Report of the Standing Committee on the
Auditor–General on oversight visit to the Headquarters of the Auditor-General
of
The Standing
Committee on the Auditor General, having undertaken oversight visit to the headquarters
of the Auditor-General of
1. Introduction
The Standing
Committee on the Auditor–General, in partnership with the Auditor-General,
visited auditchallenged municipalities in
2. Delegation
The Committee
Delegation consisted of: Adv T M Masutha (ANC) Chairperson of the Committee and
leader of the delegation; Prof LBG Ndabadaba (ANC); Ms D N Nxumalo (ANC) and Dr
D T George (DA).
The delegation
was accompanied by the following Parliamentary officials: Mr. J Ramrock
(Committee Secretary); Mr. M Hlekiso (Committee Researcher), and Mr. K Lobi
(Committee Assistant).
3. Findings of the Committee
3.1 Office of the Auditor–General
3.1.1 Presentation on the AGSA Mandate (Legislative Governance
Framework)
The Committee was
briefed by the Office of the Auditor-General on the Mandate of AGSA in relation
to the Legislative Governance Framework.
·
The Auditor-General of South Africa
(AGSA) has a constitutional mandate and, as the Supreme Audit Institution (SAI)
of
Responsiveness
to changing environments and stakeholders expectations, without compromising
independence;
·
Ensuring that government is held
accountable for using resources legally and responsibly, for the purposes
intended, and economically, efficiently and effectively;
·
Credible source of independent and
objective insight and guidance to facilitate foresight and continuous
improvement in government;
·
Empowering the public to hold
government accountable and responsive, through objective information, simplicity
and clarity of the message, and convenient access to audit reports and messages
in relevant languages;
·
Enabling the legislature, one of its
commissions, or those charged with governance to discharge their different
responsibilities in responding to audit findings and recommendations and taking
appropriate corrective action and
·
Following up on audit findings and
implementation of recommendations.
The
constitutional functions of the AGSA speak on what must or may be done by the institution.
·
Must audit and report on accounts,
financial statements and financial management of national and provincial
departments, constitutional institutions, Parliament and legislatures,
municipalities and their entities and when required by specific legislation, at
individual and consolidated level, as applicable.
·
May audit and report on accounts,
financial statements and financial management of public entities listed in the
Public Finance Management Act (PFMA), entities funded from the National Revenue
Fund (NRF) or municipality and entities that receive monies in terms of
legislation for a public purpose.
Regarding audit
reports, the AGSA must report in the form of an opinion or conclusion, as
required by legislation. The AGSA may also report on whether resources were
procured economically and utilised efficiently and effectively (performance
audit).
4. Summary of Findings
The Committee
was taken on a site tour of the offices in the complex and met and interacted
with various managers and staff officials. The different units and sections
explained their functions as part of the AGSA.
4.1
The Structural Office Management
The Office of
the Auditor-General of South Africa (AGSA) constitutes the Auditor-General (AG)
as the head of the Supreme Audit Institution in
In the Office
of the Auditor-General there is a Media Spokesperson, whose responsibility is to
liaise with the media on behalf of the Auditor-General. Interaction takes place
regularly with the media as the core disseminators of accountability information
to the public. The media plays an
important role in any democracy; therefore AGSA has begun with an extensive
programme of interaction with the media to provide them with a more informed
perspective on the core issues and challenges that are confronting the financial
management and accountability in the South African public sector. This initiative facilitates informed,
accurate and balance reporting.
The office of
the Deputy Auditor-General has four strategic business executive units on the
following areas:
a)
Strategic organisational development
and leadership;
b)
Planning, monitoring, evaluation and
risk;
c)
Change and transformation;
d)
Strategic audit work coordination;
Each of the
above strategic areas is managed by a business executive manager which reports
to the Deputy Auditor-General. There is also
a unit, in the Office of the Deputy Auditor-General, which deals will ethics, and
is managed by a Senior Manager which reports directly to the Deputy
Auditor-General.
