In a virtual meeting, the Auditor-General of South Africa (AGSA) presented the Committee with its strategic plan for the 2021/22 financial year.
The presentation included the 2021-24 strategic commitments, 2021/22 AGSA budget, 2021 audit directive and the AGSA complaints policy.
Goal one targets included achieving all its organisational objectives and completing 80%- 100% actions approved by the Public Audit Act (PAA). Goal One objectives also included tabling special audit reports to improve stakeholders’ perception of added values and AGSA wanted to achieve 80%-90% quality audits with C1, C2 and C3 ratings.
For goal two objectives, AGSA wants to achieve all its organisational objectives and to implement 80%-100% of its constitutional visibility pragramme for 2021/22. Goal two looked also to implement 80%-100% of its citizen engagement programmes.
To maintain financial viability, goal three looked to achieve a net surplus percentage target for 2021/22 of between -2%-0% and a level of safety/cash margin for AGSA’s target was between 1.5 and 2 months. Another achievement of goal three was to improve the rating of AGSA’s training offices by South African Institute for Chartered Accountants (SAICA). AGSA wanted to implement between 80%-90% of its staff engagement actions. The last target of goal three was that AGSA’s technology optimism programme of software business plan and roadmap be completed and approved by 31 March 2022.
The goal four target was to achieve level two of Broad-Based Black Economic Empowerment (B-BBEE) in a clean external audit opinion and 100% of its action plans against report ethical breaches.
The budget revenue for 2021/22 is expected to grow by 7%, driven by new and catch-up audits and an increase in the scope and risk of audits. Overheads will grow by 1.71% due to additional costs to support the ICT infrastructure. Factoring out the ICT-related cost, the overheads would have reduced by 1.60% year on year, which is in line with the cost optimisation tactics planned to respond to the negative impact of Covid-19 on AGSA’s revenue stream. The year-on-year capex decrease is mainly due to tenant installation for the new Head Office, of R46 million that was budgeted in 2020/21.The 2021/22 budgeted deficit will result in a draw down from AGSA’s reserves to cover the funding of capex. This will have a negative impact on the cash cover going forward. AGSA indicated that it has a deficit budget of R57 million because of work done on Real Time Audits (RTA) during the Covid-19 pandemic.
The Committee commended AGSA for the work it is doing and welcomed the presentation. Members raised concerns about the deficit of R57 million in the budget and asked it to explain all the costs incurred because of the audits conducted during the pandemic. Members also asked the AGSA to elaborate on the whistle blowing programme and asked if it is linked with the RTAs.
Members of the Committee asked AGSA to comment on its relationship with SAPS and if the cases of intimidation have decreased.
The Committee also commended AGSA for being a transparent institution always delivering yearly status reports of the audits it conducts on Government Departments to the public. However Members commented that trust will be lost if the institution does not hold those responsible for unauthorised, irregular, wasteful and fruitless expenditure accountable. Members raised issues that the sample audit that AGSA conducts is not a true reflection of what happens in the Department it is auditing and asked it how it planned to expand the platform.
Lastly the Committee raised issues of capacity in AGSA and asked if it planned to increase the number in its forensic teams and fill critical positions in the office. Members also asked if AGSA planned to decrease the amount of outsourcing work.
The Chairperson welcomed everyone and thanked everyone for being present. He said that Parliament is working hard to ensure its Committees’ deals with issues before the end of the first quarter. He indicated that the reason for the meeting is because the Auditor-General of SA (AGSA) wants which included two policy instruments and minor amendments, to be tabled. The Chairperson took the Committee through the agenda for the meeting.
Thereafter the agenda was adopted.
Presentation by the AGSA
Ms Tsakani Maluleke, Auditor-General, took the Committee through a detailed presentation on AGSA’s strategic plan for the 2021/22 financial year. The presentation included the 2021-24 strategic commitments, 2021/22 AGSA budget, 2021 audit directive and AGSA’s complaints policy.
Strategic Goal One: Value-Adding Auditing
1. AGSA’s assessment of the organisation’s performance in value-adding auditing target for 2021/22 is to achieve all organisational objectives.
