Report: Study Tour to Ireland, Germany and UK, dated 13 March 2002:
A. Introduction
A delegation from the Standing Committee on Public Accounts (the Committee) undertook a study visit to Ireland, Germany and the United Kingdom from 15 to 25 January 2002. The broad aim was to exchange ideas and experiences with the Committee's counterparts in all three countries on the role of public accounts committees, to observe how these committees conduct their business and to learn from them.
Other bodies that the Committee met, were the Auditors-General and Treasury officials, to find out about working relationships with the public accounts committees.
The multi-party delegation consisted of:
ANC
1. Mr V G Smith, MP (Leader of the delegation)
2. Mr L Chiba, MP
3. Mr P A Gerber, MP
4. Mr D M Gumede, MP
5. Ms N L Hlangwana, MP
6. Mr B W Kannemeyer, MP
7. Mr N H Masithela, MP
8. Ms P K Mothoagae, MP
DP
9. Mr N S Bruce, MP
New NP
10. Col A Blaas, MP
UDM
11. Dr G W Koornhof, MP
Committee Secretary
12. Mr I K Dlamini
B. Ireland - findings
1. Meeting with Mr A O'Callaghan, Partner: Price Waterhouse Coopers
The delegation met with Mr O'Callaghan, a partner at Price Waterhouse Coopers and an expert in attracting foreign investment. He lectured the delegation on reasons that led to dramatic development in the Irish economy. He gave six reasons:
* Abandonment of protectionism
* Embracing foreign investment
* Investment in education
* Taking membership of the European Union
* Pursuing social partnership
* Enforcing fiscal rectitude
2. Meeting with public accounts committee (PAC)
(a) Nature and composition of committee
The PAC is the Committee of the Dáil House. The committee is appointed to examine and report to the Dáil on:
* Accounts showing the appropriation of the sums granted by the Dáil to meet the public expenditure and such other accounts as they see fit which are audited by the Comptroller and Auditor-General (C&AG) and presented to the Dáil, together with any reports by the C&AG thereon.
* The C&AG's reports on his or her examination of economy, efficiency and effectiveness of evaluation systems, procedures and practices.
* Other reports of the C&AG.
The committee has 12 members, six of whom are from the majority party and the rest from the smaller parties. The party representation in the committee reflects that of the House. The chairperson is traditionally elected from the opposition. Members of the PAC enjoy absolute privilege. The PAC has the power to investigate. However, it can recommend to the C&AG to investigate, but it is up to the C&AG to decide whether to do so or not. In most cases the C&AG honours the PAC's recommendations. Recently the PAC commissioned an investigation called the Deposit Income Retention Taxes (DIRT), which unearthed a lot of corruption in banks and which was very popular.
(b) Work method
Parliamentary standing orders require that, as much as practicable, committees should hold their meetings in public. However, the PAC holds meetings both in public and private sessions - it is up to the Committee to decide, based on the issues they dealing with at a given time.
The PAC normally meets on Tuesdays only, and meetings lasts approximately three hours. A work programme is prepared well in advance but may be changed as the need arises.
If the PAC has decided to call a hearing, it first issues a preliminary notice to the witnesses, followed by a formal notice.
Accounting officers are defined by law and are the ones who are called to appear before the PAC. In the case of government departments, Secretaries-General are in charge of implementing government policies and are therefore the ones who are regarded as accounting officers.
Through the Compellability Act, 1997, the PAC can compel a witness to appear before it. Witnesses do not enjoy absolute privilege, but can be afforded qualified privilege. This Act also has "escape clauses", which preclude the PAC from delving into areas like the Secret Service.
It is normally not difficult for the committee to reach consensus, because they do not question policy matters and parties cannot instruct their PAC members on what to do in PAC meetings.
(c) Other matters discussed
Members of the public who want to appear before the committee are required to make written submissions, and it is then up to the committee to decide whether to afford those individuals the opportunity. On the question of "prescription", the PAC can direct authorities to recover monies due to the State, but it does not have the power to recover monies itself.
