Audit Directives: Auditor-General's briefing, Adoption of Committee Report and Minutes
Meeting Summary
The Committee met with representatives of the Auditor-General South Africa (AGSA) to discuss the 2012 Audit Directive that AGSA prepared. The purpose of the Audit Directive was to specify the nature of the audit functions performed in the public sector, the standards, criteria and processes to be applied when performing these audits, and the responsibilities that were borne by auditors in the private sector when they performed audits of public institutions. The 2012 Audit Directive set out the audit functions performed in terms of the Public Audit Act. It also discussed the position for those entities whose own legislation was not prescriptive in respect of their financial statements. The Directive dealt with the assessment and recognition of financial reporting frameworks, timing and submission of information for auditing purposes and audits of entities not performed by the AGSA. It was indicated that there was no change in respect of the financial audits, between the 2011 and 2012 Audit Directives. However, the 2012 directive now included a conclusion in relation to the reports of low- and medium-capacity municipalities, included more on the performance audits, and had also included changes around the subject matter and criteria used in reporting on material non-compliance. Information on laying complaints against AGSA had also been added. Auditors in public practice were required to adhere to the prescribed deadlines for the submission of information.
Members asked how the fees of private audit firms compared to those charged by AGSA, and asked whether AGSA would ask private firms whom it contracted to reduce their rates. A Member commented that many smaller entities found the audit fees beyond their means. Members asked if the decision on the rates to be charged was influenced by the substantial debt that was owed to AGSA. They asked how many complaints had been laid against AGSA, whether reports on financial statements were provided or could be provided to the Standing Committee on Public Accounts, so that any comments could be included in the Budgetary Review and Recommendation Reports. They felt that the processes should be tightened up, so that where AGSA found irregularities, this would result in steps being take. Members also asked if the numbers of tenders being awarded to individuals or companies could be quantified. They enquired what measures were being put in place to deal with non-compliance and irregularities related to procurement. Members also asked whether parastatals applied the same rigour to their auditing processes, whether the Directives were properly implemented, and asked whether structural challenges might make it difficult for entities being audited to meet AGSA’s standards. AGSA was also asked to advise of any shortcomings in the regulatory framework that required amendment.
The Committee adopted minutes of meetings on 9 and 15 September, and 14 October. The Committee also adopted its Report on the AGSA Annual Report, as amended by the inclusion of recommendations in relation to the outstanding debt, and a report on the debtors and progress in recovery. The Committee also adopted, with amendments, the Analysis Report prepared by the Parliament Research Unit on the AGSA Budget and Strategic Plan for 2012/13.
Meeting report
Audit Directives 2012/13: Auditor General South Africa (AGSA) briefing
Mr Imran Vanker, Corporate Executive: Auditor-General of South Africa, said that the purpose of the Audit Directives issued by Auditor General South Africa (AGSA) was to specify the nature of the audit functions performed in the public sector, as well as the standards, criteria and processes to be applied and followed in performing these audits. The Directives also set out the responsibilities and manner in which auditors in public practice who performed work on behalf of the Auditor General (AG) were required to perform these public sector audits.
He explained that the key features of the 2012 Directive included the audit functions performed in terms of the Public Audit Act. They also covered those entities whose legislation was not prescriptive in respect of their financial statements. The Directives also spoke to the assessment and recognition of financial reporting frameworks, timing and submission of information for auditing purposes, and audits of entities not performed by the AGSA.
He noted that although there were no changes between the 2011 and 2012 Audit Directives in relation to the financial audits, there were changes insofar as the performance objectives were concerned. There was now a conclusion inserted in respect of the reports on low- and medium-capacity municipalities. In relation to the sections on compliance with laws and regulations there were further inclusions in relation to the subject matter of and criteria used in reporting on material non-compliance.
He added that further general changes included the addition of information for laying complaints against the AGSA. There was also a provision that auditors in public practice had to adhere to the prescribed deadlines for the submission of information.
Discussion
The Chairperson asked whether parastatals applied the same rigour in their auditing processes. He also asked what had been the experience of AGSA in relation to the implementation of the Audit Directives. He further enquired if there were any structural challenges that would make it difficulty for those being audited to meet the standards set by the AGSA.
