A summary of this committee meeting is not yet available.
These minutes were taken by the Committee clerk, Mr Albert Mamabolo.
Draft minutes of proceedings
STANDING COMMITTEE ON PUBLIC ACCOUNTS
24 April 2002
BRIEFING BY AUDITOR GENERAL; ELECTION OF NEW CHAIRPERSON
Documents handed out:
General Report of the Auditor General
African National Congress
Mr L Chiba
Mr PA Gerber
Mr DM Gumede
Mr BW Kannemeyer
Ms PK Mothoagae
Mr BZ Nair
Mr VG Smith
Mr NS Bruce
MR M Lowe
New National Party
Mr F Beukman
African Christian Democratic Party
Ms C Dudley
Mr N Masithela
Ms NL Hlangwana
Dr GW Koornhof
In attendance from the Office of the Auditor-General: Mr S Fakie (Auditor-General), Mr C Benjamin, Mr K Botes, Ms L Groenewald and Mr A van Wyk.
Mr F Beukman was elected chairperson of the Committee.
Mr du Plessis informed the Committee that the Director-General of National Treasury will brief SCOPA on the progress being made with the register of public entities on 19 June 2002.
The Auditor-General undertook to look into the reasons for the deterioration of the functioning of the internal audit in KwazuluNatal and inform the Committee in writing.
3.1 Briefing by the Auditor-General on the General Report on the Audit Outcomes for the year ended March 2001
[Mr V Smith] Can we start with our meeting? Firstly, let us welcome members of SCOPA back to Parliament after the Easter recess and constituency week. We have before us an agenda agreed upon before we broke up. In essence we have got two items on our agenda. The one is the Auditor-General's presentation on his General Report and the second item is the election of a permanent chairperson for SCOPA. We are hoping that the business of the Auditor-General will take us till 11 o'clock. We will break for tea and come back to the second part of our agenda which is the election of the chairperson of SCOPA. After that, as is the tradition, the Auditor-General will have a media briefing to interact with the media around his General Report. Normally the Auditor-General had a guest speaker that would accompany him on such occasions. On this occasion the Auditor's entourage consist of the Auditor-General himself and welcome Auditor-General. We also have the Corporate Executive Manager, Mr Clarence Benjamin, the Center Manager, Mr K Botes, and then we have the Parliamentary Manager Mr A van Dyk, and we have the Manager Communications and Publications Ms Lynne Groenewald. So those would be the people that would lead us in the first part of our agenda. They are all welcome to this meeting. Without wasting too much time I give over to the Auditor-General.
[Mr S Fakie] Thank you. Let me also take this opportunity of thanking you and members of SCOPA for giving me the opportunity to present my Second General Report for the year ended 31 March 2001. I feel honored that my General Report is the first report you are dealing with after your recent recess. I would also like to thank you for introducing my team members that will be supporting me during my presentation of the Final Report. This General Report in many ways is very different to what we have presented to this Committee in the past. I will be providing you during the course of my presentation justification and reasoning for the differences. The Report in front of you today we refer to as "Audit Outcomes" meaning that it is an aggregated summary and I would like to emphasise the word "aggregated". Aggregated for the appropriate level that SCOPA needs to deal with it here. An aggregated summary of audits we conducted at National, Provincial and Local Government level for the year ended 31 March 2001. If members of this Committee can remember, I did also introduce a General Report to this Committee last year in October 2001 and that Report was referred to as "Auditing and Financial Management matters in the Public Sector". It was also a General Report. I have indicated to the Committee members that I would like to be presenting more than one General Report to this Committee. That General Report was a more timely and pro-active report of the general observations of financial management issues that was facing the Public Sector. The Report in front of you here is more a re-active report, a report of summary of the audits that we have conducted for the year ended 31 March 2001.
The General Report that is in front of you on Audit Outcomes for the year ended 31 March 2001 is the continuation of improvements in my reports to Parliament and other legislative bodies. I believe that we have come a long way from the reports of just a few years ago. However, we still have a long way to go. I just want to touch on some of the developments and research that have brought us to this stage and identify some of the key improvements we are continuing to work on. We have undertaken extensive research, including looking at the similar products used to report to parliaments across the world. We have tried to identify those aspects relevant to our situation and apply them accordingly. The reporting of issues across portfolios is one such improvement. You will find in the Report in front of you is being summarised across portfolios, and we will touch on that a little later, the idea being that we are reporting issues in the context of Cabinet Minister's portfolios and not just around accounting boundaries. In addition, by presenting information in a usable format captures a more holistic picture. This also contributes to the role of the Executive Authorities as determined by Chapter 7 of the PFMA. One area of development that still needs to be explored is to take this portfolio idea and perhaps look to report across a sector such as Health, across all tiers of Government. Therefore whilst taking cognizance of the different levels of Government we can try to begin to unpack some of the key issues facing specific government sectors. Our fundamental building block continues to be the audit of each government department and related entities. However, the packaging and focus of audit information is being constantly developed to provide a balanced perspective to the users. Under Section 181(5) of the Constitution State institutions supporting constitutional democracy, such as mine, and I quote "accountable to National Assembly and must report on the activities and performance of the functions to the Assembly at least once a year". In this Report and the previous Report on Auditing and Financial management matters in the Public Sector which I tabled and presented to SCOPA last year, I have discharged my responsibilities in accordance with Section 181(5) of the Constitution. However, as I have already emphasised, the need for continual improvement is one of my priorities. I will elaborate on some of the improvements. I hope to incorporate into this process later.
Firstly, I would like to focus on the key findings arising from my Report. If I could turn your attention to part 1 on page 3 of the Report, this provides a brief overview of the outcomes of the audits and an explanation of the audit opinions expressed. In addition, my Report tries to focus on the main issues. Therefore, a criteria is set such as only looking at items reported that are in excess of R1 million. This is not to say that no consideration was given to anything below that amount. All audit opinions and related matters have already been reported on and included in the Annual Reports of the departments which has been tabled as required by the PFMA. That is the individual votes that we have tabled in Parliament. If you move to page 4, you can see from the chart that there has been an incremental improvement in the number of unqualified opinions which have been steadily rising in the past few years. If one looks at the top table on page 4, you find that as far as the financial audit opinions are concerned there has been a steady growth over the last three years starting with unqualified opinions being your unqualified reports being issued which made up 56.5% of the total population. Currently the Unqualified Reports as far as financial opinions are concerned is 66.7%. When one looks at the Compliance Audit opinion that came up as unqualified, we started off three years ago as low as 30% of the reports that were unqualified. Today we are sitting at 64% of reports in terms of Compliance Audits opinions that are unqualified. So from that chart we can see the trend is there has been a steady increase and an incremental improvement with the number of Unqualified Audit opinions that have been expressed over the past few years. Whilst, and I wish to also warn, that this is a very welcoming trend and can in some part be attributing to our reporting and recommendations, it must be noted that these figures are purely quantitative and do not, for example, give an indication as to whether the seriousness of the qualifications have improved or worsened. Also, the audit outcomes of one large government department have not been included and that is the Public Works Department. With this new format in Reports we can now start to seek trends.
