KIMI MAKWETU: Auditor-general’s new powers will improve governance
Amendments to Public Audit Act allow for errant officials to be referred to the proper investigative authorities
Parliament’s unanimous vote to give the office of the auditor-general extended powers has recently assumed centre-stage in our public discourse.
This debate reached a crescendo last November when President Cyril Ramaphosa signed into law and endorsed changes that will expand our public sector audit mandate. Subsequently, the president proclaimed April 1 2019 as the commencement date of the Public Audit Amendment Act, which affects not only the nature and scope of our audits, but also the internal operations of the office.
The revisions to the office’s mandate have been widely welcomed, although some — chiefly public servants and academics — have raised concerns that they may result in the auditor-general “overreaching” its key constitutional mandate, thus infringing on the work of those charged with public sector administration, such as accounting officers and accounting authorities.
The auditor-general’s audit activities are much the same as they were before the amendments, except for three key additional steps we can now take that go beyond our traditional mandate of auditing and reporting.
While these concerns were thoroughly dealt with during the extensive parliamentary deliberations and the president’s scrutiny of the amendments, now that the changes have been signed into law my office can with authority share the intended aim and meaning of the amendments.
At the outset it is worth restating that as the country’s supreme audit institution ours is the only institution that, by law, has to audit and report on how government is spending taxpayers’ money. It does this by examining the accounting records and related transactions to support financial statements and report on the manner in which finances are managed, handled and reported on by institutions funded from the public purse. This has been the broad focus of the office of the auditor-general since its inception in 1911.
In 2016, concerned by the growing extent of irregular, unauthorised, fruitless and wasteful expenditure reported by my office every year at all tiers of government, the multiparty parliamentary committee that oversees the office, the standing committee on the auditor-general, initiated the process to expand our mandate beyond just auditing and reporting.
In their collective wisdom the members of this committee, later fully backed by the National Assembly, the National Council of Provinces and the presidency, felt that expanding our mandate would further support other existing pieces of legislation aimed at ensuring good governance and clean administration in the public sector.
These legislative instruments include the Public Finance Management Act and the Municipal Finance Management Act. Both contain extensive guidance on what the law requires accounting officers and accounting authorities to do, and even outline the consequences that must be assigned in the event of financial misconduct. This includes the responsibility to quantify and recover money due to the state.
Therefore, the latest amendments to the Public Audit Act should be seen as further reinforcements to these and other extant, good governance legislative tools. They will also serve to elevate the existing responsibility of line managers as they were envisaged when the Public Finance Management Act and the Municipal Finance Management Act were promulgated about 20 years ago. The auditor-general’s audit activities are much the same as they were before the amendments, except for three key additional steps we can now take that go beyond our traditional mandate of auditing and reporting.
A central feature of the amendments is the introduction of the concept of a material irregularity, which is intended to isolate other common errors or deficiencies so that activities that put the public purse at risk of financial loss are identified and pursued. A material irregularity means any fraud, theft, breach of a fiduciary duty or noncompliance with or contravention of the law that could result in a material loss, the misuse or loss of a material public resource or substantial harm to a public sector institution or the general public.
This means the focus of an audit will be to thoroughly assess the existence or otherwise of material irregularities in transactions or balances. This is important as it eliminates any speculation or doubt about the nature and substance of matters leading to, say, irregular expenditure or lack of proper accounting rigour. Once a material irregularity has been identified or is suspected, the auditor-general may now take the following actions (the extended powers):
- Refer a suspected material irregularity to a public body with a suitable mandate and powers. Authorities with the requisite investigative capacity and skills include the public protector, special investigations unit and the police. The public body would deal with the matter within its own legal mandate and take appropriate action where necessary.
- Make recommendations in the audit report on how a material irregularity should be addressed, within a stipulated period of time. If these recommendations have not been implemented by the stipulated date, the auditor-general must take binding remedial action, and if the irregularity involves a financial loss, issue a directive to the accounting officer or accounting authority to quantify and recover the loss from the responsible person.
- If the accounting officer or accounting authority fails to implement the remedial action, including a directive to quantify and recover a financial loss, the office of the auditor-general must issue a certificate of debt in the name of the relevant accounting officer or accounting authority. It is the responsibility of the relevant executive authority, such as a minister or member of a provincial executive council or municipal council, to recover the loss from the accounting officer or authority.
These three steps come with many checks and balances, giving the public entity or department concerned enough opportunity to fix the flagged problem before it gets to the issuing of a certificate of debt. That action would only be taken if and when those charged with governance fail to act.
In essence, the primary responsibility to identify and action material irregularities still remains with the line management of the audited institution. No part of their statutory responsibilities is transferred to the office of the auditor-general, which through these amendments provides a transparent and reliable source of evidence and monitors the proper restoration of an accountable system of financial management.
It is worth noting that our audit teams will note these breaches as they come to our attention during our annual audits. This means there will be no need for us to increase the audit scope to identify a material irregularity. This will be factored in as part of our normal audit work.
Some might rightfully ask what will happen to those who had in the past incurred irregularities that could be deemed material irregularities by the new amendments. The amendment act does not apply retrospectively. However, in the case of long-term contracts that are still operative when the material irregularity is detected, the auditor-general’s right to refer or take remedial action will apply. This means that if an irregularity that occurred in the past is detected during an audit that results in an audit report issued after the commencement of the amendment act, it can still attract the extended powers of the auditor-general. The test is therefore the date of the audit report.
We recognise and appreciate the immense responsibility that comes with these powers. We undertake to use these responsibly and for the betterment of our country and the lives of her people. For decades now, our office has been part of a national drive towards wholesale good governance in our public sector. These amendments therefore are not meant to be punitive, but are a gear shift in this critical developmental journey.
We are buoyed that the majority of South Africans are fully behind us as we embark on this phase of the drive to further bolster our democracy through clean governance.
• Makwetu is SA auditor-general.