The
administration section consists of eight Corporate Executives in addition to
the above Business Executive units:
·
The
Chief Operations Office – is managed by the Chief Operations
Officer who is also responsible for reporting to the DAG. The office consists of an human capital unit
which is managed by the Head of Human Capital (HoHC); information and
communication technology unit; Information Technology (IT) alignment and
business process re-engineering unit which is managed by the Business Executive
Manager (BE); communication unit which is manage by the Head of Communication
(HoC); and an information and knowledge management unit which is managed by an
Senior Manager.
·
The
Corporate Executive on Audit Support – is managed
by the Corporate Executive Manager who reports directly to the DAG. The office consists of a Finance unit and is
managed by a Business Executive Manager, and an Audit Research and Development
unit which is managed by the Business Executive Manager; and the Quality
Control unit which is managed by a Senior Manager. All the unit managers report directly to the
Corporate Executive Manager.
·
The Corporate Executive on Specialised
Services – is managed by the
Corporate Executive Manager who reports directly to the Deputy Auditor-General. This Corporate Executive deploys all
specialized expertise to simplify complicated areas. It is also the centre responsible for
activities on systematic and cross cutting issues within the Supreme Audit
Institution of South Africa. It
integrates into regularity audit through the sharing of insights and assists
with the development of audit approaches guidance. In addition it promotes knowledge sharing
through institutional cooperation activities as well as to demonstrate the
value and benefits of the Supreme Audit Institutions. This corporate consists of the following five
business units in order to facilitate its responsibility:
a)
Reputation
and Stakeholder Management Unit (RSM) – the Secretariat of the Association of Public
Accounts (APAC) are part of this unit in the AGSA to assist and provide APAC
with secretariat supports and sharing of insights at strategic sessions. This
also includes training initiatives and the hosting of the annual APAC
conferences. The Other Constitutional Stakeholders (OCS) relationship is
managed by a Business Executive Manager in this unit. The RSM Unit was established in 2005. Its other main function is to support the
audit business unit in managing the relationship with the AGSA’s Constitutional
Stakeholders. The AGSA indicated that
they projected the budget cost of R11 million for the RSM unit to carryout its
duties in the 2011/12 financial year.
The RSM unit extends the stakeholders capacity to use optimally the
AGSA’s reports by facilitating training initiatives. It also manages the APAC secretariat function
and facilitates parliamentary liaison and monitoring.
b)
Performance
Audit unit - managed by a Business Executive Manager – AGSA defines the
performance audit as “the independent auditing process to evaluate the measures
instituted by management to ensure that resources have been procured
economically and are used efficiently and effectively”. The AGSA management mentioned that the
performance audit unit was established 25 years ago and was focusing on the
centre of interest and systematic issues. The audit unit has 100 staff members.
The following performance audit themes will be researched, developed, executed
and reported on:
i.
Infrastructure
delivery- with the focus on education and health sectors and to table the
reports in Parliament and Provincial Legislatures by June 2011.
ii.
Use
of consultants by government entities- to table the report in the third quarter
of 2011.
iii.
Oversight
of state-owned entities -the reports to be tabled in the fourth quarter of 2011.
iv.
Basic
and higher education and training initiatives- expected tabling of phase one in
the second quarter of 2012 and phase two to be tabled in 2014.
v.
Readiness
by government to report on predetermined objectives - the report will be
included in the next PFMA and MFMA General Reports.
vi.
Environmental
audit on sanitation and water - expected to table the reports in the fourth
quarter of 2013.
vii.
Transport
infrastructure - reports to be tabled in 2013.
The AGSA management reported that the projected budget
revenue of R76 million will be generated from the performance audit in the 2011/12
financial year.
c)
Information
Systems Audit (ISA) unit was managed by a Business Executive Manager – this
unit was established in May 1986 and currently has 85 staff members including
support staff. The Business Executive
Manager pointed out that ISA was responsible for the following functions:
i.
Evaluates
the controls within an organisation’s Information Technology (IT)
infrastructure and Information Systems (IS), the practices and operations of
IS, the safeguarding of the IT assets, the maintenance of data integrity and
the design and operating effectiveness of key IT controls.
ii.
