Introductory Meeting with AGSA; AGSA Remuneration

Standing Committee on Auditor General

06 September 2024
Chairperson: Mr W Wessels (FF+)
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Meeting Summary

The Auditor-General of South Africa (AGSA) met with the Standing Committee for an introductory meeting. The AGSA raised issues relating to its financial and operational status, addressing several pressing issues. The presentation highlighted the significant debt AGSA is facing, primarily from local governments and state-owned enterprises, some of which have been in arrears for over five years. The Auditor-General discussed ongoing efforts with National Treasury to address the financial distress of municipalities and the challenges posed by financially troubled state-owned enterprises.

Key points included the AGSA’s policy on post-audit employment, which aims to mitigate conflicts of interest through a "cooling-off" period for senior audit staff transitioning to roles within audited entities. This policy is intended to maintain audit integrity and ensure that audits are not compromised by future employment opportunities.

The discussion also touched on the issue of certificates of debt. The Auditor-General acknowledged the need to expedite these processes but emphasised that AGSA's role is primarily to audit and refer issues to law enforcement for further action. The Deputy Auditor-General provided insights into AGSA’s digital transformation project, which aims to enhance audit quality by allowing real-time data access and cross-checking capabilities across different government departments.

Overall, the Committee inquired on critical issues regarding AGSA’s financial challenges, operational policies, and salary considerations, with a focus on enhancing audit processes and maintaining financial integrity.

The Chairperson acknowledged the deteriorating financial conditions of many municipalities and the impact on their ability to meet financial obligations, including audit fees. The importance of balancing AGSA’s independence with resolving outstanding debts was emphasised. The Chairperson also noted that discussions with National Treasury on this issue would continue.

The Committee approved of the increase in the remuneration of the Auditor-General. It was confirmed that, while the salary is among the highest in government to attract top talent and ensure independence, discussions around salary increments, including a proposed three-percent increase, were held. There were no major disputes over the salary level. However, it was noted that the private sector salaries for similar roles are significantly higher. The Committee unanimously supported the proposed salary increase, which will be forwarded to the National Assembly for approval.

Meeting report

Opening
The Chairperson welcomed the Committee Members, officials from the Auditor-General of South Africa (AGSA), and Committee support staff, before proceeding to outline the agenda for the meeting.

Ms Cindy Balie, the Committee Secretary, reported that apologies had been received from several Members, including Ms T Bila (ANC), Mr A Beesley (Action SA) – Alternate Member, and Ms V. Mente-Nkuna (EFF).

Mr R Gouws (DA) asked whether any Members had missed three consecutive meetings and requested Ms Balie to contact the parties to address the issue with their Members.

Mr L Montana (MK) tabled an apology for Mr K Madlala (MK).

The Chairperson then called for a mover to adopt the agenda.

Mr S Subrathie (ANC) moved the adoption, and Ms E Spies (DA) seconded.

The Chairperson proceeded to the minutes from the previous meeting, asking if Members had reviewed them and if there were any amendments or corrections.

Mr Gouws moved for the adoption of the minutes, with Mr Subrathie seconding.

The Chairperson informed the Members that an item from National Treasury, originally scheduled for this meeting, would be postponed to 11 October 2024, to allow for a more comprehensive engagement.

Briefing by AGSA Executive on Standing Committee on the Auditor-General Induction
The presentation by the Auditor-General South Africa (AGSA) was delivered to the Standing Committee on the Auditor-General (SCoAG) during an induction meeting held on 06 September 2024. It emphasised the AGSA's constitutional mandate, vision, and mission, which is to strengthen democracy in South Africa through auditing and to enhance public sector accountability. AGSA highlighted its relevance as a supreme audit institution with a focus on enabling oversight, governance, and public confidence. The presentation then outlined AGSA’s engagement with Parliament, noting their collaborative work with the Speakers’ Forum to ensure the adoption of resolutions, support consequence management, and improve audit outcomes.

AGSA’s mandate under the Public Audit Act (PAA 2004) was reviewed, detailing the range of public entities audited, including national and provincial Departments, municipalities, and other institutions. They also emphasised the expanded mandate involving material irregularities (MIs), real-time audits, and preventative controls. AGSA’s role in capacity building and providing audit insights to Parliament was a key focus, along with the importance of training parliamentary staff to enhance their auditing knowledge.

Finally, the presentation touched on the PAA emphasising the legal framework that mandates the National Assembly to maintain oversight of AGSA while highlighting the constraints placed on SCoAG, such as the prohibition on reviewing AGSA’s audit reports. The presentation concluded by showcasing AGSA’s independence and the guarantees provided by the Constitution to prevent interference, ensuring AGSA’s capacity to act without fear, favour, or prejudice.

[Refer to the presentation slides for additional information]

Discussion
Mr Gouws thanked the Chairperson, the Auditor-General, and the AGSA executive team for the presentation. He expressed that it was refreshing to see institutions that are both passionate about South Africa and committed to ensuring the country functions effectively. He then raised several questions about the presentation.

First, he mentioned the media reports on AGSA being owed over a billion Rands in fees, and asked how much money AGSA generates annually from audit fees. He clarified that his question was not about how much AGSA earns but about understanding the significance of R1 billion in comparison to its total revenue. He also asked how much it costs for AGSA to operate at full capacity annually.

