Provincial Overview
Eastern Cape
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 21 auditees in the province – 13 departments, the provincial legislature and 7 public entities. The outcomes of 4 small public entities are excluded.
Provincial overview
In our 2019-20 message, we urged provincial leadership to ensure that control environments were strengthened and that all necessary preventative controls were implemented and consistently monitored. Provincial leadership committed to improve the audit outcomes and accountability, and made some progress in responding to our message.
The provincial department of cooperative governance and traditional affairs demonstrated that a clean audit can be achieved by improving record keeping and internal processes to verify reported performance information. Similarly, leadership at the provincial department of sport, recreation, arts and culture took the necessary steps to monitor its action plans, resulting in a clean audit outcome. However, there was a regression at the Eastern Cape Development Corporation, which did not embed the preventative controls necessary to sustain its clean audit from the previous year. More effort is required for further improvements, as three auditees (provincial departments of health, education and transport), which together account for 78% of the provincial budget, did not improve their qualified audit opinions for the third consecutive year. A further 10 auditees (47%) were only able to maintain their previous year’s audit opinion of financially unqualified with findings with the help of auditors who allowed them to correct the misstatements identified during the audit.
We found that accounting officers did not raise the difficult questions and pursue answers from management in cases where progress was clearly not being made in addressing the previous year’s findings. The tone from provincial leadership when it comes to holding individuals responsible for transgressing legislation is not strong enough, as a significant amount of unauthorised, irregular, and fruitless and wasteful expenditure investigations have not been completed to determine who should be held accountable. We call upon leadership to investigate these transgressions, establish preventative controls so that they do not reoccur, hold the individuals involved accountable and set a tone of zero tolerance for transgressions.
We have noted a trend of poor project management at some of the departments where projects are not completed, are not progressing at all or are completed but of poor quality. This poor project management exacerbates the financial constraints of the province and further hinders service delivery to citizens who need schools, hospitals and houses.
There were delays in the delivery of completed schools at the provincial department of education due to late payment of contractors and poor project management.
The provincial department of health had delays in upgrading hospitals and, in one instance, a contractor abandoned a project, leaving work that was not of satisfactory quality. The increasing medico-legal claims that are not budgeted for will further compound this slow delivery of infrastructure at the department, as the budget for service delivery is redirected to pay for these claims.
Projects were not completed within the planned time at the provincial department of human settlements, and one project that should have been completed within 24 months is still in progress 72 months after construction began.
We have seen good cooperation from the provincial accounting officers during the implementation of the Public Audit Act amendments, and they have responded to the material irregularity notifications that we issued to them. We noted that some matters in the provincial departments of transport and education were reported to the South African Police Service and the Directorate for Priority Crime Investigation (the Hawks); however, the financial losses identified have not yet been recovered.
Accounting officers must take overall responsibility for the financial management of their institutions and for achieving the objectives of those institutions. Their actions and directives must also elevate the importance of internal controls and accountability, and set the tone for the institution. Provincial leadership must instill a greater sense of urgency when it comes to improving the audit outcomes for the three departments that have qualified audit opinions and for those that have stagnated on unqualified opinions with findings audit opinions.
Free State
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 16 auditees in the province – 12 departments, the provincial legislature
and 3 public entities. The outcomes of 3 small public entities are excluded.
Provincial overview
In our 2019-20 message, we called on political and administrative leadership to ensure that preventative internal controls were institutionalised, particularly for day-to-day transaction processing and ensuring compliance with legislation. We encouraged political leadership to lead from the front, to continue improving the assurance provided, to hold administrative leadership accountable for its actions, and to ensure that there were consequences for poor performance and transgressions.
However, our call to action was not heeded, resulting in an overall stagnation in the current-year audit outcomes compared to the previous year. Seven departments were qualified in multiple areas, some of them repeated, which reduced the credibility of financial reporting to oversight and citizens. To improve the credibility of financial statements throughout the province, accounting and chief financial officers should focus on developing and implementing credible action plans that include the year-end closing processes for financial statements. The internal audit unit and the provincial treasury should carefully review these financial statements and ensure that they are supported by appropriate documentation.
The provincial treasury regressed from its previous clean audit opinion due to material non-compliance relating to procurement, mainly because the department did not institutionalise internal controls on compliance. In contrast, the Fleet Management Trading Entity managed to achieve the only clean audit opinion in the province. This follows years of gradual improvement after management implemented proper processing and reconciliation controls over its asset management system. This is an example of what can be achieved when all role-players enable a culture of accountability.
Leadership’s continued lack of accountability for government spending negatively affected departments’ financial sustainability. Funds to be surrendered to the revenue fund, together with accruals and payables not recognised, exceeded cash on hand by R4,4 billion, up from R4 billion in the previous year. It is concerning that a significant portion of the 2021-22 budget will be needed to settle these obligations, as this will reduce the departments’ ability to effectively deliver on their mandates. The provincial departments of education and health also had combined bank overdraft balances of R1,2 billion, compared to R1,1 billion in the previous year, which put pressure on the financial wellbeing of the entire province. Political and administrative leadership should urgently intervene to address the province’s financial health status. The provincial treasury in particular should promote effective financial management that will prioritise the already shrinking public purse to focus on key service-delivery imperatives.
