Public Audit Bill: workshop and hearings

Public Audit Function

16 September 2003
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Meeting report

AD HOC COMMITTEE ON PUBLIC AUDITING

AD HOC COMMITTEE ON PUBLIC AUDITING
17 September 2003
PUBLIC AUDIT BILL: WORKSHOP AND PUBLIC HEARINGS

Chairperson: Mr V Smith

Documents handed out:
Draft Public Audit Bill as amended and tabled in the Committee on 19 September 2003
Eskom submission
National Treasury submission
Evaluation of Comments by External Parties
Auditor-General's Response to the Southern African Institute of Government Auditors
Auditor-General's Response to Mr Willem Opperman

SUMMARY
This meeting had been organised as a public hearing, to allow interested members of the public to air their views on the proposed Public Audit Bill. Due to short notice, many who had submitted written submissions were unable to attend this hearing. The Committee heard submissions from Eskom and the National Treasury only.

Prior to these submissions, the Auditor General completed the workshop on the Bill. After the submissions, the Office of the Auditor General gave its responses to all the submissions. The Auditor General reported that Eskom's comments in particular had been extremely helpful, and various proposals and recommendations from other bodies had been captured in the Bill.

MINUTES
Workshop on the Bill (continued)
Discussion on Chapter 4
On appointment of the Deputy Auditor General, Mr B Bell (DA) felt that Clause 31(1) should be amended to say that the Auditor General should appoint the Deputy Director-General "in consultation with the Audit Commission", instead of the current, "The Auditor General, after consulting the Audit Commission", must appoint the Deputy Director-General. The current wording places too much power into the hands of the Auditor General.

The Auditor General responded that after deliberations on Clause 31, it was felt the words "after consulting with the Audit Commission" was more appropriate, since the DAG would be responsible to the Auditor General. Currently, the DAG reports to the Audit Commission. Because this Bill has mainly changed that procedure, and now has the DAG reporting to the Auditor General, it was felt that the current wording was appropriate. However, the Office of the Auditor General was open to other views from the Committee.

He reminded the Committee that the Audit Commission is now mainly an advisory body, making sure that the Auditor General is able to operate independently, and it was mainly that consideration which motivated the wording of Clause 31(1).

Furthermore, Mr Bell felt that Clause 32(c) should be qualified by applying Clause 44(2) to it.

The Auditor General stated that the amendment would be included, should the Committee feel it appropriate.

Clause 33(1) stipulates that an acting Deputy Auditor General may be appointed for a period not exceeding six months. Mr Bell asked if that period was long enough, and if a new Deputy Auditor General should be elected in the case of the Deputy Auditor General being medically debilitated for a time, or if he should be given sufficient opportunity to recover, which may necessitate the acting Deputy Auditor General to be in office for a longer period.

The Auditor General responded that there are six corporate executive managers, from whom one could be nominated as acting Deputy Auditor General. That would make possible a six-month rotational system, of up to almost three years. He continued that, in contrast to the Auditor General, the Deputy Auditor General and the management underneath him are employed in terms of normal labour law. Should a person be employed in an acting position for longer than six months, there would be accompanying legal labour law issues, whereby the person may then be legally entitled to the position.

With regard to the receipt of donations or bequests in Clause 36(2), Dr G Woods (IFP) felt that the inclusion of a limitation not permitting the receipt of a gift that could lead to a conflict of interest situation, was necessary.

The Auditor General stated that the clause was in relation to donations received by the office of the Auditor General, and not to donations received in a personal capacity. His office noted Dr Woods' comment, and would amend the provision.

Mr M Steele (ANC) referred to Clause 34(b)(3), and asked what the status was of people employed in the Office of the Auditor General, vis a vis the Public Service. Do they retain any benefits if they come from the Public Service, and if they go back into it?

The Auditor General responded that any people currently entering into the office of the Auditor General, are employed in terms of arrangements within the office, which are not subject to the Public Service laws and regulations. When the office of the Auditor General left the Public Service, the conditions under which employees from the Public Service had been employed, had to be respected. However, those conditions (mainly employees making use of the Government Employees' Pension Fund) are slowly disappearing, as current employees have an option to belong to the GEPF or not. All Public Service staff had been moved across to current conditions, but it was ensured that they would not be employed in less favourable conditions than when they were in the Public Service.

