IT vs public sector corruption
Regarding budget management in the public sector, an IT audit trail can track when money is reallocated to different cost entities or even where there’s unspent budget.
The mismanagement of funds is a common thread that runs through far too many news reports about the government and its state-owned enterprises (SOEs), with Eskom and its deal with Deloitte currently under the spotlight. However, this is just the most recent (at the time of writing) in a very long list of financial corruption scandals in the public sector. The latest Auditor-General report also highlights the poor state of financial affairs of the majority of municipalities as well as a general lack of governance. It appears that on the whole, the budgets allocated to the public sector and SOEs are either misused or not properly accounted for. Challenges identified around financial management include irregular, unauthorised, fruitless and wasteful expenditure.
Diederik Jordaan, MD of the Gen2 Group, says that over and above having over- or under-spent their budgets, the public sector has also been slow to implement recommendations by the Auditor-General, or has even flat-out ignored these.
“Government entities and SOEs are under pressure from the Auditor-General to better manage and control their budgeting processes," says Jordaan. "The report highlights that they struggle to manage their budgets, while the fact that over- and under-expenditure is commonplace, underlines that they have very little control over their financial affairs. Over-spending generally results in allegations of corruption, while under-spending can negatively affect service delivery.
“Local and national government, as well as SOEs, need the ability to manage their budget processes properly. They also need to put mechanisms in place that prevent them from exceeding their budgets, such as having to get permission if they want to exceed a certain amount or reallocate funds to another activity,” says Jordaan.
Billions of rands are being lost annually through the mismanagement of funds, with no proof of where the money is being spent, as well as no accountability for those spending it. Looking at the Auditor-General’s report, which reflects deteriorating results compared to the previous year, it’s evident that accountability for budget control doesn’t really exist across the public sector.
“Implementing a financial management and control solution can assist in 90% of cases of financial mismanagement,” says Jordaan. “For example, if someone attempts to override budget controls that have been put in place, there will be a check point to see whether budget is available to spend on that particular cost entity. If there isn’t actually money to spend, then the individual will either have to get permission to exceed the budget or allocate budget from elsewhere.”
Jordaan is of the opinion that the public sector and SOEs need to address three main areas if they want to improve their financial management: they need to look at how they manage projects; they need to get a handle on procurement practices; and they urgently need to reconsider how they manage budgets. “Once these areas have been rectified, a lot of other problems will resolve themselves. Manual processes and no controls are the primary reasons for the current state of affairs.”
The Auditor-General report provides statistics on under-spending, or budgets not being spent at all, as well as statistics on unauthorised expenditure. Budget controls simply don’t exist, or they’re overridden.
The Eskom-Deloitte matter is a case in point and a prime example of what’s happening in the public sector. When requests for tenders are issued, all too often the contract has already been awarded before the tender even goes out, with the chosen party working on the project for months before the official decision is announced. There’s a lack of transparency, and the process is pretty much a box-ticking exercise.
Jordaan says: “When timing is an issue, some companies will do work on risk while waiting for tender approval, but in the Deloitte case in point, the company was soliciting the work long before the contract went out for other companies to quote on.”
Incidents such as this one can be avoided to a large degree by improving budgeting management control, procurement control and project management control. “Although,” cautions Jordaan, “even if you have systems in place, these can conceivably be overridden by whoever has the authority to create an exception on the system. However, should that occur, the activity can be tracked and will leave a trail.”
This is why it’s so vital to have proper controls and systems in place to avoid leaving the way open for an Eskom-Deloitte type of situation to arise. Companies need that audit trail because people are less likely to override the system if it can be tracked and queried down the line. When it comes to budget management and control, an audit trail can track when money is reallocated to different cost entities or even where there’s unspent budget. “You can see who authorised expenditure that was over budget, and query it. This brings in budget accountability.”
Which brings Jordaan to an interesting point: Why is the Auditor-General not highlighting a lack of budget controls in the public sector? “Most government departments use normal accounting systems to load their budgets, which circumvents the process because their allocation of funds isn’t being managed. There’s absolutely no accountability for overrunning the budget allocation or under-spending. And the way you install accountability is by having proper control systems in place.”