Our message in the previous general report focused on accountability, leadership responsiveness to internal and external audit findings, and strengthening controls around preventing and detecting irregular expenditure. We urged provincial and administrative leadership to focus on those auditees that received qualified audit opinions and on the key service delivery departments to ensure that a culture of consequence management is embedded, and we recommended that best practices be extracted and replicated throughout to ensure improved audit outcomes and better service delivery.

Overview

The highlights of 2021-22 were the provincial sport, arts and culture department achieving its first clean audit and the premier’s office, provincial treasury and provincial social development department all maintaining their clean audit status. The provincial transport, safety and liaison department managed to improve from a qualified to an unqualified audit opinion with findings. Over the term of the administration, the number of auditees receiving clean audits improved from two in 2019-20 to four in 2021-22, while the provincial education and economic development and tourism departments managed to improve from qualified to unqualified audit opinions.

The operation clean audit committee established by the premier focused on improving audit outcomes. The provincial treasury provided support to selected departments by assisting with the development of audit action plans and attending audit steering meetings. These initiatives are commendable and should be continued, but with increased focus by oversight structures on service delivery matters.

While most key service delivery departments (education; roads and public works; and cooperative governance, human settlements and traditional affairs) remained unqualified with findings in the area of compliance, the state of the provincial health department remains a key concern. There was no consequence management at the department because of a lack of a clear and consistent tone from the top, combined with instability in key positions. The accounting officer’s position was vacant for more than two years and senior management positions (all at chief director level) were vacant during 2021-22, resulting in a lack of accountability and proper segregation of duties.

The quality of financial statements remained concerning, as only half of the departments could submit quality financial statements, while a third obtained an unqualified opinion only by correcting all the material misstatements we identified during our audit. This confirms that leadership continued to be reactive, placed too much reliance on the audit process (which is neither prudent nor sustainable), and had not yet instilled a culture of financial discipline (including reconciliations and key controls) and accountability at all departments. Going forward, accounting officers should strengthen the internal control environment around reliable financial reporting and prepare interim financial statements.

Although departments’ published annual performance reports showed improvement, this did not necessarily translate into improved service delivery and increased quality of life for the people in the province. Most departments got record keeping and reporting right, but the service delivery departments underachieved their targets by 27% on average and underspent their budgets by 5% on average, raising questions about their ability to properly manage budgets and projects. Furthermore, the four key service delivery departments included only 48% of the Medium-Term Strategic Framework indicators in their annual performance plans, meaning that most of these core indicators were not measured. The provincial education department included only 16% of the framework’s indicators in its annual performance plan, raising doubt about the completeness of its performance plan. In addition, some departments did not compile key performance indicators in a manner that measured the actual impact, but instead focused on secondary or administrative tasks (such as the number of meetings held or reports issued) rather than on basic service delivery results. Departments focused on the inputs that were mostly within their control, rather than on the eventual outcomes that are more difficult to achieve, less predictable, and require good leadership and oversight.

Adequate and well-maintained infrastructure assets are key to delivering quality services to the province’s people. Yet, during our site visits to key service delivery departments, we observed project delays, poor-quality work, weak project management, and the non-delivery of infrastructure already paid for. For example, construction of the Boegoeberg Clinic near Groblershoop started in September 2017 with an estimated project duration of 12 months and a budgeted project cost of R26,20 million. By April 2022, work on the project was still continuing, with R18,83 million already having been spent. This meant that the community still did not have access to primary healthcare services. The delays were caused by a hold-up in processing payments to the contractor, the department not providing the contractor with the correct set of drawings, a lack of a construction programme of works on site, electrical works such as lights not being installed according to the design, and paved areas sloping towards the clinic with a resultant risk of flooding. Consequences need to follow where projects are delayed to avoid potential overspending and losses due to interest on late payments to contractors.

We also visited the construction site of 458 community residential units in Lerato Park, Kimberley. This contract was originally awarded in 2014, but when the owner of the contracting company passed away in 2017, the project was abandoned for two years while the company went through liquidation, which had to be concluded before the department could take back the site. During this period, the partly built units deteriorated due to theft, vandalism and weathering because the site was not adequately protected. A second contractor, appointed in 2019, identified that the original contractor had done substandard work, resulting in major structural defects, vertical joints that had not been prepared for sealer, and various cracks in the plaster of inside and outside walls.

