Public Sector Compliance with Public Finance Management Act: Accounting-General briefing

Public Accounts (SCOPA)

22 March 2006
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Meeting report

SCOPA

STANDING COMMITTEE ON PUBLIC ACCOUNTS
22 March 2006
PUBLIC SECTOR COMPLIANCE WITH PUBLIC FINANCE MANAGEMENT ACT: ACCOUNTING-GENERAL BRIEFING

Chairperson: Mr T Godi (PAC)

Documents handed out:
SCOPA Committee papers [please email
docs@pmg.prg.za]
National Treasury presentation to SCOPA
National Treasury briefing to SCOPA
Democratic Alliance proposal

SUMMARY
The Office of the Accounting-General met with the Committee to discuss the compliance of public entities with the Public Finance Management Act. Information was provided on the status of Telkom with regard to reporting requirements. Insider trading had to be avoided and all shareholders had to receive pertinent information. Oversight should be improved in the public sector. Capacity-building programmes would be introduced to support compliance. An interface with all role players was suggested.

Members asked numerous questions including the level of state ownership in Telkom, the role of the Department of Communications, the need for all public entities to comply with legislation, a better working relationship with other parliamentary committees, the role of department managers in improving compliance and the public sector tender process.

MINUTES
Democratic Alliance proposal: discussion
Mr E Trent (DA) asked whether his party could place a proposal on the agenda regarding non-disclosure by role players in government. He sought feedback on progress pertaining to the Committee budget. The proposal referred to a report compiled by the Auditor-General on declarations by Members of Parliament.

The Chairperson replied that the issue of the Committee budget had been discussed with the Chairperson of the Chairpersons’ Committee and a response would be provided in due course. The proposal would be placed on the agenda. The Committee would meet with the Auditor-General, National Treasury and the Department of Public Service and Administration (DPSA) on May 3 to discuss the Auditor-General’s general report. A workshop would be held next week and the Auditor-General would be present. The workshop would begin on 28 March.

Mr Trent read out the proposal and noted that the Auditor-General report had been available electronically for some time and tabled with the relevant committee. The DA commended the recent investigation by the Auditor-General.

Mr P Gerber (ANC) proposed that the Committee deal with the matter next week. Members would have an opportunity to study the report in question. Disclosure remained an important issue.

Mr R Ndou (ANC) asked whether similar issues should not be processed through correct channels in future. The matter should have been discussed in working groups before being placed before the Committee.

Mr Trent concurred with the request for deferment until next week. The Committee had to discuss how to deal with the Auditor-General’s reports in future.

Mr Gerber noted that the matter would also be dealt with in the Ethics Committee and care should be taken not to duplicate matters.

The Chairperson stated that Members should be accorded an opportunity to study the report in question before debating in the Committee. He noted that both the Ethics Committee and the Public Protector were involved in the matter. The Committee should first determine the relevance of the issue before pursuing the matter. Members should be provided with copies of reports prior to the matter appearing in the media.

Accounting-General presentation
Mr F Nomvalo (Accounting-General) and Ms N Radebe (Director-Assets and Liability) conducted the presentation. Telkom was the only public entity that had obtained exemption from the Public Finance Management Act. An extension had been granted until 2007. The Companies Act also regulated Telkom. All shareholders had to be informed of company activities. Financial information had to be made available on a periodic basis. Detail was presented on communication requirements for holders of securities. Government shares could be used as an influencing tool in terms of social responsibility programmes by listed companies. Listed companies had to avoid the dangers of insider trading.

Discussion
Mr Trent asked how Members of Parliament could exercise taxpayers’ rights as shareholders over parastatals that were listed. He asked whether Members could be perceived as shareholders in listed parastatals.

Mr Gerber sought clarity on the number of shares owned by the government in Telkom. He asked whether the Standing Committee on Public Accounts (SCOPA) should interrogate Telkom’s Annual Report on a regular basis.

Mr G Setsero (Chief Director: Asset Management) stated that the government owned 37% of Telkom. The government held a voting bloc and could appoint the Board and vote at the Annual General Meeting (AGM). However, the government could not instruct Telkom to operate in the broader public good. Telkom was also listed on the New York Stock Exchange. National Treasury recommended that SCOPA interrogate all financial statements emanating from Telkom and fulfil an oversight function.

Mr Trent confirmed that SCOPA played an oversight role and asked whether the Department of Communications (DOC) held the shares on behalf of the government. SCOPA should discuss any future issues with DOC. He asked whether the Auditor-General had any role to play regarding Telkom given that the entity had removed itself from the auspices of the PFMA.

Mr Setsero confirmed that DOC served as the principal shareholder on behalf of government. The Department had the right to attend AGMs and could provide SCOPA with all relevant information in terms of oversight. Exemption from the PFMA was required before Telkom could list on the relevant stock exchanges. The Companies Act regulated Telkom as a listed company.

Mr Gerber referred to the Public Audit Act that specified the controlling stake of the government in parastatals. He asked what influence the Auditor-General had with regard to controlling stakes.

Mr S Fakie (Auditor-General) declared that Telkom was listed as a Schedule 2 public entity and also had to conform to Public Audit Act (PAA) requirements. The PAA provided an option to the Auditor-General to audit or not to audit the entity. The decision was taken that the government would not audit Telkom but allow a private sector company to fulfil the function. The government could get involved if public interest issues were involved. The DOC could be scrutinised by state auditors if questions were raised on the exercise of powers and responsibilities. The fact of the matter was that Telkom could not be audited by the state while it remained a listed entity.

