THE DRAFT PUBLIC AUDIT BILL INHERENT INTERNAL CONTROL LIMITATIONS: Evidence concerning the presence of inherent internal control limitations in the South African government sector. The purpose of the Draft Public Audit Bill The Constitution of South Africa requires the auditing of all public sector departments, municipalities, and publicly funded entities. In Chapter 9, the Constitution recognizes the Auditor-General as an Institution Supporting Constitutional Democracy through auditing and reporting and envisages, in section 188(4), the prescription, by national legislation, of additional powers and functions for the Auditor- General. The Draft Public Audit Bill seeks to give effect to the provisions of the Constitution establishing and assigning functions to an Auditor-General by prescribing such additional powers and functions as well as ancillary matters necessary to enable the Auditor-General to perform his or her functions effectively. The Draft Public Audit Bill therefore seeks to provide for the auditing of institutions in the public sector; seeks harmonisation with existing public financial management legislation; seeks to provide for the continuation an Audit Commission; and to provide for matters connected therewith. The Bill also seeks to repeal the existing Auditor-General Act, 1995 (Act No 12 of 1995), the Audit Arrangements Act, 1992 (Act No 122 of 1992) and certain sections of the PFMA (Act No 1 of 1999). Public comment The Draft Public Audit Bill (version May 2003) was recently issued for public comment. The Southern African Institute of Government Auditors (SAIGA) strives to advance public accountability and in particular the government auditing function. The Institute furthermore assists the Office of the Auditor-General to professionalise government auditing. The Institute's comments on the Draft Public Audit Bill are a constructive contribution towards achieving the above mentioned goals. Major concerns regarding the proposed Draft Public Audit Bill SAIGA is most concerned that the Draft Public Audit Bill in its current form, does not strengthen accountability arrangements in the public sector, but that it may achieve rather the opposite. The following are some examples of principle issues involved: The Draft Public Audit Bill legalizes the Auditor-General’s provision of other services to the very same institutions on which he is appointed to express an independent audit opinion. As the Auditor-General’s services, advice and support will be reflected in the accounts of the institutions concerned, the Auditor-General will effectively also be reporting on his own work and the effects thereof. At a time where private sector audit firms are voluntarily separating audit and other services within their firms, the South African Auditor-General is going against a world-wide trend by actually introducing and legalizing such questionable practices. This is not in the public interest and directly contradicts the spirit of the Constitutional requirements for an independent audit institution. The Draft Public Audit Bill overlooks the Registered Government Auditor (RGA) profession and its formalized qualification and structures which are designed, developed and maintained in order to strengthen the public audit function, advance public accountability and assist with the professionalisation of government auditors. Provision is made for the extensive engagement of private sector auditors in the audit of public sector entities without the necessary safeguards to ensure audit competence. The absence of important public sector topics (PFMA, Treasury Regulations, government auditing standards, etc.) in the private sector auditors’ syllabus and the fact that no public sector audit experience is required to qualify, has resulted in wide-spread criticism of private sector auditor involvement. Yet no formal assessment takes place to ensure that private sector auditors do indeed possess the necessary competence. Totally different audit reports (style, contents and wording) are going to be issued and different auditing standards are going to be applied to public entities, depending on whether the Office of the Auditor-General, or private sector auditors are appointed as auditors. This is not in the public interest. Although the Public Finance Management Act (PFMA) requires all public entities, national and provincial departments to adhere to a strict system of statutory performance management, the Bill does not make a performance audit compulsory. It is up to the discretion of the Auditor- General to perform an audit on the efficient, effective and economical use of the auditee’s resources. The Draft Public Audit Bill coveys absolute powers to the Auditor-General. The Auditor-General may act as auditor (section 4), accounting service provider, consultant, advisor, (section 5), and set the very standards by which his work is to be appraised (section 13(2)). The Auditor-General is also allowed to determine the nature and scope of his work (section 13(1)), to chose assistants from the outside (“authorised auditors”) and to set the procedures for the handling of complaints (section 13(1)). The Auditor-General is therefore player, coach, referee, time keeper, selector, administrator and also writes and interprets the rules of the game. The required information in the annual reports by the Auditor-General, fails to include critical aspects, necessary to hold the Office accountable and to provide the public with relevant information. To summarize, the Draft Public Audit Bill provides for an environment which is not conducive towards the advancement of public accountability and the performing of an independent audit function. Most concerning is are fundamental issues that will erode the independence of the Auditor-General as required in our country’s Constitution. [ BACK TO THE TOP ] Conclusion: The Draft Public Audit Bill Legislation should strive to advance the interests of ordinary people rather than favouring particular interests groups. The Draft Public Audit Bill conveys many rights to the private audit industry apparently without real justification. From a disclosure, standards and accountability perspective, the unlimited and mostly uncontrolled use of private sector auditors seems to indicate underlying support of – or at least acquiescence for certain ideologies of the New Right. Whilst the private sector audit market enjoys its supremacy through a legalised monopoly of accounting and auditing labour, it is far from being perfect. Its supposition that free market choices necessarily bring about equilibrium and high quality, is not borne out in the real audit world, a world troubled by massive audit failures and other questionable practices subject to strict information control. In the process of abetting the private sector auditing industry, the emergence of the Registered Government Auditors profession is ignored and marginalised. The Draft Public Audit Bill fails to capitalise on exiting capacities, relevant skills and competences; it overlooks crucial professional developments in government auditing, which are aimed at advancing the professionalisation of the Office of the Auditor- General, and rather supports a scenario that promises not only to unduly serve the vested interests of the private sector auditing industry, but to also degenerate public accountability. Whilst the level of independence of the Auditor-General may be an indicator of an accountable government, the power that necessarily has to be assigned to such a body in order to achieve the desired independence status needs to be carefully controlled by a tight accountability framework, within which the supreme audit institution (Office of the Auditor-General) needs to operate. This Paper has shown that the Draft Public Audit Bill does not provide an adequate accountability framework for the Auditor-General and the functions this supreme audit institution performs. Although the Auditor-General receives almost absolute powers in many respects, and this may argue well for a high independence level, the lack of a strong accountability framework, however, ultimately threatens the independence concept. Whilst nothing suggests that the Auditor-General will apply powers conveyed to him in such manner that will harm his independence, the very possibility that independence-harming practices are legalised and sanctioned by the Draft Public Audit Bill, should be sufficient reason to subject the Draft Public Audit Bill to intensive review and change. Our detailed comments (in Word format), which have been made available to a wide audience, are herewith attached (refer to links below): Full report : Comments by SAIGA on the Draft Public Audit Bill [Word] Draft Public Audit Bill (version May 2003) [pdf] * Don’t have PDF reader ? Click HERE to get your FREE copy. [ BACK TO THE TOP ]
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