ATC110602: Report Oversight Visit to Headquarters of Auditor-General of South Africa
Standing Committee on Auditor General
Report of the Standing Committee on the Auditor–General on oversight visit to the Headquarters of the Auditor-General of South Africa, dated 02 June 2011.
The Standing Committee on the Auditor General, having undertaken oversight visit to the headquarters of the Auditor-General of South Africa in Pretoria, Gauteng from 30-31 March 2011, reports as follows:
1. Introduction
The Standing Committee on the Auditor–General, in partnership with the Auditor-General, visited auditchallenged municipalities in Mpumalanga and Limpopo. The findings from the visits indicated to the Committee that a need exist to visit the Office of the Auditor-General in Pretoria, Gauteng. The visit would also serve to familiarize Members with the work environment of the different sections and units that form part of the Auditor-General of South Africa. This would assist the Committee in better understanding and appreciating the operational functions of the Auditor-General.
2. Delegation
The Committee Delegation consisted of: Adv T M Masutha (ANC) Chairperson of the Committee and leader of the delegation; Prof LBG Ndabadaba (ANC); Ms D N Nxumalo (ANC) and Dr D T George (DA).
The delegation was accompanied by the following Parliamentary officials: Mr. J Ramrock (Committee Secretary); Mr. M Hlekiso (Committee Researcher), and Mr. K Lobi (Committee Assistant).
3. Findings of the Committee
3.1 Office of the Auditor–General
3.1.1 Presentation on the AGSA Mandate (Legislative Governance Framework)
The Committee was briefed by the Office of the Auditor-General on the Mandate of AGSA in relation to the Legislative Governance Framework.
· The Auditor-General of South Africa (AGSA) has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. One of the two main objectives of AGSA, in its support of constitutional democracy, is to be recognised as an institution that makes a difference to the lives of ordinary South Africans. The other objective is to be recognised as an independent model organisation. Some of the salient points in making a difference to the lives of citizens included the following:
Responsiveness to changing environments and stakeholders expectations, without compromising independence;
· Ensuring that government is held accountable for using resources legally and responsibly, for the purposes intended, and economically, efficiently and effectively;
· Credible source of independent and objective insight and guidance to facilitate foresight and continuous improvement in government;
· Empowering the public to hold government accountable and responsive, through objective information, simplicity and clarity of the message, and convenient access to audit reports and messages in relevant languages;
· Enabling the legislature, one of its commissions, or those charged with governance to discharge their different responsibilities in responding to audit findings and recommendations and taking appropriate corrective action and
· Following up on audit findings and implementation of recommendations.
The constitutional functions of the AGSA speak on what must or may be done by the institution.
· Must audit and report on accounts, financial statements and financial management of national and provincial departments, constitutional institutions, Parliament and legislatures, municipalities and their entities and when required by specific legislation, at individual and consolidated level, as applicable.
· May audit and report on accounts, financial statements and financial management of public entities listed in the Public Finance Management Act (PFMA), entities funded from the National Revenue Fund (NRF) or municipality and entities that receive monies in terms of legislation for a public purpose.
Regarding audit reports, the AGSA must report in the form of an opinion or conclusion, as required by legislation. The AGSA may also report on whether resources were procured economically and utilised efficiently and effectively (performance audit).
4. Summary of Findings
The Committee was taken on a site tour of the offices in the complex and met and interacted with various managers and staff officials. The different units and sections explained their functions as part of the AGSA.
4.1 The Structural Office Management
The Office of the Auditor-General of South Africa (AGSA) constitutes the Auditor-General (AG) as the head of the Supreme Audit Institution in South Africa. The Auditor-General has an administration that consists of the Deputy Auditor-General (DAG) as the head of administration and any other staff members, such as the appointed persons in posts on the staff establishment (the Public Audit Act, 2004).
In the Office of the Auditor-General there is a Media Spokesperson, whose responsibility is to liaise with the media on behalf of the Auditor-General. Interaction takes place regularly with the media as the core disseminators of accountability information to the public. The media plays an important role in any democracy; therefore AGSA has begun with an extensive programme of interaction with the media to provide them with a more informed perspective on the core issues and challenges that are confronting the financial management and accountability in the South African public sector. This initiative facilitates informed, accurate and balance reporting.
The office of the Deputy Auditor-General has four strategic business executive units on the following areas:
a) Strategic organisational development and leadership;
b) Planning, monitoring, evaluation and risk;
c) Change and transformation;
d) Strategic audit work coordination;
Each of the above strategic areas is managed by a business executive manager which reports to the Deputy Auditor-General. There is also a unit, in the Office of the Deputy Auditor-General, which deals will ethics, and is managed by a Senior Manager which reports directly to the Deputy Auditor-General.
