The Department of Defence and the South African Post Office (Sapo) are two of the public entities expected to face investigations for their failure to investigate material irregularities (MIs) flighted by the Auditor-General (AG) during audit processes in previous financial years.
Sapo was found by the AG to have failed to implement an integrated grants payment system on behalf of Sassa, after the contract to do so was awarded to its banking division, Postbank, in 2018. “The system was not properly implemented and secured, resulting in the issuer master key for the bank cards of grant beneficiaries being compromised and fraudulent transactions taking place in the 2018-19 and 2019-20 financial years,” AG Tsakani Maluleke said in a presentation to the Standing Committee on the Auditor-General in Parliament earlier this month. For this reason, the AG will refer her findings to the Hawks for further investigation.
In the case of the Department of Defence, the AG has given a deadline of the end of March for the implementation of recommendations her office issued in April 2023 in relation to an MI finding on the department’s failure to use medical equipment it had purchased. “The department did not have suitably qualified medical staff to operate the equipment. The accounting officer’s written submission on the steps to be taken to resolve the MI was not appropriate.
“We include recommendations in the auditor’s report to implement reasonable steps to prevent further non-utilisation of the medical equipment to be implemented by March 2024.”
Maluleke recorded a R14-billion financial loss due to some 266 MIs across national and provincial public entities, owing to either non-compliance with procurement rules or suspected fraud. Of the 266, as many as 240 constitute the R14.34-billion material financial loss, while 14 were found to have caused substantial harm to public sector institutions, nine were found to have substantially misused a public resource, and three were found to have caused significant harm to the general public.
Furthermore, Maluleke’s office said there had been no action taken to address as much as 82% of the MI notices originally issued for public entities to address.
Positive findings
On a positive note, 79 entities had succeeded in resolving MIs issued after auditing in the previous financial year, while another 75 were recorded as having taken appropriate steps to resolve them, and a further 26 entities had responded to notices, with a view to assess the MI issued to them.
Maluleke called for accounting structures to do more to help prevent MIs. “Portfolio committees in Parliament responsible for public bodies should request regular reports on the status of investigations and must pursue any unreasonable delays,” she said. “Executive authorities and oversight committees should adopt a proactive approach geared towards preventing material irregularities.”
Material irregularity is defined in the Public Audit Act as “any non-compliance with, or contravention of, legislation, fraud, theft or a breach of a fiduciary duty identified during an audit performed under the Public Audit Act that resulted in or is likely to result in a material financial loss, the misuse or loss of a material public resource, or substantial harm to a public sector institution or the general public.”
For purposes of expanding the AG’s powers – which in the past were limited to reporting on, and recommending action to be taken by state institutions to prevent the above-mentioned transgressions – the Act was amended to allow Maluleke’s office to:
- Refer MIs to relevant public bodies in law enforcement for further investigation.
- Recommend actions in the audit reports to resolve the MIs.
- Institute binding remedial action for failure to implement recommendations.
- Issue certificates of debt where institutions have failed to implement remedial action where financial loss has occurred.
