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.
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.
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