Media Briefing by outgoing Auditor-General on audit outcomes of national and provincial departments as well as public entities
13 Nov 2013
The outgoing Auditor-General (AG), Mr Terence Nombembe, released the 2012-13 audit outcomes of national and provincial departments as well as public entities [see attachment]. The AG was joined by the Minister for Public Service and Administration, Ms Lindiwe Sisulu, Deputy Minister for Finance, Mr Nhlanhla Nene and the Deputy Auditor-General, Mr Kimi Makwetu.
Journalist: Minister Sisulu, when you were the Minister of Defence and Military Veterans you made a call for a clean audit – “operation clean audit”. There has been quite an improvement in that portfolio’s audit outcomes. Now you are in a department where there seems to be marginal improvements in audit outcomes. Can you give us an idea of the executive, the political heads, and their role and will that role make a difference? Some of your Cabinet colleagues have been rather quiet on this whole subject, I am not trying to get you in conflict with them but rather give us an idea of the roles of those political heads in departments.
Auditor-General: The question about the impact of leadership, which is a very important observation, what is good about this is that we are not saying it is prevalent across the board we are just saying a certain proportion of leadership does need to prove in the way in which we do monitoring and supervision of the work of the department and in this respect my reference earlier to getting all the internal controls procedures to be “green” whether its at leadership tone level, whether its at reporting level or whether it is at a governance level.
If you get these right; directed by a clear leadership tone, you have a better way of responding to even the unauthorised irregular expenditure that we have observed as being at a peak and at a high level. There are good news in the sense that “unauthorised and irregular expenditure” is now being given attention by government who go to discover these before we cleared them.
Minister Sisulu: When I got to the Department of Defence, it was known to be a serial offender because there had never been a clean audit in the Department. Then I got a visit from the Auditor-General and basically what he said was, ‘Minister we can help you get out of this situation. There are just a few things that we need to do - housekeeping, ensuring basic things - that can turn this around’. We failed the first time, we failed the second time and I threw a tantrum – but we succeeded the third time and for the first time we were able to get a clean audit for the Department. And all the time the Auditor-General’s office was there to ensure that we are assisted in understanding what the problems of the Department of Defence are, it’s a huge Department with huge demands and we had huge problems. Finally when we succeeded, it was all due to the fact that the Auditor-General’s office was there to take us through every step of the way and assist us.
They also suggested to us, which we were happy to accept, that we could change our performance assessment to ensure that each and every Chief of any sector in the Defence Force takes accountability for his section of the Defence Force, and every CO of the base takes responsibility for what happens at the base. When we changed that we saw a significant change in the way we respond to problems we had experienced, so that accountability not only laid with the executive authority but with each layer of responsibility we had in the Defence Force.
Unfortunately by the time that we got our clean audit, it was a month after I moved from Defence so we were not able to present the Auditor-General with a war medal – we felt that his office deserved it. This indicated that collaboration between the Auditor-General’s office and the Executive authority is fundamental, absolutely fundamental, in changing the audit outcomes. I hope that the new Auditor-General can use that as an example, if it happened in that Department which was way out of any possibility, it can happen to any department. There is no reason why we could not have clean audits in any of the other departments after we have had one in Defence.
The Auditor-General has always insisted that political responsibility is essential. Executive authorities must take accountability for what happens in their departments. It’s a pity that the Minister for Performance Monitoring and Evaluation (PME) is not here because between ourselves we had pledged that we stand ready to assist departments. With himself doing the monitoring and ourselves with the establishment of the office of standards and compliance, we would on a regular basis be able to assist executive authorities understand what problems they are experiences in their environment. As the system matures, I think it will be possible for us to see that the executive authorities are properly empowered to do what is expected of them.
Journalist: I have a question about the competency of the audits that are being done. I want to give you an example referring to the Passenger Railway of South Africa (PRASA) in particular. We were told this year by someone that the PRASA audit was done by a team of youngsters that were not really fully aware of everything that happens and that might have led to some of the bigger issues with PRASA not being investigated. Apparently at the time it was said that this was to be taken back to the AG. I don’t know if you ever got a report like that. The point I am trying to make is obviously PRASA got an unqualified audit and I am trying to understand whether you think you have enough people to actually manage the size of these audits. To audit someone like PRASA must me a tremendous task. I don’t know if you could comment on those issues, because I think it does speak to the accuracy of the reports at the end of the day.