We notified the accounting officer of the provincial cooperative governance, human settlements and traditional affairs department of a material irregularity arising from losses identified on the Lerato Park project because of poor workmanship, amounting to R26,56 million. Although the department had controls in place to ensure that officials signed off on the quality of work before payment was made, the supplier was paid even though there were indications of poor workmanship, pointing to project managers not carrying out their duties with due diligence. The accounting officer needs to investigate the matter and take appropriate remedial action.

Delays in project completion due to appointing contractors that did not have the required skills, poor planning and a lack of project management also resulted in increased project-related costs, eroding the financial health of departments. Although the overall financial health status of the province improved, some departments continued to inadequately manage their cash flow. One such department is health, which faced financial sustainability issues largely arising from spending pressures due to service delivery demands and budget constraints, which could make it difficult for the department to meet its foreseeable payment and service delivery obligations. The department owed suppliers R397,23 million at year-end, which represented 17% of its budget for the following year (excluding transfers and subsidies as well as compensation of employees). This situation was made even worse by medical negligence and malpractice claims against the department, which totalled R1,56 billion in 2021-22. The department’s leadership, together with the operation clean audit committee, should undertake a diligent risk assessment of such claims lodged and paid out, and formulate preventative controls using medical, legal and financial expertise to reduce avoidable losses.

The province’s compliance with legislation improved over the term of the administration, with fewer supply chain management findings, but deficiencies in procurement processes persisted, including a lack of required quotation or tender processes, proper contract extension processes, and valid contracts. As a result, irregular expenditure incurred increased over the term of the administration, from R1,43 billion in 2019-20 to R1,63 billion in 2021-22. The 2021-22 amount might be even higher because the provincial health department was qualified on the completeness of its irregular expenditure disclosure.

Accounting officers were still reactive when it came to the material irregularities we issued. We therefore urge political leadership and provincial oversight to become more involved in ensuring that these matters receive urgent attention to strengthen the integrity of public institutions, recover and prevent losses, implement consequences for misconduct, and drive a change in behaviour to prevent similar matters from recurring. Since 2018-19, we have notified accounting officers of 12 material irregularities, two of which have been closed as the accounting officers took appropriate action (including performing internal investigations; consulting with the State Attorney; and referring the matter for specialist investigation, recovery and possible litigation). Two of the remaining 10 material irregularities were reported in the 2019-20 general report and eight were issued in 2021-22. These material irregularities have a combined estimated financial loss of R88,17 million and relate to payments for goods and services not received, payments not made or not made in time resulting in interest, payments for substandard work, and non-compliance in procurement processes resulting in the overpricing of goods and services. In two instances, the accounting officer did not take appropriate action and we are busy assessing the way forward.

The coordinating departments in the province continued to lead by example, with the premier’s office and provincial treasury obtaining clean audits and the provincial legislature and provincial cooperative governance, human settlements and traditional affairs department receiving financially unqualified audit opinions with no findings on performance information. The achieved performance reported by these departments against their mandates largely related to administrative targets. If departments are to drive real change and accountability, indicators should rather focus on outcomes. The fact that a quarter of departments corrected the material misstatements we identified in their annual performance reports to avoid material findings, highlights the fact that the premier’s office still needs to do more to ensure proper oversight by improving its monitoring and evaluation in this key area.

The provincial legislature did not assist departments by tracking the implementation of resolutions or creating capacity to support the portfolio committees and public accounts committee. The provincial cooperative governance, human settlements and traditional affairs department did not achieve targets linked to supporting municipalities to maintain functional municipal public accounts committees, which might compromise municipalities’ ability to appropriately deal with unauthorised, irregular, and fruitless and wasteful expenditure.

In the previous year, provincial oversight and the speaker committed to achieving clean audits at 10 municipalities, ensuring that financial statements were submitted on time and working closely with us to ensure that audit recommendations were implemented. These commitments are either still in progress or have not yet started. We therefore encourage these roleplayers in the accountability ecosystem to ensure that mechanisms are put in place to properly track the progress on commitments and respond swiftly to any shortcomings.

Call to action

Although the province has showed an overall improvement over the past four years, we cannot overlook the concerns highlighted above, which reaffirm the need for an enhanced culture of accountability for the improvement of people’s lives. The province should continue to improve its audit outcomes, but with greater accountability and discipline in managing public funds. Provincial leadership should focus its efforts on instilling a culture of financial and performance reporting disciplines and corrective measures, and on insisting on preventative controls. This should translate into improved control environments, consistently improved audit outcomes, and proper service delivery to the people of the province.