Auditor General's Report: hearing

Meeting report

PUBLIC ACCOUNTS STANDING COMMITTEE
19 June 2002
AUDITOR-GENERAL'S REPORT: HEARING

[This is a transcript of the meeting, produced by the Public Accounts Committee Secretariat.]

PRESENT

ANC

Chiba, Mr L
Gerber, Mr P
Gumede, Mr. D
Mothoagae, Ms. K
Nair, Mr. B
Nobunga, Mr B J
Smith, Mr V

DP

Bruce, Mr N
Lowe, Mr L

NNP

Beukman, Mr. F (Chairperson)

UDM

Koornhof, Mr G

ACDP

Dudley, Ms C

APOLOGIES

Ndou, Mr R S
Woods, Dr. G
Hlangwana, Ms N L

In attendance

Auditor-Generals Office

Mr S Fakie, Auditor-General
Mr. P Mosaka
Mr. C Botes
Ms. L Less

Treasury Office

Ms M Ramos, Director-General
Mr I Momoniat
Mr J Nair

Formalities

The Chairperson welcomed members of the Committee, the Auditor-Generals Office and National Treasury. He confirmed the agenda and it was adopted as circulated.

Mr S Fakie, Auditor-General; Ms M Ramos, Director-General: National Treasury; Mr Ishmael: Accounting General: National Treasury; Mr J Nair, Director-General of PFMA implementation

[Mr F Beukman (Chairperson)] We would like to welcome everybody here today.

[Mr D Gumede] Given the nature of the Auditor-General's Report and the way that it is presented we shall be as transversal as possible. We shall try as much as possible not to get into individual departments, because of the nature of the Report. We shall stick to the National and Provincial departments. We note that this was the first financial year that the full requirements of the PFMA have been enforced. Given that we are interested in the trends that are fitting up right now. I realize that the trend of unqualified Auditors improved for the last three years moving from 56.5 to 66.7. That is a 20% improvement in as far as the financial audits are concerned. The improvement becomes even more pronounced in as far as the compliance audit is concerned at the rate of improvement of 30%. We are protected. This improvement also coincides with the first introduction of the PFMA. I would like to direct the question to the Auditor-General. Does this mean that more departments and public entities have Audit Committees that comply to the PFMA? If so, what is the measurable increase from that date if the information is available?

[Mr S Fakie] In response to the question we have indicated on page 14 of the General Report, paragraph 1233 subparagraph b on the Internal Audit function and Audit Committees. We have indicated in the Report that at the National Departments there was 97% of cases that Internal Audit functions were established. The question on the reliance of the work of Internal Audit has been questioned and you would see that there was only 21% reliance at National Departments that was placed on the work of the Internal Audit. As far as the Audit Committees are concerned we have provided some details on Annexure C on Audit Committees, but we have also indicated that there shortcomings relating to Audit Committees at six departments and which we have previously reported, but as 31 March 2001 Audit Committees had not been established at two votes why it was not functioning effectively at four votes. The overall comment to the question is that - yes, there has been an increase in the incidence of establishing Internal Audit function. There has been an increase in the establishment of Audit Committees which is a requirement in terms of the PFMA. The question of how effective these bodies are operating. There is a lot of work that still needs to be done in that regard in terms of the effectiveness of both the Internal Audit function and the Audit Committees.

[Ms M Ramos] I think that the Auditor-General has answered the question. We will, today submit to you the latest update on the PFMA implementation plan which I have with me, which is quite detailed. It just gives us a further update on that. Perhaps just to say that, I think, that certainly from where we stand in trying to assist departments with guidelines for the setting up both of Internal Audit Committees and the setting up of the Internal Audit functions. We have done quite a lot on that with the departments, but it is going to take time for Internal Audit functions to develop and to be relied upon. I think, more of that will develop as well as the normative standards that we are trying to work through with the Auditor-General are agreed to. At the moment there is a process with the Auditor-General to agree on those normative standards and codes and we hope to have those in place and finalized by July. I would imagine that this is going to be an issue that is going to be raised by the Auditor-General for a number of years. It takes time to develop reliance on Internal Audits.

[Mr Ishmael] I think, what is also important in this process is -as part of the Audit function that there is a level of confidence that is filled between the external audit and the Internal Auditors. That part of the planning of the external audit begins to agree on a plan where the Internal Audit would do a certain amount work and so that the confidence can be built. Therefore, the reliance factor can perhaps be improved. Clearly what we have found in the survey is that there has been an establishment of the units and the Audit Committees. It has not really been operational and that is the thing that we need to enforce as we go forward.

[Mr D Gumede] Following up on the question of effectiveness and reliance of these Audit Committees - would be the question of the relationship between the nature of the Audit Committees of the entities that do not comply year after year. We know those departments have been listed by the Auditor-General and then perhaps the reliance and non-compliance. Is there any type of relationship in as far as that is concerned?

[Mr S Fakie] If I can perhaps respond on the issue of reliance - as far as non-compliance is concerned it is a bit of a difficult one, because and, I think, the spirit of the PFMA is actually moving towards this. Traditionally the mentality and the attitude within the Public Sector was that a piece of the legislation said that you shall do this as long as they got a tick on the box they were happy that they have done what they were supposed to do. I think, Internal Audit is, but one example of that where the PFMA is saying you shall have an Internal Audit. Many departments have gone through an established Internal Audit merely to get a tick on the box to say that we have an Internal Audit functioning. As far as the compliance is concerned they have met the requirement. The question around how effective they are? I think, is an issue that we are a bit concerned about and, I think, that was raised in the previous question. The reliance that we place on Internal Audit - I just want to share with the Committee the process we follow in order to place reliance on the work of Internal Audit. Firstly, we do three level reviews in order to eventually say that we can place reliance on the work of the Internal Audit or not. The first level review is basically to look at the mandate of the Internal Audit. In order words, what is the terms of reference and how are they established and what is the mandate of the Internal Audit. Then we look at the organizational status as to where Internal Audit sits within the organization. That is the first level review that tells us how independently and objectively can Internal Audit function and therefore, what element of reliance we can then place on the work of Internal Audit. If they do not pass that review we do not place any reliance on the work of Internal Audit. If they pass that level of review we then go to a second level of review in terms of saying what is the capacity and the skills and the qualifications of the people employed within the Internal Audit function to be able to discharge and fulfill that responsibilities. If there are major gaps in that area we would also place limited reliance on the work of Internal Audit. Having gone through the second level of review we then go through the third level of review and turn around and say what are the activities that Internal Audit was involved in, in other words, did they have a proper plan like the Accounting-General mentioned. Whether involving any of the executive decision within the Department or any of the Executive Management activities. Did they do a proper plan and a risk assessment etc? What was the quality of the review of the work that was done by Internal Audit? In other words, the standards to which they have applied themselves? That third level of review we would do only if the first and second level has been passed. It is only then that we do place reliance on the work of Internal Audit. I am not saying at this point in time when you look at the status of Internal Audit we are still grappling with level one and level two reliance. We have not even gone into level three reliance at this point in time.

[Mr D Gumede] My question is directed at both the Auditor-General and the Department of Treasury. In your view what measures should the Treasury Department introduce to promote better Internal Controls and to provide a disincentive to departments that disregard or ignore Internal Controls? In fact, those departments are listed in the Auditor-General's Report.

[Mr S Fakie] If I can perhaps start off and Treasury may want to respond. In the first instance we need to understand that the responsibility of Internal Control rests with the Department. I think it is the Departments responsibility to ensure that they have proper Internal Control systems in place. The role of Treasury is in many ways to provide guidance so that the departments can have a proper mechanism for Internal Control. It is our view that in areas where departments are grappling to get on top of the issues of Internal Control and if Treasury is aware of these areas. That is why we put out this General Report so that Treasury can also take note of where there are transversal problem areas to see if there is ways and means for them to either, provide some element of training or provide some kind of guidance if necessary to those departments. The ultimate responsibility for the Internal Control in my view rests with the Department itself. I do not know whether Treasury would like to respond to that.

[Ms M Ramos] I think, that is our strong view as well. One of the big changes was the introduction of the Public Finance Management Act (PFMA) was to build the ………..of accountability and to give Accounting Officers and executive authorities responsibility over their budgets. Also, to make them accountable for those budgets. I think Treasury plays an important role in setting the standards. We have done that across the board with the PFMA in a number of areas. Whether those are in the form of the Treasury Regulations which have accompanied the PFMA and have been updated from time to time. As we have become aware of things that need to be updated as we have read through the Auditor-General's Report and picked up on gaps and areas that needed to be improved. In the case of the Internal Controls and audit - we completed and published a framework at the end of October 2001 which we had discussed extensively with the heads of the Internal Audit Units, National and Provincial Departments, the Provincial Accountants-General, the Provincial and National CFO's and we then published a framework document that set out the parameters and guidelines for the establishment of Internal Audit Units and Audit Committees. We have also tried to capture in that some of the recommendations of the King Two Report, for example. We have an important role in setting standards and try to ensure that those standards are current. It is the responsibility of all Accounting Officers to have - I agree entirely with he Auditor-General. Let me just say that my own experience as an Accounting Officer in my own Department is that if you want to do this properly. If you do not want to go down the route of just complying so that you can get the tick in the box so that it does not get reported. It actually takes a lot of time and it takes an enormous amount of work and effort. The easiest thing to do is to go out there and appoint somebody as your Internal Auditor. To advertise the post. You find somebody. You appoint it. You get the tick and no one worries about it again. You do not get reported for not having an Internal Audit. The other way of doing it is to try and meet the requirements which the Auditor-General has set for reliance. Certainly in our case what we did, was we tried to go out there and do the risk assessment first, and get somebody in. A professional firm to come in and help us with the risk assessment exercise so that we know what risks the Internal Audit function is supposed to be monitoring for us. That they have a risk plan that they are looking at. That in itself is a big exercise and involves an enormous amount of workshopping with each of the divisions in the Department and up the line and down the line as well. Then you have to find the right people to do it. Again, from my personal experience after having advertised I cannot remember how many times for an Internal Auditor. In the end going out on tender to procure in the function of Internal Audit and to put in place a team of people to evaluate the candidates for that Internal Audit function. It is a lengthy process. We have just completed it actually in the Treasury. In the end we have outsourced the Internal Audit function to one of the big accounting firms. I think, that this system is going to actually take some time to mature.

[Chairperson] We immediately go to Mr B Kannemeyer who is going to concentrate on Audit Committee and Internal Control.

[Mr B Kannemeyer] Part of what is indicated is the tick box that the Department can actually get a correct tick that they have got an Internal Audit section going. I have picked up over the last couple of weeks advertisements for Internal Auditors posts in a number of departments. Both at National level and at Provincial level. The requirements has normally been BCom with accounting and or auditing and experience in the related field. Then I have also seen other Government Department posts being advertised which asks for matric and/or university degree or relevant experience in the field. Then I compared the salaries offered to these posts and invariably and inevitably the remuneration offered for a Director at Internal Audit level is way below what is offered to other posts in that same Department. There is some sense that the quality of people or the strength of our Internal Audit sections is impacted by the fact that we are trying to recruit people that is fairly highly sort after in the private sector and other sectors and we are not offering what they can get elsewhere in Public Sector - does that have an impact? This question is both to the Auditor-General and the Finance Department, because the Auditor-General has said that they also look at the qualifications and experience of the people in this. I just get the sense that it fairly, both in terms of age experience that are fairly junior people that we have in these sections. I may be totally wrong, but if one could just have a sense on that?

[Ms M Ramos] I think this a very important question. In the end it comes down to the Accounting Officers, because Accounting Officers now have quite a lot of scope to determine what they spend their personnel resources on and what establishment their Departments look like. I think, the point that we are trying to get to is one where Accounting Officers recognize that both their CFO's, but their Internal Auditors are a key part of their performance. If Accounting Officers designate the post at too low a level then you are not going to get the right people no matter how many specifications you attach in terms of qualifications in your advert. Again, without picking on the other departments, but just to use my own Department. In the end what we decided was that although the operational budget of the Treasury is quite small, the budget we manage overall is very big. Although we are a small Department both in terms of our operational budget and also in terms of the numbers of people we employ. We run a very big budget and so we have decided that the CFO we needed, needed to have a CA. That we were going to bring that person in at a senior level and, in fact, that person gets remunerated. It actually is on a contract again from one of the accounting firms, but is remunerated at a package which is equivalent to a Deputy Director-General. It is the same with the resources you make available for running your Internal Audit section. What I am saying is that it is a key question for SCOPA to be asking the Accounting Officers of the departments concerned. Particularly those departments who come up year after year in terms of not delivering and not getting proper financial and compliance standards in place. How much would their budget then dedicate it to that unit and why they have not put it on top of the priorities? That would be my response.

