At a hearing held by the Committee on 26 March 2003 the Auditor-General made a presentation on the General Report, and evidence was also heard from various other persons, including the Director General:

National Treasury, and the Director-General: Public Service and Administration. The Committee expresses its appreciation for their assistance in clarifying aspects of the Report and related matters.

The two present Reports under review follows on the General Reports on audit outcomes and audit activities for the previous two financial years, and as such is a continuation of the Auditor-General's improved overall transversal reporting to Parliament on the financial management by the national government and provincial governments. Unlike in previous years, the audit outcomes for Local Government have not been included. Those outcomes will be dealt with in a separate General Report.

The Committee, in its Report on the previous General Report of the Auditor-General on audit outcomes, suggested that the General Report should be submitted at an earlier date. The Committee welcomes the fact that the present General Report was tabled significantly earlier than in previous years, thus allowing the Committee and other interested parties to take cognisance of the information while it Is still relatively current.

The Report is a valuable tool to assist Parliament in the exercise of its oversight functions in terms of the Constitution. It provides a framework from which Parliament can assess and compare at a holistic level the financial management and corporate governance of state departments, provinces, and public entities.

However, it should be emphasised that the Report is based mainly on the audit reports of the respective auditees; it does not purport to be a comprehensive account and comparison of the performance of the entities concerned. Audit opinions are expressed only on the financial statements of auditees, not on compliance with legislation other than that dealing with financial matters.

Furthermore, an audit report does not necessarily reflect all concerns about the financial management of the auditee. For example, an entity could get a "clean" report (i.e. an unqualified audit opinion is expressed) despite deficiencies in its financial management, as long as its financial statements in the opinion of the auditor present fairly the state of its affairs. In this regard the Committee wants to caution departments against a false sense of comfort based merely on the receipt of an unqualified audit report. Despite such a report there could be issues of concern relating to financial management that require the attention of both the department and this Committee, especially where those issues have been identified by the Auditor-General under "emphasis of matter".

Some Members of the Committee expressed concern that the incomplete manner in which some information is presented in the Report could create the wrong impression about the comparative performance of the entities in question. For example, the lists showing the occurrence of thefts, losses and irregularities, and unauthorised expenditure do not include all the entities that according to their financial statements experienced such events. The Committee therefore appreciates the undertaking by the Auditor-General to try to present future information in a better way to prevent misunderstanding. Even though matters such as unauthorised expenditure might be properly disclosed in the relevant financial statements, the Committee recommends that where appropriate they should also be reflected in the General Report of the Auditor General.

The Committee noted the areas that the Auditor-General indicated he would be focusing on in the next year, such as corporate governance, fraud prevention, salary costs and performance information, and follow-up of SCOPA resolutions. The Committee also welcomes his invitation to SCOPA to forward to him any proposals it may have in this regard.

One of the main objectives of the General Report is to provide an overview of the overall trends and developments in audit findings from year to year. To give the full picture, the Report should cover all state departments, and it is disappointing that this is not happening due to some departments not having submitting their financial statements in time. The objective of the General Report is frustrated to a degree if it is not all inclusive, since this tends to give a distorted view of the developing trends. The Committee will therefore pursue its endeavors to ensure that departments and entities whose annual reports are tabled after the statutorily required date, be called to account.

An analysis of the present Report shows encouraging improvements in certain respects. For example the type of qualifications and emphasis of matters previously recorded in audit reports have largely been eliminated. This includes non-compliance with certain provisions of the Public Finance Management Act, 1999. The Committee agrees with the conclusion in the Report that this indicates that the responsiveness to audit reports and the implementation of the Public Finance Management Act are showing an improvement in the underlying financial stewardship of public funds by government departments and their related entities.

However, a pattern of recurring problems is seemingly starting to emerge with certain departments, notably the departments of Home Affairs, Justice and Constitutional Development, Public Works, and Water Affairs and Forestry. Each of these departments received qualified audit opinions in both the 2000-2001 and the 2001-2002 financial years. The Committee noted the explanation by the Director-General of the National Treasury that these departments are complex organisations; therefore it might be unfair simply to stereotype them for their poor performance in this regard. Nevertheless, the Committee expresses its concern about this state of affairs.

The Report reveals an increase in the number of issues relating to the lack of proper internal control over accounting and financial systems and processes. This includes matters such as asset management and procurement, and employment and related costs. It would seem that several departments do not have adequate internal control policies and procedures. In almost fifty percent of provincial departments and almost forty percent of national departments, the auditors could not rely on the internal controls.

Internal control is a fundamental feature of financial management. It is critical to the overall control of the organisation and, ultimately, the quality of delivery of services and performance of functions. The Committee shares the view of the Auditor-General that where institutions cannot provide adequate internal control measures to support their organisation, this presents a fundamental obstacle to overall effectiveness. Accordingly, the Committee recommends that departments that have been identified as lacking in internal control capacity should as soon as possible take steps to rectify the matter. Progress in this regard should be reflected in the relevant audit reports as well as the annual reports of the departments concerned.

It would seem that some of the internal control problems are due to problems with the transversal Computerised system such as the Personnel System (PERSAL) and the Basic Accounting System (BAS) and the older Financial Management System (FMS), as well as general control problems at the State Information Technology Agency (SITA). The Committee supports the Auditor-General in calling for urgent attention to resolve these matters, as it could also hamper the effective introduction of accrual accounting.

According to the Auditor-General's assessment, a significant number of auditees failed to comply with the internal audit requirements of the Public Finance Management Act. Some had internal audit functions that were not functioning properly, as was evidenced by the fact that only thirty percent of auditors of national departments placed reliance on the work of the internal audits, although it was not clear in how many of these cases non-reliance was due to a difference in audit coverage, or whether the internal audit functions was actually ineffective or both.

Internal audit functions have a vital role in the assessment of risks and the effectiveness of the internal control system, including performance audits and value for money auditing and reporting. The Committee urges the accounting officers concerned to take corrective steps without delay to ensure that there are properly functioning internal audit sections and audit committees in place.

The Committee noted with concern that the difficulties referred to in the previous General Report regarding the mandate of the Auditor-General in relation to certain public entities have not yet been resolved. This is a serious matter because, in the end, it could jeopardise parliamentary oversight of those entities.

Since it would not seem possible to obtain clarity on the legal position due to incongruities in the various pieces of legislation, the Committee is interested in the manner in which the Public Audit Bill, recently tabled in Parliament, clarifies the position and how it brings the situation into line with section 188 of the Constitution.

A matter of particular concern relating to the fifteen public entities dealt with in the General Report is that only six of them tabled their annual reports in Parliament within the prescribed time. It should be reiterated that reporting to Parliament in time is essential for effective accountability and parliamentary oversight.

Other issues raised by the Committee with the Auditor-General, the

Director-General of the National Treasury and the Director-General of

Public Service and Administration include the following:

Part II of the General Report gives a comprehensive overview of the audit outcomes in the respective ministerial portfolios of the national government. These portfolio summaries provide very useful reference material, not only for Parliament, but also for the Ministers and departments concerned. The Committee will deal with the detail of the audit outcomes when it considers the reports of the respective entities.

The Committee has noted with interest the new Financial Management Capability Model that the Auditor-General will be using in future. The object of this model is to provide a framework to enable the reader of the General Report to assess the adequacy of financial management, to monitor progress and to make comparisons.

The Committee expresses the hope that this capability model will facilitate and enhance the use of General Reports, and recommends that in developing this model, the Auditor-General should involve the relevant stakeholders