Committee minutes and reports

Meeting report

The Chairperson opened the meeting by thanking Members and apologising for the delayed start. He explained that the meeting required the presence of at least six Members to proceed, as the agenda included the approval of minutes and the Committee Report.

He acknowledged the remaining workload and stressed the importance of completing the adoption of three sets of minutes and the Committee Report to ensure it was processed through the House before the December recess.

Agenda

Mr S Subrathie (ANC) moved for the adoption of the agenda and took the opportunity to acknowledge the attendance of Ms T Bila (ANC), who had joined the meeting despite being on bereavement leave following the passing of her sister-in-law. He expressed gratitude for her commitment.

The Chairperson thanked Mr Subrathie for moving the adoption and extended the Committee’s condolences to Ms Bila for her loss, appreciating her attendance under the circumstances.

Ms M Mofokeng (ANC) seconded the adoption of the agenda.

Adoption of Minutes

Minutes dated 06 September 2024

Ms E Spies (DA) moved for the adoption.

Mr Subrathie seconded the motion.

The minutes were duly adopted with no amendments.

Minutes dated 11 October 2024

Ms L Ligaraba (ANC) moved for the adoption.

Ms Spies seconded the motion.

The minutes were duly adopted.

Minutes dated 01 November 2024

Ms Spies raised a concern regarding the attendance register in the minutes, noting that a former DA Member was marked as absent despite no longer being a Member of Parliament or the Committee. She suggested that the Member’s name should not appear in the minutes, as he was no longer part of the Committee.

The Chairperson acknowledged Ms Spies’s observation and stated that the matter had been raised with the Committee staff. He explained that the Committee had not been formally informed of the Member’s resignation at the time of the meeting in question. He asked the Committee Secretary to confirm the status.

The Committee Secretary clarified that Mr R Gouws (DA) had been a Member of the Committee, but the latest communication only indicated an addition from the MK party. There had been no formal update regarding Mr Gouws’s resignation.

The Chairperson advised Ms Spies to escalate the matter with her party whips and suggested that the Democratic Alliance appoint a new Member to the Committee to ensure its functionality. He noted the procedural need for formal communication regarding changes in membership and stated that, in principle, a non-Member could not participate in Committee activities.

The meeting then proceeded to the adoption of the minutes.

Ms Ligaraba moved to adopt the minutes from 1 November 2024, and Ms Mofokeng seconded the motion.

The Chairperson thanked both Members and expressed his appreciation to Committee Secretary for preparing detailed and comprehensive minutes, noting their usefulness for future reference.

Report of the Standing Committee on the Auditor-General on the Integrated Annual Report of the Auditor General of South Africa for the Financial Year 2023/24

The Committee then moved on to the consideration of the Committee Report. The Chairperson apologised for the late circulation of the report, explaining that an amended version was sent to Members the previous day to incorporate changes, particularly to the recommendations section. He asked Members to indicate any proposed corrections or amendments to the first part of the report, which covered the introduction and summary of the Committee’s work.

As no corrections or amendments were proposed, the Chairperson moved to the observations and recommendations section of the report. He asked Members to comment on each recommendation in turn.

The Chairperson highlighted Recommendation 8.4.2, drawing attention to the challenges faced by the Committee regarding its responsibilities under the Public Finance Management Act (PFMA). He explained that the PFMA mandates the Committee to approve the appointment of external auditors. However, the wording of the relevant section did not provide for a review or similar actions; it specifically required approval of the appointment.

He expressed concern over the current practice of appointing auditors on multi-year contracts. Referring to information shared by the audit committee, he noted that the external auditors were already appointed until January 2028. This arrangement, he argued, rendered the Committee's approval process a mere formality, akin to "malicious compliance," given that the appointments were predetermined.

The Chairperson proposed that the Committee request a report from the audit committee detailing the contract and its terms, and that the Committee convene a follow-up meeting early the following year to interrogate and engage on the matter. He expressed his opinion that auditors should only be appointed on an annual basis, in line with the Public Finance Management Act’s (PMFA) requirement for annual approval, to allow for more substantive oversight and engagement.

He clarified that while this issue was not being directly addressed in the current report, the recommendation provided for future engagement on the matter. The Chairperson then invited comments or inputs from Members, asking if they were satisfied with the wording of the recommendation as presented.

Mr Subrathie stated that he recalled the Committee had previously discussed this matter in detail. He acknowledged that it had been an awkward conversation, as it appeared that the previous Committee had approved the contract in question.

He noted that, despite this, the audit committee had provided substantial justification for the long-term appointment of the external auditors. He elaborated that the audit committee had explained the challenges in finding a suitable firm, highlighting considerations such as skill set, independence, and the practical reality that many other audit firms were already engaged in work for the entity. According to Mr Subrathie, the audit committee had emphasised that the appointed firm consistently met the required standard of independence, which had been a critical factor in their recommendation.

He expressed his agreement with the Chairperson's concerns but clarified that he did not view the annual review process as a mere "tick-box exercise." He argued that the annual review allowed the Committee to ensure the appointed firm maintained its independence, retained the necessary skill set, and was free from any material compromises that could affect its performance. Mr Subrathie emphasised that these elements were reviewed annually, making the process meaningful rather than perfunctory.

