Material Irregularities in National & Provincial Government: AGSA briefing; Proposed Study Tour
Standing Committee on Auditor General
10 March 2023
Chairperson: Mr S Somyo (ANC)
The Auditor-General of South Africa (AGSA) briefed the Standing Committee on Auditor-General on the material irregularities in National and Provincial Government. The purpose of the presentation was to provide an update to the Committee on how the AGSA had progressed regarding the implementation of the new powers that had been granted to it. The presentation detailed the reports on material irregularities that had been tabled, the incremental increase in auditees selected for implementation, the nature of material irregularities. The presentation highlighted how the material irregularity process was making an impact and the areas for improvement. The presentation highlighted that due to the actions of auditees, R636 million worth of potential financial loss was prevented from taking place, R509 million worth of financial loss was in the process of recovery, and R14 million worth of financial loss had been recovered. AGSA urged all role-players in the national and provincial ecosystem to support, monitor and oversee the resolution of material irregularities.
Members of the Committee noted that while there was action from the side of the AGSA, there was not sufficient action being taken by other responsible bodies to ensure that this action was being followed up. The responsible bodies referred to were the Hawks, the investigation authorities, the Directors-General, and the political heads of these Departments.
The Committee agreed to support the Office of the AGSA on the identified cases by conducting oversight visits to ensure that there was improvement and to prevent the recurrence of these findings. The Committee agreed to develop a plan of action to deal with what the AGSA had presented. At a reasonable time, the Committee would finalise a programme to be part of the accountability ecosystem.
The Committee Researcher briefed the Committee on the proposed study tour. There were four proposes countries for the study tour. These included Australia, Canada, New Zealand, and Singapore. Each country had a different audit system, which meant that they would have a different approach to performance audits. The research done indicated that Canada had the most comprehensive system of performance audit. The Researcher and Secretariat believed that the Committee could learn the most about best practice from Canada. Canada would also be the best option as it provided for immunities and privileges for the Auditor-General.
The Committee provisionally agreed to the proposal of Canada, but it needed to take into account that Canada was a developed country, where the model might be different to the South African environment. The Chairperson instructed the Committee Secretariat to work on the details of a finalised proposal and then present this to the Committee for final approval. The application for the proposed study tour needed to be completed timeously.
The Chairperson greeted the Members of the Committee and the Auditor-General of South Africa. The meeting had been convened to specifically look into the material irregularities, which would be outlined by the Office of the AG. The AG was part of the meeting and would be leading her team. The Committee would look into how successful this instrument had been, in as far as the reviewed Public Audit Act. Accountability of public funds needed to be a daily occurrence.
Briefing by the Auditor-General on the nature of the current 327 MIs reported in its Annual Report
Ms Tsakani Maluleke, Auditor-General, AGSA, briefed the Committee on material irregularities in National and Provincial Government. The purpose of the presentation was to provide an update to the Committee on how the AGSA had progressed regarding the implementation of the new powers that had been granted to it. The presentation detailed the reports on material irregularities that had been tabled, the incremental increase in auditees selected for implementation, the nature of material irregularities. The presentation highlighted how the material irregularity process was making an impact and the areas for improvement. The presentation highlighted that due to the actions of auditees, R636 million worth of potential financial loss was prevented from taking place, R509 million worth of financial loss was in the process of recovery, and R14 million worth of financial loss had been recovered. The AG urged all role-players in the national and provincial ecosystem to support, monitor and oversee the resolution of material irregularities. Where there were delays in investigations, Portfolio Committees in Parliament responsible for public bodies should request regular reports on the status of these investigations and must hold the public bodies to account for unreasonable delays in the investigations.
Material irregularity process making an impact
An example of actions taken by auditees included the Department of Defence importing an unregistered drug (Heberon) at a cost of approximately R260 million without approval from the South African Health Products Regulatory Authority. The unused vials were repatriated to Cuba, preventing an estimated financial loss of R227 million.
Another example of the actions taken by auditees included the National Department of Cooperative Governance making payments to non-qualifying government employees as part of the community work programme. In response to the recommendations we made and an internal investigation into the matter, the accounting officer referred the matter to the Directorate for Priority Crime Investigation (Hawks) for investigation. The accounting officer also took disciplinary steps against the responsible officials.
Material irregularities – areas for improvement
- Review its policies and regulations to further streamline processes to assess at which stage will we be comfortable stating a MI is resolved.
- Cooperate closely with public bodies to strengthen each other and to resolve matters of wrong- doing.
- Improve the ability to monitor and report regularly on the progress with MIs.
- Focus on increasing the impact of MIs and identify MIs where general public has experienced significant harm – ensure that MIs identified relate to the experience of citizens.
- Promote improved public and stakeholder understanding of our expanded mandate and processes.
- Influence alignment of legislative requirements and governance arrangements for enhanced accountability and transparency.
The Chairperson thanked the AG for the report. He agreed with the part of the presentation that said, ‘from inaction to action’. He noted that Government was reaping the rewards of the instrument that had come out of the Public Audit Act. It was meant to enhance the effectiveness of the Office of the AG. He provided a summation of the presentation. The AGSA was on a journey wherein it had identified a number of those MIs. The number needed to be reduced because of infused action. He noted that there had been inaction by certain accounting officers. He noted the efficiencies and effectiveness in the economic scale of benefit for society overall. Through this kind of intervention, this instrument assisted to identify some loopholes in legislation in certain Departments, especially the Department of Defence. The gap between the PFMA and the Defence Act permeated into the ability of those who accounted in some Departments and those who were in the executive to coordinate those functions for effectiveness going forward. What had the AGSA done when it encountered bad performance by a specific body? There needed to be a narrative that would redirect the action to be where it was supposed to be, to the accounting officers. What had the accounting officers done to ensure that they remained accountable, they ensure that through that accountability those who broke the value chain of efficiencies remained accountable. The AGSA needed to direct them to act. The Chairperson invited the Members to engage with the presentation.
Mr N Singh (IFP) agreed that it was from inaction to action. However, while there may be action from the side of the AGSA, he did not believe that there was sufficient action being taken by other responsible bodies to ensure that this action was followed up. He was referring to the Hawks, the investigation authorities, the Directors-General, the political heads of these Departments. The Committee had heard about the North West and what was happening. The AG was at pains to say that in the North West things were not right. What about much harsher interventions than what the AGSA had? Where was consequence management? He noted that matters had been referred to the Hawks. Did the AGSA follow up on these matters with the relevant authorities to find out what was happening? That was also a responsibility of the Office. Justice delayed was justice denied. People needed to face the consequences in terms of PFMA or MFMA, either criminally or civilly, for their actions and inability to follow rules and regulations. In light of the additional responsibilities that were now going to be thrust upon the AGSA with the declaration of the national state of disaster arising from load shedding issues, would the AGSA be able to manage all of these additional responsibilities? It was heartbreaking when one did not see sufficient consequences being taken against transgressors.
Mr O Mathafa (ANC) said that the presentation was informative. He commended the work that the AG was doing. He noted the increase in the number of auditees. This was a good thing. It was a sign of confidence in the AGSA as the audit authority of choice. This coupled with the amended powers, including the MI, now the AG was saying that there were about 124 MIs that were being tracked. What impact had the office noted on its operations, considering turnaround times and staff workload? If there was an impact, were there any structural and systems adjustments that the AG had to introduce in order to carry the load of the new auditees, in tracking and making follow-ups of the MIs? Had there been an impact on the budget of the AG? He noted a meeting between the AG and SCOPA in the North West, where certain municipalities had been invited so that there could be an engagement on the audit outcomes. One of the commitments that this Committee had made was that it needed to popularise the amendment to the Public Audit Act with auditees, particularly in the local sphere of Government. Could this platform be considered for collaboration between the Committee and the AG in reaching other auditees, to ensure that the message was carried? It would be of help if the AG could indicate to the Committee if the sitting in the North West was the initiative of the AG or if it was the initiative of the provincial SCOPA. This Committee would not hesitate to piggyback on such a good initiative. Maybe one day the Committee would be able to have an oversight activity with the AGSA in the field and interact with auditees. The presentation spoke for itself. It was a very good presentation. He noted the improvements that had been made, in particular the saving of private funds.
Mr Z Mlenzana (ANC) said that when the AG was presenting, it was like she was lecturing the Members on the MIs. It was a very helpful presentation. He felt that the presentation should be cascaded down as a form of education. He noted that because the AGSA was improving its work, workers on the ground who had been reckless before would now improve their work. He agreed with the points made by Mr Singh. The Committee also needed to play its part. The Committee either needed to interact with the related Portfolio Committees at this level or start what it had done. The Committee once had a meeting under one roof with SAPS. He suggested that the Committee, the implementing agencies and Departments meet under one roof wherein the Committee would impress the necessity and urgency that the AGSA had done this amount of work. Now, the AGSA would be waiting on a particular Department to act. The justice system was intertwined. If the Committee met with all the stakeholders, then it could find its way through. He congratulated the AGSA on work that had been done.
Mr P Mpushe (ANC) applauded the AGSA on the recovery of funds on the identified MIs of different Departments. She noted the cases handed over to the Hawks, SIU, and DPCI. The Committee was empowered to support the Office of the AG. The Committee needed to support the Office of the AG on these identified cases by conducting oversight visits to ensure that there was an improvement in how they operated and prevent the recurrence of these findings. The Committee needed to convene an urgent meeting between the Hawks, SIU, and DPCI to ensure that they shared the progress on the handed over cases and what could be impeding the speeding up of these cases.
Ms Z Kota-Mpeko (ANC) thanked the AG for the systematic way of dealing with the irregularities through MIs. She agreed with the Chairperson that it works and that now the results were being seen. She agreed that other auditors needed to learn from this process so that they could be brought on board on how to handle things when they got out of hand. She discussed the Department of Defence and the mindset. She agreed that it was doable and that the AG should go ahead. The irregularities in the area of Defence needed to be dealt with. She was excited with what had happened in the North West where the issue of Health had been dealt with. In George, there was a building that was built for NHI. It was standing empty. She asked that the AG follow up on that matter.
Ms Maluleke said that she acknowledged the comments by Mr Singh that there needed to be greater action by the other players in the ecosystem as well. The AGSA agreed with the comments he made. All the role-players could improve. When there was action, the Government would get the results it was seeking. The AGSA hoped that these stories would inspire others to act better. The AGSA was continuing to follow up with the public bodies on the matters that had been referred to them. This would be done so that all the role-players could see how they could collaborate better, improve pace, and also improve impact. She discussed issues relating to the ongoing energy crisis. The AGSA noted the announcement made by the President and the regulations that were promulgated. The AGSA welcomed the opportunity to add value to the process in terms of responding to this disaster. It welcomed the opportunity to serve as an independent service provider to the Government, to build confidence in the public, to protect resources, limit leakage and ensure that the resources that were allocated were spent in the best way possible for the purpose for which they were intended. It was still early in the journey. The AGSA was currently engaging with the stakeholders that were involved in the response. A number of them were new in their seats so it may take some time before everyone understood what the actual response would look like. Once the AGSA had been able to engage with all of the stakeholders, it would shape its own intervention. That would be informed by how the AGSA had assessed the risks and the resources it was able to deploy in assessing those risks. It would not be able to cover everything, but it believed that it would be well-positioned to make a meaningful contribution. The AGSA would continue to work with the Government in shaping this response as well as shaping what its own intervention would be. This crisis highlighted that the journey of safeguarding resources was not a journey that one institution could deal with. It was going to take everyone in the accountability ecosystem to do their part. When the AGSA did the flood relief work in KZN, one of the most wonderful pieces of input came from the provincial treasury. They had done work there and limited the need for the AGSA to intervene. They served as an important safeguard for public resources. Accounting officers needed to be reminded of their own responsibilities. Internal audit needed to be shifted into action. Provincial treasuries as well as the other parts of the coordinating ministries at the provincial and national levels also needed to play their part. The AGSA would then also shape its own response in a way that was supportive of the efforts of others. As things stood, the AGSA did not have a set plan because it was still engaging with stakeholders. As soon as it had that plan, it would make sure that it applied itself to being prudent with the resources that it did have available, and not detract itself from its key responsibilities in terms of the Public Audit Act. She responded to the question about the workload. What the AGSA found with the implementation of the MIs was that it had to put in the capacity to process them, to deal with the legal aspects and the things that were not coming naturally to auditors. The AGSA had put that expertise in the different parts of the system. The business unit had expertise investigated directly in them. It had also put technical expertise at the centre of the institution. It had augmented the capabilities it had in the performance audit unit. This had been well planned, and it had support from National Treasury to top up its budget for this particular intervention. The AGSA had been able to manage staff workload, and leverage its capabilities. It still had to meet up this particular set of responsibilities on the MIs. The journey of doing gradual increases in the number of audits that were exposed to this instrument helped the AGSA, in terms of shaping its own capabilities