Overall, audit outcomes in the province reflect a net improvement since the previous administration. Nine auditees improved to clean audits, three of which were qualified in 2018-19. Effective oversight, good governance and diligence by all roleplayers in the accountability ecosystem, combined with stability in key management positions, were instrumental in this improvement.

Overview

In our previous general report, we urged provincial leadership to enforce a culture of accountability and consequence management to realise further improvements, and we appealed to them to make a concerted effort to improve outcomes and the service delivery experience of people in the province. Leadership responded positively to our call to action, as evident in the 13 auditees (which account for 11% of the provincial budget) that obtained a clean audit in 2021-22. However, the larger service delivery departments of health and transport remained qualified and, together with the provincial education department, although it received an unqualified opinion, continued to struggle with performance reporting and compliance. As these departments account for 83% of the provincial budget, there must be commitment and greater attention by leadership and management to proactively address their challenges.

Two of the provincial coordinating departments, namely treasury and cooperative governance and traditional affairs, maintained their clean audit status, while the premier’s office improved to a clean audit. The provincial legislature also maintained its clean audit. The diligent implementation and monitoring of action plans, regular reviews and reconciliations to produce credible financial statements and annual performance reports, as well as robust oversight throughout the year, contributed to the clean administration at these departments. We find it reassuring that all coordinating departments led by example and reported a clean bill of health. These departments should now work together to effectively support ailing departments and municipalities to improve their control environments.

The clean audits at the provincial agriculture and human settlements departments can be attributed to leadership creating a strong internal control environment, ensuring that previously reported key risk areas were addressed, and filling key vacancies.

The improvement in the audit outcomes is also reflected in the quality of the published annual performance reports over the three-year period. However, the departments with the highest spending in the province (namely education and health) continued to struggle with credible performance reporting. Poor record keeping and highly manual processes with large data volumes (lack of automation), as well as the inadequate application of standard operating procedures, continued to plague these departments and resulted in reported achievements not being supported by reliable evidence. The unreliability of performance information at these departments affected service delivery to communities, as decisions about targets and budgets were made based on information that was not credible. The provincial education department also did not include key performance indicators for its core functions in terms of the Medium-Term Strategic Framework, specifically those relating to priorities for education, skills and health, social wages, and cohesion and safer communities.

Providing sufficient, affordable and good-quality basic services in the areas of health, education and infrastructure should be at the centre of service delivery to people in the province, yet we continue to raise concerns around control weaknesses in project management. For instance, during site visits to clinics run by the provincial health department, we noted that patients had to wait a long time to access healthcare services. In addition, poor project management arising from inefficient supply chain management processes due to a lack of coordination between departmental officials and the contractors resulted in delays in the construction of a hospital. These delays further limited the access of people in the province to much-needed healthcare. At the provincial education department, poor project management – together with quality defects at schools under construction – also resulted in delays in project completion. This affected learning and teaching, as classrooms were overcrowded, especially for learners with special needs.

Despite the provincial human settlements department’s clean audit, there was slow progress and significant delays in the construction and completion of community residential units. This resulted in community protests, illegal occupation and prospective beneficiaries residing in informal settlements prone to flooding and disasters. The department achieved only 45% of the targets of the housing development programme. This can partly be attributed to a shortage in construction material stemming from the July 2021 unrest, which affected project progress and ultimately service delivery. The provincial transport department did not achieve some of the targets relating to transport infrastructure due to delays in procurement processes as well as the cancellation of some contracts. Poorly maintained roads pose a danger to road users and the lack of road development affects communities’ safe access to schools and hospitals, as well as the overall economy.

Departments should effectively manage their budgets and adhere to sound financial principles to ensure that they meet their service delivery objectives. However, the deteriorating state of financial health in the province over the three-year period hindered service delivery, as evidenced by poor cash flow management and budgeting along with other negative financial health indicators at some departments. The provincial education department relied on a bank overdraft to fund expenditure and sustain its cash flow, which would make it difficult to meet future commitments and deliver on promises to people in the province. The provincial health department did not implement adequate steps to prevent medical negligence and malpractice claims, which continued to escalate, placing further pressure on the department’s finances when these claims became payable. The department should promptly investigate and address these cases and institute consequence management to reduce further claims – the money spent on paying out claims could instead be channelled towards improving service delivery.

