Workshop with Auditor General of South Africa on its role and mandate

Meeting report

Briefing by Auditor-General of South Africa (AGSA)
Mr Lourens Van Vuuren, Business Executive, AGSA, highlighted that the purpose of the meeting was to give an introduction in to the role and function of the AGSA. He said they would start the presentation by showing a video called a Million Bags of a Million Rand. He made a continuation from the video stating that it was important to focus on the reputation promise of the AGSA. The mandate dictated that the Auditor-General of South Africa had a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it existed to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. He noted that in this process AGSA engaged with portfolio Committees, showed outcomes, reported causes of audit outcomes, to assist the portfolio Committees. He indicated that he would do the first part of the presentation and Mr Ahmed Moola would do the second part.

Background of AGSA Mandate
Committees must look at the legislation to which the AGSA received its mandate. AGSA was a chapter 9 institution. It was established in terms of Section 188 of the Constitution. This was supplemented by the Public Audit Act. In terms of the Public Audit Act, the AGSA considered express opinions on financial management and compliance with laws and regulations, and all entities should report on its progress and AGSA must express findings. Currently, AGSA just reported on significant findings. It was important for Members of the Committee to read through the mock AGSA audit report to enhance their understanding.

Responsibility of Accounting Officers
In terms of responsibility of the accounting officer, it was very important to look at the section in the legislation to establish what officers should or should not be doing. Looking at performance there were a couple of frameworks that should be considered. In terms of Human Requirements, one of the important issues to note was that of unfilled vacancies.

The regularity audit considered what auditors do and not do. They should provide assurance that the financial statements are free from material statements. There should also be reporting on the usefulness and reliability of the information in the amended performance report. A key focus should however be put on reliability. There should also be material compliance with key legislation. In addition, key internal controls should also be identified. It was important to note that the primary responsibility of any audit was not to identify fraud, but however in cases where it was identified, it will be reported to management.

AGSA Products
Considering the AGSA products, one of the outputs of the AGSA was the information systems audit. A check was made to look at if those systems are reliable, accurate and complete. In terms of a performance audit, it was a discretionary audit which the AGSA may decide to focus on specific areas. Much focus was on the three E’s, effectiveness, efficiency and economy. In terms of investigations, the AGSA may also conduct investigations, but they are also discretionary. Special audits are also discretionary and can focus for example on donor funds.

Considering the performance audit, a focus was also given at economy, efficiency, and effectiveness. It was also a discretionary audit. A performance audit is therefore not conducted at every audit. In terms of the timelines of the audit cycle, all financial years of auditees end at 31 March. All financial statements end on 31 May. By 30 September, submission of annual reports by auditees should be done to parliament in terms of s 40 of the Public Financial Management Act (PFMA). A General Report is also made on the outcome of the whole PFMA process. This was a very good tool to use. It is summarized as per ministerial portfolio. It is very important that the Committee focus on the PFMA audit report.

Consideration of Audit Report
Mr Ahmed Moola, a Senior Manager at AGSA considered the audit report. There must be a report on the financial statements. In terms of this, report on compliance with rules and regulations. There must also be sections on internal controls to highlight the deficiencies. If there are other reports, they will also be highlighted. Good administration/clean audit entailed that the financial statements are free from material misstatements, there are no findings on compliance with laws and regulations, and there are no material findings on the performance report. There are four different types of audit opinions, namely unqualified, qualified, disclaimer, and adverse. An unqualified audit opinion is when financial statements give a true and fair view in accordance with the applicable financial reporting framework. Disclaimer opinion is when there is a lack of sufficient appropriate audit evidence to express and opinion. Adverse opinion is when the auditor disagrees with the representation made by management in the financial statements to the extent of confirming that it’s not a fair reflection of the financial position, performance and cash flow.

Considering the audit on predetermined objectives, there must be compliance with regulatory requirements, usefulness and reliability. In terms of reliability the actual performance of the department must be substantiated. The audit report structure, there must be a report on the financial statements, report on other legal and regulatory requirements, internal control, as well as other reports. The AGSA also extends its visibility beyond its mandate. The AGSA provides the oversight Committees in parliament and all legislatures with briefings on root causes and recommendations on corrective measures to improve audit outcomes before the entity hearings. The AGSA assists in developing required leadership competencies through mentoring, coaching and leadership programmes and processes for effectively managing change. The AGSA also consults widely with the stakeholders in the executive and legislatures prior to tabling the General Reports that consolidate the audit outcomes of National, provincial and municipalities. The General Reports are tabled in Parliament & Legislatures. There must also be strategic planning, budgeting, implementation as well as reporting considering all the matters.

