Auditor-General role during COVID-19 disaster & audit delays

Standing Committee on Auditor General

22 May 2020
Chairperson: Mr S Somyo (ANC)
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Meeting Summary

Video: Standing Committee on the Auditor-General, 22 May 2020
Audio: AGSA on work during lockdown, possible delays to PFMA Audits & MFMA Audits

AGSA presentation on 2018/19 Local Government audit outcomes (email monitors@pmg.org.za)

The Auditor General outlined the approach of proactive auditing gleaned from the experiences of countries that had suffered disasters such as Indonesia and Japan. He noted the risks faced during a disaster to use state resources for purposes other than what they were intended for as the procurement procedures were relaxed during emergencies. Of the R500 billion package released for COVID-19 relief, R230 billion was under the purview of AGSA and it already had teams and procedures in place to monitor these large sums. Although he did not go into details about the different procedures, data analytics would play a big role. The three components of the proactive auditing plan include prevention, detection and reporting of risks identified.

The 2018/19 Municipal Finance Management Act (MFMA) audits final report was not yet released to the public as a few engagements with the principal stakeholders in two provinces remained. The 2019/20 Public Finance Management Act (PFMA) audit process for national and provincial had been pushed out by two months. The lockdown which started a few days before the end of the financial year had led to National Treasury issuing a directive that the due date for submission of financial statements to AGSA had been extended from 31 May to 31 July 2020.

Committee members enquired heavily as to the capacity of AGSA and particularly whether it was not biting off more than it could chew in terms of the vast amount of work it appeared to be canvassing. The Committee asked if it could assist in ensuring AGSA was properly capacitated to do its work. A suggestion was made as to the appointment of a role like the Special Inspector General that exists in the United States. The role would be different to that of AGSA which considers spending after money has been spent and generally at the end of the financial year. The Special Inspector General could be given the power to conduct, direct oversight and investigations over the making, purchasing, management and dispersal of taxpayer money made available by the state for the purposes of COVID-19 relief. Members asked for clarity about the extent to which AGSA would be engaging in fraud prevention and if there was a need to bring in outside workers to look into the smaller amounts not overseen by AGSA and to look into value-for-money auditing in procurement.

Questions were asked about the security of staff members returning to work at AGSA premises and when they go on client site visits as well as how AGSA was capacitated to work during the lockdown and whether COVID-19 had affected its productivity.

The Auditor General assured the Committee that it was not biting off more than it could chew since the postponement by two months of the financial statements gave them more time to implement the COVID-19 proactive audit processes before AGSA deals with the PFMA audits. He noted that structures were already in place to deal with the auditing of institutions disbursing the R230 billion portion of the relief package.

Meeting report

Opening Remarks
The Chairperson welcomed Auditor General (AG), Mr Kimi Makwetu, and Deputy Auditor General, Ms Tsakani Maluleke. The AG would provide briefings on how he has positioned his team to respond to COVID-19 so that the work of the Office is able to continue during this time.

Auditor-General of South Africa on operational methods and insights during a disaster
The Auditor General, Mr Kimi Makwetu, reflected that when the government announced the pandemic and called for academic responses to the pandemic, AGSA became aware that they were moving into a different operational environment. The institution looked to draw insights from other institutions in the world that have faced similar challenges; including Sierra Leone during the Ebola outbreak, where the audit office was called to move into action to ensure that the finances made available for the health sector were being made use of in the prescribed manner. It found that there were also similar interventions in Indonesia during the tsunami and during the nuclear disaster in Japan.

As most of these events transpired in the early 2000s, the International Organisation of Supreme Audit Institutions (INTOSAI) began developing what are called International Standards for Supreme Audit Institutions (ISSAIs) to provide a platform from which auditors can work in an emergency and in nationally declared disasters. AGSA has familiarised its teams with what is expected of them during lockdown. He assured the Committee that all the audit teams have been prepared to do work in these conditions, to ensure that they are not floundering as they go about it. This capacitation has been needed as auditors normally audit after money has already been spent, and after monies have been managed in a pre-determined internal environment, but now the environment has changed

Government’s response to the disaster
Government announced a R500 billion COVID-19 relief package to ease the impact of the pandemic on individuals and organisations. These relief packages also came with the relaxation of procurement prescripts in supply chain management. It is expected that the level of risk associated with financial management increases with the relaxation of procurement prescripts.

