A summary of this committee meeting is not yet available.
STANDING COMMITTEE ON PUBLIC ACCOUNTS
26 March 2003
AUDITOR-GENERAL'S GENERAL REPORT ON AUDIT OUTCOMES FOR 2001/2002
Chairperson: Mr F Beukmann (NNP)
AG's 2001/2002 General Report on Audit Outcomes
AG's 2001/2002 Activity Report
Presentation by the AG
Audit Report Process Diagram
AG's Press Release on the three Reports (Appendix 1)
Errata for Activity Report (Appendix 2)
Errata for Report on Audit Outcomes (Appendix 3)
Auditor General 2001/2002 Annual Report available shortly on AG website
Presentations were delivered by the Auditor-General (AG), National Treasury and the Department of Public Service and Administration on the work done by the Office of the Auditor General. The Auditor General outlined the new audit process, the five categories of audit opinions and noted that the key difficulties experienced by government departments continue to be a lack of internal control measures, especially in financial management, and unauthorised expenditure.
Members raised the following concerns: whether the new model of audit opinions would stereotype the performance of government departments, the confusion amongst government departments that an unqualified audit opinion means that there is no need to call those government departments to account, whether government will be providing financial management training to public servants, the increasing incidences of government departments questioning the AG's audit reports which results in a "slinging march", government's plans to address the problem of "fiscal dumping" and it was contended that the "thefts, losses and irregularities" table in the Report provides an inaccurate picture of the full extent to thefts and losses within government.
Questions posed to the AG by the media focused on the future special projects to be engaged in by the AG, the handling of donations given to government departments and the AG was asked to summarise the general state of financial management in government at the moment.
Presentation by the Office of the Auditor-General
Mr Shauket Fakie, the Auditor-General (AG) of South Africa, conducted the presentation as contained in the Briefing Notes (see document), and took Members through the General Report on Audit Outcomes (see document) and the Activity Report (see document).
Mr Terence Nombembe, the Deputy AG and CEO, presented the 2001/2002 Annual Report (see document) to the Committee. He stated that the Report is presented on the basis that the AG's Office is operating as a going concern, and will continue to do so in the future. It focuses primarily on the AG's Office's aim to uphold good governance and towards the achievement of the Office of the AG's set strategic goals. This is the essence within which this Report needs to be viewed.
Nothing really has changed as far as the governance structure of the Office is concerned. The independence of the AG as guaranteed by the Constitution is emphasised in this Report, as well as the role of the Audit Commission as a body that exercises an oversight function of the activities of the Office. It also deals with the fact that the Office has both internal and external auditors who have a role to play when it comes to the independent review of the activities of the Office. There is also a Staff Management Board which deals primarily with staff and human resource matters of the Office, and internally there is an executive committee, chaired by the Deputy AG himself, which looks into the day-to-day operations of the Office. This then is the broad framework of the governance structure of the Office.
These have been classified in five basic focus areas: the people in the Office, the product delivered, the process followed, the financial performance of the Office and the contributions made to society locally, regionally and internationally.
The Office has focused primarily on aligning people with its strategic direction and in doing so much attention has been paid to performance management within the Office, which was driven largely by the balance scorecard used as a key tool to measure performance. Certain have programmes have been introduced to facilitate the unpacking of the balance scorecard and implementation thereof in the Office, with two of the important programmes being the "Investment in Excellence" programme and the "Vision Achievement/Organisational Alignment" programme. These programmes are aimed at changing the mindset of staff and understanding the reasons for the strategic direction of the Office, and these programmes have helped tremendously over the past year in cementing the strategic focus of the Office.
This is related to continuous learning, and much time has been spent in providing audit-related training to staff, on new systems implemented in the Office such as the ERP and PeopleSoft systems, and also on internal controls relating thereto. The trainee accounting scheme is another fundamental pillar of the training programme, which has been licenced by both the Association of Chartered Accountants (ACA) and the South African Institute of Chartered Accountants (SAICA). The concept of personal development planning is also taken seriously in the Office and is well on its way to success.
These measures, intangible as they may be, will contribute to creating a culture in the Office that will lead to more prosperity in the future.
The graphs in the Report relating to labour turnover indicate that the Office is slightly ahead of the market for 2001/2002, by about 3%. This makes sense because the Office has contributed several members of its staff to the public sector as a result of the introduction of internal audits, which is bearing fruit with regard to the skills flowing in that direction from the Office. People have also, to some extent, pursued opportunities in the private sector.
Employment equity issues are also taken seriously, and the Office has established a Employment Equity Forum, aimed at monitoring employment equity issues in the Office. This is not limited to affirmative action measures, but also deals with the environment within which the Office operates so as to equalise the opportunities within the Office and which eliminates any forms of discrimination.
Employee motivation cannot be overlooked and the Office conducted a staff survey during 2002 to test and assess the level of satisfaction of staff within the Office, and management is currently in the process of acting on some of the feedback received from that survey. The Employee Wellbeing Programme has also been introduced primarily to make sure that stress-related issues of staff members are dealt with effectively without extensive disruptions in the efficiencies and operations in the Office. This programme is outsourced because the Office realises that it does not necessarily have the required competency within the Office to deal with stress-related issues, and also deals with HIV/AIDS issues in the Office.
The main focus of the Office has been to look at systems that will improve the efficiencies with which the Office performs its work, and to this extent the Office has focused quite heavily on key systems. Two of these are the TeamMate audit system, which is used to do "the audits out there in the field", as well as the PeopleSoft programme, which is the Office's human resource planning tool. The aim of these programmes is to improve efficiency and reduce the audit costs, but this will not happen overnight.
The AG has covered this extensively in his presentation, but the primary focus is to improve the quality of the audit delivered. There are quality control checklists that are used to ensure that the key processes and controls of each file have been checked at the proper level. The Technical Support Services (TSS) unit supports and assists business units when it comes to the product. The Public Accountants and Auditors Board (PAAB) conducts an annual evaluation of the quality of work delivered by the Office on an independent basis. All these steps are taken seriously and all the recommendations from these processes are considered as improvements for future audits.
The AG has mentioned the extent to which the Office delivers reports on time, but it has to be stated that this could not be done without the timeous submission of report by government departments themselves. The bulk of the reports provided at provincial and national level were submitted on time, with only a small minority delivering reports after the PFMA deadline. A huge backlog, approximately a third of the report, has been experienced when dealing with local authorities, and the 2001 reports especially were not ready on time. The Office continuously monitors this area, because it does impact the functioning and planning of the Office.
(iv) Contribution to society
The AG has mentioned the role played by the Office in procurement and the largest procurement is audit services procurement, where the Office enlists the services of audit firms to conduct audits on its behalf. Although this is as much a part of the Office's core business, it is also a contribution to Black Economic Empowerment (BEE).
