The Committee was briefed on the ratification of the Nairobi International Convention on the Removal of Wrecks as part of South Africa’s membership of the International Maritime Organization (IMO) by representatives from the Department of Transport (DoT) and the South African Maritime Safety Authority (SAMSA). The intended effect of the implementation of the Convention is to provide legislation to ensure ship owners are responsible for the removal of their vessel should it become a wreck. Some of the issues addressed included the determination of whether or not a wreck is hazardous, the locating and marking of it, and making insurance compulsory for ship owners in order to cover the cost of removing their ship, should it become a wreck. Interest groups had been consulted and SAMSA were to be responsible for enforcing the Convention.
During discussion, Members raised questions about the length of time it had taken for the Convention to reach ratification. It had been adopted in 2007 but it was now 2014 – why did the process take so long? As for the countries who were not signatories to the Convention, would the rules still be applicable to them? What sanctions would be used? How would the compulsory insurance for ship owners be regulated? What if the owner of a wreck could not be found? There was concern about who had been consulted about the Convention. What about communities who made a living on the coast? What would be the effect of the Convention on the National Development Plan (NDP)? Members requested clarification on the determination of a wreck as a hazard, specifically referring to warships and hazardous materials found on board.
The AGSA gave a capacity-building presentation, explaining their function, role and mandate in overseeing government entities and departments. The legislation from which they gathered their mandate was explained, alongside the various types of audits offered, including the mandatory regulatory audit (RA) and information systems audit (ISA), and various discretionary audits. The AGSA looks at areas of non-compliance in respect of regulation, usefulness and reliability of financial statements, to evaluate an entity under one of four classifications – unqualified, qualified, disclaimer or adverse – in the report.
Good leadership, effective governance and financial management were some of the best controls highlighted for obtaining an unqualified audit. The AGSA’s role in oversight covered recommendations on corrective measures, consultation with stakeholders, presenting audit reports to committees and attending public hearings. The combined assurance model and briefing process were described in detail and a mock audit report produced to give the Committee an idea of its format and function.
One of the key issues raised by Members was the AGSA’s role in fraud identification – are areas of concern not picked up in the risk assessments? In terms of the measurability of predetermined objectives, how does the AGSA deal with departments that transfer money ahead of schedule? How are departmental vacancies evaluated? Members commented that the presentation was too general, by not referring specifically to the DoT. How independent is the AGSA? How is it funded? Does the AGSA offer a plan for improvement in the case of an adverse finding? There were several questions regarding management letters. Could they inform a turnaround strategy? What is the role of the Minister in ensuring issues raised by the AG are followed up? Some executing authorities have not seen management letters, but are held responsible for adverse audit findings. With regard to organisational structure, how does the AGSA ensure it speaks to an entity’s mandate? One Member commented that the terminology used by the AGSA needed simplifying, so that citizens did not assume an unqualified finding meant fraud or corruption had taken place.
Ratification of Nairobi International Convention on Removal of Wrecks
Mr Mawethu Vilana, Acting Director-General: Department of Transport (DoT), introduced the delegation and explained the background of the Convention. South Africa is a member state of the International Maritime Organization (IMO), and a party and signatory to number of its key conventions and treaties. A need for regulation on the removal of wrecks led to the development of the Wreck Removal Convention, which was adopted in Nairobi in 2007.
Mr Sipho Mbatha, Head: Maritime Legislation, South African Maritime Safety Authority (SAMSA), went on to brief the Committee on key areas of the Convention and the intended effect of its implementation. Highlighted was article 6, which dealt with the determination of a hazard. Not all wrecks are hazards, so it is the responsibility of the state to determine whether it needs removing. Articles 7 and 8 relate to the locating and marking of wrecks. Ship owners must report, locate and mark the wreck to ensure that there are no collisions, and they are liable for a wreck’s removal. This is further discussed in articles 10 and 11, in addition to exceptions, such as acts of god or war hostilities causing the wreck. Article 12 states that insurance is compulsory for all ships standing at 300 tons or more in South Africa. This means if it sinks or is stranded, it is covered and the state will not have to pay for its removal, making it beneficial to the interests of the country, as the Coastal State reserves the right to request the owner to remove wrecks from its Economic Exclusive Zone (EEZ).
