Irregular expenditure soars
Publish date: 11 October 2018
Issue Number: 632
Diary: Legalbrief Forensic
As the Ramaphosa administration moves to contain the fallout from the state capture commission that saw Nhlanhla Nene sidelined as Finance Minister, auditor-general Kimi Makwetu yesterday revealed that government racked up irregular expenditure of at least R50bn over the past financial year. Legalbrief reports that it is an increase of nearly R5bn over the previous year and the figure could rise further because the audits of some state-owned entities, including SAA, Denel and the South African Post Office, are still outstanding. A report on the EWN site notes that Makwetu told stunned MPs that 16 departments, responsible for nearly R80bn of the national budget, are in a vulnerable position, while 82 did not have enough funds at the financial year end to settle their liabilities. The auditor-general defines irregular expenditure as spending that took place without complying with legislation, such as the Public Finance Management Act (PFMA). Makwetu who briefed a joint meeting of Parliament’s Standing Committees on Public Accounts and Appropriations on the outcomes of the 2017/18 audit of national and provincial departments and their entities revealed that there was only limited improvement in some areas. A TimesLIVE report notes that Makwetu told MPs that of the 295 departments and entities that received unqualified audits‚ only 99 (or 25%) obtained such audits with no findings at all while 196 were unqualified audits with findings. ‘The current year‚ in terms of clean audits‚ has shown an all-time low in terms of that we have only 99 from 129 departments that head clean audits‚ so the level of clean audits has unfortunately regressed‚’ he said. He said poor procurement management and the submission of erroneous financial statements were the root causes of irregular spending. A Fin24 report notes that a statement from the committee recommends that Cabinet Minsters and heads of government departments who have failed in their duties must be held responsible for the poor audit outcomes.
The finances of the Independent Development Trust (IDT) are in disarray to such a point that Makwetu could not express an opinion. The Star reports the IDT – which falls under Public Works Minister Thulas Nxesi – has obtained a disclaimer of opinion for the fourth time in a row. ‘I was unable to sufficiently appropriate audit evidence to provide a basis for an audit opinion on these financial statements,’ Makwetu said. He added he could not obtain supporting documents for liabilities and assets stated at R1.9bn. It was the same with the R312m in revenue from the project management fees, and that contingent liabilities stood at R116m in March 2018 due to lawsuits, and outstanding payments of suppliers. Makwetu said proper record-keeping was not effectively implemented.
Makwetu has also painted a shambolic picture of the state of the Water and Sanitation Department, which The Star says logged R6.156bn in irregular expenditure under former Minister Nomvula Mokonyane. Makwetu found the department to have been without adequate systems of control, including proper project management and costing techniques in line with norms and standards. He also found that no disciplinary action was taken against officials responsible for incurring or permitting irregular expenditure in the previous years because not all investigations took place during the year. And more than R800m that ‘went missing’ from the Emfuleni Municipality is offered as one of the reasons why pollution of the Vaal River is reaching critical proportions. According to a Beeld report, the Auditor-General found contraventions of the National Environmental Management Act, the National Health and Safety Act and other legislation in his report on the municipality.
Irregular expenditure by government departments and parastatals has reached a staggering R72.6bn, the DA has claimed. ‘Our analysis reveals a shocking level of financial mismanagement and wasted funds due to the failing ANC government,’ the DA’s Natasha Mazzone said. A Cape Argus report says the combination analysis compiled last year by the DA revealed that total irregular expenditure, across all departments and entities, stood at R42.8bn. The figure for the most recent year was double the amount incurred the previous year, and did not include all departments and entities, as some are yet to table their reports. The departments and entities that spent the most money irregularly were: Eskom with R19.6bn, Sanral with R10.5bn, Transnet with R8.1bn, the Department of Water & Sanitation with R6.2bn and the SABC with R5bn. A number of entities – Denel, Prasa, SAA and SA Express – have not yet tabled annual reports for 2017/18. ‘Prasa is suffering major institutional failure and continues to lose Metrorail trains to arson on a monthly basis. SAA suffered a loss of R5bn in 2016/17. Denel has been left scrambling to recover R400m in losses due to its ill-fated relationship with Gupta-linked company VR Laser,’ DA MP John Steenhuisen said.
This led to Makwetu on Monday announcing that government staff across the country needed to prepare for the signing of the Public Audit Amendment Bill, which was passed by Parliament in June and sent to President Cyril Ramaphosa for assent. The Daily Maverick reports that the new law will provide the auditor-general’s office with the power to refer irregularities to law enforcement agencies for investigation and to make binding recommendations, which will increase accountability in government entities with repeated reports of irregular, unauthorised, fruitless and wasteful expenditure. Makwetu said his office had engaged staff across the country, at ‘the coalface’ of the auditor-general’s work, to provide clarity on the new law and unpack concepts to help draft regulations it will present to Parliament in the next month to ensure the law’s smooth implementation.