/ 3 November 2017

Parastatal waste equals tax shortfall

Auditor general Kimi Makwetu expressed concern that the money misspent by government entities is up by 55% over the previous year
Auditor general Kimi Makwetu.

The R50‑billion shortfall in tax revenue that the treasury will need to find elsewhere to plug the budget gap is close to how much state-owned entities (SOEs) have thrown down the drain in the past financial year.

The auditor general, Kimi Makwetu, released national and provincial audit results on Wednesday. Although the number of clean audits increased, it is less than reassuring when the amount of money that’s been misspent has gone up by a whopping 55% over the same period.

Clean audits, with no findings, account for 30% of the audited entities — a marginal improvement on previous years. The Western Cape had the best results, followed by Gauteng.

However, irregular expenditure has increased by 55% since the previous year to R45.6‑billion.

Makwetu noted that this amount could be even higher, as it does not include the irregular expenditure of entities whose audits are still ongoing. This included the Passenger Rail Agency of South Africa (Prasa) where irregular expenditure last year was almost R14‑billion, he noted.

Furthermore, 25% of the audited entities disclosed that they had incurred irregular expenditure but that the full amount was not known, and 28 audit were qualified, as the amount that had been disclosed was incomplete.

If the irregular expenditure of SOEs whose audits had not been completed by the date of this report could be factored in, the total amount of irregular expenditure could rise to as high as R65‑billion. Makwetu said the significant increase can be attributed to continued supply chain management weaknesses.

“Although deviations are allowed, we found that it had often not been approved; or, if approved, the deviation was not reasonable or justified,” he said.

As announced by the treasury last week, tax collection will be R50.8‑billion short for the current financial year.

The markedly poor revenue collection figures are partly attributed to a slowdown in the local economy, but there is concern that a tax revolt is also at play.

In his medium-term budget policy statement speech last week, Finance Minister Malusi Gigaba said: “While most of our taxpayers remain responsible, we are noting slippage in compliance.

“It is important that we continually strengthen tax morality and deal with any underlying causes that may undermine it, such as public concern about government corruption, poor governance or those undermining or abusing the fairness of the tax system.”

But the auditor general’s audit results this week point to a striking lack of accountability.

Of the 99 entities Makwetu’s office has audited, where there were allegations of financial and supply chain management misconduct and fraud, a third did not investigate the allegations and 32% of the investigations took longer than three months.

Makwetu said that most SOEs had the required policies and processes to ensure that transgressions and fraud were identified and acted on, but chose not to use these processes — a clear indicator of a lack of commitment to accountability.

“As long as the political leadership, senior management and officials do not make accountability for transgressions a priority, irregular, unauthorised and fruitless and wasteful expenditure as well as fraud and misconduct will continue,” he said.

“An environment that is weak on consequence management is prone to corruption and fraud, and the country cannot allow money intended to serve the people to be lost.”

The auditor general is now seeking an amendment to the Public Audit Act to give his office further powers to refer matters to other entities such as the office of the public protector, the Hawks or the Special Investigating Unit.

Africa Boso senior media relations manager in the office of the auditor general, said such referral powers could be exercised when a department had, for instance, received an adverse report for three years, allowing the auditor general to refer the matter to an investigating authority.

Although the auditor general had already referred matters elsewhere, this remained a loose arrangement for the time being.

“If they don’t take the matter up, nothing can be done,” he said. Amending the Act to include this would formalise the matter and oblige Parliament to follow up on progress made.

The auditor general issues his report to Parliament, and it is Parliament’s responsibility to take up any Public Finance Management Act transgression with the relevant accounting officers.