Public Audit Act Amendment Draft Bill: public hearings day 1

Meeting report

Opening remarks

The Chairperson said there were some issues the Committee had picked up when going through the submissions of members of the pubic, so it had been decided to have public hearings to afford them an opportunity to defend their views.

There were two main areas that the Committee had picked up. One was the issue of whether it was desirable for the Auditor-General (AG) to be a debt collector with unintended consequences, or intended consequences. During the Committee’s meeting on 2 March, it had agreed that the AG should not be a debt collector. Another method needed to be sought. The Committee was of the view that the accounting authority was responsible for collecting the debt. The second issue that had been picked up during that meeting had to do with referrals. In the Bill that was sent for comment, the understanding was that the AG would do his work, and from his sample he would identify potential misgivings in specific areas. The AG’s sample could pick up that he could quantifiably pick up R5 million that had been misappropriated. However, because this was only a sample, there was a potential that the misappropriation could have been R50 million. Initially, the AG was recommended to take the misgivings to the Hawks or any other body to investigate, draw up a Memorandum of Understanding (MOU), and after a month or a year come back to the Committee and present the findings. The argument by the public in their comments was that there was no guarantee that the agency would do what they were required to do – to investigate – and there was an accountability challenge, that the AG was a Chapter Nine institution.

Institute for Accountability in Southern Africa (IFAISA)/Accountability Now

Adv Paul Hoffman, Senior Counsel (SC), Director and Head of Projects: IFAISA, said he would be addressing three broad themes. The first was at what mischief the Bill was aimed; the second was the general legal and constitutional context in which the Bill had to be considered by the Committee; and the third was the specifics in the written submission which he would not be covering individually in view of the time constraints.

There were two forms of mischief being addressed in the Bill; malfeasance in the public procurement process which the AG audited on an annual basis. Malfeasance was referring to illegal activity that carried a criminal sanction. The other form of mischief was misfeasance, which was either negligently or due to innocent or incompetent reasons, where money that should have been expended in a particular way was not being expended in that particular way.

Adv Hoffman said that too many people who did not know how to do their jobs were involved in the procurement of goods by the state. South Africa (SA) was committed to the United Nations (UN) Strategic Development Goal 16 (SDG 16), and was bound to other various international instruments in its work against corruption, such as the African Union (AU) Commission, the Southern African Development Community (SADC) protocol against corruption, and the constitutional framework of SA. Chapter Nine institutions supported constitutional democracy. These Chapter Nine institutions were accountable to Parliament, and not the Executive. Turning the AG into the debt collector of government would run counter to the mandate of Chapter Nine institutions. An adequate and effective single body was required.

The Hawks needed to be replaced by an Integrity Commission. The State Attorney was under-funded and under-resourced in terms of human capacity. The average attorney in the State Attorney’s office was sitting on 700 files at a time, and that was too much work for one person. The cure was to appoint more staff, because corruption in procurement was not a victimless crime -- it was stealing money from the poor, and that needed to be dealt with professionally by those with the qualification to collect money according to ethical standards. This was not an auditor’s job, it was a lawyer’s job. If the State Attorney was properly capacitated or putting a liaison in various provinces to get reports and act on reports arising out of what the AG recovered, that was what was needed. The AG was like a canary in the coal mine that was the first warning of wrongdoing. If the State Attorney was not properly capacitated then there would be nothing achieved. The Committee needed to deal with the causes, rather than the symptoms of corruption.

Discussion

The Chairperson said that he had been a Member of Parliament (MP) for too long, and knew that the State Attorney’s office was not up to scratch. He had conveyed to Committee Members at their meeting on 2 March that the Committee continued to do the same thing over and over again, thinking they would get a different result. When Adv Hoffman came to the Committee and said the Committee should not burden the AG with debt collection, but rather that they should give it someone else who should do it (the State Attorney), he knew in his heart that the person would not be able to do it, and it did not make him sleep easy at night. Capacitating the State Attorney on the one hand, while saying the wage bill of the State Attorney was too high on the other, was challenging and therefore required another way of dealing with the issue. The Committee agreed in principle that it could not be the AG running around collecting money, but the question was rather who was the relevant and suitable person to do that kind of work.

Mr A McLoughlin (DA) asked if there was anything preventing the state from instructing a private firm to do the collection?

Adv Hoffman said there was nothing to prevent this.

