The Auditor-General and Deputy Auditor-General briefed the Committee on the annual report of the Office of the Auditor-General for the 2008/09 financial year. The detailed presentation covered the key highlights, the quality control and timeline results, the audit outcomes in terms of the Public Finance Management Act and the Municipal Finance Management Act, he race and gender composition of human resources, the vacancies, trainee auditors and human resource challenges. Financial highlights included revenue of R1.376 billion and a direct audit cost of R1.07 billion. Other income amounted to R54.2 million. Expenses totalled R376.6 million and the net deficit was R16.1 million. The presentation listed other financial highlights, the funding challenges and broad-based black economic empowerment achievements.
The Office of the Auditor-General continued its efforts to influence the achievement of unqualified audit reports in all spheres of Government. Insufficient capacity remained a major challenge and work continued to be outsourced to private auditing firms. Other challenges included inadequate and late submission of financial statements from Government entities (particularly municipalities). The lack of transparency and accountability of Government structures remained an area of concern. In many instances, Audit Committees were unable to operate effectively as financial reports were not produced at regular intervals during the year. Audits were unnecessarily delayed and extended when the Chief Financial Officer of the entity being audited was not available when the auditor arrived to conduct the audit.
Members asked questions about the role of the Auditor-General in the achievement of clean audits by Government entities, the lack of capacity in the Office of the Auditor-General as well as in Government entities, the cost and extent of outsourcing work to private auditing firms, the debt-collecting capacity, the high levels of compliance achieved, the reporting of recurrent problems at certain entities, the risk of foreign exchange losses, the disparity in amounts quoted in the presentation and in the report, the recovery of staff debt and the increase in the number of notebook computers lost and written off.
2008/09 Annual Report of the Auditor-General
The delegation from the Office of the Auditor-General included Mr Terrence Nombembe, Auditor-General, Mr Kimi Makwetu, Deputy Auditor-General, Mr Ray Wahabeer, Chief Financial Officer, Ms Lindelwa Jabuvu, Chief Operations Officer and Ms Jillian Bailey, Head of Audit.
The presentation to the Committee covered an overview of the key highlights and achievements, the human resources and the financial performance of the Office of the Auditor-General (see attached documents).
Mr Makwetu told the Committee that there was a 50% improvement in the timely submission of annual financial statements for Public Finance Management Act (PFMA) organisations. There was a significant decrease of 35% (from 2007 (724) to 2009 (471) in staff vacancies. However, the challenge of insufficient capacity to do performance audits remained and some of the work had to be contracted out to other audit firms. Another concern was that employees travelled significant distances to conduct audits of municipalities, only to find on arrival that the Chief Financial Officers were unavailable and the audit could not be performed. Often, municipalities could not afford to pay the cost of audits. The rates charged by audit companies for audits were higher than the rates charged by the Office of the Auditor-General.
The Committee congratulated the Auditor-General on the work done by his department.
Mr M Steele (DA) commented that the Office of the Auditor-General could only report on findings and the Auditor-General was not accountable for the implementation of recommendations.
Ms S Tsebe (ANC) asked if the Department of Cooperative Governance and Traditional Affairs was working with the Office of the Auditor-General in the clean audit programme launched in 2009. She said the Office of the Auditor-General had a critical role to play in the programme to ensure that municipalities had a clean audit report.
Mr Nombembe advised that the Office of the Auditor-General had engaged in discussions with the Department of Cooperative Governance and Traditional Affairs. The clean audit programme was launched on the recommendation made by the Office of the Auditor-General. Certain municipalities were expected to achieve clean audits earlier than the target date of 2014.
Ms Tsebe asked for further details of the comments made in the presentation concerning the lack of capacity in Government departments. The Office of the Auditor-General was always reporting that there was a lack of capacity in municipalities. She asked if the Auditor-General was referring to a lack of skills or cases where employees were being lax and did not do their work.
Mr Nombembe explained that the issue of capacity was related to a lack of leadership. The leaders employed to deal with capacity issues were not doing their work. Leaders were put in positions to ensure that human resource challenges were dealt with and were responsible for finding alternative measures to deal with constraints by more effective utilisation of available resources. The lack of capacity should never be used as an excuse for under-performance.
Ms Tsebe asked for an explanation of the funding model. She wanted to know if the funding model included the matter of debt recovery as it was reported that many institutions had failed to pay the Office of the Auditor-General for services rendered.
Dr G George (DA) said that it was clear from the Auditor-General’s report that its debt collecting capacity was not sufficient to ensure that the monies owed to the institution was recovered. He wanted to know what steps were being taken by the Auditor-General to resolve the matter.
Mr Nombembe replied that the questions concerning the funding model and the recovery of monies owed were covered in the presentation documents.
