Auditor General Annual Report 2005/06
Annual Report of Auditor General
17 November 2006
A summary of this committee meeting is not yet available.
AUDITOR GENERAL STANDING COMMITTEE
17 November 2006
AUDITOR GENERAL ANNUAL REPORT 2005/06
Chairperson: Ms B Hogan (ANC)
Documents handed out:
Annual Report of Office of the Auditor General (available at www.agsa.co.za)
Budget and Strategic Plan 2007-10
The Committee discussed the Annual Report of the Office of the Auditor General. No presentation was made by the Auditor General. The Chairperson thanked the outgoing Auditor General for the work he had done during his term of office. She also congratulated Mr Terrence Nombembe for his appointment as the Auditor General. The Committee plan to discuss the Budget and Strategic Plan next year.
Members raised a number of issues that included the following:
- What was the role of the outside advisory board. It was important to understand its role especially given that there was also an external audit committee.
- The late submission of accounts by provincial departments affected the ability of the Auditor General to conduct audits on time.
- It was worrying that there was no performance information. What was the basis of the President's report if there was no performance information? It was the Auditor General 's duty to report that there was no performance information.
- The Office had a deficit of R20 million and it was quite clear why the Office had such a deficit. There had to be a meeting with this Committee on the deficit.
- The Committee was told that people with B.Com degrees were not available in the market and thus it was concerned that the Office might be too optimistic about its 2007 recruitment policy. There was also the possibility of poaching of staff from the Office and this had some financial implications.
The Chairperson welcomed the delegation from the Office of the Auditor General (OAG). Mr Shauket Fakie (AG), Mr Terrence Nombembe (Deputy AG) and Mr P Bhana (International Auditing) attended the meeting. The Chairperson thanked the outgoing AG for the job well done. The Committee was sorry to see him go but was at the same time grateful that he had built up a successor in Mr Nombembe. The Chairperson also congratulated Mr Nombembe for his appointment and wished him well during his tenure as the AG.
Mr Fakie thanked the Committee for the working relationship that it had had with him. The work of the OAG was dependent on the commitment that it got from Members of Parliament.
The Chairperson said that there was the issue of the fine-tuning of the Public Audit Act and its impact on how the Committee conducted its oversight function. There was also the issue of the approval of the annual tariff. The Committee was responsible for approving the tariff and this should be done before the budget was presented to the Committee. She appreciated that the OAG was engaging with its external auditors and the profession on this.
Mr Nombembe said that the Office would like the interaction with firms to happen not later than June each year so that the Office would know that it had taken care of everything by the time it finalised the Strategic Plan and table the budget in September. This was based on the meeting he had attended with the Public Sector Committee of the South African Institute of Chartered Accountants. On the issue of how to deal with the interim, he said that it had been agreed that the rates should be finalised by the end of March 2006. The OAG had thought it could use the opportunity of tabling the regulations that the AG had to table as a manner of formalising the tariffs. This was because the Office had missed the opportunity of incorporating them into the Strategic Plan. The intention was to table regulations by the end of March each year and the regulations would contain the standards in terms of the AG would conduct audits.
He said that there were two issues to be considered in relation to rates. The first was to stick to the current formula and the second option was to come up with a new formula. The new formula would depend on the speed with which research was conducted to confirm whether or not the method and assumptions used to define the rates were appropriate. It had been agreed that participation on the conclusion of the rates should be extended to the OAG, the Public Sector Committee of SAICA and representatives of this Committee of Parliament.
The Chairperson said that the Committee would have to discuss the issues raised by Mr Nombembe. It was too early to pre-empt the findings of the research. It would be preferable to stick to the current formula for the time being.
Dr G Woods (NADECO) said that the Committee was still trying to conceptualise its oversight role. It would have to understand more about the audit committee and the advisory board. The OAG had discussed and consulted the advisory board on a number of issues. He asked what was the nature of the discussions with the board. He was a bit puzzled as to why the Office would need the services of an outside advisory board. What value was the AG getting out of the discussions?
Mr L Johnson (ANC) asked what was the role of the advisory board. An advisory board was usually appointed to do a specific task. It was important to understand its role especially given that there was also an external audit committee.
