Threats to Audit teams: SAPS, COGTA, AGSA briefing; AGSA Strategic Plan

Meeting report

Opening remarks
The Chairperson welcomed the Auditor General, the Chief Commissioner from the South African Police Services (SAPS) and their entourages, the Department of Cooperative and Traditional Governance (COGTA), and the Chairperson of SCOPA as the issues on the agenda affected SCOPA. She said that the Committee was fighting corruption together with the Auditor General. As Members of Parliament they represented the people. Taxpayers needed to know what was happening with their money. The goal was to better the lives of South Africans. The message was that whatever was happening had to come to an end. She hoped that the police would have solutions. The police had to have action plans so that Parliament could monitor them.

The Minister of Cooperative Governance and Traditional Affairs, Dr Zweli Mkhize, was chairing a MINMEC meeting and sent his apologies.

The Chairperson asked the Auditor General to brief the Committee.

Auditor General Report
Mr Kimi Makwetu, Auditor General, AGSA, thanked the Chairperson for the opportunity. He wanted to take Members down memory lane. His auditors had been accustomed to audit, examine the records and ask for specific documents and in the past that had always resulted in a conclusion of the audit, whether good or bad.

In 2016, AGSA observed a trend - confined at that stage to the Free State - where staff in that office was threatened and intimidated. There were attempts to bribe them to dissuade them from arriving at appropriate audit conclusions. It died down once it had been reported to the leadership in the province and had been reported in the Auditor General Report of 2016/17. It had even been raised in the Presidency as a matter that had to be attended to.

In 2017, the AGSA started seeing reported instances in different provinces beginning to take more prominence. Staff were uncomfortable about how safe they were in the audit environments.

In 2018, in eThekwini and Msunduzi municipalities in KwaZulu-Natal (KZN), similar threats including a death threat occurred in the month of May. Recently, in Tshwane, auditors had been held hostage for four hours when trying to verify assets during an audit.  The AGSA had needed the security agencies to find and release the auditors. The hostage-taking was not directed at the auditors themselves but they were in the company of municipal officials who were identifying the assets and were taken hostage because a supplier had not been paid.

An incident that shocked AGSA deeply took place in Emfuleni municipality where a staff member, who was still in training, was booked in a guesthouse when intruders invaded her room. She was shot and had to be admitted to hospital and was still recovering. It was an intrusion while she was sleeping. Someone entered the room and another was at the window. Security services followed up and had tried to determine what had occurred. AGSA had done its own investigation into what could have given rise to that situation.

There had been a number of other incidents such as in Moretele and Madibeng in the North West. The AGSA found that people were getting uncomfortable with the thoroughness of audits and issued threats or interfered with vehicles. Vehicle windows were broken and tyres slashed while they were working. They had almost been held hostage one evening by people who thought that they were municipality management.

Summing up, AGSA audit staff who were carrying out the mandate of AGSA were being put under unnecessary threat to their lives and that matter needed to be given attention by AGSA, Parliament and also the security services. Innocent professionals were exposed to danger while doing their work. The AGSA had evaluated its options and considered what ought to be done because AGSA was doing work that was a constitutional obligation. When his Office looked at the totality of incidents, the Office was wondering whether, if someone made a veiled threat or made statements regarding threats during an audit, that was not a crime against the state.

The Chairperson thanked the Auditor-General for his input. She stated that discussion would take place after the additional presentations.

Threats against the AGSA Audit Teams in Gauteng and North West - SAPS

General Khehla Sithole, National Commissioner, SAPS, thanked the Chairperson and introduced Deputy National Commissioner, Lieutenant-General Sehlahle Masemola, who would make the presentation.

General Sithole stated that SAPS needed a security plan for working with the Auditor-General which was classified as a medium to high risk institution by virtue of its function, especially when there was corruption in the environment. SAPS would like to talk to them about a security and protection dispensation for AGSA but for the present, the plan to be presented would keep them safe. There would be environmental and individual threat assessments.

Lieutenant-General Sehlahle Masemola’s presentation concentrated on where there had been incidents and how SAPS was going to assist the Auditor General. The purpose of the presentation was to provide feedback on the status of the cases registered by the SAPS and to inform the Committee of measures undertaken to ensure the safety of AGSA officials in the execution of their duties.