Allocation of the R500 billion package
R200 billion for a credit guarantee schemes to qualifying firms
R100 billion for job creation and to supporting SMMEs and informal businesses
R70 billion for income support
R50 billion for six months of social relief
R40 billion for wage protection
R20 billion for the health sector and related procurement.
R20 billion for municipalities

AGSA was unable to make the decision on to what extent it would get involved. It was not able to make this call up front and it was also under lockdown as it was not yet an essential service at that point. When the President expressed concerns about the implications of the movement of such huge amounts of money transferred to institutions and bodies, the AG disclosed that he had a conversation with the President to assure him that as an audit institution, AGSA does in fact have the necessary tools to attend to some of the identified risks.

Identified risks
The supply chain risk already mentioned may provide opportunities for financial abuses with the movement of large amounts of money at a rate and frequency the agencies have never operated before. He used the Unemployment Insurance Fund (UIF) as an example, where although they were used to making payments, they have never made this many all at once. The disaster environment creates opportunities for integrity violation. The opportunity for wrongdoing increases with the increased risk. Some people will rationalize their behaviour as they consider that some people are no longer in an income-earning position because of COVID. There also exist risks of people being put under pressure to make transactions where they are not properly protected by internal controls.

AGSA response to its staff
AGSA has assured its staff of its commitment to their health as they are placed in institutions who are handling large sums. Meetings were held at different intervals with staff and leaders to formulate a response. For example, the IT tools it had invested in are enabling it to meet remotely and it has been able to develop audit plans amongst its teams whilst people were operating remotely. There have been restrictions in engagement with auditees as some are returning to the work space only now or onwards into the future. Overall, AGSA has dealt with the internal bottlenecks of where it will be needed and the work it will be required to do.

AGSA preventative controls
One of the elevated priorities of AGSA is to implement preventative controls under the COVID-19 environment. There are mechanisms being put in place to bring about accountability to the institutions that will be handling the R500 billion package. AGSA has decided to be proactive in its approach rather than waiting for the end of the 2021 audit before springing into action. The proactive focus has led to AGSA putting together a number of multi-disciplinary teams to address risks in different environments. These include an information system audit team which will be auditing the UIF and the South African Social Security Agency (SASSA) databases, rather than relying on select transactions that may be paper-based procedures. The value of this is that in determining the kind of procedures to be performed, there will be a combination of information technology audit intervention, as well as fraud risk management specialists who are part of the investigations business unit. These specialists will look at some of the rules governing the manner in which these disbursements are going to be made and help the audit teams to develop focused preventative and detective controls. The AG used the example of R350 unemployment benefit. One of the tests that an information technology practitioner can do quickly is to scan the whole database and identify one or more individuals in that pay run who have been paid anything from R351 and higher. Flags can then be raised as nobody should be paid more. The AG said that the Office would not be sharing all the procedures they will perform, but that was just one example of what can be achieved in an integrated audit environment.

AGSA will be flagging risks and alerting the management of these entities. This will be done every time the agencies have a payment run so that matters are dealt with as and when they arise.

Some interventions of AGSA not included in this report
As auditees have not completed budgets, the following are not included in AGSA engagement plan:
• The R20 billion allocation to municipalities—this has attracted a lot of attention and has triggered a need for AGSA to interact with National Treasury and appraise them of the need to insist on certain specific controls for municipalities. Treasury and the Department of Cooperative Governance and Traditional Affairs (COGTA) are working on this.
• The R100 billion allocation for job creation and support to small business.
• The R100 billion credit guarantee scheme
• Procurement of transversal contracts for PPE and COVID-19-related items—this procurement is happening under emergency; however, these conditions must be monitored with their own controls.
• Interventions and funding for basic education and provincial departments of education
• Interventions determined and budgeted at provincial level (province-specific interventions)
• Interventions identified by departments, but National Treasury has not yet approved additional funds

AGSA teams have already developed audit plans having assessed the risk and appraised the potential for things to go wrong. These assessments have already been converted into risk responses or audit procedures that will be performed by AGSA. The AG assured the Committee that the Office has applied its mind to the assessment of the risk and the responses required. These detailed procedures may not be suitable to engage publicly on them before they have been applied. He did, however say that the outcome of this will be seen when the institution reports on the specific programmes. There will be a regular reporting exercise and the Committee will be kept alert to the matters AGSA highlights when it begins the proactive audit work.

