Water Hearings Workshop: Overview of sectors & briefings on local government’s role, public finance & auditing issues

Meeting report

Overview of the Mandate, Functions, Concepts and financial environment regarding Environmental Affairs: Department of Water and Environmental Affairs (DWEA or the Department) briefing
Ms Nosipho Ngcaba, Director-General: Environmental Affairs, Department of Water and Environmental Affairs stated that the Environmental Affairs Foundational Mandate focused on sustainable development. Its Constitutional mandate looked at social, environmental and economic elements. The Environmental Affairs mandate also looked at environmental quality and protection, biodiversity and conservation, and marine and coastal management.

In terms of environmental quality and protection, the Department would prevent and manage negative development impacts on the environment through development and implementation of policy for environmental impact management, the processing of Environmental Impact Assessments (EIAs) and building environmental impact management capacity. Pollution and waste management would be controlled through implementation of policy, legislation, norms and standards. The Department would promote reduction, re-use and recycling of waste, process applications for the development of waste management infrastructure, and develop capacity for waste management. The Department would improve the state of ambient air quality by developing and implementing policy and standards for air quality, air quality management capacity development, monitoring air quality and infrastructure development support and by protecting the ozone layer. Environmental quality and protection also looked at climate change mitigation and adaptation policy development and research coordination. In terms of meteorological and related services, the South African Weather Service (SAWS) saw to the timely dissemination of weather forecast information and ensured weather forecasting infrastructure availability and maintenance.

Ms Ngcaba discussed biodiversity and conservation. The aim was to promote conservation and utilisation of natural resources through the conservation of land and seascapes, the management of national protected areas, biodiversity management and building a scientific base for effective management of natural resources. She noted that the Department now focused on marine and coastal management. This would be done through the Marine Living Resources Fund (MLRF); which would promote the conservation and sustainable utilisation of marine and coastal resources.

The state of the budgeting environment looked at the global recession and weaker economic conditions. One of the strategic risks included shrinking funds and the global recession. The Department anticipated further financial constraints, reduction of Medium Term Expenditure Framework (MTEF) allocations by the National Treasury (NT), possible decreases in donor funds and overall insufficient funding of the establishment. Another strategic risk was the recent restructuring and split within the Department. The Department foresaw a possible inequitable allocation of resources and problems with maintaining the Department’s corporate and cooperative governance reputation. Ms Ngcaba discussed baseline allocation trends, prior years expenditure patterns, MTEF trends and donor fund trends.

Challenges that were identified again included a possible future decline in donor funds, strategic expenditure implications, lack of funding for new programmes and structure changes, budget shortfalls for internal and external coordination of projects and possible effects on the audit opinion integrity. There was an increase in expenditure trends for the Department overall, specifically an average increase of 21.8% from the year 2005/06 to 2008/09. Other expenditure trends were due to infrastructure development, poverty relief projects , the increase in environment, conservation and marine mandates, transfers and subsidies to departmental agencies and increases to baseline accounts. There was an increase in expenditure trends for the air quality and protection programme, as it was expanded from a regulatory phase to an implementation phase. The marine and coastal management programme, biodiversity and conservation programme and the sector services and international relations programme also experienced increases in expenditure trends.

The Department showed that the MLRF received qualified audit opinions in 2005/06 and 2006/07; however, the audit reports for 2007/08 and 2008/09 were unqualified. The way forward, including risk mitigation, meant that the Department must continue to anticipate possible short funding in outer years, must apply efficiency models across all expenditure items, must re-cost of the baseline, must try to find alternate funding initiatives and increase in revenue, and carefully time spending on infrastructure and capital projects, and maintain clean audits.

Overview of Water Affairs: DWEA briefing
Ms Pam Yako, Director-General: Water Affairs, DWEA, briefed the Committee on the vision, mission, values, organisational structure and legal mandate for water affairs.

