Review of the Public Audit Act: Parliamentary Legal Adviser & Content Adviser briefings

Standing Committee on Auditor General

08 September 2017
Chairperson: Mr V Smith (ANC)
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Meeting Summary

The Standing Committee on the Auditor-General met with the Parliamentary legal advisers and delegates from the Auditor General of South Africa (AGSA) to review the Public Audit Amendment Bill. The legal advisers presented the proposed amendments, and also expressed their opinions on the proposed provisions in the bill. The presentation was divided into three sections -- procedural matters, definitions and substantive provisions. The Committee Members were informed of the process that bill would have to go through before the amendments could be effected.

The legal representatives highlighted three terms whose definitions needed to be clarified. These were “disallowance,” “nominated account” and “surcharge.” Their argument was that the word “disallowance” was too broad and not clear enough. The Committee agreed and decided to scrap the word altogether and replace it with specific words, which were “irregular, unauthorised, fruitless and wasteful expenditure.”

The definition of “nominated account” was also said to be too broad. This was supposed to be an account into which recovered monies that had previously been misappropriated could be deposited by the AG. The resolution was that monies recovered should go back to the source from which they had come -- either the National Revenue Fund or the Provincial Revenue Fund.

The word “surcharge” was deemed to be problematic because of its association with money bills, and the implication of it being an added charge to a standard charge. The intention of the bill was to talk about recovered monies that had been misappropriated, and not to make profit.

On the substantive provisions, there was a debate as to who should be held ultimately responsible when there was irregular, unauthorised, fruitless and wasteful expenditure in a government department. The resolution was that anybody who was involved in illegalities must face the consequences for their actions, including executive officials such as Ministers, board members, directors general and even junior officers, but that ultimately it was the accounting officers who were responsible and liable in all financial management matters.

Meeting report

The Chairperson reminded the Members that at the previous two meetings, they had been engaging with the Auditor-General (AG) about reviewing the Public Audit Act of 2014 (PAA), and that at the last meeting they had gone through a presentation by the AG and his team. The AG and his team had been asked to review some aspects of the Act which had resulted in the amended documentation that was being presented for consideration. The legal team would offer their views on the Act and give guidance on the process of amendment.

Public Audit Amendment Bill: Presentation

Ms Fatima Ebrahim, Parliamentary Legal Adviser (PLA), made the presentation on behalf of Advocate Frank Jenkins who was on leave. The presentation was in two parts. The first was a preface to the amendment bill which outlined the necessary procedures, and the second comprised preliminary comments on the amendment bill.


Section 73 of the constitution provides for three types of bills that can be presented in the National Assembly (NA): executive bills, private members’ bills and committee bills. The bill in question was in the category of committee bills. The first step was to request the NA to grant permission to introduce the draft bill using law 268, which requires the tabling of a memorandum outlining the particulars of the proposed legislation and whether there would be financial implications for the State.

The PLA indicated that the AG had requested further investigation into the possible financial implications of the Act. She had particular concerns about surcharges. The NA could either give permission to proceed or refer the bill back to the Committee for reconsideration. Assuming that permission was granted, there was still the possibility that the permission could have conditions attached to it. Thereafter, a notice of intention to introduce must be given in the government gazette, together with a copy of the bill. Invitations would then be sent out to interested parties and other stake-holders to submit representations. A minimum of three weeks would be given for representations. Relevant departments and organs of State would be invited to make further representations. Deliberations on the representations would then follow. The Committee would then report to the House after publishing the draft bill.

According to the constitution, there must be meaningful opportunity for public participation in the law-making process. The Committee may then want to make more amendments after further deliberations. The bill would then get certified by the chief Parliamentary legal adviser for three things:

  • firstly, that the bill is consistent with the constitution;
  • secondly, that it is consistent with existing legislation and,
  • thirdly, that it is properly drafted in format and style.

