With the conclusion of mid-term budget hearings – which allow for insight into KwaZulu-Natal’s (KZN) financial position – the SCOPA report now affords the opportunity to reflect on issues highlighted by the Auditor-General (AG) during the 2022/23 financial year.
The mid-term budget indicates severe challenges on departmental spending pressures and the overall sustainability of the provincial fiscus. Reflecting on 2022/23 issues affords the opportunity to correct and change methods of operation to mitigate and reduce KZN’s fiscal challenges.
An area highlighted by the AG and SCOPA committee is the accruals by departments that affect future expenditure, leading to a negative impact on service delivery during the next financial year.
The question is: How do departments end up with accruals amounting to R3.88 billion rand?
The DA believes that there are two reasons;
• The first is cash blocking – treasury’s method of avoiding over expenditure which places the provincial fiscus at risk. Essentially, when departments have spent their budgets, treasury turns of the money tap leaving them unable to pay service providers and suppliers and;
• The second reason is that for departments to remain within their budgets, they must delay payment to service providers and suppliers.
Whichever way you choose to look at it, the outcome is the same. The higher the accrual, the greater the negative impact on the outer year. Ultimately accruals just delay the inevitable. This is why the DA has consistently called for cash flow, income expenditure and accrual analysis to be supplied on a monthly basis to KZN’s finance portfolio committee. This is yet to take place.
The AG’s directive supports this in the recommendation that portfolio committees strengthen oversight and accountability functions. The AG also recommends that the legislature implement a tracking system to monitor the implementation of portfolio committee recommendations.
The root cause of these challenges is again highlighted by the AG’s referral to a lack of consequence management, creating an environment characterised by a lack of discipline and accountability for transgressions. Accountability for underperformance needs significant improvement, investigations must be concluded swiftly and with appropriate disciplinary action.
It is clear that KZN’s ANC-run cabinet and accounting officers can no longer be relied to fulfil this role. Had they done so in the past, the AG would not be highlighting these same challenges. The outcome is that the AG has placed this responsibility at the door of the legislature and committees and the DA now calls for an action plan from KZN Legislature Speaker, Nontembeko Boyce, in this regard.
Going back to accruals and cash blocking and considering the fiscal challenges facing KZN – and in particular critical service departments such as Health – are there measures in place to determine whether cash blocking may ultimately lead to critical services being compromised?
There are allegations that KZN’s Department of Health (DoH) is facing a shortage of hypodermic and drip needles. Is there a mechanism for departments to motivate the lifting of cash blocking under such circumstances?
The SCOPA hearings once again highlighted the continued dismal performance of what was once the jewel in KZN’s crown, Ezemvelo. This entity has become the laughing stock of the province and an embarrassment to everyone – yet there is no solution in sight from this ANC-run government.
The audit outcome for the entity has regressed – from an unqualified audit opinion with findings to a qualified opinion. Material findings include:
• Internal control deficiencies relating to asset management and failure to account for all assets
• Material uncertainty over the going concern status of the entity and;
• The irregular expenditure value disclosed in financial statements not reflecting the full extent.
Many of the 2022/23 audit findings are repeat findings. There is also significant concern as to whether the Board – as the accounting authority – effectively and adequately discharged its fiduciary and other duties in terms of the PFMA. Equally there is concern over whether it fulfilled its duties concerning the financial management of the entity under the KZN Nature Conservation Act, 1997. 30. This is an embarrassment and a disgrace.
During the hearings the DA requested a legal opinion as to whether the entity could be placed under administration. The opinion did not entitle the committee to place Ezemvelo under administration, however, it was interesting to note the following recommendation:
It may be a more beneficial option for SCOPA to adopt a resolution directing the MEC to intervene and to direct the Board to review the current audit improvement plan, taking into account the nature of the audit outcomes and to submit an improved plan. The plan should be adopted by the Board and approved by the MEC and must adequately address the audit findings. The Portfolio Committee must monitor compliance and implementation of the plan, at least quarterly.
2024 will afford voters the opportunity to elect a government that is capable of building an effective and capable state in KZN