Auditor-General (AG) report raises concern about the level of financial
management in national departments
15 November 2006
Cape Town - The AG today tabled its general report on national audit
outcomes for the 2005/06 financial year, raising concern over the level of
financial management in national departments.
The purpose of the general report, an authoritative assessment on the state
of the public sector, is to provide an overview of the audit outcomes at both
national department and national public entity level.
The most noticeable finding for the 2005/06 financial year is the
significant increase in qualification issues in national departments and
national public entities, with national departments going from seven qualified
departments in 2004/05 to 11 for the year in review. Also, no national
department that was qualified in 2004/05 managed to overcome that qualification
in 2005/06.
On a positive note, the Presidency, Department of Public Enterprises,
Department of Trade and Industry and the Public Service Commission received
clean reports.
Outgoing AG, Shauket Fakie, advises that the increase in the number of
qualifications should be studied in the context that departments have to meet
audit processes which are improved yearly. There are additional disclosure
requirements being placed on departments each year. In that context, the public
sector has made some strides to reach the bar which is constantly being
raised.
The qualified national votes are Correctional Services, Defence, Justice,
Land Affairs, Transport, Water Affairs, Health, Labour, Home Affairs,
Parliament and Independent Complaints Directorate (ICD). The national public
entities are the South African Local Government Association (SALGA),
Agricultural Research Council, Road Traffic Management Corporation, the Cross
Border Road Transport Agency, the Information Systems and Electronics and
Technology Training Authorities and the Construction Education and Training
Authority.
Qualification issues identified included asset management, accounts
receivable and revenue; traditional matters emphasised that were elevated to
qualifications included personnel and other expenditure. These issues
represented 50 percent of all qualification issues for national departments
last year. The figure for asset management, income and receivables has risen to
54 percent for 2005/06, comprising seven departments. Although asset management
and income and receivables are significant, the highest incidence of
qualification issues is in respect of provisions and suspense accounts with 24
percent.
Qualification issues per department have also risen from 0,5 in 2004/05
(excluding Home Affairs) to 2,2 in 2005/06. On average, there are 2,2 issues on
which qualifications were given per department. This still compares favourably
with the 2,6 issues reported for provincial departments in 2004/05.
As part of its trend analysis, the AG tracked the progress of the 11
departments that received qualified audit opinions in 2005/06. The Department
of Home Affairs has received a qualification for six consecutive years from
2000/01; although the Department of Correctional Services received a clean
report in 2000/01, the department has consistently received qualifications in
the following five years; the Department of Water Affairs and Forestry has
received qualifications throughout except in 2004/05; the Department of Defence
has received qualifications in four consecutive years; the Health Department
got three consecutive qualifications during the analysed period.
The report highlights the following factors as having possible influence on
the increase in qualification issues: the constant improvement on standards
within the audit process; inadequate departmental systems, guidance and tools
to manage the movement from cash to accrual accounting; lack of capacity
building and knowledge transfer instigated by accounting officers; and lack of
prioritisation of financial management by accounting officers.
Increase in total expenditure
The report also found that there has been a significant increase in the
total expenditure for the 2005/06 year. The total expenditure for the national
departments during 2005/06 was R230,3 billion compared to R153 billion in the
previous year; a R77 billion increase for last year to this year. The majority
of the expenditure, 67 percent, was on transfer payments which included
conditional grants; compensation of personnel expenditure made up 19 percent of
the total spends and 14 percent went to other types of expenditure.
"The current situation suggests that all role players should take more
responsibility and accountability for the implementation of the initiatives
aimed at improving financial management. We have identified that shortage of
adequate skills and under-resourcing are the root of qualifications for most
departments. An extensive training drive or a re-look of the recruitment
process is urgently needed to reverse the current situation. Also, we found out
that some of the processes within departments are inefficient; they are not
simple, effective and easy to understand. There are cases where departments
have to go through very complex, lengthy and voluminous filling of forms and
passing of paper before critical decisions are made.
"Also, in most instances departments do not have adequate in-year monitoring
and reconciliation mechanisms where they track their financial management
issues throughout the year even before we do our audits. This is creating
pressure because you find that there is a huge scramble and rush to try and get
all documentation and performance information just in time for the AGâs audits.
Having highlighted the current state of affairs in the departments,â says
Fakie.
The full General Report on national audit outcomes for 2005/06 is available
on our website: http://www.agsa.co.za
Enquiries:
Africa Boso
Tel: (012) 426 8273
Cell: 082 8899 527
E-mail: Africab@agsa.co.za
Issued by: Auditor-General of South Africa
15 November 2006