[Mr S Fakie] If I can perhaps just add a few more perspectives to the question and, I think, it is a very important question, because, I think, the heart of the problem lies within that. Firstly, we have done a survey and it is an internal survey. We have found that the knowledge and understanding on the part of the Accounting Officer and in some cases even the Executive of the benefits and value of Internal Audit is lacking and it is lacking quite badly. The importance that has been placed on the role and function of Internal Audit actually being a support mechanism to help the Accounting Officer and help the Executive to strengthen its system of Internal control is quite often not perceived that way. It is perhaps perceived and I speak under correction, as someone that is going to oversee what I am doing. Therefore, the extent of importance and the level at which Internal Audit is being brought into departments is problematic from that perspective. The other issue, which is also important in this regard and again, it is something that we need to debate and over a period of time we will find an ideal solution to this. Many departments as the Director-General has mentioned are perhaps managing big budgets, but are small in operation. Therefore, if you really evaluate it and did a proper study on the size and the number of people you require in Internal Audit you will find that it is a pretty small Internal Audit unit that you require. When you have got that kind of a set up it is extremely difficult to recruit top quality Internal Auditors in that environment, because there is no career prospects for that person. They get stuck in that environment etc, and really you would not pick up the best of the people that are available in the market not withstanding what you offer in terms of salary. The salary issue is a problem and, I think, the Director-General has elaborated on that. You have got another problem in terms of - some of these departments have two or three people in the Internal Audit division and you will not pick up someone that is got career prospects or is really dynamic in an Internal Audit environment to join that kind of environment. These are some of the challenges that, I think, departments are facing. What we really need to consider that is going to be a major impediment. We will do some surveys and look at some of these things, in fact, we are thinking of doing a Performance Audit around the whole aspect of Internal Audit and how they are functioning etc. What may come out of this thing is to consider setting up a more central based Internal Audit function that provides Internal Audit to all the departments and therefore, you perhaps are able to recruit a more critical mass of Internal Auditors in that environment. You are able to provide a better career prospect for Internal Auditors and also you take away there is a whole lot of training that can be done etc. You would get all that equality from that perspective, but whether that is the right answer at this point in time, I am sure, but there are serious impediments at the moment to try and recruit and retain good quality Internal Auditors within the Public Sector.

[Mr B Kannemeyer] I think it was very useful replies. I would want to suggest and I do not think that it is necessary for a response on it that I do not know if it is Treasury or the Public Service Commission or where this fits in, but that we actually do look at guidelines indicating to departments the level of seniority or something in that regard that the importance of us regarding the Internal Audit section. I think I want to concur also that probably there should be, but it seems there is not a clear understanding of the importance of an Internal Audit section as a very important Management tool in departments. With that I want to move on immediately to Internal Controls. I think in a way we have got the same type of problem - lack of perception or understanding of the importance of that in ensuring a proper financial Management framework in departments. The example I want to use is for instance, in Parliament here, the adoption and development of a fraud detection and prevention plan was made subject to the availability of donor funding. It was not prioritized out of budgeted funds. When we engaged with Parliament on it, we were explained and given the reason why and the background. It was funding that was available that was already granted and we could not see that funding go to waste. The result of that approach is that that fraud detection and prevention plan has not been in place at the time of our last Hearing. That is probably a very good example of how departments see the importance of proper Internal Control systems that would be highlighted through your fraud detection and prevention type plan and the implementation of that. The question relating to this is - whether and I believe there must have been, but the extent that, I think, the Director-General has said that she has got a detailed report on the extent of the PFMA implementation which probably would also reflect on fraud detection and prevention plans in departments. Could we get a sense, also from the Auditor-General, because the Report does indicate that Internal Control is one of the areas that is still seriously lacking in a number of departments - whether Treasury from where they are sitting are getting a sense that in terms of putting in place proper Internal Control environments that we are starting to win the battle in that regard?

[Ms M Ramos] I think the Auditor-General has a better sight of whether we are starting to win the battle, but certainly from the surveys that we are doing in terms of the implementation of the PFMA for as much as we can use that to get a sense of whether Internal Controls are getting better or not. There is clear evidence that departments are making big efforts to comply with the PFMA. The compliance of the PFMA does require and it is a building process on improvement of things like Internal Controls. I guess that the Auditor-General's Report also suggests, although there are improvements there are still departments and they tend to be the same departments that has been coming up for the last two or three years. There have been persistent problems with Internal Controls. I think, Mr B Kannemeyer is right and this also depends on the attitude and the prioritization of things like fraud prevention plans and the importance they assigned by the Accounting Officers. I must also say that it is easier to do it in some departments than in others. It also depends on how departments have gone about it. Again, adopting a fraud detection plan is a quick way not to get a cross under that block on your reporting structure. In bearing that, in the culture of the department is quite a different story. I guess it is in the development of those normative standards that we are talking about and that the Accountant-General and the Auditor-General are working on that we are going to get the qualitative improvements. In some cases, I think, we have seen better controls. I think, the Internal Controls also come in from the fact that there is monthly reporting. We report to Cabinet on a quarterly as to where departments are on the expenditure of the budgets. There is a greater sense of pure review and to the extent that contributes to the Internal Controls. I think, there is an improvement, but I do not know if Mr Ishmael has a better sense of that.

[Mr Ishmael] I think, that we must not loose sight that we have taken one major step with the PFMA, and the appointment of Chief Financial Officers (CFO's). The primary role of the CFO is to ensure that the Internal Controls are adequate in terms of the risk that we identified in this specific Department. I think, that one of other performance audits that maybe, we should consider is, the effectiveness of the CFO in implementing effective controls financial and other controls within the Department for the risk that you might identify that may arise in the specific Department.

[Mr S Fakie] If I can perhaps just add on a few more comments on there and, I think, regarding the issue of Internal Control. If one looks at the General Report and especially if you go through to Annexure A. You look at the reasons as to why we had to either qualify audit opinions or qualify them for financial or disclaim them or even put emphasis of matters in our Audit Report. You will find that Internal Control is pervasive right throughout as an area of concern. In actual fact, one of the items that we specifically had within the qualification from a compliance point of view is a heading called "Internal Control over accounting and financial systems processes" and you will find a whole lot of departments and the kind of lack of control that exists. If you went to, for argument sake, to the budgetary process on page 120, paragraph 121. You will find that it is so pervasive that they even feature into other areas of concern. Where at Correctional Services, for argument sake, Internal Control weaknesses related to the budgetary process. If you go through to paragraph 122 under Justice and Constitutional Development you will find that the various weaknesses in the system of financial and risk Management and Internal Control. What I am saying is that Internal Control is an area that is pervasive throughout most of the areas of qualifications and emphasis of matter that we have raised. Yes, there is a much higher awareness out there and with the appointment of the CFO's and the proper functioning of the Internal Audit and the Audit Committees we should be really concerned around the Internal Controls within the organization that it would improve over time. As we stand now it seems to be a major area.

[Chairperson] We are going to the next section which is Asset Control which is going to Mr B J Nobunga first, and second, Mr B Nair.

[Mr B J Nobunga] On the issue of Asset Management - a mention is made on the weaknesses that were identified on the issue of asset controls on seven entities. One of the issues raised here is that of ensuring that guidance is provided with regard to better asset Management. One would like to ask the question that relates to the two instances which were identified where there were uncertainty noted in the issue of disclosure of investment by some of these entities. How are the other entities dealing with this issue of disclosure? Is there anything good that they are doing that can be benchmarked and be given to the other entities to try and implement in order to solve this problem? If not, has the process …………..putting in place a mechanism that would ensure that this particular problem does not continue in these entities?

[Mr S Fakie] As Management is an area that has coming a long way in terms of us having to report on it, I think, it is becoming more and more important and perhaps more and more urgent with the advent of the PFMA and the fact that soon we will be migrating from a cash basis of accounting to an accrual basis of accounting. Therefore, to have a starting block - a proper asset register with values attached to those assets so that you can then be able to account for those assets appropriately. Once you do move across to the accrual basis of accounting is becoming a matter that requires urgent attention and that is why we are starting to highlight that and express more and more concern now on this matter. I do strongly belief that it is one of the biggest challenges that the Government Departments will be facing in order to migrate from the cash to the accrual basis of accounting. It has also been proven internationally that has been the biggest stumbling block in order to migrate across. Therefore, we do raise the importance of having a proper asset register. That is the one side, but, I think, just purely from an Internal Control point of view you also need not withstanding the fact that there is potential migration to the accrual basis of accounting just from an Internal Control point of view you do need a proper asset register and it has been long coming that many departments are not maintaining good asset registers.

[Mr Ishmael] Regarding the specific question - on the investments. The accounting policy in Government has been such that investment in assets whether it is furniture or investment in equity stakes were normally written off, because of the cash basis of accounting. Hence, we have never recorded these on the balance sheet. There is now the drive to begin to understand like we have done with all the public entities to get them listed and to get all of the investments in those entities recorded onto the balance sheets. On the movables and other immovable assets - is that we have prepared a complete guideline on the fixed assets. We recognize that we have to begin to capitalize those assets onto the balance sheet within certain thresholds. A number of other issues are arising of the existing assets. When we take typically the parliamentary complex- how would we value something like this and bring it onto the balance sheet. Would you bring it at one rand or do you bring it as a heritage asset and put a certain value to it. It is really purpose filled - there is not much you can do with this building other than utilize it for the purpose it has been designed and built for. You could not really say I could sell this land, but perhaps not the actual complex. That raises a number of other issues. I think, we have started on this process and it was clearly one of those areas that was lacking in terms of control. The fact that we begin to capitalize and we …………….into the ledgers and also allow us to reconcile these assets that we are requiring, the assets that we are disposing of. The minor assets of Government that are held by the different departments, I think, all those processes are underway. We are hoping the first lot of capitalization would happen for this financial year. The financial year ending 2003 and at least all of the purchases for this year would get onto the balance sheet. To then engage on a process of getting all of the assets acquired before the beginning of this fiscal year onto the balance sheet. The valuation is going to raise some major issues. Whether there is going to be any valuing in appointing external valuers to come in and charge us a whole lot of money to tell us that this building is worth one rand and they want a fifty thousand rand fee for that or whatever that may be. We need to understand the practical implementations of that process as well.

[Mr B J Nobunga] It would seem that it is a norm when you look at almost all these departments that the issue of stock sheets are destroyed before the inventories are made. Has there been a mechanism that has been put in place? Are you contemplating putting in place a mechanism that would ensure that before such are destroyed the necessary entries are made so that you could have in a way a reliable asset register? If you destroy them before entering these assets you run the risk of having an inaccurate asset register and this seem to be a problem in almost all the departments, including Treasury.

[Mr Ishmael] I think the issue of destruction of documents has taught us a valuable lesson. We look at the NR case and see that Anderson as an organization does not exist purely on the basis of an allegation of destruction of documents. I am not sure why these things happen in terms of the destruction of documents. Clearly, in the guidelines that we set out we indicate retention of records and the periods for which you got to keep records. Stock sheets are one of those records that you have to keep for a period of time, be that five years or three years and that is prescribed. One must clearly try and establish why were these records destroyed. What was the motive behind it? Was it that somebody was trying to pull for some assets out of the organization or pull for some inventory and we should behind the scene that that is much more important. We have set all of the guidelines saying retention of records, cash books have to be kept indefinitely, a general ledger is 25 years, supporting documentation is 5 years, stock sheets is 5 years and all of those things are clearly defined and it is not adherence to those guidelines. How else do you begin to show compliance with the retention of records, other than saying that it must be the responsibility of the Accounting Officer and the Chief Financial Officer to ensure that no records are destroyed other than what needs to be destroyed in terms of being rough working papers. That stuff is required to be kept for a long term. The issue is a serious one in terms of destruction. I am not sure why that would happen or should have happened, because we clearly require all stock records to be kept for at least five years.

[Ms M Ramos] I think that is right, but I have also known that when we did the merger between the Departments of Finance and Departments of State Expenditure. When you try to put together the records of assets - some of those records just were not there and there was not any explanation as to why the records were not around. I think, the Members of this Committee probably do not know this, because there are not too many Members here that have been in the last few SCOPA's. When I first came to Government there also a practice called red lining. Essentially red lining was a situation where you could apply as a department to the Department of State Expenditure at the time when you had not kept records to get them to authorize you to draw a line under all that for which no records have been kept so you could start again from scratch and no questions would be asked for everything that have not been kept. I think all of those practices are behind us now. Hopefully as the Accountant- General has already said the guidelines are clear and Accounting Officers take this more seriously. Sometimes these things happen when people move buildings for example. It is not always malicious. People move buildings. I know this happened with us when we had one split and one merger. The Department of Finance was initially contained, the South African Revenue Services (SARS) or ………… When we split it up in 1996/1997 the entire corporate finance division and corporate function went with SARS. The old Department of Finance had nothing in corporate services. They had no Financial Management. They had no Human Resource Management. All the records went with SARS. When you try to then split up those records and bring back the records that were Department of Finance records some of them had been lost in the move. It is not always malicious. It obviously opens up a very big risk for Government and so the procedures are much clearer and much tighter now, as the Accountant-General has already said.

[Mr B J Nobunga] I would assume that the mechanism that has been put in place - would also address the issue of the taking for identification purposes? The issue of - monthly Management of these asset registers as well as the issue of the control of the disposal of state assets.

[Mr Ishmael] In terms of the guidelines that we have prepared - what we going to approach what we call a life cycle approach, it is not the identification of the need until the final retirement of the asset and the disposal. The entire life cycle of that asset has been covered. From the planning, acquisition, ……………disposal and the accounting treatment in each of those phases when you acquire how do you build up a total cost of the asset when you spend money on refurbishment? How do you account for that as opposed to enhancement? How do you account for the enhancement? The guidelines cover all of that in terms of the new processes.

[Chairperson] Mr B Nair will also focus on asset control.

