Joint Committee of Chairpersons: Workshop with the Auditor-General

Committee of Chairpersons

13 August 2009
Chairperson: Mr K Bapela (ANC) & Mr N Magadla (ANC)
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Meeting Summary

The Auditor-General of South Africa and the Joint Committee of Chairpersons held a workshop to discuss the role of the Office of the Auditor-General, the Auditor General of South Africa (AGSA), their mandates and functions, structure and governance arrangements. Members wanted to foster an open relationship with AGSA so that they could be better equipped to execute oversight responsibilities. The central theme of the oversight and accountability was that government be accountable to the people, by monitoring issues, referrals, follow-ups and reports that arose from Parliament.

The Auditor-General stated that AGSA was an institution mandated by Chapter 9 in the Constitution to audit all organs funded by state revenue and to report on these audits. Although it did not audit all State institutions itself, it set the standards for those approved firms to whom some work was outsourced. Financial audits and performance audits were done - the former annually and the latter on a cyclical basis to confirm that funds that were spent on national priorities were spent in an effective, efficient and economical manner. The audit information was presented to Parliament in the form of public reports at national and provincial level.

Challenges shown from national, provincial and local government audits included a number of errors leading to qualifications, mostly because of the need by the entities to employ people who had stronger understanding and skills in financial matters, and who knew how and when to keep records of all financial transactions and process them properly. AGSA, in order to carry out proper oversight, needed sufficient resource, research capacity and coordinating capacity. It must also be able to coordinate effectively with all public accounts committees in Parliament.

Members felt it would be useful to be made aware of the process of developing performance indicators that spoke to the strategic plan of departments, so that they could more effectively address issues when departments appeared before them. AGSA explained the budget rules, the guidelines put out by National Treasury. Members also asked for the reasons for outsourcing, commented that people were using the lack of skills in financial matters as a convenient excuse, and stressed that municipalities in particular needed to train people effectively, rather than employ highly skilled people. Questions were asked about a forensic audit conducted on the Free State Department of Education, which revealed issues not picked up in the Auditor-General’s report, and heard about the scope of audits. They further asked for an explanation of the different categories of qualified and unqualified reports, raised the question of the culture of impunity versus the culture of integrity, agreed that Government must find ways to engage with mismanagement of public resources, and requested what sanctions were imposed on Departments that continuously received qualified reports or disclaimers, or who failed to implement AGSA’s recommendations. Members agreed that it would be useful to receive a full report on challenges and issues over the past few years and would arrange another meeting to receive a full briefing.

Meeting report

Welcoming and Opening Remarks: Oversight and Institutional Support
Chairperson R Tau, National Council of Provinces (NCOP, ANC) House Chairperson, stated that it was necessary to bring all chairpersons, Members, Finance Committees, Provincial and Local Government together under one roof to establish a relationship with the Office of the Auditor-General (OAG) and the Auditor General of South Africa (AGSA). The objective would be to foster an open relationship where Members of Parliament and the OAG would be better equipped to execute oversight responsibilities.

Context of the Workshop
Chairperson K Bapela (ANC), National Assembly (NA) House Chairperson, stated that Parliament's mission was to build an effective people's Parliament that was responsive to the needs of the people and was driven by the idea of realising a better quality of life for all of South Africa. The central theme of the oversight and accountability model looked at the extent to which Parliament ensured that government remained accountable to the people. The Money Amendment and Related Matters Act, which was recently passed, would give power to Parliament to amend the budget or reject it. An Appropriations Committee was established to discuss the budget.

The oversight model also allowed for the strengthening and monitoring of issues, referrals, follow-ups and reports that arose from Parliament. A budget office would be created to assist Committees and give advice on the analysis of the budget. Parliament would be strengthening and utilising oversight tools up to the optimal level.

Members thought that all Annual Performance Reports should be submitted to Parliament as well. Committees wanted to see if entities were able to deliver on particular programmes. The Auditor General would be informing Parliament on how the departments and entities executed their mandate as an oversight body. The objective of the meeting was to understand the OAG's mandate, the reports this office produced and how reports could be used by Members for oversight purposes. Committees had to begin to identify issues and to engage with departments about issues. The OAG would also be providing audit information on the performance of municipalities.

Oversight meant the prevention and protection from the abuse of fund expenditure. The OAG made sure that taxpayers’ money was not wasted.

Auditor General of South Africa: Mandate, Functions, Structure, and Governance: Briefing by Auditor-General
Mr Terence Nombembe, Auditor-General, stated that there were a number of issues that needed to be considered. This workshop was aimed at strengthening the relationship with Parliament, rather than providing a formal report. He wanted Parliament and the Auditor-General of South Africa (AGSA) to build a mechanism by which to deal with performance reports.

Mr Nombembe explained that AGSA was an institution composed of the AG, the Deputy Auditor-General, who was responsible for running the institution and executing all AGSA duties, the Head of Audit, who coordinated all audits timeously and was responsible for quality control and assurance. There were also support services in AGSA to ensure audits were done properly and efficiently.

AGSA was mandated by Chapter 9 of the Constitution to audit all organs funded by State revenue and to report on these audits. AGSA did not audit all State institutions by itself. AGSA audited all government departments, but did not necessarily audit all public entities. However, AGSA, when outsourcing work, set standards for auditing that must be kept by all private auditors when doing work for AGSA.  AGSA wanted to review the audits done by private firms to confirm that they audited in line with AGSA standards.

AGSA did financial audits, which looked at financial statements and accounting records. These looked at the extent to which institutions complied with the applicable legislation, to ensure they adhered to their mandates. AGSA, together with the National Treasury (NT), also audited performance information of all government departments and state entities. This allowed AGSA to confirm that all service delivery objectives were a true reflection of what was actually happening in the country.

AGSA also did performance audits. This was different from auditing performance information. Performance audits could not be done on an annual basis, whereas auditing of performance information was done every year. Performance audits were done on a cyclical basis to confirm that funds that were spent on national priorities were spent in an effective, efficient and economical manner. Performance audits were sometimes triggered by departmental officials for oversight purposes. These audits required AGSA to investigate instances of fraud.

AGSA was in the process of summarising the reports on their audits in terms of the Public Finance Management Act (PFMA) that were just completed a few weeks ago. Departments were busy preparing their Annual Reports and AGSA would be consolidating the audit results. AGSA would be briefing Committees on the results by the end of September.

Mr Nombembe noted that AGSA made audit information available to Parliament in the form of public reports at national and provincial level. This information was also available on AGSA's website. A general report for local government was also tabled for the year ended 30 June 2008.

The audit reports for national, provincial and local government showed specific challenges. There were certain categories of errors in reports that stopped AGSA from giving public entities clean reports. AGSA was concerned that some entities made mistakes repeatedly. Parliament, along with all Public Accounts committees and other oversight entities, was well equipped to deal with issues.

AGSA's assessments showed that public entities needed to employ people who understood finances. The quality of financial skills in departments was “weak and shaky”, especially at provincial and local government level. The government needed to prioritise the development and nurturing of financial skills to make public service the preferred choice for such skills. The country needed to uphold good accounting practices. AGSA had noted that there was an inability within public entities to keep records of financial transactions and to process them. The officials must be encouraged to be orderly regarding financial records. For this to happen, there needed to be an evaluation of accounting systems.

Other challenges were to be found in the area of government support structures. There needed to be good internal auditors in the country. The government needed to resolve this situation. The challenge was to find people who wanted to provide this service. There was a shortage of audit skills in the public service, although the skill was in abundance in the private sector.

AGSA, in order to exercise proper oversight, needed enough resource capacity, research capacity and coordinating capacity. As an institution, AGSA performed a great deal of research and analysis before presenting audit reports. AGSA provided audit information for each and every entity and department. It was, therefore, important for AGSA to coordinate with all the public accounts committees in Parliament, as public funds and finances had to be managed effectively. The underlying root of the collapse of service delivery depended on the inability to manage finances effectively. Correcting this had to be made a priority.

A Member from Kwazulu-Natal stated that it would be useful if the process of developing performance indicators that spoke to the strategic plan of departments could be made available, so that committees were better equipped when questioning the performance of those departments. The current strategic plans and performance plans from departments were not very helpful. He wondered when a universal set of measures would be arranged for departments that were uniform across provinces.

Mr Kimi Makwetu, Deputy Auditor-General, stated that the current regulatory framework addressed this issue through budget rules. These rules stated clearly that an entity needed to have measurable objectives, and the format of its strategic plans had to be outlined. When departments presented their budgets to Parliament so that they could be approved, it was important that Committees looked at the relevance of their performance indicators. Members of the Committees had to demand that there be meaningful indicators. The legislative requirement was that the budget had to talk to the Strategic Plan. There were Treasury documents that spoke about performance indicators and what departments had to do to identify them. It was not going to be an easy task to create a universal set of indicators. However, the identification of the performance indicators had to be seen. If there were any weaknesses in the Treasury documents, then these could be reviewed.

A Member asked why the AGSA outsourced some of the auditing work. He also wanted to know what happened to departments that did not comply with the AG's recommendations.

