Auditor-Generals since 1994 - Critical Review [Helen Suzman Foundation, 2006-10-01]

Publication: Helen Suzman Foundation Issued: Date: 2006-10-01 Reporter: Gavin Woods

Auditor-Generals since 1994 - Critical Review

Publication	Helen Suzman Foundation Focus Issue 43
Date	2006-10-01
Reporter	Gavin Woods

Perhaps it is useful to begin by reminding ourselves of the importance of the institution known as the auditor-general. Simply put, the auditor-general facilitates accountability for the public finances and public assets in a way which is crucial to all government policies and programmes, including those which promote social services, development, financial stability, economic growth, good governance, and which altogether advance democracy itself.

It is against this setting that we should contemplate the auditor-general’s performance. I propose there to be three overlapping perspectives from which we should do this. These being the internal performance of the auditor-general's office, the quality performance of the actual audit work undertaken and then the performance of the individuals who have served as auditor-general over the period of review.

The first of these, and perhaps the least important, concerns the organization and administration of the actual office of the auditor-general. This consists of a large head office in Pretoria and nine provincially based offices which together employ a staff of well over a thousand people, making it easily the largest audit body in the country. In addition to the work carried out by the office itself, it has to monitor hundreds of audits it subcontracts to private audit firms. It is essential therefore that the Office runs efficiently.

I would argue, mainly from my observations as a long standing member of the Audit Commission (a statutory body set up to exercise oversight over the office), that the administrative performance has been generally good. The office, which reports to the deputy auditor-general as CEO who has included Bertie Loots, Shauket Fakie and Terence Nombembe, has over the period been transformed from a typical dark and dingy routine-driven government organization, going through the audit motions without urgency or initiative, into a fairly energetic organization which in important respects now measures to the modern private sector model.

Essential to this has been the resolute way in which the office has capitalized on the new level of independence it was given through the auditor-general and Audit Arrangements Acts which were passed just before 1994. One of the more significant features of this was that which now allowed the office to charges its clients (i.e. government institutions) for its audit services as opposed to relying on a restrictive budget decided upon by the National Treasury. This ability to set its own budget, together with its freedom from the constraints of the public service regime, allowed the office to employ the necessary quality of staff, to computerise all aspects of its operations and to upgrade all of its internal systems. Particular mention must be made of the very sophisticated and modern governance, management, performance and training systems which have been successfully introduced. Initial concerns as to the viability of a modern private sector model operating in the public sector environment have proved to be unwarranted.

There have been hiccups along the way, however. Worth mentioning was a situation where a flawed approach to the procurement and implementation of a comprehensive computer software package in about 1999 *1 almost led to a large scale breakdown within the office. The financial systems in particular became disrupted to the point where the office was for some months unable to account for its finances. Monthly accounts could not be produced, bank reconciliations were not done and the accuracy of the fixed asset registers was in doubt. The office’s internal auditors were quite damning of the situation. The huge concern for the auditor-general was the likelihood of the office receiving a seriously qualified report from its external auditors – and how humiliating it would have been for the auditor-general who was constantly criticising government departments for even less serious failings. However, after making the external auditors aware of the possible consequences, somehow their audit report managed to tiptoe through the mess *2 and stop just short of any qualification. Fakie and Nombembe then reacted very assertively to get the office’s financial systems back of track.

Moving on to the second, and more critical, area of performance. This being the quality of the auditing and reporting work that the Constitution mandates the auditor-general to undertake. This has always been a difficult realm of performance to evaluate – as the old Audit Commission found out, and as no doubt the recently constituted Standing Committee on the auditor-general (SCOAG) will find out when trying, in terms of the new Public Audit Act (2004), to oversee the quality of auditing. There is no easy or effective way of assessing this.

The national and provincial standing committees on public accounts (SCOPA) for their part, tend simply to accept the auditor-general’s audit reports as representing a comprehensive and accurate account. Six years ago the parliamentary standing committee on public accounts began interrogating and critiquing the quality of the reports before reacting to the findings they contained - and on a number of occasions discovered audits that had been flawed both in application and reporting. It has since discontinued this approach. And considering that audits undertaken by the big private audit companies are regularly shown to been defective, notwithstanding their higher levels of audit expertise, then it is to be expected that the auditor-general will from time to time undertake sub-par audits.

Not having the methodology or resources to assess the actual auditing performance of the auditor-general, should turn our attention rather to the veracity of the quality assurance approach used by the office in striving to attain a high level of auditing proficiency. Here, especially over the past six or seven years, the auditor-general and have invested much effort. This was to some extent spurred by reports commissioned from the Public Auditors and Accountants Board (PAAB) who, for a number of years, undertook an independent assessment on the auditor-general’s quality control procedures and practices. In the course of this work, the PAAB was able to identify a number of weaknesses.

Today, the auditor-general’s quality assurance system goes way beyond an annual PAAB review. It uses a comprehensive control system which includes specialized software tools, a balanced score card system, key performance indicators, peer reviews, self-assessment techniques, risk assessment exercises, stakeholders’ surveys and a quality control unit which monitors the use of all these methods and then provides the training which is needed. All this, together with the gradual increase in the numbers of audit staff with recognized audit-related qualifications, would indicate that an impressive amount of work has been done in order to raise the general auditing performance of the office and to meet the level of auditing required by the Public Finance Management Act (PFMA) which was introduced in 1999. So here too the auditor-general and the office have done well over the past twelve years.

Now what about the performance of those individuals who have held the position of auditor-general over the period in question – to the extent that the auditor-general’s personal performance can be separated from that of the office *3. The auditor-general is a high public profile individual who is ultimately responsible and accountable for fulfilling the institution’s constitutional mandate. The high profile is understandable with the news media constantly seizing on any audit findings such as misuse or loss of taxpayers’ money and on the responsible parties concerned.

After almost 80 years of appointing ruling party-aligned individuals, most with no previous auditing or accounting experience, the auditor-general generally projected a dour and weak public image. This began to change in the times of Jaap de Loor (1986-1989) and Peter Wronsley (1989-1993). They saw to it that by 1994 the beginnings of a reform process were in place, which introduced less inhibited auditing and more outspoken audit reports being tabled in Parliament. This in turn began strengthening the hand of Scopa and allowed members such as Harry Schwarz and Francoise Jacobs the latitude to interrogate bad audit findings. As examples, news-making audit findings of that era included the clandestine activities of the CCB and the shocking state of financial affairs in the “black homelands” governments.

In 1993 Henri Kleuver, the former director general of the department for state expenditure, became auditor-general. Professor Bertie Loots soon joined him as his deputy. With the new Auditor-General Act and Audit Arrangement Act in place, Kleuver was able to increase both the scope and standards of auditing and reporting mainly by invoking the office’s new extended independence. He introduced performance, forensic and computer auditing and tried to offer Parliament bigger pictures of the state’s management of public finances. With his determination to tell it as he saw it, he soon bumped heads with various cabinet ministers in the new government.

The first such occasion was in 1985 when the then minister of public service and administration, Zola Skweyiya made a derogatory statement about Auditor-General. Kleuver

The Audit Commission demanded a retraction of the remarks. Under pressure, Skweyiya climbed down and withdrew his remarks. There were other situations in which Kleuver refused to back down when confronted by belligerent national and provincial cabinet ministers, the most notable of which was his set-to with the minister of mineral and energy affairs, Penuell Maduna *4, who accused Kleuver of hiding R170 million of Strategic Oil Fund monies through “some nimble footwork” *5. Kleuver once again responded strongly in order to defend the auditor-general’s reputation. While he never extracted an apology out of Maduna, he secured a finding through the Public Protector which showed that Maduna has knowingly misled Parliament with his accusations - and that he ought to be sanctioned by Parliament. Parliament ignored such advice.

We now get to Shauket Fakie, who had a lengthy career in private sector auditing before his brief stints as auditor-general of Gauteng province and then as deputy to Kleuver in the national office He succeeding Kleuver as auditor-general in 1999.

As individuals, Fakie and Kleuver were very different – with the one being a straight up-and-down, call a spade a spade man who always played his cards in the open, with Fakie being more tactical and politically dexterous *6.

However, with his strong private/public sector blend of experience and together with the new Deputy Auditor-General, Terence Nombembe, who had been a partner in an up-and-coming private sector audit firm, Fakie began his term by consolidating and then building on the reforms which had begun in the Kleuver/Loots era. He displayed a high level of competence at both the management and technical levels of the job.

As described earlier, the office has been impressively professionalised and modernised and today is in many respects on a par with the best in the private sector. This has largely been under Fakie’s drive and direction. Fakie has also done well to establish the South African office’s presence on the international public audit stage by securing prestigious audit assignments at the United Nations and getting involved in various Supreme Audit Institution forums internationally.

So, in most important respects Fakie has done well - if not excelled. And he has been well compensated for his efforts with a salary which has been generously increased across each year of his seven year term, to the point where it must be amongst the highest in the public sector realm – his remuneration being considerably higher than that received by the State President and the Chief Justice.

Fakie has however displayed a particular weakness which at times seemed to bring the independence and the constitutional role of the auditor-general into question. Significant public quarters will remember decisions or lack of them as controversial or even as devious – which will of course detract strongly from his achievements. The weakness is highlighted by the fact that during his seven year tenure he, unlike Kleuver, managed to avoid any situation wherein he would have had to stand up to a member of the Executive – even if this meant an embarrassing public egg dance on his part.

Of the instances where Fakie has appeared to back down in the face of Executive indignation, it is the arms deal investigation, more than anything else, that appears to have cost Fakie the respect of much of South Africa. After an initial enthusiasm to investigate the arms procurement transactions, his attitude changed remarkably after the president and a number of cabinet ministers criticised him for suggesting there was reason to conduct such an investigation.

Fakie responded to the executive’s anger firstly by reversing his opinion as to the necessity for the Heath Special Investigative Unit to be part of the investigation, and then by capitulating to an ANC request that he not allow Scopa to monitor the investigation. Scopa, of course, is the parliamentary committee that had initiated the investigation and to whom the auditor-general always accounts. Thus the investigation moved into the realm of secrecy and with the protection of the powerful anti-investigation forces Fakie contemptuously disregarded the couple of opposition members of Parliament who sought to monitor aspects of the investigation.

The investigation’s final report was predictable. It began by pronouncing on the irreproachable credentials of government concerning the deal and then gave findings which were generally evasive, inconclusive and which declined to give answers to the main allegations and controversies which surrounded the arms deal.

On many occasion since then, aspects of evidence have been produced which have tended to challenge Fakie’s non-findings. Fakie has tried valiantly to quash and dismiss such challenges and in doing had often earned himself bad press. He was shown to be in contempt of court *7 for trying to withhold information sought by an aggrieved bidder as he tried to ward off claims that he had materially altered his final report after it had been secretly shown to members of the executive – bearing in mind that it was these members of the executive who were most in line to be embarrassed had Fakie published any negative findings.

At about the same time, his efforts to silence those who might have been in a position to discredit the veracity of the report were revealed in the press. Lie detector tests *8 of his staff, threats of criminal charges and even an attempt to get Parliament to censor two MPs who had dared to criticized his behavior were all part of his rearguard action.

During the time of the investigation I was approached to meet secretly with a number of very senior members of the auditor-general’s office. As a precaution I took my colleague Andrew Feinstein with me to the meeting which was held in Johannesburg. As it turned out, the officials concerned wanted to voice their concerns regarding Fakie’s preoccupation with not upsetting members of the executive. Specific instances of this were related to us.

In my mind I have often tried to reconcile this apparent deficiency in Fakie’s make-up with that of the competent and hard-working auditor-general that he is – and with that of the fundamentally good man that he is – as a devout and practicing Muslim. In the case of the arms deal I therefore venture that he misguidedly believed that in the national interest, it was right to try and protect the President and very senior cabinet ministers from harmful controversy, even at the expense of the integrity of the institution he headed. History will judge his performance as auditor-general.

With acknowledgements to Gavin Woods and The Helen Suzman Foundation.

*1       At this time Shauket Fakie was, or just had been, Deputy Auditor-General and executive manager of the Office of the Auditor-General (OAG).

*2      Apparently this entire time was characterised by the most chaotic administration ever experienced by the OAG.

*3      The Auditor-General’s personal performance can be entirely separated from that of the OAG; one is an individual appointed as a political head of an institution for a statutory limited period of seven years, the other is a perennial institution of hundreds to thousands of career professionals.

*4      The one half of The Jackass Brothers who cocked-up the Shaik/Zuma/Thomson-CSF trial big time, so much so that Shaik is facing 15 years incarceration for facilitation of bribery whilst his co-conspirators, the briber and bribee, remain uncharged and at large.

*5      The above was indeed accomplished through some nimble footwork.

*6      Oh so polite.

*7      This was the finding of the motion court, i.e. the High Court in Pretoria. This was later overturned on appeal to the Supreme Court of Appeal (SCA) in Bloemfontein because the motion court had made its finding on the balance of probabilities whereas, because contempt of court is a criminal matter, the test, they found, should have been beyond a reasonable doubt.

Nevertheless, all the facts show that Fakie willfully disregarded the order of the High Court. Indeed only the threat of the accompanying suspended sentence of 30 days of incarceration persuaded him to comply with the production order, which was upheld by the SCA. If the proceedings had been trial proceedings with oral evidence and cross-examination and not motion proceedings with only evidence on affidavit, there is a very strong likelihood of a guilty finding beyond a reasonable doubt.

*8      It's like having Pinnoccio as head of the Polygraph Department.

*9      Shauket Fakie on at least three occasions directly lied to both Parliament and The Nation during his pathetic attempts to cover up the truth of the Arms Deal.

The official written records show that he claimed that there were no changes to the final JIT Report from the final draft report other than those relating to "user-friendliness".

Nothing could be further from the truth. The final report :

is a fraction of the final draft in content;
includes specific conclusions at the behest of MINCOM that the government's Arms Deal contracting position was not flawed which directly contradicts both the key findings and specific findings recorded in the final draft report;
excludes damning, indeed fatal, key findings and specific findings recorded in the final draft report;
excludes an entire section of cash gifts being paid by a contractor to certain naval officers;
includes no indication whatsoever of the shenanigans of Schabir Shaik/ Zuma/Thomson-CSF, although it was a joint investigation and much of this matter was known to the investigation team as much as four months before the JIT Report was tabled in Parliament. Indeed, Shaik was arrested the day after the port was tabled.

Fakie should have been under oath when pronouncing on these matters in Parliament, then he could have been charged with perjury.

But lying to Parliament by an auditor-general invites the censure of impeachment. The official parliamentary record clearly shows that Fakie lied to it. It is not too late.

The Arms Deal joint investigation and its JIT Report is one of the biggest success stories for the government of the Republic, but one of the biggest lies perpetrated on its citizens.

A couple of impeachments would be a fitting finale in this sad chapter of constitutional oversight bought off for a few pieces of silver and/or a misguided view of the national interest.