At the end of October auditor-general Kimi Makwetu presented the bad news to Parliament that irregular state spending had jumped from R27.4-billion in the 2012/2013 financial year, to an inexcusable R62.7-billion for 2013/2014.
Last year’s figure was bad enough, as it was a billion-rand increase from the 2012 figure of R26.2-billion. But the more than twofold increase in 2014 has shocked even Parliament’s standing committee on public accounts (Scopa).
The auditor-general (AG) was reporting back on the audit outcomes of national and provincial departments and entities in the last financial year.
He also said that there had been R2.6-billion in unauthorised expenditure, compared to R2.3-billion in the previous financial year, and R1.2-billion in fruitless and wasteful expenditure, compared to the previous R2.4-million.
Only 25% of auditees scored a clean audit, while 51% achieved a financially unqualified audit with findings, 16% were qualified with findings, 4% were adverse, and there were 4% outstanding as of 10 September 2014.
Not all irregular expenditure disclosed
Makwetu said irregular expenditure was a particular thorn in the government’s side.
Irregular expenditure is defined by the Treasury as “expenditure, other than unauthorised expenditure, incurred in contravention of or that is not in accordance with a requirement of any applicable legislation, including:
- The Public Finance Management Act of 1999;
- the State Tender Board Act of 1968, or any regulations made in terms of that act; or
- any provincial legislation providing for procurement procedures in that provincial government.”
The authors of Public Finance Fundamentals (first edition, 2008) cite an example of “a senior manager that is authorised by legislation to make the final decision about which contractors to use to service the needs of his or her department. Any decision the manager makes in this regard is authorised, but may violate Treasury regulations (and thus be considered irregular expenditure)”.
The main reason for the staggering 2014 increase in irregular expenditure, said the AG, is the R30.8-billion suddenly disclosed by the Property Management Trading Entity – which manages the state’s property portfolio. The disclosure is based on a review of transactions since 2001, which aimed to address incomplete disclosure of previous years.
This is not quite half of the total for 2013/2014. Doing the maths reveals that the balance of the irregular expenditure amounts to R31.9-billion, which is still a deplorable sum.
The highest contributors to this state of affairs, said the AG, were the:
- Property Management Trading Entity (R30 798 million) (49%);
- KwaZulu-Natal Department of Education (R2 680 million) (4%); and
- Limpopo Department of Education (R2 209 billion) (4%).
Education, Health and Public Works together accounted for 27% of the total. Scopa chairperson Themba Godi remarked that internal controls in the three departments were not up to standard. “Procedural processes are not for decoration, they are for compliance,” he said unnecessarily.
Makwetu named the root causes of poor audits as:
- A slow response by management in improving key controls and addressing risk areas;
- instability or vacancies in key positions; and
- Inadequate consequences for poor performance and transgressions.
He described the lack of consequences as a serious challenge.
Action, not words, will help solve the problem
Predictably, the government has uttered words of outrage, which need to be backed up with action to have any real impact.
“We want to see a continuous decrease in instances of non-compliance,” said Godi at the briefing, adding that senior management had a tendency to take shortcuts, because following the right procedure caused a delay in the issuing of tenders.
He was also outspoken on the continued use of consultants to do the work of, for instance, balancing books which, in many cases, someone is already employed to do. According to the AG, departments spent R600-million on this.
“I was actually shocked … I thought the use of consultants for preparation of financial statements was a thing of the municipalities," said Godi, "but it is also at the level of provincial and national government.”
He said that if only 25% of audit outcomes were clean, that meant that only 25% of the budget was properly accounted for at all times. Capacity was needed for the state to be able to do the work it was entrusted with.