Annual Report by Auditor-General; Committee Resolutions

Meeting report

PUBLIC ACCOUNTS STANDING COMMITTEE
6 September 2000
ANNUAL REPORT BY THE AUDITOR GENERAL; COMMITTEE RESOLUTIONS

Chairperson: Dr G Woods (IFP)

Documents handed out:
Annual Report of the Auditor-General [this report should be available shortly at www.agsa.co.za]
General Report on the Accounts of National Government for year ended 31 March 1999 [this is a .pdf file - you will need adobe acrobat reader to view this report]

SUMMARY
The committee finalised and adopted resolutions for the following departments for 1998/99 financial year: Communications, Constitutional Development and the much criticised Justice Department.

The Auditor-General's General Report was divided into three parts:
- Overview
- Part I: Audit report on the accounts of the national governments departments for the year ended 31 March 1999
- Part II: General audit information and matters of a transversal nature.

The Guest Speaker, Mr Sehoole discussed financial management with reference to Human resources and systems management. He stated that the two were interrelated and inter-dependent.

The CEO of the Office of the Auditor-General, Mr Nombembe, presented the Annual Report of the Office of the Auditor General.

MINUTES
Finalisation and Adoption of Committee Resolutions
The committee finalised and adopted resolutions for the following departments for 1998/99 financial year:

The Resolution on the Vote: Communication
This was finalised and adopted with slight changes to the grammar and spelling. It was noted that issues of non-compliance and weak internal controls often lead to irregularities.

The Resolution on Vote: Constitutional Development
This was finalised and adopted with no changes. The Committee commended the department on the steps taken to ensure appropriate control over the extensive transfer payments made by the department.

The Resolution of the Vote: Justice
This was finalised and adopted. The committee was deeply disappointed by the Justice Department's continued poor performance:

Financial Management
The report of the Standing Committee of Public Accounts stated that there were widespread and fundamental problems with financial management issues. The Committee was deeply concerned that the Department of Justice was five months behind schedule in the implementation of the three-year plan to turn the department around and showed no signs of new recovery. Since the training of the financial managers had not yet started, it seemed as if the problems encountered would only be solved three years on. The deterioration in financial management had to be halted immediately and not three years down the line. He suggested that a Chief Financial Officer be appointed immediately as a matter of priority since the acting manger had left. This appointment would ensure that there was one person who could take responsibility for the problematic issues highlighted in the report.

Part of the improvement plan required that the department must report monthly to the committee on the progress of the business plan until the Committee was satisfied that there was progress in the implementation process. He stated that management reports had been requested but had not yet been received. He expressed concern that their reports would have to be in before the end of the year and that the deadline would not be complied with. He stated that the ideal situation would be ministerial interference. This would not normally be the line of action taken by this Committee but that there was no other route to ensure progress and reduce the severity of the situation. If progress were not recorded by the end of this year, the National Treasury would be asked to step in.

Decentralisation was considered to have a negative impact on financial management due to lack of financial management capacity in the regions. The Committee recommended that the review of the effect of decentralisation of financial management be expedited. It was also suggested that the Director General ensure that the required resources be made available and that other corrective measures be implemented without delay.

Audit Committee
The Committee noted that the members of the internal audit being co-opted to the audit committee were unacceptable and stated that the independence of the audit committee be ensured. Corrective action had already being taken but a more formal measure was requested. Mr Feinstein stated that the audit committee could only be effective if they had access to all information relevant to the task. He noted with disdain that this had not been the case so far. The Committee recommended that it be furnished with reports on a quarterly basis from its chairperson. The reports should include risk analysis and the effectiveness or otherwise of the internal audit section.

Deposit Account
The Committee expressed concerned that the deposit account was in serious deterioration and those suspensions relating to fraud and financial irregularity have increased. The Committee was shocked that a deposit account handling public monies of about R2 Billion per annum had not produced any financial statements since the 1994-95 financial year and requested that financial statements be compiled for the past four years unless the audit finds that this is not possible.

The Committee recommended that the Auditor-General initiate a special audit on the deposit account to address whether the systems and method of work will enable the production of financial statements that are reliable and auditable. It was also recommended that auditors investigate the feasibility of ring-fencing the old business from the new.

Recommendation for Justice Department
The Committee also recommended that the Justice Department draft regulations to ensure that investigating units report on their achievements in an auditable manner on a regular basis. This would remove any confusion around exactly what they do generally and this would be a great benefit to Parliament.

Discussion
Mr Gumede (ANC) was concerned that recommending that the Ministry of Justice assess the progress in respect of the Department's financial management may blur the lines of accountability. He urged that the separation of powers be taken into and was concerned about the impact this would have on precedent.

Mr Andrew (DP) said that he recognised that the committee was suggesting a more interventionist approach than was the norm. He suggested that the sentence be deleted.

