South Africa kisses R22 billion goodbye – thanks to government

 ·29 Nov 2023

The Auditor General of South Africa (AGSA) has presented the latest national and provincial audit outcomes for 2022/23, flagging increasing pressure on government finances due to spending irregularities and suspected fraud and corruption.

This comes despite a more positive turn in audit outcomes, with the AGSA noting a respectable increase in clean audits from provincial and national departments and state-owned entities. Of 418 audits, 147 (35%) outcomes were unqualified (clean).

162 audits were unqualified with findings, 69 were qualified with findings, four were adverse with findings, and five were disclaimed with findings.

Worryingly, 31 audits were outstanding due to non-submission of financial statements, late submissions or other delays in the auditing process.

This includes state-owned companies like Denel and SAA, and the Compensation Fund and UIF, which did not submit financial statements by deadline – and Alexkor and Prasa, which submitted statements late.

While the overall audit outcomes improved, the AGSA identified a host of weaknesses in reporting from the state, including things like cost overruns, reported statements that were unreliable and unverifiable, performance indicators being excluded or missed, and medium-targets not being achieved.

Administration review

The biggest punch, however, came in with the massive R22 billion in financial losses that the AGSA attributed to wasteful expenditure and irregularities from the state during the current term (2019-2024).

The AGSA flagged R7.62 billion in wasteful expenditure over the last five years, along with R14.34 billion in financial losses attributed to 240 cases of non-compliance, suspected fraud and material irregularities.

These instances vary, including poor payment practices (such as late payments or payment for goods not received), no benefits received from money spent by the government (eg, paying for leases on unoccupied buildings), unfair procurement processes, neglected maintenance and poor planning.

According to the AGSA, these have placed an added and unnecessary burden on the state’s finances, which are already under severe pressure.

It noted that over R386 billion of government guarantees are exposed to state-owned enterprise borrowing programmes. At the same time, SOEs have reported poor growth, unsustainable operational challenges and high debt-servicing costs.

“Several (SOEs) appear to be at risk of defaulting on their debts,” it said.

On top of this, state departments are also on the hook for over R113 billion in claims made against them – R68 billion in the healthcare sector alone.

“Government is self-insured and does not budget for claims,” the AG said, adding that payments for these claims are made from funds budgeted for service delivery – meaning South Africans at large pay the price for this mismanagement of finances.

Of the 266 cases of material irregularities identified by the AGSA, 240 have resulted in material losses amounting R14.34 billion.

Most of these incidents (157) are related to procurement and payment losses. The next biggest hole is in interest and penalties (34 cases) and resource management (28 cases – related to poor spending).

Eight cases were tied to fraud and compliance issues, and nine to the abject misuse of public resources.

On the positive side, the AGSA has made progress in addressing some of these losses, with 79 material irregularities resolved, and around R1.3 billion recovered, R700 million in the process of being recovered, and over R500 million of further losses prevented.

However, in many cases, the appropriate actions required by departments to address the issues have not yet been taken.

The AGSA said that the state needs to activate an “accountability ecosystem” to address these issues, as the state currently operates on a culture of no accountability and consequence.

It also needs to address its inefficiencies in resource management and inadequate intergovernmental planning.

Read: Government’s state collapse delusion

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