ROT FROM THE TOP
Departing auditor-general’s assessment
● When he’s not crunching the numbers, auditor-general Kimi Makwetu spends hours watching his two sons play cricket.
His first born, Wandile, 20, is a decorated youngster who has flown the South African flag high. Part of the U19 team that represented SA at the World Cup in New Zealand, he also captained the U19 squad on a tour of England.
The doting parents do everything possible not to miss a game when their sons are in action, and they are always bowled over.
“What my wife and I do is bring some rose petals that we drop on the side of the field just to keep them encouraged. We drop a petal and say, ‘Just make those runs and take those wickets’. When you are around the field, when they make that six, they know there’s somebody who is happy and cheering them.”
Makwetu has had a good innings counting beans in the public sector — 11 years not out.
He has overseen an institution that has grown exponentially since he joined as deputy auditor-general; having worked for Standard Bank, Liberty Life and Metropolitan Life before diverting to the public service.
A trainee auditor scheme that was introduced before he joined has graduated 1,000 chartered accountants, of which 650 are operational across all business units of the auditor-general’s office.
But that is where the good news ends.
The past 10 years have not been easy for the public finance watchdog as poor political leadership has been reflected in the handling of the public purse by those entrusted with it. Lax financial controls, caused by a lack of proper political oversight and accountability, have seen irregular and fruitless expenditure shoot through the roof.
Makwetu, who was given the nod by then president Jacob Zuma in 2013 to succeed Terrence Nombembe, is about to declare all out on his own term. But keeping watch over such profligacy has left him utterly frustrated.
“We can come in with our suggestions that you must have a checklist of all your bank and account balances in your books; but if that is not the message that the people in the administration are getting from their principals, even our own suggestions will not go far.”
He puts the blame squarely on political leadership that looked the other way as the rot deepened and state institutions were weakened.
“If one looks at what has happened over the period, it’s a period where the strong tone at the top geared towards supporting the development of strong institutions has been absent and I think that’s the biggest contributor to all of this. There wasn’t somebody at the top [keeping watch]; there were some, but maybe they were overwhelmed by those that did not share the vision.”
This lack of political leadership has created a muddied environment where those in charge of overseeing the public purse — accounting officers — neglected their fiduciary duties and got away with it due to a lack of consequences.
“It’s a combination of all the undesirable weaknesses, starting from a lack of a strong tone from the top that directs that certain things are going to be done in accordance with the law, and if the law is not observed there will be visible and immediate consequences; and that you entrust the assets of the state, as well as the income of the state, to people who are trained to carry out the task. That is the chain that is desirable in order to have a proper system of governance and accountability,” he sighs.
But this testing period is about to end, thanks to a crucial change in the law.
An amendment to the Public Audit Act, which has been signed into law, will give the auditor-general more teeth, allowing the public finance watchdog to hold directorsgeneral, heads of provincial departments, municipal managers and CEOs of public entities personally liable for irregular expenditure which cannot be explained away.
Finally, the auditor-general has an ace up his sleeve that gives him the upper hand.
State officials in charge of public monies have ignored counsel from his office for years, knowing that whatever recommendations the office made about reducing wastage were not binding on them.
Until the amendments come into effect next month, the auditor-general had bark but no bite.
Makwetu’s office has tracked irregular expenditure across national, provincial and local government over a number of years. Irregular expenditure at national and provincial government level shot up from R11bn in the 2008/09 financial year to R50bn in 2017/18.
It also increased exponentially at local government level, from R3.2bn in the 2008/09 financial year to R21bn in 2017/18. It peaked at R27bn in 2016/17.
But some successes have been recorded in the area of audit outcomes. Unqualified audits with no findings have gone up from 10% in 2008/09 to 17% in the 2017/18 financial year. Disclaimers and adverse findings have also decreased three-fold during the period observed, and outstanding audits are also down.
What the new amendments do is strengthen the auditor-general’s hand, giving the office ammunition to go after serial wrongdoers. Where a case of irregular expenditure cannot be backed up by documentation or a credible explanation, the auditor-general can refer it to law enforcement agencies for further investigation.
