Concern about state-owned enterprises not completing audits – BLSA

There is increasing concern about the increasing number of state-owned enterprises that fail to complete their audits, with the number of outstanding audits going up from 12 to 31 according to the latest report from the Auditor-General.

Busi Mavuso, CEO of Business Leadership South Africa (BLSA) expressed her concern in her weekly newsletter, saying that the good news in the Auditor-General’s report is overshadowed by the concerning increase in entities that simply did not complete their audits.

“The most concerning aspect is the contribution to this number from the state-owned enterprises (SOEs). Only the Development Bank of Southern Africa received a clean audit. Several audits are outstanding, including SA Airways (for the fifth year), Eskom, Denel and Alexkor.”

She pointed out that two entities had worse outcomes this time around, including the Land Bank, that regressed from a clean audit to a financially unqualified opinion with findings and the SABC that regressed from a qualified audit opinion with findings to a disclaimed opinion, which is issued when insufficient evidence in the form of documentation is provided to base an audit opinion on.

“The performance of state-owned enterprises remains a critical problem for our country and the Auditor-General’s report makes it clear that accountability for their management and reporting on finances and performance is a key part of the failings.”

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Serious work must be done on state-owned enterprises – Mavuso

Mavuso says the report highlights the serious work that must be done on our SOEs. “We are actively engaged in working with government through B4SA to improve performance at these institutions and the Auditor-General’s insights are a helpful spur to focus attention on the financial and performance monitoring and reporting of these institutions.”

Other entities that did not submit accounts were the Unemployment Insurance Fund (UIF), the National Student Financial Aid Scheme (Nsfas) and the Compensation Fund. Mavuso says these are critical institutions that provide support to many South Africans and their failure to adhere to accountability norms is very concerning.

In addition to the financial accounts, the Auditor-General’s office also assesses the delivery of government entities on their annual performance plans and the findings are decidedly mixed. According to the Auditor-General’s report, a quarter of auditees provided unreliable, incorrect or no evidence for the achievements they reported.

At national level, transport, public works and human settlements do reasonably well, but health has four disclaimed opinions and one outstanding audit out of 10, Mavuso points out.

“Findings are made where reported achievements are not backed up by sufficient evidence, ranging from the number of schools provided with running water to the number of title deeds registered by the provincial departments of human settlements.”

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The role of the PFMA and MFMA

Mavuso also notes that one issue that keeps surfacing is the role of the Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA).

“Several entities that fail to get clean audits complain that the legislation and corresponding regulations are not appropriate for their entities.”

However, the Auditor-General points out that what really matters is that there are disciplined management teams tasked with ensuring that the necessary systems, processes and monitoring controls are in place. “Getting that in place is much more important than the detail of the regulations.”

Mavuso says one of the strengths of our constitutional democracy is our Chapter 9 institutions established under the constitution with strong independence from political interference.

“The Auditor-General is such an entity and its annual reviews of the financial performance of public entities are a powerful vehicle for accountability.”

She says in the Auditor-General’s assessment of the performance of national and provincial government identified good improvements, with the number of public entities with clean audits improving from 126 to 147, while the number with disclaimers fell from 14 to five, indicating a general improvement in financial management and accountability.

“The improvement in provinces is perhaps the best takeaway. This represents a concerted effort by provincial governments and the support of National Treasury. Speaking to parliament’s standing committee on the Auditor-General last week, Auditor-General Tsakani Maluleke noted that Gauteng’s education department got a clean audit this year after years of work, one of five entities that improved.”

KwaZulu-Natal had nine improvements and the Eastern Cape and North West eight improvements each, while the Western Cape remains the leading province with 18 clean audits.

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Only 59% of fraud and improper conduct incidents resolved

The Auditor-General identified 266 material irregularities over the last four years, ranging from overpriced goods and services in procurement to fraud.

Her office’s actions prevented loss or recovered R2.6 billion in that period, with 15 criminal investigations instituted, 50 individuals subjected to disciplinary processes and 58 internal controls improved. Mavuso says this is a welcome addition to the many efforts to tackle corruption and other criminality across our economy.

She also added her voice to the Auditor-General’s call for action to drive a culture of accountability and consequences throughout the civil service.

“Accounting officers and authorities must implement consequences swiftly, bravely and consistently. When there are consequences for actions, it helps to deter others from wrongdoing.”

The Auditor-General reported that only 59% of the procurement fraud and improper conduct incidents reported in the previous year were satisfactorily resolved. Mavuso says ensuring swift consequences must be a key component to improving the overall performance of government.