One important example of this is the table on page 4 and 5 that showed where qualifications have continued over the last few years. These qualifications are in terms of financial and compliance with legislation aspects. It is of particular concern that there are still 7 qualifications pertaining to both financial and compliance aspects and of these 3 has been qualified for the last three financial years. These are the Government Printing Works, Justice and Constitutional Development and Minerals and Energy Affairs. These three departments we have qualified both the financial and compliance aspects three years in a row. In fact, in the case of Justice and Constitutional Development I was unable to express an audit opinion and thereby a disclaimer was issued. In addition to the departments, there are some serious findings on related entities. If you could turn to page 8 where you can see the first table show some adverse opinions and the second table highlights some other serious finding that warrant this high level scrutiny by SCOPA. I have provided much more information on this in the annex to the Report. In terms of matters where I have not qualified the financial statements, page 12 provides an interesting summary. As you can see, many issues have recurred, but new matters have also been emphasised covering all aspects of the operation of Government. If I can just share with members the situation here on page 12, you will find that the total number of matters emphasised for the year ended 2000/2001 were 169. The total number that was emphasised during the period 1999/2000 was 102. So there has definitely been an increase from 1999/2000 to 2000/2001 in a number matters emphasised. And matters emphasised does not lead to qualification. They are just matters of public interest that we believe is important for us to bring to the attention of Parliament and the public at large. And of these you will find that 49 new matters came out during the period 2000/2001 and there were 120 matters that were repeated from last year to this year as well. That is basically what the table is trying to summarise - to summarise a number of new matters that has come up as emphasis of matters and those that have been repeated from previous years as well. As you can see many issues have recurred but new matters have also been emphasised covering all aspects of the operation of Government. The table on page 13 sets out some of the key concerns around the matters that we have emphasised. What we have tried to do on page 13 is to try and summarise what were the key issues on which we have emphasised. You will find that the key issues here are asset management, which is one of them. There is one that is of particular concern and one that I will discuss a little later. I have also made some suggestions to National Treasury at the bottom of page 13 as to how improvements can be made which include guidance on better asset management and practices.
I would like to turn members attention to part two on page 15. I have reported by Cabinet portfolio. In this early stage of development we are still trying to refine the portfolio content. To demonstrate the difficulties experienced and to assist in improving this process some of the findings and classification forums have been highlighted in the table on pages 15 to 17. What we have tried to do is in trying to report by a Cabinet portfolio we face the challenge of determining exactly all those public entities in the main - be they schedule 2 or schedule 3 public entities - which portfolio do they really belong to. I must say we are at the very early stage at this point in time. We will improve the process, but these are some of the difficulties that we have had in trying to allocate these schedule 2 and 3 public entities to specific portfolio, and some of the comments that we put on here as to events that is taking place around this public entities which are listed in terms of the PFMA as schedule 2 or 3 public entities. If I can now turn members attention to page 19 to 72, identified portfolio of each of the 28 ministers and the key findings from the audits conducted on these various entities that fall within that portfolio. This summary format can immediately identify the key audit concerns pertaining to each minister. For example, if you wanted to know what entities came under the Minister of Labour then if you turn to page 47 you will see the listing. This will enable ministers to evaluate the audit outcomes of all entities under his or her portfolio and to exercise their responsibilities as determined in Chapter 7 of the PFMA. I must state that in some instances information may be incomplete, but I am confident that although this is only the start of the process over time we will move towards the improvement of this information. If one just look at the kind of information that we have tried to provide in this portfolio summary format - firstly, we have listed all the entities that we are aware of and could best assess at this point in time that falls within a specific minister's portfolio. And then, secondly, we tried to provide some very pertinent information relevant or relating to each one of those entities that fall within that portfolio. In other words, the day of submitting of the financial statement - whether that had been submitted in time in terms of the PFMA or not; whether the date when we issued the Audit Report; the kind of Audit Report that was issued - whether it was unqualified or qualified or a disclaimer of an audit opinion that was issued relating to financial audit; whether the compliance audit opinion was qualified, unqualified or a disclaimer was issued; whether there were matters that were emphasised; and whether there were significant control issues that were noted in those various entities.
You will find that the table is not as complete as we would like it to be. We had to decide on a cut-off date in order to get this General Report to Parliament and that was the best information that we had available at that point in time. And what you would find that the quality and the accuracy of the information with the departments itself I could stand for, because I know we have audited that information and we have that information at hand. The public entities have different year-ends and some of the information was not available and we are constantly talking to Treasury to try and see how we can address that. But just an example of the kind of complete information by portfolio that we are starting to provide in this General Report that give the stature of the responsibility that the minister have for all the entities falling under that portfolio. Basically that information is provided from pages 19 to 72 covering the 28 ministers. At the bottom of page 72 to page 75 we provide a fairly high level summary at the Provincial Government level. I want to emphasise that we are providing a fairly high level summary in the main to try and give national SCOPA a perspective of really what is happening at provincial level, because in terms of the jurisdiction and the mandate I think there is very little national SCOPA can actually do about those issues, but we thought that it would be appropriate in terms of the openness, transparency and reporting up to National Government level that we provide a fairly high level summary of what is happening at provincial level. From a positive perspective improvements were noted regarding the spending within budgets by provinces and this has been noted in the Report. The first table on page 74 provides details in this regard. You will find that there has definitely been an improvement in the level of spending by the provinces. The safeguarding of assets on the other end is of particular concern as you can see from the table on page 75 where in some cases there are very few, if any, registers in place. In the case of the province of Gauteng, although these registers are in place they are on the whole very poorly maintained. So we have got some serious problems around the safeguarding of assets. As far as the asset registers are concerned where in many cases there is not a proper asset register and where there is one it is not properly maintained. Further evidence of internal control problems in the provinces can be seen through the evaluation of Internal Audit functions and is reflected on the second table on page 74.
At the bottom of page 74 you will find that there are some very serious problems around the internal control as well as the evaluation of the work of the internal audit within the provinces and the extent to which reliance could be placed on the work of the internal audit. This is an issue that we have constantly been reporting to SCOPA, both here and at the provincial level. The work of internal audit functions in the provinces during the 2000/2001 was not relied upon by any of our provincial auditors. That is quite a serious state of affairs that you have got internal audits, but not in one province could we rely on the work of the internal audit and their reasons are quite widespread from the quality of work that is performed, the level of skills that exist within their internal audit department to the reporting responsibilities those internal audit departments have to the level of independence that exist within that internal audit departments. So it is a whole host of reasons and as well as the major or work that is being undertaken by the internal audit department. So there is a whole host of reasons as to why we were not able to actually place reliance on that work of the internal audit. On pages 75 to 91 we give an insight into the performance and standards of municipalities. Again, understanding and considering the role of national SCOPA vis-à-vis the municipalities, again, we tried to highlight in our Report some of the things that we have done and are doing at the level of local municipalities, but more so to try and give SCOPA here at national level an indication of the kind of intervention and the lack of support that exist from a national department perspective in terms of supporting local municipalities. I thought that would be more appropriate for SCOPA at national level rather than the details of what is happening at the municipalities, because, as again, in terms of jurisdiction there is very little that you can do in that regard. So the results are based on the financial year of the old demarcations. Of the audit opinions expressed only 22% were unqualified.
