Debate on the Public Audit Excess Fee Bill by Minister Mondli Gungubele in the National Assembly

19 March 2019

Madam Speaker

The Auditor-General plays a central role in ensuring constitutional democracy by enabling oversight and accountability in the public sector. Through auditing it identifies non-compliance, wrong-doing and where public funds were wasted, used incorrectly or stolen.

In 2018, this Parliament passed a significant Bill to strengthen the Auditor-General and to protect public resources for the benefit of the people.  This Bill, now the Public Audit Amendment Act of 2018, will take effect on 1 April 2019. These amendments enable the Auditor-General to refer suspected material irregularities to an appropriate public body for investigation. The amendments, importantly, requires the Auditor-General to take remedial action against accounting officers of departments, and accounting authorities of public entities, failing to implement its recommendations on theft, fraud and other material irregularities resulting in among others, material financial losses.  Further, if an accounting officer or authority fails to implement such remedial action, the Auditor-General must issue a certificate of debt against the accounting officer or authority to repay the losses. The Minister or other executive authority responsible for the accounting officer or authority must ensure that the money is collected from the accounting officer or authority. 

The Public Audit Amendment Act of 2018 introduces important legal tools to assign consequences for poor financial and performance management and to reduce unauthorised, irregular and fruitless and wasteful expenditure in the public sector.

Madam Speaker, these new measures are mentioned in this debate on the Public Audit Excess Fee Bill, to highlight the importance of ensuring the financial independence of the Auditor-General.

All institutions audited by the Auditor-General must pay audit fees. The audit fees are used to pay for the Auditor-General’s expenses, fixed assets and to maintain a small surplus as working capital and general reserve. Municipalities and public entities that are in financial distress only have to pay the audit fee up to 1% percent of its current and capital expenditure. The excess amount is payable from the vote of the National Treasury.

About 10% of the income of the Auditor-General falls in the financial distressed category. These are low capacity municipalities and small public entities like museums. The funds to be paid from National Treasury’s funds have for many years been less than the appropriated amount and resulted in shortfalls. In 2017/18 the amount required was R132 million while only R46 million was appropriated for this purpose. Unpaid audit fees deprive the Auditor General of much needed cash flow to do its work and puts its financial viability at risk. 

Considering the need for affordable audit fees and preventing the misuse of funding through the direct charge, without impeding the Auditor-General’s constitutional mandate, the 2018 Public Audit Amendment Act provides for the Auditor-General to consult the National Treasury on the cope, nature and frequency of audits and the basis of the calculation of audit fees. The Auditor-General and the National Treasury must agree on the annual date of such consultation, the criteria to determine if a municipality or public entity is unable to pay the audit fee in excess of 1% of its current and capital expenditure and the process to determine the estimate of funds needed to pay the Auditor-General.

The Public Audit Excess Fee, a money Bill, provides that the audit fees in excess of 1% of current and capital expenditure of municipalities and public entities determined to be unable to pay the excess, is a direct charge against the National Revenue Fund. A direct charge is proposed in this Bill for the excess fee instead of the current arrangement where the Auditor-General has to rely on reimbursement from a vote of an institution it audits. 

Having affordable audit fees, without impeding the Auditor-General’s constitutional mandate, and preventing the misuse of funding through a direct charge, are necessary. To this end, the 2018 Public Audit Amendment Act provides for the AuditorGeneral to consult the National Treasury on the scope, nature and frequency of audits and the basis of the calculation of audit fees. The Auditor-General and the National Treasury must agree on the annual date of such consultation, the criteria to determine if a municipality or public entity is unable to pay the audit fee in excess of 1% of its current and capital expenditure and the process to determine the estimate of funds needed to pay the Auditor-General.

The Bill will enhance the financial independence of the Auditor-General. The AuditorGeneral has a pivotal role through its audits, new remedial and recovery measures and performance audits to guard public resources, enabling legislatures in their oversight function, building trust in the public sector, and most importantly, improving the lives of our people who most need it.

I Thank you.