Auditor-General South Africa briefing on its products and reports, five-year audit outcomes, PFMA compliance

Meeting report

Chairperson’s Opening Remarks
The Chairperson welcomed and congratulated Ms Tsakani Ratsela, who had just been appointed as Deputy Auditor-General, and was the first woman to hold this position. He also welcomed and offered congratulations to the newly-appointed Accountant-General, Mr Michael Sass. This Standing Committee on Public Accounts (SCOPA) had asked the Auditor-General South Africa and National Treasury to brief the Committee on their organisations and work, as they were two critical stakeholders who could assist SCOPA on how best it should carry out its oversight functions over departments in the next five years.

Auditor-General of South Africa (AGSA) briefing
Ms Tsakani Ratsela, Deputy Auditor-General, presented the AGSA report. She set out, firstly, the reputation, mandate and aspirations of AGSA. The Auditor-General (AG) had a constitutional mandate, as the Supreme Audit Institution (SAI) of South Africa, to strengthen and support democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. Section 188 of the Constitution required AGSA to audit and report on the accounts, financial statements and financial management of all three spheres of government, comprising all national and provincial departments, all constitutional institutions, the Parliament and the nine provincial legislatures, all municipalities and any other institution or accounting entities required by other national or provincial legislation to be audited by the Auditor-General. In addition to what was prescribed in Section 4(1) of the Public Audit Account (PAA), and subject to any legislation, the AGSA may also audit and report on the accounts, financial statements and financial management of institutions funded from the National Revenue or Provincial Revenue Fund, or a municipal fund or any institution authorised by legislation to receive funds for public purposes. AGSA aspired to create a better and dignified life for the citizens of South Africa through timely, effective, efficient and economical service delivery.

Over the last seven years, with increasing emphasis in the last five years, AGSA had engaged in a visibility drive to provide the oversight Committees in Parliament and all legislatures with briefings on root causes of poor reports, and recommendations on corrective measures to improve audit outcomes before the entity hearings. AGSA consulted widely with the stakeholders in the executive and legislatures prior to tabling the General Reports and audit outcomes, which were tabled in the Parliament and provincial legislatures. AGSA employed 3 300 people, of whom 500 were Chartered Accountants, and regularity audits of institutions were conducted at Head Office and the nine provincial offices.

She explained that regularity audits were supported by:
- the Information Systems Audit, which focused on the assessment of the information systems environment
- Computer Assisted Audit Techniques (CAATs) in audits and data analytics
- investigations which provided expertise in the assessment of fraud risk, special forensic investigations and fraud research
- The training and performance audit which provided insights on ‘value for money’ aspects (economy, efficiency and effectiveness).

In relation to Performance audits, section 20(3) of the Public Audit Act allowed discretion to the AG to conduct performance audits, by performance auditors but they may include subject matter experts. They would focus on a specific government programme, project or management project. Performance audits differed from regularity audits because reporting was factual and did not include an audit opinion. The focus was to ascertain whether there had been value for money in the spending by government institutions of public funds.

Local Government was governed by the Municipal Finance Management Act, 2003 (MFMA). Municipalities had their year end at 30 June. They submitted reports to the AGSA for audit by 31 August, and AGSA finalised its reports by 30 November. General Reports were tabled in the following July. The time lag between November and July was used for consultations with stakeholders, auditors that conducted the work and the owners of the entities, so as to get an insight into what were the determinants of the report obtained. The consultations took some time but were believed to be time well spent.

Provincial and National governments were governed by the Public Finance Management Act, 1999 (PFMA), and had their year end at 31 March. AGSA would receive their financial statements by the end of May, and the audit reports were completed by the end of July. The General Reports of the PFMA were tabled by the first quarter of the following year.

Regularity Audits
Ms Ratsela noted that the Regularity Audits were done annually and covered three critical issues. The first assessed whether the Annual Financial Statements (AFS) were free from misstatements and provided a true reflection of state of affairs of an entity. Secondly, they assessed the usefulness and reliability of the information in the annual performance report, and thirdly reported on material non-compliance with relevant laws and regulations. The regularity audit also identified key internal control deficiencies that needed to be addressed. The Regularity Audit was a good indicator of accountability and good reporting. However, the regularity audit did not provide assurance that all applicable laws and regulations had been complied with, did not identify fraud and did not provide assurances that service delivery had been achieved.