The audit teams have reached out to all the accounting officers responsible for expenditure. Initially, this was not easy, but as of next week audit teams will be going into agencies like UIF and SASSA and a few other agencies at provincial level. He gave the example of the National Department of Health being a mainly policy-orientated body, with the real COVID-19 procurement happening in the provinces. Therefore, audit teams will be engaging with the accounting officers in the provinces.

Three main components of AGSA audit engagement
In most audits, they do not usually look at the whole pool of data…

Prevention
A lot of reliance is being placed on the prevention controls. AGSA provides support by asking the accounting officers if they have considered all aspects of their payment systems to implement and strengthen preventative controls. The accounting officers and authorities are then to ensure that increased risks such as double payments and significant changes in their operations are addressed.

Detection
Using data analytics, AGSA aims to identify high-risk transactions, payments and procurement and to gain a deep understanding of the environment. High risk items will be audited; the procedure will depend on the matter being audited. Findings will be reported to management for them to fix control weaknesses before additional payments are made.

Reporting
Special reports will be given to Parliament on the outcomes of their audits and the responses of accounting officers and authorities to the weaknesses identified by AGSA teams.

Health and safety
Stringent protocols have been put in place for site visits by audit teams.

Overview of AGSA response to the disaster
For significant portions of audits, accounting officers have been engaged with and engagement with executive authorities is scheduled, so AGSA can bring them up to speed on the procedures they will be rolling out. Multidisciplinary teams have identified with auditees for SASSA and UIF. Findings will be communicated to the accounting officer immediately to implement corrective action.

AGSA is ready to get going with implementing scrutiny in the context of a proactive audit. This includes amounts in areas such as for the procurement of food. However this is not AGSA's area of strength to monitor on the ground when distributions happen, and where needed, it will rely on civil society organisations which it has interfaced with in the past so as to respond and adapt should it be faced with a concentration of risks. AGSA intends on looking at the transactions going through the books and doing verification tests, but it will not venture into the specificities about the number of kilograms of samp and the type of peanut butter distributed. The AG expressed hopes that there were many people doing that kind of work in the NGO sector and amongst civil society organisations, including elected representatives in different towns and rural areas as AGSA declared upfront that it does not have the capacity to do this with the level of success that could be achieved by others.

Discussion
Mr N Singh (IFP) thanked the Chairperson for facilitating the meeting and said that it was urgent that this meeting was arranged. He welcomed the proactive steps taken by AGSA. He asked if it is biting off more than it can chew. The objectives may give the public a false sense that everything being done during the COVID-19 period in terms of additional expenditure is being audited by AGSA. He added that he did not this would be the case and asked how much more human, financial and infrastructural capacity is needed to assure the public on the audit, that monies are being spent effectively. He noted that value for money audits would not be taking place. There are reports of food parcels which can be bought for substantially less than the department is buying them for. He appealed to the AG that even if it needs to hire outside workers to do value-for-money audits, this would help the country have an overall picture of how things went at the end of the day. He asked what was happening to the work that AGSA ordinarily does under normal circumstances, if that will be put on the back burner and if so, how it will be impacted on. He welcomed the proactive stance in working with accounting officers and said that the public needs to know that the immediate responsibility will be on accounting officers.

Ms N Mente-Nqweniso (EFF) asked how the Committee can assist in ensuring that the capacity of the Office is not impacted by human or financial shortfalls to perform the huge task it is undertaking. She noted the controls being dispensed for the management of the large sums being distributed in response to COVID-19 but asked if the AG had any proposal for smaller amounts and asked from what amount AGSA starts to monitor. The Committee may be able to suggest means for the smaller amounts of money to be monitored by other teams. As an example, she raised this because last week she saw R600 million used by the Department of Basic Education for the purchase of water tanks for 3000 schools. This would mean that one school would have 10 JOJO tanks. It would make more sense if at least 6000 more schools were catered for with that amount. She asked how far apart the special reports will be issued for each department so that the Committee can be proactive in their oversight function. She suggested that the special reports not be too far apart, particularly for the R20 billion allocated to municipalities.