Mr Fakie replied that the AG had right to appoint an advisory board in terms of the Public Audit Act. This right or privilege came about when the Act was being crafted and the Office was trying to establish best a practice model for a board of the OAG. The board would take far more fiduciary duties than the old audit commission took. It should have built some kind of expertise that would be brought in to guide the OAG. With the current provision of the Public Audit Act where there was an oversight Committee without any external member, it was felt that the Office would lose some of the benefits that came from outside if it did not have the board. There were terms of reference of the Advisory Board. It was purely an advisory board and anything more than an advisory board would have constitutional implications for the OAG. The AG had enormous amount of decision-making powers and it was always good to get some advice so that the AG could take the right decisions. The Board gave advice to the AG and it was up to the AG to decide whether or not to take the advice. The board covered the critical areas in the Office where the AG was ultimately accountable and had to make decisions. It was not involved at the operational matters of the Office. The Board would like to meet with the Committee in order to clarify its role.
The Chairperson said it would be very useful to have all the oversight body under one roof in a workshop. There were questions that the Committee would like to ask about the advisory board. Would there be no conflict of interests if someone was a member of the board and also a chairperson of a parastatal.
Mr E Trent (DA) asked who were the people who sat on the internal audit committee.
The Chairperson replied that members of the internal audit committee were listed in the annual report. It would be useful to have the profiles of those people.
Mr Trent said that the report indicated that "where weaknesses have been identified and controls are not working as intended, the Auditor-General had committed itself to taking corrective action". It did not specify the issues involved. The report of the external auditors was clean and had no mention of matters of emphasis. He asked what were the issues that were of concern to the internal auditors.
The Chairperson replied that it was not the internal auditors but the audit committee. The audit committee normally reported to the Board of Directors. There was at the moment no situation where there was such communication. The Act was strange in that it said that the audit committee could raise its concerns on matters of importance. The Audit Committee had not raised its concerns. There was nothing that should concern this Committee at the moment.
Mr S Simmons (UPSA) said that the report indicated that “the Audit Committee has evaluated the annual report for the year ended 31 March 2006 and believes that it complies, in all material respects, with the requirements of the Public Audit Act and International Financial Reporting Standards unless otherwise indicated”. He was of the view that this statement indicated that the OAG never had any real problems that they wanted to indicate to the Committee.
Mr Fakie said that Mr Simmons had made reference to an appropriate paragraph. The OAG was of the view that the audit committee had the responsibility of dealing with the internal auditors and also to look at the report of the external auditors. The audit committee had clearly looked at everything. There were only internal housekeeping problems to deal with but nothing significant to lead to an adverse audit opinion.
Dr Woods said that there was a strong emphasis on performance. It was a bit frustrating that the report was an activity report and was also statistical. It was very limited on how the Office had performed different things. There was limited reference to targets. The budget and the strategic plan had gone into details on how the AG would measure performance. He asked if the Committee would see something evolving that would enable it to say what were the qualitative aspects of work done and how the AG had fared on them. The AG should look at broader activities especially outcomes.
Mr Nombembe replied that this was the most difficult annual report to write because it was not premised on what had been measured and audited. The report was a transition into a new reporting framework. There was an attempt to outline the activities done rather than to report against any predetermined objectives. The Office had tried to ensure that readers understood what had happened in the Office. The Strategic plan that was presented last month would be the basis of reporting moving forward. The strategic plan had clearly defined measures.
Mr Fakie said it would be important, when dealing with the strategic plan and the budget, to cover the kind of qualitative aspects, output and outcomes that the Committee would like to see. One needed processes and systems in the Office to be able to track these things. It would be very helpful to get the Committee's input into the matter.
Mr Trent said that the performance report reflected the actual performance against the allocated resources. He had a concern in relation to regularity audits due to the late submission of account by provincial departments. This affected the ability of the AG to conduct the audits on time. There was also the issue of pre-issuance where they were given an opportunity to fix things and this cost additional resources. He asked the AG to comment on this bearing in mind that he had once said that this would no longer be done.
