Appointment of the External Auditor for AGSA; Committee Reports

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed everyone and appreciated the work that was done by Members the previous day. Today, the Committee would be dealing with Committee business including the adoption of the Auditor-General’s 2016/17 Annual Report and its Strategic Plan for 2018-21.

Matters arising

Mr N Singh (IFP) asked if the meeting between the AG and Treasury that was scheduled to take place on 23 November managed to take place.

An official from the Office of the Auditor-General of South Africa (AGSA) responded that the meeting was cancelled by the Treasury and there was no indication as yet on the rescheduling of the meeting

Adoption of minutes

The Committee adopted two sets of minutes: dated 16 and 17 November 2017. Both were approved without amendments.

Committee Report on AGSA’s 2016/17 Annual Report

The Chairperson tabled the document for consideration.

The Committee adopted the report with minor amendments including grammatical errors.

Committee Report on AGSA’s 2018-2021 Strategic Plan and Budget

The Chairperson tabled the document for consideration.

Mr Singh requested the AG to consider the impact of the Public Audit Act on the Strategic Plan for 2018-21 as the Act was likely to have an impact on the operations of the AG.

The Chairperson said that this would be taken into consideration in the report and it would be under the recommendations of the Committee.

The Committee adopted the report with amendments.

Briefing by the Chairperson of the Audit Committee on the appointment of the External Auditor

Mr John Biesman-Simons, Chairperson of Finance, Audit Committee, AGSA, said that the Committee will be provided with an update on the process that had been followed in trying to get a new external auditor for AG. The AG was really struggling to get a new external auditor and one of the reasons for that is because the AG is contracted to a lot of private firms. There are medium and large audit firms that are working for the AG and there are also smaller firms especially those that are black-owned and this is to meet the transformation goals of the AG. There are very few black owned public sector audit firms. The AG had an open tender process and only one firm replied to the tender but the bidder did not meet the requirements for tender. There was a second open tender bidding process but there was not even a single bidder that applied for the tender. The AG decided to undertake a closed tender bidding process and targeted specific firms and still the AG did not get a single response.

Mr Biesman-Simons believed that the AG needed to amend the criteria for the appointment of the external auditor so as to be able to make any possible appointment. The AG had specific criteria on the need for the audit firms to have public sector experience and this was causing many audit firms not to respond to the tender bidding process. The AG came to the conclusion that public sector experience was not an essential requirement for audit firms. The AG therefore de-emphasised the importance of public sector experience. Initially, the tender had very strict BEE requirements as it was highlighted that the firm needed to be 51% black-owned and 30% female black-owned. There was relaxation on BEE requirements as this was another issue making audit firms not to apply for the tender. This was an unfortunate relaxation but the AG needed to implement this relaxation in order to be able to get the bidder. There was also relaxation on the requirement for the appointment of women of certain percentage as most of audit firms were not doing well in this regard. There was also a relaxation on the requirement for the audit firm to have 5 partners and this was decreased to 4 partners.

Mr Biesman-Simons said that AG will need to engage with audit firms face-to-face so as to ensure that they are able to meet the criteria. AG had a concern that Parliament was going into recess period and would likely reconvene in mid February 2018. This meant that if the AG was able to find the successful bidder while Parliament is in recess then will need to wait until mid February to get the approval of the Committee.

Discussion
The Chairperson asked about the timeframe for taking the decision on the appointment of the external auditor. Parliamentary committees would be meeting by mid January 2018 and therefore the Committee could meet with AG on 18 January and not necessarily in mid February 2018. The Committee hoped that the relaxation on the criteria for audit fee would not impact on the quality of work of AG.

Mr A McLoughlin (DA) wanted to know about the limit of 15% and what exactly it involved.

Mr Singh commented that there was a need to be democratic and transparent in the process to be followed. It was unclear if it was possible for the AG to stop assigning work to those external companies doing auditing for the AG that are unable to meet the criteria. The Committee was concerned about the relaxation of criteria on many areas just to make the appointment for the external auditor. The reduction of 4 partners was something that the Committee was not really concerned about. The AG was not a public sector organisation and therefore it was redundant to have that requirement.

Ms Z Dlamini-Dubazana (ANC) asked about the reason for the relaxation in the criteria for public sector experience. What are the risks and mitigation in place? In terms of using 15%, was there any solid research on mitigating the 15%? It must be highlighted that it was the policy of government to encourage the appointment of women in critical positions and this should still be done without compromising the standard

Ms P Bhengu-Khombe (ANC) also concurred with the sentiment on the need to take into consideration of the government policy on the representation of women.

Mr N Gcwabaza (ANC) wanted to know about the detriment on the relaxation of certain criteria as this was not being explained.

The Chairperson agreed on the relaxation of public sector experience as one of the requirements being taken into consideration as this was not as essential. The main concern was on the relaxation of reliance including relaxation on BEE requirements and women representation.

Mr Biesman-Simons responded that in relation to the question on timeframe for making the decision, 1 December is the reply date and 11 December is the adjudication date. One member who is part of the adjudication team is overseas and is expected back on 11 December and therefore will be part of the process. The AGSA can accept coming to the Committee on 18 January 2018 to brief it on the decision that had been taken and the process involved. The 15% refers to the fees that the independent external auditor earns on audit fees. AG agreed on the need to have a democratic and transparent process and the direct approach to the bidders was the absolute last resort. There is a fair chance that the AG will not get the successful bidder if it is unable to directly approach the audit firms. AG is not subject to rules as in the Public Finance Management Act (PFMA) and Treasury guidelines on the tender process to be followed. The direct approach of audit firms was not breaking any rules but will be acting contrary to best practices of procurement process.

Mr Biesman-Simons stated that the AGSA realised that it was virtually impossible to find a firm that was able to comply with BEE requirements that were put in place. AG was against the proposal that it should be audited by the Supreme Audit Institutions; instead it chooses the option to relax the BEE requirements and have the South African firm doing the auditing of AG. It was also impossible to get a 30% black women-owned firm. The AG wanted to expedite the process as it was impossible to operate without the external auditor in place. 

The Chairperson requested AG to communicate with the Committee after 11 December on the decision that had been taken on the appointment of the external auditor. The Committee accepted the fact that it was difficult to achieve the BEE requirements including the criteria on women representation. However, the Committee would not accept appointment of the external audit firm that is “all whites” and “all males” as there is a need for a form of transformation and women representation to take place.

The meeting was adjourned.