Internal controls are the first line of defence against fraud, waste and abuse and help public sector institutions to deliver on their mandates. Furthermore, a robust control system, comprising effective internal control, risk management and audit, is fundamental to better governance, safeguarding of taxpayers’ money, and preserving public trust in government. However, the lack of internal controls in the public sector has been a long-standing issue in South Africa and continues to hinder the delivery of services to citizens.
The Auditor-General of South Africa (AGSA) has raised concerns over the years on the lack of implementation of preventative controls within the public sector and saw that there was a need to assist government in this regard. As a result, in October 2020 the AGSA released preventative control guides to assist government with improving such controls. The purpose of these guides was to:
- Enable oversight structures to assess whether the most important preventive controls are implemented by institutions to address their main areas of risk. This would assist oversight structures to diagnose weaknesses in preventative mechanisms and focus their oversight efforts on obtaining assurance from the executive authority and the accounting officer or authority that those weaknesses are being effectively addressed in accordance with their legislated obligations.
- Enable the accounting officer or authority and the executive authority to effectively address the assurance needs of oversight structures pertaining to preventative controls.
- Create general awareness of the role of the accounting officer or authority and their legislated obligations towards good financial and performance management in their institutions.
However, it seems that oversight structures and accounting officers or authorities have not adequately used these guides within government, as we are noticing a constant increase in weaknesses of control affecting the going concern, financial management and/or service delivery of public sector entities.
One example of such an entity is the National Student Financial Aid Scheme (NSFAS), where over 40 000 undeserving students benefited irregularly from student funding amounting to over R5 billion. Based on the briefing by the Special Investigating Unit (SIU) to the Standing Committee of Public Accounts, these are students whose household income is above R350 000, and they therefore would not qualify for NSFAS funding based on the funding rules. Students did not submit their parents’ details upon application and therefore the means test was not properly conducted for them to be awarded the bursary. The SIU interviewed several affected students and parents to obtain additional information. Some students admitted that they did not qualify to receive the NSFAS funding. This reflects the lack of controls within the entity to ensure that only students meeting the qualifying criteria were awarded the funding, resulting in funds not being used as per their intended purpose and potentially disadvantaging deserving students. (Key to note is that NSFAS received its third consecutive disclaimer of audit opinion in the 2021/22 financial year.)
Another example is the South African Post Office (SAPO), which has been placed under liquidation. SAPO also received a disclaimer of audit opinion in the 2021/22 financial year, with uncertainties on going concern, and a number of internal control deficiencies were noted in its audit report, including:
- Management made significant use of clearing accounts that are not regularly reviewed and reconciled. Where supporting listings were made available, management had not always acted to ensure that long-outstanding items were reconciled and cleared. The use of manual reconciliations, coupled with a lack of assurance processes not implemented in time to ensure that information was accurate and complete, resulted in a number of limitations and errors being experienced and identified.
- The public entity did not have a proper record management system to maintain information and support the reported performance in the annual performance report. This included information that related to the collection, collation, verification, storing and reporting of actual performance information. This extended to supply chain management, where there was no proper record keeping due to improper handover processes being conducted when staff resign. There remains a lack of accountability in terms of record-keeping throughout these divisions.
The lack of implementation of preventative controls, coupled with a lack of accountability, has resulted in significant challenges within the public sector, including financial mismanagement and the lack of essential services to citizens in an effective and efficient manner. In addition, it has left many public entities vulnerable to abuse, resulting in some becoming a financial burden to the fiscus due to requiring continuous bailouts from government.
Oversight structures are currently failing in their oversight responsibilities as a result of them being reactive rather than proactive. Many oversight structures receive information through audit reports many months, if not years, after the occurrence of financial mismanagement. Often, their primary focus at the time is to correct and account for what has already gone wrong, with very little focus on preventing it from reoccurring. It is critical that this form of oversight be corrected to move government forward and to improve public finance management.
In conclusion, greater focus needs to be made by oversight bodies on the improvement of internal controls within government whilst enforcing accountability, as this will assist in improving financial management and service delivery by government.
AUTHOR
Natashia Soopal CA(SA), Executive: Ethics Standards and Public Standards at SAICA