ATC240313: Report of the Standing Committee on the Auditor-General on the 2022/23 Auditor – General Integrated Annual Report, dated 08 March 2024

Standing Committee on Auditor General

Report of the Standing Committee on the Auditor-General on the 2022/23 Auditor – General Integrated Annual Report, dated 08 March 2024.

 

1. Introduction

The report of the Audit Committee is based on the requirements of section 40(6)(a) of the Public Audit Act, 2004 (Act No.25 of 2004) (the act) as well as its terms of reference, which are reviewed and approved on an annual basis. Principle 15 of the King IV code of governance requires that the governing body should ensure that assurance services enable an effective internal control environment, and that these internal controls support the integrity of information for internal decision making and external reporting.

1. Governance structure of the AG’s Audit Committee
   1. The Audit Committee is a statutory oversight structure that is constituted in terms of section 40 of the Public Audit Act. 
   2. The committee is accountable to the Auditor – General of South African and the Standing Committee on the Auditor – General (SCoAG).
   3. The Public Audit Act requires that the members be independent.
   4. The act further requires members of the committee to have their independency declared on periodical basis, and that they are free of any conflict of interest in discharging their statutory duties throughout the reporting period.

 

1. The committee members are as follows:
2. Ms G Mutau – Chairperson from November 2022;
3. Ms C Raskruge – ordinary member; and
4. Mr C Mampuru – ordinary member.

 

1. The committee appointed Ms G Mutau from November 2023 after the retirement of Mr J Biesman-Simons in October 2022.
2. The committee’s terms of reference are viewed annually and approved by the Auditor General of Soth Africa (AGSA).  
3. The committee also develops an annual work plan that directs its activities.
4. During the 2022/23 financial year, the committee focused on CPO matter and IT environment.

 

1. External audit and evaluation of annual financial statements
   1. Section 39(2)(c) of the Public Audit Act (the act) requires that the committee must assess the external auditor’s independence. After the assessment, the committee confirmed that Crowe JHB (“Crowe”), as an independent audit company was indeed independent and not conflicted in any way.
   2. The committee reviewed the management presentation letters, which were addressed to Crowe, and the Audit Committee recommended that both the Auditor General and the Deputy Auditor – General sign the Annual Financial Statements as well as the Integrated Annual Reports.
   3. The committee confirmed its satisfaction with the audit outcomes of the 2022/23 financial year.
   4. The committee recommended the reappointment of Crowe as external auditors for the 2023/24 financial year. The committee also confirmed that Crowe’s B-BBEE level 2 contributor status has significantly improved. Section 39 (1) of the Public Audit Act states that the Standing Committee on the Auditor – General has the authority to appoint the external auditor, and that must be done on an annual basis.
   5. The committee further concluded that the systems of internal control over the financial reporting and the risk management process for the AGSA were adequate and operated effectively. The Audit Committee confirmed that it was satisfied with the manner in, which it had discharged its responsibilities as outlined in various governance documents during the current financial year.

 

1. Internal Auditing
   1. The 2022/23 financial year was the AG’s internal auditors first year of audit.
   2. The internal audit plan operates on a 3 – year basis focusing on risks and key finance functions of the organization that are covered annually during the 3 – year cycle.
   3. The committee reviewed and approved annual internal audit charter, considered reports from the internal auditors, engaged separately with the internal auditors without managers to ensure that the independence, quality, credibility, and effectiveness of the internal audit process was maintained.
   4. The committee also received confirmation that no restrictions or pressure were put on them to suppress audit findings.
   5. The committee indicated that it was assured that the work done by the internal auditors in the current financial year demonstrated that the systems of internal control in place at AGSA are adequate and operating effectively. The committee also observed a notable improvement in the control environment.
   6. The committee identified a much-needed focus in IT security controls.
   7. There were adequate IT security controls, however, more focus was needed due to IT security reviews, heightened awareness of the cybersecurity threat and robust risk identification.
   8. The committee was satisfied by the report that the risk posed by the weakness in the IT security environment was receiving attention through the ongoing closure of audit findings and initiatives in the new enterprise architecture work.