Outcomes on performance reporting also generally stagnated, with only 43% of auditees reporting accurately on their predetermined objectives after audit adjustments. The provincial departments of education, health and human settlements failed to accelerate the implementation of their audit action plans and could not deal with the poor delivery of infrastructure projects due to a lack of consequences, which negatively affected the lived experiences of citizens. We urge accounting officers and senior management to implement effective monitoring of preventative controls to improve the quality of submitted annual performance reports, and to rely less on the audit process.
Compliance with laws and regulations remained a challenge, as 15 auditees (94%) had material non-compliance findings. Officials continued to disregard supply chain management laws and regulations in their procurement processes. The closing balance of irregular expenditure continues to climb every year, with the single biggest contributor since 2017-18 being the provincial department of police, roads and transport.
When it comes to consequence management, the longer it takes auditees to determine if any officials were responsible for non-compliance or whether any losses were incurred, the more difficult it will be for them to implement consequences because supporting documentation will be more difficult to find and responsible officials may no longer work at affected departments. These challenges have already materialised at the provincial department of health, where documentation supporting the non-compliance could not be found. Continued non-compliance may result in financial loss or harm to institutions and the general public.
As part of implementing our expanded powers in line with the Public Audit Act amendments, we continued to notify accounting officers and authorities of material irregularities identified during our audits. However, some accounting officers and authorities did not take adequate action to address these material irregularities, which led to us including recommendations in the audit reports or referring the material irregularity to a relevant public body for investigation. Political leadership and oversight should ensure that these material irregularities receive urgent attention so as to strengthen the integrity of these public institutions, recover and prevent further losses, effect consequences for misconduct, and drive a change in behaviour to prevent the similar matters from occurring in the future. On a positive note, the provincial department of education took swift action to resolve a material irregularity.
Sustainable improvements will only be achievable when all role-players do what they need to do.
To ensure sound financial management that will enhance the lives of citizens, there needs to be firm commitments from political leadership, followed by decisive action from the administration. Portfolio committees should also ensure that they measure the progress made to improve the audit outcomes.
Gauteng
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 23 auditees in the province – 14 departments, the provincial legislature and 8 public entities. The outcomes of 11 small public entities are excluded.
Provincial overview
In the previous year, our message to the provincial leadership focused on effective monitoring of preventative controls and ensuring that transgressions were addressed through timeous investigations and consequence management. We urged oversight to monitor and hold accounting officers accountable for implementing action plans. There was a positive response to our call for action and this led to overall improved audit outcomes in 2020-21, where three auditees improved their audit outcomes to clean, while two qualified audits improved to unqualified.
Encouragingly, the provincial department of agriculture and rural development, the Gauteng Growth Development Agency and the Supplier Park Development Company were able to improve to a clean audit outcome by addressing material compliance findings. Furthermore, e-Government and the Gauteng Enterprise Propeller’s audit outcomes improved from qualified to unqualified, mainly because these auditees timeously implemented their action plans to address material audit findings previously raised relating to assets and receivables, while also filling critical positions. The regressions noted at g-FleeT Management and the provincial department of community safety were due to failure to implement adequate oversight on the preparation of the financial and performance reports. In addition, key positions within the finance unit at g-FleeT Management were vacant, creating instability. As a result, g-FleeT Management was qualified on assets due to misclassification of motor vehicles and a lack of proper records management to support the recorded work-in-progress, while the provincial department of community safety regressed from a clean audit to unqualified with material findings on predetermined objectives. The audit opinion for the provincial department of human settlements stagnated on a qualified opinion, as we identified material misstatements on capital work in progress. Although the department made some significant strides and commitments in trying to resolve key areas of concern arising from the previous year, there were still deficiencies present that prevented the overall outcome from improving.
There was a continuing trend of improvement in the quality of financial statements submitted, as 70% of auditees did not have material misstatements. This improvement can be attributed to adequate implementation of preventative controls such as proper record management, regular and accurate reporting, as well as adequate reviewing processes by senior management and the relevant governance structures. However, we continue to encourage accounting officers to embed disciplines of effective monitoring of preventative controls to address the 30% of auditees that continued to submit financial statements with material misstatements, mainly due to a lack of proper record management and inadequate reviews.
Outcomes on performance reporting generally stagnated, with 68% of auditees reporting accurately on their predetermined objectives. We urge accounting officers and senior management to replicate the same disciplines of effective monitoring of preventative controls in preparing quality financial statements to also improve the quality of submitted annual performance reports, and to rely less on the audit process. In terms of the reported performance on pre-determined objectives, some of the planned service delivery objectives could not be achieved due to budget constraints and disruptions resulting from covid-19.
There was a notable improvement in the overall compliance outcomes; however, we remain seriously concerned about the increasing trend of non-compliance with supply chain management legislation and the resultant increase of R9,72 billion in irregular expenditure (closing balance: R42,06 billion). Provincial leadership needs to make a greater effort to deal with the high irregular expenditure by investigating each instance as soon as possible, and shifting behaviour to focus more on preventative rather than detective controls, with stringent consequences for transgressions. It is, however, encouraging to note that selected tenders that went through the provincial treasury’s open-tender initiative during the current year did not result in irregular expenditure.
The province incurred R378,40 million in fruitless and wasteful expenditure in the current year, mainly attributable to the procurement of personal protective equipment. If the province is to maintain the momentum it achieved in reducing the fruitless and wasteful expenditure balance in the previous year, it needs to make the same effort to deal with this increase.