This is a serious problem at local authority level. When you compare this at national level and, I shared with you on page 3 or 4, we had as high as 60 some odd percent of audit opinions that were unqualified at national government level. Here at local authority level we have a situation where only 22% of Audit Reports are unqualified. It just gives you a sense of the gap that exists in terms of the Audit Report qualifications between these two spheres of government. Just to give a more graphic view of that situation I would like members to turn to the pie chart at the bottom of page 85. There you will find that only 22% of local authorities' audit opinions were unqualified. Of the qualifications that we have issued 50% are attributable to growing concern or the recovery of debtors. That is a serious problem. If those local authorities were pure business entities we would have as external auditors very serious concern on the ability of those local authorities to continue as a growing concern. We have a different sort of setup there. They do get support and so forth from provincial and national government and Treasury. And if it is only that that is keeping their heads above water, but on the whole, as you can see, we do need as External Auditors to do a test of growing concern and in excess of 50% of our qualifications are attributable to the growing concern principle and the recovery of debtors which in some way is linked to one another. The lack of recovery of debtors is in actual fact creating a great concern for local authorities. This highlights the need for significant improvements within municipalities. In fact, page 84, paragraph 3.3.5 explains some of the underlying reasons for the financial position being the non-payment of services by residents and inadequate steps taken to recover or prevent the accumulations of amounts outstanding. The recovery of debtors at local authority level is a malâ€¦â€¦â€¦â€¦â€¦â€¦ Of very serious concern, notwithstanding all the efforts that has been put by local authorities in this regard. I do believe that the pace at which debtors are paying their accounts is not sustainable for that local authority to continue as a growing concern. I am not saying that local authorities are not making an effort, there are definitely indications in many local authorities that are putting extraordinary and concerted effort to recover those debtors. Further to the issue of financial status of municipalities, our audit fees outstanding also increased to over R20 million as stated in paragraph 3.7.5 on page 89. This is also creating a significant factual problem to the Office. So the impact of the financial position of the local authorities is starting to have an impact on the financial cash flow position of the Office. We have been raising this issue for years. I remember we started raising this issue both within our General Report to SCOPA. We have also raised this issue with our Audit Commission. At the time when we started raising this concern that figure of local authority debtors owing to the Auditor-General's Office was sitting at somewhere between R7 million and R9 million some two or three years ago. We are now looking at local authorities with overdue accounts owing to the Auditor-General sitting in excess of R20 million and it is having an impact on the cash flow position of the Office. The new municipality's performance will also eventually be considered against the Municipal Finance Management Act (MFMA) once promulgated. In this regard because this is now having a major impact on the financial operation and cash flow position of the Office, the Office has embarked upon various initiatives with Treasury and the Department of Provincial and Local Government to try and see if there are ways and mechanisms to try and ease the recover of this money. The amount of resources that the Office is spending in chasing after these debtors in threatening the local authorities with legal action and, in fact, in many cases actually taking legal action against the local authorities is using up an enormous amount of resources within the Office and it is diverting the Office's attention to its non core business activity.
What we have done is we have started engaging with National Treasury and the Department of Local Government in the light of this new MFMA, once it gets promulgated, how can we try and ease this burden of chasing our debtors to the extent that we have to? We have successfully been able to jointly with Treasury and the Department introduce certain clauses in this Act that will make the non-payment of audit fees a financial misconduct on the part of local authorities and it has to provide both National Treasury, the Auditor-General, as well as the Department of Provincial and Local Government far more powers to intervene in a sort of situation like that. The way the Act stand at the moment and with different spheres of government it is extremely difficult for any of these institutions to come and provide any kind of significant intervention with the situation in hand. The Act will introduce clauses where non-compliance will constitute financial misconduct. Refer to paragraph 3.3.4 on page 83 for more information in this regard which is headed "Remedial and/or support of actions at national level. So we are engaging quite extensively at the national level and perhaps that is, as I have said in my introductory comment, areas that I want to highlight to national SCOPA of issues where national intervention may be necessary to address some of this very ailing problems existing at local authority. Page 87 again shows the level of support afforded by National Government to the municipalities and I think that is important for national SCOPA to be aware of. This includes the equitable share of R2.2 billion as well as the amounts allocated to the provinces which are summarised in the table on page 88. The support to municipalities is not only in the form of financial assistance. National departments both from Treasury's point of view and the Department of Provincial and Local Government have gone a long way in also supporting municipalities by providing support team assistance to help and develop capacity within the local authority level.
Suffice to say that the challenge out there at the local authority level is enormous. In terms of my role in assisting the development of municipalities, the Office is a partner in the local government support and learning network. The action for this is Logoâ€¦â€¦â€¦â€¦â€¦. Which is the LOGOSUL programme funded by the Department of International Development of the UK. The purpose of the project is to provide policies, systems and structures for poverty relief via the local government's sphere of Government. Given the findings and that most service deliveries takes place at this level of government, this project is of great importance and therefore we are committed to continue our support on this at this level of government and this LOGOSUL programme. We have been quite extensively involved in facilitating and making sure that we get that foreign aid funding for local government in this regard and we have been doing various surveys together with various teams in terms of just looking at what the situation at local government level is. And part of this programme is also allowing our auditors to gear themselves up in terms of being able to do performance auditing when the new legislation do come into being at local government level. So it is a fairly comprehensive aid assistance that we provide, most of which is to try and make sure that the capacity and the service delivery at local government level is enhanced, but linked to that there has been a small portion of that overall assistance that has been provided to us as an Audit Office to make sure that we sharpen old pencils that when that piece of legislation come into being that we are able to report on the performance of local authorities. Moving onto the public entities, classification is still required concerning my mandate over certain public entities. I have tried to incorporate the reporting of major public entities and those listed as national and provincial entities into the portfolio summaries. Where I am not appointed as the Auditor of these entities it is difficult for me to provide the necessary assurance and information to Parliament. However, I am trying to incorporate as much information as possible on those entities in the future period. I think I have shared this with you in my opening remarks that there is quite a few difficulties and challenges that I had personally in ensuring, especially where I am not the external auditor, to try and get the timely and qualitative information to Parliament on these public entities. I do give you the assurance that we will continue trying to get the best information to you on a timely basis.
One thing that I want to highlight is on page 95 paragraph 4.4.2. It is an area that has been of concern to us and we had engaged at various forums and levels with Parliament and with your ........ in this area that the non-audit services that auditors are providing whilst they still or are the external auditors of these public entities. We have a very specific criteria that we have established in the Office and it is a criteria which is quite stringent when it comes to the independence of the auditors at the level of non-audit services that auditors can provide at public entities. It is a practice that we have engaged in as an Office at least four or five years ago. It is a practice that we have been criticized for in terms of being extremely hard around the issue of independence that we went way beyond the guidelines that has been provided by the Institute of â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦ both here and internationally. I am proud to say that we did the right thing five years ago, because this move has come to bear with the spotlight now being put on the ENRON Saga around the independence of the external auditors. We feel proud that there is an Office that did not waver in terms of the pressure that was brought to bear on us in terms of being extremely hard around non-audit services being provided by audit firms. As many of you would know that this situation is now under the spotlight following the ENRON affair as well as the recent King Commission Report here in South Africa. I must admit with the hard stand that we have taken over a number of years this practice is decreasing because of the stringent policy on independence and our intervention and the role we play in this area. However, it is important that this practice be brought in line with the current debate on this matter that is taking place both here in South Africa and internationally. The issue of the auditors independence and the role of the auditor in providing non-audit services is a matter that is constantly and it has been very actively debated currently both here and internationally. I think that this practice needs to be brought in line with the debate that is taking place. This could potentially be addressed through the introduction of appropriate legislation if necessary. I do not believe that you need to regulate your legislation in every respect. I think it is a matter of conscious mind and ethics that also comes to play here, but if necessary, we believe that this may need to be legislated. On the issue of public entities, although the National Treasury has established capacity to control the listing of public entities, and it is an important matter which I think the Committee has raised with me when I tabled the Section 65 Report and there was a very specific concern raised by a member of the Committee around the public entities situation.