(d) Resources
The PAC has four secretariat members - a committee clerk, an assistant and two secretaries. The committee has acquired new technology which assists in accomplishing its work easier.
(e) Lessons learnt
The PAC's membership does not change frequently. Some members have been with the committee for more than 10 years. This is to preserve experience and continuity in the committee.
The PAC's terms of reference precludes it from questioning on matters that deal with policy. Therefore Ministers, as custodians of departments' policies, are not called to appear before the committee.
Members of other committees are not allowed to participate in the proceedings of the PAC and are confined to the public gallery. The PAC does recommend that certain matters be referred to other committees.
During the DIRT enquiry, each member of the PAC was allowed to appoint a research assistant, and the committee was also allowed, through change in legislation, to appoint a subcommittee for the first time.
3. Meeting with Comptroller and Auditor-General (C&AG)
(a) Nature of office
The Constitution provides for the establishment of an independent office of the Comptroller and Auditor-General. The office normally conducts regularity, compliance and value-for-money audits. From time to time it publishes special and project reports. All C&AG's reports are presented to Parliament.
The office is understaffed because currently there is a boom in the economy, which results in accountants being more in demand in the private sector. As a result of this shortage of staff, the office contracts out work to private firms, but they have to be certified by the C&AG.
(b) Relationship between C&AG and PAC
The reports of the C&AG form the basis for the PAC's enquiries; the committee considers about 40 reports. There is a close working relationship between the C&AG's office and the PAC, as well as between the C&AG and the PAC chairperson. The C&AG is a permanent witness in all meetings of the PAC. If he is absent, an official from his office attends. During a hearing, questions can be posed to him and he can request to comment if he feels that the accounting officer is not telling the whole truth.
There is a liaison officer from the office who liaises with the PAC chairperson. One of his duties is to prepare the chairperson's brief before the hearing, highlighting important matters that should be covered. In preparing the brief, he sometimes liaises with the auditors who had conducted the audit of a department or public entity. Other members of the committee get the reports and it is up to them to read them and do their own preparations.
(c) Lessons learnt
Parliament nominates and recommends the C&AG for appointment, but it is the President who finally appoints him. The term of office of the C&AG is permanent until the retirement age of 65 years, and he can be removed from office by consensus of the two Houses of Parliament. Amongst other requirements, an accounting qualification is essential for this position.
During PAC meetings, the C&AG sits next to the chairperson, and he is the one who introduces the subject at the beginning of hearings.
The C&AG has set up an advisory group from various interested bodies, including the Institute of Chartered Accountants. This group helps to keep the office up to date with the latest developments in its field of operation.
The office also audits local government authorities who administer central government funds, and it is normal practice for the PAC to call the accounting officers of these authorities to appear before it.
The C&AG is an ex officio member of the Standards and Public Office Commission, where senior members of government and politicians declare their interests, gifts, etc.
The committee clerk drafts committee reports and sends them to the C&AG's office to check whether all matters are covered.
4. Meeting with officials of Department of Finance
(a) Relationship between finance department, PAC and other departments
The Minister of Finance replies to PAC recommendations through a "Minister's note". It is up to departments and entities to implement PAC recommendations, and they are not binding. The Department of Finance does not act as a supervisor to other departments, but only gives them information - it is up to them to use it. Therefore responsibility lies with departments themselves.
Unauthorised expenditure does not occur because departments stick to programmes spelt out in appropriation accounts.
(b) Expenditure control
To exercise control on departmental spending, the finance department maintains ongoing communication with them. Departments are required to submit progress reports every month, which indicate whether efficient controls are in place.
The finance department issues a statement every month on spending trends of departments; most of the time, departments supply reliable information. Every quarter the finance department holds a press conference to address questions based on these statements. If, at the end of a financial year, there is unspent money in a department's budget, it can negotiate with the finance department to have that money carried over to the following year.
(c) Internal audit
There is no legislation which stipulates that departments should have internal audit units. However, departments do have such units, although it is not clear whether all of them take this function seriously. Because of the risks that big departments face, they do take this function seriously.
