The Committee was taken through a presentation of the funding model in a virtual meeting by the Auditor-General of South Africa (AGSA). Thereafter, Members had questions and comments on the presentation, including many glowing compliments on the work done by the AGSA, and expressing support for the funding model.
Among the questions, Members asked whether the AGSA had introduced incentives to get the auditees to pay their dues on time and in full, and penalties for those who failed to do so. They were very concerned about the move to the fourth industrial revolution and the implications for many of AGSA's employees, as they feared that robots would replace humans. The AGSA assured them this was not the case at all, and they did not need to worry. While the robots had proved to be extremely efficient and accurate, the human employees were being re-trained to work elsewhere, where their value could be better acknowledged. The increased efficiency would also enable the AGSA to broaden its coverage of the auditees.
Members implored the AGSA to put pressure on the state-owned entities (SOEs) and municipalities to pay off their debts, saying there was no reason for them not to pay, as they were in possession of the funds to do so. It was suggested -- and later confirmed by the AGSA -- that there were auditees who were paying consultants large sums to compile their financial statements, but did not pay the AGSA for auditing them. The Committee agreed that this was not acceptable.
[NOTE: Due to miscommunication about the Committee meeting starting time, PMG missed the first 30 minutes of the meeting and therefore cannot report the opening comments of the meeting. Thank you for your understanding]
AGSA funding model
The Committee was taken through a presentation of the funding model by the Auditor-General of South Africa (AGSA).
The funding model of the AGSA was premised on the organisation being commercially viable and financially independent. The AGSA was reviewing the funding model in line with the #CultureShift strategy, and to respond to the macro-economic environment challenges.
The AGSA had a backlog of technological investments, and to achieve the aspirations of the #Cultureshift strategy, they needed to scale up the implementation of digital transformation programmes and the automation of certain processes in both the audit and support functions. This would require funding.
They intended to utilise the reserves of R4 200 000 in their balance sheet to fund the performance audits. In future, a portion of the retained surplus would be used to fund some performance audits, and the balance would be used on capital projects.
Their challenge was that the surpluses were still tied in debtors, and had not materialised into cash. Some of these auditees, especially state-owned entities (SOEs) and municipalities, were in financial distress.
Negotiations were underway with National Treasury to fund the implementation of the material irregularities through appropriation.
See presentation attached for more information.
Ms M Matuba (ANC) asked for clarity on several matters. Had the AGSA introduced an incentive for debtors to receive a discount if they paid within a certain period of time, such as three or six months? This would encourage auditees to pay their debts timeously. Regarding the ‘ring-fencing agreement’ were there consequences for auditees who did not honour their part of the agreement? The AGSA needed to consider this, as there could not be an absence of consequences when auditees did not honour the aforementioned agreement. On the matter of the debt owed, did the AGSA have a way of writing off debts as bad debts?
It was good that they were tackling the fourth industrial revolution, which was technology -- when would this technology method be introduced? Would it be in this current financial year perhaps, or the upcoming years? Would the use of technology not impact people’s jobs? There were some disadvantages to technology itself.
Had the AGSA received a proposal for donations? Given that the AGSA is a Chapter 9 institution, if government were to increase funding for the Auditor General of South Africa, would it impact the AGSA’s dependence of government funding? How could litigation be avoided as much as possible? She felt that the AGSA was doing very well, and would want to assist them in any way possible.
Mr O Mathafa (ANC) praised the AGSA for their efficient work, and said he was happy that the funding model was being reviewed. He mentioned a question he had brought up in a previous meeting, where he had asked about the resource capacity within the AGSA office, to which they had responded with a commitment to present its resource capacity. He felt that the AGSA had fulfilled that commitment by presenting the Committee with the funding model, so he was very happy with the presentation. He looked forward to receiving the three aforementioned plans from the presentation.
Ms Z Kota-Mpeko (ANC) said she supported the R50 million National Treasury allocated to the AGSA. She also supported the move towards investment in automation, as it was critical that they moved towards robotics. This move to robotics was also potentially accompanied by a loss of personnel, so she hoped that the AGSA had done research to ensure that they retained the personnel and did not lose them.
Why could the AGSA not issue penalties for the debt held by the auditees? The auditees should pay back the money. The SOEs definitely had money. Why were they hesitant to pay the AGSA the money they owed? They must be informed that the AGSA was not running a welfare society.
Mr N Singh (IFP) echoed the thoughts of Ms Kota-Mpeko -- the SOEs must pay what they owed the AGSA, as it would be criminal not to do so. The AGSA must exert more pressure on government departments and SOEs to pay what they owe. Were there any disputes regarding the fees from the side of the SOEs and local government municipalities? ‘Name and shame’ should be the order of the day.
Was the AGSA taking their human resources (HR) department along with them in making plans to move to robotics? Humans were not happy with being replaced by robots. Regarding investments and reserves, he was glad that the money was being used for performance auditing.
The Chairperson echoed the thoughts of the previous speakers, and saw value in what they were enquiring about.