The administration section consists of eight Corporate Executives in addition to the above Business Executive units:
· The Chief Operations Office – is managed by the Chief Operations Officer who is also responsible for reporting to the DAG. The office consists of an human capital unit which is managed by the Head of Human Capital (HoHC); information and communication technology unit; Information Technology (IT) alignment and business process re-engineering unit which is managed by the Business Executive Manager (BE); communication unit which is manage by the Head of Communication (HoC); and an information and knowledge management unit which is managed by an Senior Manager.
· The Corporate Executive on Audit Support – is managed by the Corporate Executive Manager who reports directly to the DAG. The office consists of a Finance unit and is managed by a Business Executive Manager, and an Audit Research and Development unit which is managed by the Business Executive Manager; and the Quality Control unit which is managed by a Senior Manager. All the unit managers report directly to the Corporate Executive Manager.
· The Corporate Executive on Specialised Services – is managed by the Corporate Executive Manager who reports directly to the Deputy Auditor-General. This Corporate Executive deploys all specialized expertise to simplify complicated areas. It is also the centre responsible for activities on systematic and cross cutting issues within the Supreme Audit Institution of South Africa. It integrates into regularity audit through the sharing of insights and assists with the development of audit approaches guidance. In addition it promotes knowledge sharing through institutional cooperation activities as well as to demonstrate the value and benefits of the Supreme Audit Institutions. This corporate consists of the following five business units in order to facilitate its responsibility:
a) Reputation and Stakeholder Management Unit (RSM) – the Secretariat of the Association of Public Accounts (APAC) are part of this unit in the AGSA to assist and provide APAC with secretariat supports and sharing of insights at strategic sessions. This also includes training initiatives and the hosting of the annual APAC conferences. The Other Constitutional Stakeholders (OCS) relationship is managed by a Business Executive Manager in this unit. The RSM Unit was established in 2005. Its other main function is to support the audit business unit in managing the relationship with the AGSA’s Constitutional Stakeholders. The AGSA indicated that they projected the budget cost of R11 million for the RSM unit to carryout its duties in the 2011/12 financial year. The RSM unit extends the stakeholders capacity to use optimally the AGSA’s reports by facilitating training initiatives. It also manages the APAC secretariat function and facilitates parliamentary liaison and monitoring.
b) Performance Audit unit - managed by a Business Executive Manager – AGSA defines the performance audit as “the independent auditing process to evaluate the measures instituted by management to ensure that resources have been procured economically and are used efficiently and effectively”. The AGSA management mentioned that the performance audit unit was established 25 years ago and was focusing on the centre of interest and systematic issues. The audit unit has 100 staff members. The following performance audit themes will be researched, developed, executed and reported on:
i. Infrastructure delivery- with the focus on education and health sectors and to table the reports in Parliament and Provincial Legislatures by June 2011.
ii. Use of consultants by government entities- to table the report in the third quarter of 2011.
iii. Oversight of state-owned entities -the reports to be tabled in the fourth quarter of 2011.
iv. Basic and higher education and training initiatives- expected tabling of phase one in the second quarter of 2012 and phase two to be tabled in 2014.
v. Readiness by government to report on predetermined objectives - the report will be included in the next PFMA and MFMA General Reports.
vi. Environmental audit on sanitation and water - expected to table the reports in the fourth quarter of 2013.
vii. Transport infrastructure - reports to be tabled in 2013.
The AGSA management reported that the projected budget revenue of R76 million will be generated from the performance audit in the 2011/12 financial year.
c) Information Systems Audit (ISA) unit was managed by a Business Executive Manager – this unit was established in May 1986 and currently has 85 staff members including support staff. The Business Executive Manager pointed out that ISA was responsible for the following functions:
i. Evaluates the controls within an organisation’s Information Technology (IT) infrastructure and Information Systems (IS), the practices and operations of IS, the safeguarding of the IT assets, the maintenance of data integrity and the design and operating effectiveness of key IT controls.
ii. Provides quality information systems audit support to the auditing business units and specialized auditing business units.
iii. Enhancing auditing capacity by building decentralized specialist capacity in IS audit to finalise audits timeously and respond to government’s increased use of information systems.
iv. ISA Business Executive Manager also pointed out that the ISA unit performed about 390 assignments in 2010 to 2011. The role of the ISA unit was to perform the following audits for the national, provincial and local governments:
§ IT Governance reviews;
§ General control reviews;
§ Application control reviews
§ Transversal systems audits;
§ Network audits;
§ Enterprise Resource Planning (ERP) system reviews;
§ System Development Life Cycle reviews; and
§ Computer Assisted Audit Techniques Supports.
d) The Investigations unit was also managed by a Business Executive Manager – the AGSA management pointed out that they established a separate investigation unit in January 2010. The unit assists the regularity auditors to identify the significant fraud risks in the planning stages in which it plays a proactive positioning role. The investigation unit also provides special investigation into areas of possible maladministration, financial misconduct and regularities. AGSA management mentioned that the projected budget income of R19 million will be generated by the investigation unit in the 2011/12 financial year.
e) Institutional Cooperation – it is also an International Liaison unit is managed by a Business Executive Manager - AGSA management also indicated that they also facilitate the cooperation activities with other institutions domestically and internationally. It has one staff establishment and is engaging into bilateral cooperation agreements with some Chapter 9 Institutions such as Public Service Commission, Public Protector etc. They also signed the bilateral cooperation agreements with other Supreme Audit Institutions (SAIs) such as Rusia, Tunisia, India, China and Brazil which is still pending. The AGSA management also highlighted the progress in international participation as it was noted that AGSA is represented in 13 Committees out of 27 in the International Organisation of Supreme Audit Institutions (INTOSAI). The Auditor-General of South Africa is the current Chairperson of the INTOSAI Working Group on the Value and Benefits of the Supreme Audit Institutions. AGSA, in 2010, hosted one of the most successful INCOSAI Conferences ever held by the international body.
· The Corporate Executive on Audit – there are five corporative executive audits which are managed by the Corporative Executive Managers whose responsibility is to manage the clustered audits and report directly to the DAG. The national auditees are clustered into National A,B,C,D,E and F units, each unit is managed by a Business Executive Manager; the provincial auditees consist of nine units according to provinces and each province is managed by a Business Executive Manager whose responsibility is to manage the provincial audits and report to the Corporate Executive Manager.
4.2 The Distinctive Performance of Corporate Executive on Audits
The Corporate Executive Portfolio Manager highlighted one of the distinct performing Corporate Executive audit clusters in his presentation to the Standing Committee on the Auditor-General. This Corporate Executive Audit cluster has been performing well in 2009/10 as indicated below:
· National C – it is a business unit which consists of five National Departments, 17 Public Entities, one Municipality and 11 Municipal Entities. Total audit hours worked when auditing the mentioned auditees is approximately 221,580 hours by 121 staff members in the 2009/10 financial year. The total income budget amounts to R63.7 million.
· Mpumalanga Province – this business unit consists of one legislature, 13 provincial departments, six public entities and 21 municipalities. It took about 165,058 audit hours to audit by 90 total staff establishment. The total audit income budget amounts to R43.3 million.
· KwaZulu-Natal – this business unit consists of one legislature, 15 provincial departments, 14 public entities, 61 municipalities and seven municipal entities. The staff establishment of 195 workers worked 356,363 audit hours. The total audit income budget amounts to R99.9 million.
4.3 Trainee Auditors Scheme
AGSA is the feasible training ground for talented people who wish to obtain a professional auditing qualification through the Trainee Scheme, to receive technical training and practical experience, which enables them, becoming audit professionals. There are three policies that were developed and approved by AGSA that guides the Trainee Scheme, namely: the academic progress policy, the trainee auditor study leave policy and the external bursary policy. All provinces are represented in recruiting trainee auditors although progress has been slow. Gauteng province presently dominates the intake of trainees. AGSA continues to monitor the race and gender profile of trainee auditors.
There are three types of learnership, numbering 927 audit trainees, they are categorised as follows:
- South African Institute of Chartered Accountants (SAICA), has registered 873 trainee auditors as at 31 March 2010;
- South African Institute of Government Auditors (SAIGA), registered 48 trainee auditors as at 31 March 2010;
- Information Systems Audit and Control Association (ISACA), which has registered six trainee auditors as at 31 March 2010.
There were 53 per cent female that were represented in the Trainee Audit Scheme in the 2009/10 financial year. The males were about 47 per cent in the year under review. The higher percentage (97.3 per cent) is representation from disadvantaged communities which include 88.7 per cent of Africans, 3.3 per cent of Coloured, and 5.3 per cent of Indians. Although the trainee auditors mentioned to the Committee some of the challenges they faced with studies while they are on the job training, they remain excited and overjoyed to form part of the AGSA Trainee Audit Scheme.
5. Summary of findings
The Committee also visited the Gauteng Provincial Office of AGSA. They met and interacted with various senior and middle managers, including staff officials. The Provincial Management explained the role of the provincial office and also shared some of the challenges confronting the Office. The various achievements made as part of the AGSA, were also pointed out.
5.1 The Gauteng Provincial Organisational Structure
The organisational structure defines how tasks are to be allocated and defines areas of responsibility and authority, who reports to whom, coordinating mechanisms and interaction patterns that would be followed.
The Provincial Management mentioned that the pressure of complying with the legislated audit timeframes led to loosing audit staff members, therefore, the Gauteng Office is structured into specified jobs by forming two sub-units within the Audit Business Unit. They are business executives that are informed by the Public Finance Management Act (PFMA) audits which include the national and provincial departments and public entities; and the Municipal Finance Management Act (MFMA) audits which include municipalities and municipal entities.
The Gauteng Audit Business Unit has a complement of 190 staff members including support staff. But the majority of staff members are the trainee auditors. The Provincial Management indicated that a specific action plan for staff retention was being implemented and that it was very effective. The Gauteng Office was, as a result, fully capacitated. The Audit Business Unit is also responsible for the audit of 12 provincial departments, Gauteng Provincial Revenue Fund, 23 provincial public entities, four national public entities, 15 municipalities and 22 municipal entities. Each of the audit business executives was headed by a business executive manager which was assisted by a operational leader. There were two operational leaders: one heading the MFMA operational audits and one who was the operational leader for PFMA audits. The operational leaders were responsible for ten audit centres which were headed by senior managers. The 11th centre was the provincial human resources section. There was a unit called “product champion”, it was responsible for communicating how to apply audit standards and legislation to the provincial office. It was pointed out that there were performance audit staff members in the Gauteng provincial office, which reported directly to the AGSA Head Office.
The Committee, during deliberations on the presentation, raised a question about the effectiveness of the special investigation unit. The Provincial Management responded that they have started with fraud risk assessments and investigations on the following departments:
· The Provincial Departments of Education – conducting audits on transversal supply chain management for fraud risk assessment;
· Northern Cape Department of Health;
· Gauteng Enterprise Propeller;
· North West Department of Sports, Arts and Culture.
The investigations were on-going and reports would be tabled as soon as the investigations were completed.
5.2 Visibility of leadership
The AGSA pointed out that it was committed to visibility of its leadership as one of its strategic objective. The provincial leadership pursues this objective by attending regular meetings with its clients to understand core issues that are faced by auditees during and after audit. It was indicated that the AGSA leadership aims to engage the auditees to influence positive audit outcomes.
The Committee enquired from AGSA whether there was a lack of transversally in our democratic system in terms of corruption and maladministration. The Provincial Management responded by pointing out that:
- AGSA introduced key internal controls; visited auditees on quarterly basis to ensure that those internal controls were implemented;
- in future, recording basis of transactions with the auditees’ leadership to address core issues that leads to poor audit results, would be done;
- on the aspect of leadership, AGSA looks at the local administration to ensure that the right skills were correctly placed; and
- AGSA leadership remains committed to discuss audit issues and highlighting improvements, with the top leadership in all spheres of government.
However, the AGSA’ Gauteng Provincial Management noted that such a decision rests with the political leadership. The Management also proposed that those discussions be held on a one –on one basis with the leadership of individual auditees.
5.3 Transformation in the Gauteng AGSA Office
The Provincial Management concluded with its presentation by mentioning that the Gauteng Office has 11 senior managers, of which nine were male and two were female. The management also highlighted that out of nine trainee auditors at the Gauteng Office, writing the board exam in 2010, seven of them have passed. The minimum requirement in selecting the trainee auditors was a Bachelor of Commerce in Accounting (B Com Acc) degree. AGSA also indicated that it does not take into account where the qualification awarded originates from; therefore, those candidates who studied at previously disadvantaged Universities were also considered.
The Provincial Management pointed out that AGSA has embarked on an awareness campaign to previously disadvantaged schools and that it was a new project that forms part of AGSA’s social responsibility. AGSA Gauteng Office, the management and staff go out excited to previously disadvantaged schools to encourage students to consider taking the carrier path on accounting and make them aware of the important role that AGSA plays in the country.
AGSA also informed the Committee that the institution would be celebrating its centennial later this year and Members would be invited to some of the activities that were planned.
