Irregular govt spend balloons to over R46bn | Fin24
 
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Irregular govt spend balloons to over R46bn

Nov 16 2016 18:50
Lameez Omarjee

Cape Town – Irregular expenditure has soared to R46.4bn in the past three years, according to audit results of the national and provincial departments and their entities.

The results were released by Auditor General (AG) Kimi Makwetu, who was speaking at the Imbizo Centre at Parliament on Wednesday.

Since the 2013/14 period, irregular expenditure has gone up nearly 40%. Irregular expenditure increased by nearly 80% from the previous year, 2014/15.

According to the report, the main reason for the increase is non-compliance with supply chain management rules.

“Supply chain has historically been an area of vulnerability when it comes to compliance,” said Makwetu.

Departments remain non-compliant with procurement processes for goods and services, set out by the constitution, and this results in irregular expenditure, he explained.

Deviations from these processes are as a result of “emergencies” to source a particular good or service, explained Makwetu.

Irregular expenditure is also incurred because of sole supplier arrangements, where entities only buy from a single supplier and goods are then obtained at non-competitive prices.  

Irregular expenditure is further incurred through the extension of existing contracts. Where the principal amount of a contract is at R100m, for example the extensions of the contract could end up running into billions, he explained.  

The audit results also found that 89% of the R42.4bn of irregular expenditure arising from procurement is related to goods and services received.

“Irregular expenditure is not simply arising because goods and services are not received. It is a litany of these things that create doubt whether you paid sufficiently or competitively for goods and services you paid.”

When it comes to paying competitive prices for goods and services, Makwetu said there is a potential conflict of interest. He explained that there is not enough “advertising” to ensure goods and services can be obtained from competitors who charge less.

“Potential savings can be made if compliance of regulations is put on the table,” he said.

There is a question about whether the environment is not conducive for compliance or if it is a “deliberate attempt” to avoid compliance and not to implement the correct processes in supply chain management.

“Irregular expenditure gets condoned by those charged with oversight,” he said.

If it is found there was potential abuse of irregular expenditure, it should be handed over law enforcement agencies to attach responsibility to them, he added. In cases where investigations do commence, they do not reach fruition.

Bulk of irregular expenditure

Six auditees were responsible for just more than 50% of the irregular expenditure in 2015/16, according to the report.

These include the Passenger Rail Agency of South Africa (Prasa), the KwaZulu-Natal and Mpumalanga departments of Health, the Road and Transport and Human Settlements departments in Gauteng and the Department of Water and Sanitation.  

Previously, Fin24 reported that Prasa incurred over R14bn in irregular expenditure over a number of years, according to the 2015/16 annual report for state-owned enterprises. In the 2015/16 financial year alone, irregular expenditure came to R4.1bn, with an additional R9bn relating to previous years

READ: Prasa wastes billions in irregular spending

Fruitless and wasteful expenditure in 2015/2016 was 14% higher than in 2013/2014 at R1.37bn. This is mainly because of “inefficiencies” in financial management.

“Fruitless and wasteful means there is no value received on the back of expenditure made,” he said.

He explained that this is a result of a “lack of rigour” to ensure financial plans are adhered to.

Six auditees were responsible for just over 70% of this expenditure. This includes Prasa and the Department of Water and Sanitation. Prasa’s fruitless and wasteful expenditure amounted to R255.3m in the year under review.

Across all provinces, fruitless and wasteful expenditure by the Department of Water and Sanitation came to R59.1m.

Unauthorised expenditure has dropped by just over 50% since 2013/2014 to R925m. This is as a result of interventions at national and provincial levels.

“It is encouraging to see that it is declining,” he said. The main reason for the unauthorised expenditure remained overspending of the budget.

Financial health

More than three-quarters (76%) of departments and 39% of public entities’ financial health was rated as “concerning” or “requiring intervention”. Departments regressed from 53% in 2014/15.

In total, 5% of departments and 10% of public entities were in a “particularly poor” financial position by the end of 2015/16. There is uncertainty regarding their ability to continue operating in the foreseeable future.

Overall audit outcomes only improved “slightly” over the past three years. The report shows that 14% of auditees regressed. Only 24% of auditees improved and 62% remained unchanged.

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