Deputy finance minister David Masondo has expressed concern about the “growing tendency” of some government departments and their entities to approach the courts over the findings of the auditor-general on their financial statements.
“In some of the instances you just get a sense that people just want political accounting not financial accounting. Instead of working on the findings, I am worried that some entities, some departments, have a tendency of rushing to court. I think this committee needs to have a view on this; otherwise, government departments and entities will waste a lot of money on legal fees instead of improving on their financials. If we don’t arrest this trend, we may find ourselves accounting more in court than accounting to our people based on what we need to correct in our financials,” Masondo said.
He expressed his views during an engagement last week by parliament’s finance committee with the Treasury and the entities it oversees on their 2020/2021 audit outcomes and their audit action plans.
Masondo said approaching the courts was very counterproductive though he stressed that he was not saying that the auditor-general’s findings could not be contested where there was a feeling that they were incorrect.
In a weekend address to the SA National Editors' Forum, auditor-general Tsakani Maluleke also noted that there had been an “increase in pushbacks, which ultimately delay finalisation of audits and in some cases, are ventilated in courts, which is not the ideal place for audit matters.”
In reply to a question, spokesperson for the office of the auditor-general Africa Boso said there had been two incidents where the auditor-general’s audit reports had been taken on legal review. The one was by the Western Cape department of economic opportunities, where a judgment was handed down by the Supreme Court of Appeal in October, and the other by the Road Accident Fund (RAF), which is currently before the courts.
In January, the RAF brought an urgent application before the North Gauteng High Court seeking to interdict the office of the auditor-general from publishing or disclosing the disclaimer on its financial statements to parliament or any other person.
Boso said Masondo “is correct to be concerned as any resolving of audit matters through the courts is not in the best interest of the system”.
“The office of the auditor-general has dispute resolution processes in place and all auditees can use them when they disagree with our audit findings. For many years, the National Audit Office has successfully used these processes to settle audit disputes in a fair manner, as guided by the Public Audit Act and the International Auditing Standards. We are also pleased that most of the role players in the accountability ecosystem have heard our call for them to play their part in preventing accounting and auditing matters from escalating to the courts of law while there are existing mechanisms to resolve any disputes.”
In October, the Supreme Court of Appeal (SCA) dismissed the auditor-general’s appeal against the decision of the Western Cape High Court in favour of the Western Cape MEC for economic opportunities with costs, including the costs of two counsel, on the grounds that the auditor-general’s findings were based on a “material error of law”.
The matter concerned the proper classification in its financial statements of payments that the department made to Casidra, a wholly owned enterprise of the provincial government, and the Deciduous Fruit Producers Trust, which runs transformation activities through an entity called Hortgro. The appeal related to the audits by the auditor-general of the department’s financial statements for the 2016/2017 and the 2017/2018 years.
The auditor-general ruled that the payments made by the department to Casidra and Hortgro during those financial years, were wrongly classified as transfers when they should have been reflected as payments for goods and services. The reasoning that underpinned that conclusion was that Casidra and Hortgro had received the respective payments as agents of the department. As a result the financial statements for the two years were qualified and the auditor-general recorded irregular expenditures of R274.4m and R259m respectively.
The MEC argued that the legal relationships between the department and Casidra and Hortgro were not principal-agent relationships and the Western Cape High Court agreed and set aside the qualified audit findings by the auditor-general for the 2016/2017 and 2017/2018 financial years. The Supreme Court of Appeal upheld this judgment.
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