The Chairperson asserted that the Committee’s priority was to ensure that no public entity existed that did not account to Parliament. The listing of Telkom surrendered Parliament’s right of oversight. The Committee had to ensure that adequate levels of accountability were maintained and public resources were spent in an acceptable manner.

Mr Nomvalo stated that Telkom would not resist any attempts by Parliament to exercise oversight. The purpose of the Office of the Accounting-General (OAG) was to promote accountability through transparency. Oversight would promote enhanced service delivery. He outlined the powers and functions of the National Treasury. Departments should be supported to ensure compliance with legislation. Treasury should have the power to intervene where necessary. Treasury norms and standards were outlined and monitoring mechanisms described that sought to enforce the PFMA. The Department assisted in capacity-building programmes to support compliance. Financial management and internal control systems were explained. National Treasury could not initiate disciplinary hearings within respective departments and public entities. Quality assurance standards were in place for internal auditors. A major challenge for OAG was the struggle to retain skilled staff. The role of SCOPA and all Portfolio Committees in Parliament in relation to OAG was explained. An interface between all role-players was proposed. The Committee should identify non-compliant departments prior to their identification in the Auditor-General’s report. The Committee should also follow up on qualified departments to ascertain progress with compliance.

The Chairperson acknowledged the scope of the presentation and the depth of material covered. The responsibility of SCOPA had been clearly identified to ensure compliance with the PFMA. Oversight should be conducted through interaction with various stakeholders.

Ms L Mashiane (ANC) asked why money linked to the Reconstruction and Development Programme (RDP) had been withdrawn given the urgent needs and levels of poverty. She declared that the DPSA had to engage more vigorously in facilitating staff retention in the public sector. Portfolio Committees tended to ignore SCOPA and failed to bring key issues to the attention of the Committee. A better working relationship had to be developed with all Committees.

Ms A Dreyer (DA) noted the ambitious intention of the OAG to assist all government departments with training and oversight duties. She asked how capacity problems within the OAG could be rectified to meet the challenges.

Mr Trent sought further detail on the extent of the capacity shortfalls such as the number of critical vacancies within OAG. A report on evaluation of risk management in government was welcomed. Consolidated financial statements in the public sector were difficult due to variable standards of reporting. He criticised the government for failing to provide feedback to the Committee on resolutions passed by SCOPA. He asked whether National Treasury had a responsibility to monitor SCOPA.

The Chairperson asked whether the current staff complement was ideal. The positioning of internal audit offices was important and he asked whether such units were placed in provincial Treasuries or in the respective Premiers’ offices.

Mr Nomvalo replied that staff retention remained a concern and a key challenge was the promotion of equity. The OAG responded to requests for assistance from departments and worked closely with provincial accounting-generals. Cross-cutting issues would be dealt with in a group approach to allow for sharing of information. The office was arranged in a cluster format. The total staff complement was approximately 60 but should be closer to 70. The office had an intensive programme to train interns that remained in the public sector. SCOPA should enhance its relationship with all parliamentary committees. Risk Management evaluations were occurring in different regions.

Ms T Sibanyoni (Director-Risk Management) stated that different interpretations of risk management existed in the public sector that tended to complicate the exercise. Risk management surveys had been conducted in various departments. An additional survey would be conducted later in the year.

Mr Nomvalo declared that a risk management framework was in place and was currently under review. A challenge remained around consolidated financial statements. Standards for the accrual environment were being prepared to improve results. National Treasury had a responsibility to enforce the PFMA. Internal auditing offices would fall under the Premiers’ offices for practical purposes although political issues could undermine their functioning.

The Auditor-General referred to the resolutions of SCOPA and noted that audit reports should reflect the extent of implementation of policy. Departments should disclose in Annual Reports the level of compliance with SCOPA resolutions. The proposed role of SCOPA related to the use of pre or post audit information. Risk management issues would be covered by audit committees in all departments fulfilling a governance role. Co-ordination between the Treasury and audit committees would be required.

Mr Gerber noted that the application of Treasury regulations had to be improved in departments. He asked whether parastatals should also participate in the prescribed tender process to avoid cases of irregular conduct.

Mr Trent sought clarity on the accountability of public entities that fell under certain departments. He asked whether Directors-General were responsible for compliance by such entities.

The Chairperson declared that stronger measures were needed against non-compliance. Entities had no choice but to comply with legislation. He sought clarity on the status of internal audits and what rules and regulations would be applied.

Mr Nomvalo responded that due process regarding audits should be followed in each department prior to OAG involvement. SCOPA would not receive the whole report but only certain sections of interest. New issues would be linked to the latest audit committee information. Audit committees would be encouraged to meet on a regular basis. OAG would have to impose sanctions where necessary but seek to avoid creating low morale amongst staff. Disciplinary measures had to be supported by relevant evidence. A culture of compliance should be inculcated within the public sector. Efficiency and accountability had to be promoted in unison.

Mr Ndou declared that legislation had to be implemented across the board. The public sector was riddled with examples of corrupt tendering and poor contracting and corrective measures had to be taken. Legislation was being applied in a variable way. Criminal acts had to be recognised as such and sanctions applied where applicable. SCOPA should monitor the implementation of legislation.

The Chairperson noted that some movement in improving compliance was discernable but much more had to be done. Members wanted to ensure vigorous oversight.

Mr Nomvalo stated that all stakeholders should play a role in improving the situation. Risk management should be utilised to reduce levels of risk. National Treasury would enforce the PFMA and the executives of departments had an important responsibility to ensure compliance.

The meeting was adjourned.

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