A Critical Review of the Oversight Role of the Office of the Auditor-General in Financial Accountability

ccountability is the very essence of the Constitution of the Republic of South Africa (Act No. 108 of 1996). In this regard, the Auditor-General of South Africa (AGSA) as the supreme audit institution of the Republic of South Africa plays an important oversight role of promoting financial accountability in government. The purpose of this article is to examine the challenges facing the office of the Auditor-General in executing its oversight role of promoting financial accountability in the sphere of provincial government. Information and sources for this article was gathered through literature review. The article gives some background on the establishment and rationale of Supreme Audit Institutions (SAI). It explores some policy framework that informs public finance management in the Republic of South Africa, establishing the role of the AGSA within this purview. Based on the data gathered through literature review, the key challenges facing the office of the Auditor-General are discussed. Finally, possible solutions are recommended to the challenges that were identified.


Introduction
The purpose of this article is to investigate the challenges faced by the office of the Auditor-General in promoting financial accountability in the Eastern Cape provincial government. Financial accountability is a means of ensuring that public money has been used in a responsible and productive way. It is about verification of legality and regularity of financial accounts, but also about making sure that value for money has been achieved in the use of resources (Van der Waldt et al., 2002: 40). Financial accountability in South Africa originates from the Constitution (1996). Every public institution and functionary is held responsible to perform certain functions. Therefore, financial accountability is the means to ensure that finances are managed in an efficient, effective and economic manner and that those responsible for the use of funds are held answerable. The office of the Auditor-General South Africa (AGSA) plays an oversight role in this regards.
The research methodology is qualitative in nature and multiple sources of information have been used. It is based on the analysis of secondary sources of data which cover a wide spectrum of themes, including published core literature on the topic, reports of the Auditor General, theories and approaches of accountability, the relevant legislation, regulations, official documents, policy documents, journal articles and internet websites. The article starts with a brief outline of the background to the study, followed by a discussion of the legislative frameworks that guide public finance management, and a summary of the role of the Auditor-General in financial accountability, before venturing on the thematic discussion of the findings and the way forward stemming from the study.

Background to the study
An important point of departure in constructing democratic institutions is that the citizens of a country should be able to hold their representatives accountable. Public financial accountability requires that governments manage finances prudently; that they integrate their financial and nonfinancial reporting, control, budgeting, and performance; that they report comprehensively on what they have achieved with their expenditure of funds and that stakeholders behave ethically (Sahgal and Chakrapani, 2000: 3). To fulfil this demand, governments rely on independent audit of public operations which is done by the Supreme Audit Institutions (SAI) in all countries. These SAIs are all governed by international standards of accounting. According to Obto (2005: 3), there is a process for setting auditing standards for SAIs. The organization responsible for this process is the International Organization of Supreme Audit Institutions (INTOSAI). In South Africa, the chief responsibility for financial monitoring of government lies with the Office of the Auditor General. The Constitution of the Republic of South Africa (Act No. 108 of 1996) calls for an Auditor-General who will audit and report on the accounts, financial May 1911 with the commencement of the Exchequer and Audit Act, 1911(Act No. 21 of 1911. In 1993 the Amendment Act (Act No. 123 of 1992) granted the AG full independence from government, which gave the organisation the requisite autonomy to execute its mandate fully without favour or prejudice (AG, 2011a: 8).
In 1994, as part of the transitional process, the democratic government incorporated the most appropriate elements of public auditing from the past into the new dispensation. Indeed, since 1994, the AG as the SAI of the Republic of South Africa has grown into a respected pillar of the country's democratic architecture. The Constitution of the Republic of South Africa (1996) provided for the Auditor-General South Africa (AGSA). The AGSA is established in terms of section 181 (1) (e) of the Constitution of the Republic of South Africa (1996) as a state institution supporting constitutional democracy. It has a constitutional mandate and as the SAI of the country it exists to strengthen the country's democracy by enabling oversight, accountability and governance in the public sector, thereby building the public confidence.

Legislation informing financial accountability in South Africa
Since the dawn of democracy in 1994, the Republic of South Africa has taken many positive strides to transform the public sector so as to improve public finance management. The Parliament developed the following significant laws that guide public finance management and promotes accountability and transparency:  -General Act, 1995(Act No. 12 of 1995. The relevant constitutional provisions that refer directly and indirectly to accountability are as follows: Section 215 (1) of the Constitution (1996) provides that national, local and municipal budgets and budgetary processes must promote transparency, accountability and the effective financial management of the economy, debt and the public sector. To this end, the Constitution of the Republic of South Africa (1996) provides a platform for sound financial accountability in the country. The PFMA is one of the most important pieces of legislation passed by the first democratic government in South Africa. The Act exists to promote the objective of good financial management in order to maximize service delivery through the efficient and effective use of the limited resources.
PFMA establishes the National Treasury which monitors implementation of provincial budgets, coordinate intergovernmental and fiscal relations and promote and enforce transparency and effective management in respect of revenue, expenditure, assets and liabilities of departments, public entities and constitutional institutions among others.
The key objective of the PFMA is to ensure that public sector managers efficiently manage, but at the same time be held accountable. The Act makes it clear that the government is very serious about the implementation and maintenance of internal controls and therefore, the proper accountability of public officials to the extent that provisions for financial misconduct and criminal offences were included in this Act. The Act attempts to modernize public finance management in the Republic of South Africa.

Challenges facing the office of the Auditor-General
The AGSA is an important state institution that exists to strengthen constitutional democracy and to promote financial accountability in the public sector. According to the Constitution of the Republic of South Africa (1996), the Auditor-General audits and reports on the financial statements and financial management of government departments and institutions in all the three spheres of government. However, in carrying out its constitutional mandate of ensuring public financial accountability, the office of the Auditor-General faces a number of institutional, capacity, structural and technical challenges and threats, and these are discussed at length below.

Political challenges
Before one can explain the political challenges besetting the office of the AG in  and Meyer (1995: 98), politics refers to the process by which power is applied to determine whether and how government is to be executed in any given area. Thus politics is all about the use of power and authority to govern.
The political challenge facing the AGSA is that it lacks sufficient authority to ensure that audit findings and recommendations are acted on. Visser and Erasmus (2002: 46) argue that it is important to note that the Auditor-General's authority ends with the report and recommendations made to Parliament on each audited department. The AG has no legal authority to prosecute or dispense disciplinary action; this is left to other public institutions such as the Director of Public Prosecutors and the Public Protector The Auditor-General (2011b: 31) also provides that, "the leadership did not support governance structures in order to strengthen control environments. In some cases these structures complied with the legislative requirements, however, information was not always provided to internal audit units to enable them to conduct their audits. Internal audits reports were not responded to at all or were responded to too late for appropriate actions to be implemented, while recommendations were not implemented, resulting in repeat findings during follow up audits." The political leadership's will to improve audit outcomes at some municipalities is not evident and the assistance

Retention of staff
According to the AG (2009a: 9), attracting and retaining sufficient qualified skilled staff is becoming increasingly difficult for the AGSA given the scarcity of accounting and auditing professionals in South Africa. Thus, the AG operates in an environment where skills are scarce and there is high mobility among professionals with those required skills.
Staff retention is a major challenge for the office of the AG, as was clear from the high staff turnover in 2007-2008(AG, 2008. During this period the AG achieved an average labour turnover rate of 20% which was well above the financial service sector (including audit firms) average turnover of 16% (AG, 2008: 47). To build the AG's auditing and accounting skill base, which directly affects its mandate, the organization has for some time been investing in Trainee Accountant Scheme (TA Scheme) (AG, 2009a: 9). Recruitment for the TA scheme which also addresses employment equity requirements is now being driven in conjunction with an improved retention strategy (AG, 2009a: 10). More so, the AG started looking offshore for auditing skills to augment its capacity (AG, 2009a: 10). According to the AG (2009a: 10), while some degree of outsourcing is a necessity considering the workload of the AG, the current vacancy rate is counterproductive. It compels the organization to draw disproportionately on outsourced skills, which adversely affects cash flow management and financial sustainability of the institution (AG, 2009a: 10). Another factor that contributes to increase in cost of auditing is the increase in contract work. Contract work increased by 67% as a result of the actual audit staff vacancies and staff turnover being higher than anticipated (AG, 2008: 32). The contracting out strategy assists the AG in managing workload during peak periods and limits idle time during low periods. The additional contract work should also be viewed in the context of the staff turnover and the challenge of attracting and retaining qualified candidates in a highly competitive market (AG, 2008: 32). Furthermore, the AG provides that "tariffs increased by 1% due to alignment with market-related salaries, additional overtime and premium paid for temporary staff (AG, 2008: 32). As a result the cost of auditing continues to be a major challenge that threatens the work of the office of the Auditor-General.

Debt collection
According to the office of the Auditor-General (AG, 2009a: 9), the management of the Auditor-General's working capital and liquidity has become an area of serious concern over the years. Delays in debt collection, which is a key element of working capital, have argues that during the 2009-2010 financial year, the rate of compliance with creditors' payment terms was 70% which was below the target of 80%. This threatens the reputation of the AG to its creditors.

Non-compliance with legislation
Amongst the serious challenges facing the office of the AG is that most institutions and departments in provincial government do not comply with all the relevant pieces of legislation that govern public finance management. This section will use examples of non-compliance with legislation from the Eastern Cape provincial government.
In the General Report on the Provincial audit outcomes of Eastern Cape Provincial Government 2010-2011, the Auditor-General states that, "compliance refers to adherence by auditees to the regulations to which they are subject. Conversely, non-compliance refers to acts of omission or commission by auditees, either intentional or nonintentional" (AG, 2011e: 23). Non-compliance with laws, rules and regulations is rife in the Eastern Cape provincial government and the AG, more often than not, strongly regrets this. The AG (2010b: 7) provides that a trend of non-adherence to laws and regulations appears to be prevalent within the Eastern Cape provincial government. The Eastern Cape provincial government comprises 27 auditees, consisting of 15 departments (which include the provincial legislature and the provincial revenue fund) and 12 public entities (AG, 2012: 27). The most prevalent issues relating to compliance with laws and regulations are the non-adherence to supply chain management policies and procedures, making payments within the prescribed periods and the audit committee as well as internal audit not fulfilling their legislative duties (AG, 2010b: 7).
In 2010, non-compliance with supply chain management principles that resulted in irregular expenditure was reported in the audit reports and financial statements of nine   (AG, 2010b: 14). To this end, non-compliance with the relevant legislative frameworks that govern public finance management by many government departments in the Eastern Cape provincial government is a major challenge hindering the work of the AG.

Technical challenges
The office of the Auditor-General is facing a number of technical challenges in executing its oversight role of promoting financial accountability. Technology is extensively used in

Recommendations
Based on the findings of this study, it is clear that the office of the AG is facing copious challenges in performing its duties in the provincial sphere of government. This section offers some recommendations that can be useful in addressing these challenges.
It is recommended that there is need for continuous support from other agencies and stakeholders. Although the AG has good relations with other oversight institutions, there is still a need for the AG to facilitate and strengthen maximum relations between the office of the AG and other oversight institutions such as the Public Protector. Good cooperation and relations are crucial for sharing information and to strengthening the fight against fraud, corruption and other aspects of financial misconduct in the public sector. There is need for collaboration and support from stakeholders at national, provincial and local spheres of government. The major constraint faced by the AG is that some institutions that are supposed to be partners in fostering financial accountability delay or completely ignore the AG's recommendations. There is a lukewarm enthusiasm on the part of Parliament towards recommendations made by the office of the AG. There is need to consider reports timely and exhaustively by the relevant authorities. This is underscored by Hanekom and Thornhill (1986: 115) who argue that "if the compliers of reports know that they are to be analyzed in detail, they are often encouraged to provide a faithful review of their activities," and the opposite is also factual. When the Auditor-General's reports and recommendations are sent to Parliament, members of Parliament need sufficient technical capacity to understand them and adequate political motivation to ensure that the executive acts on the recommendations. To this end, Parliament must ensure that the recommendations made by the AG are implemented to complete the circle of accountability and thereby promoting financial accountability.
In relation to late submission of financial statements for auditing, heavy penalties should be set on departments which submit their financial statements at the eleventh hour. For this measure to be effective the office of the AG must be given some power to prosecute offenders. Furthermore, it can be recommended that there is need for allocation of more resources to the office of the AG by national government. Currently the AG relies on audit fees; this institution needs to have some allocation from the government budget. The office of the AG requires adequate funding, equipment and facilities. In this regard, government needs to recognize the costs as well as the high returns of audits and provide appropriate funding. More so, it is recommended that the AG has to continuously make efforts to raise employee satisfaction by providing better remuneration practices, fostering better working relations among staff and reducing recruitment of under-qualified and inexperienced personnel. This will also help curb the challenge of high staff turnover at the office of the AG. Additionally, the office of the AG should consistently consider its compensation parameters so as to retain and even attract a highly qualified and competent workforce.
Lastly, it is recommended that the departments, institutions, and the public servants in the Eastern Cape Provincial government should be committed to provide excellence public service to the citizens. Hilliard (1995: 70) concurs that a new loyalty towards the public service should be fostered in order to streamline the quest for service excellence and to promote the cause of total quality management. All the political leadership in the Eastern Cape Province should rally behind the AG, rendering their support to the institution and ensure that the recommendations from the AG are seriously considered.
In this regard, financial accountability must be the responsibility of everyone. The action suggested includes the need for continuous support from other relevant agencies and stakeholders, there is need to consider reports timely and exhaustively by the relevant authorities, imposing heavy penalties on departments that submits reports for auditing at the eleventh hour; allocation of more resources to the office of the Auditor-General and follow ups to ensure that the recommendations made by the Auditor-General are being implemented. This article concludes that, financial accountability is the cornerstone of democracy and a precept of good governance. The office of the Auditor-General is a state institution that exists to strengthen constitutional democracy and it plays an important role of promoting financial accountability in the Republic.