Committee Engagement with AGSA & SA Roadies Association on matters of concern as raised by the latter; AGSA on Strategic Plan and Budget

Meeting report

South African Roadies Association: Complaint against National Arts Council

The Chairperson announced that the Committee was joined by Mr Freddie Nyathela, President: South African Roadies Association (SARA), who had submitted a letter of complaint. The meeting would engage on the matter and consider a way forward.

Mr Nyathela thanked the Committee for granting SARA the opportunity to engage on the complaint that it had lodged against the Auditor General of South Africa (AGSA). It had arisen from illegal expired projects and the surplus policy that was operating at the National Arts Council (NAC). The Council had faked SARA’s funding application, and when questioned, had stated that the expired project and surplus policy gave them the right to make an application.

SARA had found out that the policy was illegal and against the Public Finance Management Act (PFMA), as well as Treasury regulations, so it had submitted a complaint to the AG’s Office. The complaint had been submitted in August 2018, and in September there was a meeting with the AG at its office with the Business Executive: National. After the meeting, a letter dated 9 November 2018 was issued by the AG. stating that an investigation would be conducted.

The NAC had acknowledged the complaint, as per the meeting held between SARA and the AG. The Council had also acknowledged the correspondence from SARA in October 2018. The matters were being assessed by the specialised audit services unit of the Council, and a way forward within the mandate of AG would be communicated in due course. The Council advised that any correspondence would be handled by the specialised audit services unit.

Mr Nyathela said that after that correspondence, nothing happened. However, SARA kept on following up until an e-mail was received on 25 June 2019 from Ms Aletta van Tromp, Business Executive: Investigation AGSA, acknowledging the complaint regarding the abuse of public funds. The letter stated that the AG had recommended that a stand-alone investigation would not be undertaken because matters that fell within the mandate of the AG could be addressed as part of the 2018/19 regularity audit. The approval of the above recommendation was awaited and a detailed response would then be issued.

After several follow ups there was no response until a letter was received from AG, but it was not addressing the complaint, but bringing other issues that had not been raised by SARA. Mr Nyathela contacted the Auditor General, Mr Kimi Makwetu, while he was in Rwanda, and Mr Makwetu requested him to contact him the following week and he would deal with the matter. Unfortunately, there had been no response the following week from the AG, and the AG’s office was contacted by City Press. When they responded to City Press, SARA received a copy of the media statement, but what was contained in the statement was the same content as the letter previously received by SARA.

He then received a text message from Mr Makwetu, suggesting that the matter could be taken to court. He responded that Mr Makwetu could not dictate how SARA should handle the matter. On the 12 of September, an e-mail was written to Mr Makwetu regarding the SMS messages, because in one of them he had asked what was unfortunate about the media statement, so the e-mail detailed what was unfortunate about it. Since then, SARA had not received any other correspondence or response from the Office of the AG.

The surplus policy was a looting scheme operating at the NAC, and SARA was surprised that the Office of the AG had issued three clean audits to the Council while there were these illegal activities taking place.

At the first meeting at the AG’s offices, SARA had been told that the auditors of the Council were based in Johannesburg, and the auditor was not unavailable. And that was it.

Discussion

The Chairperson said that in a nutshell, SARA had approached the AG regarding the issue of the surplus policy of the funders, the National Arts Council. SARA had then wanted the AG to comment on the legality of the funding policy.

Mr Nyathela said that it applied to one of the funders within the Council. The Office of the AG seemed, from SARA’s interactions, to be protecting this illegal surplus policy because it had not given them any definite answers regarding this policy.

Mr N Singh (IFP) said that SARA must rest assured that the Committee would not allow any corrupt activities to be swept under the carpet. It would do its best if there was any evidence regarding corruption. He sought some detail on what SARA is and does, and then asked if SARA had contacted the Department of Arts and Culture (DAC) regarding the matter. The funding fell under the DAC, and if there was contact; what had been the response? Since these were “corrupt activities”, had SARA used this opportunity to approach the Zondo Commission, because the Commission would be interested in taking up these matters? 