Oversight key timelines
In terms of the combined assurance model, there are three main levels.  These are management assurance which is the first tier of assurance, oversight assurance, and independent assurance which forms the third level of assurance. Management assurance ensures daily checks and balances are in place to ensure credible monthly and quarterly reporting (AFS and APR).There should also be a process of consequence management for poor / non-performance. Implementation and monitoring of actions plans should be in place to address internal control deficiencies which have set milestones and expectations. In terms of oversight assurance a look is first taken at the internal audit where it is necessary to ensure quality assurance of the monthly and quarterly financials and QMR’s before final sign-off by the executive authority and submission to the portfolio Committee and to follow up on the status of the action plans implemented. In terms of the audit Committee, risks must be monitored and commitments implemented. These oversight functions should be fully effective and operational throughout the year. In terms of the independent assurance the must be a review and monitoring quarterly progress on the implementation of action plans to address deficiencies reported.

There were also tools that assisted in the briefing process. These were the Annual Report, AGSA Briefing Notes, Accounting Officer and audit Committee reports, Estimates of National Expenditure, and the State of the Nation Address/ Budget Speeches. Reporting by departments and entities must be reliable, accurate and complete Annual Reports submitted.  AGSA review of annual reports is critical in ensuring complete, reliable and accurate reporting. Oversight Committees must also obtain an understanding of the entity and the Annual Report of the entity must be studied prior to the briefing and hearing. In terms of the actual briefing process the AGSA briefs on root causes of audit outcomes. The root causes are linked to the Key Focus Areas and analysis and understanding of the Root causes of the audit outcomes by oversight must be displayed.  AGSA then makes recommendations to oversight in addressing the deficiencies reported. Oversight Committees issue their findings and must give a recommendation which addresses the deficiencies identified by way of resolutions. Recommendations made must have milestones and conform to the “SMART” principles. Entities must then compile an action plan to address the deficiencies. These action plans must have deliverable milestones and also conform to the “SMART” principles.  Progress on implementation of action plans must be give and measures to improve the audit outcomes must be reported to oversight for monitoring put forward.

Discussion
The Chairperson asked if any of the Members needed any further clarity.
Ms D Robinson (DA) asked Mr Moosa to repeat what was meant by the smart criteria.
Mr Van Vuuren referred to the Notes to the Presentation on the Audit Report where an expansion on the SMART criteria had been provided. SMART was an acronym which stood for:
S - Specific
M - Measurable - The required performance checks must be conducted
A - Achievable – The targets must be attainable
R – Realistic – Look at the mandate of the entity and links it to specific goals
T – Time Bound – is to say everything must be time specific. If it was a project that was going to run for a number of years, there must be a measurement of the progress after the first year and so forth.

The Chairperson said she would pose a controversial question. She asked that when talking about qualified and unqualified audits, what systems were in place to ensure that there were follow ups on entities and departments to ensure that they do not keep receiving the same audit opinions without taking corrective measures.

Mr Van Vuuren first noted that this was the reason why they are taking Members of the Committee through the audit process. He indicated that AGSA strives to make an improvement in the audit actions. The ideal situation in terms of legislation is that when financial statements are presented, they should be free from material misstatements. The focus was on the fundamentals of internal controls. If they do so, and follow these procedures they should not have reports that are not adequate and complete. What AGSA does is key control assessments and highlights to management what they must do, and failure in which they will not receive a clean audit opinion. Entities should have an action plan. AGSA also recommends that the Committee also engage with entities on a quarterly basis. Entities should present a plan of action to ensure that the failures will not be repeated. Key to this was the governance part.

The Chairperson said if there were recurrences then these people should be found guilty of a disclaimer. She indicated that this may be a bit harsh but AGSA had been giving defaulters too much leniency.

Mr Van Vuuren in response pointed out that it was important to note that the AGSA does not impose sanctions. He stated that in terms of sanction there is other legislation that needed to be applied and that is why there was the PFMA. He said s 38 of the PFMA indicates the duties of the accounting officer. Failure to comply with s 38, he would then have failed to discharge his duties. He emphasized that the AGSA had to comply with international standards. A distinction had to be drawn between the audit opinions and what is in the report. He mentioned that it was important for oversight to also play its part. It was clear that action should rather be taken in terms of legislation. He pointed out that severe penalties would not make a difference in the situation at hand.

Ms N Tarabella (DA) raised a question in terms of the allocation of funds.

The Chairperson responded by noting that there was a pending investigation under way and that there could be no further deliberations on the matter until the investigations had been completed.

Mr M Dirks (ANC) thanked the AGSA for their presentation. He respectfully disagreed with the AGSA that imposing a bigger sanction would not help to alleviate the situation. He hinted that the reason the entities where not willing to put extra effort to improve their audit opinions was because of the leniency of the AGSA and knowledge that very little action would be taken against them.