The province improved its monitoring and review of compliance with legislation over the three-year period, mainly because it institutionalised key

preventative controls in the form of well-established, effective and standardised processes, and upskilled officials. The number of auditees with material findings on the quality of submitted financial statements decreased from 48% to 22% over the three-year period due to stability in key positions and adequately resourced finance units, together with diligent and robust review processes. The number of auditees with material findings on procurement and contract management also showed significant improvement, dropping from 61% to 17% over the same period, as compliance with supply chain management regulations was strictly monitored. Leadership and senior management led by example and set the correct tone at the top, holding management accountable and implementing consequences where necessary. At auditees where we noted improvements, management was receptive to external audit recommendations, implemented preventative controls, and ensured that officials involved in supply chain management processes were properly trained.

Although there has been some improvement in the compliance related to unauthorised, irregular, and fruitless and wasteful expenditure since 2018-19, we continued to raise findings in this area at 35% of auditees. Consequence management failures and the non-prevention of such expenditure remained the top contributors to material non-compliance.

Irregular expenditure has decreased since the previous administration. This was mainly due to irregular expenditure on housing contracts that was incorrectly recorded at the provincial human settlements department instead of at municipalities, and due to the provincial education department finalising the procurement processes for the National School Nutrition Programme panel and no longer using month-to-month contracts. In total, R9,46 billion (99%) of the irregular expenditure was caused by non-compliance with supply chain management legislation, mostly relating to prior year transgressions. This shows that departments are making strides in implementing and monitoring controls over new contracts and quotations. The highest contributors to irregular expenditure were the provincial transport and health departments, at R4,3 billion and R4,6 billion, respectively. The irregular expenditure at the transport department was mainly due to prior year non-compliance relating to panel contracts and expired contracts, while the main cause at the health department was the continued use of expired contracts largely relating to security services.

We assessed whether value for money was derived from the irregular expenditure incurred. The provincial transport department purchased goods and services of R505,16 million at prices higher than market values – we raised a material irregularity in this regard. The department also made payments of R1,61 million for goods and services not received.

The province continued with its poor track record in dealing with irregular expenditure and enforcing accountability at some auditees. The cumulative balance of irregular expenditure continued to grow without being resolved: at year-end, 93% of the prior year closing balance of R48,46 billion had not been dealt with. The provincial transport and health departments were responsible for 83% of the 2021-22 closing balance not having been dealt with. The provincial treasury could not condone most of the prior year irregular expenditure, primarily because the departments did not submit supporting documentation. We found that investigations into irregular expenditure were slow and corrective actions were not taken where required. Departments also did not take effective and appropriate disciplinary action against responsible officials (or could not provide evidence that such actions had been taken).

We have seen a positive response to the material irregularity notifications issued, and accounting officers are committed to investigating and implementing actions to address these irregularities.

In most instances, we concluded that accounting officers are taking appropriate action to resolve matters. We urge accounting officers to promptly investigate, recover and prevent financial losses and to implement effective consequence management against those responsible to create a culture of zero tolerance and deter future transgressions and losses.

As part of building the accountability ecosystem and improving the lived reality of people in the province, coordinating and oversight departments must set the tone for accountability and good governance. Central to coordination are strategic oversight, governance and monitoring of planned support initiatives, and impact assessments to sustainably improve outcomes in all spheres of government, especially at local government level. Coordinating departments should strengthen their support to the provincial health and transport departments and hold executives accountable for non-performance. The premier committed to bolstering efforts to work collectively with the provincial treasury and cooperative governance and traditional affairs department to support all spheres of government. The committees of the legislature must also continue to strengthen their oversight processes in holding departments, entities and municipalities accountable.

Call to action

All roleplayers in the accountability ecosystem must proactively respond to the root causes of unfavourable outcomes that hamper service delivery, as well as set a tone of zero tolerance for transgressions. Political and administrative leadership must clearly communicate the importance of preventative controls and proactively address key risk areas to strengthen the control environment. Leadership must implement and monitor audit action plans to address the root causes of poor financial and performance management, as well as non-compliance with legislation. Consequence management and accountability must also be enforced at all levels to further improve audit outcomes. Coordinating departments must collaborate and work in an integrated manner to develop risk-based support initiatives and share good practices to create a culture of accountability, transparency and good governance. This, in turn, will contribute to institutions delivering on their mandates and improving the lived experience of people in the province.