The Convention has been scrutinised by State Law Advisers from the Department of Justice and the Department of International Relations and Cooperation (DIRCO), with both supporting ratification. Consultations were held with major stakeholders, including SAMSA, the Maritime Law Association (MLA) and the Department of Environmental Affairs, and presentations made to the International Cooperation, Trade and Security (ICTS) cluster and the Cabinet, with both approving the Convention's ratification.
SAMSA are subject to enforcing the Convention and, in carrying its function of Port State Control, will check the certificate of insurance on all ships and their adherence to requirements, as per the Convention. It will be of no additional cost to the state, because SAMSA already has the capability to carry out this function. There are communication implications, in that the Convention requires the state to deposit the instrument of ratification with the Secretary-General of the International Maritime Organization (IMO). The Convention will come into effect 12 months after ten states have done this. The Committee was requested to approve the Convention for tabling in Parliament.
Mr L Ramatlakane (ANC) asked about domestications and legalisations. The presenters did not mention the programmes leading to implementation of the Convention. It may become law, but what is the programme to support it? Article 12 lists the conditions, but can it be ensured that what is stipulated, is adhered to? There was a shipwreck in Cape Town, but newspapers had reported that the owner could not be found -- how would article 12 work to make sure they could be found in future? The presentation stated the Convention is from 2007, and it is now 2014. It has been more than a term since the acceptance of the Convention – why has it taken so long to request Parliament’s ratification of it? During this period, what has been of assistance in addressing this? South Africa appears to be the only country from the SADC involved, but the coast stretches across the whole of southern Africa.
Mr C Hunsinger (DA) wanted to know whether adherence to the Convention was limited to signatories. Would it be expanded to include all users of South Africa's territorial waters? Upon failure, what is the specific sanction that could be employed?
Mr T Mulaudzi (EFF) asked about how far along the process was for implementing the Convention, given that it had taken seven years to reach ratification in the South African Parliament. Could the Wreck and Salvage Act be amended? Could the relationship between the Convention for Prevention of Marine Polition from Ships (MARPOL) and IMO be explained? What will the country do in the case of a wreck being left unclaimed and abandoned?
The Chairperson added that clarity was needed on acronyms used in the presentation.
Mr M Sibande (ANC) was concerned about the time frames. How long is it supposed to take to be implemented? The Convention was adopted it 2007 but it is now 2014. It is worrying, because if it talks about the determination of hazards, it is something very serious. The presenter had said that not all wrecks are a hazard, which is a concern. He recalled an example of a ship being grounded on account of a dead engine caused by plastic getting stuck in the propellers. If even plastic can cause a problem, it is confusing to hear that some wrecks are not hazardous. Regarding the consultation process, around the Western Cape there are lots of communities involved in harvesting from the sea. There are a lot of projects which require the people to be protected. Were these communities also consulted? What is the view of Greenpeace on this matter? Are they aware?
The Chairperson stated that there were no financial implications for the state, which was very promising. However, the Committee would be asking itself about its relationship with the National Development Plan (NDP). What will be the impact of the Convention on the NDP agenda? There was an indication that warships are excluded from this Convention. In the eventuality of such a wreck, there could be hazardous materials on board, such as nuclear substances. What would be the process of dealing with this material? What would be the approach to something which could be hazardous to the state?
Mr Vilana first responded to the issue of domestication. International conventions do not necessarily apply until they are ratified by parliament. South Africa, as a member state of the IMO, is bound to the agreed international protocol, and therefore it has an obligation to domesticate conventions into national law according to the constitution, in order that it can be implemented. Only Parliament can ratify a convention, so it has no force until it is made law. In terms of the programme, regulations that already exist are the ones through which the Convention will be implemented. In the event that there are further regulations that the Minister needs to publish, the next step after ratification is for those to be drafted and used for consultation before bringing them to Parliament to be applied. Currently there are no programmes, so existing regulations would be used. The IMO is the International Maritime Organization, which is the body that regulates the implementation of the MARPOL Convention.
