National and Provincial Departments 2015/16 audit outcomes: briefing by Auditor-General

Public Accounts (SCOPA)

02 November 2016
Chairperson: Mr N Godi (APC)
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Meeting Summary

The Auditor-General presented key challenges that surfaced during the audits. He put emphasis on the implementation of proper and sound internal controls, and that more attention needs to be paid into supply chain and financial management across government departments and entities. The lack of sound internal controls gave rise to a lot of deficiencies. The percentage of unqualified audit opinions with no findings declined in comparison to previous years; entities have shown some improvements in internal controls but more still needs to be done. A few provinces showed some improvement and positive growth in terms of their departments, with Gauteng province with the cleanest audit. Limpopo, North West and Free State have not done well. The AG recommended that the Committee should give more attention to the commitments not being fulfilled by departments who make commitments to AGSA and fail to deliver.

Of the 169 departments that were audited for 2015/16, 44 obtained clean audits (26%). During the previous financial year, of the 166 departments that were audited, 48 received clean audits (29%). Of the 315 entities that were audited, 108 received clean audits (34%). This was an improvement compared to the 2014/15 audit outcomes, where 29% of 311 audited entities obtained clean audits.

Irregular expenditure totalling R100.7 billion remained very pertinent which resulted from non-compliance with legislation. It was determined that much of the fruitless and wasteful expenditure of previous years was not investigated by management to determine if any person was liable. Litigation and claims caused 43% of the fruitless and wasteful expenditure. The highest contributor was the Compensation Fund amounting to R404 million from R17 million in the previous year. Most unauthorised expenditure (overspending) was also not investigated in the previous year by management to determine if anyone was liable. The closing balance (not recovered/ written-off or condoned) was R5.4 billion. Reasons for this include poorly prepared budgets, inadequate budget control, and lack of monitoring and oversight.

Members asked if there is anything that can be done to tighten up enforcement of the AG recommendations as departments and entities do not take these recommendations seriously; does Auditor-General South Africa (AGSA) not cross the line between consultant and independent auditor when it allows auditee rectification of material misstatements in the annual financial statements (AFS); what can be done about outsourcing accountability by using implementing agents who do not have to subject themselves to the rules that apply to government; what is being done about departments who do not comply with the commitments they have made to AGSA; on R2.5 billion awarded in tenders for which there is insufficient documentation – what is being done about this; did the AG have the capacity to audit the state owned enterprises; does the legislation have to be strengthened so more power.

Meeting report

Opening remarks
The Chairperson noted the importance of government bodies submitting their annual financial statements on time to ensure that the Auditor-General can deliver his mandate. He handed over to the Auditor-General.

Auditor-General briefing on audit outcomes of national and provincial government
Mr Kimi Makwetu, Auditor-General, said he will not go through the presentation slide by slide but he will focus on key aspects and submit relevant comments that the Committee will need to take into cognisance when doing oversight. The percentage of unqualified audit opinions with no findings seems to be declining in comparison to the previous years; the entities have made significant strides in the internal controls of their systems – there has been improvement in this area, but more still needs to be done.

Many public entities have refused to open themselves up to scrutiny, there are contestations which are extreme in some of these entities and many of them threaten to legally challenge the audit outcomes but none of that has transpired as yet. The disclosures in the Annual Financial Statements (AFS) are not sufficiently specific; he noted that an emphasis needs to be made for specificity in this area.  

A few provinces have improved but improvements are off-set by regressions in four provinces. Audit outcomes of departments are slow to improve with a slight regression from 2014/15. Public entity outcomes are improving.

The Gauteng province shows the cleanest audit of all the provinces. Limpopo, North West and Free State have not done well in achieving clean audits. Mpumalanga has been stagnant, it is not moving forward. Under the Skills Development sector things have been quite interesting because the variety of the entities in that grouping have acquired quite a number of disclaimers particularly the TVET colleges with regards to their finances. More disclaimers stemmed from the Education, Health and Public Works provincial departments such as the Department of Education in Limpopo had a disclaimer with findings. Other departments have performed quite well during the year under review. Audit outcomes of Education, Health and Public Works slightly regressed and remain significantly worse than other departments – 40% of these departments received qualified or disclaimed audit opinions compared to 13% of other departments. The bulk of the expenditure (37%) is sitting in the Department of Health and Education.

