CEO’s Weekly Newsletter – 4 December 2023

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One of the strengths of our constitutional democracy is our Chapter 9 institutions – those established under the constitution with strong independence from political interference. The Auditor General is such an entity and its annual reviews of the financial performance of public entities are a powerful vehicle for accountability.

Last week the AG gave us good news – in its assessment of the performance of national and provincial government there have been good improvements. The number of public entities with clean audits improved from 126 to 147. The number with disclaimers fell from 14 to five. This shows a general improvement in financial management and accountability, and I want to congratulate the government for this achievement.

However, it was not all good news. The AG’s report also showed a concerning increase in entities that have simply not completed their audits, from 12 to 31. The most concerning aspect is the contribution to this number from the state-owned enterprises. Only the Development Bank of Southern Africa received a clean audit. Several audits are outstanding, including SA Airways (for the fifth year), Eskom, Denel and Alexkor. Two saw regressions in outcomes including the Land Bank (from clean audit to financially unqualified opinion with findings) and the SABC (from a qualified audit opinion with findings to a disclaimed opinion). The performance of the SOEs remains a critical problem for our country and the AG’s report makes clear that accountability for their management and reporting on finances and performance is a key part of the failings.

Other entities that had not submitted accounts were the Unemployment Insurance Fund, the National Student Financial Aid Scheme, and the Compensation Fund. These are critical institutions that provide support to many South Africans and their failure to adhere to accountability norms is very concerning.

The improvement in provinces is perhaps the best takeaway. This represents a concerted effort by provincial governments and the support of National Treasury. Speaking to parliament’s standing committee on the Auditor General last week, AG Tsakani Maluleke noted that Gauteng’s education department got a clean audit this year after years of work, one of five entities that improved there (though one regressed). In KZN, there were nine improvements and in the Eastern Cape and North West eight improvements in each. The Western Cape remains the leading province with 18 clean audits.

Apart from the financial accounts, the AG’s office also assesses the delivery of government entities on their annual performance plans. The findings are decidedly mixed. The AG reported that a quarter of auditees provided unreliable, incorrect or no evidence for the achievements they reported. At national level, transport, public works and human settlements do reasonably well, but health has four disclaimed opinions and one outstanding audit out of 10. Findings are made where reported achievements are not backed up by sufficient evidence, ranging from the number of schools provided with running water to the number of title deeds registered by the provincial departments of human settlements.

One issue that keeps surfacing is the role of the Public Finance Management Act and Municipal Finance Management Act, with several entities that fail to get clean audits complaining that the legislation and corresponding regulations are not appropriate for their entities. The AG pointed out last week that what really mattered is that there are disciplined management teams seized with ensuring systems, processes and monitoring controls are in place. Getting that in place is much more important than the detail of the regulations.

The AG also has a mandate to identify and report on material irregularities, which are acts of fraud, theft or breaches of fiduciary duties. The AG has identified 266 material irregularities over the last four years, ranging from overpriced goods and services in procurement to fraud. Actions by the AG have prevented loss or recovered R2.6bn in that period, with 15 criminal investigations instituted, 50 individuals subjected to disciplinary processes and 58 internal controls improved. This is a welcome addition to the many efforts to tackle corruption and other criminality across our economy.

The AG’s call for action is to drive a culture of accountability and consequences throughout the civil service. Accounting officers and authorities need to implement consequences swiftly, bravely and consistently. When there are consequences for actions, it helps to deter others from wrongdoing. The AG expressed some frustration that authorities are sometimes slow to act and miss opportunities to instil a disciplined and ethical culture. The AG reported that of the procurement fraud and improper conduct incidents reported in the previous year, 59% were satisfactorily resolved but the rest were not. Ensuring swift consequences must be a key component to improving the overall performance of government.

The AG is one of the institutions that underpins our demographic dispensation. It is an example of excellence in the public sector. During the current administration, the AG has noted a steady improvement in compliance of public institutions, an achievement of this government, but also of the AG itself, which through consistent and thorough audits, highlights areas of underperformance. That also means the AG is a credible voice on improvements too.

For business, the report highlights the serious work that must be done on our SOEs. We are actively engaged in working with government through B4SA to improve performance at these institutions, and the AG’s insights are a helpful spur to focus attention on the financial and performance monitoring and reporting of these institutions.

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BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. BLSA is committed to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.

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