Mr Gouws then inquired why some state-owned enterprises (SOEs), despite falling under AGSA’s mandate, are not audited by AGSA. He mentioned that some SOEs conduct self-audits, and he requested clarity on this matter. He also asked whether AGSA had any objections to receiving funding from National Treasury, though he acknowledged that this question may have already been addressed concerning transparency and avoiding external influence.

He asked how AGSA staff are remunerated and whether the powers granted by the sixth administration have been helpful. He queried whether there were any additional powers AGSA might have wanted, particularly in light of how some entities attempt to circumvent accountability. He also asked whether the firing or replacement of accounting officers has increased over the years, and if such actions are being used by entities to avoid accountability – given that AGSA had mentioned accounting officers leaving or being fired.

Finally, Mr Gouws touched on AGSA's staff retention, noting that the entity loses employees to the private sector. He asked if there is anything that can be done to improve remuneration and retain staff, or if AGSA views staff turnover as beneficial since it allows for new people to come in. He concluded by thanking AGSA for their work.

Ms Spies thanked the Chairperson, the Auditor-General, and the AGSA team for the presentation. She began by addressing the issue of independence and asked what measures can be taken to protect AGSA's independence. She expressed interest in hearing whether AGSA has considered certain issues, particularly around the security of tenure for the Auditor-General. While some of these were covered in the presentation, she wanted more information on oversight mechanisms. Specifically, she inquired if there are independent bodies that monitor AGSA's performance and address complaints. She asked whether such mechanisms exist and how they function.

Ms Spies also touched on public awareness, asking if AGSA has fostered a culture of accountability among the public and if AGSA is effectively promoting its role in ensuring good governance. She acknowledged the constitutional protections for AGSA and moved on to discuss the legislative framework, mentioning the amendments to the Public Audit Act. As someone who was part of the SCOPA Committee that helped strengthen AGSA's powers, she wanted to know the impact of those amendments, their success, and if there are areas of the Act that could be reviewed to strengthen AGSA’s mandate.

She then inquired about AGSA's capacitation initiatives, asking how frequently these occur and requesting insight into the content of these programmes. She expressed interest in how such programmes could be shared with her as a constituency head, noting that it would be beneficial for her to speak to schools and foster a culture of financial responsibility among young people. She mentioned that constituents often do not fully understand the work of Chapter 9 institutions or how Parliament functions. She also emphasised the need for better public education.

On the audit instructions, Ms Spies asked about AGSA’s role in auditing entities like Eskom and what steps have been taken to improve collaboration. She referenced her positive experience with OSID, which she felt does great work, and asked if AGSA has a strong working relationship with them.

Turning to material irregularities, she emphasised that AGSA’s role is not micromanaging municipalities. However, as a former mayor, she had a particular interest in dispute resolution mechanisms. She then asked about AGSA’s involvement in interventions such as Section 139 processes and what role AGSA plays in strengthening cases for interventions. She cited a specific example, the Kannaland Municipality, which has consistently received disclaimers for many years. She asked whether AGSA could be involved in strengthening the case to help dissolve or place the municipality under administration, to better serve the people of that area.

Ms Spies then revisited the issue of audit fees, echoing her colleague's concerns, and asked for the current status of outstanding audit fees. She wanted to understand how unpaid fees affect AGSA’s ability to perform its duties, particularly concerning government spending. She noted that she had raised this issue with the Minister of Finance and was curious about how non-payment impacts AGSA’s operations and what measures can be taken, moving forward.

Mr Montana thanked the Auditor-General and the team for their presentation and expressed his support for the great work they have been doing. He emphasised that, as the Standing Committee, they should continue to support AGSA but also highlighted some risks that need attention. He stated that part of this support involves addressing potential risks and offering comments and questions.

Mr Montana raised concerns about the unintended consequences of the amendments to the Public Audit Act. He noted that, while some people make noise and assert power, the majority of citizens’ voices are often unheard. He expressed worry that the amendments were made during the state capture period, which might have skewed how the public perceives institutions like AGSA. He agreed with previous comments on the importance of local government leadership but emphasised that the issue of independence for AGSA goes beyond what is institutionally guaranteed. He questioned how the agenda for AGSA is set, and stressed the need for caution in ensuring the agenda reflects public interests and is not dictated by powerful entities.

Mr Montana also noted that AGSA’s reports have been used in legal battles, which raised concerns about how these reports are framed and used. He suggested that AGSA’s leadership needs to pay attention to these dynamics and that the situation requires ongoing focus, not a single-session solution. He referred to instances where AGSA’s tough stance on certain issues has had unintended consequences and called for a balance in addressing these challenges.

Moving on to his questions, Mr Montana first asked about the dispute resolution mechanisms, particularly how AGSA handles disputes with accounting officers and CEOs in various Departments and SOEs. He acknowledged that the internal resolution of disputes was a positive development, especially considering past conflicts between AGSA and auditees. However, he wanted to understand how AGSA learns from these professionals, noting that many of them influence how transactions are treated.

