South African IT agency crumbling from the inside

The Auditor General of South Africa (AGSA) regressed the State Information Technology Agency’s (Sita) audit to a disclaimer of opinion for the 2023/24 financial year.

While the AGSA pointed out that Sita’s annual irregular expenditure was less than a quarter of what it had been previously, it identified two material irregularities throughout the year.

This was revealed during the AGSA’s briefing to Parliament’s Standing Committee on Public Accounts on Tuesday morning.

A disclaimer of opinion means that the auditee provided insufficient audit statements in the form of documentation, and it is the worst of the five audit opinions that can be expressed.

“What a disclaimer of opinion means is that the financial statements are not credible and are not supported by reliable information,” the AGSA said

“Even after Sita was given the opportunity to adjust the misstatements in its reporting, it failed to do so.” 

The outcomes of Sita’s previous two audits were qualified audit opinions, meaning that its financial reporting contained material misstatements.

The AGSA said that part of the root cause of the audit outcome was Sita’s failure to correctly implement the action plans recommended following its previous two audits.

It added that several other failures contributed to the audit outcome, including inadequate record-keeping systems, areas of judgment not supported by evidence, and inadequate reporting.

This includes misstatements in Sita’s financial statements, such as financial position and financial performance, impacted prepayments, and cash flow statements.

Therefore, the AGSA argued that “the pervasive nature of these misstatements rendered the entire set of financial statements to be unreliable.”

However, Sita’s annual irregular expenditure incurred was found to have significantly decreased from R465.6 million in the 2022/23 financial year to R112.5 million.

“The primary reason for this decrease is that most of the irregular expenditure came from multi-year contracts that came to an end,” the AGSA said.

At the end of the financial year, the closing balance of Sita’s irregular expenditures is just over R2 billion.

Two major irregularities

The AGSA also highlighted two material irregularities, which can refer to non-compliance, fraud, theft, or breach of fiduciary duty.

The first involves the payment of R12.1 million for licences that were not utilised, first brought to Sita’s attention in 2021.

While Sita attempted to block the payment of the licences, the Auditor General has referred the matter to the Special Investigating Unit.

The second involved payments of R1.5 million made to “Trade Zone 123” for services not delivered, also brought to Sita’s attention in 2021.

The AGSA has made recommendations to the Accounting Authority (AA) after concluding that its actions were inappropriate to resolve the matter.

However, Sita asked to delay its response to the matter as its outgoing board indicated no material irregularity based on their assessment. This has postponed the finalisation of the issue.

The Auditor General recommended that Sita attempt to recover its financial losses and address the identified material irregularities.

It also recommended that Sita implement effective consequence management against responsible officials and improve its internal controls. However, these recommendations have not been adequately implemented.

The AGSA noted that R50,000 of Sita’s financial losses have been recovered so far, and one responsible official has been identified and forced to undergo a disciplinary process.

Additionally, no internal controls and processes were improved to prevent the recurrence of material irregularities.

While its financial reporting did produce a disclaimer of opinion, the AGSA commended Sita’s performance report for having “no material findings or performance information.”

Of the key targets set out for the IT agency, 38% were not met, including the digitisation of the Court Online solution and creating a workforce capable of solving complex public service ICT problems.