Business & Finance

SA’s clean audit not good enough

The financial management of South Africa’s government departments and local municipal departments, while showing slight improvement, is still simply not good enough. By Tourism Tattler contributor Trevor Neethling.

December 2014’s release of the Auditor General’s PFMA report for the 2013 / 2014 financial year indicated marginal improvements by the public sector, further underlining the urgent need to improve technical competencies and skills within its departments. As many as 119 (25%) of the 469 auditees attained clean audits in the 2013/14 financial year. This number was 22% in 2012/13 financial year, reflecting a marginal improvement year-on-year.

Terry Ramabulana, partner and head of Public Sector Advisory Services at Grant Thornton, said the consequences of the poor financial management has a wide impact on both communities as well as the private sector, especially small businesses that depended on government contracts.

“The negative effects of financial mismanagement by municipalities are severe in South Africa especially for businesses trying to work with the public sector,”
says Ramabulana. “Small businesses are often the first to be affected in the event of non-payment. Many BEE companies are reliant on providing services for the government and simply cannot survive if they are not paid in time.”

Ramabulana added that bigger businesses are also been threatened by a lack of reliability from state departments. The likes of Sanyati, a civil engineering company, closed recently due to non-payment from government. He said non-payment had distinct impact on business sustainability; employment; job creation and black economic empowerment.

Poor financial management also impacts negatively on service delivery to already marginalised previously disadvantaged communities. The result has been the rising levels of community frustration leading to service delivery protests of which more than 280 were recorded in 2013, according to data from the University of Johannesburg. Many of these turn violent leading to the loss of life and to significant additional costs to the public purse.

The private sector (and the tourism trade in particular – Ed) has also indicated its frustration with poor service. Data from Grant Thornton International Business Report indicates that as many as 62% of businesses in South Africa are negatively impacted by government service delivery. The provision of utilities, road and billing issues were singled out as the biggest areas of concern.

Auditor General Kimi Makwetu, like various AGs before him, said irregular expenditure continued to be of particular concern. Makwetu highlighted six risk areas which if addressed, would lead to improvements in audits. These risks included the quality of submitted financial statements; the quality of submitted performance reports; supply chain management; financial health; information technology controls; and the human resource management breakdown in controls at some auditees.

Alarmingly, of the government’s R1.035-trillion budget, only 15% was properly audited, according to the AG report.

Ramabulana said the major hurdle in public sector financial management remained the lack of skilled financial managers in rural areas and smaller provinces. “Local government requires assistance from the private sector in order to enhance training initiatives and alleviate bottlenecks. The shortages are believed to be in the tens of thousands,” he said.

Minister of Cooperative Governance and Traditional Affairs (CoGTA) Pravin Gordhan earlier this year stated categorically that the shortage of skills was undermining public sector financial stability. Minister Gordhan said the skills shortage was severe in financial positions at state departments’ even at the more basic level financial positions.

“Both the AG and Minister Gordhan stressed that too many accounting officers and their teams failed to focus on basic disciplines of financial and performance management,” said Ramabulana. “It is clear that need assistance from especially there was a need to deploy appropriately experienced skilled workers to provinces which repeatedly performed poorly such as the Limpopo Province and North West Province.”

Ramabulana said that Gauteng and the Western Cape remained highly lucrative for audit professionals to the detriment of the other provinces. He said the AG and his team themselves faced the same problem of finding sufficient skilled people to work for long periods of time in provinces away from their families and for lower salaries. A lack of people in key positions was the root cause of as much as 33% of the auditees with poor audits.

“Despite all the challenges faced by government entities it is nevertheless positive to note that some improvement is better than none and we trust that this improved set of results is the beginning of an upward trend of consistently achieving clean audits in South Africa,” Ramabulana concludes.

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