Mr Nyathela responded that SARA was a unique non-profit organisation (NPO) that empowered young people to acquire technical and production skills. It was a fully accredited training organisation, and one of a kind on the continent. He had founded the organisation in 1992, and was a “roadie” by profession. He had seen the need for an organisation that empowered young people with these skills. Up to now it has trained more than 2 000 young people, and some of the students were in the United States and been touring. Every year, ten to 20 young people were sent to the United States.

The complaint was first relayed to the Minister, Mr Nathi Mthethwa, and he had initiated an investigation through a private company, which then issued a report. In that report, it stated that the policy was unlawful, but unfortunately the investigator and the chief executive officer (CEO) of the NAC were conflicted. The investigator and the CEO used to work together at the Development Bank of Southern Africa (DBSA). SARA had challenged some of the recommendations, and the Minister had appointed Gobodo Forensic and Investigation Accounting (GIFA), but GIFA had not assessed SARA’s complaint. It had looked into another complaint which was based on the Lalela Project, which was not their complaint.

SARA had gone back and raised that issue, but the reports stated clearly that the surplus policy was unlawful. After that, it wrote to the AG and was given a run-around. It also wrote to the Treasury, but there was no assistance provided, as well as to Minister Tito Mboweni. SARA then kept on following up with the Office of the AG until the recent responses came about. The responses were not addressing SARA’s legitimate complaint, and a decision was taken to write to the Committee.

Ms S van Schalkwyk (ANC) said the Committee was the overseeing body of the AG, so SARA had come to the right body for help. She wanted to know whether the allegations were criminal in nature, and whether SARA had ever referred the allegations with the necessary proof to the Hawks, the South African Police Service (SAPS) or the Public Protector. If so, what was the outcome?

Mr Nyathela said that a complaint was filed with the Public Protector, and the Public Protector would soon issue a Section 7(9) Notice to the Council regarding SARA’s application and the unlawful policy. There was a recent meeting with the Office of Public Protector to finalise the matter. The Public Protector would soon release a report on the matter on SARA’s favour.

Ms Van Schalkwyk probed whether Mr Nyathela was indeed aware of the outcome of the Public Protector’s report or investigation.

Mr Nyathela replied that during the meeting with the Public Protector, when the parties were finalising the matter, the Public Protector had confirmed that it would send the Section 7(9) Notice to the Council. SARA has received correspondence from the Public Protector apologising for the delay in finalising the matter. It had informed SARA that it had recorded adverse findings on the two matters – the application and the surplus policy. The Section 7(9) Notice comes with a 14-days waiting period for the Council to respond, and subsequently the report would be issued. SARA would be happy to share the correspondence with the Committee.

The Chairperson asked who audited SARA.

Mr Nyathela said that SARA had an outside auditor, and it was fully compliant, with 20 years of audited financial statements. The AG did not audit SARA’s books, but did audit the NAC’s. It was therefore perplexed as to how the Council received clean audits when the surplus policy had been found to be unlawful.

Mr Singh said that there were a lot of other processes already in place, and whatever remedial actions that would come out of that process were binding. He was concerned about the scathing attack on the Office of the Auditor General.

The Chairperson summarised to the AG the steps that had been taken by SARA in pursuing the matter. It seemed as if the AG needed to provide some clarification regarding its follow-up on this matter. 

Auditor General’s response

Mr Kimi Makwetu, Auditor General, said that he was happy that Mr Nyathela has come before the Committee. He acknowledged that although he had never met him, but he had spoken to him by phone over the period that he had already mentioned.

He said Mr Nyathela had also been circulating through social media a set of entries headed, “Corruption in motion at the NAC,” and “The anatomy of state capture cover up at the AGSA.” This was the heading running currently in the public domain, despite the interactions between the two and the AG’s team.

There was also Mr Gilfillan, his lawyer – he was not sure whether they operated within the same building. He had contacted Mr Nyathela, and Mr Gilfillan had transferred the phone call to Mr Nyathela, but he could tell that somebody else was also listening in on the line, and he had been uncertain whether he was talking to Mr Nyathela or somebody else.