6. Conclusions
The oversight visit by the Committee to the Head Office of the Auditor-General of South Africa (AGSA) and to its Gauteng’s Provincial office, served to familiarize Members with the functions and work environment of the different sections and units that forms part of the Auditor-General of South Africa. In addition, it also assisted the Committee in better understanding and identifying issues that would facilitate the Committee’s recommendations. The Committee, arising out of its findings, noted the following:
· Staff Capacity – the audit business unit requires a variety of staff personnel empowered with various scarce skills including individuals with special abilities or training and knowledge of a particular field in accounting. Auditing is regarded as one of the scarce skills in South Africa. Therefore, AGSA is facing a shortage of chartered accountants and registered government auditors. The continuous development in terms of research and capacity are one of the core factors in the auditing field.
· Recoverability – the auditing staff time of about 68 to 70 per cent was lost due to leave, study leave and sick leave taken by the auditing staff. The training for auditing staff has also impacted in the loss of auditing staff time. This is a serious challenge because audits need to be completed within the legislated time frames as set out by the PFMA and MFMA; therefore, the lost staff time must be recovered at cost. The recoverability of audit staff time loss is costly to the AG as the business unit is forced to outsource some of the audits to private audit firms which are charging a far higher rate than the rate charged by the AG from the auditees. AGSA needs to conduct workshops for the appointed private audit firms to deepen the understanding of a public sector environment and ensure their participation in the countrywide road shows.
· Quality – the audit business unit has the added responsibility to produce audit reports, management reports and general reports of exceptional quality supported by adequate working papers and evidence. One of the AG’s commitments is to ensure simplicity, clarity and relevance of the messages contained in all their reports. The challenge is to provide a report that inspires and motivates focus actions or response, by presenting the identified issues of central importance in a clearly defined context.
· Adequate Support – audit business unit requires technical and special knowledge to perform audits, for example, Information Technology (IT). The audit business unit also requires administrative support staff.
· Risk Management – the ethics or principle governing or influencing conduct is of central importance in the audit business unit. There needs to be internal controls in place and reviewed to mitigate risk and ensuring risk management.
· Outstanding Audit Fees – AGSA implemented the debt collection intervention strategies in June 2009 as indicated below:
a) Debt collectors were employed at the Head Office to assist in the collection of outstanding debt;
b) Two-times monthly billing runs were introduced to ensure that auditees receive invoices on time;
c) Engagement of the National Treasury, The Department of Corporative Governance and Traditional Affairs (CoGTA) and the provincial government to assist in the collection of outstanding debts.
However, the AGSA management pointed out that, despite the implementation of these strategies, low collection is still being experienced from the local government debtors, which makes up about 43 per cent of the debtors book.
The low collections of audit fees, from the municipalities are mainly due to the following factors:
a) Lack of funds in low-capacity municipalities and the fact that the National Treasury is unable to cater for all defaulting debtors because of budget constraints. Section 23(4) of the Public Audit Act (PAA) 25 of 2004 prescribes that if an auditee defaults on the payment of audit fees, the Auditor-General must promptly notify the National Treasury, and when applicable notify the relevant provincial treasury.
b) The economic recession has also resulted in the revenue base of some municipalities declining which, in turn, affects their ability to pay their audit fees. Section 23(6) of the PAA prescribes that, if the audit fee exceeds one percent of the total current and capital expenditure of such auditee for the relevant financial year, such excess must be defrayed from the National Treasury’s vote, provided that the National Treasury is of the view that the auditee has financial difficulty to settle the cost. This excludes national and provincial departments.
The management confirmed that the leadership of the AGSA continues in engaging the National Treasury, CoGTA, the provincial political leadership and non paying auditees to address the situation of low collection of audit fees
7. Recommendations
The Committee recommends that AGSA:
7.1 notwithstanding its relationship with tertiary institutions sharpens and improves its staff recruitment capacity, with particular emphasis on individuals with accounting knowledge and experience;
7.2 considers and reviews its policies regarding staff training, vacation and study leave to lessen the impact generated by the loss of auditing staff time;
7.3 continues with producing audit and other reports that are easy and simple to read and to understand;
7.4 empowers the various audit business units by providing the necessary administrative support staff needed;
7.5 strengthens its internal controls to mitigate risk and ensuring risk management; and
7.6 notwithstanding all the debt collection interventions made, considers other stronger measures, including legal, in arresting failure of defaulting debtors to pay outstanding audit fees.
Report to be considered
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