The three outstanding departments (Home Affairs, Transport and Cooperative Governance) comprised 11% of budget – only Cooperative Governance has been finalised to date.

There has been little improvement in controls over the period of three years. With leadership as a control, there has been significant improvement (including the performance of ministers). Financial and performance management, as a control, has been fairly static. Controls need to be put in place to improve this because it is a very important function in any entity or department. Governance, as a control, has improved significantly and consistently over the three year period.

Observed best practices in leadership
- Supported the audit process, were committed to improving the audit outcomes and were proactive in engaging with us to resolve the previous year findings and identify and address emerging risks.
- Delivered on commitments and actively worked toward creating an environment for good internal controls at the auditees.
- Ensured that key positions were filled with competent people and stabilised the administration (i.e. low turnover in key positions). For example, CFOs were in positions an average of 44 months in current year compared to 38 months in 2013/14.
- Dealt with transgressions and poor performance and insisted on credible in-year reporting by officials, which improved the year-end processes and enabled improved decision-making.

Concerning trends
- Contestations and pushback on audit outcomes without substance – threatening legal actions or to not table reports
- Slow response by accounting officers and senior management to our recommendations
- The operation and audit outcomes of State owned entities were affected by instability, ineffective leadership practices and poor monitoring and oversight
- Vacancies at key positions remained high and significantly above the MTSF vacancy rate target of below 10% by 2019. The vacancy rates for Heads of SCM, CFOs, CEOs and Heads of departments ranged from 16% to 20%

Irregular expenditure
This has increased over three year. As a result of significant breakdown in controls, entities entered into transactions not carried out in accordance with regulations and legislation. Such expenditure does not necessarily mean that money had been wasted or that fraud had been committed – goods and services were received for 89% of the R42.543 million irregular expenditure. It is an indicator of non-compliance in the process that needs to be investigated by management to determine whether it was an unintended error, negligence or done with intention; to determine if officials are liable for the expenditure and to recover the money if liability is proven; confirm whether fraud had been committed or money had been wasted. Irregular expenditure is reported when it is identified – even if the expenditure was incurred in a previous year – 40% (R18.7 billion) of total IE was incurred in previous years.

He emphasised that 92% of irregular expenditure is caused by non-compliance with the legislation, and the main areas of non-compliance include:
• Procurement without competitive bidding or quotation process (46% - R19 525 million)
• Non-compliance with procurement process requirements (49% - R20 657 million)
• Non-compliance with legislation on contract management (5% - R2 361 million)
• Closing balance (not recovered/ written-off or condoned) was R100,7 billion. In the current year more irregular expenditure was known by the accounting officers and willingly disclosed as compared to the previous years.

Wasteful and fruitless expenditure
Fruitless and wasteful expenditure is expenditure that was made in vain and that could have been avoided had reasonable care been taken – includes penalties and interest on the late payment of creditors or statutory obligations as well as payments made for services not utilised or goods not received.  Fruitless and wasteful expenditure is reported when it is identified – even if the expenditure was incurred in a previous year. The PFMA also sets out the steps that accounting officers and oversight bodies should take to investigate whether any officials are liable and to recover the money. Litigation and claims caused 43% of the fruitless and wasteful expenditure, but the highest contributors were:
Compensation Fund R404 million (2014-15: R17 million)
Passenger Rail Agency of SA 255 million (2014-15: R20 million)
Education (KZN)R142 million (2014-15: R3 million)
Education (EC)R74 million (2014-15: R8,5 million)
Water and Sanitation R59 million (2014-15: R1,5 million)
Basic Education R44 million (2014-15: R28 000)

Unauthorised expenditure
This refers to expenditure that departments incurred without provision having been made for it in the approved budget. 79% of occurrences are caused by overspending of budget or main sections in budget. Reasons for this include poorly prepared budgets, inadequate budget control, and lack of monitoring and oversight. The biggest contributors in 2015/16 were noted.