There have been developments in the area of internal auditing. Previously the function used to focus on transaction processing only, but now it covers business processes and risks as well.
There is a lack of properly qualified auditors; the government has developed a one-year course, in the process of being accredited. Internal audit units report to line-function managers and ultimately to Secretaries-General.
(d) Accrual accounting
A new project, endeavouring to show inputs employed and outputs produced as well as liabilities and assets, has been introduced. It tries to track all government resources up to their point of impact on the economy. The project is not fully understood or supported by all departments, and the finance department is urging all departments to follow it. Contributing to the problem is that there is no legislation which says that appropriations should be in an accrual system.
(e) Lessons learnt
Accountability goes down to the third level, down from Secretary-General. This means that the committee can call to account departmental officials who are at principal officer level.
The "Minister's note" for one department is sent to all other heads of departments. The reason for this practice is that the matter replied to may be transversal.
There is no legislation which stipulates what could be done to accounting officers who have acted inappropriately. It is still in the process of being developed.
There is also no legislation which stipulates that departments should establish internal audit units.
C. Germany
The German system is in most instances different from the one which is followed in South Africa. Therefore, for the purposes of this Report, all the topics covered are regarded as lessons which have been learnt by the delegation.
1. Meeting with budget committee
(a) Nature and composition of committee
The budget committee is a committee of the Bundestag. It is principally responsible for the authorisation of budgeted funds. Each year it considers the draft federal budget for the coming year as well as any supplementary budgets or budgetary amendments submitted by the federal government.
It has three subcommittees:
* Finance - deals with taxation and related matters
* Public Accounts - processes reports of the Federal Court of Audit
* Audit - deals with the budget and budget control
All subcommittees meet separately and report to the whole committee. This means that the same group of people is responsible for both authorising and controlling the budget, thus ensuring a high degree of control effectiveness.
The Committee has 42 members, and party representation is reflective of the House. There is no party which has an absolute majority.
In terms of secretarial and research capacity, each member of Parliament is allowed to hire two to three assistants.
(b) Public accounts subcommittee (PASC)
The system of accounting by the government to the public accounts committee started in the 18th century. The subcommittee is considered a "knight without a sword", because it considers accounts after the effect. It has 17 members who come from other portfolio committees, and meets about 15 times a year.
The PASC has one rapporteur, whereas in other subcommittees each party has a rapporteur. Members serving in this subcommittee work independently and trust is placed in the rapporteur.
2. Meeting with Federal Court of Audit (FCA)
(a) Nature of office and relationship with budget committee
The FCA is independent from the government. The President and Vice-President are proposed by the federal government, elected by the Bundestag and Bundesrat, respectively, and appointed by the federal President. They are appointed for one term of office of 12 years. Members of the FCA enjoy judicial independence similar to that enjoyed by the judiciary.
The FCA has a total staff of about 700, of which 70 are members of the court and 450 are auditors. The President or Vice-President and at least one third of the members are required to be qualified lawyers.
Within the federal administration, the FCA audits the accounts of departments and examines the management of the budget and the conduct of business in respect of economy and correctness.
Other bodies that the FCA audits, are:
* All government agencies
* Federal government special funds
* Federal government enterprises
* Government participation in private law enterprises through direct or indirect holdings, giving consideration to commercial principles
The criteria of FCA audits are the regularity, compliance and efficiency of administrative activity. The FCA issues special reports on matters of particular significance where it considers that Parliament and the federal government should be informed without delay.
The FCA receives the provisional estimates of government departments and attends budget negotiations between the federal ministry of finance and government departments, and gives advice. It is also represented in the deliberations of the budget committee on government draft and at the preparatory rapporteur discussions.
Normally, audit reports on departments is in the form of an annual report containing a summary of audits on all departments that goes before the PASC. The whole audit report on an individual department goes before the PASC only if it contains significant findings.
The FCA is authorised to audit secret service agencies as well, and reports on these are considered by specific people within the PASC.