Dealing with the time frame, the nature of conventions is that there are certain articles where the application of other signatories is needed. Secondly, South Africa is not forced to participate in a convention until a time when it feels it can, even if it was one of the signatories that led to its adoption. For example, the Kyoto Protocol came from a UN Convention on climate change. The US is not a signatory to any of it, but they have pushed other countries to assent to it. So, up until a state is ready, it will not ratify a convention. In the intervening period, there had been a meeting of ministers in Rwanda that had led to a number of issues. The first one was to declare that South Africa was the Rescue Coordination Centre, which is why it has the Maritime Rescue Coordination Centre (MRCC). Other countries are partners with South Africa in the implementation of this, particularly in the case of this Convention. The second issue was SAMSA having to take responsibility for coordinating the structure and, thirdly, money generated through the coordination centre is used by SAMSA to develop capacity. It also deals with issues around piracy, although this is primarily dealt with by the Defence Force, because it is a security matter. The domestication process cannot begin until ratification by Parliament. All representative organizations have been consulted on the Convention. The majority of the wrecks are grounded within communities in and around the coast, such as in False Bay, where they are an eyesore to the community, so it is a constitutional requirement to consult them. In terms of the NDP, it falls within the mandate of the DoT in terms of how the state deals with issues of commerce. In the discharge of such activities accidents, like wrecks, can happen and need to be dealt with. In determining a hazard, the criteria included the type and size of the vessel, the depth of the affected area and whether it could impede shipping traffic. The first thing done is to drain the oil, because spillage poses an environmental hazard.
Mr Mbatha dealt with the matters of compulsory insurance and financial security outlined in article 12. When the Convention was negotiated at the IMO, there were interest groups that were also represented. These included insurance companies, and one of them was the international group of Protection & Indemnity (P&I), where most ship owners get cover. It was agreed that insurers belonging to the P&I group could be issued with a blue card. SAMSA can get on board ships and swipe the blue card, and it will tell them whether the insurance is still valid, in addition to the termination date. There was also an option for ships to feed the information in from the database of their flag state, so when it is in South African waters a call can be made to verify the validity of the insurance. All these mechanisms will be in place to ensure that all ships comply with the Convention.
It had taken a long to come before the Committee, even though the Convention was drawn up in 2007, because it has still not come into force - it will come into force in April 2015. The IMO processes required at least ten countries to ratify the Convention, and then there is a window period of 12 months, so it will be enforced next year. SAMSA had had a meeting with the head of maritime administration in Africa, and one of the resolutions was to provide technical assistance to other countries so that when the Convention is adopted, it is not only South Africa that is protected. The Convention is limited to only member state signatories, meaning a disjuncture in trying to implement it. One of the primary intentions of the IMO is to come up with unified, standard international rules that will be accepted by the international community, so they would come up with no more favourable conditions. If a non-member state comes into the waters of a member state, they must comply with the Convention.
In terms of the Convention's relation to current national laws, the Wreck and Salvage Act covers only a small fraction of wreck removal. The primary intention of the Act was to deal with salvage issues, but if there is failure to salvage a ship, it could become a wreck. There are lots of wrecks in South African waters because section 18 does not adequately cover all the necessary provisions. Either the current legislation needs to be amended, or section 18 needs to be reviewed and cancelled, and stand-alone legislation introduced to deal specifically with wreck removal. In terms of deserted wrecks, there is a UN convention that delineates waters to inland waters, territorial waters and marine cultural zones. It is these marine cultural zones that hold the common heritage of mankind. There are some wrecks that do not need removing - tourists go diving on them because many fish species make their homes there, so not all wrecks pose a threat. The Convention is in line with the NDP agenda, because economic benefits cannot be derived from waters that are dead. Keeping South Africa's waters safe allows economic value to be derived for exploitation and exploration of both living and non-living marine resources.
