billion - Eastern Cape, KZN, Free State, Limpopo the main culprits

Auditor-General, Kimi Makwetu, said that irregular expenditure has increased by 55% since the previous year to R45.6 billion and warned that the amount could be higher.

He said this when he released the much-anticipated audit outcomes for 422 national and provincial departments and their entities for the year 2016/ 17 on Wednesday. The 422 auditees comprise of 169 national and provincial departments and 253 public entities.

The release of the report comes after he recently briefed members of Standing Committee on Public Accounts (SCOPA) in Parliament in Cape Town.

The Auditor-General said the amount does not include the irregular expenditure of the auditees like PRASA, where the audits are still ongoing.

He also said that 25% of the auditees disclosed that they had incurred irregular expenditure but that the full amount was not known. Makwetu added that 28 auditees were qualified as the amount they had disclosed was incomplete.

The increase, the Auditor-General said, could be attributed to continued supply chain management weaknesses.

“Although deviations are allowed, we found that it had often not been approved or, if approved, the deviation was not reasonable or justified,” he said.

He said that auditees in KwaZulu-Natal, the Free State, Limpopo and the Eastern Cape were the main contributors to the increase in irregular expenditure compared to the previous year.

He said the sectors with the highest amounts of irregular expenditure were health, transport and education.

AG flags state employees doing business with the state

Makwetu said he had over the years addressed concerns of contracts being awarded to government employees and their families without the any declarations being made.

He said although there was no legislation that prohibits making awards to suppliers in which state officials have an interest, the amended Public Service Regulations prohibited employees of departments from doing business with the state from August 2016.

He noted that departments were tasked with monitoring this compliance.

“Based on the findings in just the first six months of implementation, it seems that this responsibility is not being given the attention it deserves,” he said.

The Auditor-General also said that there was an emerging trend where departments and entities continued to contest the audit findings of his office, adding that this trend intensified during the 2016/ 17 financial year.

“It is unacceptable for those we audit to question and challenge the outcome of audits based on evidence and solid accounting interpretations or legal grounds.

“We also acknowledge that many of the accounting and legal matters dealt with in the audits are complex and often open to interpretation,” he said.

Some good news 

Makwetu said that there has been a slight improvement of audit outcomes for national and provincial government departments over the past four years.

“These outcomes show a slow improvement over the past four years,” he said.

Makwetu said at a national level, there was a slight improvement in outcomes, with the number of clean audits increasing to 30% or 126 for the financial year 2016/ 17.

This is a slight improvement compared to 29%, or 113, of the departments that obtained clean audits out of 385 auditees in the 2015/ 16 financial year.

The Auditor-General said the number of auditees who obtained unqualified opinions with findings regressed during the period under review – from 184 or 48% in 2015/ 16 to 43% or 179 for the year under review.

He said 17% of all auditees or 72, received qualified audit opinions with findings for the financial year under review when compared to 16% or 61 auditees for the previous year.

There were more auditees that obtained adverse audit opinions with findings in the year under review, with the number rising from 3% in 2015/ 16 to 9% in 2016/ 17.

Those that obtained disclaimer opinions with findings dropped from 21 or 5% in 2015/ 16 to 2% or 10 auditees in 2016/ 17.    

Audit reports of 26 auditees remained outstanding.

The Auditor-General said provincially, Western Cape and Gauteng continued to produce the best results. He said it was also clear that the results were being sustained from year to year due to leadership emphasising a culture of accountability.

Makwetu said he has also seen an improvement in the audit outcomes in both the Eastern Cape and Limpopo, and said this was due to positive trends to the leadership roles of provincial Treasury and the Premier respectively.

He said, however, that in contrast, Mpumalanga, the Northern Cape and KwaZulu-Natal were erratic over the past four years, caused by a lack of urgency at leadership in responding to the root causes of the unsatisfactory audit outcomes in these provinces.

In the North West and the Free State, Makwetu said a “lack of accountability and commitment towards clean administration” were factors that influenced the poor showing of these provinces.

SOEs continue to regress

Makwetu says the audit outcomes of state-owned enterprises (SOEs) continues to regress.

He said this could be attributed to inadequate controls, monitoring and oversight.

“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 SOEs,” he said.

Out of the 253 public entities that were audited, 79 auditees, or 31%, obtained clean audit opinions for the period under review. The figure was the same for the 216 entities that were audited during the 2015/16 financial year.

Ninety-eight (98) entities, or 39%, received unqualified audit opinions with findings for the year under review, which is less than the 44% of the same opinions from the 2015/ 16 financial year.

About 15% of the audited entities received qualified audit opinions with findings out during the year under review compared to the 14% from the 2015/ 16 financial year.

Four-year analysis of completed audits of 19 SOEs shows improved results

Meanwhile, the Auditor-General said an analysis of completed audits of 19 auditees showed that SOEs have recorded an improvement over a four year period.

However, he has warned on an inconsistent level of oversight over entities, which have recently come under the spotlight over governance and financial management in recent times.

“The level of oversight by the departments to which SOEs report differed, and there was no single approach in this regard.

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 were not adequate,” he said.

The Auditor-General said public entities in total showed a slight improvement over the last four years, with 22% of these improving their audit outcomes and 14% regressing.

He said for the financial year 2016/17, 26% of the 19 auditees obtained clean audits compared to 21% in 2015/16 and 18% in 2013/14.

However, out of the 19 auditees, those that obtained unqualified audit opinions with findings showed a gradual decline over a four year period – from 76% in 2013/14 to 53% in 2014/ 15 and eventually 47% in the year under review.

– SAnews.gov.za