2. The percentage of completed actions as per the approved Public Audit Act (PAA) implementation plan is to achieve 80%-100% of the actions for 2021/22.
3. To improve stakeholders’ perception of added value by tabling special audit reports and the target for 2021/22 is to table reports as per AGSA defined timelines.
Ensure quality of AGSA’s audits
1. The percentage of adherence to quality standards through audit engagements and the target for this is to achieve between 80%-90% with a C1, C2 and C3 rating.
Strategic Goal Two: Visibility for Impact
1. AGSA’s assessment of the organisation’s performance in visibility plans to achieve all its organisational objectives for 2021/22.
2. The percentage of implementation of its constitutional visibility pragramme looks to achieve between 80%-100% of the actions for 2021/22.
Engage actively with citizens
1. The percentage implementation of AGSA’s citizen engagement programme plans to achieve between 80%-100 of the actions for 2021/22.
Strategic Goal Three: Viability
1. The net surplus percentage target for 2021/22 is between -2% and 0%.
2. The level of safety/cash margin for AGSA’s target for 2021/22 target is between 1.5 and 2 months.
Attract, develop and retain great talent
3. The rating of the training offices by South African Institute for Chartered Accountants (SAICA). Low risk: 7-9, medium risk 6-8 and high risk 0-2.
Create an enabling culture and leadership
4. The percentage implementation of planned staff engagement actions looks to implement between 80%-90% of its planed actions.
Enable operational effectiveness and efficiencies
5. The percentage implementation for AGSA’s technology optimism programme target, for 2021/22 is to have audit software business plans and roadmaps completed and approved by 31 March 2022.
Strategic Goal Four: Vision and Values Driven
Drive AGSA’s transformation strategy
- AGSA wants to achieve level two of Broad-Based Black Economic Empowerment (B-BBEE) in 2021/22.
Demonstrate clean administration
- For the 2021/22 financial year AGSA wants to achieve a clean external-audit opinion.
Safeguard the ethical character of AGSA
3. AGSA plans to achieve 100% of its action taken against reported ethical breaches.
AGSA’s 2021/22 budget
Funding model principles and financial key indicators
The funding model was confirmed by the Committee in 2008. Since then all the key financial indicators were consistently met.
• However, some of the surpluses have not translated into cash, resulting in a backlog in some capex and infrastructure projects.
• Consequently, AGSA’s cash cover budget for the 2021/22 financial year is 2.1 months, compared to the desired level of three months.
• The negative impacts of Covid-19 are expected to continue, which could exert pressure on the revenue.
• In line with the risk appetite level, defined in the risk management prescripts, AGSA aims to secure cash cover of three months to ensure availability of funds to meet ongoing planned and expected financial commitments.
Summary income statement
• Budgeted revenue for 2021/22 is expected to grow by 7%, driven by new and catch-up audits and an increase in the scope and risk of audits
• Overheads will grow by 1.71% due to additional cost to support the ICT infrastructure. Factoring out the ICT-related cost, the overheads would have reduced by 1.60% year on year, which is in line with the cost optimisation tactics planned to respond to the negative impact of Covid-19 on AGSA’s revenue stream.
•The year-on-year capex decrease is mainly due to tenant installation for the new Head Office of R46 million that was budgeted for in the 2020/21 financial year.
• The 2021/22 budgeted deficit will result in a draw down from AGSA’s reserves to cover the funding of capex. This will have a negative impact on the cash cover going forward.
The Chairperson commended AGSA for its presentation and highlighted the policy changes in the presentation. He said that It is important that Members of the Committee note how AGSA pursues its audits and stretches its audits to the levels of state-owned entities which was never done before. The stretch of auditing seeks to permit the environment of the Learning Management System (LMS) of the KA review which emphasises the Material Irregularity (MI) processes. This would enhance AGSA’s ability, in terms of its strategic plan and will be strengthened by the mechanisms to improve its audit quality.
The Chairperson pointed out that these mechanisms and processes will give AGSA more independence and protection to continue to do its work without fear or favor. He made reference to the presentation and highlighted to Members that in the presentation there is a section that covers technology, warm bodies and finances. He noted that in the financial aspect of the presentation, AGSA made reference to the R57 million deficit. He indicated to Committee Members that there are still engagements between National Treasury and AGSA based on the PAA for funding. He expressed hopes that the funding of AGSA from National Treasury will continue beyond the financial year.
He then expressed gratitude towards AGSA on elaborating on matters that seek to address the policy environment, audit directives and complaints policy. He urged Committee Members to deal with the report and adopt it so that the report can be tabled by Parliament before the end of March 2021.
Ms V Mente-Nqweniso (EFF) requested that AGSA elaborate more on the challenges of the year 2020. It demanded that Government entities like AGSA come up with a new strategy to monitor its expenditure.
She made reference to the whistle blowing element as a mechanism in this technological era to curb corruption and requested that AGSA elaborate more on whistle blowing. She asked AGSA if the whistle blowing line is aligned with the RTA, in the sense of how it audited the Covid-19 relief fund and followed-up and ensured at the same time that there is no unnecessary expenditure and all Government policies are followed up on. Also in line with the RTA does AGSA have enough officials for this and does AGSA have a strong system to resolve cases?
Ms C Seoposengwe (ANC) said that in the last financial year, auditors experienced serious intimidation and a number of cases were reported. She asked if AGSA still experienced this problem. She then asked how it plans to address the issue of citizen engagement in the current pandemic.
Mr H Hoosen (DA) commented that AGSA has established a reputation in the country to be an effective institution and the country is proud of it. Every year it addresses the nation and gives a status report on its audits of government departments. This indicates to tax-payers how effectively their tax money is being used. Due to the transparency of AGSA there is an outcry on all the unauthorised, irregular, fruitless and wasteful (UIFW) expenditure. He raised concerns that every year in majority of the Departments UIFW expenditure is increasing and was very concerned about the Departments that are not performing.
He said he is not concerned about AGSA’s audits and its processes because this indicates that it is doing a very good job. He raised an issue about the results and outcomes of the audits. It is good to indicate in audits areas where departments perform and underperform. The issue is that nothing happens with Departments where UIFW increases. If nothing happens every year people will begin to lose hope in the institution. There is a new law that was passed that gives AGSA more power in terms of cost recovery.
Mr Hoosen then indicated that the report did not deal with issues of accountability in the audits and actions must be taken against those who steal money. He requested that AGSA give its opinion on accountability because nothing is indicated in the report. He raised issues around the R57 million deficit and said that it is sad. However he is comforted by the fact that AGSA will draw from its reserve so that the quality of the service and audits it provides is not affected
He indicated that AGSA conducts sample audits which are a portion of what occurs in the various departments it audits. He requested that the AGSA expand this platform so that there is a true indication in the audit of what the department being audited has done. What does AGSA plan to do to address this issue? He indicated that there is more corruption and UIFW then what is being indicated because it is only a sample audit.
Mr N Singh (IFP) said that AGSA uses some of the big accounting firms and outsources work to these firms. He asked to what extent is there a need to outsource work to firms. He then asked what AGSA planned to do to reduce the amount of outsourcing work because it cannot completely stop outsourcing. He also asked what it planned to do to increase the capacity of forensic investigations or will it continue being assisted from outside sources.
The Chairperson requested AGSA to elaborate more on the work done on the Covid-19 relief fund and the deficit of its budget to give the Committee a better understanding. He said it is a problem if the Committee allows a budget with a deficit to be turned into a positive and asked AGSA to be specific of its negotiations with National Treasury. He requested that AGSA focus on capacity in its offices and asked what it has planned to repopulate the various levels of the office like the Deputy Auditor General and its national leadership. He said that these positions of leadership are important to manage and to improve the qualitative aspects of the office.
Ms Maluleke replied to the question on the budget deficit f R57 million that it would be diminished if AGSA receives R150 million that it spent on its RTA. She said that AGSA did not plan to conduct all the RTA because of the Covid-19 pandemic.
When the President made a request to AGSA and ensured the provision of the funds it quickly deployed its resources to conduct the RTA. AGSA is still waiting to receive funds as promised. She noted that it was an elegant manner in which the issue of the deficit was raised in the report because AGSA would be in arrears if it received the R150 million. She requested that the Committee allow it more time to engage with National Treasury and it will notify the Committee if it needed the its support.
She replied to the question on capacity to conduct the RTA, that AGSA did not have enough personal to conduct RTA’s. AGSA does not have enough personal with the necessary skills to address the issues it is faced with. She indicated that this process will take time and more resources to recruit and train people.
She replied to the question about the Deputy AG role which was a position that was advertised. Ms Maluleke confirmed that applications had been processed and AGSA hoped to conduct final interviews in April 2021. After final interviews took place AGSA will make a recommendation to the Committee.
She replied to the Chairperson’s question on the role of the Presidency that position needed to be filled. This will give AGSA an opportunity to close the gaps around the issues of the national leader. The constraints of the pandemic including the lockdown and the uncertainty of managing a crisis, it became difficult to fill positions. She noted the concerns of the Committee and indicated that the AGSA is working on filling positions.
She replied to the question on expanding the RTA’s confirming that AGSA’s strategy was to find opportunities to create differentiated audit programmes. AGSA was not expected to conduct RTA’s for every auditees. In some cases auditees lend themselves to conduct RTA’s and AGSA’s strategy was to hire auditees to prepare the audit programmes. She then indicated that AGSA could not conduct RTA’s for every auditee because it still had to conduct its annual irregularities audit. She said that AGSA would like to recruit more personal and planned to present the Committee its strategy to do so.
She replied to the question on whistle blowing saying that it is a tool mainly used for people who complain about AGSA internally or auditees who wanted to complain about how it conducted its audit process. It is rarely used by people who want to blow the whistle on the spending by government entities. On the question about the link between whistle blowing and RTA’s Ms Maluleke said that that there is no link. The process of the whistle blowing tool is that when there is a complaint about the work of the auditee AGSA will determine if the complaint is relevant to the audit conducted and will hold the auditee accountable.
Replying to Ms Seoposengwe’s question about the intimidation of auditors she said that the number of cases has declined because of lockdown. AGSA is not complacent and the matter is still seen as a major issue. The drives to implement the MI will increase the number of intimidation cases. She said that to deal with the matter AGSA planned to drive awareness at what the tools does and how it can help Accounting Officers. AGSA used the awareness drives to educate citizens on what the tools does and what the audit outcomes mean. The collaborations between the South African Police Services (SAPS) are important in protecting the audit teams from cases of intimidation.
She replied to the question on citizen engagement that driving awareness of the AGSA office can build trust and there are factors that violate this trust. She indicated that trust driving transparency of the office will improve the trust of citizens. She replied to issues about the Chief Financial Officer (CFO) that awareness of the office’s work is done through webinars, workshops and sharing information because it is helpful to gain insight from the CFOs research. The collaborations of audits are also useful because there are different things other auditors can do at ground level with different performance initiatives.
She replied to Mr Hoosen’s question on the increase of UIFW that people will lose hope if AGSA does not tackle these issues. She said AGSA plans to build controls to limit these issues, drive accountability and implement amendments. She indicated that it would be difficult to stop UIFW because even if a RTA or proactive audits is conducted the audit still occurs after a transaction has happened. The only way the AGSA office can drive hope is if people see improvements and consequences of the audits. When AGSA conducts its special reports hope is re-instilled because the report of problems of the programmes audited in the report. The report indicated that there have been improvements in the programmes and that controls have been improved to decrease UIFW and people responsible for UIFW were held accountable. She then indicated that money was returned to Departments like South African Social Security Agency (SASSA) and Unemployment Insurance Fund (UIF). She highlighted that the input and contributions of different stakeholders are important because it is very urgent that accounting officers, executive authority, law enforcement agencies and forensics in the system assist to protect the resources. She said that AGSA found 78 MI’s in the course of its audits which were conducted under difficult circumstances. She admitted that this is not enough but it is a good start.