The Regularity Audit would enable oversight bodies to have meaningful conversations with those entrusted with running the government. An entity which has passed all three indicators, in relation to its financial statements, was referred to as having a “clean audit” with no findings. This meant that the financial statements were accurate and free from material misstatements, that there were no material findings on reporting on performance objectives, and that there were no material findings on non-compliance with key legislation.

A Qualified audit indicated that the financial statements contained material misstatements in specific amounts, or there was an insufficient evidence to conclude that specific amounts included in the financial statements were not materially misstated.

An Adverse audit indicated that the financial statements contained misstatements that were not confined to specific amounts, or the misstatements represented a substantial portion of the financial statements.

A Disclaimer audit indicated that the auditee provided insufficient documentary evidence on which the AGSA could base an audit opinion, and the lack of sufficient evidence was not confined to specific amounts, or represented a substantial portion of the information contained in the financial statements.

Ms Ratsela then explained how AGSA was linked to the role of SCOPA as the oversight body. AGSA supported oversight functions by ensuring reliable, accurate and complete annual reports by entities. Reviewing of annual reports was critical to ensuring complete, reliable and accurate reporting. AGSA would also brief Parliament on the root causes of the audit outcomes, so that the Committee could then analyse and understand the root causes by oversight. The Oversight Committees must indicate their findings and make recommendations to address the deficiencies. These recommendations must have milestones and conform to the “SMART” principles. Reports must be sent to executives for implementation, and thereafter, entities must compile an action plan to address the deficiencies, giving deliverable milestones and also conforming to the “SMART” principles. The progress made on implementation of action plans and measures to improve the audit outcomes must be reported to oversight committees for monitoring.

Audit outcomes
The audit outcomes for the PFMA cycle over the past five years showed that unqualified audits with no findings improved, from 17% in 2008-09 to 22% in 2012-13. Unqualified audits with findings (which Ms Ratsela explained as reports that confirmed that the financial statements were fairly presented but where there were findings either on compliance or performance information) showed a 1% increase from 53% in 2008-09 to 54% in 2012-13. Qualified audit reports with findings experienced a positive decrease from 21% in 2008-09 to15 % in 2012-13. Adverse or disclaimers with findings decreased from 7% in 2008-09 to 4% in 2012-13. Audit Reports with outstanding documents had a slight increase from 2% in 2008-09 to 5% in 2012-13. Overall the audit outcomes for the past five years showed a mild improvement, which hopefully would be enhanced in subsequent years.

Turning to the audit outcomes between 2010-11 and 2012-13 (the last three years) Ms Ratsela noted that there was a decrease from 56% (257 public entities) in 2010-11 to 54% (257 public entities) in 2012-13, of unqualified audits with findings. Only 22% (105 public entities) had unqualified audits with no findings in 2012-13. Across the 450 entities, comparing the 2011-12 and 2012-13 years, 96 auditees had improved, and there were 57 unqualified audits with no findings, 31 unqualified audits with findings and 8 qualified audits with findings. 283 auditees remained unchanged, 61 auditees regressed and 10 additional auditees were included. 26 auditees had outstanding reports.

There were material findings on the performance reports of 41% of the auditees, with 266 with no findings and 41% with findings in the 2012-13 financial year. In the 2012-13 financial year, there were material findings on compliance with legislation seen across 75% of the auditees. 114 had no findings but there were 336 with findings. Areas that must subsequently receive attention involved findings on non-compliance with legislation. The quality of the financial statements was commented on in 57% (255) of the financial statements submitted for audit. Findings on management of procurement and contracts occurred in 43% (192), and the need for prevention and follow-up of unauthorised, irregular and fruitless and wasteful expenditure in 39% (174) of the reports. There were findings on expenditure and payments made within 30 days in 24% (110) of the reports, on management of strategic planning and performance in 23% (103), on appointments and performance management and compensation in 12% (100) reports, and on billing and control of revenue in16% (74 reports).

37% of auditees were able to avoid qualifications because they were able to correct material mis-statements during the audit process. The positive outcomes on submitted financial statements after corrections moved to 80% (362), from 43% (195) before they were corrected.

Instances, in 2012/13, of proper record keeping were at 50%, compliance with the requirements for daily and monthly controls was at 49%, regular and accurate reports was at 39% and the review and monitoring of compliance was at 37%. Root causes that must be addressed in this regard involved the slow response by management, the lack of consequences for poor performance, and transgressions, instability or vacancies in key positions and lack of appropriate competencies for key officials.

Ms Ratsela stressed that it was important that SCOPA’s oversight ensure that the number of audits with adverse or disclaimer findings, and the qualified audits with findings did not deteriorate. Some minor improvements had been made over the years, but meaningful improvements were yet to be seen. She suggested that greater focus on capacity building, building robust internal control systems within the government, improving the drivers of key controls through financial and performance management (impacted by lack of daily and monthly disciplines and improvement in governance) would definitely improve audit outcomes. She added that additional details on departmental audit outcomes for the Departments of Education, Health and Public Works, with comparisons against other departments, the quality of annual performance reports, the status of compliance with legislation, the quality of submitted financial statements, improving the drivers of key controls of audit outcomes, and the attention to financial and performance management were set out in the document presented by AGSA.

Discussion
Mr R Lees (DA) commended Ms Ratsela and AGSA on their good work. He noted that AGSA did much to assist the entities to improve the quality of the financial statements submitted, and to achieve clean audits. He asked thus how AGSA would ensure, whilst embarking on these interventions, that it was not becoming a party to achieving an objective of improved audits, rather than maintaining true independence. In his opinion, some of the regulations were so stringently drawn that they were almost impossible to achieve, and this slowed down service delivery considerably. He believed that it was up to AGSA to see to it that these “ridiculous” regulations were amended.

Mr Lees said that in his experience, AGSA did not talk to or educate local councillors, and if it did, he asked how it accomplished this and how it would deal with the political implications of those systems.

Mr Lees pointed out that materiality could hide fraud and asked how AGSA would foresee this and alert the relevant authorities. He also asked how AGSA would deal with the political implications of the internal control systems.

Ms K Litchfield–Tshabalala (EFF) appreciated the presentation. She had been enlightened on the relevant concepts and which offered clarity on most issues.  She understood how and why a Department could have a clean audit and yet not deliver on expectations, and questioned who decided on the criteria to be included or excluded from the indicators for a clean audit. She questioned why there was no inclusion of reasons on the importance of other indicators to ensure that Departmental audits were “truly clean” were not included? The issue of “clean audits” that rubber stamped entities, despite their shortfalls in performance, had become a licence for those entities to exercise less care.

Ms N Khunou (APC) agreed that the presentation had been very helpful. She raised concerns whether the AGSA had the capacity to visit the nine Provinces, Municipalities and Departments to ensure that every one that had access to public funds reported accordingly. She asked what AGSA did to ensure that the Provinces, Municipalities and Departments would comply and maintain good reports, and questioned whether it had any teeth to ensure compliance.

Ms G Tseke (APC) thanked the Deputy Auditor-General and confirmed that the insight would assist the Members in their oversight functions, also in other committees. She too wanted to know what effectively was being done to hold councillors accountable. She believed that it was not adequate to have AGSA appear before the Committee only once, before the tabling of the annual reports, and this would not sufficiently facilitate effective oversight by the Committee.

Mr M Booi (APC) stressed that, in his opinion, AGSA was part of the problem as long as it assisted the entities being audited with the preparation of their reports. He asked why, if people employed by departments were truly competent, so much incompetence was portrayed in the financial statements. He too was worried whether AGSA was maintaining its neutrality, and who took responsibility for mismanagement revealed in the audit reports of the entities. He asked if AGSA could offer advice on how SCOPA should effectively carry out its oversight functions on the relevant entities, to curb the recurrence of the concerns.

Mr A Shaik Emam (NFP) confirmed the effectiveness and commitment of AGSA at the municipal level. He pointed out that there seemed to be a misinterpretation about the regulations. There was a huge difference between the way AGSA interpreted the regulations and the way the local councils were interpreting, and said that municipalities did not appear to know what their mandate was. Irregular expenditure was often explained away as having achieved value for money, but the real question was why it was irregular expenditure in the first place, particularly since the rules governing expenditure were clearly set out. It was possible that fraud and non-compliance could be hidden in the irregular expenditure. Entities now “regularized” irregular expenditure before their books were audited by AGSA. He suggested that references to “clean audit” should be dropped. The reports could be unqualified, but there were too many anomalies in the accounts to certify them clean.