 

1. Risk Management
   1. The Chief Risk Officer (CRO) is responsible for coordination of the risk management function in the AGSA’ s Office under the Risk and Ethics Business Unit.
   2. The Chief Risk Officer concluded that the systems of internal controls, risk management process and compliance with laws and regulations that the AG’s Office employed throughout the financial year are adequate and effective to manage risks to an acceptable level.

6.3 The committee approved the combined matrix to be applied in the 2023/24 performance period.

1. The committee was satisfied that its oversight over the adequacy and effectiveness of risk management process that the organization employed throughout the financial year to manage risk to an acceptable level.
2. The key material risks were identified with clear management action plan, and the committee was confident that the risk management system is functioning adequately.

 

 

 

1. Assessment of Finance Function and Chief Financial Officer

The committee was satisfied with the composition, experience, and skills of the finance function as well as the performance and expertise of the Chief Financial Officer (CFO). The committee was satisfied with how the finance function had acquired the requisite capacity and appropriate skill sets to fulfil its responsibilities.

 

1. Key Focus Areas
   1. During the 2022/23 performance period, the committee focused on supporting the executive committee in implementing the #cultureshift2023 strategy, organization’s Information Technology function, reviewing the recommendations arising from various reports following the event involving the allegations by the former Chief People Officer (CPO) against the AGSA.
   2. The committee ensured that those allegations were properly addressed.
   3. The committee had provided guidance and support to the DAG and was satisfied with the progress made by the DAG in addressing those allegations.
   4. The committee intended to capacitate itself with IT knowledge and capabilities for 2023 – 24 performance period and would continue to focus on the implementation of strategic initiatives during the execution of the #cultureshift2030 strategy.

 

1. Observations of the Standing Committee on the Auditor – General
   1. The committee noted the significant improvement of the Crowe on transformation resulting to Crowe’s achievement of B-BBEE level 2 contributor status.
   2. The Committee noted the introduction of data robotics, office automation and human resources whose services were outsourced to assess the vulnerability of the IT system in the AGSA offices. 
   3. The Institution achieved a net surplus of R263 million for the current financial year, increased from R40 million generated in the previous financial year. The recorded increase was due to the cost optimization strategies implemented by the institution.
   4. Importantly, section 38(4) of the Act empowers the AGSA to retain any surplus or a portion thereof, following consultation with the National Treasury and after approval by SCoAG. If approved, such surplus is used for working capital and general reserve requirements. The portion of a surplus not retained is paid back into the National Revenue Fund.
   5. In the previous financial years, SCoAG in its consideration of the Integrated Annual Report, recommended that the AGSA should retain the surplus generated in those years as General Reserves, provided the AGSA provided definitive plans, with timeframes, as to how the net surplus would be utilised.
   6. The Committee further observed that for the current financial year, AGSA has recorded a total debt of R1 080 billion, of which 45 percent of the outstanding debts are from Local government sphere. Importantly, AGSA has collected an amount of R153 million through ringfencing and R199 million through litigation. This portrays that the debt collection strategies implemented by the AGSA in 2016 yield the positive results.  
   7. It is also noted that there is notable emerging outstanding debts from those financial distress State Owned Entities.

 

1. Committee (SCoAG) recommendations.
   1. The Committee recommended that a request that had been made by the Auditor General’s Audit Committee to re-appoint Crowe as external auditors for the 2023/24 financial year in accordance with section 39(1) of the Public Audit Act (PPA) should be approved.
   2. The Committee recommends that AGSA should retain surplus generated during the financial period in concern as general reserves.
   3. The current collection strategies, which were mainly designed to collect the outstanding debts to those auditees, which are financially viable but choose not to pay the AGSA, might not yield the same positive results when it comes to collection of outstanding debts from the financial distressed SOEs.  It is therefore recommended that the AGSA should submit proposed plans to deal with the challenge.

 

Report to be considered.