SITA allegations regarding Auditor General: discussion

Share this page:

Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

PUBLIC SERVICE AND ADMINISTRATION PORTFOLIO COMMITTEE

PUBLIC SERVICE & ADMINISTRATION PORTFOLIO COMMITTEE
22 September 1999
DISCUSSION OF RESPONSE OF AUDITOR-GENERAL ON ALLEGATIONS BY SITA

Documents handed out
Draft report of the Portfolio Committee on the allegations by SITA and response of Auditor-General (attached to end of minutes)

SUMMARY
The committee adopted the draft report that found the allegations made against the Auditor-General's Office were inaccurate but that the procurement policy of the Auditor-General's Office regarding the empowerment of previously disadvantaged groups was conservative.

MINUTES
The Chairperson, Mr N. Nhleko, went over the draft report which provides a background to what has transpired. At the committee's briefing on SITA (8 September) allegations were laid by the Chairperson of the SITA Board against the way fees had been allocated by the Auditor-General's Office to a small, historically disadvantaged firm who had been involved in conducting SITA's annual audit. The Committee met with the Deputy Auditor-General (15 September) to clarify the policy of the Auditor-General's Office regarding empowerment of firms owned or managed by historically disadvantaged groups. Mr Nhleko referred to section five of the report on 'Findings'. It is accepted that the Auditor-General's Office does have an affirmative policy towards historically disadvantaged groups and the targets set regarding these groups have been met. However it is recognised that these targets were unduly conservative. The report then proposes recommendations to improve the allocation of work to historically disadvantaged firms.

The committee agreed that the report showed the correct picture of what had occurred and supported its recommendations. It adopted the report which will now be passed on to Public Accounts and relevant finance committees as it covers areas outside the jurisdiction of this committee.

The Chairperson made the following announcements:
The Public Protector will brief the committee on the 27 October regarding the report that has been received by the committee.
Last week's committee workshop provided the guidelines for the committee's programme which is currently being worked on. The programme should be adopted on 13 October.

Appendix 1:
Draft Report of the Portfolio Committee on Public Service and Administration, dated 22 September.

The Committee, having inquired into the procurement policy of the Office of the Auditor-General (following remarks made by the Chairperson of the Board and Acting Managing Director of the State Information Technology Agency), reports as follows:

1. Introduction
The State Information Technology Agency (SITA) was established as a private (state-owned) company following the coming into operation of the State Information Technology Act on 2 November 1998.

SITA was established to provide information technology, information systems and related services in a maintained information systems security environment to, or on behalf of, participating departments and organs of state (section 6 of the Act).

The establishment of the agency in effect pools the information technology resources of the state to maximise efficiency and to eliminate duplication and wastage of resources as far as possible.

SITA is accountable to the Minister for the Public Service and Administration (section 24 (1)). The Committee is therefore responsible for oversight of SITA as a component of the Minister's portfolio. Accordingly, the Committee requested an initial briefing from SITA, which was held in Parliament on 8 September.

2. Auditing of SITA by the Auditor-General
In terms of section 16(9) of the SITA Act, the books and records of account and financial statements of the Agency must be audited annually by the Auditor-General. The Auditor-General, in terms of the Auditor-General Act, l99*, may contract out certain auditing work to private firms.

At the Committee's briefing on SITA, Mr Rasethaba said that he had taken issue with the allocation of the fees between the two firms awarded the contract to conduct the SITA audit work. He indicated that 90 per cent of the fees were to accrue to PriceWaterhouseCoopers and 10 per cent to SMGM Masuku Jeena Inc.

Members of the Committee expressed the view that, on the face of it, the allocation to the smaller, Black-owned firm was inadequate. In terms of government's affirmative procurement policies, the allocation of a greater percentage of the fees to the smaller, historically disadvantaged firm appeared to be desirable. The Committee resolved to take the matter up with the Auditor-General.

3. Committee request for clarification
The Chairperson of the Committee wrote to the Auditor-General and requested information on the following issues:
(a) whether the Office of the Auditor-General had developed a policy on procurement;
(b) if so, whether the policy made provision for the empowerment of smaller firms and / or firms owned and managed by formerly disadvantaged groups;
(r) if so, whether these provisions conformed to Government policies on empowerment;
(d) what determinations had been made in the specific instance of the outsourcing of the SITA audit work.

4. Response of the Office of the Auditor-General
Mr Shaukert Fakie, Deputy Auditor-General, CEO and Accounting Officer in the Office of the Auditor-General, responded that he would welcome the opportunity to brief the Committee on the procurement policy of the Office of the Auditor-General and the determinations made in the case of SITA. Mr Fakie agreed on short notice to brief the Committee on 15 September.

(a) Procurement policy of the Office of the Auditor-General
Mr Fakie provided a copy of an extract from the "Guidelines on Audits Conducted on behalf of the Auditor-General". The extract, chapter 13 of the guidelines, deals with "Previously Disadvantaged Persons or Groups".

The policy provides for an annual review to identify all the work that could possible be contracted out to, or contracted in from SMMFs. The policy also notes that the capacity of the Office's business units should be utilised first, and that opportunities for the multi-skilling of the Office's staff should also be taken into account.

The policy sets targets for the allocation of work to small, medium and micro firms (SMMFs), majority-owned by historically disadvantaged firms or persons. During the first year that the policy was in force (commencing 1 April 1998) a target of 10 per cent was set, projecting an increase by the end of six years to a 40 per cent allocation (by 31 March 2004).