The accounting officers continued to be responsive by taking appropriate action for the two material irregularities affecting the departments of health and human settlements identified in previous years. At the provincial department of health, disciplinary action has been instituted against the implicated officials and the matter has been referred to the State Attorney and the National Prosecuting Authority. Additionally, the contract that resulted in the material irregularity came to an end and was not renewed. At the provincial department of human settlements, disciplinary hearings were scheduled for the implicated officials, the National Prosecuting Authority obtained an order to preserve some of the funds in the contractor’s bank account and a vehicle was seized. Such instances of effective consequence management provide practical examples of best practices to be replicated, as they show an overall improvement in the environment. We identified a further six new material irregularities in the province in the current year and we encourage executive leadership and oversight to continue overseeing the progress made on these material irregularities to both address and prevent such material irregularities. Acting swiftly will curb financial losses incurred and ensure public funds are spent for the intended purpose.
Encouragingly, the province remained financially viable by continuing to reflect good principles and disciplines of effective budgeting and spending, with 70% of auditees maintaining good financial health, representing 55% of the province’s budget. The provincial department of health continued to be under financial strain due to unbudgeted medical claims of R24,33 billion, with R392 million paid out in the current year. This affected the department’s ability to deliver services to pay its suppliers on time to fill vacant positions for healthcare workers at some health institutions, and to build, maintain and upgrade hospitals and other health facilities. To address the remaining 30% of auditees that still had concerning financial indicators, auditees should implement cost-effective procurement processes to ensure costs are optimised and revenue and cash strategies are enhanced. This will ensure that accruals and payables are minimised and cash is available to pay suppliers on time.
To continue with the trend of improving audit outcomes, we urge executive leadership to remain responsive to our call by embedding the discipline of monitoring preventative controls. In addition, the premier, executive council and accounting officers should implement timeous consequence management to create a tone at the top that shifts the focus towards preventative rather than detective controls, particularly for compliance with supply chain management legislation and irregular expenditure. Oversight should continue to monitor and hold accounting officers to account for implementing action plans to resolve audit findings and adequately implementing consequences for transgressions.
KwaZulu-Natal
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 23 auditees in the province – 14 departments, the provincial legislature and 8 public entities. The outcomes of 15 small public entities are excluded.
Provincial overview
Leadership must enforce a culture of accountability to realise further improvement
During 2019-20, we encouraged leadership to exercise oversight and discipline in implementing and affirming the importance of preventative controls. In 2020-21, leadership remained committed and actioned our calls to support governance processes and controls. The overall audit outcomes reflect a net improvement, as five auditees progressed to clean audits, while one regressed.
The audit outcome of the provincial legislature improved due to a comprehensive and practical action plan, a robust risk-assessment process, as well as the value provided by internal audit and the audit committee. The provincial department of sport and recreation improved to a clean audit as management tightened procurement controls, while the provincial department of economic affairs, tourism and environmental affairs improved to a clean audit due to greater rigour over financial reporting and curbing instances of irregular expenditure. Dube TradePort, the provincial treasury and the provincial department of cooperative governance and traditional affairs, which all retained their clean audits, were characterised by a disciplined, leadership-driven approach to implementing and monitoring key preventative controls. The larger provincial service delivery departments of health and transport were qualified on multiple areas, some of which reoccurred, thus reducing the credibility of financial reporting to citizens. The accounting and chief financial officers of these departments need to devote serious attention to the past qualification matters and request the support they need from the national and provincial treasuriesas early as possible. Where consultants are appointed to assist on past qualification matters or problem areas, it is imperative that leadership understands and monitors the quality and performance of their work. Regrettably, the provincial department of arts and culture moved to a qualified opinion due to a breakdown in key expenditure controls.
Overall, the province’s financial health status has improved; however, some auditees continue to face challenges in managing cash flows. The provincial department of education reflects financial sustainability issues largely arising from spending pressures related to service delivery demands and budget constraints, which could adversely affect its outlook for meeting its promises to citizens. Medical claims at the provincial department of health (R25,24 billion, of which R92,88 million was paid out or had the claim amount) continue to soar, which could exacerbate the difficulty the department is experiencing in meeting foreseeable payment and service-delivery obligations. Department leadership should undertake a diligent risk assessment of medical claims lodged and paid out, and formulate preventative controls using medical, legal and financial expertise to reduce avoidable losses. Ithala Limited also reported financial sustainability issues, as it operates under a South African Reserve Bank exemption notice. Failing to meet certain conditions of the notice could adversely affect the entity’s ability to fulfil its obligations to customers and suppliers.
The provincial departments of education and health continued to have repeat findings on the quality of their performance information. Inaccurate reporting of performance information diminishes accountability and lowers public confidence in promised service delivery mandates.
On a positive note, we noted that controls over the review and monitoring of compliance with legislation were strengthened. Although there were fewer supply chain management findings, we highlighted deficiencies in the procurement processes, including expenditure related to covid-19. Despite the slight reduction in irregular expenditure, the amount incurred is still high, considering that certain expenditure was halted in light of covid-19, and that the reported amount may not be complete because of the qualification at the provincial department of health. The irregular expenditure closing balance of R48,46 billion also remains high because many investigations were not promptly finalised, supporting documentation was not submitted to the provincial treasury to approve condonations, and officials who blatantly contravened legislation were not held accountable.
