AG Makwetu slams Covid-19 fraud, govt’s inability to manage projects

Auditor-General (AG) Kimi Makwetu on Wednesday released a “groundbreaking” audit to track government’s financial management of its Covid-19 response. 

The first special report on the financial management of government’s Covid-19 initiatives sought to break down the R500 billion relief package. This package is funded by reprioritising the 2020/21 budgets, and loans. 

The report is the first in a series of follow-ups. It covers R68.9 billion of the R147.4 billion spending that Makwetu’s office was tasked with analysing, as per President Cyril Ramaphosa’s request.

The remaining funds are in the hands of the South African Revenue Service (Sars), the South African Reserve Bank (Sarb), and private banks who are able to track loan schemes and tax deferrals. In addition, R270 billion of the R500 billion “was never intended to flow through government.”

A second report is expected in November.

Makwetu’s team, made up of data analysts, fraud experts, supply chain management specialists, IT and performance auditors, analysed R145 billion of the R500 billion relief package allocated through the supplementary budget.

The R145 billion was broken down as follows:

The reason for Makwetu’s unique report was due to ongoing poor financial management controls and systems in many sectors of government, charged with overseeing service delivery, health and water services.

All levels of government have disappointed those who have tracked government’s funds, with Makwetu slamming the cases of fraud, non-delivery, a lack of accountability and the inability to effectively manage projects and programmes. 

Although none of these issues are new, Covid-19 resulted in increased demand for goods and services government had struggled to deliver even before the pandemic. 

This required a “real-time audit approach”, as spending during the pandemic is being tracked as it occurs. 

Makwetu explained that a significant amount of the R500 billion budget is either with National Treasury, or has not yet been spent. 

Expenditure on PPE indicated that of the R5.2 billion allocated, only R1.29 billion was spent to date. 

Makwetu explained monies not used did not count as savings, but rather serves as “a reflection of inefficiencies of the processing of activity in some departments.” 

Government has spent R68.8 billion in total from March until the end of July. R57 billion of this was spent on Unemployment Insurance Fund (UIF) and social relief, with the remaining programmes having spent R11 billion in total. 

Makwetu said this is telling that “we missed the bus in raising the level of preventative controls as a country”. 

Red flags raised

Worryingly, public outcries and repeated reports of corruption at local government and municipal levels resulted in municipalities only receiving R1.6 billion for “breathing space”. Treasury has the remaining budgeted R20 billion. 

The money that was spent on Covid-19 relief saw exorbitant spending against suppliers when compared to pre-Covid-19. A host of suppliers were also being used for the first time during the pandemic. 

Although not fully completed, Makwetu said in some cases, PPE prices were being inflated by 200%, other suppliers did not have valid tax certificates, and some significantly delayed the delivery of PPE, notably to schools. These suppliers do not appear on the tax system, making the tender they were awarded illegal. 

The Temporary Employee/Employer Relief Scheme (Ters), instituted by the UIF, also raised some eyebrows for auditors, with many instances of overpayments, underpayments, duplicate payments and payment discrepancies. By the end of July, the UIF had paid just over R37 billion in Ters payouts. 

The South African Social Security Agency (Sassa) also had its share of issues. Sassa has so far paid R19.6 billion in social grants. 

Makwetu said his team found a risk in the R350 social relief grant being paid to people who are not in distress, due to limited verification to make sure the applicant is receiving other income. Over 30,000 beneficiaries still need to be investigated. This number includes government employees masked as beneficiaries, and a host of possibly invalid rejections.  

With regards to emergency water supply to destitute communities and schools, which is behind schedule, people were denied access to running water to wash their hands, one of the primary preventative measures against Covid-19. 

Jojo tanks across more than 3 000 informal settlements were meant to be installed from May, but by the end of July, only 69% of the tanks were installed. This delay was in part due to the education department only providing funds to Rand Water towards the end of May. 

But what is concerning is that the Department of Water Affairs and Sanitation was not able to provide Makwetu’s team with a reliable listing of all water tanks delivered, making it hard to audit if the water tanks that were paid for has been received. 

“For over a decade, we are still grappling with looking after the procurement of foods and services,” Makwetu said, adding that there is “a preexisting inability to coordinate and oversee efforts involving multiple departments and agencies.” 

Covid-19 unfortunately provided ample opportunities, both internally and externally, for people to “fiddle around” with transactions. 

Makwetu and his team’s findings will be handled by a newly established fusion centre, which deals with fraud and corruption investigations related to Covid-19. The Hawks, the Special Investigating Unit and the Financial Intelligence Centre make up the centre, as well as the Competition Commission and the Public Protector. 

For the full report, click here.