Auditor General induction on Sports, Arts & Culture audit outlook

Meeting report

The Chairperson asked the Committee members to introduce themselves and indicate their party affiliation. He also asked AGSA and all visitors to introduce themselves.

Auditor General on Sports, Arts and Culture.
Ms Michelle Magerman, AGSA Business Unit Leader, spoke to the AGSA mandate and noted AGSA must report on the financial statements and financial management of government institutions reflecting an opinion and finding. There is a Public Audit Act and AGSA must strive to have a stronger, more direct and consistent impact on improving the lived reality of South Africans and efficiently shift public sector culture through insight, influence and enforcement.

Ms Mbali Tsotetsi, AGSA Deputy Business Executive, gave a briefing on Performance Reporting. She gave an outline of the planning, budgeting and reporting cycle of government which links to the National Development Plan and the five year Medium Term Strategic Framework (MTSF) and the department strategic plan and annual performance plan that reflects performance against the MTSF targets.

If the annual targets are not met as reported in annual performance report, AGSA reflects on the root causes in performance planning and reporting weaknesses. She gave insight into the poor performance by DSAC on community projects; the community library and service grant and infrastructure projects.

Ms Tsotetsi defined a material irregularity means as any non-compliance with or contravention of legislation, fraud, theft or breach of a fiduciary duty identified during an audit performed under the Public Audit Act that resulted in or is likely to result in a material financial loss, the misuse or loss of a material public resource, or substantial harm to a public sector institution or the general public.

An example was given of DSAC making transfer payments amounting to R7.5 million to a beneficiary for implementing a project in broadcasting. The department did not implement timely and appropriate procedures to monitor the usage of funds by the beneficiary. No evidence could be provided to confirm that the funds were used for the project. This resulted in a financial loss of R7.5 million to the department. AGSA is evaluating the remedial actions taken by accounting officer to recover the money.

Identifying material irregularity had the objective to:
- Instil a culture of accountability
- Improve the protection of resources
- Enhance public sector performance and encourage an ethical culture
- Strengthen public sector institutions to better serve the people of South Africa

Government institutions could receive one of the following audit outcomes:
Unqualified opinion with no findings
Financially Unqualified Opinion with Findings
Qualified Opinion
Adverse Opinion
Disclaimed Opinion.

Ms Ms Tsotetsi ended off with a call to action – improved service delivery enabled by capable, cooperative, accountable and responsive institutions delivering on their mandates.

Discussion
The Chairperson thanked AGSA and remarked that the misuse of resources in DSAC is big and it is a huge challenge for the Committee. R50 million has been spent on social cohesion. However, the previous Committee had asked by whom it was administered and for their names and contacts – but to no avail. This Committee will invite those entities to appear before them. He referenced the R7 million loss which is just gone. We as a Committee must revisit and influence the budget.

The Auditor General findings are that the material irregularities total over R200 million, which is a concern. The Public Audit Act has given the AG some leverage and some power and the next step is to utilise these powers.

Mr L Mokoena (EFF) asked if South Africa is still pursuing the NDP. His understanding is that it is so behind in the program that he thought it had been abandoned.

Mr Mokoena stated that more details are needed on the root causes of DSAC audit findings. More info is needed for the Committee to have better oversight.

Mr Mokoena asked if the money is not spent correctly, such as on libraries, where is it being spent.

Mr Mokoena noted that in 2023 there was a dispute between the National Arts Council (NAC) and the AG over some payment. What was the outcome of that dispute?

Mr Mokoena referred to the AGSA statement that the R7.5 million is “in recovery”. He wanted to know how – through the court system or in what way.

Ms H Mbele (MK) agreed with the Chairperson’s comments. There are irregularities from wasteful expenditure; however the department keeps on having these. Why?

Ms Mbele said she would like to review the strategic planning to see what monitoring system needs to be implemented.

Mrs Mbele raised her concerns about receive repeated negative audit findings. DSAC must account for these.

Ms Mbele stated that in terms of Human Resource, there are activities to be done but there is not enough staff. Why is that a challenge; it should not be?

Ms Mbele agreed with the Chairperson about strategic planning and oversight. We must get professionals to do the technical things, so if we do not understand, they can guide us.

Ms Mbele stated that she does not understand why one should wait until the community projects are done because the implementation plan should go hand-in-hand with the budget.

Mr S Radebe (MK) asked what method is being used by DSAC to make those accountable who cause harm. There needs to be a clear plan to avoid underspending and underperforming and there needs to be a plan for mismanagement.

Mr Radebe stated that for the community projects, one must ensure that all suppliers are vetted and that there is a track record to see how they performed in other projects. This is how we will know a supplier is able to deliver.

