Treasury entities are going backwards, audit outcomes show
MPs to question heads of PIC, Sars and other entities over findings of the auditor-general
The heads of the SA Revenue Service (Sars) and the Treasury will face a grilling by MPs this week after a regression in audit outcomes over five years.
Treasury and Sars officials will appear before parliament’s finance committee on Wednesday to account for the findings of the auditor-general.
Briefing the committee on Tuesday, Liezl Kestlmeier, senior manager of the auditor-general of SA, said overall the audit outcomes of the Treasury portfolio had regressed over the past five years from 44% of clean audit opinions in 2014/2015 to 25% in 2018/2019.
The portfolio includes the Financial Sector Conduct Authority (FSCA), the Independent Regulatory Board for Auditors (Irba), the Development Bank of Southern Africa (DBSA), the Land Bank and the Financial Intelligence Centre, among others.
Only four entities, including Irba, achieved clean audits in 2018/2019 with the Treasury itself receiving unqualified audits with material findings in each of the past five years indicating that there had been no improvement in the financial management in certain areas.
The DBSA, PIC and the office of the ombud for financial services providers regressed from 2017/2018 to 2018/2019 from unqualified audit opinions with no findings to unqualified audit opinions with findings.
Kestlmeier identified several root causes for the deterioration in audit outcomes including instability or vacancies in crucial positions; inadequate consequences for poor performance and transgressions; and slow or no response to the auditor-general’s messages about improving crucial controls and addressing risk areas. The Treasury and Sars were guilty of the last failing, she noted.
Finance committee chair Joe Maswanganyi expressed concern that regulatory bodies within the Treasury fold had themselves failed to comply with basic audit requirements.
Failure to comply
The same applied to the Treasury, which was responsible for standards and supply-chain management across the government. It had consistently failed to comply with prescripts and the committee “can’t keep quiet” about this, he said.
The Treasury, Sars and the PIC, which has assets under management of about R2.1-trillion, were among the 12 entities that demonstrated noteworthy noncompliance with legislation.
The top five noncompliance areas identified by the auditor-general were material misstatements, procurement and contract management, prevention of irregular, fruitless and wasteful expenditure, consequence management and with regard to the PIC noncompliance with the Public Investment Corporation Act. This noncompliance related to the PIC’s failure to comply with investment policies, guidelines and procedures for assets under management.
Kestlmeier also flagged the Treasury’s and the PIC’s lack of internal controls in some areas as a concern, noting that the state-owned asset manager lacked effective leadership in this regard.
The PIC also did not conduct adequate due diligence for the approval of investment deals; loan contracts did not align with the approved deals; and conditions precedent placed on a deal by the portfolio management committee were not incorporated into legal contracts.
The Treasury continued to receive bad marks for the historic concerns more than the integrated financial management system, which has been a headache for the department for more than a decade.
Most of the fruitless and wasteful expenditure of R82m and irregular expenditure of R1bn incurred by the entities within the Treasury fold was caused by the Treasury itself, and Sars, which contributed R466m and R454m to irregular expenditure respectively.
Most of the irregular expenditure was caused by a lack of proper procurement processes as approval from the appropriate authority was not provided and there were deviations from the competitive bidding process. For the past two years Treasury has failed to properly investigate the irregular expenditure incurred in the prior financial year.
The Treasury, Sars and the PIC were among the six entities where supply chain management was found to be wanting.
Kestlmeier said the most common findings on supply chain management were uncompetitive and unfair procurement processes and the awarding of contracts, which differed from the original invitation to bid. Also contracts were extended or modified without the required approval of a delegated authority.
Correction: October 9 2019
A previous version of this story incorrectly said that 16 heads of Treasury entities would be grilled by the finance committee. In fact it is only Treasury and Sars officials.