(ii) Africa Projects
The Office plays a great role in the management of both the African Organisation of Supreme Audit Institutions (AFROSAI-E) and Southern African Development Community Organisation of Supreme Audit Institutions (SADCOSAI), in co-ordinating activities ranging from training to donor funding to ensure that there accountability and governance frameworks are equally respected within those regions.
(iii) Study support and bridging programmes
This is an important aspect for the Office, and much financial resources are spent here. Such programmes include the DENEL Bridging Programme which assists those students that have not as well in Matric. The Office also issues bursaries for students from the University of Pretoria, and these primarily students from the DENEL Programme, but another programme has been launched with the University of Port Elizabeth where students with BCom degrees are assisted in completing their post-graduate CTA degree. Nine of these students are currently doing their articles in the Office.
In all these efforts the Office is co-operating quite closely with FASSET, and some financial benefits are being derived from these programmes, but more can be done with more financial support.
(v) Financial performance
The pie chart in the Report gives a broad overview of the focus areas of the Office's audit activities, and where the revenue is being derived from.
Presentation by Director-General of National Treasury
Ms Maria Ramos, the Director-General of National Treasury, stated that the Reports provided by the AG not only assist in the improvement of financial management within government but also provide good, timely feedback in dealing with many of the implementation challenges currently facing government. A further benefit is that reports are now being submitted very close to the end of the financial year which is quite different from the previous situation, and very significant improvement has thus been made in this way, especially with regard to PFMA implementation.
The reports raise a number of challenges.
(i) Implementation of the PFMA and challenges faced
One of the strongest messages emanating from the report relates to the capacity of financial management in national and provincial departments. This is a very important issue in order to improve financial management in government, because Accounting Officers have to be given the necessary capacity to run their financial sections properly. There has been a big shift to appointing Chief Financial Officers (CFO) who are appropriately qualified, and this in itself has brought a number of key challenges and problems because there are not that many well qualified Chartered Accountants (CA) out there are keen to work in government. The result is that quite a number of government departments have moved to a contractual employment relationship with their CFO's, for a two to three year basis, with the hope that over time they will build capacity within their own departments. The quality and capacity of financial management is highlighted in the reports, and this is one of the areas that National Treasury will have to track. The battle currently facing National Treasury is urging government departments to invest more and more into financial management training, and to take it seriously.
(ii) Internal audits
This has been identified strongly in both the Audit Outcomes and Activity Reports. The ideal position would be one in which the AG, as the external auditor, can rely on the internal audit function and reports. This will take a number of years to achieve, and improvements in internal audits have been seen on a broader scale. Government departments are taking seriously what their internal audit committees are about and are conducting the risk assessment required by the PFMA, so that the internal audit function has a risk assessment document against which it can then develop the internal audit function. Here again many of the challenges faced by a number of departments is exactly the desired personnel for the internal audit function can be sourced from, because it is the personnel that adds the value to this audit committee.
(iii) Conditional grants
This of keen interest to National Treasury, especially the manner in which the transfer of funds and compliance with the Division of Revenue Act is managed and implemented by both the national, provincial and receiving departments. A significant amount of work has to be done here to improve reporting and compliance.
(iv) Public entities
National Treasury has set up the Registrar of public entities, and is also currently engaged in a detailed "scoping" exercise to determine what is needed to ensure improved compliance, disclosure and reporting by public entities. There is much would that can and must be done in the area of the public service, broadly defined, to ensure that the public entities that are covered by the PFMA, do improve their compliance, disclosure and reporting functions. It is expected that this would allow the AG to deal more comprehensively with public entities in the audit reports.
(v) Qualified audits of government departments
The AG indicated in his presentation that there are certain government departments that, instead of showing improvement in financial management practices, are year after year producing financial statements that receive stronger qualifications from the AG. One of the difficulties faced by National Treasury here is how it can address this problem, because it is a matter that National Treasury cannot resolve by itself. Ms Ramos stated that she has assumed that one of the primary problems here has to do with the seniority of the people that are put in charge of financial management. Government departments run enormous budgets and, if this were the private sector, a team of very senior qualified people would be placed in charge of those budgets.
Yet in the case of the result of the Department of Public Works audit, for example, it not only receives a qualified audit every year but is also listed as one of the top five departments in terms of the number senior managers. This clearly indicates that the problems being faced are more than just about the senior management, or perhaps it is that those in management are not the senior staff. This Committee has to offer guidance as to how this matter has to be taken forward.
(vi) Value-for-money auditing via the PFMA
This will be achieved faster the sooner reliance can be placed on the internal audit function, because this takes away the enormous amount of work, effort and resources that AG's Office has to put into financial audit alone. It also releases funds that can be invested in performance and value-for-money auditing.
(vii) Better alignment of reports
This has to be ensured between strategic plans tabled by the National Treasury and the estimates of national expenditure, the performance agreements of the senior managers of departments, the quality of the annual, monthly and quarterly reports and the information disclosed in those reports and the information flow that has to be considered by Parliament.
(viii) Transversal systems
National Treasury is also doing a significant amount of work with State Information Technology Agency (SITA) on the transversal systems to align the financial management information with the generally recognised accounting practises required by the PFMA, and also to bring it towards some form of accrual accounting, as it is being developed. Departments will have to enter into service-level agreements with SITA here, which may have to be managed by pretty senior officials within the department.
A decision has been taken to discontinue development of certain systems such as the Logistic Information Management System (LOGIS), because it is believed that the PFMA requires something different, and the Vulindlela Project may also be in the same category. Government departments are also being taken off the Financial Management System (FMS), and everybody is being migrated onto the BAS system so that at least one platform is used to migrate into the new transversal systems.
A significant amount of work is being done here at the moment. The proposal in the AG's Report that departments be required to report in their annual reports on what they have done in relation to meeting the requirements of the Preferential Procurement Framework Act (PPFA), which contains a strong requirement for BEE. National Treasury has been astounded by the evidence presentation at the Jali Commission which indicates the complete misunderstanding or misuse of the PPFA, and this has to be addressed.
(x) Cash flow reporting and planning by departments
Significant improvement has been made in this area because the previous Department of Finance used to run a cash flow buffer of a few billion Rand a month, whereas the National Treasury is currently only employing R250m - R300m per month, which is a big saving of R70m per year on interest.
In conclusion, Ms Ramos stated that there are several interesting developments on the horizon, such as the kind of accrual accounting system to be used by Government. The AG's Report highlights a number of problems but more importantly sets out a number of challenges, and requires everyone in Government to continue the implementation of the PFMA whilst trying address some of the challenges raised in the Report.