Ms M Mmolotsane (ANC) asked for more details on the Sarah Baartman Centre. How far is the project and how much is to be spent?

Ms Mmolotsane stated that DSAC cannot lose so much money on poor performance. She also referred to the delays on slide 12 and that underperformance.

Ms Mmolotsane referred to slide 15 and asked if DSAC had shown improved remedial action.

Ms N Nkosi (ANC) pointed to the audit findings on slide 15 and asked AGSA to indicate why that is important to the Portfolio Committee.

Ms Nkosi stated that the underspending is uncalled for. This should not happen. We cannot allow provinces not to spend money while the community is waiting for service delivery.

Ms Nkosi noted on slide 13 that the key observation on infrastructure projects was that there is poor planning and budgeting. That should be taken very seriously.

Ms S Salie (Al Jama-ah) stated that she is okay when there are findings. However, she is an individual who sees a red light when there are no findings. With findings, we can go about working towards structural solutions.

Ms Salie stated that special concern should be placed on the Sarah Baartman Centre with its continued delays.

Ms Salie asked what systems are in place to avoid a repeated audit finding and what is being done to avoid further delays and financial impacts.

Ms Salie asked the extent of the Sixth Parliament’s role in the oversight and monitoring of the implementation of projects because there were concerns about the lack of observation, oversight and monitoring of project implementation. The Seventh Parliament must be more effective in our oversight and monitoring of these projects.

Ms Salie stated that if material transgressions were found, we need to be alerted to further potential transgressions. This must also be done where there is a criminal investigation.

Mr L Jacobs (DA) observed the underspending particularly in Limpopo and Gauteng. The Department of Sports, Arts and Culture’s primary purpose is to advance social cohesion. One needs to consider social cohesion is not just how the nation’s people interact with each other but also with people who are not part of their nation.

Mr Jacobs asked if the department does not follow up on the AGSA findings and implement the recommendations, what does AGSA do to ensure there is compliance?

Mr Jacobs referred to the DSAC Program 4: Heritage. He asked about the sampling methodology that AGSA is using. The reason is it is a dangerous red flag to rely on a deductive method because when one lacks a broad sample, one starts to make justifications. KZN Museum has major problems. The department is conducting a refurbishing and relocating this particular museum. However, it is pertinent that the Office of the Auditor General conduct a thorough audit and a thorough investigation.

The Chairperson commented that the biggest sin a chairperson can make is to speak on behalf of his political head. Everyone is aware of the government of national unity (GNU) and that each of the political parties has various political policies. The GNU statement of intent means we should guard against tempting divisive engagement because at the end of the day we are representing the community at large.

AGSA response
Ms Manase Jacobs, AGSA Assistant Manager, replied about the material irregularity process. There are different role players involved in the material irregularity process depending on which state institution can do what. For example, if someone has done something criminal in nature, it would not be within the scope of AGSA. We do hand those matters over to SAPS; we refer the matter to the state institution it needs to go to. One would appreciate that these things take time to investigate by SAPS or the Hawks.

Ms Jacobs said that the recovery also goes through a civil process through the state attorney who sends out the summons.

Ms Jacobs replied that AGSA has not yet concluded this R7.5 million material irregularity process. They are still in the process of assessing the actions that the accounting officer has implemented. AGSA would refrain from giving progress on the 2023/24 audit report because it has not yet been signed. That is how the material irregularity process works. If it is not as serious, they resolve it with a normal disciplinary process that takes place within the government entity and not with a criminal investigation.

Ms Tsotetsi replied about the dispute between AGSA and the National Arts Council. The dispute was resolved by way of information they could not get from the NAC but was later obtained from DSAC. They were able to review the information to confirm that there was a White Paper that called for the establishment of that particular orchestra. AGSA did have some findings and they got the information including submissions from the orchestra on how it spent the monies. The AGSA findings on oversight and monitoring are to be done by the Department. These findings were communicated in the previous auditing cycle to the accounting officer as well to the minister to ensure that indeed they did obtain the report that confirms how that money was used.

The reported findings resulted in non compliance with Treasury Regulation 8.4.1: “The accounting officer of a department must maintain appropriate measures to ensure that transfers to public entities are applied for intended purposes. This includes, but is not limited to, regular reporting procedures, internal and external audit requirements, regular monitoring procedures and scheduled and unscheduled inspection visits or reviews of performance.”

Ms Tsotetsi stated that AGSA will give more detail on the root causes in the next presentation. Those root causes are in the report. DSAC is required to give the reasons for deviations.

