South Africa’s R124 billion nightmare

Over the past five years, national departments and State-Owned Entities (SOEs) have spent an accumulative R123.56 billion on irregular, fruitless, and wasteful expenditures.

If the Passenger Rail Agency of South Africa (PRASA) were included in these figures, this would be closer to R135 billion.

This was outlined in the Auditor General’s (AG’s) briefing to Parliament’s Standing Committee on Appropriations on 22 October.

Looking at fruitless and wasteful expenditure first, according to the Public Finance Management Act (PFMA), it can be described as “expenditure which was made in vain and would have been avoided had reasonable care been exercised”.

Focusing on national departments over the past five years, the AG picked up R1.48 billion of fruitless and wasteful expenditure (FWE) across 36 national departments.

Additionally, 17 of the 40 national departments (43%) incurred FWE in each of the past 5 financial years.

The Department of Forestry, Fisheries and the Environment leads the pack with R292.01 million in FWE, followed by Basic Education with R210.53 million and the Police with R208.85 million.

Looking at South Africa’s SOEs, the AG found that 27 SOEs incurred R2.08 billion in FWE over the past 5 years.

Thirteen of the country’s SOEs (43%) incurred FWE in each of the past 5 years.

The embattled South African Post Office incurred the most FWE, with nearly R651 million. This is followed by the South African Broadcasting Corporation (SABC) with close to R300 million, and South African Airways Technical with R167.87 million.

It is important to note that the Passenger Rail Agency of South Africa (PRASA) is a non-schedule 2 public entity, and was thus not listed among these entities. However, it incurred R577.23 million FWE over the period and would have ranked 2nd if included.

Irregular expenditure (IE)

The PFMA defines irregular expenditure as expenditure, other than unauthorised expenditure, incurred in contravention including the PFMA and any other applicable legislation.

Looking at national departments first, the AG said that 38 of the country’s national departments incurred an accumulative R50.65 billion in irregular expenditure since the 2018/19 financial year.

Eighteen of them incurred irregular expenditures in each of the 5 years.

The Department of Defence incurred R14.39 billion in IE, followed by Basic Education with R6.89 billion and Forestry, Fisheries and the Environment with R6.22 billion.

Twenty-seven of South Africa’s SOEs incurred R69.35 billion in irregular expenditure over the past 5 years.

Notably, over 60% of this (R41.92 billion) occurred during the 2020/21 financial year.

The AG identified Transnet as the entity with the most IE over the past 5 years, sitting at R35.46 billion. This is followed by SAA (R18.81 billion) and SFF Association NPC at R2.37 billion.

It is important to note that PRASA is a non-schedule 2 public entity, and was not included with these entities. However, it incurred R12.862 billion in IE over the period and would’ve ranked 3rd if included.

Bongi Ngoma, the head of audit at the AG, said that although the story of irregular expenditure “may be dire,” there were still ways to deal with it, establishing the root cause and implementing consequence management.

“There is a law that governs what needs to be done with this irregular expenditure and the frameworks are currently governed by the National Treasury in the form of various instruction notes,” said Ngoma.

Committee chairperson Mmusi Maimane said they invited some “culprits” who incurred irregular and fruitless and wasteful expenditure, like the SABC and Eskom Holdings.

Going forward

To counter this, the AG proposed three key points as their ‘call to action’.

This includes:

1. Compliance with legislation and protection of public funds should be standard practice, not the exception. Proper consequence management must be enforced, including accountability for financial waste, recovery of lost funds, and strengthening controls.
2. The committee should hold all relevant stakeholders accountable to ensure effective, transparent, and coherent government in line with cooperative governance principles involving both transferring and receiving departments.
3. The committee should leverage insights for recommendations to enhance bills and policies, such as advising the National Treasury to strengthen procurement practices to prevent financial losses.

“AGSA will continue to engage oversight committees as part of the budgetary review and recommendations report process, sharing insights on issues that affect service delivery and place pressure on the fiscus and that require oversight and intervention,” added the AG.

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