Committee Legacy Report

Standing Committee on Auditor General

10 July 2019
Chairperson: Mr S Somyo (ANC)
Share this page:

Meeting Summary

The Committee held discussions on the Legacy Report of the Standing Committee on Auditor-General of the Fifth Parliament.

The Committee Content Advisor took the Committee through the Legacy Report and highlighted a number of areas which required the Committee’s attention. He highlighted challenges faced by the Auditor-General (AG), which could be addressed with the Committee’s assistance. During the previous year, the AG was forced to withdraw auditors from municipalities such as Johannesburg because of a lack of capacity in dealing with cases of intimidation. The previous parliamentary Committee desired to call a meeting with the South African Police Service (SAPS) to draft plans that would guarantee the safety of auditors. This would come in the form of security measures as well as giving auditors the power to step down whenever they please. However, he was unaware of the current progress on this plan and suggested that the Committee follow up on this. Delays in the implementation of the Public Audit Act (PAA) was also identified as a challenge. The PAA would not be implemented all at once because of financial constraints. The implementation would take place over a long period of time and would involve quarterly updates to the Committee on the progress. Added to this, the AG would conduct workshops with auditors and relevant state actors to educate them on what the changes to the PAA entailed. Another challenge was in relation to benchmarking and the PAA implementation timelines. Financial and capacity were slowing down planned processes. It would thus be useful to see how other countries have organised and implemented a similar Act. Furthermore, one of the most challenging issues facing the Office of the AG was funding. The AG does not receive money from the fiscus or National Treasury but was fully sustained by audit fees. For example, the South African Human Rights Commission receives funding through the justice system. The AG does not have such funding. The challenge arises when auditors refuse to pay the AG. This led to the accumulation of debts by the AG, and threatened its viability and success. What was required is a strategy, approved by the Committee, to litigate auditors that were refusing to pay. This would also be followed up by an agreement that auditors pay their fees to the AG on a quarterly basis, and if one quarter is missed it would be added to the following quarter’s fees. This would allow for the Committee and AG to keep track of all the funds and hold the auditors directly accountable for their fees. On this, the previous Committee was advised that Parliament was able to allocate funds to the AG as per Section 36 of the PAA. However, this provision is still yet to be invoked.

Members wanted to know whether the AG has similar powers as those of the Public Protector. Does the AG have investigative power and was the Office in a position to recommend the arrest of municipality officials who embezzle tax payers’ money? If not, the AG had to be afforded these powers, and the sooner the better. They expressed concern about auditors not paying the AG their fees, especially since this was the only source of funding for the AG currently. Auditees must be held criminally or personally liable for failing to pay these fees as failure to do so disempowers the AG. Auditees are not an entity but actual people who are refusing to pay their dues. They should be held directly accountable.

Meeting report

The Chairperson welcomed everyone and asked Members and Committee Staff to introduce themselves. No apologies were received although three Members were not in attendance.

Presentation by Content Advisor

Mr Xolisile Mgxaji, Committee Content Advisor, in briefing, first highlighted the Committee’s responsibilities. He explained that the Committee was derived from an Act of Parliament and constituted in terms of Section 55 of the Constitution, which empowers the National Assembly to provide mechanisms such as a Standing Committee. The Committee oversees the Office of the Auditor-General (AG), ensuring accountability. He went on to describe Section 29(c) of the Public Audit Act, which ensures that the Committee is there to assist and protect the AG. This meant the Committee was not accountable for the AG’s actions but empowered to oversee the AG and ensure that its finances and processes are in accordance with law. In section 56 of the Constitution, the power of summoning any person or entity in front of the Committee is granted. This was one example of the power the Committee had to ensure entities are acting in accordance with the law.

Mr Mgxaji went on to explain the AG’s establishment and powers. The Office of the AG was established in accordance with Chapter 9 of the Constitution. The AG was created in expectation to strengthen the democratic process of South Africa. The powers and functions of the AG were outlined in Section 188 of the Constitution. The provision gives the AG discretionary powers. Furthermore, the Constitution allows the AG to gain further powers through the implementation of Acts. He highlighted challenges faced by the AG, which could be addressed with the Committee’s assistance. During the previous year, the AG was forced to withdraw auditors from municipalities such as Johannesburg because of a lack of capacity in dealing with cases of intimidation. The previous parliamentary Committee desired to call a meeting with the South African Police Service (SAPS) to draft plans that would guarantee the safety of auditors. This would come in the form of security measures as well as giving auditors the power to step down whenever they please. However, he was unaware of the current progress on this plan and suggested that the Committee follow up on this.

Mr Mgxaji identified another challenge requiring the Committee’s urgent attention. He pointed out that because of the AG’s outcomes, many auditors, 56 of them, contested the AG’s findings. This resulted in a total of five court prosecutions to contest these findings. This was concerning as the Office of the AG needed to defend itself as an institution. This leads to the dedication of more and more funds to legal and travel fees. These unforeseeable expenditures were not budgeted for. Further, this damaged the AG’s reputation greatly as well, leading to loss of business. A solution to this would be holding the AG accountable to the auditors as well. In this case, no audits would come as a shock and could therefore be incontestable. The AG would share information with auditors to ensure there is no doubt in their decision. This could be done on a quarterly basis. The previous Committee recommended this course of action to deal with the challenge.

Another challenge was in relation to discretionary audits. These have resulted in a lot of financial challenges as some audits were under or over charged by the AG. This had gone unresolved and he recommended the Committee look into it further. On audit regulations, the Public Audit Act (PAA) had been amended, and according to the Act the AG must draft a regulation and submit to Parliament. This must be done in consultation with the Committee to ensure it is done correctly. He explained he was unsure where the process was at this stage but emphasised the need for the Committee to make follow-ups on the implementation of the PAA.