Mr Makwetu stated that there was a practical element to outsourcing some of the work. The financial year of government ended on 31 March every year. The local government financial year end was 30 June each year. It would have serious financial implications for AGSA to have to perform audits the whole year round, because of the fixed costs. For this reason, there were other approved auditors that were brought in to do audit work. These auditors adhered to the same professional standards as AGSA, and were registered auditors and accountants who operated in the public domain within South Africa. They were reliable options who could be brought on board at times when AGSA was busy. It was preferable from a cost point of view for AGSA to outsource audit work for a certain amount of time at a fixed cost, rather than employing an additional 5000 staff itself. There was no additional cost to AGSA to outsource, over what had been budgeted, and this allowed it to fulfil its Constitutional obligations.

Mr S Sizani, (ANC), Chairperson of the Portfolio Committee for Rural Development and Land Reform, said that he found it difficult to understand why the audits conducted in the Free State had concluded that the Department of Education (DoE) tolerated the culture of corruption.

A Member stated that he sometimes found the argument that there was lack of skills in finances to be a useful excuse, which had been offered up for the last fifteen years. He wondered how long it took to train an accountant. There was no need always to have very technical people or chartered accountants. Often all that was needed was training people to keep proper records of financial transactions. There was a tendency not to discuss sensitive issues. The lack of management in public service was a serious issue. Municipalities had to make a conscious decision to identify people they could train and use in their own domain.

Mr Nombembe agreed that municipalities did not keep proper records of documents, and that often the culture of keeping documents was simply lacking. He agreed that it was not necessary to have trained as a chartered accountant in order to know how to keep proper records; all municipal staff should be required to do so.

Mr Makwetu added that some of the issues relating to the skills were very basic. The employee needed to understand his/her duty. Municipalities needed employees that were responsible and disciplined regarding the keeping of documents that supported transactions. He noted, however, that there was a severe lack of skills in the public sector. He stated that it could be a reality that the wrong people were being employed in municipalities.

Mr Makwetu noted that for a number of years, the NT had provided funds to municipalities under the Financial Management Grant, which could be made available so that municipalities could employ up to five interns who could be trained and used in municipalities. There were varying degrees of success. The public sector had to find ways of sustaining and retaining these skills. In reality, audit mechanisms would work if there was the right attitude and the right leadership.

A Member from Gauteng stated that there were business executives in the provinces who were supposed to work with the Provincial Treasury (PT) and the provincial Standing Committee on Public Accounts (SCOPA) to deal with annual financial audits. PT was supposed to assist the municipalities to implement the Municipal Finance Management Act (MFMA). It was also local government's responsibility to help municipalities. More effective coordination of efforts was needed.

A Member from the Free State noted that the A-G wanted proper, credible audits to be conducted to build public confidence. The DoE in the Free State received unqualified audit reports for the last two years; however, when an audit was conducted by a private company, the latter had found some issues that were not picked up by AGSA. He wondered if AGSA reports were really credible and if they built public confidence, if they did not pick up the fraud and misconduct.

Mr Makwetu stated that the Committee needed to look at why the A-G’s report was unqualified and why the forensic audit conducted by the private company said that there were errors. The scope of each audit was different. If there was an instruction for an audit to be performed on every transaction, then it was more likely that the forensic audit would pick up instances of fraud. There was always a chance that a more detailed forensic audit investigation would pick up more than a standard or statutory audit, and AGSA accepted that there were limitations regarding statutory audits. There was a need for a heightened level of vigilance.
A Member noted that there were reports that were not classified as “qualified” but that noted “other matters” to be resolved. She wondered what this meant.

Mr Nombembe stated that there were only seven departments out of all the national, provincial and local government departments that had clean audit reports. A clean audit meant that AGSA was financially happy with the departments' records, that they were sound, and applied with the applicable legislation. He stated that AGSA often found that multiple adjustments had to be made during the course of the audit. Some departments made such significant adjustments that they could not be given the status of having a clean report. He noted that the Department of International Relations and Cooperation had consistently had clean audit reports. AGSA should look at what this department was doing right and use its methods as a model for other departments.

Ms M Sotyu (ANC), Chairperson for the Portfolio Committee on Water and Environmental Affairs, wondered at what stage AGSA engaged with the Ministry to advise it about certain departments that had received disclaimers or qualified reports for the past six or seven years, and did not implement the recommendations from the A-G. It was obvious that most departments at all levels received qualified reports or disclaimers. She wondered if there was a weakness in the auditing system, and if compliance measures were too weak.

A Member from the Eastern Cape agreed that there were many situations where departments did not implement recommendations from the A-G. He wondered what recourse the A-G took when this happened.