Other topics covered by the Auditor-General were material uncertainty that 8% of auditees can operate in the future; fraud and consequence management, slow response of management, way forward on audit outcomes, significant push-backs from auditees, and focus on findings in Health, Education and Water

Push backs from auditees included disagreement on accounting and other matters. These included the Departments of Environmental Affairs and Home Affairs and Free State and Mpumalanga provinces.

Mr V Smith (ANC) shared some heartfelt comments about the need for a total and unrelenting onslaught on corruption persisting in government entities. The practices of the AG need to be re-looked at, because the AG identifies material misstatements, and then affords the department an opportunity to correct these and then give the particular department an unqualified audit opinion. He wondered whether the AG is not crossing over the thin line between consulting and auditing. The departments receive unqualified audit opinions because of the interventions of AG, this cannot be an acceptable practice. He shared some concerns about implementing agents across provinces, because provincial departments transfer monies to implementing agents to carry out certain tasks. The AG cannot touch it because it is no longer within the confines of the department, and that money ends up being misappropriated because the implementing agents are not subject to the AG. This is basically outsourcing accountability, which has clearly not been effective and it is not a favourable practice. Lastly, the AG is a chapter nine institution and it has come to light that its recommendations are not taken seriously by some departments, which brings into question the real powers of the AG. Perhaps, there should be an open discussion on whether the AG’s mandate should merely end at recommendation level. How far can the AG push the envelope - this practice of providing unqualified audit opinion amidst significant irregular and wasteful expenditure cannot continue, it is a major concern.

Mr C Ross (DA) noted the AG saw a slight regression in comparison to the previous financial year. He agreed with the regression and asked if it should not be tabled as a serious regression. Firstly, with regards to departments that achieved unqualified audit opinions with findings, the figure is stuck on 53% and we know the serious findings in terms of Prasa, specifically, that was a serious regression. There were 44 public entities in the adverse opinion category and that is a serious regression. Linking this to irregular expenditure, there is a regression of about R10 billion in comparison to the previous year. Should this not be termed serious regression in the overall assessment. There should be a stricter move against corruption and tightening the consequences of accounting officers who contravene Public Finance Management Act.

Ms T Chiloane (ANC) asked what is being done about the resistance by some departments to comply with the AG, because these engagements should not result in lawsuits launched by a department against the AG - this could not be accepted. Usually, they do not comply and when the AG makes an unfavourable audit opinion against them, they threaten legal action. Secondly, what is the stance of the AG on the use of private audit firms, because surely there are certain rules that need to be agreed on? What sort of guidelines does the AG provide on what should happen in these audits. On supply chain management of R2.5 billion awarded in tenders, one cannot accept nothing is done about the lack of available proof to who the money was paid. She agreed with Mr Smith that a discussion needs to be initiated about the powers of the AG. Further, suppliers do not get paid on time for services and goods which creates unnecessary interest accruals that departments have to pay, which could have been avoided if payment was made on time.

Mr M Booi (ANC) stated that the presentation was good. When the Fifth Term commenced, it was very clear that the AG would act differently this time around and take a robust approach. The AG went as far as condemning Portfolio Committees as well as SCOPA for lack of support. That raised the bar, and certainly reflected a deepened level of seriousness to turn things around. However, now the tone resonating from the report is different, perhaps not reflecting that robustness. SCOPA has been very clear that whenever it talks about public funds, it makes use of the information provided by the AG as a point of reference. Now the AG is taking a different tone which is surprising, as it appears that there is non-cooperation from some department officials. This of course makes it difficult for AG to do its work properly. In our determination to fight corruption, the robustness that the AG has introduced into the system, has assisted MPs to adopt the same attitude.

