The Public Audit Act amendment bill – what’s it about?

In part one of our new two-part miniseries on the public audit, we dealt with the audit outcomes for 2017/2018, performed under the Public Finance Management Act (PFMA) and tabled on 21 November in Parliament by Auditor-General (AG) Kimi Makwetu.

In part two, we focus on the Public Audit Act (PAA) amendment bill, that was signed into law by President Cyril Ramaphosa a week ago. The law gives the Office of the Auditor-General South Africa (AGSA) more power to act against officials and employees who waste taxpayers’ money, as well as those who are aware that money is being siphoned but decline to against the culprits.

No commencement date has yet been set.

The key expansions of the AGSA’s mandate are the provisions empowering it to:

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

The introduction to the amendment bill gives a comprehensive list of reasons:

Cynthia Schoeman, the founder and MD of Ethics Monitoring & Management Services, agreed that the signing of the bill was good news for ethics and accountability. “Extra powers for the AGSA enable them to curb and remedy irregular and wasteful state spending more effectively.”

The additional powers add a whole new dimension to the liability of accounting officers and authorities, Schoeman added.

Parliament’s Standing Committee on Public Accounts (Scopa) welcomed the signing of the law. Scopa chairperson Themba Godi said: “The major problem in government is that when irregular or fruitless and wasteful expenditure has been identified by the Auditor-General, the accounting officers or authorities don’t investigate this.”

Using the example of the South African Broadcasting Corporation (SABC), which has disclosed almost R5-billion worth of irregular expenditure, Godi added: “People have not been held accountable, nor have monies been recovered, because there is poor enforcement. With the PAA amendment act now passed, the Auditor-General will actually force the leadership of the SABC to investigate this, failing which, they will be held in their personal capacity liable for the monies that have been lost.”

AGSA ready to go

On 20 November AG Kimi Makwetu told Parliament’s standing committee on the Auditor-General that the regulations underpinning the new law have already been drawn up. The AGSA has been busy preparing for the enactment of the bill in other ways, finalising its processes, preparing its staff, and considering and consolidating inputs from staff, SMEs and legal advisors.

The entity has also been hard at work preparing engagement tools and messages for encouraging enhanced accountability.

There are several regulatory matters that still need to be set down. Within 90 days of the commencement of the amendment act, the AG must issue regulations on the following matters:

• Criteria to apply when exercising discretion on the audit of public entities and other discretionary audits;
• Nature and category of matters in respect of which investigations and special audits may be carried out;
• Criteria for referring matters to a relevant public body for investigation;
• Process, time frames and form of written and oral representation in the remedial action process;
• Form and content of a certificate of debt.

Weighing in on the PAA amendment bill

In March 2018 Corruption Watch (CW) made submissions on the Public Audit Act amendment bill, before the standing committee on the auditor-general.

While all these amendments are important, for CW there were a few standout points. Firstly, the provision empowering the AGSA to take appropriate remedial action. Secondly, the provision for the AGSA to issue a certificate of debt against accounting officers who fail to reclaim money. Thirdly, the provision for the AGSA to refer suspected irregularities uncovered by an audit, to a relevant body for investigation.

The amendments submitted by CW related to two key issues. The first dealt with the referral to relevant bodies for investigation of undesirable audit outcomes, covered in section 5(1A). CW proposed that the AGSA be informed about the progress and outcome of the investigation, and this was included in the final version: ‘‘(1A) The Auditor-General may, as prescribed, refer any suspected material irregularity identified during an audit performed under this Act to a relevant public body for investigation, and the relevant public body must keep the Auditor-General informed of the progress and the final outcome of the investigation.”

We also expressed uncertainly as to whether all the affected investigative bodies had been consulted in relation to this new provision and whether this referral and accountability system would be practically feasible.

Finally, we suggested that, as civil society organisations (CSOs) play a key role in ensuring that legislative and regulatory amendments do result in practical change, CSOs be included as a key stakeholder and be provided with information relating to the referral of undesirable audit outcomes and the progress of investigations in order to maintain transparency, accountability and oversight.

The second key issue for CW focused on the recovery of losses resulting from unauthorised, irregular, fruitless and wasteful expenditure from the accounting authority of audited institutions (including boards) in their personal capacity.

We expressed concern regarding the proposed new unit that would be established within the AGSA to conduct this civil recovery, adding that it was unclear as to what role the state attorney’s office would or should play in regard to such recovery and whether the establishment of a new unit would amount to a duplication of functions.

We noted that this could result in expensive litigation not only for the AG’s office, but also for the accounting officers and authorities reviewing the decision of the AG to issue a certificate of debt, as they would use state resources to defend their personal liability for losses.

Evolution of the public audit legislation

The Auditor-General of South Africa is a chapter 9 institution with a constitutional mandate to strengthen the country’s democracy as outlined in sections 181 and 188 of the Constitution of the Republic of South Africa, 1996. It is the only audit institution in the country that audits and reports on how the government is spending the South African taxpayers’ money, The functions of the AGSA are farther regulated through acts passed in Parliament.

• Image: Flickr / GovernmentZA