3. Meeting with members of federal ministry of finances
The Deputy Minister of Finance attends meetings of the budget committee and gives advice on the budget and audited accounts.
D. United Kingdom
Basically the system in UK is more or less similar to the one followed in South Africa.
1. Meeting with PAC and attendance of hearing
(a) Nature and composition of committee
The PAC is a committee of the House of Commons. It has 13 members and party representation in the committee reflects that of the House. The chairperson is by convention elected from the opposition. This is taken seriously and seen as essential for a democratic state.
(b) Work method
The work programme is prepared well in advance and the C&AG's reports form the basis for the committee's enquiries. The PAC does not deal with policy matters, but focuses on efficiency, economy and value-for-money issues. Ministers are not held accountable by the committee. Permanent Secretaries are in charge of departments' administration, and they are held accountable by the PAC. If by the end of the hearing, there are areas in the report which have not been covered by the members, the chairperson raises them with the accounting officer before closing the meeting.
The PAC has never voted - it reaches decisions by consensus. The fact that it does not deal with policy issues, helps in reaching decisions by consensus. The committee's recommendations are not binding to departments.
(c) Resources
The secretariat comprises of one committee clerk, two committee assistants and three secretaries.
(d) Lessons learnt
Some senior officials at the second level from that of the Permanent Secretary, who are in charge of big divisions within departments, are also held accountable by the PAC.
Permanent Secretaries are permanent civil servants and Ministers may not change them as they want.
Parliament allocates 60 000 Pounds to each member per year to hire support staff.
Membership of the Committee does not change frequently, so as to maintain continuity. Members serving in the Committee are mostly senior members; one member has been with the committee since 1965.
In doing committee work, members work individually and independently. During the hearings, each member is allocated 15 minutes to pose questions to witnesses.
In future, the PAC will also call to hearings contractors contracted by government departments.
2. Meeting with National Audit Office (NAO)
(a) Nature of office
The National Audit Office is independent of the government, and the C&AG is the head of the office. By virtue of his office, the C&AG is the Officer of the House of Commons. The office normally conducts regularity, propriety and value for money reports and produce about 40 reports a year on departmental financial statements and on value for money.
There are about 750 staff members, split between the types of audits conducted by the office.
(b) Relationship with PAC
The C&AG and the chairperson of the PAC meet frequently to discuss various issues of common interest. Since the chairperson guides the committee from dwelling on policy matters during deliberations, it is during these meetings with the C&AG where they get to discuss matters, including policy, which may have a bearing on the committee's work.
The C&AG or a representative from the office attends all PAC meetings. Before a hearing, the C&AG meets with the chairperson and gives him an indication of which questions would be important to raise with a particular witness. The C&AG also prepares a brief for the whole committee.
PAC resolutions are prepared by the NAO, and are mainly based on what had transpired in hearings. The NAO assists in following up information requested by the PAC from departments. It also handles other information and correspondence for the chairperson and evaluates all replies, including Treasury Replies, from departments.
3. Meeting with Her Majesty's Treasury (HMT) official
(a) Working relationship between HMT and PAC
There is a representative from HMT who attends all PAC hearings. After Parliament has passed PAC resolutions on C&AG reports, HMT co-ordinates replies to Parliament. If PAC recommendations in respect of a department are relevant to other departments, HMT informs them. HMT assesses departments' responses to check if all recommendations were responded to. Not all recommendations are accepted, but most are, and departments inform HMT if they are not going to implement PAC recommendations. The Minister of HMT would then report the reasons why it would be appropriate for a department not to implement such recommendations.
(b) Perfomance reporting and control over departmental spending
There are Public Service Agreements (PSAs), which are statements that set out the aims and objectives of each government department as well as performance targets, including measures of operations and outcomes. These statements are focused on outcomes and not inputs. Included in the PSAs is the statement of accountability issued by Ministers.
Specialist spending and delivery teams from HMT assist departments in planning their delivery and on how to achieve targets.
