In the recent year, AGSA had placed more of a focus on key controls in the institutions, was now sending teams to meet with and evaluate departments, with follow-ups done quarterly. Other services that AGSA would offer would include performance audits, investigations and information systems audits. The level of integration of findings had to be strengthened. The reporting against pre-determined objectives now being followed was explained. It was noted that there was increasing emphasis on the Triple Es of economical, efficient and effective use of resources. A further focus would be the use of consultants in government. It would also be identifying key transversal risks in government, including control systems. In relation to funding, AGSA must continuously control costs, in order to make auditing affordable to government.
Members asked if there had been improvement in the debt owed to AGSA, asked about the interaction between AGSA and National Treasury and several questions and concerns were raised about the implementation of the Integrated Financial Management Systems project, questioning also if this was to be extended to municipalities. Members believed that without implementation of this, audit outcomes would not improve. They enquired when the results on the consultancy study would be available.
Auditor-General South Africa Annual Report 2010/11 and strategic directives 2011/12
Mr Kimi Makwethu, Deputy Auditor-General, Auditor-General South Africa, said the Audit Directive was an important document for understanding what the Auditor-General South Africa (AGSA) attempted to do and how it enabled the auditing offices to do the work they did. A draft Audit Directive was tabled (see attached presentation).
He noted that the draft Strategic Plan for 2012-2015, which would also be presented, contained the audit tariffs that were developed at AGSA and charged to the various institutions that AGSA audited.
In respect of the 2012-2015 planning, Mr Makwethu noted that AGSA had taken stock of what characterised the environment of the audit offices. The issues that had come up were precisely the ones reported on in the end of year report in March 2011.
Over the past four years, numerous achievements had been recorded. There had been a maturing of processes in doing detailed analyses of the audit outcomes. These were originally scheduled for presentation to Parliament on the previous day, but there seemed to have been a problem and another opportunity would be found. He outlined the various achievements (see attached presentation for details) and said that when AGSA built on its tools of analysis, this in turn meant that the institutions that they audited could build a strong culture of financial management. AGSA would support the institutions and provide them with strong insight.
Mr Makwethu said visibility of the AGSA leadership was important and numerous office members had taken part in Portfolio Committee meetings dealing with Annual Reports of various departments. Additionally, there was a programme initiated, on a quarterly basis, where there would be follow-up on key controls instituted in departments, to eliminate the unnecessary audit findings in the institutions of government.
From a talent management perspective, AGSA had made significant strides in retaining talent at the office. This would improve AGSA’s auditing function, using experienced staff rather than having to recruit new people annually. From a financial perspective, AGSA had for some years showed deficits, but since the adoption of the new funding model, which had improved its position, it had been able to record some positive surpluses. He emphasised that a key pillar of AGSA’s activities was that AGSA itself must be an exemplary institution in public administration and governance. This meant that it took seriously issues of ethical conduct, quality of deliverables that it provided and adherence to the codes on transformation and broad based black economic empowerment (BBBEE), all of which remained as firm commitments. Finally, the objective of government to provide clean audits meant that AGSA was committed to assisting departments by providing the analysis they needed, and making the Office’s human resources available to provide assistance.
On the international front, the DAG said that this was the last year that the office would be involved in the audit of the United Nations. However, the Auditor-General himself was the current President of the International Organisation of Supreme Auditing Institutions, and this would ensure continued involvement internationally, but would in no way detract from the local work in the reporting and auditing of public institutions in South Africa.
Mr Makwethu said that one issue that had been highlighted in the Annual Report, and would continue to be raised, was that of the tough economic environment that was faced worldwide, with the possibility that South Africa was still moving into more difficult times. This impacted directly on AGSA’s ability to collect on audit fees, particularly from municipalities, which were struggling to collect their own fees due to the economic conditions. He said this was an issue that needed flagging to ensure that it was not “lost”.
Mr Makwethu then tabled the draft Strategic Plan and budget of AGSA for 2012 – 2015, and said that there were five main goals to which AGSA had committed itself. He referred Members to pages 4 to 23 of this document.
He noted that the first related to the audit reports and noted that the reports provided by AGSA had to be simple, to provide clarity, and be relevant to the needs and challenges of the Public Financial Management Act (PFMA) and good governance. He noted that the targets set out were based on a 4-point rating scale, where 1 was the lowest and 4 was the highest result. In respect of visibility of leadership, he noted that it was important to develop stakeholder relationships to encourage clean administration, and tabled a diagram to who the lines of communication. It would use qualitative top-down rating tools by the immediate supervisor.
The third aim was to strengthen AGSA’s human resources, which included providing training and investing in the development of staff to become expert auditors in the public sector. The initiatives and key activities taken were set out (see slide 17), and he noted that the performance measurements would depend on the culture index, leadership index, and employee engagement index.
ASGA aimed to execute the AGSA mandate economically, efficiently and effectively. Although AGSA obviously had to cover its costs, and institutions were charged for using the services of AGSA, it would not charge fees that were beyond the ability of municipalities to pay. Its services carried a defined value and for this reason it believed that they should not be offered free of charge. Some of the initiatives and key activities in relation to funding were set out (see slides 12 to 16)
AGSA believed that it must lead by example, and one of the ways that this was done was that AGSA itself was subjected to an audit process. It aimed for continual improvement of the quality and timeliness of its reports, aimed to adhere to standards of excellence for clean administration, and to maximise AGSA’s contribution to transformation (see slides 19 to 23 for more details).