Finally, the Committee would formally introduce the bill by submitting a copy and a supporting memorandum to the Speaker. A Committee bill was unique because a first reading was not necessary since it originated from the Committee itself. Therefore, it proceeded directly to the second reading where the substance of the bill was debated. At this stage, the National Council of Provinces (NCOP) may be asked to make some comments. This completed the process.

Preliminary Comments on Proposed Amendments

a) Definitions

Clause 1 in the bill: the definition of the word “disallowance”. The PLA’s opinion was that the definition was too broad and needed to be more precise. Neither the definition nor the susbstantive provision in 5(1D) defined what a disallowance was. It simply referred to expenditure that was contrary to law. Did it refer to irregular, unauthorised and fruitless and wasteful expenditure? Defining a disallowance as an expenditure contrary to law could mean many things.

There was another definition of a “nominated account,” which was also too broad. The nominated account now referred to a case where somebody needed to make a payment and the AG then appeared to have a discretion as to which account that money was going to go into. Section 13 of the Public Finance Management Act (PFMA) provided that funds that were received by the AG did not have to be deposited into the National Revenue Fund (NRF). However, the question was, how would the AG exercise his discretion? There was a need to provide guidelines on how this discretion would be exercised by the AG. What would be the basis for not sending back the money to the institution from which a loss had been suffered? Why would money be put in the NRF? An explanation was needed.

Then there is the definition of the term “surcharge”. It was a commonly understood term, meaning a fee or additional charge concerning goods, services and particular tax regimes. The term was used in other jurisdictions in the sense that the AG was proposing, but a possible difficulty could arise because section 77 of the constitution, which deals with money bills, specifically refers to a surcharge. A money bill is a bill that imposes surcharges. Money bills fall exclusively in the domain of the Minister of Finance and the surcharge in the proposed amendment bill has no connection to money bills. Using terminology that is associated with money bills would be problematic. The intended meaning in the bill is the recovery of loss due to non-compliance with financial and procurement prescripts, rather than an added tax or penalty.

b) Substantive Provisions

In section 5(1A) and (1B) (b), there is reference to regulations being made. This should be connected to section 52(1) of the Principal Act, where the power for making regulations resides. The word “may” should be replaced by the word “must”. The power to make regulations is already in the Act and the word “must” would reflect this authority.

Section 5 of the Principal Act would be amended by inserting a new clause (1C) about surcharges. Section 38(1)(c)(ii) of the PFMA requires an accounting officer to take effective and appropriate steps to collect all money due to the institution. While it was important that money must be recouped where losses are suffered, it was important to define the roles of particular offices and departments. The AG was now also proposing to perform these duties which were the responsibility of accounting officers (AOs). This would have the possible danger of duplicating responsibilities and could bring inertia among AO’s who might start waiting for the AG to perform these duties. Who was ultimately responsible for the recovery of losses? There was the possibility that the bill could dilute the powers of AO’s.

The PFMA also clearly states that these are disciplinary and criminal offences, and the AOs must act accordingly. If staff members are involved in the misappropriation of funds, this would also constitute administrative action and would therefore be subject to the provisions of the Promotion of Administrative Justice Act (PAJA). There appeared to be a disconnect between the PAJA and the PFMA regarding time frames and procedural steps. For example, a person making an appeal against a negative finding has 60 days in which to make the appeal, whereas the PAJA provides a period of 180 days for judicial review proceedings. The legal department suggested that the PAJA requirements be increased rather than be reduced, as this would give the person more rights, thereby averting possible legal challenges. The PAJA requirements could not be ignored and decreasing the period would attract legal challenges.

Apportionment of blame was another matter requiring attention, especially when it concerned issues such as contracts. Who was ultimately responsible and where did the loss lie? The PFMA suggests that it is the AO who takes the ultimate responsibility.