Mr Vanker answered that there was uniformity of practice. It had been found that there was country-wide compliance with the Audit Directive. The Independent Regulatory Board was currently drawing up guidelines as to what exactly a public sector audit comprised. He explained that the larger parastatals had better capacity to deal with their accounting needs and were therefore in a better position to meet their audit requirements.
Mr N Koornhof (COPE) asked whether the fees of private audit firms were similar to those charged by AGSA, and enquired if any study had been conducted to ascertain which of the options for audit cost less. He also asked if AGSA required private firms to reduce their fees when they were acting for AGSA.
Mr Vanker answered that the fees of private firms were different from those of the AGSA, as AGSA’s were lower. The middle-ground was found in the rates recommended by the South African Institute for Chartered Accountants (SAICA). When AGSA dealt with private firms, it paid those firms on the SAICA rates.
Mr N Singh (IFP) asked whether the rates charged by the AGSA, which many smaller entities found too high, were in any way linked to the fact that AGSA was owed a substantial amount by way of outstanding audit fees.
Mr Vanker responded that AGSA tried to keep its rates as low as possible. It had budgeted for a surplus of only 4% over the next 3 years. This year, however, it was dropping this surplus to 2%, which, in effect, meant that it was dropping its profit margin by 50%. In addition, he said that the tariff increases were kept lower than staff salary increases. The outstanding debt was a major consideration in AGSA setting its budget, but it was putting measures in place to try to address the debt.
Mr Singh asked for an indication of the number of complaints laid against AGSA.
Mr Vanker indicated that he was unable to answer this question. The line of reporting to the Deputy Auditor-General in this regard was very tight.
Mr Singh asked whether the reports on the financial statements could be provided to the Standing Committee on Public Accounts (SCOPA), so that comments around these issues could be included in BRR Reports.
Mr Vanker answered that SCOPA was already made aware of these issues.
Dr D George (DA) asked whether there could be a tightening up of processes, so that there were actual consequences imposed where AGSA made findings about inconsistencies or irregularities.
Mr Vanker answered that AGSA agreed with the desirability of this although at present it was focussed primarily on preventative measures.
Ms A Hlope-Luthuli (ANC) asked whether AGSA could quantify the number of tenders that were awarded to individuals or individual companies.
Ms Linda Le Roux, Senior Technical Manager, Auditor-General of
Ms F Bikani (ANC) asked what measures were being put in place to deal with non-compliance and irregularities related to procurement.
Ms Le Roux answered that this was an important area of focus and that AGSA had placed additional emphasis on it over the past two years.
The Chairperson asked that AGSA provide the Committee with feedback on shortcomings in the current regulatory framework, so that the Committee could consider any recommendations for legislative review.
Ms Bikani asked for this to be submitted as a consolidated report.
Adoption of Minutes
Members tabled and approved the adoption of Minutes of the Committee meetings held on 9 September 2011, 15 September 2011 and 14 October 2011.
Adoption of Draft Committee Report on the AGSA Annual Report 2010/11
Ms Bikani proposed that a recommendation be added into the Draft Committee Report, specifying the nee for payments to AGSA to be made more speedily, to reduce the amount of outstanding debt owed to AGSA. There should also be a report on who these debtors were, how much AGSA was owed by these debtors and how long these debts had been outstanding. The submission of quarterly reports around progress made in this regard should also be made obligatory.
Members agreed to adopt the draft Committee Report, as amended.
Parliamentary Researcher’s Analysis Report on AGSA Budget and Strategic Plan 2012/13
Ms Bikani said that the section of the analysis report dealing with the recommendations needed to be less generalised and more specific.
The Chairperson agreed. He noted that the Committee’s previous recommendation around the shift in auditing from statutory compliance auditing, to focussed and thematic-based auditing, should also be included. There also was a need for the improvement of monitoring systems in relation to procurement, so as to improve compliance with these aspects.
Members agreed to the adoption of the draft Report, with amendments.
The meeting was adjourned.
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