Ms Yako stated that the strategic goals were linked to the Medium Term Strategic Framework (MTSF). The strategic goals included: ensuring sustainable and equitable water resource management, universal access to safe and affordable basic water, building, operating and maintaining infrastructure, and having aligned and effective institutions. They further aimed to pursue African advancement and enhanced international cooperation and development, create a value driven, effective and responsive Department, and achieve transformation

Ms Yako discussed the challenges that DWEA experienced. Ageing water infrastructure resulted in systematic failures of water supply and the Department struggled with the development of water resources infrastructure to ensure universal access. She explained that in 2025 there would be a shortage of water in certain provinces; and hence supply would not be able to meet the demand for water. Illegal water use was a significant problem. Many municipalities were unable to manage waste water treatment plants and there were unacceptably high levels of pollution in rivers. She also discussed challenges regarding Water Conservation and Water Demand Management (WC/WDM). The demand scenario showed that there would be a shortage in 2013, and WC/WDM was the only measure available for mitigation until 2019. WC/WDM would be implemented over various metros and towns. The Department explained that there was a need for institutional reform and the capacity and skills challenges faced by the sector, especially at municipal level, needed to be addressed.

Financial Considerations regarding Water Affairs
Ms Yako moved on to discuss the funding streams. The Department was funded through the National Revenue Fund (NRF), revenue generated from water use charges in terms of the pricing strategy, and donor funding. The MTEF allocation was divided between administration, water resource management, water services and forestry. Donor funding was received for water and sanitation services, water and sanitation programmes, upgrading of hydrometric equipment, community water supply and sanitation, and twinning arrangements with Dutch water boards. By the year 2011/12, donor funding would only be received for water and sanitation programmes.

She explained that the NRF was earmarked for rent, the Working for Water programme, Working on Fire programme, refurbishment of the water scheme, De Hoop Dam, additional capacity, sanitation at schools and clinics, regional bulk infrastructure and operating subsidies.

Changes were made to the 2009 MTEF baseline because Departmental expenditure was expected to increase from R7 billion in 2008/09 to R9.5 billion in 2011/12. Changes in the budget would be managed through virements, rollovers and additional funding through the adjusted budget. Funds appropriated but not spent in a particular financial year could be rolled over to a subsequent year, subject to the approval of the relevant Treasury. Requests for rollovers had to be submitted to National Treasury (NT) on or before the last working day of April. The Department could request additional funds through an adjustments budget. The Department had to submit a memorandum to NT, the Cabinet and any Treasury committee of the Cabinet.

The Department discussed the previous Audit Reports. The 2003 report received an adverse opinion, the 2004 report contained items that led to an emphasis of matter and the 2005 report was a disclaimer, as material items did not meet the required reporting standards. The 2006 and 2007 Audit Reports were qualified. The Auditor-General (AG) Report for 2007/08 showed unsubstantiated additions to the asset register, unconfirmed accounts receivables, non-compliance with policies and procedures and a lack of staff skills and capacity.

Financial improvement initiatives include shifting from cash-based accounting to accrual accounting, the Siyanqoba Project, the Sakhile Project, the Hlayisa Project, and the Water Trading Entity (WTE) efficiency drive.

Regulation of the Water and Environment Portfolio
Ms Joanne Yawitch, Deputy Director-General: Environmental Quality and Protection, DWEA, stated that the Department was responsible for regulating water use, water services, waste and pollution management, conservation and sustainable exploitation of species and ecosystems, emissions to air and environmental impacts.

Both water and the environment were regulated on a strategic level and an “activity” level. The strategic level required plans and strategies in legislation, development, implementation and reporting strategies, and documenting details of plans, norms and standards required through regulation. Being regulated on an “activity” level meant being regulated on a sector level.

Ms Yawitch described the state of regulatory functions. Regulatory functions in both departments were fragmented, which impacted negatively on efficiency and effectiveness. There was insufficient capacity regarding regulatory functions. A legislative review showed that in terms of Environmental Affairs, there were many regulations in place, and more being developed. With regard to Water Affairs, minimum requirements and other norms and standards were being reviewed. Other constraints involved the concurrency of functions, inadequate financial resources, and the need of priority sectors for streamlined regulatory processes and interdependence of regulatory processes.

Both departments dealt with natural resource management in both urban and rural contexts. There were major opportunities to build integrated enforcement capacity. There were opportunities to deal with inconsistencies in the approach between the two departments and to achieve policy consistency at a range of levels.

International Relations in Environmental Affairs
Priorities regarding international relations included the continued prioritisation of the African continent, strengthening South-South relations, pursuing a developmental and investment-orientated approach to engagement with the industrialised world, working towards reforming global institutions of governance, strengthening economic diplomacy and mobilisation of financial and technical resources.

