Auditor-General on Audit Outcomes for 2006/07
Public Accounts (SCOPA)
26 October 2007
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)26 October 2007
AUDITOR-GENERAL ON AUDIT OUTCOMES FOR 2006/07
Chairperson: Mr T Godi (APC)
Documents handed out
National & Provincial Departments: 2006/07 Audit Outcomes [mid-November at www.agsa.co.za]
Presentation on National and Provincial Departments: 2006/07 Audit Outcomes
Audio recording of meeting
SUMMARY
The Auditor-General first engaged with all the parliamentary committee chairpersons on his findings based on the audit outcomes for National and Provincial Departments for 2006/07. He then engaged with SCOPA alone.
The Auditor-General commented on what to expect from the departmental audit reports and offered solutions with regard to a variety of issues. The main purpose was how to get departments to achieve unqualified audit reports.
Issues that arose were the problems faced in the transition from cash accounting to accrual accounting, vacancies with management positions, last minute adjustments to reports and the lack of information with regard to expenditure.
The Auditor-General also highlighted the improvements within the National and Provincial spheres with regard to unqualified reports.
MINUTES
The Chairperson said that the presentation would focus on strategic elements of the Auditor-General’s report and parliamentary committees should use the Auditor-General’s report as a tool for oversight. This would help the Chairpersons of each committee to engage with the issues affecting the department that they had to oversee. The Chairperson said that Parliament had focused on the overhaul of Apartheid laws for the past ten years and that the focus would now be on the abilities and actions of the different departments.
The Chairperson said that the political consensus was that it was imperative for Parliament to position itself appropriately with regards to executing its constitutional mandate on oversight. The Auditor General’s report would serve as a critical instrument for any committee within Parliament in terms of its oversight mandate. The Auditor-General would present the overall findings on the audit outcomes. The final analysis and the goal of the presentation would be to elevate key issues within the committees and departments so that members could integrate issues in to their oversight program.
The Auditor-General, Mr Terence Nombembe, discussed audit outcomes. Their discussions would be to achieve a certain purpose: how departments could achieve unqualified audit reports. He said that audit reports would be distributed in November and this would enable departments to work towards their goals.
Mr Nombembe said that the information was structured in three parts. They had combined the National and Provincial information so that there would be an overall view of two spheres of government. It was classified into three main areas.
The first section is the Audit Opinions that were given for each department. This section gave the final conclusion of the results of the audit reports. The second section points out the factors that have given rise to the conclusions that were arrived at in the report. The last section analyses the underlying factors that were recognized. This is where most of the discussion would take place. These factors must be understood fully so that responsibilities could be allocated on addressing certain issues.
He said that there was a difficulty that existed within the government department. On a monthly basis there are accounts and financial information that are submitted for review. To make sure that the quality and timeliness of accounts are not compromised, monthly reporting was introduced within government. Before the reports are handed to the auditors, someone would check that the accounts were accurate. The person would then confirm that the information contained in the financial statements agreed with the schedules that supported those numbers. It was important that there were people in place to check the accounts before the statements were handed over to the auditors. There were instances where explanations of information that were critical to avoid qualification were not provided on time because of the lack of availability of key officials during the auditing process.
Mr Nombembe also spoke about the role of leadership. Leadership was important for the effective monitoring of the performance of the departments. It was a skills issue within government.
He then looked at audit opinions for the National and Provincial departments. Home affairs were not included in the national departments report because they had still been in the process of finalization with management. Home Affairs would be included in the final report.
Mr Nombembe said that the results of the report could be put in to four main categories. The first two categories, Adverse and Disclaimer, are regarded as undesirable. The Adverse category means that certain accounts are fundamentally unreliable because the information or records that have produced the accounts are not the same as those held by the auditors. Disclaimer category shows accounts that the auditors did not receive any information or evidence on to support what was in the account. There are no National departments who are in those categories. There were some reports that were qualified, which meant that there were some aspects that the auditors were happy with and then some that they were not happy with. There were other departments where accounts were satisfactory, there were no major errors or departments have taken the time to fix errors. He warned that there were issues that needed the attention of leaders and oversight.