Mr Mgxaji explained the challenges of implementing the PAA. The PAA would not be implemented all at once because of financial constraints. The implementation would take place over a long period of time and would involve quarterly updates to the Committee on the progress. Added to this, the AG would conduct workshops with auditors and relevant state actors to educate them on what the changes to the PAA entailed. Another challenge was in relation to benchmarking and the PAA implementation timelines. Financial and capacity were slowing down planned processes. It would thus be useful to see how other countries have organised and implemented a similar Act.

Furthermore, one of the most challenging issues facing the Office of the AG was funding. The AG does not receive money from the fiscus or National Treasury but was fully sustained by audit fees. For example, the South African Human Rights Commission receives funding through the justice system. The AG does not have such funding. The challenge arises when auditors refuse to pay the AG. This led to the accumulation of debts by the AG, and threatened its viability and success. What was required is a strategy, approved by the Committee, to litigate auditors that were refusing to pay. This would also be followed up by an agreement that auditors pay their fees to the AG on a quarterly basis, and if one quarter is missed it would be added to the following quarter’s fees. This would allow for the Committee and AG to keep track of all the funds and hold the auditors directly accountable for their fees. On this, the previous Committee was advised that Parliament was able to allocate funds to the AG as per Section 36 of the PAA. However, this provision was yet to be invoked. The AG was currently unable to audit all state-owned entities (SOEs) because of this funding challenge and debt. Therefore, Section 36 of the PAA could be used to help dig the AG out of the hole it is in and get it back on track to enable it to be self-sustaining once more.

Lastly, Mr Mgxaji pointed out that the current AG’s term was expiring in November of 2020. The process to appoint the AG is lengthy as it involves the Speaker and the President. The Speaker would need to initiate the process of recommending potential candidates for appointment as AG, and the President must accept and determine the term limit of between 5 and 10 years. He suggested that the Committee remind the Speaker that this deadline was coming up and prepare for the possibility of the Speaker deciding to formally give this recommendation power to the Committee.

Input by Committee Researcher

Mr Mbuyiselo Hlekiso, Committee Researcher, in giving input, explained that auditors are approved by the Committee directly. Furthermore, the market rating was below where it should be. This creates issues as the auditors were charging below the market rates when compared to private auditors. This meant the auditors were losing business as SOEs charge at the market rate.

Discussion

The Chairperson thanked Mr Mgxaji and Mr Hlekiso for their presentations and opened the floor to Members. He pointed out that the funding model as well as the draft regulations needed to be dealt with as a matter of urgency. He also noted outstanding matters that would require the Committee’s attention on pages seven to nine of the presentation document.

Mr Z Mlenzana (ANC) appreciated the presentation and said the Committee needed to deal with the challenges as identified. He pointed out that this was at the tail end of the budget cycle and as such the Committee might not be able to address some of the challenges, particularly those around funding. The Committee would have to liaise with the Standing Committee on Appropriations going forward.

Mr O Mathafa (ANC) said it would be crucial to take on the outstanding issues and to support the AG in workshops. Challenges must be identified, and the Committee must know how to support the AG in solving them. The biggest challenges for the AG were mainly structural and financial deficiencies. This meant it would be important to note how the market responds in terms of fee calculation to ensure business continuity and that the AG generates funds for it to survive. He also questioned whether adding quarterly reports to the AG would be a smart move as the AG’s ability to handle such a feat in terms of auditor compliance and funding was questionable.

Mr J de Villiers (DA) expressed concern about auditors not paying the AG their fees, especially since this was the only source of funding for the AG currently. He demanded that the auditees be held criminally or personally liable for failing to pay these fees as failure to do so disempowers the AG. Auditees are not an entity but actual people who are refusing to pay their dues. They should be held directly accountable.

Mr J Mamabolo (ANC) wanted to know whether the AG has similar powers as those of the Public Protector. Does the AG have investigative power and was the Office in a position to recommend the arrest of municipality officials who embezzle tax payers’ money? If not, the AG had to be afforded these powers, and the sooner the better.

A Member said the Committee was ready to undertake all the necessary processes in regard to appointing a new AG following the end of the current AG’s term, in an event that the Speaker affords it those powers. She suggested that the Committee remind the Speaker as soon as possible as it would need to be taken care of and not left until October 2020. She also supported the idea that Parliament allocate funds to the AG as currently the AG is drowning in debt and insufficient funding. There might be need for additional funding from the fiscus to prevent debt accumulation in the future.

The Chairperson thanked Members for their inputs. On amendments to the PAA, although these amendments exist and must be implemented, there were still many outstanding issues requiring the Committee’s attention. For instance, the matter of regulations and reminding the Speaker of the AG’s term expiring. He would also like to meet the AG and question him on how many municipalities are in need of financial assistance. He also expressed fear in allocating funds to the AG through Parliament as this could come with the risk of the AG becoming dependent on these funds.

Mr Mgxaji interjected and explained that the AG’s term could be longer than seven years (up to ten) and agreed the implementation of the PAA amendments was urgent.

The Chairperson, in closing, requested that before Parliament goes on constituency break on the 26th of July, the Committee must receive a briefing from the AG. He added that SCOPA would require the same meeting and requested the Committee’s permission to jointly attend this briefing with SCOPA to save the AG on time.

Members all agreed.

The meeting was adjourned

 

Documents

No related documents

Share this page: