Public Audit Act Amendment Draft Bill: public hearings day 3

Meeting report

Chairperson’s opening remarks

The Chairperson warned that Members who were not present would have to catch up or argue their cases when the Committee met again on Tuesday. The target of the Committee was to come up with a final product by the end of this month. There would be a Chairpersons’ meeting on Wednesday and there was a reminder that the Committee needed to process the draft Public Audit Act Amendment Bill as soon as possible so that it could be passed by Parliament, as this was considered as an “election year”. The Committee did not have any other option but to chase the deadline of the end of March 2018, and needed to keep its fingers crossed that the Bill would be processed. The conclusion of the Bill by the end of March would mean that it could be part of the regime by next year.

Submission by Eric Smith

Mr Eric Smith, as a private member, referred to the weakness in South Africa’s regulatory regimes in relation to environmental management, monitoring and enforcement, and the Auditor-General’s (AG) mandate to consider and report on legislative non-compliance. The AG should refer significant environmental non-compliances and their impact to the appropriate investigating authorities. The AG should, and could, play a significant role in ensuring accountability, but the environment and sustainability of scarce resources were being neglected or threatened because of a lack of management, legislative non-compliance, or improper monitoring and enforcement.

Discussion

The Chairperson said that the Constitution was clear on what the Auditor-General (AG) must do, including the roles and responsibilities, and this needed to be the main focus of the Committee in considering the submissions that were being made.  It needed to look at the issue of value for money by entities that were given the responsibility of dispersing funds. It looked like the submission was asking the AG to conduct environmental audits because the regulatory bodies were not doing their work. Why not fix those organs of state that were responsible for the regulation of environmental issues? Did the AG have the capacity in place to conduct environmental audits? Was it even desirable for the AG to be involved in the auditing of environmental issues? This was not to say that the environment was not important, as it was a crucial part of the country’s future, but perhaps it was not best placed here. The AG had briefed the Committee on reducing the staff complement by 54 personnel, while the Committee was requesting the AG to conduct audits at State Owned Entities (SOEs). The primary aim of the Committee was to focus on the issue of irregular expenditure, which was becoming out of control. It was completely unacceptable to have the AG complaining year after year about the explosion of irregular and fruitless expenditure.

Mr Smith responded that there were some serious financial implications arising from the environmental impacts involving municipalities and other government entities. Millions of rands were spent on the rehabilitation of waste landfill sites, and this showed that there were huge financial implications for environmental management. The AG was responsible for looking at financial regulation, and therefore it was appropriate to use the current audit methodology to deal with the issue of environmental impacts. The AG was also tasked with looking at compliance with legislation, and this did not include only financial matters, but other existing legislation. The submission was not proposing that the AG should conduct environmental audits, but to ensure that there was consideration of issues concerning environmental management and environmental risk matters. The submission was making it clear that these environmental risks had an impact on service delivery.

He added that the submission was certainly not asking for specific separate resources and a separate function for the AG to conduct environmental audits, as there was a realisation that there were limited resources. It was critically important for environmental management to be included in the reports, and taken into consideration by the AG. The submission was suggesting an inclusion of significant environmental risk matters in the planning process. The AG could not look all the environmental concerns in the country because of the limited capacity and, as indicated by the Chairperson, this was the job of the regulatory authorities. The proposal was for the AG to include any significant environmental risks that had an impact on the financial statements, and compliance should be included in the report.

The Chairperson indicated that how the AG was doing its work would not feature in the Bill. This was something that Mr Smith could discuss with the AG on the boardroom. The Committee could not try to do everything just for the sake of “blind compliance”. The Standing Committee of Public Accounts (SCOPA) and AG were usually working together.

Ms S Shope-Sithole (ANC) said that the issue of environmental management should not be assigned to the AG, as there were relevant stakeholders in place to deal with the issue of environmental management. 

Ms P Bhengu-Kombe (ANC) commented that there had been an issue concerning the spillage of toxic water from acid mining in Johannesburg. This was one of the environmental issues that could be reported to relevant stakeholders, and did not necessarily have to be contained in the Bill.

Mr Smith argued that there was already an environmental strategy within the AG, and therefore there was already a plan in place to incorporate environmental issues within the scope of the AG’s work. There was a concern at the moment about the abuse of the environment, especially at the municipal level, and this was an issue that needed to be taken into consideration.

Mr Kimi Makwethu, Auditor-General: AGSA, replied that the response of the AG would be incorporated in the next scheduled engagement. Mr Smith had been personally tasked to look at environmental matters, including the environmental strategy, as stated in his submission. It was confusing as to why Mr Smith was saying he was coming as a private member, and then continued to discuss issues that had been discussed as a collective within the AG.

The Chairperson asked if Mr Smith was part of the AG’s team.