Secondly, Mr Montana inquired about AGSA's relationship with the Accountant-General, stating that this was a significant factor in how AGSA exercises its independence. He then addressed the issue of material irregularities (MIs), noting that, while there has been progress in holding people accountable, there were still challenges. And while some people were responding to MIs, others were not taking action for long periods. He expressed concern that, in some cases, accounting officers had been pressured, and entities were not improving despite AGSA’s interventions.

In conclusion, Mr Montana stressed the need to focus on transforming both the quantity and quality of AGSA’s work to achieve better results. He reiterated his support for AGSA and expressed appreciation for the presentation.

Mr Subrathie welcomed the presentation by the Auditor-General (AG) and acknowledged the critical role AGSA plays in ensuring accountability in the use of public funds. He complimented AGSA for running a well-functioning institution. He began by emphasising the Committee’s responsibility to engage with the legacy report handed over by the sixth administration, using this as his starting point before posing several questions.

Mr Subrathie’s first concern was the financial status of AGSA, highlighting a discrepancy between the presentation and the legacy report. He expressed surprise at the Deputy AG’s remarks that AGSA had no financial challenges, as the legacy report indicated that AGSA was owed R1.08 billion in outstanding fees as of 2023. He described this as a significant issue, explaining that it shaped his thinking while participating in other Committee discussions. As an example, he mentioned his involvement in a Committee where the Takeover Regulation Panel, a small operation, had paid about R500 000 in audit fees, which led him to act as a "debt collector" for AGSA. He asked for clarity on whether AGSA was facing financial challenges and how these challenges, if any, affected AGSA’s ability to perform its duties. He also wanted to know if these issues impacted AGSA’s independence.

Moving on, Mr Subrathie addressed the matter of discretionary audits, specifically AGSA’s role in auditing all 21 Schedule 2 SOEs. He emphasised the importance of ensuring that AGSA increases the number of entities it audits, particularly those currently outsourced. He praised AGSA’s comprehensive approach to auditing, noting that it goes beyond traditional debits and credits by looking at the entire value chain. He stated that the Committee should consider whether AGSA has the resources to take on more audits and whether increasing capacity should be prioritised. He also inquired about AGSA’s request for surplus funds to finance IT and infrastructure, asking if those funds could instead be used to increase auditing capacity.

Next, Mr Subrathie raised questions about material irregularities (MIs), asking AGSA to explain not just what they are currently doing, but also what gaps exist and what more could be done. He coined the term "immaterial irregularities" as a challenge to AGSA, questioning whether AGSA could address issues that might not fall under the definition of material irregularities but still impact governance.

He then referred to the sixth administration’s study tour to Canada in 2023 and asked if AGSA had representatives on the tour. He sought to understand whether AGSA had applied the recommendations from the study, particularly in the area of performance audits. He also wanted to know whether AGSA had conducted a comparative analysis between their current practices and the findings from the Canadian study tour, asking what gaps needed to be addressed.

Mr Subrathie turned his attention to staffing, acknowledging that AGSA is a highly sought-after employer, but expressed concern about the loss of skilled staff. He asked if AGSA conducted exit interviews to understand why staff were leaving and whether the pressures of the job were contributing to their departure. He speculated whether some staff might prefer the private sector because of the intense demands at AGSA.

He then suggested that AGSA consider using its skilled staff to support municipalities by having them transition into accounting officer roles. This, he argued, could help address the lack of skills and competencies in municipal financial management over time. He asked whether AGSA provides any form of induction for new accounting officers, particularly for municipalities, to familiarise them with expectations and auditing standards.

He noted that AGSA addresses economy, efficiency, and effectiveness in relation to performance audits. But, he questioned why environmental sustainability was not included as a fourth key focus area, especially given the growing importance of addressing climate change. He asked if AGSA was measuring the responsibilities of major SOEs in terms of environmental sustainability.

Finally, Mr Subrathie commended AGSA on its surplus and suggested that these reserves be used to increase AGSA’s capacity rather than solely focusing on IT and infrastructure upgrades. He concluded by reinforcing the importance of increasing AGSA’s ability to take on more audits and provide more value to the public sector.

The Chairperson began by stating that several of the questions raised today will be scrutinised when the Committee engages with the annual report, strategic plan, and budget. He noted that these discussions are important in preparing for those future engagements.

Starting on a lighter note, the Chairperson mentioned that, during an induction presentation by the AG to the Chairpersons' Panel, a colleague from the health sector reacted humorously to the abbreviation "MI," which caused concern due to its medical connotation. He highlighted that material irregularities (MIs) should provoke a similar sense of urgency.

He then asked a series of questions. First, he inquired about the timeframe given to accounting officers to take appropriate action on MIs. Although he acknowledged that this is a difficult question, he asked if there is a general norm about how much time is provided for such actions.

The Chairperson then turned to certificates of debt, asking for a specific update on how many have been issued since AGSA received the authority to do so, particularly in the 2022/2023 financial year. He also asked whether there is sufficient engagement with the relevant executive when inaction on MIs occurs, as the executive plays a crucial role in oversight. He observed that many times, the executive has more continuity than the accounting officers, whose turnover can be rapid, which complicates accountability. He suggested that perhaps there is a way to address this issue by involving the executive more directly.

Concerning quality management, the Chairperson referenced the internal and external quality controls that AGSA has in place, including reviews by the Independent Regulatory Board for Auditors (IRBA). He asked for clarification on whether the external reviews only check for compliance with norms and standards or if they also assess the audit sample itself. He expressed concern that unqualified audits may sometimes be based on flawed sampling, leading to situations where no irregularities are detected, but major issues arise years later. He asked whether there is any methodology to address this, and asked how often this issue occurs in the audit process.

Finally, the Chairperson touched on funding, acknowledging that it had already been addressed in the presentation but noting that discussions would be necessary in future sessions. He asked whether any national or provincial auditees are currently indebted to AGSA, requesting a general update without the need for a detailed list.

Responses
The Auditor-General, Ms Tsakani Maluleke, began by thanking the Chairperson and Members for their comments and questions. She said she would try to address as many issues as possible, and she asked the Deputy Auditor-General to handle internal matters such as staff retention, training, and remuneration. She also asked him, along with the CFO, to provide clarity on funding issues, including details about the outstanding R1 billion, the current debt book, and how slow collections were affecting AGSA's operations.

At this point, Mr Subrathie interjected, clarifying that the R1 billion figure needed to be specified correctly, suggesting that the legacy report might have been incorrect. The Auditor-General acknowledged this and agreed that her colleagues would provide more clarification on the issue.

Addressing Mr Gouws’ question about SOEs that AGSA does not yet audit, Ms Maluleke confirmed that Eskom is one of them. She explained that AGSA has been steadily increasing its auditing capabilities but has taken a careful approach to avoid overwhelming its teams. For example, AGSA took on Transnet's audit responsibility about three years ago. At the time, they decided to prioritise Transnet over Eskom due to the specific challenges within Transnet. However, Eskom remained under the audit of Deloitte, with AGSA supporting their efforts in areas such as compliance and procurement audits. She explained that AGSA’s approach is to avoid taking on audits without the necessary technical skills or capacity. This type of collaboration had been used before, allowing AGSA to learn about the institution before fully assuming the audit responsibility – similar to their approach with Transnet.

Ms Maluleke then responded to Mr Montana’s point about whether the powers granted to AGSA have helped. She explained that the expanded powers have indeed assisted AGSA in holding entities accountable, particularly in ensuring that entities act on the recommendations provided by AGSA. These powers have had practical impacts, such as resolving issues with landfill sites causing public health risks or repairing wastewater treatment plants. However, she emphasised that, while these powers are helpful, they are not the sole solution to the public sector’s financial management problems. AGSA has been able to refer cases to law enforcement, and in some instances, arrests have been made following AGSA's referrals. However, she stressed that AGSA’s role is not to arrest or prosecute offenders but to report findings to the appropriate authorities.

Ms Maluleke also touched on unintended consequences raised by Mr Montana. She acknowledged that the public may have unrealistic expectations of AGSA, believing the office has the authority to arrest individuals or enforce consequences directly. She stressed that AGSA’s role is limited to auditing and raising findings, with law enforcement agencies responsible for prosecutions. This distinction is often misunderstood. Further, there are risks that other institutions, including executive authorities, may look to AGSA to implement consequences when it is their role to do so. Members of Parliament have also asked AGSA to take action when, in fact, their responsibility is to review audit reports and oversee accounting officers. To address this, AGSA has launched an educational campaign called the Accountability Ecosystem, which seeks to clarify the roles and responsibilities of different institutions in ensuring accountability.

Turning to the independence issue raised by Ms Spies, Ms Maluleke identified funding as a potential threat. She explained that, if AGSA continues to struggle with fee collection, they could face long-term difficulties. With R4.5 billion in annual revenue and R1 billion tied up in outstanding debt, AGSA faces challenges in making long-term decisions about where to invest in critical areas such as audit software. While AGSA is currently managing its resources prudently and is not facing a crisis, this situation cannot continue indefinitely. She emphasised that if a quarter of AGSA's revenue remains uncollected each year, it will become increasingly difficult to maintain the institution’s capabilities and independence.

Ms Maluleke then addressed Mr Montana's point about professional pushback from accounting officers and CFOs. She explained that it is normal and healthy for professionals on the other side to challenge AGSA's interpretations of accounting standards or procurement regulations. She welcomed these debates, noting that they show an interest in the audit process and that such discussions sharpen both parties. However, she stressed that this pushback should not devolve into intimidation. Ultimately, AGSA must arrive at its own audit opinion, and that opinion must be respected. She noted that, while AGSA can engage in debate and agree on the facts, the final decision on the audit opinion must be AGSA's alone.

She also expressed concern about the delay in resolving audit disputes, citing the ongoing dispute with the Road Accident Fund as an example. The Fund has been disputing its audit opinion from 2021, and it is now 2024. Fortunately, the Public Audit Act (PAA) requires AGSA to submit its audit report to Parliament even if the accounting officer or executive authority fails to do so. This ensures that oversight can still happen despite such disputes.

Regarding complaints management, Ms Maluleke said that AGSA has well-established processes to handle both audit disputes and complaints about the conduct of AGSA staff. These systems allow concerns to be raised and addressed, ensuring transparency and accountability within the institution. She also mentioned that AGSA is working to foster a culture of accountability through its Accountability Ecosystem strategy. This approach seeks to clarify the roles and responsibilities of different institutions in ensuring accountability, while also driving home the point that AGSA’s role is to report findings, not to arrest or prosecute offenders.

On material irregularities (MIs), Ms Maluleke explained that AGSA does not raise every irregular expenditure as an MI, but all irregularities are flagged for investigation. While some issues, such as a procurement process that did not adhere to the required number of advertising days, may not meet the threshold for an MI, they are still reported as irregular expenditures. While these cases may not have an immediate financial impact, she stressed that they require attention because they could indicate deeper governance problems.

Ms Maluleke then addressed Mr Subrathie’s query about the Canadian study tour. She said that AGSA had not yet seen the report from the sixth SCoAG but would engage with the findings. She also touched on AGSA’s role in supporting staff Members who move on to become CFOs or heads of Departments in the public sector. AGSA has safeguards in place to prevent conflicts of interest when staff transition from auditing an entity to being employed by it. However, she said that AGSA encourages the professional growth of its team members, who often go on to strengthen capacity in other parts of government.

Finally, she discussed environmental sustainability, acknowledging that AGSA has been assessing environmental harm in municipal audits, particularly related to wastewater treatment plants and landfills, which directly impact public health. AGSA is using these audits to hold municipalities accountable for addressing environmental issues that may harm communities.

Deputy Auditor-General, Mr Vonani Chauke, began by thanking the Auditor-General and addressing the numerous questions about the funding model. He clarified that AGSA operates under a different funding model compared to some other supreme audit institutions that are fully funded by their governments. In AGSA’s case, they use a model that is more akin to private audit firms, where the fees they charge are based on the work done. For example, if AGSA were to take on the audit of Eskom, they would recruit the necessary resources to conduct the audit, and the fee would be determined by the hours needed to complete the work. The audit committee ensures the fee is fair by reviewing the capacity required and the time estimated to perform the audit. This method allows AGSA to manage the number of audits they undertake and to adjust their capacity accordingly.

Mr Chauke explained that AGSA does not rely solely on its own internal workforce. Instead, the institution has a process where additional auditors are brought in on a short-term basis when needed, particularly around peak periods such as the March year-end audits for the PFMA (Public Finance Management Act). If AGSA were to build internal capacity to handle all audits on its own, it would have a surplus of staff during slower periods, particularly around August, when there is less audit work. To avoid having staff with no work to do, AGSA brings in additional capacity for three to four months during peak audit periods and then releases those temporary auditors back to their firms when they are no longer needed.

He emphasised the importance of maintaining financial independence from National Treasury, explaining that relying on Treasury for the bulk of AGSA’s funding could jeopardise their autonomy. He warned that the easiest way to undermine AGSA’s independence would be to cut its budget in half, which would make it impossible to retain staff and continue operating effectively. For this reason, AGSA bases its capacity on the work it has agreed to perform and closely monitors the balance between workload and available resources.

On the issue of debtors, Mr Chauke clarified that the majority of AGSA’s revenue comes from PFMA audits, which involve provincial and national departments. These audits are AGSA's main source of income, and he confirmed that there is currently no debt owed to AGSA by national or provincial departments. The debt issue mainly arises with state-owned enterprises (SOEs), many of which have a March year-end. He mentioned that the South African Post Office (SAPO), which is currently in business rescue, owes AGSA a significant amount, and Denel is also behind on its payments.

Mr Chauke explained that AGSA has tried to work with these entities to develop payment plans, and while some do make partial payments when they receive bailouts, they often prioritise other creditors. He emphasised that this is a common issue where CFOs and accounting officers make choices about who to pay first, often opting to pay creditors who are more aggressive in their collection efforts, viewing AGSA as a “nice” creditor who will not apply as much pressure. He called on the Committee to support AGSA in encouraging these entities to prioritise paying their audit fees. He explained that AGSA used to actively collect debts to prevent them from becoming uncollectable after five years, but said that it is difficult to collect from entities that need their equipment for service delivery. He proposed that AGSA make an example of those entities that are able to pay but choose not to, to discourage a culture of non-payment.

Mr Chauke also addressed a third category of debtors: those who are not financially stable and cannot pay. In these cases, AGSA works with National Treasury to manage the situation. These entities, which have been in financial distress for several years, are included on a list that AGSA provides to Treasury. Mr Chauke noted that Treasury has been cooperative over the past year, meeting its obligations to these debtors. He emphasised that it is essential to maintain this arrangement with Treasury, particularly for entities like SA Express – which has been inactive for years but still owes AGSA money. He explained that AGSA cannot stop auditing these entities, even when they are financially unstable. Having an agreement with Treasury ensures that AGSA can continue its work without compromising its independence.

In response to questions about the debtors’ book, Mr Chauke confirmed that it currently stands at R1 billion, which represents about 22% of AGSA’s R4.5 billion annual revenue. He acknowledged that, while some of this debt is longstanding, collecting even a portion of it would help AGSA make necessary investments, such as in audit software and staff training. He mentioned that AGSA has had to delay some investments due to these unpaid debts, and having more cash on hand would allow AGSA to operate more effectively. He requested the Committee’s support in addressing this issue, noting that, while AGSA is managing its resources prudently, they are still forced to make tough choices when payments are not collected.

Mr Chauke then moved on to the topic of human resources and remuneration. He admitted that AGSA cannot compete with the private sector regarding salaries, as the nature of AGSA’s work differs from that of private audit firms. However, he pointed out that AGSA offers more than just financial benefits, which is why their staff retention rates are better than the industry average. He explained that AGSA is a training institution. Each year, they bring in about 400 trainees under their Chartered Accountant (CA) training programme. While they cannot keep all of these trainees after they qualify, AGSA retains a portion of them, while the rest are released into the broader job market. He noted that AGSA has been trying to reduce its reliance on external auditors by using its own people more effectively, particularly through initiatives like the Xhluma Project, where AGSA collaborates with public sector entities to reduce the need for outsourcing.

Addressing concerns about staff leaving due to fear, Mr Chauke assured the Committee that none of AGSA’s staff had left because of intimidation or threats. He explained that AGSA monitors staff exits closely and has processes in place to protect employees from any potential threats. If a staff member feels threatened, the matter is escalated to the Auditor-General to ensure appropriate action is taken to protect the individual. He confirmed that AGSA has been able to offer support to staff in such situations and that those who have left AGSA have done so for better job opportunities, not because of fear.

On the issue of training and capacity, Mr Chauke confirmed that AGSA provides ongoing training for its staff, including technical skills and leadership development for executives. He concluded his remarks by handing over to the CFO to address any additional concerns related to AGSA’s finances.

Mr Polani Sokombela Chief Operating Officer, began by noting that the Auditor-General and Deputy Auditor-General had already covered the funding issues extensively, but he wanted to address a question raised by Mr Gouws about the AGSA’s revenue of R4.5 billion and the cost of running the organisation. He clarified that 96% of the R4.5 billion revenue is used to cover operational costs. This leaves AGSA with only a small margin, which is a challenge when trying to maintain financial sustainability.

He explained that, in the past, the cost of running AGSA was even higher, but small investments and additional income streams helped to create some surplus. However, due to the economic situation in South Africa, particularly budget cuts and fiscal constraints, AGSA’s costs are tightly linked to inflation, and there has not been significant growth in audit fees to keep pace with these rising costs. Mr Sokombela emphasised that, at a minimum, AGSA’s audit fees should grow with inflation, as it directly affects their operations and financial health.

Looking ahead, Mr Sokombela stated that AGSA’s focus is on finding efficiencies within the organisation, as mentioned by the Deputy Auditor-General. The goal is to generate surplus revenue that can be reinvested into improving AGSA’s capacity and overall efficiency. By increasing operational efficiency, AGSA hopes to reduce costs and create more room for strategic investments in tools and staff that can enhance their audit capabilities.

On the issue of outstanding debt, Mr Sokombela reinforced what the Deputy Auditor-General had said, highlighting that the majority of unpaid audit fees come from local governments, particularly municipalities in impoverished areas. He pointed out this is a significant problem in provinces like the Northern Cape, North West, Limpopo, Mpumalanga, and the Free State. Around 60% of AGSA’s local government debt comes from these provinces.

One of the key challenges AGSA faces when dealing with these municipalities is the lack of financial and technical skills within the local government teams. AGSA auditors often spend additional time and resources helping these municipalities prepare and clean up their financial statements, which increases the cost of audits. He explained that AGSA is in discussions with provincial executives to restructure some of the debt in these areas, but the financial capacity of these municipalities remains limited.

He concluded by stating that AGSA will provide more details on their financial performance and obligations in the upcoming annual report discussions. He emphasised the need to improve debt collection and manage credit risk in the local government space. He reiterated that AGSA is working closely with the relevant provincial authorities to address these issues, especially in regions where municipalities struggle to pay their audit fees due to financial instability.

Ms Maluleke wrapped up the response session by addressing a final point raised by the Chairperson about the quality control review process and how audit samples are selected. She explained that the decision on how to choose a sample is part of the audit methodology and is also reviewed as part of AGSA’s quality control process. However, she acknowledged that, sometimes, problematic transactions may not be included in the sample, which can result in missed irregularities.

Ms Maluleke emphasised that the audit sample is designed to provide the most accurate conclusion about the overall quality and credibility of an entity's financial statements. She reassured the Committee that, even if a particular transaction is missed one year, it is often caught in the following year, as the beauty of auditing is that AGSA reviews these transactions and institutions annually.
She then connected this issue to her earlier point about the "ecosystem of accountability," stressing that the primary responsibility for creating and maintaining internal controls lies with the accounting officer. It is their duty to ensure that controls are in place to prevent things from going wrong and to detect and address issues swiftly when they do. The external audit, she explained, is only one part of this larger accountability ecosystem. Accounting officers also have the support of internal audit and risk management units, which should help prevent irregularities before they reach the external audit phase.

Ms Maluleke was careful to note that this does not diminish AGSA’s responsibility for conducting high-quality audits. She acknowledged that, even in a well-conducted audit, a particular transaction might be missed if it is not part of the selected sample. However, she stressed that the answer often lies in understanding the broader environment in which those transactions occur. AGSA continuously updates and refines its audit approaches to respond to changes in the environments it audits, which allows the organisation to catch most issues and ensure that the audits are as thorough and effective as possible.

