Audit Framework for disaster relief funds in KZN & Eastern Cape: AGSA briefing

Meeting report

The Chairperson said that the context for the meeting was the State of Disaster declaration following the devastating floods in KwaZulu-Natal (KZN) and the Eastern Cape in April and conveyed the Committee’s condolences to those who had lost loved ones. He explained that the Auditor-General (AG) had been asked to present the framework her office would use to audit the disaster relief funds in the affected areas. He expressed pride in the real-time auditing strategy used by the AG during the pandemic to ensure that accounting officers could respond immediately to prevent fraud.

Presentation by Auditor-General: Real-Time Audit Plan for Disaster Relief Funding
Ms Tsakani Maluleke, Auditor-General of SA, recalled that the President had announced three phases of interventions: immediate humanitarian relief, stabilisation and recovery, and reconstruction and rehabilitation. The Auditor-General of South Africa (AGSA) had designed a real-time auditing strategy to ensure that the resources allocated to these interventions were used for their intended purpose. It saw its role as providing independent, timely and credible insight into the management of funds as just one part of an accountability ecosystem that included the accounting officers of implementing departments and entities, coordinating departments, political leaders, public representatives and civil society. The real-time audit strategy was intended to ensure that accounting officers could respond immediately to prevent theft, fraud and leakage of funds, but auditing would remain reactive to protect the independence of its assessments.

AGSA would draw on lessons learned from the COVID-19 pandemic and international examples of states responding to crises or undertaking complex projects within a short period. In particular, it would draw from China’s oversight of the Beijing Olympics, the lesson that real-time auditing helped when other role-players, including law enforcement and investigative bodies, also played their parts. The audit process had three elements:

- Prevention (engagement with auditees on the importance of internal controls). In this connection, the KZN Provincial Treasury had indicated that it would be pre-assessing awards at the procurement stage.
- Detection (identification of high-risk transactions and processes and reporting to management).
- Reporting (communication of findings to Parliament).

Ms Maluleke shared a non-exhaustive list of the national and provincial departments and municipalities that would be audited. She stressed that AGSA would depend on the support of effective coordination across the entire accountability ecosystem. It would reprioritise staff to the work and supplement its capacity with specialist skills where necessary and would need the Committee’s support to manage the financial implications. She emphasised that transparency and accountability must be upheld, even in the midst of a crisis.

Discussion
Mr H Hoosen (DA) appreciated the explanation of the real-time audit process. He observed that the AGSA had said that departments were still reprioritising their budgets, but at the same time, the President had announced that R1bn would be made available for disaster relief, which included reprioritised funds. How had this figure been arrived at if departments were still busy with reprioritising? He acknowledged that the Presidency might be better placed to answer this question, but did the Auditor-General have any insights?

He suggested that the KZN Department of Transport should be one of the departments subjected to real-time auditing, given how much destruction of transport infrastructure had occurred.

Ms Maluleke confirmed that the KZN Department of Transport would be included in the auditing.

Mr Hoosen observed that emergency supply contracts entered into by municipalities in terms of Municipal Supply Chain Management Regulation 36 were a major source of corruption and maladministration and appealed to the AG to look into these contracts very carefully.

Mr N Singh (IFP) agreed that Regulation 36 was often abused.

Ms V Mente (EFF) also agreed that these contracts were an enabler of corruption. Did AGSA have a system that encompassed all possible transactions, even those done by isolated municipalities, and that closed the loopholes exploited during the COVID-19 pandemic?

Ms Maluleke replied that, in short, there was no change in the systems available to AGSA. However, what had improved was AGSA’s collaboration with other public bodies, and it was expecting better outcomes than during the pandemic.

Mr Hoosen asked when a draft report could be expected on the audits done thus far.

Ms Maluleke replied that work on a report had already begun and estimated that it would be released by August. She noted that the ad hoc Joint Committee on Flood Disaster Relief and Recovery would be an important platform for engagement.

Mr Hoosen asked the AG to make a phone number and email address available for the general public to report suspicious transactions.

Ms Mente agreed. The real-time audit strategy gave the people an opportunity to assist, and it should be seized.

Mr Singh observed that AGSA would play an unenviable role in ensuring that crooks in the system were not able to steal money intended for disaster relief. It was also unfortunate that one’s default position was to expect that money would be stolen. He asked when funds would be transferred to the relevant entities and departments.

Ms Maluleke acknowledged that AGSA’s role was unenviable but emphasised that it comprised a staff of 3 600 committed professionals who loved their work. To undertake the real-time audit, it would be supplemented by a small number of external experts.

Mr Singh asked how many warm bodies would be assigned to auditing the disaster relief funds and whether there would be any impact on fulfilling AGSA’s ordinary responsibilities.

Ms Maluleke admitted that there would be an impact, as it was taking place during AGSA’s Public Finance Management Act (PFMA) cycle. It would probably delay some of the regularity work on the affected auditees, but AGSA would do its best to minimise the impact.

Mr O Mathafa (ANC) asked whether AGSA would assign staff permanently to the provinces.

Ms Maluleke replied that AGSA already had staff present within the provinces, departments and municipalities involved, doing the bulk of the work.

Mr Singh asked whether there would be project managers employed by AGSA involved in relief projects as they developed. He drew attention to a damaged section of the N2 where, even after five weeks, a temporary lane had still not been established because the contractors were not qualified. Would this kind of project be monitored as it unfolded?

Ms Maluleke pointed out a fine line between being involved as a project developed and making management decisions. AGSA was limited to giving independent insight, meaning that it could not intervene in management decisions.

Mr Singh asked whether AGSA would be reporting to the new monitoring committee set up by the President. What was its relationship with other bodies that would be monitoring the spending?

Ms Maluleke confirmed that it would share information with the President’s monitoring committee.

Mr Mathafa asked what the additional cost of the real-time audit would be. Would these additional costs be recouped from auditees and if so, were they aware of this? Given problems in the past where audit fees were not paid, was AGSA sure that it would be able to recoup its costs?

Ms Maluleke replied that there would be additional costs, and AGSA would try to pass these costs on to the auditees as far as possible. It would be important to work closely with the auditees, provincial treasuries and National Treasury to ensure that the audit was properly funded, especially since AGSA had ended up subsiding audit costs during the pandemic, leaving it with diminished subsidising capacity at present. The Committee’s support and advocacy in this area would be vital.

Mr Mathafa asked whether auditees would be informed in advance which areas of operations would be audited, as in an ordinary audit.

Ms Maluleke explained that AGSA would look at compliance with procurement regulations and value for money and the efficiency of spending. It would focus on high value and high-risk transactions.

Ms Z Kota-Mpeko (ANC) observed that the various departments involved in disaster relief projects needed to coordinate their budgeting. Effective coordination between the three spheres of government would be similarly critical.

Ms Maluleke agreed that collaboration would be critical.

Ms C Seoposengwe (ANC) appreciated the work of AGSA. She said it was important that AGSA’s reporting was quick enough not to allow space for inaccurate or misleading media reports to emerge. It would also be very important that all involved did not work in silos.

Ms Maluleke replied that AGSA would do its best to report its findings as quickly as possible.

Closing comments
The Chairperson appreciated the AG's positive approach to her work. If AGSA appeared to have pre-judged its auditees, there was a risk that they would shy away from providing it with the information it needed. One should not start with the assumption that money would be stolen. The function of AGSA was to detect theft, and its function was rather to ensure that money was used for its intended purpose. The Committee would support AGSA, and it might look at arranging a visit to KZN and the Eastern Cape.

Ms Maluleke noted that the ad hoc committee also intended to visit disaster sites. It would be important to coordinate the timing of such interventions to avoid an over-concentration of monitoring bodies in any one place at the same time. She also reported that there had been no threats made toward AGSA officials and undertook to alert the Committee on any received threats.

The Chairperson thanked the Auditor-General for her input.

The meeting was adjourned.