Workshop on use of annual and quarterly performance reports as an oversight tool: AGSA briefing; Rental Housing Amendment Bill: consideration of NCOP amendments & adoption

Meeting report

Briefing by Office of the Auditor-General of South Africa (AGSA) on audit reports used as a tool for oversight

Mr Andries Sekgetho, Senior Manager, AGSA, stated that the purpose of the presentation was to introduce the Members to the processes of this office (AGSA) and also to help Members understand their oversight responsibilities.

He noted that the AGSA was the supreme audit institute of South Africa and it existed to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. The AGSA was responsible for initiating annual mandatory audits, which consisted of financial statements, reports on predetermined objectives and compliance with laws and regulations. The AGSA also had discretion to perform other audits, such as performance audits on infrastructure.

The annual audit formed an integral part of the annual regularity audit process, and confirmed that departments being audited (auditees) were complying with relevant laws and regulations. It reflected upon the usefulness of performance information and the reliability of reporting. Audit reports must reflect an opinion or conclusion on the performance of the auditee against predetermined objectives. The AGSA was responsible for auditing all spheres of the government, to promote accountability through providing credible information. The regulations that governed the audits were the Public Finance Management Act (PFMA), National Treasury (NT) Regulations issued in terms of the PFMA, Public Service Regulations (PSR), and the guidelines and instructions issued by NT.

The NT framework for managing programme performance information represented a performance management and reporting framework against which performance information should be managed and reported. The principles and requirements set out in the framework were used as a basis for the auditing. All departments, constitutional institutions, trading entities and public entities must submit the Annual Performance report for audit purposes, with the annual financial statements, to enable the auditors to perform the necessary final audit procedures.

The documents that were used for performance accountability were the Strategic Corporate Plan, the Annual Performance Plan (APP), budget, quarterly performance reports, performance agreements and Annual Report. The audit criteria included both main criteria and sub-criteria. The main criteria dealt with compliance with regulatory requirements, and usefulness and reliability of information. The sub-criteria related to the existence of records, whether they were submitted on time, and the presentation, measurability, relevance, consistency, validity, accuracy, and completeness of the financial statement presented. When auditing, the AGSA followed an approach to ensure that the implementation of the performance management systems, processes and relevant controls were understood and tested. The measurability and relevance should also be tested, so as to reach a conclusion on the usefulness of the reported performance information, for selected programmes or objectives.

At the start of a financial year, the Department would present its Strategic Plan to the Portfolio Committee. The Portfolio Committee needed to assess whether the objectives set were attainable, and whether there was adequate money to meet the targets. The budget must correlate with the Strategic Plan and adequate resources should be allocated to priority areas. It was also important for parliamentary committees to monitor implementation, to ensure that the departmental spending was on the right track and in line with strategic plan and priorities, particularly in order to detect and prevent fraud. Reporting kept management accountable, and also allowed for a determination by the oversight bodies of whether there was compliance with reporting responsibilities as set out in the Public Finance Management Act (PFMA) and compliance with Parliament’s Appropriation Act.

The internal audit in departments played an important role. They, amongst others, monitored internal controls relating to performance information processes, examined the usefulness and reliability of performance information, performed risk management as well as other critical performance management activities.

On the audit of “predetermined objectives” (a term used interchangeably with “service delivery”), the AGSA expressed an opinion on this in the management report. In the case where a qualified opinion or an adverse opinion was expressed, it would be construed that there were findings relating to that in the management report.  The AGSA only expressed an opinion on the performance information only if it was specifically reported in the APP.

The Combined Assurance Model was important, since this gave consideration to the roles of all parties involved in giving assurances, and ensured independent access. There were three main roles: namely, management assurance, oversight assurance, and independent assurance. Management assurance, the first tier of the model, considered the role of senior management, accounting officers and the executive authority, all of whom were responsible for addressing specific recommendations, and for ensuring adherence to financial management and internal control systems, as well as implementation of internal controls. Quarterly and annual progress reports were required, monitoring the progress of performance and enforcing accountability respectively. The oversight assurance role, at the second tier, dealt with coordination, internal audit and the audit committee. The third tier, of independent assurance, tackled the issue of oversight and the role of Public Accounts Committees.

