Department of defence bumbles to another negative audit report
Financial chaos continues to dog the department of defence amid aggressive budget cuts.
In its 2018/19 annual report tabled in parliament last week, auditor-general Kimi Makwetu slapped the department with a qualified audit opinion for the second year running finding that it had incurred irregular expenditure totalling R5,13bn.
The department has over the years been hit with a string of negative audit reports‚ ranging from qualified to disclaimer‚ which is the worst possible audit outcome. It is responsible for overseeing the South African National Defence Force (SANDF). The SANDF is tasked with defending SA against external military aggression and plays a role in peacekeeping missions in Africa.
The department was allocated R50bn in the 2019/2020 financial year. Its budget allocations have been declining in real terms, a situation that is not helped by rising military personnel costs and poor financial controls. According to National Treasury documents, the special defence account, which manages the acquisition and upgrading of main weapon systems and technology for the department, will be reduced by R5bn in 2021/2022.
In the annual report, Makwetu said the department did not disclose capital work in progress for projects under development. Additionally, it did not correctly disclose all items relating to tangible capital assets. Certain assets that qualify to be recognised as assets were incorrectly classified as inventory.
During the 2018 financial year, the department did not maintain adequate records of the contractual information used to determine commitments, he said. This resulted in commitments being understated by an undeterminable amount. Makwetu said he was unable to determine whether any adjustment was necessary to commitments stated at R20bn.
Furthermore, the department did not fully record irregular expenditure in the notes to the financial statements, as required by the Public Finance Management Act. This was due to inadequate systems to detect, record and appropriately disclose this expenditure in the financial statements.
“Consequently, I was unable to determine the full extent of the irregular expenditure stated at R5,13bn ... as it was impracticable to do so,” Makwetu said.
Effective and appropriate steps were not taken to prevent irregular expenditure, as required by the Public Finance Management Act and Treasury regulations, he said. The majority of the irregular expenditure disclosed was caused by compensation of employees that exceeded the approved budget without the necessary approval.
Some of the quotations were accepted from prospective suppliers who did not submit a declaration on whether they are employed by the state or connected to any person employed by the state, which is prescribed to comply with Treasury regulations. Similar noncompliance was also reported in the prior year.
“I was unable to obtain sufficient appropriate audit evidence in some instances that disciplinary hearings were held for confirmed cases of financial misconduct committed by officials, as required by Treasury regulations,” Makwetu said.
In the department’s annual report, defence minister Nosiviwe Mapisa-Nqakula said that over the past few years the department has adjusted its plans downwards in response to the declining budget.
“We are forced to adopt a short-term view with an increasingly constrained value proposition to SA and its people. Due to the severity of the budget cuts we have become a funding-driven defence force instead of a mandate-driven force,” she said.
“Defence can only perform to the extent that it is resourced and funded. The significant reduction in the defence allocation has resulted in an ever-decreasing ability to execute ordered defence commitments. The rate of decline has accelerated beyond our ability to control and absorb these ongoing reductions. It is time that we need to discuss, as a country, the type of a defence force we need should the decrease in our budget continue beyond where we are now.”