LIMPOPO – A material irregularity relates to any non-compliance with or contravention of legislation, fraud, theft or a breach of a fiduciary duty (of the accounting officer), which has resulted or is likely to result in a material financial loss for instance.
Governments, entities as well as municipalities can no more ignore the Auditor-General’s recommendations as from 1 April.
For at least the last five years, the AG, a Chapter 9 institution constitutionally-mandated to audit the financial statements of all national and provincial departments, municipalities and State-Owned Enterprises (SOEs), has emphasised the alarming regression in clean audit outcomes. According to the AG’s Consolidated General Report on National and Provincial Audit Outcomes 2017/18, the regression was mainly due to disregard of the AG’s audit recommendations. Fruitless and wasteful expenditure increased by over 200% from the previous year to R2.5 billion, and at national level, clean audits regressed to 23% from 30% in the previous financial year.
The disregard of the AG’s recommendations and lack of consequences might to an extent be tackled with the Public Audit Amendment Act of 2018 (the Amendment Act), which came into operation on 1 April 2019, to be read with the new Material Irregularity Regulations and Investigations and Specials Audits Regulations, which were also published on 1 April 2019.
The Material Irregularity Regulations (the Regulations) give practical effect to the Amendment Act and stipulate the steps the AG must take when he suspects a material irregularity. All relevant information must be provided to the accounting officer or accounting authority upon the AG’s finding, and the AG must invite such accounting officer to make written representations within a stipulated time. A strong provision, enhancing accountability and transparency, is the requirement that the accounting officer must, based on documentary evidence, show what steps were taken to deal with this irregularity, the outcome of such steps and what steps have been taken against the responsible person. Failing to do so provides the AG with the right to proceed on the basis that no action was taken.
A further important check and balance introduced is that when the AG refers such material irregularity to be further investigated by a public body (such as the Hawks) the body must report back to the AG within specified timeframes.
The AG now also may implement remedial action when the accounting officer or authority ignore the AG’s recommendations relating to a material irregularity. The Regulations provide that the accounting officer or accounting authority, must, within the time stipulated, submit verifying documents showing how the recommendations were implemented and if not, provide reasons for failing to do. If the AG is still unsatisfied, he has the right to inform the accounting officer or accounting authority of what remedial action will be taken, the timeline for it to be implemented and when to report on progress. Again, accountability is enhanced by requiring a document trail showing details of steps taken to implement the recommendation, the outcome of such steps, and for instance what has been done to recover any amount due to the State.
If the accounting officer or authority fail to fulfil these steps, the AG again may proceed on the basis that it was not implemented, which will have dire consequences for the accounting officer or members of the accounting authority. The AG now has the power to issue a certificate of debt to the accounting officer, the accounting authority or members of the accounting authority if they failed to implement the remedial action and it resulted in a financial loss to the State. This certificate of debt stipulates the amount owed by the accounting officer, for instance, in his personal capacity to the State and this can be recovered from the accounting officer through a civil debt recovery procedure. The Regulations and the Amendment Act make it clear that a current accounting officer or former accounting officer or former member of the accounting authority can be held liable to pay the debt.
Before a certificate of debt can be issued, the accounting officer or authority, or members of such accounting authority may make written representations on the matter and even make oral representations before an advisory committee established for this purpose. They have a right to legal representation when appearing before this committee, but at their own expense. The advisory committee must submit its findings to the AG who must – within a reasonable time – inform the accounting officer, accounting authority or the members of the accounting authority (as the case may be), whether he will proceed with issuing a certificate of debt. If a certificate of debt is to be served, it must also be served on the relevant executive authority, which is required to report to the AG at specific intervals on the progress of collecting money.
The country has always had a prosecuting authority, investigative bodies mandated to investigate corruption and fraud, and the means to recover stolen money but this has not realy happened before.
