In 2018-19, the last year of the previous administration, we reported on an overall regression in audit outcomes, with a noted emerging trend of disclaimed opinions returning and clean audits disappearing. We urged provincial leadership and oversight to effectively monitor preventative controls and positively influence a culture of accountability, improving financial governance and reducing irregular expenditure. Over the term of the administration, we have noted a stagnation in the audit outcomes mainly due to a slow response and lack of effective monitoring and accountability. We urge leadership and oversight to further promote accountability at the right level to strengthen the province so as to better serve its citizens. We continue to encourage leadership to create a tone at the top that shifts the culture towards a preventative and proactive response.

Overview

Notably, the provincial premier’s office, legislature, treasury and cooperative governance and traditional affairs department continued to lead by example by embedding a culture of good governance practices and effective control environments to sustain their clean audit outcomes over the term of the administration. However, we remain concerned about the provincial roads and transport and human settlements departments, as key service delivery departments that received negative audit outcomes primarily because of a lack of proper record keeping and senior management reviews of the financial and performance reports submitted for auditing that should form part of the basic control disciplines in financial and performance reporting.

We find it encouraging that 65% of the financial statements submitted for auditing were free from material misstatements, compared to 48% in 2018-19. This improvement can mainly be attributed to improved review and monitoring processes and controls implemented by management and governance structures. However, we remain concerned about the diligence in dealing with findings relating to supply chain management and performance reporting, which then results in the stagnation in the overall audit outcomes. The accounting officers have to drive a culture that further embeds good financial reporting disciplines that will enable good decision making, transparency and accountability.

Performance planning and reporting aim to achieve the objectives of the Medium-Term Strategic Framework, but unreliable performance reporting is adding to the challenge of poor service delivery. Five departments and one public entity (27% of auditees) continued to struggle with performance management and reporting, as can be seen from the material findings we identified, such as reported indicators not agreeing to supporting evidence. This has remained unchanged over the past three years because accounting officers and senior management have been slow to implement action plans and effectively address significant internal control deficiencies. The lack of reliable performance reporting hinders the accounting officers’ ability to make informed decisions about resources to deliver the required services to people in the province. Although auditees set planned indicators and targets to improve the lives of citizens, with approved budgets allocated for this purpose, some of the key service delivery departments did not achieve these targets despite spending most of the allocated budgets. This shows that there is misalignment between budget spending and actual service delivery, as well as budget inefficiencies. In particular, the provincial health department shifted funds intended for goods and services to pay medical negligence and malpractice claims, which reduced the amount of money it had available to treat patients.

Notably, the strategic plans and annual performance plans of all of the key service delivery departments in the province were aligned to the approved Medium-Term Strategic Framework, except for the human settlements and education departments, which did not include some of the Medium-Term Strategic Framework output indicators in their annual performance plans. However, this alignment did not always result in services being delivered. The provincial health department spent more than 90% of its budget for the district health services programme but its overall achievement on planned performance targets was below 50%. This had a negative effect on the people in the province because the department struggled to provide quality public health services, as can be seen from long queues at healthcare facilities, inadequate infrastructure, insufficient equipment and a number of security incidents. Insufficient storage space and storage practices of medical records also remained a challenge. The department should consider improving the maintenance of health infrastructure, filling vacancies at health institutions and improving the related safety conditions to ensure that citizens of the province have access to quality public health services.

The provincial human settlements department is another example of where the planned performance targets set were not always achieved while budget allocations were spent, as evident with the human settlements development grant. Despite the department progressing with the Gauteng Spatial Master Plan, the province continued to face an increasing housing backlog and demand. We urge the department to continue to monitor the implementation protocols between the various stakeholders so that it can fast-track service delivery to address the backlog in housing and have a positive impact on citizens.

