The financial management of government departments and provinces is improving, but a lack of internal controls remains a source of concern, Auditor General Shauket Fakie said on Wednesday.

Not all national and provincial departments had adequate control policies and procedures in place, and in almost half of the provinces and 40 percent of the departments, auditors could not rely on the existing internal controls.

The AG was briefing Parliament's standing committee on public accounts (Scopa) on the state of government finances for the 2001/02 financial year.

"I believe there are improvements taking place, especially in areas that we have brought to Parliament's attention (in previous reports)... but of course, there are new issues that are emerging as well.

"With the introduction of the Public Finance Management Act, there seems to be a definite improvement in terms of the culture and the mindset around management and the importance of financial management in the public sector," he said.

Fakie said 63,6 percent of national department reports were unqualified in 2001/02 -- a slight drop on the previous year.

The latest year's figure, however, included the disclaimed audit of the department of public works, which had not been included in the previous year.

However, taking this into account, along with the adverse audit of the department of water affairs and forestry, the situation still appeared to be moving in the right direction.

"Whilst new qualifications and challenges lie ahead, I think the impression this analysis provides is that management are addressing concerns raised through the accountability process," he said.

According to the AG's general report for 2001/02, six departments --water affairs and forestry, safety and security, Parliament, home affairs, foreign affairs and Statistics SA -- incurred unauthorised spending in 2001/02, with four of those instances relating to overspending of voted funds.

Fakie said the overspending represented poor budgetary control and a "fundamental weakness in the ability of management to control their businesses".

Internal audit functions also needed improvement, with only 30 percent of national department auditors currently placing reliance on the work of those functions.

Instances of potential liabilities or losses to the state had fallen from 33 to 11 compared to the previous financial year, while non-compliance with financial regulations or other legislation decreased from 59 issues to 33.

The AG said asset management, as part of the broader weaknesses in internals controls, and procurement policies would receive greater attention in the current financial year.

Emphasis would also be placed on the link between poor internal controls and service delivery.

"I believe where the auditees cannot provide an adequate internal control system to support their organisation, this represents a fundamental obstacle to overall effectiveness."

Regarding provinces, Fakie said the percentage of qualification of department votes dropped from 75 percent to 54 percent, denoting a significant improvement.

However, an examination of the health and education departments -- which accounted for 69 percent of provincial spending -- showed the proportion of qualifications had risen.

"In summary, we can say that a serious problem still exists regarding the departments with the larger budgets," he said.

National Treasury director-general Maria Ramos told the committee government was looking at creating a framework to regulate donations and gifts received by government entities.

This would focus primarily on sponsorships, which, in some instances, could be of a relatively high value, and cause conflicts of interest.

The framework would set out the procedures for reporting donations or gifts, and could set limits on the values allowed, she said - Sapa