Auditor-General Terence Nombembe today briefed Parliament on the audit outcomes and trends for the 2008/09 financial year for national and provincial government departments and entities, constitutional institutions as well as legislatures.
The Auditor-General’s analysis, a comprehensive assessment of the state of financial and performance information in the public sector, provides an overview of how national and provincial government departments have managed their finances in the year under review.
Over the next few weeks, Nombembe will also visit and brief the provincial legislators and executive authorities to discuss how government departments and entities performed in the 2008/09 financial year.
Financial audit outcomes
The Auditor-General’s analysis covers 32 national departments, 211 constitutional institutions and national entities subject to audit by the Auditor-General, 112 provincial departments, 109 provincial entities and nine legislatures. The outstanding analysis for a total of 31 departments and entities as well as one legislature is due to their late submission of financial statements or outstanding financial statements. This has been brought to the attention of the relevant executive authorities.
There is only a marginal improvement when compared to the outcomes five years ago. In the 2004/05 financial year, departments and legislatures registered a total of four clean audit opinions (financially unqualified with no “other matters”) while seven clean audit opinions were recorded in 2008/09. In 2004/05 there were 94 financially unqualified opinions with “other matters” (issues for concern), which increased to 97 in 2008/09. The number of qualified opinions in 2004/05 and 2008/09 remained the same at 43. Worst case opinions (disclaimers and adverse opinions) aggregated to 10 in 2004/05 compared to six in 2008/09.
Where improved audit outcomes have been achieved, this was largely due to the implementation and monitoring of action plans by the leadership, increased leadership involvement and the deployment of appropriate skills in preparing the annual financial statements. The improved support from the National Treasury and the concerted oversight by public accounts committees have also made a positive impact. The opposite is also true in that the individual audit outcomes which had deteriorated were generally due to a lack of leadership stability, involvement, monitoring and oversight.
Says Nombembe: “It is clear that while the trends are slightly positive, the momentum is far too slow and an injection of serious efforts is required if government is to achieve a significant improvement in the next financial year. Strong decisive action is particularly required for those 16 departments and entities which received disclaimers of opinion (that is; auditors could not obtain adequate supporting documentation) and those five departments and entities with adverse opinions (that is; financial statements were fundamentally incorrect)”.
Nombembe notes that the management of capital assets remains government’s major problem of government as more than 80 percent of the departments that were qualified continued to have concerns raised with regard to asset management.
89 departments and eight legislatures received unqualified opinions with other matters, meaning that their financial statements fairly reflected the results of their operations. Nombembe, however, does not equate this to “clean opinions” because he has raised concerns or warning signals referred to as “other matters” which indicate that there are financial management deficiencies that could cause the department to regress if these matters are not properly addressed.
To illustrate this point, Nombembe notes that the incidence of non-compliance with the Public finance Management Act (PFMA) and other legislative requirements is high, as are the deficiencies with regard to human resource management (no human resource plans, high vacancy rates at senior management levels, budget overspend and protracted recruitment practices). Furthermore, he identified a high occurrence of material misstatements, which the departments and legislatures have subsequently corrected.
It must be noted that the departments’ internal processes and oversight mechanisms would have missed these misstatements, which shows an environment where internal processes are not entirely effective. When it comes to information system weaknesses involving transversal government systems, there are inadequate preventative security controls, a lack of clearly defined roles, responsibility and accountability between State Information Technology Agency (SITA), the National Treasury and user departments.
“How can departments then be deemed to have a clean bill of health if they have financially unqualified opinions that are tarnished by significant shortcomings in the internal control systems?” asks Nombembe.
The issue of non-compliance with legislative requirements merits further assessment. Despite warning signals on non-compliance with legislative requirements PFMA, Division of Revenue Act and others over the past two years, the Auditor-General is not convinced that adequate attention has been given to address the drivers leading to non-compliance nor that adequate action has been taken with regard to the actual transgressions.
Non-compliance has now been quantified because of the recurring nature of this deficiency in financial management. Non-adherence to the PFMA makes up approximately 60 percent of the total non-compliance, with non-adherence to Division of Revenue Act and supply chain management requirements estimated at about 12 percent and 11 percent respectively. On non-compliance with PFMA, the most prominent transgressions relate to departments:
* not adhering to reporting requirements
* creditors not being settled within 30 days from receipt of invoice and
* departments not clearing their suspense accounts monthly.
Such transgressions, if not dealt with decisively, carry the risk of fraud, loss of assets and resources as well as loss of confidence in government’s ability to honour and monitor key service delivery priorities.
The Auditor-General will therefore monitor and report on the actions taken to address the warning signals and transgressions, particularly with regard to non-compliance with legislative requirements. Nevertheless, Nombembe remains confident that government can overcome their challenges and obtain clean audit opinions by focusing on three underlying issues:
* Improve the adequacy of leadership oversight so that leaders create an environment that is conducive to good financial management, including acting decisively to implement corrective measures and to address non-performance
* Enhance finance management units’ capacity to produce reliable monthly financial statements and management information that facilitates adequate ongoing monitoring of service delivery activities and
* Strengthen governance arrangements, including risk management, internal audits and audit committees and to promote their independent accountability to the executive authority on all matters of risk to financial management and service delivery.
This is where the co-ordinated effort of presiding officers, portfolio committees, public accounts committees and the executive authorities become even more critically important to implement these areas of priority.
Service delivery audits
Since 2005/06, the Auditor-General, in partnership with the National Treasury has been gradually phasing in and explaining the essence of auditing performance information. The analysis of current trends to Parliament also highlighted why departmental reporting on their own performance required much attention:
* On average 50 percent of the departments’ reported performance information that was not in compliance with the regulatory requirements
* For approximately 40 percent of the departments, the performance information reported was not meaningful and
* For approximately 45 percent of the departments, the reported performance information was not supported by reliable evidence. Reporting on performance is a direct reflection of service delivery and its importance cannot be emphasised enough.
“The underlying causes for performance reporting deficiencies are no different from those underpinning the financial management deficiencies,” says Nombembe, referring to; adequate capacity to produce reliable information for in year monitoring and enhance the credibility of what is being reported, effective governance arrangements to mitigate the risk of service delivery erosion, and most importantly, adequate leadership monitoring and oversight.
“The challenges are certainly not insurmountable and the move to clean audit opinions is well within the reach of most of the departments and entities within a short period of time. All it entails is a structured, systematic and simple monitoring approach by government leadership. I am encouraged by the level of commitment evident in the interactions that I have had, so far, with several executive authorities and legislative oversight functions,” says Nombembe.
Nombembe will continue to intensify the stakeholder engagement drive, meeting with both executive and legislative leaders at national and provincial levels.
“This initiative is aimed at gaining collective understanding of and a commitment to combined efforts by the executive and legislators to improve government financial management and transparent public sector accountability and thus enhance the credibility of service delivery,” concludes Nombembe.
Enquiries:
Africa Boso
Tel: 012 426 8273
E-mail: africab@agsa.co.za
Issued by: Auditor-General South Africa
8 October 2009
Source: Auditor-General South Africa (http://www.agsa.co.za/)