Auditor-General: Regarding the competency of the audit process, we always welcome feedback on any areas where there may be omission of certain procedures. In the case that you have made a reference to, we have engaged with the leadership of PRASA and what is important to us is to have a continuous mutual time that is allocated through the audit process by everyone during the audits. The fact that you are seeing these incidents in isolation is for me testimony that overall the system is working; we just need to ensure that where there may be omissions we engaging constructively and extensively before the audit report is issued.
I don’t see it personally as an issue of audit failure I see it as an issue of a lack of engagement and proper clearance of the issues found. The audit does not lie in terms of the findings and if it found something and there is subsequent development that changes it, unless it gets time to clear it the auditors cannot speculate that something was subsequently corrected. Sticking to those weekly, and I do emphasize weekly, audit clearing committee meetings any department that does that has never had an incident where there is a misunderstanding between the leadership of the government as well as the auditors.
Deputy Auditor-General: To add to the response referring to competency. You should also get comfort in our processes; we voluntarily subject ourselves every year to an independent quality assurance process, if you look at out annual report, the outcome of that independent quality assurance review has given us a very pleasing outcome of about 87%, which looks at all the standards that are set in the audit assurance model as well as the independent regulatory board of auditors. We believe that the people conducting these audits are subjected to a very rigorous process of review by people who have experience.
Journalist: On page 62, as a follow up to the role of the executive authority, the Auditor-General’s report says “…our assessment that the executive authorities are not yet providing the required level of assurance is based on inadequate leadership controls observed at most of the auditees“.
It does not seem like half the Ministers and the EMC had had any impact whatsoever. Perhaps from both the Minister’s side and also from the AG’s side this echoes what you have found last year, it echoes what you have found this year. In terms of your local government audit is it the case that, as much as everybody appreciates you and your office’s work, they are just not listening to you or are other factors involved?
Second question, in terms of the R13.8 Billion irregular and fruitless expenditure, we are not seeing any reductions. That is a ballpark figure that has been around for the last few years. Is that a concern? Specifically, it appears 93% of the national departments have remained noncompliant and therefore are contributing to this. I am intrigued to know the four provincial departments, which have half the fruitless and wasteful expenditure.
Auditor-General: We wouldn’t see the rise as necessarily negative, some of it is actually backdated incidents but the trick is to avoid new occurrences when it comes to these items of reporting.
Journalist: I wonder if you can indicate to us which national and provincial departments and entities are starting to flash red lights now from accumulative impact of poor audit outcomes and failure to address your concerns.
Auditor-General: In terms of the big departments, we have categorised those to – Education, Health and Public Works right across the country. For us this is where the biggest red lights are, we share five of these portfolios and if you look at the quantum of the audit outcomes of every department this is where the biggest areas of qualified reports are. The disclaimers that we still have for the PFMA portfolio are also prevalent in those three sections, three of which are in Limpopo and the other two are in other provinces. For the rest of the departments there is major scope for sustainable improvement, all we need to do is to intensify those internal controls.
Journalist: The Department of Public Service and Administration (DPSA) essentially runs the leadership for the public sector. Is there an ethos because of good governance and especially with financial good governance? Do you think the ethos is beginning to go through the public service that this is taxpayer money that they are dealing with it doesn’t belong to them personally. Do you think that culture or ethos of “this is what it’s about” is beginning to slip through?
Minister Sisulu: I live in hope that one day we will have a public service that has an ethos and culture that we all believe that we South African have innately and we should promote in the public administration sphere. That ethos seems to prevail in the Auditor General’s office; there is no reason why it cannot prevail everywhere else in the public service. We are establishing the school of governance now changing from the previous institutional arrangement where we were conduit for taking public servants to institutions of higher learning in the private sector. What we missed out on is they are not responsible for the ethos and culture, we are. We have now changed that to have the school of governance so that we can create an ethos and culture of accountability and professionalism understanding that they are in the service of the state, they are paid by taxpayers’ money and we only have the capacity to do that and not private institutions.
Journalist: It goes to consequences Auditor-General, which you note and have noted by the failure to have consequences. Isn’t that a direct contributor to failure to improve or pay attention to the concerns that you have raised? I recall a briefing with National Treasury, not a single person has been prosecuted under the Public Finance Management Act. Can you contradict me on that?
Auditor-General: The fact that legislation is being re-looked at, is one of the recognitions that there may have had good enough grounds in the legislation to facilitate the ease to make these prosecutions. Not that no attempts have been made, there are many attempts that have been made but in many instances you find the government loses out because there could be weakness of the legislation that puts clear grounds on how to deal with these issues. I am excited that the Public Administration Bill is under consideration.