She replied to the issue on the increase of audit coverage that AGSA plans to increase its audit coverage. The increase in audit coverage has to be systematic and take into account all external factors. There is a request for RTA’s, proactive audits, engagements and increase in coverage of audits however the office does not have the capacity to adhere to all these requests. She indicated that if the AGSA office must adhere to all the requests it will be a struggle due to lack of capacity to maintain all the requests.
Replying to Mr Singh’s question on external audit firms she agreed with Mr Singh that there are issues surrounding audit firms. She said there are issues around the reputation, quality and irregularities regarding the firms and because of this, the AGSA is closely monitoring the firms. She made reference to the incident in 2017 involving KPMG. When the audit mandate of KPMG was terminated the AGSA office had to improve the audit levels in terms of due dates and quality control. The firms are actively trying to improve matters of ethics, audit quality and reputation management. She said the work is slow but working on gaining trust for the institutions. KPMG have committed to improve its audit quality and gaining public trust. She said that the work done by the firms on behalf of the AGSA office are not compromised by the challenges the firm faces. She indicated that AGSA has mainly contracted internally and those external contracts have a number of monitoring reviews surrounding it.
Ms Maluleke replied to the question on the reduction of outsourcing work and said confirmed that AGSA planned to reduce the number of outsourcing work. She said that six years ago the allocation of outsourcing work was 23% and that AGSA was currently at 13%. She indicated that this year because of lockdown, the audit cycle and delays of audits this percentage will increase but not to the extent of 23%. She said that it is not necessary stop outsourcing because of the cross pollination of ideas from the private sector to the public sector. The timeframes AGSA has to complete its audits would require it to outsource work in some cases. She indicated it will be difficult to decrease the 13% of outsourcing.
She replied to the issue on increasing forensic capacity and said that AGSA planned to increase the forensic team of investigators. She said that the forensic team is spending most of its time building its expertise on the integrated audits with the multi-disciplinary team. A few officials of the teams dedicate time to forensic reports. AGSA believed that the value of the team is complimenting the irregularity audits in producing an AGSA audit report.
Mr Z Mlenzana (ANC) asked AGSA how its relations were with SAPS apart from issues of the Covid-19 pandemic because the Committee requested that the AGSA must engage regularly with SAPS. He asked AGSA what its claims was to the amount of R150 million from National Treasury. He said that he asked this question because AGSA indicated that if engagements with National Treasury do not go accordingly the Committee would have to assist it.
Follow-up responses of AGSA
Ms Maluleke replied to Mr Mlenzana’s question on the SAPS relationship saying that this relationship was very helpful in the response to threats and intimidations of the AGSA team. The collaboration with SAPS is that as AGSA planned its audits and sent out teams to specific areas SAPS has ensured the safety of the teams. The partnership with SAPS was coordinated by Parliament and it is the duty of AGSA to maintain this relationship at National and Provincial levels.
On the question about AGSA’s claims to funding from National Treasury, she confirmed that AGSA incurred the cost of R150 million to do Covid-19 related work. She committed that AGSA will submit in writing a report to the Committee regarding every detail about the cost of the work done so that there is no doubt about its claims to funding from National Treasury.
The Chairperson requested that AGSA explain the deficit amount of R57 million which would indicate to the Committee why AGSA is waiting on receiving funding from National Treasury.
Ms Maluleke replied to the Chairperson’s question saying that when AGSA started the audit work, it was not in its planned budget. AGSA responded to the request from the Presidency and it was indicated that the cost incurred from the audit work would be compensated for. Challenges were caused because of the PAA command for support who received R60 million and the National Treasury supported municipalities in terms of s23 who could not afford the audit work of the AGSA. She expressed her hopes to have the issue dealt with before the end of the financial year. She committed to give the Committee a full account of the cost of the audit work. She said that AGSA did audit work on the Public Finance Management Act (PFMA) with special reports one and two and currently working on special report three focusing on Municipalities. She said that it is difficult to keep track of all the work done. The calculated number of cost is R150 million.
The Chairperson said that he hoped that Members of the Committee were provided with clarity from AGSA’s responses on issues raised so that the Committee can finalise the report and that it can be tabled by Parliament. He commended the official for the work AGSA has done and thanked everyone who was present at the meeting.
The meeting was adjourned.
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.