National government's management of its finances showed signs of improvement in the 2000/01 financial year, although problems have persisted with some departments, Auditor General Shauket Fakie said on Wednesday.

Provincial government spending had also improved, but local government's financial position remained precarious.

The AG was briefing Parliament's standing committee on public accounts (Scopa) on the state of government finances.

"There are definitely signs of improvement from where we have come, but there is still a long road ahead to where we want to get to," he said.

The number of unqualified financial audit reports for national government improved again in 2000/01, rising to 67 percent from 61 percent the previous year.

Fakie warned, however, that while this was a welcome trend, the figures did not show whether the seriousness of the qualifications had improved or worsened.

Of concern was that three departments -- justice; minerals and energy; and the government printing works -- had incurred qualified financial audits and compliance opinions for three years running.

In the case of the justice department, it was definitely keen to bring its finances under control, but the problems were deep and systemic, and would take some time to sort out.

Fakie said control of assets by national departments was of particular concern, as too was underspending.

The report shows that the extent of unspent funds increased sharply in 2000/01, with four departments each not using more than R100-million.

These were public works, justice, foreign affairs and the National Treasury.

Total underspending amounted to R1,4-billion.

"Perhaps there needs to be some kind of punitive measures for departments that underspend their budgets," Fakie suggested.

The general report, for the first time, summarises the audit opinions according to Cabinet portfolio, allowing evaluation of each minister's departments and their responsibility over public entities. Fakie said that while provincial government had shown a marked improvement regarding spending within budgets, the safeguarding of assets was poor.

There were also serious problems regarding internal controls and the work of their respective internal auditors.

"The work of internal audit functions within provinces during 2000/01 was not relied upon by any of my provincial auditors. This is quite a serious state of affairs."

The non-payment for services and inadequate steps to recover or prevent the accumulation of debts had placed municipalities in financial difficulties.

Of the audit opinions expressed, only 22 percent were unqualified, and of those 50 percent was attributed to going concern or the recovery of debts.

"In some cases, it is only the assistance from national government that is keeping them above water."

The challenge facing local government was enormous.

He pointed out, however, that the audits were based on the last year of the old municipal boundaries.

Referring to parastatals, Fakie said his office was clamping down on the use of external private auditors that had also been employed as consultants.

"This situation is now under the spotlight, following the Enron affair as well as the recent Nel report."

This could be addressed through legislation, if necessary.

He also recommended government compile a register of all public entities to help strengthen control and accountability.

Not even the Treasury had details of all of these parastatals.

"Although National Treasury has established capacity to control the listing of public entities, I strongly believe that given the number of existing public entities... that a national register of all public entities should be considered," Fakie said.

With acknowledgements to Gordon Bell and Sapa.