A-G wants answers over capital assets above market prices

Auditor-General (A-G) Tsakani Maluleke. Picture: ANA Archive

Auditor-General (A-G) Tsakani Maluleke. Picture: ANA Archive

Published Oct 4, 2023

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The Department of Social Development has appointed a private firm to investigate possible fraud in six transactions for the procurement of capital assets by the department.

This was prompted by questions Auditor-General (A-G) Tsakani Maluleke sent to the department earlier this year after she found a material irregularity when auditing the finances of the department during the 2022-23 financial year.

In her audit report tabled in Parliament, Maluleke said she identified that assets were acquired by the department at prices higher than market value.

“The department procured capital assets in the 2021-22 financial year which exceeded the market prices for those assets, in contravention of section 45(b) of the Public Finance Management Act.

“During the audit of the 2021-22 financial year, I identified six transactions for which the purchase price accepted and paid by the department significantly exceeded their respective market prices,” Maluleke said.

“The department does not have adequate controls to ensure the cost-effective use of its financial resources, which has led to goods and services being procured at prices that are unreasonably high, thereby resulting in a likely financial loss.

“Had the department performed an effective market analysis to determine the market prices, the goods and services would have been procured at a reasonably lower price,” she said.

Maluleke said she informed the acting head of the department Linton Mchunu on the unnamed material irregularity on February 20, 2023 and invited a written submission on actions to address the matter.

In terms of her extended powers, the A-G can demand accounting officers explain the cause of a material irregularity and commit to actions to prevent any further harm as well as ensure that there are consequences for those responsible.

The A-G’s powers, contained in the Public Audit Amended Act, empower Maluleke to refer material irregularities – including fraud, corruption and theft – to public bodies for investigation and issue a “certificate of debt” where financial loss was involved if the irregularity was not dealt with appropriately.

According to Maluleke, Mchunu had in his March 31 response provided a comprehensive account of the circumstances that led to the material irregularity, steps taken to address the material irregularity and recourse to recover the financial loss incurred.

“A private firm was appointed to investigate the possible fraud and corruption and will be providing a full assessment of internal control deficiencies within the supply chain management environment and proposals on controls to be implemented to circumvent similar findings.”

Maluleke said she would follow up on the investigation and implementation of the planned actions during her next audit.

Although the details of the material irregularity have not been shared, the department has disclosed R18 238 000 in irregular expenditure and R303 000 in fruitless and wasteful expenditure.

The department’s annual report stated that there was no element of criminality with regards to the irregular, fruitless and wasteful expenditure.

“All the cases have been investigated and presented to the loss control committee,” the report read.

But Maluleke noted that the National Treasury issued an instruction note, which came into effect in January 2023, dealing with disclosure of unauthorised expenditure, irregular expenditure and fruitless and wasteful expenditure.

Maluleke said she did not express an opinion on the disclosure of irregular expenditure and fruitless and wasteful expenditure in the annual report.

The department’s audit committee said they have reviewed Maluleke’s management report and the department’s audit report.

“We have thus requested the management to conduct a root cause analysis for the findings of AGSA and to present a remedial action plan to the audit committee,” chairperson NG Mabasa said.

Cape Times