The Department discussed key areas for participation and engagement. In terms of multilateral and regional environmental agreements, key areas were biodiversity and marine matters, sustainable development and climate change. Other areas were multilateral relations, South-South relations, South-North relations, bilateral relations, and African relations.

In multilateral environmental agreements, marine matters consisted of environmental, conservation and resource management, resource use and marine governance. Biodiversity looked at biodiversity use and conservation, species, ecosystems and heritage. Sustainable development and multilateral environmental agreements focused on sustainable development, trade and environment and chemicals and waste. Climate change would focus on formal negotiation on a new international regime beyond 2012, a technical and scientific forum, parallel processes and South Africa hosing the Conference of the Parties in 2011.

Discussion
Mr P Mathebe (ANC) asked how the environmental unit would ensure adherence to good air quality standards. When the Committee did oversight work, Members usually came across big housing projects that had come to a standstill due to delays in receiving Records of Decisions (RoD) certificates. He asked how long it took for the Department to issue companies with the Record of Decision certificates. He wanted a breakdown, province by province, showing how many of these applications the Department received. He also wanted to know how the Department of Water Affairs expected to teach people to conserve water when they did not even have access to water. He had thought the Department was going to brief the Committee on its plans for providing water to rural areas.

Ms Yawitch stated that a dedicated session was needed at which the Department could address the issues raised by the Committee. She stated that the Department was working with the Department of Energy on specifications for the new air quality standards. The new air quality standards needed to be finalised as soon as possible. She stated that in terms of EIAs, the Department was working very closely with provinces. The provinces reported to the Department quarterly on all their applications and vacancy rates. It would be possible for the Department to come back to the Committee and give Members a breakdown, province by province.

In terms of RoDs, Ms Yawitch said that delays depended on the provinces as well the circumstances regarding skills and staff capacity within provinces. There were statutory timeframes that set out how long public services had to perform EIAs, as also how much time officials had to issue RoDs. There were problems when timeframes were not met due to shortages in capacity or the complexity of the development. If there was a real environmental or technical problem, or there were issues raised by the public, then the process would also be delayed. The Department had already eliminated 95% of the backlogs that stemmed from the old regulations. At a national level, there were no backlogs at all. There was an agreement with provinces that until the electricity crisis was addressed, all of the EIAs regarding power would go to the National Department.

Mr Z Luyenge (ANC) noted that the officials had briefed the Committee as if they belonged to separate Departments, when in fact they belonged to one unit. He addressed land conservation. There was a lot of land that was being lost to the sea. He asked what mechanism could be employed to resolve this matter. The Department was expected to utilise its budget and to indicate its vacancy rate. He wondered if there was an asset management policy and how the Department was intending to retain its staff. There should not be a problem of concurrency within the Department, as the structure was not divorced from the local and provincial spheres. All institutions were compelled to work together. He noted that there were certain places in the country that experienced tornados. He wondered what measures were put in place for communities to engage in disaster management.

Ms Yawitch stated that tornados started emerging in Transkei and also in certain areas in Kwazulu-Natal. This could be due to climate change issues. The Department identified the need for accurate, early weather information that would reach people timeously. The problem was how people at a local level would receive the information before the damage set in. The Department was looking at ways to support people and provinces in the long term. This was part of the country’s climate change response. Even the Minister spoke about demystifying climate change. South African Weather Services was working on an early disaster-warning system. The Department would have to address the Committee more fully on this at a later date.

The issue of land care had to do with the Department of Agriculture, Forestry and Fisheries. However, this Department was concerned with the issue of ecosystem integrity.

The Chairperson commented that there were two Director-Generals (DGs) from the Department; one from the environment sector and one from the water sector. The two sectors were going to be merged. Both DGs were experts in their own sectors. The Committee was dealing with both sectors now.

Mr J Skosana (ANC) stated that the issue of co-operative governance was important. He found this issue to be lacking in the presentation. There would not be service delivery at local level without co-operative governance. He would have liked to have more information on reservoirs and purification plants, as this information was needed when discussing issues regarding water supply. The national plan for rural development was also very important. Officials within the Department had to be able to discuss rural development and how they would address poverty alleviation.  

