RESPONSE BY THE AG ON COMMENTS MADE BY THE SOUTHERN AFRICAN INSTITUTE OF GOVERNMENT AUDITORS (SAIGA)
1.1. As indicated in the paper presented by SAIGA, SAGA avoids commenting on individual aspects or statements, but rather concentrates on certain fundamental issues.
1.2. This approach adopted by SAIGA makes it rather difficult for the AG to evaluate the inputs for purposes of possible amendments to the Public Audit Bill (Bill) due to the fact that no specific amendments were proposed in their comments to consider. However, without downgrading any of the other subsections mentioned in the discussion paper, the AG's interpretation of the gest of the overall paper can be summarised in the following categories for purposes of consideration in respect of the proposed Bill:
The provision of audit and other services by the Auditor-General.
The audit mandate of the AG with regard to performance audits.
The perceived favouring of private sector auditors.
- The perceived marginalizing of the registered government audit profession (RGA's).
- The AG's discretionary constitutional function with regard to other institutions.
- Other issues
1.3. It should also be stated that the AG did not have the opportunity, as was the case with other institutions, to consult with a representative of SAIGA in order to seek greater clarity on their inputs and views regarding the Bill as well as to provide SAIGA with the AG's perspective on the Bill. This also contributed towards the fact that certain of the "perception &' as indicated in the paper could not have been corrected prior to this presentation.
2 THE PROVISION OF AUDIT AND OTHER SERVICES BY THE
AUDITOR-GENERAL (Section 5(1) of the bill)
2.1 SAIGA's concern with regard to the impact that the services provided by the AG might have on the independence of the AG could be overcome by allowing certain principles to be included in the Bill. These principles may include a reference to the effect that no service may be provided in respect of any mailer that may subsequently have to be audited by the Auditor-General and inputs towards formulation of policy, as well as the implementation of policy.
2.2 The reference to the audit related value added services protocol that was developed by the Office is irrelevant as this initiative was abandoned.
3. THE AUDIT MANDATE OF THE AG WITH REGARD TO PERFORMANCE AUDITS (Section 20(3) of the bill)
3.1 SAIGA's input with regard to compulsory performance audits at this stage is unreasonable, as this would place enormous constraints on the resources of the Auditor-General.
3.2 Performance audit has been made optional and not mandatory because of the limited maturity levels and capabilities of the various auditees. Currently there are plans to shift the focus to Performance Auditing over a 5 to 7 year period and therefore it cannot be legislated in the manner requested by SAIGA. These plans have furthermore taken into account the model that was developed by Canada and which took almost 10 years to get to a higher maturity level, where effective Performance Audits could be performed. This phased-in approach would allow the Office to do the necessary research, development and training with regards to staff that would be involved with these performance audits and at the same time allow the various auditees to reach the required maturity level.
3.3 Nonetheless, the Auditor-General is on the forefront of the international development of the government audit mandate and has developed for example, a pioneering automated approach for the audit; of performance measurements in terms of the Municipal Systems Act. The Auditor-General has also developed a financial management progression model with which to audit the full scope of financial management.
3.4 It is, however, apparent that this mandate development is substantially ahead of developments in the profession and in government. Auditable performance measurement only follows in the progression once the systems to manage the basics are in place and the instruments are ready to reliably qualify performance. The auditing profession internationally is at this very moment struggling with the issue of audit assurance on mailers other than financial statements. Similarly, the accounting and management professions are battling with the issue of external reporting on more than financial results. The road ahead is not clear to anyone yet, and details of an experimental nature should not be included in an Act of Parliament. The current Bill goes as far in this direction as possibly can be achieved internationally today.
3.5 Comfort could also be given in relation to the comprehensive audit approach that was implemented by the AG almost 2 years ago in which certain performance related focus areas and elements were identified and incorporated in the regularity audit process.
4. THE PERCEIVED FAVOURING OF PRIVATE SECTOR AUDITORS (section 12 of the bill)
4.1 The perception that private auditors are favoured at the cost of SAIGA registered auditors should be seen against the backdrop of the fact that the SAIGA profession has only been recently established. The AG has since the accreditation also recognised the qualification with regards to its own staff by way of a "grandfathering initiative". This initiative puts the individual so recognised, through experience and demonstrated competencies, on the same South African qualifications authority level as CA's. The qualification is further more promoted within the Office.
