Auditor-general Tsakani Maluleke has lauded the provisions in the Public Audit Act that allow the auditor-general’s office to identify material irregularities and ultimately hold accounting officers personally liable for them if no action is taken to remedy them.
In terms of the act, material irregularities refer to any noncompliance with or contravention of legislation, fraud, theft or breach of fiduciary duty that resulted in or is likely to result in a material financial loss, the misuse or loss of a material public resource or substantial harm to a public sector institution or the general public. The act lays down a process to be followed once a material irregularity has been identified.
In a briefing on the 2022/23 annual report to parliament’s standing committee on the auditor-general, Maluleke said on Friday that so far the material irregularity process led to the protection of public resources valued at R1.6bn, of which R655m in financial losses was prevented, R164m was recovered and an additional R820m is in the process of being recovered.
“Importantly, the process also ushered in a change that saw internal controls improve, supplier contracts being stopped where money was being lost and consequences being implemented for wrongdoing,” Maluleke said in a statement after the briefing.
“We found that issuing a material irregularity notification to accounting officers often jolts them into action to address irregularities and transgressions that they should have dealt with previously,” she said. “In 86% of cases, nothing was being done to address the material irregularities we identified until we issued the notifications.”
In her briefing to the committee, Maluleke highlighted the poor quality of annual financial statements and performance reports submitted by many auditees.
“We are faced with the continuous misuse of state resources,” she said. “The persistent lack of prudence in spending, inadequate financial management and inadequate accountability for financial performance erode the limited public funds available, and the scope for beneficial spending on service delivery is severely limited.”
Material irregularities
Maluleke also presented a report on material irregularities at municipalities. From April 2019 to January 2023, when the office implemented its expanded powers under the act, it had identified and notified accounting officers of 268 material irregularities. After the cut-off date, the office identified a further 66 irregularities.
Of the 268 material irregularities identified, 194 resulted in a material financial loss of R5.19bn with R1.6bn of this lost by municipalities that invested in VBS Mutual Bank. Thirteen material irregularities were issued where municipalities suffered material financial losses due to the liquidation of VBS.
Maluleke reported that 57 cases were resolved, in 95 cases appropriate action was taken, in 61 cases the auditor-general invoked its powers, in 31 cases a response was received from the accounting officer on notification and 24 cases were recently notified.
“Material financial losses were most often caused by weaknesses in the procurement and payment, resource management and revenue management processes, as well as by interest and penalties charged due to late payments,” Maluleke said.
In 58 cases the responsible officials were identified and disciplinary processes instituted, in 46 cases internal controls were improved to prevent a recurrence, 15 cases were referred to public bodies for further investigation and in one case the contract with a supplier was stopped. The process to issue notices of certificate of debt was instituted in two cases where the accounting officer did not deal with the auditor-general’s recommendations and remedial action.
Maluleke asked the committee to approve the retention of the net surplus of R263m (2021/22 R40m) which it will use to digitise its business and automate its audit and businesses processes which is estimated to cost R1.6bn over five to seven years. The auditor-general will also need to consult the National Treasury on this.
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