He asked if there is anything that the AG fears whilst conducting its audit work in departments. Do you think that your officials are faced with difficult problems when working and is parliament doing enough to provide some protection or be able to assist you so you can do your work correctly? The AG cannot work in fear and still be robust in its stance to fight corruption. The report does not talk to what has been agreed on with departments when it comes to dealing with irregular and wasteful expenditure and so on. When the AG does not wish to report this to the National Assembly, is it because it is trying to run away from the robustness of the National Assembly or are there other factors that the AG does not wish to disclose to the Committee. He asked if the lack of legislation giving the AG more powers is the problem. There are a lot of examples surfacing where officials are resisting subjecting themselves to the AG. Does the AG think there is something wrong that the Committee is not aware of?

Mr E Kekana (ANC) stated that SCOPA and the AG normally focuses on big amounts and leave out the people who are corrupt because the amounts are minuscule, but that is where corruption actually happens the most and it ends up amounting to large amounts. Supply chain management is where most corrupt activities happen, so how is this going to be dealt with? Funds are being significantly misappropriated and misrepresented. It is all well and good to deal with financial accountability, but if you look at provinces like Limpopo and the money spent by government there, one sees a lot of money is being spent but there is no improvement. Therefore, there is an increasing need to look at the impact of the money being spent as government. In that way government will be able to track and follow the money to hold people accountable.

Ms N Khunou (ANC) stated that it is about time the Committee makes an impact out there, yes there is a slight improvement but it is not enough. Something is lacking, whether it be on oversight or elsewhere, we need to look at how we can improve the audit outcomes. On the vacancy rate, what should be done to solve that, should the Committee perhaps call in the Public Service Commission, because most departments have this kind of problem, year in and year out? Therefore, we should come up with solutions. The AG stated that departments make commitments during the audit process voluntarily, not under duress, so it does not make sense when they do not achieve on these commitments. We do not talk about underspending which is as wrong as overspending because it means that no service delivery is taking place. This needs to be looked at and its importance emphasised. It is not about achieving clean audits but providing services to the public. The AG stated that internal controls are not properly set out and followed in departments, which will cause problems. What is the percentage of departments that have bad internal controls? There needs to be a discussion on this to devise a solution.

Mr Booi said that state owned enterprises are supposed to assist government with job creation, but they use an external auditor - does the AG lack capacity to audit them?. It is understood that there is a need for them to have internal auditors, as there are huge amounts of monies handled in those enterprises, and it is incumbent on them to assist government with job creation. There is no indication in the AG report that this priority is being taken seriously. These are some of the things that provide some guidance for the achieving the goals and targets set out in the NDP.