Encouragingly, the provincial education department has demonstrated good practice in delivering quality education services by planning performance indicators and targets intended for positive impact, and achieving most of the targets set. However, during infrastructure project visits, we noted that some projects did not attain contractual completion and the department did not impose penalties on contractors at the correct values. Delays in building projects were also still evident, which further contributed to the overall challenge of overcrowding in schools.

The provincial infrastructure development department acts as a procurement agent for the province’s infrastructure needs. However, we were concerned to note that the related performance targets were not achieved, which resulted in infrastructure projects being significantly delayed, particularly on education and healthcare projects, due to delays by both suppliers and service departments. This caused service delivery delays, which contribute to the challenges faced by the health and education sectors.

The provincial economic development department is positioned to ensure that unemployment is reduced, jobs are created, economic growth is attained and investment in the province is increased. However, the department achieved less than 50% of its key performance indicators. Because the targets for capital infrastructure projects were not achieved, jobs were not created and fewer local contractors benefitted from small business development than the planned targets. The slow implementation of plans and lack of adequate job creation had a negative impact on citizens in the province, as unemployment remains high.

The province has kept its financial health viable by continuing to reflect good principles and disciplines of effective budgeting and spending, with 65% of auditees (representing 55% of the province’s allocated budget) maintaining good financial health, although this is down from 70% in 2018-19. The financial health of the provincial health department remains strained due to the settlement of legacy accruals and an increasing accrual-adjusted deficit of R8,13 billion. Legal claims continue to pose a risk to the department’s financial sustainability, with increasing contingent liabilities arising from medical negligence and malpractice claims. Due to poor management of medical records, the department is often unable to defend itself in cases, which leads to cases being settled and unbudgeted expenditure being incurred.

Although irregular expenditure incurred in the province decreased from R9,73 billion in the previous year to R7,03 billion, the province continued to struggle with non-compliance with supply chain management regulations. We call on provincial leadership to focus on preventing such irregular expenditure rather than detecting it. Identified instances of non-compliance should also be investigated swiftly to ensure that the closing balance of irregular expenditure, which amounts to R41,09 billion, is dealt with through consequence management and condonation processes.

Since we began implementing our expanded powers, we have issued 10 material irregularities linked to non-compliance. Eight of the material irregularities, with an estimated financial loss of R793 million, have not been fully resolved. We have begun to see the impact of the material irregularity process, as most accounting officers responsible for these material irregularities are in the process of implementing corrective steps, taking disciplinary action against officials who were found to be responsible, and are busy recovering the financial losses. The provincial leadership has since referred some of these matters to the Special Investigating Unit and subsequently to the Competition Commission. One material irregularity at the provincial human settlements department relating to the excessive rental period of temporary residential units has been fully resolved. The department cancelled the leasing contract and bought temporary residential units, thereby preventing further financial losses.

We find it encouraging that the provincial premier’s office, legislature, treasury and cooperative governance and traditional affairs department sustained their good audit outcomes and had limited irregular expenditure. This serves as a good example for setting the correct culture. Although these departments had plans and processes in place to implement their mandate, the initiatives and interventions they implemented can be further strengthened to improve audit outcomes and the impact on service delivery for the province as a whole, and to have a greater impact on local government. The agreed-upon service level agreements between the premier and the members of the executive council also create an opportunity for the premier to monitor and track the performance of each member and hold them accountable.

Call to action

Although provincial leadership should continue to respond to our call for action by implementing preventative controls for producing quality financial reporting, we remain concerned about the area of supply chain management and performance reporting. In response, the premier’s office has established both a war room, with a key focus area being on improving audit outcomes, and an integrity unit to address irregularities and corruption, focusing on accountability and transparency. Accounting officers should promote an effective monitoring and accountability culture that will ensure senior management is consistent in implementing the basics in financial and performance reporting and compliance monitoring. Oversight, executive authorities and governance structures need to direct accountability at the right level for timely implementation of audit action plans, timely service delivery, effective consequence management and improved reporting, to ultimately strengthen the province’s ability to better serve its people.