Dr Woods was concerned that Clause 37(3) would give the impression that only the Deputy Auditor General or one other staff member could make withdrawals from a bank account, which would imply single signatories on a bank account.

The Auditor General stated that the current requirement is for two signatories. The provision would be amended, to reflect the true state of affairs.

Mr Gerber referred to Clause 44(2), which states that should the Deputy Auditor General become aware that a decision by the Auditor General which, if implemented, would incur irregular, fruitless or wasteful expenditure, the Deputy Auditor General would not be held liable for such expenditure if he informs the Auditor General in writing that the expenditure is likely to be incurred. He said that it was not clear who would be liable for irregular, fruitless or wasteful expenditure incurred, should the Auditor General ignore the Deputy Auditor General's letter.

The Auditor General took note of Mr Gerber's comment, and the provision would be accordingly amended.

Chapter 5
Chapter 5 of the Bill focuses on the Audit Commission, and Part 1 deals with its continued existence and functions. Clause 48 stresses that the functions of the Audit Commission are consultative and advisory, to clarify the fact that the Commission does not direct the Auditor General, or intervene between the National Assembly and the Auditor General, as this would be unconstitutional.

Part 2 deals with the composition and membership of the Audit Commission. The President appoints the Audit Commission members as per the current Audit Arrangements Act. The Chairperson of the Standing Committee on Public Accounts (SCOPA) is made an ex-officio member of the Commission, given the close working relationship between the Auditor General and SCOPA. According to international law, SCOPA has a role to play in the oversight of the Auditor General.

Part 3 deals with the operating procedures of the Audit Commission, relating to meeting procedures.

Discussion
Mr Steele asked if Clause 59(2), which states that matters before the Audit Commission are decided by majority vote, included the adoption of the Audit Commission's Charter.

The Auditor General responded that any decision taken by the Audit Commission would require a majority vote, and that would include the adoption of the Audit Commission's Charter.

Chapter 6
Chapter 6 deals with general issues, such as the delegation of powers by the Auditor General and the Deputy Auditor General, disclosure of information, and offences and penalties.

Clause 63(1) ensures that any person who interferes with the Auditor General in the exercise of the Act's stipulated duties is guilty of an offence. These include refusing access or assistance to the Auditor General; failure to carry out requests, such as providing documents; and attempting to mislead the Auditor General by pretending to co-operate through giving false information.

Discussion
Mr Gerber referred to Clause 60(3)(c), on the powers to sub-delegate. He felt that there should be a provision which ensures the monitoring of delegated duties via report backs.

Mr Bell said that delegated duties without authority, are difficult to manage. He asked for the procedure which was entered into when duties were delegated, and if such duties were put in writing.

The Auditor General responded that although there was a very stringent delegation procedure within the office, the previous two comments were noted, and there would be an attempt to adequately capture them in the legislation of the Bill.

Mr Gerber referred to Clause 63(2)(c), which guides procedures in the event of a misdemeanour by the Deputy if he should deliberately mislead or withhold information from the Auditor General on bank accounts or on money received or spent. He felt that a wording covering more financial instruments than merely bank accounts of the Auditor General, should be included.

The Auditor General stated that this provision had come from the PFMA. The proposed amendment was noted, and would be taken into account.

Mr Gerber asked, in Clause 65(1)(d), if the term "including any balance in the Audit Revenue Fund", was not already included in the first three words of that sub-clause, "all the funds", making the term superfluous.

The Auditor General would engage with Treasury, to determine if the term was still necessary.

Eskom's Submission
Mr Christopher Palm (Eskom Corporate Audit), and Mr Neo Tsholanku (Chief Legal Adviser) presented the Eskom submission.

Mr Palm informed the Committee that the submission was being made on behalf of Eskom and its subsidiaries: Eskom Enterprises (Pty) Ltd, Escap Limited, Gallium Insurance Limited, and Eskom Finance Company (Pty) Ltd. He informed the Committee that their submission had been dealt with in a document called "The evaluation of comments by external parties" which had been prepared by the Office of the Auditor General. Their comments had already received responses from the Auditor General in this document, and they were generally pleased with those responses.

It was Eskom's submission that the term "accounting entities" should be clarified in the Bill. Referring to Clause 5(1)(a)(1), they make reference to standards as set out by the Public Accountants' Board, to ensure the independence and objectivity of the Auditor General.