to make sure it did not stretch itself too much. It also helped the system of accounting officers to get used to this process before it flooded the system with too many of these MIs. That aspect was generally well managed. One of the biggest threats to the AGSA’s viability was the inability to collect debt. So, on the collection of the fees it had charged to the different parts of the system, especially local government and some of the State-owned entities, it was still concerned about this. It required continued support and advocacy from the Committee as well as other players within the ecosystem so that the Office did not lose certain capabilities. It needed to invest in more capabilities that allowed it to respond to the different demands. She discussed the North West matter. The engagement that AGSA had with the provincial SCOPA was one that happened regularly. It had a team in the province that audited the province, in terms of the Department’s entities but also local government. They engaged with provincial SCOPA on a consistent basis. That meeting was one that happened in the ordinary course. The AGSA would continue taking on the task of educating all of its auditees and stakeholders about its MI processes. It could not become complacent in thinking that everyone knew it and understood it now. It still had to go some way in driving awareness. Any advocacy, support, or guidance that the Committee would want to offer in this regard, the AGSA would welcome. The advocacy would certainly help. The AGSA would continue this education. If people saw that the AGSA was starting to act, it would serve as a deterrent to wrongdoing. If other parts of the ecosystem also acted, that too would also serve as a deterrent to wrongdoing. If people were able to see consequences coming through much more swiftly and in a way that was more visible. She noted Ms Kota’s comments about the Department of Defence. She also noted the comments made about George. She thanked the Committee for the opportunity to share the work of the AGSA. She thanked the Committee for the compliments and the constructive feedback. She thanked the Committee for the continued support.
The Chairperson said that Government was getting close to the hope and success of the audit practice in the public sector. The AGSA was driving both the efficiencies and effectiveness in terms of public resources. The Committee would follow the trends that had been taken on board by the Office of the AG, in dealing with the MIs. The Committee needed to look at what sort of role it could place within the system. The Committee wanted to fulfill the vision of success that had been set by the AGSA. The audit process was juggled within the complex environment of the accountability ecosystem. The actions of the AGSA had managed to intervene in the financially modelled environment to realise savings. The Committee needed to fit itself into that kind of equation, to pool through that kind of effectiveness.
The Chairperson noted that the Committee’s Researcher and Content Advisor would be working with the AGSA. The Committee Secretariat would pool the details of the matters that had been referred so that there could be accountability. The Committee would convene a session where all the parties involved would come together under one roof. The Committee would also look into those accounting officers who had been listed by the AGSA. The session would look into that detailed scope of work. The context would have to be framed appropriately, and the Committee would then deal with those matters. He noted that the legal advice that had been obtained surrounding the area of Defence should be shared with the Committee. The Committee would then consider how it could be involved. Those areas needed to be finalised. SCOPA would be very critical for further accountability with those identified entities or Departments. It was clear that the issuance of certificates was the last resort. He noted that those areas of inactivity amount to 19. If the Committee wanted to make a positive influence, then it needed to place its focus on the 19. Members were correct, in convening that meeting the Committee would have to consider taking along various entities which ought to effectively work on those areas. Through the Members’ comments and questions, it was clear that there might be areas the Members wanted to be a part of in terms of overseeing the success or failure of this model. The Committee would work together with the AGSA to work together at the provincial level, through the provincial committees. The Committee needed to align its focus of action based on the outcomes of the MI-related work of the AG. The Committee appreciated the work of the AG and the success of these matters. It was intriguing to see how far the Office had gone to ensure that those who were responsible to do their defined work, did that defined work. The Committee would develop a plan of action to deal with what the AGSA had presented. The Committee Secretariat would focus on this kind of work. At a reasonable time, the Committee would finalise a programme to be part of that ecosystem to ensure accountability was achieved.
The Chairperson thanked the AG and her team for the presentation.
Consideration and adoption of minutes – 25 November 2023
Ms M Matuba (ANC) moved for the adoption of the minutes.
Ms Mpushe seconded the adoption of the minutes.
The minutes were duly adopted.
