In our previous general report, we urged provincial leadership to instil a greater sense of urgency when it comes to improving the audit outcomes of the three departments that received qualified audit opinions and for those that had stagnated on unqualified opinions with findings. Leadership committed to improve audit outcomes and accountability and there has been some progress in responding to our message. Four auditees improved to clean audit opinions and there were no regressions.

As a result, the current term of administration has seen a continuous increase in the number of clean audits. Currently, there are 11 clean audits (52%), which is the highest number of clean audits in the history of the province.

Overview

The provincial legislature; provincial departments of rural development and agrarian reform, and of economic development, environmental affairs and tourism; and the Eastern Cape Government Fleet Management Services improved to clean audits by addressing findings on material compliance with legislation and performance reporting. The common trend at auditees that obtained or sustained a clean audit was:

• a strong leadership tone at the top
• prompt improvement of controls where weaknesses were identified
• timeous implementation and monitoring of audit action plans and prior year recommendations
• commitment to ensuring that critical positions are filled promptly
• audit committee follow-up on internal audit findings.

Two of the public entities in the province – Coega and the East London Industrial Development Zone – maintained their clean audits and exceeded their targets for the number of new investors, signing a combined 19 new investors with an investment value of over R1,5 billion. The provincial rural development and agricultural reform department also spent 99,7% of its budget and achieved 85% of its planned targets relating to agricultural producer support and development, assisting with drought-relief initiatives that included providing boreholes to farmers, and supporting red meat and citrus farmers. However, some departments did not deliver on all of their performance targets, which put the province at risk of falling behind on its plans to meet the objectives of the Medium-Term Strategic Framework.

The provincial education department had substantial misstatements and omissions in the financial statements it submitted for auditing. The department’s finance unit had a high vacancy rate (48%), but positions could not be filled because of budgetary restrictions. The department also had material misstatements in its submitted performance information and could not submit supporting evidence for some of the information reported in its annual performance report. The right to quality education includes access to textbooks and a safe and adequate learning environment, but this is not the reality for many learners in the province, and in 2021-22 the department achieved only 15% of its planned targets relating to public ordinary school education. In its annual performance report, the department reported that 22% of schools did not receive learner material for mathematics and languages, and this percentage could be even higher, as it could not provide evidence for most of the schools reported as having received the material. The department was also slow to finalise the construction and upgrading of schools as most of its infrastructure projects were still in progress at year-end, with some projects having been cancelled or halted because contractors suspended work due to non-payment. This slow progress resulted in the National Treasury stopping education infrastructure grant funding of R205,1 million to the Eastern Cape Department of Education, and reallocating the money to the KwaZulu-Natal Department of Education. We also notified the accounting officer of a material irregularity resulting from an extension-of-time claim made by a contractor due to late payment.

We again reported findings on financial and performance reporting as well as non-compliance with legislation at the provincial health department due to the department’s reliance on manual record keeping. This resulted in the department receiving a qualified opinion because it could not provide evidence to support what was reported in the annual performance report. The department was also unable to offer a defence against increasing medical negligence and malpractice claims due to a lack of records. This contributed to the department‘s dismal record when it comes to defending against such claims, with 75% of cases leading to judgments against the department. The department’s budget was significantly reduced even before the start of the financial year because of these claims and commitments on other projects. At the beginning of 2021-22, only R6 billion of its R28 billion allocated budget was uncommitted and thus available for service delivery. These financial challenges directly resulted in the poor state of the primary healthcare system, as there were inadequate funds for building and maintaining healthcare facilities and providing adequate staff and medical supplies. The department reported, for instance, that only 178 of its 775 clinics (23%) met the ideal clinic standard.

The provincial transport department received a qualified opinion because of overpayments to scholar transport service providers based on inaccurate data for the distances claimed due to inadequate monitoring controls. Transportation is a key enabler for economic growth, and the province’s inability to maintain and improve its road networks is a serious problem that will hinder efforts to stimulate the economy, reduce spatial disparities and promote rural development. The department achieved only 50% of its planned targets relating to transport infrastructure despite spending 100% of its approved budget. The disproportionate relationship between programme expenditure and performance (with services being budgeted for and budgets being spent but services not being delivered) is a cause for concern and affects the daily lives of people in the province. There were significant delays in certain road infrastructure projects due to poor performance by contractors. For instance, one contractor abandoned a project due to financial challenges and went into business rescue because of a lack of technical and financial capacity to carry out the project. An overpayment to another contractor for work not done on upgrading a road resulted in us notifying the accounting officer of a material irregularity in this regard.

The provincial human settlements department had a capital budget of R2,2 billion and transferred R870 million (40%) of this amount to implementing agents to fast-track service delivery. The department had planned to upgrade 115 informal settlements, but due to inadequate planning and coordination between the implementing agents, affected municipalities and the department, it reported zero upgrades at year-end.

The premier’s office started its broadband project in 2019 and the plan at inception was to have 2 700 active sites by March 2021, with the contract being structured so that the province would pay monthly rental fees per active site for access to broadband services until 2029. However, only 258 sites were indicated as active and being paid for at year-end due to project delays. New milestones have now been defined and all sites are projected to be active by June 2024. These delays slow down the goal of having a connected province in which all the people in the province are connected to each other and to services and opportunities via broadband internet.

The province’s irregular expenditure incurred decreased from R3,03 billion in the previous year to R1,35 billion in 2021-22, largely because of the provincial transport department’s prior period adjustment of R2,1 billion in the previous year due to non-compliance in procuring bus services. This department was the highest contributor to irregular expenditure in 2021-22 at R415,4 million, mainly due to an ongoing bus contract awarded irregularly in prior years. Most (79%) of the irregular expenditure in 2021-22 related to non-compliance with the supply chain management requirements of competitiveness and transparency. The irregular expenditure closing balance increased from R6,5 billion in the previous year to R7,5 billion in 2021-22. Investigations into irregular expenditure also took longer to conclude, which affected accountability processes – an issue that we have repeatedly highlighted over the last few years.

Since we began implementing the material irregularity process in 2018-19, we have notified accounting officers and authorities of 17 material irregularities in provincial government with an estimated financial loss totalling R167 million. These material irregularities include payments for goods not received, non-compliance with procurement processes leading to incorrect suppliers being appointed, interest and standing-time payments due to late payments, and suspected fraud. The material irregularity process has resulted in accounting officers and authorities taking action against wrongdoing by applying to the court to set aside contracts incorrectly awarded, taking disciplinary action against responsible officials, and laying criminal charges against employees suspected of fraud and who approved payments when goods were not received. In most cases, accounting officers and authorities took action to address the root causes and limit further losses. Where this did not happen, we did not shy away from using our expanded powers by, for example, including a recommendation in the audit report of the provincial health department because the accounting officer did not adequately address a material irregularity arising from late payments to a supplier.

The provincial treasury and cooperative governance and traditional affairs department implemented initiatives to improve municipalities’ audit outcomes, but these did not yield the desired results because municipalities did not implement the recommendations. The challenges faced included resistance at certain municipalities or unwillingness to implement corrective action. Some municipalities even took legal action against the department. The performance indicators for the treasury and the department were mostly based on activity rather than service delivery output, which raised questions as to how the actual implementation of initiatives reported on in the annual performance reports would positively affect the lives of the people in the province.

Call to action

To sustain and further improve audit outcomes and make progress in delivering on the objectives of the Medium-Term Strategic Framework, all roleplayers must first and foremost have service delivery in mind when performing their daily activities. Leakages from the fiscus must be prevented to ensure that funds are available to deliver on the priorities of the province, with adequate planning and implementation of provincial service delivery objectives. We encourage provincial leadership to focus on monitoring preventative controls, ensuring that transgressions are addressed through timely investigations and consequence management, and filling vacant critical posts. Accounting officers and senior management must carry out their duties as prescribed by legislation, and members of the executive council and audit committees must play their oversight role to ensure that administrative leadership is held accountable. The audit outcomes of the three departments that received qualified audit opinions need to be urgently improved.