Ms H Ndude (COPE) noted that there was lack of planning when it came to supplying people in rural areas with water. She was very worried that there was no plan in place. She was happy that the Department alluded to the findings made by the Auditor-General, as it was important to hear the issues. She noted that the A-G’s report stated that there was an amount of about R60 million that was used for travelling and other expenses, and she wondered if the Department was doing something about this matter, as it was important to engage in cost-cutting measures. These were expenses that could not be justified. She also asked what plans the Department had in place to prepare for decreases in donor funding.

Ms M Tlake (ANC) stated that there was legislation in place to monitor the air quality situation. She asked what the Department was doing to monitor the air quality situation in Sasolburg, as there was still a lot of pollution. She also wanted to know if the personnel in the Department were going to be affected by the recession during the restructuring of the Department. She noted that there would be issues of underspending and rollover of funds in the next financial report.

Ms Yawitch stated that there was a new Air Quality Act that said that the Department had to set up an air quality map of South Africa that showed where air quality problems were the worst. The two main problem areas were the Vaal Air Shed and the Highveld. The Department worked with all the stakeholders, industries and communities in these areas to focus on air quality management. The people who were responsible for the pollution problem had to put plans in place that would contribute to the improvement of air quality. There were communities who used coal, resulting in sulphur emissions. The Department and communities had engaged in programmes and campaigns addressing air quality. These were low-cost interventions that raised awareness and educated people how to make fires  that would result in less sulphur emissions. The Department had a list of 27 municipalities with the worst air quality, and was already working with the municipalities to deal with air quality issues. 

Ms Ngcaba spoke to the issue around restructuring of the Department. The Department was matching and placing personnel in respect of what was available with in the Department. This would be based on skills and experience. At this point, the Department did not anticipate any job losses.   

Mr G Morgan (DA) discussed environmental tools management. It was important that EIAs and other related environmental management instruments that were passed in terms of the National Environmental Management Act (NEMA) were completed timeously, and that they sufficiently protected the integrity of the environment. He wanted to know how far the Department had gone with creating the regulations for the new environmental management instruments. He was particularly interested in the environmental risk assessment tools. He also wondered what the Department was doing to fill vacancies in the provincial sphere.

Ms Yawitch stated that the registration of EIAs was being done nationally. The Department was looking at how it could roll out this function to other sectors. In the current economic recession, it was difficult for the Department to do as much as it wanted to.

Ms Yawitch also addressed the question of staff skills. She stated that the national Department was working with the provinces to bench mark post levels, as there had been a situation where assistant directors were paid different amounts in different provinces. This meant that when posts with higher salaries were advertised, staff from other provinces would leave their current posts in search of the higher salaries, which led to huge service delivery problems in some provinces. The Department had now decided it would pay people with the same posts at the same level across the country, to create greater stability.  

Ms A Lovemore (DA) had trouble understanding the co-operative governance issues. She needed more clarity on this matter. She asked for an update on what was happening in Mthatha. Municipalities had a constitutional imperative to supply water to people. In some cases, they were reticulating way beyond what the water supply could allow, and definitely beyond what the infrastructure could allow. There were water treatment plants that could not cope. The national Department was the custodian of South African water resources. She wanted to know who would be responsible for telling Mthatha’s municipality that it was moving too fast and that the infrastructure could not keep up with the amount of water being distributed.

Ms Yawitch stated that the Department would be focusing more of the budget on the Infrastructure Development Programme (IDP). It would be looking at social and economic infrastructure. Providing the Department received funds, it had planned on capacitating each of the provinces with additional staff over the next three years. These staff would have a dedicated role in the management of infrastructure.

Ms Ngcaba stated that there was a local government strategy that the Department would share with the Committee. With regard to provinces, there was a co-operative governance chapter in the NEMA that guided how the Department would co-operate with provinces.

Ms C Zikalala (IFP) noted that Members had many questions for the Department. She wondered if it was possible for the Department to brief Members again in an ordinary Portfolio Committee meeting, to expand on some of the issues presented at this workshop. She also noted that there was a scarcity of clean water in rural areas. She wanted the Department to explain what its plans were for resolving this issue. She also wanted an explanation on what the Kyoto Protocol was.

