Standing Committee on Auditor-General Five-Year Strategic Plan: workshop

Standing Committee on Auditor General

29 March 2010
Chairperson: Adv Mike Masutha (ANC)
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Meeting Summary

The Standing Committee on Auditor-General (SCoAG) held a workshop aimed at formulating a five-year strategic plan. Three presentations that examined the environment within which SCoAG operates were made. The exercise culminated in the drafting of a business plan for SCoAG.

The Chairperson’s address looked at:
▪ the constitutional values that underpinned the concept of oversight and accountability and the purpose they served in a democracy;
▪ the mechanisms that had been put in place to realise the constitutional obligation of parliamentary oversight; and
▪ analysis of the way in which Parliament could ensure accountability of the constitutional institutions such as the Office of the Auditor-General while at the same time respecting their independence.

The Deputy Auditor-General spoke about the constitutional mandate of the Office of the Auditor General as the external auditor of all national and provincial state departments, municipalities, and other government entities. It enabled oversight, accountability and governance in the public sector through auditing in order to build public confidence.

The Parliamentary Research Unit took the Committee through the purpose of the Public Audit Act and its giving effect to the provisions of the Constitution; the mandate the Committee had of assisting and protecting the Auditor-General in order to ensure its independence, impartiality, dignity and effectiveness; functions of SCoAG involving the Auditor-General and its activities; and the annual SCoAG calendar in performing its mandate.

Members of the Committee commented that the National Council of Provinces (NCOP) had to have a structured role as well because there was no briefing to the NCOP about bad and good municipalities and provincial governments. The formation of a closer relationship between the Auditor-General, Standing Committee on Public Accounts, ScoAg, Portfolio Committees and accounting officers (directors-general) was a matter that needed a political solution. They asked about corrective measures for blameworthy individuals who have left to work for other departments, what happened when an audit discovered missing funds, and what mechanisms were in place in collecting outstanding revenues.

Meeting report

Committee Chairperson's Presentation
Advocate Mike Masutha, Chairperson: Standing Committee on Auditor-General, told Committee Members effective oversight required Members of Parliament to fully understand the constitutional justifications and rationale behind accountable government. Oversight helped to promote the constitutional values of accountability and good governance. The Constitution prescribed that the National Assembly must provide for oversight mechanisms to ensure all organs of state were accountable to it. The South African Parliament exercised its oversight and accountability function through Portfolio Committees that were the engines of the Parliament. On the other hand, the oversight role of the National Council of Provinces (NCOP) was limited only to issues affecting provinces and intergovernmental relations. Therefore, SCoAG had no oversight relationship with the Select Committees. Accountability constituted the process that compelled the government and constitutional institutions to explain and justify their actions.

Role of SCoAG in relation to Portfolio Committees and SCOPA
Section 2c(i) of the Public Audit Act requires SCoAG to assist and protect the Auditor-General in ensuring its impartiality, independence, dignity and effectiveness. The effectiveness of the work of the Auditor-General could be witnessed through the improvement of the financial management regime of state institutions. This could be achieved through full implementation of the recommendations of the Auditor-General (AG). Parliamentary Committees could play an important role in ensuring the recommendations of the Auditor-General were implemented through their oversight and follow-up mechanisms. SCoAG should lobby and collaborate with other parliamentary committees in promoting a culture of following up on the recommendations of the Auditor-General in order to encourage their timeous implementation. Accountability operated where a relationship exists in which an entity’s performance of functions were subject to other oversight and direction and requests that provided information on its actions or justified those actions.

Accountability and independence of the Auditor-General
Constitutional institutions such as the Auditor-General support Parliament in accomplishing its oversight function. The independence of the Auditor-General was constitutionally guaranteed and explored from two perspectives, that is: financial and administrative. The Constitution also fostered the accountability of the Chapter 9 institutions without encroaching on their right of independence. Section 181(2) of the Constitution guaranteed the independence and impartiality of the Auditor-General. Financial independence implied the ability to have access to funds that were reasonably required to perform a constitutional obligation. Central to financial independence was the funding model of the Office of the Auditor-General and its sustainability thereof. However, this did not mean the Auditor-General could independently set up its budget, the National Assembly together with SCoAG had to consider what “reasonably required funds” were in the light of national interest.

Administrative independence, in this case, meant the ability of the Office of the Auditor-General to perform its functions without being administratively controlled by the executive or any organ of state. It also implied control over matters that were directly connected with the functions that such institutions must perform.

Oversight and accountability process:
The Executive
▪ designs and implements the government policy
▪ funds were assigned for policy implementation

The Auditor-General
▪ audits and reports on accounts, financial statements, and management of state institutions.
▪ assists Parliament on its oversight responsibility through financial scrutiny

The Parliament
▪ exercises oversight over the executive and state organs
▪ the Auditor-General assists oversight function through audit reports

The Citizenry
▪ entitled to know about the actions of the government

Legislative Mandate of SCoAG
section 2(c)(i) of the Public Audit Act (No 25 of 2004) requires SCoAG to assist and protect the Auditor-General in ensuring its independence, impartiality, dignity and effectiveness.
the Constitution recognises the independence of the Auditor-General, subject only to the Constitution and the legislation

Deputy Auditor-General presentation
Mr Kim Makwethu said that AGSA had a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it existed to strengthen the democracy of South Africa by enabling oversight, accountability and governance in the public sector through auditing. The Constitution recognised the independence of the Auditor-General, subject only to the requirements of the Constitution and the law, and it required the Auditor-General to be impartial and perform his or her duties powers and functions without fear, favour or prejudice. The Constitution required the AG to submit audit reports to any legislature or any other authority prescribed by national legislation, and that all audit reports were made public; and it prohibits any person or organ of state from interfering with the functions of the AG.

According to the rules of the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA), AGSA was mandated to regulate and secure sound and sustainable financial management. It ensured that all revenue, expenditure, assets and liabilities were managed efficiently and audited. It reported on all accounts, financial statements and financial management of defined public sector administrations, institutions and entities in accordance with the standard of compliance with PFMA and MFMA and related Acts, guidelines and procedures.

In order to deliver on its mandate effectively, AGSA has to be known, understood and recognised by all stakeholders as an organisation that enables oversight, accountability and governance in the public sector in order to build public confidence. Instead of using the traditional “external”/”internal” categories to group all relevant stakeholders together, a segmentation was done based on the nature of the relationship AGSA had with the various stakeholders. AGSA has four categories of stakeholders and the nature of these relationships were characterised by:
▪ dependencies (need to influence)
▪ supporting (need to empower)
▪ partnering (need to get agreement)
▪ delivery (need to mange service delivery against agreed standards, priorities and legislation)

AGSA stakeholders were categorised and segmented as follows:
▪ beneficiaries (Chapter 9 and tertiary institutions, media, SA public, governance structures, legislators/non-executive, AGSA employees and leaders, international bodies)
▪ ambassadors (ex-employees, ex-trainees)
▪ partners (AGSA Audit Committee, media, AGSA employees and leaders, audit firms, professional bodies, audit firms)
▪ suppliers/customers (audit firms, internal & external auditors, media, employees, professional bodies).

Mr Makwethu stated that his Office had the responsibility of reporting to the Standing Committee on Public Accounts (SCOPA) because Act 108 of 1996 recognised the need for parliamentary control of public money. This was did by providing for the establishment of an Auditor-General with the powers to audit and report on the accounts, financial statements and financial management of all national and provincial state departments and administrations; all municipalities; and any other institution or accounting entity required by national legislation to be audited by the Auditor-General. According to Section 188(3), the Auditor-General must submit audit reports to any legislature that has a direct interest in the audit, and that all reports must be made public.

The accountability relationship between AGSA and SCoAG was stipulated in the Public Audit Act which provided for the establishment of a parliamentary oversight mechanism to assist and protect the AG to ensure the independence, impartiality, dignity and effectiveness of the AG and to advise the National Assembly. This mechanism was established in terms of section 10(3) of the Public Audit Act.

Parliamentary Research Unit presentation
Mr Mbuyiselo Hlekiso, Researcher: Parliamentary Research Unit, said the Auditor-General has been accounting to Parliament since 1991 up until 2004 through the Audit Commission. This body was made up of Members of Parliament and individuals with audit experience from the private sector. During this period, the Audit Commission received its oversight functions and powers from the Auditor-General Act of 1995 and the Audit Arrangements Act of 1992. However, in 2004 the Public Audit Act 25 of 2004 was passed. This Act not only replaced the Auditor-General and Audit Arrangements Acts but it paved the way for a constitutionally compliant oversight body to replace the Audit Commission. When the Public Audit Act was introduced, an ad hoc Committee was established with the purpose of meeting the oversight responsibilities as provided in the new Act. In 2005 the National Assembly established the SCoAG.

The Public Audit Act was established to:
▪ give effect to the provisions of the Constitution in establishing and assigning functions to the AG
▪ provide guidelines for the auditing of institutions in the public sector
▪ provide for accountability arrangement of the AG
▪ provide for repealing certain obsolete legislation and to provide for matters connected therewith.

Functions of SCoAG
▪ Section 2(c)(i) of the Public Audit Act mandated SCoAG to assist and protect the AG in ensuring its impartiality, independence, dignity and effectiveness
▪ approves the amount of surplus, if any, to be retained for working capital and general reserve
▪ receives the Annual Report of the AG in August to September, scrutinise it and submit recommendations to the National Assembly
▪ assists the AG in collecting the outstanding audit fees
▪ considers the appointment or confirmation of the external auditor
▪ ensures the recommendations of the AG were implemented through its oversight and follow-up mechanisms
▪ lobbies and collaborates with other parliamentary committees in promoting a culture of following up the recommendations of the AG so as to encourage timeous implementation.

SCoAG Calendar starts in June and ends in November:

▪ June – August (the Committee attends the road shows of the AG)
▪ September – October (SCoAG receives the Annual Report and hearing on it by the AG)
▪ October (Committee receives the Strategic Plan of the AG and its budget)
▪ November (adoption of SCoAG Report on the annual report and budget plan of the AG)
▪ October – November (Committee attends the Public Accounts Association Conference.

Prof L Ndabandaba (ANC) asked how members of SCoAG and SCOPA were going to hold the AG accountable. He also asked if the FIFA World Cup was not going to affect the AG June roadshows.

Adv Masutha replied that a thorough process was needed to interrogate how SCOPA and SCoAG could work jointly to ensure Portfolio Committees discharge their duties. Once that was achieved, it would be easier to hold the AG accountable.

Regarding roadshows, Mr Makwethu explained the impact of the World Cup would not be so much on the roadshows. Responsibility lay with the institutions that were going to be audited. The AG would feel the impact when it received the audit reports. The reality was that the staff would be distracted when they have to do their work because soccer would have started already. However, roadshows for the PFMA would not be affected as they happened around October, not in June. He asserted roadshows for the municipalities would be severely affected because the country would be busy with the 2011 Local Government Elections.

Mr N Singh (IFP) asked how the Committee was going to ensure there was a close relationship between SCoAG, SCOPA, Chairs of the Portfolio Committees and the Executive because he observed that the Executive attended SCOPA hearings but they tended to distance themselves from the findings of the AG. Secondly, when would the AG deal less with financial auditing and focus more on performance auditing. Thirdly, when would the Committee devise ways of finding individuals, if they were still in government, to come and account for things they had done in other departments. He commented that the National Council of Provinces (NCOP) had to have a structured role as well because there was no briefing to the NCOP about bad and good municipalities and provincial governments, and SCoAG had to think about this situation.

Responding to the questions, Adv Masutha explained that the formation of a closer relationship between SCOPA, SCoAg and accounting officers (directors-general) was a matter that needed a political solution because it was a political issue. Regarding corrective measures on individuals who have left for other departments, he said the issue needed a different diplomatic approach so as to avoid unnecessary adversarial relations. Groundwork would first need to be facilitated with the previous incumbent. But that did not mean the previous incumbent would not be summoned to answer. Furthermore, the NCOP problem was a constitutional issue. It would be taken to the Constitutional Review Committee, but first it needed to be discussed at party level to get a buy-in.