Mr J de Villiers (DA) shared the concerns of the capacity of AGSA. He asked if he could be so bold as to suggest that an Office of a Special Inspector General be established for the monitoring and prevention of corruption of taxpayer money. This Office would different to that of the AGSA which generally considers spending after money has been spent and at the end of the financial year, but the Special Inspector General could be given the power to conduct, supervise or co-ordinate direct oversight and investigations over the dispersal of taxpayer money made available by the state for the COVID-19 relief. This would include monies repurposed by various departments, monies allocated as part of the R500 billion stimulus package as well as loans given by the state to any natural or legal person. Such a Special Inspector General could be appointed by the Auditor General and the appointment made final by as early as July 2020. Legal provision for this could also be made in the Special Appropriations Bill, which will be tabled in Parliament in June to give effect to the R500 billion stimulus package announced by the President. Tis was just a proposal from the Committee’s side and they looked forward to hearing feedback on it.

Ms S Van Schalkwyk (ANC) asked a question on fraud prevention for the COVID-19 funds whether the AG foresees that additional staff for security measures would be needed to perform their duties. She considered the limitation of staff during the lockdown and that the staff would have had other work to do. How does the lockdown impact their performance considering the reduced numbers of staff available during the lockdown period and these added responsibilities. Since supply chain management procedures will be directly impacted during COVID-19, she asked how the AG intends to directly link with departments and municipalities to avoid an unnecessary spike in prices and to ensure there are no huge flaws in the supply chain management procedure.

Ms C Seoposengwe (ANC) said that the security of the AGSA teams is worrying. She also expressed concern about capacity as the Office works under an abnormal situation. Her concern about security includes the health security of the personnel. The Committee really needs to support AGSA in this crisis. This may mean meeting more to ensure that the mammoth task for AGSA is made much easier.

Mr Z Mlenzana (ANC) asked about the relaxation of procurement procedures (Transversal Products), emergency procurement, risk management for the Social Relief Fund which may be prone to abuse and to what extent AGSA will be working with SAPS in connection with preventative and detective controls?

Auditor General responses
Capacity
The AG replied that there was no transaction in the R200 billion for credit guarantee schemes which would involve the auditees it is responsible for. The R200 billion will be taken care of through engagements between financial institutions, the Reserve Bank and National Treasury. That amount will be taken care of by other instruments of oversight. For example, if a bank overextends itself in terms of its capital adequacy, it will be dealt with through the Reserve Bank which has the mandate to deal with that. If, there are support and guarantees challenges, these will be dealt with by National Treasury.

Income support packages
A number of these support packages are being sponsored by the South African Revenue Service (SARS). SARS is giving taxpayers the opportunity to delay VAT and income tax payments and has put limits in place as to what kind of taxpayers are given that opportunity of remission. This package amounts to R70 billion. AGSA is going to extend their procedures when it audits SARS to ensure that SARS was fully compliant with the R70 billion relief grant to companies that use their VAT and income tax to meet their working capital requirements during this time. The sum is almost a delayed transmission of money that has been costed by SARS and is a confined risk within the SARS environment and will be dealt with by AGSA as part of its normal audit instruments when they audit SARS.

AGSA will be alert to the many new parameters which SARS will have introduced for the transmission of monies by tax-paying companies. AGSA has taken the cue from the fact that SARS in its rebuilding phase is upscaling and upgrading its systems that will enable them to have proper transparency and oversight over the benefits it will be letting out. It has already pronounced on the expected shortage in the collection of tax, and if there is already a R240 billion shortage, AGSA will want to ensure that the R70 billion is properly managed and accounted for.

The remaining R230 billion of the R500 billion is what AGSA will be dealing with. Even this amount is not in every area amongst the auditees. For example, the R20 billion for health sector support will be chased after by auditees that are already working in the health departments in the various departments, therefore there is no need to get new people. These people will take care of the audit during this period.