The Department stated that the Kyoto Protocol was a subsidiary protocol of the United Nations (UN) Framework on Climate Change. In 1992, when the consequences of climate change were not clear, the UN Framework Convention on Climate Change set the ultimate objectives and principles on how to address the climate change matter on a global level. In 1995, the intergovernmental panel released its second assessment report, which made it clear that climate change was a real phenomenon, that human activities were causing the change. The Kyoto Protocol was renegotiated and set a legally binding target for developed countries to reduce emissions levels. The United States of America (USA) did not ratify the protocol, and created a deadlock on all international discussions on climate change. However, in 2007, at the Bali International Negotiations on Climate Change, the Bali Roadmap agreement was developed, to set up negotiations for legally binding emission reduction commitments by developed countries, besides the USA. This was for the second commitment period after the year 2012.    

Ms Ngcaba interrupted the explanation and acknowledged that the Department had not answered all the questions from Members. She stated that the Department could have dedicated sessions with the Committee to brief them in more detail on climate change and any other issues they were concerned about. 

Ms Yako stated that the Department would brief the Committee in more detail on issues to do with water. The Department would come back to the Committee and brief Members on water infrastructure and what the plans were for certain areas. She stated that the Department would make the vacancy rates in the Department available to the Committee. The Department would also have a dedicated session with the Committee to focus specifically on rural development.

The Chairperson stated that this was a good suggestion, especially if there were briefings on the Department’s finances, its infrastructure plans and vacancy rates. She wanted to understand why the Department kept receiving disclaimers for the A-G. She wondered if it was due to the capacity problem within the Department. It was not possible to resolve these issues in three hours. 

Local Government and the Water and Environment Functions: South African Local Government Association (SALGA) briefing
Mr Mthobeli Kolisa, Executive Director: Municipality Infrastructure Services, SALGA, briefed the Committee on the local government’s involvement in water and environment functions. He discussed the South African Local Government Association’s (SALGA’s) mandate, role and governance structures.

He discussed municipalities’ role in water services. Municipalities that were responsible for the water services function and its governance were Water Services Authorities (WSAs). A WSA was any municipality that had the executive authority to provide water within its area of jurisdiction. Its primary responsibility was to ensure the provision of water services. Other responsibilities included ensuring access to water services, planning water services development, regulating water services provision, and ensuring the provision of effective, efficient and sustainable water services. 

A Water Service Provider (WSP) was any person who had a contract with a WSA or another WSP to sell water to, and / or accept wastewater for the purpose of treatment from, that authority or provider. A WSP could also be any person who has a contract with a water service authority to assume operational responsibility for providing water services to one or more consumers within a specific geographic area.

SALGA set out the water sector value chain and gave an overview of water supply. The Department was responsible for national security of water supply. Bulk providers, which consisted of water boards and bulk wastewater WSPs, were responsible for regional supply of water to the WSAs. Municipalities, who also played the role of WSAs, were responsible for local service delivery and customer management. The value chain showed that water resource management took raw water from rivers, dams, boreholes and springs. After bulk water treatment, the water would be distributed to consumers. After usage, human excreta and wastewater was collected. The water would be treated and returned to the rivers, and the cycle would continue. Local Government’s (LG) mandate stated that it was responsible for distributing water to consumers. However, where there were concerns, LG was sometimes forced to act outside its mandate. LG had no rights to collect tariffs and charges.

Mr Kolisa explained that WSA targets were set in terms of the Strategic Framework for Water Services (SFWS). All people in South Africa had to have access to functioning basic water supply facilities by 2008, and to functioning sanitation facilities by 2010. The free basic water policy was implemented in all WSA by 2005 and the free basic sanitation policy would be implemented by 2010. (see attached document for more details)

SALGA discussed LG and the environmental sector. Most municipal functions impacted on or were affected by the environment. Municipal functions could contribute to climate change response (mitigation and adaptation to climate change). Given the nature of their function, municipalities appeared to be strategically positioned to take primary responsibility for the country’s adaptation response.

SALGA support initiatives included benchmarking of the WSA to improve performance, water pricing and tariffs, enhancement of local regulations, strategy on free basic sanitation, drinking water quality and Integrated Water Resource Management. 

Provinces were obligated to support LG. Provinces did not have any water services competency, but in cases where the municipality failed to execute its functions, the province could intervene.