[Mr B Nair] In the first place it must be appreciated that the Treasury is no longer responsible unlike state expenditure in the good old days before merger. Where it will monitor and have oversight over the departments. A problem that was broached with Ms M Ramos and her team before was to what extent apart from the guidelines no question about it. You have done a great deal in order to full together the departments to get them to adhere to the strictures of the requirements of the PFMA. It will take some time before this materializes. In the interim - one of the problems that is raised with and constantly, in fact, really bugging me is the mechanism whereby there will be proper oversight over the monthly reports for instance, from the various departments through the Treasury and your three monthly reports to the Cabinet or the Directors-General. Having strict oversight and correcting problems that may arise. Before it comes to the Auditor-General at the end of the financial year and ultimately to SCOPA eighteen months to two years down the line. Corrective measures are being taken in the interim. Some mechanism - it has to be puzzled out as far as I see there are a whole lot of lapses. Let me deal with asset Management. Indeed, explanations have been given, because of the cash basis of accounting assets are normally written off. What happens - and this question was raised just now? Valuable assets and property etc may be sold and God will only know what has happened to it. For instance, we have for years now have been actually asking Public Enterprises to actually get us a register and that has not been complete of assets here and abroad including our embassy's, land and property, etc. We have got them all over, worth billions. Similarly through the cash basis of accounting and it appears to be a leeway to a lackadaisical approach of real accountability. That is for instance, keeping an asset register, why no. A cash basis of accounting does not imply that you do not keep an asset register you have to. You find departments are not keeping an asset register. I wholly agree with Internal Control - now the problems that you have had, Ms M Ramos, in getting suitable staff to man your Internal Control Department. Here is simple bookkeeping, accountants and so on. You find cash accounting, debtor Management etc. The problem that is rising perennially, in fact, here out at every session that we have with the departments is that you find suspense accounts perpetually in suspense and not recovered. I do not want to go into details, but something has to happen. You do not require R100 000 per annum or even more than that or R10 000, R20 000 or R30 000 plus per annum to engage an accountant or a bookkeeper or to train. The thing is there appears to be seriously a lackadaisical approach by the departments to actually ………….this is Public Accounts, SCOPA he is talking about. The Auditor-General is also reporting annually on issues that we know about and they totally ignore the little things like proper debtors and creditors ledger and handling of suspense accounts etc. Or for instance, as it has been raised just now, the wiping of assets. We have had before us very recently where a Director-General tells us that computers go missing and they simply wipe it out, cars, vans or motor vehicles could go missing. In the Department of Intelligence a whole lot of computers and out of the box vehicles, nine of them, I think, went missing. Computers have gone missing. If that can happen in Intelligence - these are some of the things. I know that it does not belong to Treasury. You have got a massive amount on your shoulders. What do we do to pin it down?

[Ms M Ramos] I think Mr B Nair raises a number of very important issues. It is a complex question, because at the end of the day it really comes down to the Accounting Officers and to the Executive Authorities and ultimately to this Committee and to Parliament. The way people who are not complying and not performing are dealt with. I think that is sort of the ultimate issue here. Let me say though that in terms of the PFMA we all have to report internally. The CFO's have to report to the Accounting Officers on a monthly basis. As Accounting Officers we have to report to the Executive Authorities. In other words, every single month you have to table with your Minister your financial statements for that month. Programme by programme. Those financial statements in terms of Section 44 of PFMA have to detail things like your suspense accounts and movements in those suspense accounts. The reporting mechanisms are there. You have to indicate why there is overspending on a particular programme or sub programme within a programme on a monthly basis. Why there is under spending on a particular program? That is on the internal side to try and increase the compliance. What we also do as I have already indicated is - we report to Cabinet on a quarterly basis just to keep Cabinet briefed of what is happening on a consolidated basis between National and Provincial Governments. We try and do that on a quarterly basis as well. Hopefully that will over time, it certainly does create the awareness of Ministers to the fact that they ultimately have to exercise oversight over their Departmental budgets. An Accounting Officer who does not notice that his or hers suspense accounts are rising, that they have not been cleared just is not looking carefully enough. If you have suspense accounts and you know that those suspense accounts are there, because there is a bunch of things for example, that we initially listed us unauthorized spending and will now be authorized in terms of the next finance Bill then there is a reason and explanation for what is in your suspense accounts. The Accountant-General has also set out rules for what to do with suspense accounts and how long you can keep suspense accounts on your books. I guess there is no getting away from the fact that all of this does come down to Management and in the end the system we had before where you had this Department of Safe Expenditure, that on paper looked like it was exercising for some control did not really give you anymore control. It maybe gave you a sense of control, because there was supposedly somebody who signed off on these things. A lot of very bad practices happened under that not - not least of which was this idea of red lining that I was referring to earlier on. I guess that in the end it does come down to the Accounting Officer to the Executive Authority and ultimately to what this Committee does or recommend in relation to people who do not comply. People who blatantly do not comply and who come up time and time again in service of the Auditor-General's Reports. How do you deal with those people? How do you sanction them? How do you respond to them? In relation to assets that are sold and I will ask Mr Ishmael to talk a little bit about this. I do not think that there is any system. If you have taken an asset that is on your books and it has got no value attached to it and you have sold it. First of all, the Constitution and the PFMA in support of the Constitution and the regulations that the PFMA are very clear. You do not have any option but to deposit those revenues in the National Revenue Fund. It is a Constitutional requirement. There is no dispute about this. There should not be any disagreement about it. There should be no one who questions it, because that is the ultimate supreme law of the country. You do not have to many degrees of freedom here as to what to do. If you have not done that then you have actually broken the law. It is as simple as that. That is one thing. If you have sold an asset and you have taken a piece of property for example, and you have sold it for R10 000 to your friend or to your friends friend or a friend of a friend of a friend and that asset happens to be in an expensive part of Johannesburg, Cape Town or whatever and you know that the market value of that asset is R10 million and not R10 000 that is fraud. You need to be prosecuted for that. Those are fraudulent transactions. In the same way as if you do not have procedures within your own department for dealing with assets. If I loose my cell phone, because I have been negligent I have to pay for it. If my cell phone has been stolen then I actually have to go and file a report with the Police and get a case and then I might be able to get the Department to pay for a replacement, because it has been stolen. If I had just lost it, because I was not looking that is my responsibility and it is the same with other assets in departments. I think we need to distinguish between negligence and fraud and there are remedies in law for both of those and also within the PFMA.

[Mr Ishmael] Just to pick up on the issue about the missing vehicles and computers. I think we must also not fool ourselves that having an asset register would prevent those items from disappearing. It may just alert us sooner if we do verification that these assets are actually physically missing from the environment. It will assist in that mechanism. We will never prevent the theft of motor vehicles or computers or any assets for that matter and that we should just understand. What the asset register would do is that it would alert you, because it has a better control when you do verification this is what is missing from this list. You do not discover this by default, but rather by doing part of your responsibilities is a verification process. On the issue of the properties which is the other question that Mr B Nair raised - the Department of Public Works is the custodian of the property and the buildings of Government. They have been compiling a register, for a better word, of all of the properties held by the State. I am not quite sure how far that process is, but clearly they are responsible for that and we interact with the Department of Public Works, because they have been mandated by Cabinet to get the entire register of Government properties up to date and valued and registered in the name of Government. That is whether it is local or whether it is foreign property and some of properties have better housing. The Department of Foreign Affairs - this whole part of the responsibility. The final thing on this issue of suspense accounts is that suspense accounts by nature really is supposed to be housing it is supposed to be at the end of the month. I do not know what to do with these entries and I house it in a suspense account. My first action at the beginning of the next month should be clearing of the suspense account. That is basic training of an accountant. An accountant should be doing that as a matter of course. If it does not happen I am not sure whether the issue is a training one or whether it is just people dereliction in duty and not carrying out there responsibilities, because they do all kinds of other things. Why do they not clear the suspense accounts as well? Finally, I think, that the shift that is now done and previously in terms of the focus was around the control of the cash, manage the cash, now it is to manage your revenue, manage your expenditure, manage your assets, manage your liabilities and focus on your outputs, focus on your resources that you have to deliver in terms of your mandates.

[Mr B Nair] I did not mean that asset registers necessarily would be a check on whether the theft or loss of assets, far from it. You have instances where there no asset registers, but assets disappeared as in the case of for instance Intelligence which has not been accounted for to this day. It is actual theft that took place there.

[Chairperson] We are going onto the next section. Mr M Lowe will focus on the problem departments, Departments of Mineral and Energy Affairs, Public Works, Justice and Constitutional Development, audit fees and public entities.

[Mr M Lowe] Seeing that the Director-General of Treasury is here I would like to turn immediately to public entities. Director-General, if I could refer you to part two of the Auditor-General's Report. It is on page 15 - page 17. I just want to refer to some of the comments there as they apply to public entities. Specifically, those listed in the PFMA, schedule two and three. On page 15 the Auditor-General makes the comment that difficulty was experienced in allocating certain listed public entities to the various portfolios. He then goes onto table schedule of possibly incorrectly listed entities. Areas where he was not able to allocate etc and it comes to the conclusion at the bottom of page 17 that there is a need to put an adequately resourced structure in place to centrally control the existence of public entities. My first question goes around the issues allocation and the central control of these entities. I appreciate that I am talking of a transversal problem and I am really not trying to put any blame if there is any to be made at the Treasury. It seems to me that the National Treasury would be a suitable home to firstly, from a financial point of view to allocate these entities and then more importantly to control them and to make sure that we have a central control as the existence of them. Could I just ask you to comment initially on those findings by the Auditor-General? What steps if any are in place to address it? I realize that the year under review in this Report it was not a requirement of the PFMA that they actually do account for it, but it will be in the future.

[Ms M Ramos] I think this a big issue for us as well at the Treasury and, I think, at the time that this Report was done we were really at the beginning of this process of listing of these public entities. Let me say upfront that this is an ongoing process. We have tabled a number of schedules. We have amended a number of schedules of public entities in Government Gazettes and, I think, Mr M Lowe has actually asked the question in Parliament about this before. What we have done and, I think, it comes quite close to what the Auditor-General was looking for was to establish a Registrar of public entities in our asset and liability Management division in the Treasury. What that unit is doing is compiling a register as we list these public entities put those entities on a register and go through a process of updating that register on an ongoing basis. As these entities are identified or they need to be reclassified as we find out more about them then all of that gets Gazetted and the register gets updated. The Office of the Registrar of public entities tries to do a number of things. First of all, identify the unlisted public entities so they are not the big ones, because we all know what those big ones are. We are also going through a process as I said of reclassification. De-listing those entities that need to be de-listed. We are in the process of developing an information database as well. Setting up the procedures for the establishment of new public entities in line with the regulations set out by the PFMA. This is quite a big job. What we have done is that we have also procured the services of an outside set of an accounting firm to help support this function in the early stages as we establish this Office of the Registrar of public entities in the Department. We hope that over time we will actually get quite a good sense of how many of these entities are out there. We have also written on a number of occasions and more recently in April, I think, it was. Again to the Directors-General with a letter accompanied by a questionnaire that asks them to again look at the public entities under their control. To complete the questionnaire. To return that questionnaire to us. The question is actually quite detailed. It looks not just at who the public entity is, but asks Accounting Officers to list the main functions, identifies the CFO's of the public entities, the companies secretary's, email addresses, whether the entity is listed elsewhere, its date of incorporation. The idea is that we will move from there working with the departments also to identify over time the assets in these public entities as well. The big ones are all covered by their own legislation. They have all got their own Boards. We try to build up the database of all of that. Just in terms of information we have been asking for example - we ask all public entities to respond on things like, are their bank reconciliation's done on a regular basis? Does the entity have an asset register? Does it have an in-house Treasury? How often does the Board and the controlling body meet? Does it have an Audit Committee? We have actually put through quite a detailed questionnaire to each of these public entities and the Accounting Officers to try and capture all of that information. I am hoping that over the next while we will actually have quite a good database of these entities going forward.

[Mr S Fakie] I think it is a good starting point that Treasury has started to actually identify these public entities, reclassify them and establish a database. The thing that, and I do know how difficult this would be, but it is more of a reactive mode and the question of our intention here in the General Report was perhaps to look at an element of being more proactive. In other words, as part of the procedures that the Director-General has spoken on public entities. Any department that wishes to establish a public entity must first apply to establish a public entity, so you would pick it up upfront rather than let them establish the public entity and then track down on the database how many people are there and where the shareholding is and so forth. To actually make part of the procedure an application form that no department can establish a public entity without formally applying to this Office so that you capture this information upfront. The other issue is that quite often the public entity gets established, have their own legislation and there are different kinds of accountability arrangement that exist within those public entities. Where as if you are a bit proactive in this regard that you can manage the whole accountability arrangement. What we find is that in many of these public entities the Auditor-General is quite often not the external Auditor. They appoint there own external Auditors and it does in many ways compromise the issue of public accountability. It is something that we will continuously engage with the Treasury to see how this issue can be better managed on a more proactive basis. I think, as a starting point is to get the database right of what is out there and put out some procedures and get something as a start. As we are going forward, I think, we would like to change into a more proactive mode rather than the reactive mode. This exercise that has been done is fine for National Departments. I think we have got an equal problem that is facing us at Provincial public entities as well as with Local Authorities coming on the scene. We need to just look at where the responsibility lies in terms of getting those ambits of the Public Sector where public entities could emerge as well.