Provides
quality information systems audit support to the auditing business units and
specialized auditing business units.
iii.
Enhancing
auditing capacity by building decentralized specialist capacity in IS audit to
finalise audits timeously and respond to government’s increased use of
information systems.
iv.
ISA
Business Executive Manager also pointed out that the ISA unit performed about
390 assignments in 2010 to 2011. The
role of the ISA unit was to perform the following audits for the national,
provincial and local governments:
§
IT
Governance reviews;
§
General
control reviews;
§
Application
control reviews
§
Transversal
systems audits;
§
Network
audits;
§
Enterprise
Resource Planning (ERP) system reviews;
§
System
Development Life Cycle reviews; and
§
Computer
Assisted Audit Techniques Supports.
d)
The Investigations
unit was also managed by a Business Executive Manager – the AGSA management pointed
out that they established a separate investigation unit in January 2010. The unit assists the regularity auditors to
identify the significant fraud risks in the planning stages in which it plays a
proactive positioning role. The
investigation unit also provides special investigation into areas of possible
maladministration, financial misconduct and regularities. AGSA management mentioned that the projected
budget income of R19 million will be generated by the investigation unit in the
2011/12 financial year.
e)
Institutional
Cooperation – it is also an International Liaison unit is managed by a Business
Executive Manager - AGSA management also indicated that they also facilitate
the cooperation activities with other institutions domestically and
internationally. It has one staff establishment
and is engaging into bilateral cooperation agreements with some Chapter 9
Institutions such as Public Service Commission, Public Protector etc. They also signed the bilateral cooperation
agreements with other Supreme Audit Institutions (
·
The Corporate Executive on Audit – there are five corporative executive
audits which are managed by the Corporative Executive Managers whose responsibility
is to manage the clustered audits and report directly to the DAG. The national auditees are clustered into
National A,B,C,D,E and F units, each unit is managed by a Business Executive
Manager; the provincial auditees consist of nine units according to provinces
and each province is managed by a Business Executive Manager whose
responsibility is to manage the provincial audits and report to the Corporate
Executive Manager.
4.2 The Distinctive
Performance of Corporate Executive on Audits
The Corporate Executive Portfolio Manager highlighted one of the distinct
performing Corporate Executive audit clusters in his presentation to the
Standing Committee on the Auditor-General.
This Corporate Executive Audit cluster has been performing well in
2009/10 as indicated below:
·
National C – it is a business unit which consists of
five National Departments, 17 Public Entities, one Municipality and 11
Municipal Entities. Total audit hours
worked when auditing the mentioned auditees is approximately 221,580 hours by
121 staff members in the 2009/10 financial year. The total income budget amounts to R63.7
million.
·
·
4.3 Trainee Auditors Scheme
AGSA is the feasible training ground for
talented people who wish to obtain a professional auditing qualification
through the Trainee Scheme, to receive technical training and practical experience,
which enables them, becoming audit professionals. There are three policies that were developed
and approved by AGSA that guides the Trainee Scheme, namely: the academic
progress policy, the trainee auditor study leave policy and the external
bursary policy. All provinces are
represented in recruiting trainee auditors although progress has been
slow.
There are three types of learnership,
numbering 927 audit trainees, they are categorised as follows:
There were 53 per cent female that were
represented in the Trainee Audit Scheme in the 2009/10 financial year. The males were about 47 per cent in the year
under review. The higher percentage
(97.3 per cent) is representation from disadvantaged communities which include 88.7
per cent of Africans, 3.3 per cent of Coloured, and 5.3 per cent of Indians.
Although the trainee auditors mentioned to the Committee some of the challenges
they faced with studies while they are on the job training, they remain excited
and overjoyed to form part of the AGSA Trainee Audit Scheme.
5. Summary of findings
The Committee
also visited the Gauteng Provincial Office of AGSA. They met and interacted
with various senior and middle managers, including staff officials. The Provincial
Management explained the role of the provincial office and also shared some of
the challenges confronting the Office. The various achievements made as part of
the AGSA, were also pointed out.