Section 9(33)(2) guides instances where the Deputy Director-General is required to assume the role of acting Auditor General. Mr Palm stated that it should be clarified that the Deputy Director-General then assumes all the powers of the Auditor General.

On Clause 25, if the Auditor General is to be notified of the appointment of an external auditor, that should be a suggested appointment, as that appointment would require the consent of the Auditor General.

Mr Palm stated that Eskom disagreed with Section 26, which provides that only the Auditor General's consent is required to discharge an auditor. Eskom advised that this change, in which the involvement of the executive authority is no longer required, as stipulated by the PFMA, should be re-considered.

Recommendations were made for amendments to Chapter 4, with regard to the roles of the Auditor General and the Deputy Director-General. It was felt the governance mechanism for the two roles should be reviewed, to avoid duplication and confusion. Furthermore, Eskom's submission suggested that issues already addressed in the PFMA and other legislation should not be duplicated in this Bill.

The Auditor General expressed his thanks to Eskom for their constructive response to the Bill, saying their inputs had contributed to improvements in the Bill.

National Treasury's submission
Mr Nols du Plessis (Acting Accountant-General: National Treasury) submitted on behalf of National Treasury. He informed the Committee that National Treasury had participated in the work of the sub-committee of the Audit Commission responsible for the drafting of the Bill. Their comments to Parliament had therefore been mainly of a technical nature, rather than on principal issues. As with the previous submission, their comments had also been considered in the Auditor General's response document.

Treasury was in agreement with the Finance Minister's view that the Audit Commission would be strengthened by the inclusion on it of more people with a holistic knowledge and understanding of financial reporting and auditing issues, as well as the ability to contribute to the development of best auditing practices, especially as the function of the Commission is to advise the Auditor General on auditing standards.

The Bill makes a proposal that the Office of the Auditor General retain 10% of surplus funds. Treasury is of the opinion that this amount should be determined after consultation with the Minister of Finance. Since surplus funds will differ from year to year, it was felt that it was not advised to legislate for a fixed percentage.

With regard to other functions of the Auditor General in Clause 5(1), he felt that the investigation or special auditing services mentioned in sub-clause (c) should also be subject to an agreed fee, as with sub-clauses (a) and (b).

Discussion
The Chair noted that the National Treasury proposed the increase of non-parliamentary members without necessarily increasing the total number of members on the Audit Commission. He asked if this meant they were proposing to decrease the number of non-Parliamentary members, to which Mr du Plessis responded in the affirmative.

Ms Mothoagae asked for clarity on Treasury's submission on audit fees, as recommended for Clause 23(6), which states that should the cost for auditing an auditee exceed 1% of the budget of that auditee, the excess must be defrayed from the National Treasury vote. National Treasury was proposing that this provision exclude national and provincial departments.

Mr du Plessis stated that in current legislation, there is an arrangement that, should audit fees for statutory bodies be in excess of 1% of their budget, then National Treasury must pay the excess. That was mainly to ensure that especially for the poorer municipalities, service delivery was not being hampered due to audit costs having to be paid. Mr du Plessis explained that Treasury was proposing the exemption of national and provincial departments from this provision, because they are normally huge institutions who fully participate in the budget process. Additionally, provision can generally be made in the budgets of these departments, sufficient to cover the costs of auditing, which is not the case for other, smaller statutory bodies such as municipalities and museums, who are dependent on revenue received from the community, or people visiting those institutions.

With regard to Treasury's recommendation for an "agreed fee" under Clause 5(1)(c) for special investigation and auditing services, Mr Bell asked who would have to agree to the fees. Such a provision could put the Auditor General in a position where he could not perform any functions unless the auditee agrees to the price.

Mr Beukman felt that the surplus 10% awarded to the Office of the Auditor General added value to the independence of the office. He asked if Treasury's proposal to change the 10% to an amount determined in consultation with the Minister, would not "hamstring" the work of the Office of the Auditor General.

Mr du Plessis responded that Clause 5(1)(a) and (b) made provision for services to be provided by the Auditor General at an "agreed fee". However, this provision did not cover 5(1)(c), which stipulated that the Auditor General could provide investigative and special auditing services, upon the request or complaint of a national or provincial Treasury, or a Minister. Just as the previously mentioned services in sub-clauses (a) and (b) should be performed by the Auditor General "at an agreed fee", so should the services mentioned in sub-clause (c). This, he said, was really just a technical amendment.