[Ms M Ramos] I think it is not just so much being a reactive. We have gone to Cabinet and Cabinet has approved an interim process for the establishment of public entities. The procedure basically entails to submission of a business place to the departments for evaluation by the joint evaluation panel, which consists of the National Treasury and officials from the National Treasury and the Department of Public Service and Administration. This joint entity makes a recommendation to both the Ministers of Finance and the Minister of Public Service and Administration. We are making departments go through these procedures, because it is one thing to deal with the entities that are already there. That is about registration. It is about trying to improve procedures. We also want Accounting Officers to begin to understand that you cannot just create these things, that there are procedures to be followed in the creation. We have already taken those steps as of this year. The documentation that we have sent out, we have tried to cover both National and Provincial public entities as well. The Local Government is quite different, because it is not covered, as you know by the PFMA. That is going to be a big job, but I think, we need the new legislation in place before we can actually start working on that.

[Mr M Lowe] Can I confirm with the Director-General that we have covered the question of allocation and we have looked at the question of a centralized control? Together with the Auditor-General you have discussed the problem of completeness. You are quite correct, I have asked the question in Parliament, because I was concerned that there appeared to be unusual, both of you have confirmed it this morning. A concern around the question of - how accurate that list is? Certainly given the information that you have given and you will follow up and from what the Auditor-General has already told, I just want confirmation. Is there a plan in place to make that list as complete as possible and that is what is happening, because that would be my major concern? Could I then quickly turn to the question of the Auditor-General's mandate over these public entities and I want to refer the Director-General to pages 91 and 92 of the Auditor-General's Report. Again I understand it is the Auditor-General's problem and he is raising his concerns, but there is a point that he makes and let me just firstly look at the bottom of page 91 where he makes the point that there is difficulty being experienced regarding his mandate. There appears to be a dispute between the companies Act and how it affects Section 188(2) of the Constitution. Also the public accounts and Auditors Act - how that affects this mandate and specifically on the top of page 92 where the powers afforded in chapter 6 of the PFMA are very difficult to apply in practice leading him to the conclusion that the Auditor-General is in effect not able to provide the assurances and information required by Parliament etc. I wanted to ask you from a Treasury point of view - are there any plans to introduce any amending legislation to assist the Auditor-General to overcome this problem of the dispute and the difficulty in applying in practice? Also this whole grey area of what his mandate is when it comes to public entities. Is there any way that we could give the Office of the Auditor-General more powers or rights not just to identify but to make it legislated that the Auditor-General would be required to provide an Audit oversight?

[Ms M Ramos] I also read this part of the Auditor-General's Report. I think with quite a lot of interest and particularly, because as we apply and implement legislation you sort of become aware of the difficulties with implementation. Sometimes in theory it looks great and in application the gaps are there. I say that, because the Committee if you go back to the records of previous Committees will know that the Auditor-General's Office at the time, was very involved, was part of the team that developed the PFMA and was part of that drafting Committee, that said "ag" the PFMA. There are obviously in the application of legislation issues come up and gaps come up and we are aware of some difficulties with the implementation of parts of the legislation. I think there are different ways and one of them - if there are changes that need to be made to the legislation we are going to have to make some changes to the PFMA legislation at some point I am hoping the course of the latter part of this year, there will be some amendments to the PFMA legislation. The other part of this is also that I understand that the Auditor-General amendment Bill can deal with some of the changes that are required here as well. I think, between changes that can be considered to the PFMA and also changes to the Auditor-General's own legislation some of these issues can be dealt with is my sense of it.

[Mr S Fakie] I just want to endorse what the Director-General has mentioned that we are in process of making several amendments to our Auditor-General Act and this is one particular section that we will be putting through amendments and we will be engaging with Treasury, because what we are proposing in the Auditor-General's Act will be in conflict with this provision in the PFMA. Therefore, we will be engaging with Treasury to look at ways and means to amend the PFMA to try and bring that legislation in line so that it can be practical.

[Chairperson] Mr V Smith will be dealing with personnel.

[Mr V Smith] In listening to the inputs so far, I think, that we must recognize that this exercise needs to be broaden somewhat. We are talking to people who do not necessarily have all the control over what we are arguing and maybe Public Service commission is somebody that we might bring. On the issue that I want to discuss, I think, the systems are in place. We are talking about PFMA and we are talking about the Accountant-General and so on. My view is that all our systems and interventions are only as good as the people that are employed. Looking through your reports, Auditor-General, we pick up that at least a 42% vacancy exist and I am using the Department of Defence, I think. We are also hearing about invalid or inaccurate CV's and qualifications. I think that is also in Defence and Correctional Services. For me that is the first part. If we do not have people that are able to do the work, all our systems are not going to be able to do what they intended to do. The second part of this whole personnel problem that, I think, that we have is around things like our contingent liabilities or leave credits, advances and so on. We have in many instances, SARS, I think, has something like a R3 million employee's debts that is outstanding. We have housing guarantees in Justice for R22 million and so on. They are obviously stuff that we have touched at SCOPA and the Auditor-General continuously raises them in his Report. Director-Generals or Accounting Officers continuously say to us that they are working on those matters and we are not seeing any improvement. I think the final point on this issue is the practice of re-employing people that have taken severance packages as consultants. I know that in South Africa we are doing that. People take severance packages and they are re-employed as consultants. Clearly that is a problem -when you have a vacancy rate of 42% in one department, you are consulting in another department, you have invalid CV's or qualifications in another department. I am not asking National Treasury or the Auditor-General for answers, but I would welcome their comments and views on those matters. Unless we can clear that up, South Africa incorporated in terms of people we employ we are always going to be in trouble with all the things that we are being talking about. That is my first point.

[Ms M Ramos] I think, it comes back to the way Accounting Officers manage departments. You need to have procedures in place for employment of people and these things are difficult. You sometimes get CV's that need to be checked or they are checked qualifications that are confirmed. Sometimes even by the universities that the person says they have got the qualification from until something happens. We have just had a case for example, a little while back, where this person was incredibly well qualified, his reference checks all worked out until somebody actually came forward with an anonymous letter very detailed and we started investigating more deeply. He happened to actually be registered at the university for a second degree, for a masters degree, in this case, I think, it was. He said he had his first degree from this university and he never did when they checked again. This is all about procedures and it is about Internal Control and, I think, the Auditor-General raises this issue in his Report in a quite focused manner. Those Internal Controls are also about Internal Management and there is very little. We can put laws in place. There are rules in terms of the PFMA about things like advances to staff. You cannot have those advances. You take an advance to travel, for example. You need to come back and, I think, it is within 30 days you have to submit the documentation and clear out that advance. If you cannot do it in 30 days you need to get special permission for not doing it within 30 days from the CFO. There are rules for these things and it is about the Management of those rules. I say that, but I also recognize that in some departments and particularly very big departments like Correctional Services or SAPS or Home Affairs. You are talking very large organizations, which are running a very big company with branches everywhere. Your controls just have to be so much better. I cannot answer for my colleagues and say why they here year after year and say we are doing something about it and nothing happens. I think that is between the Committee and the Auditor-General and ultimately Cabinet. They need to ask those questions in a more focused way. If nothing is happening you need to ask them why, but it does come down to very basic Management. I do not know what else to say on this regard. We have put the regulations in place. We do send out practice notes on these things on an ongoing basis and we try and develop best practice on this, but even when you do these best practices it comes down to implementation.

[Mr S Fakie] Just to say that there are two or three areas here. One is the internal mechanism within the organization. If there is a vacancy the Accounting Officer or the Executive Authority needs to make a call whether it needs to be filled or not filled. If it does not have to be filled they need to give explanations why it does not have to be filled or why that establishment is as big as what it is. The second part of it revolves around due process in terms of recruiting and checking the credentials and the people that have applied. The difficulty that one has within the Public Sector domain is that you do not unfortunately recruit or attract the best of people out there. That is the given. It is improving, but the current reality is you do not attract the best of people. What happens quite often is that you got to choose the best of what applies. Sometime they are not necessarily the best in terms of what you require and there is an element of training that is requirement. That is part of the difficulty that is being faced at the moment.

[Mr V Smith] I guess again it is just a comment that I have picked up reading the Auditor-General's Report and that we need to look at. There seems to be a disjuncture, I do not know what is the correct word, between job profiles and the people in at least 20% of the cases. According to the Auditor-General that the indication is that the extent of the job description and the position are not linked to what the person is supposed to be doing in that particular programme. Again that for me is a problem that we are not necessarily hiring the correct type of person for the correct job. Again, National Treasury of the Auditor-General cannot be held responsible for this, but it is an observation that this picked up by the Auditor-General and somewhere we are going to have to address this matter. It is just an observation that I picked up. Maybe they can comment on it if they so wish.

[Chairperson] We are going to the next speaker, Mr P Gerber on staff loans, vacancies and performance audit.

[Mr P Gerber] Just two comments before I get to my first question. Reading the Report and last years Report and the one before that - it is quite interesting to see that in your 1999 Report and your 2000 Report you have a paragraph about the independence of the Auditor-General. This years Report has not got that in. Last years Report also got a small paragraph on the role of SCOPA, which is not in this year, but I am sure that it is an oversight without meaning anything by that. The other thing is that I just want to mention to the Auditor-General regarding the Minister of Transport on page 68, the Agencies there. If I am not mistaken, I think, there might be one missing which is the South African Rail Commuter Corporation. It is probably a printer's error. Regarding unspent funds on page 106 - there is an amount of R1.247 billion of money that was not utilized by the departments and that is an increase 243.6% from the year 1999/2000 to this year, which is a staggering amount of money. You might not be in a position now to give us a break down; maybe you can give it to us later. It would be interesting to see - what is the break down per department of the percentage of that money that is for budgeted but unfilled posts in these various departments? Is there any possibility that you as an Office have got the capacity to determine what is the amount of unspent funds that gets transferred from Government to these various public entities and parastatals? Is there any way of being able to check up if that is also spent or not?

[Ms M Ramos] Before the Auditor-General comes in to answer the question for a point of clarification on the differences between these two numbers. If you look on page 107 this amount that increases from R417 million to R1.4 billion. Part of the explanation there is that we allowed, if you look at the year 1999/2000, the amount of rollovers that were allowed. The R2 billion is significantly higher than the amount of rollover that we actually authorized in the end in 2001/2002 and that accounts for big change in the difference. We assume in the budget that there is going to be about 1% of the budget that is going to be rolled over just, because of the nature of planning particularly around capital works and capital projects. We have also, every year, because we are concerned about the unspent funds. Every year we have tightened the rules for authorizing rollovers. When somebody applies for rollovers for unspent funds we have actually tightened the rules for authorizing those rollovers. Last year we tightened those rules further and instead of allowing for the rollovers that they have initially been anticipated we actually only allowed for a rollover of R1.2 billion as opposed to R2.1 billion which is what we initially thought. That is why also it looks like there was more than this very big jump, between one year and the other. Mr Ishmael, is just showing me here that in this years budget the preliminary numbers looks like we are going to authorize a rollover of about R1.2 billion as well. We are still in the process of finalizing that. The idea here is that if we get more strict about what people can actually rollover. Then they are going to think much more carefully about whether they can actually spend money and they should actually try and grab it onto their budget. Either in the budget process or in the adjustments process which where a lot of the problems come in as well, because the adjustments budget comes so late in the year as well. It is just a technical explanation so that we do not get the impression that people have other have………….

[Mr S Fakie] The two parts of the question one is - can we provide some linkage between the under expenditure and the personnel cost or vacancies that existed. I think it is going to be extremely difficult. I will look at whether there is some information that we have available that can make that linkage and if there is I will submit it in writing. On the face of it, I think, it is going to be extremely difficult for us to make that linkage on the basis of information we currently have. Secondly, the question revolves around the transfer to public entities and whether there is under expenditure on the part of public entities. It is also quite difficult, because many of the public entities where transfers do take place also generate their own revenue and then to try and ring fence exactly what expenditure was incurred by public entities specifically relating to a transfer that took place by a Government Department and what expenditure took place as a result of their own revenue generation is extremely difficult, because they do not keep separate records. They just have a total revenue - one is by way of transfer payments and the other one is revenue they generate out of their own source and they just have a list of expenditure that they have incurred. Quite often public entities are also running in a deficit situation so then in actual fact they have an over expenditure. There are some public entities that do have surpluses, but to identify that surplus specifically to the transfer payment or the under expenditure would be extremely difficult.

[Mr P Gerber] The other question is regarding again on page 92, Mr M Lowe referred to that regarding your statements saying that the Auditor-General is in effect not able to provide assurances and information required in Parliament regarding some privately Audited public entities. If you take the amount of taxpayers and South African citizens assets under the control of public entities and these parastatals then it is quite frightening. In certain instances there is certain public entities listed in the PFMA that appears not to be willing to supply your Office with information when indeed you approach them. I refer to the situation between your Office and Transnet regarding the request for information regarding a certain contract for the sale of non ……..scrap worth millions. Until today your Office is not in a position to do an evaluation regarding that. This issue was brought to your Office the 5^th June 200 and it is two years later now and you have attempted many efforts to get information and this is not a reflection on your Office it is just to me a bit scary that a company or public entity could ignore the Auditor-General's request for information on basic issues. Could you give us information on the issue and if you have similar problems regarding other entities to supply …………… the Auditor-General with relevant information?

[Mr S Fakie] I will get Wessel to respond, because on the particular issue which the member is raising we have followed that up to the extent that it was possible. I think, there are some sensitivities around the issue as well and we have in actual fact written a letter responding to as far as we could take the matter specifically relating to that issue. Wessel would probably like to respond in a little more detail around the process that we followed and the fact that I do not think that it was so much a question of resistance of not providing us the information. I think there were other elements of sensitivity which resulted in them not giving that information.