Mr M Madiya, Director: DoT, referred to the question about warships and their behaviour at sea. There are specific conventions that deal with military vessels and there are protocols and regulations that deal with, for example, nuclear material. In terms of the insurance of vessels, ships have flags of convenience whereby the vessel will fly the flag of a particular country according to regulations that determine the minimum threshold of safety requirements. This talks to the risk that the vessel carries, meaning their risk can be evaluated because those flying the flag of convenience means they are only meeting the minimum threshold necessary to be at sea.
The Chairperson asked if Mr Madiya could give examples of the vessels and the countries the flags of convenience were applicable to.
Mr Madiya responded that any vessel can fly the flag of any other country, regardless of where it is from. For example, a lot use the Philippines flag because of their relaxed labour laws, so they can hire seafarers of average skill. There is also the manner in which taxes are structured that determines whether a vessel would be incentivised to fly the flag of a particular state. Many vessels adopt the flag that offers the most incentives to them.
Mr Mbatha wanted to add that the reason a ship flies the flag of a particular nation is because the laws that apply to that ship are those of the state of whose flag it flies. In Africa, for example, Liberia is third in the world for number of ships flying its flag. There are so many delinquent ship owners that one of the reasons is to hide the identity of the true owner, because there is not a link between them and the flag, making it difficult to trace them.
Mr Vilana said he wanted to stress that there were no financial burdens on South Africa. Without the Convention, a ship would be able to come into the country and - if things went wrong - leave the vessel behind with no consequences. The government would have to secure services from private companies to remove it, wasting a lot of money - anything between R50-R200 million. The Convention seeks to regulate this, so South Africa can guard against exploitation.
Mr Hunsinger said the only group of vessel owners the government could pressurise to get insurance are ones registered in South Africa, and this could pose a similar problem to the one of vehicles being registered in other provinces because it is cheaper. However, South Africa wants their people to be employed and treated fairly, and all the revenue possible generated at home. South Africa is in support of the Convention because of the economic and environmental benefits of making owners remove their wrecks, but this is a minor concern.
Mr Ramatlakane asked for clarity on the possible amendment of the Wreck and Salvage Act. Which section would have to be repealed and replaced? What regulations would have to be drawn up in support of the convention? Domestication of the Act suggests there is something that must follow -- what exactly would this be? Towards Blouberg there is a wreck whose owner cannot be found. If there is no point of origin in respect of the owner or insurance, what happens then? Who carries the responsibility? The Act should cover this eventuality. There are laws and procedures that must be followed before countries can work together, but when was Cabinet approval sought? It is almost year between the internal process and the parliamentary ratification process. On the whole, the Committee has no problem accepting the ratification of the Convention, but had to ask questions to ensure there were no gaps.
Mr Sibande agreed with Mr Ramatlakane about the need for the Committee to question aspects of the Convention. He asked how section 18 of the Act related to the articles listed from the Convention in the presentation. Is there a deadline or time-frame? What about the people living on the coast who are directly affected by wrecks? Is there any cross-over with other departments? There seems to be a link with the Department of Environment (DoE) and the Department of Defence (DoD). How does the DoT interact with these people?