Presentation by Director-General of the Department of Public Service and Administration
Mr Robinson Ramaite, the Director-General of the Department of Public Service and Administration, stated that one of the exciting developments is that the Department of Public Service and Administration has an increasing set of indicators that enables government to have an idea of the performance of government departments in general. He stated that he is certain that in future government will improve its ability to benchmark government departments against each other. It may be important for government to eventually end up with some sort of classification system of government departments because, as stated by Ms Ramos, there is a pattern that is emerging with certain departments having a set of recurring problems over time. Perhaps a system has to be put in place to classify and monitor the development of these departments over a period of time.
(i) Capacity contraints
One of the major indicators that is used here is the level of vacancy rates in the public service, and there are several reasons for this. At any point in time the average of vacancy rates can move closer to 20%, and this is a cause of concern in various areas. It does seem to differ per sector and this will enable government to break this problem down a bit further. It has been found that in some instances there are high vacancy rates because at lower level jobs people are retiring or going out through natural attrition, and departments are reluctant to fill those posts because the nature in which those jobs are performed in changing. This would be applicable primarily to the Departments of Public Works, Agriculture and other infrastructure related departments. Government is trying to address this via the restructuring exercise, which is part of Resolution 7.
At government level all attempts are being made to identify the scarce skills which do influence the high vacancy rates, and it also seems to be much more prominent in the outlying rural areas. Discussions are currently underway to consider the possibility of introducing internships within government departments especially in these areas, so that government itself can begin to nurture the types of skills it needs in the medium to long term. It will become increasingly difficult for government simply to find these skills in the market, especially as government find it increasingly difficult to compete with the salaries offered by the private sector.
(ii) Monitoring and reporting on training within departments
As Members would be aware government is not compelled, in terms of the skills legislation, to contribute the 1% of the payroll to the SETA's, because this 1% is supposed to be budgeted for within government departments. It is thus generally expected that government departments will itself attend to the training of its employees. The Department of Public Service and Administration has never really been successful in arriving at an understanding of and reporting on what exactly is going on in government departments, and this matter will have to be attended to.
(iii) Senior Management Service (SMS) posts
There is an increasing trend where professionals are appointed at management level posts, and it does therefore not mean that a director is therefore also a manager. A better understanding of this has to be ensured.
(iv) Use of consultants
A number of guidelines with regard to the use of consultants has been adopted across government including a guide on fee rates, which was published. Clearly much more work has to be done to assist the level of compliance with these guidelines, especially amongst the big spenders.
(v) Public entities
The Department of Public Service and Administration has jointly conducted an evaluation of the remuneration of public entities, and are currently looking at the review of public entities. There are those that are more commercial in nature and would therefore fall within the jurisdictions of the Department of Public Enterprises, but there are also a whole host of those that are of a non-commercial nature that have to be looked at. This review process looks at the different accountability structures, areas of possible overlapping of mandates, roles and responsibilities, and particularly relationships with Accounting Officer, Ministers etc. within this entities.
There is clearly evidence of an improvement made in this area generally across government, and the main problem here remains the link between planning, budgeting and implementation across government. This eventually led to the adoption of a planning framework within government which was aimed at aligning and integrating in a more efficient manner the cycle between policy planning, budgeting and execution of budgeting policies, because the concern is that extent to which there is a continuum between these. This is especially important if one notes that it takes on average a total of two years for a policy to be executed, from the time it is agreed upon.
There are a number of variables that impact on this. Capacity is clearly one of them, as well as where exactly responsibility vests within an organisation. One of the bigger issues in the public service has been, to some extent, the over-centralisation of responsibility at head office level and a lack of focus on delegation of responsibilities across the three spheres of government. This is particularly important in the social services departments such as the Departments of Education, Health, Social Development etc.
(v) Procurement reform
This is important in light of the general trend towards the abolition of tender boards. This also has an impact on what will happen in that department when the responsibility shifts to that department itself, in terms of its capacity and the powers and responsibilities of the heads of institutions.
(vi) Intergovernmental relations in the planning framework
Ms Ramos referred this as the issue of conditional grants. This continues to be a big problem and there are a number of programmes across government that are supposed to be implementation in an integrated manner, but government has not yet been able to come to a full understanding of the linkages needed between the three spheres of government in order to do this properly. Until this is done, the three spheres will continue to blame each other. A fair amount of time has to be spent to understand these links, especially how conditional grants work in practice.
A specific intervention is currently being conducted by a multi-disciplinary team in the Eastern Cape to attend to the some of the problems experienced in that province with conditional grants. It is clear from that intervention that a much more sustainable framework has to be identified within which government can attend to problems of this nature, and merely sending in a team for a few months will not necessarily solve all the problems that are much more embedded in the institutions.
(vii) Resolution 7
Mr Ramaite stated that he has no doubt that several government departments will inform this Committee that many of the problems it is currently facing with capacity constraints are due to the implementation of Resolution 7 on restructuring. While this will be true to some extent for a very short term period, it is a very necessary exercise that government has to engage in. Cabinet discussed the progress made with regard to the restructuring process and agreed that the cut-off date for the completion of this exercise, fixed at June 2003, would not be postponed.
Government is really trying to resolve a problem that has been plaguing the public service for some time with quite a significant number of public servants that are misplaced, or whose skills do not match the ongoing strategies of their respective departments. This has to be resolved. Before government moves to retrenchments, it has to examine the extent to which the different numbers of people can be accommodated within various government departments, depending of course on their skills profile and the probability of the portability of their skills across different sectors in the public service. This does require the freezing of external recruitment for a certain period, but the Department of Public Service and Administration has allowed departments to continue external recruitment on condition that these are skills that cannot easily be found within the public service. Government is quite confident that by the end of June 2003 it would have a sufficient picture of the situation that will allow it to move quite quickly on this.
(viii) Transversal systems
These are not easy issues because the public service is a very large institution, and any discussions on transversal systems are bound to be complex. The SITA continues to collaborate with National Treasury in this particular regard.
(ix) Reporting and accountability on non-financial matters
There are a whole range of non-financial matters that are an important variable in the performance of government departments, and the manner in which this has to be monitored, reported on and held to account is something that needs much more collaborative discussions. The Department of Public Service and Administration has been contending for some time now that it would important to receive an indication from government on how it is doing with regard to implementation BEE, for example. These are important indicators of government performance.
The Chair referred the AG and Mr Ramaite to Point 3.1 of the Activity Report, and stated that it is quite clear that benchmarking is essential to ensure good government finance. During 2002 this Committee had two hearings with the Departments of Public Works and Water Affairs and Forestry, and Members were quite honestly not impressed with the responses offered by the Accounting Officers of those departments. What additional measures could be implemented to ensure that the benchmarking of the Accounting Officers and CFO's is in place in a manner that will ensure that a repeat of qualified or adverse financial statements is avoided.