When one looked at the AG’s mandate, it started with constitutionally-funded institutions, and the NAC was one of them. There was a range of third parties that had an interest in the entities that the AG audited, including citizens. The AG had to issue a report to all of the entities that it audited, and if a particular citizen or juristic person felt aggrieved by the lack of service delivery of that entity, they could question it. When AGSA scrutinised the accounts of an entity based on the mandate of the audit, they were still entitled to arrive at a conclusion that said they provided reasonable assurance on the financial statements of the entity and selected parts of the annual report, together with compliance, in the sense that there were no material misstatements in the books.

However, the AG was not oblivious to fact that “the water has not been delivered to a particular community, for three months or more”, if one looks at the context. It would be unfair then, for someone to have a caption in their Facebook that said, “Corruption at entity B, the anatomy of state capture cover up at the AGSA,” because this was trying to achieve another objective, which was remotely connected towards what the responsibility of an auditor was. It was important that this was conveyed to Mr Nyathela so he and his team could understand what the AG was about.

It had already been confirmed that he had tried to canvass this matter right across the board, turning Chapter 9 institutions into investigative institutions in connection with this matter.  The AG had been aware at the time of the interaction, that he had already submitted the complaint to the Public Protector. The Office of the AG was happy with that, because the Public Protector was the correct body to do work of this kind – it was capacitated to deal with these matters. The AG was not an investigative institution. Matters of conduct were dealt with in that space, and the AG did not deal with that.

Even when other submit complaints, the AG writes to them and informs them that it will not ignore those matters, and the complaints would be factored in during the audit.

Anybody that has a suspicion and the courage to write a heading like this, is also required in terms of the laws of the country to activate their responsibilities in terms of the Prevention of Corrupt Practices Act. They need to “blow the whistle,” and report to the relevant bodies – AGSA’s mandate is within the audit. It did not make sense for the Office of the AG to spend endless hours on the same matter that the Office of the Public Protector was channeling resources to. This matter was not ignored by the AG, and other auditors would not have written to SARA because there was no responsibility to the third party. Out of generosity, the AG had decided to make contact with SARA.

What followed had been a bombardment of WhatsApp messages from Mr Nyathela. The AG had requested him to refrain from the unsolicited messages, because some of them conveyed his personal frustrations. Mr Nyathela had then posted the exchange of messages on his social media. Mr Makwetu had thought he was communicating with the President of SARA, but it turned out that he was communicating with a Facebook-er who was going to paste the message the AG sent to him on social media. The AG had found that very disrespectful, as well as a message sent to him that said, “even that phone of yours is funded by a public purse.” That kind of sentiment was wrong for someone who had an issue on matters of governance, to conduct himself in that manner.

The Committee could reflect on its own what SARA’s agenda was, because the institution that got funded was the National Arts Council through the Department of Arts and Culture (DAC). The series of tweets or social media posts by Mr Nyathela had also left senior officials in the DAC in a similar vein on this matter. It was unfortunate that someone would want to trash the institutions for reasons known to them.

The Chairperson wanted to know from the AG whether the matter would form part of the 2018/19 audit.

Mr Makwetu said the timing of the receipt of his complaint had been October 2018, which was in mid-year of the financial year that ended in March 2019. The audit had still promised to look into the account of each of the four allegations that SARA had made, and in detail had responded to them in terms of the scope of work that the auditors conducted. The media statement Mr Nyathela referred to was in fact a response to the four allegations. The AG did not want to interact with the media over the phone, as the media was calling and asking questions. The Office of AG had decided to rather issue a statement which responded in effect to the allegations raised by SARA. The outcome of each allegation had been communicated effectively.

Mr Singh said that the matter could have been handled easily through the right channels. Mr Nyathela’s complaint had triggered something in the Office of the AG, and he wanted to know whether the AG had found anything untoward in the 2018/19 audit regarding surpluses. Secondly, had the AG checked with Treasury whether approval was granted, and whether the AG was satisfied that it had done everything it could in this matter?

Mr Makwetu said that the complaint had not triggered anything, but of course, whenever a matter of this nature was brought to the AG it was not ignored. Auditing standards require that an audit needs to assess the risk assessment of any entity that AGSA’s audit, including those matters that may be brought to the attention of the auditors. This was required in terms of the standards, up to the last stage of issuing the audit report.