The AGSA derived its mandate from three pieces of legislation: namely, the Constitution, the Public Audit Act (PAA) and the Public Finance Management Act (PFMA). Section 188 of the Constitution required the AGSA to audit and report on accounts, financial statements, financial management of government institutions and report to Parliament or the relevant legislature that had a direct interest in the report. Section 20 of the PAA provided that the AGSA must prepare an audit report containing conclusions or opinions on financial statements and the financial position, compliance and financial management, and predetermined objectives. Section 40 of the PFMA directed the AGSA to audit the financial statements and submit a report to the accounting officer. In addition to what was set out in the PAA, the AGSA may audit and report on the accounts, financial statements and financial management of all entities funded from the national revenue or provincial revenue fund, or any institution authorised by legislation to receive funds for public purposes.

The AGSA aspired for professionalism in the public sector, through robust financial management systems, oversight and accountability, commitment and ethical behaviour by all players, and competent value addition by the Office of the Auditor General. The AGSA was concerned that, insofar as oversight and accountability were concerned, there were major weaknesses in applying consequences for transgressions and poor performance. Addressing these concerns would resolve some of the negative findings on accountability.
 
The performance audit was conducted in terms of section 20(3) of the PAA and essentially evaluated the “three E’s” of economy, efficiency and effectiveness. Investigations served as an independent process to prevent and detect fraud or crime in the public sector, more specifically in the areas of financial misconduct, maladministration and impropriety. Special audits could be conducted on agreed procedures and processes such as donor funding certificates. Performance auditing focused on a specific government policy or management policy to ensure there was value for money and service delivery.

The regularity audit provided assurance that the annual financial statements were free from misstatements, reported on the usefulness and reliability of the information in the Annual Report, reported whether there had been any material non-compliance with relevant laws, and identified key internal control deficiencies. The regularity audit did not serve the purpose of identifying fraud, but its systems were designed in a way that could unearth fraud.

The requirements for good administration warranted that the audited financial statements were free from financial mis-statements, had no material findings on compliance with laws and regulations, and no material findings on the performance report. An audit was intended to look at three main criteria - compliance with regulatory requirements, usefulness, and reliability. In terms of the briefing process, six tools could be identified, and these were the Annual Report, including the performance report, AGSA briefing notes, Accounting Officer and Audit Committee reports, Estimates of National Expenditure, State of the Nation Address and budget speeches.

Discussion

The Chairperson said the presentation was a general AGSA Workshop presentation to help Members understand the general principles. The annual Auditor General’s (AG) report would follow. She gave an opportunity to Members to ask questions.

Mr K Sithole (IFP) sought clarity on what an unqualified audit with no findings was and how it differed from a clean audit. Second, he asked if there were other audit opinions required to second the AG’s opinion or if the latter’s opinion was the final one. Lastly, he asked if the AGSA had any power to enforce the Department to implement its recommendations.

Mr Sekgetho said auditing in the private sector, where they were no legislation boundaries, differed. Government departments took money from the fiscus to deliver on their objectives, the spending of the money should comply with Section 217 of the Constitution, and Treasury Regulations went deeper into what was set out in Section 217.

Mr Vusi Msibi, Corporate Executive: Audit, made an example of the Expanded Public Works Programme (EPWP) under the Department of Public Works (DPW). The main aim of the Programme was to create opportunities and alleviate poverty. When the budget was allocated there would be an amount allocated to EPWP. DPW ought to have a strategic objective in their annual plan on how they would deliver on the main objectives of the EPWP. From the auditor’s side, they knew how much was allocated then they audit how that was spent in delivering on the objectives on the ground.

Mr Sekgetho said the audit opinion that was issued by the AG was aligned to the international standards of auditing procedures. The AG’s office applied the same principles as KPMG, Deloitte and Touche and PwC. This meant that if any of the firms were to conduct the same audits and follow the same principles using the same evidence they would reach the same conclusion the AGSA reached.

Once the AGSA produced a report for a department and made recommendation to it on remedies for their audit outcomes, the AGSA would then report to the relevant parliamentary committee as an oversight body to ensure that the department or entities were held accountable. Each year departments should have post audit plans on how they would address the shortcomings identified in their audit reports.

Ms L Mnganga – Gcabashe (ANC) asked if there would be another session in order to discus certain findings by the AG.