Council for the Advancement of the South African Constitution (CASAC)

Mr Lawson Naidoo, Executive Secretary, CASAC said that the AG was lacking teeth. The office of the AG did not have the power to act on findings in the financial statements. The question was what the institution was seeking to fix. Auditor’s had restrictive roles, and relied on the middle man for the information they audited. In order to enhance the capacity of the AG, there were two solutions that CASAC recommended. The first was that the AG should have its referral powers moved to authorities other than the legislature, such as the National Prosecuting Authority (NPA), the Hawks, the Special Investigating Unit (SIU), etc. It would not be appropriate for the AG to refer findings to another Chapter Nine institution like the Public Protector (PP). The AG needed to have the necessary powers to follow up on any unathorised expenditures

On the debt recovery aspect, there was an inability in organs of state to effectively institute disciplinary processes against people who had been implicated. CASAC submitted that National Treasury (NT) should recover funds, as it had the power to recover funds as mandated in the Public Finance Management Act (PFMA). The time limit of 180 days for recovery was too long, and should be set at 90 days. The position of the debtor also needed to be considered in a little more detail because as it stood, the only recourse for an aggrieved debtor was the process of judicial review. Mr Lawson recommended instituting an internal panel to review such a decision as a precursor to going to court.

Discussion

Mr M Ntombela (ANC) said that on the recovery of debt, the presentation stated that “it supports the retention of the judicial review option, and there is a proposal of an additional mechanism of internal appeal or review to an independent panel to be created by the AG”. He had an issue with this, because the essence of the grievance of the debtor was actually the creation or effort of the AG to address an administrative malfeasance. The question was how CASAC proposed a retention, because there seemed to be a contradiction with his understanding of what clause 16 said.

The Chairperson sought to emphasise the issue raised by Mr Ntombela about an additional mechanism. The Committee’s argument at the meeting on 2 March had been that because the Committee wanted consequences, and maybe because the court was the ultimate arbiter, they should just go there because waiting for 180 days was too long. Involving the NT was a new suggestion they could live with and talk to. The question that Members were asking was what needed to be done to act on the findings of the AG so that there were consequences.

Mr Mike Law, Researcher, CASAC said that it was not uncommon to have internal review procedures, and that it was used in various aspects of law. Housing was one of them. Judicial review was expensive and took longer than 90 days. Having an internal appeal mechanism might slow down the 90 days’ appeal process, but could save time in the end because a judicial review could take a lot longer than that.

Mr Naidoo said he did not think that an MOU between the Hawks and the AG would provide any more teeth. Organs like the Hawks were failing to live up to their constitutional mandate as well. This was not something that could be fixed by this Bill. Giving the AG powers to refer matters to other bodies like the Hawks or SIU was the real issue.

Mr Ntombela said that he was putting himself in the shoes of the debtor who had a grievance against the AG for having investigated whatever he investigated, and reaching a particular outcome. As a way of addressing the grievance, a panel should be created, but the same panel looking into the matter should be created by the AG. He asked if there was a better way of dealing with the grievance, because it would seem very suspicious to the debtor that the same person who found the malfeasance was then responsible for creating the panel for the debtor. He had a problem with that, and asked how it could work.

Ms D Carter (COPE) asked how there could be an independent player to recover funds, and what advice, if any, could be given to the Committee to give the AG “more teeth”.

Mr McLoughlin asked if there was any difference between a person disputing the finding and one who did not dispute the finding, or if CASAC was saying that in that instance, someone could make some sort of deal and find out if they had to pay, etc., and if it was related only to those instances or also to a whole range of scenarios. He added that even in disputed matters, there should be some sort of process before approaching the courts.

Mr Law said that it was a problem that an office or panel of the AG could make a condonation on something that had substantial interest. It was not uncommon. It was better than nothing. He used an example from the Bill – remuneration – which would have a panel of five members with the requirement that at least three of the members could not be in the employ of the AG. A panel with that sort of composition would be appropriate.

Mr Naidoo said CASAC would take up the issue that Ms Carter raised. It was not a power that could be given to the AG carry out. The AG needed to be given the authority to do what fell under its core mandate, and then the Department of Public Service and Administration (DPSA) would have to take that on. They needed to make sure that public servants found guilty of any transgression did not move over from one local municipality to the one next door. He agreed with Ms Carter that this should be the outcome, but the responsibility needed to be placed where it belonged.

The Chairperson said it was clear that the Committee would have to look at the issue of internal review.

Mr Naidoo said they would appreciate an opportunity to give a short submission on the independent panel as well as the potential role that could be played by NT.

