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Trade, Industry and Competition

20 August 2019
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

The Portfolio Committee on Trade and Industry was briefed on the new amendment to the mandate of the Auditor-General of South Africa, which would include a three-step process to allow for an increase in its powers. Material irregularities -- when direct resources were being used in a wasteful or reckless manner -- were encompassed in this amendment.

The amended mandate allowed the AGSA to take three distinct steps. First, the material irregularities would be referred to the relevant public bodies and would include recommendations from the AGSA. If after this no progress was made, binding remedial action would be taken by AGSA. If this was ignored, it would then be followed by a certificate of debt, holding the accounting officer directly accountable for the money lost. This allowed for the AGSA’s role of oversight to be expanded. It now had direct powers to hold accountable those who failed to uphold their duty.

Members questioned the findings of many recent audit outcomes, which showed a trend of regression. This was highlighted by the addition of a new audit outcome category in the last two years – “outstanding audits.” This had been accompanied by an increase in qualified audits and a decrease in unqualified ones during the past two years as well. This was a growing concern, as the audit outcomes of entities should be improving over time. The trend of increasing irregular, unauthorised, and fruitless and wasteful expenditure in both local and provincial government was also a concern, as this was what was holding South Africa’s development back. There was so much money being wasted through poor financial management.

The AGSA was asked which public bodies were assisting in addressing these growing concerns, as its mandate outlined only the role of oversight and reporting, not the role of implementing recommendations. The topic of consequence management was discussed as a key instrument to ensure that these audit outcomes begin to improve in the future. With the implementation of new consequence management, future entities would be more diligent in their work and this would result in a greater number of unqualified audits.

Meeting report

Mr Tshepo Shabangu, Senior Manager: Auditor General of South Africa (AGSA), said AGSA had a constitutional mandate and was the supreme audit institution (SAI) in South Africa. It was key to enabling oversight and accountability in governance. These powers were outlined in Chapter Nine of the Constitution and in the Public Audit Act no. 25, 2004.

AGSA’s main functions included providing assurance that the annual financial statements (AFS) were free from material misstatements, reporting on the usefulness and reliability of information in the annual performance report (APR) and on material non-compliance with relevant legislation, and identifying key internal control deficiencies that should be addressed. Many misconceptions led people to believe that AGSA was able to guarantee completeness and accuracy of all information, assure service delivery was achieved, identify all forms of fraud, and assure all laws and regulations were complied with. This was, however, above the powers and abilities of the AGSA.

Mr Shabangu explained what types of audits were conducted by the AGSA, and the many types of audit outcomes. This was all information that had been given to the Committee several times, and included explaining what outcomes such as an “unqualified,” “qualified,” “disclaimer” and “adverse audit” meant, and could be interpreted as.

Over the past 10 years, national and provincial government audit outcomes had proven to be unfavourable. Contrary to expectations, it could be seen that from 2015/16 to 2017/18, the percentage of unqualified audits given had decreased from 32% to 23%, while qualified audits with findings had increased from 15% to 19%. Added to this, something extremely worrying was that from 2016 to 2018, there had been a development of a new type of audit outcome below the category of a disclaimed audit -- outstanding audits. These had risen to 9%. These trends could be almost perfectly translated to local government findings, with extremely similar percentage changes.

Added to this, it could be seen that the history of irregular expenditure, unauthorised expenditure, and fruitless and wasteful expenditure had steadily been increasing since 2015 at both provincial and local government levels.

He described the root causes of these poor outcomes as:

  • Blatant disregard for controls, compliance with legislation and AGSA recommendations;
  • Continued capacity gaps in administration;
  • Vacancies and instability slowing down systematic and disciplined improvements;
  • Unethical behaviour in administration and by political leaders;
  • Leadership’s inaction / inconsistent action in addressing persistent transgressions, which created a culture of lack of consequences.

Ms Corné Myburgh, Business Executive: AGSA, explained the key expansion to the AGSA mandate in the form of Public Audit Act Amendments. This had begun through introducing the idea of material irregularity. As defined in the Act, material irregularity was any non-compliance with, or contravention of, legislation, fraud, theft or a breach of a fiduciary duty identified during an audit performed under this Act, that resulted in or was likely to result in a material financial loss, the misuse or loss of a material public resource or substantial harm to a public sector institution or the general public. Steps taken when such an irregularity was found were, firstly, to refer the material irregularity to the relevant public bodies for further investigations. This was where the AGSA gives preliminary warnings to the entity to give them a chance to make up for the loss and discontinue the use of the material in such a wasteful manner. Secondly, once the first step was ignored, the AGSA would take binding remedial action for failure to implement the recommendation. This meant that the accounting officer was given the remedial action and was expected to follow this procedure. Finally, if this was failed to be upheld, the AGSA would issue a certificate of debt. This then made the accounting officer directly accountable and required the debt to be paid off by them.

