South Africa’s Auditor-General, Tsakani Maluleke, said the government’s imprudent expenditure and inadequate accountability for the state’s financial performance threaten the Auditor-General of South Africa’s (AGSA) viability.
In AGSA’s Integrated Annual Report for 2022/23, Mululeke wrote that the organisation’s financial viability is an important pillar of its independence.
Throughout the years, this financial viability has been sustained by sound financial administration, strict cash-flow management and good internal controls, systems, and processes.
“However, our work and viability depend on the overall status of the fiscus,” she said.
“The persistent lack of prudence in spending, inadequate financial management and inadequate accountability for financial performance erode the limited public funds available, and the scope for beneficial spending on service delivery is severely limited.”
In the Medium-Term Budget Policy Statement delivered earlier this month, Finance Minister Enoch Godongwana revealed that the country’s fiscal health has deteriorated further, and the country faces a R56.8 billion tax revenue shortfall.
Government spending has exceeded revenue since the 2008 global financial crisis, which puts it on the road to a fiscal crisis.
These rising annual budget deficits have reached an extent where the government will borrow an average of R553 billion annually over the medium term.
The consolidated budget deficit has risen to 4.9% of GDP in 2023/24 compared with the estimate of 4% of GDP in the 2023 Budget.
Maluleke explained that the increased number of AGSA’s auditees in financial distress is compounded by the rise in the public’s demands for service delivery and accountability, protests and destruction of public assets.
“This makes it imperative that accounting officers and authorities do everything in their power to get the most value from every rand spent and to manage every aspect of their finances with diligence and care,” she said.
Godongwana also highlighted the financial constraints of South Africa’s provinces and municipalities.
They face both spending pressures from rising costs of basic and social services and revenue pressures from lower economic growth and high borrowing costs.
The Minister highlighted continued losses by municipalities and state-owned companies as risks to the fiscal outlook, as their deteriorating financial health could result in requests for bailouts.
Mululeke said one of the consequences of municipalities’ and other auditees’ declining financial performances is that they cannot pay their audit fees. This, in turn, threatens AGSA’s sustainability, she said.
“Debt owed to us is ever increasing, which restricts our plans to modernise our tools and develop our staff. Our leadership pays constant attention to this challenge.”
Between 2019 and 2023, AGSA identified 268 material irregularities of non-compliance and suspected fraud.
These irregularities have resulted in an estimated R5.19 billion of material financial losses.