Corruption Watch

Ms Leanne Govindsamy, Head: Legal and Investigations, Corruption Watch said that Corruption Watch welcomed the attempts to clarify the powers of the AG and to provide effective enforcement of the findings of the AG. They had long regarded the inaction of the accounting authorities and executive authorities in addressing unauthorised, fruitless and wasteful expenditure. There was no deterrence for future financial loss or referrals. She was not sure about procurement enforcement or the feasibility thereof. The work of the Anti-Corruption Task Team (ACTT) was not effective. There was a need for agreeing on the guidelines for referrals.

A variety of institutions needed to work together. Solutions lay in the policy directive to ensure meaningful enforcement. Should society at large accept that institutions such as the ACTT were not functioning, and that there could be a role for civil society to play? There needed to be a follow up on issues such as the South African Social Security Agency (SASSA), which had been taken to court over irregular procurement.

Mechanisms existed, but the question was how to get them working. Transparency was key in trying to ensure there was enforcement. When audits were conducted, they pointed to losses incurred. Procurement, in relation to state capture, saw private and foreign companies playing a role in procurement matters. The Organisation for Economic Cooperation and Development (OECD) Anti-Bribery Convention recommended taking steps against bribery detected through audits and addressed by the AG. There needed to be steps to discourage bribery and protect auditors who reported bribery.

Discussion

Mr Ntombela asked Ms Govindsamy if she would regard the effective enforcement of sanctions by the government to be nonexistent at the moment, to the extent that the PFMA or MMFA should be tampered with in order to effect sanctions where necessary.

Mr N Singh (IFP) said he sensed where Corruption Watch was coming from, because there seemed to be some skepticism whether or not what the Committee intended to do with the Bill would be taken to its logical conclusion. What the Committee had seen at their current level of consultation with their colleagues in the Standing Committee on Public Accounts (Scopa) was that the PFMA and MMFA was just a piece of paper, and no Director-General or Head of Department had been prosecuted so far. He asked if Ms Govindsamy saw it as inherently wrong that the Committee, with the office of the AG, was attempting to bring in the amendments to at least give the office of the AG all the facts at their disposal in terms of financial irregularities. The office of the AG could not be allowed to be the “police and prison warder.”

The Chairperson said he thought he heard Ms Govindsamy’s concern that it was well and good for the AG to go to a department or entity and conduct an investigation and report any wrong doing from state employees, but what about the corrupt individual? He reminded her that the AG worked to a constitutional mandate. The entities they interacted with were defined, and therefore they could not act outside of their constitutional mandate. If Ms Govindsamy was proposing that the AG was not going far enough, then there should be a constitutional change.

The Chairperson said that he was a proponent of the AG getting more teeth, and this was public knowledge, but the impression he was getting from the two questions posed in the conclusion of Corruption Watch’s presentation was that what the Committee was trying to do was not necessary or superfluous, or it could be attached to the other pieces of legislation. He asked if that was a fair understanding on his side.

Ms Govindsamy said that Corruption Watch was not in principle opposed to the amendments. They were just not sure that the amendments would achieve what they were set out to achieve. Looking at the referral and potential oversight of the AG in respect of that, if there was an existing justice system that should be functioning but was not functioning, they were not sure that the amendments would be effected. There should other engagements by the Committee within Parliament to try and look at the functioning of the institutions, to ensure that they were doing what they were supposed to do.

In terms of the PFMA, sanctions had been largely nonexistent, either because charges had not been brought against accounting authorities, or where charges had been brought, there had not been investigations. There had also been no willingness to cooperate with complainants.

Ms Govindsamy agreed that the AG needed to have “teeth.” There needed to be enforcement of findings.

The Chairperson said that the Committee had never said the Bill was a remedy to all other problems, and before they took it to the National Assembly (NA), those invited to present had to convince the Committee of their positions. The Committee also did not want to be a super Committee. They took her point that the Hawks were not working, but that was not the Committee’s problem, it was the police’s problem.

Mr McLoughlin said that in his opinion, the government had taken an approach that if they disposed of all laws, it would create legal compliance and citizens would be more law abiding. He asked if Ms Govindsamy shared the same view.

Ms Govindsamy said partially. For them as ordinary citizens, it raised the question of whether they were trying to find a solution to an enforcement problem, and this was a really big deal because it was about the executive.

The Chairperson said the question to answer before taking the Bill to the House was whether it was necessary to do what they were doing to address the mischief, and if this was the most appropriate way to address it.

Rand Water

Ms Fikile Sithole, Group Governance Executive, Rand Water thanked the Committee for the opportunity afforded to Rand Water to provide comments on the Bill.

