Committee Report on Auditor-General of South Africa's (AGSA) Integrated Annual Report 2013-14

Meeting report

Formal apologies were received from Ms P Bhengu (ANC) and Mr N Singh (IFP).

Adoption of Minutes

The meeting commenced with five members and it was noted that seven members were required to form a quorum for formal adoption. Thus the suggestion was that the members present peruse the documents in the meanwhile. The outstanding committee minutes were dated 24 June, 5 September and 24 October 2014. Also to be considered was the draft of the Committee’s report on the Auditor-General of South Africa (AGSA) Integrated Annual Report 2013-14.

Ms Z Dlamini-Dubazana (ANC) and Ms N Khunou (ANC) later arrived, to form the required quorum.  The minutes of 24 June, 5 September and 23 October 2014 were considered and adopted the Committee. On the minutes of 24 October 2014, Ms Dlamini-Dubazana was unclear about the wording regarding surplus relating to a huge debt. The Chairperson clarified that what was being conveyed was the question around explaining a huge debt on one hand with a surplus on the other. The chairperson suggested a strengthening of point 2.1.2 to better reflect the sentiment. A typographical error was pointed out on page five. There were no other amendments to the minutes. The minute of 24 October 2014 was adopted with amendments.

Committee Report on the Auditor-General of South Africa’s (AGSA) Integrated Annual Report 2013-14

The Chairperson elucidated that the Committee report was sourced from the Auditor-General’s Integrated Annual Report, the Strategic Plan as well as the verbal input that was received from the various role players. Only the salient points were captured for the purposes of the report. The Chairperson further detailed the process post adoption of the report in terms of its adoption in the National Assembly and assured that a follow up would be made on the report’s progress for the purpose of informing Members. Members were invited to comment on the draft report.

Mr A McLoughlin (DA) queried the net surplus amount reflected in points six and seven. The understanding was that it was an accumulated amount of R146 million, for which condonation was requested.

The Chairperson in response recalled the surplus amounts of the previous and current years which were consistent with the figures reflected on the draft report and pointed out that the reflection of R 99 million for financial year 2013-2014, was per the annual report. The figures were thus defended as being factually correct and perhaps the Member may have his concern reflected in the recommendations.

Mr MLD Ntomela (ANC) asked that the issue of internal audit units in municipalities be emphasised and questioned whether there could be follow up in that regard.

The Chairperson advised that this be referred to the recommendations of the report as the Committee was still discussing observations as captured by the report. 

Ms Dlamini-Dubazana sought clarity on the use of the word ‘net’ in describing the surplus. The report referred to a total comprehensive surplus which was conceptually different to net in financial terms.

The Chairperson remarked that the Auditor-General had used the terms interchangeably in the Integrated Report. The surplus had dual sources- the operating and interest income. The sum of these amounts is termed the net surplus.

Ms Dlamini-Dubazana suggested that the statement reflected should read that the Committee had observed a surplus of R99 million, making use of neither net nor comprehensive.

Ms S Boshielo (ANC) referred the Committee to the Integrated Report presentation as requiring the Committee’s decision on the Auditor-General’s net surplus.  The composition of the surplus was further explained. 

Ms Dlamini-Dubazana expressed that the Committee be mindful of the fact that the surplus included expected income in its representations. 

The Chairperson then referred to the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA). In view of this, it was agreed that the draft report would not reflect references to a net surplus, merely surplus (es).  There were no other comments regarding the observations of the Committee.

In terms of recommendations, it was noted that there was the recommendation concerning the strengthening of internal audit units in municipalities.

Mr McLoughlin clarified the discrepancies concerning expected income included in the surplus and the repercussions of a decision not to condone such surplus where the amounts reflected had yet to be received. 

Ms Dlamini-Dubazana corrected an erroneous reference and t pointed out that the Committee had not observed any poor planning or inefficiencies yet, the recommendations sated that the Committee would be vigilant against such leading to surpluses. 

Mr McLoughlin asserted that the recommendation relayed the point that the Committee would monitor these events in future not that there were such inefficiencies currently observed.

The Chairperson explained that the condonation would be granted but it was to be understood that surpluses stemming from  poor planning and inefficiencies such as under-spending, as conceded to by the Auditor –General’s office, would be monitored in future to avoid perpetual surpluses. The point to be made was that the Auditor-General was not to be encouraged to make a surplus. Thus, red flags had to be put up so as to discourage such a trend from developing.

Ms Khunou was of the impression that the wording as it stood did not accurately express the sentiment of the Committee but rather misrepresented the Committee’s work.

The Chairperson  sought an improved means of conveying the Committee’s opinion, underscoring that both over and under spending were viewed as equally unfavourably as well as the indeterminate nature of the Auditor-General’s budgeting.

Ms Boshielo suggested that there be a balancing of the surplus with debts owed by under resourced municipalities, citing rural municipalities as an example.

Mr McLoughlin suggested that the report should reflect that any deviation from the budget would be monitored.

Ms Dlamini-Dubazana suggested a phrase that emphasised the approval of the retention of the surplus based on the principle that future deviations would be monitored.

Mr Ntombela asked why the under spending and over spending could not be specifically mentioned. The Committee was then briefed on how over and under spending resulted from poor planning or implementation and the dangers of seemingly rewarding surpluses by condonation.

Ms Dlamini-Dubazana refuted the advice as being out of order as the surplus dealt with did not result from specific Stratategic Plan deficiencies or specifically premeditated items- some of these surpluses were out of the role player’s control.

The Chairperson interjected, refocusing the discussion on the justification of the condonation and better conveying the Committee’s sentiment in this regard. 

Mr McLoughlin offered justification which was on the premise that the Auditor-General was to be given leeway given the contextual factors.

Ms Boshielo added that as per the Auditor-General’s mandate, all relevant institutions were to be audited regardless of their ability to pay.

The Committee Secretary pointed out that recommendations could not be directed at the Committee itself.

The Chairperson opined that it was not a recommendation to the Committee but that rather it was a statement of the oversight function as per the Act.

Ms Khunou referred to the 60 days granted for the AGSA to provide the Committee with definitive plans after the publishing of the report as too long and suggested 30 days as there were bound be elementary plans at that stage.

Point five of the recommendations was expunged. Further, point nine was emphasised in regard to the internal audit units, specifically that relevant departments should encourage all local government municipalities to establish and strengthen internal auditing units.

The issue of independence was resolved by clarifying that the units were a function of management and thus inevitably tied to the municipality. 

The rest of the report was considered and amendments were summarised and confirmed. With those changes, the entire report was duly adopted. The report reflecting the changes would be sent to the Members by the end of the day.

The meeting was adjourned.