The role of oversight in this expanded mandate was to be able to use information in the audit report on material irregularities for accountability, insisting on timeous implementation of recommendations, and to use reports tabled on progress with material irregularities to oversee and influence progress made by public bodies with investigations and executive authorities for the recovery of debt.


Ms Y Yako (EFF) puts forward a scenario where a municipality or entity received qualified audits for three consecutive years without improvement, or following recommendations. What would be the steps the AGSA would take to handle such a situation and assist the entity?

Ms Myburgh responded that unless those recommendations were part of the newly expanded mandate, the responsibility of the AGSA was only to audit and report, and to be transparent with those findings. Next it would engage with the accounting officer, the Portfolio Committee, or someone of authority. The AGSA had no mandate to enforce the findings or recommendations unless it fell under “irregular expenditure.” The AGSA would continue to communicate and highlight these concerns and make recommendations to assist the entity, but could not take any action to enforce them.

Ms J Hermans (ANC) questioned the new audit outcome category -- outstanding audits. There were 9% of outstanding audits for both provincial and local government -- were the same entities and people responsible for these outstanding audits? What were the main reasons for audits to be labeled as outstanding?

Mr W Thring (ACDP) followed up on the previous question in regard to an entity having qualified audits for three consecutive years. If the AG submitted these findings, there seemed to be no consequence management, as the AGSA did not have a specific team for this. With regard to the new amendment, how would this enhance the mandate to allow for corrective measure to be brought to a municipality that had fruitless and wasteful expenditures for a number of years? 

Ms T Mantashe (ANC) claimed that auditing was expensive, and asked material findings the AGSA had found so far over a time period.

AGSA’s response

Ms Myburgh said the amended mandate enhanced the AGSA’s accountability powers. It would identify a material irregularity and raise the issue with the accounting officer. The accounting officer was then given 20 days to respond to these material losses and was expected to show what steps they had taken. The amended mandate gave the AGSA power to hold someone accountable and keep up to date with progress. If after this there was still no change, a recommendation in the audit report would be put forward and this recommendation was then binding, meaning the recommendation must be implemented. If after this there was still no change, the AGSA would issue a certificate of debt to the accounting officer, making them directly liable to pay the money back. This ensured accountability and that the money was returned to the respective governance entity.

With regard to the 9% in outstanding audits, these issues arose when entities failed to submit their reports by the deadline. This was because they claimed to be busy implementing recommendations and would explain that with an additional month or two, the report would be more accurate and informative. This slowed the process down tremendously. Furthermore, if they did submit financial statements on time, there were sometimes issues with the finalisation of these audits. This would be when suddenly there was a need for additional clarification through legal consultation or pushbacks from audit outcomes. This would have to be investigated to ensure it was resolved, but still took time and would lead to outstanding audits. There was an instance where the AGSA had been alerted in a report to potential fraud, and needed to take on the responsibility of ensuring the audit work done was sufficient and accurate.

Auditing was the mandate of the AGSA, and the goal of its recommendations was to empower oversight and accountability, ultimately building public confidence. Whatever had been submitted was assured to have clarity and accuracy.

An AGSA delegate added that there was a visibility programme which involved senior managers who were responsible for every audit. Every quarter, or when there seemed to be a need, the AGSA would go to advise accounting officers. This was a corrective measure used to continuously advise and encourage accounting officers to be more diligent and accurate. The programme was an early warning system engaged to ensure issues were on the radar and that solutions were being worked on.

Further discussion

Ms Mantashe commented that the last audit report for municipalities had shown little to no improvement. What would the AGSA advise the Portfolio Committee to do to improve this situation?

Ms Yako suggested that the role of the AG in itself could be seen as fruitless and wasteful expenditure. The AG came and audited, but there were already many institutions, entities and municipalities who had internal audit committees, as well as accounting officers. There were even external auditors who often did this work before the AGSA could. Although these all existed, there was no consequence management, which meant the officers and internal auditors were not being held accountable. Who were the public bodies that AGSA would report to, and what would they do to fix situations like these?