Ms Lebogang Motsoeneng, Legal Advisor, Rand Water said that Rand Water was not opposed to the amendments, but there were a few questions that they had noted. Rand Water supported any initiatives by government to ensure revenue, expenditure, assets and liabilities of government entities were managed prudently; enhanced accountability and responsibility of persons entrusted with financial management that underscored good governance; and assisted State Owned Enterprises (SOEs) in achieving their sole regulatory mandates.

The wording of clause 5.1 (Aa) was permissive, and not mandatory. The wording was likely to create uncertainty with regard to the application of the provision. The proposed amendment to clause 5 (1A) was that the AG could refer any undesirable audit outcome to an appropriate body for investigation, and the relevant body must keep the AG informed of progress and the final outcome of the investigation.

In clause 5(1)B and Section 5(1) B (D), dealing with personal liability, “debt” meant the amount owed by the debtor as specified in the certificate issued by the AG in terms of section 5 (1B) (b). “Debtor” meant accounting authority or individual members of the accounting authority, identified in the certificates issued by the AG in terms of section 5 (1B) (b) as liable for the debt either individually, or jointly and severally as the case may be. Rand Water proposed the insertion in section 5 (1) of what would be subsection (1) B at the end of subsection (1), that the AG must recover from the responsible accounting officer, accounting officers, accounting authority or accounting authorities, if in his or her opinion, a satisfactory explanation for the failure to recover the loss had not been provided by the relevant accounting officer or accounting authority.

Standard of proof was required to establish the existence of a satisfactory explanation. This was a case of culpability versus strict liability. The determination should be based on actual failure to act, where the responsible party was aware, or ought to have been aware, of the transgression. The AG could refer any undesirable audit outcome to an appropriate body for investigation, and the relevant body should keep the AG informed of progress and the final outcome of the investigation.

The definition of an accounting officer and accounting authority included former members of an accounting authority, former Chief Executive Officers, or other persons formerly appointed as an accounting authority.

Clarity was required on whether “investigative authority” included the Special Investigating Unit (SIU) which, under the current legal framework, could act only upon the instruction of the President of the Republic.

Discussion

The Chairperson said Rand Water had asked a question around the discretion of the AG -- whether it was his discretion to refer or not to refer. Everyone was duty bound to report any criminal activity. There was no discretion. If the AG picked up things during an audit, he did not have discretion whether he should report it or not. He had to. If Rand Water wanted the Committee to put it in the Act, then they would. It was common cause for the Committee that the AG must report all corruption. ‘

The issue around the SIU had been picked up by the Committee, and they would be getting back to that.

The Chairperson thought Rand Water was confused when talking about “the accounting authority” and “the board”. The board was the accounting authority, and they would be punished.

He said the AG determined the satisfactory explanation for standard of proof. It was at his discretion. There should be no concern over why the AG had been given the right to decide what was satisfactory. If one disagreed with the AG, then one could take his report on review.

For the AG to be informed by the Hawks on cases the AG had reported, it had to be involved in order to act. But once the AG was dependent on the executive to act, its independence was gone. The Committee was convinced that cases should be reported to the Hawks and they would do what they needed to do, and it was up to the Police or Justice Portfolio Committees to follow up.

The Chairperson said the Committee could not say in the Bill that the AG should refer matters to the Hawks, or the South African Police Service (SAPS) or the SIU. It could not be part of the principle.

Former accounting officers were also included in the Bill, to take accountability for their actions.

Mr Singh said he was concerned, and wanted Rand Water to expand more on the statement in 5.2.3, that “it was further not clear whether such determination would be drawn from the subjective observations of the Auditor-General or on application of objective standards on existing facts.” Mr Singh said that he had served on Scopa for many years and they had always valued the reports that emerged from the AG as being objective. He could not see where subjectivity came in. It cast doubt in his mind as to how Rand Water viewed the office of the AG when they said “whether the determination would be drawn from subjective observations”.

Mr McLoughlin said the Committee was not trying to re-invent the wheel. In the course of an audit, the AG asked questions. If the answer given was satisfactory, then it was covered.

He said the accounting officer by definition was responsible.

Ms Sithole said the essence of their commentary was embedded in the legal wording. They did not want a Bill to become an Act and at a later stage have issues around the expectation thereof. The questions test, the standard of proof, etc, were as a result of wording. In recent times, the Committee had seen and ensured that the AG was not challenged by organs of state. If the Committee produced a kind of legislation that was not permissive or mandatory, then they were demonstrating what could happen.

She proposed that the Committee should agree with the theme of Rand Water’s presentation, which was the need for care in the drafting and choice of words such as “shall”, “must”, “mandatory”, and “objective.” Those were the issues they were talking to.

