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“A clean audit should be the destination of every single auditee within the public service.”
These are the words of Auditor-General (AG) Tsakani Maluleke, as she last week presented the consolidated audit outcomes for national and provincial government, public entities, and legislatures for the 2024/2025 financial year. The annual audits are conducted according to the prescripts of the Public Audit Act, and auditees must comply with the provisions of the Public Finance Management Act (PFMA).
Regrettably, Maluleke added, one year into the seventh administration, the Auditor-General of South Africa found only minimal progress towards improved audit results. At the end of the 2024 financial year, she said, there were 142 clean audits – this is an audit outcome with an unqualified opinion on financial statements, meaning that the financial statements are credible and there are no adverse findings on performance information or on compliance.
The number of clean audits for this rose marginally by nine to 151, and Maluleke said she was encouraged by this movement, however slight, in the right direction. However, she pointed out the Free State, Gauteng, North West, and Northern Cape provinces as the ones where there was scant progress and very little forward movement. Meanwhile, 64 entities, in charge of a total budget of R215-billion, improved their audit opinions while 45, responsible for a total of R523-billion, regressed.
The 151 clean audits make up 36% of the audit base of 417 auditees, but they are responsible for only 12% of the expenditure budget for the PFMA. Maluleke explained that this means many of the larger entities, some of them overseeing billions of rands, do not get a clean audit because these tend to reside among the smaller auditees.
“What it tells you is that 88% of the budget sits in the hands of auditees that are unable to demonstrate that they have good financial management practices, stable performance planning and monitoring and reporting practices, and the type of integrity measures and controls that ensure that when they procure goods and services, they do so in a manner that respects the rule of law.”
Only two state-owned entities (SOEs) were able to attain clean audits – they were the Development Bank of Southern Africa, which has maintained a clean audit record for six years in a row, and the South African Nuclear Energy Corporation. The bigger SOEs, for example the Central Energy Fund group, the Eskom group, and the South African Airways group, could manage only an unqualified audit with findings, a qualified audit with findings, and a disclaimed audit with findings, respectively.
“SOEs have a history of not submitting financial statements for auditing or for submitting them late,” the PFMA audit report notes. “This delays the audit process and the tabling of annual reports in Parliament for oversight purposes. Our message has been consistent over the years that accountability is significantly weakened by this lack of transparency on the finances and performance of the SOEs that are repeat offenders in this area.”
Maluleke added that regarding SOEs, it was “encouraging” that the situation of large number of audits being submitted late or not completed on time because of no submission, has improved quite significantly over time.
The most prevalent audit outcome was an unqualified audit opinion with findings, which is often considered to be a good outcome, the PFMA report notes. However, this is not truly the case as the auditees in this category may have financial documents that are correct as required, but they may still have problems with compliance and be experiencing significant weaknesses in financial and performance management.
Procurement under the spotlight
“We’ve been concerned that for far too long, politicians, boards, accounting authorities, accounting officers, as well as those in Parliament, celebrate unqualified with findings.”
Procurement was again singled out as an area where large amounts of money are lost, especially by the 170 auditees sitting in this ‘unqualified’ category.
“We found that many of them have high levels of non-compliance,” said Maluleke. “We find that they are the largest contributors to irregular expenditure, and of course, irregular expenditure occurs when there’s been non-compliance with laws and regulations relating to procurement.”
Many entities in the ‘unqualified’ category have disciplines and practices and controls over performance, planning, monitoring and reporting and performance evaluation that are weaker than is desirable, the AG said. Many of them overspend on their budgets and contribute to the consolidated number on fruitless and wasteful expenditure. Also, most of the material irregularities (MI) are issued to auditees in this category.
“This category of unqualified opinions with findings is not a good indicator of solid financial management practices, stable performance management practices, and disciplined procurement practices,” said Maluleke. “This category, in many ways, explains the dissonance that South Africans feel when we announce audit opinions and audit outcomes and audit reports, and there is some measure of celebration that at least our outcomes are largely unqualified with findings, and South Africans wonder, but why do I still not have services? Why is it that the performance of government is still not what I expect? Why is it that I still can’t trust that government will do what it said it will do?”
Such dissonance is attributed to the complacency of staying in this zone, added the AG.
She called on all auditees to give appropriate attention to the detailed recommendations and to fulfil their designated roles effectively, thus promoting a public service culture of performance, accountability, transparency and institutional integrity.
“Our recommendations are similar to those of the previous year, as little progress has been made with their implementation. We therefore call on executive authorities and oversight structures to prioritise the following:
- Intergovernmental and institutional planning for delivery on the Medium-Term Development Plan.
- Institutional capability and effective governance for transparent reporting and accountability.
- Infrastructure, systems, and professionalisation as key enablers.
- Managing the risks to service delivery created by the poor quality of spending and financial mismanagement, weaknesses in procurement and contract management, and the reluctance to address such weaknesses by dealing appropriately with irregular expenditure, cybersecurity vulnerabilities, and the lack of consequences.
- Optimising the MI process as an oversight tool.”
