Dear Corruption Watch,
Every year, we read about qualified audits and other stories about financial mismanagement. What are the penalties that provincial departments incur when they fail to submit quarterly and annual financial statements on time? What policy or law addresses the financial accountability of provincial (education) departments?
Dear Number Cruncher,
Proper financial reporting is vital to prevent, detect and punish corruption. It is more difficult to hide corruption, mismanagement or inefficiency if an institution regularly submits financial reports to an independent authority for review. South African law creates detailed requirements for reporting by provincial departments and establishes real penalties for non-compliance.
The Public Finance Management Act 1 of 1999 (PFMA) makes provision for extensive reporting requirements for provincial departments. In terms of s 40 of the PFMA, the Head of Department (HoD) of a provincial department (referred to as the “accounting officer”) must prepare annual financial statements and must submit those to both the Auditor General and the relevant provincial treasury within two months of the end of the financial year.
Once the statements have been audited by the Auditor General, the HoD must send the audited financial statement, together with the department’s annual report, to the provincial treasury. The annual financial statements must include details on any material losses through criminal conduct or, and this is important for detecting corruption, any unauthorised, irregular, or “fruitless and wasteful” expenditure. It must also state what disciplinary steps have been taken to deal with that improper expenditure.
In addition, the HoD must submit monthly financial statements. Every month the HoD must send the provincial treasury information on the actual revenue and expenditure for the previous month, and the anticipated revenue and expenditure for the next month. The monthly statements must include an explanation of any “material variances” and the steps the department has taken to ensure that it remains within budget.
As we know, departments often fail to meet these reporting requirements. What are the consequences? The PFMA prescribes two consequences. First, if the HoD wilfully or negligently fails to meet her obligations under s 40, she will be guilty of “financial misconduct”. In terms of the Treasury Regulations that accompany the PFMA, if an “accounting officer” – in the case of a provincial department, the HoD – is alleged to be guilty of financial misconduct, the relevant treasury “must ensure that the relevant executive authority initiates an investigation into the matter”. If the allegations are confirmed, the executive authority must hold a disciplinary inquiry in terms of the normal procedures applicable in the public service.
Second, the HoD may also be guilty of criminal conduct. If she wilfully or “grossly negligently” fails to report when she should, she will be guilty of an offence and liable to a fine or imprisonment not exceeding five years. The relevant treasury is empowered to direct the institution to lay criminal charges against someone who it suspects of failing to properly report.
While the obligations and enforcement mechanisms are in place, they need to be employed. If HoDs know that there is little chance they will suffer either disciplinary or criminal consequences for failing to report, they will not be incentivised to do so. There needs to be a real threat of consequences for HoDs to take their responsibilities seriously. While the primary obligation to ensure that happens rests with the provincial treasury, members of the public can play a supporting role by identifying departments that have failed to submit their financial reports on time, and pressuring the provincial treasury to act.