I did say to the members that I will be addressing some of this issues when I do table my General Report. I think this is the appropriate moment for me to do so. That although National Treasury has established the capacity to control the listing of public entities I strongly believe that given the number of existing public entities and those that can still be established within all spheres of government, that a national register of all public entities should be considered. This could strengthen the control and accountability arrangements in this regard. I must say we have engaged quite extensively with National Treasury on this matter and they are supportive of playing that role and they have increased the capacity as we say, but it is an area that needs to be very carefully considered because the pace and rate at which public entities are springing up and the list of public entities that are there at the moment, really nobody knows. Not even Treasury knows what exist there. My mandate enables me to go beyond auditing of financial statements and expressing an opinion on them. Performance of organisation is an important aspect of the accountability process. My staff has conducted various performance audits. One area concerns the performance audit at certain provincial Departments of Education. The table on page 100 identifies some of the basic needs facing the Eastern Cape Education Department for argument sake. The table shows some significant factors such as 81% of schools that do not have adequate telephone facilities and 93% that do not have adequate library facilities. It is a sad situation there in the Eastern Cape with that performance audit that we did in the sense that these are basic infrastructure requirements for a school to be able to provide effective education to the learners and many schools there lack these very basic infrastructure. We also conducted a performance audit on the payment of social grants. That is basically reflected at the bottom end of page 100 on the table there and goes on to page 101 which reflect the extent and amount of over payments that were identified during the performance audit of social grants at the provincial level.
Again, this performance audit really gave us quite a fright and also provided quite an eye-opener to many of the provinces in terms of the overpayments that occurred. We have debated and discussed this with the Minister of Welfare. There have been measures and initiatives taken to try and address this situation as well. Some of the other performance audits that we have conducted, without me going into the detail of them, can be found on pages 101 and 102 for the benefit of the members in order to get a feel for the kind of performance audits that we have conducted. Forensic audits have also been conducted and the outcomes of these can be found on pages 103 and 104. The investigations have in some cases resulted in disciplinary proceedings against individuals. I would like to move on to Chapter 9 on pages 105 and 106 of the Report - the extent of surplus and unspent funds and the budgetary reconciliation is explained on pages 106 and 107. The level of unspent fund increase from the previous year. The table on page 106 highlights the situation within the Departments of Public Works, Justice and Constitutional Development, Foreign Affairs and National Treasury all having underspendings in excess of R100 million. I know that the PFMA (Performance Finance Management Act) has put in a lot of emphasis and imposed a lot of penalties etc on the unauthorized expenditure. In our APAC meeting members have identified that underspending is equally thought as overspending or unauthorized expenditure and perhaps there needs to be some kind of punitive measures imposed on departments that generally under spend their budgets. So I think this table on page 107 actually provides a budgetary reconciliation and the main departments that had incurred on their under expenditure. Under the PFMA unauthorized expenditure has been redefined, as many of the members of this Committee will be aware of. I have explained the implications of this on pages 107 and 108. This includes the Report from the National Treasury to Parliament on unauthorized expenditure as disclosed in the financial statement of the departments.
The Committee has dealt individually with each department that had incurred unauthorized expenditure when they have dealt with individual votes. Page 119 of Annexure A - there are some significant cases of unauthorized expenditure including R35 million at the Department of Transport. As I have said, this is purely a summary of the unauthorized expenditure that occurred. I think the Committee will be dealing with them as and when they deal with the individual votes. On the subject of financial management, I provided a substantial analysis in the Auditing and Financial Management Matters Report which I tabled in October 2001 and presented to SCOPA in October 2001. Pages 109 to 112 provide some feedback from National Treasury to my previous Report as can be seen from the responses. If any good working relationship is in place with the National Treasury and this I believe will facilitate improved financial management in the public sector. For those of you who are interested in more detail surrounding the audit outcomes, annexures detailing the reason for the audit findings and the audit terminology that we have used I enclosed it on pages 105 to 113. I would like to take this opportunity to look forward. What I have done up until now is provided a summary of looking backwards of what actually happened at national, provincial and local government level for the year ended 31 March 2001 being the first year of the implementation of the PFMA. And as I shared with this Committee in the Report that I have tabled in October 2001 that I would like to present two General Reports to this Committee. One is a backward looking Report, like the one that we just had a look at, and one perhaps is a forward looking Report in terms of how do we improve and enhance our focus areas, our flavors and our audit sort of areas that we should be focusing on. I would like to take this opportunity to look forward and give you more information on the developments that I am hoping to bring into place over the next few years. The Report has come a long way since I took over as Auditor-General. However, there is still a vast amount of information buried within the body of the text. It is for this reason that I am trying to coordinate key themes to be looked at with a little more scrutiny and report on the outcomes of these. These transversal themes will start to be reported on in my General Report on the 2001/2002 year. Some of the issues have been identified in my Report on Auditing and Financial Matters in the Public Sector Report that I have tabled in October 2001. If you can recollect that I have identified about 4 or 5 issues in terms of the forward looking themes. I have also asked for input from SCOPA regarding are there specific issues that you believe that we should be including in our themes. I know that I did get some input from members of SCOPA.
Just to give you some feedback on these issues, one of the things that we have identified in that Report was that the control environment is the first area where from the table on page 12 you can see a significant number of recurring emphasis of matter under Internal Control over financial systems and processors. We are following up some of those themes that we have identified in our previous Report and in this current Report we will try to give you some feedback on what are the issues that we are looking at. It is something that is going to take time and we will do that in an incremental way. I do have to take into consideration some of the resource constraints and the readiness to try and bring that whole thing to fruition. So we are dealing with this in incremental steps. Another area that I did identify as a forward-looking theme or area was the issue of Asset Management. This has already been elaborated on at the provincial level, but these issues are also at national level. The table on page 13 shows Asset Management relating to amongst other factors the maintenance of Asset Registers. I have given you some feedback around what the status on Asset Management is, be it at a fairly high level at this point in time. Thirdly, procurement was another area that we have identified in that October 2001 Report. It is an area where shortcomings in the processes lead to various reporting issues such as unauthorized as well as fruitless and wasteful expenditure. These have been dealt with in summary format here. We have got a bit more details in the annexures and they are being dealt with in the individual Reports. Fourthly, Human Resource Management was identified as a fourth item. This has already been a focus area for a performance audit within the Western Cape.
I would like to refer you to the table on page 102 which give some feedback on what we are doing on the Human Resource Management aspect. Finally, capacity was identified as the fifth key area in that October 2001 Report, an issue that is the cause of many of the findings throughout my Report and across all tiers of government. We are working on the capacity side in terms of finding out how best we identify the issue of capacity and how best we report that. I also want to provide the information on a more timely basis, this is now looking forward and therefore I am proposing to provide a Report to Parliament on National and Provincial Government first, and then one at a latter stage on Local Government. What we need to understand is that the year-ends for the National and Provincial Government is different to the year-end for Local Government. The year-end for National and Provincial Government is 31 March, the year-end for Local Government is 30 June. In order to provide a more timely Report to Parliament instead of we waiting for the Local Government Audits to be completed I am proposing that I provide a Report to Parliament on the National and Provincial Government and then at a later stage to provide one on the Local Government separately. The 2000/2001 Report has been delayed due mainly to my commitment on the ARMS DEAL investigation. It is hoped that the 2001/2002 Report, which is the next Report, will be tabled in Parliament around October or November 2002.
