Material Irregularities in National and Provincial Government (PFMA): AGSA briefing

Meeting report

Opening Remarks

The Chairperson welcomed Members and the Auditor-General of South Africa (AGSA). The meeting was primarily to consider the Auditor-General’s (AG) report and receive a briefing on the progress of material irregularities (MI), particularly concerning the Public Finance Management Act (PFMA) for the years 2021/22/23. The report was previously forwarded to all Members for review.

The report comprised approximately 13 slides, highlighting the considerable growth in the work undertaken by AGSA. This growth was a testament to the evolving implementation of the Public Audit Act. The Committee recently received a brief on the Financial Management and Municipal Finance Management Acts (FMMA and MFMA), along with the MI report. Those documents shed light on the current state of accountability and areas for attention regarding consequence management.

The meeting would revolve around the crucial matters of accountability. The Auditor-General (AG) and the team had diligently worked to fortify the Committee’s understanding and ensure that those at the helm remained accountable in various instances.

An apology was received from Mr N Singh (IFP).

Briefing by AGSA on Material Irregularities in National and Provincial Government

Ms Tsakani Maluleke, the Auditor-General (AG), presented the report on implementing the MI instrument during the most recent PFMA cycle.

Material Irregularities Identified and Status

266 MIs on non-compliance and suspected fraud resulting in:

• 240 material financial loss (estimated at R14.34 billion)
• 9 Misuse of material public resource
• 3 substantial harm to the general public
• 14 substantial harm to the public sector institutions

MI is resolved only when all possible steps have been taken to:

• Recover financial losses or remove/address harm caused
• Effect consequences – for officials and third parties involved
• Prevent any further losses and harm – also through improved internal controls

No actions were taken to address 82% of the matters until we issued notifications

Material irregularity process is making an impact

Responsive Accounting Officers Took Action

• R1.29 billion financial loss recovered
• R0.56 billion financial loss prevented
• R0.70 billion financial loss in the process of being recovered
• 58 Internal controls improved to prevent reoccurrence
• 50 Responsible officials identified and disciplinary process completed or in process
• 15 Fraud / criminal investigations instituted
• 4 Supplier contracts stopped where money was being lost

Greater impact can be made through:

• Swifter and timely action taken by accounting officers and authorities to respond to MIs and implement preventative controls to improve the overall control environment.
• Regular monitoring of progress in implementing planned actions by executive authorities and oversight structures.

Examples of Impact:

• The North West Department of Health’s Jouberton Community Health Centre in Klerksdorp was completed in July 2019, but only started being utilised in May 2021. The accounting officer responded to the MI by ensuring that all critical vacant posts were filled, and the facility is now fully operational. The MI has been resolved.
• The Water Trading Entity placed the construction of the Hazelmere Dam on hold and paid for site re-establishment costs and standing time, resulting in a financial loss of R39,1 million. An investigation was completed in July 2022 and disciplinary proceedings are underway. The raising of the dam wall was completed in March 2023. The entity improved its internal controls to limit further losses and is taking further appropriate action to fully resolve the MI.
• The Department of Basic Education made a prepayment in March 2017 for bulk materials but did not receive the equivalent materials. After a notification in July 2021, they recovered R21,6 million in March 2023. The MI has been resolved.
• Umgeni Water Board paid R2,15 million in interest due to late payment of invoices in February 2021 and December 2021. We notified the accounting officer of an MI in September 2022. The accounting officer investigated the matter and improved controls and processes relating to payment approval by amending the delegation of authority framework. The MI has been resolved.

Call to Action

Accountability ecosystem role-players

1. Accounting officers and authorities should establish an ethical culture and foster accountability by ensuring timely consequence management whilst also prioritising the monitoring of preventative controls.
2. Executive authorities and leadership (president and premiers), Parliament and legislatures, their committees, and coordinating institutions should work together to identify common indicators that lead to irregularities, losses, and harm; insist that accounting officers and authorities address any identified irregularities; and monitor the progress made in resolving them.
3. Executive authorities and oversight committees should adopt a proactive approach geared towards preventing MIs and, with the help of coordinating institutions, should strengthen processes relating to investigations.
4. Portfolio committees in Parliament responsible for public bodies should request regular reports on the status of investigations and must pursue any unreasonable delays. Public bodies should collaborate effectively with other stakeholders involved in the MI process.

Standing Committee on Auditor General

1. Continue to showcase the positive impact of implementing our expanded powers to parliamentary committees to encourage the swift resolution of MIs, thereby enabling greater impact.
2. Advocate for parliamentary committees for greater accountability when there are unreasonable delays by accounting officers and public bodies in resolving MIs.