The current arrangement is that the Auditor General, with the Minister's approval, can retain the surplus funds. Although the proposal for a reasonable surplus to be awarded to the Auditor General was for 10% of that surplus, the actual money received would always depend from year to year on what that surplus was. Ten percent of a small amount for a particular year could actually result in a practical problem, depending on the circumstances within the Office of the Auditor General. It was perhaps a better option to determine an amount after having consulted with the Minister. Such a provision would not compromise the independence of the office, but would provide a further control mechanism. It would also afford the Office of the Auditor General more flexibility when there is a surplus, which might even leave the office with more than five or ten percent.

Auditor General's Evaluation of Comments By External Parties
Mr W van Heerden, Mr Clarence Benjamin, and Mr Henry van Dyk (Legal Section: Office of the Auditor General) presented this document. For the sake of time, they discussed only those comments with which the Office of the Auditor General disagreed.

Mr van Heerden stated that all the inputs received which were agreed to by the Office of the Auditor General, were added as improvements to the Bill. They were valid, and the Office of the Auditor General indicated in the document why they should be captured in the Bill.

He went through a detailed record of the comments made, and the Auditor General's response to the comments.

He reported that, in correspondence sent to the Office of the Auditor General, the Institute for Public Finance and Auditing (IPFA) had indicated that, with the exception of two relatively minor exceptions, all the issues raised by them had been accommodated in the latest draft of the Bill.

The Committee was told that the Office of the Auditor General had not had the opportunity to engage with the South African Institute of Chartered Accountants (SAICA), which explained the many instances in the evaluation document where there was a clear expectation gap, or a lack of understanding of operational issues within the Office of the Auditor General.

The Office of the Auditor General similarly did not have the benefit of engaging with IDASA with regard to its submission. Speaking on whether the independence of the Auditor General was sufficiently covered in the Bill, IDASA makes reference to Canadian and Australian models. The Office of the Auditor General felt that, since the South African model of the independence of the Office of the Auditor General is enshrined in the Constitution, the inputs of other models were unnecessary. The South African Constitution is supreme, and therefore gives a greater independence than placing provisions in an individual act. This, in their view, places the South African model in a better position than the models cited by IDASA, since the Canadian and Australian constitutions are not supreme with regard to the law. As the Constitution provides extensively for the independence of the Office of the Auditor General, it was unnecessary to include it into the Bill. The Office of the Auditor General was in disagreement with much of the remainder of IDASA's submission.

Discussion
IDASA had suggested the exclusion of Clause 22(1), which refers to the security defence special account, the secret services account, as well as any other account established in terms of any other Act. Mr Steele asked if IDASA was opposed to the whole of sub-clause (1), or only parts of it. He stated that these accounts were legislated in various Acts, and were not merely provided for in the Bill under discussion. Excluding this provision meant impacting on similar provisions in other Acts which are in existence.

The Chairperson stated that further discussion on this matter would be held by the Committee in its own deliberations on the Bill. He informed the Committee that their efforts to secure an extension for the processing of the Bill had been successful. The Committee had been given until 26 September to present the Bill to Parliament. It was therefore decided that the late sitting on 18/9 would be cancelled. They would meet on 19/9 from 9h00 to 13h00, and then on 22/9, 23/9 and possibly 25/9, for three hours per day. It would be absolutely critical to have a quorum for these deliberations on the Bill.

The Auditor General informed the Committee that there had been two inputs which his office had not managed to take the Committee through, those being from the South African Institute of Government Auditors (SAIGA), and from Mr Willem Opperman. However, their written inputs had been circulated, and he asked the Committee members to read through them.

The Chairperson asked that the Bill, with all the changes and recommendations that were being made, be made available to the Committee by 19/9.


The Auditor General said they would provide the latest draft of the Bill by 18/9. He asked for an opportunity to engage again with the Committee on its proposed amendments to the Bill once the Committee had completed its deliberations on the Bill.

The Chair assured him that the Committee would refer the Committee's recommended changes to allow the Auditor General further input into those changes, if necessary.

The meeting was adjourned.

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