He noted that in more recent years, AGSA had placed more of a focus on key controls in the institutions that it was auditing, and over the years there would be an assessment of how the institutions that it had audited had fared.
Mr Makwethu said that a clear example of proactive leadership from the AGSA was seen in the fact that it was now sending teams to meet with and evaluate departments to ascertain progress, as well as conducting annual roadshows which involved meeting with stakeholders. He said these evaluations and meetings with departments would be followed up on a quarterly basis. This was in contrast to previous years, where most institutions had only seen their auditors at the start of the audit cycle, and when the fees were collected.
He noted other aspects of importance in the work of AGSA. It offered, in addition to the normal cycle of audits, some specialised service lines, such as performance auditing, investigations and information systems audits. There was a need to strengthen the level of integration of the findings that emerged from that work.
The fact that AGSA was now also looking into the area of reporting against pre-determined objectives meant AGSA was not limited to auditing financial management, but questioned also whether there was proper reporting of the objectives stated upfront by entities in their strategic and annual plans.
Mr Makwethu noted that there was increasing interest in government across the sectors to intensity performance auditing around the assessment of the “Triple E’s” of whether resources were used economically, were efficiently used to achieve the objectives, and whether there was effective results obtained, in line with what was intended.
AGSA was constantly also engaging in research, particularly in areas previously unfamiliar to its staff.
AGSA wished to assess whether consultants were being used properly in government, and without waste. The question must be asked as to whether outside consultants should be called in, or if someone with skills inside the office should not be used instead. That would be a focus area in the future.
In addition, there would be identification of key transversal risks, how these translated within the specific environment and what had to be done to respond to them.
Mr Makwethu pointed out that a key issue for auditors was to identify when controls in the technological-information areas were weak. He said if they were, then it was easier for transactions to be effected, for instance, that might approve expenditure inappropriately, or interfere with the correct supply chain management. Therefore ASGA would be paying increasing attention to weaknesses in the systems of government control.
Mr Makwethu went into more detail on the funding. He said that it was necessary for AGSA to continuously control costs, in order to make auditing affordable to government. AGSA had therefore to develop tariffs that were below those of the private sector. However, there were some problems when it came to payment, as discussed at the end of May, and he noted that AGSA would return to the Committee and given an analysis on that point.
Mr Terence Nombembe, Auditor General, added that it would be important for this Committee for focus on the targets to which it must apply itself. He noted that the Audit Directive tabled earlier would form the basis for the Audit focus over the 2012/2105 period.
Ms R Mashigo (ANC) asked whether there had been a closing of the gap in the amount indicated that was owed to AGSA.
Mr Makwethu said that there was not evidence of much progress on debt collection, nor was there any major drive on the part of the debtors to pay the outstanding debts, so he unfortunately could not announce any significant change. AGSA was hopeful that it would, over time, receive the money.
Ms Mashigo enquired how close the interaction was between AGSA and National Treasury, particularly in relation to ICT development.
Mr Makwethu confirmed that there were regular meetings between NT and AGSA, since NT set the rules for financial management and accounting, whilst AGSA had to audit on those.
There was also much interaction with the people who drive the IFMS project .and there was a strong working relationship between them.
Mr Nombembe added that the IFMS rollout was done by an IT project office. It was established that there was a need for a quality control assurer, who would ensure that when the systems were switched on, they responded to the counting requirements prescribed. The project needed to be worked on more speedily. Even the Audit Committee at NT was now watching this project more closely.
Ms Mashigo also enquired about developments of the Integrated Financial Management Systems. If that issue was not sorted out, she believed that there would be further challenges, particularly at municipal level. As a follow up she also asked whiter the budgeting tools were being aligned with these systems. She agreed that it was particularly important to adopt a proactive stance in respect of municipalities.
Mr Makwethu said that no work had been done to align the budget tool with the IFMS processes. He said it was a tool that would help in getting budgeting done better. He said it was an initiative that needed to be put in place internally, but AGSA was not necessarily positioning itself to bring it into the IFMS alignment processes.
Mr Nombembe added that there had not been a decision to roll out IFMS out to local government, although there was an intention to review existing systems prevalent in local government.
Ms N Sibidhla (ANC, Member of Standing Committee on Finance) noted that Mr Makwethu had indicated that AGSA wanted to focus on youth, asked if the youth tended to be prevalently consulting in departments, whether departments seemed to be showing a change of attitude and what the plans were, if not, to address that.
Mr Makwethu said that the investigation into prevalence of consultants was “work in progress” and he could not as yet respond on any findings. It was likely that a response could only be tabled in a few months time, but it would be placed before the Committee.
Ms F Bikani (ANC) commented that if there was not progress on the IFMS, then there was perhaps a danger whether the auditing goals for clean audits would really be achieved. The Clusters – particularly the Governance Cluster and Public Administration, as well as National Treasury, might have to come up with strategies themselves to apply pressure. Without the IFMS in place, there would continue to be problems, particularly with supply chain management and human resources management.
The Acting Chairperson said she had made a valid point. He had just read a report that there were serious problems around the IFMS. He suggested a possible interaction with the Standing Committee on Finance to try to get a better understanding of the complexities around these issues.
Ms Bikani emphasised that attention must be paid to this and there should be proper coordination.
Mr Makwethu noted that two issues could be seen as work in progress: namely, the Annual Report process and the Strategic Plan.
The meeting was adjourned.
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