The Chairperson commented that Members are expressing a common sentiment that it would be preferable that the AG audits the SOEs as well, because it is very unfavourable for this to be left in the hands of private companies who are merely conducting business and do not take into account the public interest and the mandate of the government – especially big ones such as SAA and Eskom. It is not strategic to be left in the hands of private firms. The main concern about section 43 audits is that when the annual reports come the formats are different and are not helpful for oversight, compared to the reports done by the AG and that is a great disservice. He agreed with Mr Smith that the accounting officer takes the entire year to compile the AFS but the AG picks up significant mistakes in the AFS yet allows the department to correct them. How does that assist the Committee as it needs to see the material misstatements and scrutinise how they occur. If the AG assists departments in this way, they become complacent and it encourages them to continue making the same mistakes. Thirdly, the push-backs are such a shame, such as those stemming from Mpumalanga and the Free State provinces. We are running a state and people need to behave accordingly, The Office of the AG is held in such high esteem on the continent and globally, and yet some crooked person somewhere still gets away with inappropriate, unprofessional behaviour. There should be continual improvement, not moving backwards. On the modified cash standard, this had to do with the reluctance to account, people wanting to define how they account and choose a simple way of how they should account. National Treasury deals with a lot of things, they should be clear on how they want things done because if this system collapses, the entire country will collapse. On irregular expenditure, the Committee has resolved to give a special focus on this in the hearings next week. There is no progress in getting the basics right judging from the AG’s presentation. The greatest challenge is a lack of responsiveness at the administration and political level, even from a managerial level in many departments and entities. Clearly we need ‘public protector enforcement powers’ to ensure that AG recommendations are taken seriously.
Mr Eugene Zungu (AGSA National Leader: Audit) stated that the Committee’s problems are the AG’s problems as well. However, the people who are supposed to fix them are not present in the room at the moment, and the people who can enforce change are not the AG but the Committee (SCOPA). What the AG brought here is a repetition of the same old reality, and there is nothing that the AG can do really, but to audit and recommend where necessary. Scared people run away from push backs. If the AG was scared of anything, it would have run away from disclosing the push backs. The AGSA is very stern and its accountants and auditors stand their ground when they know that there is something wrong happening, and AGSA has no reason to be scared because the AG aims at go after people who have been given the responsibility to look after the resources entrusted to them and they do not. The reality presented today is no different to all the past years, because when the AG scratches where it hurts, suddenly you awaken anger in respect to digging too deep into areas that are not your domain, but an audit has no limitation. The AG will not run away when we see something is wrong, we probe until it has been established what the unclear transactions are about. When things happen and the auditors find issues such as irregular expenditure, nobody likes it, but the bottom line is that the law of the land never gave the auditors the powers to take somebody to task directly and go through the whole value chain. We are part of a bigger value chain that includes the Committee. Attention needs to be drawn to that distinction.

The tone of the AGSA is no different from the past. However, it is enhanced from the level it was before and now it is elevating some of the important issues that are pertinent for oversight. What happens to these issues once they are tabled is outside the control of the AG. Therefore, it cannot be a different tone but rather an enhanced level of engagement from what we were before, and that is the commitment that the AG has made and it will continue in that direction. The suggestion that the model used by the AG does not talk to the realities on the ground is not clear. The realities reflected in the AFS are the absence of internal controls and rigour in financial management discipline. The fact that there are appropriations made to different budgets and there is no real change in the experience of the people for whom those budgets are intended, is not a preoccupation of an auditor. On the change on the ground, the AG does not deal with the ground. What the AG is able to surface in the audits is an indication of the things that can shift that ground, if those amounts do not get to the programmes they are budgeted for the ground will then shift – monies meant for water infrastructure being diverted elsewhere, the ground will certainly shift because there will be no water for people to drink.

There can be no resistance in the audit, because auditors scratch where it matters in some instances, but what is important is that the auditors must be strong and ensure that they persist. The AG understands how things must be accounted for. Therefore, we do not run away; hence the disclosure of the push backs. When people resist we walk through the journey with them, not because of anything else but, for there to be finality in the audit, the auditor and the auditee must agree, because the auditee must sign off the AFS as the owner. Until the auditee signs off the AFS as the owner, the auditor cannot finalise the audit.

People are rattled when they find extraordinary circumstances when dealing with an audit but it does not translate to the AG suppressing what should be reported due to the resistance, otherwise, there will be less and less of things you are seeing in the report now. It is important to note that the AG is not running away from the National Assembly, it is merely the timing of the diaries that clash and the sequence of activities.
There are many reasons for the push backs, as you may see in the documentation. What normally happens is that accounting officers and chief financial officers in some departments make commitments at the beginning of the year, and when the auditors come and contest the “good” work that the CFO or the accounting officer thinks he or she may have done. Due to this fact alone, there is bound to be resistance. The disclosure of the push backs is a reflection of a message that the AG is trying to send out, that there will be consequences to such actions.