Regarding the Emfuleni incident in Gauteng, at approximately 03:40am, the complainant was asleep in the guest house when she was accosted by an unknown African male in her room. She was shot twice and wounded in the right thigh during the incident. There were no suspects as yet. Fingerprints showed that it was either someone with no previous crime history or a foreigner. The guesthouse could not supply footage from its security cameras.

The alleged incident in Tshwane was dealt with by the Tshwane Metro Police and the AGSA Security, which had resolved the incident; hence there was no record with the SAPS. Both incidents relating to threats in the North West were successfully dealt with at a meeting with the Municipal Manager and all employees, but the responsible person/s could not be ascertained. In North West in 2017, an AGSA staff member’s vehicle was stolen and another member’s vehicle was broken into and some belongings were stolen. Both incidents were reported to the SAPS, but remain unsolved.

An engagement was held with AGSA and the SAPS, on 18 October 2018, where matters of a security nature were addressed and the way forward was mapped out. The SAPS would attend to the security needs of the parastatals and plans were in place to ensure the safety of officials. Measures had been put in place with those offices at different levels to provide security needs in terms of specific threat assessments that would continuously be conducted by the crime intelligence community. Communication between SAPS and those institutions had been streamlined at all levels, to allow immediate information sharing and registration of complaints.

Both Municipalities in the North West had confirmed that they would take the security of the AGSA Teams very seriously and had improved security measures. An Early Warning System was in place to prevent life threatening incidents against officials. The office of the Auditor-General was aware of the security arrangements but he did not want to publicly divulge details as that would compromise the security arrangements.

The Chairperson thanked General Masemola. She agreed that he could not lay out security plans. She said that the country took the Auditor General seriously. Some things in the country were being dragged and she hoped that the same mistake did not happen there. The plans had be something that put an end to it. Without the Auditor-General, there would be no service delivery.

As the Minister of COGTA was unable to attend the meeting, he had delegated Chief Director, Mr Manyedi Mkashe, to make the presentation.

Presentation by COGTA
Mr Manyedi Mkashe, Chief Director: Anti-Corruption, COGTA, provided a report on the assistance provided by COGTA with regard to threats against the staff of AGSA during audits at some municipalities.
In May 2018, the Minister had received correspondence from the Auditor-General of South Africa, raising serious issues relating to the intimidation of Audit Managers at eThekwini and Msunduzi municipalities. He also raised concerns regarding the threats at Emfuleni municipality in Gauteng and had requested intervention from the Minister to resolve the issues.

The Minister had sent letters to the Premier, MEC and Mayors of the affected municipalities in KwaZulu-Natal; to the Ministers of Police, Finance and the AG; and had issued media statements on the threats to the AG staff in KZN and Gauteng. COGTA had engaged with the Municipal Manager in Ethekwini and found that, apart from the threats, there was a sound relationship and the Manager would put security measures in place. A criminal case had been opened with SAPS in the Emfuleni Local Municipality and the matter was under investigation.
COGTA was alarmed at the situation which had resulted in Office of the AG withdrawing audit managers, but it expected that the issue would be resolved through the implementation of the security plans which would be closely monitored.

Discussion
Mr M Shackleton (DA) stated the Auditor General was a Chapter 9 Institution and the functioning of the Auditor General was central to the functioning of the state. He agreed with the Chairperson that they were all there because they were fighting corruption and needed to assist AGSA with performing its duties appropriately and properly. In the Public Protector Act, there was a section that made it a criminal offence to insult the Public Protector and there should be something similar in the Auditor General Act. He agreed that if someone tried to bribe or threatened a member of the AGSA team, that should be viewed as a crime against the state as AGSA was very important to the country and every cent should be going where it was meant to be going, especially in terms of service delivery.

Mr Shackleton stated that the attacks were widespread and the police could not share details if the security plans, especially if meetings were often televised and anyone could sabotage or hamper those plans. The Committee surely condemned the attacks. He had never been involved in the police but he hoped the police were up to dealing with the task.

Mr T Godi (APC) thanked the Chairperson for inviting SCOPA to the meeting as SCOPA used the reports of the Auditor General more than any other Committee and so how that office functioned was important to the Committee. Three Members of SCOPA were at the meeting. 

He noted that the things that had happened had started with confrontations with AGSA and threats of going to court and had degenerated from there. It was good to have the meeting to send a strong and public pushback so that that thing did not become a new norm. It was embarrassing and shameful that the Members should be discussing those things. Where did they come from? What enabling environment did the country have that created that kind of thing? What role, as supposed leaders of society, did the Members of Parliament play in allowing that to come about? How had it happened?

Mr Godi added that, as everyone was aware, SCOPA did not have all the Auditor General’s reports because of contestations which had tried to prevent scrutiny, but, at the end of the day, had resulted in an audit report. For him, there were three elements: SARS that collected the money; National Treasury that distributed the money; and the Auditor General who determined how the money had been used. Everyone was interested in National Treasury distributing money, and the whole country came to a stop for the budget, but no one cared about the spending of the money. Distributing money was important as it showed how government responded to society’s needs but how the money had been spent was even more important. Parliament should have a joint sitting for the Auditor General Report as that would send a message to society about the fact that AGSA was the most important institution after the South African Revenue Service (SARS) that collected the money, and how important it was to know how money was spent. The Committee should look into a joint meeting.

There had to be a political approach and the meeting should have had the Ministers of each Department in the meeting to raise the matter from an administrative level to a political level. SCOPA condemned, as it had in the past, departmental officials who contested the Auditor General findings for weeks on end and finally were found to be wrong. There had to be measures to punish such meaningless contestations and challenges to the Auditor General.

Mr M Ntombele (ANC) appreciated the reports. The Auditor General had stated that incidents had happened in the Free State but he got the impression that the matters had been addressed. He was interested in knowing what exactly happened in the Free State. And then, there were incidents in other provinces.

Mr Ntombele stated that any threat to the Auditor General was a threat to the state. He was comforted by the involvement of SACP. He did not understand the COGTA report which stated that the issues would be resolved by the security plan. How were those issues going to be resolved because they were talking about death threats and intimidation? What resolutions had been taken? It was important to note that there had been no threats at Msunduzi municipality, although earlier the report spoke of threats. He quoted from the presentation by COGTA: “In May 2018, the Minister received a correspondence from the Auditor-General of South Africa, raising serious issues relating to intimidation of Audit Managers at eThekwini and Msunduzi municipalities”. However, the last slide by COGTA stated: “It is important to indicate that there were no threats of intimidation at Msunduzi Municipality.” What was the truth? Everyone knew how volatile KZN municipalities were. Could COGTA explain?

Mr Godi corrected Mr Ntombele, noting that the involvement was by SAPS not SACP.

Mr Ntombele thanked Mr Godi for the correction.

The Chairperson agreed with the comrades and wondered how the Committee could deal with the Public Audit Act. The situation would be more problematic when the Audit Act was implemented. The threats would increase. People involved in corruption would be fighting back to ensure that they did not need to account for their corruption. At the guesthouse there had been CCTV cameras, but there was no footage for that night. SAPS had to check with owners of guesthouse. They should be the first suspects,

The Chairperson agreed that the Ministers should have been at the meeting. The Committee needed to be able to monitor action plans.

Responses
The Auditor General thanked the Members for the contributions made. In line with the suggestion made by Mr Godi about the profile of AGSA, he stated that he should add one other element. The AGSA played a central role in Auditor Generals internationally and the Auditor General had received letters from AGs in all corners of the world raising similar concerns as raised in the meeting and pledging their support. The situation was a risk not only to the institution, but also to the country. When people assessed SA, they assessed the stability and credibility of the institutions, so it was not a small thing confined to a province. It had international ramifications. The international Public Audit Institutions had taken resolutions in 1953, in 1987 and 2007 that expected the Auditor General to be independent. It was an international concern that SA was a wild place.

The Auditor General stated that it was uncomfortable to work with security around. It was preferable to work quietly on one’s own. The AGSA had 700 qualified CAs. They had choices. Young and energetic qualified CAs could leave and get a job anywhere in the country. They could become CFOs in many places across the country and so why would they choose to work with someone carrying a gun? However, one had to look at the political role of AGSA.