Mr Thring referred to the 89% of findings of irregular expenditures that had not been dealt with, and asked if this represented a combination of both provincial and local governments? What spheres of government did the 89% relate to?

AGSA’s response

Ms Myburgh responded to the comment on the AG’s work being fruitless and wasteful. Internal audit committees did exist and were in the legislative powers of the entities, but they had a totally different focus. Those internal committees focused on controls and advice for the accounting officer, acting as an early warning system. The scope was different. The AGSA covered the entire financial year and then submitted recommendations in regard to findings. It also involved the internal auditors to assist in the process. They were given procedures to follow and report their findings to the AG’s office. This was an attempt to reduce the costs of the AG. With regard to external auditors, the AGSA should legislatively be the main external auditor. There may be consultants who were labeled as auditors, but they did not have the same powers as the AGSA.

The public bodies that had been referred to included the Special Investigating Unit (SIU), the Competition Commission, the National Prosecuting Authority and the Public Protector. They all had a specific mandate and power to implement. This was how consequences came into effect, as each public body its their own power and mandate that allowed them to implement these consequences.

An AGSA delegate added that only when there was a material irregularity, was the AG allowed to implement any consequences. Other bodies had the power to investigate where their mandate allowed them to. Once the information had been referred to them and their investigations began, the AGSA was no longer allowed to participate, as it was not in its mandate. There was, however, engagement at the end as the requirement for a report to be given to the AG allowed them to ensure that remedial action had been taken.

Ms Myburgh said that the findings in regard to irregular expenditures included all spheres of government.

The Committee was told that for whatever reason, when audits failed, the AGSA advises Parliament to help counsel. It presents the findings to the portfolio committee and seeks assistance. The AG enables oversight while expecting support from committees and other bodies for implementation.

Mr Shabangu said that they would advise the committee to assist in appointing people with relevant skills and experience for their particular roles. Furthermore, there should be a training programme developed that helped to empower these workers to do their jobs efficiently and accurately.

Further discussion

Mr F Mulder (FF+) commented that the material irregularities the AG finds could be used as evidence in investigations by the Public Protectors office or the SIU. What was the AG’s relationship with the Public Protector and the SIU? Who was overseeing the office of the AG?

The Chairperson said the addition of outstanding audits was concerning, and wanted to know how this issue would be resolved. The trends did does not provide a picture of progress, and at this point there needed to be capacity building to improve the situation.

Mr Thring observed that the AG had indicated that almost 50% of municipalities were a growing concern. Local governments had increasing service delivery issues, and more protests were taking place. Unless there was a change in regard to irregular expenditure, the future of South Africa was at risk. What kind of guarantee, if any, could AGSA give that there would be a turnaround in the coming years?

AGSA’s response

Ms Myburgh responded that there was no guarantee the AGSA could give in this regard. It was looking to institutions like the Portfolio Committees, which would help to hold people who fail in their jobs accountable. All the AGSA could do was execute the mandate and report on outcomes to the implementing agencies.

In regard to who was auditing the AG, there were external auditors who did this, as well as regular reports to Portfolio Committees. This accountability process was clear and taken seriously. Previous agreements hold the AGSA accountable for its mandate and its reports.

The relationship with the SIU and the Public Protector came in the form of agreements to share information. These helped to reduce the duplication of efforts and supported relationships between all of these entities.

Ms Myburgh said that regular engagements with the Portfolio Committee would enable the AGSA to get information from departments and entities in order to follow-up and ensure recommendations were being implemented.

Further discussion

Ms Yako commented that the AG at this stage was like a hamster on a wheel -- doing the same thing over and over again, but getting nowhere.

Mr S Mbuyane (ANC) asked what it meant to issue a certificate of debt in order to get money returned.

Ms J Hermans (ANC) asked about the audit outcomes for the Economic Development Department (EDD) and the Department of Trade and Industry (DTI) portfolios.

Ms Myburgh replied that both the DTI and EDD were clean entities. They both produced clean and responsible reports and were responsive and in dialogue with the AGSA.

Regarding the certification of debt, when this was assigned the accounting officer was directly liable and was responsible for getting the money returned.

The Chairperson thanked the AGSA delegation for their informative presentation.

After a short break, Members were briefed on the new app that the Information Technology (IT) department had developed for all Members of Parliament.

The meeting was adjourned


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