AGSA 2018/19 Integrated Annual Report

Standing Committee on Auditor General

03 December 2019
Chairperson: Mr S Somyo (ANC)
Share this page:

Meeting Summary

The Committee considered a draft report based on a previous meeting, where the Auditor-General (AG) had explained to Members how he finalised audits, and which infrastructural tools were used to do so. 

The Chairperson went through each point of the report, and allowed Members to put forward suggestions on how and when amendments could be made. The legal advisor also made some suggestions, and explained why the advising team had decided to frame some points a certain way.

The Committee adopted the report with amendments.

Meeting report

The Chairperson said the purpose of the session was to allow the Committee to consider the draft report before it was finalised and tabled to Parliament. It was important for the report to be adopted by the entire Committee. For the current period of assessment, there was a peaked interest in outcomes of the Auditor General (AG) from members of the public and other parties. He commented that this was a good thing, because it helped to conscientise the nation on critical matters.

The Chairperson highlighted that one of the areas which had stood out in the report was that there was still some uncertainty about of the true meaning of “irregular expenditures”. He explained that some entities viewed “irregular expenditures” only as direct losses which needed to be looked into, instead of also considering the time and the systems in place for processing goods and services. The increase in the popularity of the office of the AG had also resulted in questions from the public on how it could maintain its independence as long as possible.

Introduction

He asked Members if they had any input for the introduction

He also asked Mr Xolisili Mgxaji, Committee Legal Advisor, if he had anything to add or comment on in the introduction.

Mr Mgxaji saiud that since he had had prior input on the draft report, he would be commenting only on the input made by the Members of the Committee.

The Chairperson explained that the introduction gave a preview of the instruments that the AG used to do its work, as well as how the AG had performed in the current financial year.

Corporative Governance

The Chairperson said the main point in this section was about the Audit Committee and how it helped to keep accountability over the accounting officer, as well as maintained governance in the office of the AG. The section spoke about issues in the AG’s office which were are looked into as a part of the mandate of the Audit Committee, which was independent of the Auditor General. The section also looked at how the Committee office was supposed to deal with external auditors, and affirmed the task of the Committee of appointing an external auditor with each report.

Mr Z Mlenzana (ANC) referred to page 1, and suggested that, for the benefit of a student that would be doing research, the report should elaborate more on the contract period of the Audit Committee.

Mr Mgxaji said the advising team would adjust the paragraph according to Mr Mlenzana’s suggestion.

Financial Performance Information

The Chairperson said the section covered the budgets that the AG’s office required in order to do its work. The amounts had been scaled up in percentage terms, and the business units of the entity had also increased.

The section had summarised the experiences of the AG’s office in the 2018/19 financial year, indicated the expenditure involved in the contribution the office had made to things such as the training of future auditors. It also recorded the surplus the office had accumulated, and how it planned to use that surplus.

Outstanding debt was a major issue. The current outstanding debt owed to the Auditor-General of South Africa (AGSA) was R744 million, and that it was mainly from entities who had not paid up. The increasing debt had to be looked at in relation to the sustainability of the entity, and the AG’s office needed to look into how it could ensure that people honoured their debt and paid.
 
Ms C Seoposengwe (ANC) asked if there were any structured tariffs applied by the AG to different entities which used the services of the AG’s office, particularly at the provincial level.  
 
Mr Mgxaji responded that he was unsure of how the AG currently billed entities, but added that as a part of the Committee’s recommendations, the issue of tariffs had been raised, and tariffs were what determined audit fees.

The Chairperson said that within the Annual Report of the Auditor General, there was a section which explained that charges of the AG’s office for entities also depended on the skills applied per audit, which meant that it charged higher fees for using senior auditors.

Ms Seoposengwe explained that her question stemmed from the fact that there had been some complaints from provinces which felt that they were being overcharged by the AG’s office.

The Chairperson said the AG’s office had set a standard for tariff structures in the country’s accounting sector, and these structures were determined by the skill sets of the auditors. The standard which it had set also extended to the private sector.

When it came to the outstanding debt of entities, stronger language needed to be used in the recommendations section on how to deal with these entities. 