The AG had dealt with and addressed these matters, and concluded that based on the audit work done, there was no evidence to suggest that the issue of the surplus policy was a problem. The AG would like to see what elements of the Public Protector’s report may suggest otherwise, or what the audit procedures may have missed. However, for now the AG was comfortable with adhering to the auditing standards, thus the audit outcomes issued to the NAC.

Mr J Mamabolo (ANC) said that the Committee needed to consider what the AG had said. Mr Nyathela had already indicated that the Public Protector’s report would be in SARA’s favour. He suggested that while the Committee waited for that report, it could do its own ground work on the matter.

Ms Van Schalkwyk said that people needed to be cautious and appraise themselves on the mandates of different Chapter 9 institutions so that people did not go around social media making unfounded statements about them. She requested Mr Nyathela to update the Committee in terms of the outcome from the Public Protector, for a way forward to be considered.

The Chairperson said that the AG had confirmed that the audit did take place and that there had been communication between the AG and Mr Nyathela. It was unfortunate that the matter had gone through a few reports, with the Department of Arts and Culture conducting two forensic investigations, so there had been no failure in dealing with the matter. The only issue was that Mr Nyathela would remain unhappy if the surplus policy remained at the NAC.

The Office of the AG has done its job up to a point, and everyone had to agree that it was not an investigator, and the Committee was satisfied that the matter was now in the right place. The Committee was satisfied with the AG’s response and how he had handled the matter.

Mr Makwetu thanked the Chairperson for the remarks, but said that although he was satisfied with the Committee’s response, Mr Nyathela’s sentiments remained on social media and his followers had weighed in on the matter. AGSA’s view was that considering the discussion, it did not think a message like this had a credible place in the public space, and therefore Mr Nyathela must take the initiative to correct it. He contested the statement,“The anatomy of state capture cover-up at the Auditor General of South Africa”; saying it had no credible space in society.

The Chairperson said that anything said in Parliament became a public record, and if anything was not in accordance with expectations, what had been said would follow the individual. It had never been Parliament’s intentions to delve into the detail of the audit -- the only important matter the Committee needed to understand was whether the AG had done its work accordingly and as expected. The AG had confirmed that work was done and an audit opinion as per auditing standards had been issued. That was the Committee’s main issue.

Mr Nyathela responded that it was not true that SARA had received a full response from the Office of the AG regarding the surplus funds -- whether they were legal or illegal. If the Office of the AG had sent a response citing what the AG was saying now, SARA would have responded appropriately and consulted the relevant authorities.

Earlier this month, during a Portfolio Committee on Sports and Recreation and Arts and Culture meeting, an official from AGSA had been asked about this matter Ms Van Wyk, and in his response he had not been truthful. He had possession of the response, and he could e-mail it to the Committee.

If the matter did not fall within the AG’s mandate, why had SARA not been informed by the AG accordingly? The Office of the AG had never told SARA whether the surplus fund was lawful or not. The media statement that was issued did not cover SARA’s complaint and instead had covered other irrelevant matters that had nothing to do with its complaint. If the AG had been direct about which channels SARA should have consulted, it would have done so. The fact remained that there was corruption in motion.

Mr Singh raised a point of order, and said that the Chairperson had summed up the matter, and that there were certain people who would not be happy with the answers. The Committee had done its job, and the only way forward now would be to wait for the report of the Public Protector. Further debate would not do any good.

The Chairperson said that Mr Nyathela had met with the Office of the AG and received correspondence from it. As far as the process was concerned, the Committee remained satisfied. As for getting into the detail of the audit, that was not something that the Committee would entertain. The Chairperson also indicated that Mr Nyathela had also harassed him telephonically and shown no adherence to observing protocol or processes and procedures, to meet with SARA.

Mr Nyathela thanked the Committee for the opportunity to come and state SARA’s concerns. He advised that it was never SARA’s intention to harass the Office of the AG. The reason the matter had ended up in this platform was because SARA felt that the Office of the AG had not provided an adequate response to SARA’s complaint.

AGSA on its Strategic Plan

The Chairperson said that the Office of the AG had previously indicated that the to and fro of submission of annual financial statements by auditees contributed significantly to the decline in the quality of audits. This was also exacerbated by financial statements of poor quality.

