‘Material irregularities’ threat ruffles feathers

Early in November a sealed envelope was pushed under the door of the office used by the auditor-general’s team in Nelson Mandela Bay.

The team was auditing the metro’s financials for the 2018/ 2019 financial year, which ended in June. The envelope contained newspaper clippings, which the audit team took as a death threat. Its members were withdrawn from the metro.

While audit teams have been threatened before, the Nelson Mandela Bay threat was the first that had a direct link to the new concept of “material irregularities” in the amended Public Audit Act, says Alice Muller, acting national leader of audit at the office of the auditor-general.

The amended act gives the auditor-general powers to make binding remedial actions, and, in a worst-case scenario, issue a certificate of debt against the accounting officer of the municipality or the department in question, which will hit municipal officials in their pockets if they do not do their job.

About two weeks ago Kimi Makwetu, the auditor-general who has on many occasions expressed his frustration at the lack of accountability at municipalities and government departments, released the consolidated general report on national and provincial audit outcomes, conducted under the Public Finance Management Act.

For the first time since the office got its new teeth, the concept of material irregularities was introduced as part of the audit. These measure the financial loss, misuse or loss of a material public resource or substantial harm to a public sector institution or the public.

This is a game changer, as the loss is now identified and the reasons for it are detailed. It does not just fall into the gross figure of irregular expenditure, in which numbers carry shock value, but not the reasons.

The past audit identified 16 national and provincial departments for the implementation of the material irregularity process. Of these, SAA, the department of co-operative governance & traditional affairs, the North West department of community safety & transport management, and the Water Trading Entity still had audits outstanding, which means the material irregularities could not be identified.

Four of the audited departments did not have any material irregularities identified, while 28 were identified at the rest. The human settlements department in the Free State and the Passenger Rail Agency of SA were the biggest culprits.

The Free State human settlements department made payments on duplicate claims submitted for different housing projects, while the health department in the Northern Cape paid for mammogram services, even though the hospital where the services were rendered did not have a mammogram machine.

These are just two examples of what contributed to the financial loss of the material irregularities for the financial year of R2.81bn (R2.51bn was known and R0.3bn was estimated).

In the phased-in approach to implementing the material irregularities process nine municipalities will be held up for scrutiny, said Marissa Bezuidenhout, head of legal in the office of the auditor-general.

In Nelson Mandela Bay, the team was withdrawn. Tshwane is up for scrutiny in Gauteng, while eThekwini will be audited in KwaZulu-Natal and Cape Town in the Western Cape.

The next audit will see 89 national and provincial departments and entities audited for material irregularities.

Muller says the process is being phased to build capacity and to engage public bodies and stakeholders, as there was “a lot of anxiety from accounting officers when we started”.

“A year ago our accounting officers were up in arms. We had to walk them through it and say we are not going to give you one opportunity, but multiple opportunities to respond,” Muller said.

Memorandums of understanding have been signed with the public protector, the Special Investigating Unit, the Competition Commission and the Public Service Commission, while a consolidated one is being negotiated with the National Prosecuting Authority and the Hawks.

The aim is to drive accountability, Muller said.

THE PROCESS IS BEING PHASED AS THERE WAS A LOT OF ANXIETY FROM ACCOUNTING OFFICERS WHEN WE STARTED