The Provincial Legislatures will also be given information on a similar format to the General Report and this will assist in developing accountability down the chain. What we are doing and what I am instructing our provincial Auditors to do is to also issue a General Report in their Provincial Legislatures in very much the similar format that I am doing for you at national level. We are hoping that the Provincial Auditors-General and the Provincial Legislatures will be able to deal with the Provincial Reports around about September so that it gives me approximately a month to try and aggregate all that information from the provincial level aggregated up to bring it to an adequate summary for me to be able to provide a General Report at provincial level to SCOPA around about October or November. Our first Report will be coming through to you around about October or November 2002. In addition as required by the Constitution I would like to report more clearly on my own performance and this process will also be enhanced during the 2001/2002 year. As I have read and quoted to you earlier that in terms of the Constitution, I am going to report to Parliament once a year. There has been traditionally a Report that talks about how the departments perform. I want to enhance my personal accountability to Parliament as well as in terms of how I perform as an Auditor-General. I am hoping to incorporate some of these things for the benefit of SCOPA members during the 2001/2002 Report. The presentation and format of this Report is currently still being finalized. We have not really started thrashing out all the details. I am aiming for it to be tabled before Parliament early in July 2002. This year is going to be a further challenge. However, now we are starting to put down the structures. Planning for the 2002/2003 reporting is already under way.
I believe it is important that we start combining the General Report information into the overall audit process. By doing so it will ensure several factors namely, improvement in the detail and quality of the information that we make available both to the public, as well as to the Parliament at provincial and national level. My Office and I need to make more resources available to make sure that this quality and detail of information are provided, making our staff understand the value of this Report. I think what is important is the sooner I put this process in place and put it into the audit circle the value and importance of the General Report will be better understood. More planning to ensure that issues selected for transversal reporting are most appropriate. What we need to decide is what are the most appropriate transversal issues. We need to plan appropriately and adequately for that, because sometimes it takes as long as two years to actually make sure that our auditors are actually auditing, focusing their audit on those transversal issues. We need to provide proper planning and training and for them to understand what are the issues that I want to identify and report on in my General Report. So they need to give me that information when they are doing their individual department's audits. This clauses also requires consultation with our stakeholders both internal and external. As you know I have shared my views with SCOPA around some of the transversal issues, the five that I have just listed in my last Report and sharing with you now. I would like to consult and get views from various stakeholders both internal and external around this transversal issues so that we do put in a quality product that is in the minds and in the hearts of the people that know where the problem issues are. I am going to be concluding. As Auditor-General I am in an unique position in so far as objective evaluation amongst other's financial performance and government's arrangements surrounding government is concerned. I think that the General Report should be one of the key tools in communicating this information to both Parliament and the public. To this end I am committed to the continual improvement in this product, being my General Report, and welcome any feedback and suggestions on possible ways of improvement to that product of mine. I would like to thank members of SCOPA for giving me your attention and members of the media as well. I will now take any questions or issues of clarity around the General Report as you have suggested in terms of your program.
[Mr V Smith] I think we will open up for questions of clarity. We will have to process, as SCOPA, the information that had been put before us before we could give you substantial feedback on how we see it the way forward. I do think that there might be burning questions that members would want to ask for clarity, so that we could have a more comprehensive discussion amongst ourselves at a later stage.
[Mr N Bruce] There is just a few matters that are arising out of it which intrigue me in what you have said. I am sure you will agree that it is not necessarily an indication of progress that the percentage of unqualified Reports has improved. It could be that your department has not been as vigilant as it had been in the past. Perhaps you would like to tell us a little bit about that. You have been involved in the Defence investigation this year. I recall when you were unable, because you were abroad to come to this Committee. There was talk, and I do not know whether this is true or not, that your Department was bidding for an audit of the World Heath Organization or some United Nations Organization. I wonder if this was true and if you really did have that capacity to handle matters like that. Secondly, you made some reference to the consultation work done by outside auditors which your Department was using in view of what happened the ENRON affair. I know that Ministers of State often get up to very strange activities, but I do not know myself of any comparison between what our Ministers do and what the Directors of ENRON did. What firms are involved? Why do you have these particular reservations? The question of the national register of public entities - you have not given us any reasoning why you think that ought to be put in place. I would guess if it is just a list of them, a list must exist, and that you have good reason for raising something like this. The question of the performance audits is very interesting. On the question of the Eastern Cape schools - it say to me that I have difficulty in reconciling how a shortage of telephones have anything to do with the pedagogic endeavour. I would have thought that it is better to have a good teacher than a necessarily working telephone. It looks to me that what you looked at there was a shortcoming in outputs rather than any shortcomings in outcomes. I agree with performance audits, but if you are going to do them, surely the thing to look at in the Eastern Cape is the number of matriculants or the number of pupils that have passed a particular level of examination. Finally, if I might be permitted, I want to rise a point of order, after having read the newspapers this morning and found that we have already elected a new chairman, I wonder why if Mr Beukman is sitting on the right side of the House.
[Mr V Smith] Let us deal with your point of order. It is this body that elects a chairperson and not the Mail and Guardian or any other newspaper. There is no chairperson. We have an acting chairperson. Mr Fakie, can you deal with the other questions before we ask Mr Lowe to raise his viewpoints?
[Mr S Fakie] If there is going to be three or four questions from a single member, I think just for my own consumption, if I could just deal with them one at a time. If there is just one or two questions then I think we can take two or three members' questions and then deal with them, because it will become a bit difficult for me to respond to more than 5 or 6 questions at a time. If you could try and assist me in that regard.
[Mr V Smith] Let us help you Mr Fakie. We are only going to allow every speaker two questions. If you go beyond two questions we will ask you to stop so that we could have a more meaningful interaction. If you could deal with those first and then you carry on with the rest.
[Mr S Fakie] I would like to respond to that. As I have recorded it there is about four questions there and they are fairly good questions. The first one revolves around page 4 as to whether that table in actual fact indicates an improvement as I have indicated or is it something that maybe we are getting a bit lack from an audit point of view? I want to assure the member that as we have stated in the Report I think there has definitely been an improvement in the number of unqualified audit opinions that we have issued. I think the departments need to be complemented in that regard. But we do qualify our unqualified trends to say that we have not looked at the seriousness of some of those qualifications and whether that has improved or not we do not know. The qualitative side - this is purely a quantitative exercise that we have done and we need to recognize and give credit to that. Regarding the quality of the work that we do - the Office is constantly, and the Audit Commission will bail me out on this, looking at improving the quality of the work that we do. We have been under extensive scrutiny to make sure that the quality of our work is at its best and, in fact, it is at a stage that can be compared favourably or, in fact, lead world standards. It is for that reason that we are getting so many international audits falling on our footsteps, because of the quality of the work that we actually do. So it is linked to the second part of your question that on the involvement in the international audit work it has been very carefully considered. We have been getting quite a few requests to bid for international audit work during the 1995/1996 years. At that time we only did the World Health Organization and we turned down those offers simply because we wanted to take a very measured approach to make sure that in engaging in any international work we do not compromise our commitment and our resources to our local commitment, firstly. Secondly, in taking any international work it does not cost the South African taxpayer a cent. We have been able to achieve these things in a very structured way. I want to give members of this Committee the assurance that the extent of international audit work that we are doing has got minimal impact on the resources and our commitments to fulfill our local responsibility. Again, it is an area that gets debated quite extensively by our Audit Commission before we undertake any international audit work. That is to answer the first part of the question.