Mr Vilana said that the DoT’s first role in the sea was prevention. They are there to make sure spillages and environmental hazards do not happen. In the event that prevention does not happen, it is the role of the DoE to combat it. The DoD is responsible for the territorial security of South Africa's waters, but there are areas where there is need for collaboration. With SAMSA, for example, the DoT has made investments in a long range identification and tracking system. With regard to section 18, it may be approached in two different ways. One is through draft state regulations, the other is through the amendment of section 18 the Wreck and Salvage Act. It would make sense to come up with a completely new act, because what was dealt with in the Wreck and Salvage Act may be totally different to what the Nairobi Convention deals with now. The DoT has been working with the National Treasury (NT) to encourage ship owners to register and make South Africa a flag state. In terms of employment conditions, there are Conventions that seek to deal with this matter uniformly across all people on board vessels. The Philippines were at an advantage, because they were able to draw a lot of seafarers, but the same applies to South Africa, through training provided by SAMSA. If a state has a lot of ships carrying their flag, people can be supplied to train those on board and it becomes an advantage. If a ship is not seaworthy, it will not be allowed to leave a South African port. The state can not let an unseaworthy ship sail, because it will be held responsible. The checks and balances on ships carried out by SAMSA are compliant with the regulations of the international Convention.
Mr Mbatha stated that this was why it was important for South Africa to be a party to the Convention. The state cannot disallow ships to use the waters, whether they are on the high seas or in territorial waters, because they have freedom of navigation. Without the Convention compelling owners to have insurance on board, there is no obligation for them to remove a wreck. If the owner abandons the ships and disappears, their registration to the flag of convenience makes them difficult to trace. They may have had other insurance on board which relates to the removal of oil, but the removal of the wreck is not covered. In encouraging South Africans to own ships, through the DoT's interaction with the NT, initiatives have been put in place to reduce taxation. One of the issues, however, is the allocation of cargo. With regard to labour, the International Labour Organisation (ILO) Convention on maritime labour has just been adopted. It talks about economic issues, social welfare, the basic wage and leave for seafarers.
Mr Vilana said that Cabinet approval was received in 2013, but it was necessary to go back and interact with stakeholders. The second report also had to be signed off by the Minister.
Mr Bernard Maphelela, Deputy Director: DoT, added that it was approved last October and was supposed to come to the Committee at the end of the year, but it had taken longer than expected because of the process of engaging with stakeholders, as whatever is done through the IMO means consulting broadly.
The Chairperson concluded by stating that the Committee had considered the matter of the Nairobi Convention on the Removal of Wrecks 2007 and would consequently request approval before Parliament as per section 231, sub-section 2 of the constitution. The motion was seconded by Mr Hunsinger and Mr M de Freitas (DA).
AGSA 5th Parliament Capacity Building Presentation
Mr Vinay Ramballi, Senior Manager: Auditor General of South Africa (AGSA), gave a presentation on the role and mandate of the AGSA in the oversight of government departments and entities.
The AGSA gets its mandate from various acts of Parliament and the constitution. The Auditor-General (AG) facilitates the oversight function of the Portfolio Committee and promotes good governance. The Regulatory Audit (RA) is a mandatory annual audit for government departments, allowing the AGSA to provide assurance of the usefulness and reliability of the information they report. The AGSA identifies areas of non-compliance and key internal control deficiencies. The AGSA follows international auditing standards and checks that the evidence matches up to the report, but it does not check service delivery. Auditors carry out a risk assessment and risk response before tabling the report. In support of the RA there is a mandatory Information Systems Audit (ISA) and discretionary performance, investigations and special audits. Reports are based on the ‘3 Es’ – Economy, or value for money, Efficiency, or operating within parameters, and Effectiveness, or whether or not objectives were achieved.
In terms of an AGSA report, if a department receives an unqualified audit it means financial statements give a true and fair view of spending, in accordance with the applicable financial reporting framework. A qualified audit shows a departure from the financial reporting framework, or limitation of scope, which is not so material and pervasive. A disclaimer means the auditor does not have enough evidence to form an opinion, and adverse means the auditor disagrees with the presentation given by management. The main criteria looked at in an audit report are compliance with regulatory requirements, usefulness and reliability. Adherence to timelines, the measurability of statistics and the accuracy of these are some examples of what is specifically looked at under each heading respectively.
Some of the major differences between an Audit of Predetermined Objectives (AoPO) and a Performance Audit (PA) include:
- The AoPO being mandatory, but the PA being discretional;
- The AoPO reflecting an opinion on performance, whilst the PA is factual;
- The AoPO is annual, whereas the PA is not limited to the time period it covers.