Minister Sisulu: It is true; we have not been able to prosecute anybody for contravention of the PFMA. The PFMA is a legal statement of what is required, what should be acceptable and not acceptable, and what the legal consequences are if people do not adhere to that. We have committed to put in place the processes that would be necessary to make sure that we can give effect to that clause in the legislation. This is why we are now working on what are the administrative steps to be taken to ensure we can bring those people who are guilty of contravention of the Public Service Act to book. We had numerous people out on suspended paid leaves while we go through the legal processes; we want to make sure that does not happen now. We are hoping with the assistance of the Auditor General we have closed that loophole in the Act.
Journalist: I was wondering if you could just confirm with the PRASA issue, whether it has been referred back to you or not and where it is at the moment. I know that there was a lot of unhappiness about the audit that was done there.
The second question is; the entities that the audit has not been finalized at the legislated date, could you give us an indication of how many of those entities comply with legislation saying that they have to submit a letter to you and to Parliament as to why they had not complied with the legislation. Has everybody complied with that? I also wonder if you would be able to comment on airlines SA Express and SAA whose books seem to have been bumbling along from one disaster to the other for the past three years, are those entities still growing concerns Auditor-General?
Auditor-General: In the report, every department and entity is listed with every transgression and excellence. It is even colour coded to highlight if this transgression is new or a repeat. I am not going to respond to any issue that relates to the shaming and applauding any department.
The PRASA issue is being attended to, I will not go into specifics, it is very clear that this is just an unfortunate incident of the lack of an adequate clearance process before the audit is concluded. We are working on it to ensure that that experience never happens again in any other audit.
Journalist: I seem to recall that Eskom, Transnet, SAA and so forth are not part of the audit procedure of the Auditor-General’s office and if so why not and should they not become a part of that process.
Auditor-General: We have a responsibility to publish the audit directive that prescribes how the audit must be conducted for all state entities, whether we audit them ourselves as the Auditor-General or those audits are done on our behalf by the private firms. The way in which they are audited is similar and identical right across the country. What we then do is to seek a way of consolidating all that information as part of the general report. So when you look at the ministerial votes, all the entities that fall under the Department of Public Enterprises will be listed there. None of the entities would have been left out, whether we audited them, the Auditor-General or private firms is immaterial because the procedures and quality standards are the same.
Journalist: You say that 26 entities did not respond this year in time to your audit request, this is 16 more than last year. So the number in terms of meeting deadlines are going up, is that a concern to your office?
Auditor-General: The system of submission of information for audit is such that there is a specific deadline that has to be observed by every government entity and when that does not happen we do report on it as reflected on the slides, there is a “blue” section on our colour-coded slides which shows those entities. The context behind that is that most of them are still being audited on account of either;
They have requested more time to submit and correct the things they needed to do.
They may have submitted the information late for audit purposes.
The consequence of that, they come with information quite late.
But very few, if any of those entities, have not submitted all together. It’s just a question of timing, and we welcome that because before we also concede with some of these deferrals or delays or extensions, we also make a determination of whether or not there will be a difference in the audit outcomes. If it’s a hopeless situation where the audit outcome will come up with a disclaimer or any other adverse conclusions we tend to be reluctant to grant such extensions. In a way we are comfortable that even though some of these entities may still be in the audit process the kind of responses that is expected of them is enough to promote the principles of accountability. That is what is important to us.
Journalist: How many of the 26 entities did not comply with process to make their submissions later than the legislated dates?
Auditor-General: On our side we are happy that everyone that has not submitted their annual report because they are being audited, we are happy with the reasons for the extensions. The motivations were done convincingly enough to ensure that the principle of accountability was upheld. I do not have the list of who has submitted their application for an extension for proper authorization from Parliament but I would have expected all of them to do that, it’s a common procedure.
Journalist: In the report you have a roll call of national clean audits in departments and entities, only three out of 35 national departments received clean audits. There should also be a very easy to read roll of bad audits.
Auditor General: The section that talks about votes will tell you who had clean audits. The annexure has all that information, the section you are referring to is purely to give you an indication of the broad national picture and the principles fundamental to sustain good practice in government and also to track in terms of proportions how far we are in achieving that reality. It is always good to applaud those that have done well, but it is not always good to criticise harshly and parade those that have not done well in public. Whereas there is an opportunity to say to them fix this and that.
The media briefing came to an end.
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