The Chairperson asked what contributed to the high level of compliance reflected in the performance audit report of the Office of the Auditor-General. It was good to see high levels of performance but the achievement needed to be sustainable.
Mr Makwetu said that the good performance levels started to be achieved after the municipalities were amalgamated. The matter of the unpaid accounts in the
The Chairperson suggested that reports on the measures taken by entities to resolve the problems included in previous reports issued by the Auditor-General, were included in the Auditor-General’s briefings to the Committee. This would help the Committee to identify if the same problems had recurred.
Mr Makwetu said that the Auditor-General’s reports included issues that had been highlighted in previous reports and the steps that had been taken to address these issues. There was a need to analyse how the issues were addressed. Recurring issues were highlighted and the Auditor-General tried to ensure that the entity concerned was aware of the problem areas. The problems uncovered were categorised and the Auditor-General provided advice on dealing with the different types of problems.
The Chairperson said that the Committee intended to follow up on this particular issue and monitor the effectiveness of the corrective measures taken to stop the recurrence of problems in Government institutions.
The Chairperson asked for further information on the problems experienced by internal Audit Committees. The responsibilities of Audit Committees differed from the function of the Audit-General, which only visited institutions at the end of the financial year. The Audit Committees were supposed to notice problems as they arose. He asked if there was a shortage of Audit Committees or if the Audit Committees suffered from a lack of skills capacity.
Mr Makwetu advised that the issuing of financial statements on a regular basis was not an entrenched practice. If financial statements were not produced for the first six months of the financial year, the Audit Committee was not in a position to address any problems that had arisen as the financial statement was seen for the first time only at the end of the year. There was a need to focus on the regular production of financial statements in the public sector. The Audit Committee would be in a much better position if monthly financial statements were produced. The work of the Audit Committee was less effective if the financial statements were only seen at the end of the financial year and it was more difficult to identify and track problems.
The Chairperson asked what were the powers and mandate of Audit Committees. He asked if an Audit Committee could demand that certain procedures were put in place and enforce compliance by Government departments.
Mr Makwetu said that the matter raised by the Chairperson was in line with what the Office of the Auditor-General had noted. In most instances, the relevant executive authority appointed the Audit Committee as required by the Public Finance Management Act (PFMA). Once appointed, the Audit Committee seldom had any further interaction with the executive authority. This situation needed to be addressed.
Mr Steele referred to page 36 of the Auditor-General’s annual report. He was concerned over the dates of some of the reports and that the Committee had not seen all the reports mentioned. He wanted to know what had happened to the reports and why the Committee had not seen those reports.
Mr Makwetu confirmed that some of the reports had been tabled. The dates listed were the envisaged dates for the tabling of the reports. He undertook to investigate why certain reports had not been submitted to the Committee and to report back to the Committee in due course.
Dr George stressed the Committee’s oversight responsibility. The Committee required the Auditor-General to submit comprehensive reports, in particular when Departments were not audited for any reason. The reports from the Auditor-General assisted the Committee to determine if the Office of the Auditor-General required any assistance.
The Chairperson advised that the issue raised by Dr George was a different matter, requiring a different response from the Committee. The Committee’s mandate was to ensure efficacy of the Office of the Auditor-General. It was not only the Committee’s mandate. All the offices of State had to assist the Office of the Auditor-General. The Committee’s responsibility was more specific - where the Office of the Auditor-General experienced difficulties, the issues needed to be reported to the Committee.
Mr Nombembe replied that the issues required a lot of attention. The Office of the Auditor-General was assessing which institutions were adhering to the expected norms. The ideal audit outcome was a clean report. The Office of the Auditor-General was however reluctant to publicise the details of the assessment in the public arena. The purpose of engagement with the entities concerned was to trigger a dialogue, which would result in the intended actions being implemented. If the information was made public, the purpose of the exercise would be defeated.
Mr Steele repeated his earlier question concerning the reports on page 36 of the annual report.
The Chairperson felt that Mr Steele’s quested had been answered by the undertaking given to investigate the matter and report to the Committee at a later date.
The Chairperson asked how was it possible that there were unemployed B.Com graduates in
Mr Makwetu said that the point raised by the Chairperson was valid and important. The Office of the Auditor-General visited schools and attempted to introduce students to the work done by the organisation. However, collaboration with other institutions had not taken place.
Mr Steele referred to page 89 of the annual report. He asked if the Auditor-General applied standard percentage increases when adjusting the salaries of personnel at managerial level. He wanted to know if there was a policy applicable to executive salary increases or if the incumbents were allowed to individually negotiate their salaries every year.