“You then hand it over to the entity that will investigate; it could be the Hawks, it could be the public protector, it could be Sars, it could be the Public Service Commission … any one of those. You say: ‘Here is the risk that we have identified in the audit, which has got all the elements of material irregularity. Will you get to the bottom of that?’ We have got the power to do that.”
If the irregular expenditure identified during the audit is not addressed after repeated engagements with the administration concerned, the auditor-general can issue a certificate of debt, holding the accounting officer personally liable for this irregular expenditure.
“The amendments to the Public Audit Act, if you look at them, are trying to say we will develop a mechanism through the audit process which puts you in a position where you must do what the law requires you to do as the accounting officer. If you fail to implement our recommendations, then it becomes a binding remedial action. You shall do it.”
Is it fair, though, to hold accounting officers personally liable for irregular expenditure when instructions that flout the Public Finance Management Act (PFMA) are often issued by political principals who have the power to end the careers of senior officials that do not comply?
Makwetu is adamant that in terms of the PFMA, the buck stops with the accounting officer. He concedes that political pressure does sometimes play a role in influencing senior officials to flout the law, but urges them to stand firm. To deal with undue influence, he suggests that the country revisit the National Development Plan, specifically Chapter 13, which proposed ending political meddling in the appointment of accounting officers in order to professionalise the public service.
But it’s not the job of auditors to fix the public service, he quickly points out.
“At the highest level in the executive you have a programme that is unfolding that is addressing matters like these. They have to assume the responsibility to fix that part of it as well; it cannot be fixed by the audit. It’s definitely an issue, but the audit cannot cater for that. These amendments wouldn’t cater for how you reorientate the public service.”
Asked to pick a department, province, municipality or entity he has observed turning things around through prudent financial management and increased oversight, Makwetu points to the Western Cape. That province has had a good run, audit wise, over the past six years or so.
He attributes this success to the provincial leadership taking charge and setting up a province-wide intervention to help especially struggling municipalities manage their finances better. The quarterly intervention, led by premier Helen Zille, comprises MECs, heads of departments, mayors and municipal managers. The auditor-general’s office is also invited to these gatherings to assist with the assessment of municipalities and corroborating financial statements.
“If you look at that province over a 10-year period you will see how it shifts to the positive over time.”
But the audit profession itself has been on trial. KPMG, once a reputable auditing firm, has found itself in the eye of the state capture storm and was also complicit in the rot at VBS Mutual Bank.
So, who polices the police?
Although the integrity of the public audit system has not been in question during this period, Makwetu concedes that scandals that have plagued some of the private auditing firms run the risk of tainting the entire profession. Some of the private auditing firms have battled to maintain a strict balance between their responsibilities as independent auditors of corporate clients on the one hand, and their need to seek lucrative advisory and consulting work on the other; sometimes from the very same clients they audit.
It’s just not cricket!
“Firms like those will always be in trouble. The issue for me is, how do you bring back the balance between the statutory audit obligations, versus the ever-growing pie of consulting work?”
He suggests that audit regulators keep a closer watch for such conflicts of interest and proposes that private audit clients be forced to rotate audit firms and teams regularly to guard against familiarity, which often breeds complacency and encourages collusion.
But he doesn’t doubt the integrity of the office he leads. “If you look at our role; our orientation in our audit approach is to service the public interest. There’s no fee earning, there’s no need for us go and put a bid for an entity to audit it. The constitution already gives us the right to audit anything that is publicly funded.”
Makwetu plays a straight bat when asked about his plans upon leaving office.
“The future is yet to come. I will deal with that question after I have notified the next parliament of the pending vacancy.”
As he prepares to step off the field, the successful runs will count more than the mishits when assessing his career as chief public finance watchdog. On this score, Makwetu has had a good innings on a sticky wicket.
It’s a combination of all undesirable weaknesses, starting from a lack of a strong tone from the top