5.1 The
The
organisational structure defines how tasks are to be allocated and defines
areas of responsibility and authority, who reports to whom, coordinating
mechanisms and interaction patterns that would be followed.
The Provincial Management
mentioned that the pressure of complying with the legislated audit timeframes
led to loosing audit staff members, therefore, the Gauteng Office is structured
into specified jobs by forming two sub-units within the Audit Business Unit. They
are business executives that are informed by the Public Finance Management Act
(PFMA) audits which include the national and provincial departments and public
entities; and the Municipal Finance Management Act (MFMA) audits which include
municipalities and municipal entities.
The Gauteng
Audit Business Unit has a complement of 190 staff members including support
staff. But the majority of staff members are the trainee auditors. The Provincial Management indicated that a specific
action plan for staff retention was being implemented and that it was very effective.
The Gauteng Office was, as a result, fully capacitated. The Audit Business Unit is also responsible
for the audit of 12 provincial departments, Gauteng Provincial Revenue Fund, 23
provincial public entities, four national public entities, 15 municipalities
and 22 municipal entities. Each of the
audit business executives was headed by a business executive manager which was
assisted by a operational leader. There were
two operational leaders: one heading the MFMA operational audits and one who was
the operational leader for PFMA audits. The
operational leaders were responsible for ten audit centres which were headed by
senior managers. The 11th
centre was the provincial human resources section. There was a unit called “product champion”,
it was responsible for communicating how to apply audit standards and
legislation to the provincial office. It
was pointed out that there were performance audit staff members in the
The Committee,
during deliberations on the presentation, raised a question about the
effectiveness of the special investigation unit. The Provincial Management responded that they
have started with fraud risk assessments and investigations on the following departments:
·
The Provincial Departments of Education
– conducting audits on transversal supply chain management for fraud risk
assessment;
·
Northern Cape Department of Health;
·
·
North West Department of Sports, Arts
and Culture.
The
investigations were on-going and reports would be tabled as soon as the
investigations were completed.
5.2 Visibility
of leadership
The AGSA pointed
out that it was committed to visibility of its leadership as one of its
strategic objective. The provincial leadership pursues this objective by
attending regular meetings with its clients to understand core issues that are
faced by auditees during and after audit.
It was indicated that the AGSA leadership aims to engage the auditees to
influence positive audit outcomes.
The Committee enquired
from AGSA whether there was a lack of transversally in our democratic system in
terms of corruption and maladministration.
The Provincial Management responded by pointing out that:
However, the
AGSA’ Gauteng Provincial Management noted that such a decision rests with the
political leadership. The Management also proposed that those discussions be
held on a one –on one basis with the leadership of individual auditees.
5.3 Transformation
in the
The Provincial Management
concluded with its presentation by mentioning that the Gauteng Office has 11
senior managers, of which nine were male and two were female. The management also highlighted that out of
nine trainee auditors at the Gauteng Office, writing the board exam in 2010,
seven of them have passed. The minimum
requirement in selecting the trainee auditors was a Bachelor of Commerce in
Accounting (B Com Acc) degree. AGSA also indicated that it does not take into
account where the qualification awarded originates from; therefore, those
candidates who studied at previously disadvantaged Universities were also
considered.
The Provincial Management
pointed out that AGSA has embarked on an awareness campaign to previously disadvantaged
schools and that it was a new project that forms part of AGSA’s social
responsibility. AGSA Gauteng Office, the management and staff go out excited to
previously disadvantaged schools to encourage students to consider taking the
carrier path on accounting and make them aware of the important role that AGSA
plays in the country.
AGSA also informed
the Committee that the institution would be celebrating its centennial later
this year and Members would be invited to some of the activities that were
planned.