It is vital that accounting officers, as caretakers of public finances, are close to the institutions under their helm and that they appreciate and clearly communicate the importance of internal controls. If there is a strong ethical culture at the highest level and decisive actions are taken to avoid wrongdoing, this will remove perceptions of tolerance for non-compliance. It is crucial that political and administrative leadership are objective and attuned to audit findings, timelines for submitting audit evidence, and availability for audit meetings so that misunderstandings and setbacks in the finalisation of audits can be avoided. Quality should be driven and sustained by implementing updated policies and procedures, appropriate skills and competence, and well-meshed processes that are constantly monitored, improved and implemented by those charged with the oversight and governance.
Accounting officers responded well to the material irregularity notifications we issued, and committed to investigate these irregularities and take appropriate actions to address them. As we continue to implement the material irregularity process, we hope to see greater dexterity in improving accountability and consequence management, with all role-players making a concerted effort to further improve outcomes and service delivery experiences.
Limpopo
PERFORMANCE SNAPSHOT
The snapshot reflects the audit outcomes of 19 auditees in the province – 12 departments, the provincial legislature and 7 public entities. The outcomes of 12 small public entities are excluded.
Provincial overview
The province’s overall outcomes regressed from the previous year, after showing a significant improvement. In the previous general report, we reported on the importance of having a strong control environment and implementing our recommendations to sustain the improved outcomes. Those auditees that regressed were slow to respond to our recommendations from previous years, and we noted that action plans developed to address internal control weaknesses were not properly monitored by accounting officers, internal audit and audit committees to prevent repeat findings.
A culture of basic accounting disciplines embedded at the provincial treasury, the Office of the Premier, the provincial department of transport and community safety and the Limpopo Gambling Board enabled them to sustain their clean outcomes. We also commend the provincial treasury, which achieved a clean audit outcome for the fifth consecutive year. These auditees must share their best practices with other departments and entities in the province to drive improved audit outcomes.
Compliance with laws and regulations remained a challenge, as 14 auditees (74%) reported material non-compliance findings. Credible financial statements are crucial for sound financial management disciplines, in-year monitoring and decision-making purposes, but only six auditees (32%) submitted financial statements that did not require material adjustments. Provincial leadership risks making incorrect decisions based on misleading and inaccurate financial information that is not a true reflection of the province’s performance – both financial and non-financial.
Amendments to the Public Audit Act were implemented at the same six auditees as in the previous year, and we followed up on the material irregularities raised in the previous years. The identified material irregularity at the provincial department of education stems from the period when the province was placed under section 100 administration. This material irregularity was closed because it is now being dealt with through the intergovernmental dispute resolution process, headed by the national Department of Cooperative Governance and Traditional Affairs. The material irregularity at the Roads Agency Limpopo was resolved because the entity prevented further losses of R1,3 million from occurring, and we concluded that the accounting officers at the provincial departments of health and of public works, roads and infrastructure are taking appropriate action on the material irregularities raised. The material irregularity process forced those auditees with material irregularities to implement proper consequence management, as required by existing legislation. The provincial department of health prevented further losses of R2,6 million and issued letters of intention to take corrective measures to affected officials. The accounting officer of the provincial department of public works, roads and infrastructure requested the Special Investigating Unit to investigate the material irregularity to identify the officials responsible. The premier must pay close attention to identified material irregularities and regularly follow up on the progress made to ensure that executive authorities implement consequence management where necessary.
Irregular expenditure in the province mainly resulted from conditional grants not being used for their intended purpose (R1,73 billion) and from non-compliance with supply chain management regulations (R1,67 billion). In the case of the former, we identified the irregular expenditure at the provincial department of public works roads and infrastructure, where funds were transferred to the department’s public entity, Roads Agency Limpopo, which did not adhere to the spending requirements in terms of the Division of Revenue Act. The increase in this unwanted expenditure is due to poor consequence management, as officials who enable these transgressions are not held accountable. The province is not adequately implementing performance management and there is no effective appraisal structure in place to timeously hold officials accountable for poor performance and intentional contravention of laws and regulations. There needs to be a culture of zero tolerance towards any form of transgression, and administrative and provincial leadership need to take decisive action to hold officials accountable and, where applicable, recover any losses from those responsible.
The province’s financial health improved but remains concerning, with only four auditees (21%) reporting a good financial health status, while 10 (56%) showed a deficit for the year as their total expenditure exceeded their total revenue. The financial health of Corridor Mining Resources, Great North Transport and Gateway Airports Authority Limited has remained unfavourable for a number of years. Public entities struggled to make payments within the good-practice period of 30 days, which negatively affects both timeous service delivery and the sustainability of small to medium businesses in the province. More robust strategies to generate revenue and curb expenditure are required, which will place the province in a better position to achieve its service delivery objectives and have a positive impact on the lives of its citizens.
