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Preventative controls and the amended Public Audit Act

Updated: Apr 14

*Writer: Auditor-General Kimi Makwetu

In recent times, South Africans have been numbed by the scale of wasteful, fruitless, unauthorised and irregular expenditure.

Careless or fraudulent spending of public money should not be tolerated by citizens, regardless of the technical justifications given. The very existence of such expenditure suggests that those who persistently incur it, are not concerned with the morality of their actions – as long as there are no consequences for them.

Over the years, the auditor-generals have frequently reported irregular expenditure and have also regularly highlighted very negative audit outcomes. These findings indicate that people entrusted with public money do not always carry out their mandates with the level of care required by the country’s Constitution. When lame defences are mounted against irregular expenditure, it means accountability and due care in managing public resources are not part of the overall objective.

As a consequence, we have been exposed to many projects that are abandoned midstream. Suppliers are being paid far more than what they initially quoted. Extensions and variations on contracts without following prescribed regulations are prevalent and pervasive. There is a widespread lack of proper and verifiable documentation to substantiate commitments and transactions entered into.

Lack of due care

While the lack of due care in managing finances is common across all spheres, it is most prevalent in local government. It is shocking that people without the requisite skills and competencies are charged with handling citizens’ finances. This shows utter disrespect to both taxpayers and non-taxpaying citizens, who are often impacted by non-existent service delivery or services that are not even worth the paper they are written on.

Financial weaknesses often find expression in the books of the institution not being regularly checked and balanced. The people entrusted with this task do not feel guilty when they cannot explain the transactions that are being probed by auditors and it is not uncommon for documentation supporting a transaction to be unavailable, often without any consequences.

The many laws that govern public finances in South Africa are clear as to the responsibilities of those charged with the administration and superintendence of public finances. They even prescribe certain sanctions should deviant behaviour persist. The leadership outside the administrative functions is assigned the most significant role, with a clear bias towards preventing and correcting wrongdoing and the flagrant disregard of financial management disciplines.

In addition to the above, the work of the auditor-general has always cautioned against the devastating impact financial mismanagement has on accountability – one of the key tenets of our Constitution – and the achievement of planned objectives, including delivering various services to citizens and much-needed infrastructure to the economy in general.

When the persistent disregard of our audit findings and recommendations was finally confronted, the amendment of the Public Audit Act became the only plausible option left on the table. This step was preceded by many years of initiatives by the audit office – from door-to-door campaigns at all municipalities between 2009 and 2012, to regular briefings of all role-players. At this point, impunity was beginning to take centre stage, as evidenced by the audit outcomes. Impunity cannot co-exist with accountability.

The intervention of the Public Audit Act amendments seek to achieve what would traditionally be the role of those charged with oversight if the task was carried out with due care, diligence and professional competence.

What are the additional powers of the auditor-general?

The auditor-general is still mandated to inspect and report on the books of account of all institutions that are publicly funded. They must be subjected to scrutiny by the auditor-general to determine, through the audit report, whether the money was spent, managed, accounted for and reported in accordance with the financial laws of the country. Once a report is issued, the leaders are required to attend to the matters raised in the report.

When all of this proved too slow to react to or was completely disregarded, the auditor-general agreed with its oversight committee in Parliament to amend the Public Audit Act.

One of the changes brought about by the amendments is the introduction of ‘material irregularities’ in the audit of financial statements.

This means that whenever the auditor-general performs an audit, the staff on the audit must satisfy themselves, through various tests of transactions, account balances and systems of control, that there has been no non-compliance or contravention of a financial statute. In addition, they must be satisfied that the entity is not exposed to situations of fraud which could result in a financial loss or the loss of a public asset; or that the entity is not deprived of providing certain services due to the financial losses incurred.

Should the audit team identify a material irregularity, the auditor-general must report this matter to the accounting officer, requesting the latter to explain the transaction and any requested documentation.

If a financial loss has been incurred, the auditors are required to source from the accounting officer steps that will be taken to recover the loss; or, if the loss is continuing, steps to stop the continuing loss. In certain instances, the accounting officer will be required to quantify the extent of the financial loss should the auditors decide that there is indeed a material irregularity. The accounting officer is given up to 20 working days to deal with the matters raised and to respond in writing to the auditor-general.

The auditor-general is empowered, once a material irregularity has been identified or is suspected, to:

  • Refer any suspected material irregularity identified during an audit performed under the Public Audit Act to a relevant public body for investigation. The relevant public body must keep the auditor-general informed of the progress and the final outcome of the investigation.

  • Take any appropriate remedial action.

  • Issue a certificate of debt, as prescribed, where an accounting officer or accounting authority has failed to comply with remedial action.

The power of preventative controls

If the whole of government invests in activating preventative controls across the key areas of accountability, it will not be necessary to activate the new powers. Obviously, preventative controls discourage the emergence of material irregularities.

These controls are proactive and are an eloquent expression of the key guards being at their posts at all times. Additionally, implementing these controls will be relatively cheaper than relying on investigations that will be triggered after money has changed hands in ways that are not credible or transparent.

Preventative controls promote transparency, strengthen accountability and are predictable, with known expected outcomes. In essence, preventative controls are an invincible fortress against all possible abuses of the public purse. Once these controls are in place and are diligently pursued, there will be more resources available to carry out mandates.

However, if a regime of preventative controls is to be effectively implemented, a strong tone at the top and an ethical culture are essential. Where preventative controls are implemented with diligence, they become a natural source of consequences. So there will be no need to debate so-called ‘consequence management’ – consequences will simply be part of the outcome.

Strong preventative controls create tension, especially when consequences are part of the deal. It is these positive and progressive tensions that must be embraced as they make preventative controls work for the entire value chain.

Should these new powers be interpreted as a constructive contribution to revitalising the concept of accountability, a strong foundation for proper financial management and related service delivery will emerge.

*Kimi Makwetu is the Auditor-General of South Africa.

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