Mr Emam also asked what role AGSA could play when issues bordering on corruption, non-compliance and the like had been identified, and what recommendations it would make to SCOPA to ensure that entities or individuals were held accountable for mismanagement. Most often, after entities had been notified of the AGSA findings and had worked on their books and reported back to AGSA, there was no further follow up from AGSA, and he thought this would impact on AGSA’s effectiveness in ensuring that issues raised had been sorted out by the entities. He agreed that there was a danger that when AGSA assisted entities to prepare their financial statements, this posed the risk that the independence of AGSA could be compromised, as well as showing that the capacity required in the departments was not there. AGSA needed to recommend that the key positions should be fully capacitated to ensure that there were no recurrences of these anomalies.    

Mr T Brauteseth (DA) observed, from the AGSA report, that over 54% auditees had unqualified audits with findings. This figure seemed to depicted that there was simply a “culture of reckless mediocrity”, rather than a culture of excellence. He wondered if there was legislation that allowed entities to “regularise” the financial statements, as was currently being done, wondered if that was not the reason why entities were lackadaisical in ensuring proper financial statements, and asked if there was not some way to tie up these loose ends and strengthen the legislation.

Mr Brauteseth agreed that the issue of capacity was crucial and it was a challenge in South Africa. he suggested that a mechanism should be considered whereby there was oversight from the AG, the Accountant-General or another competent authority, involving these offices in the appointment processes for financial officer, to ensure that only those with the necessary capacity and moral fortitude were appointed.

Mr M Hlengwa (IFP) wanted to know the extent of the interventions, the corrective actions and the sustainability of the interventions being carried out by AGSA over the auditees. He asked to what extent consultants were being used to prepare financial statements for the departments and entities, and questioned whether this was not mispresentation or a falsehood, when the impression was created that it was the entity itself that had the capacity and competence to produce correct financial statements. He asked whether it was possible to have regulations to safeguard this.

The Chairperson said that departments and entities were supposed to have internal audit units or committees, who should audit the financial records before AGSA entered the picture. The findings of the Internal Audit Unit should be reported to the management, who should respond accordingly. If errors were then still observed by AGSA, it meant either that there was a weak internal audit system or the management had ignored the reports from internal audit. He was in total agreement with the Members that the phrase “clean audit” was misleading. AGSA should include all necessary criteria to be reached to certify that audit reports were “truly clean”.

The Chairperson asked if AGSA gave guidelines and standards to private audit firms, to assist them in the auditing of entities allotted to them. From his past experiences, it was sometimes the case that the quality of reports given by these private audit firms was not too helpful to oversight. He also asked for AGSA’s standpoint on the auditing of universities, which also had access to public funds.
   
Ms Ratsela appreciated the comments and compliments of Members. She firstly allayed the fears and concerns about the perceived risk to the independence of AGSA, should it assist auditees. All AGSA’s auditors had been trained and were quite clear on the ethical principles that governed the independence of auditors, and where this independence began and ended. If AGSA must build an institutional capacity for the government, then it must also give value-adding recommendations to the entities and oversight bodies. That was why the interventions were crucial. It was also of note that AGSA, having access to both sides, would be able to identify any gaps. However, AGSA would never put itself in the position where it would audit its own work. About 18 months ago, AGSA started pre-auditing the Performance Objectives of departments, because oversight bodies were best equipped when they had insight into the quality of performance objectives.

Ms Ratsela was not convinced that the regulations were either erroneous, or too stringent, but noted that the regulations fell in the jurisdiction of the National Treasury and not AGSA. Three critical indicators - Financial Information, Performance Information and Compliance – were set out as specific requirements of the PFMA when auditing financial statements, so it was not possible to include other criteria, as one Member had suggested. In regard to materiality, from the audit point of view, AGSA remained convinced that the indicators used were sufficient to highlight risk areas managers, and oversight bodies would subsequently act on the information received. She maintained that the AGSA had enough “teeth” to ensure that the aspirations highlighted were carried into action, and for it to remain the relevant supreme independent auditor for the country. 

Ms Ratsela said that nearly a thousand audits were performed yearly, of which 75% were undertaken by AGSA, and 25% were assigned to private auditors. This helped AGSA not only to manage the very tight reporting deadlines but it also drove cross-pollination between AGSA, as the supreme audit institution, and private sector auditors, which would only serve to enhance private sector firms’ knowledge of the public sector. She repeated that the independence of the Office of the AG was enshrined in the Constitution and every South African must protect it. Any private audit firms that audited entities did so with the AG’s oversight.

Ms Ratsela said the need for AGSA to engage more effectively with the Portfolio Committees was a good point, and was noted.