In monitoring and reporting on spending patterns of departments, HMT requires that departments submit monthly reports, indicating the stage they are at in achieving their targets. Information provided by departments is consolidated on a database and is presented to a Cabinet Committee every quarter.
Every spring, departments issue to the public progress reports against targets. A review conducted by the government showed that these reports were failing. At present Parliament relies on these reports and HMT is currently developing a new reporting format whereby departments will report to Parliament. The first report in the new format will come out in April 2002.
(c) Resource accounting and budgeting (RAB)
The original timetable for implementing Resource Accounting and Budgeting (RAB) was set out in 1995, with the time for full implementation set for 2001-02. The system follows Generally Accepted Accounting Practice as far as possible.
With the introduction of resource accounting, the Financial Reporting Advisory Board (FRAB) was set up in 1996. Its purpose was to introduce an independent element to the process of setting financial reporting standards for government, and to help ensure that, as far as possible, departmental resource accounts are governed by generally accepted accounting practice, and that any departures from or modifications to it are fully explained.
FRAB comprises representatives of interested bodies, and its terms of reference is to advise the Treasury on the application of financial reporting principles and standards in respect of the central government bodies for which the Treasury has responsibility as regards the issuing or approval of accounts directions.
A manual called the Resource Accounting Manual (RAM) was developed; the first working version became available in 1997. FRAB examined the manual after completion - it is in FRAB's terms of reference to keep it under review and to consider proposals for material change.
The Treasury must ensure that all relevant matters are brought to the attention of the board and consider all advice received from the board.
The board's remit has subsequently been extended to oversee accounting guidance in respect of executive non-departmental public bodies and trading funds, and also to the accounting policies underlying all government accounts.
The RAM is underpinned by accounting standards issued by the Accounting Standards Board (ASB) for the private sector.
The manual is updated due to changes in GAAP, issues arising in departments and reviews conducted on the functioning of the system. In updating the manual, a consultation procedure is followed which involves the HMT officials themselves, departments, the NAO and FRAB.
According to the timetable, the rehearsal implementation phase of resource accounts was 1998-99. The first resource accounts were scheduled to be published and laid before Parliament in 1999-2000, and the first resource-based estimates were set for 2001-02.
During the move to the new system the staff skills levels were low, and it was left to individual departments to develop staff according to their needs. Stock verification in big departments was a problem, and that was exacerbated by the fact that land and buildings are owned by individual departments. The financial accounting system is decentralised. The Treasury developed standard chartered accounts for departments to follow. Some departments use a similar system, whereas others prefer unique systems. It is also practice for departments to hire systems from one another.
(d) Computer management information systems
Departmental computer management information systems are decentralised and are stand-alones. HMT consolidates them and is at present trying to set standards to be followed by all departments.
An Office on Government Commerce (OGC) has been set up to lead a wide-ranging programme to modernise procurement in government and deliver substantial value for money improvements. OGC also serves as a central computer agency for the State.
(e) Financial management expertise in public sector
There is a Government Accountancy Service (GAS), a body of accountants, trainees and accounting technicians employed and managed within central government departments and agencies in a variety of government accounting roles.
The objectives of GAS are:
* To improve financial management
* To provide information
* To provide information on employment opportunities and developments in accountancy practice
There is also the Development of Accountancy Resource Team (DART), whose aim is to help improve financial management in government through:
* Facilitating definition and dissemination of best practice in developing the skills necessary to achieve effective financial management
* Co-ordinating the framework of GAS
* Exchanging ideas, training manuals, etc, with other sectors in the UK and overseas
The long-term aims of GAS and DART are:
* Promoting accountancy and accountants in government
* Broadening the use of specialist expertise
* Promoting and broadening general financial awareness in the overall decision-making process of government
As part of developing staff skills in financial management, there is a government diploma which takes one year to achieve. Recruitment for staff is done at the workplace rather than outside, because studies revealed that people who are trained internally do not leave for other jobs.
Trainees enter into an agreement with departments to serve two years after completion of the diploma. Only five per cent of those trained leave the government service upon completion of their training.