The Auditor General agreed with Mr Godi that it required people with political boots. The intervention would take the incidents out of the public domain for a while but if it was endemic in the country, it would soon surface again. Politicians had to get involved and make sure that there was limited space to get involved in that area.  If it was not resolved, not only the AGSA but also the country would lose so much in so many areas. AGSA had been seen as an area of protection for the state for many years. It was a 107 year-old institution that had never had to face up to such things so one can imagine how bad it had to be to come to Parliament about it. The stress levels were not sustainable. He, personally, could not do an audit task under security. He thanked Members for their suggestions and stated that he was leaving the matter to the Committee.

General Sithole admitted that the reports were generally reactive and SAPS had to be more proactive. SAPS could not wait to respond to incidents that had already happened as there might already be damage. The action plan had to be a multi-disciplinary action plan. The onus on securing the auditors started with the institution that was being audited. SAPS would have to look at the security measures in all those institutions. When there was a political discussion, he asked Members to note that AGSA was experiencing a similar situation to that experienced by SARS previously. SAPS had assisted SARS to develop its own internal security dispensation. Doing the same for AGSA would mean that auditors would not need to have policemen around while they were working.

Mr Mkashe stated that the incidents had started in May 2018 and the Minister had deployed people to those municipalities and all was quiet there. The issue was being resolved through security plans. COGTA had people in the provinces and they reported things to SAPS. The situation had changed, especially in eThekwini, and currently there was no intimidation there and things were working well.

The Chairperson appreciated the responses. SCOAG had brought the matter to the attention of the Speaker. The engagement that day would not be the last engagement on the matter as it needed to be dealt with politically, otherwise people would do what they wanted.

Mr Godi added a final observation and suggested that COGTA should be more pro-active. The incidents must have sent a message that would allow COGTA to profile the municipalities and see if other municipalities might be sliding into that same situation. COGTA needed to have a proactive plan to forestall things.

The Auditor-General added that the practical reality was that at the end of November, the local government audits would start and there would be a spike around at that stage, not only after the audits had been finalised. The current time was when proactive measures needed to be taken. COGTA should be scanning their own municipalities to see if there were any issues. The people in the centre would know if there was something contentious. That would help a great deal and allow the auditors to proceed. In May 2018, the incident had taken place the day after the launch of the General Audit Report on Local Government. People would now know the end result if the audit result was problematic. If timing and resources allowed, it should be done at once.

The Chairperson gave COGTA a week to come up with the plan and to send it to the Committee.

The Chairperson informed the meeting that it would not deal with the third item on the agenda, the consideration of the Audit Committee’s submission on the external auditor’s transformation plan, as the Committee did not have a quorum. Perhaps the Committee could meet during lunchtime the following week.

Presentation on 2019-2022 Draft Budget and Strategic Plan – AGSA
Mr Makwetu stated that AGSA had shared the outcomes of the Annual Report which were largely based on the same missions and values shown in the presentation. The strategic plan was, therefore, one that had grown over the past four years, although there were emerging issues as indicated that morning. The implementation of the Public Audit Act Amendment would have an impact, but the AGSA was not changing direction. The focus was on the ability to deliver within the stipulated timeframes. Looking after the AGSA staff was important. The Amendment to the Public Audit Act would require additional resources and there was a quantifiable amount of R50 million needed from National Treasury to facilitate some of those things. AGSA would find the additional R37 million of the total amount of R87 million required for implementation.

The Auditor General stated that AGSA would be auditing some of the state-owned companies (SOCs). AGSA was fully involved with South African Airways, the South African Post Office and taken back the Trans-Caledon Tunnel Authority, DENEL and the Development Bank of Southern Africa (DBSA). AGSA was responsible for 13 out of the total of 33 SOCs. Training had been very important in preparing to deal with the risks and compliance requirements in SOCs.

A workshop had been held with 250 senior Auditor General staff to address the implementation of the Public Audit Act. Premiers and Executives and the Speaker and teams, as well as municipal management, would be engaged with to inform them what the audit found. A key control measure was evaluating the financial statements of auditees before the audit.

