On 21 November 2018, the 2017/2018 consolidated national and provincial audit outcomes report was released, which indicated a discouraging fourth consecutive year of regressive compliance with laws and regulations. Fittingly, the long-awaited Public Audit Amendment Act, Act 5 of 2018 (“the Amendment Act”), which substantially amends the Public Audit Act, Act 25 of 2004 (“the Public Audit Act”), had been signed into law by President Cyril Ramaphosa three days earlier, on 18 November 2018. This article explains how the amendments will substantially expand the powers of the Auditor-General and explores what the potential significance of this new law could be for South Africa.
The Amendment Act in comparison to the Public Audit Act
In a nutshell, the Public Audit Act provided the Auditor-General with the authority to establish auditing functions, but the office lacked the necessary power to then enforce the implementation of its recommendations. In comparison, once the amendments come into force, in terms of section 3(1A) of the Amendment Act, the Auditor-General will be able to refer “suspected material irregularities” which arise from an audit to a relevant public body for further investigation. Such public bodies would include the Hawks, the South African Police Service and the Public Protector.
Another significant amendment, as per sections 3(1B) and 4 of the Amendment Act, is that the Auditor-General’s office is under a duty to follow up on whether remedial action recommended in the audit report has been taken. If not, appropriate remedial action to address this failure is required. Where there has been a failure to recover lost funds arising from wasteful and fruitless expenditure, the relevant official or board must be directed to recover the loss from the responsible person. When the official or board fails to do so, in the absence of a satisfactory explanation, the Auditor-General must issue a certificate of debt requiring that official or board to personally pay the amount specified in the certificate to the State.
Why these amendments are a crucial milestone for South Africa
According to the director of the Public Service Accountability Monitor, Jay Kruuse, one of the primary reasons that the Auditor-General’s office had not previously been given the power to enforce its recommendations was due to a universal assumption that State-Owned Enterprises (SOEs) and governmental departments would react to audit reports and any negative findings. However, recommendations made by the Auditor-General to meet acceptable audit norms and standards were simply ignored and/or blatantly disregarded in the past, with non-compliance becoming the norm.
There is a direct impact on South Africa’s already-strained public finances. Over the past 13 years, audit outcomes have steadily declined. The 2017/2018 consolidated national and provincial audit outcomes report indicated that fruitless and wasteful expenditure, or spending in vain due to neglect, poor-decision-making or inefficiencies, increased to R2.5 billion. This was a 200% increase from the previous financial year. Unauthorised expenditure went up to R2.1 billion, of which R1.821 billion was due to overspending on predetermined budgets. This resulted in 82 governmental departments failing to settle their debts by the end of the 2017/2018 financial year. Irregular expenditure increased to an alarming R51 billion, which excludes the R28.4 billion wasted by SOEs. It should be noted that irregular expenditure does not necessarily amount to fraud or wastage, but it does mean that procedures, regulations and laws were not followed and, therefore, further investigation is required.
The Amendment Act is aimed at changing this state of affairs, as now the Auditor-General’s office has the power to ensure accountability in the management of public funds. The Auditor-General, Kimi Makwetu, has stated that the aim of the amendments was to provide his office with the necessary power “to directly impact” on audit outcomes. Of course, although the Amendment Act will now make provision for SOEs and provincial and national governments and their accounting officers to be held accountable for contraventions and non-compliance, a collective effort from parliament and law enforcement will be required to ensure that there is sufficient implementation of the new law.
Up until this point in South Africa’s democratic history, there has been a chronic abuse of public finances by corrupt or incompetent politicians and bureaucrats. The fight against corruption and for governmental compliance in respect of spending policies was largely futile, due to a lack of accountability and consequences for those who transgressed the legislative and regulatory framework and for those who were tasked with overseeing governmental expenditure. It is hoped that national governmental departments, as well as both provincial and local authorities, will now feel pressured to comply with governmental objectives and that these amendments will over time lead to more positive developmental outcomes for South Africa.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)