Mr Ramballi outlined the best controls for obtaining an unqualified audit. Leadership is important in exercising oversight responsibility, ensuring effective human resource practices and approving an appropriate information technology governance framework. Good financial and performance management included covering proper record keeping of all transactions and maintaining effective controls over the processing of transactions, whilst effective governance included periodically identifying risks and maintaining an adequately resourced and functioning internal audit unit.
The AGSA contributes to oversight through briefings to committees on outcomes, feedback on specific entities or departments, and proactive auditing. It makes recommendations on corrective measures to improve audit outcomes before the entity hearings, and consults widely with the stakeholders in the executive and legislatures prior to tabling the general reports that consolidate audit outcomes. The four key considerations are strategic planning, budgeting and reviews, implementation and monitoring, and reporting. Key parts of the AGSA’s oversight relationship with committees included looking at audit reports, providing updates on the progress of current year audits, attending public hearings and assisting in building the capacity of committee members.
The combined assurance model covers three levels, which AGSA assesses in its report. The first level is management, where officials are held accountable for implementing internal controls and senior management has to take immediate action to address specific recommendations. The second is oversight assurance, which includes the NT, internal audit and the audit committee. The third is independent assurance, which includes portfolio committees and the Public Accounts Committee.
The briefing process begins with the use of reports by departments and entities, which must be reliable, accurate and complete. It additionally considers estimates of national expenditure, budget speeches and AGSA briefing notes, amongst others. Oversight committees need an understanding of a department’s mandate to effectively carry out their function, taking into account recommendations made to them by the AGSA during the actual briefing process. The AGSA presents and analyses the root causes of audit outcomes and the way they are linked to key focus areas before making these recommendations, after which it is the committee’s responsibility to address deficiencies by way of resolutions and reports to executives for implementation. Laws and regulations applicable to local and national government include the Public Finance Management Act (PFMA), the Municipal Finance Management Act (MFMA), and the Framework for Managing Programme Performance Information.
AGSA Mock Audit Report
Mr Ramballi took the Committee through a mock audit report to explain its format and function. Notable sections comprised the highlighting of information not disclosed in financial statements and inconsistencies in financial reporting. It looks at compliance with legal and regulatory requirements, touching on predetermined objectives in addition to usefulness and reliability, which are tested against material findings. Any problems, such as inconsistency of indicators on a particular programme, are outlined and explained, and the reliability and validity of the evidence is discussed. The report looks at achievements against planned targets and adjustment of material misstatements. It also covers internal control deficiencies, such as leadership, qualification and performance reporting matters, before pointing towards the action which should be taken. The final pages list other reports that relate to the entity.
Mr G Radebe (ANC) asked for a further explanation to gain understanding of the predetermined objectives. Regarding the issue of measurability, how does the AGSA deal with departments that transfer money ahead of time? What would be the effect of the audit in these circumstances? In terms of filling a vacant post within 12 months, is it within the advertised time? What if a person with the necessary skill can not be found?
Another Member questioned the lack of fraud identification in regularity audits. There should be a section which deals with it, because the AGSA are the first to pick up problems within a department. It carries out a risk assessment, and it would be helpful in addressing fraud and corruption. The presentation was perhaps too general, because it did not deal with the Department of Transport. What is AGSA’s relationship with the DoT's internal audit?
Ms S Xego-Sovita (ANC) commented that the AGSA says it has nothing to do with the identification of fraud, but fraud is one of the risks, so there must be some degree of a relationship between them. How does the AGSA sustain itself? How independent are they? Since the presenter, Mr Ramballi, is responsible for the DoT, how long has he been in that position? Is he responsible for all of the DoT’s entities? Where does the AGSA see the DoT going, based on the audit outcomes for the past couple of years? When the AGSA makes an adverse finding, do they develop a plan to help the department improve? Sometimes they advise management before an audit outcome -- is there time for arguments? What happens to the outcome of the audit when they disagree?