Briefing by the Researcher and Secretariat about the proposed study tour
Mr Mbuyiselo Hlekiso, Committee Researcher, briefed the Committee on the proposed study tour. There were four proposed countries for the study tour. These included Australia, Canada, New Zealand, and Singapore. Australia, Canada and New Zealand were chosen because they had the same parliamentary system as South Africa. The Auditor-Generals assisted the parliaments in all those countries to conduct oversight. It was noted that South Africa’s Auditor-General was more independent than the Auditor-General in those countries. Each country had a different audit system, which meant that they would have a different approach to performance audits. The research done indicated that Canada had a comprehensive system of performance audit. The Researcher and Secretariat believed that the Committee could learn the most about best practice from Canada and Singapore. He noted that Canada would be the best option as it provided for immunities and privileges for the Auditor-General.
Mr Mlenzana said that he had not read the report. He was now talking based on what he had just heard. He would go back over the course of the weekend to study the presentation. He would need to be corrected if he asked questions that were already covered in the presentation. He asked if there could be a comparison and contrast between Canada and Singapore. That could mean that the Committee would have to touch base with the two countries. He also did not know the timeframes of the proposed study tour. In both Canada and Singapore, how was funding done? By funding, he meant funding the Auditor-General’s activities and projects, such that it did not compromise the autonomy and independence of the structure. He noted that the AGSA was trying to get funding of its own but that it was struggling. He would still go back and study the presentation.
Mr Singh said that he had skim-read the presentation. He had an idea of what each country could offer. He noted that he had gone on one of these study tours many years ago, and the Committee had also chosen an African country and one in the West. The Committee should consider that. With SCOPA, they had gone to Uganda and then to Austria. The most convenient in terms of logistics also needed to be taken into account. The Committee could go to a country that had a ‘Rolls-Royce model’ which was utilised. The question the Committee needed to ask was could that ‘Rolls-Royce model’ be applied in South Africa, given South Africa’s own situation. The Committee needed to look at a model that it could easily implement in terms of progression in South Africa. He did not have a challenge of going anywhere as long as the Committee could learn, come back and implement.
Mr Mathafa said that he was covered by the inputs of Mr Mlenzana and Mr Singh. The Committee needed to look into the makeup of the countries that it was going to visit. In his mind Canada was a ‘Rolls-Royce’ country and Singapore was a developing country. The Committee should resolve that the Chairperson together with the research team take into account the inputs that had been made and come back to the Committee with a proposal or a decision. The presentation should be used as a base document because it was very comprehensive. It pointed the Chairperson and the research team in the right direction. Then the Chairperson and the research team could present to the Committee on a decision.
The Chairperson said that time was of the essence. The Committee was reaching a principle. While the focus of the Committee was on the performance audit, it should also consider the pushbacks that the Auditor-General was currently facing in terms of doing its own work. The Committee could look at another element that would enhance the Office of the AGSA and the Parliamentary Committee in terms of the work of the AG. The Committee was saying yes to Canada, but it also needed to take into account that it was a developed country, where the model might be different from the South African environment. The Committee would visit Canada, and then meet with the AGSA and hear what it thought about what the Committee had learned through the study tour. This work needed to be done as soon as possible. The Chairperson asked if that was in order.
Mr Singh said that he agreed. Was there any timeframe that the Chairperson had in mind for when the Committee would go on the study tour?
The Chairperson said that the decision needed to be made no later than the end of the month because the Committee needed to send an application to the Office of the Chair of Chairs. The Committee Secretariat would look at what the best time would be for the study tour. It would be best for the Committee to go in the summer. The summer season would have mild weather. The trip might occur in May, June, or July.
The Chairperson asked the Committee Content Advisor if he had any further comments.
Mr Xolisile Mgxaji, Committee Content Advisor, said that the Committee’s application needed to be sent in before the end of the month. All the processes needed to be completed timeously so that the Committee could get approval. It was critical that the Committee submitted the application timeously.
The Chairperson said that the Committee Secretariat would work on the details. Currently, the Committee was looking at the Canadian model. Then the Committee Secretariat would brief the Members on the finalised proposal.
The Committee was in agreement with the Chairperson.
The Chairperson discussed the investigation that had been undertaken by the Public Protector into an individual working for the AGSA. The report had been tabled before the Committee. The Committee was happy with the report and had expressed its view on the matter. The Committee would meet virtually next week Friday.
The Chairperson thanked the Members for their contributions in the meeting.
The meeting was adjourned.
Somyo, Mr SS
Hlonyana, Ms NKF
Kota-Mpeko, Ms ZA
Mathafa, Mr OM
Matuba, Ms M M
Mlenzana, Mr Z
Mpushe, Ms PT
Myolwa, Mr DJ
Singh, Mr N
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