Mr Fakie replied that the pre-issuance review had something to deal with quality control within the Office and nothing to do with the lateness of the submission of the financial statements. The process had delayed the Office in finalising audit reports and had additional cost implications. The AG was trying to bring in early warning signals rather than waiting until it was ready to sign the reports only to find that there were quality issues.
Mr Nombembe replied that the lateness of the statements would be minimised in future. This year the AG did not experience a high level of lateness in submitting the statements. This occurred at the time when the approach gave departments time to do what was required by the auditing standards in order to avoid a qualification. Auditing standards required an auditor to audit as much as one could possibly audit in order to avoid a qualification. The OAG had raised the issue with the then Public Accountants and Auditors Board to say how the AG should interpret the requirement in the auditing standards. The requirement was premised on an environment where there was no legislated deadline for reporting. The advice given was to have a cut off period in terms of which all information should be available in order to close the audit process. Last year there was a cut off date of July 15.
The Chairperson said that the Public Finance Management Act (PFMA) reporting time lines given in the report were for the year 2004/05. She asked if there was any reason why there were no time lines for the year 2005/06.
Mr Nombembe replied that the timing of the report was at the time when the AG had not yet finished the PFMA audits. The AG had the information but it might be incomplete.
The Chairperson said it was important to have such information even if it was clearly indicated that it was interim information or results.
Mr Fakie said that there should also be some engagement with the external auditors on this because they were required to audit all information made available.
Dr Woods asked for clarity on figure 2: Graph on annual quality control results. He asked if Figure 2 dealt with quality control results issued by the IRBA. The "Excellent" had more than doubled in that it went from 32% to 72%. This was a remarkable achievement. He referred the Committee to Table 6: Key issues per sector. The table seemed to say that financial management was better at the municipal level that at the provincial and national levels of governance.
Mr Trent supplemented the question in relation to Table 6 by saying that the results looked good. He was interested in the quantum in terms of the size of the local authorities. He asked if the poor authorities were just the small ones and whether they included the big metros.
Mr Nombembe replied that the graph on quality control results was a true reflection of the situation. This was supported by the statement made by the AG in relation to the pre-issuance review which was a step introduced as required by the International Federation of Accountants. All key accounts had to be review by a second independent partner before they could be signed.
He said that reference to local authorities was limited to top 50 local authorities which were the high capacity local authorities. Those authorities had to account in terms of the Generally Recognised Accounting Standards. Low and medium capacity local authorities were not covered under the table. The AG was working on management information in order to bring those municipalities into the picture. The reason for not bringing them on board was the lateness in submitting financial statements but improvement was being made. It was hoped that the AG would be able to report on all local authorities in the near future. The top 50 municipalities were high capacity municipalities and some of them had better financial management capacity that some of the provincial departments.
Mr Fakie replied that the final output was a better quality control process. There was a need to bring in some kind of internal mechanisms and processes because one was not measuring the kind of pre-issuance reviews that came through. The pre-issuance review would tell the auditor that a poor job had been done and that there should be some remedial action taken so that one could get a good report. This was fine from an output point of view but one had to deal with the process of the pre-issuance telling that something was not right. Sufficient emphasis had not been put on this but things would change going forward. One also had to deal with the performance of individuals in cases where the pre-issuance review had indicated that there would be a poor report. People should take their jobs more seriously.
He said that one had to understand that, for national and provincial departments, Treasury had been very instrumental in raising the bar in relation to disclosure requirements. Municipal guidance was only beginning to come through now. As time goes on an external auditor might find that the current year audit reports reflected a serious deterioration in terms of financial management. This would be because there had been additional requirements placed by Treasury. Table 6 should be read in the context that the Municipal Finance Management Act (MFMA) had just come into operation and that Treasury was beginning to impose additional guidelines and requirements in terms of accounting standards. Auditors would begin to pick up more issues as they audited in terms of the new standards.
Mr Trent focussed on audit development within the regularity auditing environment. He noted that the report provided that the following areas were being gradually implemented: the auditing of performance information, and reporting on financial management through the identification of root causes. He quoted that AG as having said "it is my considered opinion to maintain resources for performance audit at the current 7% for the 2006/07 financial year". There was some kind of contradiction if the OAG was gradually rolling out while the budget was not reflecting a slight increase.
Mr Nombembe replied that one was dealing with the audit of service delivery. Perhaps there was a need to look at different terminology for this audit area. One was looking at introducing the audit of service delivery promises made in the annual reports of departments. Performance auditing was concerned with identifying areas of relevance and saying how money had been spent.
Mr Fakie added that there was a lot of confusion even within his office. There was the auditing of performance information and performance auditing. The two were different issues. The auditing of performance information was like auditing a set of financial statements but the Department provided the performance information. The auditor had to give an opinion on whether the performance information was fair. The provision on performance information auditing had been delayed and departments had to report of their performance. Performance auditing was the three E (Economy, Effectiveness and Efficiency) and auditing. The OAG was committing at least 7% to performance auditing.
Mr Trent said that the AG had in the annual report indicated that there were instances wherein he could not conduct performance audit because there was no performance information.
The Chairperson was worried that there was no performance information. What was the basis of the President's report if there was no performance information? It was the AG's duty to report that there was no performance information.
Mr Trent said it was interesting to note that many of the provincial departments had the capacity to conduct performance audit because this was important. Some of the performance audit should be done at the provincial level. The annual report did not indicate which provinces had the necessary capacity and what the Office would do to ensure that all provinces could do performance audit.
The Chairperson referred the Committee to Regularity audit-Key reporting categories. The AG produced useful reports: Local Government report 2003/04, National General Report 2004/05 and Provincial General Report 2003/04. She asked why there was a discrepancy in reporting years. The answer to this question could help in answering Mr Trent's question on which provinces were behind in relation to conducting performance audits.
Mr Nombembe replied that the pace of the submission of information particularly from the local government could have given rise to the differential reporting timelines. The capacity in the OAG to collate the necessary information also contributed. The OAG should be able to streamline the reports such that it would be able to produce the general reports within the prescribed timelines. The conclusion of the audits for provincial and national governments would happen by the end of July 2007. The key outcomes of the reports should be consolidated by the end of September. The better part of October could be used to present the reports to stakeholders. There would be a different timeline for local authorities due to their year-end which was June as opposed to March.
Mr Fakie added that the general report was a summary of individual reports and there was no timeline in any piece of legislation for the general report. The OAG was aware that stakeholders would require the information much sooner but the OAG had to ensure that the information presented in that report was properly vetted and credible. The Office had been extremely hesitant to put interim information in the public. The provincial general report was difficult to deal with because one had to collate information from all nine provinces. There might be some improvement in relation to local government now that the MFMA was in place. The Office could only do an analysis of 23 out of the top 50 municipalities.
Mr Johnson said that the Strategic Plan referred to a tracking mechanism for audits. He asked if the mechanism was being shared with the audited institution.
Mr Nombembe replied that the mechanism was mainly an internal tool introduced so that the Office could easily track the auditing process. It was not shared with other institutions because it was mainly an internal tool.
The Chairperson referred the Committee to Table 9 of the report. She noted that an audit report for Free State: Health was issued in October 2004 but only tabled in April 2005. The report on Free State: Education was issued in October 2004 but only tabled in January 2006. There were very lengthy gaps between the issuing and tabling of reports. She asked if the reports had been dealt with in SCOPA.
Mr Nombembe replied that some of the information was delayed and he could not give the reasons for the delays. The annual report mainly indicated that what was issued was also tabled. Reports that were not tabled were reports done purely for management reasons or at the management's request.
The Chairperson said that the management could request an audit because they wanted to correct something. The OAG was an instrument of the legislature. The question was how to deal with the anomaly. What guided the principle on what would be tabled in the house?
Mr Fakie replied that the OAG had been grappling with this issue. On the one hand one was dealing with requests from management and they had the right to go to any firm and request them to conduct an audit. Ideally, the OAG wanted to be informed about that. The Office had an interest in the matter whether the investigation was conducted by it or by an outside firm. It was made very clear that the OAG had the right to report on anything significant that came from any investigation without including the details. Departments were also encouraged to use the services of the AG even if they required an internal management report.
Dr Woods asked how this approach was not in conflict with international developments to separate management consultancy from external auditors because of the potential conflict of interest.
Mr Fakie said that the reports referred to were investigative and not consultative in nature. The AG would not be involved should a department say that it had some problems in its information technology system and ask the AG to come and review it and thereafter make some recommendations on how to fix it. The AG would be involved should there be allegations of some impropriety in procurement processes because this was an extension of what the Office would normally do.
Mr Nombembe added that the Public Audit Act had a provision that allowed the Office to do what was called value added services. There was a guideline on how this should be done. Whatever the AG did had to be auditing in nature.
The Chairperson said that table 10 indicated that a special investigation comprised an objective assessment of the measures instituted to prevent and detect economic crimes. How did this differ from forensic audit? What was the definition of a forensic audit? The AG was often called to do what she had thought to be a forensic audit that would be done in commercial firms.
Mr Nombembe replied that there was a guideline issued to respond to the issues raised by the Chairperson. There was extensive consultation on the guideline with the Audit Commission precisely because of those complexities. It provided a clear position on what the angle or scope should be in cases where the AG was involved in work of an investigative nature. The OAG was certainly not an expert in everything that had to do with investigations. The guideline had defined the approach to looking at matters of procedures and systems. Such work had a natural flow into what was done by other agencies.
Mr Fakie said that members would have noticed that the vocabulary of forensic audits had been taken out of the report and reference was made to special investigations. An impression was created that the AG conducted forensic audits. The Office did not have the legal backing to do forensic audits. The Office had also taken a decision to be more proactive in preventing and detecting economic crimes. This was done by highlighting issues that could lead to the incidence of corruption or fraud. The PFMA required every department to have a fraud prevention plan.
Mr Johnson asked what did the law provide in relation to the issuing and tabling of the reports. The Free State was struggling in this regard.
Mr Fakie replied that the law that was being used now was the Public Audit Act. There was an acceptance that the AG might need to get involved in doing some kind of investigation wherein a purely management report could be issued and that the actual report need not be tabled. However, some mechanism should be in place to inform Parliament about what had happened. Tables 9 and 10 were informing Parliament of what had happened. There was a provision in the Act that provided that the AG would table the report should an entity not tabled its reporting within a reasonable period. There were guidelines on what would constitute a reasonable period.
The Chairperson said that section 21(3) of the Public Audit Act provided that "audit reports must be tabled in the relevant legislature in accordance with any applicable legislation or otherwise within a reasonable time. If an audit report is not tabled in a legislature within one month after its first sitting after the report has been submitted by the Auditor-General, the Auditor-General must promptly publish the report." She asked what was the guideline.
Mr Nombembe replied that section 21(3) referred to the mandatory audits that had to be tabled in Parliament.
The Chairperson said that the section simply referred to audit reports.
Mr Nombembe replied that earlier paragraphs of the sections referred to mandatory reports.
Mr Fakie referred the Committee to section 21(2). Subsection (3) made reference to tabling within reasonable time. The guideline referred to a period of about nine months.
The Chairperson said that the AG should give the Committee a document that spelt how it saw its position on this.
Mr Trent said that subsection 1 referred to any legislation applicable to the auditee. He asked if the Public Audit Act was not an applicable legislation. This Act gave the AG the power to conduct special audits.
Mr Fakie said that the question was not about conducting the audits but about the reporting timelines.
The Chairperson said that it seemed that there were no timelines between the issuing and tabling of the reports. It also seemed that there were no timelines in relation to the tabling of the report in Parliament. The Committee should have a look at the guidelines from the AG. The AG had extensive engagement with the Audit Commission on special investigations and forensic investigations. The Committee should be fully on board on the difference between the two and the status on the management report.
Mr Nombembe said that section 21 should be read together with section 5. The whole of Chapter 2 Part 1 could clarify a lot of the Committee's concerns.
Mr Trent said that "people activities" looked like "employee wellness".
The Chairperson said that the two were different. People activities included all issues related to human resources.
Mr Trent noted that the budget for professional assistance had increased from R21 million to R24 million. This investment was directed at trainee accountants and other employees who studied part time or full time. Bursaries could only be awarded if participants had passed the previous year. A lower-than-expected pass rate was achieved in 2004-05, resulting in fewer bursaries being awarded in 2005-06. However, study loans were available to improve the academic qualifications of those who did not qualify for bursaries. He asked if there had been a drop or improved in the pass rate. The Committee had been told that there was a shortage of BCom students at universities because a lot of effort was put on the sciences. There was a need to have a stock of auditors coming through universities. He referred to the cost of professional assistance in table 12 of the report. There was no percentages relating to innovation and learning development projects. Table 12 referred to "the skills development levy which the Office managed to recover from the Seta for Finance, Accounting, Management Consulting and other Financial Services". He asked if the Office was struggling to get money from them. He also asked if there was any particular reason why the Office was struggling to get money from the Seta if it was indeed struggling.
Mr Nombembe replied that getting the money from the Setas was not a major struggle. The wording used in the report might give the impression that it was a major struggle to get the money. He was hesitant to answer the question on the reporting on the pass rate and bursaries purely because this information had been elevated in the Strategic Plan on which the Office would report next year. The information was elevated beyond the current details. The Strategic Plan focused more on the final level.
Mr Trent said that the Office was simply not satisfied with the pass rate. He was not saying that this was a failure. The issue was whether there was a drop in the pass rate and whether there was a solution to the problem.
The Chairperson said this was one issue that should be discussed during the strategic planning workshop and in ongoing engagements with the AG.
Mr Nombembe replied that the pass rate over the years had been on par with that seen in financial institutions. The AG was not happy with the pass rates because it hovered around 30% and below. Given the kind of support that the Office gave, there should a much more elevated target against which the Office could measure itself.
Mr Trent said that the Office relied on quite a number of trainee accountants as its workforce. There might be in problems in relation to the rate following the changes in the way the Office operated.
Mr Nombembe replied that there had not been a change in the pass rate due to the unaccommodating PMFA and MFMA environment. There would be some slight changes because students who were writing board examinations were paid at a higher rate.
The Chairperson asked why trainee accountants were excluded from the staff turnover.
Mr Nombembe replied that they were excluded because their terms of employment were different from other staff. Trainee accountants were with the Office for a limited three-year term and not all of them were accommodated once they had completed their training. Some of them were forced to go out into the market to fulfil other employment gaps. This was one reason why the emphasis was to have them come out of the Office as qualified people.
The Chairperson referred to corporate services restructuring and said that it was not the Committee's business to enquire how the Office had restructured. It was very evident in previous budget that the amount allocated to restructuring had a serious impact on the budget. The report as it stood gave little indication on progress made and what were the objectives and performance indicators. The report was very poor in this regard.
Mr Nombembe replied that the reporting on corporate restructuring should be looked at in two forms. The first was the Office was performing on the transition that had been tabled to the Ad Hoc Committee. It was said that the transition should take about two years to implement and the period would expire in November 2007. This was meant to allow an opportunity for the Office to settle down and get all the initiatives that would assist corporate services to operate efficiently. The second issue was the efficiencies and benefits that the Office was getting out of the corporate services even within the transition. The reporting framework could be designed along these categories.
The Chairperson said that the Office should give a proposal and examples on how it would report. Leadership effectiveness had been identified as one of the major issues affecting the Office. There was a pilot project involving nine business units underway. The Committee did not have a good grasp about what the pilot was all about. She was hesitant to get involved because this was a management issue but thought that the Committee should be updated on the implementation of the project since it was a key strategic issue. The Office had given a report in the previous annual report on stakeholder satisfaction and reputation index. It was agreed that there were anomalies and the Office had indicated that it would look at an overall framework for introducing a much more coherent strategy and procedure for measuring stakeholder satisfaction. She asked for a progress report on this. One of the constitutional obligations was to protect the Office and ensure that its dignity was maintained. The stakeholder reputation index was incredibly important to the Committee.
Mr Nombembe replied that the issues raised by the Chairperson were covered in the Strategic Plan on which the Office would report next year. A lot of progress had been made. There was action taking place to assess the leadership gaps within the leadership ranks in the Office. The team dealing with this issue had indicated that it had actually exceeded the targets. The report should be available before the end of March. The Office had also received a report on reputation index in the past two weeks. The Office would give feedback on how it was progressing with corporate restructuring. It had not been able to meet most of the milestones in relation to this and was setting some tactics and plans to recover from the setback. The Office had said that it would have clearly defined its management information template by March 2006 so that it would know what it would be reporting on. It was still grappling with this exercise. It had also said that it should also have some quality criteria to confirm that the information that came from corporate service was credible and could be used for proper decision making. This process was completed way beyond March 2006. Another issue was the establishment of clear benchmarks by which the Office could confirm that the information that it had was comparable to other best practices. The processes would be influenced by the speed with which vacancies in corporate services were filled.
The Chairperson said that she had found herself in a quandary when dealing with the financial statements. There was an actual deficit of R20 million and it was quite clear why the Office had such a deficit. The issue of how the Audit Committee had interrogated this issue was problematic. There should be a discussion on the deficit. She asked the Office to brief the Committee on the deficit. The retention of the surplus had changed in terms of the Public Audit Act.
Mr Nombembe replied that the reason for the deficit was that this was the last set of financial statements that the Office had presented on the assumption of 100% occupancy. This situation should not occur for 2005/07 because the Office had budgeted on the basis of a less than 100% occupancy. The major driver of the deficit was a situation where the Office could not fill all budgeted posts. This had the effect of translating this to revenue that was earned but without any margins on top of it. Over and above this there were additional expenses that dragged the situation to the R20 million deficit.
He said that there was no surplus in 2005 and that there was a deficit in 2006. The surplus was related to 2004. The Office was still struggling to get a date with Treasury to resolve this matter. The Office should have a basis on which the application would be evaluated by the Minister.
The Chairperson said that the Act no longer required the approval of the Minister. There was only a need for a retrospective approval.
Mr Nombembe said that the retention of the surplus should be formalised.
The Chairperson said that the process had been going on for some time. She could not understand how the two parties could not resolve the matter.
Mr Fakie advised that a letter should be written to Treasury to inform them that the Office had a surplus for 2004 and would like to retain it for certain reasons.
The Chairperson said that had it transpired during the Committee's discussions with the IRBA that it was difficult to recruit trained staff. The Committee was told that people with B. Com degrees were not available in the market. The Office might be very optimistic with its 2007 recruitment policy. There was also the poaching of staff from the Office and this had some financial implications. She hoped that the Office had looked at how to deal with this. She appreciated the way the Office was responding to the situation but it seemed that it was difficult to get above water.
Mr Fakie said that there were two other issues that had to be factored in. One was related to the discussion conducted when the budget document 2007-2010 was presented to the Committee. The issue was how much contracting out was optimal and how much work should be done internally. One could get an ideal situation but still not be able to deal with the real situation. The Office had been overly optimistic in saying that everyone should have a minimum qualification as part of making the Office professional. Managers were saying that they were having difficulties in filling vacancies and getting people with the minimum qualification. They could get people who could do the job but the problem was that they did not have the minimum qualifications. There was a need to have another look at this issue without compromising service delivery.
The Chairperson said that there would have to be some flexibility around the minimum qualification framework.
The Chairperson said that the Committee would meet on the Strategic Plan some time in January 2007. She asked the Office to brief the Committee on the process of appointing the Deputy AG. The Committee did not want to put criteria on who would be the appropriate person since this would constitute interference.
Mr Nombembe replied that the process of recruiting had started. The process had two stages: identifying a firm that would help with the co-ordination of recruitment. The process had to be objective and confidential as much as possible. The process should be complete by the end of this month. The second stage was advertising the post and the closing date would be the end of January 2007. The Deputy AG should take the seat by the end of May 2007.
The Chairperson asked if there would be an acting Deputy AG.
Mr Nombembe said that he was still thinking about the issue.
Mr Trent asked if having an acting Deputy AG would not create expectations.
The Chairperson said that it was important to have somebody to assist the AG. The Committee would be worried to go into a number of months without a Deputy AG.
Mr Nombembe said that he would assess the situation and brief the Committee at a later stage.
The meeting was adjourned.
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