The premier wants action to be taken against accounting officers who have received unqualified with findings opinions year after year, with no improvement. He maintains that if repeat findings are addressed, these auditees can achieve clean audits. If the province takes strong action to empower accounting officers or hold them accountable where necessary, it will have many more clean audits. This commitment was partially achieved, as the administration managed one improvement to a clean audit, from the provincial department of economic development, environment and tourism, which had received an unqualified with findings audit outcome for two consecutive years. When accounting officers focus on achieving clean outcomes, it will result in proper accountability, which will lead to improved service delivery
Only by strengthening the control environment and implementing preventative controls will the province be able to prevent regressions and improve on the number of clean audits in the future. Provincial leadership must not be discouraged by the overall regression in outcomes, but should rather use it as an opportunity to reflect on what went wrong and on the need to intensify efforts to improve preventative and corrective controls at those auditees that did not achieve clean audits.
Mpumalanga
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 16 auditees in the province – 12 departments, the provincial legislature and 3 public entities. The outcome of 1 small public entity is excluded.
Provincial overview
Lack of preventative controls requires leadership to set the tone and drive change
Since the current administration took over, we have reported that preventative controls and a culture of ‘doing things right’ are not embedded at most auditees. After we released the 2019-20 audit outcomes, we outlined four key areas that needed to be considered to address the accountability deficiencies in the province. These were ineffectiveness of preventative controls, deteriorating financial health, ineffective infrastructure project management and monitoring, as well as non-adherence to laws and regulations and lack of consequence management. Neither administrative nor political leadership heeded our call, as they did not invest sufficient time and resources into addressing these four areas – especially institutionalising preventative controls. This led to the pressurised state of financial health, persistent project management deficiencies, non-compliance with laws and regulations and, ultimately, an overall regression in audit outcomes. All of this indicates that provincial leaders have not placed accountability at the top of their agenda.
A lack of strong controls to underpin effective financial management and reporting persisted, with only six auditees (38%) able to submit quality financial statements. A further five auditees (31%) relied on the audit process to identify material misstatements for correction to achieve favourable outcomes, which is not sustainable. We identified a lack of effective and timeous reconciliations and record-management controls, which resulted in qualified audit opinions at the provincial departments of community safety, security and liaison; social development; and human settlements, and at the office of the premier. We remain equally concerned about those auditees that still had material findings on their reported performance. This compromises the quality of leadership’s decisions on future service delivery plans and budgets, since these decisions are based on non-credible information.
The province’s poor financial health has a negative impact on future service delivery. Poor financial management disciplines contributed greatly to the current pressurised state of financial health. Similar to the previous year, 10 departments had already committed more than 10% of their future budgets at year-end. This trajectory has the potential to compromise emerging strategic priorities and the delivery of quality services to the people of the province. Claims against departments remained high, with the provincial department of health continuing to be the highest contributor, accounting for R10 117 million (92%) of the claims. If successful, these claims could take away funds earmarked for the health and wellbeing of the people of the province, especially in the wake of covid-19.
By 15 October 2021, we had notified accounting officers selected for our phased-in approach of the amendments to the Public Audit Act of three material irregularities. The weaknesses in financial management controls (such as reconciliations of source information and reviews of payments to suppliers) resulted in likely material financial losses at the provincial departments of education; health, and community safety, security and liaison. These losses could cripple the province’s financial health even further.
The revenue-generating departments, such as the provincial departments of community safety, security and liaison, and public entities, such as the Mpumalanga Economic Growth Agency and Mpumalanga Tourism and Parks Agency, continued to struggle to convert revenue into cash. These auditees have accepted and reported that they will not be able to collect R1 479 million (89%),
R306 million (89%) and R7 million (79%) owed to them compared to their revenue earned, respectively. Due to the lack of effective collection measures, these auditees depend on an already constrained annual appropriation when they could be self-sustaining.
The limited funds available are also needed for infrastructure development, yet the province has still not mastered effective infrastructure project management. The provincial department of public works, roads and transport – the province’s mandated implementing agent responsible for procuring and implementing infrastructure projects – is at the centre of these project management failures. The department lacked the capacity to monitor and oversee infrastructure projects, and hired consultants to fill these gaps. This was evident at the provincial department of education (user department), where consultants were not properly managed, resulting in payments being made for work not completed. This contributed to the disclosed fruitless and wasteful expenditure. The user department also did not play an active role in holding the agent accountable. This is unsettling, as much-needed resources for service delivery were spent without obtaining a corresponding benefit.
The culture of poor control monitoring extends to the area of compliance with legislation. Officials continued to disregard supply chain management laws and regulations in their procurement processes. This culture also resulted in increasing levels of irregular expenditure and created an environment vulnerable to misappropriation, wastage and the abuse of state funds. The provincial department of health was the highest contributor to irregular expenditure, accounting for R1 276 million (38%), mainly because it did not adhere to supply chain management laws and regulations in the contract for the construction of Middelburg Hospital. A further concern is the failure to investigate the increasing balance of unauthorised and irregular expenditure so that consequences can be implemented to hold those responsible accountable.
Once again, we call upon provincial leadership to invest in effective preventative controls, driven by stable and ethical leadership. Political and administrative leadership should aggressively monitor the implementation of actions to promote good governance in the province. All assurance providers have a distinct role to play in the accountability value chain and need to ensure that opportunities are not lost due to inadequate coordination. Doing this will result in improvements to both audit outcomes and the lives of citizens.
Northern Cape
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 13 auditees in the province – 12 departments and the provincial
legislature. The outcomes of 12 small public entities are excluded.
Provincial overview
Failure to consistently implement preventative controls compromises desired audit outcomes and financial viability
In last year’s general report, we emphasised a strong message of accountability, leadership responsiveness to internal and external audit findings, the strengthening of controls around compliance with legislation that resulted in irregular expenditure, and consequence management. Audit outcomes have improved overall from the first year of the current administration, as well as from the previous year. However, we remain concerned that our messages from the previous year have not been heeded. This is evident from three auditees remaining qualified and seven auditees receiving a financially unqualified with findings audit opinion.
It is concerning that three auditees received qualified opinions, mainly because accounting officers did not ensure that action plans to address and correct weaknesses highlighted in the previous year’s audit, were properly implemented and monitored. Going forward, accounting officers should strengthen the internal control environment relating to financial reporting and prepare interim financial statements. The provincial treasury and internal audit must perform a proactive review on these financial statements and provide recommendations for corrective action.
The basic discipline for reliable reporting remains lacking. This is due to leadership’s reactive approach and high reliance on the audit process to identify misstatements – a practice that is neither prudent nor sustainable This compromises the quality of decisions that leadership makes on future service-delivery plans and budgets, since these decisions are based on non-credible information. Monitoring of performance and service delivery in the province needs to be enhanced and early intervention by the premier is required.
Auditees’ financial health and their inability to pay their suppliers on time remain concerning. This could compromise service delivery within the province and potentially result in auditees incurring additional costs due to delayed payments. For example, the provincial department of health already committed 10% of its budget for the following year to the current year’s expenditure. Furthermore,
R1,66 billion is possibly tied up in medico-legal claims, which will also impact its financial health. Going forward, auditees must instil budgeting and financial management disciplines, and the provincial treasury must oversee how auditees spend their approved budgets.
We are also concerned at the increase in irregular expenditure in the current year. The main contributors to this increase are the provincial departments of health and of roads and public works. Irregular expenditure at the provincial department of roads and public works increased to R3,21 billion from R109 million in the previous year, mainly because procurement processes were not followed for awards made using a panel of suppliers. At the provincial department of health, irregular expenditure increased to R1,28 billion from R537 million in the previous year due to non-governmental organisations being appointed to perform health services. For example, home-based carers were sourced without following a tender process. The closing balance of irregular expenditure increased from R13,31 billion to R18,24 billion, with 98% of the previous year’s expenditure not being investigated. The continued transgressions can mainly be attributed to the lack of consequence management. Some non-compliance may result in a financial loss or harm to the respective institutions. Provincial oversight and leadership must urgently address this matter and take swift action, as provided for in existing legislation.
The provincial department of health, a key service delivery department, once again experienced audit qualifications, poor financial health and high irregular expenditure. Our call to action has remained the same for years, but none of the accounting officers has been able to implement an action plan to address the dire state of the department. This is directly affecting service delivery in the province and the lives of citizens on the street, and is evident in the fact that after seven years, the department has still not purchased a mammography machine for the Dr Harry Surtie Hospital in Upington, although the purchase of such a machine was previously budgeted and planned for. Patients must travel to Kimberley to access this service, resulting in additional travel cost and the risk of lives being lost as conditions are not being treated soon enough.
We once again urge provincial and administrative leadership to ensure that accounting officers strengthen preventative controls, focusing on qualified and key service delivery auditees. This focused approach will help to embed a culture in which the control environment will improve and consequence management will be implemented in the province. Best practices from auditees that achieved clean audits should also be replicated throughout the province, and the efforts of the operation clean audit committee should continue and be further enhanced.
North West
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 22 auditees in the province – 12 departments, the provincial legislature and 9 public entities. The outcomes of 10 small public entities are excluded.
Similar to last year, the audits of North West Transport Investments, North West Star and Atteridgeville Bus Services are outstanding, as these auditees had not submitted financial statements at the cut-off date for this report. With the exception of unauthorised, irregular, and fruitless and wasteful expenditure, and the information on material irregularities, the outcomes of these auditees are not included in this snapshot.
Provincial overview
Lack of strong accountability and effective oversight, resulting in negative impact on service delivery
Our call to action in 2019-20 was for provincial leadership to embed appropriate preventative controls, positively influence accountability and institutionalise disciplines of credible financial reporting. We also urged leadership to restore the rule of law by entrenching a culture of consequence management, promoting an anti-corruption posture and filling key vacancies to enable preventative controls to be instilled. In response, we have seen some auditees focus on reversing negative trends and raising their efforts to improve the quality of their financial statements. While there has been some traction, much is still required when it comes to implementing key recommendations and fulfilling intended objectives.
We commend the provincial departments of health and human settlements, as well as the Mmabana Arts Culture and Sports Foundation (Mmabana), for heeding our call, which resulted in a net improvement in the province’s audit outcomes. The provincial department of health focused on strengthening review processes, with senior management giving the necessary attention to implementing agreed-upon post-audit action plans. This resulted in the quality of the financial statements improving. The improvement at the provincial department of human settlements resulted from management strengthening record-management controls, which were poor and had led to a disclaimer in the previous year. This improvement enabled the department to provide the underlying records as requested. In Mmabana, the drivers of the improved audit outcome were timeous filling of key vacancies, appropriate use of internal audit and better coordination of the audit process. Leadership’s involvement was also central to staff executing some of the basic control activities. We are encouraged by these drivers of improved audit outcomes, and provincial leadership should insist that accounting officers replicate them across the province, especially at auditees with stagnant audit outcomes. We also urge accounting officers and authorities to use governance structures effectively and insist that administrative leadership diligently implement recommendations from these structures to achieve impactful and sustainable improvements in control environments.