She explained that AGSA did not audit every aspect of the financial statements of entities, because the Internal Audit Unit of such entities was supposed to do that. AGSA has specific duties which must be strictly adhered to. The structure of AGSA was not designed to address every aspect of the financial statement. If every aspect was to be audited, it would not only be time consuming, but AGSA would end up by taking on the roles of other players.

She noted that councillors should be equipped to perform with excellence in their tasks. A book on consequences had been published by AGSA, summarising the responsibilities of all the key players involved in the financial or audit process. These insights must be built upon, to ensure that people adhered to a culture of excellence and that there was no tolerance for ill discipline and deviation from the norms. She emphasised that AGSA could not be involved with the processes of appointing financial officers to entities, as this would diffuse the independence and neutrality that AGSA is supposed to maintain.

Finally, she noted that deliberations were ongoing with the Department of Higher Education and Training on the auditing of universities, and these would be formalised soon. 

Accountant-General: Briefing on mandate, role and functions of the National Treasury and Provincial Treasuries
Mr Michael Sass, Accountant-General of South Africa, National Treasury, briefed the Committee on the role and function of his office. He began by detailing the powers assigned to the National Treasury (NT) under the Public Finance Management Act of 1999 (PFMA), which were to:
- promote the National government’s fiscal policy framework and co-ordinate macro-economic policy
- co-ordinate inter-governmental financial and fiscal arrangements
- manage the budget preparation process
- exercise control over implementation of the national budget
- facilitate implementation of the annual Division of Revenue Act
- monitor the implementation of provincial budgets,
- promote and enforce transparency and the effective management of Revenue, Expenditure, Assets and Liabilities (REAL)
- perform the functions of the National Treasury in terms of the PFMA.

He explained that in order for National Treasury to implement the PFMA, it must prescribe uniform Treasury norms and standards, enforce the PFMA and Generally Recognised Accounting Practice (GRAP) in national departments, monitor and assess implementation of the PFMA, and assist to build capacity for effective and efficient financial management. It must also investigate any system of financial management and internal control, and intervene by taking appropriate steps, which may include invoking section 100 of the Constitution. It may do anything further that was necessary to fulfil its responsibilities.

Actions required by the National Treasury to implement the Municipal Finance Management Act of 2003 (MFMA) were to:
- monitor the budgets of municipalities,
- promote good budget and fiscal management by municipalities
- monitor and assess MFMA compliance in municipalities
-  investigate any system of financial management and internal control
- take appropriate steps if a municipality committed a breach of this Act.

The Provincial treasuries must monitor the compliance in municipalities in their respective provinces on the MFMA requirements around the budget preparation, the monthly outcomes of budgets, and the submission of reports required in terms of the MFMA.

Mr Sass then explained the purpose of the Office of the Accountant–General (OAG). It facilitated accountability, governance and oversight in the public sector by promoting the effective, efficient, economical and transparent management of REAL in the South African public sector. OAG provided, amongst others, technical support services, accounting support and reporting, internal audit and risk management support, specialised audit services, governance monitoring and compliance, MFMA implementation, and capacity building.

Technical support services developed policies, guidelines and frameworks on matters related to accounting, internal audit and risk management. It involved developing public sector financial reporting requirements, participating in the International Public Sector Accounting Standards (IPSAS) Board for the development of local and international public sector accounting standards, developing of accounting, internal audit and risk management-related frameworks, policies and guidelines for the public sector. It also developed strategies to migrate from cash to accrual accounting and contributed towards the development of a chart of accounts for PFMA and MFMA compliant institutions.

The purpose of accounting support and reporting services was to provide accounting and reporting support to PFMA and MFMA compliant-institutions, and to manage and report on the National Research Fund (NRF) and the Reconstruction and Development Programme (RDP) Fund. It involved providing accounting support, contributing towards the development of, and guiding the implementation of accounting policies, guidelines and frameworks, assisting institutions to resolve audit outcomes on accounting-related matters. It prepared and published monthly reports on the state of the budget, prepared the Annual Consolidated Financial Statements (ACFS) and provided consolidation guidance to provincial treasuries.

The internal audit team provided IA support to all PFMA and MFMA compliant institutions. It contributed towards the development of policies, guidelines and frameworks, guided the implementation of all IA policies, guidelines and frameworks, assisted institutions to resolve audit outcomes on IA related matters, provided technical IA support to all institutions, and facilitated implementation of local and international IA best practices. It also facilitated Quality Assurance Reviews in institutions and facilitated knowledge sharing initiatives through fora and workshops.

The risk management services provided risk management (RM) support to PFMA and MFMA compliant institutions. It contributed towards development of policies, guidelines and frameworks, and then guided their implementation. It provided technical RM support to institutions, assisted institutions to resolve audit outcomes that were RM- related, facilitated implementation of local and international RM best practices, facilitated knowledge sharing initiatives through fora & workshops, and provided fraud prevention support to institutions.

The specialised audit services provided financial management investigative capacity to public sector institutions in all the three spheres of government. It intervened to rectify the breakdown of financial management in PFMA and MFMA compliant institutions. It investigated instances of fraud and corruption in institutions, and liaised with other investigative organs of state, the Hawks and SAPS. It provided assurance on systems of Financial Management (FM) and institutional integrity, provided specialised finance management training to investigative organs to assist with their public sector investigations, and it served as expert witnesses in the prosecution of persons charged with fraud and corruption.

The governance monitoring and compliance (PFMA) services monitored financial management governance and compliance with legislation in PFMA compliant institutions. It maintained the PFMA regulations and the issuing of instructions, and co-ordinated implementation of the PFMA in all institutions It provided guidance on the interpretation and application of the Act, and regularised the monitoring of financial management and the annual submission of progress reports to SCOPA and the Portfolio Committee on Finance. It analysed, and reported on audit outcomes to Cabinet. It developed various guidelines to assist with PFMA implementation. This unit also represented the National Treasury at Organisation of Economic Co-operation and Development (OECD) anti-corruption activities, and provided PFMA support to provincial treasuries.

Overall, Mr Sass noted that the National Treasury built capacity by implementing the public sector Capacity Building Strategy, identifying financial management training needs for the public sector, coordinating the development of training material with the National School of Governance. It had occupational profiles and training dictionaries for financial management personnel, and was implementing interventions to address identified training needs. It was responsible for the standard Operating Procedures for departments, managed the National Treasury’s Training Outside Public Practice (TOPP) programme and managed the Financial Management Improvement Programme.

Finally, Mr Sass highlighted the role of SCOPA in the protection of the public purse. SCOPA must place specific focus on the General Report of the Auditor-General, matters raised in the individual audit reports of departments, check for compliance with laws and regulations (including PFMA & Treasury Regulations). It should interrogate instances of unauthorised expenditure, irregular expenditure and fruitless and wasteful expenditure. It must check the functioning of transversal systems and financial, risk and personnel management systems, supply chain management and contract management. It should enquire into major financial losses suffered by the Government, corporate governance and ethics, issues of financial probity (fraud and corruption), disposal of significant state assets, and tenders of national importance, condonation of irregular expenditure, and the consolidated financial statements of government. SCOPA should share information with other Parliamentary committees.

Progress made with PFMA Compliance
Mr Jayce Nair, Chief Director: Governance Monitoring for Compliance, National Treasury, explained that implementation of monitoring strategies was done through the National Treasury, as mandated in sections 6(2)(c) and 6(2)(d) of the PFMA. NT administered questionnaires to Departments, set normative measures for financial management, analysed the Auditor-General’s reports and the Financial Management Capability Maturity Model (FMCMM). The FMCMM was based on the Canadian model that had been previously used as an auditing tool but was now used as a financial management (FM) tool. It had different levels of maturity. It improved control environments and Dipstick assessments of financial health.

FMCMM maturity models provided best practices, measured standards and created improvement paths. FMCMM assessed the status of the FM at a given point in time, identified areas of excellence and concerns and identified the gaps in the control environment, with a view to making improvements. Its methodologies and limitations included self assessment by the Chief Finance Officer (CFO) and staff assigned by the CFO. The CFO was required to sign off the responses using high level validation through reference to external source information, provisions for internal audit validation and limitations and assessments that relied on the accuracy, honesty and completeness of the responses.

He described the various levels in the FMCMM as: Level 1 – Start-up, where there was no proper framework; Level 2 – Development, where there would be proper internal control framework. Level 3 – related to Control, where there was focus on compliance and control. Level 4 – Information – measured how resources were used. Level 5 – looked to manage the use of resources with effective results. Level 6 related to optimizing, where there should be continuous improvement and learning. 