The Chairperson pointed out that the Committee was due to meet with the Remunerations Committee, which was a body independent of the Office of the Auditor-General and which was responsible for the determination of the remuneration of the Auditor-General and other senior managers. The Auditor-General’s salary was determined by the Remunerations Committee and was not a subject for discussion during this meeting. The date for the meeting with the Remunerations Committee had not been finalised.
Mr Steele agreed that his question could remain unanswered, provided the matter remained on the Committee’s agenda.
Ms Jabuvu assured the Committee that the Office of the Auditor-General followed a market-related salary benchmarking process for all staff members and executives. The Remunerations Committee handled the remuneration of the executive.
Mr Makwetu explained that the amounts quoted in the annual report were the cost of employing a staff member over a full year. The figures appeared abnormal because some people resigned before the year ended and others joined the office in the middle of the year.
The Chairperson remarked that the Office of the Auditor-General required personnel with scarce skills, which had to be retained. He asked what percentage of the workload was outsourced.
Mr Makwetu explained that private audit firms charged higher rates for auditing private companies. Private audit firms were paid lower rates for auditing public entities. The Office of the Auditor-General had a forum which negotiated the rates paid to private audit firms for work sub-contracted to them.
The Chairperson said that the issue of outsourcing highlighted the requirement for appropriate levels of staffing within the Office of the Auditor-General. Much of the work could be done in-house if the Auditor-General employed a sufficient number of accountants. He conceded that there were other considerations determining the need for outsourcing. Municipalities would pay less for auditing services if the audits were carried out by auditors on the staff of the Office of the Auditor-General.
Mr Makwetu advised that the tariffs charged by the Office of the Auditor-General were determined by the pay levels of the people who were outsourced to the Office of the Auditor-General by the private auditing firms. The overheads incurred by the auditing firms were also taken into consideration. A model was developed, which showed how the Auditor-General arrived at the tariffs charged to municipalities.
The Chairperson asked how the Auditor-General decided whether internal or external auditors would be used. He asked if the financial situation of the audited entity concerned were taken into account when deciding if the audit would be done by the Office of the Auditor-General or a private firm.
Mr Makwetu replied that the decision took account of the applicable auditing standards, risk factors, travelling distance and the cost of travelling and accommodation. In certain cases, it was more cost-efficient to outsource the audit to a local private firm.
The Chairperson observed that the primary mandate of the Office of the Auditor-General was to produce audit reports at a reasonable cost, rather than profit maximisation. The financial considerations of the Auditor-General were therefore different to those of a private company.
Mr Makwetu mentioned that the time spent on conducting an audit was significantly increased if the Chief Financial Officer of a municipality was not present when the auditor arrived on the premises to conduct the audit. Instead of the audit being completed in a day, the audit could take several days. Particularly at municipalities in remote rural areas, the auditor’s dilemma was to wait for the CFO to arrive or to return to the office.
The Chairperson remarked that many municipal employees did not have the skills to write financial reports.
Mr Steele asked why there was a difference between the total debtors amount of R323.305 million on slide 33 of the presentation and the amount of R272 million on page 55 of the annual report.
Mr Makwetu replied that the amount quoted on page 55 of the annual report was probably an extract of the major categories of debtors. Page 96 of the report reflected the same amount as quoted in the presentation.
Dr George referred to page 55 of the annual report, dealing with foreign exchange gains. He asked if the Office of the Auditor-General was exposed to the risk of foreign exchange loses.
Mr Makwetu explained that the item referred to payment received from the United Nations (UN) in US Dollars. Payment for the work done for the UN was pre-approved and the risk of foreign exchange losses was limited.
Dr George referred to page 78 of the report and the reference made to staff debtors. He recalled instances in previous years where employees had not paid back the money owed before they left the employ of the Office of the Auditor-General. He asked what risk-mitigations measures were in place to ensure that all monies owed were paid back.
Mr Makwetu replied that the amounts owed by staff members to the Office of the Auditor-General were closely monitored. The staff debts resulted from granting advances to staff members for expenses (e.g. meals, accommodation and travel expenses) before they went to perform audits. The staff member was required to submit proof of all expenses incurred and return any excess funds. If the excess funds were not returned, the amount was deducted from the person’s next salary. He advised that the matter was currently under control.
Dr George asked why more notebook computers had been lost compared to the previous year.
Mr Wahabeer explained that a feasibility study was done to determine if it was financially viable to insure the notebook computers. The study revealed that insuring the notebook computers was very expensive and therefore not a financially viable option. When a notebook computer was stolen, the Office wrote it off as an expense. An affidavit had to be submitted by the employee concern if the notebook computer was stolen. The value of stolen notebooks written off was R263 000.
The Committee and the Auditor-General agreed to meet at a later date to discuss the funding model of the Office the Auditor-General.
The meeting was adjourned
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