The submission date for financial statements has been delayed by two months in response to COVID-19. Instead of them being sent to AGSA by 31 May, they are now required to be sent to AGSA by 31 July. Therefore, AGSA has a little bit of time to accommodate some of these activities, even though the Office will have to spring into action to do the PFMA audit after the two-month delay. This time provides them the capacity to ramp up the proactive procedures before the PFMA audit from 31 July onwards.

If you look at the 3 500 AGSA staff, there will be a group of people who are in the health portfolio involved in the auditing for that sector. He gave the example that if there are 10 people responsible for the Eastern Cape health department, the audit will not require all 10 of them. Less will be needed as they will be conducting focused procedures which have already been identified.

Relief of social distress
This relief has been quantified as R50 billion. This amount is confined within SASSA and the audit team for SASSA has been auditing SASSA forever and a day.

UIF
The risks associated with the R40 billion that will be paid out for UIF will be dealt with by a team that has already been allocated to deal with UIF and the Department of Labour. UIF is not everywhere in the country and is only located at the Head Office, where the team will be placed to assess the risks. The use of technology will mean that not every single transaction will need to be looked at using a manual interface, but technology will be used to interrogate the risks in the database.

Water and other services for municipalities
This money has not yet been given to municipalities. National Treasury and COGTA are still trying to figure out the best way to handle the release of that money to local government. This will happen down the line and will not put pressure on AGSA right now. In the meantime, AGSA will be focussing on procurement in health, SASSA and the UIF.

Biting off more than AGSA can chew
Therefore of 3500 staff, the AG did not think that more than 100 of them will be preoccupied with this across the country. Only R230 billion of the R500 billion falls under the purview of AGSA. He hoped that this would give the Committee some comfort and noted that although it will become more pressured towards the end of July, the Office would manage it tactically.

He explained that for the R350 social relief of distress grant that will be received by qualifying individual for six months, once the database has been set up at SASSA for May, the first month, it will be able to audit that database through technological intervention. AGSA does not expect much movement in the database after people come forward initially. On a monthly basis, changes will be tested along with a test of the overall run to ensure that the money disbursed is consistent with what is on the database. Account reconciliations will be done on a monthly basis. This work is doable without needing to bring in more people. All the work being undertaken is within capacity and they can put their neck on the line for it.

Value for money audits
In collecting the principal information, AGSA already has an idea of the typical things that need to be bought as per guidance given by the National Department of Social Development for the typical food pack as well as the pre-approved suppliers per province and the expected prices. AGSA intends to work with this knowledge through the Office of the Chief Procurement Officer to ensure that when it audits the expenditure of a department for its procurement, it will work with the parameters set in the predetermined guidelines for price ranges. It is when these parameters have not been complied with or when the prices on the invoices are outside those parameters, that the matter will be raised and put into its report.

Impact of COVID-19 on the work of AGSA
COVID-19 is not going to have a significant impact on their work as the date for the submission of financial statements has been pushed out by two months. The AG said that the bulk of the water tanks as well as the entities sent to fill those tanks was a project undertaken by the Department of Water and Sanitation together with Rand Water. This was part of the work for the R20 billion earmarked for municipalities and it may be a matter of them reimbursing one another. AGSA's audit effort will be centred on the Department of Water and Sanitation together with Rand Water and it is already in discussions to finalise engagements on this. Once the municipality package arrives, AGSA will begin to review this through its provincial teams.

Assistance from the Committee
The AG replied that this will be asked for by AGSA should it encounter any resistance to being audited.

Small money amounts
The AG and his team took note of this and they will apply their minds to the point as they enter the environments where they are auditing.

Special reports
The frequency of these reports will depend on the amount of work possible. With organisations such as the UIF and SASSA, a lot of these payments will have been made by the time that AGSA begins to audit the agencies in June. Since the data it will rely on will be available internally it should not take too long for them to produce these reports and at intervals that take into account how much time was needed and if the work was complete, for AGSA to report on it.