The Budget Process and Financial Oversight: National Treasury briefing
Mr Andrew Donaldson, Deputy Director-General for Public Finance, National Treasury, stated that resource management was concerned with more than government spending. The budget reflected revenue and spending by government entities. He stated that water and environmental planning started with science, which meant understanding long-term linkages between human activity and resource sustainability.

Mr Donaldson explained that the strategic plans and MTEF budgets consisted of the 3-year MTEF budget, the 5-year MTSF Strategic Plan and a 20+- year Infrastructure Investment Programme. He discussed the in-year budget process, the chain of accountability, and finance legislation and oversight. Legislation that was used for oversight included the Public Finance Management Act (PFMA), the Municipal Finance Management Act (MFMA), the Appropriation Act and the Division of Revenue Act (DoRA).

Primary fiscal flows to the water sector showed that there were water related transfers through the Department to national entities and Local Government. The NT’s role in transfers stemmed from the Appropriation Act, which set out what funding would be used by whom, and the purpose it would be used for, and the DoRA, which specified transfers to provinces and municipalities. Primary flows to environmental affairs showed transfers to national entities and to local government.

Sources of water funding came from recurrent spending such as from user charges and provincial and municipal funding, capital project funding and donor funding. Sources of funding of environmental investment and services came from taxes, parliamentary appropriations, user charges and fees, Extended Public Works Programme (EPWP) funding, and international funding.

The total budget requirements of municipalities were linked to their service delivery and developmental responsibilities. This was funded through a combination of user charges, surcharges, property tax and transfers. The ability of a municipality to raise revenue from its own sources was influenced by income levels, affordability criteria and consumption patterns. Bigger municipalities received much of their funding from user charges, while smaller municipalities received most of their funding from grants.

Water and environmental functions were key elements in national funding of municipalities. The functions made up the basic services element in the equitable share formula (see attached document). The basic services component was the largest component in the formula, and enabled municipalities to provide basic services and free basic services to households. It complemented the Municipal Infrastructure Grant (MIG). 

Discussion
Mr Luyenge discussed the roll over of funds. He stated that it was allowed in terms of the law, but the Committee did not want it to see it happening all the time, as it indicated improper planning by Departments. Both the presentations by the NT and SALGA were very explicit and would enable the Committee to engage with municipalities on their MIG.

Mr Donaldson stated that rollovers were not ideal; however, if these were not to be allowed there would be other kinds of unhealthy behaviour, such as Departments making advance payments and hiding funds.

Mr L Greyling (ID) noted that there were no water services in rural areas. There were some municipalities that were performing the function of a water board, but were not getting paid for it. He wondered where the problem emanated, and if the provincial municipalities were not spending their MIGs, or if rural municipalities were not receiving enough funds from NT.

Mr Kolisa stated that the formula used to calculate grants for MIG and equitable share were dependent on the number of households. The MIG was given to municipalities to provide services to the poor. This grant had always been inadequate. He stated that a major issue in non-urban areas was how the government would get people who could afford to contribute to give some fee towards the provision of services.

Mr Mathebe stated that one of the factors hampering the water boards’ performance was the ongoing poor relations between them and municipalities, as it had been reported that some municipalities refused to sign long term contracts with the water boards. He asked SALGA to address the matter. He stated that there was a programme that would provide water in rural areas. This programme came to a halt, and although Members did not know exactly why, it had been alleged that the Department did not want to give money to the provinces to continue the programme. He wanted to know why the money was not flowing to the provinces for the programme.

Mr Kolisa stated that this concerned contracts with service providers. Some municipalities had not investigated and committed to long- term relationships with water boards. Water boards were bulk service providers, and they were not institutions that provided retail services, such as collecting revenue. In certain areas, there were municipality issues that needed to be resolved. Some municipalities were completely dependent on grants

The Chairperson asked what SALGA’s relationship with water boards was and what their reasons were for wanting to expand the mandate of local municipalities in some areas. She wanted to know if it was easier to get water directly from the Department or the District, or if it was better with the current system. She also wanted to know what could be done to make the provision of water to communities easier.

Mr Kolisa stated that many communities did not have bulk water providers in the form of water boards. Where water boards did not exist, municipalities provided water. However, sometimes there was not enough bulk water for the community. There were some municipalities that did not have water because their dams had dried out. This was an area that needed to be attended to and resolved. This matter was not only about funding, but it was about ensuring that the institutional arrangements adequately responded to the need for bulk service provision in certain areas.