Section 100 of the Constitution was still in effect at 10 (77%) of the 13 departments in the province. This intervention appears to have had a positive impact at some departments, which is evident in the gradual improvements in audit outcomes and the reduction in material findings that resulted in qualifications in previous years. To support instilling the required controls and accountability, there has been a drive to capacitate the departments by, for example, filling head of department positions at the departments of health, social development, and agriculture and rural development. In the area of corrective actions and consequences, several officials are facing disciplinary proceedings for financial misconduct, fraud and corruption, desertion of duty, and other connected offences. We remain cautiously optimistic about the sustainability of the above efforts, as section 100 intervention is not a permanent solution. Therefore, to see a substantial change and improvement, heads of departments should work closely with the administrators who are serving as accounting officers during this period of intervention. They must deliberately and rigorously implement the necessary preventative controls and actions to improve the underlying weak control environments. These activities should include addressing persistent compliance findings and fully investigating the concerning historical balances of unauthorised, irregular, and fruitless and wasteful expenditure. This is especially important for irregular expenditure, which increases every year – the closing balance increased from R27,17 billion to R30,38 billion. The continued transgressions show a lack of effective supervision and a disregard for legislation. Some non-compliances may lead to financial losses or harm to the respective institutions, and may ultimately have a negative effect on the lived experiences of affected citizens. Leadership must address this culture with the urgency and swift action it deserves.
Despite the noted improving trends, we remain concerned that most auditees have not fully embraced our call to action to improve control environments by embedding preventative controls, entrenching a culture of corrective actions and effecting consequence management. This is evident in the regression of the audit outcome of the provincial department of education, which was mainly due to a lack of monitoring of infrastructure projects. The department reported some projects as complete, but could not provide evidence to substantiate the completion status, such as close-out reports, support for value of work done, payment certificates and a detailed valuation. These issues were also reported in the previous year, but the department did not adequately attend to them. To avoid regressions, accounting officers must strengthen internal accountability processes and corrective actions, and insist on diligent reviews and effective oversight by senior management.
The province’s financial health is still concerning, as auditees may not have adequate funds available to implement next year’s planned activities, programmes and projects. For example, the provincial department of health had to use money meant for other purposes on the Excelsius Nursing College infrastructure project. This already-delayed project negatively affects the development and training of nurses in the province, which has high vacancy rates for nurses. The outstanding medical claims of R5,66 billion against the department remain a concern, as this represents more than 100% of the department’s budget for next year and, if it materialises, may negatively affect its service delivery mandate. It is also concerning that 42% of auditees had a collective total cash shortfall of R963 million at year-end. In addition, the entities of the North West Development Corporation group require intervention to remain viable, and leadership should pay immediate attention to the funding model and financial health of these public entities. Going forward, all provincial departments and public entities must instil budgeting and financial management disciplines.
We find it encouraging that accounting officers reacted positively to the 10 material irregularities we reported and are taking appropriate action to address those previously reported, including stopping financial losses and implementing recommendations from completed investigations. For example, at the provincial department of community safety and transport management, potential continuing losses of R13,7 million and R204,6 million were prevented by ending the respective contracts. However, we remain concerned that the accounting officers are still reacting rather than implementing appropriate actions to deal with the identified material irregularities and prevent them from reoccurring. Provincial leadership must help to enhance intergovernmental relations between departments and investigating bodies to ensure that external bodies can successfully investigate and pursue civil recovery of losses.
The province has taken steps in the right direction. We continue to call for greater accountability in managing public funds through timeous completion of investigations. Provincial leadership should focus its efforts on instilling a culture of financial and performance reporting disciplines and corrective measures, and on insisting on preventative controls that translate into improved control environments and consistent, improved audit outcomes.
The basic disciplines needed to prepare reliable performance reports remain lacking because the departments are not addressing weaknesses in the underlying control environments. For example, without credible performance data, a department cannot easily identify and respond to service delivery challenges. Leadership must require departments to adequately incorporate the promises to and expectations of citizens into their planning processes. This will ensure that effective execution of the plans will have a positive impact on the lives of citizens.
Western Cape
PERFORMANCE SNAPSHOT
The snapshot shows the audit outcomes of 21 auditees in the province – 13 departments, the provincial parliament and 7 public entities. The outcomes of 23 small public entities are excluded.
The audits for the departments of community safety, human settlements and provincial treasury were still in progress at the cut-off date for this report. With the exception of unauthorised, irregular, and fruitless
and wasteful expenditure, and the information on material irregularities, the outcomes of these auditees are not included in the snapshot. The Atlantis Special Economic Zone is a new auditee included in the 2020-21 year, with no comparative information for 2019-20 included in this report. The outcomes of the Department of Agriculture are shown as outstanding because we are assessing the impact of the Supreme Court of Appeals’ judgment.
Provincial overview
Robust control environment, solid and consistent pattern of good financial governance
The province obtained 14 clean audits, 12 of which have been able to maintain their clean status for three or more consecutive years, which is commendable. All auditees in the province received financially unqualified audit opinions, indicating a strong financial control environment and that there are effective preventative controls in place.