Capacity constraints and costs were not addressed in the memorandum. If a surcharge were levied, it would require some investigations to be conducted, since there would be multiple departments involved in investigations and there would be many people to interview to get their side of the story. The administrative costs involved in this would be quite high, compared to those if an individual department were to recoup the money that was lost.

The repayment period also needed to be looked into, as 60 days was too short a period in which to repay losses incurred, especially if the losses amounted to millions. The provisions also did not provide for an extension period in the case of a default. An important question that also arose is whether interest would accrue on these amounts. What about other costs related to the recovery?

Committee’s Response

The Chairperson said they would go through the points one by one to make decisions on them with the possibility of deleting some and amending others, taking into consideration the concerns expressed by the legal department.


1. Definition of “Disallowance”
The Chairperson asserted that the Committee’s understanding was that the word was supposed to convey the meaning of irregular, unauthorised, fruitless and wasteful expenditure.

Adv Marissa Bezuidenhout, Legal Advisor, AGSA, said the AG had no objection to using the correct language of irregular, unauthorised, fruitless and wasteful expenditure.

Mr N Singh (IFP) wanted to find out whether the word “disallowance” was used in any other way in the legislation, and whether it had a specific meaning.

The chairperson responded that the proposal was to scrap the word “disallowance” and to use the specifics of irregular, unauthorised, fruitless and wasteful expenditure.

Mr Singh replied that he was comfortable with that.

2. Definition of “Nominated Account”

AGSA disclosed that it consulted with accounting and auditing experts, and there was a concern about the impact the definition would have on standard accounting practices. Would a disallowance surcharge, when it was recovered, qualify as revenue and how would the department suffering that loss account for it? That was why AGSA proposed sending back the money to the source from where it had come. If the money came from a national department, then the money would go to the NRF and if it came from a provincial department, then it would go a Provincial Revenue Fund (PRF).

The Chairperson affirmed that the intention of the bill was to provide for consequence management. If the money was lost by a department and the recovered money was taken back to the same department, then there would be no consequences. If money was misappropriated by a department, the Minister, the Director General (DG) and the AO must understand the consequences of that mismanagement. If money was sent back to the department, then the AG would tolerate the mismanagement and play the role of fixer. If the money was not sent back to the department, then the Minister, DG and AO would have to account for the money lost to the public.

The resolution agreed upon was that the money should go to the source -- either the NRF or PRF -- and not back to the department that had misappropriated the money.

3. Definition of “Surcharge”
The legal department wanted the term to be changed.

Mr A McLoughlin (DA) agreed that it was the wrong word to describe what they intended to do, because a surcharge was something one added on top of an amount that was already owed. This was an amount that had been misappropriated and needed to be refunded. It also was not a levy. He admitted that he was not sure which was the correct word to use, but “surcharge” was not the correct one.

Ms Z Dlamini-Dubazana (ANC) said she had gone through section 77 of the constitution and found no definition of “surcharge” there.

The Chairperson suggested that it would be better to allow the other Members to give their opinions before addressing her observation.

Mr Singh proposed the word “recovery”. He contended that it was a recovery of misappropriated funds and that a surcharge was something one charged over and above what had already been charged.

The Chairperson concurred with Mr Singh that it was a loss recovery.

AGSA said the word surcharge was used in other jurisdictions, such as in Ghana, to refer to the same concept, but cautioned that it could create confusion and advised that it be changed.

In response to Ms Dlamini-Dubazana’s observation of section 77, the legal department agreed that the constitution itself did not define surcharge, but the word had the technical meaning of something added to an initial charge. The constitution just indicated the kind of taxes that constituted a money bill. The accepted audit term was “losses.”

The committee resolved to delegate the work of finding an appropriate word that would reflect and convey the intended meaning of recovery to AGSA and the Parliamentary Legal Department.

Substantive Issues

The Committee discussed Clause 3 of the bill and amendments of section 5, and the insertion of a new clause 1(C). Who was responsible for the investigations and recovery of money between the AG and AO? Where did the duty lie? Was power being taken away from the accounting officers? Would the AG come in only after the AO had been unsuccessful?

