AGSA Guidance to Committee on how to improve oversight over SOEs

Meeting report

The Chairperson opened the meeting and briefed Members that the Select Committee was going to receive a briefing from the Auditor-General based on the AG's interaction, audit outcomes, and analysis of how the Committee could improve oversight over state-owned entities (SOEs).

Presentation by the Auditor-General

Ms Madidimalo Singo, Acting Business Executive: Department of Public Enterprises, and her Deputy, Mr Fhumulani Rabonda, led the delegation from the Auditor-General of South Africa (AGSA) in the presentation.

The presentation highlighted various aspects of information, such as the movement in audit outcomes over the administration's term; outstanding audits; performance against targets; achieving key performance targets; implementation of the material irregularity process at Transnet and SAFCOL; the quality of financial reporting; financial health; compliance with key legislation; procurement and payments; and irregular expenditure.

(See copy of AGSA presentation for further information)

Discussion

Mr A Arnolds (EFF, Western Cape) asked if the AG had faced any interference or threats in exercising its mandated duties from government departments or entities? He raised concern about the outstanding financial statements, because they were in contravention of the Public Finance Management Act (PFMA) and the Companies Act, and was a matter that needed urgent attention. He also raised concern about the R1.2 billion in irregular expenditures in the portfolio, despite an improvement. He asked for a briefing on the expanded mandate of the AG, especially regarding material irregularities and how it further strengthened the AG’s mandate. He asked how the AG could assist in preventing the recurrence of non-compliance in the Department of Public Enterprises and state-owned companies in terms of implementing the audit action plans.

Ms L Bebee (ANC, KZN) asked if the AG had powers to sanction entities that failed to carry out its recommendations. She asked if it was fair for board members to sit on 20 boards, since this had been raised in previous meetings.

Ms W Ngwenya (ANC, Gauteng) asked if the AG took corrective and remedial action against SOEs that failed to comply with the law, and which SOEs required remedial action in the form of a certificate of debt. Did the AG have any mechanism in place to ensure that the SOEs implemented the recommendations? What action was needed to prevent the non-compliance of not submitting financial reports? She also asked if the AG could provide the Committee with information that could be used to strengthen and improve its oversight role.

Mr M Nhanha (DA, Eastern Cape) appreciated the presentation and commended the AG for doing the most hated work. He questioned what had become of the country. Many lives had been lost and many sacrifices made for the freedom people enjoyed. The issue of state capture was an indictment and a failure of Parliament to hold the executive accountable. He hoped Wit was a lesson for the current Parliament and the ones to come to not allow Parliament to be a spectator, but rather to participate. He pleaded with the Committee to urgently summon all the affected SOEs so they could provide answers that they had failed to give to the AG.

Ms T Modise (ANC, North West) appreciated the work of the AG. She asked what the AG recommended the Committee should do in their oversight of entities that were getting disclaimers every year.

The Chairperson expressed his gratitude for the AG’s diligence in mainstreaming the issues and outlining the truth of accountability, which was very important. Accountability was not an option, but a condition for all the entities. He asked what the AG did with early detection information to try to prevent entities from getting worse. Was it right to assume that the AG would develop an aggressive turnaround strategy for the entities? It was surprising that the AG could not detect some of the situations in the entities 12 months in advance -- did the AG not have an instrument to predict such occurrences? Could the AG draw any lessons from the SA Airways situation that could help prevent similar occurrences at SA Express and Mango?

AGSA's responses

Ms Singo agreed with the sentiments expressed by Members on the importance of accountability in ensuring that the SOEs delivered on their mandate, and their various services to ordinary citizens. It was essential that everyone played their part and ensured that they were all reinforcing the culture of accountability.

On audit interference, she stressed that the AG had not been prevented from doing its work, but the late submission of financial statements impacted its ability to provide the necessary insights to enable accountability. Late submission impeded the AG from sharing its inputs promptly and initiating interventions through accounting authorities and the executive to ensure that the matters were closed in time.

Regarding the expanded mandate, the AG exercised its powers and issued findings of material irregularities in the Transnet environment. It had reflected on what had been impacting the material irregularities in that environment, and where it had identified material irregularities, the accounting authorities had taken the necessary actions. In instances where the AG indicated material irregularities, it would notify the accounting officers and authorities of the necessary actions to be taken, and would go as far as issuing certificates of debt.

The AG’s portfolio was progressing, and some entities were already in the disciplinary process stage. It had asked that urgent attention be given to ensure that the matters were closed on a timely basis. It was also to ensure that the irregular expenditure and the non-compliance were investigated in time to allow the necessary consequence management to take place. The accounting officers needed to take the necessary action, and if this was not done, the AG would exercise the necessary powers to ensure that the necessary actions were taken.

Regarding the irregular expenditure that had taken place in the portfolio, two things were responsible for it. The first was that the financial statements of Eskom had not been finalised and the numbers for the PFMA cycle were not presented. The second part was that Transnet was one of the biggest contributors to irregular expenditure. They had audited the irregular expenditure that had occurred, but had an exemption for the disclosure in the annual financial statement, which was sitting in the annual report. Regarding Transnet, there was a need to use the exemption period to ensure that the internal control environment was strengthened to ensure that by the time the exemption ended, the maturity of the control environment would be such that there should not be any non-compliance and they could report clean administration.

Regarding the need for audit action plans, she said that the danger was that if the audit plans were not monitored effectively there was a risk of regression in the audit outcomes. She emphasised the role of the audit committee, the accounting officer and the executive authority in monitoring. They encouraged the Committee to call the entities to come and present their action audit plans that addressed not only the clean administration that was related to financial reporting and management, but more so around the performance of the entities -- that was where the AG believed the Committee could add more value in terms of exercising its oversight function. She emphasised the need for continuous monitoring of the audit action plans and where there was no progress, the necessary corrective action had to be taken on a timely basis.

Regarding what the AG did, among its duties, the AG ensured that the accounting officers and accounting authorities were implementing the necessary preventative and detective measures in their environment. Secondly, the AG did the status records review. This was meant to be an early detection system that looked at areas that could create challenges in the departments and the SOEs, preventing them from achieving their mandates and affecting sound financial management. The AG also took the opportunity to sensitise the entities in various areas. The primary responsibility was with the accounting officer and what was being done in the environment to ensure that these things did not happen in the first place. If they did happen, the accounting officers had to ensure that the necessary consequence management was enforced against the officials found to have contravened the laws.

Mr Rabonda addressed the question of the AG providing information that could aid the Committee in its oversight roles; he highlighted that the AG was available to share information with the Committee whenever requested.

The Chairperson said the responses sufficed and were quite elaborate. He had heard other suggestions that had come in through his office, and promised that the suggestions were going to be taken into consideration and processed accordingly. He expressed gratitude to the AG and encouraged them to keep up their good work. He asked them to consider the various suggestions the Committee had put forward to sharpen their work. It was imperative to ensure that the entities did not fail. He stressed that the whole continent of Africa looked up to SA because it was a springboard to the rest of the continent, and no other economy was as well structured. All the country needed to do was to improve the management of the economy, and the AG was an instrument that could help the country to realise such a goal.

The Chairperson thanked the Members for their contributions and for doing their duty efficiently with the AG. He said the solutions they had put on the table would help take the country to greater heights. It was their task as a generation to take their country forward, and to improve the lives of the people through the institutions that were meant to assist them.

The meeting was adjourned.