A common trend at auditees that obtained a clean audit is the tone set by the accounting officers, who have instilled a culture of doing the right thing, being accountable and improving controls where weakness are identified. This tone, which starts at the top, is then cascaded to the various levels of leadership throughout the units responsible for reporting.
Best practices in the province include adhering to and monitoring controls throughout the financial year to ensure that compliance requirements are followed and that documentation is filed and readily available for each transaction. The chief financial officers also strictly monitor year-end processes and review the financial statements as soon as they are prepared. Auditees generally have highly competent, experienced and knowledgeable officials heading up the various units. The audit committees and internal audit units in the province have made significant strides in enhancing their governance and oversight by evaluating and monitoring management’s responses to risks and overseeing the effectiveness of the internal control environment, including financial and performance reporting and compliance with legislation. The public accounts and portfolio committees focused on all critical areas within departments and public entities, which contributed significantly to the audit outcomes.
Three auditees received financially unqualified with findings audit opinions. The provincial department of human settlements, which was finalised after the cut-off date for inclusion in the snapshot statistics, was the only department with material non-compliance related to corrections required to the financial statements. The financial statements review processes did not detect material misstatements in the areas of current assets and current liabilities.
Overall, 35% of auditees submitted performance reports that contained material errors, compared to 44% in the previous year. Three auditees (17%) were able to correct the misstatements to bring the total number without material findings to 82%; however, credible performance information is needed to assist with the correct decisions being made throughout the year. Three auditees had material findings on the quality of their reported performance information, and for two of the three – namely, the provincial department of education and Casidra – we reported similar findings in the previous year. The challenges at the department related specifically to information collated by schools for reporting on the percentage of learners with English first additional language and mathematics textbooks in grades 3, 6, 9 and 12. This is the third consecutive year that we have reported material reliability findings on the department’s reported performance information. While the department did instruct all the schools to collate the information, it needs to follow up further to ensure that the information is accurate and that schools are implementing instructions appropriately. The district offices and internal audit should assist by reviewing the accuracy of the quarterly performance information.
Two of the four key service delivery departments, namely the provincial departments of health and of transport and public works, maintained their clean audit outcomes. The same control-focused culture mentioned before has also been instilled at these departments. Although we identified material misstatements in predetermined objectives at the provincial department of health, resulting from human error at facility level, the department was committed to ensuring that the required resources were made available to interrogate the population and fix the errors identified during the audit to ensure that their clean audit is maintained. However, this may not be sustainable, and those completing the source documentation should take care to complete it correctly and use clear copies. If the issues persist, management must apply appropriate consequence management.
Procurement findings persisted in the current year, resulting in a further increase in irregular expenditure, from R287,9 million to R328,9 million. Despite our concerns raised in 2019-20, the audit outcome of the provincial department of human settlements regressed due to various procurement findings reported in the audit report. As a result, the department was responsible for 87% (2019-20: 92%) of the province’s total irregular expenditure. Of the department’s current-year irregular expenditure, R89 million (31%) relates to contracts entered into in previous years on which work still needed to be performed, while R189 million (66%) relates to one security contract for which certain procurement regulations were not followed. The processes and legislative requirements relating to expanding the scope of contracts need to be carefully considered to ensure full compliance and avoid further regression in audit outcomes. The department applied to the provincial treasury to have the irregular expenditure as disclosed in the 2019-20 financial statements condoned. The outcome of this application is outstanding.
Overall, the province’s financial health is good, which shows the resilience of the provincial fiscus to withstand the economic impact presented by the covid-19 pandemic. This is further evidenced by there being no unauthorised expenditure recorded in the province for the three years under review. The pandemic altered the province’s economic and developmental outlook, which required both an immediate and medium-term fiscal response. The Provincial Government Budget Office, which plays a key role in budgeting and cash management, adopted a three-phase approach to the budget to ensure that resources were reprioritised and deployed to respond to the pandemic. The immediate phase focused on the public health response through reprioritising resources and deploying available reserves. The short-term phase focused on policy-led repositioning towards the Western Cape Recovery Plan’s priorities of jobs, safety and wellbeing. The 2021 Medium-Term Expenditure Framework, along with the third 2020 adjusted budget, represent the final phase of this approach and set the course for recovery over the medium term. The performance of the provincial department of human settlements in the current year fell short of targets set due to the impact of covid-19, as the level 5 lockdown meant there was no progress on projects. The department’s annual allocation of the human settlements development grant was also drastically reduced, further affecting delivery of housing opportunities.
The province should maintain and further build on the controls already embedded in the areas of financial reporting, reporting on predetermined objectives and compliance with legislation. To sustain its good audit outcomes, the province must continue to implement the corporate governance and review outlook process, which includes a thorough analysis of any regressions and areas of concern identified in the various sections of the management and audit reports. The province should also clarify legislative interpretations and departures through consultation with the National Treasury, as these are the key reasons for some of our findings on supply chain management, and are also the driving force behind the increase in irregular expenditure. Dealing appropriately with this matter will address the two most significant issues for the province – material findings on procurement and growing irregular expenditure. We urge those charged with governance and oversight to monitor action plans to address any control weaknesses identified.