6. Conclusions
The oversight
visit by the Committee to the Head Office of the Auditor-General of South
Africa (AGSA) and to its
·
Staff Capacity – the audit business unit requires a
variety of staff personnel empowered with various scarce skills including
individuals with special abilities or training and knowledge of a particular
field in accounting. Auditing is
regarded as one of the scarce skills in
·
Recoverability – the auditing staff time of about 68 to
70 per cent was lost due to leave, study leave and sick leave taken by the
auditing staff. The training for
auditing staff has also impacted in the loss of auditing staff time. This is a serious challenge because audits
need to be completed within the legislated time frames as set out by the PFMA
and MFMA; therefore, the lost staff time must be recovered at cost. The recoverability of audit staff time loss is
costly to the AG as the business unit is forced to outsource some of the audits
to private audit firms which are charging a far higher rate than the rate
charged by the AG from the auditees.
AGSA needs to conduct workshops for the appointed private audit firms to
deepen the understanding of a public sector environment and ensure their
participation in the countrywide road shows.
·
Quality – the audit business unit has the added responsibility to
produce audit reports, management reports and general reports of exceptional
quality supported by adequate working papers and evidence. One of the AG’s
commitments is to ensure simplicity, clarity and relevance of the messages
contained in all their reports. The
challenge is to provide a report that inspires and motivates focus actions or
response, by presenting the identified issues of central importance in a
clearly defined context.
·
Adequate Support – audit business unit requires technical
and special knowledge to perform audits, for example, Information Technology
(IT). The audit business unit also
requires administrative support staff.
·
Risk Management – the ethics or principle governing or
influencing conduct is of central importance in the audit business unit. There needs to be internal controls in place
and reviewed to mitigate risk and ensuring risk management.
·
Outstanding Audit Fees – AGSA implemented the debt collection
intervention strategies in June 2009 as indicated below:
a)
Debt
collectors were employed at the Head Office to assist in the collection of
outstanding debt;
b)
Two-times
monthly billing runs were introduced to ensure that auditees receive invoices
on time;
c)
Engagement
of the National Treasury, The Department of Corporative Governance and
Traditional Affairs (CoGTA) and the provincial government to assist in the
collection of outstanding debts.
However,
the AGSA management pointed out that, despite the implementation of these
strategies, low collection is still being experienced from the local government
debtors, which makes up about 43 per cent of the debtors book.
The low
collections of audit fees, from the municipalities are mainly due to the
following factors:
a)
Lack
of funds in low-capacity municipalities and the fact that the National Treasury
is unable to cater for all defaulting debtors because of budget
constraints. Section 23(4) of the Public
Audit Act (PAA) 25 of 2004 prescribes that if an auditee defaults on the
payment of audit fees, the Auditor-General must promptly notify the National
Treasury, and when applicable notify the relevant provincial treasury.
b)
The
economic recession has also resulted in the revenue base of some municipalities
declining which, in turn, affects their ability to pay their audit fees. Section 23(6) of the PAA prescribes that, if
the audit fee exceeds one percent of the total current and capital expenditure
of such auditee for the relevant financial year, such excess must be defrayed
from the National Treasury’s vote, provided that the National Treasury is of
the view that the auditee has financial difficulty to settle the cost. This excludes national and provincial
departments.
The
management confirmed that the leadership of the AGSA continues in engaging the
National Treasury, CoGTA, the provincial political leadership and non paying
auditees to address the situation of low collection of audit fees
7. Recommendations
The Committee recommends that AGSA:
7.1 notwithstanding its relationship with tertiary institutions sharpens
and improves its staff recruitment capacity, with particular emphasis on individuals
with accounting knowledge and experience;
7.2 considers and reviews its policies regarding staff training,
vacation and study leave to lessen the
impact generated by the loss of auditing staff time;
7.3 continues with producing audit and other reports that are easy
and simple to read and to understand;
7.4 empowers the various audit business units by providing the
necessary administrative support staff needed;
7.5 strengthens its
internal controls to mitigate risk and ensuring risk management; and
7.6 notwithstanding all the debt collection interventions made, considers
other stronger measures, including legal, in arresting failure of defaulting
debtors to pay outstanding audit fees.
Report to be
considered