See attached for full presentation

Discussion

The Chairperson thanked the AG for the comprehensive presentation, shedding light on the concerted efforts of AGSA. The meticulous review of the Public Audit Act, emphasising their duties, rights, and the need to advocate for positive outcomes, underscored the commitment to instilling a culture of accountability. AGSA had strategically crafted an approach modelled around an accountability ecosystem, fostering collaboration among entities and stakeholders. This collective effort stimulated thoughtful consideration of critical areas, playing a pivotal role in maintaining accountability within the public sector. Grounded in the Constitution, AGSA held a significant position as a Chapter 9 Institution. It was crucial to ensure the protection of its independence, moving beyond a theoretical construct to a tangible reality in the operational functions of AGSA.

A key realisation within the framework was that the focus extended beyond identifying weaknesses and controls. The emphasis lies in instilling a culture of accountability, transcending actions taken, and actions avoided. Those cultural shifts had been instrumental in the success observed in South African public administration, marked by adherence to national controls and best practices. The extensive audit covering over 400 audits and addressing more than 200 MIs, showcased commitment to preventing potential financial losses and protecting areas of public interest. The ongoing efforts in local government audits were commendable, intending to expand this focus to both provincial and national governments. AGSA had effectively walked the mile, ensuring the protection and preservation of independence. The collaborative approach with various stakeholders reflected a commitment to shared values, fostering a culture of accountability in the public sector.

Mr O Mathafa (ANC) thanked the AG for the presentation, acknowledging the clear, concise, and useful information provided. He highlighted the impressive quantification of the inherent value in the AG's report, specifically noting the recovery of R1.8 billion and the prevention of a R0.56 billion loss. It was important to recognise the positive impact of the AG's processes, as the recovered funds could be redirected towards providing essential services for residents. He commended the AG's efforts in safeguarding public resources and preventing fiscal losses. The identified areas could be incorporated into the Committee's Legacy Report, allowing for a deeper examination of specific departments, programs, and spending patterns. AGSA’s work was relevant for both the Committee and the broader functions of the legislature at the National Assembly.

Ms M Matuba (ANC) acknowledged both the progress made and the challenges highlighted in the report. She expressed concern about the MIs, particularly the estimated R14.34 billion in material financial losses. This had a significant impact on the country. The figure was based on a sample, and if it were 100%, the losses could be even higher. There was a need for serious concern among parliamentarians and public servants responsible for handling public resources. While the Committee recognised the steps outlined in the report to address the challenges, increased efforts were needed to prevent such problems. She expressed interest in understanding MIs that have persisted in institutions highlighted since 2019 and whether there has been an improvement. On follow-up actions for those who had resigned, were there any actions taken by accounting authorities in such cases? Despite these concerns, the Committee acknowledged the progress made. The precision and thoroughness of the report was commended.

Responses

The AG responded to the question on the impact of instability at the level of accounting officers. She emphasised the need for executive authorities to be more engaged with the MI process. Executive authorities should monitor how accounting officers respond to MIs and audit findings, providing support and driving accountability conversations without interfering with the accounting officer's work. She emphasised the importance of using audit reports, including those on MIs, to facilitate supportive and monitoring discussions between executive authorities and accounting officers.

The AG acknowledged the need to address these issues. There were ongoing efforts to improve the induction process for incoming executive authorities. The goal was to better acquaint them with how to engage with the AG's work in a supportive manner, ensuring more effective collaboration. AGSA sees this as a crucial area that, if addressed successfully, could significantly strengthen accountability. AGSA remained committed to contributing to the better induction of executive authorities to enhance their understanding and support for the work of accounting officers.

The Chairperson acknowledged the critical instances highlighted in the report, particularly the shift from 82% non-action to intervention and resolution of 75 MIs. The MI instrument was significant in instilling a sense of responsibility and preventing substantial losses that could have occurred without such intervention. The report highlighted the effectiveness of the office of the AG in deepening its impact and developing a performance system to account for outcomes after the audit. The Committee appreciated AGSA’s efforts, noting that it played a crucial role in promoting an accountability culture within the public sector. AGSA's work was integral to ensuring a professionalised public service and maintaining high standards of service delivery and financial accountability. Protecting and appreciating the AG's role in these efforts was important.

The Chairperson thanked the AG and AGSA team for their contributions and released them from the meeting for the Committee to finalise the consideration of outstanding minutes and reports.

Committee Minutes

The minutes were presented.

Mr Z Mlenzana (ANC) raised concerns on the attendance register. Mr D Myolwa (ANC) was skipped whether he was present, absent, or gave an apology. Additionally, a deceased Member still appeared on the minutes for 2024.

Ms Matuba moved for the adoption of the minutes with the amendments raised.

The minutes were adopted.

Closing

The Chairperson thanked Members for the smooth progress of the proceedings.

The meeting was adjourned.