Mr Makwethu confirmed that Mr Smith was indeed part of the AG’s team.

Submission by Thato Rabanka

Mr Thato Rabanka, as a private member, said his report outlined recommendations on how the Auditor General’s powers could be expanded to ensure issues such as unauthorised, irregular, fruitless and wasteful expenditure were reduced or eliminated. He referred to the definition of terms in the Municipal Finance Management Act booklet:

• “Unauthorised expenditure” meant expenditure that exceeded the budgeted amount or the amount that was not spent in accordance with the intended purpose.
• “Irregular expenditure” meant expenditure spent without complying with applicable legislation.
• “Fruitless and wasteful expenditure” meant expenditure that was made in vain. and would have been avoided had reasonable care been exercised.

Based on the definitions alone, one could conclude that these expenditures raised questions of legality of transactions, if money was spent without complying with legislation. They also raised questions around the efficiency of government departments or municipalities.

The precedent set in recommendations should apply to all Chapter 9 institutions. The first step would be to clarify what the AG’s recommendations meant, as had been seen in the Supreme Court judgment in the South African Broadcast Corporation (SABC) versus the Democratic Alliance (DA) case. The powers of the Public Protector had been clarified, and the court had found that the Public Protector's remedial actions had legal effect and could not be ignored. Both these institutions were established under Chapter 9 of the South African Constitution. He argued that the decision of the Supreme Court also set a precedent for the AG’s recommendations to be legally binding. How could Chapter 9 institutions ensure good governance if the AG’s recommendations could just be ignored?              

Mr Rabanka recommended that in order to ensure good governance, the AG should approve the members of audit committees in any government department or municipality, to ensure they were independent and had sufficient knowledge and skills for the position. The recommendations of the AG should be applied immediately after they had been issued, and the audit committee should constantly monitor the progress and application of the recommendations. Depending on the size and complexity of the department or municipality, the audit committee should brief the AG on the progress of the application of the recommendations over a period the AG may deem appropriate.

Discussion

Ms Shope-Sithole commented that this was a good presentation, especially on the issue of introducing an audit court to deal with those who were opposed to the findings of the AG. It was crucially important for people to start taking the AG’s findings very seriously and to stop disputing them on matters they primarily knew and were familiar with.

Ms Bhengu-Khombe said that taking the AG to court would be a time-consuming exercise, as this simply meant that it would take time to deal with those who were supposed to be held accountable, and also to reverse all the funds that had been wasted on irregular and wasteful expenditure.

The Chairperson indicated that the suggestion that the AG should approve members of the audit committees seemed to dilute the independence of the committees. There was a problem of the separation of powers, and this was something that needed to be looked into. The suggestion that the findings of the AG should be implemented immediately was problematic, as there were some people who always said the AG was not “god,” and therefore they believed that they had the right to question and even dispute the AG’s findings and recommendations. The Public Finance Management Act (PFMA) and Municipal Financial Management Act (MFMA) were clear that the recommendations of the AG needed to be implemented by the accounting authority, and therefore this could not be done by the audit committee.

It was indeed true that there was the Companies Act, which should deal with the issue of delinquents within state-owned entities (SOEs). It was still unclear at the moment as to how to resolve the disputes by auditees who were constantly complaining about the findings of the AG. What should happen when the Director-General (DG) of a particular government department did not agree with the AG findings and recommendations? Did the submission insist that disputes should be taken to court? Should the AG’s recommendations be binding so that they could not be taken to court?                             

Ms Shope-Sithole said that there had been a problem of financial mismanagement within the National Treasury, and therefore as much scrutiny should be given to the National Treasury as was given to municipalities.

Mr Rabanka agreed that indeed the AG should not be seen as some kind of god, and that was precisely the reason why there was a proposal for an audit court, where there could be an adjudication of the disputes. The court would give auditees an opportunity to challenge the findings or recommendations of the AG. If the auditees still disagreed with the findings of the court, they could still take their dispute to the Supreme Court. The audit committees were independent in nature, and they ensured that there were controls in place to ensure that everyone adhered to the controls and regulations.

The Chairperson said that one could not allow a situation where all the AG’s findings were challenged and disputed, although this did not mean that the AG should be treated like a god. It would be difficult to find a balance between the two issues. The AG would still need to comment in the next engagement on the desirability of getting involved in the identification and appointment of the audit committees. The recurring theme from the Committee was that it was completely unacceptable to have a situation where all the findings of the AG were challenged by all entities and government departments. However, there should also be a channel to adjudicate the disputes, as entities were entitled to do so.

The Committee would take into consideration the inputs of the two members today, but this did not mean there was a guarantee that these would be incorporated into the Bill. The Committee would still deliberate on the inputs. There would be discussions at the next meeting with National Treasury (NT) and the AG.

The meeting was adjourned.