The Chairperson agreed that this point was not clear in the bill. He asked why the AG had to take on the duty of recouping or recovering the money instead of the AO. The PFMA, which was the supreme law about financial management in the departments, indicated it should be the Board, Director General (DG) and AO. He emphasised, however, that the buck stopped with the AO. He reflected that in 23 years, practice had shown that not a single DG or board member had been punished. He lamented that the information was there in the Act, but nobody had been punished.

He said it was still unclear what the role of Parliament was. He stressed that the AG, as an independent body, must be able to pronounce and say a DG was guilty of an offence after investigations, and should have the power to refer a DG to the Public Protector or somewhere else. He argued that Parliament had failed in its duty because there had always been fighting and that in 23 years, no one had been found liable. The AG would pronounce on serious lapses by DGs, but nothing would be done. There had to be a way of holding people to account. His opinion was that anything that referred to officials should be removed, as responsibility fell squarely on the AO. Everything concerning the surcharge must have the AO as the person ultimately responsible.

Mr Singh said the AO should ultimately be responsible for collection, but he asked what would happen if the AO was the culprit. The transgression for the misappropriation of the funds resided directly with that AO, and not with any other junior in the department. What mechanisms would be used in such a case? He pointed out that the PFMA had provisions where an executive authority could direct an AO to enter into any transaction, even if he was unhappy, provided this transaction was recorded and both the executive issuing the instruction and the AO effecting the transaction signed the document detailing the circumstances.  He asked what would happen if it was discovered by the AG that an executive authority, a Minister, was involved in a fraudulent transaction. Addressing the Chairperson, he asked: “Should not all these transgressions and recoveries be a resolution of the House? When we say we authorise unauthorised expenditure, it takes years to do so because the process is so slow. What is the legal mechanism to give it teeth? Should it not be a resolution of the House, listing the transgressions and who we should recover the money from?”

Ms N Khunou (ANC) agreed that it had always been the AO who took final responsibility for financial matters. The PFMA was one of the best pieces of legislation, but the only problem was its implementation. The House had to find a way of making sure there were consequences for the executive authority, the DG, the AO and junior officers.

Mr McLoughlin said sometimes AOs were not guilty. The AO could put in every possible measure he could think of to prevent some action, but one would find a very clever person under him who may just subvert him and funnel out money. Sometimes it was other people who were liable or guilty, but now the accounting officer was going to be nailed because this happened under his watch, which was grossly unfair. This would not fit in with the intention they had in framing this legislation. He proposed that whichever person was found responsible should be held accountable. He also reminded the Committee that the AG’s powers were limited to government, and that he had no jurisdiction outside of government, so some cases would need to be referred to the office of the Attorney General. He also cautioned that the AG’s office should not be turned into a collection agency.

Ms Dlamini-Dubazana agreed with Mr McLoughlin. She said it should be remembered that Treasury’s financial regulations gave them power over different types of categories, where they would say a tender to a certain value had to be signed by someone at a certain level, while the accounting officer had no picture of what was happening. Other tenders required three quotations, and then somebody signed. She made reference to clause 1(C), which stated that “any person” who was in the employment of an accounting entity and committed any wrong must face the consequences of their actions. She argued that this clause answered the question of who was responsible, because it covered everyone. Any person who was guilty of irregular, fruitless and wasteful expenditure had to be held liable.

Mr N Godi (APC) said his understanding was that whatever amendments that were being made would not necessarily amount to amendments of the PFMA, whose spirit was fundamentally that managers were to be allowed to manage and then be held accountable for their decisions. This accountability was supposed to be effected through Parliamentary processes and through the AG’s audits. He was convinced that they could not dilute the PFMA, and that it had to be the starting point.