[Mr C Benjamin] I just would like to add that as far as resources are concerned - under the international audits we are using less then 1% of our total resources in the Office to actually conduct those audits. And as the Auditor-General has stated these audits is cost neutral to the Office. In fact, in many instances we gain exchange benefits to the Office in that regard. Secondly, the purpose of doing international audits, from the Office's perceptive, is to compete with a market as far as attracting training Accountants. If you look at the other international firms, they can all offer their staff that particular opportunity to do international duties. For us to compete in that market we felt that we have to offer our staff the same opportunities. It gives our staff immense training opportunities, because the type of audit techniques that we use in our own international audits, they bring back again and utilize it in the audits of local departments and governments. Thirdly, the benefit that we get there is that it gives us an opportunity to train our staff to become ambassadors for South Africa.
[Mr S Fakie] On the second question around the ENRON example and the issue of consultation and the fact that ministers should hopefully not act in the same sort of code of practice that the ENRON saga did. Here I am not referring to departments. What I am referring to is public entities which are perhaps within the portfolio of a minister, but public entities that have the right to appoint the only external auditors. The PFMA states that those public entities before they appoint external auditors need to consult with the Auditor-General. Many of them do, some of them do not. We chase them up. Many of them do and we have a criteria on which we will accept or approve in terms of that consultation or concur with the appointment of those external auditors. What we have found within the public entities and I could name you a couple. If you take ESKOM as an example, we have found that the external auditors of ESKOM, which is a public entity, the external auditors were doing in excess of the audit fees in consulting works. So in other words if the audit fees was R100 million they were broadly generating in excess of R200 million in consulting. We felt extremely uncomfortable as an Auditor-General to approve the appointment of the same auditor as the external auditor of that kind of public entity. The consultation and the issue that I am referring to is not at the department level, because I am the external Auditor at the Department and I do not do any consulting work at any department. Here I am referring to the public entities that got private audit firms that are appointed and the private audit firms is also given an extensive amount of consulting work at those entities. I hoped I have clarified that issue. The third question was the issue of the national register and I have not really spelled out the reason for it. The reason for it is that we do not have a list of all entities. At the moment we do not know what public entities existed and I think National Treasury is grappling with the same problem. I think that the extent and the reasons for why public entities are being established - there are some very good and poor reasons as to why public entities are being established or Section 21 companies or whatever you call them. I think the mechanism of establishing a register at a central control point similar to the register of companies that is what we are proposing for public entities. So any government body that wants to establish a public entity will have to go through, what we are recommending, a similar process as establishing a company in terms of the companies law and legislation. There I think it will give people like National Treasury who we believe is an ideal home for it and we have spoken to them. It will do two things. Firstly, it will make sure that the list is up to date. That we all know what public entities do exist; who are there; what are there and under whom they fall? Secondly, what was the reason or purpose for establishing those public entities? These are too critical information that is lacking in our current arrangements. That is why we recommend that. The third issue would revolve around the Performance Audit and the fact that we have been focusing or identifying the lack of telephone facilities as a shortcoming and our shortcoming focus more on outputs rather than outcomes, I think that is true. The issue of outcomes is very much policy related. As a rule the Office tries not to get involved on policy related matters. Yes, we will comment on the effects of policy. That we will not stay away from, but on policy matters per se we stay away from. That is why in the main our focus in the Performance Audit related areas is on outputs and that is correct in your analysis and assessment. The other thing that one needs to understand is that when we identify these focus areas, we go through a process of consultation and we adopt what we call an 80/20 rule in identifying the focus areas. In other words, when we do Performance Audit, because it is of such a cyclical nature and because it is of such a limited nature and because we have limited resources to do Performance Audit, we try and utilize 20% of our resources on 80% strike rate. That is the 80/20 rule that we look at the areas where we most likely where the Department is most vulnerable in terms of its performance. We focus on 4 or 5 focus areas and not the whole Department in terms of every single operation within the Department. We do that through a process of consultation. Without knowing all the details, I think that was a process that was adopted in identifying those focus areas. Hence the reasons for focusing on outputs and the areas that you have identified.
[Mr V Smith] Mr Fakie, just a follow up on the public entities - your recommendations for the establishment of a register of public entities. Is it possible for you to keep this Committee updated in terms of when we see these things happening and how we progress? It is something that we have been discussing for a long time, the list of public entities, if you could just keep us briefed in terms of how far that process is as it progresses?
[Mr S Fakie] If I could ask National Treasury to take that responsibility jointly with me, because National Treasury is very closely involved with SCOPA and we have initiated the recommendation here. We are working quite closely with National Treasury. If I can suggest that we jointly keep SCOPA informed in this regard?
[Mr du Plessis] I see on the program of SCOPA that there is a Hearing on this specific Report of the Auditor-General on 19 June 2002 and then the Director General will inform you in detail about the progress with the register of public entities.
[Mr M Lowe] Could I on the outset just thank the Auditor-General, his staff and his Office for a very interesting and informative document? We need to certainly engage it in some detail in the future. I find it very useful and thank you for your summary this morning as well. In looking through the facts and the statistics, some of which is interesting, some of which you said are very serious and concerning, some I would say is quite shattering and unacceptable and we need to address that. Could I ask you just to look at the table on page 4 and 5, which deals with the number of Audit Reports that have been qualified over the past three years - you have noted specifically those three Departments; that is Justice, which had a disclaimer opinion, which is even more serious, and then Vote 14B: Government Printing Works, as well as Minerals and Energy Affairs where for three years in a row there has been a qualification of opinion? Could I ask you to provide more information along the lines of are you getting support and assistance from these Ministries and Departments? Or is it a case of where recommendations have been made, where input has been made by your Office, over three years? Three years is a long period of time. One year you can get it wrong, two perhaps, but three it is unacceptable. Is there support forthcoming from these Departments and Ministries? Are you finding that you are not getting constructive support that is leading to a problem? Perhaps I could include in there the Department of Public Works - just now you said that you have not completed the Audit Report. Is that their fault or your fault? It is a timing problem. Is there another problem there, because for two years previously we had a problem? On that score, just looking at the reasons for the disclaimer in the Department of Justice it is quite staggering when you see the problems, the materiality, scope, limitation, uncertainty, billions of Rand of expenditure that you simply cannot account for. Previously reported in the Department of Justice it just seems to me that there is a bigger problem there. My second question relates to the Department of Labour's UIF Fund, which is covered in some detail on page 49 and without going into all the horrific details this morning, just a little bit more information there. We see that the fund is, as we know, technically insolvent, the accumulated deficit has doubled from R561 million present trends continue. Recommendations from 1997 has not been followed through or implemented and there were a number of other matters that you report there. Again, could I ask, we know there is a structural problem with the Fund, does it go deeper than that? Are you getting constructive support and assistance from the Department of Labour, or is there something else we need to know about? There are Provincial and Local Government matters I would like to go into at some stage.
[Mr S Fakie] The first question revolving around the three Departments reflected on pages 4 and 5 and perhaps even Public Works, which is not reflected here for the current year - the situation is that there is very deep systemic problems within these Departments. If you look at perhaps the Government Printing Works, I stand corrected here in terms of some of the details, but what I do know, the key reason for the problems within the Government Printing Works was the Government Printing Works in Umtata, as far as I know that Printing Works has been closed. Hopefully, there would be a sign of some improvements there because of the closure of the Printing Works not because they have improved the systems or anything like that. Within that Department that has been the key cause of the qualification or disclaimer over three years. The issue around the Department of Justice and Constitutional Development, there are very deep systemic problems here. I think when you do have a Hearing with the Department of Justice, and then you did have a Hearing with the Department of Justice last year, I think this Committee was enlightened to some of the deep systematic problems that do exist there. I must admit that over the last year or two there has definitely been a will on the part of many people, including the person who is acting as Accounting Officer or who is the Chief Financial Officer, are willing to try and get the situation under control, but the problem is so deep and widespread and it will take a bit of time to remedy. As we go along you will find that more and more emerge around the deep systemic problems at the Department. With the Department of Public Works which unfortunately could not be incorporated into this General Report, as members would know when I did table my Section 65 Report we did debate some of these issues. On this particular one, the reason for the delay, in my personal view, lay squarely with the Department, but we have tried to be as accommodating in the process as possible and tried to in the spirit of making sure that accountability takes place in a true sense that we have allowed for that kind of flexibility. There were an enormous amount of vouchers that were not made or could not be made available for auditing purposes. We had very serious concern around the scope limitation as a result of that. In fact, we were not even in the position to issue an audit opinion because of the vast amount of vouchers that were missing. We have given the Department an opportunity to try and get hold of those vouchers, because they claim that those vouchers should be there and they must be there. And we said well, we will give you the opportunity and we granted them an extension instead of finalizing the audit to bring those vouchers along so that we could promote accountability, because without the vouchers I can turn around and say there has been a scope limitation and I cannot issue an opinion. I think it would be far more better to account. So if you make the vouchers available and we found x, y and z that was wrong within the Department. It was in the interest of making sure that accountability takes place that we allow the Department to go and look for those vouchers and come back and therefore there has been a delay in finalizing that audit. On the second issue around the Department of Labour on page 49 and specifically the situation with the UIF fund. Yes, that fund is in a serious financial crisis. I know the Department of Labour is doing everything to try and restructure the fund and look at ways, means and mechanisms to try and get it into a solvent position. We do find that some of the fundamental problems that we have defined in that UIF fund seem to be recurring year in and year out. It is a bit of a concern for us in terms of the seriousness with which some of the very basic elementary things that needs to be put in order. It has nothing to do with no money or no resources. I think it is a question of will to put the things together seems to be lacking in that particular Department.
[Ms P K Mothoagae] My question is on Local Government or this municipal Councils. What has happened recently or in the past two years the excuse has been that the Division of Revenue has been impacting on transfer of funds because of the two different financial years that â€¦â€¦â€¦â€¦.â€¦ National and Provinces is much. So the excuse having been that Departments cannot spend money because by the time it starts transferring the funds it is at the end of the year around October and some of the Departments has spend get 28% of the money that was budgeted for by Parliament. I am not sure how far true is this statement, because currently there is paralysis in the Councils as much as we are trying to address their capacity building. Could the Auditor General respond to that?
[Mr S Fakie] I think there is some truth and merit in the statement that has been made, but I think we need to put it into a bit of context. Yes, there is a different year end, but the root cause of the problem revolves around poor planning. Because what happens is that there is not proper planning that is taking place and by the time the fund comes through the planning is already commencing during that period and it is a bit of a chicken and egg situation for the local authority as well. They are saying do we put a lot of resources into the planning not knowing whether the fund will be coming and when that fund will be coming, or do we wait until the fund has come through and then we do the planning? They are facing that kind of difficulty and in my mode of observation that has been a significant problem in the initial years. Perhaps in the 1996, 1997 that has been a fundamental problem. I think there has been a marked improvement around the level of planning and the flow of funds on â€¦â€¦ â€¦â€¦â€¦â€¦â€¦â€¦ is the capacity [this is a blank space on the tape] â€¦â€¦â€¦â€¦â€¦â€¦â€¦ is partially true, but not to the full extent. I think that the delivery capacity, delivery of skills and the poor planning on the part of local authorities, in my view, are the more bigger contributors to the problem than purely the year end that is not co-determinant or the flow of finance that is taking place â€¦â€¦â€¦â€¦â€¦â€¦â€¦.
[Mr B Kannemeyer] The first one I think that would be useful is if we can get the comparative figures on the unspent funds, not only for the couple of departments which you highlighted, but probably for all the departments as we had it in the past, so that one can see where there has been either improvement or deterioration as the case may be. In this case we have indicated the worst ten or so, Secondly, I think Mr N Bruce covered the question, ours is also on the unqualified reports. I think also your later table on the emphasis of matter aspects do give one some type of insight as to the type of issues that still confronts the Department. Linked to that I want to ask a question around the function of the internal audit. The statement that you are making is that none of your provincial auditors could place any reliance on any of the internal audit work at any of the departments in any of the provinces. I think we have on occasion talked about that. I am aware that at a national level which is drawing in internal audit functions or representatives of internal audit functions from all the national departments as well as provinces, they formed some sort of association. I think it would be useful if your Office, if you have not done so yet, would interact with that Office so that you can establish exactly what is the fact and why is it that your office cannot place reliance? Is it because they are doing or taking wrong when they do internal audit their sample of aspects that they are looking at is not what you when you would come you would be looking at and concentrating on or is it because of the quality of work that they do? I think it is a particularly important and serious area. If your Report is saying not at any of the departments in any of the provinces you can place reliance I think it is something that one needs to do more than just report on it and probably together with Treasury and/or the Public Service Commission and Administration one needs to be pro-active and see how we can deal with that. The question of capacity, which you have touched on, and also with regard to the question of non-compliance that in terms of the PFMA will automatically result in financial misconduct and the responsibility of the Department to institute charges of misconduct in cases where there is non-compliance in Section 81 of the PFMA - you raise a question around capacity in departments. How do we deal with that when we look at what the PFMA says that if departments are non-compliance in specific areas and we look at the responsibilities of the accounting officers? The example is the question around risk management and internal control. You have clearly indicated that there are areas of non-compliance. So in terms of that it should now kick over to Section 81 - financial misconduct - because particular accounting officers have not complied. At the same time you raise the question around capacity. As SCOPA when we sit here and call in these different departments, because we call in some and Hearings are held with others, what is our level of interaction with them in terms of following up whether specific charges have been made against individuals and what is the level of lack of capacity where that non-compliance is as a result of lack of capacity?
[Mr V Smith] Can we be consistent?