With regard to Provincial departments, there were fewer reports audited because there were still some reports being written in Limpopo. This year there were fewer departments sitting in the Adverse and Disclaimer categories compared to the previous year. The numbers of departments that are unqualified have doubled from the previous year. With regard to the unqualified reports, one is from Gauteng, two are from KZN, one in Mpumalanga, three from North West and three from the Western Cape. With regard to provinces with disclaimers, there are two in the Northern Cape, and one department in KZN. There are many departments affected by other matters. The auditors struggled to get information that was related to expenditure.
Other matters affecting departments were non-compliance with legislation and where governance was not good enough. They looked at internal controls and focused on certain areas like information systems audit controls and material mis-statements. Half the departments adjusted material issues during the audit process. This was a problem that they would have to address. The auditors also looked at a specific area called the Human Resource Management Plan. The idea was to check the level at which departments had implemented their human resource management strategies. They identified some departments that had not had their plans approved.
He analysed root causes linked to the qualifications and other matters. For all balance sheet items, income statement items, the internal control issues, compliance and government problems, the control environment can be structurally defective and needed to be sorted out. The use of internal auditors would be effective. There are compliance issues as well as risk assessment and monitoring problems. Risk assessment issues refer to readiness and skills problems within the department and monitoring looks at the leadership tone.
Discussion
Ms B Hogan (Public Accounts, ANC) addressed the issue of legislatures. She said that there was no forum to oversee that financial statements of Provincial and National legislatures were tabled. She said that it was upsetting that there was no Financial Management Act at national level. Ms Hogan said that it was important to know and understand what was happening at the legislature level. She recommended that the next time they have a presentation, that the Committee have an overview of what was happening at provincial and national legislatures.
Mr Silo (ANC) thanked the Auditor-General and his team for a comprehensive report. He commented that issues with qualifications arose mostly from operational problems and not accounting problems within departments. He wanted to know if there was an opportunity for some departments to share their experiences with regard to qualified and unqualified departments so that those operational problems could also be addressed. It was important that departments that are excelling with unqualified reports share their experiences with others.
Mr Nombembe said that it was their intention to share information through the final report by showing the good practices that departments have adopted. They wanted to extend the information by showing it in a chapter of the report. He said that they wanted to show the negative as well as the positive factors. Adopting good practices would show immediately within the Provincial and National departments.
On the oversight of legislatures, he said that the report would show the oversight results of the legislatures. They would need to concentrate on who should have oversight of those legislatures. Information would, however, be included in the report and that contradictions should be pointed out.
Mr Nombembe then spoke about benchmarking. They had looked carefully at who should provide the benchmark. In terms of their understanding of the development of the accounting disciplines in various jurisdictions, there are very few jurisdictions who have adopted the accrual accounting basis as their method of accounting. Most departments work on the basis of cash accounting. They are now slowly making the transition from cash to accrual accounting.
The Chairperson also addressed the issue of oversight of legislatures. He said that in the Constitution, Parliament was given a mandate to oversee all departments but it did not say how they should oversee them. The problem had now started to emerge and that the issue centered on who would oversee them. He wondered if it would be an external department. The Chairperson also discussed the monitoring of compliance and the role of oversight. He fully agreed with the Auditor-General that they would have to develop the capacities within he legislatures through the parliamentary committees so as to ensure that members could follow up on what was happening. The main challenge would be the coordination of information. People would need to ask the relevant questions.
Ms J Fubbs (ANC) commented on the slight shift in focus in the auditing. She wanted to know if departments were informed of the reason for this shift and if they were advised as to how they should do it. She also asked about benchmarking and the availability of key officials during the auditing process. She wanted to know if the unavailability of officials had seriously affected the auditing of certain departments.
Mr D Bloem (ANC) said that he wanted to concentrate on operational questions. He asked the Auditor-General what reasons there were for reports being unqualified.
Mr T Godi (APC) wanted Mr Nombembe to contextualize the lack of improvement shown in the report. He also said that there was a challenge concerning operational issues and not accounting issues. He wondered if it was the lack of appropriate skills.