The AG responded that the AG's Office believes that, when looking to see where departments fit into the financial capability model, very clear criteria have to be determined to guide this categorisation process, and the Office is working closely with National Treasury on this, and it is also discussed with the department itself. This would enable the Office to indicate that although that department has continuously received a qualified audit opinion, it is at least progressing in the financial capability model.
Mr B Kannemeyer (ANC) asked both National Treasury and the Department of Public Service and Administration on the new model and categories of audit opinions proposed. Would this not possibly result in the stereotyping of departments.
Ms Ramos replied that she agrees that there is a danger of stereotyping, but at the same time there is a need to benchmark performance in a different way than is the case at the moment. The difficulty is not so much the stereotyping but rather that the departments that receive qualified or adverse audit opinions year after year are complex organisations. The difficulty for the national department "is just getting its head around what its role is in that regard", because on the hand it has to devise and implement policy and on the other it has to run a complicated organisation. Government has basically not done enough work to distinguish between different kinds of organisations in the public service. Each government department needs good Accounting Officers and financial managers to run those organisations.
Mr Ramaite added that this model is taking South Africa to the right place, but a balanced scorecard will eventually have to be developed that will have to include the other indicators used across government, in order to get a fair picture of the performance of government departments. At the moment, when the Department of Public Service and Administration evaluates the performance of Accounting Officers, much reliance is placed on the AG's report. The problem is that the practice is not yet widespread enough, as only approximately 30% of Accounting Officers are currently evaluated. This has to be improved upon.
Mr Kannemeyer asked the AG to indicate whether he agrees that the AG could very well have government departments that might have progressed to the desired level "Control Level 3", while they might still receive any one of the five different audit opinions.
The AG responded that he agrees with Mr Kannemeyer here, because a department could be doing reasonably well in the capability model and still receive a qualified audit opinion. This is very possible. The General Report does contain some indicators that the Office believes can be used to measure whether government departments are in fact improving or not, and the financial capability model provides the key "measuring stick" for government departments.
Within a particular control level there may be six criteria that can determine whether the government department qualifies to fit into that level or not. It could be that a government department only complied with two in the previous year and is at Level 2, and has complied for four or five during the present year yet remains at Level 2. Some kind of measurement is afforded by stating that although it may not have moved to a higher level, at least there is progress in that area. This model was used in Canada and in Australia as well, to a limited extent, and it really helps without singling out a specific department on its own.
Mr Kannemeyer referred to "Emphasis of matter" in Point 1.3.3 of the General Report, and stated that it is one of the key areas relating to compliance that this Committee and Parliament would like to consider. This Committee has been faced with government departments who have stated that, when they were called before a hearing of this Committee, they were not expecting a hearing because they have received an unqualified audit opinion. It appears that there is not a proper understanding of what is meant by "emphasis of matter", and there is a sense among government departments that because the matters raised under "emphasis of matter" have not led to a qualified opinion, there is no need to call that government department to account to this Committee. Government departments have to be made to understand precisely what is meant by "emphasis of matter".
The AG replied that this relates to the managing of the expectation gap that exists amongst government departments who believe that if they do not receive a qualified opinion they therefore have a clean report, and do not have to appear before this Committee. The issue of public interest in the public sector domain is quite important because many of the aspects that the Office includes in the audit report as "emphasis of matter" would, in the private sector, normally be reported via a management letter, but this will not even be seen in the public sector domain. Yet because there is such a high level of accountability and transparency in the public sector around issues of public interest, these are included in the emphasis report as "emphasis of matter".
Mr Ismail Mamoojee, the National Treasury Accountant-General, added that this issue would become most significant as South Africa migrates to an accrual basis of accounting, and the process that has been adopted focuses on disclosure first to identify whether people can comply with the disclosure requirements. Once this has be ascertained, the next step is to identify whether they have the necessary systems and processes in place to be able to report. These areas of emphasis of matter will grow in future.
Ms Ramos added further that she is both surprised and concerned that government departments are under the impression that emphasis of matter is not important, and no Accounting Officer should not be concerned about emphasis of matter. In fact, they should be as concerned about emphasis of matter as any other qualified audit, and perhaps this is one area in which this Committee, National Treasury and the AG has to be more vocal and correct this understanding.
Mr B Bell (DP) referred to the statement made by Ms Ramos that internal auditors, internal audit committees or internal audit functions within government departments have not been established, and stated that he does not believe that excuses can be made for this because it has to be done as the PFMA calls for it. Could the DG's comment further on this.
Ms Ramos responded that she was trying to make the point that it is not an optional extra to have an internal audit and an internal audit commission, because it is in fact a requirement of the law and thus all government departments have to have these. Yet there are different approaches to setting up an internal audit, and what matters here is not so much the setting up of an internal audit but rather the quality of the work it does and the seriousness with which its output is regarded.
Mr Ramaite added that he agrees that the internal audit is a core requirement but the problem is that because of the quality of personnel conducting the internal audits, all efforts have to be made to guard against government departments merely establishing internal auditors "so they can tick against the column, when in actual fact the service they get from the internal audit component is very poor". This is a practice that is fairly common. In fact in the provinces, for example, the internal audit function will be centralised and inquiries are made as to the internal audit office are referred to the Premier's Office, when in fact in the individual departments there is hardly any internal auditing functioning taking place.
Mr Bell sought clarity on when all accounts in all government departments are expected to be placed on the accrual system.
Ms Ramos replied that National Treasury has established a time-table for fully implementing this, but is currently grappling with what exactly is involved in an accrual system. The United Kingdom has opted for an accrual system in which the budget remains on a cash basis, and parts of the rest of the system go on the accrual basis. South Africa already has parts of entities on an accrual basis, and a large part is till on the cash basis. National Treasury is now trying, together with the Accounting Standards Board, what the right mix between cash and accrual accounting is, what works for government and what the international experience has been. As Mr Mamoojee has indicated, there are some things that lend themselves to an accrual system.
Mr Bell referred to the statements made by the DG's regarding the problems with financial training, and asked when financial training will become a major training effort within the South African Management Development Institute (SAMDI) and the public service.
Ms Ramos responded that National Treasury has set up the accreditation framework because it has been recognised that government will never be a training institute, because its core function in relation to financial management is not to be a training institute but it can and must set the standards for the kinds of training courses in financial management. It can therefore work much more closely with government's own training institute, SAMDI, and other private sector organisations to deliver on that trading function.
The mistake often made with training is that it is easy to do. There was a flurry of training courses after the implementation of the PFMA, but it is not easy but is a specialised function and it needs a proper process and accreditation body. National Treasury has agreements with SAMDI and the Institute of Public Finance and Auditing (IPFA), and is working with the technikons and universities, and aims to have a closer working relationship with SAICA and other professional bodies in this area, to devise training programmes that are suitable for the public service.
