The Auditor-General’s report released earlier this week on public finance management, points to some encouraging improvements for the financial health of public entities, but the magnitude of irregular expenditure is a serious cause for concern.
Yugen Pillay, Partner and Regional Lead: Public Sector at Grant Thornton attributes the public sector’s 80% increase in irregular spending over the past financial year to several factors.
“It is evident that there has been a significant lack of financial controls especially in the last financial year, which resulted in the jump in irregular spending to R46bn.”
Irregular spending – which refers to expenditure that occurred without following the correct processes – increased by 39% since the 2013/’14 financial period. Pillay believes there are three key reasons for this, one of which is a lack of commitment to strictly adhere to supply chain management regulations.
“Entities should realise it is not acceptable to just largely comply with policies regarding procurement. These institutions are custodians of public funds and there is a reason why there is strict regulation when dealing with this money. It requires absolute compliance with the relevant rules,” he says.
He emphasises that internal supply chain management policies must be appropriately aligned with the regulation in this regard.
Pillay also points to the large number of vacancies in key management positions as a key challenge.
“This translates to a lack of leadership in entities and it has a serious knock-on effect for the operations of an entity. An important attribute of management personnel is a willingness to be held accountable for their position in charge of public funds.”
Pillay adds that this accountability should also extend to the entire team responsible for supply chain management.
“The third reason for this increase in irregular spending is that targeted training and development in supply chain management is sorely lacking in many entities. This is especially important in the application of supply chain policy,” he says.
Many departments and entities have policies in place that address supply chain management, but Pillay believes the correct and consistent application thereof has often found to be lacking. This subsequently results in irregular spending.
“Entities often need practical training on the ways to evaluate procurement or interpreting documents from potential suppliers etc.”
Irregular spending aside, Pillay says the overall picture in the AG Report shows encouraging trends in public finance management.
“The fact that the number of clean audits increased to 152 in this financial year shows that more and more public entities are taking good financial management seriously. The improvement in the quality of annual performance reports is further evidence of a concerted effort from departments to enhance their reporting on essential information that the public views as important, such as spending patterns.”
Notwithstanding of the significant number attributable to irregular spending, Pillay does believe that the National Treasury’s ongoing messages to curb this are getting through to the majority of institutions.
“We should bear in mind that a handful of entities were responsible for nearly half of the past year’s irregular spending. There are many issues that can be addressed immediately and if the necessary controls are applied in these departments, this number could drop drastically, even over the short term.”
Pillay says that measures such as the implementation of an e-tender portal for tenders should assist in a reduction in irregular, as well as fruitless and wasteful expenditure. “If we just manage to reduce this number by half, it means R23bn could be allocated to areas that are in dire need of funding.
“It is imperative that the key management vacancies are filled with people who have the appropriate skills, experience and willingness to be held accountable – this forms the backbone of responsible public finance management,” Pillay concludes.