The library projects are already in progress but require rollovers so that these funds are available in the next year so that those libraries can be finished. That progress National Treasury must follow thoroughly.

Ms Tsotetsi replied about the R7.5 million, saying that the court process is being followed and the monies are being covered by the department.

The method or tool that AGSA uses to ensure that those that are causing harm are brought to account is enforcement. If losses are identified, for example in DSAC, AGSA issues a material irregularity. The accounting officer is required to implement actions to fully respond to that particular financial loss. If they do not implement the right actions, we compel them to do so.

Ms Tsotetsi addressed the question on the AGSA sampling methodology and DSAC Program 4: Heritage. Its methodology is to assess the programs and choose the programs to audit. It does not mean that program 4 will never be audited by AGSA. However we must assess certain programs to audit and give clarity even though we did not audit program 4. Most of the monies in program 4 are transferred to entities and they do not audit these entities.

Ms Omphemetse Setebe, AGSA Senior Manager: Audit, addressed the question on the legacy projects and the challenges with the Sarah Baartman Centre of Remembrance. They have a delayed update and it has not yet resumed and a budget of 84 million is to be spent.

On accountability, Ms Setebe replied that they do audit consequential management. AGSA does check if the department entity as well as the Department are in line with the PMFA. It also follows up on fraud and corruption activities.

Ms Setebe addressed the DSAC audit outcomes where there was an unqualified audit with findings. These findings were about transfers where there was noncompliance with the Treasury Regulation 8.4.1 for not ensuring that the funds were used for the purpose it was intended.

Ms Magerman replied about whether AGSA vets the department’s list of suppliers, saying it does a sample. The department should be asked that question about vetting all suppliers.

Ms Magerman spoke about the use of audit committees and internal audit units to improve governance. In the accountability ecosystem, if there is not audit committee or internal audit within the department, we actually are at the end, but we are supposed to come after internal audit. Internal audit is a structure within the department, it must be independent, it must give a report, and it must be qualified people. In most cases, internal audit do pick up earlier what we pick up.

Ms Magerman replied about the infrastructure projects, saying that if you give an entity four projects and they did not complete one, an inquiry must be done why the project is not completed.

Follow up questions
The Chairperson commented about the vacancy rate and if the department had listened. The department said that people get promoted within the department and thus they still have vacancies. He failed to understand that response because everything that they have discussed here stems around accountability. This Committee should take serious note of its power in playing an oversight role.

Ms Mbele asked about the auditing of infrastructure projects.

Mr Mokoena said that once we see ‘unqualified’, we tend to think it is a clean audit. However, if it is ‘unqualified with findings’, we need to keep tabs on that to ensure money is spent correctly.

Mr Mokoena referred to a finding, either irregular spending or the department gives money to an entity and does not follow up. In the ecosystem, how does one ensure consequential management? What recourse does one have about this entity that was given the money?

Ms Mbele asked how one can say it is an unqualified audit if there is a finding that millions have been misused. Why do we say it is unqualified?

The Chairperson remarked that the Auditor General can hear there is a sound appetite for oversight by the Committee, listening to these questions during the training session. We need to understand that as a Committee we can interrogate any report. You will find that an entity might have done well but did not follow up on the findings procedure.

Ms Mmolotsane asked if the department gives money to a contractor who failed to perform and the Auditor General opens a case, does it allow that contractor to be blacklisted.

AGSA response
Ms Magerman addressed infrastructure projects. If the department gets money from Treasury, one must look at the terms of the MOA, it is still the department's money and it will be responsible. It is important to know what the MOA says. In most cases we will follow up but it is the department that will have to account.

Ms Magerman addressed the certificate of debt where an accounting officer or authority has failed to comply with remedial action. If you do not do anything about the material irregularity and you ignore us and you do not implement appropriate action AGSA can issue you with a certificate of debt. The accounting officer brings back the money in their own capacity.

Ms Magerman addressed the question on an unqualified and qualified audit opinion. When the financial statements are not present as there were a lot of entities which could not give financial statements – if you do not have the financial statements – decision-making becomes difficult because you do not know the information. Financial statements will tell you about fruitless and wasteful expenditure; they will tell you irregular expenditure. So when we say it is unqualified, it means that the auditor is able to look at the financial statements and make a decision.

The Chairperson asked if that information is challenged by the contractor especially when it comes to the certificate of debt.

Ms Magerman answered the question by clarifying the audit process. What we do is we check if the supplier is blacklisted by National Treasury during the audit. National Treasury does not get information to blacklist problematic contractors during the audit.

The Chairperson thanked the representatives of the Auditor General's Office and the meeting was adjourned.