The Banking Association of South Africa was impacted by government so he had been asked to talk to its members. BASA allowed him to expose staff to the world of banking which enabled them to extend their skills. A major financial institution was assisting AGSA staff to understand different environments. The main initiative had been to train 1 000 training accountants across all provinces.

Information technology was very important and AGSA was ensuring that staff did not fall behind, e.g. being able to do a digital audit when an entity did not have paper financials. By using data analytics, one could get a much fuller and deeper understanding.

The Deputy Auditor General, Ms Tsakani Ratsela, presented the last part of the strategy. She looked the vision and values and the type of principles that the Auditor General expected from others. For AGSA, a clean audit goal was non-negotiable. Ethics also needed constant work.

Budget
The Auditor General noted that the funding model that had been implemented in 2008 had been producing surpluses but those surpluses had not been translated into cash and that was creating a backlog in capex and infrastructure projects. There was an emerging risk of budgetary constraints from the auditees’ side, manifesting through write-offs, or unbillable hours, which was exerting pressure on the revenue line. AGSA cash cover was 2.4 months, although the desirable level was three months.

The budget was expected to grow by 0.7%, driven by inflation and additional revenue due to new audits, e.g. DENEL, DBSA, and Trans-Caledon Tunnel Authority. Overheads were growing by 12%, mainly due to additional cost to support and coordinate the extended functions and powers brought by the Public Audit Act Amendments. Factoring out those costs, the growth in overhead expenses would be 5%, which was in line with CPIX. The big number was for Information Technology: R57 million. There was also the cost provisions for the lease of  a new head office as the current lease expired at the end of 2019 and AGSA would need cash with the installation for new premises. The budgeted surplus of R28 million was not adequate to fund the projected Capex spending of R131 million. The shortfall would result in a draw down from AGSA reserves to cover the funding gap which would further impact negatively on cash cover going forward.

The Auditor-General stated that he was required to submit the audit directive, i.e. the parameters to prepare, undertake and report on audits. It would be submitted directly to the Committee so that the Committee could assess whether audit standards had been maintained. He welcomed inputs from the Committee.

Discussion
The Chairperson thanked the Auditor General and asked Members for their questions or comments.

Mr Shackleton stated that his colleague, who could not make the meeting that day, had expressed concern about the surplus and had suggested that the surplus was made up of debt owed to the Auditor General that would reflect assets but was not actual money in the bank.

Mr Smith asked about the funding model. The Deputy Auditor General (DAG) had indicated that she was hoping for R50 million from National Treasury but what was the fall-back position if those funds were not allocated to AGSA?  The Auditor General intended to up the audit fee by 7%, as a result of an increase in employee costs. The drive was to reduce employment costs. Why 7% and not 5% which was what other departments were looking at? Did the Auditor General know that an additional 7% on audit fees was going to exasperate the debt situation for those municipalities that did not have a tax base? What did the Auditor General think could be done about the rise in the contestation of audit findings? What was being done, because it would probably get worse before it got better?

Mr Smith asked, in the light of the Auditor General’s focus on improving quality, skills etc., and with unfortunate developments at the VBS Mutual Bank, whether the Auditor General had picked up or learnt any lessons from those events. Had the auditors raised a flag? Had lessons been learnt from how people could so blatantly disregard the PFMA? How could it be stopped it before others become victims of the KPMGs etc.?

The Chairperson asked about the rental of R57m. Was it not cheaper for the Auditor General to have its own building? Was that a problem? Why did other departments rent instead of buying? She also had a problem with AGSA increasing its rates when it already had to write off debts. What if there was no additional money made available by National Treasury?

Response
In response, the Auditor-General began with the issue of physical assets. He explained that at the end of May 2018, the Gauteng provincial office lease had expired. The property in Houghton had been vacated at the end of May and that property was still not let. AGSA did not want the risk of owning a huge property that could not be got rid of if one no longer needed it. Many businesses were moving into virtual environments in the digital world and the companies only rented meeting rooms. One of the advantages was to be able to walk out of a property when one no longer wanted it. Owning a property meant one had to maintain a building and meet all the costs involved in maintenance, etc.