In his view, while the PFMA required annual reviews, he did not believe the matter needed further expansion or additional reporting. He reiterated that the Committee's focus should remain on assessing whether independence, skill sufficiency, and other material factors were upheld on an annual basis, and he concluded by stating that the process, as it stood, was adequate.

The Chairperson responded to Mr Subrathie, acknowledging his points but emphasised that the Public Audit Act did not use the term “review” but rather “approve the appointment.” He highlighted that this wording placed the responsibility on the Committee to appoint external auditors annually.

He elaborated that his concern stemmed from the potential legal and contractual issues that could arise if external auditors were engaged on multi-year contracts while the Act required annual appointments. He clarified that while the current arrangement was functional, the Committee should consider the implications of the Act’s provisions and whether they aligned with the practice of entering into multi-year contracts with audit firms.

The Chairperson proposed that the Committee should revisit the matter in the following year to engage on the technical aspects of these contracts. He suggested that the Committee should perform its due diligence to understand the rationale behind multi-year agreements and assess whether one-year contracts would better align with the requirements of the Public Audit Act.

He also noted that there might be a case to motivate for an amendment to the Act to provide for the appointment of external auditors for a fixed term, such as three years, with annual reviews. He concluded by stressing the importance of ensuring that the Committee and Parliament were fully compliant with the Act and avoided potential future issues.

Mr Subrathie thanked the Chairperson for addressing his comments and expressed his willingness to support the proposal, provided that the Committee would have further discussions early the following year. He noted that in the report he had reviewed, there was an emphasis on the need for the audit committee to begin preparations to identify a new auditor before 2028. However, he mentioned that this point did not appear in the current version of the report being circulated.

The Chairperson responded, clarifying that the circulated version was an amended version, shared the previous day. He explained that the reference to January 2028 had been removed because it was deemed inconsistent with the provisions of the Act, and the Committee could not submit a report implying that the review should occur only in 2028.

Mr Subrathie expressed concern that the report no longer fully captured the Committee’s discussions and reservations. He insisted that the report should highlight the Committee’s concerns and its instruction to the audit committee to ensure that arrangements were made for a review before 2028. He suggested incorporating both the original concerns and the new additions proposed by the Chairperson to better reflect the discussions and the Committee’s intentions.

The Chairperson assured Mr Subrathie that the concerns were addressed in paragraph 8.4.1 of the report. He elaborated that the paragraph outlined the Committee’s reservations about the extended tenure of the external audit firm, noting that such a lengthy term could potentially affect independence. He added that the audit committee had explained the current contract, which would conclude in January 2028, and provided assurances that a new audit partner would oversee the audits to ensure independence was maintained. The Chairperson reiterated that the report reflected both the concerns raised and the audit committee’s assurances.

He further explained that the Committee’s recommendation went beyond the current discussions by proposing a separate engagement and further reporting on this matter. This approach, he said, encompassed Mr Subrathie’s suggestion while also addressing broader concerns about compliance with the Act.

Ms Spies confirmed that her comments were adequately covered in paragraph 8.4.1 and expressed her agreement with the amendments. She supported the adoption of the report and moved for its approval.

Mr Subrathie apologised for his delayed response, explaining that he was attending the Independent Communications Authority of South Africa (ICASA) interviews in Pretoria while participating in the meeting. He thanked the Chairperson for the earlier clarification and expressed his support for the amendments.

The Chairperson thanked Mr Subrathie for his input and moved the discussion to paragraph 8.5 of the report, which addressed the retention of surplus funds and financial management issues, including outstanding audit fees.

He emphasised that, in accordance with the Act, the Committee had the responsibility and mandate to approve the retention of surpluses. Referring to recommendation 8.5.2, the Chairperson stated that the proposal was for the Auditor-General to retain a surplus of R1 billion. He further noted recommendation 8.5.3, which called for National Treasury to provide regular reports on interventions regarding financially distressed entities.

The Chairperson invited comments from Members, asking if they were comfortable with the recommendations.

Ms Spies proposed that the report be adopted with the amendments made.

Ms Ligaraba expressed support for the 2023–2024 report as presented, stating her agreement.

The Chairperson acknowledged the motion and its seconder, thanking both Members for their support. He confirmed the endorsement of the report by the two parties and asked if any party objected to its adoption.

A Member noted the reservation of the Umkhonto weSizwe (MK) party.

The Chairperson confirmed that the MK party’s reservation would be reflected in the report and stated that the rest of the parties were in support. He thanked the Members, noting that the business of the meeting had concluded.

See full report here https://pmg.org.za/tabled-committee-report/6023/

He reminded Members of the next meeting, scheduled for 6 December. While acknowledging the busyness of the period with numerous National Assembly sittings, he stressed the importance of the meeting, which would include an engagement on the strategic plan of the Auditor-General of South Africa (AGSA) and a report back from National Treasury on their prior discussions regarding outstanding audit fees and related interventions.

The Chairperson invited any final remarks from Members before closing. With no further input, he thanked Members for their time, wished them a good weekend, and extended safe travel wishes to those travelling.

Meeting adjourned.