The office of the Auditor-General of SA (Agsa) was owed R1bn in outstanding audit fees at end-March with a large chunk of this owed by financially distressed municipalities.
Auditor-General Tsakani Maluleke said in the 2022/23 Agsa annual report tabled in parliament that auditees with poor public finances are unable to pay audit fees which impacts on the sustainability of the office.
“Debt owed to us is ever increasing, which restricts our plans to modernise our tools and develop our staff,” she said.
At year-end national government was responsible for 8% of the total debt, statutory bodies 6%, provincial government 14%, state owned and public entities 27% and local government 45%.
Local government debt was reduced from R548m at end-March 2022 to R487m at end-March 2023.
Total audit income for the 2023 year was R4.6bn (R4.4bn) — a year-on-year increase of 4% — and a surplus of R263m was generated.
Deputy Auditor-General Vonani Chauke noted that while the outstanding debt in audit fees only grew by a minimal 1.9% over the year, it represented 24% of Agsa’s total revenue. Of the R1bn owed, 34% was owed for 120 days or more, mainly by auditees in financial distress.
“Collecting outstanding debt, predominantly from local government and ailing state-owned enterprises, remains a challenge. We expect this trend to increase given the loss of revenue throughout the pandemic and the Russia-Ukraine war,” the annual report said.
Last year Agsa spent R901m on audit work by private firms of which R646m was channelled to black-owned firms. Of the 100 audit firms that benefited, nine were large with a turnover of more than R50m, 18 were medium with a turnover of between R10m and R50m and 73 were small with a turnover of up to R10m.
Agsa employed 1,350 audit professions of which 776 are chartered accountants.
Maluleke said that in 2022-23 Agsa implemented its material irregularity process at 202 public sector institutions in national and provincial government, and 170 in local government and was on track to implement it at all the 879 institutions audited in the 2024/25 financial year.
“So far, the material irregularity process prevented R655m in financial loss, while R164m was recovered with a further R820m in the process of recovery. Importantly, the process also ushered in a change that saw internal controls improve, supplier contracts being stopped where money was being lost, and consequences for wrongdoing. At the same time, we enhanced our material irregularity methodology,” she said.
In terms of Agsa’s expanded powers under the Public Audit Act, it can take enforcement action in cases of material irregularities which relate to noncompliance with or contravention of legislation, fraud, theft or breach of a fiduciary duty which resulted in or is likely to result in a material financial loss. Ultimately the accounting officer will be held responsible if no remedial action is taken.
The annual report highlighted the poor quality of the annual financial and performance reports submitted by many auditees which, it said, had a negative effect on the time frame and quality of the audits because additional work is needed to respond to the risks posed by misstatements.
“Persistently we see internal control environments that are inadequately managed. Weak preventative controls and the disregard for our audit messages increase the audit risk profile,” the report said.
The Agsa classified 422 institutions (228 institutions in national and provincial government and 194 in local government), against a set of criteria related to sound financial management and found that none of them managed to fall in the category of “doing good” and none of the local government auditees managed to achieve even a “doing no harm” rating.
“A shift in culture to performance, accountability, transparency and integrity is urgently required,” the report said.
Agsa’s vision is to have a minimum of 30% of institutions audited shifting to “doing good” by 2030, with less than 10% in the “doing harm” category.
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