Mr Sekgetho said the purpose of the workshop was for Members to get acquainted with the technical terms that would be used in reports. In the next session there would be an actual audit report of the National Department of Human Settlements (DHS) that would be tabled.

Mr S Gana (DA) said the AG had worked with the DHS which had entities that reported to it. It may happen that one entity had a qualified audit with opinion, would that audit outcome affect the overall audit of the Department.

Mr Sekgetho said the Constitution and the PFMA were set up in a way that the national department was referred to as a “Vote”. This meant that the money allocated from the fiscus went to the vote. Some departments (such as DHS) implemented and delivered some of their mandates through entities. These entities did not have votes. This meant that their money came from the Department of DHS. Once the money was transferred, the entities had their own boards, their accounting authority and were fully-fledged individual independent entities. However, they were still part of the Department and still reported to the Minister on their performance. When reports were compiled, there would be two separate audit reports. If one of the entities would encounter some trouble and have an unfavourable audit outcome, it should not have a bearing on the overall Department’s audit report. However, the Committee as an oversight body was within its rights to question the Department on how it failed to monitor the entity. As for the AGSA and the financial report it would produce, there would be two reports and the entity’s report would not have an adverse effect on the Department’s one.

The Chairperson asked if her understanding of the difference between the adverse and disclaimer were correct. In the presentation it was highlighted that the main problem with the disclaimer was the AG could not get the evidence it wanted. If the AG were to get the evidence it needed then the outcome of the audit maybe different.

Mr Msibi confirmed the Chairperson’s understanding. He added that there were major risks where auditors did not get information. This spoke to transparency, accountability and all other principles covered in Section 95. 

Mr N Capa (ANC) asked if the AG ever used interns that were not experienced in compiling reports.

Mr Sekgetho replied the AGSA was aligned and registered with the South African Institute of Chartered Accountants. The AGSA was a training institution which meant that on an annual basis there was an intake of trainee auditors. There were different levels of trainee auditors, at the end of a three year cycle a trainee would be able to enter the accounting and auditing field.

Ms V Bam-Mugwanya (ANC) said the departments always presented glorious strategic plans to committees, however during oversight to departments things were not as they were as presented. In such cases, what should be the remedy? Also the presentation mentioned that the AG did not go to departments to find faults, so was the office of any advantage to the departments if it did not tell the departments what the problems were.

The Chairperson replied that the AGSA made recommendations but could not enforce them. That was where the Portfolio Committee came in.

Mr Sekgetho said it was not the job of the AG to look for fraud, but when fraud was identified it was reported to management and management had the onus to have proper processes in place to prevent fraud and where it could not be prevented and the AG picked it up management had to take remedial action.

Mr Sekgetho said during the strategic planning process the AG would ask departments if their plans were aligned in achieving their respective mandates, were there any existing challenges and what initiatives were in place to address those challenges. However, if during the financial year a department realised that they were not on course with their strategic plan they could amend it and an executive authority would have to approve the new plan.

The Chairperson thanked the AGSA for the workshop. The workshop was concluded.

Briefing by DHS on the amendments proposed by the NCOP on the Rental Housing Amendment Bill [B56D-2013]

The DHS explained the objects of the Bill. It was:

•          To amend the Rental Housing Act, 1999, so as to substitute and insert certain definitions;

•          To set out the rights and obligations of tenants and landlords in a coherent manner;

•          To require leases to be in writing;

•          To extend the application of Chapter 4 to all provinces;

•          To require the MECs to establish Rental Housing Tribunals.

•          To extend the powers of Rental Housing Tribunals;

•          To provide for an appeal process;

•          To require all local municipalities to have Rental Housing Information Offices;

•          To provide for norms and standards related to rental housing;

•          To extends offences; and

•          To provide for matters connected therewith.

The Department explained that the Bill was tabled and adopted by the National Assembly in November 2013 and subsequently referred to the National Council of Provinces (NCOP) for concurrence. In the NCOP, it was referred to the Select Committee on Public Service. The legislatures in all nine provinces were briefed and public hearings were held to obtain voting mandates. The NCOP approved the Bill with the following amendments;

(a)     Substitution of the expression “landlord”, wherever it occurs, to “landowner”; and

(b)     Substitution of “National Assembly” with “Parliament” to ensure inclusion of both houses of Parliament.