[Mr S Fakie] I think there is a lot of comments that has been made by the members which is more advice in terms of how we in terms of the two views that was provided, in fact the three comments that was provided, whether it is the comparative figures on unspent funds; the issue of the unqualified reports and the emphasis of matter that gives a sense, I think they are not questions I am going to respond to. I do take note of the request and advice that has been provided by the member. I think it is very good and we will work together with Treasury as well regarding the issue of internal audit and the level of reliance we are playing at the provincial auditors level. I would love to get more information about this internal audit association that exist. I will get more information from the member on that and work together with Treasury to try and get together with that association. So it has been more advice that we will act on. The question that I see that is being asked is basically the issue around how do we reconcile or how does SCOPA deal with an issue in our Report that we are dealing non-compliance on the one side and the seriousness around non-compliance in terms of the PFMA Section 81, and the actions that needs to be taken versus the capacity issue that are facing them? Without being prescriptive to SCOPA as to how they should deal with that, I think my Report is there to highlight these problems. My view in this regard would be that to a large extend SCOPA needs to unpack the issue of non-compliance where these occur and see if there is a link between the non-compliance and the capacity issue. If the capacity issue is something that is beyond the control of the accounting officer then I think you need to consider whether the serious misconduct category is still relevant or not or whether you as SCOPA assist in some way to address the issue of capacity, because it is in some cases a problem. But with the coming into being of the PFMA managers and accounting officers the principle being that they have been allowed to manage, but at the same time being held accountable. I think there is a lot of flexibility now provided for the accounting officer and for managers to manage. A lot of the red tape has been taken out of the system. You will find that in many cases they are not using that flexibility that has been granted to them and therefore they have capacity constraints. I have been asked the question at the APAC presentation the day before yesterday on this specific matter - it is that now that the PFMA has made it mandatory for accounting officers to appoint the CFO and in actual fact National Treasury has provided some guideline as to what the skills and attributes of the CFO should be, Many departments chose to take the old financial officer and make him a CFO. That is the choice of the accounting officer and if that results in a capacity or skill problem I think it is the decision that the accounting officer is taking and he should be held accountable. So I think personally, SCOPA needs to unpack the issue of non-compliance which results in misconduct and see how genuinely there is a lack of discretion being taken by the accounting officer or is it something that was way beyond his control. And even there I think the Act is very explicit in terms of saying that if an accounting officer feels that the resources that has been provided to him by the Executive Authority, be it in the form of financial or human resources, in order to fulfill the outputs that is expected of him is not matching, he needs to raise that issue with the Executive Authority and say you are expecting too much from me in terms of the outputs and you are setting your outcomes too high against the outputs. I think these are things that as we go along SCOPA will need to unpack to say did you identify this at an early stage and did you bring that to the attention of the Executive Authority? That will perhaps in many ways lead SCOPA to a conclusion as to where the underlying problem exist and what kind of actions you should be recommending.
[Mr M Lowe] On page 74 of your Report - internal audit as it reflects the provincial governments - I am quite staggered by the Report that you could not rely on any of the internal auditing of those provinces. That is quite a shocking indictment. I want to refer specifically to Kwa-Zulu Natal, a province I am fairly familiar with, where they make much of the internal audit department. I note that throughout that table on page 74 it exist to 100%. The last table you reflect a reliance of 0%. Could you unpack that? Can you explain why it is that we have a province, because as far as I am aware it has a fairly structured and well placed internal audit department and certainly a MEC of Finance who makes much of it, and yet there is no ability to rely on it whatsoever? The second question refers to the unauthorised expenditure of some R35 million in the Department of Transport. Could you give us an explanation as to what gave rise to that? I think it is in one of the annexures at the back of the Report.
[Mr S Fakie] I will respond to the first part and I will hand the second part to Mr C Benjamin on the unauthorised expenditure. It is true what the member is saying. From my high level assessment of the status and functioning of the internal audit I must admit KwaZulu-Natal was one of the model internal audit units, especially at the Department of Finance and the way they brand the internal audit units. As you can see that during the previous year we had it placed 100% reliance on the work of internal audit. I do not have the details here to be able to tell you exactly why is it that during the year 2000/2001 the deterioration has gone to such an extent. I do promise to look into that and I will give SCOPA a written response regard what gave rise to the deterioration, but they have been one of the best departments or best province as far as functioning of internal audit was concerned. That was my recollection as well. I will come back to you on that.
[Mr C Benjamin] The Transport unauthorised expenditure is on page 119 and it relates to irregular expenditure totaling R34 million without complying with procurement and other regulations. I cannot recall off-hand. I have not got the Vote Transport here with me, but if the member could get hold of the Vote that has been released and the Audit Report on that particular Vote, the details relating to that irregular expenditure will be disclosed in that particular Vote Report. If you should have any queries relating thereto you can come back to the Office by all means.
[Mr V Smith] I want to, with your indulgence, conclude this section of our meeting.
3.2 Election of chairperson
[Mr A Mamabolo] The second item on the agenda is the election of the Chairperson of the Committee. I would like to right away call for nominations.
[Mr V Smith] The ANC would like to nominate Mr F Beukman as the new Chairperson of SCOPA.
[Mr A Mamabolo] Any seconder? Ms Mothoagae seconds. Are there any further nominations?
[Mr M Lowe] The Democratic Party would like to nominate the honorable Mr N Bruce for the position of Chairperson of SCOPA.
[Mr A Mamabolo] Any seconder? Ms Dudley is seconding.
[Mr M Lowe] On a point of order, I have before me from the Secretariat of this Committee a list of the members and the alternate members of the Committee, according to my record Mr Beukman is not a member of this Committee. Could I see some clarity if that is the case or not? In the case that he is not a member of this Committee then the nomination is not in order.
[Mr V Smith] The clarity that is sought by the honorable member is that Mr Beukman is indeed a fulltime member of the Committee. A letter has been submitted yesterday and if we check the ATC, as we speak, you will find that Mr Beukman indeed is a full member and a former member of the NNP has now been discharged from the Committee. It should not be a problem.
[Mr M Lowe] I accept that. I must just indicate that our enquiries to the Committee elicited a response that indicated that he was not member.
[Mr A Mamabolo] I can also confirm what Mr Smith is saying. A letter has been received from the New National Party discharging Mr Blaas and replacing him with Mr Beukman.
[Mr B Kannemeyer] Can I just get clarity on the seconder to the DP's nomination, the status, because it is the first time that I also observe that member in SCOPA.
[Ms C Dudley] â€¦â€¦.. My name was on the list.
[Mr A Mamabolo] She is Ms Dudley on our attendance register. She is from the ACDP. Can I put the motion by Mr Smith that Mr Beukman be chairperson and those for, please raise your hands? Those against? Thank you. Can I put the motion that Mr N Bruce be chairperson and those for, please raise your hands? Those against? Thank you. The majority of the vote goes to Mr F Beukman and therefore I would like to declare Mr Beukman as the new SCOPA chairperson. Mr Beukman congratulations and please take your seat.
[Mr F Beukman] Thank you very much for the opportunity. I want to first thank the acting Chair Mr Smith for the time that he stood in as Chair of SCOPA. We appreciate it. He has done a good job and we will continue to build on what he has done. It is a huge responsibility to be the Chairman of SCOPA. We have got a huge responsibility to ensure that the confidence of the public is in this Committee. We will also have to work hard to work together as a team. We will have to start to create confidence amongst each other. I will start with that this afternoon. I will be meeting at 2 o'clock with the first individual member of SCOPA and I will meet with every member of SCOPA during the next three days on an individual basis to talk to them about the role of SCOPA and how do they see their own role and how we could improve the role of SCOPA. I also believe it is important that we must promote and protect the status of this Committee and as the watchdog of public money. We must continue to have good relations with the Chapter 9 institutions and we will also continue to have a good relationship with the Auditor-General. I will also at 9 o'clock on Friday meet with all the administrative staff and all the people involved with the technical side of SCOPA and see how we are going to structure the programme for the rest of the year. I will try to have a consultative style. I am not going to say much more at this stage. I will be available in the Marks Building to make a few comments to the media. I will then declare this meeting over.
[Mr M Lowe] I wish you well in your position. I look forward to working together with you as my colleagues does. I like very much the sound of the words "teamwork, integrity and no compromise" and where we can and in every instance we will work together with you and all members of this Committee to ensure that the integrity of SCOPA is paramount. Chairman, our integrity has been compromised in the past and, with due respect to you, you must realize that your appointment today is not an opposition appointment and where we have to we will often take issue with you on matters and we will fight at all times to ensure SCOPA and this Parliament is paramount. So where we can we look forward to working with you and I congratulate you.
[Ms C Dudley] As the ACDP we offer our congratulations and best wishes for a successful term of office.
[Mr F Beukman] Thank you very much. We will see each other on Tuesday.
The meeting adjourned at 12:00.
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