AG to get more powers to address R65bn leakage

Auditor-General Kimi Makwetu on Wednesday disclosed that irregular expenditure in the public sector (municipalities excluded) could have totalled R65 billion in 2016/17.

This is a 124% increase on the previous year’s R29.4 billion.

Makwetu said the national and provincial government departments as well as state-owned entities his office audited, recorded R45.5 billion in irregular expenditure.

This however excluded the number for auditees whose audits have not been completed, including the Passenger Rail Agency (Prasa). Prasa alone has spent R14 billion in contravention of supply chain management regulation and including that, the total irregular expenditure could be as high as R65 billion, he said.

Makwetu said the country has “bigger challenges on expenditure than on revenue”. This is probably a reference to the R50 billion revenue shortfall finance minister Malusi Gigaba disclosed in his Medium-Term Budget Policy Statement (MTBPS) last week.

Yugen Pillay, partner at Grant Thornton said in response: “We’ve just heard the minister of finance deliver his mid-term budget speech a week ago which painted a somewhat flat and bleak outlook for SA, indicating a massive budget shortfall of around R50 billion in the current financial year. On the back of the finance minister’s MTBPS, auditees should at the very least be prioritising and tackling irregular expenditure head on, in an effort to prevent unnecessary leakages from the budget.”

Pillay said if the current status of irregular expenditure continues, the knock-on effects of this could have dire consequences for the public sector and for the South African economy as a whole. “If a mere 20% of irregular expenditure could have been prevented, it may have meant that our current budget shortfall could have been smaller (depending on why the irregular expenditure was incurred in the first place).”

Makwetu said the costs pile up when irregular expenditure occurs, because stopping unlawful contracts involves legal cost, and results in long delays in service delivery.

He said a parliamentary process is underway to increase the powers of his office to respond to increasing irregular expenditure. Currently the legislation authorises the office to audit and report. Amendments are sought to empower his office to report irregularities to the proper entities to investigate. That might include the Public Protector or the Special Investigating Unit.

The AG’s office would then publish a schedule every year indicating, “who is behind the irregular expenditure and who should investigate”. That, Makwetu said, would result in “shining a light” on something “growing in the dark”.

He said it would also address instances where entities fail to finalise the necessary information for audit purposes or get a disclaimer due to a lack of proper documentation. “Why do you have the documents when you go to parliament to ask for money, but not when we do the audit,” he asked.

Makwetu said such investigations would inform whether government could claim back irregular expenditure from anybody.

The number of outstanding audits has increased from 3 (1%) in the previous financial year to 26 (6%) by the end of August this year. This is due to the late or non-submission of financial statements and outstanding information.

Nine of these were due to going concern problems within the South African Airways group and entities within transport and public enterprises.

Makwetu said the audit outcomes have been improving slowly over the past five years with the number of clean audits improving from 85 (24%) to 126 (30%). Nevertheless there has been a regression in the overall financial health.

“Some departments did not pay their creditors when their budgets started running out and thereby avoided unauthorised expenditure, but the payments then happened in the following year, effectively using money intended for other purposes.”

The total number of outstanding audits, with disclaimers and adverse findings have increased from 27 (7%) in the previous financial year to 45 (10%) in the reporting period.

The staff of the AG’s office is increasingly exposed to intimidation from officials who want to avoid negative audit outcomes, Makwetu said. While the office has no objection against genuine debates about technical issues and interpretations, it increasingly encounters officials who want to influence audit outcomes without any basis. He said this might be the result of incentives linked to audit outcomes – negative outcomes might cost senior managers their bonuses.

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