The Bill was then referred to the Portfolio Committee for concurrence as required in terms of the Joint Rules of Parliament.  The Bill could not be finalised by the Fourth Parliament because the National Assembly had concluded its term, therefore the Portfolio Committee could not convene and consider the amendments proposed by the NCOP.

Discussion

Mr Sithole said the new changes from the NCOP were terms that the previous committee had discussed and the Department and the legal advisors convinced the Committee to keep the original terms.

Mr Gana said from what he understood, after the presentation the Committee had to consider the Bill but parties had to follow their respective protocols.

The Chairperson said all the processes regarding the Bill had been followed to the letter, the only reason the Committee was looking at the Bill again was because of the amendments from the NCOP. If there were no problems with the amendments then there was nothing else to be done but vote.

Mr H Mmezi (ANC) said considering that the amendments were proposed by the fourth Parliament Committee initially, there was no need for further debate and questions.

Mr Mmezi moved for the adoption of the amendments.

Mr Gana said he had no problem with the amendments. He understood the process differently. He requested that the voting be done during the next meeting since the Department did not need to part of the voting.

Mr Sithole said Mr Gana should have been informed by his predecessors about what happened with the Bill and its status.

Mr Capa seconded Mr Mmezi’s proposal to adopt the amendments.

Mr Gana said that he did not have any new amendments but there were processes that he needed to observe. He pleaded for an extra seven days from the Committee and urged them to vote on the Bill next Tuesday.

The Chairperson asked to confirm if Mr Gana wanted to go and consult on “landowners”, “local municipality” and “Parliament”?

Mr Gana confirmed, adding that he needed to get a political mandate.

Mr Mmezi appealed to Mr Gana, with the explanation given by Mr Sithole who was part of the fourth Parliament Committee, that what he wanted to do was what those that had come before him had already done. He added that the Committee was dealing with sensitive delivery issues, time should not be wasted, and the seven day delay meant that there was a delay elsewhere.

Ms T Baker (DA) said he was sceptical of the definition given for changing “landlord” to “landowner”. It made no sense, because according to the dictionary definition, landlord and landowner were not interchangeable as far as gender went.

Mr Ngwenya said there was no intention to use the words interchangeably. The intention was to find an inclusive generic word, as the matter was brought up by Parliament and in provinces.

Voting on and Adoption of the Rental Housing Amendment Bill [B56D-2013]

The Chairperson said she did not want to pit members against one another but she had to rule on whether the voting took place during the meeting or the next meeting. Looking at the explanations of the amendments, they did not change the Bill and due process was followed by the previous Committee and the Select Committee.

The Chairperson asked the Members who supported the amendments from the NCOP and the Bill to raise their hands to vote.

Eight Committee Members (including the Chairperson) of the Committee voted for the Bill, there were no votes against the Bill and three Members abstained from voting.

Mr Gana said thatwhen he first read the pro posal he did not have the background, especially around the change from “landlord” to “landowner”.

The Chairperson interjected and said the Bill was already voted for by the majority of the Committee and the amendments

The Chairperson read out the Committee’s report on the Bill.

The Portfolio Committee on Human Settlements having considered the Rental Housing Amendment Bill [ B56D-2013], National Assembly Section 76 amended by the National Council of Provinces and revised by the National Assembly from the stage it reached on the last seating day of the sixth session of the Fourth Parliament (on 26 August 2014) reports that it had agreed on the Bill and the report would be considered and would be signed by the Chairperson of the Committee on 9 September 2014.

The Chairperson thanked the officials from the department and excused them from the meeting.

 Adoption of Minutes

Minutes dated 29 July 2014

Mr Mmezi proposed the adoption of the minutes. Mr Gqada seconded adopting the minutes with amendments.

Minutes were adopted with amendments.

Minutes dated 26 August 2014

Mr Capa proposed adopting the minutes. Mr Gana and Mr Khorai seconded adopting the minutes with amendments.

Minutes were adopted with amendments.

Minutes dated 2 September 2014

Mr Mmemezi proposed adoption of the minutes. Mr Sithole seconded adoption of the minutes with amendments.

The minutes were adopted with amendments.

The meeting was adjourned.