Committee Report on Auditor General’s Office Annual Report 2004/05

AD HOC COMMITTEE ON THE OFFICE OF THE AUDITOR GENERAL
30 March 2006
COMMITTEE REPORT ON AUDITOR GENERAL’S OFFICE ANNUAL REPORT 2004/05

Chairperson: Ms B Hogan (ANC)

Documents handed out:
None.

SUMMARY
The Committee considered its report on the annual report and budget of the Office of the Auditor General. A new oversight Committee on the Office of the Auditor General would soon be established. The Committee agreed to condone the changing of the performance review cycle for 2006. The new Committee would consider the changing of the cycle for the forthcoming years. the performance review cycle would run from 1 June 2006.

MINUTES
Mr S Fakie (Auditor General) attended the meeting. The Chairperson said that she was relieved that the Rules of Parliament were being amended to allow for a permanent oversight mechanism in terms of the Public Audit Act (PAA) to be established. The DA had informed that it was likely that nominations for the Committee would be put before the House tomorrow. It was important for the Committee to deal with all outstanding issues so that the new Committee could start on a clean slate.

Mr E Trent (DA) agreed that it made sense for the Committee to finish its work.

Mr Fakie appreciated the Committee's efforts in pushing for the establishment of the oversight Committee.

The Chairperson said that the Committee had received a correspondence from the Auditor General (AG) relating to the change in the AG's performance year review cycle. The AG had to change the cycle of the performance review. The issue was that performance reviews took place during peak periods of the all other audits that the AG was required to do. This had placed an enormous pressure on the management and staff at the Office as they were required to do performance reviews and audits at the same time. The implication for changing the cycle was that the external auditor of the Office would not be able to give clearance on issues relating to performance reviews. The performance year review would fall under a different cycle to the financial year. The Committee should look at strategies to address the issue and there was a suggestion, from the Audit Committee of the Office of the AG, that it might be useful if the Committee was to condone the change in the cycle. The audit Committee was concerned that the AG would get a qualified audit opinion precisely because of changing the cycle. It was not good for the AG to get a qualified audit opinion. Condoning the change might mitigate the effects of a qualified opinion from the auditors. She had agreed to get the views of members of the Committee. Members felt that there was a need to discuss the issue in a meeting. The Committee should also look at how to regularise the process. She was of the view that it was not for this Committee to make suggestions or recommendations on regularising the cycle. The next oversight mechanism should deal with the issue. This Committee should only be concerned with how to manage the process for this year.

The Committee agreed that the next oversight mechanism would have to look at the issue in relation to the coming years.

Mr Trent said that it would be better if the AG could be given an opportunity to address the Committee because he was looking for condonation of something that had already been done. The Committee was not dealing with a proposal.

Mr Fakie said that the Office had already implemented a change in the performance year for the 2005/06 financial year. The impact of the change in the cycle was only realised after the changes had been implemented. There had been some engagements between the Audit Committee and the external auditors on this matter. In principle the Audit Committee supported and understood the need to change the performance cycle but had expressed some concerns in relation to the impact a qualification would have on the reputation of the Office. It was for this reason that the Audit Committee had asked the AG to engage with the Chairperson of the Ad Hoc Committee on the matter. During his meeting with Ms Hogan it was clear that the Office would have to go back to the external auditors and find out what the effect of a condonation would be to the qualification. The auditors had indicated that they would look at the audit in a far more positive light that it could to avoid a qualification. However, it might still have an emphasis of matter. The Committee should be convinced in its mind that it was comfortable with condoning what the AG had done. The OAG did not realise that its action would have such a great impact and this was the reason why the matter was referred very late to the Committee.

The Chairperson said that she had discussed this matter with the Chairperson of the Audit Committee. One of the issues that she had raised was whether the staff had received performance bonuses. There would have been questions to ask if they had received performance bonuses. On what basis could the AG decide that the bonuses were fair because the financial year did not coincide with the performance year? She was happy to report that the staff had not taken any bonus precisely because they it was more important to take the load off them during the audit peak period. There was no financial loss involved in the matter.

Mr Trent proposed that the AG should be given the requested condonation. The Committee did not want people to go without their performance bonuses forever.

Dr G Woods (NADECO) said that the Committee did not know what the condonation would be worth. He asked what would be the wording of the condonation.

The Chairperson said that the condonation would have to indicate that this was the first year of the PAA. The problem was an unintended consequence of the Act. Parliament, when passing the Act, had not realised that it was overloading the AG at their busiest time of year by requiring them to do performance reviews at that period. The AG had to decide what was in the best interest of the public. It was in the best interest of the public that the AG did proper audits. There was no attempt to escape or by-pass the performance review.

Mr Fakie said that the PAA required that the AG should provide performance information in its annual report. It also required the external auditor to give its opinion on the performance information. A question might be asked why this had not been a problem three or four years ago because the Public Finance Management Act (PFMA) was in place. It was the PAA and not the PFMA that was creating the problem. The AG was not required to report on performance in the past in terms of the AG Act. The auditors had indicated that the fact that the AG had changed the performance year from April (end of financial year) to December created two difficulties for the year 2006. The first difficulty was that the AG had not really done a proper performance audit for 2006. The AG had told the staff no proper performance audit would be done this year because it was a shorter period (nine months). The staff was not given a performance bonus but was given an average increase in salary.

Ms S Rajbally (MF) asked what was the agreement between the AG and the staff in terms of not giving performance bonuses and had the staff accepted this.

Mr Fakie replied that there was consensus that the staff would not get bonuses but salary increases as of December 2005. The new performance cycle would staff from 01 January 2006. It was important for the AG to lead by example. A qualification could be interpreted in the wrong way once it was in the public domain. The new oversight mechanism should be established soon because the AG still had to get systems in place to ensure that it could do its work properly.

Dr Woods said that the Committee would be established the following day.

The Chairperson said that the new Committee would have to meet during the recess to deal with the matter.

Annual report of the Committee on the Annual report of the Office of the AG
The Committee considered its annual report and made amendments to it.

Committee Report on the Budget of the AG's Office
The Committee considered its annual report and made amendments to it.

Deliberations on the remuneration of the AG
The discussion on this item was held behind closed doors.

The meeting was adjourned.