Prasa, department of defence and Free State department of human settlements ordered to take remedial action against financial losses
By Bongi Ngoma
The recent commissions of inquiry as well as reports by the Auditor-General of South Africa (AGSA) and the Special Investigating Unit, including media coverage of allegations of wrongdoing in the public sector, have been under the spotlight for some time.
In addition, there have been growing calls for accountability, good governance and improvement in service delivery. These developments have increased demands for public institutions to do better.
As the institution with the mandate to audit how public funds are used, we have realised for some time that our reports and presentations to Parliament were beginning to look very similar, albeit with pronouncements of greater deterioration in the way public funds are spent.
However, in the recent 2020-21 Public Finance Management Act audit outcomes report, we are seeing signs of improvement that, while encouraging, simultaneously suggest that much more needs to be done if we are to attain the levels of efficiency in the public sector that are being demanded by our people.
Themed, ’Accelerate improvement for accountability’, the report acknowledges the improvements in the audit outcomes at both national and provincial level. This is an indication that accounting officers and authorities are listening to our messages and hearing our calls for better accountability and clean governance.
The improvements can, in the main, be attributed to the following:
Accounting officers and authorities and their senior management were committed to, and got directly involved in, ensuring that internal control processes were improved and our recommendations were implemented. There was also stability in these key positions.
Internal controls were improved, including the implementation of preventative controls.
Accounting officers and authorities, executive authorities, internal audit units and audit committees provided oversight, monitoring and assurance.
Despite these very welcome and necessary improvements, the report equally indicates that much more needs to be done at a systemic level to enable sustained improvements to reduce wastage, leakages and other inefficiencies that have an impact on the government’s ability to use public funds prudently.
The weaknesses we highlighted year after year were the main driver of the amendment of the Public Audit Act, as approved by Parliament in 2019. This was a direct response to changing the trajectory of steadily deteriorating audit outcomes and was aimed at enhancing the powers of the AGSA to, amongst others, introduce binding remedial actions where legislation and policies related to the management of public funds are continuously flouted.
These amendments were not intended to be punitive, but rather to strengthen public sector financial and performance management. We are beginning to see early indications that this is being achieved.
The overall goal of our expanded mandate includes promoting better accountability, protecting resources, enhancing public sector performance, and encouraging an ethical culture to ultimately strengthen public sector institutions to better serve citizens.
The key mechanism introduced as a stepping stone to greater accountability is that of a material irregularity (MI). This refers to any non-compliance with, or contravention of, legislation; or fraud, theft or a breach of fiduciary duty, identified during an audit performed under the Public Audit Act, that resulted in, or is likely to result in, a material financial loss, the misuse or loss of a material public resource or substantial harm to a public sector institution or the general public.
To unpack this from a process perspective, there are two main gates that a matter must pass through for it to be classified as an MI – there needs to be an irregularity (which is the non-compliance, fraud, theft or breach), but that irregularity must also have an impact (being loss, misuse or harm).
We identify MIs as part of our normal audit process. Should the auditee not address these in time, it can be followed by remedial actions. These legally bind an accounting officer or authority to act within a stipulated period to address the MI.
Failure to implement remedial action may result in the issuance of a certificate of debt. In addition, and in certain circumstances, we can refer a matter to investigative authorities for further investigation or the recovery of money lost from the person or party liable for the loss.
Ultimately, this process is intended to decrease the adverse effect of such irregularities on auditees or the general public and set the right tone for accountability, highlight the need for consequences, and encourage behavioural change at the highest levels.
We have been implementing the MI process incrementally at auditees since 2019 and plan to have implemented it at 366 auditees nationwide in 2021-22.
By 15 October 2021, we were dealing with 121 MIs in the national and provincial government, which were at various stages in the process. We estimate the financial loss of these MIs to be R11,9 billion!
Importantly, these MIs emerged in areas that indicated a basic failure of accountability and discipline including procurement at the best price, paying for only what was received, paying suppliers on time, recovering revenue owed to the state, safeguarding assets, using resources effectively and efficiently to prevent fraud, and complying with legislation.
While the best course of action would be to prevent these irregularities from occurring, we are encouraged that most accounting officers and authorities are taking appropriate action to resolve these matters when notified. This signals a behavioural change towards responding to our findings in a decisive and timely manner.
Timeous actions have resulted in contracts being cancelled, controls being improved and consequence management being implemented. We are pleased to say that 10 MIs were fully resolved in the past year.
The impact of the MI process is reflected in what has been achieved thus far. Apart from the 10 resolved cases, accounting officers or authorities are taking appropriate action in 69 cases (69%), meaning that they are busy addressing the MIs, with 90% of cases having been investigated and/or disciplinary action undertaken. In addition, we have included recommendations in the audit reports for implementation by accounting officers or authorities in 12 cases.
In another positive development for accountability as well as the strengthening of processes and discipline, we issued our first remedial actions. They were to the accounting officers or authority of Prasa (one), the Department of Defence (one) and the Free State Department of Human Settlements (two). If the accounting officers and authority do not implement the remedial action to deal with the financial loss by the stipulated date, this will result in a certificate of debt being issued.
Most auditees still have a lot of work to do to implement all our recommendations for improving controls and to effect consequences, and recover losses where things went wrong.
For us, success is not a one-size-fits-all approach. We hope to increasingly see better accountability, protected resources and enhanced performance and integrity of public institutions.
We are not naïve in thinking that the mechanisms enabled by the amendments to the Public Audit Act signal that the war has been won against the wasteful and irregular use of public funds, corruption and other forms of leakage.
We are, however, confident that these mechanisms can be used as a stick when auditees do not comply with legislation or ethically perform their duties to use public funds to serve the people of our country.
* Bongi Ngoma is the head of national audit at the AGSA
** The views expressed herein are not necessarily those of Independent Media