[Mr W……….] We had a meeting with the Management of Transnet. They agreed to communicate with us on the issues raised. One of the difficulties that we have is that we are not the Auditors of Transnet so it is extremely difficult to really analyze information that we have received. We cannot go into that detail and that is one of the difficulties that we do experience if we are not the Auditors of those entities.

[Mr S Fakie] If I can just add another perspective that created difficulties - when we raised this issue with Transnet, Transnet knew exactly where the query came from, because the particular query was raised directly by the member with Transnet. It became extremely difficult that was the Auditor-General now being used to go into Transnet that is where the resistance and problem did emanate from, because that query was raised already by the member directly with Transnet.

[Mr P Gerber] My next question is regarding performance contracts. It is mentioned in the Report that not all CEO's and senior officials have entered into performance contracts and have signed these contracts regarding their performance. Is there an improvement in the percentage of people signing these contracts? How do you foresee this to improve so that we can have tangible results? Lately at SCOPA we got a lot of information on the salaries that officials and parastatals earn. Is there any way of maybe putting some ground rules or criteria for these officials to have some sort of standard or maximum or minimum sort of salaries when it comes to running the concerns they have?

[Ms M Ramos] The question has been very well directed to the Auditor-General. I note that the Department of Public Service and Administration has got a monitoring system for both the performance contracts and they also doing some work now on some of standard setting, I think, it is. You would need to ask them directly on the remuneration package for parastatals and other organizations that fall broadly within the umbrella of a public entity of some sort. Whether it is defined as such in the PFMA or not? My sense to is that, at the very least the remuneration of what, I think, of public office bearers of some sort needs to be reported in the annual statements. Whether or not you are a public entity or you are a Government employee I am paid by the taxpayers so my remuneration package is a public knowledge. In terms of corporate Governments norms so should the packages of the people working in the public entities be a matter of public knowledge, at the very least.

[Mr Ishmael] In the financial statements for the year ending 31 March 2002 we have specifically asked even though it is public knowledge about the salaries of Ministers, Deputy Ministers, Director-Generals and Deputy Director-Generals still to disclose that in the financial statements, because it is good practice to have that level of disclosure.

[Mr S Fakie] I think within the departments this matter has been adequately taken care of in the light of what you have heard. Around the issue of performance contracts and the comments that we have made on page 143 of the Report. The Public Service Act has made it very clear that there should be performance contracts and we will continue to report in the individual vote where these performance contracts are not there and bring it to the attention of Parliament and of SCOPA. The bigger problem around the issue of salaries and performance contracts per say, I think, revolves at the level of public entities. A lot of these things are applicable to the departments themselves, but may not necessarily be applicable to public entities. As this Committee has heard that some of the salary levels etc that are being paid at public entities whether I am just asking whether that should be also a requirement for public entities to start disclosing the salary levels etc, I am not sure if that is in place.

[Ms M Ramos] My colleagues have just reminded me that in terms of the Government Gazette tabled on 25 May 2002 if you look at Chapter 28 in terms of the regulations of the PFMA the requirements for annual financial statements and the annual reports actually set in quite a lot of detail what the disclosure has to be and this disclosure we have now brought this in line with King Two. It is already set out and it does include things like Peace for Services as a Director or Executive Member. Basic salary, bonuses and performance related payments, subs paid by way of expense allowances, contributions to pension funds, medical aids, insurance schemes, commissions gain all proper chairing arrangements, any share options including their stripe price and period and any of the material benefits that are received. That needs to be included in the financial statements going forward for all public entities as well.

[Mr P Gerber] That is very, very good news. The Agricultural Committee has approved the Land Claims Bill the other day and in that Bill also made a requirement that the Directors of that bank must keep a register of interest as well which is also a good thing. I have a problem with the uniformity regarding disposals in departments and parastatals and public entities. I think that seeing that we are working the taxpayer's money and assets we need to really see if we can streamline this so that we do not open up surprises. I am thinking specifically, even with Public Works at the moment there is some agency going to manage properties. Apparently now they are still looking for some of the properties as well. Normally when Public Works sell properties they advertise it first of all for comment and second they ask for offers or proposals. One thing that I have picked up now lately unless I have missed it somewhere in the newspaper which could be is for instance, the sale of fernwood which was not sold as a property, but it was sold on lease. It looks as if there is for instance, when you sell property under a 65-year lease that you can circumvent other transparent criteria for lack of use of a better word. My problem is that I am asking the Auditor General - Are there any plans to streamline disposals regarding assets cutting through straight from departments right through to public entities?

[Mr S Fakie] I am not aware of any plans in this regard. I do not know if National Treasury can comment on whether they are aware of any plans. I am not aware of any.

[Ms M Ramos] In the same Government Gazette there is actually a chapter on asset management which does cover the disposals and letting of assets in terms of Section 761K of the PFMA and some rules for that. I do not know the specific the fernwood or whether the thing is Case. You do a raise an interesting question and that is how do you deal with what is essentially a sale of a lease basically, and, I think, we would need to go back and think about whether or not. My sense is you are selling an asset. You are not disposing of the actually property, but you are selling a lease and a lease is an asset. So you need to treat that asset in terms of the same rules. The rules make provision or require you to sell assets at market related values and to file a property and procedures in relation to those tenders and if there is going to be an auction what are the rules of that auction. All of that needs to be specified up front, I think, what we will look at is to see whether or not does adequately cover all these special kinds of sales that you are talking about. On the public works property management agency, I think, one of the engagements we have had at Treasury with Public Works is precisely about the importance of knowing which properties you own, how you value those properties before you actually hand them over to an agency to manage. Also the absolute requirement for proper management contracts between the Department an the agency in relation to the value for money that you would get from that service that you procuring for this new agency.

[Mr Ishmael] Again with that specific issue one must clearly consider the substance or the form in terms of what is the real transaction. It is probably the disposal of the asset rather than releasing just a mechanism of facilitation. Therefore, look at the accounting rules around the whole issue - is there a sale of an asset or is it really a lease transaction in that process? Similarly in terms of the disclosure requirements on the ……………. We are running this trend now that you are not going to be appointed as a Director, you are now getting appointed as an Executive Member. Try to circumvent some of the disclosure requirements around Directors or Executive Members. We have said in the regulations Directors or Executives. The question arises - what is in the Executive and go around that process? It is sometimes a bit of games between disclosure requirements and what people are trying to hide. We are really saying that it is about the transparency and let us understand what is going on out there.
[Chairperson] ….. with our interaction with the Auditor-General, as well as the Director-General of Treasury. The next section is Dr G Koornhof. He will focus on financial management at local government level and the management of debtors and personnel.

[Dr G Koornhof] The last Progress Report that this Committee received from National Treasury on the implementation of the PFMA was on 4 September 2001. Personally, I value that Report quite substantially, because that empowered us to take note of the progress made with the implementation of the PFMA. Embodied in that Progress Report was the Implementation Plan and a PFMA questionnaire put to the departments and the various provinces. It was a very valuable Report for us as Members of the Legislature to have and to read about the progress made. My question to Treasury is whether this is the latest Report and is there another Progress Report on the implementation of the PFMA in the pipeline? When will SCOPA be updated on the Progress Report? Secondly, and I refer to the Auditor-General's Report on page 140. The Auditor-General addressed the question of management of debtors and he stated that it is crucial for improved financial management. There are two departments listed on page 140 that recorded no improvements as far as the management of debtors are concerned. What steps have been taken with regard to these departments which have recorded no improvements? If you turn to pages 142 and 143 the Auditor-General reports on the personnel expenditure. In terms of accountability and performance he mentioned three measures that is imperative, namely, the job descriptions that should be linked to the programme objectives; contracts entered to by the Head of departments and, thirdly, the performance agreements by the CEOs of entities. Then on each of these three he highlighted the unsatisfactory results and concerns with each of these measures. If you go through that you would notice that there is a golden thread going through and some departments or entities are repeated in each of these three. What steps have been taken against these departments and entities with unsatisfactory results? What steps have been initiated to prevent similar occurrences in the future? In other words, we have the finding of the Auditor-General, so what do we do now? What is the next step that we can improve the situation or avoid a similar situation in the future? With regard to local government from page 75 of the Auditor-General's Report and more specifically when he reported the financial position of local government on page 84. Through these pages the Auditor-General found that 13% of the municipalities do not comply with financial reporting; 27% reported no grammar courses attended; 62% have no internal audit function; only 43% commended on the MFMB (Municipal Financial Management Bill) and 73% have not submitted financial statements on time. He is also defining on page 84, paragraph 3.4 the number of unqualified Reports dropped from the previous year. That is the 1998/1999 year to the 1999/2000 year from 150 unqualified to 106 unqualified Reports or from 29% to 22%. By when and how do you we foresee a change or an improvement in this situation against the background of the deteriorating financial management situation as far as local government is concerned?

[Mr S Fakie] The one question was specifically directed to National Treasury which they could respond on. Regarding the question on the management of debtors - we have reported on this. I am not sure really what we as an Office can do more than to bring this into our Reports and highlight some of these issues. I think the point that was raised specifically under the personnel expenditure on page 142, maybe there needs to be an engagement with the Department of Public Service and Administration Department itself on some of these concerns that is coming through. SCOPA needs to extend this debate on our General Report in future to engage with the Public Service and Administration, because there is very little we can do as an Audit Office more than bringing it to the attention of Parliament and reporting on these things in our Audit Report. The accounting officers come through and engage with SCOPA on these matters, but I think there is a role and a place for the Public Service and Administration and maybe the Public Service Commission in some cases that could play a role in that regard. On the question of the local government - yes, there has been a deterioration in the number of unqualified Audit Reports that has been issued for the current year. Again, at local government level, I think the question of resources and appropriately qualified people seems to be the main reason for that. I think the various graphs on the questionnaire that we did does reflect that there is a problem in that area. There are two things that I am hoping that will improve the situation. Firstly, that with the Demarcation Bill the number of local authorities have now reduces. Some of the weaker local authorities have been incorporated into stronger ones. That is not in every single case, because some of the stronger local authorities have also been incorporated into some weaker local authorities. On the whole, I think, there are better skills and structures currently in place and hopefully that will address some of those issues. Secondly, we are hoping that the equivalent of the PFMA that comes into being for local authorities will also set certain requirements to try and improve the situation, but it will take a while. As we know with the PFMA, it is a two or three year horizon that we should be looking at in terms of improvements coming through. That is about the comments that I can make, because on both these areas there is very little we can do more than report. I think to some extent even this Committee at local government level has very little authority or juris prudence in terms of what it can do other than refer some of these matters to the National Department of Provincial and Local Government in terms of the concerns that you have around what has come through. That is why we have drafted this Report on Local Authority. Specifically just in the questionnaire, they are highlighting some of the issues, so that this Committee can perhaps make some recommendation to the Department of Provincial and Local Government.
[Ms M Ramos] Let me deal with the Progress Report. We have with us the latest available Progress Report addressed to you, so I will leave it with you. It is, I hope, as detailed, if not more detailed than the last one. It has got a lot of annexures and reported to department by department on the progress made in terms of the schedule that we had agreed of things that needed to be done. I will leave that with the Committee. On the management of debtors - again, there has been an update of Chapter 11 on the Treasury Regulations in relation to management of debtors to try and respond to some of the issues that the Auditor-General has been raising. That is all covered in this latest Government Gazette. Perhaps that also helps taking it a little bit forward on the management of debtors for Dr Koornhof.

[Mr ……………….. Treasury] I just want to supplement on the Report to SCOPA. It was the original intention that these Reports be done roughly on a quarterly basis. We found that, given the extensiveness of the Report, it is difficult for departments and provinces to supply the information on such a regular basis to the extent of detail that we require. We have also been in discussion with the Auditor-General. Our feeling from the Treasury side on one point was to reduce the frequency to about once every six months, but there is some feeling on the side of the Auditor-General that this could be reduced to about once a year. This should just be read in conjunction with the intention of the normative measures that will be introduced. There are about just below 100 questions. I think there are 98 issues that would be required to be reported on. So against that background we are seeking approval from the Committee also to reduce the frequency to six months and maybe after a final agreement with the Auditor-General maybe to once a year given the normative measures that will be introduced in July.

[Mr S Fakie] I would like to concur. There has been discussions with us on this matter and we do like to concur the enormity of the task to produce a report like that on a quarterly basis and the fact that you are trying to get information from across provinces as well. It is quite a task. The intention of the quarterly report was also when the PFMA first came into being. I think there was a lot of interest from both ourselves and SCOPA to try and get a more regular update in terms of the implementation. Many of the aspects are already in the Implementation Plan. There are a few things that are still outstanding and one just needs to look at the frequency of this report that is coming through.

[Ms M Ramos] There are actually 13 schedules attached to this Report and they really go through a lot of detail, department by department, province by province, on quite extensive questionnaires. I think if the Committee cannot give us an answer now that you will consider the Report. If you do want us to come back and talk through the Report with SCOPA, we will be more than happy to do that. If you go through the Report could you give consideration to changing that frequency. I think we will also get better reporting if we can give people an opportunity answer quite detailed questionnaires like this.

