Auditor-General South Africa: functions; SCOPA’s oversight role & method of operation

Public Accounts (SCOPA)

22 June 2009
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Chairperson welcomed the Deputy AG Kimi Makwetu and his team. He requested them to introduce themselves. They were:
Jillian Bailley, Head of Audit
Pramesh Bhana, Corporate Executive
Barry Wheeler, Corporate Executive
Paul Serote, Corporate Executive
Eugene Zungu, Corporate Executive
Alice Muller, Corporate Executive 

Mr Makwetu, followed by the members of his team detailed their responsibilities and functions and responded to questions from the members of the Committee. Questions focussed on the ability of AGSA to enforce compliance and upon its own independence. The AGSA team made it clear that the function of AGSA was to point out irregularities and suggest remedies but that the taking of action was the primary responsibility of the Accounting Officer of each entity. It was itself audited by an independently appointed firm of auditors. 

The Committee was keen to know what happened to departments and entities that were serial audit offenders such as the severely irregular Land Bank and the Department of Public Works which did not yet have a suitable asset register.  The pilot programme of
Municipal Public Accounts Committees was also discussed.

The Chairperson emphasised that the oversight role of SCOPA would only be successful if the members prioritised their work and attended to “A” or “B” matters where entities had received qualified audits (“B”) or severe problems were detected (“A”). It was important to process the audit reports as quickly as possible so that the hearings could be scheduled with those departments and entities that were not meeting the grade.

Meeting report

Function and nature of Auditor-General South Africa (AGSA)
The Deputy Auditor-General, Kimi Makwetu, conveyed the apologies of the Auditor-General who was unable to attend because of his need to perform oversight visits nationally. The members of the AGSA team introduced themselves:
Jillian Bailey, Head of Audit
Pramesh Bhana, Corporate Executive
Barry Wheeler, Corporate Executive
Paul Serote, Corporate Executive
Eugene Zungu, Corporate Executive
Alice Muller, Corporate Executive 

Mr Makwetu referred to his document in which he listed the key areas of AGSA’s responsibilities as: contributing towards unqualified audits by ensuring reports by all government entities are simple and clear; not merely issuing but also analysing them in detail to ascertain the causes of adverse opinions and holding road shows to attempt both to contextualise the reports and communicate with stakeholders.

Further, AGSA committed itself to being available and visible so that the Standing Committee on Public Accounts (SCOPA) could call upon it when required and it undertook to give the names and functions of all Corporate Executives to the members of SCOPA so they would be able to interact directly with them. Similarly, the Auditor-General affirmed (through Mr Makwetu) his commitment to be available to SCOPA. The Corporate Executives would also attend the Portfolio Committee meetings of other relevant departments to gain insight into the challenges of implementing their respective budgets and programmes.

Mr Makwetu outlined the areas of work of his team. They were: financial or regularity audits, ad hoc audits and performance audits. AGSA would focus on performance audits in critical areas this year, general reports would, however, remain its flagship process.

Before handing over to the Head of Audit he referred the members to the organogram of the Office of the Auditor-General in the document.

Ms Jillian Bailey (Head of Audit) introduced herself and her responsibilities. She referred to a double-sided page detailing the PFMA audit cycle timelines and an overview of the national audit portfolio. She noted that the AGSA used road shows to communicate with stakeholders. The aims of her portfolio were to enhance reporting, enhance performance auditing, to ensure the relevance of their products and services, to enhance public confidence, meet the needs of stakeholders, identify strategic audit problems, improve the quality of audit reports, instil passion into staff members and importantly to ensure that auditees developed action plans to correct problems identified.  Finally, AGSA would ensure the timely submission of its own reports and those of its auditees and would strive to work smarter by providing cost-effective auditing.

Ms Bailey concluded by referring to the timelines of the audit cycle. There was an interim audit by end of May and by the end of July an audit opinion would be entered in an audit report. The executive authorities would then have to table their reports by 10 September.

Ms Alice Muller explained that she was responsible for the Departments: Arts and Culture, Communications, Health (a regular offender), Intelligence, SAPS, Science and Technology and Water Affairs which was one of the ‘maturing’ departments showing signs of successfully implementing the Public Finance Management Act (PFMA) standards.

Mr Eugene Zulu was similarly responsible for a number of departments: Education, National treasury (including SARS and the Land Bank), Transport (where SAMSA was a concern in terms of its delay in issuing reports), Home Affairs (where there were signs of progress), the Department of Minerals and Energy (including the Central Energy Fund (CEF Group) and PetroSA), Public Enterprises and the IEC which had not met its deadline for submission but which he expected to have within a week.

Mr Paul Serote introduced himself as the guardian of two national portfolios. The first contained the Departments of Human Settlements, Justice, Constitutional Development, Trade and Industry and Government Communication and Information System (GCIS). The second represented Agriculture, Labour and the Sector Education and Training Authorities (SETAs. His general findings indicated that the challenges faced by government entities were manageable apart from some intractable problems with procurement. The identification of movable assets in terms of housing and rural development was also problematic. 

Mr Barry Wheeler was the next corporate executive to introduce his portfolio. He was tasked with a number of local government entities such as the Ports Regulator, museums, the Smangaliso Wetlands Park and the National Playhouse at Durban. Most of his work was done in various departments and agencies, namely Social Development, the National Development Agency, various disaster relief funds, Defence and Military Veterans, Armscor and Correctional Services. Mr Wheeler commented that Correctional Services had seen some significant improvements but the lack of stability in senior management militated against further progress. Finally, Sport and Recreation showed improvement apart from Boxing SA which had been unable to account for its expenditure each year.

