Audit Act amendments aim to foster good governance
My office has mostly opted to wait for the signing of these changes into law before we could authoritatively and widely share the intended aim and meaning of these amendments, thus further allaying the concerns that some may still have on this historic development.
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 Auditor-General of SA (Agsa) 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 government tiers, the multiparty parliamentary committee that oversees Agsa, the standing committee on the auditor-general initiated the process to expand our mandate beyond just auditing and reporting.
The members of this committee, later fully backed by the National Assembly, the National Council of Provinces and the president, felt that expanding our mandate would go a long way to further support other existing pieces of legislation that are aimed at ensuring good governance and clean administration in the public sector.
These legislative instruments include the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA).
Both the PFMA and MFMA 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 PAAA should be seen as further reinforcements to these and other extant good-governance legislative tools.
Also, this amendment will serve to elevate the existing responsibility of line managers as they were envisaged when the PFMA and MFMA were promulgated around 20 years ago.
Agsa’s audit activities are much the same as they had been before the latest amendments, except for three key additional steps that we can now take.
The PAAA introduces the concept of a material irregularity (MI), which is the central feature of this amendment.
The introduction of a focus on MI is so that other common errors or deficiencies are isolated and those activities putting the public purse at risk of financial loss are identified and pursued.
An MI means any fraud, theft, breach of a fiduciary duty or non-compliance 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 that the focus of an audit will have 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 an MI during an audit performed under the PAAA has been identified or suspected, the AG may now take the following actions (extended powers):
- Refer a suspected MI to a public body with a mandate and powers that are suitable for the nature of the specific suspected material irregularity. Authorities with requisite investigative capacity and skills include the public protector, Special Investigations Unit and the SAPS. 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 an MI should be addressed, within a stipulated period of time. If these recommendations have not been implemented by the stipulated date, the attorney-general must take binding remedial action, and if the MI 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 attorney-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, a member of the executive council or a municipal council to recover the loss from the accounting officer or authority.
The amendment act does not apply retrospectively.
However, in the case of long-term contracts that are still operative when the MI is detected, the attorney-general’s right to refer or take remedial action will apply.
This means that if an MI 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 attorney-general. The test is, therefore, the date of the audit report.
* Makwetu is the auditor-general of South Africa
** The views expressed here are not necessarily those of Independent Media.