Fraud prevention
AGSA does not aim to prevent fraud, but rather to highlight those instances that may have already translated into fraudulent activity and report on it as and when it happens. Prevention of fraud is an instrument in the hands of the management of an institution. If management allows someone to change the beneficiary bank account within the UIF system without having controls to detect when it happens, that person can get away with transferring hundreds of thousands of rands. Only management of those institutions can prevent this from happening. AGSA only undertakes to identify the irregular expenditure as early as possible.

Special Inspector General
This role as known in the US is a function of the Executive arm of government. Inspectors General are equivalent to the internal audit function that exists in South Africa. National Treasury does have internal audit capabilities. When there are heightened levels of risk, it normally triggers that intervention. Trying to import the US model may get AGSA into trouble because they would not want to determine Executive structures and if it does not work, AGSA will not have a leg to stand on.

Security
A key tool taken into the data environment is data analytics. This is being taken into the coded economy.

Preparatory measures for the office
The Deputy AG will give feedback on this so that staff are secure when they return to the office, although there remain those who are working from home.

Deputy Auditor General, Ms Tsakani Maluleke, said that AGSA is following best practice locally and internationally as well as following the lockdown regulations stipulated by the Department of Labour. It is ensuring that the office is sanitised, and that masks and sanitizers are available for employees as well as putting in place protocols for screening, testing and isolation where required. It has also placed limitations on visitors and is now working with auditees to define the protocols to ensure that AGSA staff are safe when they have to go to client sites. AGSA is also trying to limit the movement of staff as far as possible and most teams are working from home and using online methods of working. This is proving to be a challenging but exciting space.

AGSA has tried to limit the need for people who are at risk, if for age, or those using public transport, to be moving about. It is doing its best to ensure that safety is maintained for those who come to work.

The Chairperson appreciated the preparedness of AGSA in assisting government and setting them at ease with its detection of fraudulent and related matters during this time. It seems AGSA is more than ready to meet the new demand. If there are any new things that come up during the process; the AG is welcome to alert the Committee. He noted that a number of shout outs have already been made due to some expenditure anomalies in the provinces. However, he is sure that AGSA is aware of them and is attending to them

Local Government 2018/19 Audit: Not much to go around, yet not the right hands at the till
Auditor General Makwetu said the 2018/19 Municipal Finance Management Act (MFMA) Audits final report has not yet been tabled as AGSA is currently interacting with the leadership structures on the Executive and Legislative sides of government to bring them up to speed on matters that arose in the 2018/19 audit for local government. It is customary practice that AGSA does not launch the audit report unless it has engaged with the direct principals who are responsible. These engagements have been done to a great extent with only two more provinces to engage with, Eastern Cape and Gauteng. SALGA and the National Ministries such as the Minister of Finance and Minister of COGTA have been engaged with along with the Director General in the Presidency. One big remaining constituency is the Association of Public Accounts Committee that still remains to be engaged with and the meeting is scheduled for next week to share the overall outcomes. of this work

Assurance was given to AGSA that oversight by Parliament's COGTA Portfolio and Select Committees will happen before the 2018/19 MFMA Audits report reaches its final stages. Consultation with this Committee was within the same context so that it has a sense of what is in the report. This was just a briefing to the Committee as the report had not been finalised. However, soon after all the engagements are finalised, the report would be surfacing. He hoped that this would not be later than in June as it is already now at the end of 2019/20 audit cycle since local government's financial year ends on 30 June and it is already in the throes of another year end for local government.

In the past, the report has not been given a title, but this year, AGSA decided to give it the title 'Not much to go around, yet not the right hands at the till.’

Mr Singh interjected and noted that this is an interim report and asked if it is a public document as there were media and others present at the meeting. He would be guided by the Chairperson as to the extent that the report should be discussed in a meeting such as this.

The Chairperson thanked the AG who had spoken on the matter saying that the 2018/19 MFMA Audits report is still in a consultative process. As of now the Committee would receive this purely as a briefing. He invited the AG to return after the finalisation of the report. He asked the media present to note the Committee’s plea that the presentation on the report is not yet public and ought to be observed as such. Or else the document can be withdrawn and the AG return at another time.

Mr Mlenzana said that the slideshow on the report should not continue beyond the title page. It should be circulated amongst the Committee as a confidential document until the report is finalised.