Rand Water understood the issue of the accounting authority, but depending on the type of institution there could be a board, or other institutions that did not have a board. It was therefore important that inferences were drawn that members of the board were also liable in that regard.

Ms Sithole said the retrospective application was also a legal issue. She had been taught in law school that legislation was not retrospective. What they were saying was that the country was fundamentally changing the jurisprudence of South Africa to include the risk of retrospective application. This was a fundamental legal jurisprudence question they were asking. Looking at any legislation in the country, there was none that was retrospective.

Ms Motsoeneng said that Rand Water was not opposed to the amendments. Their commentary was to ensure that all the loopholes were closed and there were no comebacks in the application of the intended amendments. If the Bill was intended for retrospective application, then it needed to be stated as such.

There needed to be an element showing that an accounting officer failed to execute his/her duty, and that failure in law was culpable.

She said Rand Water was not in any way questioning the office of the AG. Their comment on the question of a satisfactory explanation was more on the standard of proof given -- whether it was oral submissions or interpretation of accounting books -- and to say if an undesirable outcome had not been acted on, it would be acted on.

The Chairperson said that some of the Members were not lawyers, but had grown up in hard times. He suggested that if Rand Water identified areas where there would be challenges, they should submit them to the Committee to assist them.

Mr Ntombela said that this was the first time he was hearing about the ignorance of accounting officers. The buck stopped at the accounting officer’s table, and it was his responsibility to ensure that he was accountable for all things.

Mr McLoughlin said that unlike the Chairperson, he was a lawyer, and that when the AG made a finding it was not retrospective. When the Bill came into effect, it would apply to all those who might have been in office previously. On the accountability of the accounting officer, he asked if the accounting officer would be liable only if he was either in breach of contract, or did not comply with all the laws applicable to him.

Mr Singh said he was following up on the retrospective approach, to get his understanding correct. The audit report that finally emerged was the subject of an ex post facto. He asked how the retrospective element tied in to the accounting officer.

Ms Sithole said that the emphasis of the former created the application with retrospective, and could result in the retrospective application, as the Committee understood it. It would need to be stipulated in the legislation whether it applied to current or former. There needed to be certainty about what was being implied.

Mr Kimi Makwetu, Auditor-General (AG), Auditor General of South Africa (AGSA), said that on the issue of retrospectivity, there were times where someone presided over a position as an accounting officer and that possibly was at the stage of development of a policy which was yet to be implemented. It had happened that the person left government and entered into a business relationship with other existing people, who geared themselves for implementation of that policy. One could go through the investigation and find out that the person who had been the accounting officer was directly responsible for a particular transaction, where supply chain principles were flouted, but now they were the supplier. The question was how to apply the principle with regard to retrospectivity in precarious circumstances like that, which were prevalent among public servants in institutions.

Ms Sithole said that there was more depth in the retrospective application, and there was a need to relook at this and determine what was actually being said in that regard. The accounting officer was ultimately responsible for supply chain management (SCM), but if the SCM governance were tested and there were committees that the accounting officer had put in place, whether for bid specification, bid evaluation or bid adjudication, these strengthened the standard of governance so that in any of the transactions, there was no direct line in terms of the ultimate awarding of the contract.

The Chairperson said that when Parliament interacted with the AG’s work, they interacted with the AG’s report which was signed by Parliament. At the end of the day, it was the accounting authority who was accountable.

Dr Ramola Naidoo

The Chairperson said that it was difficult to interact with Dr Naidoo’s presentation, since it was an oral presentation being made up as she went along. It was new information that was not covered in her emails to the Committee Secretary. The Chairperson requested that Dr Naidoo submit her comments in writing, even if she would not be able to appear before the Committee again, so that her comments could be considered, because her information was very important and would be helpful to the Committee.

Western Cape Government

Ms Shehnaz Seria, State Legal Attorney, Western Cape Government, submitted that the proposed amendment to Section 20 (2) was not supported. In terms of international standards on auditing, it was an experience of an auditee that the AG provided an opinion. A conclusion or finding was not consistent with the terms of an audit engagement. The comments made by Ms Linda le Roux, Business Executive: Audit Research and Development, dealing with clause six, were that the intention of the amendments to section 20 (2) were to provide AGSA with more flexibility in terms of audits that needed to be performed on an annual basis, and even provide for some level of rotation. This intention did not ring quite true. The interpretation highlighted in the comments could not be interpreted into the clause.

The Chairperson took the submission, and asked if Ms Seria would suggest wording to the Committee.

Ms Seria said she would.

The Chairperson said the Committee would take all submissions before Friday, and give them to the AG for response.

The meeting was adjourned.