Mr Ramaite added that this is really the responsibility of the Accounting Officers, because the only choice they have is to use the accredited service providers on financial management training, accredited by National Treasury and contracted by SAMDI and a whole range of other institutions. Mr Ramaite stated that he has to recognise the need for training, contract the relevant service providers and ensure a follow-up process with regard to practice etc. It is at this level of monitoring of execution of responsibilities that improvements have to be made, to get a better sense of exactly is going on in government departments.
Mr D Gumede (ANC) referred to the experience learnt from the Committee's visit to India, and stated that India has an institute that trains people from different parts of the world. It is not a university or technikon-type of training, but is ad hoc training for a specific need of government department. It would assist the South African situation to tap into that kind of resource and to then consider the pro's and cons of including such as institution, particularly given the expenses over time.
Ms P Mothoagae (ANC) stated that Members were informed during the meeting on the Department of Foreign Affairs budget vote that there is definitely a moratorium on appointment of staff members.
Mr Gumede stated that it is realised that it takes a long period of time for vacancies in the public sector to be filled, and some vacancies are also frozen. Mr Ramaite has explained that government departments would be allowed to fill those vacancies if they really need those skills. Is this understanding shared by every Director-General, Director or any official that needs to fill a vacancy? It is often the case that critical management positions are not filled for a long time, as was the case with the Deputy Director-General vacancies in the Department of Public Works about three to four years ago. Has management really actually measured and defined the problem, as this is the first step in attempting to resolve the problem? If this has been done, what institutional problems are encountered by the Department of Public Service and Administration in filling these vacancies? Is it due to non-competitive salaries offered by the public sector, because people are averse to being deployed in the public sector because of the environment or is it the image of the public sector?
Ms Ramos responded that the issue of capacity is a real issue but one has to guard against this becoming an excuse, because between the Public Service Act and the PFMA the Accounting Officers are presently actually granted much more scope within which to perform their functions. The department can be structured according to the needs. National Treasury has had difficulty in filling the required posts in the given timespan, but this is also due to the fact that it is quite choosy about the type of person employed. Ms Ramos stated that although the capacity issue is a problem, it is worrying that government departments far too often hide behind it to excuse non-delivery. There are cases as well in which there is the necessary capacity and employees are paid handsomely, yet there are still problems with effective delivery. This has to be dealt with.
There is this misperception, with regard to salary levels for senior management especially, that any government official can get "a fancy, high level, multi-million Rand job in a nice cushy... position" in the private sector. The truth of the matter is that there is actually a very small number of people in the private sector that have such jobs, and there is an even smaller number of public servants that would be able to get those jobs. Ms Ramos stated that she does not believe that public servants are paid that badly, although there may be categories of people that are not offered salaries that are as competitive as those offered in the public sector, such as the areas of financial management, engineering, doctors etc. But people in the SMS are pretty well remunerated, and the truth of the matter is that many of those people would probably not be able to get the same kind of remuneration package in the private sector. As stated earlier, this capacity issue has been used as an excuse, and it does impact on expectations and outputs.
Mr Ramaite added that it has to be clarified that there is currently no moratorium on the filling of management posts, as referred to by Ms Mothoagae, because all management posts are exempted from the current restructuring process and managers can therefore fill them as they so wish. Should a government department identify a position which it considers to be a critical post, all it then has to do is approach the committee and request that it be filled. Mr Ramaite stated that he is not aware of a single instance in which such a request has been refused, because the majority of the time these are posts requiring specialised skills which will not be found in excess in the government department.
Here a distinction has to be made between a lack of capacity and a lack of leadership, because most of these instances involve a lack in leadership. Mr Ramaite stated that a manager can appoint any departmental employee, such as an IT specialist, at any salary level in government, but the manager would have to justify why a particular expertise needs to be offered a particular salary. But there is no limitation here.
Mr Gumede referred to the retention of staff, and noted that no statistics have been provided on staff turn-over. He stated that it is his assessment that it seems that the figures for skilled persons in the public service is much higher than it is in the competing labour markets, particularly the skills of financial management and management.
Mr Ramaite replied that this is related to his previous response and stated that as an Accounting Officer he could introduce all kinds of mechanisms, such as reasonably better incentive schemes than what would otherwise be available, provided that here too he can justify such measures. Thus managers and Accounting Officers have much scope to make the right decision, where they are needed.
The Department of Public Service and Administration has found that the turnover relates to persons "who are rotating within the public sector", and they are thus not necessarily leaving for the private sector.
Ms Mothoagae referred to the time allocation for the finalisation of audits and stated that that department had informed Members that the Office of the AG had not granted it enough time to prepare for the audit, that the AG has requested the wrong package etc. How can this problem be addressed, because it will impact future reports.
Mr V Smith (ANC) stated that this Committee is being faced with increasing incidences in which government departments query the product delivered by the Office of the AG, and contend that only junior staff are deployed, and often to the wrong office. The AG then states that the audit could not be effectively conducted because his Office did not have access to the correct documentation etc. If the AG's Audit Process (see diagram) were to be followed there should be no reason for this "slinging match", because that process provides for adequate consultation at management level, quality control measures etc. This has to be addressed.
Ms Ramos replied that it may be difficult for the AG to answer these questions and stated that the truth of the matter is that by the time the audit report is presented to this Committee, the relevant government departments should have sorted out their problems with the AG. Ms Ramos stated that it is problematic to come before an audit committee and then question the quality of the audit, because she has never experienced any difficulty in contacting the Office of the AG directly when she has had any issues as an Accounting Officer. The disciplined approach would be to sort such concerns out beforehand, and this is the very reason for establishing the audit committee, why an audit plan is agreed to with the AG as well as other mechanisms put in place.
Far too often government departments state in their own defence that they have not been able to comply with certain mandates because of a lack of capacity, which is in turn due to a lack of funds. Yet the fact of the matter is that all government departments would like to receive greater funding, but they have to find a way to made do with what they have been allocated. If government departments do not manage within the framework of their allocations, then they have not done their jobs. This is the experience in both the public and private sector.
The AG added that the audit process is quite rigorous and complies with international audit standards, and in fact the Office of the AG often exceeds those standards. Figure 1 in the Audit Outcomes Report and the Audit Process diagram indicates that in the "Pre-Engagement Activities" and "Audit Planning" phase, the Office of the AG relies very heavily on the relevant government department to indicate who the correct contact people are for the various information required. It is impossible for AG staff to know precisely who the appropriate contact persons are, and this is one of the issues discussed during the planning phase.
The Office of the AG also exceeds the international standards in this regard as it also establishes an Audit Steering Committee (ASC) within the relevant government department in addition to the audit committees, as indicated in the Audit Process diagram, and this ASC is supposed to chaired by the DG of that government department. The idea is to have audit committee meetings about two or three times a year, but this does not allow the parties to properly address these issues. The ASC comprises members of the AG staff as well as senior members of the auditee, and it is really a clearing house for the government department to indicate the problems that it is experiencing in getting the necessary documentation together, for example.