Follow-Up Questions
Mr N Maduna (ANC) began by stating that his follow-up questions would be brief and straightforward. His first question concerned AGSA’s handling of debtors, particularly seeking clarity on the average debtors AGSA has with its auditees. He wanted to understand at what point AGSA approaches Treasury to intervene when an auditee has been owing for longer than what is typically allowed.

His second question related to the Public Finance Management Act (PFMA) and Financial Management of Parliament and Provincial Legislatures Act (FMPPL), specifically about section one, paragraph 16 of the FMA and section 18 of the PFMA. He wanted to know what role AGSA plays in ensuring that National Treasury takes over financial management responsibilities in cases where municipalities owe substantial funds to AGSA.

Mr Maduna’s third question concerned the issue of post-audit employment. Referring to the International Auditing and Assurance Standards Board (IAASB), which prohibits auditors from taking on clients directly after an audit, he asked whether AGSA has similar policies in place. He specifically wanted to know whether AGSA staff are allowed to accept employment offers from municipalities or government Departments directly after conducting audits. He was concerned about potential reputational risks and conflict of interest, citing specific instances in KwaZulu-Natal where individuals moved from auditing roles to employment in the offices they had audited. He asked AGSA whether such practices are allowed and how the institution follows up on these cases.

Lastly, Mr Maduna raised the issue of the certificates of debt, specifically referencing the 2019 recommendations that encouraged AGSA to issue these certificates. He shared an anecdote about the former CEO of Eskom, who admitted to making a “mistake” that resulted in a R20 million payment during testimony at the State Capture Inquiry. Mr Maduna expressed disbelief that such large sums could be dismissed as mistakes, and he stressed the need for individuals to be held accountable through certificates of debt. He encouraged AGSA to take action on this, and he emphasised that taxpayers’ money must be protected.

Mr Maduna also touched on the issue of referrals made by AGSA to law enforcement agencies such as the Hawks, the Special Investigating Unit (SIU), or the National Prosecuting Authority (NPA). He stressed that it is the responsibility of Parliament and its committees, like SCOPA, to follow up on these referrals, not AGSA. He explained that AGSA's role is to conduct audits and flag irregularities, after which the relevant law enforcement agencies are expected to act. If these agencies fail to do so, it is up to Parliament to hold them accountable. Mr Maduna suggested that, in future, the Committee should compile a list of referrals made by AGSA and follow up with the agencies responsible to ensure action is being taken.

Mr Gouws then followed with a question about the material irregularities (MIs) from 2022/2023. He noted that AGSA saved around R3.5 billion through the PFMA and FMPPLA processes, and he wanted to know more about the potential impact of AGSA’s digital transformation project. He asked whether this new mechanism would improve AGSA’s performance in identifying and resolving material irregularities and whether there was anything the Committee could do to assist in speeding up the implementation of the digital project.

Responses
Auditor-General Ms Maluleke began her response by addressing the question on AGSA’s debtors. She acknowledged that AGSA’s debt book is dominated by local government debtors, many of whom owe significant amounts outstanding for extended periods. Some municipalities have debts that are more than 120 days overdue, and others have been in arrears for four to five years. Additionally, there are state-owned enterprises (SOEs), such as Denel, which owe AGSA considerable sums. Some of these SOEs have entered business rescue or involuntary liquidation, making it difficult to recover the funds.

Ms Maluleke explained that AGSA interacts regularly with National Treasury, particularly about the smaller municipalities deemed financially distressed. She mentioned that AGSA's conversations with Treasury often focus on getting clarity about which municipalities are financially distressed and seeking support for debt recovery. However, the law currently does not account for financially distressed SOEs to the extent that AGSA is now facing, which adds complexity to these discussions.

She then responded to Mr Maduna’s question about post-audit employment and the code of ethics. She agreed that this is a concern but emphasised the need to balance capacity building within government and AGSA’s responsibilities as a training institution. While AGSA encourages staff to pursue careers in the public service, they have established policies to ensure this happens responsibly. Specifically, AGSA has a “cooling-off” policy that governs who can transition to a client after an audit. For trainees, who are not key decision-makers in an audit, the transition is allowed, but for more senior individuals—such as signing managers or senior managers who play a significant role in the audit—AGSA enforces a rule preventing them from joining the client within 12 months. Additionally, if necessary, AGSA conducts a quick review of the audit file to ensure there are no judgment calls that could later compromise its reputation.

Ms Maluleke also addressed the issue of certificates of debt, agreeing that AGSA needs to improve its processes to complete them quickly. She explained that AGSA's focus has been on referring matters to public bodies and law enforcement agencies, as they are better positioned to recover funds from individuals who have benefited improperly. AGSA’s role is to audit and raise findings, but law enforcement has the authority to act swiftly.

Mr Chauke then responded to the question about AGSA’s digital transformation project. He explained that the new audit software would improve audit quality by allowing AGSA to access transactions directly and run tests without waiting for year-end data from auditees. The goal is to be able to conduct audits in real time, which would enhance AGSA’s ability to identify and connect potential material irregularities (MIs) much earlier in the process.

