Recently, much interest has been generated around a report of the Department of Science and Technology for the year ended 2010-11. I would like to state right upfront that the audit opinion on this department for the reporting period 2010-11 is and remains ﬁnancially unqualiﬁed with no other matters, thus giving the department a clean audit status. The reports we produce can only be fully understandable if the basic concepts, principles and parameters of the reporting and auditing process are understood by all South Africans.
Public sector auditing in a nutshell
In the public sector, transparency, accountability and good governance are very important principles. Our laws and regulations give clear guidance to government entities on how to carry out their activities and report on them in the ﬁnancial statements and the rest of the annual reports. As these activities are funded by public funds, it is the responsibility of the government and their appointed officials to be transparent about their actions and accountable to the citizens for the funds with which they are entrusted.
My office is responsible for auditing and reporting on the activities of government to ensure that such activities are adequately reported in the ﬁnancial statements and in the annual report that is tabled in Parliament. This gives rise to the various audit opinions that we issue on each of the government departments and entities, which to a large extent are generally well understood by the South African citizens.
How the audit process unfolds
In arriving at these audit opinions we at the AGSA, like most auditors world-wide, apply two internationally recognised principles to our reporting:
Audits invariably identify errors and/or omissions of greater or lesser amounts in the ﬁnancial statements and other sections of the annual report. My office always gives government management reasonable opportunity to correct any errors noticed during the audit. This is normally done through the medium of the management report.
What is the management report?
As the name indicates, a management report is issued to those charged with governance and focuses on the status of errors or omissions and the underlying root causes of the entity's internal control failures that give rise to such errors or omissions. This report highlights potential problems and we as auditors recommend how to improve the weaknesses or deﬁciencies.
Before we ﬁnalise the audit report, we give management an opportunity to comment on the issues raised in the management report. Depending on the response, some or all of these issues may ﬁnd their way into the ﬁnal audit report. Where management has responded in a manner that reduces the materiality of an issue and also promotes transparency of reporting, such issue will not be reported in the ﬁnal audit report.
This explains why, in terms of international norms, a management report is a working document, strictly for the attention of management only. Untimely communication of matters highlighted in a management report outside of the audit process tends to cause wrong perceptions and unnecessary panic, particularly when management has not as yet provided replies or explanations of such matters. Very often, the audit queries are based on differences in interpretation or administrative errors. The management report allows for such possible misunderstandings or errors to be cleared up.
How do auditors evaluate the errors or omissions that have been noticed?
All auditors follow a simple, yet thorough and trans- parent process. Before an audit opinion is ﬁnalised, the audit team prepares a list of all the errors that the audit has detected and management has not corrected. If the net result of uncorrected errors exceeds the pre-set materiality amount (i.e. the level below which errors can be tolerated as not misleading or compromising fair presentation), my office will issue a qualiﬁed audit opinion and the audit report will provide details of such material errors or omissions.
Application of these reporting and auditing principles to the Sowetan article of 4 October
In essence the article written by Alfred Moselakgomo, which appeared on the front and second pages of the Sowetan (dated 4 October 2011), suggested that my office had deliberately decided not to inform Parliament about irregular expenditure and expenditure made in vain by the Department of Science and Technology and thus misled the public and Parliament about the clean audit status that the department was granted during the reporting period 2010-11. I have the following comments to make in response to this matter:
Citizens have the right to know that their tax money is spent appropriately and in line with the law. In this regard, auditing is a key process. I hope that this column has provided some clarity on the audit process and how it is designed to help every citizen of this country to keep government and all its institutions accountable.
I trust that the discussion above has also illustrated that what could at ﬁrst glance appear to be inadequate reporting, as per some comments made in radio talk shows and electronic media, may instead, with hindsight, reﬂect a thorough audit process. Other comments made were supportive of the Auditor- General and as they indicated a clear grasp of the auditing process, we would encourage such citizens to continue to engage and share information with peers, colleagues and family to ultimately ensure an informed and thus empowered nation.
From our side as our institution turns 100 this year, I want to give you the assurance that my staff and I have one objective, namely to provide you, the citizens of South Africa, with audit assurance in an honest, fair and simple form, so as to enable you to engage more meaningfully in our democracy. We will also continue to work with the media in an attempt to broaden the understanding of the audit process and ﬁnd better ways of complementing each other in simplifying our messages for the beneﬁt of the citizens of South Africa. Finally, we will continue to reaffirm the image and stature of our organisation as a trusted constitutional entity that has the clear mission of auditing and reporting in a manner that builds public conﬁdence.
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Terence was born on 30 September 1961 in Qumbu, Transkei. He matriculated at Umtata Technical College in 1979. He was awarded a BCom degree by the University of Transkei in 1982 and BCompt (Hons) by the University of South Africa in 1986. He qualified as a chartered accountant in 1990.
Terence gained valuable experience during his work in the private sector which developed his technical competencies as an accountant, external auditor and internal auditor. He also developed solid management and leadership competencies upon which he bases his leadership style.
Terence is married to Nokwanda and has three children, Mphiwa, Fezekile and Kamvalethu.
Terence started his career as a trainee accountant with KPMG in Umtata in 1983. He left KPMG in 1987 and joined Unilever in Durban as internal auditor and later as an accountant in the Lipton Tea and Soup factory in Pietermaritzburg. He then joined BP Southern Africa (BPSA) in Cape Town in 1991 as senior internal auditor. While with BP, Terence joined BP Botswana in Gaborone as finance manager in 1994. He returned to BPSA in Cape Town as market research manager in 1996.
In May 1997, Terence helped establish and was a partner-in-charge of the auditing firm Gobodo Incorporated in Cape Town where he initiated the formation of Gobodo Corporate Governance Services, an internal audit division which operates nationally with regional offices in Cape Town and Pretoria.
Terence joined the Auditor-General on 1 June 2000 in the capacity of Deputy Auditor-General and Chief Executive Officer. He brought to the organisation a firm commitment to supporting mechanisms for instituting stable governance within government. In December 2006 he was appointed to the position of Auditor-General of the Republic of South Africa. He is the first African to hold the position of Auditor-General in the organisation’s 100-year history.
His contribution to the accounting and auditing profession includes participation in some of the most prestigious professional bodies, such as:
He currently serves in the following capacities:
Terence believes that the vision of the Auditor-General of South Africa, namely “To be recognised by all our stakeholders as a relevant Supreme Audit Institution (SAI) that enhances public sector accountability”, is his biggest motivator. Terence regards this as a powerful vision that should be carried through.
"We operate in a constantly transforming and developing country. To be relevant in such a changing environment, my office is continuously redefining itself to meet challenges presented by change. For example, to make a meaningful impact we had to first acknowledge that public sector auditing is more challenging and different from private sector auditing. Public sector audits go beyond merely expressing an opinion on the financial statements. When we audit the public sector, we also comment on the effectiveness of key management processes and give feedback on compliance with laws and regulations. This qualitative approach enables public sector managers better to understand the financial impact of the identified problems and assists in helping them to prioritise the corrective actions. This is how we add value and help improve public sector financial management and our contribution to service delivery," says Terence.
Terence has committed his office to the continued unearthing and grooming of young chartered accountants and financial managers who will, in turn, use their acquired skills to help boost and continue upgrading the public sector financial management systems.
"South Africa is a rich mine of young, bright and talented youths. It is our task to help unearth and polish this latent talent. Through our trainee accountant scheme we have started that search, and we are going to all corners of the country looking for future auditors and auditors-general who will take over from us and continue helping our country manage its public resources effectively."