 

Ms Tsakani Maluleke, Deputy Auditor General, touched on the value-adding audits as very important, and shared the following key strategic initiatives:

• Implement the amendments to the Public Audit Act (PAA);
• Institutionalise strict oversight of the governance of section 4(3) audits;
• Continuously improve the quality of audits;
• Institutionalise mechanisms and structures for developing deep knowledge of auditees;
• Implement light scope audit models for low risk and small to medium audits;
• Apply data analytics to reduce audit risks and increase efficiencies;
• Evaluate the country’s readiness to report on realising the sustainable development goals (SDGs);
• Complete the rebalancing of the audit portfolio;
• Evolve AGSA’s audit methodology to ensure that it identifies and responds to audit risks.

As for the budget, the funding model surplus target was 1% - 4% of audit income. The surplus of 0.8% in 2019/20 was below the target, as additional costs were used to support and coordinate the extended functions and powers for the amended PAA. Appropriation income of R50 million was included in both 2019/20 and 2020/21 to fund the costs associated with the amended PAA.

The tariff increase was in line with the growth in salary costs. This ensured that the audit fees were affordable and that the AGSA was viable and able to fund its operational costs. In line with the risk tolerance levels, it aimed to achieve a cash cover of not less than 1.5 months. This would

ensure the availability of funds to meet ongoing planned and expected financial commitments. However, there was an emerging risk of budgetary constraints from auditees manifested through write-offs (unbillable audit hours), which may exert pressure on the revenue and collections.

The year-on-year capex increase was mainly due to additional licenses (Microsoft, Qlikview, Oracle, Teammate), audit tools, and the electronic document management system. The budgeted surplus of R53 million included a R50 million appropriation. This surplus was not adequate to fund the projected capex spending of R128 million. The AGSA would continue to engage with the National Treasury to secure the payment of the appropriation income. In line with section 38(4) of the PAA, the AGSA had sought the Standing Committee on the Auditor General’s (Scoag’s) approval to retain the 2018-19 surplus to fund some of its capex.

With regard to the implementation of material irregularity, 86 auditees had been selected for 2019-20 audit of national and provincial government. They included:

• Sixteen auditees in the first phase;
• State-owned entities (SOEs) with high irregular expenditure;
• Key departments and entities (including procurement/implementing agents) contributing to the following priorities of government – Health, Education and infrastructure development (Public Works, Human Settlements, Transport and Water.

The selected auditees represent a significant portion of the expenditure budget and irregular expenditure of national, provincial government. Auditees for local government would be selected only at the conclusion of 2018-19 audits

Discussion

Mr Singh commented on the preventative controls, and said that after 25 years of democracy things are not getting better because departments were failing to do the most basic things. How many more years must one wait to get value for money audits?  What were maybe three of the most important things that the AG felt the public service needed to do? If that could be identified, the Committee needed to collaborate with other relevant departments and stakeholders to ensure that those things were done. People who failed to do the most basic things in the internal control environment could not continue to do so with impunity.

The Chairperson said that the issue of poor financial statements and the declining quality of audits said a lot about Parliament as well, because these matters were reported to Parliament. He wanted to know from the AG how the Committee or Parliament at large could create a sense of value in conducting its oversight role. A value for money audit triggered findings, but there was one aspect of oversight that needed to do something about it, whether it arose from regulatory audits or performance audits. The experience so far, in an environment where there were no consequences, was that none of those that were given regulatory audits were given enough attention.

The Standing Committee on Public Accounts (SCOPA) had come up with a 600-page report which was a summary of all resolutions and audit report resolutions that it had taken. It was a cumulative report that had been printed in 2014. Even at the level where resolutions were taken, there was no evidence of specific follow-ups that had been done regarding those matters. The performance audit was going to come along the same route, and it would find the same audience having to address it because it was similar matters, such as project management discipline. A performance audit brought in a different set of expertise, and was a value for money consideration. It would also bring in the aspect of evaluating whether the people who occupied certain key positions were indeed fit and proper to be in those positions. The reality was that the people who made decisions on tender awards triggered the evaluation of assessments of conflicts of interest, which was one aspect that was not covered under regulatory audits.

The Chairperson said he would inform the Chair of Chairs that a performance audit should be one of the important factors to be considered.

