It is a great honour to be part of this groundbreaking occasion of launching Operation Clean Audit 2014.
The world is demanding greater transparency both in government and the private sector. In the competing global world governments must now more than ever before ensure that their own houses are in order to drive efficiencies and to reduce spending while protecting core public services.
It is imperative for government particularly in a time of crisis, such as the current global recession to effectively manage its own costs, verify that proper controls are in place and that high standards of governance and transparency are maintained.
Without the confidence and trust of the public it becomes extremely difficult to drive macroeconomic programmes. And, as we all know trust can only be earned when we fulfil our commitments.
Trust is also built on facts and the truth. Therefore an auditor’s report is considered an essential tool when reporting financial information. A clean bill of health not only attracts investors and enables government and businesses to obtain loans but it also improves the public image of government. Some investors go as far as stating that financial information without an auditor’s report is “essentially worthless” for investing purposes.
Audit outcomes
KwaZulu-Natal has made significant progress in the outcomes of its provincial audit reports. Over the past five years adverse and disclaimer audit opinions have moved to unqualified audit opinions. In fact no department received an adverse or disclaimer audit opinion for the 2007/08 and 2008/09 financial years, compared to one disclaimed opinion in each of the 2006/07 and 2005/06 financial years and two disclaimed opinions in the 2004/05 financial year.
Prior to 2004/05 the Department of Education had five consecutive disclaimers. This was turned around in 2007/08. Another significant achievement is that of the Department of Agriculture and Environmental Affairs that moved from disclaimed opinions in the 2006/07 financial year and two prior financial years.
However, in terms of audit outcomes more still needs to be done. Four departments received qualified audit reports in 2008/09. This has to stop. Going forward we must ensure clean audit reports for the entire provincial government.
The same goes for municipalities. We are very disturbed by the persistent trend of non-compliance by some of our municipalities in submitting their financial statements on time for audit purposes.
All municipalities and provincial departments must be achieving unqualified audit opinions by 2014.
Socio economic landscape
Good stewardship of our taxpayers’ money is paramount. The only true measure of good governance is improvement in the lives of our people. While poverty levels dropped on average at a rate of 2.2 percent each year between 2002 and 2007, high levels of unemployment and poverty still persist in all district municipalities stretching the development chasm. More than half of the households living in Umzinyathi, Umkhanyakude, Zululand, Sisonke and Uthukela earned R1 500 or less per month between 2002 and 2008.
The KwaZulu-Natal provincial government’s main objectives (as spelled out in the Provincial Spatial Economic Development Strategy (PSEDS), is to have achieved the following by 2014:
* an eight percent economic growth
* halve unemployment (to 18.8 percent)
* bring down poverty (to 28.8 percent)
As the sphere of government closest to our communities, municipalities are important players in ensuring that the province achieves these goals.
Now, more than ever before departments and municipalities need to closely examine socioeconomic factors to be able to respond appropriately to these challenges. Until we begin to see our partners intensifying and redoubling their efforts towards the realisation of their targets, the Province may not meet the set targets by 2014.
Accountability
A sense of accountability and owning our responsibilities is crucial if we are to eradicate poverty. We must encourage these values in our children from an early age. Like the mother of a child who lost the family’s water bottle during a school excursion after lending it to some class mates. She could not understand why her mother reprimanded her as according to her it was not her fault. “Ah,” the mother replied, “it was not your fault but it was your responsibility.” Let us instil that ownership for projects in our people we have to stop passing the buck when it comes to accountability.
Collective commitment
Today we are taking collective responsibility in launching the clean audit programme. It is imperative for Provincial Treasury to have strong relationships with all MECs and their departments, as well as all local government authorities. These relationships must be based on trust and effective advice and support. Therefore we have regular interaction with the MECs and their departments on the financial status of the province to promote sound relationships between the Provincial Treasury and departments.
We believe that working together we can achieve more. As someone said, “No one can whistle a symphony. It takes an orchestra to play it.”
Assistance and commitment from provincial treasury
One of the main functions of treasury is providing an informed and well-researched fiscal framework for the allocation of resources and the monitoring of expenditure trends against the appropriated funds. These functions include the economic analysis of the province; the monitoring of infrastructure spending and management of the Medium Term Expenditure Framework (MTEF) process; the preparation of the budget statements and control of the in-year monitoring systems. We have a competent team of men and women in these units who will have to ensure on budget spending in this financial year under extremely difficult circumstances. Systems are now also in place for this team to effectively monitor the performance of departments against their service delivery targets.