Mr Chauke explained that the software would enable AGSA to connect data across different parts of government. For instance, AGSA could identify specific suppliers who are not completing projects in one department and check if those same suppliers are doing business with other government entities. This cross-checking ability would allow AGSA to sample and investigate transactions more effectively, improving audit quality and potentially uncovering more MIs.

Mr Chauke emphasised that this digital transformation project has the potential to significantly enhance AGSA’s audit capabilities. If implemented quickly, it would enable AGSA to improve the quality of its audits and assist the government in addressing financial mismanagement. While the long-term goal is to have a comprehensive view of government transactions, he stressed that AGSA needs financial support to fast-track this project, as it would not only improve audit quality but also help to identify MIs earlier, ultimately benefiting the government.

The Chairperson began by thanking everyone for their participation in the engagement. He assured the Auditor-General that the Committee would share the study tour report from the previous SCoAG with AGSA, and he emphasised that the Committee would engage on the referrals to law enforcement agencies. He also assured AGSA that, during the Committee’s scheduled engagement with National Treasury on 11 October 2024, the issue of auditees who are able but unwilling to pay their audit fees would be addressed.

The Chairperson raised concerns about the financial health of local municipalities, noting that many are regressing financially. He pointed out that some municipalities are not paying salaries to councillors and officials, which makes it difficult for them to pay AGSA. He highlighted that these municipalities also owe third parties, such as pension funds and medical aid providers, millions and even billions of Rands. He emphasised the importance of finding a solution that protects AGSA’s independence while also resolving the outstanding debt issue.

The Chairperson commended AGSA for being a stellar institution but noted that, in the spirit of South Africa’s constitutional democracy, there is always room for improvement. He stressed the need for continued efforts to ensure better accountability of public funds so that services are delivered to the people. The Chairperson then released AGSA from the session, thanking them once again for their contributions.

Committee Deliberation on an Urgent Matter
Report of the Standing Committee on the Auditor-General on the Draft Notice on the Determination of Remuneration of the Auditor-General
The Chairperson then introduced the discussion of an urgent matter referred to the Committee on 07 July 2024. He explained that all Members had received the briefing note and background information and that there was a draft proposal for a Committee report. The report would need to be adopted and sent to the National Assembly for consideration. The Chairperson emphasised that the matter was long overdue and needed to be included in the current term’s programme so that it could be considered by the House as soon as possible. He asked if there were any questions about the procedure or the essence of the matter.

Mr Gouws raised a question regarding the remuneration of the Auditor-General, noting that AGSA does phenomenal work. He asked whether there had been any previous disputes or discussions around the salary of the Auditor-General, especially given that it is one of the highest-paid positions in government. He wanted to know if there were any previous arguments about this issue in past administrations.

The Chairperson responded that there had not been significant issues regarding the salary of the Auditor-General but noted that there is a valid reason for it being one of the highest-paid positions. He explained that this salary level ensures that the Auditor-General cannot be influenced and that AGSA can attract the best talent. He acknowledged that, while the salary may be high in the public sector, it is not as competitive in the private sector. The Chairperson also mentioned that, with the end of the current Auditor-General’s term approaching, there would need to be a new appointment, and the salary would need to remain competitive to attract the best candidate.

Mr Xolisile Mgxaji, Content Advisor of SCoAG, supported the Chairperson’s response, noting that there had been no major issues surrounding the Auditor-General’s salary in previous administrations. He explained that the only discussion had been around incremental course adjustments to the salary, which the previous Auditor-General had proposed. He clarified that the President determines the Auditor-General’s salary, following advice from the Independent Commission for the Remuneration of Public Office Bearers, which receives technical advice from AGSA’s Remuneration Committee, as per section five of the Public Audit Act (PAA). The current remuneration structure was developed before the current Auditor-General was appointed, and a three percent to 2.5% salary increment had been proposed, pending approval.

The Chairperson explained that the Committee has the option to recommend that the proposed salary increment either be implemented or not, based on the President’s recommendation. He also mentioned that the report could include a note on the struggling financial position of the national budget (fiscus).

Mr Montana proposed that the Committee support the salary recommendation, stating that the process followed was clear and did not involve interference or undermining of the determination. He expressed support for the three- and five-percent increments when the proposal is presented to the National Assembly.

The Chairperson confirmed that there was an official proposal by Mr Montana, and he asked if there were any seconders or objections.

As there were no objections, the report was adopted. Read full report here https://pmg.org.za/tabled-committee-report/5921/

Mr Maduna added that directors in the South African private sector earn significantly more, with an average salary of around R10.6 million, which is about double what the Auditor-General earns. He highlighted this as a point to consider.

Chairperson’s Closing Remarks
In his closing remarks, the Chairperson acknowledged Mr Maduna’s point and thanked the Members for their engagement. He announced that there would be no meeting the following week and that the amended programme for the next term would be distributed once it was finalised. The next meeting was scheduled for 11 October 2024, pending approval from the House Chairperson.

The Chairperson thanked everyone for their attendance and participation and wished them a good rest during the constituency period. He also thanked the staff members for their support.

The meeting was adjourned.

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