There is a famous saying that in government you do not refer to “problems” as problems but they are fancifully called “challenges”. However, there is very little evidence suggesting that the spin alone has assisted the government in overcoming its documented challenges, that is, undesired audit outcomes.

In recent years, South Africa's public sector organizations and parastatals have been facing a major challenge - poor audit reports. These reports highlight a lack of accountability, transparency, and proper financial management within these organizations, which raises serious concerns about the state of their governance and financial systems. The consequences of these poor audit reports can have far-reaching impacts, not only for the public sector organizations and parastatals but also for the citizens of South Africa and the private sector at large.

The root cause of the poor audit reports is a lack of effective governance and financial management systems within the public sector, to be more specific, in the key government departments, municipalities, and parastatals. The implementation of modern systems and structures, together with relevant governance policies, is crucial to turn things around.

Not so long ago, the office of the Auditor General  (AG) tabled a damning report into the City of Tshwane's financials, confirming over R10 billion in irregular expenditure. We can only expect more shock when the Auditor General tables the latest official municipal audit outcomes in Parliament, come midyear. But how long should we continue to react with dismay at the outcomes when we know exactly what the problem is and what needs to be done?  Municipalities for that matter exercise their executive and legislative authority over their own affairs and carry a full responsibility to establish and maintain their own administration. The South African Local Government Association (SALGA) can only do so much in defending bad municipal audit outcomes. The solution lies in municipalities themselves having the guts to govern themselves out of this untenable situation.

The Public Finance Management Act (PFMA) 2021/22 Consolidated General Report on National and Provincial Audit Outcomes has pointed to “a gradual upward trend in the audit outcomes of national and provincial government”. However, “key service delivery portfolios and state-owned enterprises continue to receive poor audit outcomes”, the report further states.

To address this challenge, public sector organizations and parastatals must take a proactive approach and implement effective governance and financial management systems. This can be achieved by partnering with strong-minded consulting firms that understand corporate and fund management strategies, governance structures, and reporting requirements. These consulting firms can provide expert guidance on how to establish effective systems, share the burden of the turnaround, and ensure the fastest possible results.

Consultancies often receive negative tough lashing when audits are not favourable, but in most of those cases, it’s often the case where a consultant is only brought when the horse has already bolted.

One key aspect of improving governance and financial management systems is to adopt modern financial management systems, such as enterprise resource planning (ERP) systems. These systems can provide real-time financial information, which allows the organizations to make informed decisions and improve the accuracy, transparency, and accountability of their financial reporting.

Another important aspect is to ensure proper training and capacity building for the staff within the public sector organizations and parastatals. The consulting firms can play a crucial role in providing this training, as well as in helping the organizations to establish effective governance and financial management systems.

The benefits of improving governance and financial management systems are significant. In addition to improved financial reporting and audit reports, the public sector organizations and parastatals can also restore the public's trust in their ability to effectively manage finances and provide essential services. The improved governance and financial management systems can also have a positive impact on the private sector, particularly in terms of investment and job creation.

In conclusion, the poor audit reports received by South Africa's public sector organizations and parastatals highlight the need for action. A proactive approach, which involves the implementation of effective governance and financial management systems and partnering with knowledgeable consulting firms, is crucial to turn things around. The public sector must take the lead in ensuring that the necessary systems and structures are in place, to ensure the fastest possible turnaround, and to restore the public's trust in these organizations. With the right approach and commitment, the public sector organizations and parastatals can achieve improved financial reporting and audit reports, which will benefit both the public and private sectors.

Written by Mohamed Omar in his capacity as the CEO of Cayman International Asset Managers and the author of Strategies for Navigating Hostile Takeovers