[Dr G Koornhof] I would not have a problem to have a Report every six months. Last year the National Treasury reported to us in February and again in September. I think we should not underestimate the value of these Reports to Parliament for us to take note of the progress made with the implementation of the PFMA. I would support a proposal that we do it on a six monthly basis, but that we scrutinize the Report. That we invite National Treasury to come and talk to the Report to us and that we are updated on this. It is very important Report and I would suggest that we follow suite. I have a question to National Treasury. The Auditor-General has reported on the financial position of local government, as well as the management of debtors and the personnel expenditure. Personnel because of the extend of it and the materiality of it, which is quite large in the Public Sector. What do we do with the findings? We do not have any ………….. as the Auditor-General has said as a Committee, but surely if no other committee is going to look at the Auditor-General's General Report who is going to follow it up? Is it the Auditor-General in the next financial year in the next General Report following it up? Do we have a duty as Parliament to look at the findings and the shortcomings and to see what can we do to improve the situation towards the next year?

[Mr S Fakie] I can just mention the process that we compile this information. It is not purely just coming through to National. There are some reporting mechanism that takes place lower down and so on. Firstly, each one of these local authorities, these shortcomings are reported to the local authority itself. There is a big debate around the whole accountability arrangement that exist at local authorities and that is said and done. What we then do is on an annual basis the provincial auditors will then summarise about ten to fifteen of the most serious problematic local authorities in a report which they table in the provinces. In most provinces the provincial SCOPA then calls the Town Clerk and the Accounting Officer of the local authority to explain the situation in terms of the shortcomings that has been identified. So there is an engagement that takes place at that level. What we then do is we try and escalate all those provincial matters and problems that has come through in our General Report and try to provide national SCOPA with some kind of a sense of the kinds of issues and problems that are eminent at the local authority level. We then try to link that back to say what are the kinds of measures and interventions that we believe needs to be taken by the Department of Provincial and Local Government at a national level which I think you have definite juris prudence to take recommendations to. I think that is the way in which we try and escalate it upward.

[Chairperson] With regard to the proposal from Treasury about what period should we use - I think we will discuss that at plenary and also discuss the Report and come back to you. I think the proposal of a further interaction is fruitful and I think we should discuss it as SCOPA. Mr L Chiba will focus on unauthorised expenditure, the tender process and Treasury Approval.

[Mr L Chiba] There are two questions to the Auditor-General. They are both relating to the question of unauthorised expenditure. For the year 1999/2000 it was reported there are 18 cases of unauthorised expenditure and then for the year 2000/2001 there were 12 cases. This creates the impression that there is a decreasing trend in the frequency of unauthorised expenditure. Could your office furnish SCOPA with a summary of the frequency of unauthorised expenditure for the previous year, 1998/1999? Perhaps you can confirm that there is a decreasing trend in unauthorised expenditure. Secondly, it refers to page 108 where you state that there are certain cases of unauthorised expenditure which are reported in the Audit Report, but have not been addressed and are still being considered by SCOPA. In this connection we just need to inform you that as far as the Defence Committee is concerned there are various cases of unauthorised expenditure which have not been handled and that we have adopted a resolution in which we have indicated that we shall do so by the end of the financial year. This might well apply to a whole host of other departments. I think the Auditor-General's Office is best placed to do this, it is to draw up a total schedule in which it indicates all the outstanding unauthorised expenditures for previous years and the various departments, so that when the Management Committee plans its work programme for the remainder of the year they can include the finalisation of all outstanding unauthorised expenditures. The third issue is the question of irregular expenditure. In the Auditor-General's Report that refers to pages 119 and 132. The Auditor-General sites all different cases of irregular expenditure in the part of several departments amounting to nearly R47 million and that was included as a result of non-compliance with procurement procedures. I am not going to the details of which departments they are. I would like to pose a question to National Treasury of whether they have been informed about any of these four cases of irregular expenditure? Did they investigated any of these cases? If so, has it condone or refused to condone the non-compliance regarding any of these four cases? Fifthly, it is about the handling of irregular expenditure. According to the PFMA the National Treasury may consider non-compliance with Treasury Regulations. If irregular expenditure is condoned then the Accounting Officer has to take disciplinary action or take steps to recover the amounts. If the amount is irrecoverable it can be written off by the Accounting Officer. What role does National Treasury play in determining whether or not the amount can be recovered? My last question to Treasury is in connection with the approval of unauthorised expenditure on pages 107 and 108. It has been indicated by National Treasury that as from 1 April 2000 National Treasury would be submitting reports to Parliament and in these reports will be included a recommendation for approval or non-approval of the unauthorised expenditure. As we know SCOPA itself adopts resolutions regarding unauthorised expenditure and makes recommendations whether to approve or not to approve. What is the situation when there is a conflict between the recommendations of the National Treasury as oppose to the recommendations of SCOPA?

[Mr S Fakie] I will attempt to answer the questions that were directed to me. The first one was on the reduction in the number of unauthorised expenditure and a request for a summary of the number of unauthorised expenditure for 1998/1999 and the 1999/2000, 2000/2001. We could make that available if the Members so wishes. What is important to note is that the rules in the game of unauthorised expenditure had changed since the introduction of the PFMA. To a large extend the reason for the reduction from 18 to 12 is attributable to the change in the rules of the game, because unauthorised expenditure has been redefined in the PFMA, and hence the reduction with the number of unauthorised expenditures that we have identified. Also, what is important is that in the past we used to report every single unauthorised expenditure in our Audit Report. Since the introduction of the PFMA it has become a requirement for the Accounting Officer to report the unauthorised expenditure in the financial statements. So quite often we only make reference to that in our Report and do not disclose it in detail. These are some of the rules that have changed that is causing the reduction in the numbers. If the Member so wishes we will make a table available in terms of providing a list from 1998/1999 right up to date of the number of unauthorised expenditure and the amounts involved. The second request that was raised was to provide a schedule of all unauthorised expenditure for all the departments that SCOPA still needs to deal with, so that as part of your work that you are planning for the rest of this year that you make sure that you deal with all those unauthorised expenditure - we will do that as well. We will make that available to SCOPA.
[Ms M Ramos] Let me try and deal with some of the other questions. In terms of all the other unauthorised expenditure that has come through SCOPA, there is a Finance Bill, that is at present with the State Law Advisors, that deals with all those amounts that SCOPA has looked at in the past. Hopefully that will go through. In terms of the unauthorised expenditure on page 107 of the Auditor-General's Report - it is correct that the Treasury will be tabling a report with SCOPA on the unauthorised expenditure that has been reported through the annual financial statements. There has been a delay in that, because there was a delay in the finalisation of the Public Works financial reports and audit. That has just been finalised, so we are now trying to work on that and finalise it. I am sure we will also be talking, if we are not already, with the Auditor-General's office on this. The question on what recommendations - I think what we will be doing is reporting to SCOPA. In the end SCOPA represents Parliament and it has a mandate. The Treasury cannot decide what expenditure should be authorized or not authorized. I think in the end SCOPA has the final say as to what recommendations it makes to Parliament as to what expenditures should be authorized. I do not think that is Treasury's function. I cannot imagine that there would be disputes on this, because this is the legislature. We can make some recommendations, but we need to leave it up to SCOPA and Parliament to make the final decision. In relation to the issues around disciplinary action - I will let the Accountant General talk on that. Let me also say that, again, the rules of the game here are set out in Chapter 9 of the Treasury Regulations in terms of unauthorised, fruitless and irregular expenditure.
[Mr Ishmael] Previously we had circulated a "float chart diagrammes" in terms of the processes to be undertaken when you discover irregular, fruitless, wasteful unauthorised expenditure. The "float chart" provided, amongst other things, disciplinary action to be taken. Parliament is reporting to Treasury and the responsibility lies with the Accounting Officer of those respective departments to ensure that the action has been instituted against the responsible officials.

[Ms M Ramos] I want to add on that and then there is one question that I have not answered. That is also to say that Accounting Officers have to report this in the annual financial statements as well. I would imagine that good practice would be to report the unauthorised expenditure. In the case of irregular expenditure, if disciplinary action has been taken to report that that is being the case or not. If it has not been taken, why it has not been taken. I think that becomes part and parcel of the reporting requirements. You asked a question about whether or not it has been reported to the Treasury on the expenditure which is unauthorised because of procurement procedures that they have followed - we will have to check with the State Tender Board. The requirement is that these procedures need to be approved by the State Tender Board. We will check on that and come back to you.

[Chairperson] We move to the next section. That will be on information technology as well as PERSAL by Ms K Mothoagae.

[Ms K Mothoagae] Moving from the premise that before we saw the Auditor-General's Report around the IT environment, we had the opportunity of Treasury conducting a workshop for us on PERSAL. We had a Hearing on the Salary Bill which mostly dealt with PERSAL. The Report has captured significant weaknesses around the IT environment. Unfortunately, Treasury happens to be part of the departments where weaknesses were identified. My question is to the Director-General and the Auditor-General. The Director-General earlier indicated that, I was kind of intimidated by what she said, she is not responsible for the other accounting officers that appear before SCOPA time and again. These weaknesses we picked in almost all of the audited Reports. I am not sure who assist the departments with their IT problems. I think at the end of the day we are going to sit with problems. I know that in the past we tried to deal with the super numerals, but the way things are happening in especially the South African Police, Correctional Service and Defence, we might end up a bloated civil service. I am not sure whether the Auditor-General picks up these problems. Who really assist the departments with their computer audit?

[Ms M Ramos] The Public Accountant-General is looking at the very specific issues that are raised. Let me just make the point here as well that some of the issues that have been raised, and in particularly you mentioned that Treasury is one of the departments that have been listed here in terms of application controls. It really is in this case in relation to the FMS (Financial Management System) and part of the problem here is that we are discontinuing the FMS. So we are taking people off the FMS system and we are migrating them into BASS. We did get a detailed Report from the Auditor-General and we have gone a long way in the implementing where it make sense from a cost efficiency point of view as many of those recommendations as is possible to do. We are in the process of doing that. There are some recommendations that we just do not believe we can implement, because from a cost point of view they do not justify the cost given the fact that we are closing down the FMS and migrating anyone into the BASS system. In terms of the issues around providing support to other departments - I think we do try and provide as much support as we can, both in terms of PERSAL, BASS and even in terms of the FMS, to the departments through a number of training programmes that are run by our Financial Management System's people. We do have, as you know, this entire area is run on contracts from a number of service providers and part of those contracts are also training and development. There has been a lot of work that has been done in cleaning out the PERSAL system. I do not have the figures off the top of my head, so I do not know if Koen, JC or even Ishmael remember them. I think we have now reduced the number of people of fake employees down to a very low level. Having said that, let me also say that I read in the Economist not more than a month or two ago that this is such a big area of work and abuse all over the world, both in the private, but also in the public sector, fictional employees on the payrolls of very large firms. So it is not an issue we try to deal with in isolation as the Government. Just to come to the point here in terms of that table 1.8 where we are aware that even departments or provinces are experiencing the problems - we do provide the systems. We do try and work with them in the migration process out of FMS into BASS. We provide training. We often send people out in terms of support to the various departments. Again, what we cannot do is actually do the work for them. For example, data capturing is a very basic function. Somebody has to do it and somebody has to do it right. We do provide, for example, the system does give you on a monthly basis, on the personnel side, a Personnel Report which every single Head of Division in the department is supposed to sign off on to confirm that all those pay points are actually people that are employed in that division. That is suppose to happen on an ongoing basis monthly. If those kinds of things are not happening then we, again, are talking about the breakdown of Management.

[Mr Ishmael] From my perspective, on page 33 there were two issues of programme controls that were raised. We tended to those, except the one that talks about the programme checks existed on FMS for possible duplicate payments. Unfortunately, the issue of what cost benefit, because we are phasing out FMS that the design mechanism does not allow for that change to be done immediately and cost effectively. So we are saying that it is a risk that we understand and we have alternate procedures in place. We have attended to the other matters. The general IT control issues on page 127 - all of those IT controls are really departmental unique IT systems. They talk about Correctional Service having its own BASS system and the Justice Constitutional Development having an internal network environment. All of those are unique to the department and the responsibility of the departments concerned to address those issues. The best I could say at this stage is that with the creation of SITA, that SITA would take over a lot of these functions in terms of network management and security controls and access controls for these departments and ensure that these systems operate satisfactorily. Like we would ensure for the mainstream financial systems - the PERSALS, FMS, BASS and the LOGIS.

[Mr ……………..] Ishmael has covered some of what I wanted to add. Just a point that Ms Ramos has already raised that we do provide the support in training as much as we can to departments. Just to emphasise again. We are obviously the providers of the systems and training, but it is still the responsibility of accounting officers to ensure the validation of the data basis to make sure that the information that is captured is correct, and where irregularities do occur to take the corrective measures. What we have also done at the beginning of this year, in January 2002, was to have taken to Cabinet a Cabinet memorandum explaining again all the problems, identifying the departments where some of these potential problem areas were. We did appeal to the Executive to also take action to ensure that corrective measures are taken. That has, again, produced some results. In addition to that, just to sensitise the accounting officers to the functionality of particularly PERSAL. We have issued a booklet very recently to at a high level explain what is possible in terms of reporting etc. I think that will also contribute to sensitise accounting officers to read the Reports and to understand what can be extracted from the system etc. At a high level we try what we can. The final responsibility rest with the accounting officers to make sure that these ghost workers are tracked.

[Ms K Mothoagae] I wanted to check with the Auditor-General as to the follow-up and support if they are planning any room, but it has just been indicated that something is being done for the departments. And for a fact, sometime ago we had DoD before us and there were a number of things that they needed. We are relying on the Auditor-General to continue with the IT system in their department. So I am not sure whether he would want to comment.