Mr M de Villiers (DA) enquired about the collection strategy associated with audit fees. 43% of the outstanding fees were in local government, and he asked whether there was a budget set aside by the Office of the AG to enhance the collection efforts for the fees. He also wanted to know whether there was anything that the Committee could assist with in this regard.

Ms Van Schalkwyk commented on litigation and legal fees, as she had noticed that the amount that was budgeted in the previous year had been more than the current year. She thought that since the new amendments had come to effect, the Office of the AG may face more contentions in terms of audit outcomes, but the budget was now less. She wanted clarity on who would fund the expanded mandate.

She was concerned about the number of auditees with credible statements -- the SOEs and departments came and reported to the Committees, but remained with a 25% record. She felt that more action needed to be taken, such as ‘name and shame’ and focusing on the worst performing departments to find out what the challenges really stemmed from.

There are internal audit functions in the departments, but how could the AG assist in working with the internal auditors to improve the audit outcomes.

Mr Mamabolo said there was an extended programme on training audit staff members in the presentation, and wanted to know when the training would be completed. He asked how the AG interfaced with law enforcement authorities. When it came across criminality in the auditees, did it report to the relevant law enforcement authorities?

AG’s response

The AG said that the PFMA had a requirement that all entities that were budgeted and appropriated were required to submit to their portfolio committees the accountability reports on monitoring. The auditors did not have sight of those, because they came in at the end. As far as the financial information was concerned, the Committee needed to ask whether the internal audit had looked at the financial information from quarter to quarter. The Committee had to get that assurance from the audit committee as well as the audit function, as the former were always appraised about the internal control environment, as well as matters of risk assessment. The portfolio committees could insist on receiving briefings from the audit committees privately. When the Accounting Officers and Authorities came, they would have no choice but to present truthfully to the Committee about the shortcomings in the entity. The Committee would then be able to make its own assessment on whether the key functions were not going to get surprises, to the extent that it became difficult for the functions to execute their duties. This would change the attitude of those who occupied the key positions in the entities.

As for the interface with other law enforcement agencies, as AGSA was concluding the regulations and the implementation of the new amendments of the Public Audit Act, it had interacted with various agencies in that space, such as the Public Protector, the National Prosecuting Authority (NPA), the Special Investigating Unit (SIU), the Public Service Commission (PSC) and others. It shared what was contained in the amendments and the interface that would be expected. Memorandums of Understanding (MoUs) with various agencies were being concluded which detailed how the entities would be working together with the AG, particularly on the matter of referrals.

Ms Maluleke responded that phase one of the training for auditors had been completed, and it was now busy with Municipal Finance Management Act (MFMA) with nine auditees. The training was something that would be continuous in the Office of the AG.

Regarding legal fees, there was a R30 million figure included in the current year, which was for costs associated with investigations that would be referred to other bodies. AGSA had decided to allocate a budget to those referrals. After interacting with the National Treasury, it became clear that would not work, because AGSA would not be able to fund other agencies, so the numbers had decreased in that regard. The intention was to minimize the litigation and legal fees as much as possible through different initiatives, such as making use of the in-house legal team and so on.

Ms Sibongiseni Ngoma, Chief Financial Officer: AGSA, referred to the collection strategy, and said the most problematic debt was in local government. The most effective collection strategy was to allow the auditees to have catch-up agreements for the historic debt. Another effective strategy involved interactions with the National Treasury. In the past, AGSA was able to collect about 30% of what was outstanding. However, due to additional efforts, it had received R150 million in 2017/18 and R50 million in 2018/19 financial year. One of the sections enhanced in the PAA was section 23, which allowed AGSA to have direct access to the National Revenue Fund. This was not yet in effect, but should come into effect in the following financial years. AGSA litigated auditees, but that was a last resort.

Ms Alice Muller, National Leader: Audit, AGSA, commented on the actions to be taken when financial information was not received on time. The Office of the AG had been engaging with the provincial government regarding the assistance that would be provided to local municipalities that were struggling with the submission of their financial information, and to address the challenges in that space well.

The AG concluded that there was a requirement to report on the non-submissions, which was related to the issue of ‘name and shame’.

The meeting was adjourned.