The Chairperson stressed that the PFMA was clear on who carried the ultimate responsibility – the accounting authority. It was the accounting authority who had to put into place the supply chain management mechanisms -- both the AO and the internal audit, as they were the people that had to bear the final responsibility. He emphasised that unless the accounting authority was held liable, they would continue having problems.

The prevailing situation was that the AG would conduct independent audits and where gross negligence and corruption were discovered, a certificate would be issued detailing the source and facts of the misappropriation in the supply chain management. The AG would then make a recommendation that the misappropriated funds must be recouped, and this information would be forwarded to the Standing Committee on Public Accounts (SCOPA), who would in turn make a recommendation that would go to the House. In the following year, the matter would surface without it being resolved. He lamented that the reason for this happening was because the AG had no power to enforce. The intention was that the certificate must be prima facie evidence to present to the Public Protector and the courts of law.

He further stated that there would be no duplication of roles, as the AG would come in only after the facts. By the time the AG had picked up an issue, it would mean the AO had not done what he should have done. So the AG was not a duplication the DG or AO’s role. The AG came in only when the DG had failed, and therefore the DG had to pay the price for not explaining why he had failed. By the time the AG gets involved, the DG’s role has stopped. He again stressed that even if the DG was forced by the Minister to sign a contract, he would still be held accountable. He argued that the DG should be ready to go to court to defend his position. After giving his opinion, he asked the Committee what it should do when the AG picked up fruitless and wasteful expenditure.

Mr Godi said that according to the law, the AG was duty bound to prevent irregular, unauthorised, fruitless and wasteful expenditure from happening. If a junior officer was responsible for a corrupt activity, he would be criminally liable, but the accounting officer would be guilty of failing to prevent it. He reasoned that if ten such cases occurred involving the same person, perhaps this would also constitute a criminal offence on the part of the AO. It would probably translate to criminal negligence. The AO was supposed to put in place systems to prevent such occurrences from happening. He added that according to the law, it was the AO who had to answer charges, and not the Minister. The point of contact between the AG and the department was the AO. The AG could not go to a chief director to ask why there were irregular, unauthorised and wasteful expenditures in a department.

The Chairperson said he could not have put it any more eloquently -- the buck stopped with the accounting officer, and there was no overlap.

Mr Singh said he wanted to remind the Committee that it was also dealing with State Owned Enterprises (SOEs), and that certain board members had behaved irresponsibly in terms of financial management. He asked AGSA and the Parliamentary legal department to remember that when redrafting the bill.

Mr M Ntombela (ANC) was concerned about a provision in the bill that would empower the AG to make regulations that would give guidance on how the AG would arrive at decisions concerning which investigations to pursue. He was worried that there could be conflict with other investigative departments, like the Attorney General and the Public Protector. He asked how far the AG should proceed with investigations.

AGSA responded that the provisions about the AG being empowered to make regulations about investigations were actually meant to limit how the AG instituted and conducted investigations, because the prevailing situation was that any person could approach the AG’s offices and request investigations to be conducted. The provision was meant to restrict who could approach the AG so that private individuals could approach institutions like the Public Protector.

Mr Jan van Schalkwyk, Corporate Executive: AGSA) responded to the question of who had the ultimate responsibility and bore liability when there was misappropriation of funds. He confirmed that the buck stopped with the accounting officer. When an AO was overruled by an executive authority, that action needed to be documented.

The legal department admitted that the bill in its current form did not speak to the intention, and would require further amendments.

The Chairperson mandated the legal department and the AG’s office to work together to make the necessary amendments, especially about the surcharge, to ensure that the aim was to cover losses and not to make profit. Once the amendments had been made, the document should be sent to the Committee Members.

The next meeting was scheduled for 20 October 2017, with 13 October being the day on which the amended bill would be circulated to Members for perusal and comments.

Adoption of minutes

The minutes of the meeting held on 25 August 2017 were proposed for adoption by Mr McLoughlin and seconded by Ms Dlamini-Dubazana.

The meeting was adjourned

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