There are several problems that result in complaints being raised with this Committee. The first is that the quality of participation of the senior management structure of the auditee is not what it should be, and results in that management being dissatisfied with the outcome of the audit. This is improper because if it takes it responsibility and role in the audit process seriously it should never come to this Committee, because it had enough opportunity to deal with this matter.
The second is that it is often alleged that a junior AG staff member requests the incorrect information from the wrong person within the auditee. Here again the AG's source on who this information has to be acquired from is provided by the auditee itself, and if someone from the Office of the AG acts on this information provided and still incorrect documentation is provided, then the Office of the AG cannot be blamed.
Measures have been put in place to ensure that due process has been followed before an audit report is finalised, and the comments and responses from the government department is definitely taken into account because this offers guidance. The AG stated that he is thus of the opinion that the Office of the AG has gone the extra mile in putting all these measures in place.
Mr Ramaite added further that he agrees with the AG and Ms Ramos that there should be very little sympathy for Accounting Officers that offer this kind of argument, because they did have ample opportunity to interact with the Office of the AG. In fact the Deputy AG met with all DG's to discuss the problems experienced so that they could be dealt with. A very cealr message has to be sent that government departments have to use the opportunity provided.
Ms Mothoagae stated that this Committee has found that in many instances it is the Accounting Officer that is responsible for the unauthorised expenditure, which amounts to financial misconduct, yet s/he then resigns during the course of the investigation into the matter. How can this be addressed?
Ms Ramos responded that The Chair had asked National Treasury to give an indication as to what happens in cases of financial misconduct, and stated that she does expect that the fact that if a person found guilty of a criminal offence then leaves the employer, that the law would not apply. The criminal law applies irrespective, because the person would still be liable in his/her private capacity. It does therefore depend on the offence that s/he is found guilty of.
Mr Ramaite added that he agrees that a long-term solution has to be found to this issue, and stated that he agrees with Ms Ramos that when such a person has transgressed the law, it should not matter if that person has resigned, because s/he could still be held liable. This is also related to the timing of the audit reports because the reality of the matter is that if that person leaves in April, for example, the audit report for the previous financial year would not yet have been released. It would thus be unreasonable to require that person to then remain until the report is finalised because it would be costly from an employment law point of view. A commitment can be made to consider the legal side of these issues to improve this situation.
Mr Smith stated that agrees with the indication given by Mr Ramaite that the trend of underspending is being reversed, and asked to what extent this decrease in underspending is attributable to the practice of "fiscal dumping" that government departments engage in towards the end of the year. It is well known that this takes place. Is this being addressed and, more importantly, who should be addressing this?
Mr Ramaite replied that there is recognition that this practice is pervasive in government, and that it is not productive. It takes a number of forms: this first is channelling funds to agencies outside the department, whereas the other is simply spending the funds "on useless things" primarily in the period between January and March. This has to be resolved collectively, and a possible starting point would be requiring government departments to report on a more regular basis.
Ms Ramos added that this is a big issue, especially where government departments can actually transfer funds to other agencies. There is actually a method of reporting and every month National Treasury publishes to its executive authority on its spending patterns, and every quarter it publishes consolidated provincial and national reports which are submitted to Cabinet. There is thus much reporting. Perhaps the different Portfolio Committee's could call in the relevant Accounting Officers twice a year to explain these reports. If by the end of December a government department has only spent 50% of its budget then, unless it is a very specific case in which the bulk of the transfer takes place at the end of the financial year, and "miraculously" between 31 December and 31 March it spends all its funds, there is a problem.
During the budget hearings a Member of the Finance Portfolio Committee proposed that government departments also be required to report on their cash flows throughout the year, and this could be beneficial. It does appear that this practice is an unintended consequence of the added pressure put on government departments to spend the full budget, because they do not want to show underspending or apply for the roll-overs.
The AG added further that an element of control that has already come into being from the budgetary process is requiring government departments to indicate what they intend to achieve with the budgetary allocation. This is important because if there is a mismatch between the purpose for which the funds have been allocated and what it is actually spent on, that government department has to be held to account. Wasteful fiscal dumping here would be exposed, but it does not deal with this matter on a micro-level.
The Chair asked Ms Ramos to indicate the timelines for the production of annual consolidated financial statements in terms of Section 8 of the PFMA.
Ms Ramos responded that National Treasury will be attempting this for the first time during 2003, but it will not be a complete consolidation. National Treasury will in any event be corresponding with this Committee to set up the budget and consolidation format in the next few weeks, and a timetable could thus be provided to Members on this.
Ms N Hlangwana (ANC) referred to the statement made by Mr Ramaite regarding the benchmarking of government departments against each other, and that a framework has to be put in place for this benchmarking process. This is a very important issue because most of the time government departments' overall performance continue to deteriorate, but it is only when a "serious disaster" occurs that an intervention is made. Would this benchmarking process be the responsibility of the Department of Public Service and Administration or National Treasury, or would they be jointly responsible?
Mr Ramaite replied that there are already existing sources of information that are available, but the crucial issue here is taking the available information and packaging it into some framework that allows the categorisation of government departments with regard to their performance, and to assess performance patterns. This would serve as some form of warning system for potential problems with certain government departments. This packaging into some form of performance indicators are already evident in National Treasury's reports.
Ms Hlangwana referred to the "Unauthorised Expenditure" table in Annexure B of the Audit Outcomes Report, and noted that only a few government departments are listed here. Is this because those listed performed worse than the rest? Surely there are others that should have been included here, such as Department of Defence.
Mr L Chiba (ANC) expressed concern with the manner in which the information in the Reports has been presented, because it can create an unintended impression. For example, the "Theft. losses and irregularities" table in Annexure B of the Audit Outcomes Report indicates that only the Department of Safety and Security has been listed as having sustained theft, losses etc., and creates the impression that the total extent of theft etc. amounts to about R5,3m. This is the wrong impression, because the South African Revenue Services (SARS) report indicates theft and losses of R13,5m, and the Department of Defence has reported losses to the tune of R17,5m. How can this information be presented more accurately?
Ms Ramos replied that this is a very valid point and there is a problem here, and government should have to account for these amounts because they are public funds.
The AG responded to these two questions by stating that the Audit Outcomes Report has been aggregated to a higher level and has only looked at amounts in excess of R1m. The intention was thus not to list every theft and loss that occurred, but was rather to list the more material ones at a cut-off point of R1m. The second point to note is that the PFMA requires that it is now the responsibility of the Accounting Officer to report on an unauthorised expenditure, whereas before every single audit report reported every single unauthorised expenditure. Now the Accounting Officer reports on unauthorised expenditure as part of the financial reporting requirement, and the Audit Outcomes Report on focuses on those that have not been adequately reported in the accounts of the auditee. The Audit Outcomes Report thus essentially summarises the audit reports, so that it does not pick up most of the unauthorised expenditure that may have been properly disclosed by the Accounting Officer.
