Auditor General?s Guideline on Fees: Approval. Corporate Services Restructuring, Training on Audit Standards & Committee?s Overs

STANDING COMMITTEE ON AUDITOR GENERAL (SCOAG)
30 March 2007
AUDITOR GENERAL’S GUIDELINE ON FEES: APPROVAL. CORPORATE SERVICES RESTRUCTURING, TRAINING ON AUDIT STANDARDS & COMMITTEE’S OVERSIGHT FUNCTION: DISCUSSIONS

Chairperson: Ms B Hogan (ANC)

Documents handed out:
Public Audit Act, No 25 of 2004
Information on Corporate Services Restructuring
Introductory Statement by Auditor General on Guidelines on Fees
Guideline on Fees for Audits done on behalf of Auditor General
Letter from National Treasury to Auditor General on Guideline on Fees for Audits
Committee’s Report on Guideline on Fees
Committee programme

Audio Recording of the Meeting

SUMMARY
The Auditor General briefed the Committee on the new Guideline on Fees, derived from Section 23(1) of the Public Audit Act, which was an approved tariff for private accounting and auditing firms undertaking work on behalf of the AG. The tariffs were fixed after consultation with the oversight mechanism, the Accountant General, National Treasury and the Tariff Committee. All increases were based on research. The Institute of Chartered Accountants had indicated their approval. The tariffs, which would apply from 1 April 2007, were based on a flat 4% increase. The request by the Institute of Chartered Accountants to add a further top-line tariff was not approved at this stage. Questions by Members related to the budget, and the scope of the audits. The revised Guidelines were approved.

The Committee discussed the need to undertaken training, which would be offered by the Auditor General, on auditing standards, in order to be kept fully up to date on audit standards and appropriate complaint procedures. A date was set for 11 April. Clarification was given about the capability model. It was noted that a meeting would be held on 18 April to discuss audit issues from parliamentary committees and committees on public accounts.

The Committee briefly discussed how Corporate Services functioned, in preparation for hearings on the restructuring model. It was noted that corporate services would take peripheral functions to free up the core business unit for the main job of auditing. It was noted that the Committee needed to set out a framework to evaluate performance by the Auditor Genera and the scope of oversight was discussed. A reporting mechanism must be set.

The Business plan was tabled and approved.

MINUTES
New Audit Tariffs: Briefing by Auditor General
Ms B Hogan (ANC) noted that the National Treasury had concurred with the 4% increase in charge out rate, and supported the proposal for a comprehensive research project, provided that National Treasury was consulted.

Mr Pramesh Bhana, Business Executive, Auditor General, briefed the Committee by videoconference on the draft circular containing the Guideline on Fees. This was derived from section 23(1) of the Public Audit Act. There was a requirement that the Auditor General (AG), on an annual basis, must approve tariffs for private firms that worked on behalf of the AG. This was normally done after consultation with the oversight mechanism. National Treasury confirmed that it was satisfied with the government circular, giving a 4% increase on previous tariffs. He said that the tariff was based on a calculation of each salary scale from 206 to 2007, with an addition of 4%. The 4% followed the AG’s capping of his own tariffs, which was contained in the strategic plan of the AG for the period 2007to 2010.

Mr Bhana noted that the increase was based on research. He emphasised that there could be no change to the budgetary assumption unless extensive research was done. The AG was in a process of discussion with the Accountant General, and all consultations would include the AG, National Treasury and the Tariff Committee. He further said that the Committee could be given the research in order to be kept fully apprised of the expectations. The South African Institute of Chartered Accountants (SAICA) had also indicated satisfaction with the 4% increase. The tariffs would be in effect from 1 April 2007. Proposals from SAICA had been made to add a new top-end scale for senior managers, but this was not considered appropriate at this time as the AG felt that only the 4% increase should be implemented, but that it could be reviewed after the comprehensive research project, which would have a broader sample of data. The guideline would be published as a SAICA circular once approved by the Auditor General, and this approval would follow the views expressed by National Treasury and this Committee.

Discussion
Mr G Woods (NADEC) said that he was concerned with what the National Treasury had in its budget for audit fees and what escalation was built into the budget. He also enquired whether there would be a surplus this year as had happened in the past.

Mr Bhana replied that on the first issue, the National Treasury had its own budget, that it had agreed to the rate and that there were no discrepancies to what had been budgeted. With regard to the surplus, he said that because there were no changes to the budget assumption, the budget stayed the same.

Mr Woods wanted to know what the scope of the audit was for this year.

Ms Hogan asked whether what had been included in the budget was a regularity audit or whether it included performance information as well.

Mr Woods clarified that he was concerned with changes to the scope of the audit

Ms Hogan replied that the Committee had not yet determined the nature and scope of the audit.

Mr Bhana responded that Departments should negotiate their own regulations in respect of audit work in their departments.

Ms Hogan emphasized that this meeting was concerned with the tariff increase.

Members agreed that the Guideline on Fees for audits done on behalf of the Auditor General should be approved.

The Auditor General’s office would determine the terms of the report and would send it as a research proposal to the Committee.

Training on Audit Standards
Ms Hogan advised the Committee that she had a meeting with members of Corporate Support Services, who had a good overview of what the Office of the Auditor General was doing, its plans, its office commitments were and what it wanted to achieve. The work plan stated the statutory and constitutional obligations. She said that the Committee had covered the strategic planning workshop but that it had not covered the training on audit standards. She emphasised that the committee needed to look at ways to protect the dignity and independence of the office of the AG, and to make recommendations. It thus needed to be fully aware of what the audit standards were, the appropriate complaint procedures, and to undertake training in these.

Discussion
Mr E W Trent (DA) asked whether the training could take place outside hours of parliament.

Ms Hogan was aware that members were busy with constituencies. It was agreed that 11 April be scheduled for training. .

Mr R Mahlaba (ANC) asked who would be involved in the training

Ms Hogan said that components of the AG office would give the training. She stated further that the Committee was not aware of the audit standards. She said it was vital to know what the AG’s job was and how it was performed. The auditing process must be outlined. Other issues of quality control, and the kind of quality of product produced were important, and this must be tied in with the Committee’s job to monitor and engage in quality control and assessment.

Mr Trent asked about the capability model

Ms Hogan clarified the capability model for the new Members. She said that the AG had a model for looking at each government department’s financial capabilities in terms of phases. For instance, the first phase would deal with basic bookkeeping. She asked whether Members were interested in basic training in auditing, which would not cover the technical aspects of the auditing work, but would look at how the financial audit was undertaken.

Mr Woods said that the function of the Committee was to have working knowledge to fulfill their mandate

Ms Hogan said that committees on public accounts had been set up at local government level, but that they were not given training so that members did not know how to perform their functions. Senior Executive Managers were meeting on 18 April to discuss the AG’s office, and they would address the kind of auditing arising from SCOPA and Committees.

Preparation for hearings on the Corporate Service Restructuring Model
Mr Woods asked how the Corporate Services functioned

Ms Hogan said that the AG embarked on the Corporate Services Restructuring programme in 2005. Corporate Services gave a back up to the core business functions such as human resources, legal, financial, and strategic services, so that core business unit was released to do the main job of auditing. She further stated that the Committee’s interest lay in the progress in corporate services and how any lack of progress impacted on the core business.

Ms Hogan further stated that the Committee must set out a framework to evaluate how the AG was performing.

Mr Trent asked what the purpose of an audit was.

Ms Hogan said that the Committee must exercise oversight and so the AG had to report to the Committee on how he and his office were performing their jobs. It was necessary for the Committee to determine what tools should be used to evaluate what he did. She said that the budget was missing a template of reporting. She emphasised that this Committee had to report to parliament on the progress of the AG and that he in turn must report on overall control functions.

Mr Woods was uncertain about the reports

Ms Hogan stated that the Annual Report would cover the activities of the office and was an evaluation of criteria of performance. She said that the Committee’s concern was with how the AG was reporting and what he was doing. The Annual Report looked at primary focus areas, mainly auditing, and the quality of the audits. The measuring of quality was important and she said that the target was excellent performance. Evaluation should be done on a consistent basis.

The audit report was concerned with information management. There was a need to establish what information the Committee should have how the information was to be presented to the Committee. She stated that parliament, when it exercised oversight, could not tell the AG how to perform. It was in the interest of both parties to reach agreement. There must be a negotiations process to determine frameworks for reporting and evaluation

Mr Woods agreed that coherence and sufficiency were required.

Ms Hogan said that she would schedule a meeting with the AG for a report mechanism

Mr Woods asked where complaints came from

Ms Hogan answered that they came from the public, departments and staff. The sub Committee was to report to the full Committee on the complaints procedure and she noted that if complaints were lodged with the Committee, it would be useful to have an independent standard for complaints being lodged by MPs of any party. This would protect everyone.

Ms Hogan further stated that the Committee needed to review the nature and scope of the audits of the Auditor General in order to comment upon them, and therefore needed to meet also with the Standing Committee on Public Accounts (SCOPA) to get feedback.

Ms Hogan summarised that the Committee wanted a proposed framework for corporate services restructuring and related issues, and needed to measure stakeholder satisfaction in the progress report. The Committee would need to hear about Project Management and the Progress model, and would like a comprehensive model that explained everything about the manner in which the AG functioned.

SCOAG Business Plan 2007
Ms Hogan tabled the Business Plan, with amendments, noting a training workshop on 11 May. She noted that the Committee must reconvene for the complaints mechanism.

The meeting was adjourned