Mr Z Mlenzana (ANC) echoed what was earlier raised by his colleagues, but his comments were not clearly audible because of poor connectivity. He said that his passion was for funding of the AGSA. He was happy with the proposed R50 million. Could this Committee not interact with its sister Standing Committee on Appropriations, which was the Committee that allocated the budgets to the auditees, so the money allocated for auditing could go directly to AGSA?
The Chairperson said he had read the constitutional basis of the founding of the AGSA, and there it stated that the Auditor-General must audit each institution which received funding from the fiscus. This would then pre-suppose a ‘no choice’ situation for the AGSA, and the resource base must be guaranteed for such. They were wary of permeations which could get towards a sense of influencing some form of independence. The courts did so as a separate ‘arm of the state’. The time was coming when one would have to consider what Mr Mlenzana had said. They had to think about the best mode of getting into what he proposed.
The AGSA contributed to savings. One should not look only into the contribution around presenting the face of the books, but also the contributions on variable savings which would return to the fiscus one way or the other. This contribution had a price tag, as it informed how much the AGSA had saved during the auditing period. One should look into the Municipal Finance Management Act (MFMA) regarding these savings, and what, in totality, National Treasury would put into the AGSA.
He also expressed the view that there could be a link between entities paying heavily for consultants to prepare their financial statements, and their inability to pay for AGSA's services.
Regarding the move to robotics, he warned of the danger of an unbalanced relationship between AGSA and its auditees. There were entities they were not auditing, which were being serviced by auditors who used high technology advanced systems. They should match their field to conduct their audits appropriately. In doing so, the AGSA should not lose sight of those persons who it employs. Re-training could be critical here.
It was worth looking into engaging with the Standing Committee on Appropriations to assess the best way forward. He listed the Committee Members who happened to serve in the Appropriations Committee.
Ms Tsakani Maluleke, Auditor-General, began by acknowledging all the compliments received about their work, and said the AGSA was proud in this regard and would continue to make efforts to improve wherever they could.
In response to the question on donations, she said they had steered clear of this, so it was not part of their proposals. Regarding how they dealt with the surplus, they worked on this with the funding model to avoid living hand-to-mouth going forward.
Regarding the three plans mentioned earlier, the AGSA would clarify how they would fund the ‘culture shift strategy’ in the long term. Regarding direct access to audit fees through appropriations, the AGSA was considering and exploring this. There needed to be an assurance that funds were moving in their respective directions.
The delay in payment affected the AGSA long after the audit fee agreement was drawn up. When each audit began, there was an engagement on an audit strategy which comprised the expectation of audit fees, run by the management team handing the respective auditees and the audit committee. There were no instances where auditees would dispute the audit fees.
Mr Vonani Chauke, Deputy Auditor-General, said that the AGSA did look at the auditees who were not making payments, to see whether they were using consultants. In the Northern Cape, there were instances where the consultants were paid but not the AGSA. The AGSA had escalated this to the Premier to ensure this issue would be resolved.
Regarding technology, technology was assisting the AGSA with being efficient in their work. They had recently implemented a robot to do work in less than four hours, which would otherwise take a human more than 200 hours to complete. In such instances, the human who would do the work in so many hours was not dismissed, but rather re-trained to do other work. They still required auditors to apply their minds to give an audit opinion. The move to robotics would not render personnel redundant, but rather useful for spending their time on more valuable matters. Machines would allow the AGSA to cover more -- to test 100% of the population, rather than a sample. This would give the AGSA better insight. This was something which the AGSA was passionate about. If one looked at the Compensation Fund, one could not audit on a sample basis -- one would have to use better analytics to look at all the data which could pick up exceptions. Jobs would not be lost in this process.
Regarding debtors, they were engaging with National Treasury on better handling auditees who were not paying AGSA for their services. The AGSA had been given authority to charge penalties against SOEs not making payment. The AGSA did provide incentives by agreeing to write off some of the interest when capital payment was made in full. The fees were agreed upon upfront, so there was no reason for disputes or excuses for not making payment.
The Chairperson thanked the AGSA for giving the presentation on the funding model, and mentioned its value and the importance of the Committee supporting such a model, as it would improve many people's lives. The AGSA was not a money-making institution but rather a money-using institution. This money was used to enhance accountability and democracy in areas that mattered for the development of the communities and individuals out there.
He allowed the Auditor-General to also provide closing remarks.
Ms Maluleke agreed that the conversation had been very useful, and it was beneficial to have such a conversation while adjusting the funding model. She hoped the Committee had received assurance on how the AGSA approached situations. She liked the remark about the AGSA being a money-spending institution -- all they did was generate resources that allowed them to fulfil their constitutional mandate. They had enough now to continue working on the funding model.
The Chairperson said he appreciated the success factor in the character of the institution. He reminded all to always consider the human factor, and to honour their commitments. The matters raised in the MFMA audit had been captured, and it was good that these matters were raised and recognised by the highest office, the Presidency. This would be good to model how to make improvements and adjustments. He reiterated the Committee's support for the funding model. He stressed the importance of doing the work which one was appointed to do, and if this was not done, there would be consequences.
The meeting was adjourned.
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