The results of assessments would be communicated to the CFO, through a “heat map”, development of strategies and corrective plans, support plans and provision of capacity needs. These comprised the Learning Framework used by the AG / Internal Audit / Risk Management and Consolidated Reports to SCOPA and the Standing Committee on Finance. The status of FMCMM included comprehensive revision of questions in the model, new questions for the departments, constitutional institutions and Schedule 3A and 3C entities. It measured the spectrum of financial management, through five modules related to governance and financial management (previously MS-Excel based), an electronic platform and alignment with the Management Performance Assessment Tool (MPAT).

Mr Nair set out a summary of the key audit findings. These related to poor governance processes, the failure to report effectively on pre-determined objectives, the lack of proper internal controls, non compliance with laws and regulations, poor systems to manage revenue, expenditure, assets and liabilities and findings consistent with previous FMCMM assessments. The reasons for late or non-payment of invoices included unresolved supply chain management (SCM) related issues, unresolved invoice discrepancies, lack of timely approval of payments, tax clearance certificate issues, Standard Chart of Accounts (SCoA) related issues, IT systems issues, inadequate internal capacity, inadequate budget or cash flow management, and delays in submission of invoices or processing and Banking details queries. The National Treasury intervened by revising the Treasury Regulations, and through strategic support plans, capacity development strategies, public sector expert practice committees, the Chartered Accountants Academy and Risk Management Forum. It dealt with issues of supply chain management, fraud prevention, financial accounting and reporting, and Forum of South African Director-General (FOSAD) reports, to ensure that payments were made within 30 days. It instituted an invoice tracking system and had seconded National Treasury officials. Additional information on the modules of FMCMM, a summary of the audit outcomes, the improvements received on the audit outcomes, the comparative analysis of audit outcomes between 2007-08 to 2012-13 of the National and Provincial Departments and the rate of invoices not paid within 30 days, were included in the presentation slides.

Discussion
The Chairperson wanted to know what had been done on the installations of IT systems, and asked about the time frame for its implementation. He asked how the NT would ensure that the risks associated with IT systems would be minimised. How effective was the National Treasury, since it seemed from the AG’s report that there were obvious gaps, and proper compliance methods were not being enforced, especially in internal control systems? He questioned what internal control processes and systems were applied by the NT. He wondered if a better report could be provided, which would be informative and provide more assistance to SCOPA in its oversight functions, instead of reports that were “telegraphic”.

Ms Litchfield–Tshabalala asked why the Canadian model was being used, whether it was also used in the rest of Africa, or if each country was free to choose its own model based on those of any Western country. She also enquired if there was a continental body that standardised the models that were being used. She was wary of models being adopted from the Western world and expecting that they automatically fit into the African setting.

Mr Sass replied that the idea of the integrated IT systems started in 1999. The National Treasury received approval from the Cabinet in 2002 to develop the system. The first efforts started in 2005, as a joint venture between the National Treasury as the custodian of procurement and financial policies and procedures, the Department of Public Service and Administration (DPSA), which was the custodian of HR related policies and procedures, and State Information Technology Agency (SITA), the implementation agent of government on IT systems. Initially the agreement was to develop all the programmes from scratch. However, South Africa had a limited number of people to graduate into these professions, and other delays occurred, which slowed implementation down to a standstill. About a year ago, the project was moved to the office of the Accountant-General. Previously, there were five modules, of Human Resources, Payroll, Finance, Supply Chain and Business Intelligence. Supply Chain had another four sub-modules, which meant that nine systems interfaced with each other, to reach 81 stages, which, multiplied by the other four modules, became 364. NT realised that this was not feasible. It therefore conceptualised, and switched to the “Single Cut ERP Solution”. In recent discussions with SITA, a timeframe for full implementation was suggested as 2021, at a cost of R4 billion, and R1 billion had already been spent. NT was confident that it was now on the right track to achieve much more in terms of information and reporting. |

Mr Sass added that AGSA belonged to an international body that ensured that each member state maintained a unified set of principles. The Eastern and Southern African Association of Accountants met regularly to streamline training needs. South Africa currently held the Chair, taking over from Botswana and would hand over to Tanzania next year.

Mr Nair added that it was merely the concept of the Canadian model being adopted. The actual model would still be customised significantly for South Africa. Three other African countries had shown interest in the SA model and desired to replicate it.

The Chairperson proposed that the issues around irregular, unauthorized, fruitless and wasteful expenditure should be discussed at another time, in addition to the Supply Chain matters. He expressed appreciation to AGSA and NT for their engagement.

The meeting was adjourned.