As stated in the paper the formal professional examination has only recently been established. At this stage It is also difficult to asses how competitive this academic route will be in comparison with the long established CA and ACCA routes. The current Bill recognises past experience and competencies in line with SAQA and does not exclude any staff member with a RGA qualification from performing any audits as an authorised auditor on behalf of the Auditor-General. The request to disqualify private sector auditors to engage in contract audit work for the AG, is in our opinion unreasonable and cannot be entertained. Furthermore, we do not agree that the Bill allows for the appointment of private sector auditors in instances where these firms provide services to institutions that they are auditing. The AG has specific guidelines in place during the consideration of contracting out work to private audit firms. If any such services were provided by the audit firm they would automatically be disqualified from any auditing contract work in respect of those services rendered.
4.2 The government audit profession: In terms of paragraph 4.1.
above, it is clear that there is as yet no legally recognised profession in this regard, and no registration process apart from that in terms of the Public Accountants and Auditors Act of 4991. The Auditor-General respects, and assists with, the process that government is following to reconstruct the accounting and auditing professions, and cannot possibly pre-empt and bind that process in this Bill.
4.3 In the meantime, the Auditor-General is conscious of development needs and of value for money in respect of all the parties that are trying to position themselves in this regard. The Auditor-General runs the only professionally recognised article scheme for Chartered Accountants/Registered Auditors in the public sector in South Africa. The Auditor-
General has also given recognition to other qualifications, including RGA, to the extent provided for by the current regulated qualification framework for South Africa.
THE PERCEIVED MARGINALIZING OF THE REGISTERED
GOVERNMENT AUDIT PROFESSION (RGA’s) (Section 12 of the
Please refer to comments above.
6.THE DISCRETIONARY CONSTITUTIONAL FUNCTION OF THE AG WITH REGARD TO OTHER INSTITUTINS (Section 4(3) of the bill)
6.1 The audit mandate The prerogative afforded to the Auditor-General in section 4 is the logical consequence of section 188 of the Constitution, in terms of which he/she must audit government departments and municipalities but may also audit others. It is surmised that, for the others, the Constitution recognises that the situation may differ from case to case. If this is not correct, then it should be corrected in the Constitution, not in this Bill. The Auditor-General already has internal policies on how to deal with this and which criteria to apply.
6.2 However, SAIGA's input in this regard appears to be unrealistic. It was never the intention that the Auditor-General should audit all public entities, therefore the discretionary provision is a more appropriate option. Discretionary power given to the AG is also dependent on circumstances that may charge from time to time. In this regard the AG would have to look at each case on its own merits and for this reason internal guidelines will be developed after consultation with the National Treasury and other interested parties.
6.3 Criteria have been developed to determine in a constructive mailer on what basis he should opt to perform an audit or not. These criteria covers two scenario's:
· The auditing of new public entities
· An annual review of the current audit arrangements in order to identify audits that should be "taken back".
7. OTHER ISSUES
7.1 Accountability framework - The request to require a disclosure of certain information in the Auditor-General's annual audit report with regards to names of all authorised auditors used, total fees paid to each authorised auditor, names of firms used, analysis of such fees into categories will result in a major administrative burden for the Auditor-General and requires far too much detail with regards to disclosure. We do disclose some salient aspects relating to contract work currently-which we believe is adequate
7.2 Audit fees - SAIGA's suggestions with regards to a wider consultation with regards to the determination of audit fees are noted, but we don't agree that it should be legislated as it could impact on the independence of the Auditor-General
7.3 These will be determined in terms of the Accountancy Professions Bill once enacted, and the Bill should therefore not be pre-empted now. The Auditor-General currently applies auditing standards as agreed to in terms of the NEPAD principles.
7.4 Accountability arrangements: These should be as for other similar institutions. The external auditor appointment is explained above. The Bill does not pre-empt the Accountancy Profession Bill by assigning powers to other auditors.
7.5 Private firms that audit public entities. This phenomenon was previously regulated on an ad hoc basis by the establishing legislation of the various entities. The Bill intends to improve that situation in the public interest by centralising the process. Internal procedures have already been developed to address the detail ramification.
7.6 Regulation of authorised auditors. These comments relate to operational procedures, most of which are addressed in the recent contracting policy guide.