In terms of the policy (paragraph 13.4.3.1) the Office of the Auditor-General has undertaken to:
(i) actively advance auditing opportunities with appropriate parties, eg the Association for the Advancement of Black Accountants in Southern Africa (ABASA), the South African Institute of Chartered Accountants (SAICA) and the Public Accountants' and Auditors' Board (PAAB);
(ii) encourage joint audits between SMMFs and the larger firms in order to ensure the development of SMMFs and that the larger firms accept mentorship, if requested by SMMFs;
(iii) be involved with functional training on a continuous basis through the Audit Controller and provide mentorship on request from SMMFs as the latter should always be undertaken on a voluntary basis;
(iv) depending on financial constraints, support formal training, attendance of seminars and other appropriate training, eg bridging training;
(v) if need be, and for a predetermined period, allow for the secondment of audit staff from SMMFs;
(vi) provide in its training programmes for the inclusion of audit staffs from SMMFs, but the number of nominations that are accepted will be restricted to the course participants allowed for a particular course;
(vii) enhance the skills and experience of the audit staff of the SMMFs by involving such staff when meetings of public accounts committees are attended - especially when reports flowing from audits by SMMFs are to be discussed; and
(viii) if requested, assist with the provision of logistical support to SMMFs when work is to be undertaken on behalf of the Auditor-General.

(b) Implementation of the policy
Mr Fakie quoted from the Annual Report of the Auditor-General for 1998-1999, and noted that progress reports on the implementation of the policy indicated that more than 26,3 per cent (in rand value) of the work that was contracted out/in, was awarded to SMMFs. A more recent review of progress (reflecting the position at the end of July) showed that the current allocation of outsourced work by the Office to SMMFs stood at 34 per cent.

The progress made in terms of allocating outsourced work to SMMFs may therefore be summarised as follows:

Actual 1998/1999: 26% (Projected: 10%)
Actual as at July 1999: 34%

Prior to 1994, approximately 20 to 25 firms performed outsourced work for the Auditor-General. Approximately 3 per cent of these firms were SMMFs. At the end of the 1998/1999 year, the position had changed substantially in that 99 firms were carrying out audits on behalf of the Auditor-General, 41 of which were SMMFs.

(c) Practical considerations
(i) The Auditor-General has an obligation to ensure that no single audit firm enjoys a disproportionate share of the audit work contracted out in order to ensure the independence of the auditors performing audits on behalf of the Auditor-General.
(ii) Because the Auditor-General is responsible for a number of large audits requiring substantial capacity, where possible and where appropriate the work is broken up to allow for joint appointments. An established firm and a SMMF may in such cases share the audit work.
(iii) In taking on public sector audit work, firms are required to make a considerable investment to familiarise themselves with public sector requirements and procedures. A one-year contract has therefore in some instances proved impractical, and three-year contracts are concluded with firms.
(iv) In the case of joint appointments of an established firm and a SMMF, provision is often made for an annual increase in the fee allocated to the SMMF (in terms of the three-year contract).

(d) The SITA audit
Mr Fakie said that SITA was a recently established company, and the 1999/2000 audit was to be the first conducted on behalf of the Auditor-General. The work was highly technical and specialised, requiring the participation of computer auditors, a relatively scarce resource in South Africa.

The audit was to be a substantial one. It was therefore decided that a joint appointment should be made, to allow the participation of an SMMF and a transfer of skills to the SMMF.

PriceWaterhouseCoopers had been involved in previous audits of Infloplan (a former division of Denel and now a major component of SITA) on behalf of the Auditor-General, and was well placed to assume responsibility for the SITA audit.

MSGM Masuku Jeena Inc is an emerging accounting and auditing firm. It has fourteen partners, predominantly from disadvantaged communities, and in addition has extensive experience in the provision of professional services to the public sector.

The fee allocation for the first year was to be 80 per cent to PriceWaterhouseCoopers and 20 per cent to MSGM Masuku Jeena Inc. The allocation in year two would be 70/30 and thereafter 60/40.

Mr Fakie said that the Auditor-General was not required to consult with the auditee (SITA in this case) regarding the appointment of private audit firms, but did so in the ordinary course and had done so in this instance, and that Mr Rasethaba had signed the letter of engagement. The audit firms were informed of their appointment on 14 July.

5. Findings
(a) The Office of the Auditor-General does have a policy that contains measures in respect of SMMFs majority-owned by historically disadvantaged firms or persons.
(b) The Office of the Auditor-General has performed very well in terms of its targets to date. It has achieved more than double the expected allocation to SMMFs in the first year of implementation than projected, and currently has allocated more than triple the projected percentage.
(c) It would appear therefore (in retrospect) that the target set for the first year was unduly conservative.
(d) Mr Rasethaba's remark that the SMMF has only been allocated 10 per cent of the fees was factually incorrect. The allocation to MSGM Masuku Jeena Inc was in fact 20 per cent in the first year, 30 per cent in the second year and 40 per cent thereafter.

6. Recommendations
The Committee therefore recommends -
(a) That the Auditor-General, prior to determining an annual target for a particular year of implementation, gathers information regarding the availability and capacity of SMMFs, amongst other relevant factors, in order to determine a target for that year for the allocation of work to SMMFs that is both realistic and challenging; and
(b) That the Audit Commission, once it has been appointed, scrutinises both the policy in force and the annual targets set by the Auditor-General regarding the allocation of audit work to SMMFs, and review either or both should it deem it necessary to do so.

Audio

No related

Documents

No related documents

Present

  • We don't have attendance info for this committee meeting

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: