PFMA 2019-20 Report

on national and provincial audit outcomes 125 PROVINCIAL OVERVIEW Encouraging trend, but need to embed preventative controls and promote culture of consequence management In the previous general report, we urged leadership to focus on reversing negative trends in the province and to intensify efforts to sustainably improve the audit outcomes. We emphasised the need to continue setting the right tone for accountability through implementing appropriate preventative controls, institutionalising disciplines of credible financial reporting, and effecting consequences timeously. The current audit outcomes indicate an encouraging trend of departments with financially unqualified opinions increasing for the first time in two years, which can be attributed to the implementation of effective action plans. Nonetheless, the repeat qualifications and disclaimers at most auditees in the province are indicative of a slow response to our recommendations, resulting in inadequate improvements in the underlying control environment. The quality of financial statements submitted for auditing deteriorated, as evidenced by the increased number of material misstatements identified. The over-reliance on the audit process shows that the appropriate disciplines and preventative controls required to create credible financial statements were not in place, which poses a risk to the sustainability of the audit outcomes. We call on the accounting officers to attend to the deficiencies in the control environment immediately by putting in place daily, monthly, periodic in-year and year-end reconciliations of accounting records as a start to strengthen preventative controls. Furthermore, senior management and accounting officers should adequately and timeously review the financial statements, while the review of financial statements by governance structures (including the provincial treasury) should be strengthened. The levels of irregular expenditure continued to be very high due to the culture of non-compliance created by the lack of investigations and consequences against those responsible. The cumulative balance of irregular expenditure stood at R27,2 billion. Auditees under administration made slight progress in dealing with irregular expenditure with the cancellation of certain irregular contracts. However, the inability of leadership to implement corrective action to ensure that non-compliance is swiftly attended to has seen the provincial department of health once again listed as a top contributor to irregular expenditure, with a cumulative balance of R9,80 billion. This has further contributed to the province’s financial distress. A total of 95% of the auditees failed to comply with supply chain management legislation – we therefore urge the province to overcome the hurdle of non- adherence to laws and regulations. We continued with the implementation of the amended Public Audit Act at five auditees, resulting in 10 material irregularities being reported at three departments with financial losses amounting to R477 million. During the current year, we identified five material irregularities at the provincial department of health and one at the North West Department of Public Works and Roads that are still in progress, and one at the North West Department of Community Safety and Transport Management. The accounting officers should implement the appropriate actions to deal with the identified material irregularities. Overall, financial health regressed with 32% of the auditees, being the North West Department of Human Settlements and five public entities, requiring intervention to remain viable. As leadership has not heeded our call to reassess the financial model of public entities, these auditees are relying on operational grants and operating at a deficit. The outstanding medical negligence claims against the provincial department of health amounted to R5,5 billion, which is more than 92% of next year’s budget and will negatively affect the department’s service delivery. Furthermore, if settled, these amounts will result in unauthorised expenditure as it has not been budgeted for. To improve financial health in the province, we reiterate our recommendation that the funding model of public entities be reassessed and that budgeting and financial management disciplines be instilled at all auditees. We have been consistently calling for greater accountability in the management of public funds through the reduction and investigation of unauthorised, irregular, and fruitless and wasteful expenditure and a demonstration of how public funds are spent through the timely submission of quality financial statements for auditing. There is a need for drastic change in the province and we thus also implore leadership to take an anti- corruption stance to restore the rule of law through implementing corrective mechanisms and the necessary preventative controls.