Concerning the VBS Mutual Bank, the audit for 2016/17 was when the situation was starting with municipalities in Limpopo investing, and then it had spread out. In 2017/18 many municipalities made investments into VBS. In the previous year, the auditors had missed the point. Short of checking the balance of funds in the bank, no further checks were done. Now staff were checking why funds had been transferred to another bank. The 2017/18 Audit Report would reveal what had been found.

When there was a change; that triggered the risk. That was where the risk should have been checked sooner. However, in 2016/17, too few municipalities had been involved for the auditors to consider such risks.

The Auditor General had no doubt in his mind that the contestations would continue to be a feature of what the AGSA did. There was a time, maybe five to eight years ago, when auditors would come back with an audit conclusion without contestation but back then the department/ organisation knew that once the document had been submitted and an explanation given, that was the end of the story. People now contested because they knew they would have to answer questions on the audit results and those questions did not just go away. Irregular expenditure was followed up. He was particularly concerned about litigation.

A modified cash standard had been implemented by National Treasury because implementing agents would be engaged by entities/departments that should perform specific tasks. The entity/department simply showed a transfer. It was an opportunity to channel money to another person, hoping that the auditor did not have the authority to audit the third party. Transfers were just a line item, but when questioning began, even of the implementation agency, contestation was triggered.

National Treasury was the guardian of the national purse and Auditor-General’s job was simply to attest that funds had been used as intended.  National Treasury had developed the audit form. The Accountant General at National Treasury had to address the contestations by determining the rules of the game. National Treasury had to say how it wanted its funds audited. That was a constitutional imperative. The AGSA followed behind National Treasury and sometimes the fight that AGSA found themselves should be against National Treasury. The Committee could help by narrating the role played by Auditor General and the role of National Treasury.

AGSA asked National Treasury what level of assurance it needed for an institution that did not present a risk. The tax base of municipalities had been investigated and those that did not have resources but relied on an appropriation, those municipalities would need a limited audit. The level of assurance required by National Treasury had been determined and a limited audit was all that was needed for a number of entities that had little cash flow etc. R3.4 billion in revenue in funds had been raised from audits.

He agreed with Mr Shackleton that the surplus carried debit until it had been paid. Surplus was largely debt that had been recognised but not paid. Sometimes it took years to be paid. AGSA could repatriate a surplus back to National Treasury but AGSA did not want to send money back to National Treasury when it had not come from there.

The request for R50 million for the implementation of the PAA was a once-off. AGSA was sure that it would get the R50 m from National Treasury because it was making up the R37 million difference in the R87 million implementation costs. AGSA would have to make a plan if it did not get the funds. It would have to scale down the implementation.

Regarding the 7% increase, it was necessary in order to try to keep the staff that could easily find other positions. They were highly skilled young people with CAs and other technical skills. Training an auditor to undertake the AGSA work was a lengthy and expensive exercise. It was necessary to sugar the increase as part of the retention strategy. Others who targeted the staff, had more to offer. AGSA tried not to go out of the bounds of the public sector but CAs with experience could command double the salary paid in AGSA. AGSA believed that the 2% saved AGSA from going out to try and find staff to fill gaps. He believed that 7% was not out of line.

The Chairperson thanked the Auditor General. The Committee Secretary would arrange for the Audit Committee presentation during the week as the Committee did not have a quorum. The following Friday neither of the Content Advisors or the Committee Coordinator would be available so the Committee would have to arrange another day to meet to approve the Auditor-General’s Strategic Plan and the Transformation Plan.

The Auditor-General asked the Committee for information about the regulations that needed to accompany the Amendment Act. The Auditor General was ready with the regulations. It would be a briefing but would not need decisions. He wanted to get the regulations completed. He wanted to finish the journey with the current Committee. He did not want to put pressure on the Committee but he and his staff were ready with the regulations and he did not want to start again with a new Committee in the sixth Parliament.

The Chairperson informed the Auditor General that she had spoke to the Chairperson of the Forum of Chairs and he had said that the Committee should wait for the President to sign the Act and only then could the Committee call the Auditor General to present the regulations.

Closing Remarks
The Chairperson thanked the Auditor-General and his staff and wished them a safe journey.

The meeting was adjourned.