The Chairperson asked the Auditor-General to comment. Mr Fakie stated that he was not clear on this issue and suggested that the State Law Advisor, Adv Meyer, comment on accountability.

Advocate Meyer was called in to respond to the question posed by Mr Gumede. He stated that the word "intervene" may pose some problems in the practice of it. He wondered what the implications of intervene would be in terms of financial management in the judiciary. He suggested that the word "investigate" be used rather than "intervene".

The Chairperson noted that there were a number of subclauses that stated there would be a scope for intervention. To this Advocate Meyer responded that it would be in order to have that clause.

Dr Mulder asked what had caused the deterioration in the department.

Mr Andrew responded that in 1994-95 the department had to absorb many structures such as the homelands. In 1997-98 the department began the process of decentralisation for the financial management of the different regions. He stated that there was insufficient capacity management at the different levels. This created instances of confusion as to responsibility.

Dr Mulder commented that the work of the Committee was excellent and congratulated them.

Mr Gumede referred to previous resolutions, which indicated an injection of skills and expertise in different people and then a distribution of these people to different areas. He wanted to know what had come of that. He stated that there is a vast difference between a court in Johannesburg and a court in a little Karoo town in terms of staff and management. He wondered how that gap could be filled.

The Chairperson stated that the response should only include the finance aspect of the question.

Mr Andrew stated that training workshops had been set up. He said that it had not progressed very far even though the planning on paper had been approved. This was due to the paucity of implementation procedures and lack of management.

Office of the Auditor General: Annual Report
The Auditor-General, Mr Fakie, introduced their guest speaker, Mr I Sehoole, President of South African Institute of Chartered Accountants

Mr Sehoole discussed financial management with reference to human resources and systems management. He stated that the two were inter-related and interdependent.
He said that Human Resources often expresses frustration and complains that they are doing the best they can to train and retain people, but that there is a continual loss of people to the private sector. To this extent the government has to compete with the private sector. He explored the implication of this, stating that if commercialising everything including Parliament would be the wrong approach.

He stated that the business sector faced their own problems with performance and delivery, though to the public sector it seems as if the grass is greener on the other side. When comparing the two, the business sector fares better than the public sector but if it is compared internationally it is found that it fares far worse than other private sectors globally. He urged that the government system be seen as unique to be dealt with differently from the private sector. Setting up an agency to make government competitive would be very expensive. It would be worth it for government to recruit people of integrity with the promise that they will deliver.

He noted that the government was willing to deliver but lacked the tools to deliver. It was important from a delivery point of view that government had to govern efficiently. He noted that this would involve a certain degree of creative thinking.

The Chairperson expressed appreciation for Mr Sehoole and noted that the messages that came through in his address were strong but with the edge of encouragement. It is an issue of systems and tools being in place.

Presentation of Annual Report by the Auditor General
Mr Fakie read from the General Report on the Accounts of the National Government for the year ended 31 March 1999 assisted by his colleagues, Mr Clarence Benjamin and Mr Terrence Nombembe. The General Report was divided into three parts:
- Overview
- Part I: Audit report on the accounts of the national governments departments for the year ended 31 March 1999
- Part II: General audit information and matters of a transversal nature.

The Auditor General highlighted the following matters:
Financial management
- The results of a survey on financial management conducted by the Office indicated that considerable progress has been made in certain areas. However, particular concern was registered about the lack of independent audit committees set up in national departments, unreliability of internal audits, inadequate management of debtors and non-compliance with Treasury instructions

Auditing in the provinces
There are many deficiencies in financial management in the provinces. Although there had been a slight improvement in some provinces, it would require a concerted effort from all provinces to submit their financial statements timeously in the following year.

Local government finances
It had been noted that the financial position of many municipalities had deteriorated even further since the previous year. This was ascribed to the failure of communities to pay for services. It was recommended that central government provide for the payment of audit fees in cases where all other avenues have been exhausted.

He also spoke on Unauthorised expenditure, Performance auditing (the shortcomings relate primarily to the disclosure of the extent of the achievement of objectives and performance information) and Computer auditing (high staff turnover is a problem).

The CEO of the Auditor-General's office, Mr Nombembe presented the Annual Report of the Auditor General.

Discussion
Mr Andrew asked for further detail on unauthorised expenditure, local government debt and computer auditing.

The Auditor-General responded that unauthorised expenditure had dropped and that the number of departments that contributed to unauthorised expenditure had reduced from 26 to 23. With regard to local government, issuing letters of demand and taking legal action against them would reduce the impact. There was great concern over the high staff turnover and the inability to retain recruited staff that had been trained. Mr Fakie said that the best route to follow with this matter would be to have contract agreements in order to get something out of the trained staff.