Misappropriation of funds and fraud have been part of public life since time immemorial. In democratic societies public spending has come under increasing scrutiny– with good reason. In South Africa the Auditor General (AG) is at the nucleus of the public spending atom.
The Auditor General’s office is the supreme audit institution of South Africa. It is an independent body that reports only to Parliament — and not to a minister or department — on the spending of South African taxpayers’ money. This spending includes that of all government departments, institutions and state-owned organisations.
Since its inception in 1911 the office of the AG has functioned as government’s spending watchdog. But with the new political dispensation, its functions have been expanded and written into our country’s Constitution. It is the subject of special legislation, the Public Audit Act (Act No 25 of 2004), whic gives the AG the power to search and seize where there is reasonable suspicion that information is being withheld.
AG Terence Nombembe (pictured right) explains the role of his office: “The AG exists to strengthen our democracy by enabling proper financial oversight, governance, transparency and accountability in the public sector.”
One of the recent audits that raised eyebrows saw the AG give Salga (the South African Local Government Association) the worst possible audit evaluation — for the third year running.
The audit found that the association’s financial situation was in such a bad state that it could not be accurately audited. The report showed unauthorised expenditure of more than R4-million and irregular spending of another R3-million, as well as failure by Salga to follow procedures and regulations legally required by its mandate. Salga failed to provide supporting documents for expenditure topping R8-million.
Apart from the regular financial audits done on government departments and structures like municipalities and provincial bodies, the AG also conducts performance audits. These allow vital information to be gathered to allay risks and flag possible shortcomings in effective public spending. This means that in many instances problems are identified and addressed before full-scale wastage of government resources through mismanagement, fraud or misappropriation.
Nombembe points out that these reports highlight the source of the potential or existing problem to enable public sector managers to better understand them.
As the supreme audit institution, the office has to table its reports in a manner that will enable parliamentarians to call the executive to account for how they deal with taxpayers’ money, such as the public accounts committees have done several times.
Environmental counts
Nombembe says that environmental audits are yet to be done on a large scale, since these are most often done by bringing in an outside expert. This is due to the specialist nature of the information gathered, for which there are no full-time staff members at the office of the AG.
Nombembe says the AG took part in the disaster auditing following the 2005 tsunami. “Even though it happened somewhere else our auditors played their part in this worldwide effort. Through that we are building momentum from our own research capacity that will enable us to determine when we would be ready to put our own full-time people in place to deal with these issues.”
Performance proficiency
The public can rest assured that government departments are not, as it sometimes appears, left to their own devices in an uncontrolled environment. The audit of performance information done by the AG now has an additional focus: to evaluate the efficiency of the systems soon after they are implemented to ensure that resources are deployed effectively and economically. It also ensures compliance with all relevant legislation and regulations.
Annual auditing of performance information conducted as part of the regularity audit also scrutinises strategy plans such as those of municipalities, looking at strategies to reach targets and how resources are planned to be implemented. This then works into the area of service delivery, Nombembe said.
Forensic audits
He said forensic audits are often conducted in the form of special investigations or focus reviews, mostly in cases where departments already suspect wrongful activities are taking place. They are aimed at identifying the misuse of public resources.
“In the recent case in the department of social services our audit culminated in the identification of false claims for social benefit grants. Our investigation empowered the department to institute internal controls to detect these activities timeously.”
Completed AG reports give verdicts of “unqualified” audit opinions to auditees that meet all the set financial control standards and measures; a “qualified” audit opinion when a material uncertainty or difference of opinion arises in the audit; and a “disclaimer” when the office is unable to express either of the first two verdicts due to financial control measures not being in good order, thus resulting in a fundamental uncertainty. On the other hand a fundamental difference of opinion gives rise to an “adverse” audit opinion.
According to Nombembe, auditing is geared at preventing rather than detecting fraud, which means that this proactive new approach will save not just money but also the time and cost of the people involved in special investigative audits.
To facilitate ease of reference the Auditor General produces an annual general report that provides comprehensive analysis of the audit outcomes of all government entities.
Members of the public can request these reports, with any other information on the operations of the Auditor General, such as its annual income and expenditure statements and strategies. The reports are easily accessible throughout the year via the Auditor General’s website.
Nombembe says: “Much has been done to improve the audit process; hopefully this will work through to the departments we audit, most of which have internal problems that our reports highlight. “