Public Audit Bill: deliberations

He said that this perspective differed from Dr Woods' suggestion, which said that the Auditor General must report to Parliament via a stand-alone committee, and that a precedent had been set by the formation of the Joint Standing Committee of Intelligence (JSCI). This committee would also require specialist individuals to serve on it. Amidst the differences of opinion, there was agreement that the Auditor General must report to Parliament. Disagreement followed only on the mechanism for reporting. Nobody within the ANC had been opposed to the stand-alone committee, although they were somewhat wary of making an absolute decision to establish a committee, without having exhausted the consultation process at that time. Their suggestion was, for that reason, a compromise. The question to consider was whether to form a committee now, or to allow the Joint Rules Committee to do that later.

Mr Tarr observed that either way, the end result would be the same. The matter came down to a question of timing.

The concern of Mr Steele (DA) was that the proposed committee should be seen as special and different, as a body that would engage between Parliament and the Office of the Auditor General, in terms of exercising the accountability function. If the Committee were to be lost amongst the other Committees established by the rules of Parliament, the special function might be lost.

Dr Woods was eager that the Committee should fulfil the requirements of the Constitution, by spelling out how the Auditor General's accountability must work, since the whole of Parliament was dependent on the net result of what the Auditor General did in the course of completing his work. Those people that "take up the cudgels" for other Chapter 9 bodies would also establish identity, and separate the bodies from each other. If it were left to the Rules Committee to make a decision on the oversight of the Auditor General, they might: (1)"lump" it together with all the other Chapter 9 bodies in ignorance, (2) take a long time to make a decision, or (3) never do anything concrete. Should the Ad Hoc Committee decide not to create a stand-alone Committee, he requested a "fall-back" position that the Bill should provide that the current Audit Commission would terminate at the end of the current Parliament, which would force the Rules Committee to "do something".

The Chairperson informed the Committee of a discussion he'd had with the current Chairperson of the Audit Commission, Dr Jordan. Dr Jordan raised the point that if a stand-alone Committee were to be created, to which the Auditor General must account, then at the same time, the Auditor General must audit Parliament, which is its overseer. He suggested that would create a conflict of interest.

Dr Woods explained that the oversight body envisaged would look at general things, and not specific audits. The contradiction in Dr Jordan's argument was that the only conflict of interest could result in the actual audit of Parliament's books, which was overseen by SCOPA, a body of Parliament.

Mr Tarr observed that Dr Woods proposed that the introduction of the new committee should take place only at the start of the new Parliament, after the 2004 elections. That would put some pressure on the Rules Committee to give effect to the provisions of the Act, to spell out the mechanism by which the Auditor General should report to Parliament. It would be useful to try to "light a fire" under the Rules Committee. If the Bill were to establish the principle that the Auditor General should report to Parliament, they should not leave the rest "hanging in the air".

The Chairperson proposed the insertion of the clause that, "the Audit Commission ceases to exist at the end of this Parliament", and this would give the Rules Committee some time to work on the oversight of the Auditor General. The ANC generally had no problem with the oversight committee being a specialised one. Its leadership had requested that the Ad Hoc Committee put a credible argument in favour of the specialised committee, before them. The question really involved the issue of timing. There was no actual opposition to Dr Woods' document in principle, although the ANC might be opposed to putting it into legislation on Thursday, 13 November. Should they oppose, they would then present Parliament with a simple two-liner, saying something like, "We report to Parliament that the Rules Committee must set the frequency ... and this must be done by the time that Parliament re-opens in the third term. At that stage, the Audit Commission must disappear".

Mr Tarr asked what would happen if the Committee were to pass fairly open-ended legislation, which would commit the new Parliament to a course of action, and that new Parliament were to refuse to implement the action.

Mr Bell was concerned that, if the Committee were to make stipulations in the Bill regarding the oversight mechanism of the Auditor General, they would be told at the re-opening of Parliament that they could only stipulate that when the Rules Committee had finalised their arrangements, the Audit Commission should then fall away. He felt if the Rules Committee were given any leeway by saying that they must have something ready, they would decide that when the Rules Committee was in place, the Audit Commission would fall away.

The Auditor General informed the Committee that according to legislation, with the change of Parliament, the existing Audit Commission remained in place until a new Audit Commission was appointed.

The Chairperson repeated that it was broadly the view of the ANC that the Audit Commission in its current form should be repealed. He therefore did not agree with Mr Bell's statement that the Rules Committee would impose different measures than what was being requested. However, they could not allow the Rules Committee to spend five more years doing nothing about the situation. He asked the legal advisers if it was possible for the Committee to make provisions for the new Parliament to act upon.

According to Ms D Lenzie (Parliamentary Legal Adviser), this was possible. She stated that legislation often imposes obligations on Parliament, and the new Parliament would have to carry on with those obligations. Should they be unhappy with the legislation, they could always amend it.

The Chairperson said that he would discuss the matter with his party, to obtain their views on the matter. He would return the following day with a clearer sense of the way forward.

Mr Steele suggested that Chapter 5 should be reduced to a simple two-liner, to read, "Parliament will establish a Committee to perform oversight of the Office of the Auditor General".

The Chairperson agreed. The ANC constituency would consider the matter, and a clearer Committee position would be obtained on the following day.

Commenting on the legality of the Auditor General auditing companies in which the state owned the majority shareholding, Ms Lenzie explained that Section 188(1)(c) provided that the Auditor General must audit and report on the accounts, financial statements and financial management of any institutional accounting entity, required by national or provincial legislation to be audited by the Auditor General. She could find nothing in the Companies Act to prohibit that provision, and was therefore of the view that it could be included in the legislation. However, she would not make pronouncements on the desirability of such action. Many considerations had to be taken into account here, including political and administrative considerations.

Mr Gerber's concern was that the accountability of entities was funded by tax-payers' money, of which the government owned the majority share. He questioned the argument that the Office of the Auditor General was not sufficiently resourced to audit all entities. In that case, the process should be phased in over a number of years. If the Auditor General were given the option to choose not to perform certain audits, then a provision should be included to make the Auditor General responsible for the outsourced audit.

Dr Woods drew attention to Section 55(b) of the PFMA, which says that those companies which have their accounts audited by outside firms, must submit required documentation to the Auditor General, within five months of the end of the financial year, to the executive authority responsible for that public entity. The Auditor General therefore did have the legal instruction to "cast his eyes" over the audited statements that had been performed by external firms.

The Auditor General concurred with Dr Woods, although adding that Section 55(b) did not stipulate what the Auditor General should do with the reports. For that reason, the Office of the Auditor General looked through the reports broadly, and followed through to ensure that there was accountability to Parliament. He added that Section 5(1)(d) provides that reports must be submitted to the executive authority. The Office of the Auditor General then ensures that the executive tables those reports to Parliament.

The Auditor General informed the Committee that many public entities did not submit their annual reports to the Auditor General. The Bill, however, was silent on what to do when entities failed to submit reports. Should the executive authority fail to submit a public entity's report in Parliament, the Auditor General submits a report in terms of Section 65.

He suggested looking into why public entities were not accounting to Parliament. There should perhaps be a mechanism to enforce their accountability. The problem could be that public entities were not being effectively audited. Should the Auditor General take on the responsibility for auditing all public entities, the impact upon the resources and otherwise office of the Office of the Auditor General would be phenomenal. With their current resources, they were not able to take on such a responsibility.

If the problem existed within the profession, then the matter should be addressed with the professional bodies, whether it be with the Public Accounts and Auditors' Board, or with the South African Institute for Chartered Accountants.

Dr Woods responded that it was SCOPA's responsibility to investigate possible accounting malpractices. Although Mr Gerber made a valid point, he said that the PFMA had established that the Auditor General was entitled to delegate audits, and that he should inspect the reports. Section 25 makes it very clear that the Auditor General must appoint auditors who were registered in terms of the Auditors' and Accountants' Act. Sections 27, 28, and 29 provides that the Auditor General must very clearly stipulate the services that would be expected of the external auditors, in order to dictate the standards to which they must comply. He wondered if Mr Gerber's concerns were adequately provided for in those provisions, or if he felt those provisions could be "tightened up".

Mr Gerber was happy with the provisions surrounding the appointment of external auditors, but agreed that they could be tightened up. He agreed that it would be an enormous task for the Auditor General to perform all audits of public entities.

Mr Bell felt that the Bill was sufficiently comprehensive.

Chapter 3(16): Search and Seizure
Since the Committee had expressed non-agreement with the Bill's provision for search and seizure procedures without the authority of a warrant, that provision had been deleted. The Bill now stated that Auditor General required a warrant to perform those procedures.

The Auditor General reported that Section 16 currently was worded with the benefit of having spoken to external audit firms regarding the conducting of forensic auditing, and how they performed their work in the absence of search and seizure provisions. Most of the top audit firms generally felt that the absence of search and seizure provisions in forensic auditing presented serious limitations to their work. They regarded those powers as absolutely necessary.

Mr Kameldien (Office of the Auditor General) proceeded to provide the Committee with the viewpoints of the audit firms relating to powers of search and seizure with a warrant. He reported that private auditors did not possess powers of search and seizure, either with or without a warrant. They were obliged to lay a charge with the Commercial Branch Unit, and this Unit must perform the search and seizure operations themselves. Problems that arose for the forensic auditors: (1) the Commercial Branch Unit often make agreements with witnesses to testify. The forensic auditors do not have access to the testimony; (2) the Commercial Branch Unit has a major backlog in terms of their workload, affecting the priority given to search and seizure applications made by forensic auditors. Where permission is given by management of a particular company, when the CEO is under investigation in terms of the Public Finance Management Act, the matter in question is whom to approach for permission to search and seize. Additionally, management is only able to grant permission for search and seizure on premises under their control. Private residences, therefore, remain out of bounds to the forensic auditors. The overall view, then, of external auditors, was that the effective performance of forensic audits was severely hampered by the absence of powers of search and seizure.

Dr Woods said that Section 15 of the Bill gave the Auditor General massive powers to act. On the strength of those powers already given in Section 15, he questioned if the extra powers in Section 16 were really necessary. He further asked how many times per year it was likely that search and seizure operations would be required to be done. Lastly, he asked if the Chairperson had an idea if there was a proliferation of state institutions receiving search and seizure powers.

The Chairperson responded that the Chairperson of the Portfolio Committee for Justice and Constitutional Development, Mr Johnny de Lange, and other members of the Committee, were "uncomfortable" with granting search and seizure powers, especially without a warrant. He was in favour of asking Mr de Lange to brief the Committee further on his thoughts surrounding the issue, and to talk on the possible proliferation of the granting of those powers. He asked the Auditor General to answer Dr Woods' question on the frequency of the need for search and seizure operations.

The Auditor General responded that the question was difficult to answer, adding that it would depend upon the extent, nature and volume of the forensic work that was being undertaken. In fairly simple investigative audits, where full co-operation was forthcoming from the institution under investigation, search and seizure powers would not be required. At other times, it would be very apparent that all the information was not being disclosed, and the Auditor General would have a fairly good idea of where to find the information. In the latter case, powers of search and seizure would be required.

He continued that Section 15 revolved around general auditing powers, which were powers required in normal auditing operations. It required voluntary co-operation in supplying documentation and other information. The powers of search and seizure were required where there was resistance from the auditee, and where a forensic audit was generally involved. With the limitations experienced, the Auditor General has often had to go via second and third parties to acquire information. Quite often, matters were handed over to other investigation units, because of the limitations placed upon the Auditor General.

The Auditor General said that the Committee had to base their decision on their expectations of the office of the Auditor General.

Dr Woods asked at what point the Auditor General handed investigative work on criminal matters over to the National Director of Public Prosecutions, or if he ever saw such matters through to court.

The Auditor General responded that the method adopted by the office, was not to take matters through to the very end, but to do sufficient work, so that the criminal agency taking over the matter, would not have to redo large parts of the work already completed by the Auditor General, on the basis that the Auditor General did not have all the evidence, or documentation required.

The Chairperson concluded the meeting by summarising outstanding points to be dealt with for the following day's deliberations. These were:
- The ANC had to report back on its views on the mechanism of the oversight of the Auditor General.
- The Auditor General had to report to the Committee on the Special Defence Account.
- The Legal Department representatives were required to comment on whether the President could decide that matters of the SDA was not for public consumption, and if such a decision would compromise the Constitutional requirement of the oversight role of Parliament.
- Members were asked to consider the possible tightening up of the accountability provisions for public entities.
- A more comprehensive view would be sought from the Chairperson of the Portfolio Committee for Justice and Constitutional Development, on the proliferation or otherwise of the granting of search and seizure powers.

Dr Woods requested that the Chairperson seek the view of the Chairperson of the Joint Committee for Intelligence, to confirm the ideas expressed by the Chairperson of the Portfolio Committee for Defence. Reading the Defence Act, he could see how there could be an interpretation that the Special Defence Act could be used for intelligence, as well as for armaments, even though it was clear that armaments seemed to be the main issue. He wanted to be assured that all issues pertaining to the SDA were in the "Parliamentary loop".

The Chairperson responded that he would attempt to get the Chairperson for the Joint Committee for Intelligence to address the Committee, in the next session.

The meeting was adjourned.