Mr Ramatlakane referred to the debate around the performance audit, with it generally being a moving target. Value for money and service delivery can be addressed only when all opinions have been taken into account. Why does it take so long for the performance audit to be included? What percentage of the budget itself informs the AG's opinion? For example, Transnet says anything below R25 million is a non-reportable issue. It is necessary to understand the criteria that determine materiality. Does recurrence of an issue inform an opinion? The Committee is not privy to seeing management letters, but does the AGSA think they are taken seriously enough to inform the turnaround strategy? A lot of the risk issues would be contained in the letters. Some of the governance issues become a process which is not effective in dealing with management. Is that perspective correct?
The Chairperson added that management letters often go to the accounting officer. What is the role of the executing authority in making sure that the questionable issues raised by the AG are followed up? In many instances, executing authorities have never seen the management letters and see only the end result of a disclaimer, or adverse findings, in the audit report. Organisational structure is not static, so looking at the mandate for the particular five years has to take in to account, for example, the NDP, which has to be part of the day-to-day activities of governmental departments. It is the role of the executing authority to ensure the organisational structure complies with the mandate of that particular institution. Many times there are vacancies based on this structure. How does the AGSA make sure the organisational structure in this epoch speaks to the mandate? How does the AGSA make sure the organisation structure speaks to the mandate? If a department has unauthorised or irregular expenditures, it is assumed by many citizens that it is because money has been stolen, but it could be used within the department, only not according to budget objectives. Is there any terminology to communicate this to citizens? When there is a change of plans in the middle of the budget which brings about these unauthorised expenditures, how does the AGSA audit it?
Mr Ramballi addressed the issues surrounding measurability. If, for instance, the DoT wanted to overhaul 500 coaches, it is easy to measure whether it has been done. However, a broader target, like the prevention of pollution at sea, is vague. Can it be evaluated and said to have been achieved? The AGSA looks at time boundaries and whether it is relevant to the department's mandate - are SAMSA suddenly building roads, for example? When a department is given a target, they must know the specifics, such as how to address it, how it will be measured and whether or not it is realistic. In the area of transferring money before the given time, the transfer payments usually happen according to the Division of Revenue Act. If the department transfers funds outside of these confines, it becomes a non-compliance matter and it will be reported on. The filling of posts within 12 months is measured from the time the post is approved, as funded. It has to be advertised for six months and filled within 12, and if it is not, this becomes non-compliance with public service regulations. The AGSA does look at issues around skills shortages - if the department has done everything to fill the vacancy, mitigating circumstances are considered and performance management evaluated.
There should not be an expectation that the AGSA can identify all fraud within an entity, but it is always considered as a possibility by an auditor during the risk assessment process. There is an integration of the AGSA's investigations unit into assisting with risk assessments because they come from a different perspective and look at possible fraud indicators. If fraud is suspected, it is highlighted in the management report and, if necessary, the audit report. The department would consequently need to take action with the prosecuting authorities to look into the matter further.
Regarding the comment around the presentation being too general, its aim was to help the Committee understand the AGSA's role, but they will get a summary of the portfolio audit outcomes specifically related to the DoT when the annual reports are tabled.
The AGSA's independence is sustained through the audit fees it charges, so it is not funded directly through the NT and is based according to the time spent on audits for the specific entities that are covered.
Mr Ramballi said that he had audited the DoT for 8 years and was currently auditing two entities under its portfolio - the Cross Border Road Transport Agency and SAMSA - whilst his colleagues were responsible for other audits. All the DoT's audits sit under the business unit which he is in.
The focus of the AGSA is on quarterly stakeholder engagements, where problems that have been identified can be addressed through commitment to action plans which are followed up on a quarterly basis. The management report also makes recommendations to address the problem. There is time for engagement after the management report is issued, with the first draft issued by 31 March in the case of an interim audit. The final version is issued on 30 June. During the process, the AGSA communicates any issues with the accounting officer and there is time for engagement before the final audit report is tabled. If there is disagreement when it comes to the audit report, it is a matter that will be highlighted and give rise to a qualified or adverse opinion. The AGSA is in the process of integrating the ISA, investigations and performance audits into the regulatory process, so some of the AGSA's activities are already performance driven.