On the material misstatements, when you look at the audit of the AFS there is a long standing rule in the accounting discipline that says that the accounting officer or the entity being audited is the primary owner of the AFS. In instances where accounting officers have made mistakes and recorded transactions incorrectly, which are materially significant, in those instance the AG points out to the department to correct the erroneous transactions. It is important to note that we do not assist or correct the error for the department but we recommend that it be corrected. The material misstatement is solely within that context, and because some of them are significant, we recommend that the auditee must disclose it so that when the Committee (SCOPA) conducts oversight, it can be aware of instances where adjustments are made at the end because they are an indication of a weakness within the financial management. Secondly, the AG recommends that the material misstatements be corrected and subsequently disclosed because the AFS is going to terribly mislead the users, and the AFS are essential for decision making. The correction of these material misstatements is not a connivance, but it is a discipline that is not unique only to the public sector. If the misstatements are not corrected, the auditor will draw attention to the matter to users of the financial statements by the qualification of the audit opinion. To qualify is to draw the attention of the user to that in the AFS that led to the qualified audit opinion. If the auditors allow the auditee to correct the mistake, the AFS will be correct but the fact that the auditee had to correct the material misstatement also ought to be known. Otherwise all the AFS would be wrong and meaningless, if there were no allowance for misstatements to be processed. The people who own the AFS need to attest to what they have done with the money, so on both sides there is transparency to this equation. The issue is to what extent are these material misstatements given attention when the Committee conducts oversight. The auditor pronounces on them and the question is whether this triggers action on the part of oversight to ensure such practices are nipped in the bud.

The rigour of an audit is to point to things which are done incorrectly. The auditor acts as an instrument of oversight. When the AG surfaces material misstatements, it does not assist in fixing them because then it would be assuming a managerial position. The role of an auditor is to point out material deficiencies in the AFS and recommend rectification. Therefore, the Committee can rest assured that the AG does not cross the line between consulting and auditing independently because independence is of importance in this line of work. Regular audits are actually necessary in order to minimise these issues.

On the outsourcing of accountability, Mr Makwetu agreed with Mr Smith about the implementing agents. This is something that the Committee needs to follow up. It is a real risk because the implementing agents do not have to subject themselves to the rules that apply to government departments and entities. This makes it easier for those involved to get away with corruption.

Mr Makwetu said the AGSA has looked at its powers as a chapter nine institution and the team has reserved a much more detailed discussion on this which will be held at the upcoming Standing Committee on the Auditor-General (SCOG) committee meeting. It belongs there because that committee deals strictly with the AG and specifically on matters like this. Suffice to say for this purpose, that it is desirable that the powers of the AG are looked at in that context by the people who oversee its activity so that everyone is on the same page as far as moving forward. The AG cannot simply end with recommendations. All we know at the moment is that the instrument that guides us, the Act, says we have a mandate to audit and report, it does not go further and that is the challenge that the AG faces. It would be interesting to know, to what extent is the instrument of oversight diligent in its oversight visits in dealing with the matters that have been reported and disclosed by accounting officers, and how oversight picks up on these matters.

The outcomes and slight regression referred to in the slides refers to the numerical comparisons i.e. the number of departments this year versus last year. If you look at the substantive issues on where some departments are, you may be correct about the slight regression. On the irregular expenditure at Prasa, Members will recall that when the AG signed off the 2013/14 accounts, it surfaced in the audit that there were elements of supply chain management non-compliance, particularly the R51 billion contract, the locomotive contract and so on. At the time that the AG highlighted that irregular expenditure, the actual expenditure had not been recorded in the books. Prasa placed orders overseas and the assets ordered where being built at that time. The assets were being built upon payment from Prasa and quite a lot of them have only been delivered recently, and it was discovered that they are too high. The payments made reflected what is in the books because they were paying on contracts that were irregular, and all the payments made against those contracts resulted in this big irregular expenditure. The Chief Procurement Office (CPO) has been surfacing quite a lot of issues that are being tested in this area. AGSA is currently receiving copy correspondence that the CPO is sending to various departments. For instance they request copies of specific contracts for certain vacancies. There is now a very open interaction where we share valid information and they are conducting some oversight in the background in this area particularly within supply chain management.

