NATIONAL TREASURY COMMENTS ON PUBLIC AUDIT BILL

  1. Receipt of the revised Public Audit Bill is acknowledge
  2. It is confirmed that, with the exception of the composition and membership of the Audit Commission, all comments made by the National Treasury were considered and taken into account during the amendment process.
  3. The following proposals / comments to improve the revised draft is however submitted for your consideration.

3(1) Both sections 10(2) and 40(4) refer to submission of an annual report by the Auditor-General to the National Assembly. It is still not clear whether one or two separate reports are required. It is proposed that section 10(2) be amended to also refer to section 40(4) to avoid any confusion (e.g. "as required in terms of section 40(4)").

3(2) In section 13(1) the reference to "standards" is now replaced by "approach".

It is important that the standards that will be used are clearly specified and communicated. It is proposed that section 13(1)(a) be amended as follows: "the approach, including the auditing standards, to be applied.."

3(3) In a recent claim received by the National Treasury from the Office of the Auditor-General for audit fees in excess of 1% of total current and capital expenditure an amount for the Gambling Board was also included. After investigation it did appear that the Board had sufficient funds (surplus funds) to settle its total audit fees. It is proposed that section 23(c) be amended to provide for such cases (e.g. such excess must be defrayed from the National Treasury vote should the auditee have financial difficulty to settle the cost of auditing).

3(4) Section 40(1)(b)(i) should be amended as follows: any material losses through criminal conduct, and any material irregular or fruitless and wasteful expenditure that occurred during the financial year.

3(5) Section 40(4) determine that the Auditor-General submit the annual report, etc. within five months after the financial year. In terms of the PFMA, institutions are required to table annual reports in the legislature within six months after year-end.

 

 

Kind regards,

Nols du Plessis

COMMENTS ON DRAFT PUBLIC AUDIT BILL

Constitutional functions

Section 4(1) refers to institutions whose accounts, financial statements and financial management should be audited by the Auditor-General. With the exception of "accounting entity" the various institutions are defined in section 1 of the Act. It is proposed that an "accounting entity" also be defined.

Other functions

It is proposed that the functions of the Auditor-General in terms of sec 5(1) be extended to provide for investigations, special audits and transversal audits on request of other role-players (e.g. executive authority, treasury) after proper consultation with the Auditor-General.

Annual report to Parliament

Section 10 determines that the Auditor-General must annually report to the National Assembly on his or her activities and the performance of his or her functions. Section 40(4) also requires that the Auditor-General must submit the annual report, the financial statements and the audit report on those statements to the Audit Commission and the National Assembly. It isn’t clear whether only one or two separate reports are required. It is proposed that the Bill be amended to clearly indicate the submission of only one annual report.

Searches of premises, vehicles and persons

Section 16 provides for the Auditor-General to act under the authority of a warrant. It is proposed that the specific authority responsible for issuing the warrant be inserted.

Audit reports

The requirements for audit reports as set out in section 20(2) and section 28(1) should be aligned.

Submission of audit reports

In terms of section 21(1) the Auditor-General should submit an audit report in accordance with any Legislation applicable to the institution or accounting entity which is the subject of the audit. Subsection (2) requires that the Auditor-General should submit all audit reports to the relevant legislature. Subsection (3) requires that audit reports should be tabled in the relevant legislature within a reasonable time.

It appears as if the requirements of section 21 is in contradiction with the requirements of the PFMA. Section 40(2) of the PFMA determines that the Auditor-General should audit the financial statements submitted by the department, trading entity or constitutional institution and should submit an audit report on those statements to the accounting officer within two months of receipt of the statements. In terms of section 40(1) of the PFMA the accounting officer for a department, trading entity or constitutional institution should submit their annual report, financial statements and Auditor-General’s report to the executive authority responsible for that institution, within five months at the end of the financial year. In terms of Section 65 of the PFMA it is then the responsibility of the relevant executive authority to table in the National Assembly or a provincial legislature the annual report, financial statements and the audit report within 6 months after the end of the financial year.

It is proposed that a clear distinction is made in the Public Audit Bill regarding the submission and tabling of audit reports of those institutions falling under the PFMA & MFMB and other audit reports such as general reports, special audit reports, etc.

Audit fees

It is proposed that section 23(4) be amended to also provide for notification of the relevant provincial treasury.

It is proposed that section 23(6) be amended as follows: "If the cost of auditing an auditee, excluding national and provincial departments, for any ……". These departments are fully funded from the relevant Revenue Fund and should provide sufficient funds for audit cost in estimates of expenditure.

Budget and business plan

The budget process of Government provide for medium term expenditure estimates (three-year spending plans). It is also a requirement in terms of the PFMA that institutions tabled strategic plans (covering a three-year period) in Parliament. Therefore, it is proposed that information to be submitted in terms of section 38(1) & (2) to National Treasury for planning and budget preparation purposes also be done for a three year period.

Annual report and financial statements

To be consistent with proposals in the envisaged PFMA Amendment Bill the following amendments is recommended:

Sec 40 (1)(b): include particulars of

    1. any material losses through criminal conduct and any material irregular or fruitless and wasteful expenditures that occurred during the financial year
    2. ……………..
    3. any material amounts recovered or written off as a result of criminal conduct, irregular expenditure and fruitless and wasteful expenditure

Sections 20 & 28 prescribed minimum information that should be reflected in an audit report. It is proposed that section 40(3) be amended to include similar requirements regarding the audit report on the financial statements of the Auditor-General.

Retention of surpluses

The Minister of Finance recommends that the proposed Bill must:

The Bill currently provides for the retention of surplus funds that do not exceed an amount equal to 10% of the total operating expenditure during that year. Based on the current year's budget it might result in retention of surplus funds to the magnitude of R50,0 million.

It is the view of the Treasury that this approach will not necessarily protect auditees against the Office accumulating surpluses. The approach to limit retention to a certain percentage, whether 10% or 5%, is also not supported as circumstances might differ from year to year. It is therefore proposed that the Bill be amended to provide for the retention of any surplus funds after having consulted the Audit Commission and the National Treasury. Such a provision will not compromise the independence of the Office but will provide a further control mechanism.

Composition and membership of the Audit Commission

During discussions with the Auditor-General on the Bill, the Minister of Finance questioned whether the Audit Commission is sufficiently strong, keeping in mind the functions of the Commission (e.g. advising the Auditor-General on standards for auditing).

The Bill currently provides for the following categories of persons to service on the Commission:

It is the view of the National Treasury that the proposed composition of the Commission should be further strengthened by including more persons:

It is proposed that the number of members in the second category be increased without necessarily increasing the total number of Commission members.