A Member asked what the material differences were that helped auditors reach a conclusion about audit reports.

Mr Nombembe stated that the conclusion of reports depended on the issues that were discovered during the audit. An audit report was essentially the expression of an opinion on the final presentation of reports. Different transgressions were treated differently. The AGSA looked at the reasons for the transgressions. The costs of the lack of systemic integrity were noted. If issues were not resolved, it would erode the integrity of the government. Many reports ended up as being qualified because the officials did not take audits seriously, not because the information about certain transactions was not there.

Adv M Masutha (ANC), Chairperson of the Standing Committee on the Auditor-General (SCAG), stated that there was an issue of the question of the culture of impunity versus the culture of integrity. The government could set up systems and write laws and procedures to find the most skilled people, but finding skills may not necessarily respond to the issue of mismanagement of public resources. Government should look at ways to engage with this issue at various levels. Members had a collective responsibility as law-makers on the one hand, and executing authorities on the other hand. Very often the challenge was that the legislative arm pointed out all the flaws in the administrative system and the public service. The executing authority might be insulted by the suggestion that this reflected badly on itself. This could cause tension between the two. However, the executive arm and legislative arm were collectively responsible for the oversight function.

A Member questioned the responsibilities of the A-G in terms of Chapter 9 of the Constitution.

Mr Nombembe outlined some of his responsibilities. He focused on recommendations made after irregularities were discovered. He noted that AGSA did not ask the Members to assist in giving AGSA powers to define some of the irregularities found within local government and other departments. If departments received qualified reports for a number of years, something had to be done about it. He wondered if AGSA had any relationship with the Monitoring Committee in the Office of the Presidency. That Office was established to ensure that service delivery was monitored and whether funds were being utilised effectively.

Mr Nombembe also stated that AGSA had a session with the Minister to make inputs in to the priorities of government. Some issues were going to be considered, but there were limitations stemming from AGSA's inability to classify irregularities in an informed manner. The Public Service Commission could help with these classifications. Whether irregularities could be classified as criminal offences should be informed by the collective engagement with the other entities, the Executive and Parliamentary Committees.

A Member stated that she was expecting a report about the problems experienced by the A-G over the past few years and how political leaders could assist AGSA. She recommended that AGSA prepare a full presentation the next time it came to Parliament. She also asked AGSA to provide Members with its organogram.

Mr Nombembe stated that AGSA consulted the Executive and Parliamentary Committees after analysis was completed on audited reports. It was important that AGSA strengthened its relationship with Committees.

A Member agreed with previous comments, also asking for a presentation on the current challenges that AGSA experienced. She congratulated AGSA on the types of audits that it performed, as it put South Africa at a good level internationally. She wondered if performance audits were done on request, and who was able to commission the audits. She asked if there was a lack of domestic audit resources because people were leaving to work for international companies.

Mr Nombembe clarified that the intention of today's workshop was not to give a detailed presentation on the workings of AGSA, but rather to give background and decide when they would meet with Parliament again.

He noted that performance audits were done when requested by provinces or departments. AGSA looked at issues that were of special interest to those that requested the audits.

A Member asked what sanctions were imposed on departments that continuously received qualified reports or disclaimers, and that were not implementing recommendations made by AGSA.

Mr Nombembe stated that audit reports were meant to highlight the nature of the findings. AGSA's idea was to deal with issues on an incremental basis, by being clearer about issues found in reports. The issues were reflected in the quality of reports that were tabled by national, provincial and local government. AGSA was engaging with entities to decide how to address issues. AGSA was also having similar engagements with the Executive. Oversight would allow entities to witness improvements made by the Executive. There may be shortcomings and weaknesses in the system, but it was up to AGSA and the Members, as law-makers, to address problems and strengthen legislation. Members could act jointly with the Executive to act on oversight functions and to address issues.

Mr Makwetu added that Chapters 5 and 6 of the PFMA spoke about non-compliance. Chapter 10 of the PFMA also looked at financial misconduct and the penalties that would follow as a result. Non-compliance was considered to be a criminal act according to the PFMA.

Closing Remarks
Ms M Oliphant, NA House Chairperson, asked Members to organise another meeting with the OAG. She warned that the meeting should not take place on a Friday, as most Members were catching flights on that day. The Committees all needed to synchronise their programmes to allow for all Members of this Committee to meet with the OAG. The skills development issues must be addressed, as better qualified people must be appointed to do work. Members may need to come up with proper legislation to ensure that the correct people were employed. Since Members represented the public, it was important that the public was allowed to participate in meetings.

The meeting was adjourned.


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