Materiality is part of the methodology that is used, which looks at whether it is an expenditure or revenue driver. If expenditure is the main driver, materiality is calculated based on expenditure. As the DoT transfers most of its appropriated funds, materiality is calculated on these, but also in taking away all the transport payments to come to a smaller figure, which is in the range of 1% of the amount based on the AGSA's methodology. If an issue recurs, the AGSA will elevate it to the appropriate level. As to whether management letters are taken seriously or not, it is better to wait for the audit outcomes of the Transport portfolio.
In terms of leadership, the executive authority is engaged on a regular basis to share key concerns and discuss actions which need to be taken to assist and ensure these programmes are implemented. The Minister holds the AG responsible for things that go wrong. Aligning the capacity or structure of the department according to the NDP is something that the AGSA does not test. A change in structure must be approved by the Department of Public Service and Administration (DPSA), so the AGSA would only test this approval and highlight areas of skills shortages that could pose a problem. Adapting the terminology to explain irregular and unauthorised transactions is not something on the horizon. Mr Ramballi agreed with the Chairperson that it was difficult to explain in layman's terms, but the AGSA works according to the framework provided by the NT, so they do not have the power to change it.
The Chairperson said that when it comes to management letters, Members are suspicious because, as an executing authority, the AGSA does not know what they were saying. Only the critical things get reported, therefore how does an executing authority get an idea of such things? How do you assist the accounting officer and the department in terms of dealing with these issues?
Mr Ramatlakane added that at the end of the audit process, it is generally the executive authorities that carry a lot of political flack for things that were never brought to his or her attention in a detailed form. Why are management letters regulated to the exclusive terrain of the DG?
AGSA responded that the management letters are not detailed in showing what should be done. The DoT has a session with Mr Ramballi before an independent session with the Minister, and then one with both Mr Ramballi and the Minister, so that are no gaps. This is important in dealing with finances, precisely because the executive authority is the one held politically accountable. If issues are raised, the Minister can raise the flag with the executive committee. Mr Ramballi meets with the Transport Minister on a monthly basis to discuss key strategies, so she knows when and where to intervene.
The Chairperson said that this was not something which was legislated. It was a mutual agreement between the AGSA and the Minister. Is it legislated, however, that the executive authority is not privy to the management letters?
The AGSA answered that the detail in the management letters is the responsibility of officials, because on a day-to-day basis they are responsible for the management of the institution. That is why the AGSA shows the DG of the department the outcome of their audit - this is what their administration looks like. It is not legislated, but it depends largely on the transparency of the relationship between the Minister and the DG. He is happy with the approach in the DoT, although there might be a need for uniformity across the board regarding how it is approached, without necessarily legislating it. It is the DG who deals with the smaller things, not the Minister, but there ought to be an institutionalised relationship between the two of them so that the Minister is aware of what is happening within the entity.
The meeting was adjourned.
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- PC Transport: Nairobi International Convention on Removal of Wrecks; AGSA role & mandate 1
- PC Transport: Department of Transport on the Nairobi International Convention on the Removal of Wrecks 3
- PC Transport: Department of Transport briefing on 1st Quarter 2014/15 Performance
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- PC Transport: Department of Transport on the Nairobi International Convention on the Removal of Wrecks 1
- PC Transport: DoT on Nairobi International Convention on Removal of Wrecks; Workshop on role & mandate of AGSA 1
- PC Transport: Nairobi International Convention on Removal of Wrecks; AGSA role & mandate 3
- PC Transport: Nairobi International Convention on Removal of Wrecks; AGSA role & mandate 2
- PC Transport: DoT on Nairobi International Convention on Removal of Wrecks; Workshop on role & mandate of AGSA 2
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