Mr E Trent (SCOPA: DA) stated that the purpose of the meeting was to discuss ways to achieve unqualified reports and to approve the administration of government. It was very worrying that some departments could not account for expenditure and he wanted to know if it could also be quantified. Lack of evidence from bigger departments was a more serious issue as smaller departments would not make much of a difference. Looking at the issue of material adjustments during the auditing process, the consequence would be that some departments, who would have received qualified audits, would not receive them anymore and that this created a comfortable situation for the departments in terms of presenting their annual reports. He wanted to know if other things besides non-compliance affected service delivery.
Mr K Marais (MP Finance: DA) commented on the human factor as an issue. He said that projects could be well planned but that if they were lacking in skills then nothing would come of them. Besides competency and skills, vacancies in departments were also a problem as it contributed to under performance. He wanted to know to what extent this was a problem. He said that they needed a report on how to move forward so as to avoid being static.
Mr Nombembe replied that human resource issues was a focus area in their audit report. They had become aware of the vacancies within the departments as well as the level of skills. There were some HR plans in place for some departments as they would need different actions for different departments. Departments need guidance, support and resources to implement plans.
He also responded to legislative compliance saying that the bulk of the issues were financial management issues. Material adjustments during the audit process meant that when corrections were made, the accounts could not be qualified. They tried to understand the reasons for the last minute adjustments.
Next, he replied to questions concerning the lack of evidence for expenditure. It definitely applied to the bigger government departments and especially the departments with disclaimers. He said that this would all be reflected in the general final report.
He referred once again to issues of vacancies saying that this was the result of a review of human resource management practices.
Mr Nombembe said that the shift in accounting focus has been the main reason for qualifications. The National Treasury has done a lot in the form of training CFOs. There is a CFO forum in place to provide CFOs with guidance as to what methods to use. They also needed support from committees and they needed to strengthen the Provincial Treasury so that the National Treasury did not have to work alone. He said that the coordination between the Provincial Treasury and National Treasury needed improvement.
The lack of key officials during the auditing process was a major issue. However, officials were making themselves more available and departments have been able to move away from disclaimers and towards unqualified reports in a year. The presence of officials paid off and had a positive impact on the reports.
The Auditor-General said that monitoring happened from leadership where they could help lead departments to follow good practices. He also said that the absence of information from departments was a problem.
The Chairperson concluded that the report was helpful in many respects. He said that there were a number of issues to look at before they could achieve the goal of unqualified reports. The auditors audit outcomes report was an important tool for effective oversight.
The meeting continued with SCOPA members alone.
The
Chairperson thanked the Auditor-General for agreeing to brief the Committee
after his presentation.
The Auditor-General, Mr Terence Nombembe, told SCOPA members that the purpose
of the session was merely to create awareness of the issues affecting
coordination. He said that they wanted to strengthen SCOPA. There was a way
forward but all the issues in the report had not yet been addressed. There were
serious issues that needed attention. As a way of going forward, they would not
necessarily focus on superficial findings but would look at the root of the
issues.
The Chairperson said that in order for the issues to be resolved, the parliamentary
committees would have to seek guidance
from both SCOPA and the Auditor-General. They would also need to have a full
blown engagement on issues highlighted in the general audit outcomes report.
Mr G Madikizi (SCOPA, UDM) wondered whether having the reports would assist
members in finding solutions to the problems that the departments were faced
with. He also recommended that they take those solutions to the relevant
committee chairs so that the issues could be monitored throughout the year.
Mr E Trent said that he was appalled at the attendance at the SCOPA meeting. He
added that it was not very respectful to the Auditor-General who had worked
very hard on the presentation. He saw no purpose in interrogating Mr Nombembe
as most of his colleagues were not there to hear the briefing and, the general
report was not yet distributed. He said that the final report would contain
details of all the issues and would form the basis on which discussions would
take place. All the departments would then be brought in to engage in problem
solving.
The Chairperson wanted to know if the final report would be out before
Parliament went in to recess. Mr Nombembe replied that all the information was
available but that the information would have to go through all the
legislatures so that they could prepare the report and include all the inputs
from the sessions that were held. The Auditor-General stated that the report
would then be made available in mid-November.
The Chairperson informed members that they would look at the report another day
when it would be possible for it to be presented and discussed. This would also
benefit the other members that were not present.
The meeting was adjourned.