[Mr S Fakie] Yes, we do regular follow-ups. When we do a computer audit we do give the department a year, maybe sometimes 18 months, to try and rectify some of the shortcomings that we have identified and we do a follow-up audit. You will find that in our Report, right across, we do indicate that. For argument's sake, if you look at page 127, we said that in the previous at Correctional Service on the table 1.8, we said that there were 26 weaknesses that were identified previously; 17 had been adequately addressed and therefore there are still 9 that needs to be addressed. So we do follow-up and we do specific follow-up in terms of the recommendations that we have made previously. I think the point that is also quite important here, when you are looking at a transversal system there is elements of general control that we look for at the department that is responsible for the transversal system. For FMS it is National Treasure and Public Service and Administration for the PERSAL. Then there is also application control which is their responsibility. In other words, how good is the application of that particular system for users to be able to use it? Having done that, the next level of control is at the user level. In other words, the individual departments that are using that system. The general controls around password control, security control etc is the responsibility of the department and they need to take responsibility for that. Also around the accuracy of data capturing and so forth is the responsibility of the department. That is the second level. We normally do two levels of review in a computer environment. One is a general control and then we look at the application control. There is definite follow-ups that takes place, but it takes place in cycles of between one and two years.

[Ms K Mothoagae] My last question is around the White Commission. I think this is for the Director-General. On the Department of Justice it is indicated that implementation of the White Commission is in progress, but under Labour it is being said that there is no progress pending the court case. Can I have clarity around that?

[Mr S Fakie] With the issue of the White Commission - it revolved around, as far as I know, the whole issue of overpayment and the level of ranks that existed. It comes back from the amalgamation of the former TBVC states. The White Commission has made a recommendation in respect of two things. One is that it said that the ranks needs to be corrected and people needed to be paid according to their rank. The second issue was to try and recover all the overpayments that took place from the time this incorrect rank was in place. The difficulty that many departments had in implementing both those recommendations of the White Commission, also in implementing the second recommendation of the White Commission. In other words, to recover all arrears whilst it is going to create serious financial difficulties for many of those employees within the public sector. What they have done is they have definitely implemented the first recommendation. In other words, to bring the salaries down and put them at the right rank level. This matter, as far as I know, was of such significant debate that it had to go through in one stage to Cabinet also to get a decision on that. That is why many of the departments were not on the same level. This matter was also taken to court, as far as I know in the Eastern Cape, to repudiate the findings of the White Commission. That is the reasons why some of these recommendations have not been implemented to the extent that we would like. We have taken a decision at the Office that we will continue reporting on the progress that is being made and those departments that are implementing it will report on that and those that are not will put down all the difficulties and why they are not implementing this.

[Ms K Mothoagae] With regard to Parliament - we are aware that the PFMA to some extend does not apply to Parliament. Since Treasury is assisting other departments around this network environment - who is assisting Parliament? Are they doing ……………… What is the process?

[Ms M Ramos] I am going to ask JC to answer this question. It is actually just good practice for Parliament to follow the same requirements. I know that there are some amendments taking place with the privileges of parliamentarians to bring it into line with the PFMA.

[Mr ……………..] The current Powers and Privileges of Parliament Act also regulates the finances of Parliament. That Act contain quite a few prescripts that were pertaining to the Exchequer Act. The Powers and Privileges Parliament Act is being amended to include the relevant provisions of the PFMA.

[Ms M Ramos] Let me also say in terms of providing assistance, I think we have on a number of occasions offered Parliament assistance in this regard, both in terms of the following through on the procedures of the PFMA and the requirements thereof, but also trying to work closely with Parliament just in terms of putting budgets together etc. The door is always open in terms of assistance for Parliament, just as for all our other colleagues. We have also got a help line in place where departments and Parliament can get questions answered on the PFMA. As you can see, JC's version of the PFMA is very well read. He is a fountain of information in this regard. I am sure he will be very happy to help.

[Chairperson] Thank you very much. We have come to the last section. I will give each member a short opportunity for one question. We are going to take that as a cluster and then we can have a response, then maybe final remarks from the Auditor-General and the Director-General. The Director-General of Finance indicated this morning that there are possible amendments to the PFMA. The whole question of the role of the CFO, as well as of the Accounting Officer, the last three months we had various departments with us. In some instances it is quite clear that the Accounting Officer is very much involved with the financing and management of that. He is quite conversant with it. In some other instances it is the CFO that is really in charge and you get the impression that the Director-General is just dealing with managerial duties and policy matters etc. What would you say would be the approach to ensure that also those departments that are coming here year after year that the relationship between the Director-General and the CFO can assist to improve the overall management? You said that at the end of the day it boils down to Management.

[Ms M Ramos] I think it is a very good question. In the end the Accounting Officer has ultimate responsibility and it is the responsibility of the Accounting Officer to ensure that you have a CFO in place that understands the business and who can produce the financial statements. As the Accounting Officer every month you have to still sign off on those financial statements. You need to be on top. If not, certainly I think it is very difficult for Accounting Officers to be on top of every single bit of detail in relation to departments. I have particular sympathy for colleagues who run very large departments and very geographically diversified departments too. The relationship that you structure with your CFO should be one that allows you to be on top of the financial issues that need to be followed-up on. So if things are coming up in the Auditor-General's Report, for example, on an ongoing basis, those things needs to be followed through. The ultimate responsibility for following through on that is with the Accounting Officer. Ishmael is just pointing me to the Act where the powers of the Accounting Officer are set out and also in the Treasury Regulations in Chapter 2 they talk about the corporate management and the functions associated with that. In the end it has to be an incredibly close relationship. The Accounting Officer must be on top of the situation sufficiently to be able to pick up, for example, in the monthly reporting whether the Suspense Accounts are going up or not and whether he or she is satisfied with the response or the explanation provided by the CFO for the changes and variations in that, or the explanation provided by the CFO on whether a particular programme is overspending or underspending that budget. I do not think there is any escape for Accounting Officers in relation to this. The Act and the Regulations does not provide them any escape. In fact, in recognition of the additional requirements and responsibilities imposed by the Act, if you look at the remuneration package of Accounting Officers, they actually get remunerated with an extra 10% allowance over and above the basic package. It is part of the remuneration package which is there specifically to compensate for the additional responsibilities. I do not want to get involved with whether or not that is the right compensation. This is not about the compensation. This is about the responsibilities that you take on as an Accounting Officer. You need to appoint a CFO and a team of people around you in their function that you can rely on.
[Mr Ishmael] In Chapter 2 of the Regulations in 2.1.2 it says that the CFO is directly accountable to the Accounting Officer. So it is very clear about the accountability arrangements. The general responsibility of the CFO is to assist the Accounting Officer in discharging their duties as prescribed in part 2 of the Chapter 5 of the Act.

[Mr M Lowe] Could I refer the Director-General to page 95 of the Auditor-General's Report? I want to cover an issue that has been covered in some detail certainly in the media, but it has come up in various fora, and I would like hear the Director-General's views and perhaps even some information of what progress, if any, has been made with amending legislation. It is the concern that the Auditor-General has identified that with many of the enterprises which he audits there is an increasing reliance on auditors provided audit work where one is also using that same firm of auditors for other work, other than audit work, consulting etc. It is a concern that one has too much reliance. I know that the Minister of Finance has certainly made reference to it. There has been some measure of debate in the media. Could you give us some indication of what is the thinking of the Department is regarding to that? There are certainly strong views on both sides. I think it would not be appropriate for the debate to continue without at least engaging the profession of chartered accounts. Where are we with that debate? It is well raised in this Report and it comes through in a number of areas that there is a problem. With regard to the audit fees being paid for the Auditor-General's audit fees - another concern that is raised in the Report. I think R20 million is outstanding. What, if anything, can the Treasury do to try and ensure that the Auditor-General is not running around doing non-core business? In other words, collecting debt rather than doing his audit work. Is there any legislation enforcing that direction to making it easier for the Auditor-General's Office to get on with their work and not have to simply wait for audit fees to be paid?

[Mr V Smith] In preparing this General Report the Auditor-General, I think, is intending to inform Parliament of the state of affairs in Government generally. I heard the Accounting Officer of National Treasury say that you do report to Cabinet on a quarterly basis. Do you present to Cabinet this type of information? In other words, general information around departments in Government or is it specifically your Department's performance? On the basis of that, I am wondering if this type of exercise ensuring that Government is accountable to Cabinet accounts to Parliament, if it is not necessary that we think about including the broader accounting officers. It is one thing that Treasury knows what is happening. I am wondering if all the other Director-Generals have this snap shot picture of what is happening and if it would not be an useful exercise that we find a way where the Auditor-General also presents to all the Director-Generals. I do not know if it is possible to do it in one city. I think for the accountability chain to be completed we need all the Director-Generals to be brought on board. We need Parliament, through SCOPA, to be brought on board and the Executive through Ms Ramos's exercise quarterly I am sure will also be brought on board. Can someone comment on that?

[Mr L Chiba] I want to refer to the Auditor-General' Report on page 32. There are one or two issues that I would like to get some clarity on. That is on the question of the Ministry of Finances. I noticed the part of where the National Treasury is concerned the date of submitting the financial statements were on 20 September 2001 and that the date of the Audit Report was just the next day. It was finalised already within a matter of a day. Is that correct? Is there a error in printing? Secondly, as far as the National Revenue Fund of State debt is concerned - the Audit has not been finalised. Likewise for SARS, the National Development Agency and the Public Investment Commissioners. When do you expect those audits to be finalised?

[Mr P Gerber] In the 1999 Report, and also in this year's Report, there was made mention of the winding down cost of the South African Housing Trust which was estimated in 1999 at R259 million, but at that stage we only spend R176 million. And in this Report you also mention it as an entity that it is not listed before 1 April 2001. The issue was raised regarding the selling of these properties and the method of valuation. If one could get an answer, not now, but later on, whether the price that was received for these companies did match the valuation price? What was the actual cost of winding down the South African Housing Trust in the end?
[Ms K Mothoagae] With regard to Chapter 10 of the PFMA - it is being indicated that an amendment is coming. One feels that Chapter 10 is kind of toothless. The Director-General has indicated earlier on that we have remedies in place. Are we really applying them if we have them? I know that recently the PSA circulated a Report around anti-corruption agencies as to how to combat them. Do we feel that Chapter 10 is really given some teeth?

[Mr D Gumede] With regard to the internal controls - the area of the risk in as far as theft and fraud are concerned, and the issue of segregation of duties.

[Mr B J Nobunga] Mine would be on the issue of the safeguarding and reporting on valuable items and art works that has not been complied with in the past financial years by Parliament. The issue of the Presidency would also come into picture, because that is one other area where you would have some of these valuable items.

[Mr B Nair] It is just a comment. The issue of the Browde and the White Commission is before the ………………… decision. There is an appeal by the State against the Association of the Supreme Court in time. Secondly, it is just a comment again. A problem that arises is that the State is a very big institution. I am raising it because it has over 1.2 million public servants. As you go down the line, especially at the lower end of the scale there are hardly any control checks and balances. I think serious attention must be given to establishing, with the co-operation of all the Director-Generals, the provincial governments and even at the local ro…………. Etc a mechanism where we could exercise greater control over the billions that the whole chain handles. Unless that is done effectively billions will just be slipping out of our hands.

[Mr V Smith] I am asking a question on behalf of Mr B Kannemeyer to Treasury. In the past two weeks we have had Hearings with the RAF and the Department of Labour, specifically the UIF. In both instances there are serious concerns about the going concern or whether these entities are, in fact, solvent or insolvent in their current state. Does Government generally have a policy on paying surety for these two, and I am sure there are more, or are we saying that if these are really insolvent that we just see them go back? The RAF has said that they have got no money unless there is a policy change. What is the view of Government on those two specifically?

[Mr M Ramos] In the case of the UIF - I think there have been significant changes in legislation. In fact, Government made a very big allocation available to the UIF, both in the adjustment estimate last year, but certainly in the budget again this year. It is in the Budget Review and in the Department of Labour's chapter in the essence of national expenditure to deal with the UIF and something that is also raised in the Auditor-General's Report which was big transfers that we made by the Department of Labour to fund the UIF. We have made it a condition that in both the case of the UIF, and I think the same applies to the RAF, that they need to have Business Plans. They need to run their organisations effectively and efficiently. They need to collect the revenue that is due to them. So without putting a too strong point in this, I guess they need to get their act together. In the end these are contingent liabilities of the State. If you go to the Budget Review to the tables that deal with the contingent liabilities, we do report the actuarial liability in respect of the RAF, for example. I think the pretendency to think that you can solve all of these problem with just more money takes away the requirement that you need to get the administration and the systems right, that you need to improve collections, that the CEO's of these organisations need to manage them actively. Let us leave it at that. Let me try and deal with some of the other issues. I will start with the first set of issues that were raised around the Auditor-General's fees. Mr Lowe can you remind me again?

[Mr M Lowe] It is just the audit fees versus fees for other services and undue reliance.

[Ms M Ramos] Last year we gave the Auditor-General R6,3 million of our budget to try and deal with some of the audit fees that the Office was clearly not going to be able to collect primarily from local authorities. We have also made a provision in this year's division of revenue that audit fees need to be paid to the Auditor-General. Hopefully that will also go a long way to making sure that the Auditor-General gets paid. I understand what you are saying that the Auditor-General should not have to go around running after fees, but I cannot resist the temptation of saying that the Auditor-General also needs to run an organisation. I am sure they have got a finance and corporate service division whose job it is to make sure that they get paid. I think we have tried to assist as much as we can. I think the requirement in the Division of Revenue Act goes a long way to try and deal with this problem of the Auditor-General. I think we need to see how that works out.

[Mr S Fakie] That is correct. We did get assistance from National Treasury on that R6.3 million. It is in the Division of Revenue Bill. The problem we currently have is we cannot implement the Division of Revenue Bill, the provisions is there until the equivalent PFMA for the local authorities is in place. So once that comes into place then, hopefully, there is mechanism to withhold the equitable share in paying off the audit fees. So we have made quite a bit of engagement with the Department of Provincial and Local Government with National Treasury to make sure that there are mechanisms in place that will avoid us running around to the extent that we do.

[Ms M Ramos] On the issue of the accountability of the Executive to Parliament and are Accounting Officers aware of these quarterly Reports that get tabled to Cabinet - there are two ways of which Accounting Officers should be aware. One is in the monthly reporting that they themselves have to table to the Accounting General and with their Ministers. All Director-Generals have access to the Cabinet Memoranda. We all have to provide inputs in Cabinet Memorandums to our respective ministers. All Director-Generals are aware of the Cabinet Memoranda that deal with this. The other way in which Director-Generals are aware is that the Report we table today with SCOPA on progress in terms of the implementation of the PFMA will be tabled with POSAD as well. So all the Director-Generals who are members of POSAD will also give the same Report as SCOPA will give today at the same. There are mechanisms. Director-Generals are suppose to be aware of what is going on in Cabinet and also have responsibility for following up on the decisions taken by Cabinet. I hope that that in itself keeps Director-Generals briefed. There are not too many ways in which you can escape not knowing about something, particularly in this regard. In terms of the issues raised relating to page 32 - it does look a bit curious to those that the National Treasury submitted these financial statements on the 20^th of September 2001 and the Audit Report is miraculously finalised overnight. It was not like that at all. There was a long engagement on this particular Audit Report. The reason why the date of submission is so late was because we decided with the Auditor-General's Office at the very last moment to take the debt service costs, because they are a statutory payment, out of the accounts of the National Treasury of the Vote. That required a change to the financial statements that had been submitted, but all the audit work had already been done. It was a last minute change that accounted to the dates. In relation to the SARS, the National Revenue Fund and State debt - there was an issue with the administered revenue, I think, of SARS. The audit on that has just been completed. Is that correct? So we are now in a position to finalise the National Revenue Fund and finalise the audit on those.
[Mr Ishmael] Public Works has just been finalised as well. So once the final numbers are available to proceed ……….. The accounting practices applied for the National Revenue Fund that is being submitted to the Minister for approval. I think, subsequently we received that approval when the audit was completed.

[Ms M Ramos] So we can now complete the National Revenue Fund accounts and submit those. In terms of the PIC (Public Investment Commission) - I think that audit has just been completed and that is also being dealt with now. I cannot answer any of the questions on the South African Housing Trust, I am afraid. I do not know if the Auditor-General has anything to say. The intention here was that for the first two years of the PFMA getting in place that we would nurture and try and develop the practices. We would try and encourage accounting officers that the things that would be treated harshly would be cases of fraud and negligence. I do not know so much that Chapter 10 is toothless. Chapter 10 also needs to be read with the Public Service Act that it also has quite details procedures for dealing with people who do not comply, negligent or are guilty of mismanagement, for example. I am not sure and we can look at Chapter 10 again. I think we are trying to keep any changes to the PFMA down to a bear minimum, at the moment, in relation to what we are bringing in the second half of this year. There is not a lot of time left. We also are very conscious of the workload of the Committee. We also want to give the legislation time to settle before you begin to make changes, unless the changes are absolutely needed we will make those, but otherwise our intention is to let it settle a bit. In terms of the Treasury Regulations - I do not know what I would do without JC. He has just pointed to Chapter 4 of the Treasury Regulations that set out …………….. in a lot more detail what financial misconduct is and the actions to be taken in that regard. I also want to say that I think SCOPA has quite a lot of powers. After all, this is an entity of the legislature. For example, SCOPA has the power not to authorize unauthorised expenditure. That is a very powerful instrument, because there are very specific requirements and actions that need to be taken for unauthorised expenditure. So if SCOPA does not authorize spending that has been deemed unauthorised, that is a very powerful instrument. I think, perhaps, SCOPA needs to think about its own powers as well and look at those. On the issues of internal controls - I think the Auditor-General's Report points to a number of those and they are all fundamental. In terms of safeguarding and reporting on the valuable works of Parliament and the Presidency - I think the same issues that applied to asset control apply here and the same practices should be in place for Parliament as well. On the Browde and the White Commission - I honestly cannot comment on those. On this idea that we need to establish a mechanism for greater control, because of just the billions of rands that we all have a responsibility for - I guess collectively we have a responsibility for the entire budget, all R273 billion worth of spending in Government collectively. That is a very big responsibility. I think that what we have tried to do with the PFMA and the requirements of that Act is to provide precisely the checks and balances to ensure that spending happens effectively. In the end it is more than just a legislation. The Auditor-General's Report also talks to it and the whole discussion this morning has highlighted that. It is about the culture of management in the Public Service. It is about the way you hold people accountable. It is about the way that this particular Committee of Parliament does its work. It is about whether or not this Committee can, as the profile that means that if I am the accounting officer of the Treasury and I have to appear before this Committee on my budget, not in the General Report necessarily of the Auditor-General, but on my own budget, that I look forward to that with great tribulation. I know that there are serious consequences for not having followed-up on last year's Reports, for example. It is about more than legislation, it is also about practice. It is about the way that that culture of practice is institutionalized and becomes part and parcel of the culture of Government. My sense is that we have come a long way since the implementation of the PFMA. The PFMA is a very young piece of legislation. I think we said at the time that it is going to take some time for it to settle down. One of my colleagues has just come back from the UK Treasury where they have been for years implementing their version of the PFMA, three-year budgeting, output measurements, output definitions and they have very much the same problems as we are having with the definition of outputs. They are experiencing even bigger problems on capital spending on their budgets. I have just come back from Australia and I have talked to them. They have similar difficulties to what we are having. None of these things are unique to us. I think what is important is to give this legislation time to be embedded in the culture of the departments and provinces, and ultimately in local government when that legislation is passed, and to keep everybody sharp in terms of having to come here and report. This is certainly the first appearance of the Treasury formally before this new Committee. I think this morning's experience has been a very valuable experience. I think we were looking to have an opportunity to talk through the Auditor-General's Report and to give it the attention that it deserves. An enormous amount of work has gone into producing this Report on the part of the Auditor-General's Office. All the departments have had to report into it. I think it does need a lot of work and attention on the part of this Committee. I think that this morning, certainly for me, has gone exceedingly well. I am hoping we will build on this in SCOPA as well going forward. I wish you and the new Committee all the best in this regard. I also want to thank the Auditor-General and his team for a job well done. It is more than just highlighting small issues which sometimes you feel are immaterial. There is actually a lot of very valuable information in this Report that these departments have to follow-up on including the Treasury. I think we can begin to address some of the risks that Mr Nair was eluding to with his statement at the end there.

[Mr S Fakie] I was just auditing all the statements that was being made by Ms Ramos. I think Ms Ramos has gone through and responded to all of the questions. There are just a couple of comments that I would want to make. Firstly, Mr Lowe raised a question on the views of auditors of public entities doing non-audit work - I think we have highlighted our concern. It is an issue that is currently in constant debate within the public. I know the profession is trying to address this issue as well. I do not know if Ms Ramos has a specific comment to make on that. We have identified the concern that we have. We do believe that the extent to which non-audit services are being provided to some public entities is gone beyond the point of looking at value. It is compromising the independence of the external auditor. As an Office we engage with those external auditors telling them that we are not comfortable with the extent of non-audit work that is conducted by them at the public entity and that they must cut back the extent of non-audit work that they are doing at the public entity. We monitor them on a year by year basis. On the question around the Housing Trust and the winding down - I know that one of the clusters within SCOPA, which Mr Gerber is not in, has actually forwarded some questions to the South African Housing Trust to find out what their Implementation Plan for winding down the Trust is. I think they have raised the question around the sale of removable properties. So hopefully that cluster will be able to give some feedback and we will have that at SCOPA. I do not have got much more information than that myself. The question that Mr Gumede raise on the internal controls, and specifically he mentioned the issue of risk, theft and fraud - it is a requirement now in terms of Treasury Regulations for all accounting officers in their Accounting Officer's Report in the financial statement to make a statement around the fraud prevention strategy that they have adopted. This should be coming through on every single set of financial statements. The last one that I cannot answer and I am going to pass it back to Ms Ramos is the question around Mr Kannemeyer's question in his absence, the RAF and UIF going concern difficulties that are being experienced, and whether there is any undertaking by Treasury or Government to bail these people out should they not survive? That question has not been addressed. I do not have an answer for that.

[Mr M Ramos] Let me deal with the easier one, which is Mr Lowe's question about the consultancy versus the auditing - I think it is a very big issue. We and the Minister have now raised it. It is one of the reasons why we have not been too comfortable with the draft Bill that is on the accountancy profession, because we do not believe it goes far enough. There have been consultations with SIKA and with the profession as well. There are ongoing discussions about this. I think ENRON and a number of others have raised those kinds of issues very sharply. It is good practice for companies. I do not think you even have to wait for the legislation for change. It is good practice for Boards of companies to make sure that their own internal controls mean that they are not being audited by the same companies providing the consultancy service, the Business Plan, the restructuring of the Treasury or the restructuring of their internal audit function. I think this is something that will remain on the agenda for some time, both of the profession, but also certainly within government and public entities as well. The Brazilians have an interesting requirement which I know the profession in South Africa does not like, but in terms of their norm you have to change your external auditors every three years. They have to rotate. Not just the partners who are doing the audit, but the actual audit firm has to change. I know that when we put that on the table with the audit firms locally they have all jumped up and down and they do not like that very much. That is just one model. On the issue of the UIF and the RAF, are they going concerns - it is just a difficult issue. I suppose the State has ultimate responsibility for contingent liabilities. So to that extent we have responsibility. I think it would also be irresponsible of us to just say that people can run up whatever deficit they want to and it will automatically be met. As I said earlier in the case of the UIF where we have made large sums of money available, both in the adjustment estimates, but over the next two year in the budget. It is on the basis, and incidentally this is the same story for the post office, that they table a Business Plan that is workable. That they take the decisions internally that need to be taken to get those organisations back to health. I think you are building up an enormous risk if you just say that you can be a public entity or agency of government, you can run up large deficits and it will automatically be bailed out. In the end these are agencies that collect revenue. Part of the problem here is also that if you do not have the mechanisms for collecting that revenue on time, if there is absolutely no onus on you as the Management of this organisation to collect those revenues on time, and you are going to get bailed out whether or not you have done the right thing, you are building into the system an enormous risk. It is a budgetary process here as well. They have to stand in que like everyone else in government. There is a finite amount of money and almost an infinite number of needs. They have to be evaluated in that priority list and in coming to parliamentary committees and saying this is a matter of money alone does not automatically mean you jump the que.

[Mr S Fakie] Let me also take this opportunity to thank this Committee for engaging on this General Report to the extent that you have, because it gives us also a sense of how to move forward in terms of this Report and how we will report in the future. Whilst I am on that issue, let me also respond to Mr Gerber's comment that we omitted to put the mandate of the Auditor-General in this Report and SCOPA, that is not the case. This Report, as we have shared with this Committee, we had two General Reports submitted to SCOPA now. The first General Report covers broadly the mandate and the role of SCOPA etc. This Report focuses mainly on the outcomes of the departments. In other words, the 32 votes that we have audited, purely putting it, and that is the reason why the mandate and the role of SCOPA etc is not repeated here. We are planning to put out at least two General Reports annually on the same basis. One will be, as I shared with you last time, a more pro-active type of report where I will be able to identify the kinds of issues that is facing government departments, and, perhaps also, that will give some direction for SCOPA in their interrogation of the individual departments of the kind of areas you might want to focus on. Also, trying to get some feedback from SCOPA in terms of the previous Hearing what are the issues of concern that you have, so that we can build that as part of the focus area for our General Report. The second General Report will be similar to the one that you have just got trying to break it down by portfolio and basically giving you a summary of the actual audits for the various national departments and what is happening at provincial and local government level. What we also indicated in this Report, and we are hoping to try and experiment in that regard, is to try and get a transversal audit, for example, like Health and present a Report here to Parliament of what the situation with Health is right across at national, provincial and local government level, so that you have a good perspective on what exactly what is happening in a sector right across the three tiers of government. It is something we are planning to experiment on and hopefully we will try and bring some aspects of that in our General Report in the future.

[Chairperson] Thank you very much for that Mr Fakie. Also a word of thanks to the team of the Auditor-General for their hard work. I think it was a very fruitful interaction. I think there are a lot of issues that we can engage on in future. Thank you also to the Director-General of the Treasury and her team for their interaction. I think there was one important word mentioned by the Director-General of the Treasury this morning and that is co-responsibility, and that is also where SCOPA's role come in. At the end of the day, although we are from different branches, we have the co-responsibility and that role we want to play. Thank you very much.