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Auditor-General calls on Eastern Cape provincial leadership to take full ownership of the internal control environment as the province’s audit outcomes stagnate

The Eastern Cape government should without delay implement and rigorously enforce action plans to arrest the tide which is currently sweeping the province further away from the goal of achieving clean administration by 2014.

These action plans, Auditor-General (AG) Terence Nombembe says, should include addressing leadership stability, ensuring adequate and vigorous monitoring of internal controls, proper resourcing and the production of monthly information that is credible.

In addition, it is important that all members of the executive council (MECs) and heads of departments (HoDs) align and streamline their working relationships to ensure effective leadership.

Nombembe says that his office was encouraged by Premier Noxolo Kieviet's recent mention during her State of the Province Address that the province was committed to achieving clean administration.

"My office is aware of some of the provincial government's efforts towards removing administrative/governance impediments that are standing between the Eastern Cape and overall clean administration, but we had hoped the Premier would use her 2013 address to articulate the internal control measures already put in place to eliminate the above obstacles, and rally public servants to improve governance systems in line with the audit recommendations the provincial leadership has committed to implementing," said Nombembe.

Overall audit outcomes for 2011-12
As the government's Clean Audit 2014 deadline approaches, the Eastern Cape, as highlighted by the AGSA's latest (2011-12) audit results, has recorded a marginal regression in progress towards the desired position of clean audits required by government in less than two years. Of particular concern is the lack of movement by the two biggest departments in the province, namely Health and Education, indicating that the custodians of more than 70% of the provincial budget have received a disclaimer or qualified opinion.

Among notable audit concerns raised in the AGSA's general report on audit outcomes for the financial year ended 31 March 2012 is that the province has made little progress in human resource management and improving the status of its internal controls.
This, in turn, has resulted in minimal improvement being reported in the areas of supply chain management and the manner in which the provincial government reports its service delivery information.

Adjustment of financial statements still a concern
A lack of financial discipline, insufficient in-year financial monitoring and reporting and overreliance on the audit process to address management shortcomings resulted in most of the annual financial statements requiring material and pervasive adjustments. In effect 81% of the audit outcomes of the province would have been either qualified or disclaimed had the auditors not allowed year-end adjustments to be made to the financial statements during the audit process.

Examples of clean administration and enthusiastic leadership achieve sustainable positive results
The Provincial Revenue Fund is the only auditee that maintained a clean audit for the 2011-12 financial year, which makes it the province's only representative of clean administration.

The Department of Social Development stands out as a single example of how enthusiastic leadership can effect a move towards clean administration. Although the department did not move in terms of its audit opinion (unqualified with findings), it made significant strides in reducing non-compliance by almost 70% and had no material adjustments to its financial statements.

Leadership must take ownership and internalise the drive towards clean administration
At the heart of the province's regression in audit outcomes is a clear pattern of slow responses to the audit messages and concerns highlighted by the auditors in the previous year.

In the past few years, AGSA officials have held regular meetings with the Eastern Cape government leaders to highlight matters hampering the province's efforts towards clean administration. Nombembe says despite these focused efforts to help move the province towards clean administration, "it appears that this message has not been taken to heart and that the province once again finds itself with unchanged audit outcomes.

"It's a great concern that although my office had intensified its interactions by meeting with the (provincial) executive at least four times a year, the investment did not yield the required results. Although pockets of tangible impact are evident, progress has been hampered by a lack of commitment to change and the matters dealt with during the interactions not being viewed seriously.

"In addition, the commitments received from the legislature, provincial executive and provincial treasury relating to the previous year's audit results were generally not implemented or were implemented too late to have an impact on the 2011-12 outcomes. Unfortunately, this creates the impression that the province does not ‘walk the talk' when it comes to implementing the commitments required to address its audit outcomes and that the status quo has been accepted as the norm for the province," says Nombembe.

He says for the province to attain a clean and accountable government, the leadership and executive need to take full ownership of the internal control environment of the provincial administration. This can only happen when both the leadership and executive insist on daily disciplines that ensure excellence in financial management, service delivery execution as well as compliance with laws and regulations, thus setting a tone of credibility for all reports of the administration. This also implies a serious investment in appointing skilled staff and implementing performance management systems, with clear and decisive consequences for non-performance.

Oversight structures need to monitor implementation of internal control systems.
The 2010-11 Eastern Cape general report on the PFMA outcomes highlighted that the effectiveness of the Standing Committee on Public Accounts (SCOPA) was hampered by the lack of timeliness of the hearings and the subsequent tabling of resolutions. In response the committee focused on enhancing its effectiveness in the drive towards accountability and good governance. As a result history was made when the committee, for the first time since its inception, started its hearings in the same calendar year as the tabling of the annual reports.

The AGSA is confident that should the committee continue with the standard set during October 2012 and ensure that resolutions are tabled timeously and monitored throughout the year, the committee will not only deliver on its oversight mandate but will also have a direct and positive impact on future audit outcomes.
Internal audit functions, audit committees and oversight committees of the provincial legislature similarly need to ensure that all their activities contribute to the credibility of information that will inform strategic thinking, decision-making and monitoring in the province. To complement these requirements, the Office of the Premier and the provincial treasury must enhance their coordinating and support functions to ensure ongoing capacity-building in the areas of concern. Ongoing elevated cooperation between the provincial public accounts committee and the portfolio committees would improve oversight in dealing with the challenges faced by the provincial administration, Nombembe concluded.

The AG reiterated his office's commitment to assisting auditees, highlighting that following the launch of government's Operation Clean Audit in July 2009, he had introduced regular engagements with municipal, provincial and national political leaders to share his office's assessment of key controls in the areas mentioned above and to identify threats to clean audits. These engagements helped to create greater awareness of matters that require urgent attention to realise clean administration in all spheres of government.

Issued by:
Auditor-General of South Africa
Telephone: (012) 422 9880
Media note:
The complete General Report on the PFMA audit outcomes of the Eastern Cape is available on
About the AGSA:
The AGSA is the country's supreme audit institution. It is the only institution that, by law, has to audit and report on how government is spending taxpayers' money. This has been the focus of the AGSA since its inception in 1911 – the organisation celebrated its 100-year public sector auditing legacy in 2011.



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