Section 154 (1) of the Constitution requires national government and provincial governments to support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and to perform their functions.
To this end, the Provincial Treasury developed a focused Municipal Support Programme (MSP). Through the municipal support programme, treasury works very closely and cooperatively with the Department of Local Government and Traditional Affairs in supporting municipalities with their financial affairs, such that we eliminate both disclaimers and qualifications.
The main objective of this programme is to support municipalities where their financial sustainability is threatened and implement turnaround strategies that would ensure the municipalities remain financially viable. The programme has been successfully implemented in a number of municipalities.
Generally recognised accounting practice (GRAP)
Through this programme, Treasury is currently assisting with the implementation of the generally recognised accounting practice (GRAP) at Ilembe, Richmond, Mbabazane and Mpofana. We hope to see an improvement in the audit outcomes of these municipalities in the years ahead.
Further assistance to municipalities
Sections 5 and 6 of the Municipal Finance Management Act (MFMA) impose a responsibility on provincial Treasury to provide assistance to and promote good and responsible fiscal management in municipalities. In discharging these responsibilities, the KwaZulu-Natal Provincial Treasury and the Development Bank of South Africa identified Nkandla, Hlabisa, Nqutu and Mpofana Municipalities as requiring support in improving their financial management.
On site assessments have already been completed at Nkandla and Hlabisa while we are about to start at Nqutu and Mpofana.
It is of great concern to me that we can only effectively support a limited number of the municipalities that require assistance due to budget constraints.
Guidelines for budget process of 2009/10
In line with Chapter 5 of the MFMA, the Provincial Treasury is committed to supporting and assisting our municipalities in compiling credible budgets that seek to address the needs of their communities. To this end we have issued guidelines for the budget process for 2009/10 that strategically assists municipalities to optimally implement priorities.
These guidelines create a consultative approach to determining priorities, policies, budgets and financial management and will also assist the mayors of municipalities to effectively discharge their role and responsibilities.
Budget compliance review for 2009/10
There have been positive trends in terms of budget preparation in our municipalities but the majority of our municipalities still face serious challenges, ranging from proper budgeting, financial management and supply chain management, inability to attract suitably qualified personnel, cash-flow management and service delivery. We are also concerned about some of our public entities.
As a result of these challenges National and Provincial Treasuries have developed a 16-priorities-MFMA toolkit. These priorities include the following:
* Establishing budget and Treasury Offices with appropriate skills
* Improving preparation and implementation of multi-year budgeting
* Establishment of functional internal audit units and audit committees
* Upgrading and automating systems to deliver reports and improve data quality.
It is our view that this toolkit will improve systems, structures, processes, internal controls and compliance with the MFMA.
Stamping out fraud and corruption
Supply chain management
Supply chain management, in the words of our President, is the area where most corruption takes place. It is also our duty to ensure that our Supply Chain Management (SCM) is beyond reproach. We are monitoring very closely how provincial departments procure their goods and services. The first prize would be for the province to refrain from using the quotation methods for significant tenders and rather utilise the normal competitive bidding process, which is not only cheaper, but should also result in quality procurement. It further minimises the risk of fraud and corruption.
We also want to warn political leaders not to abuse their positions by instructing officials to break the law. Among the transgressions reported in the recent audit reports unauthorised expenditure and irregular expenditure were most common. There is not a right way to do a wrong thing.
Most of these were labelled by departments as so-called “emergencies.” When investigated most of these had been simple events that became emergencies as a result of poor planning. One knows a year in advance there will be a women’s day function and does not have to wait two days before the event to get suppliers. Likewise, poor planning can also be blamed for fiscal dumping, which means that value for money flies out of the window and the money is not spent wisely and on the programmes for which it is intended.
The French playwright Moliere said, “It is not only what we do, but also what we do not do, for which we are accountable.” Let us deliver on the mandate that we have been given by our people. Clean audits are a very definite step forward in the eradication of poverty. Now is the time to deliver.
I thank you.
Issued by: Department of Finance, KwaZulu-Natal Provincial Government
10 November 2009
