Home Accounting and Auditing What would happen if SA adopted the Chinese model of public accountability

What would happen if SA adopted the Chinese model of public accountability

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Public officials guilty of wrongdoing would have their personal assets liquidated to pay back the Treasury.

By Ciaran Ryan and Tania Lee

The most recent Auditor General report into the finances of 430 state-owned entities (SOEs) shows some improvement in governance:

  • Irregular expenditure shrunk from R67 billion to R54 billion;
  • The audits of 66 entities improved, while the audit reports of 35 entities deteriorated;
  • 111 of the more than 400 entities received clean audits.

On a negative note, the financial statements of 17 entities were so bad that it wasn’t even possible to audit them.

Speaking on RSG Geldsake recently, Saiba CEO Nicolaas van Wyk noted that while the Auditor General (AG) report shows several areas of improvement in the financial accounting of SOEs, what it cannot show is the quality of service delivery.

Nicolaas van Wyk, CEO of Saiba

“The public can therefore not hold the AG directly accountable for the quality of service delivery. The AG can however reveal whether any money was mismanaged, spent irregularly or unlawfully or fruitlessly. Bearing in mind that the state budget is R1,7 trillion, which is a vast some of money and if one looks at the number of municipalities that have fared poorly, they form a small part of this very large budget.”

Though there was an improvement in irregular expenditure – down from R67 billion to R54 billion – this is still a vast sum of money.

Van Wyk pointed out that the AG had recently addressed this issue: “It comes down to a breakdown in internal controls and a shortage of qualified staff. This is therefore a source of concern for the AG and it is highlighted every year.

“Cumulatively, this sum of money (irregular spending) has exceeded the R200 billion. This does not necessarily mean that the money was not spent on service delivery, it implies that certain administrative approval procedures were not followed since the very same entities who experienced irregular expenditure, received clean audits. In other words, the legal requirements were not strictly followed but the money was still expended or allocated.”

The law has recently been amended to address this problem and for the first time the AG can now assign personal responsibility to officials charged with irregular expenditure, and this is something we look forward to seeing in action. That there will be personal fines levied against state officials who work recklessly with public money and that officials are brought to book.

Adopting the Chinese model

Van Wyk added that Saiba is involved with the National School of Government (NSG), where a new legal framework has been developed under President Cyril Ramaphosa.

“This is something that is being driven out of the presidency which in my opinion is an attempt to clean out state departments of the rot. One can’t imagine that it took us 20 years to figure this out but we finally realise that we have to appoint people in state departments according to strict and specific criteria. In addition, there must be monitoring of how these officials acquit themselves in their positions. This appears to be a huge gap that has existed in our democracy and in the past this oversight task was given over to Parliament to call officials to order, but under President Ramaphosa, the government is becoming a lot stricter.

“The example quoted in the revised legal framework was from China, and it is interesting to see how much personal liability a state official in China can suffer if he is found guilty of irregular or unlawful expenditure. In China, they can liquidate your own assets and that of your family and pay back the treasury. This is perhaps something we should consider in SA as well.”

R105 billion in claims against hospitals

While there is some positive news on SOE governance from the AG report, there are some doubts as to whether financial mismanagement has taken a decisive turn for the better.

Despite a slew of laws and strict management controls, the state capture case currently underway at the Zondo Commission shows that it is still possible for officials to allow massive amounts of money to leave the country.

Another alarming statistic from the AG’s report is the number of claims against hospitals which is close to R105 billion. This is from patients who received poor treatment and as a result lodged claims against state hospitals. “This is an astronomical figure and one is inclined to compare it to irregular expenditure, which goes back to poor internal controls and poor service delivery,” says van Wyk.

“So what one cannot see in the AG’s report is the poor service delivery, since the report only speaks to the numbers. This is where the government is still lacking. How does government measure the usefulness and effectiveness of service delivery because, for example, if you build a road, how long will it last? That is what the public wants to see built into reporting.”