About performance audits, Mr Makwethu elaborated they would be introduced gradually, for example, in education, appointment of service providers, and in government oversight on public entities.

Ms F Tlake (ANC) wanted clarity on the existence of the Audit Commission, and asked what mechanisms were in place to assist the AG in collecting revenues.

Mr Makwethu explained the Audit Committee ceased to exist when the Public Audit Act of 2004 was promulgated because the new Constitution of 1996 necessitated a new set of arrangements.

About the collection of outstanding revenues, Adv Masutha stated the Committee needed to look at the matter to see if it was do-able. Interventions would be explored. What was important was to get first-hand information on challenges faced by municipalities in discharging their duties. The Committee would see how it could assist as it had got the right to assist the Office of the AG. This would be done through various channels such as approaching SCOPA, COGTA and the Committee on Appropriations.

Dr G George (DA) commented that tenders should be scrutinised and monitored thoroughly while they were running their course instead of waiting until the job was done only to discover there was no added value.

Mr Makwethu replied that the challenge was that one did not always know which department has a significant tender during their budget. Sixty percent of the budget of the departments went to procurement. He also noted that in government the issue of control over assets was a pervasive one. The Finance Ministry had been asked to look at the matter holistically so as to identify ways of dealing with it.

Mr Singh wanted to know how the audit reports were publicised and what methodologies were employed in the standardisation of reports and their terminology.

Mr Makwethu replied that when the each entity’s annual report, containing the AG’s audit report, was tabled at Parliament, for the AG that report was then public. On standardisation of reports and terminology, they had started early this year to focus on this matter. Already they were trying hard to use simple language so that Committee Members could understand the contents of the AG audit reports. Every AG audit report had the same reporting format. Sometimes they use the private sector model but the move now was to make things uniform.

Ms D Nxumalo (ANC) asked who made a follow-up when an audit discovered missing funds.

Mr Makwethu stated when important documents were not found, a disclaimer was given. A disclaimer was when somebody suppressed or destroyed information needed by the AG. So, once the disclaimer was reported, somebody in the legislature, for example, ought to follow it up. SCOPA would ask for an investigation or sometimes nothing happened. When somebody received the report and was supposed to act but failed to do so, the AG had got no control over that. Focusing on “disclaimers” was something the Committee should look at, he suggested.

Ms S Tsebe (ANC) asked how the AG arrived at the opinions of audits, and further what the AG was doing to make sure municipalities recruited skilled personnel such as chief financial officers or accountants.

Mr Makwethu explained that the audit office followed a set of standards called International Standards of Auditing. This set of standards was used for conducting and evaluating an audit. The standards would dictate, based on the professional judgement of the auditor, which opinion to give. After that a quality assurance process by an outside audit firm would be done to see if it agreed with the AG.

Mr Singh added that when the AG has audited these reports, the comments of the AG were placed in the annual reports of that entity. Members of SCOPA would look at the recommendations of the AG. The Committee would give their own opinion on each of the audit reports. Then SCOPA members would decide which institution had to appear before SCOPA. The reports from SCOPA would be given to the National Assembly. But no one knew who did the follow-up to ensure that the SCOPA report went to the Minister and a decision taken.

About recruiting skilled finance practitioners, Mr Makwethu explained that within the Department of Cooperative Governance and Traditional Affairs (COGTA) there was a unit called the Municipal Assistance Programme. The AG had a representative attend meeting held by that Programme so that it could understand the challenges a municipality faced. The AG would then make a suggestion but it could not insist on recommendations because the AG was precluded from the management territory of the municipality.

In reply to Ms Tlake asking if it was the recommendation of the AG to fire the Mayor of Umsunduzi Municipality, Mr Makwethu said that the audit reports in the past had indicated deficiencies, but the Office of the AG did not have a direct recommendation. Yes, an action was taken against the mayor.

Meeting was adjourned.


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