Mr Van Vuuren responded by saying because they apply international standard they could not give stiffer penalties but rather address the problems. He said the ideal situation is that there should be no negative audit outcomes.

Ms M Chueu (ANC) raised the question on who monitors the AGSA. She asked the question why the AGSA continues to bring men in their delegation over the years.

Mr Van Vuuren responded by saying that the AGSA was very transparent about gender issues. On the question of who monitors the AGSA, he said the AGSA reported to the Standing Committee on the Auditor General. He noted that for the current year they had already presented their report before the Committee.

Ms Chueu said she had been in government for many years and when the women came they did not present on take question, and that they just came to sit. She went further by saying that women policies must not just be in the books but must be practical. She noted that there were a high number of graduates who were women and were unemployed.

The Chairperson said she was not a feminist but she was gender sensitive. She said a paradigm shift was needed on how women issues were dealt with.

Mr Van Vuuren said in the coming period a woman would be taking over from him on the Committee on women in the Presidency.

Mrs C Majeke (UDM) asked the question on what the auditors are doing to set early warning systems that address problems and nip them in the bud rather than trying to solve problems once they are full blown.

Ms P Bhengu (ANC) asked the same question as was posed by Mr Dirk.

Ms N Tarabella (DA) made a follow up on her question and raised the point that she was not aware of any investigation underway and needed clarity on the matter.

The Chairperson said Ms Tarabella’s mentor, Ms Robinson, should advise her of the proceeding as she was part of the 4^TH Parliament. She however pointed out that she would raise the issue with the AGSA.

Ms Van Der Merwe (IFP) noted that many audit reports are not SMART. She asked if the AGSA could give a report as an example or benchmark.

Mr Van Vuuren replied that every report differs because the different institutions have different mandates. He also noted that there are also framework changes and thus it was difficult to use one department as a benchmark. Every department had to be assessed in terms of their mandates.

Mr Van Vuuren said there must be an allowance of change in the strategy throughout the year. However, he noted that any changes in the budget must be formally approved. The changes in the budget will only be allowed if the request was made within the same financial year. He said it was also important to use oversight in this process to enquire about the necessity of the changes. He mentioned that an allowance of 8% could be granted for changes in the budget. This would then be approved by the treasury.

Mr Van Vuuren on the question of what the AGSA did throughout the year, he said they had implemented the visibility program and focus on key controls. Hereby visits to municipalities are made 4 times a year. In these visits they sit down with management and raise any concerns that they would have seen. They also engage on a provincial basis and make the information widely available to the relevant stakeholders such as MEC’s, Mayors and Councillors.

Ms G Tseke (ANC) asked whether the AGSA had the capacity to carry out all the visits in the municipalities. She also asked whether it was necessary for most entities to solicit the work of consultants when the work could be done internally by employing people.

Mr Van Vuuren on the question on consultants, there were instances in which there was a need to seek the services of consultants. It depended on how the entity managed the entire process. He said there was a need for skills transfer from the consultant to the workers of the entity, however there was a duty on the entity to provide these workers. He also said consultants do not always do the wrong job but it may sometimes be as a result of the inadequate information that they receive.

Ms Tseke asked that her question on capacity had not been dealt with.

Mr Van Vuuren said it was their strategy to make staff available for these visits and the question was rather if the leadership of the municipalities make themselves available for the process.

Ms Tseke noted that one hour was not adequate enough time to engage in discourse with the AGSA and requested that in future maybe more time be made available for the meeting or before the meeting.

The Chairperson asked for a seconder for the motion.

Ms Bhengu seconded the motion.

Mr Van Vuuren noted that if given adequate notice before hand the AGSA would be obliged to do so.

Consideration and adoption of the minutes of 8 & 29 July, 19 August & 2 September 2014

8^th July

Ms Robinson moved for the adoption of the minutes.

Ms Majeke seconded the motion.

29^th July

Mr Dirks moved for the adoption of the minutes.

Ms Van Der Merwe seconded the motion.

19^th August

Ms Robins moved for the adoption of the minutes.

Ms Tarabella seconded the motion.

2^nd September

Ms Tseke moved for the adoption of the minutes.

Ms Majeke seconded the motion.

Consideration and adoption of the draft report on the Commission for Gender Equality strategic plan for 2014/15

Ms Tarabella moved for the adoption of the draft report.

Ms Robins seconded the motion.

Consideration of the 2^nd term program

The Committee Secretary noted that the Committee had met on the 29^th of July, 19^th of August, 2^nd of September, 9^th of September, 16^th of September and were supposed to meet in the following week on the 23^rd of September, but that meeting had been cancelled.

Ms Robinson asked if there would be any oversight activities.

The Committee Secretary replied that there was a week of oversight scheduled in the term.

The meeting was adjourned.