Mr Makwetu said that he would follow the direction given by Mr Mlenzana. In the past, the AG has typically asked the same of the media as early release of the figures by the media has sometimes confused the public once they see the report at a later date. This understanding also exists in the provinces and for the remaining time he spoke about the report in broad strokes.

There is not a lot of money and the way that money is managed in local government leaves a lot to be desired. Those required to do the work at councillor level do not do their oversight work. Some even spend more on consulting work despite receiving negative audit outcomes. The report goes into detail about districts. An analysis on the different strengths of financial capabilities shows that the financial statements given to AGSA are sometimes not worth the paper they were written on.

There are some municipalities that continue to have clean audits, but in general, the struggle of implementing internal controls is a widespread problem. A lot of money could be saved if the discipline for oversight procedures were maintained in local and district municipalities. The full report will come out at the end of June once all of the leadership has had a chance to appraise itself of its contents.

Where a series of infractions are allowed to grow over a number of years in institutions such as local government, this means that the lack of internal financial controls becomes the new standard. If that circumstance is combined with the reality of the economic situation confronting us all, there are bound to be financial health risks.

These risks arise because local government allows money to be diverted to items it is not purposed for. As it has not resolved its infrastructure problems, which means that problems in fixing broken assets and upgrading infrastructure are not attended to. The budgets going forward are not going to get bigger if there is an appreciation of the revenue projections for the country. This means that there will be a significant financial health risk in the future which will need to be addressed in the context of the audit infractions that have already been discussed. Some have done a good job and adhere to correct internal control systems.

The AG said that after the report is launched, AGSA would come and engage with the Committee as well as SCOPA and then anyone is free to write about it. They appreciated that COVID-19 has not left.

PFMA audit delay for 2019/20
Auditor General Makwetu explained that the National Treasury directive was to all national and provincial accounting officers and CFOs across the country acknowledging that they would not be able to finalise their accounts by 31 May due to the lockdown starting a few days before the books were to be closed. As nobody had a chance to complete their statements, the directive gave them another two months so that financial statements are now due by 31 July.

This move means that the date that AGSA normally uses to sign off their reports—31 July is now shifting to 30 September. The extension also has a consequence on AGSA's own books which get audited before being presented to this Committee. Due to the extension AGSA would not be submitting financial statements to the Committee at the end of July due to the additional two months given.

To tease the interest of the Committee, the Independent Regulatory Board of Auditors (IRBA) is looking at matters around COVID-19 which may need to be incorporated in the audits that require significant disclosure or significant accounting transactions to take place. AGSA will keep the Committee informed about this as it is not a matter that will disappear. Reference to this will probably be seen in a number of financial statements. AGSA is following up with IRBA as to how certain things should be dealt with.

AGSA will remain in communication with the Committee about the dates for the PFMA audit timeline. However, it does not want to put its neck on the line that these dates will remain as they may be subject to significant changes that everyone will be aware of. However, AGSA's plan is fixed around the two-month delay.

Mr Singh asked if the AGSA certification of debt process as a result of the Public Audit Amendment Act is still on track, but delayed. He asked if the COVID-19 pandemic will affect the income of AGSA where municipalities say that they do not have revenue to pay audit fees.

The AG replied that as it is part of the same ecosystem, AGSA will definitely be affected. AGSA cannot be blind to the fact that municipalities receive money from the National Revenue Fund which has shrinking ability to distribute whatever it gets. He noted that even if AGSA was getting its money directly from the fiscus, it would likely be suffering similarly. The only think not known is to what extent the impact will be. However independent it is, if municipalities say they do not have money, then they do not have it.

The Chairperson said that the objective of the meeting was to ascertain the space that AGSA is occupying during the COVID-19 crisis to ensure that there is value for the money spent. The AG has made such assurance by indicating the proactive monitoring of disbursements. Secondly the finalisation of municipal audits is imminent. The country can draw comfort that AGSA has met audit expectations. Finally, there is an assurance that the PFMA processes will commence after July of this year. Care has been taken for AGSA staff and the capability of audit teams in provinces. He thanked the AG and closed the meeting.

 

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