Auditor-General steps up on value-added audits

“No matter where we start, we make sure that the end is always better than the beginning.” – Kimi Makwetu.

Auditor-General (AG) Kimi Makwetu is completing his seventh year as AG, and that after seven years as deputy AG. There are not many state institutions that have managed to grow someone within the organisation. He will be stepping down in November.

Under his watch, the Public Audit Act was amended to provide the Auditor-General of South Africa (AGSA) with additional powers, i.e. to:

• Refer material irregularities to relevant public bodies for further investigations in accordance with their mandate;
• Take binding remedial action for failure to implement the AG’s recommendations for material irregularities; and
• Issue a certificate of debt for failure to implement the remedial action if financial loss was involved.

Makwetu was the winner of the 2019 Association for the Advancement of Black Accountants of Southern Africa (Abasa) Presidential Award for Lifetime Achievement. AGSA should also receive a prize for being the first state institution to publish its integrated annual report for the financial year ended March 30, 2020.

The AG provided value-added auditing by:

• Successfully executing 1 070 audits;
• Implementing the material irregularity (MI) process at 16 national and provincial, and nine local government auditees;
• Identifying 45 MIs in 2019-20 worth an estimated R4.25 billion;
• Achieving 76% compliance with quality standards, against a target of 80-90% (the quality was negatively impacted by the increase in the sheer volume of audits and the rapid takeover of a number of complex audits0;
• Auditing 14 of the 21 section schedule 2 institutions, with two in the pipeline;
• Integration continued to gain momentum and in some instances produced audit efficiencies;
• Requests for investigations increased by 126% from 34 to 77;
• Deploying a multi-disciplinary team to facilitate government’s preventative controls on covid-19 procurement;
• 74% of internal appointees having progressed upwards;
• 1 195 chartered accountants having qualified since 1991;
• 2 263 employees having been trained on the MI process; and
• It being ranked fifth on Universum’s most attractive employers list by students studying accountancy.

Makwetu identified key issues in his message

Accounting officers and authorities of public institutions are expected to prevent and detect non-compliance, fraud, theft and breaches of the fiduciary duty of care. Preventative control should be introduced.

The executive authorities must set the tone for consequence management by investigating and dealing with any allegations of financial misconduct and irregularities by accounting officers and authorities.

Building reserves

The focus on cost optimisation, instituting a head count moratorium, renegotiating leases, and intensifying debt collection, among other initiatives, has enabled AGSA to accumulate a year-end cash reserve of R674 million.

Debt owed to the AGSA is R931 million, an increase of 25%, with local government owing 42% of the whole.

Developing human capital

AGSA is:

• Producing trustworthy staff by providing a highly ethical environment for staff to flourish;
• Continuously improving talent-sourcing mechanisms and talent-development programmes;
• 221 trainees with a certificate in the theory of accounting qualification were appointed in early 2020;
• AGSA uses social media platforms such as LinkedIn and Facebook to attract talent;;
• 1 195 candidates were assisted to qualify as chartered accountants;
• Committed to professionalising the organisation by employing highly trained staff, and assisting staff to qualify in various areas; and
• Implementing essential leadership development programmes.

Conditions under which AGSA operates

Year after year AGSA comes across internal control environments that are inadequately managed, weak preventative controls and the disregard of AGSA’s audit reports.

Collecting outstanding debt from local government and ailing state-owned entities (SOEs) remains a challenge.

Material irregularities (MIs) detected in auditees

• National and provincial overall outcomes – financial loss of R4 billion: 39 material irregularities were identified. This included the Free State Department of Human Settlements (10 material irregularities), Passenger Rail Agency of South Africa (nine), Department of Cooperative Governance (six), and the North West Department of Community Safety and Transport Management (three).
• Local government overall outcomes – financial loss of R25 billion: six MIs were identified.

AGSA is operating in an increasingly difficult and dangerous environment, and there have been instances of auditors receiving threats and intimidation. Measures also have to be taken to protect data from cyber breaches.

Possibly the greatest threat to AGSA however, is the nonchalance with which government as the stakeholder reads adverse audit reports on SOEs and municipal and provincial bodies.