The Chairperson thanked the NT and SALGA and noted that the Committee needed more time with SALGA.

The Chairperson asked Mr Mathebe to fill in as Chairperson at this point, and he duly took over as Acting Chairperson.

Briefing by the Office of the Auditor-General on its Functions and the Audit Process
Ms C Myburgh, Branch Executive: Office of the Auditor-General (OAG), stated that Section 20 of the Public Audit Act required that the A-G have an opinion on whether the annual financial statements of the auditee were fairly presented, whether there was compliance with the applicable legislation in relation to financial matters, and whether performance information was adequate. Phases of the audit process included engagement activities with management, planning and developing a strategy, execution of procedures, reporting to the accounting officer and audit committee, and interim and final audits.

Timeous and regular communication was critical for a successful audit. There should be regular interaction between the auditee and the Auditor-General. An audit opinion would be issued. She explained that emphases of matter could be given due to concerns, significant uncertainty, to highlight a matter affecting the financial statements, and to show material inconsistency.

Ms Myburgh briefly explained the audit reporting format and the auditing of performance information. An annual audit of reported actual performance against predetermined objectives would be done at entry level. In terms of performance information, the audit approach was to obtain an understanding and test the internal policies, procedures and controls related to management of performance information. The auditor would then evaluate the existence and consistency of performance information. The performance information would then be compared to relevant source documentation.

Good practice occurred when there was a clear trail of supporting documentation, when the quality of financial statements and management information was good, when there were timeliness met in financial statements and management information, when there was availability of key officials during audits, if there was development and compliance with risk management and good internal control and governance practices, and there was supervision.

Ms Myburgh showed that the Department of Water Affairs and Forestry received a qualified audit outcome in 2007/08. There were audit concerns about the Department’s assets and the lack of a system to record and manage performance information.

Discussion
The Acting Chairperson asked what the difference was between a qualified opinion, disqualified opinion, a disclaimer and an adverse opinion. He also wanted to know what the powers of the A-G were regarding the refusal of accounting officers to hand over information that was requested from the A-G. 

Ms Myburgh stated that all institutions should strive for an unqualified opinion. This was a “clean bill of health” regarding financial statements. A qualified report would say that institution’s financial statements showed a fair representation of what was happening, aside from a few issues that needed clarity. A disclaimer indicated that the A-G did not receive enough audit information and supporting documentation, which resulted in a particular financial matter being so vague as to affect the whole financial statement, so that the A-G would not be able to express an opinion. The worst opinion was an adverse opinion. This happened when the A-G disagreed with management on the financial statements that were prepared. 

Ms Myburgh explained that if the OAG needed certain documentation in the course of an audit, all the documents had to be made available. The OAG was entitled to the information. If institutions thought they would receive a disclaimer, they tried to forward all the information to the A-G.

Ms Lovemore noted that the A-G’s Office had been carrying out environmental audits for the past few years on metropolitan municipalities. Even when municipalities received opinions the opinions were not taken seriously and the municipalities failed to act on them, because it was thought that this was not part of the A-G’s mandate and therefore that the A-G could not take any legal action. She wanted to know if this was part of the A-G’s mandate, and if the Committee should perform oversight on these municipalities.

Ms Myburgh stated that the OAG could not just summon everybody. The OAG wanted to build public confidence through its auditing. The OAG wanted to strengthen its oversight functions and wanted government structures to hold people accountable for their actions. The OAG could report on the findings regarding environmental audits, but could not enforce its recommendations.

Mr Luyenge appreciated the OAG’s clear presentation. He wondered what could be done if institutions kept receiving qualified reports from the A-G, and failed to respond to issues raised by this office.

Ms Myburgh stated that the A-G could not do anything about this. The OAG’s mandate revolved around auditing and reporting to Parliament. It was the oversight Committees’ responsibility to hold people accountable and to take action. 

Mr Morgan commended the OAG for its significant work. He did not think the OAG received enough praise for the role they played in the country and in sound public finances. 

The Acting Chairperson stated that this was an extremely clear presentation that had enabled the Committee to get a clear picture of what the different opinions meant.

The meeting was adjourned.