Newsletter 270 - Reports on School & General - The Auditor-General of SA - PART 3

B. Auditees requiring urgent interventions

The AG’s report revealed that the following auditee categories need urgent attention and focused interventions by national and provincial leadership and oversight structures:

Departments of education, health and public works have poorest audits

  • Departments of education, health and public works continued to have the poorest audit results of all departments –
  • 33% of these departments received qualified opinions (compared to only 16% of the other departments).
  • Only two of the departments in these sectors received clean audit opinions.
  • This cluster of departments is responsible for just over half of the departmental budgets and for implementing key programmes to improve the health and welfare of citizens.

Makwetu warned that the financial health of the provincial departments of health and education “needs urgent intervention to prevent the collapse of these key service delivery departments”.

He said that, in comparison with other departments, these sectors “are in a bad state”. For example, the unauthorised expenditure by provincial education departments stood at almost R1 billion and the deficit incurred by the Eastern Cape education department alone was R1,7 billion.

Provincial health departments of even greater concern

  • The AG’s report painted a picture of provincial health departments that are in a vulnerable position. These are in the Eastern Cape, Free State and the Northern Cape.
  • The total deficit of the health departments stood at R8,4 billion. All the health departments, except the Western Cape and Free State, had claims against them that were more than their 2018-19 total operational budget.
  • The claims of the Eastern Cape health department was over three times more than its operational budget.

TVET colleges struggling to account for their finances

  • Makwetu’s report indicated that technical and vocational education and training (TVET) colleges continued to struggle to account for their finances.
  • For instance, of the 48 colleges audited by the AGSA, only three received clean audits compared to nine in the previous year.

“These colleges cannot accurately account for the money they receive or for what is owed to them and for their assets. Questions should be asked about the potential loss of money through the poor management of assets, revenue and debtors at these colleges at a time when funding is desperately needed for tertiary education.”

C. State-owned entities

Audit outcomes of state-owned entities continue to regress

  • The results of the audited state-owned entities (SOEs) continued to regress from the previous year and from 2014-15.
  • The Independent Development Trust received a disclaimed opinion for the third year in a row and the South African Broadcasting Corporation (SABC) regressed from an adverse opinion to a disclaimed opinion.
  • Only the Development Bank of Southern Africa, which was audited by the AGSA for the first time, obtained a clean audit opinion.
  • As in the previous year, a significant number of the SOE audits had not been completed by the 30 September cut-off date.
  • This, the AG reported, was “due to financial statements and audits that were delayed because of the auditees struggling to demonstrate that they were going concerns”.
  • This applied to the South African Airways group, the Denel group (also a new auditee of the AGSA), the South African Nuclear Energy Corporation group and SA Express (where the last financial statements and audit report published were for the 2015-16 financial year, and the 2016-17 audit was finalised only recently).

Financial health at SOEs

  • The AG said there had been a slight improvement in the financial health of the SOEs, but the SABC, the Petroleum Oil and Gas Corporation and the South African Post Office disclosed that there was significant doubt about whether they can continue with their operations in future without financial assistance.

“Considering that most of the SOEs where audits had not yet been completed are facing going concern challenges, the financial outlook for most SOEs is bleak,” the AG divulged. There were weaknesses in the performance reporting processes and an increase in non-compliance at the16 SOEs audited by AGSA – 88% had material findings in this regard. These entities also disclosed R1,9 billion in irregular expenditure, but the amount could be even higher as three SOEs – the South African Broadcasting Corporation, South African Forestry Company and Komatieland Forests – were qualified on the completeness of their irregular expenditure disclosure.

The irregular expenditure of the SOEs we did not audit amounted to R28,4 billion, which included R19,6 billion at Eskom and R8,1 billion at Transnet.

Departments responsible for SOEs need to strengthen oversight practises

  • The report raised concerns about vacancies in key positions and instability at board and management level at these entities.
  • It also highlights that the 10 departments responsible for overseeing the SOEs did not have consistent oversight practices and the majority did not adequately plan for their oversight function and report on it in their performance reports.
  • Makwetu also stressed that “SOEs play an important role in South Africa, and they need to be supported by the state, but also called to account.
  • “Accountability in government is important in ensuring that public officials are accountable for the decisions and actions taken while executing their roles and responsibilities.
  • There has been a number of positive changes to improve the oversight and governance of SOEs, including increased oversight by parliamentary committees and addressing the leadership challenges at board level.
  • However, most of our recommendations from our previous report have not yet been implemented at all

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