Late payment of SMMEs by government

By late 2019, nothing much had changed. National Treasury acknowledged that government was struggling to meet its commitment from a few years’ prior for within 30-day payments to suppliers. National Treasury, even in its procurement discussion document in 2017, proposed that SMMEs be allowed to charge interest on outstanding payments to address this ongoing problem. This begged the question, was this late payment culture due to government’s inability to process an invoice and payment in 30 days? Could it be solved by some skills interventions and few disciplinary procedures for finance staff?

In SAICA’s Budget 2021 presentations to the parliamentary Standing Committee of Finance on 3 March 2021, SAICA unpacked why findings by the Auditor General makes a compelling argument that mere inability to process invoices is not the problem with late payments to suppliers, including SMMEs.

In the 2018/2019 Auditor General report on the Public Finance Management Act outcomes released in 2020, the Auditor General had this to say:

“Overall, the trend of departments failing to manage their finances properly continued. Some departments did not pay their creditors when their budgets started running out and thereby avoided unauthorised expenditure; but the payments were then made in the following year, effectively using money intended for other purposes. Some departments overspent their budgets and still had outstanding liabilities at year-end. This continuing ‘rollover’ of budgets is having a negative impact on departments’ ability to pay creditors on time and to deliver services. The education and health departments are affected the most, and the possible effect on service delivery will have an impact on the most vulnerable in society.”

In the tables supplied by the Auditor General, some of the departments had incurred up to 189% expenditure in respect of cash allocated to the following year’s budgets.

In SAICA’s analysis and conclusions, not all this over expenditure can be attributed to multi-year contracts. The majority seems to be related to officials using the current Modified Cash Basis of Accounting to hide overspending or spending on unbudgeted items which would have to be disclosed as unauthorised expenditure to the Auditor General. This purposeful intent by officials to hide unauthorised expenditure by deferring payments into following year cash cycles seems quite plausible to be behind the late payment debacle which is hurting SMMEs.

To address this cause of various symptoms, not just these hidden deferrals, SAICA has proposed to Parliament that it seeks an expedited implementation of Generally Recognised Accounting Practice (GRAP) within 18 months, seeing that the Accounting Standards Board already approved it for implementation in all of government in April 2012. However, it has not yet been implemented by government and no deadlines have been set for a full and final conversion. Notably, even SARS has requested multiple deferrals for implementation to April 2022 since April 2014.

This accounting standard will compel accrual accounting and ensure that expenditure incurred by government must be accounted for in that same period, whether paid or not. This makes it more difficult to hide and defer overspending and out of budget spending and enhances transparency. Until then, SMMEs will have to accept the fact that government at all levels will continue to overcommit themselves and use payment deferrals for creditors to avoid transparency and accountability whilst blaming lack of payment on administration and staff or skills shortages.

The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 50 000 members and associates who are chartered accountants (CAs[SA]), as well as associate general accountants (AGAs[SA]) and accounting technicians (ATs[SA]), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.

Chartered Accountants are highly valued for their versatile skill set and creative lateral thinking, that's why all of the top 100 Global Brands employ Chartered Accountants.

Mr Kulani Chauke
Project Manager: Corporate Communications
SAICA Brand Division
011 479 0698/071 266 0019
***@saica.co.za