On legal threats and Home Affairs, it is not only this year that Home Affairs did not sign off on its AFS, it also refused to sign last year. There were four contracts that were contentious and were contested. The AG then subjected itself to the process of trying to resolve differences, even through an independent evaluation process. The AG has stretched itself with Home Affairs, it went right up to an independent arbitrator after which two issues were resolved (two in our favour, and two in their favour) but Home Affairs still went on to take the matter on appeal, which now brings in unnecessary legal costs. The AG is worried about this because it is starting to go beyond reasonable levels of contestation, and the effect of this is not only costly to Home Affairs but also to the AG who has to engage qualified senior counsel for representation. The outcome of all this, it is very simple, and the AG is starting to wonder about the intention behind it. This explains why Home Affairs has not yet tabled an annual report in parliament, because the annual report must include the audited AFS. In the absence of any legislation, this will roll over to the following year; it is a mixed bag of things that is not our responsibility ultimately. Ours is to put things on the table and let people who must deal with the problems deal with them.

On the R2.5 billion related to supply chain, this is a case where the documents for the supply chain transactions are required. People do not come to work and submit the relevant documents in hopes to buy time for the audit to come to an end. There should be specific steps that need to be taken for people who refuse to submit the relevant documents for auditing. These are the type of matters that need to be dealt with by the right people because the AG can only do so much. In light of the inconsistencies in the supply chain where small amounts are being misappropriated, there is a huge risk in that area because those amounts (low value amounts) do not meet the threshold and most of them do not take multiple years to implement but the difference with them is that they are small but frequent so if you have small but frequent, the substantive effect of it almost always amounts to the threshold amount. In supply chain, these are the things that need to be looked at, perhaps there should be a conversation with the CPO on how these things are going to be dealt with. The CPO has started coordinating this process from a central level to look at the low value supply materials, and the AG will collaborate with the CPO on this to get the information it needs for audits.

If one looks at the statistics that are provided there is a target in the MTSF (Medium Term Strategic Framework) of 10% for vacancies by 2019 and the current experience is 16 to 20%. It is behind but it is not something that is seriously out of line. There are still the two years to achieve this. The lack of consequences where people fail to honour commitments that they made during the audit needs to be taken seriously or some sort of consequence needs to be introduced. This relates to internal control deficiencies. This is where the biggest problem actually is. There is a lack of proper and sound internal controls in departments. Hence, their performance is not desirable at the end of the day.

On the audit of SOEs (State Owned Enterprises), the reality is that an audit is a seriously painful exercise to put in place particularly with those types of entities, because they are large. There are a lot of things that the AG may not have in place to deal with those entities. Take for instance Transnet, it has been audited outside of AGSA because of the lack of requisite skills and competencies to do this work. Over the last six years the AG has taken quite a few entities on such as the SABC, the SA Airports Company and others which were not audited by the AG for a long time. The AG wants to do this in a measured and responsible way and not take on audits that it is not currently equipped to deal with.

The AG had a frank engagement with the provinces particularly with the people in higher positions to deal with the push backs in Mpumalanga and Free State, so hopefully something about that will be done because those push backs create a bad audit environment. It is not a matter the AG has walked away from, so they are on board to put an end to this matter. On the Modified Cash Standard and the reluctance to account, he added transparency as pertinent in this regard. Departments need to be specific in the AFS on the items that they acquired when they disclose them, so that they can be followed up easily. The AG has prevailed on the Office of the Accountant General (OAG) about these matters which were given serious consideration by the OAG with the view to granting deviation or latitude to certain departments, and so the departments gradually implement some of the requirements of the MCS and go through a phased approach. Once Treasury has given a department exemption, that exemption is granted conditionally. Most of the time, it is when a department has not fulfilled certain standards in the MSC (Modified Cash Standard). For instance, the Department of Environmental Affairs has been reporting on the acquisition of certain assets in a particular manner which is not in line with the MSC, and Treasury allowed this to occur on the basis that certain conditions were to be met. That exemption has now come to an end, and the Department of Environmental Affairs must now report according to the MSC.

The Chairperson thanked the delegation for its efforts and adjourned the meeting.

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