Mr Pramesh Bhana was the corporate executive responsible for audit development and innovation. He supported his colleagues and performed specialised audits. The following objectives were part of his task:
▪ auditing of support committees and the facilitation of delivery of the various reports;
▪ ensuring that AGSA used materials and methods that were state-of-the–art;
▪ analysing information systems (e.g. eNATIS);
▪ exploring innovative, cost-effective ways of auditing;
▪ facilitating knowledge and learning transfer, especially among young auditors;
▪ performance auditing;
▪ determining the effective use of consultants, the effectiveness of state-owned entities in terms of their  oversight functions and various educational objectives (e.g. ABET).

Mr Bhana concluded by stating that when performance audits were done AGSA did not interrogate policy, but merely gave the facts about the implementation of the existing policy. He was concerned at the large increase in requests for investigations which arrived at his office.

Mr Makwetu noted that although some of AGSA’s audits were being performed by outside firms, it still retained control of the process.

Mr R Ainslie (ANC) asked what action could be taken against repeated offenders.

Mr N Singh (IFP) requested that the public entities being audited be listed and the details thereof be given to the members. He also asked whether
Municipal Public Accounts Committees (MPACs) were required in terms of municipalities and questioned whether exemptions granted to certain entities were legal.

Ms M Mangena (ANC) required clarity from Mr Zungu whether all was well in Education which he seemed to have implied was the case.

Ms A Rantsolase (ANC) wanted to know what type of action would be taken towards those who submitted their reports late and who was responsible for auditing AGSA.

Mr Makwetu responded to the last question that his Office gave account to an independently appointed firm of auditors and was scrutinised with the same level of vigour as any other government entity.

Mr Bhana answered that MPACs were not compulsory because it was a pilot programme in the process of being evaluated. Oversight at local level was carried out by committees appointed by the provinces.

Mr Wheeler responded that in terms of action taken towards offenders, two months after a report was tabled in a municipal council certain steps had to be adopted. National Treasury ‘may’ issue guidelines but these were not binding unless adopted by the council. This lack of clear guidelines was part of the problem. Indeed, in his (extensive) experience, serial offenders followed a pattern of non-compliance because of inadequate oversight. It was understood that the accounting officer must always take responsibility and set the tone for the organisation.

Regarding the legality of exemptions, Mr Wheeler replied that the PFMA dealt with the transition from cash-based accounting to accrual accounting. In the process the National Treasury prepared guidelines and could as such provide exemption in certain cases for practical reasons.

Mr Zungu replied that although Education as a whole had received a sound audit that did not mean that individual provinces did not have problems.

Mr Thobejane (ANC) persisted with an earlier line of questioning by asking what mechanisms AGSA had to address continual non-compliance.

The Chairperson asked what criteria were used to contract outside auditors and would this practice continue in future.

Ms L Mashiane (COPE) asked what steps the AG took when outside firms helped departments draw up and audit their accounts.

Mr Ainslie wondered how if the audit process was indeed continual it was possible that there were no early warning systems.

Mr Singh asked whether there would be any interaction between the AG and the monitoring office in the Presidency.

Mr Makwetu replied that AGSA had regular engagement with the Public Service Commission in terms of providing early warning. Responding to an earlier question by a member, he noted that AGSA was not funded from national budget, but was paid by the government entity being audited.

Ms Bailey responded to the question of how offenders were dealt with. She explained that in the monitoring process AGSA would elevate its concerns to a higher and higher authority until they were addressed.

Ms Alice Muller took pains to explain that the auditing firms used by AGSA were carefully evaluated in terms of BEE, quality of services and conflicts of interests. An audit controller was involved with each firm used by AGSA who would pick up any previously undetected conflicts of interest or irregularities.

SCOPA’s oversight role and method of operation
Mr Paul Mosaka (Business Executive) went through the document on SCOPA’s oversight function and process. 

Mr Thobejane referred to page eleven of the document which spoke of the executive authority as being responsible for dealing with issues and asked why politicians and Parliament in particular were not involved in this process.

Ms M Nyanda (ANC) raised her concern that Directors General often had cosy relationships with their respective Ministers and that this frustrated the work of the AG.

Mr M Mangena reminded everyone that the definition of “statutory function” for the management of government entities as given in the PFMA was broad and included appearing before SCOPA.

The Chairperson suggested that the oversight role of SCOPA would only be successful if the members prioritised their work and attended to “A” or “B” matters where entities had received qualified audits (“B”) or severe problems were detected (“A”). It was incumbent on the members to keep track of work that came in and to process it as quickly as possible so that the hearings could be scheduled where necessary.

Mr Singh demanded why the biggest landlord, the Department of Public Works (DPW), had not yet compiled a suitable asset register and when the report on the severe irregularities at the Land Bank would be made public.

Mr Makwetu responded that DPW had formed a task team which was dealing with the asset register and he himself was awaiting the outcome with interest. He was of the opinion that the question of the
Land Bank had been dealt with in the last session of the Third Parliament but he undertook to inform SCOPA of the outcome of the matter.

Mr Serote added that the Land Bank had appointed an acting CEO and Ernst and Young had also been appointed to assist with the turnaround process.

Mr Wheeler responded to the Chairperson’s assertion that the questions about taking steps against offenders had not been sufficiently answered. He explained that National Treasury regulations (Section 14) covered misconduct and that it was the accounting officer who must ensure that disciplinary hearings took place, as he or she bore primary responsibility for financial oversight. The AG could do no more than report clear cases of fraud and corruption to the MEC concerned. In his experience, however, 85% of problems were detected by internal controls.

The Chairperson adjourned the meeting, thanking Mr Makwetu and his team and referred to the next session with AGSA on Tuesday 30 July. He mentioned the upcoming hearings on 1, 7 and 8 July with departments that had problematic audit reports.         

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