Table 3 in the Audit Outcomes Report indicates that SARS was not included because focus has been placed on those Accounting Officers that exercise direct control over the public entity, and SARS is a separate entity and has its own Accounting Officer. Mr Chiba's concern has been noted and the Office of the AG will look at means to present this information in a better manner in future.
Mr Kannemeyer referred to the statement made by Mr Ramaite regarding the process for evaluating the remuneration of staff of public entities, and sought clarity on the process to include local government in the broader definition of "civil service". This is important because there are municipal managers that are earning more than the DG's present here today, and they deal with municipalities that are much smaller than the departments which the DG's have to manage. Mr Kannemeyer stated that he does not have a problem with this because capacity has to be ensured at local government level as well, but there is definitely a problem if there are disparities between the salary earned and the work done.
Ms Ramos responded that National Treasury is trying to map put quit a comprehensive review that deals with the remuneration of public entities, as well as disclosure etc. There seems to be "quite a culture of hierarchy" in the public service, and leads one to believe that the official that is best remunerated is the DG or Accountant Officer of the government department. Ms Ramos stated that she would not be averse to someone receiving a much higher salary than her own, provided that that person performs a function that warrants that salary. The problem arises when a municipal manager of a small local authority, with a budget of a few million Rands "with a little thing to look after", earns twice the salary of the DG of Department of Public Service and Administration, there is a mismatch. Thus balance has to be struck between the remuneration offered and the value added by that employee to the organisation.
Mr Ramaite added that the Department of Public Service and Administration is continuing its work on local government, but stated that the Department of Public Service and Administration has not taken a decision on whether similar salary levels should be introduced throughout all the three spheres of government. Measures are being taken to gain an initial sense of the kinds of disparities and trying to benchmark the job evaluation systems, because this will provide an indication of "equal pay for work of equal value". There is quite a dynamic interaction between the Department of Public Service and Administration and the South African Local Government Association (SALGA) in particular in evaluating local government, and a proposal will be presented soon on this matter.
Mr Kannemeyer stated that he is beginning to feel that the monthly and quarterly reports are merely a "tick off box" as referred to earlier by Mr Ramaite. Clarity is sought on the extent to which the executive authorities are actually making use of this very important and critical management tool to prevent the current problems?
Ms Ramos replied that this is also an incredibly important question. The monthly reports are processed by the executive authorities, and one of the major challenges here is whether these reports produced can be understood by any interested party. National Treasury has been battling to get the CFO's to produce monthly reports that are written in a manner that is accessible to all. National Treasury also does submit regular reports to Cabinet as well that cover both the national and provincial departments, and National Treasury also alerts Cabinet to potential difficulties down the line. There is thus a significant amount of important information in the monthly reports.
Mr Kannemeyer stated that during the meeting held with the Parliamentary Service it was discussed the longstanding debate as to whether the PFMA in fact applies to Parliament's financial management system. It was indicated that over-expenditure by Parliament does not have to be surrendered, and only the funds overspent over and above the allocated funds plus its surplus are regarded as unauthorised expenditure. This creates some sort of lack of fiscal discipline.
Ms Ramos responded that this is a matter of ongoing debate and stated that in law the PFMA might not apply to Parliament directly, but the PFMA does set down some very good basic disciplines that should be applied by everybody. Thus even of by law an institution like Parliament is not required to comply with the strict requirements of the PFMA, National Treasury has "put up a big song and dance" for public entities that do not have to report in terms of the PFMA to implement its principles and spirit.
Mr Kannemeyer referred to points raised regarding public entities and noted that the Indian system, in addition to its equivalent of this Committee, has another Committee the exercises oversight on public entities to which the government funds more than 50% of its budget. Could this sort of accountability process be covered by this Committee and the AG as well?
Ms Ramos replied that the great difficulty here is that this should not only involve those public entities that receive more than 50% of direct government transfers, but should include all transfers. Ms Ramos stated that it is a good discipline, but she was not sure whether it is for Parliament to decide whether another body should be set up or not.
Mr E Vezi IFP) contended that it is very difficult to hold Accounting Officers liable for gross negligence in executing their duties.
Mr Vezi asked how the non-compliance with the provisions of the PFMA affects the credibility of the AG's Report, if at all?
The AG replied in the negative, because in the public sector domain compliance with rules and procedures is important and the PFMA is an important piece of legislation. This non-compliance aspect has to be looked at because some are purely technical in nature, but because there is a non-compliance the Office of the AG is obliged to report on it. Others are more serious in nature, and here it is the job of this Committee to unpack that non-compliance.
Mr P Gerber (ANC) stated that he wishes to correct the statement made earlier by Mr Kannemeyer, as the Indian experience is that a company in which the State has more than a 50% shareholding it must be audited by the AG.
Mr Gerber referred to Annexure C of the Audit Outcomes Report that deals with the provincial votes, and contended that the different votes of the various provinces are not synchronised. This should be done because at the moment there is much duplication.
The AG responded that this is true but it is something over which the AG does not have any control, and it thus requires further debate.
Mr Bell referred to Annexure C in the Audit Outcomes Report dealing with the provincial votes and noted that his province, Mpumalanga, has been the best performer. Has this got anything to do with the fact that Section 100 was invoked in 2001, with the result that that it has now received only two qualified votes.
Mr Wessel Pretorius, the Executive Manager in the Office of the AG, replied that the key reason is that the financial system has been decentralised during 2002 and therefore issues such as bank reconciliations, advances, suspense and disallowance accounts affected all departments in the past. But these are now been allocated to the different departments so that there is a better accountability process, and this has resulted in the drop in the qualification.
Questions from the Media
Mr Andre Jordaan (SABC) asked the AG to indicate any special projects or investigations that might be coming up in the year ahead.
The AG responded that the Report does mention that the Office of the AG wishes to engage the Financial Capability Model (FCM), to look at setting up criteria for the financial capability which will be looked at in conjunction with National Treasury and the auditee. It is doubtful whether this will be dealt with in the current year under review, but the initial phases of the FCM will kick in for the 2003/2004 year. Other issues include Human Resource Management (HRM) within government departments, asset management as part of the whole internal control weakness has to be looked at especially as government departments will soon be migrating to the accrual basis of accounting and procurement as well. The Office of the AG is busy grappling with service delivery and the Reports will be very helpful here, because its financial management areas highlighted as problems can be linked to its impact on service delivery.
Ms Linda Ensor (Business Day) asked the DG to summarise the general state of financial management in government at the moment, and asked whether further improvement has taken place during 2002.
The AG replied that the audit cycle for the current year has not kicked in yet because of the timely reporting currently being experienced, and stated that he therefore does not have knowledge of the state during the current year. The audit cycle will begin during in May, and the Office of the AG will then be able to conduct a reasonable assessment of the current situation. The Office of the AG is therefore not currently auditing an financial statements and it would be premature "to make a call on exactly what the state of affairs is during the current year". If one looks at what was reported on during the last year it is clear that there improvements are taking place, especially in those areas that have been brought to Parliament's attention. Generally with the introduction of the PFMA there seems to be a definite improvement in the culture, mindset and management around finances as well as an appreciation of the importance of financial management in the public sector.
A member of the press stated that the Reports do not refer much to "thefts, losses or irregularities" or what might be called corruption, and does this mean that there is no corruption in government or is it because government is doing very well?
The AG responded that this table has to be read in the correct context and stated that he should perhaps insert an additional paragraph that indicates that those thefts and losses indicated do no necessarily mean that there are irregularities, but merely means that something may have been lost within a government department. For example, the South African Police Service (SAPS) does report losses of much of its arms and ammunitions, which quite often occur when they are stolen from the police vehicles. The requirement that government departments have to report on all the thefts and losses that have occurred within that structure has been taken from the old Exchequer Act, and this must not necessarily be linked to the presence of irregularities.
Mr Jordaan stated that during the discussion the AG mentioned that there is some concern regarding donations made to government departments, and sought clarity on this.
Ms Ramos replied that National Treasury will not only be focusing on donations but will be aiming to put a proper framework of accountability in place for donations, sponsorhips and other gifts that are sometimes given to government departments. At the moment all these have to be declared, but a framework is needed that sets limits on the value of such things, for example. Ms Ramos stated that she is not referring to donations received from the Reconstruction and Development Programme (RDP), but is instead referring to those gifts and donations that could result in a conflict of interests.
Ms Ensor asked the AG to comment on the rumour that he may be pursuing other employment.
The AG responded that there is no merit in the rumour at all.
The meeting was adjourned.
Appendix 1 : Press Release
DATE: 26 MARCH 2003
AUDITOR-GENERAL - GENERAL REPORT ON AUDIT OUTCOMES 2001-02, ACTIVITY REPORT 2001-02 AND ANNUAL REPORT OF THE OFFICE OF THE AUDITOR-GENERAL 2001-02 PRESENTED TO SCOPA
The Auditor-General is presenting the overview of his findings from conducting audits of national departments and their related entities, as well as information on his own performance and that of his Office, to the Standing Committee on Public Accounts today.
The bulk of the General Report on Audit Outcomes provides an analysis by ministerial portfolio of the audit findings on all the entities under that minister. This includes the values and the audit opinions. For the first time information on each portfolio, also showing the status of information on entities not audited by the Office of the Auditor-General, is available. This allows for a complete and comparative analysis of portfolios and not simply an analysis of the performance of government departments. For example, the Department of Labour received an unqualified audit opinion; however, 22% of the audit opinions on related public entities were qualified. This provides a more valuable and broader picture of the issues within the labour portfolio.
The key findings from the audits included the fact that the only national government departments that received no comments in their audit reports were Housing and Communication. Of the remaining departments, eight received severe audit opinions or qualifications. The remainder were not qualified, but certain matters were disclosed under emphasis of matter, this being the least severe audit opinion.
The number of qualifications was similar to that of the previous year. However, the departments that received the qualifications were not the same. In fact, 43% of the departments that had received qualified opinions in 2000-01 received an unqualified audit opinion in 2001-02. The fact that issues did not linger from one year to the next was a positive underlying trend throughout the reports on the national departments.
This trend was important in assessing the effectiveness of the audit report and the accountability process in general. It appeared that steps were being taken to resolve matters; for example, due to the onerous requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999), the initial problems led to various comments in the audit reports. These comments were, however, decreasing in number. This was an indication of the capacity of departments to address the requirements of the legislation.
The departments that received the most severe audit opinions were Statistics South Africa, the Department of Water Affairs and Forestry and the Department of Public Works. These opinions revolved around, amongst others, instances in all three departments where the auditors were unable to verify balances or information.
The other area where improvement was very slow, if any at all, was the internal control over accounting and financial systems. This covers aspects such as asset management, payment of expenses, controls around the information systems and employment and related costs. These factors are all part of the overall effectiveness of financial management across government.
Reporting on the various levels of financial management in government will become a feature of future reports. This will enable a clear understanding of where departments (and other government entities) are in relation to one another, and it will enable comparison over time.
The General Report on Audit Outcomes also provides summary information on provinces. 69% of total provincial expenditure is in the areas of Health and Education. It is significant that 66% of Provincial Health Departments received qualifications, whilst 77% of the Provincial Education Departments also received qualifications.
The office has a strategic drive to become more effective in its service delivery and is striving for excellence through inter alia stringent quality assurance processes, including independent reviews by the Public Accountants' and Auditors' Board and the office's own quality assurance process. In addition, the office is also a recognised training institution for trainees from the South African Institute of Chartered Accountants as well the Association of Certified Chartered Accountants.
The average cost per R10 000 audited is 16 rands or 0.16% for the 700 or so entities audited.
Issued by: Lynette Groenewald Contact person: Shauket Fakie
Office of the Auditor-General Auditor-General
Appendix 2: Erratum to Activity Report
Erratum to the Activity Report of the Auditor-General for the Financial Year 2001-2002 [RP 211/2002]
Last paragraph on the page refers to "Given the fact that the overall cost to the taxpayer for every R10 000 audited, is 16 cents."
This should be "Given the fact that the overall cost to the taxpayer for every R10 000 audited, is 16 rands." .
Appendix 3: Erratum to Report on Audit Outcomes
Erratum to the General Report of the Auditor-General on Audit Outcomes for the Year Ended 31 March 2002 [RP226/2002]
Reference General Report on Audit Outcomes
Page 20 1.4.3 (a) second paragraph first sentence
The sentence reading "Details of the individual departments and their expenditure and total personnel costs appear in annexure C"
To be deleted
Page 25 Table 16
Eastern Cape Expenditure R 4 221,4 million and Budget R3 892,5 million
The sentence stating "The following entities that have not submitted the required information by the report date, have not provided reasons for their non-compliance:
CEF (Pty) Ltd [Consolidated statements] should not appear in the listing.
Line that reads "Voted Funds were underspent by R 122 million.
Line should read "Voted funds were overspent by R 122 million
Expenditure for African Renaissance and International Co-operation Fund reads R 14 million.
Expenditure for African Renaissance and International Co-operation Fund should read R 55.4 million.
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