Non-financial Information

The Chairperson said that the key point of this section was the quality of audits that AGSA had set for itself. He explained that AGSA had set a target of 80%-90% adherence to quality standards of audit engagement, which they had not reached. AGSA’s justification for missing their target had been that they had spent more time assisting their auditees to improve their financial credibility, as well as the fact that some auditees had been submitting their financial statements late. He suggested that the Committee should take the late submissions by auditees into consideration when speaking about AGSA’s performance, and clarify that this had resulted in AGSA’s failure to reach its target.

Mr Mgxaji said that the score of 72% that AGSA had been given was based on the quality of their audit files, after a sample had been assessed by the Audit Committee. One of the explanations given by the Audit Committee for the 72% score was that some audit files had arrived late, and were not up to standard, as a result of entities cancelling their contracts with private auditing firms such as KPMG. He added that the point on late submissions was more important for the target that AGSA had set of producing audits timeously, instead of the quality of the audits. He suggested that the point be added separately. 

The Chairperson asked if Members had anything to add to the section.

Mr Mlenzana told the Chairperson that he wanted to comment on both 5.2 and 6.

The Chairperson said that the discussion of the section had covered the points made by the Committee. 

Committee Observations and Findings

Mr Mlenzana referred to page 9, point 6, and proposed that the point be read with 5.2, and that the recommendation section should also include “the financial assistance of the AG towards the intervention on auditees in distress”.  He also referred to page 6, paragraph 2, and pointed out that the point starting with “These resistances are mainly driven by the expectation of clean audits…,”  was not supposed to be where it was, but rather a separate paragraph of 5.3. The sentence was supposed to be elsewhere, but must have been mixed up during the process of editing.

Committee Recommendations

On point 1, The Chairperson suggested that the Committee must state the appointment of the current External Auditors.

On point 3, he asked the advising team if there were on references to the principal bodies of SOEs.

Mr Mgxaji said the reason he and his team had decided to frame the point in this manner was because of collection strategies that were developed and implemented in 2014, which had been meant to deal with a similar situation. The strategies had included ring-fencing and using litigation strategies for outstanding debts for municipal bodies.

Mr Mlenzana made a comment that the Committee needed to be consistent about how often they wanted briefings from AGSA, pointing out that on point 4 a timeframe had been set, while on point 6 the recommendation was not time-bound. He said that specifying a timeframe in the recommendations would allow the AG’s office to know that they had an obligation to report on certain matters during certain periods.

The Chairperson asked if there was any specific proposal that Mr Mlenzana was suggesting with regard to the time-factor in the recommendations.

Mr Mlenzana replied that perhaps this was best for the advising team to decide on.

On point 7, the Chairperson said there should be a timeline put on the recommendation. He suggested that it read: “The AG should move towards full implementation of the status of records review to ensure that early warning signs…to allow them to report to the Select Committee on a quarterly basis on the recommendation.”

Mr Mgxaji concurred with the Chairperson and said he believed that AGSA was already in the process of implementing the status of records review.

On point 8, the Chairperson asked why the R50 million matter was being carried into the recommendations.
 
Mr Mgxaji replied that the point should have been omitted, and that it was a mistake that it was still there.

Discussion

The Chairperson said the advising team would go back and readjust the changes which have been made to the draft report.

Mr Mgxaji agreed that the advising team would adjust the document accordingly and send it back to the Committee for approval. He said it would take a single day to adjust the document.

Mr Mlenzana suggested that the Committee deal with the work of the day, and leave the minor details of the draft report to the Management Committee.
The Chairperson said that if the Members agreed with content and the amendments made in the report, then it would be sent to the Announcements, Tablings and Committees (ATC). He also asked that Members receive a final draft of the report as well.

Ms Seoposengwe asked if the report was being finalised within the current meeting.

The Chairperson asked when the Committee would deal with the strategy.

Mr Mgxaji said they would have to deal with the strategy two months ahead of the new financial year.

Ms S van Schalkwyk (ANC) moved the adoption of the report, with amendments.

Ms Seoposengwe seconded the adoption of the report, with amendments.

The report was adopted.

The meeting was adjourned.

 

Share this page: