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GOVERNANCE FRAMEWORK Wandile Tutani 8 April 2008

GOVERNANCE FRAMEWORK Wandile Tutani 8 April 2008. BACKGROUND. At the meeting of 31 October 2007, SCoAG requested the AG to review its Governance Framework, focusing on: The Auditor-General as a single unitary Board The appointment of external auditors

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GOVERNANCE FRAMEWORK Wandile Tutani 8 April 2008

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  1. GOVERNANCE FRAMEWORKWandile Tutani 8 April 2008

  2. BACKGROUND • At the meeting of 31 October 2007, SCoAG requested the AG to review its Governance Framework, focusing on: • The Auditor-General as a single unitary Board • The appointment of external auditors • The appointment of the Audit Committee by the DAG • In the past and also in their report to Parliament dated 13 November 2007, SCoAG commented about their unsatisfactory relationship with the Audit Committee and requested that it be fine-tuned.

  3. Reputation Promise • The Auditor-General has a constitutional mandate and, as the Supreme Audit Institution of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector, thereby building public confidence

  4. CURRENT GOVERNANCE FRAMEWORK • Public Audit Act creates: • Auditor-General (as an institution) – s2(a) • Oversight Mechanism i.e. “SCoAG” – s2(c) • Advisory and other structures – s5(2)(b) • Auditor-General (as an individual) – s6 • Deputy Auditor-General – s31(1) • Audit Committee – s40(1)

  5. CURRENT GOVERNANCE FRAMEWORK - continued • In addition to the entities created by the PAA, we have the following: • Other advisory structures • Remuneration Committee • Quality Assurance Committee • Complaints Committee • Executive Committee and its sub-committees

  6. CONSTITUTIONAL PRINCIPLES GOVERNING THE AG • The Auditor-General is a Chapter 9 institution established and governed ito s181: • (2) These institutions are independent, and subject only to the Constitution and the law, and they must be impartial and must exercise their powers and perform their functions without fear, favour or prejudice. • (3) Other organs of state, through legislative and other measures, must assist and protect these institutions to ensure the independence, impartiality, dignity and effectiveness of these institutions. • (4) No person or organ of state may interfere with the functioning of these institutions. • (5) These institutions are accountable to the National Assembly, and must report on their activities and the performance of their functions to the Assembly at least once a year.

  7. CURRENT FRAMEWORK AND ITS WEAKNESSES • Auditor-General and Deputy Auditor-General enjoy extensive powers under the Public Audit Act • DAG a member of many committees some of which he chairs • Audit Committee appointed by Deputy Auditor-General who could fire them • The relationship between SCoAG and Audit Committee not clearly defined • AG has no role in appointment of external auditors • Audit Committee has no legislated role regarding appointment of external auditor • Advisory Board is a purely advisory structure • Certain King II principles not adhered to • Method of appointing committee members not transparent

  8. MANAGEMENT OF IDENTIFIED GAPS AND WEAKNESSES IN CURRENT FRAMEWORK • Clarify and Enhance Advisory Board’s role • Advisory Board brings broader perspective/view to AG’s activities and work. • It brings independence, impartiality and objectivity in its advice. • To be effective, it should be composed of individuals of integrity who can bring a blend of knowledge, skills, objectivity, experience and commitment to the AG and assist the AG in charting the direction of the organisation. • Advisory Board must have access to SCoAG at least twice a year to give independent assurance that governance principles are being observed in the AG.

  9. MANAGEMENT OF IDENTIFIED GAPS AND WEAKNESSES IN CURRENT FRAMEWORK - continued • The AG to consult more frequently with SCoAG • Enhance consultation process with SCoAG for transparency on e.g. • Appointment of Advisory Board members • Appointment of Audit Committee members • Appointment of DAG • Budget and Strategic Plan and any amendments thereto • Regulations • Any non-compliance with the PAA • Any matter which the AG deems necessary • Comprehensive Management Approval Framework being implemented for checks and balances

  10. MANAGEMENT OF IDENTIFIED GAPS AND WEAKNESSES IN CURRENT FRAMEWORK - continued • In line with governance principles, DAG will no longer be a member of some of the committees e.g. Audit Committee, etc. • DAG will not be chairperson of Exco Sub-Committees • Audit Committee must be appointed by the Auditor-General after consultation with SCoAG • In line with current trend, Audit Committee members must be independent, external appointees • The Audit Committee must meet with SCoAG at least once per year • External Auditors to be appointed by SCoAG on recommendation of the AG after consultation with the Audit Committee • Internal and external auditors report to all audit committee meetings • Transparent process to recruit committee members and members of Advisory Board in place

  11. BENCHMARK AGAINST OTHER JURISDICTIONS • A review of the UK model reveals direct accountability of the AG to the legislature with no intervening structures of a non-Parliamentary nature. • The UK has a Management Board to advise the Comptroller and Auditor-General in the discharge of his statutory duties. • It consists of the AG as chairperson, the Audit Committee non-executive chairperson, the DAG and the equivalent of our Corporate Executives.

  12. BENCHMARK AGAINST OTHER JURISDICTIONS - continued • The Netherlands has a Board of Court of Audit made up of 3 AGs, one of whom is the President. • The Secretary-General is the head of administration. • Minister of Interior submits the budget to Parliament and manages it for the Board. • Parliament has final responsibility for monitoring and judging the performance of the Board.

  13. POSSIBLE OPTIONS • OPTION 1 • Having regard to the arguments raised above and to the literature that has been surveyed, it is possible to opt for a normal unitary Board as it is understood in the corporate world. Diverse skills Benefits • Minimising the risks attendant to decisions taken by one person • Eliminates the possibility of abuse of power • Enjoys the benefit of a balance of executive and non-executive directors • Entrenches the status of the Executive Committee

  14. POSSIBLE OPTIONS: OPTION 1 - continued Disadvantages • Violates the Constitution • Will undermine the independence of the AG • Will not be in line with best practice in the context of Commonwealth Countries This option is not recommended.

  15. POSSIBLE OPTIONS - continued • OPTION 2 • Retain the status quo but strengthen governance structures in order to improve checks and balances. • Relationships and roles of various structures redefined to align them with King and best practice but without violating the Constitution. • Provided for the independence and rotation of certain structures for continuity.

  16. POSSIBLE OPTIONS – OPTION 2 - continued Benefits • protects the AG’s independence whilst enhancing transparency and aligns with governance best practice • no Constitutional amendment required • Clarifies relationship between SCoAG and Audit Committee as well as advisory structures • Aligns governance framework with Commonwealth practice of single unitary board (sole corporation)

  17. POSSIBLE OPTIONS – OPTION 2 - continued Disadvantages • Sui generis nature of AG’s governance framework remains single unitary board within constraints of Constitution

  18. RECOMMENDATION • Option 2 is recommended as: • No Constitutional amendment required • Protects the AG’s independence whilst enhancing transparency and aligns AG governance framework with best practice • Enhancement of governance structures e.g. redefinition of role of Advisory board by balancing AG’s decision-making with independent and objective advice

  19. GOVERNANCE FRAMEWORK QUESTIONS?

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