A problem encountered, is that salary payment is devolved to individual departments, but some departments pay higher salaries than others for the same position.
(f) Internal audit within departments and agencies
There is a Central Internal Audit Training Team, established 20 years ago because of NAO's and the PAC's concerns about the state of internal audit functions in departments. There are 15 people serving on the team.
The team sets standards for internal audit in government departments. When the project started, the team developed and produced a manual on internal auditing, which served as a guide for departments. In the 90s, the team mainly started picking themes, such as fraud and value-for-money, as areas for more focus.
In order to develop skills for staff, the team liaised with universities and colleges and requested them to develop training programmes for the government and the private sector. That did not seem to be enough, because training was mostly attended by junior staff, and management did not attend.
The team continues to run conferences and workshops. In the past, they used to conduct reviews on the usefulness of the internal audit function by visiting the departments and issue reports thereafter. In the past three years it became necessary for accounting officers to be responsible for ensuring that their internal audit function was useful, and the team stopped conducting the reviews.
Themes which have grown recently as areas of more focus, are corporate governance and risk management. Private companies are issuing statements, called the Turnball Reports, on the way they do risk assessments. Accounting officers are going to be required to do these reports as well.
The debate on whether internal audit units should report to accounting officers or not is also going on in the UK. There are no audit committees, but the matter of establishing them is being looked into.
E. Conclusion
From the above, it is clear that generally there is a close working relationship between public accounts committees, Auditors-General and finance departments and that this relationship assists the public accounts committees, and thus Parliaments, to fulfil their role of oversight over public monies.
What is also apparent, is that committees in these countries have better resources that enable members to do their work effectively and efficiently.
F. Appendix
Documents received by delegation
1. Ireland
(a) Standing Orders relative to Public Business of Dáil Éireann
(b) Comptroller and Auditor-General and Committees of the Houses of the Oireachtas (Special Provisions) Act, 1998
(c) Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997
(d) Comptroller and Auditor-General Amendment Act, 1993
(e) Comptroller and Auditor-General's Report (Value for Money) on Department of Justice, Equality and Law Reform on Purchasing of Tyres by the Garda Síochána
(f) Public Service Amendment Act, 1997
(g) Compact Disc on Parliamentary Inquiry (Public Accounts Committee) into DIRT
(h) Statement of Strategy (2001-03) of the Department of Finance
(i) A guide on Internal Audit Standards by Department of Finance
(j) Budget for 2002
(k) A guide to Irish Parliament
2. Germany
(a) Guide on the Budget System of the Federal Republic of Germany
(b) Guide on Federal German Budget Legislation
(c) Overview of the process of government accounting
(d) Overview of Federal Ministry of Finance as part of Accounting and Control
(e) Handbook on the Supreme Audit Institution of the Federal Republic of Germany, and its Regional Audit Offices
(f) Compact Disc: Bundeshaushalt 2001: Finanzplan des Bundes 2000 bis 2004
3. United Kingdom
(a) A range by HM Treasury called Managing Resources:
- Analysing resource accounts: user's guide
- Analysing resource accounts: an introduction
- What Senior Civil Servants need to know
- How the Resource Accounting and Budgeting project was managed
- Full implementation of Resource Accounting and Budgeting
- Better decision-making in departments
- Maximising benefits for departments
- A strategic approach to finance training
- Case Studies
- Summary
(b) HM Treasury's Guides on:
- The Responsibilities of an Accounting Officer (RAB-related version)
- Public Accounts Committee and National Auditing Office
- Financial and Accountancy Competencies Framework
- Outcome-fFocused Management in the United Kingdom
(c) Review of the Government Accountancy Service
(d) Report of the Financial Reporting Advisory Board to the Treasury
(e) Handbook on Regularity and Propriety
(f) HM Treasury's Spending Review 2000:
- New Public Spending Plans 2001-2004
- Public Service Agreements 2001-2004
- Service Delivery Agreements 2001-2004: a guide
- Departmental Investment Strategies: a Summary