C O M M I S S I O N O F I N Q U I RY I N T O S TAT E C A P T U R E H E L D AT PA R K T O W N , J O H A N N E S B U R G 10 2 0 F E B R U A RY 2 0 2 0 D AY 2 1 6 FINAL 20 20 FEBRUARY 2020 – DAY 216 P R O C E E D I N G S R E S U M E O N 2 0 F E B R U A RY 2 0 2 0 C H A I R P E R S O N : G o o d m o r n i n g M r M b i k i w a , g o o d m o r n i n g e v e r y b o d y. A D V M I C H A E L M B I K I WA : G o o d m o r n i n g C h a i r. CHAIRPERSON: Are we ready? A D V M I C H A E L M B I K I WA : W e a r e i n d e e d C h a i r. CHAIRPERSON: Mr Y are you ready? M R Y : I a m C h a i r. CHAIRPERSON: Thank you very much. The oath you took continues to a p p l y. Yo u u n d e r s t a n d ? 10 MR Y: Ye s C h a i r u n d e r s t o o d . CHAIRPERSON: Okay thank you let us proceed. A D V M I C H A E L M B I K I WA : Mr Y we concluded yesterday with you dealing with the high level review panel report which made various findings regarding the diversion of the Special Operations Unit and its m a n d a t e a n d I t h i n k w e l e f t o ff o n y o u r e v i d e n c e t o t h e e ff e c t t h a t M s Myeni did not qualify for the security protection that this Unit was p r o v i d i n g t o h e r. MR Y: Correct. A D V M I C H A E L M B I K I WA : 20 I would like to begin this morning and to conclude your evidence by focussing on the services that were in fact provided to Ms Myeni. And for that purpose I would like to take you to t h e a ff i d a v i t o f M s M o o n s a m y. I f y o u c a n t u r n t o p a g e 1 5 o f t h e b u n d l e in front of you, that is DD23? M R Y : O k a y C h a i r. A D V M I C H A E L M B I K I WA : C h a i r a s a l w a y s t h i s a ff i d a v i t i s i n c l u d e d i n Page 2 of 146 20 FEBRUARY 2020 – DAY 216 the bundle on a provisional basis on the basis that it does not as far as w e a r e a w a r e r a i s e a c o n t e n t i o u s m a t t e r. But it is provisional and subject to your direction in due course. C H A I R P E R S O N : I s i t a n a n n e x u r e t o M r Y ’s a ff i d a v i t ? A D V M I C H A E L M B I K I WA : N o C h a i r i t i s a n a d d i t i o n a l d o c u m e n t t o M r Y ’s a ff i d a v i t . CHAIRPERSON: B e c a u s e i f i t i s n o t a n a n n e x u r e t o M r Y ’s a ff i d a v i t t h e n i t s h o u l d h a v e b e e n g i v e n a d i ff e r e n t – s e p a r a t e e x h i b i t n u m b e r. A D V M I C H A E L M B I K I WA : W e c a n c e r t a i n l y a r r a n g e f o r t h a t C h a i r. 10 CHAIRPERSON: Yo u s e e b e c a u s e w h a t E x h i b i t D D 2 3 w a s s a i d t o b e w a s M r Y ’s a ff i d a v i t a n d a n n e x u r e s t o i t . A D V M I C H A E L M B I K I WA : I n d e e d C h a i r. CHAIRPERSON: And if it is not an annexure it means it has not been a d m i t t e d a n d i t h a s n o t b e e n g i v e n a n e x h i b i t n u m b e r. A D V M I C H A E L M B I K I WA : I n d e e d C h a i r. C h a i r c a n I t h e n r e q u e s t t h a t M r M o o n s a m y ’s a ff i d a v i t a n d i t s a n n e x u r e s b e i n c l u d e d a s D D 2 3 B ? C H A I R P E R S O N : W e c a n d o t h a t . Yo u t h e n h a v e t o r e m e m b e r t o – i t means the – or otherwise we can put it on a separate small file as DD24? 20 A D V M I C H A E L M B I K I WA : D D 2 3 B C h a i r. CHAIRPERSON: Well if we – ja we could do it. A D V M I C H A E L M B I K I WA : T h e r e i s a l r e a d y a D D 2 4 I u n d e r s t a n d C h a i r. C H A I R P E R S O N : Yo u s e e i f w e k e e p i t i n s i d e t h i s l e v e r a r c h f i l e w e c a n h a v e M r Y ’s a ff i d a v i t a n d i t s a n n e x u r e s a s 2 3 A a n d t h e n t h i s a ff i d a v i t and its annexures as 23B. Page 3 of 146 20 FEBRUARY 2020 – DAY 216 A D V M I C H A E L M B I K I WA : I n d e e d C h a i r. CHAIRPERSON: And then the lever arch file must make it clear it contains those two exhibits. That is one way of doing it. Another way o f d o i n g i t i s t o t a k e M r M o o n s a m y ’s a ff i d a v i t a n d i t s a n n e x u r e s o u t o f this and have it in a separate small file. Then it can have its own exhibit or it might still have – it might still be DD23B but then this one will have to be A but kept separate. A D V M I C H A E L M B I K I WA : C h a i r I t h i n k g i v e n t h a t w e w i l l b e r e f e r r i n g t o M r M o o n s a m y ’ a ff i d a v i t d u r i n g t h e c o u r s e o f M r Y ’s e v i d e n c e I t h i n k 10 your first proposal would make sense that we keep them in the same file but divide them into 23A and 23B and label the file accordingly to reflect that. CHAIRPERSON: Ye s . What is the last page of the annexures that b e l o n g t o M r M o o n s a m y ’s o n e ? A D V M I C H A E L M B I K I WA : I t i s p a g e 2 7 3 C h a i r. CHAIRPERSON: Is that the end of the file? A D V M I C H A E L M B I K I WA : I apologise Chair it is 167 is the end of ...(intervenes). C H A I R P E R S O N : T h e a n n e x u r e s t o M r M o o n s a m y ’s o n e ? 20 A D V M I C H A E L M B I K I WA : T h e a n n e x u r e s t o M r M o o n s a m y ’s a ff i d a v i t . CHAIRPERSON: 167? A D V M I C H A E L M B I K I WA : I n d e e d . CHAIRPERSON: And then what comes after 167 is the High Level Panel Report? A D V M I C H A E L M B I K I WA : I n d e e d C h a i r. Page 4 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Up to the end? A D V M I C H A E L M B I K I WA : U p t o t h e e n d . C H A I R P E R S O N : I s i t a n a n n e x u r e t o M r Y ’s a ff i d a v i t o r i s i t s e p a r a t e ? A D V M I C H A E L M B I K I WA : I t i s a s e p a r a t e d o c u m e n t C h a i r i t w a s a d d e d afterwards. CHAIRPERSON: Ja you see then ...(intervenes). A D V M I C H A E L M B I K I WA : H e r e f e r s t o i t i n h i s a ff i d a v i t . CHAIRPERSON: Then ...(intervenes). A D V M I C H A E L M B I K I WA : C h a i r b u t i t w a s n o t a t t a c h e d . 10 C H A I R P E R S O N : Ye s t h e n w h a t s h o u l d b e d o n e t h e n i t i s t h a t t h e H i g h Level Report should be a separate Exhibit it will need to be C – 23C. Well in that event what we might not need to change anything. It s e e m s t o m e t h a t t h e r e i s n o a n n e x u r e t o M r Y ’s a ff i d a v i t . A D V M I C H A E L M B I K I WA : I n d e e d C h a i r. C H A I R P E R S O N : S o y o u p e o p l e a l l o w e d m e t o s a y M r Y ’s a ff i d a v i t a n d its annexures but there are no annexures. A D V M I C H A E L M B I K I WA : Chair I cannot allow us people to take the b l a m e i t w a s m i n e e n t i r e l y. C H A I R P E R S O N : W e n e e d t o c o r r e c t t h a t n o w. W e w i l l n e e d t o c o r r e c t 20 w h a t I s a i d y e s t e r d a y w h e n M r Y ’s a ff i d a v i t w a s a d m i t t e d a n d w a s a l l o c a t e d a n u m b e r. I said at the time that it would be Exhibit DD23 together with its annexures. It has now transpired that it does not have a n y a n n e x u r e s t h e r e f o r e t h e p o s i t i o n i s t h a t M r Y ’s a ff i d a v i t i s t o b e m a r k e d E x h i b i t D D 2 3 A . A n d t h e n i n t h e s a m e t h e r e i s a n a ff i d a v i t b y M r L i n g a r a j G a r y M o o n s a m y t h a t a ff i d a v i t i s a d m i t t e d a n d w i l l b e Page 5 of 146 20 FEBRUARY 2020 – DAY 216 marked as Exhibit DD23B. T h a t i s t h a t a ff i d a v i t t o g e t h e r w i t h i t s annexures. Then there is another document in the same file that is the High Level Review Panel Report it is admitted and will be marked as Exhibit DD23C. A D V M I C H A E L M B I K I WA : T h a n k y o u C h a i r. CHAIRPERSON: Okay and then during the break you can put in the dividers. A D V M I C H A E L M B I K I WA : W e w i l l a r r a n g e f o r t h a t C h a i r. CHAIRPERSON: Okay alright. What page did you say we must go to? 10 A D V M I C H A E L M B I K I WA : W e a r e a t . . . ( i n t e r v e n e s ) . C H A I R P E R S O N : L e t u s g o t o M r M o o n s a m y ’s a ff i d a v i t ? A D V M I C H A E L M B I K I WA : W e a r e a t M r M o o n s a m y ’s a ff i d a v i t a n d t h a t is at page 15. CHAIRPERSON: Okay so that is Exhibit DD23B? A D V M I C H A E L M B I K I WA : I n d e e d C h a i r. C H A I R P E R S O N : J a o k a y. A D V M I C H A E L M B I K I WA : M r Y a r e y o u t h e r e ? M R Y : I a m C h a i r. A D V M I C H A E L M B I K I WA : A t p a g e 1 5 ? 20 M R Y : Ye s I a m . A D V M I C H A E L M B I K I WA : Yo u w i l l s e e t h e r e t h a t a t p a r a g r a p h 1 M r Lingaraj Gary Moonsamy describes himself as the Head of Department Group Security Services at South African Airways Kempton Park, Johannesburg. Can I ask you to turn over to page 16. M R Y : Ye s . Page 6 of 146 20 FEBRUARY 2020 – DAY 216 A D V M I C H A E L M B I K I WA : A n d w e p i c k i t u p f r o m p a r a g r a p h 7 . I w i l l not read the entirety of this into the record but I will – I will paraphrase it for your purposes. Mr Moonsamy says that he – that among his duties was to provide Ms Myeni with the services of a close protection o ff i c e r w h i c h h e d i d t o g e t h e r w i t h t h r e e o t h e r M e m b e r s o f S o u t h A f r i c a n Airways Security Services for about four months. He then in paragraph 9 says that he – after this four month period Ms Myeni obtained a new security detail but that he did not know who appointed them or where they came from. 10 Security Services. And that is despite him being the Head of Group At paragraph 10 he says that Ms Myeni breached SAA policy by not making prior arrangements before arriving at SAA with her own security detail. page 18. A n d t h e n a t p a r a g r a p h 11 w h i c h i s o n He says that the people with her would refuse to sign in w h i c h h e s a y s w a s a l s o i n v i o l a t i o n o f S o u t h A f r i c a n A i r w a y s p o l i c y. D o you have any knowledge of any of this? MR Y: I do not Chairperson. A D V M I C H A E L M B I K I WA : And do you have any reason to doubt this version? MR Y: I do not Chairperson. 20 A D V M I C H A E L M B I K I WA : And if these agents or Members who were protecting Ms Myeni had had been legitimately deployed to South African Airways do you know of any reason that they might not want to sign in? MR Y: There should be no legitimate reason Chairperson. They would have to follow the existing policies and procedures. Page 7 of 146 20 FEBRUARY 2020 – DAY 216 A D V M I C H A E L M B I K I WA : Thank you. Then at paragraph Mr Moonsamy says that he did not confront Ms Myeni about this but he took note of incidents and recorded them. And he refers to CCTV footage of the individuals who used to accompany Ms Myeni at SAA as her security detail. He attaches a photograph from that footage which I would like to take you to. It is at – that is at page 160. Can I ask you to turn there? MR Y: Okay I am there Chairperson. A D V M I C H A E L M B I K I WA : 10 Have you been shown this photograph before? M R Y : Ye s I h a v e b y t h e i n v e s t i g a t o r s f r o m t h e C o m m i s s i o n . A D V M I C H A E L M B I K I WA : And are you able to identify any of the people in the photograph? MR Y: Chairperson the bottom left hand corner the individual we i d e n t i f i e d a s a M e m b e r o f t h e S t a t e S e c u r i t y A g e n c y. A D V M I C H A E L M B I K I WA : A n d a r e y o u a b l e t o i n d i c a t e w h o h e i s ? MR Y: Ye s Z a m a N t o l o . He is the – was a Member of the Special Operations Unit. A D V M I C H A E L M B I K I WA : 20 And do you know anything about why he would have been deployed to South African Airways? MR Y: No Chairperson. As I indicated yesterday we have found no paperwork, files, requests, deployment plans, project plans that would i n d i c a t e t h a t t h i s w a s a n o ff i c i a l u n d e r t a k i n g . A D V M I C H A E L M B I K I WA : Thank you. The other aspect of Mr M o o n s a m y ’s a ff i d a v i t I w o u l d l i k e y o u t o – l i k e t o r e f e r y o u t o i s a n Page 8 of 146 20 FEBRUARY 2020 – DAY 216 I n c i d e n t R e p o r t t h a t h e t a l k s a b o u t i n h i s a ff i d a v i t . I f I c a n a s k y o u t o t u r n b a c k t o h i s a ff i d a v i t a t p a g e 1 9 . MR Y: Okay I am there Chairperson. A D V M I C H A E L M B I K I WA : A t p a r a g r a p h 1 5 h e r e f e r s t o a r e p o r t a b o u t a n i n c i d e n t w i t h M r W o l f M e y e r w h o w a s t h e C h i e f F i n a n c i a l O ff i c e r o f SAA until the end of 2015. He attaches a copy of the report which I will take you to in a moment. And he says that the report indicates that – it says Myeni and I assume that should Ms Myeni instructed the security personnel accompanying her at a meeting with Mr Meyer to confiscate a 10 recording pen from him. Can I ask is it within the mandate of SAA Members to confiscate electronic equipment? C H A I R P E R S O N : Yo u m e a n S S A ? Yo u s a i d S A A . A D V M I C H A E L M B I K I WA : A p o l o g i e s C h a i r. S S A M e m b e r s ? MR Y: T h a n k y o u f o r t h a t C h a i r. mandate. No it would not be within the We do not have executive powers and it would be the responsibility of the SAA Security personnel to implement and police whatever their rules and regulations are. A D V M I C H A E L M B I K I WA : I n d e e d a n d y o u w i l l s e e t h a t a t p a r a g r a p h 1 6 Mr Moonsamy says that it is not the mandate or policy for Group 20 Security Services. That is Group Security Services at SAA to confiscate any belongings of Exco or Board Members in execution of their duties. MR Y: I see that Chairperson. A D V M I C H A E L M B I K I WA : I s k i p p e d o v e r a p a r t a t p a r a g r a p h 1 5 . I f I can just refer you to that as well. He says he was informed by his Page 9 of 146 20 FEBRUARY 2020 – DAY 216 predecessor Mr Johan De Waal and was told by Mr Nico Bezuidenhout and Mr Wolf Meyer that the security personnel who used to accompany Ms Myeni at SAA would confiscate laptops and phones from people before they went into meetings with Ms Myeni on her instruction. Can I t a k e y o u t o t h e r e p o r t w h i c h r e f e r s t o a n i n c i d e n t o f t h a t k i n d ? Yo u w i l l find that on page 161. MR Y: Okay Chairperson I am there. A D V M I C H A E L M B I K I WA : A n d b e f o r e I r e a d t h e r e p o r t i n t o t h e r e c o r d if I could ask you to turn to page 162 and just read who it says it is 10 compiled by? MR Y: It says it is compiled by Zaza Ngema. A D V M I C H A E L M B I K I WA : D o y o u k n o w w h o Z a z a N g e m a i s ? MR Y: I do not Chairperson. As mentioned to the investigators in compiling the list of agents one might have indications of someone with the nickname of Zaza but we are unable to say that it would be Zaza Ngema therefore we could not confirm categorically to the Commission that it is the same person. A D V M I C H A E L M B I K I WA : O k a y b u t i n t h e l i s t t h a t y o u h a v e c o m p i l e d you say there is a Zaza? 20 MR Y: Correct Chairperson. A D V M I C H A E L M B I K I WA : If we turn back to page 161 which is the report. MR Y: I am there. A D V M I C H A E L M B I K I WA : And we go to the background section. says: Page 10 of 146 It 20 FEBRUARY 2020 – DAY 216 “ O n t h e 3 r d o f J u l y 2 0 1 5 a t 0 7 : 4 5 I , t h a t i s t h e c o m p i l e r, Zaza Ngema received an urgent call from Mpendulo requesting me to assist him in transporting Ms Myeni f r o m O R Ta m b o I n t e r n a t i o n a l A i r p o r t t o t h e S A A B u s i n e s s Park for a Board Meeting.” Do you know who Mpendulo is? MR Y: I do not Chairperson. A D V M I C H A E L M B I K I WA : T h e o b j e c t i v e i s d e s c r i b e d a s t o e n s u r e t h a t Ms Myeni is safely transported to her Board Meeting at SAA Business 10 Park and that her safety guaranteed. I then want to go to operational support. It says there: “Zama was called in to back me up for any eventuality and utilise his car to transport Ms Myeni. He arrived at t h e h o t e l a r o u n d 11 : 4 0 . ” Do you know who Zama is? MR Y: Chairperson I assume it is the individual identified in the CCTV footage which would be Zama Ntolo. A D V M I C H A E L M B I K I WA : “ H e a r r i v e d a t t h e h o t e l a r o u n d 11 : 4 0 Ms Myeni and I briefed him of the anticipated situation at 20 the SAA Business Park Board Meeting. Zama and I came up with an operational plan. The operational says w e a g r e e d t h a t w e w i l l d r i v e i n Z a m a ’s c a r t o t h e S A A Business Park. All Board Members are to surrender any electronic devices that they may have. Access to the Board room to be monitored by Zaza and alternate with Page 11 of 146 20 FEBRUARY 2020 – DAY 216 Zama.” Mr Y can I then ask you to read the report into the record? MR Y: Okay Chairperson. It starts at 12:15: “We left the hotel with Ms Myeni and proceeded to her Board Meeting at the SSA Business Park. Upon arrival at the entrance at 12:30 the security guard denied us access since Ms Myeni did not have her access card. Ms Myeni had to call the owner of the security company for us to be granted access to the premises. 10 We were granted ...(intervenes).” CHAIRPERSON: Hang on Mr Mbikiwa. Why do you need him to read the report? He was not there I assume? A D V M I C H A E L M B I K I WA : H e w a s n o t C h a i r. C H A I R P E R S O N : Ye s . A D V M I C H A E L M B I K I WA : H e w a s n o t . C H A I R P E R S O N : Ye s . A D V M I C H A E L M B I K I WA : The report relates to an incident that has been referred to I understand previously in the evidence of Ms Stimpel. MR Y: H’mm. 20 A D V M I C H A E L M B I K I WA : An incident involving the confiscation of a recording pen. C H A I R P E R S O N : Ye s . A D V M I C H A E L M B I K I WA : I – the purpose was simply to read the r e p o r t i n t o t h e r e c o r d . I t i s a n a t t a c h m e n t t o M r M o o n s a m y ’s a ff i d a v i t . C H A I R P E R S O N : Ye s . No I think if you want him to confirm anything Page 12 of 146 20 FEBRUARY 2020 – DAY 216 whether it is the kind of thing that people in the State Security Agency do. A D V M I C H A E L M B I K I WA : Ye s . C H A I R P E R S O N : Yo u c a n j u s t t e l l h i m w h a t t h e r e p o r t s a y s i n r e g a r d t o that issue and then he can say whether that is the kind of thing that they do. But otherwise there is no need for him to read reports. A D V M I C H A E L M B I K I WA : C e r t a i n l y C h a i r. CHAIRPERSON: That he knows nothing about. A D V M I C H A E L M B I K I WA : C e r t a i n l y C h a i r. 10 C H A I R P E R S O N : J a o k a y. A D V M I C H A E L M B I K I WA : M r Y a t t h i s – w h a t t h i s r e p o r t i n d i c a t e s i s that Ms Myeni had a Board Meeting at which no one was allowed to have cell phones and thereafter had a meeting with the CFO at which she left the meeting, took the recording pen and handed it to the SSA agents and instructed them to confiscate it. In your experience is that what Members of the SSA are empowered to do? MR Y: No Chairperson. I might add that within the SSA we have our own security protocols in which one would lock up your cell phone in a cell phone box and you know that you are not allowed recording 20 equipment. But at external meetings we may have advised the SSA Security Head that this is the best practise. But we do not have the e x e c u t i v e p o w e r t o a c t u a l l y g o a n d c o n f i s c a t e a n y e q u i p m e n t o ff a n y o f the Board Members. A D V M I C H A E L M B I K I WA : Thank you. C h a i r t h a t c o n c l u d e s M r Y ’s evidence insofar as my questioning is concerned. Page 13 of 146 20 FEBRUARY 2020 – DAY 216 C H A I R P E R S O N : Ye s o k a y. N o t h a t i s f i n e . T h a n k y o u v e r y m u c h M r Y for coming to give the evidence. We appreciate it very much. Should we need you to come back we will ask you to come back but thank you very much and you are excused. MR Y: Thank you Chairperson. CHAIRPERSON: Thank you. A D V M I C H A E L M B I K I WA : C h a i r p e r s o n c o u l d w e s t a n d d o w n f o r a f e w minutes simply to rearrange logistics for the following witness? CHAIRPERSON: Okay how much time do you need? 10 A D V M I C H A E L M B I K I WA : F i v e m i n u t e s I t h i n k C h a i r. CHAIRPERSON: Five minutes. A D V M I C H A E L M B I K I WA : J a . CHAIRPERSON: We will adjourn for five minutes. We adjourn. REGISTRAR: All rise. I N Q U I RY A D J O U R N S I N Q U I RY R E S U M E S C H A I R P E R S O N : M s H o f m e y r. A D V K AT E H O F M E Y R : M o r n i n g C h a i r. CHAIRPERSON: Morning. 20 A D V K AT E H O F M E Y R : C h a i r, M r M b i k i w a w i l l b e p r e s e n t i n g t h e evidence of our next witness, but I request an opportunity simply to do a short opening before this next session of evidence because ...(intervenes). C H A I R P E R S O N : Ye s . A D V K AT E H O F M E Y R : I indicated at the start of the aviation session Page 14 of 146 20 FEBRUARY 2020 – DAY 216 that in respect of each new investigation area I propose to do a short s u m m a r y o f w h a t w o u l d f o l l o w. C h a i r, t h i s i s t h e l a s t i n s t a l m e n t o f t h i s phase of evidence that we will be presenting and we again shift our f o c u s . To d a y a n d t o m o r r o w w e p r o p o s e t o d e a l w i t h t h e r o l e o f A u d i t o r s at State Owned Enterprises. C h a i r, A u d i t o r s h a v e b e e n d e s c r i b e d b y o u r c o u r t s a s t h e watchdogs of institutions that they audit. That actually comes from a case involving PricewaterhouseCoopers previously and we are going to h a v e a w i t n e s s f r o m P w C t e s t i f y t o m o r r o w. 10 That was “Thoroughbred Breeders’ Association of South Africa vs Price Waterhouse 1999 (4) SA 968 (W)” as it was then. C h a i r, i t i s a n i m p o r t a n t i n c i d e n t o f t h e r e s p o n s i b i l i t y t h a t Auditors bear when they audit companies to both be independent as a matter of fact, but also to be seen to be independent. In colloquial audit speak that is referred to as having independence of mind and independence of appearance and both are essential to the proper discharge of their functions. C h a i r, t h e r e h a v e b e e n c a l l s f o r t h i s C o m m i s s i o n w i t h i n i t s investigations to look at the role that Auditors have played within the 20 public sector in particular and the calls originate from an appreciation that they play a role of watchdog and if there are acts of State Capture, Corruption and Fraud taking place in those institutions. The legitimate question that maybe asked is well what role did Auditors play and what responsibilities may they have had to identify what was going on and it is for that reason Chair that we Page 15 of 146 20 FEBRUARY 2020 – DAY 216 propose over the next two days to investigate this role insofar as it related to the SSA Group of Companies. C h a i r, t h e e v i d e n c e t h a t w e w i l l p r e s e n t i n t h e n e x t t w o d a y s will explain that State Owned Entities are by default in terms of the law to be audited by the Auditor-General. However where there are occasions where an external audit firm can be appointed to audit a State Owned Enterprise. Where that happens it requires the concurrence of the A u d i t o r - G e n e r a l a n d I t h i n k i t w o u l d b e f a i r t o s a y, b u t M r S o k o m b e l a , 10 who is our witness soon will be the expert on this. It may be fair to say that when external audit firms play this role they stand in the shoes or the place of the Auditor-General who would otherwise by law be doing the audit as a matter of default. C h a i r, a s a c o n s e q u e n c e o f t h e i r r o l e i n S t a t e O w n e d Enterprises Auditors have additional responsibilities to those which they bear when they audit private companies and those additional responsibilities include amongst other things an obligation to assess whether State Owned Enterprises have complied with their PFMA obligations insofar as that may have an impact on the audit that they 20 conduct and so we propose to explore in the next two days the role that PwC and Nkonki Incorporated played when they were doing the joint audit of SAA for the financial years between 2012 and 2016 and the question that will be posed is whether in the course of that audit work they properly discharged their obligations. We will ask that question because after they had completed Page 16 of 146 20 FEBRUARY 2020 – DAY 216 their five years of audit work and had given SAA clean audits each year from 2012 to 2016. The Auditor-General stepped in and took over the audit in 2017 and found the finances of SAA and its group in a state that can only be described as shambolic. C h a i r, w e w i l l p r e s e n t t h e e v i d e n c e o f t w o w i t n e s s e s . The first will be Mr Polani Sokombela who is a Business Executive in the o ff i c e o f t h e A u d i t o r - G e n e r a l a n d a f t e r t h a t w e w i l l b e p r e s e n t i n g t h e evidence of Mr Pole Motibe who was the audit partner from PwC who w a s a s s i g n e d t o t h e S A A a u d i t f o r t h e y e a r s 2 0 1 4 t o 2 0 1 6 . C h a i r, w e 10 propose to explore the following in their evidence: Mr Sokombela will p r o v i d e a b a c k g r o u n d f o r h o w a u d i t s o f S O E ’s a r e s u p p o s e d t o b e conducted with reference to the relevant legislation and the applicable auditing standards. He will also enlighten the Commission on what the AuditorGeneral found when it moved into SAA to conduct the audit for the 2017 financial year and after Mr Sokombela we will present the evidence of Mr Motibe of PwC and we will explore the following questions with Mr Motibe: first, we will traverse with him the fact that except for the f i r s t y e a r o f P w C a n d N k o n k i ’s a p p o i n t m e n t a s A u d i t o r s o f S A A . In all four subsequent years they were appointed without any 20 procurement process having been followed. This occurred at a time against the advice of the Bid Adjudication Committee of SAA and at a time when a legal opinion had been obtained indicating that a failure to follow a procurement process before appointing Auditors would be unlawful. Page 17 of 146 20 FEBRUARY 2020 – DAY 216 Their own appointment on the basis of those facts therefore constituted irregular expenditure for four solid years, but it was never disclosed as such in the financial statements of the SAA Group. We will then explore why it was that PwC and Nkonki both had joint business relationships and made payments to another auditing firm known as Kwinana & Associates during their audit work for SAA. N o w C h a i r, K w i n a n a & A s s o c i a t e s w a s t h e a u d i t i n g f i r m o f M s Ya k h e K w i n a n a w h o w a s o n e o f t h e N o n - E x e c u t i v e B o a r d M e m b e r s at SAA during the period that PwC and Nkonki were appointed as 10 Auditors and she was also the Chair of the Audit and Risk Committee of SAA and in that role she would approve the audit fees to be paid to the A u d i t o r s i n e a c h s u c c e s s i v e y e a r. We will explore why not one of the significant transactions that have been dealt with previously in the evidence before this Commission and which there are indications may have involved Fraud, corruption and elements of State Capture were not identified by the Auditors in that period as a possible reportable irregularity and finally we will probe how it could be that PwC and Nkonki gave clean audits to SAA for those five years when they audited the group. 20 Only then to reach a situation where the Auditor-General moved in and in 2017 found a situation that was so dire that a qualified audit had to be given and a restatement of the previous years of account. Chair that is just an introduction to what we propose to deal with in the next two days. With your leave ...(intervenes). C H A I R P E R S O N : Ye s . Page 18 of 146 20 FEBRUARY 2020 – DAY 216 A D V K AT E H O F M E Y R : I w o u l d l i k e t o h a n d o v e r t o M r M b i k i w a . CHAIRPERSON: Thank you very much for that introduction M s H o f m e y r. M r M b i k i w a . A D V M I C H A E L M B I K I WA : T h a n k y o u C h a i r. C h a i r, I i n t e n d t o p r o c e e d straight into the evidence of Mr Sokombela. So I would ask if he could please be sworn in. C H A I R P E R S O N : P l e a s e a d m i n i s t e r t h e o a t h o r a ff i r m a t i o n . REGISTRAR: Please state your full names for the record. MR SOKOMBELA: Polani Sokombela. 10 REGISTRAR: Do you have any objection to taking the prescribed oath? MR SOKOMBELA: No. REGISTRAR: Do you consider the oath to be binding on your conscience? M R S O K O M B E L A : Ye s . REGISTRAR: Do you swear that the evidence you will give will be the truth, the whole truth and nothing else but the truth? If so please raise your right hand and say so help me God. MR SOKOMBELA: So help me God. C H A I R P E R S O N : T h a n k y o u . Yo u m a y p r o c e e d . 20 A D V M I C H A E L M B I K I WA : T h a n k y o u C h a i r. C h a i r, t o s t a r t w i t h c a n I a s k t h a t M r S o k o m b e l a ’s a ff i d a v i t a n d i t s a n n e x u r e s b e a d m i t t e d a s DD20A to DD20D? CHAIRPERSON: M r P o l a n i S o k o m b e l a ’s a ff i d a v i t will be marked annexure or Exhibit DD20A. Now you have got B, C ...(intervenes). A D V M I C H A E L M B I K I WA : A n d D , C h a i r. Page 19 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: U p t o D , b u t t h o s e a r e a n n e x u r e s t o t h e a ff i d a v i t . They are not separate ...(intervenes). A D V M I C H A E L M B I K I WA : I n d e e d . C H A I R P E R S O N : A ff i d a v i t s ? A D V M I C H A E L M B I K I WA : I n d e e d C h a i r. CHAIRPERSON: It might be confusing to do them like that. Maybe b e c a u s e t h e y a r e i n d i ff e r e n t l e v e r a r c h f i l e s , m a y b e 2 0 – h o w h a v e w e done this before? A D V M I C H A E L M B I K I WA : 10 C h a i r, m y u n d e r s t a n d i n g i s t h a t w e h a v e d o n e i t i n t h i s w a y. W h e r e t h e a ff i d a v i t a n d a n n e x u r e s h a v e g o n e o v e r a file. T h e n e x t f i l e h a s b e c o m e t h e s a m e n u m b e r, b u t A , B , C , D etcetera. CHAIRPERSON: I am sure we have done it like that, but for some r e a s o n t h i s m o r n i n g s o m e t h i n g s e e m s w r o n g a b o u t d o i n g i t t h a t w a y. A D V M I C H A E L M B I K I WA : C h a i r, I am not sure that another ...(intervenes). C H A I R P E R S O N : Yo u s e e w h e n y o u s a y D D 2 0 A t h a t l e a s t t h i s m o r n i n g . I do not know about other days in the past – this morning. That seems like an exhibit on its own. 20 When you say Exhibit DD20B that sounds like an exhibit – a separate exhibit on its own. A D V M I C H A E L M B I K I WA : H ’ m m . CHAIRPERSON: C, D and so on. Whereas the idea is that it is one exhibit with annexures. I do not know how I am thinking this morning. A D V M I C H A E L M B I K I WA : Ye s . C h a i r, I a m n o t s u r e w h a t t o s u g g e s t ...(intervenes). Page 20 of 146 20 FEBRUARY 2020 – DAY 216 C H A I R P E R S O N : Ye s . A D V M I C H A E L M B I K I WA : Because it will of course be necessary to r e f e r t o t h e d i ff e r e n t f i l e s i n t h e c o u r s e o f . . . ( i n t e r v e n e s ) . C H A I R P E R S O N : Ye s . L e t u s h e a r M s H o f m e y r w h o h a s l e d q u i t e a l o t of – might be able to tell me that there is something wrong with me this morning. A D V K AT E H O F M E Y R : N o t a t a l l C h a i r. C h a i r, c a n I s a y w e h a v e previously where we have had annexures that extend beyond one file. In order for us to be able to navigate which file you need to have in 10 front of you or the witness needs to. We have allocated a B, C and D. C H A I R P E R S O N : Ye s . A D V K AT E H O F M E Y R : S o t h a t w e h a v e c e r t a i n l y d o n e p r e v i o u s l y. C H A I R P E R S O N : Ye s . Ye s a n d i t h a s w o r k e d w e l l . A D V K AT E H O F M E Y R : I t h a s , b e c a u s e o n l y t o a s s i s t u s i n i d e n t i f y i n g which file to place in front of us. C H A I R P E R S O N : Ye s . Ye s . A D V K AT E H O F M E Y R : I t h a s o c c u r r e d t o m e t h o u g h t h a t o n e w a y w e may do it is for the purposes of entering it into the record we could e n t e r i t a s E x h i b i t 2 0 w h i c h w i l l r u n w i t h a n a ff i d a v i t a n d a n n e x u r e s 20 commencing page 1 ...(intervenes). CHAIRPERSON: H’mm. A D V K AT E H O F M E Y R : And then we give the indication of the last page. CHAIRPERSON: H’mm. H’mm. A D V K AT E H O F M E Y R : So that would be how it is entered into the Page 21 of 146 20 FEBRUARY 2020 – DAY 216 record. CHAIRPERSON: H’mm. H’mm. A D V K AT E H O F M E Y R : F o r c o n v e n i e n c e h e r e . . . ( i n t e r v e n e s ) . CHAIRPERSON: H’mm. A D V K AT E H O F M E Y R : We could pull out B, C and D just so that we know which file should be in front of us ...(intervenes). C H A I R P E R S O N : Ye s . A D V K AT E H O F M E Y R : But I actually do not know if that will complicate things. 10 CHAIRPERSON: Well one would not like to depart from how we have done it in the past. A D V K AT E H O F M E Y R : W e h a v e e n t e r e d i t . CHAIRPERSON: Unless ...(intervenes). A D V K AT E H O F M E Y R : I n d e e d . CHAIRPERSON: Really there is a problem. A D V K AT E H O F M E Y R : Ye s . C H A I R P E R S O N : Yo u r f e e l i n g i s t h a t m a y b e w e c o u l d s t i c k t o h o w w e have done it in the past. A D V K AT E H O F M E Y R : I t h i n k s o . 20 C H A I R P E R S O N : Ye s . A D V K AT E H O F M E Y R : J u s t p r o v i d e d w h e n w e e n t e r i t i n t o t h e r e c o r d ...(intervenes). C H A I R P E R S O N : Ye s . A D V K AT E H O F M E Y R : W e i n d i c a t e t h a t t h e A f i l e c o n t a i n s t h e a ff i d a v i t ...(intervenes). Page 22 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Ja. A D V K AT E H O F M E Y R : A n d a n n e x u r e s . . . ( i n t e r v e n e s ) . CHAIRPERSON: Ja. A D V K AT E H O F M E Y R : A n d t h e n B , C a n d D . . . ( i n t e r v e n e s ) . CHAIRPERSON: Ja. A D V K AT E H O F M E Y R : C o n t i n u e t o c o n t a i n t h e a n n e x u r e s . CHAIRPERSON: Annexures, ja. A D V K AT E H O F M E Y R : I t h i n k t h a t w o u l d p r o b a b l y b e b e s t . C H A I R P E R S O N : J a . Yo u w a n t m e t o e x p l a i n i t l i k e t h a t . J a . 10 A D V K AT E H O F M E Y R : I n d e e d . C H A I R P E R S O N : O k a y. A D V K AT E H O F M E Y R : T h a n k y o u C h a i r. CHAIRPERSON: Thank you M s H o f m e y r. The a ff i d a v i t of Mr Polani Sokombela and its annexures will be admitted and marked as f o l l o w s : t h e a ff i d a v i t i t s e l f a n d a n n e x u r e s w h i c h a r e i n t h e s a m e f i l e a s t h a t a ff i d a v i t w i l l b e m a r k e d E x h i b i t 2 0 A . T h e e x h i b i t s i n – h o w m a n y other lever arch files? A D V M I C H A E L M B I K I WA : T h e r e a r e t h r e e o t h e r s , C h a i r. CHAIRPERSON: Three others. There are three other lever arch files 20 a l l o f w h i c h c o n t a i n a n n e x u r e s t o M r P o l a n i S o k o m b e l a ’s a ff i d a v i t . Those files will be admitted and marked Exhibit DD20B, 20C and 20D. They are annexures to Exhibit 20A. I hope that takes care of it. A D V M I C H A E L M B I K I WA : T h a n k y o u C h a i r. C H A I R P E R S O N : Ye s . T h a n k y o u . A D V M I C H A E L M B I K I WA : Mr Sokombela, Page 23 of 146 you have provided the 20 FEBRUARY 2020 – DAY 216 Commission with a detailed a ff i d a v i t and extensive annexures. H o w e v e r w i t h t h e C h a i r ’s l e a v e a n d s u b j e c t t o h i s d i r e c t i o n . I i n t e n d t o focus in your oral evidence today with those issues that are relevant from an auditing perspective to identifying and preventing Fraud, Corruption and State Capture and also on those issues where your experience and expertise can assist in shedding light. Can you begin by telling us what your qualifications are? MR SOKOMBELA: T h a n k y o u C h a i r. My qualifications are I am a qualified Chartered Accountant. 10 A D V M I C H A E L M B I K I WA : A n d y o u r t e r t i a r y e d u c a t i o n ? MR SOKOMBELA: My tertiary education I have got a BCom Degree and then I have got Honours in Accountancy or they call it a Certificate in the theory of Accounting and then I wrote then my Board Exams with SAICA and then I wrote then my Public Practice Examinations with the I n d e p e n d e n t R e g u l a t o r y B o a r d f o r I R B A f o r A u d i t o r s . I a m s o r r y C h a i r. A D V M I C H A E L M B I K I WA : T h a n k y o u a n d w h a t i s y o u r p o s i t i o n ? MR SOKOMBELA: C h a i r, m y c u r r e n t p o s i t i o n – I a m t h e B u s i n e s s Executive in the Auditor-General of South Africa. A D V M I C H A E L M B I K I WA : A n d w h a t p o s i t i o n s h a v e y o u h e l d p r e v i o u s l y 20 in the Auditor-General? MR SOKOMBELA: the C h a i r, t h e p o s i t i o n s t h a t I h a v e h a d p r e v i o u s l y i n Auditor-General – I actually started my career at the Auditor-General as a trainee accountant and after finishing my articles and also finalising my qualification exams. Then I was promoted to be a n A s s i s t a n t M a n a g e r a n d a s I w a s g a i n i n g e x p e r i e n c e t h e n C h a i r. Page 24 of 146 20 FEBRUARY 2020 – DAY 216 Then I became a Manager and Senior Manager and then now then that I am a Business Executive. A D V M I C H A E L M B I K I WA : How many years have you been at the Auditor-General? M R S O K O M B E L A : C h a i r, I h a v e b e e n w i t h t h e A u d i t o r - G e n e r a l – t h i s i s t h e 1 4 t h y e a r. A D V M I C H A E L M B I K I WA : Thank you and can you tell us what your involvement was in the South African Airways audit? M R S O K O M B E L A : C h a i r, m y i n v o l v e m e n t i n t h e a u d i t o f S o u t h A f r i c a n 10 Airways initially it started when the South African Airways was moved f r o m t h e D e p a r t m e n t o f P u b l i c E n t e r p r i s e s t o N a t i o n a l Tr e a s u r y. I t h i n k it was somewhere around 2015, if I am not mistaken. I think there were challenges as far as SAA is concerned and at the time then SAA was moved. The Business Unit within the Auditor-General that I am – that I am currently a Business Executive for is responsible for among others t h e a u d i t o f N a t i o n a l Tr e a s u r y a n d a t t h e t i m e I w a s a S e n i o r M a n a g e r also overseeing the portfolio at the time and then I became involved then as – when SAA was not audited by us, but was still audited by the 20 private sector firms i.e. PwC as well as Nkonki and Chair after then the A u d i t o r - G e n e r a l t h e n w a s a p p o i n t e d f o r t h e 2 0 1 6 / 2 0 1 7 f i n a n c i a l y e a r. Then I became involved as the Senior Manager responsible or t h e E n g a g e m e n t M a n a g e r, w h a t d o y o u c a l l , f o r t h e a u d i t o f S o u t h African Airways. As the person then that is responsible and also accountable in terms of delivering the audit report of SAA. So that was Page 25 of 146 20 FEBRUARY 2020 – DAY 216 my involvement, Chairperson. A D V M I C H A E L M B I K I WA : T h a n k y o u . I f w e p i c k i t u p a t y o u r a ff i d a v i t on page 4. Yo u d e a l t h e r e w i t h t h e m a n d a t e o f t h e A u d i t o r - G e n e r a l . Can you tell us what that mandate is? MR SOKOMBELA: C h a i r, I would like to get ...(intervenes). ...(intervenes). A D V M I C H A E L M B I K I WA : I a p o l o g i s e . I s h o u l d h a v e s a i d a t t h e o u t s e t we will be beginning in your file marked DD20A which contains your a ff i d a v i t . W h e n I r e f e r y o u t o p a g e n u m b e r s ? I a m r e f e r r i n g y o u t o t h e 10 numbers in red on the top right-hand corner and we are at page 4 and you deal from paragraph 6 with the mandate. CHAIRPERSON: Well if he did not have his file in front of him. It seems to me that we might not have asked him to confirm. A D V M I C H A E L M B I K I WA : I n d e e d . CHAIRPERSON: Ja. So you might have to do that first. A D V M I C H A E L M B I K I WA : I n d e e d . CHAIRPERSON: Ja. A D V M I C H A E L M B I K I WA : M r S o k o m b e l a , c a n I a s k y o u t o t u r n b a c k t o p a g e 1 a n d c a n y o u c o n f i r m t h a t t h a t i s t h e a ff i d a v i t y o u p r o v i d e d t o t h e 20 Commission? M R S O K O M B E L A : I c o n f i r m , C h a i r. A D V M I C H A E L M B I K I WA : And if you turn to page 42. Is that your signature under – where it says deponent? M R S O K O M B E L A : Ye s C h a i r. T h a t i s m y s i g n a t u r e . A D V M I C H A E L M B I K I WA : A n d d o y o u c o n f i r m t h a t t h e c o n t e n t s o f t h e Page 26 of 146 20 FEBRUARY 2020 – DAY 216 a ff i d a v i t a r e t r u e a n d c o r r e c t ? M R S O K O M B E L A : I c o n f i r m , C h a i r. A D V M I C H A E L M B I K I WA : T h a n k y o u . Yo u w e r e a b o u t t o t e l l u s a b o u t t h e A G ’s m a n d a t e . CHAIRPERSON: That is on page 4. A D V M I C H A E L M B I K I WA : T h a t i s o n p a g e 4 . MR SOKOMBELA: T h a n k y o u C h a i r. C h a i r, t h e A u d i t o r - G e n e r a l o f South Africa is a supreme audit institution of the Republic of South Africa. 10 Its mandate stems from Chapter 9 of the Constitution of the Republic of 1996 herein referred to as the Constitution. Which means t h a t i t e x i t s t o s u p p o r t t h e c o n s t i t u t i o n a l d e m o c r a c y. The Auditor-General is independent. Subject only to the Constitution and the law and must be impartial in exercising its function w i t h f e a r, f a v o u r o f p r e j u d i c e . The Auditor-General accounts to the National Assembly by tabling its annual report in Parliament. A D V M I C H A E L M B I K I WA : C a n I a s k y o u M r S o k o m b e l a i s t h e A u d i t o r General required to audit an entity such as SAA? MR SOKOMBELA: C h a i r, t h e A u d i t o r - G e n e r a l i s – i n t e r m s o f t h e Public Audit Act there is a section there that is called – that is Section 20 4(3) and Chair Section 4(3) then is a section that ...(intervenes). CHAIRPERSON: Four – 4(3) would four – Section 4(3)? M R S O K O M B E L A : Ye s C h a i r. C H A I R P E R S O N : O k a y. MR SOKOMBELA: Subsection 3. In terms of Section 4(3) of the Public Audit Act the Auditor-General is empowered to audit South African Page 27 of 146 20 FEBRUARY 2020 – DAY 216 A i r w a y s . J a . S o t h a t i s t h e a n s w e r, C h a i r. A D V M I C H A E L M B I K I WA : Yo u s a y i t i s e m p o w e r e d . My question is whether it is required? CHAIRPERSON: Required in this case means obliged. MR SOKOMBELA: C h a i r, t h e A u d i t o r - G e n e r a l i s n o t o b l i g e d . The Auditor-General can make a discretion – has got a discretion whether he can audit South African Airways or whether he can opt out. A D V M I C H A E L M B I K I WA : T h a n k y o u a n d w h a t t h e k i n d s o f f a c t o r s t h a t the Auditor-General would consider in deciding whether to audit an 10 entity itself or to opt out? MR SOKOMBELA: C h a i r, t h e r e a r e m a n y f a c t o r s t h a t t h e A u d i t o r - G e n e r a l w i l l – w o u l d c o n s i d e r. e x a m p l e i s t h e c a p a c i t y. capacity and I think one of the key factors for an Is whether the Auditor-General has got the the technical expertise to audit that particular entity or not and one of the most important things then is to ensure then that we have got the right people – they are the right people that will audit, because these – some of the State Owned Entities can be very complex and very technical. A D V M I C H A E L M B I K I WA : 20 O k a y. So capacity is one issue. Is – are there any others that you – that the Auditor-General would consider before deciding whether to take on the task of auditing a particular entity? M R S O K O M B E L A : Ye s C h a i r. I t h i n k o n e o f t h e k e y o n e i s s k i l l s a n d capacity and also there may be other factors that the Auditor-General may deem appropriate depending on him. Page 28 of 146 20 FEBRUARY 2020 – DAY 216 C H A I R P E R S O N : S o w h e n y o u s a y s k i l l s a n d c a p a c i t y. Yo u l o o k a t t h e two as separate factors. Is that right? M R S O K O M B E L A : Ye s C h a i r. C H A I R P E R S O N : Ye s a n d a s f a r a s c a p a c i t y i s c o n c e r n e d w h e n y o u u s e capacity in this context do you mean enough people? M R S O K O M B E L A : Ye s C h a i r. C H A I R P E R S O N : To d o t h e j o b ? M R S O K O M B E L A : Ye s C h a i r. CHAIRPERSON: And when you refer to the skills you are referring to 10 people who have – who may have particular skills that are required in a particular entity? M R S O K O M B E L A : Ye s C h a i r. C H A I R P E R S O N : O k a y. A D V M I C H A E L M B I K I WA : Thank you. Before we talk about the role a n d t h e d u t i e s t h a t A u d i t o r s b o t h p r i v a t e A u d i t o r s a n d t h e A G b e a r. I would like to ask you about something that is not addressed in your a ff i d a v i t w h i c h i s a b o u t t h e – b e c a u s e w e a r e t a l k i n g h e r e a b o u t S t a t e Owned Entities. What are State Owned Entities required to do internally from an audit perspective? 20 MR SOKOMBELA: O k a y. Maybe they need to clarify further Chair in t e r m s o f w h e n y o u a r e s a y i n g i n t e r n a l l y. W h a t d o e s t h a t m e a n ? A D V M I C H A E L M B I K I WA : I a m . . . ( i n t e r v e n e s ) . C H A I R P E R S O N : Ye s . A D V M I C H A E L M B I K I WA : I a m t a l k i n g a b o u t t h e i n t e r n a l a u d i t f u n c t i o n of State-Owned Entities. Page 29 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A : T h a n k y o u v e r y m u c h C h a i r. C h a i r, i n t e r m s o f t h e Public Finance Management Act the – and one of the governance requirements is that the State-Owned Entity is supposed to have an internal audit function that is fully capacitated with skilled people and a l s o t h a t r e p o r t s t o t h e A u d i t C o m m i t t e e f u n c t i o n a l l y. Ye s . S o t h a t i s the requirements, Chairperson. A D V M I C H A E L M B I K I WA : A n d b e c a u s e i t i s s o m e t h i n g w e a r e g o i n g t o c o m e t o l a t e r. W h a t i s m e a n t b y t h e t e r m “ i n t e r n a l c o n t r o l s ” ? M R S O K O M B E L A : C h a i r, t h e w o r d s “ i n t e r n a l c o n t r o l s ” i n s i m p l e t e r m s 10 – if I may simplify it, Chair is basically the controls to actually ensure then that the financial administration of the entity is at the right level. I . e . y o u h a v e g o t p o l i c i e s a n d p r o c e d u r e s . Yo u h a v e g o t t h e S t a n d a r d Operating Procedures internally to ensure then that when transactions a r e d o n e t h e y a r e d o n e i n a m a n n e r t h a t w i l l n o t , y o u k n o w, w i l l n o t actually cause wastage or will not cause fraud. I think an example that I can give is that for an example if y o u a r e p u r c h a s i n g t h e b o t t l e o f w a t e r i n a n e n t i t y. The person that orders – that places an order and the person that approves the transaction and the person that pays ideally for the internal controls to 20 be at least – to be believable is – needs to be separate people. For example you need to have segregation of duties, because if it is one person that will buy that bottle. person may not actually buy a bottle. There is a risk that the Might buy something else or maybe the money might go somewhere else. simple explanation. Page 30 of 146 So that might be my 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: So it is simple. It is basically measures. Internal measures taken by the entity to ensure that from a financial point of view things are done properly? MR SOKOMBELA: Absolutely Chairperson. CHAIRPERSON: H’mm. A D V M I C H A E L M B I K I WA : T h a n k y o u . I w o u l d l i k e n o w t o m o v e t o t h e role of External Auditors. Yo u d e a l w i t h t h a t o n p a g e 6 o f y o u r a ff i d a v i t . I r e f e r y o u t o y o u r a ff i d a v i t s i m p l y t o o r i e n t a t e y o u . C a n y o u tell us what the role is that External Auditors play for State Owned 10 Entities and elaborate on the importance of that role? MR SOKOMBELA: context of Chairperson, the role of External Auditors in the State-Owned Entities is to provide the independent assurance to the users of the annual report or the financial statements of that State-Owned Entities. The users include those that are charged with governance and actually ensure then that also provider assurance on performance information. Also provide assurance also on applicable laws and regulations to ensure then that there is compliance with those laws and regulations. 20 CHAIRPERSON: When reference is made to External Auditors in this c o n t e x t w e k n o w t h e A G ’s e x t e r n a l t o a l l t h e e n t i t i e s , b u t i s i t i n c l u d e d when you use External Auditor in this case – in this context or External Auditors is meant to refer in this context to private Auditors? MR SOKOMBELA: Chairperson, it is – even the private sector Auditors in the context that I have explained in terms of what their roles are is Page 31 of 146 20 FEBRUARY 2020 – DAY 216 the same. CHAIRPERSON: No, no. I accept that you are referring to them. What I am not sure about is whether you are also including the Auditor-General or whether what you have just said does not apply n e c e s s a r i l y t o t h e A u d i t o r - G e n e r a l . Yo u a r e r e f e r r i n g t o o r f o c u s i n g o n t h e p r i v a t e f i r m s o r w h e t h e r t h a t ’s m e a n t t o i n c l u d e t h e A u d i t o r - G e n e r a l as well. MR SOKOMBELA: CHAIRPERSON: 10 T h a t i n c l u d e s t h e A u d i t o r - G e n e r a l C h a i r. O h , o k a y. A D V M I C H A E L M B I K I WA : Thank you, certainly Chair in the legislation when it refers to private firms it uses the word private. CHAIRPERSON: Ye s , o k a y. A D V M I C H A E L M B I K I WA : Mr Sokombela I would like to pick up on s o m e t h i n g y o u s a y o n p a g e 7 a t p a r a g r a p h 1 5 o f y o u r a ff i d a v i t . Yo u say there that an audit does not provide absolute assurance, can you explain what you mean by that? MR SOKOMBELA: Chair the audit – the reason why we’re saying the audits does not provide an absolute assurance is the fact that there are many factors like for an example the audit evidence on itself is you 20 know you may find out that we are not always at the audit or at the client at times. The people that are always at the client is Management, or those people that are charged with managing the e n t i t y, s o – a n d e v e n h o w w e p l a n a n d a p p r o a c h o u r a u d i t s w e d o n ’ t test everything Chairperson, we normally select a sample because at Page 32 of 146 20 FEBRUARY 2020 – DAY 216 times it can be very – it can impractical for us as Auditors to come and test for everything. So there is that chance that there may be something that the Auditors will leave so even in our wording we are very careful in terms of how we actually put – that is why then it becomes our own audit opinion and we like using words like “in our judgment”, it is our judgment to actually ensure then that you know we have not seen, just rely 100% in terms of what we do. A D V M I C H A E L M B I K I WA : 10 Yo u m e n t i o n e d t h a t y o u d o n ’ t l o o k a t everything within the business and you look at samples, how do you determine a sample? MR SOKOMBELA: Chair how do you determine a sample ...(intervenes). CHAIRPERSON: I am not sure whether you seek to say how they select the samples. A D V M I C H A E L M B I K I WA : CHAIRPERSON: I n d e e d C h a i r, t h a n k y o u , I a m i n d e b t e d . Ye s , h o w d o y o u d e c i d e o n w h a t s a m p l e s t o l o o k a t ? MR SOKOMBELA: T h a n k y o u C h a i r. Chair we’ve got I think the auditing standards because the sampling is a scientifically tested 20 method where in a set of population an Auditor based on the understanding of the population itself, for example I will give you an e x a m p l e o n l e t ’s s a y I a m t e s t i n g w h e t h e r t h e r e v e n u e t h a t t h e N D T i s reporting I am testing whether then the revenue is really valid revenue. Then what then we normally do is that then based on the understanding of that entity then we’ve got tools then that we have Page 33 of 146 20 FEBRUARY 2020 – DAY 216 when then they will determine in terms of then how do then do I select then the sample size. For an example other firms will have their own methodologies, for example the Auditor-General the minimum sample for instance that we test is 30 items and then depending then on the magnitude of or the size of that particular population it can go up you know because the m o s t i m p o r t a n t t h i n g i s t o e n s u r e t h e n t h a t y o u g e t s u ff i c i e n t appropriate audit evidence. So it is scientifically tested – it is a scientifically tested 10 m e t h o d s o t h a t i s b a s i c a l l y, i t i s a s s i m p l e a s l i k e t h a t t o s a y i f I g o t o , if there is a population for revenue for an example then I will then based on the audit methodology then determine then whether then how much samples should be selected, and that is based on the audit m e t h o d o l o g y b a s i c a l l y. CHAIRPERSON: Yo u t a l k a b o u t p o p u l a t i o n o f r e v e n u e , p l e a s e e x p l a i n that some of us need to be educated on the – on Auditors. MR SOKOMBELA: CHAIRPERSON: T h a n k y o u C h a i r, I a p o l o g i s e . Ye s , n o , n o , n o y o u u s e l a n g u a g e t h a t y o u a r e u s e d to. 20 MR SOKOMBELA: Ye s C h a i r. Chair when I am talking about the population for example if I am selling vetkoek for R2 each you then find out then that in a day then 20 vetkoeks will be sold. Then I will record then in my books that each – for each transaction I have received R2 and those transactions will be 20 transactions. Then that 20 – those 20 transactions then it becomes a population. Page 34 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: O k a y, r i g h t t h a n k y o u . T h a n k y o u . A D V M I C H A E L M B I K I WA : Mr Sokombela another thing you say at paragraph 15 is that External Auditors do not audit to identify and report on fraud and corruption. a possible fraud and But the audit processes could identify corruption which should be reported to Management. Can you explain what you mean by that? MR SOKOMBELA: Chair the objectives of the audit process is to express fair presentation of the financial statements, and also to identify if there are any material findings in compliance with legislation 10 and also to identify whether there are any also significant findings on performance information or the key performance indicators in the annual report. So that is basically so then the objectives of the Audit process. However as explained here in paragraph 15 in the quest then of testing and of auditing we may come across on issues of corruption and then when you come across then with those issues of corruption then we report them to those charged with governance for further investigation. CHAIRPERSON: W e l l I w a n t e d t o a s k y o u e a r l i e r, l e t m e a s k y o u n o w, the tools you use to select the samples that you are going to look at 20 how much room do they leave for an Auditor to miss something quite critical that later on people might look at and say but how could he have missed it. How much room do those tools that you use leave for that kind of thing, or should one understand that those tools enable you to select samples that will lead you to something that is critical if really Page 35 of 146 20 FEBRUARY 2020 – DAY 216 there is something critical you have missed the fault is not with the tools it is with you. MR SOKOMBELA: Thank you very much Chairperson, that is a very good one. Chair before we go and decide with SAMBO to select I think the steps that perhaps maybe I should have talked about it is the duty of the Auditors to perform rigorous risk assessment processes, because it is important and it is – for the Auditors to actually ensure then that t h e y o b t a i n a n u n d e r s t a n d i n g o f t h e e n t i t y ’s e n v i r o n m e n t a n d t o a l s o i n the process also be able then to project in terms of which transactions 10 or which issues might pose a risk in the audit process. So Chairperson that process then gives you then an opportunity then to say when I am going then to select my sample if they have identified that there are issues of risk that I have already identified in my risk assessment processes, I will also go and identify t h o s e i s s u e s a n d p u t t h e m s e p a r a t e l y, a n d t h e n I w i l l t e s t t h o s e o n e s s p e c i f i c a l l y, w e c a l l t h a t a s p e c i f i c s e l e c t i o n , w e a r e n o t u s i n g a s a m p l e t h e r e , y o u k n o w. Chairperson we use a sample then when the remaining p o p u l a t i o n t o s a y w h a t i s r e m a i n i n g , t h i s i s t h e r e m a i n d e r b u t l e t ’s j u s t 20 t e s t t h e n t h i s r e m a i n d e r. CHAIRPERSON: MR SOKOMBELA: Ye s , o k a y. Ja, but it is incumbent then to ask as Auditors to ensure then that we perform those risk assessments to identify where the problems might be. Page 36 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: O k a y, o k a y. Now – excuse me, would the rigorous exercise that you talked about that an Auditor would need to do before g o i n g i n , i n t o a n e n t i t y, w o u l d t h a t i n c l u d e i n t h e c a s e o f a n S O E f o r example checking news about the entity in the public domain, what is being said about it, for example there have been articles about c o r r u p t i o n a b o u t a c e r t a i n c o n t r a c t , a n d c e r t a i n t e n d e r s t h a t ’s b e e n i n the news and then collect those and put them together and then say when I go in I want to find out about these. Would that include something like that? 10 MR SOKOMBELA: Absolutely Chairperson it will include something like that. CHAIRPERSON: Okay thank you. A D V M I C H A E L M B I K I WA : T h a n k y o u C h a i r. C h a i r I s e e i t ’s 11 : 1 5 , i t might be an appropriate time for the break. CHAIRPERSON: Okay we will take the short adjournment and we will r e s u m e a t 11 : 3 0 . W e a d j o u r n . REGISTRAR: All rise. I N Q U I RY A D J O U R N S I N Q U I RY R E S U M E S 20 CHAIRPERSON: O k a y, l e t ’s c o n t i n u e . A D V M I C H A E L M B I K I WA : T h a n k y o u C h a i r. C h a i r I c a n c o n f i r m t h a t o v e r t h e b r e a k o u r B u n d l i n g Te a m h a s a t t e n d e d t o t h e p r o p e r arrangement of those files. CHAIRPERSON: Thank you. A D V M I C H A E L M B I K I WA : Thank you. Page 37 of 146 Mr Sokombela, just before 20 FEBRUARY 2020 – DAY 216 the adjournment we were talking about External Auditors identifying f r a u d a n d c o r r u p t i n g a n d y o u i n d i c a t e d t h a t w h i l e t h a t ’s n o t t h e objective, they can do so in the course of an audit. Can you help me with a few concepts? Can you tell me what irregular expenditure is? MR SOKOMBELA: Chair irregular expenditure is an expenditure w h e r e i t h a s b e e n o c c u r r e d , h o w e v e r, i n t h e c o u r s e o f i t b e i n g i n c u r r e d there was non-compliance with the legislation. In most instances the PFMA. A D V M I C H A E L M B I K I WA : 10 CHAIRPERSON: Thank you. An irregularity in the context of an irregular expenditure is not confined to a process – to a legal process is that right or is it confined to a process? MR SOKOMBELA: C h a i r i t i s c o n f i n e d t o a p r o c e s s C h a i r, i f I m a y C h a i r, j u s t t o m a k e a n e x a m p l e , a s i m p l e e x a m p l e w i l l b e t h a t t h e P F M A m i g h t s a y, w h e n y o u ’ r e p u r c h a s i n g g o o d s a n d s e r v i c e s y o u n e e d t o o b t a i n t h r e e q u o t a t i o n s , b u t i f a n o ff i c i a l o f a n e n t i t y t h e n d i d n ’ t g o a n d obtain three quotations then – but then only sourced one quotation, t h e n t h a t e x p e n d i t u r e t h e n w i l l b e b e c o m e i r r e g u l a r b e c a u s e t h e o ff i c i a l ought to have invited three quotations. 20 CHAIRPERSON: So you are saying it doesn’t speak – irregular expenditure doesn’t speak to whether the funds were used for the purpose for which they were supposed to be used. In other words, if I take R10 000 of the entity and use it to buy a computer but I followed the right process in terms of tenders or whatever but I’m using it to buy a computer when it was meant to be used to do something else, that Page 38 of 146 20 FEBRUARY 2020 – DAY 216 would not fall under irregular expenditure it would fall under something e l s e , o r w o u l d i t – b e c a u s e t h a t ’s n o t t h e p r o c e s s t h a t ’s u s i n g i t f o r a wrong purpose or is it regarded as process? MR SOKOMBELA: Chair in the example that you gave, if the monies were intended for something else but were utilised for something else, if the due process was followed i.e. those that have initially approved that this money is for something else, but when then the change was made, there was due process in terms of the approvals that were made and there was no non-compliance that was identified, that may not be 10 i r r e g u l a r e x p e n d i t u r e , h o w e v e r, i f t h e s e m o n i e s w e r e i n t e n d e d f o r something else but were utilised for something else and there was no approval for that, it may become irregular expenditure. CHAIRPERSON: B u t w h a t i f t h e r i g h t – w h a t i f n o b o d y ’s s u p p o s e d t o approve that this money be used for something else and nobody has approved that it be used for something else but it has been used for something else, would it fall under irregular expenditure or would it fall under something else? MR SOKOMBELA: I f t h e r e ’s n o l e g i s l a t i o n C h a i r p e r s o n t h a t r e g u l a t e s the utilisation of that money it may not be irregular expenditure it may 20 be something else. CHAIRPERSON: Oh and is there a particular heading under which it w o u l d f a l l a s f a r a s y o u k n o w, o r n o t n e c e s s a r i l y, i n t e r m s o f a j o b ’s A u d i t o r. I f I u s e m o n e y f o r s o m e t h i n g t h a t i t s h o u l d n o t b e u s e d f o r, I use it to buy my – well maybe I shouldn’t make an example that might c o n f u s e f u r t h e r. S o i n o t h e r w o r d s , i f i t ’s – i f – w h a t t h e m o n e y i s u s e d Page 39 of 146 20 FEBRUARY 2020 – DAY 216 for is not the lawful purpose for it, I don’t know whether I should say a u t h o r i s e d p u r p o s e , t h e n o r m a l – t h e r e ’s n o n o r m a l l a b e l t h a t i t w o u l d fall under or the normal label would be irregular expenditure? MR SOKOMBELA: Chair it – depending for an example if the money is not utilised for the benefit of the entity itself it may become then classified as fruitless and wasteful. C H A I R P E R S O N : Ye s . MR SOKOMBELA: CHAIRPERSON: 10 T h a t ’s a n o t h e r c o n c e p t . Ye s , y e s , s o – b u t t h a t c o n c e p t l o o k s a t w h e t h e r t h e p u r p o s e f o r w h i c h t h e m o n e y u s e d a d d e d a n y v a l u e t o t h e e n t i t y, i s t h a t right? MR SOKOMBELA: CHAIRPERSON: Ye s C h a i r p e r s o n . Ye s , o k a y t h a n k y o u . A D V M I C H A E L M B I K I WA : Thank you, I was indeed about to go to f r u i t l e s s a n d w a s t e f u l e x p e n d i t u r e , s o t h a t ’s h e l p f u l . Mr Sokombela, would you agree that – then that while irregular expenditure and fruitless and wasteful expenditure is not always because of fraud and corruption, they can be indicators that fraud and corruption has taken place in an entity? 20 MR SOKOMBELA: Ye s C h a i r I a g r e e , h e n c e i n o u r a p p r o a c h , o n c e w e identify irregular expenditure we always recommend to Management and those charged with governance to investigate. A D V M I C H A E L M B I K I WA : CHAIRPERSON: Ye s . Would it be a correct understanding of these two concepts, irregular expenditure and fruitless and wasteful expenditure Page 40 of 146 20 FEBRUARY 2020 – DAY 216 to say the fruitless and wasteful expenditure is the more serious – is more serious than irregular expenditure, generally speaking? MR SOKOMBELA: Chair the fruitless and wasteful expenditure is w h e r e i t ’s c o n f i r m e d t h a t t h e r e ’s n o v a l u e a d d e d t o t h e e n t i t y, h o w e v e r, on irregular expenditure as well an investigation might reveal that in actual fact there was no value that was added. CHAIRPERSON: But what I want to establish is that, on the fact of it when somebody says a certain entity or Government department had irregular expenditure amounting to R50 million the picture that the 10 citizenry should have should not necessarily be that money was wasted because the process might have been not right but whatever was done m i g h t h a v e a d d e d v a l u e a n d m a y h a v e n e e d e d t o b e d o n e , i t ’s j u s t t h a t it was not – the right process wasn’t followed, whereas with fruitless and expenditure – fruitless and wasteful expenditure I would imagine t h a t t h e c i t i z e n r y s h o u l d s a y, s o t h e s e p e o p l e h a v e w a s t e d o u r m o n e y. S o i n o t h e r w o r d s , w i t h o u t g o i n g f u r t h e r, o n c e t h e A u d i t o r - G e n e r a l s a y s its fruitless and wasteful expenditure, aren’t we entitled to say these people have wasted tax payers m o n e y, whereas, with irregular expenditure it might simply mean that – not that they wasted money but 20 that they didn’t follow correct processes but sometimes in not following correct processes they might be corruption and so on but sometimes there might be no corruption, it might just be failure to follow processes, is my understanding right? MR SOKOMBELA: Ye s C h a i r p e r s o n y o u ’ v e a c t u a l l y u n p a c k e d i t v e r y well. Page 41 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Ye s o k a y, t h a n k y o u . A D V M I C H A E L M B I K I WA : Thank you, the final concept I’d like to ask y o u a b o u t i s a r e p o r t a b l e i r r e g u l a r i t y, w h a t d o y o u u n d e r s t a n d a reportable irregularity to be? MR SOKOMBELA: C h a i r, t h e r e p o r t a b l e i r r e g u l a r i t y i s a c o n c e p t i n t h e Auditing Professions Act where there may be certain transactions that may lend themselves to plausible or in comfort explanations where there may be non-compliance that has been committed by a person responsible for the Management of the entity itself and the duties then 10 o f t h e A u d i t o r, t h e n i n t h a t i n s t a n c e , i s t o i m m e d i a t e l y w r i t e t o t h e Independent Regulatory Board for Auditors and the details of that reportable irregularity and also then, the Auditor then is also required, within 3 days, of identifying that irregularity and reporting it to the Independent Regulatory Board to also then report to Management and those types of governance and also should give them the opportunity to explain whether then this really is a reportable irregularity and I think o n e c o n c e p t t h a t I f o r g o t h e r e t o e x p l a i n , C h a i r, i s t h a t f o r i t t o b e a irregularity there should be a material financial loss that has been i n c u r r e d b y t h e e n t i t y, t h e r e s h o u l d a l s o b e a b r e a c h o f f i d u c i a r y d u t i e s 20 by those that are charged with governance in the entity and in my e x p l a n a t i o n C h a i r, I s a i d t h e n t h e A u d i t o r s h o u l d p r o v i d e t h e n a n opportunity then to those charged with governance to – one is to actually just to give comfort to the Auditor whether the Auditor was correct to say this is a reportable irregularity and submit information to the Auditor and based then on that information then the law then – I Page 42 of 146 20 FEBRUARY 2020 – DAY 216 t h i n k i t ’s a c t u a l l y S e c t i o n 4 5 o f t h e A u d i t i n g P r o f e s s i o n s A c t , i t r e q u i r e s then within 30 days the Auditor to report back to the Independent Regulatory Board. I t ’s e i t h e r t h e n – w h e n t h e y ’ r e r e p o r t i n g b a c k t h e y n e e d t o s p e c i f y w h e t h e r, i n t h e i r o p i n i o n t h a t , n o i n a c t u a l f a c t t h e r e i s no reportable irregularity and that would be in a case where maybe the Auditor is satisfied with the explanation of the entity or also the other important thing is that it may not – it may be taking place or it may be continuing, then the Independent Regulatory Board for Auditors can continue then with their own processes to deal with it. 10 CHAIRPERSON: So if you could just repeat for me what the essential features of the reportable irregularities are, if you are able to. In other words, how does somebody see that the this is a reportable irregularity? MR SOKOMBELA: C h a i r f o r i t t o b e r e p o r t a b l e i r r e g u l a r i t y, t h e r e should be non-compliance or there should be fraud, or there should be theft and also this should have resulted in a material financial loss to the entity or suspected – it can also be a suspected financial material loss and also, I think, what is also important is that this loss should be to the entity itself or it can be to the shareholder or it can be to the 20 employees or to other stakeholders of the entity itself. So those are the critical features and also, I think, one other key issue, the issue be committed by somebody that is in Management or maybe in the Board of Directors. CHAIRPERSON: MR SOKOMBELA: O k a y. So I think those are the essential features. Page 43 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: O k a y, o k a y a n d t h e f t a n d f r a u d , a t t h a t l e v e l t h e y s h o u l d b e – i t ’s f i n e i f t h e y a r e s u s p e c t e d n o t n e c e s s a r i l y – t h e p e r s o n shouldn’t necessarily be sure that they have been committed or should they be sure that as far as they are concerned, there has been theft a n d t h e r e h a s b e e n f r a u d o r i f t h e y s u s p e c t t h e r e ’s e n o u g h ? MR SOKOMBELA: Chair you’re quite right, if they suspect, as long as there are indicators to a person that something might be happening. CHAIRPERSON: Ye s o k a y, t h a n k y o u . A D V M I C H A E L M B I K I WA : 10 T h a n k y o u C h a i r. C a n I a s k , w h a t a r e t h e sorts of documentation that you’re looking at in order to identify irregular expenditure and fruitless and wasteful expenditure? The Chair asked before the break about external documents in the media, and you confirmed that that is something to which you would pay attention. What about things within the entity? MR SOKOMBELA: C h a i r, I t h i n k , t h e k e y i s s u e – m a y b e I m u s t j u s t explain in terms of how we got to – maybe how do we get to the issue of identifying, maybe the irregular expenditure itself. I think I’ve mentioned, I think, in the opening remarks, the issue of the risk a s s e s s m e n t p r o c e s s a n d i f y o u r e m e m b e r C h a i r, i t ’s w h e n t h e n y o u 20 a s k e d i f m a y b e w e d o c o n s i d e r t h e m e d i a a n d s t u ff b u t t h e m o s t important thing that – when we’re doing that risk assessment process is to document a business process and when documenting that business process is to ensure then that the processes of the entity also are aligned to legislation. One of the most critical things that we look at is the Supply Chain Management bodies of the entity because the Supply Page 44 of 146 20 FEBRUARY 2020 – DAY 216 Chain Management policy of the entity needs to comply with Section 51 of the Public Finance Management Act which Section 51, also is derived from Section 217 of the Constitution where the procurement p r o c e s s s h o u l d b e f a i r, e q u i t a b l e , t r a n s p a r e n t , a n d c o m p e t i t i v e . S o w e do then that business process, we’re looking the Supply Chain M a n a g e m e n t p o l i c y, w e a l s o i n t h e p r o c e s s , l o o k a t a l l e g a t i o n s o f f r a u d that has been made. What are the allegations of fraud that have been m a d e t o t h e e n t i t y, w e l o o k i n t e r m s o f t h e n t h e c o n t r o l s , i n t e r m s o f then their people that are scaled, for example, in that Supply Chain 10 Management division, is the capacity of the Supply Chain Management division there and also we even do the walk through? Yo u k n o w l e t ’s say just do the walk through to find out if things are happening in the ground like they are saying is happening, their policies and procedures. So those are the things then that we are looking into, then we will – then based on that process, I think I’ve mentioned the media, based on that process then we’ll be able to identify those high risk transactions that we’ll have to look into them and then the rest then of the population then will test it as part of the tender processes. So those are the things – that is then the process then that we 20 f o l l o w. The documents, then that we look into for example, look at t e n d e r f i l e s , w e l o o k a t t e n d e r f i l e s o r i f i t ’s t h e q u o t a t i o n p r o c e s s e s w e look at quotations, the invoices, we basically re-perform what M a n a g e m e n t w a s d o i n g , t h a t ’s b a s i c a l l y w h a t w e d o . W e r e - p e r f o r m i t and in re-performing the work that has been done by Management in Page 45 of 146 20 FEBRUARY 2020 – DAY 216 terms of their own policies and procedures, we then looking whether then there was – they actually complied or not. CHAIRPERSON: I guess when you – maybe one of the benefits of re- performing the task is that you will see whether you arrive at the same outcome or result as them and if the result you come to is vastly d i ff e r e n t f r o m t h a t o f M a n a g e m e n t y o u m a y d e c i d e t h a t m a y b e s o m e t h i n g n e e d s t o b e l o o k e d i n t o f u r t h e r, i s t h a t r i g h t ? MR SOKOMBELA: Absolutely Chair and the other important thing that I mentioned, when we’re re-performing we design procedures. 10 We design our own procedures to say based on that understanding of that process, to say okay the process is like this, so when we are testing tenders there are then the procedures that we’re going to – that is going to execute and then the outcomes then of those procedures are the ones then that tells us whether Management has followed their own processes or not and also whether they have complied with the law or not. CHAIRPERSON: And when you do that, namely re-performing the tasks that Management expected to have performed does it – is it easy t o p i c k u p i f t h e r e ’s b e e n a m a n i p u l a t i o n o f t h e f u n c t i o n s o f a n y t h i n g o r 20 i s t h a t n o t n e c e s s a r i l y e a s y. Ta k e f o r e x a m p l e , i n t e r m s o f t e n d e r processes, if somebody has interfered with description of goods to be supplied or services in order to favour a particular company which m i g h t e n d u p b i d d i n g a n d s o o n , i s t h a t s o m e t h i n g t h a t ’s e a s y t o d o – t o p i c k u p w h e n y o u r e - p e r f o r m o r t h a t m i g h t b e d i ff i c u l t ? Page 46 of 146 20 FEBRUARY 2020 – DAY 216 MR SOKOMBELA: C h a i r i t ’s n o t e a s i l y, i t ’s v e r y d i ff i c u l t C h a i r because us, as Auditors we always talk about the inherent limitations of the Audit process because the Audit process is persuasive than conclusive because things that are done behind the scenes because us as Auditors, we’re not there. Things that are done then behind the scenes, and if Management is very clever and ensure then that the d o c u m e n t a t i o n a n d e v e r y t h i n g i s d o n e p r o p e r l y, w e m a y n o t b e a b l e t o identify if there was no – if there was any manipulation of things or not. S o t h a t i s i n h e r e n t i n t h e p r o c e s s C h a i r. 10 CHAIRPERSON: Ye s o k a y t h a n k y o u . A D V M I C H A E L M B I K I WA : Thank you, Mr Sokombela I’d like to move on to the duties that apply to Auditors, External Auditors, you deal with t h a t a t p a g e 8 o f y o u r a ff i d a v i t . I s e e t h e r e a t p a r a g r a p h 1 6 i n f a c t t h a t C h a i r, a n s w e r s t h e q u e s t i o n y o u h a d e a r l i e r w h e r e i t s a y s t h e e x t e r n a l Audit of public entities is performed either by the AGSA or by a private Audit file. CHAIRPERSON: Ye s , o k a y. A D V M I C H A E L M B I K I WA : So external includes both private and the ...(intervenes). 20 CHAIRPERSON: Ye s , o k a y. A D V M I C H A E L M B I K I WA : Can you tell us Mr Sokombela, how the r e q u i r e m e n t s d i ff e r f o r t h e A G a n d p r i v a t e f i r m s , i f t h e y d o a t a l l ? MR SOKOMBELA: C h a i r t h e r e i s n o d i ff e r e n c e i n t e r m s o f t h e requirements between the private Audit Firms and the public Audit F i r m s , h o w e v e r, I t h i n k I j u s t w a n t t o q u a l i f y m y s t a t e m e n t i n t h e s e n s e Page 47 of 146 20 FEBRUARY 2020 – DAY 216 that, in the public sector or in government there is more focus on c o m p l i a n c e w i t h l e g i s l a t i o n , h o w e v e r, i n t h e p r i v a t e s e c t o r t h e f o c u s i s whether the financial statements have been prepared in accordance with the financial reporting framework. So I think, to answer you’re the q u e s t i o n C h a i r, i s t h a t w e a l l a d h e r e t o t h e s a m e a u d i t i n g s t a n d a r d s , we all audit the same financial statements for example, in the case of South African Airways, how they are auditing South African Airways is n o t d i ff e r e n t t o h o w t h e p r i v a t e s e c t o r f i r m s o u g h t t o h a v e a u d i t e d South African Airways. 10 CHAIRPERSON: But would it not be true that what you referred to as public Audit Firms government firms the AG, there will be much more experience – they will be much more experienced with checking compliance with legal prescripts that are applicable to public entities than would private firms because private firms insofar as maybe most of their clients are private companies, they might not be dealing a lot w i t h p i e c e s o f l e g i s l a t i o n s u c h a s P F M A a n d w h a t e v e r, w h a t e v e r, s o i n terms of experience would public Audit Firms not be more experienced in that? MR SOKOMBELA: 20 Chair the Auditor-General will be more experienced than the private sector firms as far as compliance – testing compliance is concerned. CHAIRPERSON: But I guess nevertheless, any Auditor from a private Audit Firm who accepts the job of auditing a public entity would be e x p e c t e d t o f a m i l i a r i s e h i m s e l f o r h e r s e l f p r o p e r l y w i t h w h a t t h e A G ’s O ff i c e w o u l d d o i n p e r f o r m i n g s u c h a t a s k a n d m a k e s u r e t h a t t h e f a c t Page 48 of 146 20 FEBRUARY 2020 – DAY 216 t h a t t h e y a r e a p r i v a t e f i r m s h o u l d m a k e n o d i ff e r e n c e i n t e r m s o f b e i n g a b l e t o p i c k u p w h a t t h e A G ’s O ff i c e w o u l d h a v e p i c k e d u p ? MR SOKOMBELA: Absolutely Chair and also we work a lot with the private firms. CHAIRPERSON: Ye s , y e s b e c a u s e o f t h e c a p a c i t y i s s u e s a s w e l l , t h e y d o p e r f o r m s o m e o f o u r a u d i t s , s o I a g r e e w i t h y o u C h a i r. CHAIRPERSON: Ye s , d o y o u t h i n k t h a t I s h o u l d a p p r o a c h t h e m a t t e r of private Audit Firms performing auditing for public entities on the basis that for all intents and purposes there is – there should be no 10 d i ff e r e n c e i n h o w t h e y a u d i t p u b l i c e n t i t i e s a n d h o w t h e A G a u d i t s t h o s e entities, I can judge them by the same standard? MR SOKOMBELA: Absolutely Chairperson. CHAIRPERSON: Okay thank you. A D V M I C H A E L M B I K I WA : Thank you. Mr Sokombela if you then turn over to page 9 and you deal here with instances where the AG opts not t o p e r f o r m t h e a u d i t o f a p u b l i c e n t i t y, w h a t b r o a d l y a r e t h e d u t i e s o f private Audit Firms in that circumstance? MR SOKOMBELA: C h a i r, I t h i n k t h e m o s t i m p o r t a n t t h i n g i s t h a t w h e n the private Audit Firms are auditing entities that the Auditor-General 20 has opted not to audit, then the duties then and responsibilities of the private Audit Firms there are responsibilities that are legislated and a s s i g n e d , y o u k n o w, t o t h e P u b l i c A u d i t A c t , I t h i n k i t ’s p a r t t w o o f chapter three of the Public Audit Act and the most important thing is t h a t t h a t A u d i t o r t h a t i s d o i n g t h e a u d i t o f t h e p u b l i c e n t i t y, t h e m o s t important thing is that – they need to take note of the content of the Page 49 of 146 20 FEBRUARY 2020 – DAY 216 Public Audit Act and must adhere to the requirements that are – for example the appointment of Auditors in terms of Section 25 of the Public Audit Act, that appointment must be in accordance with that requirement Chairperson and also the discharge of the Auditors, also must comply with the process that is prescribed in Section 26 of the Public Audit Act and the Auditor must comply with the duties ascribed and may use the powers that are provided for in Section 27 of the Public Audit Act. The most important thing also is that the format and content of 10 t h e A u d i t o r ’s r e p o r t C h a i r, m u s t a d h e r e t o t h e r e q u i r e m e n t s o f S e c t i o n 28 sub paragraph 1 and sub paragraph 2 of the Public Audit Act read w i t h t h e A u d i t o r - G e n e r a l o f S o u t h A f r i c a ’s r e p o r t i n g g u i d e . The r e p o r t i n g g u i d e i s a t t a c h e d t o m y a ff i d a v i t a s P S 2 a n d t h e A u d i t o r s ’ report template, we’ve got a Auditors’ report template as the AuditorGeneral that we use, the private audit firms are actually required to use t h a t t e m p l a t e C h a i r p e r s o n , i t ’s a l s o a t t a c h e d t o m y a ff i d a v i t a s P S 3 a n d also we’ve got guidance – guidelines as well that the Auditor-General published and these guidelines, in our website Chairperson and also we’ve got relationships with these firms as well because we also gave 20 t h e m – i f t h e r e ’s a g u i d e t h a t c o m e s f r o m o u r t e c h n i c a l d e p a r t m e n t w e submit that to them. The Auditors’ report also that has been signed, also it should be submitted to the auditing, it should also be submitted to the Minister – t h e r e l e v a n t M i n i s t e r, i f t h e r e i s a M i n i s t e r a n d a l s o A u d i t o r - G e n e r a l Page 50 of 146 20 FEBRUARY 2020 – DAY 216 a n d N a t i o n a l Tr e a s u r y i n a c c o r d a n c e w i t h S e c t i o n 2 8 s u b p a r a g r a p h 3 of the Public Audit Act. A D V M I C H A E L M B I K I WA : A n d w h a t b r o a d l y, i s t h e r o l e o f t h e Auditor-General in the circumstances where the Auditor-General opts not to do the audit, does it play any role when a private Audit Firm carries out the audit of a public entity? M R SOKOMBELA : Chair th e role that we play as the Auditor -G e n e r a l i s f or us to s ay we a re t here if yo u ne e d us. We do o ff e r t o a t t en d A u d i t Committees, we attend Audit Committees when for an example there are 10 certain technical things for an – especially when it comes to compliance issues, and also issues related to the audit of performance information. We offer ourselves to say we are ava i l a b l e , b e c a u s e w h a t w e d o n o t w a n t i s f o r t h e f i r m s t o f e e l t h a t m a y b e t h e y a l o n e y o u k n o w, i n t h a t . S o t h a t i s b a s i c a l l y t h e n t h e r o l e t h a t w e p l a y. We d o n o t w a n t t o s t e p i n t h e i r t o e s a s Auditor s , b e c a u s e t h e s e a r e p r o f e s s i o n a l s , y o u k n o w t h e y a r e t he y a r e q u a l i f i e d p r o f e s s i o n a l s i n t h e i r r i g h t s o w e v e r y c a r e f u l a s t h e A u d i t O ff i c e t hen i n te rms of th en how t hen do w e p lay tha t pa rt . CHAIRPERSON : Wh e n t h e A G ’s O ff i c e o p t s o u t , d oe s i t t h e n f a l l u p o n t he SOE f or e x amp le o r Govern me nt Department to ge t p r i v a te – a p r i v a t e 20 a u d i t f i r m o r i s i t t h e A G ’s O ff i c e w h i c h s a y s b e c a u s e I a m o p t i n g o u t I a m g o i n g t o a p p o i n t a p r i v a t e a u d i t i n g f i r m t o t h e n p e r f o r m th e fu nct io n tha t I would ot h e rwise have performed if I did not opt out? M R SOKOMBELA : Chair, once th e Auditor -G e n e r a l o p t s o u t o f th e – f rom auditing that specific State Owned Entity then the Auditor -G e n e r a l t hen wo uld n ot a pp oin t the Auditor, would leave then the appointment to Page 51 of 146 20 FEBRUARY 2020 – DAY 216 t h e Board and the Shareholder and however before that app o i n t m e n t i s o ff i c i a t e d t h e n i n t e r m s o f t h e P u b l i c A u d i t A c t t h e n a c o n c u r r e n c e o f t h e Auditor -G e n e r a l i s r e q u i r e d . CHAIRPERSON : Okay thank you. So, in a way nobody can – no private f i r m c an go an d a u d i t a P u b l i c E n t i t y w i t h o u t t h e Auditor -G e n e r a l h a v i n g said it is fine? M R SOKOMBELA : CHAIRPERSON : Absolutely Chair. Yes , and would the Audit -G e n e r a l ’s O ff i c e , w o u l d t h e r e b e c i r c u m s t a n c e s w h e r e t h e A u d i t-G e n e r a l ’s O ff i c e w o u l d s a y w e a r e n o t 10 h a p p y t o c o n c u r, m a y b e f o r e x a m p l e b e c a u s e t h e y l o o k a t t h e firm a n d t hey do not th i nk t ha t it ha s got t he skills an d cap a cit y t o d o t h is f un ct io n i n a p a r t i c u l a r e n t i t y, o r d o t h e y a l w a y s c o n c u r ? M R SOKOMBELA : Th ere a re times C ha ir w he re t he Auditor -G e n e r a l m a y n o t c o n c u r b u t i n m o s t i n s t a n c e s , I t h i n k i t i s v ery few chances, yes. CHAIRPERSON : M R SOKOMBELA : CHAIRPERSON : So, most of the time it will concur? Absolutely Chair. Yes , ok ay thank y ou. ADV M I C H A E L M B I K I WA: Th an k you C ha ir, I do int end to de al wi th th e process of that concurrence and indeed with an occasion when that 20 c o n c u r r e n c e w a s n o t g i v e n i n t h e c o n t e x t o f t h e S A A Audit . Mr Sokombela can I take you to the directive that you have attached to y o u r a ff i d a v i t ? I t i s a t p a g e 1 4 1 . T h i s i s t h e d i re c t i v e i s s u e d i n t e r m s o f t h e Public Audit Act. Ar e y o u t h e r e ? S o r r y y o u r m i c r o p h o n e i s n o t o n . M R SOKOMBELA : CHAIRPERSON : I am th e re Ch air. You c an k eep it on throughout. Page 52 of 146 20 FEBRUARY 2020 – DAY 216 ADV M I C H A E L M B I K I WA: M r So k o m b e l a I w o u l d l i k e y o u t o t u r n t o p a g e 163 of that document. M R SOKOMBELA : I am th e re Ch air. ADV M I C H A E L M B I K I WA: M R SOKOMBELA : Can you tell us what this is? Chair this is the monitoring checklist for audits not c o n d u c t e d b y t h e Auditor -G e n e r a l o f South Africa . ADV M I C H A E L M B I K I WA: And if we go th ro ug h t ha t che cklist, it is w h at y o u d e s c r i b e a s a m o n i t o r i n g c h e c k l i s t , i t – i n th e se con d ta ble , list s various requirements under the Public Audit Act, if you go over the page 10 t o 164 i t li s ts f urt h e r r e q u i r e m e n t s u n d e r t h e P u b l i c A u d i t A c t , a n d t h e n there is a conclusion at the bottom and where it is indicated whether f ur t her re qui rem ent s a re co mp lied w it h or no t . I f yo u t u rn ove r t o 16 5 , at t he bot t om i t th en s ay s evalua ted by AGSA Bu sin e ss Execu t i v e S e n i o r M a n a g e r. S o , y o u i n d i c a t e d e a r l i e r t h a t t h e AG lets the audit firm get on with it, but it d o e s s e e m t h e r e i s a n e l e m e n t o f m o n i t o r i n g a n d o v e r s i g h t t hat ta k es pl a c e, i s th at fa ir? M R SOKOMBELA : Yes , y e s C h a i r. ADV M I C H A E L M B I K I WA: And just e x p l a i n t o m e a t w h a t s t a g e i n t h e a u d i t i n g p r o c e s s th i s g e t s c o m p l e t e d a n d s u b m i t t e d ? 20 M R SOKOMBELA : Chair, th e – t h i s c h e c k l i s t g e t s s u b m i t t e d n o r m a l l y a t t he end of t he au dit proc e ss, wh en th e aud it re p or t h as be e n sig n ed an d i t g e t s s i g n e d b y t h e e n ga g e m e n t p a r t n e r t h a t i s r e s p o n s i b l e f r o m t h e f i r m. CHAI RPE RS ON: Who would be the engagement pa rtner in a firm, is it t he C ha irpe rson o r t he mo st senio r p erso n o r th e p erso n r espo nsib le f or Page 53 of 146 20 FEBRUARY 2020 – DAY 216 t he audi t in g of th e pa rti c ula r e n tit y. M R SOKOMBELA : Chair the e n g a g e m e n t p a r t n e r a t a f i r m w i l l b e t h e p e r s o n t h at i s a l l o c a t e d t o b e t h e o n e t h a t i s r e s p o n si b l e f o r t h a t particular audit and will sign the audit report. CHAIRPERSON : O k a y. T h a n k y o u . ADV M I C H A E L M B I K I WA: Th an k yo u . Mr So ko mb ela ca n you e xpla i n what the impact is of there being non -c o m p l i a n c e w i th th e vario us requirements listed in the che c k l i s t . W h a t d o e s t h e A G d o i f i t r e c e i v e s a t t he e nd o f t he a udi t, a mo nit oring che cklist wh ich in dica t es t h at t he re h a s 10 not been compliance? M R SOKOMBELA : Chair, I t hin k Ch air th e, in te rms of th en th e q u e s ti o n i t s e l f , f o r a n e x a m p l e if yo u lo ok a t t h e che cklist, f or an example , it is in m o s t i n s t a n c e s , i s l o o k i n g a t t h e r e q u i r e m e n t s o f t h e – i n te rms of the Public Audit Act itself of which in most i n s t a n c e s i f f o r a n e x a m p l e t h e r e were challenges during the a u d i t p r o c e s s , t h o s e c h a l l e n ge s o u g h t t o h a v e b e e n d e l i b e r a t e d w i t h t h e Auditor -G e n e r a l o r th e re pre se nta tive o f th e Auditor -G e n e r a l i t s e l f . S o i f f o r e x a m p l e t h e r e i s n o n-c o m p l i a n c e w it h one of the requirements here, I think where I am sitting it is then something then that needs to be escalated to the firm itself. 20 For an e x a m p l e i f t h e r e i s a n o n-c o m p l i a n c e w i t h t h e r e q u i r e m e n t s o f t h e PA A a n d t h e G e n e r a l N o t i c e , o r i f t h e r e i s t h e A ud i t o r ’s r e p o r t t o t h e a c c o u n t i n g a u t h o r i t y w a s n o t s u b m i t t e d w i t h i n t h e timef ra me , de pe n d in g on what the transgression is, some of the transgression is for an example m a y e v e n b e r e p o r t e d t o t h e I n d e p e n d e n t R e g u l a t o r y B o a r d , f o r Auditor s t o lo ok int o t he m. Page 54 of 146 20 FEBRUARY 2020 – DAY 216 ADV M I C H A E L M B I K I WA: Might it be a basis not to give concurrence t h e f oll ow in g y ea r i f th a t Auditor i s s e e k i n g c o n c u r r e n c e f o r a f u r t h e r y e a r of the same audit. M R SOKOMBELA : CHAIRPERSON : I t m ay C ha ir. I t ma y. I gues s d e pe nd in g on th e serio usne ss o f th e n on - compliance? M R SOKOMBELA : CHAIRPERSON : Absolutely. O k a y. ADV M I C H A E L M B I K I WA: 10 Mr Sokombela if we can go back to your a ff i d a v i t t o p a g e 1 2 . CHAIRPERSON : Before that th at ch ecklist g e ts d o ne aft er t he aud itin g p r o c e s s h a s b e e n c o m p l e t e d i s th a t r i g h t ? M R SOKOMBELA : CHAIRPERSON : Yes Chair. But you say tha t d u r i n g t h e a u d i t i n g p r o c e s s o r e v e n a t t he begin nin g, if th ere i s a situ atio n tha t t he f irm kno ws is g oin g t o g iv e rise to non -c o m p l i a n c e t h e y s h o u l d b r i n g t h a t t o t h e a t t e n t i o n o f t h e AG at t hat s ta ge, i s that right ? M R SOKOMBELA : CHAIRPERSON : 20 Yes Chair. Yes Chair. But i f – i n o t h e r w o r d s i f t h e A G h a s n o t b e e n t o l d a n y t h i n g u n t i l t h e y r e c e i v e t h i s c h e c k l i s t f r o m t h e A G ’s p o i n t o f v i e w t h e y would be entitled to expect that there is n o t h i n g t h a t t h e f i r m w a s a w a r e i n a d v a n c e w o u l d b e p r o b l e m a t i c i n t he a u d i t i n g p r o c e s s , as f a r a s t h e y are concerned. M R SOKOMBELA : CHAIRPERSON : Yes Chair. Yes , ok ay. Thank y ou. Page 55 of 146 20 FEBRUARY 2020 – DAY 216 ADV M I C H A E L M B I K I WA: CHAIRPERSON : Th an k yo u Ch a ir. And I a s s u m e t h a t o n c e t h e A G ’s O ff i c e h a s c o n c u r r e d t o – i n t h e a p p o i n t m e n t o f a p a r ti c u l a r f i r m, t he AG w ou ld d e sig na te on e o f t h e Auditor s i n t h e A G ’s O ff i c e t o s a y t h i s i s y o u r b a b y, i f t h e y – i f some correspondence comes you are the one to deal with it. M R SO KOMBELA : CHAIRPERSON : Absolutely Chair. O k a y, t h a n k y o u . ADV M I C H A E L M B IKI WA: M r So k o m b e l a I n o w w a n t t o t u r n t o t h e i s s u e we have been eluding to which is the process that is followed in order to 10 d e t e r m i n e w h e t h e r t o c o n c u r w i t h o r t o r e j e c t t h e ap p o i n t m e n t o f p r i v a t e Auditor s . C a n y o u t e l l u s w h a t p r o c e s s t h e Auditor -G e n era l fo llo ws i n order to do that? M R SOKOMBELA : Chair, if I ma y ge t t h e p a ge n umber in the affida vit? ADV M I C H A E L M B I K I WA: M R SOKOMBELA : Sorry, we a r e a t p a g e 1 2 o f t h e a ff i d a v i t . Page 12 of the .. .(int e rven es) . ADV M I C H A E L M B I K I WA: And in fact you d e a l t h e r e w i t h th e p ro ce ss – you deal there with the legislation and then you, over the page on page 1 3, y o u d e a l w i t h t h e p r o c e s s t h a t i s a c t u a l l y f o l l o w e d b y t h e A G b e f o r e s i n c e t h e P u bl i c A u d i t A c t c a m e i n t o e ff e c t ? 20 M R SOKOMBELA : Absolutely Chair. T h an k y o u C h a i r. Chair I think it is important that I mention that the Public Audit Act was promulgated in 2004, and when then the Public Audit Act became – before it became e ff e c t i v e t h e ap p o i n t m e n t o f Auditor s w e r e r e g u l a t e d i n S e c t i o n 5 8 t o 6 2 o f t h e P ub l i c F i n a n c e M a n a g e m e n t A c t , b u t t h e n w h e n t h e n t h e P u b l i c Audit Act became effective those provisions in the PFMA became Page 56 of 146 20 FEBRUARY 2020 – DAY 216 redundant and then that particular schedule in the PFMA then was re p e a l e d a n d t h e n w a s r e p l a c e d t h e n b y t h e r e q u i r e m e n t s o f t h e P u b l i c Au d i t A c t . A n d t h e n t h a t p r o c e s s n o w i s r e g u l a t e d C h a i r b y S e c t i o n 2 5 o f t he Pu bli c Au di t A c t a nd Ch air I d o n ot kno w if yo u wo uld wan t me t o re ad i t i n v e r b a t i m f o r t h e p u r p o s e s o f t h e .. .(int e rven es). CHAIRPERSON : Maybe not n e c e s s a r i l y, I think Mr M bi k i w a also i n d i c a t e s n o t n e c e s s a r i l y. M R SOKOMBELA : CHAIRPERSON : 10 O k a y. But I just want to ask this, as a result of the repeal that y o u a r e t a l k i n g a b o u t i n t h e P F M A a n d t h e r e p l a c e m e nt as I un d ersta n d it o f t h e p a r t i c u l a r s c h e d u l e , i s t h e p o s i t i o n t h a t t h e r e f o r e i f y o u g o to th e Public Audit Act and the PFMA you will find that there are these provisions which are similar or even identical that deal with this particular i s s u e o r t h e r e are only in th e PFMA? M R SOKOMBELA : Chair, I think after Section 58 to 6 2 w a s re p e a l e d , s o i n t h e P F M A t h e r e i s n o d u t y f o r t h e e n t i t i e s t o a p p o i n t t h e i r o w n Auditor s . T h a t ha s b een c onfe rred t o th e Audit -G e n e r a l . CHAIRPERSON : O k ay, o k a y, y e s , o k a y, y e s . ADV M I C H A E L M B I K I WA: 20 In de e d, Ch air th e p rovisions simply do not exist. They have been repealed. CHAIRPERSON : O k a y, t h a t i s f i n e . T h a n k y o u . ADV M I C H A E L M B I K I WA: Mr Sokombela instead of reading the p r o v i s i o n s o f t h e A c t , t h e Auditor -G e n e r a l a s I u n d e r s t a n d i t h a s a p a r t i c u l a r w a y o f c o m p l y i n g w i t h t h e A c t , a n d a p a rticu la r pro cess th a t i t f ol low s . Ca n y ou ta l k us thro ugh w hat th at p roce ss is? Page 57 of 146 20 FEBRUARY 2020 – DAY 216 M R SOKOMBELA : Th ank you C h air. C ha ir what th e Au d it Off ice d o e s, t he p roc es s th a t i t f ol low s is tha t prior t o t h e co mm en ce me nt o f t he f i n a nc ia l y ea r of th e A udi t ee, the Au d i to r -G e n e r a l will consider whether to perform the audit of that public entity or not. And then Chair in the event t hat t he Auditor -G e n e r a l o p t s n o t t o p e r f o r m , o p ts t o p e r f o r m t h e a u d i t o f t he pub lic e nt it y that i t ha s n o t aud ited du ring t he p re vio u s ye a r, what t hen th e Auditor -G e n e r a l d o e s , t h e Auditor -G e n e r a l n o t i f i e s t h e A u d i t e e o r t he ent it y o f it s dec i s ion to perf orm t hat a udit . The no t ifica t io n Ch a ir t o t he Au d i t e e w i l l b e g i v e n p r i o r t o t h e c o m m e n c e m e n t o f t h e f i n a n c i a l y e a r 10 of that audit. T h e a ff e c t e d A u d i t e e m u s t p r i o r t o t h e c o m m e n c e m e n t o f t he nex t a ud i t an d b ef ore th e comme ncemen t of it s f in a ncia l ye ar, sele c t a n External Auditor a f t e r f o l l o w i n g a P u b l ic P r o c u r e m e n t P r o c e s s i n accordance with that Auditee Supply Chain Management Policy and p ro c e d u r e s . T h e f i n a n c i a l y e a r e n d o f t h e p u b l i c e n t i t y i s u s u a l l y t h e 3 1 s t M a r c h a n d t h e a p p o i n t m e n t o r r e a p p o i n t m e n t o f Auditor s o c c u r s a t t h e e n t i t i e s A n n u a l G e n e ra l M e e t i n g . T h a t i s a p p r o x i m a t e l y J u n e o r J u l y b u t i n s o m e c a s e s , t h e y c a n e v e n g o t o S e p te m b e r / O c t o b e r d e p e n d i n g o n t h e scheduling of that. T h e s e l e c t e d Auditor Chair m u s t b e a n Auditor i n p r i v a t e p r a c t i c e t h a t i s r e g i s t e r e d w i t h t h e I n d e p e n d e n t R e g u l ato ry Boar d 20 f or Aud it ors . Ch air, onc e th e Aud itee h a s se le ct e d a su it a b le External Auditor i n a c c o r d a n c e w i t h t h e P u b l i c P r o c u r e m e n t P r o c e s s a n d i t s Supply Chain M a n a g e m e n t Processes , a nd prio r t o th e a ppo intmen t o f suc h Auditor b y t h e r e s p o n s i b l e Board o r e x e c u t i v e a u t h o r i t y, t h e A u d i t e e m u s t n o t i f y t h e Auditor -G e n e r a l i n w r i t i n g o f t h e n a m e o f th e s e l e c t e d Auditor, a n d p r o v i d e a l l i n f o r m a t i o n r e q u i r e d b y t h e Auditor -G e n e r a l a s p r o v i d e d Page 58 of 146 20 FEBRUARY 2020 – DAY 216 f or in t he audi t di rec t iv e. The aud it d irect ive is a t t ach e d a s PS4. Th e Auditor -G e n e r a l m u s t w i t h i n 1 4 d a y s C h a i r o f r e c e i v i n g t h e n o t i f i c a t i o n b y t he A udi tee , e v a l u a t e s u c h n o t i f i c a t i o n a n d n o t i f y t h e A u d i t e e o f i t s decision to concur with or reject the appointment, the proposed process a n d o f a n y a p p r o p r i a t e c o n d i t i o n s th a t t h e Auditor -G e n e r a l m a y h a v e d e t e r m i n e d . I f t h e Auditor -G e n e r a l h a s n o o b j e c t i o n t o th e a p p o i n t m e n t o f t he Auditor s e l e c t e d b y t h e A u d i t e e , t h e A u d i t e e m u s t p r o c e e d w i t h t h e a p p o i n t m e n t o f s u c h Auditor. On ce a p po in t ed th e Aud itee must info rm the Audi t or of s u c h a ppo int me nt as w ell a s any co ndit io ns th at t he AG SA may 10 have determined. O n ce th e Board or the Minister responsible for the Auditee has appointed the selected Auditor, th e Aud itee mu st n otif y th e Auditor -G e n e r a l o f s u c h a p p o i n t m e n t a n d a c k n o w le d g e a c c e p t a n c e o f t h e c o n d i t i o n s t h a t m a y b e s e t b y t h e Auditor -G e n e r a l o f South Africa . So , i n e s s e n c e t h a t i s t h e p r o c e s s t h e n t h a t i s f o l l o w e d C h a i r. ADV M I C H A E L M B I K I WA: Th an k yo u s o th e be gin ning o f th a t p ro cess i s where the Auditor -G e n e r a l n o t i fi e s t h e e n t i t y i f i t o p t s t o p e r f o r m , i f i t d o e s n o t n o t i f y i t , i t i s d e e m e d n o t t o o p t t o pe rfo rm. M R SOKOMBELA : Absolutely. ADV M I C H A E L M B I K I WA: 20 You began y our ev idenc e by telling us s ome o f t h e f a c t o r s t h a t w o u l d b e c o n s i d e r e d i n m a k i n g t ha t d e c i s i o n , s u c h a s skills and capacity? M R SOKOMBELA : Yes . ADV M I C H A E L M B I K I WA: What are the f a c to rs t ha t are co n sid ere d i n t hi s d e c i s i o n a s t o w h e t h e r t o c o n c u r w i t h o r r e j e c t t h e a p p o i n t m e n t o f p r i v a t e Auditor s ? Page 59 of 146 20 FEBRUARY 2020 – DAY 216 M R SOKOMBELA : Chair, the fac to rs th en t ha t a re con sidere d is t he i n d e p e n d e n c e c o n s i d e r a t i o n s , y o u k n o w a n d t h e Au d i t o r-G e n e r a l th en wh a t i t d o e s i s t o a s s e s s w h e t h e r t h e n t h e r e c o m m e n d e d a u d i t f i r m i s s u ff i c i e n t l y i n d e p e n d e n t t o p e r f o r m t h e a u d i t o f t h a t p u b l i c e n t i t y, a n d i n t hi s reg a r d t h e n t h e Auditor -G e n e r a l i s g u i d e d b y t h e r e l e v a n t p r o v i s i o n s o f t h e C o d e o f E th i c s o f P r o f e s s i o n a l Ac c o u n t a n t s i s s u e d b y t h e I nt ernat i ona l E th i cs S t anda rds Board f or Accou n ta n t s, h e reb y re fe rr ed t o a s I E S B A . . .(i nt erv enes ). ADV M I C H A E L M B I K I WA: 10 M R SOKOMBELA : Ca n I p a u s e y o u t h e r e ? Yes . ADV M I C H A E L M B I K I WA: Sorry. I just want to un de rsta nd i n d ep en d e n c e a l i t t l e b i t m o r e . W h a t d o y o u m e a n w h e n y o u t a l k a b o u t a n a u d i t f i r m b e i n g s u ff i c i e n t l y i n d e p e n d e n t ? M R SOKOMBELA : Chair, I think the mo s t i m p o r t a n t t h i n g t h a t w e l o o k i n t o o n t h e i n d e p e n d e n c e i s i n d e p e n d e n c e t o e n s u r e t h e n th a t th e re is no c o n fl i c t o f i n t e r e s t , t h e r e a r e n o t t h r e a t s y o u k n o w t h a t m a y i m p a i r t h e i n d e p e n d e n c e o f t h a t e n t i t y. O n e o f t h e c o n s i d e r a t i o n s f r o m t h e e x a m p l e t hat we normally look at to say, does this firm perform non assurance s e r v i c e s t o t h e p u b l i c e n t i t y f o r a n e x a m pl e c o n s u l t i n g w o r k i f m a y b e t h e y 20 are performing this consulting work, how big is that? Is it bigger than the a u d i t f e e s t h a t t h e y g o i n g t o r e c e i v e b ec a u s e i f i t i s b i g g e r t h a t t h e a u d i t f ees t hen t here i s a ri sk t hat it might have a n impa c t o n t h e o n t h e i n d e p e n d e n c e a n d t h e o b j e c t i v i t y. A n d i n t h e o p e n i n g r e m a r k s C h a i r, i t was mentioned that also the independence should also be in appearance b e c a u s e t he pe rc epti o n th en th at if t his au d it firm is a lso h a ve ot h e r Page 60 of 146 20 FEBRUARY 2020 – DAY 216 i n t e r e s t l i k e y o u r f i n a n c i a l i n t e r e s t t o t h e e n t i t y t h e n t h a t m i g h t i m p a i r. T h e re are oth er con s ideratio ns in the inde pe nd e nce Ch a ir f or an e xa mp le, t he is s ue of f am ili a rit y thre at, beca u s e f a m i l i a r i t y t h r e a t t o i n d e p e n d e n c e a s w e l l y o u k n o w c a n b e a n i s s u e w h e r e f o r a n e x a mp l e m a y b e t h e f i r m might be or the or the particular audit partner might be auditing that e n t i t y f o r m a n y y e a r s o r t h e r e i s a fa mily me mbe r th at is wo rking in t h e p u b li c e n t i t y t h a t y o u k n o w t h a t m i g h t c r e a t e a l s o t h a t c o n f l i c t o f i n t e r e s t . So when yo u a r e l o o k i n g a t i n d e p e n d e n ce th o se a re th e co nsid e ratio ns Chairperson that we look at it is not all of them, but I am just mentioning 10 t he f ew. ADV M I C H A E L M B I K I WA: Yes , thank y ou. Can y ou c ontinue telling us what the factors are . . .(i nte rven es) ? CHAIRPERSON: I am so rry. In o r d e r t o e s t a b l i s h e d w h e t h e r t h e s e f ac t ors t hat y ou h ave ment ion e d are p resen t o r whe t h er t h ose you m igh t n o t h a v e m e n t i o n e d a r e p r e s e n t fo r pu rp ose s o f th e AG d ete rmin in g whether the firm has the requisite independence on appear a n c e o f independence. D oe s t he AG ’s O ff i c e p u t c e r t a i n q u e s t i o n s t o t h e particular firm to answer so that it can know whether there is a relative or f ami ly m em ber who works in that particular entity or how does it get the 20 i n f o r m a t i o n t h a t m a y b e r e l e v a n t to d e t e r m i n i n g i n d e p e n d e n ce ? M R SOKOMBELA : Chair there are certain declarations on that we request. Firstly, even from the entity that is appointing the External Auditor. T hey n ee d to d ecla re to u s e specia lly t he issu e o f n on - a s s u r a n c e s e r v i c e s t h a t a re p r o v i d e d . S o , t h i s i s b a s i c a l l y t h e n h o w w e source that information to say please make declaration to us whether then Page 61 of 146 20 FEBRUARY 2020 – DAY 216 t hi s i nf orm at io n i s l ik e that or not . CHAIRPERSON: M R SOKOMBELA : And the non -a s s u r a n c e s e r v i c e s , w h a t w o u l d t h a t b e ? Chair the no n -a s s u r a n c e s e r v i c e s w i l l b e m a y b e consulting work that maybe the firm is assisting the entity with, let us say t o en s ure t hen th at th e assets o f th e ent ity a re a cc o u n t e d f o r p r o p e r l y. I n t he f ina nci a l s tat eme nt s. CHAIRPERSON : So, in other words if the e n t i t y a l r e a d y h a s s o m e re l a t io nsh ip wit h t he fi rm the n yo u want to lo ok int o t h e n at ure of t h at relationship? 10 M R SOKOMBELA : CHAIRPERSON : Absolutely Chair. O k ay. ADV M I C H A E L M B I K I WA: Among you, you mentioned declarations that h a v e t o b e m a d e . A m o ng t h e s e d o f i r m s – a r e f irm s r e q u i r e d t o d i s c l o s e joint business relationships with entities that are linked to the audit client? M R SOKOMBELA : Yes Chair, y es Ch a i r. Those declarations are required. ADV M I C H A E L M B I K I WA: CHAIRPERSON : 20 Th an k yo u You s a i d a l s o t h a t y o u l o o k at whether the firm has been doing auditing for the particular entity for a long time. Do you have a c u t -o ff p o i n t t h a t g u i d e s y o u t o s a y l o o k a f i r m s h o u l d n o t b e – a f i r m t hat h as b ee n d oin g audi tin g h as bee n aud itin g a p ar ticu la r entity maybe f or f iv e y e a rs should not continue beyond that. Is there some guideline as to how long is too long in terms of that relationship? M R SOKOMBELA : J a Chair, Chair, Chair I think for th e tu rn er of th e firm Page 62 of 146 20 FEBRUARY 2020 – DAY 216 i t s e l f t h e r e i s n o t n e c e ss a r i l y g u i d e l i n e s . However for the engagement partner or the person that is going to be signing the report I think normally we look at five years or if maybe it is more than five years we would want to know the safeguards what are the safeguards that are going to be put in place? CHAIRPERSO N: Yes , ok ay a n d t h e f i v e y e a r s i s n o t a g u i l l o t i n e . I t ’s – you look at it but if there are certain measures in place you might allow it t o go bey on d fi v e yea rs. M R SOKOMBELA : 10 CHAIRPERSON : Absolutely Chair. O k a y. ADV M I C H A E L M B I K I WA: Th an k yo u . Mr Sokombela If you could continue then telling us the factors that AG considers in order to d e t e r m i n e w h e t h e r t o giv e its con cu rre nce ? M R SOKOMBELA : Th ere – I h ave men tio ne d th e in dep end ence Ch a ir a nd t h e s e c o n d f a c t o r i s c o m p l i a n c e w i t h p u b l i c p r o cu re m e n t s p r e s c r i p t s and I think what I want to mention here is that on the compliance where t he pub lic p roc u rem ent s p r e s c r i p t s w e l o o k a t t h i s a t a h i g h l e v e l a n d w e d e t e r m i n e w h e t h e r t h e n t h e a u d i t – s o r r y th e Aud it e e h a s so urce d th e s e r v i c e s o f t h e p r i v at e f irm t hro u gh its Pu blic Procu re me nt Proce sse s an d 20 h a s c o m p l i e d w i t h i t s o w n Supply Chain M a n a g e m e n t Policy a n d Procedures a n d I t h i n k i t i s i m p o r t a n t t h a t I m e n t i o n t h a t w e l o o k a t t h i s a t a h i g h l e v e l i t i s n o t a n Auditor – s o r r y i t i s n o t a n a u d i t w h eth e r w e s a y give us all your documents whether then audit whether you have done this t hi n g p roperl y or no t. Th e o th er fa cto r .. .(in terve n es). ADV M I C H A E L M B I K I WA: Can I sorry – I just w an t to pa use a fte r t h a t Page 63 of 146 20 FEBRUARY 2020 – DAY 216 f ac t or a s we ll . Do es that me an th at- th at wh e r e a n Auditor i s i r r e g u l a r l y a p p o i n t e d t h a t w i l l b e a b a s i s o n w h i c h t h e Auditor -G e n e r a l will dec l i n e t o give its concurrence? M R SOKOMBELA : I t m ay be a ba sis Ch air. I t may be a ba sis Cha ir. Chair the other factor is the audit quality and the Audit o r-G e n e r a l th en considers how the quality of the firms work has been assessed and this regard an ass e s s m e n t i s c o n d u c t e d b y t h e A u d i t e e ’s A u d i t a n d R i s k Committee as well as any firm and engagemen t in spe ctio ns th a t a r e p e r f o r m b y t h e i n d e p e n d e n t r e g u l a t o r y re p o r t f o r Auditor s . T h o s e a r e a l s o 10 t ak en int o c on si de rat io n. I n the ca se of a n e w ap p oin t me n t b e c a u s e the Audit Committee might not know the firm, so we rely heavily then on the i n s p e c t i o n r e p o r t b y t h e i n d e p e n d e n t r e g u l a t o r y r e p o r t f o r Auditor s . Th e ot h e r factor is adherence to formal and procedural requirements. Where the Auditor -G e n e r a l v e r i f i e s th e A u d i t e e s a d h e r e n c e t o t he p roce dura l requi re me nts for the a pp o in t m en t fo r t h e External Auditors t hat a re ou tl i ned in se ction 2 5 o f t he Pub lic Aud it Act a n d the Auditor -G e n e r a l a l s o v e r i f i e s t h a t t h e f i r m i s r e g i s t e r e d w i t h t h e i n d e p e n d e n t r e g u l a t o r y r e po r t f o r Auditor s . ADV M I C H A E L M B I K I WA: 20 Th an k yo u . No w yo u ind icate d th a t th e Auditor -G e n e r a l m u s t g i v e i t s c o n c u r r e n c e e v e r y y e a r, h o w i s i t d e a l t w i t h wh en a n e n t i t y r u n s a p r o c u r e m e n t p r o c e s s b u t m a k e s a n a p p o i n t m e n t f o r Auditor s , s a y f o r a f i v e y e a r p e r i o d ? M R SOKOMBELA : Chair, on one side is the Auditor -G e n e r a l th er e, we do not prescribe in terms of how long that appointment should be, h o w e v e r w h a t is v e r y i m p o r t a n t t o u s i s t h e Auditor -G e n e r a l to en sur e Page 64 of 146 20 FEBRUARY 2020 – DAY 216 t hen t hat t he re i s st ill – t he p u b l i c e n t i t y c o m e b a c k s t o t h e A G e v e r y y e a r a n d r e q u e s t f o r c o n c u r r e n c e b e c a u s e i f y o u l o o k a t th e Co mpa n y’s Act . T h e C om pan y’s A c t, I thi nk it is Se ction 9 0 if I a m n ot mista ken o f th e Company’s Act that also regulates the appointment of Auditor s . And in m o s t i n s ta n c e s t h a t r e s p o n s i b i l i t y i s a l l o c a t e d t o t h e A u d i t C o m m i t t e e o f t he s t at e -o w n e d e n ti t y b e c a u s e t h a t i s t h e i r G o v e r n a n c e C o m m i t t e e tha t t he External Auditor s works with in most instances. So, there are i n s t a n c e s w h e r e b y t h e n a n Auditor th en g ets re -a p p o i nte d. And in t e rms of law you cannot say I am going to appoint you for 10 years. There are 10 certain considerations that needs to be done. An audit is done , i t i s c o m p l e t e d , t h e a u d i t r e p o r t i s s i g n e d . After then that is done the Audit Committee requires th em t o a ssess tha t particular firm. They need to assess whether they still remain independent. They still need to assess whether they have performed the audit in terms of then the quality standards. T h e Audit Committee m a y c o m e a n d s a y, w e a r e n o t s a ti s f i e d w i t h t h i s Auditor s o w e n e e d t o d i s c h a r g e t h i s Auditor. An d t h at is a llow ed i n l a w. Hence then the Auditor -G e n e r a l t hen w ill e nsu re t he n th a t th e y s ti l l c o m e a n d s h o w u s t hat due p roc e s s t ha t ha s b een f ollow ed f or t h e rea p po in tm e nt o f 20 Auditor s . ADV MICHAEL MBIKIWA : So is it fair to say then that if an Auditor i s e v e r a p p o i n t e d by a p u b l i c e n t i t y f o r m o r e t h a n a y e a r i t i s a l w a y s s u b j e c t t o t he ris k t h a t t h e Auditor -G e n e r a l m i g h t n o t c o n c u r w i t h i t s c o n t i n u e d appointment. M R S O K O M B E L A: Absolutely Chair. Page 65 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON : So, the first opting out on the part of the AG ’s O ff i c e h a p p e n s m o s t l y i f n o t a l l t h e t i m e a t t h e i n s t a n c e o f t h e AG ’s O ff i c e. B ut t he s u b s e q u e n t a c t s o f o p t i n g o u t i n t h e y e a r s t h a t f o l l o w m i g h t h a p p e n a t t he i ns t anc e of t he e nt i ty. I s t h a t r i g h t ? I n o t h e r w o r d s , i n i t i a l l y t h e AG ’s O ff i c e m i g h t n o t h a v e b e e n a s k e d t o o p t o u t b e c a u s e I g u e s s n o b o d y s h o u l d a s k t h e m t o o p t o u t . B u t i f th e y t h e m s e l v e s t h a t i s t h e AG ’s O ff i c e d e c i d e s w e w i l l o p t o u t , t h e y s a y w e w i l l o p t o u t t h i s y e a r, t h e y d o n o t s a y we are opting out for the next five years. M R S O K O M B E L A: Absolutely. 10 CHAIRPERSON : I s th at c o rrect ? M R S O K O M B E L A: Absolutely. CHAIRPERSON : And it may be that the following year they were going to o p t o u t b u t m a y b e b e f o r e t h e y m a k e t h e d e c i s io n t h e e n t i t y r e q u e s t t h e m t o c onc ur t o t he fi rm to c o ntin uin g t o a u dit . Is t h a t r i g h t ? M R S O K O M B E L A: Yes , Chair bec aus e the Auditor -G e n e r a l m a y s a y I a m o p t i n g o u t t h i s y e a r b u t t h e Auditor m a y c o m e n e x t y e a r a n d s a y I a m opting in. CHAIRPERSON : Yes . M R SOKOMBELA : I n ac t ua l fa ct, yes. 20 CHAIRPERSON : Yes ok ay. ADV MICHAEL MBIKIWA : Th a n k y o u . M r S o k o m b e l a I w o u l d n o w l i k e t o g e t i n t o t h e p r o c e s s t h a t wa s i n f a c t f o l l o w e d f o r t h e y e a r s f r o m 2 0 11 t o 2012. CHAIRPERSON : I am s orry Mr Mbikiw a I a m inte rrupt i n g y o u a g a i n . ADV MICHAEL MBIKIWA : No problem Chair. Page 66 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON : Does the AG ’s O ff i c e a t s o m e s t a g e b e c o m e s s u s p i c i o u s when a particular entity keep s o n a s k i n g t h e AG ’s O ff i c e to con cu r in the appointment of a private firm? I f i t h a s b e e n h a p p e n i n g f o r to o o ft e n d o e s i t b e c o m e s- d o e s t h e AG ’s O ff i c e b e c o m e s s u s p i c i o u s t o s a y, w h y d o t he s e p e o p l e w a n t t h a t f i r m t o c o n t i n u e a n d t h e y d o n o t w a n t u s t o co m e in for so many years? Why are they not leaving it to us to decide if we are opting out each year? M R SO K O M B E L A: Chair, not necessarily because once the Auditor - G e n e r a l o p t s o u t , w e l e a ve t h e n t h e d e c i s i o n t o t h e e n t i t y i t s e l f . 10 It is when then the Au d i t or -G e n e r a l h a s d e c i d e d t o o p t i n t h e n – wh e r e t h e n t here is p us h ba c k . Th en t ha t maybe the Auditor -G e n e ra l m i g h t b e s u s p i c i o u s o f m a y b e w h y. CHAIRPERSON : Would there ever be a push back w h e n t h e A G w a n t s t o continue with his job? M R S O K O M B E L A: Not th a t I remember Chair. CHAIRPERSON : Not really but if it happened it would be suspicious. M R S O K O M B E L A: Abso l u t e l y C h a i r. CHAIRPERSON : Yes . Well I jus t find it s trange. I would imagine that b e c a u s e t h e a u d i t i n g o f e v e r y p u b l i c e n t i t y i s p r i m a r i l y t h e j ob o f t h e 20 Auditor -G e n e r a l a n d i t i s u p t o t h e Auditor -G e n e r a l to op t o ut in a p a r t i c u l a r y e a r. I w o u l d i m a g in e t h a t a n e n t i t y w h i c h h a s r e c e i v e d a n o p t i n g o u t n o t i c e f r o m t h e A G t h i s y e a r a n d th e AG h as co ncu rred in th e a p p o i n t m e n t o f a p r i v a t e f i r m t o d o th e j o b , I w o u l d h a v e i m a g i n e d t h a t t hat f i rm s houl d h av e no prob lem if the f ollo w ing year t he AG sa ys, I a m coming back or I continue with opting out and therefore I would expect Page 67 of 146 20 FEBRUARY 2020 – DAY 216 t hat th ey wi l l b e n e u t r a l . M R S O K O M B E L A: Absolutely. CHAIRPERSON : Rather t h a n t h e m s e e k i n g a s i t u a t i o n w h e r e t h e A G keeps on – is kept out. M R S O K O M B E L A: H’ m m . CHAIRPERSON : You unde rstand my .. .(in terve n es) ? M R S O K O M B E L A: I do Ch air. CHAIRPERSON : Yes . M R S O K O M B E L A: I do Ch air. Ye s . 10 CHAIRPERSON : O k a y a l r i g h t . T h a n k y o u . ADV M I C H A E L M B I K I WA: Th an k you . Mr So kombela can we turn to the concurrence that the AG gave in the course of the SAA audit. t hat up on pa ge 18 of y ou r affida vit. We pick Ca n yo u exp lain t o u s who wa s a p p o i n te d t o t h e S A A a u d i t a n d w h a t v i e w t h e A G a p p oi n tme nt i n 2 0 11 / 2 0 1 2 ? M R S O K O M B E L A: Chair, I just want to mention that in 2011/12 financial y e a r I w a s n o t p e r s o n a l l y i n v ol v e d i n t h e a p p o i n t m e n t o f t h e External Auditor f or S A A. I o nl y b eca me involve d in t h e 2 0 1 5 / 1 6 f i n a n c i a l y e a r. However, I have been b riefed by my colleagues that were personally 20 i n v o l v e d w i t h t h i s t h a t d u r i n g 2 0 11 / 1 2 f i n a n c i a l y e a r t h e Auditor -G e n e r a l opted not to perform the audit of South African Airways and on 5 September 2011 South A frican Airw ays co nsu lt ed t he Auditor -G e n e r a l t o a p p o i n t P r i c e w a t e r h o u s e C o o p e r s a s w e l l a s N k o n k i I n c a s j o i n t Auditor s f or a peri od of fi v e yea rs . Ho we ve r, I just wa nt t o – i n m y a ff i d a v i t I s a i d f or a peri od of f iv e y ears. I just w an t to clarif y th at Ch ai r b e c a u s e t h e Page 68 of 146 20 FEBRUARY 2020 – DAY 216 a p p o i n t m e n t t h a t w a s m a d e w a s f or 2 0 11 / 1 2 f i n a n c i a l y e a r. CHAIRPERSON : O n e f i n a n c i a l y e a r ? M R S O K O M B E L A: I t w as f o r on e fin an cial yea r. CHAIRPERSON : J a . M R S O K O M B E L A: I t w as n o t fo r a p erio d of f ive ye ars. Ho wever, t h ey e n d e d u p s t a y i n g f or f iv e ye a rs. CHAIRPERSON : O h o k a y. M R S O KO M BELA : Ja. So, I think I just want to clarify that in the a ff i d a v i t . 10 CHAIRPERSON : Yes . But what is important is whethe r the request from t he S AA th at th e A G c oncu rs in the a ppo intm e nt of PwC a n d N k o n k i , wh e t h e r t h a t r e q u e s t a s k e d t h a t t h e A G i s s u e d – l e t th e m g o on fo r five years even though the AG said one year this year then allowed it the f ol lowi ng y ear, one y e ar at a t i m e . But was the request that the AG s h o u l d a l l o w t h e m f o r f i v e y e a r s ? D o y o u k n o w th a t o r d o y o u n o t k n o w ? M R S O K O M B E L A: Chair t h e request was for one year. CHAIRPERSON : Fo r o ne ye a r. M R S O K O M B E L A: I t was fo r 2011/ 12 fin an cial ye ar. CHAIRPERSON : O h o k a y. 20 M R S O K O M B E L A: Yes . CHAIRPERSON : O k a y. It may be Mr Mbikiwa that there should be a s h o r t s u p p l e m e n t a r y a ff i d a v i t t h a t j u s t cl a rifies this part. ADV MICHAEL MBIKIWA : Correct Chair. CHAIRPERSON : J a . O k a y. ADV MICHAEL MBIKIWA : Th an k yo u Ch a ir. Page 69 of 146 20 FEBRUARY 2020 – DAY 216 M R SOKOMBELA : Th ank you C h air. Ch air th en w hen t h at re q u est th en was made the Auditor -G e n e r a l concurred in writing for o n e-y e a r a p p o in tm e n t a n d n o t i f i e d t h e Chairperson o f t h e Board o f S A A o n 1 2 t h September 2011. There were no issues of concerns that were i d e n t i f i e d and a copy of the concurrence letter that was sent is attached as Annexure PS11 to this affidavit. Chair on the 23 r d o f J u l y 2 0 1 2 S o u t h A f r i c a n A i r w a y s c o n s u l t e d t he Auditor -G e n e r a l o n t h e r e-a p p o i n t m e n t o f P r i c e w a t e r h o u s e C o o p e r s a n d N k o n k i a ga i n a s j o i n t Auditor s f o r t h e 2 0 1 2 / 1 3 f i n a n c i a l y e a r. 10 And a l s o . . .(i nt erv enes ). CHAIRPERSON: I am s o rry. Ju st to co ver t his in a p ra c t i c a l w a y. Yo u d i d s a y t h a t y o u w e r e n o t i n v o l v e d i n 2 0 11 / 1 2 . M R S O K O M B E L A: Yes . CHAIRPERSON : You only got inv olv ed i n 2 0 1 6 o r 2 0 1 5 ? M R S O K O M B E L A: 2 0 1 5 / 1 6 C h a i r. CHAIRPERSON : Yes j a . But what you are d e a l i n g w i t h h e r e – a r e y o u d e a l i n g w i t h m a t t ers t hat ap pe a r from re cords th a t a re availa ble to yo u a t t he Auditor -G e n e r a l ’s O ff i c e? M R S O K O M B E L A: Chair I am dealing with m a t t e r s t h a t a r e a v a i l a b l e t o 20 m e a t t h e Auditor -G e n e r a l’s O ff i c e. CHAIRPERSON : Yes . M R S O K O M B E L A: And the conversations in our d e l i b e r a t i o n s t h a t I h a d with my colleagues that were responsible at the time. CHAIRPERSON : O k a y a l r i g h t . T h a n k y o u . M R S O KO M B E L A: Chair maybe for the purposes of this hearing maybe I Page 70 of 146 20 FEBRUARY 2020 – DAY 216 m u s t s a y f r o m 2 0 11 / 1 2 , 20 1 2 / 1 3 f i n a n c i a l y e a r, 2 0 1 3 / 1 4 f i n a n c i a l y e a r a nd 2014/15 financial year South African Airways requested the concurrence o f t h e Auditor -G e n e r a l. CHAIRPERSON : Each year? M R S O K O M B E L A: Each year. CHAIRPERSON : H’ m m . M R S O K O M B E L A: And there were no iss u e s t h a t w e r e i d e n t i f i e d b y t h e Auditor -G e n e r a l a nd t h e c o n c u r r e n c e w a s g i v e n . CHAIRPERSON : H’ m m . 10 M R S O K O M B E L A: I j ust wa nt to su mmarise in ste ad o f go ing t o ea ch a n d e v e r y . . .(i nt erv ene s ). CHAIRPERSON : Yes . No, no, that is fine. That is in order. A n d t h e d o c u m e n t a t i o n r e f l e c t i n g t h a t r e q u e s t a n d th e g r a n t i n g o f t h a t r e q u e s t , t he c onc urre nc e , is al l att a che d h e re? M R S O K O M B E L A: I t i s all a tt ach ed C h airpe rson. CHAIRPERSON : O k a y, t h a n k y o u . M R S O K O M B E L A: Yes , it is all attac hed here. CHAIRPERSON : J a . ADV MICHAEL MBIKIWA : Th an k you . Mr So kombela i n th o se ye ars t h at 20 t he AG w as gi v i ng i ts concurre nce. M R S O K O M B E L A: Yes . ADV MICHAEL MBIKIWA : Wa s i t d i s c l o s e d t o i t t h a t t h e a p p o i n t m e n t h a d only been for one year? M R S O K O M B E L A: Absolutely Chair. ADV M I C H A E L M B I K I WA: So, SAA told the AG that in 2011 /2 0 1 2 i t h a d Page 71 of 146 20 FEBRUARY 2020 – DAY 216 run a tender process that was only for a one -y e a r a p p o i n t m e n t ? M R S O K O M B E L A: Absolutely Chair. ADV MIC HAEL MBIKIWA : So why in 2012, 2013 and 2014 did the AG give its concurrence? M R S O K O M B E L A: Chair th e – I m u s t s a y t h e P u b l i c A u d i t A c t i t se l f I t hi n k wa s a ne w l e gi s l ati on 2 0 0 . .. (i n d i s t i n c t ) 4 a n d t h e i s s u e o f u s o r t h e i s s u e o f c o n c u r r e n c e h a s g r o w n o r h a s m a t u re d i n t h e o r g a n i s a t i o n . T h e – Ch a i r t h e G a z e t t e o r t h e d i r e c t i v e t h a t M r M b i k i w a r e f e r r e d m e t o i s o n e o f t h e l a t e s t G a z e t t e s t h a t we have. 10 However, the Gazette that was applicable at the time, I think is attached here, at the time did not have t hat req ui rement for us to actually look at the public procurement process whether the public procur e m e n t p r o c e s s i s d o n e . We would rely h ea v i l y o n t h e a s s e s s m e n t t h a t h a s b e e n d o n e b y t he A udi t C om mi t t ee , b y the Board a n d a l s o b y t h e M i n i s t e r. A n d t h e n w e will r e l y t h e n o n t h o s e d e t e r m i n a t i o n s t h e n t h a t t h e y h a v e m a d e . However, as the time goes by a n d a s o u r p r o c e s s e s a l s o a r e m a t u r i n g t h en w e d i d t h e n s t a r t t o c o n s i d e r w h e t h e r t h e n t h e r e w a s p r o c u r e m e n t p r o c e s s o r n o t . S o , i n h i n d s i g h t w h e r e I a m s i t t i n g h e r e to say ma ybe i n t hos e y ears s hou ld we h ave co n side re d w het h e r m ayb e t he y h a ve t he 20 p u b l i c procurement process was followed or not, d e f i n i t e l y y e s . ADV MICHAEL MBIKIWA : H’ m m . M R S O K O M B E L A: Maybe we should have considered that however we a r e a g r o w i n g o r g a ni s a t i o n a s w e g r o w, w e d o t h e n d e a l w i t h c e r t a i n issues. CHAIRPERSON : Am I – i s m y u n d e r s t a nd i n g c o r r e c t t h a t y o u a r e s a y i n g Page 72 of 146 20 FEBRUARY 2020 – DAY 216 d u ri n g t h o s e y e a r s i t w a s n o t a l e g a l o b l i g a t i o n o n t h e Auditor -G e n e r a l t o c h e c k w h e t h e r b e f o r e c o n c u r r i n g t h e f i r m t h a t i s p r o p o s ed t o d o t h e w o r k has been appointed in compliance with the PFMA for example? Or are you saying it was an obligation but we had a certain understanding which has since changed. We n o w l o o k a t i t b u t a t t h a t t i me we d id no t lo ok at i t b e cau se w e d id n ot u n d e r s t a n d t h a t t o b e o u r obligation? Or we understood it to be our obligation but we were quite happy i n b e i n g g u i d e d i n r e g a rd to t ha t by w ha t t he risk a n d Audit Committee 10 says. Which of these two is the right one or three, I think? M R S O K O M B E L A: Yes , i t i s t h r e e C h a i r. C h a i r i n t e r m s o f t h e l a w i t i s a requirement to go through the procure m e n t p r o c e s s h o w e v e r I t h i n k w h a t I wa n t t o e m p h a s i s e i s t h a t t h e a p p o i n t m e n t o f Auditor s i s q u i t e t r i c k y i n t he s e nse th at fo r an ex amp le in 2 011/ 12 th e re wa s p roc u r e m e n t t h a t w a s d o n e m e a n i n g t h a t h o w t h e Auditor s w e r e b r o u g h t t o S A A t h e r e w a s a p r o c e s s t hat was done . Bu t the n wh e re the n th e t r i c k c o m e s i n Chairperson is when then you are dealing with re -a p p o i n t m e n t b e c a u s e t he Auditor s a r e a l r e a d y h e r e . CHAIRPERS O N: O h e x t e n s i o n s . 20 M R S O K O M B E L A: Yes . CHAIRPERSON : J a . M R S O K O M B E L A: Yes , Chair or the e x t e n s i o n s b e c a u s e t h e Auditor s a r e a l re a d y h e r e . A n d t h e r e i s t h e n t h e c o m p a n y ’s A c t r e q u i r e m e n t s t h e n t h a t t he en ti ty t he n f oll o ws w hich is a d ue pro ce ss. I t is n o t n e c e s s a r y t o s a y t here is no due p roc e ss th ere. There is a du e pr ocess t ha t th ey f ollo w Page 73 of 146 20 FEBRUARY 2020 – DAY 216 a n d w e a t t h e t i m e t h e n w e l o o k e d at th at – we o n l y r e l i e d o n t h a t particular instance. And also, in practice as well it is not practical to have an Auditor o n l y f or one y ear on ly. B e cau se in most insta nces an Auditor fo r o ne ye a r i s j u s t t o u n d e r s t a n d h o w y o u r b u s i n e s s i s . A n d s u b s e q u en t th e n to tha t y e a r t h a t i s w h e n t h e n t h e Auditor s t a r t s t o a d d v a l u e t o t h e p a r t i c u l a r e n t i t y. CHAIRPERSON : So, is your answer th e ref or t ha t e ve n du rin g t hos e y e a r s t h e AG ’s O ff i c e was under a legal obligation to check whether there 10 h a d b e e n c o m p l i a n c e wi t h PF MA fo r e xa mp le in th e a ppo intmen t o f th e p a r t i c u l a r f i r m i n r e g a r d t o S A A i n 2 0 11 a p r o c e s s h a d b e e n f o l l o w e d b e f o r e t h e f irst appointment? Whereas we as the Audit General’s Office now in 2020 we regard i t a s o u r d u t y t h a t e v e n w h e n t h e r e a r e r e q ue s t fo r ext en sion s o r re appointments that we should check that the PFMA is complied with. But at that time, we did not understand this to be an obligation on us. Is that what you are saying? M R S O K O M B E L A: Chairperson, th a t is wh at I a m sa ying to say we d i d not understand it to be our obligation. 20 CHAIRPERSON : Yes . M R S O K O M B E L A: At that particular point in time. CHAIRPERSON : Yes . M R S O K O M B E L A: And also, I think one other important aspect as well is o n o u r s i d e t o s a y t he re-a p p o i n t m e n t o f Auditor s i n th e c o m p a n y ’s A c t i s g o v e r n e d b y t h e c o m p a n y ’s A c t i n t e r m s o f t h e n h o w t h e r e-a p p o i n t m e n t Page 74 of 146 20 FEBRUARY 2020 – DAY 216 o f External Auditors n e e d s t o b e d o n e . CHAIRPERSON : H’ m m . MR S O K O M B E L A: And at the time we understood that to be . .. (i nt erv ene s ). CHAIRPERSON : Enough. M R S O K O M B E LA: An enough process. As long as they stick to what t hey did i n 2 011/ 12 fi n anc i al year. Yes. CHAIRPERSON : O k a y. B u t y o u r u n d erstanding now is that apart from t he proc es s i n t he c om pan y’s a c t th e re mu st also be co mplia nc e w i t h t h e 10 p r o c e s s i n t e r m s o f th e PFMA even with re -a p p o i n t m e n t s a n d e x t e n s i o n ? M R S O K O M B E L A: Chair it is our understanding. However, what also we d o n o t w a n t t o do a s a n au dit o ffice is t o ma ke it d ifficu lt f or t he sta teo w n e d e n t i t i e s t o a p p o i n t Auditor s . CHAIRPERSON : H’ m m . M R S O K OM BELA: Because I think the law itself is quite tricky in the sense that it says the appointment should be for a period of one year h o w e v e r, m y s e l f a s a n Auditor I kn ow tha t is n o t pract ical to h a ve an Auditor o n l y f o r o n e y e a r. S o , t h e r e m a y b e t h e n d u e p ro c e s s e s t h e n t h a t needs to be followed. 20 For an example Chair some of the entities what t hey n orma l ly hav e i s t o have a polic y o n h o w t h e y n e e d t o a p p o i n t Auditor s w h i c h i s a p o l i c y t h a t i s n o t n e c e s s a r i l y t h e Supply Chain M a n a g e m e n t Policy. But to say we a r e g o i n g t o h a v e a p o l i c e e x a m p l e t o s a y w e a r e g o i n g t o a p p o i n t Auditor s l e t u s s a y f o r a p e r i o d o f f i v e y e a r s h o w e v e r wh e n y o u s i g n i n g a c o n t r a c t w i t h t h e m w e a r e g o i n g t o h a v e p r o v i s o r s Page 75 of 146 20 FEBRUARY 2020 – DAY 216 t hat s ay s th at y ou are go ing to be va lid fo r a yea r and th en we will reconsider each year in terms of then what happens. So that is basically t hen th e – t h a t i s a t r i c k – I th ink t ha t is a trick if I ma y pu t it in th i s p a r t i c u l a r – i t i s n o t l i k e t h e p r o c u r e m e n t o f a n y o t h e r g o o d s o r se r v i c e s , i t i s a s t a t u t o r y p r o cu re m e n t . I s i t p r o c u r e m e n t o f a s t a t u t o r y Auditor ? CHAIRPERSON : Well it is important that I know what the position is. And i t i s i mpo rta nt f or me t o kn o w w ha t th e AG ’s u n d e r s t a n d i n g o f t h e – wha t the p os it io n is bec aus e t h e A G d e a l s w i t h t h e s e t h i n g s a l l t h e t i m e . M R S O K O M B E L A: Absolutely. 10 CHAIRPERSON : And I need to know if there are challenges that are p o s e d b y t h e l a w a s i t cu r r e n t l y s t a n d s b e c a u s e i t m a y b e t h a t s o m e recommendations need to be made to say, the law as i t cu rren tly stan d s e i t h e r c r ea te s c o n f u s i o n o r i s d i ff i c u l t t o i m p l e m e n t b e c a u s e a s Auditor s we know that an Auditor g o e s i n f o r o n e y e a r. Really that year is u s e d f o r t h e Auditor to g et t o kno w th e b u s i n e s s s o i t i s i m p r a c t i c a l t o a n d u n r e a l i s t i c t o s a y th er e sh ou ld b e appointments for one year because we know almost invariably it is more t han one y e ar. So m ay be it sho uld b e mo re t ha n t ha t . So , I ju st wa nt y o u t o k no w t hat I am i nt erest e d in u n de rstan d ing th a t . Bu t a s I u n de rst a n d it 20 a t a c e r t a i n t i m e i t w a s a n o b l i g a t i o n b u t t h e AG ’s O ff i c e u n d e r s t o o d i t i n a c e r t a i n w a y. M R S O K O M B E L A: Yes . CHAIRPERSON : And therefore, acted on the base of that understandin g . Right now, it understands differently and it acts in accordance with the new understanding. Page 76 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A: Absolutely. CHAI R PE R SO N: O k a y. ADV MICHAEL MBIKIWA : have raised. Chair, just on the issue of the concern you T h i s w i l l b e d e a l t w i t h i n m o r e de t a i l i n t h e e v i d e n c e t omo rrow. CHAIRPERSON : O k a y. ADV MICHAEL MBIKIWA : But certainly, other State -O w n e d E n t i t i e s h a v e f ou n d a w a y t o d e a l w i t h t h i s i s s u e . CHAIRPERSON : O k a y. 10 ADV MICHAEL MBIKIWA : And if I can just refer to the – a n E s k o m RFP, a s I s a y th i s w i l l b e r e f e r r e d t o i n t h e e v i d e n c e t o m o r r o w. CHAIRPERSON : Yes . ADV MICHAEL MBIKIWA : But t h e c o n d i t i o n o f t h e t e n d e r s ay s : “Th e a ppoi nt men t w ill b e mad e f or a p eriod of f ive ye ars relating to the audit of five financial years from the 2 0 1 4 / 1 5 f i n a n c i al y e a r o n w a r d s s u b j e c t t o t h e f o l l o w i n g c o n d i t i o n s. Annual consultation with the Auditor -G e n e r a l b e f o r e t h e a p p o i n t m e n t f or a s p e c i f i c y e a r i s f i n a l i s e d .” CHAIRPERSON : O k a y. J a , th a nk yo u . 20 ADV MICHAEL MBIKIWA : So, there is a sort of practical .. .(in terve n e s ) . CHAIRPERSON : Yes , way. ADV MICHAEL MBIKIWA : Illust ra tion , j a . CHAIRPERSON : O k a y. M R S O KO M B E L A: Absolutely. ADV M I CHAEL MBIKIWA : Can I ask one follow up question Mr Page 77 of 146 20 FEBRUARY 2020 – DAY 216 Sokombela. In those years after 2011/2012 so in the years after the Procurement p r o c e s s h a d b e e n r u n b u t t o w h i c h t h e p r o c u r e m e n t p r o c e s s i t s e l f d i d n o t a p p l y. SSA. I s i t f a i r t o sa y t h a t i t w a s f o r – n o w I a m s a y i n g Apologies Chair. Was it for SAA to indicate to you what p r o c u r e m e n t p r o c e s s h a d b e e n f o l l o w e d ? Wa s i t f o r S A A t o d i s c l o s e t h a t t o y ou? M R S O K O M B E L A: Absolutely Chair. ADV MICHAEL MBIKIWA : And did it do so? M R SO K O M B E L A: I n 2011 /1 2 I h av e b e e n m a d e a w a r e t h a t t h e y d i d s o . 10 Subsequent to 2011/12 what then they gave us is then the resolutions f r om th eir o wn go v ernance s tru ctu re s t ha t th ey ha ve con side re d t h e c o m p e t e n c y o f t h e Audi t or, t he qu a lity co ntro l iss ue s. Th ey a re h ap p y i n t er ms o f t he con duc t of th e Auditor s a n d t h e y w o u l d w a n t t o r e-a p p o i n t t hem . S o, t he y d id no t s u bmit the pro cureme nt issue s. ADV MICHAEL MBIK I WA: O k a y. M R S O K O M B E L A: J a . ADV MICHAEL MBIKIWA : Th an k yo u. CHAIRPERSON : O f c o u r s e , i t w il l b e i m p o r t a n t t o u n d e rs ta n d w h e t h e r f r om S AA’s p o i n t o f v i e w t h e r e m i g h t h a v e b e e n a n y c o n f u s i o n a b o u t 20 whether for the subsequent years they should do that. I t ma y be tha t t here wa s no c o nf us i on, they kn ew the y nee ded t o d o th a t . But it m a y b e t hat th ey d i d n o t k n o w w h e t h e r fo r th e ext e nsion th e y ne e ded th at as w el l . ADV MICHAEL MBIKIWA : Chair we will address it tomorrow but the d o c u m e n t s r e v e a l t h a t t h e r e was no confusion. CHAIRPERSON : O k a y. T h a n k y o u . Page 78 of 146 20 FEBRUARY 2020 – DAY 216 ADV MICHAEL MBIKIWA : M r S o k o m b e l a c a n y o u t h e n – a c t u a l l y C h a i r I a m g o i n g t o m o v e i n t o t h e 2 0 1 5 / 1 6 f i n a n c i a l y e a r. CHAIRPERSON : Th at i s f in e. ADV MICHAEL MBIKIWA : Which is a more detailed issue. CHAIRP ERSON: J a . Th at is f in e. ADV MICHAEL MBIKIWA : And I see that we are at 12:55. CHAIRPERSON : Ye s . D o y o u s u g g e s t w e u s e t h e 5 m i n u t e s b e f o r e 1 3 : 0 0 o r a r e y o u s u g g e s t i n g t h a t i t m i g h t b e c o n v e n i e n t t o .. .(in terve n es) ? ADV MICHAEL MBIKIWA : 10 I am sug g e s t i n g i t m i g h t b e c o n v e n i e n t t o a d j o u r n n o w C h a i r. CHAIRPERSON : Yes . ADV MICHAEL MBIKIWA : J u st be cau se I w ill b eg in bu t wi l l n o t r e a l l y g e t into the following issue. CHAIRPERSON : Yes ok ay. No, that is fine. We will tak e the lunc h a d j o u r n m e n t a n d w e wi l l r e s u m e a t 1 4 : 0 0. We a d jo urn . REGISTRAR : All rise. I NQ UI RY AD JOU RNS I N Q U I RY R E S U M E S CHAIRPERSON: Okay let us continue. 20 A D V M I C H A E L M B I K I WA : T h a n k y o u C h a i r. M r S o k o m b e l a b e f o r e t h e lunch break we had dealt with the concurrence of the AG to the a p p o i n t m e n t o f P w C a n d N k o n k i b e t w e e n 2 0 11 / 1 2 a n d 2 0 1 4 / 1 5 . Can you explain to us what happened in 2015/2016 and I understand that this is when you were in fact responsible for it? MR SOKOMBELA: A b s o l u t e l y C h a i r. I think in 2015/16 when – then Page 79 of 146 20 FEBRUARY 2020 – DAY 216 the request for the Auditor-General to concur was made was then when I was involved and ...(intervenes). CHAIRPERSON: I am sorry just to make sure because later on when o n e r e a d s t h e t r a n s c r i p t i t m i g h t n o t b e c l e a r. When you say in 2015/2016 you mean during the 2015/2016 financial year? M R S O K O M B E L A : A b s o l u t e l y C h a i r. C H A I R P E R S O N : J a o k a y. MR SOKOMBELA: Absolutely Chair and also that was the year when the Board of South African Airways was requesting their concurrence to 10 t h e A u d i t o r - G e n e r a l f o r t h e 2 0 1 5 / 1 6 f i n a n c i a l y e a r. Ye s C h a i r. Chairperson the request for concurrence was made I think on the 24th of July 2015 where then the South African Airways was making then a request to appoint Nkonki Incorporation as a sole Auditor of SAA for the 2 0 1 5 / 2 0 1 6 f i n a n c i a l y e a r. A n d u p o n . . . ( i n t e r v e n e s ) . C H A I R P E R S O N : I a m s o r r y. T h a t s o u n d s s t r a n g e t o m e . M a y b e i t i s b e c a u s e I a m n o t a n A u d i t o r. I w o u l d h a v e t h o u g h t t h a t a r e q u e s t f o r c o n c u r r e n c e w o u l d b e d i r e c t e d t o t h e A u d i t o r - G e n e r a l ’s O ff i c e p r i o r t o the commencement of the 2015/2016 financial year rather than in the m i d d l e o f t h a t f i n a n c i a l y e a r. 20 But maybe it is because I am not an A u d i t o r a n d I d o n o t k n o w t h a t t h e a c t u a l p e r f o r m a n c e o f t h e A u d i t o r ’s j o b c o m e s t o w a r d s t h e t a i l e n d o f t h e f i n a n c i a l y e a r. MR SOKOMBELA: T h a n k y o u C h a i r. Ye s I t h i n k j u s t t o c l a r i f y C h a i r that be – the requirement to – for the – before the start of the financial year is when the Auditor-General make a decision whether he is opting in or he is opting out. However there is no requirements in terms of Page 80 of 146 20 FEBRUARY 2020 – DAY 216 then the timing of the consultation than that needs to be done because in as much as in July 2015 the 2015/16 financial year has already started. However normally the audits they start later on when the transactions have already happened. Because as External Auditors we a r e a u d i t i n g h i s t o r y. Yo u k n o w. CHAIRPERSON: Ja. M R S O K O M B E L A : Ye s , y e s C h a i r. CHAIRPERSON: Thank you. So the request was on time? M R S O K O M B E L A : A b s o l u t e l y C h a i r. 10 C H A I R P E R S O N : J a . O k a y. M R S O K O M B E L A : Ye s i t w a s o n t i m e . S o C h a i r w h a t h a p p e n e d t h e n after we received then that request for the appointment of Nkonki as the sole Auditors we evaluated the request and what we then requested further from SAA was then for SAA to submit to us the Audit Committee Resolution that was made recommending the appointment of SAA to – as a sole Auditor to the Board. And also the other information that we r e q u e s t e d C h a i r. CHAIRPERSON: That is requesting the appointment of not SAA, is it not? Of the auditing firm. 20 A D V M I C H A E L M B I K I WA : N k o n k i . MR SOKOMBELA: Nkonki. CHAIRPERSON: Nkonki ja. MR SOKOMBELA: Nkonki. CHAIRPERSON: I think you said SAA. M R S O K O M B E L A : Ye s . Page 81 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Ja. MR SOKOMBELA: Ye s C h a i r. So what we did Chair because upon evaluation of the request itself there was more information that we were l o o k i n g t o g a t h e r s o t h a t w e c a n d e t e r m i n e w h e t h e r t h e n w e c a n c o n c u r. We can recommend the Auditor-General to concur with the appointment or not. CHAIRPERSON: And you in particular were now in charge of looking into this request? M R S O K O M B E L A : A b s o l u t e l y C h a i r. 10 C H A I R P E R S O N : J a o k a y. M R S O K O M B E L A : A b s o l u t e l y C h a i r. S o C h a i r w h a t – w h a t w e d i d t h e n when I was doing that task I was doing it with Mr Nicholas Mokwena w h o a t t h e t i m e w a s t h e – w a s m y M a n g e r. I w a s h i s L i n e M a n a g e r s o we were working together at the time. So what then Mr Mokwena did was to request then this information from SAA the Audit Committee Resolution that was made to the Board to recommend the appointment of Nkonki as the sole Auditor of SAA. The other information Chair that we were seeking is then the Board Resolution that was made where then the Board was recommending to the shareholder or the Minister to 20 say that SAA is appointing Nkonki as the External Auditors. We also requested SAA to furnish us with their policy on the appointment of External Auditors so that we can be able then to evaluate whether then have this adhered to their own internal policy on the appointment of External Auditors. And then SAA responded to the – to our request for information and what they submitted is an undated letter submitted to Page 82 of 146 20 FEBRUARY 2020 – DAY 216 us by the Company Secretary and the letter was explaining the appointment of Nkonki as the sole Auditors of SAA. And Chair we have o v e r - t o u c h e d t h e c o p y o f t h a t l e t t e r i s a t t a c h e d t o t h i s a ff i d a v i t a s Annexure PS16. They also submitted to us an excerpt of the draft minutes of the continuation of the SAA Board of Directors Meeting. I t h i n k t h e m e e t i n g n u m b e r i s n u m b e r 2 0 1 5 / 0 4 t h a t w a s h e l d o n F r i d a y, 10 July 2015. And a copy of that Resolution Chair is also attached as Annexure PS17. They also submitted to us Chairperson the SAA Policy on Supply Chain Management. 10 Remember I said we requested the policy on the appointment of External Auditors but they only submitted t h e i r S A A S u p p l y C h a i n M a n a g e m e n t P o l i c y. So Chair upon then receiving this information we evaluated the information that was submitted to us and – but we could not confirm whether or not the appointment of Nkonki complied then with the Supply Chain Management Policy because after requesting the policy on External Auditors – upon requesting policy on External Auditors we were f u r n i s h e d w i t h t h e S u p p l y C h a i n M a n a g e m e n t P o l i c y. So then our evaluation then instead of us evaluating with the policy on appointment of External Auditors we ended up evaluating then that on the 20 a p p o i n t m e n t i n t e r m s o f t h e i r o w n S C M P o l i c y. that this was not an audit. I must specify Chair It was just a high level inspection of whether maybe then was the appointments then in adherence to their own policy or not. And we requested then SAA – because we could not see how the SAA has complied with that – with its own SCM policy or S u p p l y C h a i n M a n a g e m e n t P o l i c y. T h e n w e r e q u e s t e d . . . ( i n t e r v e n e s ) . Page 83 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Just one second. The document they did not give you which you had asked for was a document relating to the process to be followed in appointing External Auditors, is that what you said? M R S O K O M B E L A : Ye s C h a i r p e r s o n . C H A I R P E R S O N : Yo u a s k e d f o r t h a t t h e y d i d n o t g i v e y o u t h a t b u t t h e y gave you an SCM Management Policy? M R S O K O M B E L A : A b s o l u t e l y C h a i r. CHAIRPERSON: And bearing in mind why you would have wanted their policy relating to the appointment of External Auditors were you 10 comfortable with proceeding with looking into this without the document that would have shown the process – their policies for appointing External Auditors? MR SOKOMBELA: Chair it became evident that SAA did not have a p o l i c y – a s e p a r a t e p o l i c y. C H A I R P E R S O N : Ye s . MR SOKOMBELA: On the appointment of External Auditors. C H A I R P E R S O N : O f A u d i t o r s . O h o k a y. MR SOKOMBELA: Hence they submitted. C H A I R P E R S O N : Ye s . 20 MR SOKOMBELA: The Supply Chain Management Policy to us. CHAIRPERSON: Oh it was because they did not have it. M R S O K O M B E L A : T h e y d i d n o t h a v e i t C h a i r. C H A I R P E R S O N : O h o k a y. M R S O K O M B E L A : Ye s . CHAIRPERSON: But they should have had it or it is not obligatory? Page 84 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A : I t i s n o t o b l i g a t o r y. CHAIRPERSON: Ja. MR SOKOMBELA: But it is best practice. C H A I R P E R S O N : O k a y. MR SOKOMBELA: Chair you know because in some of the – I must say because SAA was new to me. C H A I R P E R S O N : Ye s . MR SOKOMBELA: Yo u k n o w w h e n i t c a m e t o m e b e c a u s e y o u r e m e m b e r t h a t i t m o v e d f r o m P u b l i c E n t e r p r i s e s t o N a t i o n a l Tr e a s u r y. 10 CHAIRPERSON: H’mm. MR SOKOMBELA: S o i t w a s n e w. O n e o f t h e e n t i t i e s a l s o I w a s responsible for an example that was also the same situation as SAA was the Development Bank of South Africa – of Southern Africa. CHAIRPERSON: H’mm. MR SOKOMBELA: They had a policy on the appointment of External Auditors. CHAIRPERSON: H’mm. MR SOKOMBELA: So when we assessing their request to concur we – they would also – they would furnish with us then their policy and their 20 policy then was quite detailed and also covered the requirements of how they appoint and also how they do the re-appointment of the External Auditors. CHAIRPERSON: Okay alright. Thank you. MR SOKOMBELA: Thank you. C H A I R P E R S O N : Yo u m a y p r o c e e d . Page 85 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A : T h a n k y o u C h a i r. C h a i r I t h i n k a s I s a i d t h a t w h e n then we evaluated then this sole appointment of Nkonki in terms of the S u p p l y C h a i n M a n a g e m e n t P o l i c y. A n d – b u t w e d i d n o t h a v e – t h e r e i s information then that we did not have where we requested SAA then to furnish us with evidence to confirm that Nkonki appointment complied w i t h t h e S u p p l y C h a i n M a n a g e m e n t P o l i c y. Yo u k n o w b e c a u s e y o u looked in terms of the SCM Policy we looked at the Resolutions that they gave us. We could not see how the appointment was done and upon us making that request Chairperson SAA then furnished us with 10 t h e B o a r d R e s o l u t i o n n u m b e r 2 0 11 / B 2 4 d a t e d 2 2 N o v e m b e r 2 0 11 i n r e s p e c t o f t h e a p p o i n t m e n t o f E x t e r n a l A u d i t o r s f o r t h e 2 0 11 / 1 2 f i n a n c i a l y e a r. A n d a c o p y o f t h a t B o a r d R e s o l u t i o n C h a i r i s a t t a c h e d a s A n n e x u r e P S 1 8 t o t h i s a ff i d a v i t . CHAIRPERSON: I think I missed what you said in terms of what you asked SAA for when you could not see how they had complied with their S u p p l y C h a i n M a n a g e m e n t P o l i c y. MR SOKOMBELA: Chair ...(intervenes). CHAIRPERSON: I think you said you asked for something and I missed that. 20 MR SOKOMBELA: Chair upon us receiving the Supply Chain Management Policy when we were looking at the Supply Chain Management Policy and also the information that they already furnished us with we could not determine how SAA got to a decision of appointing S A A i n t e r m s o f i t s o w n S u p p l y C h a i n M a n a g e m e n t P o l i c y. S o t h e n w e said, please give us evidence how did you comply with this policy when Page 86 of 146 20 FEBRUARY 2020 – DAY 216 you were appointing ...(intervenes). CHAIRPERSON: Oh okay yes. M R S O K O M B E L A : N k o n k i a s t h e – a s t h e i r s o l e A u d i t o r. C H A I R P E R S O N : Ye s o k a y. MR SOKOMBELA: That is then when Chairperson then they gave us then Board Resolution. CHAIRPERSON: Okay yes. M R S O K O M B E L A : N u m b e r 2 0 11 / B 2 4 . C H A I R P E R S O N : Ye s . 10 M R S O K O M B E L A : O f 2 2 N o v e m b e r 2 0 11 . CHAIRPERSON: H’mm. MR SOKOMBELA: And the other information Chair that they gave us is S A A’s Bid Adjudication Councils Report dated 22 August 2 0 11 r e c o m m e n d i n g a l s o t h e a p p o i n t m e n t o f P w C f o r t h e 2 0 11 / 1 2 f i n a n c i a l y e a r. A n d a l s o t h i s r e p o r t i s a t t a c h e d C h a i r p e r s o n a s A n n e x u r e P S 1 9 . They also gave us Chairperson an extract of the In Committee Minute o f S A A’s A u d i t a n d R i s k C o m m i t t e e t h a t w a s h e l d o n 2 4 A u g u s t 2 0 1 5 o f the ratification of Nkonki as the External Auditors of SAA. A copy of that extract also Chairperson is attached as Annexure PS20. So this is 20 – they gave us – this is the information that they further gave us. They gave us when we requested. And when we received then that information what we did was to – we performed an assessment of the documentation. CHAIRPERSON: Before you proceed am I right in understanding that they just supplied you with these documents without supplying you with Page 87 of 146 20 FEBRUARY 2020 – DAY 216 any letter or statement from somebody at SAA saying, this is how we complied with our SCM Policy and what we are attaching is – are documents which support what we say in terms of how we complied. M R S O K O M B E L A : Ye s C h a i r p e r s o n j a i t i s . . . ( i n t e r v e n e s ) . CHAIRPERSON: Is my understanding correct? MR SOKOMBELA: I actually forgot to mention that that was a c c o m p a n i e d b y t h e l e t t e r. C H A I R P E R S O N : Ye s . M R S O K O M B E L A : F r o m t h e C o m p a n y S e c r e t a r y. 10 C H A I R P E R S O N : Ye s . MR SOKOMBELA: Of SAA at the time. CHAIRPERSON: Which specific how they had complied? M R S O K O M B E L A : A b s o l u t e l y C h a i r. CHAIRPERSON: Okay and then the documents were attached as support documents? M R S O K O M B E L A : A b s o l u t e l y C h a i r. CHAIRPERSON: Okay alright. MR SOKOMBELA: So Chair upon us receiving then this further information and this information revealed to us that SAA did not have a 20 separate policy for the appointment of External Auditors therefore our view as the Auditor-General then was that the appointment of External Auditors had to be treated like any other supplier at the time and also in terms then the Bid Adjudication Councils Report also of 22 August 2 0 11 P w C h a d b e e n r e c o m m e n d e d o n c o n d i t i o n s t h a t S M M E C o n s o r t i u m Plan has to be incorporated into the contract between SAA and the Page 88 of 146 20 FEBRUARY 2020 – DAY 216 PricewaterhouseCoopers. C h a i r t h e B o a r d R e s o l u t i o n 2 0 11 / B 2 4 o f 2 2 N o v e m b e r 2 0 1 4 – s o r r y 2 0 11 – I a m s o r r y C h a i r a b o u t t h a t a l s o confirmed that the resolution to appoint Nkonki and PwC as External A u d i t o r s o f S A A f o r t h e 2 0 11 / 1 2 f i n a n c i a l y e a r j o i n t l y a n d o n a 6 0 / 4 0 basis in favour of Nkonki Incorporation. Chair the excerpt also from the minutes of the Board Meeting of 10 July 2015 confirmed the appointment of Nkonki as External Auditors of SAA for a period of five years. That is basically what it says. But the challenge that we had was that there was no evidence that SAA applied the principles of its 10 o w n S u p p l y C h a i n M a n a g e m e n t P r i n c i p l e s . Yo u k n o w s o I t h i n k t h o s e were the challenges then that we had and we held a view at the time Chair that the appointment of Nkonki as the sole Auditors of SAA should follow a new procurement process. And the reason why we did t h a t i s b e c a u s e C h a i r i n a s m u c h a s t h e y g a v e u s t h e 2 0 11 / 1 2 a s a n evidence that there was a procurement process but that procurement process was a joint appointment. And at the time we assumed then, excuse me, in as much as it was a joint appointment process and also it was for one year the subsequent years was – were like renewals of the contract. However if then you come in the fifth year and then the other 20 entity in the joint – in this joint relationship is taken out to us then it say then that – it means then that it is the end of a relationship. So you need to start afresh and go and look for a new relationship. So that was the view Chairperson that we had. CHAIRPERSON: And that view was based on the fact that the decision t o a p p o i n t i n 2 0 11 r e l a t e d t o t w o e n t i t i e s t h a t w e r e t o a c t j o i n t l y ? Page 89 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A : A b s o l u t e l y C h a i r. CHAIRPERSON: Now what was being sought was to continue with one only? M R S O K O M B E L A : A b s o l u t e l y C h a i r. CHAIRPERSON: That was not the same as before? M R S O K O M B E L A : A b s o l u t e l y C h a i r. C H A I R P E R S O N : B e c a u s e t h a t c o u l d a ff e c t c a p a c i t y a s w e l l . M R S O K O M B E L A : A b s o l u t e l y. CHAIRPERSON: Apart from anything else? 10 M R S O K O M B E L A : A b s o l u t e l y C h a i r. C H A I R P E R S O N : O k a y. A D V M I C H A E L M B I K I WA : M r S o k o m b e l a t h a t s e e m s t o b e o n e o f t h e issues with the documents that were submitted to you. The fact that it was PwC – sorry it was – it sought the sole appointment of Nkonki when the original appointment was for joint Auditors. Were you concerned though that the documents they submitted to you as proof of c o m p l i a n c e w i t h t h e i r S C M P o l i c y w a s i n f a c t – w a s e ff e c t i v e l y d o c u m e n t s t h a t s h o w e d a n a p p o i n t m e n t f o r o n e y e a r i n 2 0 11 / 2 0 1 2 ? MR SOKOMBELA: In actual fact I think in our deliberations internally 20 you know because I had to think back you know five years ago and I remember that in our deliberations that is one of the issues that were concerned. However like I said I think before lunch Chairperson that the appointment of External Auditors in terms of how we have been looking at it on our side as Auditors was to say Auditors they get appointed but also they can also get reappointed. Page 90 of 146 But what was 20 FEBRUARY 2020 – DAY 216 significant for us was then – was the – was then the relationship now with the joint audits that was stopped. But then we said if then the relationship with the joint Auditors is stopped it means then that maybe SAA then maybe needs to go and look you know and follow a certain due process. CHAIRPERSON: Now are you able to remember whether there were other respects in which SAA had not complied with its Supply Chain Management Policy other than the one you have mentioned? Or you cannot remember? 10 MR SOKOMBELA: I cannot remember Chair and also we were not involved with SAA. The only relationship we had was for them to be requesting concurrence. C H A I R P E R S O N : Ye s , y e s . M R S O K O M B E L A : To u s y e s C h a i r. C H A I R P E R S O N : Ye s . M R S O K O M B E L A : Ye s . CHAIRPERSON: So your – you are looking at these issues was not deep in terms of whether there had been compliance with procurement o r w i t h p r o c e s s e s f o r t h e a p p o i n t m e n t o f E x t e r n a l A u d i t o r s . Yo u – a r e 20 you saying that you were not required to look deep into them? Yo u were required just to have a look and see whether it seemed to – there seemed to have been a compliance without necessarily saying we are satisfied that definitely there was compliance? M R S O K O M B E L A : A b s o l u t e l y C h a i r. CHAIRPERSON: Okay alright. Page 91 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A : Ye s a b s o l u t e l y. A D V M I C H A E L M B I K I WA : Mr Sokombela did the AG then raise concerns regarding the appointment of Nkonki? MR SOKOMBELA: Chair we did raise the concerns however we saw it now that us communicating through letters and e-mails is not going work and at the time then I took it to myself then to go and have a meeting with the Company Secretary so that we can explain face to face in terms of what our concerns were. And the meeting was held on the 15th of September 2015 Chair and after that meeting I took it to 10 myself to ensure then that I send them a recordal in terms of the concerns and also the recommendations then that I made. One of the things that I told them at the time was to say they need to reconsider the appointment – the process that they followed to appoint Nkonki as the sole Auditors of SAA to ensure that it – there is compliance with its o w n S u p p l y C h a i n M a n a g e m e n t P o l i c y. A n d a l s o o n c e t h e n t h e y h a v e actually relooked at that process – they are welcome to resubmit to us for our consideration. And also one of the recommendations that I made to them is to say consider adopting a policy as SAA specifically for the appointment and reappointment of External Auditors so that in 20 future we do not have similar challenges. Then on the 14th of December 2015 then SAA submitted to us the documents where they submitted an excerpt of the draft minutes of – for the – of the Board Meeting. I think their draft minutes is number 2015/07 that they held that meeting on the 9th of December 2015 where they were confirming the reappointment of PwC and Nkonki for the financial year 2015/16. Page 92 of 146 20 FEBRUARY 2020 – DAY 216 Chair the appointment was made on the basis of 50/50 split were close split and subject to the concurrence of the Auditor-General of South Africa in terms of Section 25(2) of The Public Audit Act. A D V M I C H A E L M B I K I WA : Can I just pause you there? Sorry Mr Sokombela. Do I understand correctly that what SAA is doing here is seeking to comply with your indication that their attempt to appoint Nkonki on a sole basis would not be concurred with by the AuditorGeneral? M R S O K O M B E L A : A b s o l u t e l y. 10 A D V M I C H A E L M B I K I WA : A n d s o t h e y s o u g h t t o c o m p l y w i t h t h a t b y passing a new resolution to jointly appoint PwC and Nkonki? M R S O K O M B E L A : T h a t w o u l d b e m y a s s u m p t i o n C h a i r. C H A I R P E R S O N : Ye s . MR SOKOMBELA: That would be my assumption. CHAIRPERSON: Let us go back to your meeting on the 15 September 2 0 1 5 w i t h t h e C o m p a n y S e c r e t a r y. 1. Who was the Company Secretary? 2. What was his or her reaction to your concerns? MR SOKOMBELA: Chair the name of the Company Secretary was Ms 20 Ruth Kibuka. She understood ...(intervenes). CHAIRPERSON: Kibuuka would be K-i-b-u-k-a? A D V M I C H A E L M B I K I WA : I t i s u - u – d o u b l e U . CHAIRPERSON: Oh K-i-b-w-k-a? A D V M I C H A E L M B I K I WA : U - u j a n o t w. C h a i r. Page 93 of 146 Just for the transcribers 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Okay just to make sure u-u. M R S O K O M B E L A : I c a n n o t r e m e m b e r t h e s p e l l i n g C h a i r h o n e s t l y. CHAIRPERSON: Yo u c a n n o t r e m e m b e r t h e s p e l l i n g . Okay no that is fine. I think Mr Mbikiwa sees it ja. A D V M I C H A E L M B I K I WA : Ye s i n d e e d C h a i r. I d o – i n f a c t C h a i r i t i s quite an important letter – e-mail from Mr Sokombela following up from his meeting with Mr – with Ms Kibuuka. C H A I R P E R S O N : Ye s . A D V M I C H A E L M B I K I WA : P e r h a p s w e c o u l d g o t o i t . 10 CHAIRPERSON: Ja we could go to that because I want to have a full picture of that discussion. A D V M I C H A E L M B I K I WA : H ’ m m . C h a i r i t i s i n D D 2 0 B . C H A I R P E R S O N : O k a y. A D V M I C H A E L M B I K I WA : A t p a g e 5 3 2 . C H A I R P E R S O N : O k a y. T h a n k y o u . A n d i t m a y b e i m p o r t a n t t h a t e v e n if he does not read the whole letter he highlights the important features o f t h e l e t t e r. A D V M I C H A E L M B I K I WA : I n d e e d . CHAIRPERSON: 20 In terms of – insofar as it sought to record the discussion. A D V M I C H A E L M B I K I WA : I n d e e d C h a i r. M r S o k o m b e l a ’s r e c o l l e c t i o n of it has been remarkably good but I will ask him to just identify the key aspects of it. MR SOKOMBELA: T h a n k y o u C h a i r. The aspect – the key aspects Chair on the letter is – I think – I think it is an e-mail Chairperson. Page 94 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Ja it is an e-mail ja. MR SOKOMBELA: I think – it was not a formal ...(intervenes). CHAIRPERSON: Ja. MR SOKOMBELA: But I thought at the time it is important that I recuse t h e s e – o u r c o n v e r s a t i o n s w i t h h e r. C H A I R P E R S O N : Ye s . MR SOKOMBELA: So that she can confirm if I was accurate. C H A I R P E R S O N : Ye s . MR SOKOMBELA: Or I was not accurate. 10 C H A I R P E R S O N : Ye s . MR SOKOMBELA: In my assessment of our meeting. C H A I R P E R S O N : Ye s . MR SOKOMBELA: But the key issue ...(intervenes). CHAIRPERSON: If you like the one that you already mentioned you do not have to repeat. have mentioned. Yo u c a n j u s t h i g h l i g h t o t h e r s t h a t y o u m i g h t n o t I understand you to have mentioned the one about your concerns about Nkonki going alone that they may have to do that plus the – your concern that they must consider having a policy for the appointment of External Auditors. 20 So if there is something else other than those that constitutes important features then you can just add that. A D V M I C H A E L M B I K I WA : Mr Sokombela the third bullet point is one that you have not dealt with yet. MR SOKOMBELA: T h a n k y o u C h a i r. The third bullet point in that e- mail Chair if I may read it? It says: Page 95 of 146 20 FEBRUARY 2020 – DAY 216 “The Board Resolution for the meeting held on the 10th July 2015 seek to appoint Nkonki for a period of five years in contravention of Section 25(4) of The Public Audit Act of 2004. The External Auditors can be appointed for a period longer than one year on condition that it is stipulated in the contract that concurrence will be sought annually from the AGSA or the Auditor-General of South Africa.” And – yes I think that is the only section that I did not mention 10 Chair in – yes. CHAIRPERSON: Ye s i n t e r m s o f w h a t t h e C o m p a n y S e c r e t a r y ’s reaction to these consensus was then – try – tell me about that at the m e e t i n g ? Wa s s h e a m e n a b l e , w a s t h e r e r e s i s t a n c e o r s h e w a s g o i n g t o reflect and then you come back to her in due course? MR SOKOMBELA: Chair I – when we got there I had to explain the r a t i o n a l e . Yo u k n o w b e c a u s e I t h i n k w h e n w e g o t t h e r e I t h i n k i n t h e i r mind it was – they were driving the transformational agenda you know by appointing a black firm. Of which at the time also I did tell them as well that no, no, it is fine we share the same sentiments however when 20 you seeking to do that you got to ensure then that you follow the due process and then the appointment as well is done in terms of your policies and procedures. And also the issue of – for them to say they a r e u t i l i s i n g t h e 2 0 11 p r o c u r e m e n t p r o c e s s w a s – i t – I e x p l a i n e d i t . CHAIRPERSON: It was not in order? M R S O K O M B E L A : I t w a s n o t i n o r d e r. Page 96 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: H’mm. MR SOKOMBELA: However after I explained they understood as well and they promised that they are going to back – take the matters back to the Board for reconsideration. CHAIRPERSON: Thank you. A D V M I C H A E L M B I K I WA : T h a n k y o u C h a i r. T h e r e i s a r e s p o n s e f r o m Ms Kibuuka in the ...(intervenes). C H A I R P E R S O N : Ye s . A D V M I C H A E L M B I K I WA : 10 In the same file at page 558. It is a very brief and cursory response. CHAIRPERSON: Ja. We may well deal with it for the sake of completing ...(intervenes). A D V M I C H A E L M B I K I WA : I n d e e d . CHAIRPERSON: Everything connected with that meeting. D V M I C H A E L M B I K I WA : Ye s . CHAIRPERSON: 558, you said? A D V M I C H A E L M B I K I WA : 5 5 8 . CHAIRPERSON: Ja. A D V M I C H A E L M B I K I WA : 20 Mr Sokombela, it is quite a short e-mail. Would you just mind reading that into the record? M R S O K O M B E L A : T h a n k y o u C h a i r. T h e e - m a i l f r o m M s R u t h K i b u u k a reads as follows: “Dear Polani, thank you for the meeting this afternoon and for the valuable input you have provided in respect of the appointment of our Page 97 of 146 20 FEBRUARY 2020 – DAY 216 External Auditors. We will review our process in connection of the concerns raised and revert as soon as possible. Regards, Ruth Kibuuka.” CHAIRPERSON: Thank you. A D V M I C H A E L M B I K I WA : I f w e c a n r e t u r n t o y o u r a ff i d a v i t a t p a g e 2 3 . That is in DD20A and you had told us that the New Board Resolution had been submitted to the AG. Can you tell us what view then the AG took? CHAIRPERSON: 10 Well let us first hear – let us first deal with the content of whatever he received to see whether it – in his view – s u ff i c i e n t l y a d d r e s s e d h i s c o n c e r n s . M R S O K O M B E L A : T h a n k y o u C h a i r. CHAIRPERSON: I take it that what you were telling me about starting from the bottom of page 22. The – what you were sent there would talk to what the Board had decided to do in order to address your concerns. M R S O K O M B E L A : T h a n k y o u C h a i r. C H A I R P E R S O N : Ye s . S o t h a t i s w h a t I w a n t t o h e a r. T h e y s e n t y o u something. Yo u l o o k e d a t i t . Yo u w e r e h a p p y t h a t i t a d d r e s s e d t h e c o n c e r n s o r y o u w e r e s t i l l n o t h a p p y. T h a t i s w h a t I a m l o o k i n g f o r. 20 MR SOKOMBELA: T h a n k y o u v e r y m u c h C h a i r. C h a i r, o n t h e 1 4 t h of December 2015 what then SAA sent us was then the excerpt of the draft minutes of the Board Meeting. The number of those draft minutes is Number 2015/2017 held on 9 December 2015. C h a i r, i n t h o s e – i n that excerpt of the draft minutes what then SAA recorded as a resolution is reappointment of PwC/Nkonki Incorporation on a 50/50 Page 98 of 146 20 FEBRUARY 2020 – DAY 216 workload split and subject to the concurrence of the Auditor-General of South Africa and also accompanying that Chair is a letter that – by the C o m p a n y S e c r e t a r y t h a t – t h e l e t t e r w a s 11 D e c e m b e r 2 0 1 5 . Where then that letter is informing the Auditor-General of S o u t h A f r i c a o f t h e B o a r d ’s R e s o l u t i o n t o r e a p p o i n t P w C / N k o n k i a s j o i n t A u d i t o r s f o r t h e 2 0 1 5 / 2 0 1 6 f i n a n c i a l y e a r. T h a t l e t t e r C h a i r p e r s o n w a s accompanied by the consultation checklist and a copy of that check – of the letter is attached as Annexure PS23. The consultation checklist Chairperson is a checklist that is 10 in our audit directive where the entities needs to fill it and sign it. So that they can send it to us to see if they complied with the appointment process. CHAIRPERSON: S o t h a t c h e c k l i s t i s d i ff e r e n t f r o m t h e c h e c k l i s t w e dealt with earlier? MR SOKOMBELA: It is ...(intervenes). CHAIRPERSON: T h a t i s s e n t t o t h e A G ’s O ff i c e a t t h e e n d o f t h e auditing process. MR SOKOMBELA: That – the checklist that we dealt with earlier Chairperson is a checklist that the External Auditors when they sign the 20 audit report – after they signed the audit report ...(intervenes). CHAIRPERSON: H’mm. MR SOKOMBELA: Or they finish the audit report. The audit partner would sign – would fill it in and send it to us. We have not dealt then with the checklist that the entities have – that needs to fill it in. However with your indulgence Chair maybe we can go to the audit Page 99 of 146 20 FEBRUARY 2020 – DAY 216 directive. So that maybe I can demonstrate in terms of how the checklist looks like. CHAIRPERSON: Well at this stage I just wanted to confirm that the c h e c k l i s t t h a t y o u w e r e r e f e r r i n g t o s a y t h e y s e n t i t t o y o u . I s d i ff e r e n t f r o m t h e c h e c k l i s t t h a t w e d i s c u s s e d e a r l i e r. M R S O K O M B E L A : Ye s C h a i r. CHAIRPERSON: Is that correct? M R S O K O M B E L A : I t i s d i ff e r e n t C h a i r. C H A I R P E R S O N : O k a y. A l r i g h t . T h e n w h e t h e r w e d e a l – w e g o t o t h e 10 d i r e c t i v e n o w o r l a t e r. I l e a v e t h a t t o M r M b i k i w a . A D V M I C H A E L M B I K I WA : W e c a n c e r t a i n l y g o t h e r e n o w. CHAIRPERSON: Ja. M R S O K O M B E L A : O k a y. A D V M I C H A E L M B I K I WA : H ’ m m . C H A I R P E R S O N : O k a y. A D V M I C H A E L M B I K I WA : I t i s i n t h e s a m e f i l e a s y o u r a ff i d a v i t . I t i s at page 141. MR SOKOMBELA: It is Annexure E. A D V M I C H A E L M B I K I WA : I n d e e d . 20 CHAIRPERSON: Annexure E? M R S O K O M B E L A : Ye s . I t h i n k s o . A D V M I C H A E L M B I K I WA : T h a t i s a t p a g e 1 6 6 . MR SOKOMBELA: 166. C H A I R P E R S O N : O k a y. Ye s . T h a n k y o u . A D V M I C H A E L M B I K I WA : I t i s A n n e x u r e E t o t h e d i r e c t i v e . Page 100 of 146 20 FEBRUARY 2020 – DAY 216 C H A I R P E R S O N : H ’ m m . Ye s . P a g e 1 6 6 . M R S O K O M B E L A : Ye s C h a i r. CHAIRPERSON: Is it the correct one? MR SOKOMBELA: Ye s C h a i r. It is the correct one. However in the annexure itself there is a section that deals with the initial appointment and oh there is a section that deals with the reappointment. The section that deals with the reappointment is on page 169. C H A I R P E R S O N : Ye s . A D V M I C H A E L M B I K I WA : I n d e e d . 10 M R S O K O M B E L A : Ye s C h a i r. I f y o u l o o k a t t h e c h e c k l i s t i t s e l f . T h e checklist is this – it is for the reappointment of the audit firm and it reflects the information that that needs to be supplied – that needs to be submitted via the e-mail to section4@hsa.co.za. There is a checklist there Chairperson where the name of the audit firm, the address and contact details, engagement – the name of the e n g a g e m e n t p a r t n e r, t h e f i n a n c i a l y e a r s p r e v i o u s l y a u d i t e d a r e n e e d e d . T h e r e i s a l s o d e t a i l s o f t h e A u d i t C o m m i t t e e ’s a s s e s s m e n t o f t h e e ff e c t i v e n e s s a n d e ff i c i e n c y o f t h e p e r f o r m a n c e o f E x t e r n a l A u d i t o r s i n c l u d i n g I R B A’s v i e w – r e v i e w r e s u l t s . 20 significant disagreements between the There is also details of External Auditors and a c c o u n t i n g a u t h o r i t y o r t h e B o a r d d u r i n g t h e p r e c e d i n g f i n a n c i a l y e a r, i f a n y. We – there is also details that in – they were requested to indicate any matter that may influence a decision regarding the independence objectivity or perceived independence of the Auditors Page 101 of 146 20 FEBRUARY 2020 – DAY 216 and we also need information there Chair that we need the name of the partner in charge for the audit of the year – of the last five years. We just wanted to know whether the audit partner was the s a m e o r i t w a s d i ff e r e n t p a r t n e r s a n d a l s o i n n u m b e r 11 t h e r e Chairperson. We would need the name of the Senior Audit Manager in charge of the audit for the last five years as well. On the next page Chair that is where we need information regarding the cost of audit and none audit services provided by the audit firm during the last three years. 10 C h a i r, y o u r e m e m b e r e a r l i e r o n w e t a l k e d a b o u t t h e i s s u e o f non-audit services. This is where then we also look whether maybe are they – is it – are these fees in comparison with the audit fees very high. That is where we do that assessment. Whether then they will be independent or not. So in essence this is how then the checklist for the reappointment then of the Auditors looks like. CHAIRPERSON: And it is the audit firm that completes it? M R S O K O M B E L A : N o C h a i r. I t i s t h e e n t i t y. CHAIRPERSON: It is the entity? MR SOKOMBELA: 20 T h e e n t i t y. When the entity then is appointing ...(intervenes). CHAIRPERSON: Ja. MR SOKOMBELA: The External Auditors. They are required to fill in this checklist. CHAIRPERSON: Oh. So the auditee ...(intervenes). M R S O K O M B E L A : Ye s . Page 102 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Supplies this checklist and the Auditors at the end of the auditing process when they have signed their report. Supply a d i ff e r e n t c h e c k l i s t t o t h e A u d i t o r - G e n e r a l . M R S O K O M B E L A : A b s o l u t e l y C h a i r. C H A I R P E R S O N : O k a y. A D V M I C H A E L M B I K I WA : T h a n k y o u . I f w e c a n r e t u r n t o y o u r a ff i d a v i t Mr Sokombela. We were at page 23 and you had just told us that the Company Secretary had submitted this letter and informed the AG of the Board Resolution. Can you now tell us what the – what view the AG 10 took in response to receipt of that? M R S O K O M B E L A : T h a n k y o u C h a i r. U p o n t h e n r e c e i v i n g t h i s f u r t h e r – this information. We assumed then that the Board has rescinded their decision to appoint Nkonki as its sole Auditors. As they now have appointed PwC/Nkonki as joint Auditors and we then said then based then on our assessment. T h e n i n a s m u c h a s t h e a p p o i n t m e n t p r o c e s s w a s d o n e i n 2 0 11 however then it is – there is nothing that has changed. We did not see any reasons on our side to object. Not to concur with that and then we recommended then that the Auditor-General can concur with the 20 appointment. A D V M I C H A E L M B I K I WA : T h a n k y o u a n d i t w a s o n t h a t b a s i s t h a t P w C and Nkonki were then appointed as the joint Auditors ...(intervenes). M R S O K O M B E L A : A b s o l u t e l y C h a i r. A D V M I C H A E L M B I K I WA : F o r t h e 2 0 1 5 / 2 0 1 6 . . . ( i n t e r v e n e s ) . M R S O K O M B E L A : A b s o l u t e l y C h a i r. Page 103 of 146 20 FEBRUARY 2020 – DAY 216 A D V M I C H A E L M B I K I WA : F i n a n c i a l y e a r. I w o u l d l i k e n o w t o g e t i n t o the year that the AG took over the SAA audit. CHAIRPERSON: Before that are you able to tell me when exactly the A u d i t o r - G e n e r a l ’s O ff i c e came to the conclusion that it – its understanding of what its obligations were in regard to extensions or renewals. Are you able to tell me when it was that the Auditor- G e n e r a l ’s O ff i c e c h a n g e d i t s m i n d a n d s a i d , n o a c t u a l l y w e w e r e – w e are obliged if it is renewals or extensions to satisfy ourselves or to have a look – to do a high level ...(intervenes). 10 M R S O K O M B E L A : Ye s C h a i r. CHAIRPERSON: Consideration. M R S O K O M B E L A : Ye s C h a i r. CHAIRPERSON: If that is what it is of whether there has been c o m p l i a n c e e a c h y e a r. M R S O K O M B E L A : A b s o l u t e l y C h a i r. C h a i r, I t h i n k I h a d – d u r i n g t h e lunch time I had a conversation with my – with A d v o c a t e M a r i s s a B e z u i d e n h o u t w h o i s o u r - o u r c o r p o r a t e l a w y e r. Yo u k n o w, b e c a u s e I w a s – I j u s t w a n t e d t o f i n d o u t t h i s t h i n g o f t h e obligation. 20 Whether we really obligated to look at whether they followed the Supply Chain Management Policy or it was just a process on our s i d e . To s a y w e a r e g o i n g t o l o o k a t i t a n d w h a t s h e a d v i s e d m e o n t h a t was that we were not obligated to look at whether then they complied with the Supply Chain Management Policy inasmuch as in our audit directive we have actually put there to say what we are going to check Page 104 of 146 20 FEBRUARY 2020 – DAY 216 and I cannot remember Chair which year we have put it. We have decided to put it in our audit directive to say we are going to check it as part of the process, but I think it is somewhere around 2015/2016/2017. In 2017 definitely it is there in the directive, but I think it is somewhere 2015/2016 when we decided to say as part of our processes we are going to look at it. Thank you. CHAIRPERSON: Well I am more interested in your understanding ...(intervenes). MR SOKOMBELA: H’mm. 10 CHAIRPERSON: As opposed to any understanding by your legal advisors. MR SOKOMBELA: H’mm. CHAIRPERSON: So I am more interested in your understanding over the years. M R S O K O M B E L A : Ye s . CHAIRPERSON: Whether the understanding was right or wrong is something else, but your own understanding and I understood you so far and you are going to tell me if I misunderstood you. I understood you so far to say that your understanding, and I am now talking about 20 t h e o ff i c e o f t h e A u d i t o r - G e n e r a l , f o r a c e r t a i n n u m b e r o f y e a r s w a s t h a t there was no obligation for you – for there to be compliance every year or for you to look deep into that, but that from a certain time you c h a n g e d y o u r v i e w a b o u t t h a t a n d s t a r t e d d o i n g t h i n g s d i ff e r e n t l y. my understanding correct? M R S O K O M B E L A : A b s o l u t e l y C h a i r. Page 105 of 146 Is 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Ja. M R S O K O M B E L A : A b s o l u t e l y. CHAIRPERSON: And at this stage you just remember that maybe 2015 – during the 2015/2016 financial year it may be that that is when the change happened? M R S O K O M B E L A : A b s o l u t e l y C h a i r. C H A I R P E R S O N : O k a y. T h a n k y o u . M R S O K O M B E L A : A b s o l u t e l y. A D V M I C H A E L M B I K I WA : 10 T h a n k y o u C h a i r. Mr Sokombela, I would like to move to the audit that the Auditor-General did of SAA in the 2 0 1 6 / 2 0 1 7 y e a r. B e f o r e w e g e t t o t h a t c a n y o u j u s t b r i e f l y t e l l m e y o u r u n d e r s t a n d i n g o f t h e a u d i t f r o m 2 0 11 t o 2 0 1 2 . S o r r y. 2 0 11 / 2 0 1 2 t o 2015/2016. I am talking about the financial years here. What was the overall audit opinion expressed by PwC and Nkonki over those years? MR SOKOMBELA: C h a i r, t h e a u d i t o p i n i o n t h a t w a s e x p r e s s e d b y Nkonki and PwC in those years was unqualified audit opinion with no findings. The Auditor-General normally refers to that as a clean audit o p i n i o n . Ye s . S o t h a t i s m y u n d e r s t a n d i n g o f t h e a u d i t o u t c o m e s . 20 A D V M I C H A E L M B I K I WA : Thank you. tell us what that means? Just for lay people. What is a clean audit? Can you What does an unqualified audit mean? CHAIRPERSON: Ja. Maybe he should start with qualified and unqualified, because sometimes I think I understand it, but sometimes I think I confuse it, because I think when it is – when you say qualified to Page 106 of 146 20 FEBRUARY 2020 – DAY 216 somebody looking at the English language. Thinks that is a good thing. It is qualified and if you say unqualified. It is like it is a bad thing. It is an unqualified teacher or something else. So just make sure that I do not confuse them. M R S O K O M B E L A : J a . J a . I t i s u n d e r s t a n d a b l e C h a i r. I t i s v e r y – i t i s q u i t e f u n n y w h e n y o u l o o k a t i t l i t e r a l l y, b u t I t h i n k m a y b e i f I m a y e x p l a i n t h e a u d i t o p i n i o n s i n t e r m s o f h o w - h o w t h e y a r e . Yo u – t h e auditing standards have got an audit opinion that is an unqualified audit opinion. 10 What then that audit opinion Chair means is that the financial statements of that entity are free from material misstatements whether c a u s e d b y f r a u d o r e r r o r. S o i t m e a n s t h e n t h a t . . . ( i n t e r v e n e s ) . CHAIRPERSON: It says they are good? MR SOKOMBELA: It says they are good. CHAIRPERSON: H’mm. H’mm. MR SOKOMBELA: Meaning that then the governance processes are – there is no material issues that have been ...(intervenes). CHAIRPERSON: H’mm. MR SOKOMBELA: Identified. 20 CHAIRPERSON: H’mm. MR SOKOMBELA: So there is nothing that came to the Auditor that can - can indicate that there was a problem. ...(intervenes). CHAIRPERSON: Unqualified? MR SOKOMBELA: An unqualified audit opinion. Page 107 of 146 So that will be the 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: So we lay people should not place a lot of emphasis on unqualified? M R S O K O M B E L A : A b s o l u t e l y C h a i r. C H A I R P E R S O N : O k a y. M R S O K O M B E L A : A b s o l u t e l y C h a i r. CHAIRPERSON: Ja. So the one that seems to be bad is actually the good one? M R S O K O M B E L A : Ye s . Ye s . I t i s a g o o d o n e , C h a i r. I t i s a g o o d o n e . C H A I R P E R S O N : O k a y. A l r i g h t . 10 M R S O K O M B E L A : Ye s . CHAIRPERSON: And then qualified. MR SOKOMBELA: Chair ...(intervenes). CHAIRPERSON: It would be opposite of that? M R S O K O M B E L A : Ye s . C h a i r, t h e q u a l i f i e d a u d i t o p i n i o n i s w h e n u p o n a u d i t i n g t h e f i n a n c i a l s t a t e m e n t s o f a p a r t i c u l a r e n t i t y. W e f i n d o u t t h a t we are – as Auditors we are happy with everything except for – in the except for we will say we are happy with the financial statements except for assets. So that will be then a qualified audit opinion, because we are 20 saying, ja. Yo u r f i n a n c i a l s t a t e m e n t s a r e g o o d , b u t a s s e t s a r e n o t good. C H A I R P E R S O N : Ye s . Ye s . MR SOKOMBELA: Then that is going be then a qualified audit opinion. CHAIRPERSON: Oh. So maybe the best thing is to start with the qualified one. Page 108 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A : Ye s . CHAIRPERSON: To s a y i f y o u h a d n o c o n s e n t – c o n c e r n s a t a l l i t would just be an opinion? MR SOKOMBELA: A good opinion. CHAIRPERSON: Ja and if it is just an opinion it is a good opinion, because you have some concerns you have to qualify your view of it ...(intervenes). M R S O K O M B E L A : A b s o l u t e l y. A b s o l u t e l y. CHAIRPERSON: And when you then say unqualified you mean it is a 10 good one without any hesitation? M R S O K O M B E L A : A b s o l u t e l y C h a i r. C H A I R P E R S O N : O k a y. MR SOKOMBELA: Without ...(intervenes). CHAIRPERSON: Maybe without any hesitation is not accurate, but f r o m a n A u d i t o r ’s p o i n t o f v i e w t h a t i s t h e b e s t t h a t a n y e n t i t y c a n g e t i f it is unqualified? M R S O K O M B E L A : Ye s C h a i r a n d a l s o I t h i n k u s a s A u d i t o r s a l s o a r e very careful also, because I think when – I think the issue of absolute assurance ...(intervenes). 20 CHAIRPERSON: Ja. MR SOKOMBELA: It is a very – it is a concept on our side that we always try to communicate that as ...(intervenes). CHAIRPERSON: Ja. MR SOKOMBELA: As Auditors we do not – we not providing absolute assurance. Page 109 of 146 20 FEBRUARY 2020 – DAY 216 C H A I R P E R S O N : A b s o l u t e a s u r e t y, j a . MR SOKOMBELA: So what that means Chairperson. Even the unqualified audit opinion in the opinion of the Auditor there are no material errors or material misstatements. There may be errors, but they may be below a certain threshold or below a certain materiality amount. C H A I R P E R S O N : Ye s . M R S O K O M B E L A : Ye s . C H A I R P E R S O N : Ye s . S o t h a t i t m i g h t n o t m e a n i t i s a b s o l u t e l y c l e a n ? 10 M R S O K O M B E L A : A b s o l u t e l y. CHAIRPERSON: But in the opinion of the Auditor it is materially fine? M R S O K O M B E L A : A b s o l u t e l y C h a i r. C H A I R P E R S O N : O k a y. M R S O K O M B E L A : A b s o l u t e l y C h a i r. A D V M I C H A E L M B I K I WA : A n d j u s t t o f o l l o w o n f r o m t h a t C h a i r. Yo u s a y m a t e r i a l l y f i n e . Yo u h a v e m e n t i o n e d M r S o k o m b e l a t h a t i t i s f r e e o f material misstatement. Would that also mean that it is free of material findings as to for example non-compliance with the PFMA? M R S O K O M B E L A : C h a i r, i f I c a n g e t y o u r i n d u l g e n c e i n t e r m s o f i n t h e 20 context of the Auditor-General in terms of then how then do we look i n t o t h i s . H o w t h e n i n t h e a u d i t o ff i c e w e h a v e l o o k e d i n t o t h i s w a s t o say we are going to have categories of these opinions. The – in the u n q u a l i f i e d c a t e g o r y w e h a v e t w o c a t e g o r i e s C h a i r. We are going to have a category that will say the financial statements are unqualified with no material findings and the reason why Page 110 of 146 20 FEBRUARY 2020 – DAY 216 we are doing that in terms of the Public Audit Act the Auditor-General is required to audit and express an opinion on the financial statements. On predetermined objectives or performance information and also on compliance with legislation. So it becomes then a mandatory requirement then that we need to opine on those three areas. However currently we only express an opinion only on the financial statements. In terms of the audit of performance information we only express an opinion in the Management reports. 10 We have not escalated expressing an opinion in the audit report. So what we do we will have an opinion in the Management report, but we will then take out significant findings that we have identified and escalate them to the audit report. So with the compliance legislation we do not provide an opinion at all. We will just have material findings and those material findings as well we also e s c a l a t e t h e m t o t h e A u d i t o r ’s r e p o r t . So then you may find out then Chairperson that you have got this audit opinion. It is unqualified, but it has got these significant f i n d i n g s t h a t w e h a v e e s c a l a t e d t o t h e A u d i t o r ’s r e p o r t . 20 then the audit also not now – not to be good. So it makes A s w e l l n o w, b e c a u s e inasmuch as your financial statements you have prepared them p r o p e r l y. At some cases, because of the capacity issues in the public s e c t o r. W h a t w e e x p e r i e n c e a s t h e A u d i t o r - G e n e r a l i s t h e f a c t t h a t w e received financial statements as well that have got a lot of errors. So Page 111 of 146 20 FEBRUARY 2020 – DAY 216 t h e n w e f i n d t h a t t h e r e i s a l o t o f e ff o r t t h a t i s d o n e f o r u s t o g e t t h e m t o b e c o r r e c t e d . S o w h a t w e n o r m a l l y d o t h e n w e e s c a l a t e t h a t e ff o r t t o t h e a u d i t r e p o r t t o s a y. I n a s m u c h a s y o u r f i n a n c i a l s t a t e m e n t s a r e o k a y, b u t w h e n y o u g a v e u s t h e y w e r e n o t o k a y. So we will then give them non- compliance to say the – for example the Public Finance Management Act or the Companies Act requires you to submit to us financial statements that are free of material misstatements, but when you were submitting them to us for audit. They had a lot of material errors and misstatements that we 10 had to identify through our audit process. Then that audit then is not clean anymore. Ye s . So that is – I think that I wanted to explain ...(intervenes). C H A I R P E R S O N : Ye s . Ye s . MR SOKOMBELA: That Chairperson. So that it can be understood. C H A I R P E R S O N : I t h i n k t h a t i s i m p o r t a n t . Ye s . A D V M I C H A E L M B I K I WA : C a n y o u j u s t r e m i n d m e w h a t w a s t h e a u d i t opinion expressed by PwC and Nkonki over the five years that they audited? 20 MR SOKOMBELA: I t w a s i n t h e c l e a n c a t e g o r y o f t h e s e t w o n o w. Unqualified, but there were no material findings on performance information. There were no material findings on compliance with laws and regulations. A D V M I C H A E L M B I K I WA : T h a n k y o u . CHAIRPERSON: But those two was the evidence you were giving just Page 112 of 146 20 FEBRUARY 2020 – DAY 216 n o w s a y i n g t h a t t h a t i s w h a t h a p p e n s w i t h t h e A u d i t o r - G e n e r a l ’s O ff i c e as well when it does auditing and that is what happens with most maybe many auditing firms. In other words it is not something unusual. Is that what you were seeking to suggest? If those two are not being looked into. M R S O K O M B E L A : C h a i r, t h e – y o u m e a n t h e t w o – t h e u n q u a l i f i e d w i t h findings and unqualified with no findings? C H A I R P E R S O N : I t h o u g h t y o u s a i d e a r l i e r o n i n t e r m s o f t h e A G ’s – o f – A G ’s O ff i c e a n d t h i s m i g h t a p p l y t o p r i v a t e f i r m s a s w e l l . 10 Yo u expressed opinions on the financial statements, but you do not express opinions on certain things. M R S O K O M B E L A : Ye s C h a i r. CHAIRPERSON: And now I am thinking that what you have just mentioned now that they did not deal with was also the same things. Did I misunderstand? I think findings and something else that you said you do not express opinions on ...(intervenes). MR SOKOMBELA: It is ...(intervenes). CHAIRPERSON: But maybe you should be expressing opinions on. M R S O K O M B E L A : C h a i r, w h a t w e s h o u l d b e e x p r e s s i n g a n o p i n i o n o n 20 is the financial statements. performance information. Is the predetermined objectives or It is compliance with legislation ...(intervenes). C H A I R P E R S O N : Ye s . MR SOKOMBELA: But currently we only expressing an opinion on the financial statements. Page 113 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Huh-uh. MR SOKOMBELA: On the performance information or predetermined objectives we only expressing it in the Management report which is an internal document. CHAIRPERSON: Huh-uh. MR SOKOMBELA: That we communicate only to Management. CHAIRPERSON: Huh-uh. MR SOKOMBELA: So out of then that Management report we take out significant findings. 10 CHAIRPERSON: Huh-uh. M R S O K O M B E L A : T h a t w e t a k e t h e m t o t h e A u d i t o r ’s r e p o r t . T h a t i s a public document. CHAIRPERSON: Huh-uh. MR SOKOMBELA: expressing compliance. an That gets to be so. opinion both on So in essence we are not performance information and It is only on financial statements that we express an opinion. CHAIRPERSON: But in terms of the standards – professional standards – in terms of what is expected of either an Auditor or the 20 A G ’s O ff i c e . A r e y o u s u p p o s e d t o d o a n y t h i n g d i ff e r e n t l y i n t e r m s o f expressing an opinion on those or what you are doing is in accordance with what is expected? Namely you say you only express an opinion in the Management reports and so on. I want to know whether you are saying you know this is what is expected of us, but we know that right now we Page 114 of 146 20 FEBRUARY 2020 – DAY 216 do not actually meet that standard ...(intervenes). M R S O K O M B E L A : Ye s . CHAIRPERSON: And there may be reasons for that ...(intervenes). M R S O K O M B E L A : Ye s . CHAIRPERSON: And/or whether you are saying, no. We actually meet the standard. It is just that maybe we do not do A, B, C, D, but we are n o t e x p e c t e d t o d o t h a t a n y w a y. M R S O K O M B E L A : I n d e e d C h a i r. N o . C h a i r, i t i s – w h a t w e d o i n g i s i n terms of the auditing standards. 10 C H A I R P E R S O N : O k a y. M R S O K O M B E L A : Ye s . C H A I R P E R S O N : O k a y. MR SOKOMBELA: I m u s t s a y C h a i r t h e d i ff e r e n c e b e t w e e n t h e o n l y d i ff e r e n c e b e t w e e n t h e a u d i t t h a t t h e A u d i t o r - G e n e r a l p e r f o r m s a n d t h e audit that the private sector firms – when they are auditing private entities performs is the fact that our audit is governed by the Public Audit Act and the Public Audit Act requires us to audit those three areas ...(intervenes). C H A I R P E R S O N : O k a y. O k a y. 20 MR SOKOMBELA: But in the private sector ...(intervenes). CHAIRPERSON: H’mm. MR SOKOMBELA: The requirement is just to audit financial statements o n l y. C H A I R P E R S O N : O k a y. O k a y. M R S O K O M B E L A : Ye s . Page 115 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON: Thank you. A D V M I C H A E L M B I K I WA : A n d d i d I u n d e r s t a n d c o r r e c t l y t h a t a l t h o u g h y o u d o n o t e x p r e s s a n a u d i t o p i n i o n o n t h e l a t t e r t w o . Yo u d o e x p r e s s material findings in the audit report on those? M R S O K O M B E L A : A b s o l u t e l y C h a i r. A D V M I C H A E L M B I K I WA : T h a n k y o u . M R S O K O M B E L A : A b s o l u t e l y C h a i r. ADV M I C H A E L M B I K I WA: If we ca n turn the n to pa g e 2 7 o f yo u r a ff i d a v i t , c a n y o u t e l l u s h o w i t c a m e a b o u t t h a t t h e A G t o o k o v e r t h e S A A 10 audit? CHAIRPERSON : I a m s o rry before that just want to make sure that I h a v e m i s s u n d e r s t o o d . Yo u s a i d t h a t PwC a n d N k o n k i f o r t h o s e f i v e y e a r s of auditing SAA through gave a clean audit, now I know that a clean one i s t h e u n qu al i f i e d t h a n a q u a l i f i e d o n e . M R SOKOMBELA : CHAIRPERSON : Absolutely Chair And that is what that is what they did. You have not y e t d e a l t w i t h t h e q u e s t i o n o f w h a t t h e A G ’s r e s p o n s e w a s t o th a t i s s t i l l coming, is that right? ADV M I C H A E L M B I K I WA: 20 CHAIRPERSON : Yo u m e a n i n t h o s e y e a r s ? J a , f or tho s e , o nce th ey b eca me awa re in tho se ye a rs , Ja? ADV M I C H A E L M B I K I WA: No, perhaps we should deal with that now. How d i d t h e A G r e s p o n d w h e n e a c h y e a r i n i t s m o n i t o r i n g r o l e , i t w a s i n f o r m e d t h a t S A A h a d o b t a i n e d .. .(in terve n es)? CHAIRPERSON : Wa s d o i n g w e l l . Page 116 of 146 20 FEBRUARY 2020 – DAY 216 M R SOKOMBELA : Chair th e a ud it of South African Airways was performed by a reputable firm a global firm which is one of the big four f i r ms in South Africa b y t h e n a m e o f PricewaterhouseCoopers , an d a l s o by a medium firm by Nkonki and as part of our con occurrences one of the t hi n gs t hat I m ent io ned t he re is t hat w e wo uld rece ive a n a sse ssm e nt t h at h a s b e e n d o n e b y t he Audit Committee i n t e r m s o f t h e i n d e p e n d e n c e i s s u e s . T h e i s s u e s o f f ee s wh et h er the re i s a ny n o n b e i n g n o n c o n s u l t a n t f ees but mo s t imp ort ant ly th e re q u alit y re s ult s f ro m t h e I nd e pe n de n t Regulatory Board f or Au dito rs b ecau se as th e Auditor -G e n e r a l we believe 10 t hat i f th en t he I nd epend ent R egu lato ry Board fo r Aud ito rs in it s inspection of the fans has not find anything you know that is suspicious of a n y t h i n g . We h a d n o r e a s o n to qu e stion w h et he r the n the cle an au dit o f opinion that has been expressed is appropriate or not. So yes so that is b a s i c a l l y t h e n h o w w e l o o k e d a t i t , w e v i e w e d at i t a t t h e t i m e . CHAIRPERSON : Of course, for the years prior to the year 2015/2016 f i n a nc ia l y ea r, y ou w ere not in volve d ? M R SOKOMBELA : CHAIRPERSON : M R SOKOMBELA : 20 CHAIRPERSON : Absolutely Chair. Other colleagues were involved. Absolutely Chair. An d th e n y o u g o t i n v o l v e d i n t h e 2 0 1 5 / 2 0 1 6 f i n a n c i a l y e a r. D o y o u k n o w w h e t h e r t h e – wh e t h e r PwC a n d N k o n k i , d u r i n g a n y o n e o r m o r e o f t h o s e f i v e y e a r fin an cial ye ars, wh e the r base d on w ha t was in the public domain, they should have picked up some things wh i c h t hey d id not pi c k up a nd ma ybe if t hey ha d picke d t ho se t hings u p, t hen t hey may ha v e l ook e d at th ose th ings a n d ma ybe th e r esult wo uld no t Page 117 of 146 20 FEBRUARY 2020 – DAY 216 have been clean audits. Is that something you have established? Is it s o m e t h i n g y o u h a v e n o t e s t a b l i s h e d ? Yo u d o n o t k n o w a b o u t ? M R SOKOMBELA : CHAIRPERSON : M R SOKOMBELA : We never established that Chairperson. Yes , but did y ou look into it or not really ? When I got involved in 2015/2016 for an example I would just have high level engagements with them in te rms o f w ha t i s happening and share you know specifically I think the areas of s p e c i a l i z a t i o n i n t h e A u d i t o r-G e n e r a l i s t h e a u d i t o f c o m p l i a n c e . F o r a n e x a m p l e , I w o u l d s h a r e w i t h t h e m fo r a n exa mple th ere is a g u ide f ro m 10 National Treasury on irre g u l a r ex p e n d i t u r e i n t e r m s o f h o w t h a t n e e d s t o be dealt with. Those will be the documents that I will share with them to s a y l o o k i n t e r m s o f h o w t h e n t h i s i s d o n e . S o , j a , so th at w ill b e – tha t would b e t h e e x t e n t t h a t w e g o i n t o . O n e o f t h e i m p o r t a n t i s s u es Chair t hat may b e I m us t h i ghlig ht is t h e f act th a t , o n ce u s a s t he Au dit o r G e n e r a l w e o p t n o t t o a u d i t , w e – i t b e c o m e s d i ff i c u l t t h e n t o s t e p i n t h e t oes o f t hen th os e Auditor s , i n t h e s e n s e t h a t w h e n t h e y s i g n t h e a u d i t o p i n i o n , th e y s i g n i t i n t h e i r n a m e . They become then the people then t hat ta k es ac c o unta bil i t y f or t hat spe cific ass ign me n t , ye s Ch air. CHAIRPERSON : 20 Yes , y es , y es . You – t h e A u d i t o r-G e n e r a l O ff i c e n o t e x p e c t e d t o e x e r c i s e o v e r s i g h t o v e r t h e m o r i s i t e x p e c t ed to d o so? Ove r t he pri v at e law f irm s t ha t au dit p ub lic en titie s. M R SOKOMBELA : We will provide the oversight Chair but it is limited. I t i s a li m it ed o v ers i ght i n te rms of – f o r a n e x a m p l e – u s f o r e x a m p l e , attending Audit Committees with them, when for example they have got areas where they are struggling, they can ask us we will give them Page 118 of 146 20 FEBRUARY 2020 – DAY 216 g u i d a n c e . I f y o u remember Chair Annexure D, then when Annexure D is completed, by then the partner is then to give them feedback about that. We do not go to an e x t ent o f sa ying let me s e l e c t f o r a n e x a m p l e , l e t m e g o a n d r e v i e w y o u r w o r k , w e d o n o t d o t h a t .. .(in terve n es). CHAIRPERSON : Yes , Yes , O k ay, y ou do not do that out of res pec t for t hei r p rof ess i o na l is m . . .(i nt e rven es). M R SOKOMBELA : Absolutely, out o f r e s p e c t fo r e xa mple i f th e y a r e t el lin g us t ha t t he re i s no prob lem, w e are f ine . Fo r exa m ple you a r e saying in the media they are saying this is what has happened. 10 CHAIRPERSON : M R SOKOMBELA : J a . Yes . Th ey ca n sa y no , we have lo oked a t th a t, it i s n o t their issue. CHAIRPE RSO N: M R SOKOMBELA : CHAIRPERSON : And then you can accept their words. I ca n acce pt th at b eca u se t he y are pro fessio nals. O k a y, o k a y. ADV M I C H A E L M B I K I WA: Th an k you C ha ir. Mr So kombela yo u we r e a b o u t t o t e l l u s a b o u t t h e , h o w i t c am e a b o u t t h a t t h e AG to o k ove r the SAA audit. M R SOKOMBELA : 20 Chair, th e Auditor -G e n e r a l o f South Africa d i d n o t i n i t i a t e t h e t a k e – t h e t a k e -o v e r o r t h e t a k e b a c k o f S A A a s an a u d i t . T h e request for the take -o v e r w a s d o n e b y t h e t h e n M i n i s t e r o f Fin a n c e M r Nhlanhla Nene, a nd h e m a d e t h a t r e q u e s t t o t h e A u d i t o r -G e n e r a l t o t a k eo v e r t h e a u d i t f o r t h e 2 0 1 5 / 2 0 1 6 f i n a n c i a l y e a r. I m u s t s a y – a l s o m e n t i o n t hat w he n aft er t he SA A m ove d t o the N at ion al Department , so rry to National Treasury, we also had r e g ul a r e n g a g e m e n t s w i t h th e s h a r e h o l d e r Page 119 of 146 20 FEBRUARY 2020 – DAY 216 b y t h e n a m e – t h e r e w a s a Te a m th er e th a t wa s resp o nsib le f or p e r f o r m i n g o v e r s i g h t t o SAA as an entity. So then the Minister made that request in 2015/2016 financial year, I say in my affidavit, it says from 2 0 1 6 to 2 0 1 7 I d o n o t k n o w h o w we c a n c o r r e c t t h a t b u t h e a c t u a l l y requested for the 2015/16 financial year and then following then that request Chair . . .(i nt erv enes). CHAIRPERSON : Well maybe let us just take care of that. A s u p p l e m e n t a r y a ff i d a v i t c a n b e m a de , which you will sign to s a y y o u a r e correcting what appears here. 10 M R SOKOMBELA : CHAIRPERSON : Th ank yo u Ch a ir. Yes , ok ay. So, y ou s ay he made the reques t in res pec t of the 2015/2016 financial year? M R SOKOMBELA : CHAIRPERSON : Absolutely Chair. An d d o y o u remember h o w, ho w e a r l y i n t h e f i n a n c i a l y e a r h e m a d e t h e r e q u e s t ? Wa s i t b e f o r e o r w a s i t a f t e r PwC a n d N k o n k i had been appointed? M R SOKOMBELA : CHAIRPERSON : M R SOKOMBELA : 20 CHAIRPERSON : M R SOKOMBELA : I t was a fte r we receive d t he lett er. Th e r eq ue st? Th e req u est fo r th e s o l e a p p o i n t m e n t o f Nk on k i . O h , o k a y. I th ink th e officials of Na tion al Tre asury, I th ink u po n t hem ex erc i s i ng t he i r ov ersig ht, t hey beca me a ware o f t h is a p po int m en t of Nkonki and I also think if I remember well they were n o t i n f a v o u r o f t h a t a nd we received then that request then from the Minister to say instead t hen t he audi t s hou ld be ta ken b a ck b y – s h o u l d b e d o n e b y t h e A u d i t o r- Page 120 of 146 20 FEBRUARY 2020 – DAY 216 G e n e r a l o f South Africa . C ha ir u po n us th en receiving t hen th e re q ue st f r om t he t hen Mi ni s t e r of Finance they – we p e r f o r m e d a r i s k a s s e s s m e n t p r o c e s s , y o u k n o w t o s a y, o k a y t h e n t h e r e i s t h i s r e q u e s t n o w t h a t w e n e e d t o c o n s i d e r d o i n g t h e a u d i t o f S A A .. .(in terve n es). CHAIRPERSON : Th is wa s still b e fore t he a ppo intmen t of – re - a p p o i n t m e n t o f b ot h N ko n k i a n d PwC fo r 2 0 1 5 / 2 0 1 6 ? M R SOKOMBELA : CHAIRPERSON : M R SOKOMBELA : 10 I t was in th at pro ce ss .. .(in terve n es). I t w as du rin g th a t p rocess, oka y. I t was – i t – we r e c e i v e d t h i s r e q u e s t I t h i n k I f I remember well after – b e c a u s e t h e i n i t i a l r e q ue s t c a m e I th ink o n th e 2 4 July 2015, but subsequent to that I cannot, I do not have the recollection . .. (i nt erv ene s ). CHAIRPERSON : M R SOKOMBELA : Exact dates . Of the exact dates, but I think August/September t hat is w he n t he n t he t hen Minist e r th en wrote to the Au d i t o r-G e n e r al y o u k n o w t h e n t o t a k e b a c k t h e a u d i t a n d t h e n u s t h e n a s a Te a m u p o n receiving that request, we c o n d u c t e d a r i s k a s s e s s m e n t t o s a y – t o d e t e r m i n e i f w e a r e r e a d y t o t a k e t h i s a u d i t b a c k n o w. T h e r e w e r e f i v e c o n s i d e r a t i o n s o r t h in g s t h a t we looked into . 20 Th e f i r s t o n e b e i n g t h e professional and legal requirements associated with the audit of South African Airways. The second one being the skills and the resources required to conduct the audit engagement. The third one being the q u a l i t y a s s u r a n c e m e a s u r es th at will be su itab le f or th e exte nt a n d complexity of the audit of the size of SAA. And also, the degree of our a c c e s s t o PwC a s w e l l a s N k o n k i , a s t h e p r e d e c e s s o r Auditor s a n d a s w e l l Page 121 of 146 20 FEBRUARY 2020 – DAY 216 a s a l s o t h e n t h e i n d e p e n d e n c e a n d e t h i c a l re q u i r e m e nts th at we h a d t o look into. And then Chair once the AGSA – once we have completed then t hat ri sk a s s es s m ent the Audit or -G e n e r a l d i d what he did was to say for t he 20 15/ 16 fi n anc i al y ear w e will n ot be a b le t o t ake b ack t h e au d it h o w e v e r I m a y r e c o ns i d e r t a k i n g i t b a c k fo r the 2016/17 financial year. So that is my recollection of that particular process in terms of then what h a p p e n e d , h e n c e t h e n we c o n t i n u e d t o c o n c u r f o r t h e r e a p p o i n t m e n t o f PwC a n d N k o n k i f i n a n c i a l y e a r – s o r r y f o r N ko n k i a u d i t . T h e n C h a i r i f I f as t f o rward then to 2016 financial year, then I think the Minister at the 10 t i me w as n o lo nge r t h e – M r Nhlanhla Nene, I think it was Minister G o r d h a n i f I a m n o t m i s t a k e n . A t t h e t i m e t h e n .. .(int e rven es). CHAIRPERSON : Ye s , y o u a r e r i g h t M r N e n e h a d b e e n d ro p p e d f r o m Cabinet in December, on the 9 t h o f December 2015 .. .(in terve n es). M R SOKOMBELA : CHAIRPERSON : Absolutely Chair. And Minister Gordhan had been reappointed to the M i n i s t r y o f F i n a n c e a f e w d a y s a f t e r t h e 9 t h Decemb e r. M R SOKOMBELA : CHAIRPERSON : M R SOKOMBELA : 20 Absolutel y Chair. Yes . Th ank you C ha ir. C hair th en on the , in t h e An nu a l G e n e r a l M e e t i n g t h e n o f – i n 2 0 1 6 o f S A A , t h a t i s w h e n t h e n t h e Board o f SAA made a recommendation to the Shareholder or the M i n i s t e r to a p p o i n t t h e m t h e A u d i t or-G e n e r a l a s t h e External Auditors o f S A A f o r t h e p e r i o d 2 0 1 6 / 1 7 f i n a n c i a l y e a r w h i c h t h e n t h e A u d i t o r-G e n e r a l a c c e p t e d t hen tha t t hat re quest , and th at is h ow th en we g o t to b e i n v o l v e d a n d s t a r t a u d i t i n g S o u t h A f ri c a n A i r w a y s . Page 122 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON : O k a y, b u t th a t re qu e st wa s no t fo rmally req uired re all y because if the AG wanted to do the auditing for of SAA for the 2016/2017 f i n a nc ia l y ear, al l i t n eede d w as not to conc ur in t he a pp o in t m en t o f a n y External Auditors . I s th at rig ht? M R SOKOMBELA : Th at is righ t Chair even though I think the practice in t he offi c e is al so n ot t o ne ce ssarily p u sh fo r t ha t . We d o a llo w e n t it ie s e v e n i n t h e A n n u a l G e n e r a l M e e t i n g s t o r e a p p o i n t u s , y o u k n o w. CHAIRPERSON : M R SOKOMBELA : 10 CHAIRPERSON : M R SOKOMBELA : CHAIRPERSON : Yes , y es , y es . But in terms of .. .(int e rven e s ). Strictly speaking it is not necessary Absolutely Chair. But for a good working relationship it might be a good t hi n g. M R SOKOMBELA : CHAIRPE RSO N: Absolutely Chair. O k a y. ADV M I C H A E L M B I K I WA: Th an k yo u . M r S o k o m b e l a i f w e c a n p i c k i t u p o n p a g e 2 8 , y o u s a y t h e r e t h a t th e Auditor -G e n e r a l M r M a k w e t h u h i m s e l f t ook t he d ec i s i on and t hat he le ad th e hig h leve l en g a ge me n t s p rio r t o t h e d e c i s i o n . I s t h a t t h e n o r ma l p r a c t i c e f o r t h e A u d i t o r-G e n e r a l h i m s e l f t o d o 20 t hat ? M R SOKOMBELA : Chair the Auditor -G e n e r a l n o r m a l l y d o e s n o t d o t h a t , however because of the magnitude and the risks associated with this a s s i g n m e n t , t h e A u d i t o r-G e n e r a l t o o k i t u p o n h i m s e l f t o b e p e r so n a l l y involved in this decision. ADV M I C H A E L M BIKIWA : And has he retained a personal involvement in Page 123 of 146 20 FEBRUARY 2020 – DAY 216 t he audi t ? M R SOKOMBELA : Absolutely. He is still very closely involved even n o w. ADV M I C H A E L M B I K I WA: And y o u a l s o s a y a t p a r a g r a p h 5 2 t h at the s i g n o ff w a s d e l e g a t e d t o t h e N a t i o n a l L e a d e r o f Au d i t S e r v i c e s . I s t h a t common practice to delegate to someone that high up? M R SOKOMBELA : Chair it was the first of its kind at the time because n o r m a l l y t h e d e l e g a t i o n , t h e A u d i t o r-G e n e r a l n o r m a l ly d e l e g a t e s t h e a u d i t s t o b e s i g n e d o ff f r o m t h e l e v e l th a t i s j u s t b e l o w t h e National 10 L e a d er. B e cau s e t he National Leader n e e d s t o b e b u s y w i t h t h e a u d i t strategy of the organisation, so will not have time to be signing the audit reports. But at the tim e t he A u d i t o r-G e n e r a l d e e m e d i t f i t t h a t t h e s e n i o r i t y in t he organ is at io n ne e ds t o b e d emonst rate d a s well a n d t h at h e i s h o w h e t o o k t h e a s s i g n m e n t , t h e t a k i n g b a c k o f th e ta king o ve r o f South African Airways as very, v e r y i m p o r t a n t . ADV M I C H A E L M B I KI WA: And another way in which you indicate it was t ak en s e ri o u s l y w a s i n t e r m s o f t h e r e s o u r c e s p u t i n t o t h e a u d i t . M R SOKOMBELA : Absolutely. ADV M I C H A E L M B I K I WA: 20 Can you take us through the human financial a n d o t h e r r e s o u r c e s t h a t w e n t i n t o t h e 2 01 7 au d i t ? M R SOKOMBELA : Yes Chair y ou k now in – t h e r e – i n th at yea r wh at happened was that the there was a selection process that was made in t he se ns e t ha t m y sel f t he I wa s – b e f o r e b e i n g i n v o l v e d i n t h e a u d i t o f South African Airways my role was t h a t o f a S e n i o r M a n a g e r responsible f or t ec hni c al s up po rt , h o w e ve r because of then at the time of my Page 124 of 146 20 FEBRUARY 2020 – DAY 216 involvement then I was requested then to lead the engagement and also t o en sur e t he n t ha t m ys elf an d my collea gue s t h en we se lect t h e au d i t p r o f e s s i o n a l s i n t he whole organisation that are very good, are very s h a r p , d e mo n s t r a t e d c o m p e t e n c y e s p e c i a l l y i n t h e s p a c e o f S t a t e O w n e d Entities. During that selection process we insured that we then need to g e t p e o p l e t h a t h a v e g o t s u ff i c i e n t a u d i t e x p e r i e n c e . T h e y – p e o p l e t h a t h a v e g o t t e c h n i c a l k n o w-h o w, e s p e c i a l l y i n t h e a pp l i c a t i o n o f t h e i n t e r n a t i o n a l f i n a n c i a l r e p o r t i n g s t a n d a r d s . A n d a l s o th e m o s t i m p o r t a n t t hi n g wa s peo ple th at demo nstra ted p erfo rma n ce in t e rms o f t h e n insu rin g 10 t hat the y c an pe rfo rm and can d e l i v e r t h e t a s k . And after formulating t hen t hat Te a m we had a Te a m th e n t h at wa s resp o nsible f or t he regulatory side of the audit assignment, meaning that the audit of f i n a nc ia l s t at em ent s , t he a u dit of complian c e le g isla t io n , t h e a ud it o f p erformance i n f o r m a t i o n , a n d a l s o w e h a d t h e a u d i t Te a m th at w a s responsibl e f or t he au dit of inf o rma tio n systems, excu se m e at SA A because SAA is a highly IT complicated business, so we needed to ensure t hen th at w e h av e g ot profe ssiona ls the n th at a re q ua l i f i e d w i t h th e kno w how in terms of that. One of the other important thing also was to have people also who have got experience in risk assessments especially for 20 t enders – f o r b i g t e n d e r s a n d t h a t w i l l b e a b l e t h e n to g i v e u s i n s i g h t s a n d a l s o p e o p l e t h a t will be able to do data analytics and analyse complex c o n t r a c t s a t S A A b e c a u s e S A A h a s g o t v e r y, v e r y c o m p l e x c o n t r a c t s . O n e o t h e r i m p o r t a n t i s s u e t o m e n t i o n C h a i r, w a s t h a t t h e s u p p o r t f r o m o u r b y t he name of t he Audit Research Devel o p m e n t w a s v e r y i m p o r t a n t t o e n s u r e t h e n t h a t t h a t Te a m a t a l l t i m e s , t h e y g e t p r i o r i t y w h e n th e n t her e Page 125 of 146 20 FEBRUARY 2020 – DAY 216 are complex issues that are there, and one of the things they did for us was to ensure then that they get the annual report of the p rior year, they a n a ly s e i t t h e a n n u a l r e p o r t , t h e y i d e n t i f y a r e a s w h e r e t h e r e m i g h t b e risks, that us as the aud i t Te a m th e n w e n e ed to prio ritize or b e aw are of a n d l o o k i n t o t h e m a n d a l s o o u r L e g a l S e r v i c e s D i v i s i o n i n t h e Auditor G e n e r a l o f South Africa was very closely in v o l v e d t o e n s u r e t h e n t h a t t h e y will offer advice on certain contracts and certain issues. So t h a t w a s t h e e ff o r t t h e n t h a t w a s m a d e fo r u s th en t o e nsu re th e n tha t w e ta ke t h is a s s i g n m e n t , w e e x e c u t e i t t o o u r b e s t a b il i t y C h a i r. 10 ADV M I C HAEL M B I K I WA: And can you describe for us the steps you t ook in or der t o u nde rs tand SAA’s busin ess? M R SOKO M BELA : Chair, the preparation of that audit on our side we t ook i t v ery, v e r y s e r i o u s l y a n d w e e n s u r e d t h e n t h a t f o r u s t o p e r fo r m t hi s as si gnm ent s u c c e s s f u l l y w e n e e d t o e n s u r e t h a t w e i n v e s t s u ff i c i e n t t i me and reso urc es to it a nd w hat we ensured then t h a t w e d o w a s t o ensure then that we engage the Auditee in the name of SAA, and also we e n g a g e o u r p r e v i o u s Auditor o r p r e d e c e s so r Auditor s a n d w e h a d a l o t o f meetings I think in December 2016, specifically at the level of the Acting CEO of SAA, at the l e v e l o f t h e t h e n i n t e r i m C F O a t S A A , w e h a d 20 engagements with all the heads of departments. We req u e s t e d a l o t o f i n f o r m a t io n f r o m y o u r p o l i c y d o c u m e n t s , g o v e r n a n c e d o c u m e n t s , t h e M i n u t e s o f t h e Board , yo u kno w fo r u s to e n s u r e t h e n t h a t w e a s s e s s, we eva l u a t e i n t e r m s o f t h e n t o u n d e r s t a n d t he bus in ess of S A A . In Jan u a r y 2 0 1 7 a l s o w e c o n t in u e d t o e n s u r e t h e n t hat we lea r n i n t e r m s o f h o w t h e b u s i n e s s i s w i r e d , y o u k n o w ? A n d o n e Page 126 of 146 20 FEBRUARY 2020 – DAY 216 of the critical issues then that we need to do is to engages these s t a k e h o l de rs to have training and consultation as well, and one of the t hi n gs i f y ou l o o k a t p a g e 3 1 o f t h e a ff i d a v i t f o r m p a r a g r a p h 6 0 . 1 i s t h a t what we did was to ensure then that when we get there we need to get t r ain ed by a n Avi a ti on ex p ert a n d we requested one o f t h e b i g f o u r a u d i t f i r ms , y o u k no w that hav e go t expe rience g l o b a l l y, t h a t a u d i t a i r l i n e s t o get us that expert. Th at ex pe rt t he n w as b a sed in Lon don so he f lew to South Africa at the time and he conducted training and also he was available for 10 c o n s ul t at io ns al s o t hro ugh ou t the au dit proce ss. One o f t h e key t opic s t hat he c o v ere d at the t i me w as t h e e c o n o m i c s o f t h e a v i a t i o n i n d u s t r y, t he prof it ab i lit y o f th e ai rlin e s, w ha t are the ch allen g es th a t a re f ace d b y t he c arri ers es pe ci al l y the one s in Afri c a a m o n g o t h e r s . We a l s o h a d a l o t o f e n g a g e m e n t s w i t h PricewaterhouseCoopers a s w e l l a s N k o n k i Incorporation with a view of gaining insights in terms of the risk areas t hat requ ire at t enti o n and a lso I mu st ment ion t h a t t h is is a re q uire me n t o f t h e a u d i ti n g s t a n d a r d s a s w e l l b e c a u s e w h e n y o u c o m e a s a n e w Auditor i t i s i n c u m b e n t t h e n t o y o u t o a c t u a ll y e n s u r e t h e n t h a t w e e n g a g e with the predecessor Audit o r. 20 Th e Executive M a n a g e m e n t Te a m o f S A A w a s v e r y h e l p f u l Chairperson as well as in terms of insurin g th ey w ere ava ila b le w hen we needed them. And also we requested them to do an induction for us, you know to induct us in terms of their business you know what are they doing, you know because it is easy to go to an airport and see and get i n t o a p l a n e a nd g e t i n t o a d e s t i n a t i o n b u t w e w a n t e d t o k n o w t h e Page 127 of 146 20 FEBRUARY 2020 – DAY 216 m e c h a n ic s y o u k n o w t h a t a r e i n v o l v e d i n t erms of then running the business. We wanted to understand their strategy in terms of what is it t hey want to a c hie v e as a bu siness. Africa n e c o n o m y ? Wh a t is t h e ir ro le in t he So u t h And also we wanted to understand the subsidiaries, t he d iv is i ons th at S o u t h A f r i c a n A i r w a y s h a s a n d t h e Engagement Te a m a l s o w e – a s t h e Engagement Te a m a l s o w e c o n d u c t e d o u r o w n r e g u l a r engagements because as we go out to engage with all of these various s t a k e h o l d e r s , w e n e e d e d t h e n t o c o m e b a c k a n d r e f l e c t a s a Te a m i n 10 t er ms o f – o u t o f a l l t h i s i n f o r m a t i o n t h a t w e a r e g e t t i n g f r o m t h e s e engagements, what are the risks? What can go wrong you know in the business itself? So we call t hos e e n ga ge men ts risk asse ssme nt sessio n s, whe r e t hen we d e l i b e r a t e e v e r y b o d y i n t h e a ud i t Te a m will have an engagement t hen t o c o n t r i b u t e . The other conscious decision that we made was to s a y p e r h a p s l e t u s g e t a n o t h e r p r i v a t e f i r m t h a t h a s g o t a n e x p eri e n c e i n a u d i t i n g a v i a t i o n e n t i t i e s . And when we made then that decision, because what we did not want to do is to get into SAA and pretend that we know how the industry operates. And when we get there then we ensure that 20 t he hi gh ri s k are as i n that ind u s t r y, t h e n t h e p r o f e s s i o n a l s f r o m t h e fir m itself then are going to be involved in terms of providing guidance to our Te a ms , g i v i n g i n s i g h t s i n t e r m s o f h o w c e r t a i n a r e a s n e e d s to b e d e a l t with and if I can mention a few in terms of then these high risk a re a s , i t i s t he is s u e of grow ing c o n c e r n b e c a u s e S A A w a s – h a d s i g n i f i c a n t o r s e r i o u s l i q ui d i t y c h a l l e n g e s a t t h e t i m e . A n d t h e r e i s c a s h f l o w f o c u s t h a t Page 128 of 146 20 FEBRUARY 2020 – DAY 216 t hey d o ba s ed o n t he p as sen ger numbe rs a n d t h e re ve nu e t h a t t h ey g oin g t o ma k e a nd th ose ass um pt ions c a n b e q u i t e c o m p l e x s o w e n e e d ed t h e n t o gai n i ns i ght s f rom people th e n t ha t h a ve b ee n th e r e t h a t h a v e l o o k e d into things. One other important component that – for SAA is very complex is t he ai rl ine re v enu e, th e reve nue from t ickets. I t is a ve ry, v e r y c o m p l e x area to look into. There are also specialised components in the aviation i n d u s t r y where you do not find them in other entities that are not airlines. F o r an ex am pl e , t he y have g ot a b ala n ce t ha t is ca lle d ma in te n an c e 10 reserves and that balance is a l s o v e r y, v e r y c o m p l i c a t e d b e c a u se t h e r e i s a l o t o f a s s u m p t i o n s t h a t a r e m a d e t h e r e t o h a ve t h a t b a l a n c e . And also there is also another balance also that is called provision for lease liabilities because that balance also – because SAA h a s g o t a l o t o f a irc raf t s tha t th e y h ave lea sed o u t a n d t h e r e a r e c e r t a i n c o n d i t i o n s t h e n i n t h o s e l e a s e s wh e r e t h e n S A A n e e d e d t o r e t u r n t h e aircrafts in the conditions that they were delivered at. So, then that c r e a t e s a l i a b i l i t y t h e n f o r S A A t o e n s u r e t h e n t h a t t he y k e e p o n maintaining the aircrafts over their useful lives as they are utilising the a i r c r a ft s . So, t here i s a lo t o f assu mp tio n s t hat are m ad e th e re . The re i s 20 a lot of transactions and these transactions can amount to billions of Rands . S o t hos e w ere th e very, v e r y c o m p l e x a r e a s . D e f i ni t e l y t h e p r o p e r t y a i r c r a f t a n d e q u i p m e n t a l s o a s a b a l a n ce i s a v e r y, v e r y complicated and specialised area. Chair our I nt ernal Qu a lity Co nt rol Busin ess Unit a l s o w a s v e r y, very involved because we did not want them the quality control to come Page 129 of 146 20 FEBRUARY 2020 – DAY 216 only at the end of the audit process. But we wanted quality control to h a p p e n o n a r e g u l a r b a s i s t o e n s u r e t h e n t h a t a n y n o n-c o m p l i a n c e f r o m o u r Te a m with the auditing standards is picked up early enough to ensure t hat w e d o no t g e t i n t o a r i s k o f e x p r e s s i n g a n i n a pp r o p r i a t e a u d i t opinion. And also, what we did also we l o o k e d f o r a p r i v a t e f i r m t h a t h a s got a person that has got experience in aviation also to do an external q u a l i t y c o n t r o l a s s e s s m e n t c o n t r o l a s w e l l i n t h e a u d i t. We ca ll t ha t p re i s s u a n c e r e v i e w. A pre -i s s u a n c e r e v i e w w h a t i t m e a n s i s t h a t b e f o r e t h e 10 a ud i t r e p o r t i s s i g n e d t h a t p e r s o n n e e d s t o r e v i e w t h e w o r k a n d n e e d s t o s a y, I a m h a p p y w i t h t h i s a u d i t o p i n i o n . So that is one of the critical a r e a s t h e n t h a t we ensure then that we need to deal wi th . SAA also is a tax p a y e r i n t e r m s o f t h e m h a v i n g t o pa y t h e personal income tax, the value added tax and those tax treatments of t hei r t rans ac t io ns as w ell can b e q uite co mp lica t ed . An d we e n sur ed t he n t hat w e n e e d e d t o g e t a t a x s p e c i a l i s t t o a c t u a l l y b e p a r t o f t h e Te a m a s well so that they can be able th e n t o p r o v i d e u s w i t h i n s i d e s i n t e r m s o f t hen t he t ax m at te rs at SAA. Chair throughout the audit of South African Airways I think it is 20 worth noting that we e n g a g e d a n d c o m m u n i c a t e d o n a r e g u l a r b a s i s w i t h a l l t h e g o v e r n a n c e s t r u c t u r e s , t h e A u d i t C o m m i tte e , th e Chairperson o f t he Board , t he Board M e m b e rs , t h e Executive M a n a g e m e n t Te a m t o ensure then that everybody is kept abreast in terms of then how the audit process is happening. Chair I think o n e o f t h e t h i n g s t h a t I t h i n k I h a v e h i g h l i g h t e d i n Page 130 of 146 20 FEBRUARY 2020 – DAY 216 p a r ag r a p h 6 1 o f t h e a ff i d a v i t i s t h e i s s u e o f t h i s l e a r n i n g o f t h e b u s i n e s s and the operating environment at SAA. It came with a significant f i n a nc ia l i nve s tm ent t o t he Auditor -G e n e r a l o f S o u t h A f r i c a . When we were doing our budgeting in terms of then how mu c h i s i t g o i n g t o c o s t u s , we thought then this is going to cost us 5 500 hours and I want to mention that these hours we said is going to be our investment time. What it means is that we are not g o i n g t o c l a i m i t a t S A A b e c a u s e w e n e e d t o l e a r n t h e b u s i ne s s a n d t h a t l e a r n i n g c u r v e i t n e e d s t o b e – we a r e n o t g o i n g t o b i l l S A A . We s a i d , o k a y a u d i t f e e s , w e a r e p r e p a r e d t o w r i t e 10 o ff 5 5 0 0 h o u r s o n a n e q u i v a l e n t o f 7 millio n Rand s . However, Chair the a c t u a l n u m b e r o f i n v e s t m e n t h o u r s t h a t w e e n d e d u p w i t h w e r e m o r e t h a n 1 4 0 0 0 h o u r s a n d w e e n d e d u p w r i t i n g o ff a b o u t 4 0 m i l l i o n Rand s i n t e r m s o f t h e p o t e n t i a l a u d i t f e e s t h a t w e o u g h t t o hav e cl ai me d at S A A. Be ca u s e w e t h o u g h t t h a t i t i s i m p o r t a n t f o r us t o i n v e s t q u i t e a l o t o f t i m e t o h a v e – t o u n d e r s t a n d t h e b u s i n e s s Chair. CHAIRPERSON : And how big was – wha t wa s t he numb er of the g roup t hat au dit ed S AA fro m t he AG ’s O ff i c e? I a m j u s t t h i n k i n g a b o u t t h i s v e r y high number of hours, 14 000. M R S O K O M B E LA: Chair it was a big group. 20 CHAIRPERSON : Yes . M R S O K O M BELA: I us e d to jo ke wh e n I t a lked t o pe o ple t hat a t SAA, w e had including the contracted in resources we would be about 70 people. CHAIRPERSON : So, it w a s q u i t e a b i g g r o u p . M R S O K O M B E L A: I t was q u i t e m a s s i v e . CHAIRPERSON : Yes . Page 131 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A: I t w as a m a s s i v e Te a m. CHAIRPERSON : Yes . M R S O K O M B E L A: When we were having meetings, we will have them in a n Auditor i u m . CHAIRPERSON : Yes . Would the s iz e of – wo u l d t h a t b i g s i z e o f t h e g r o u p h a v e b e en d e c i d e d u p o n b e c a u s e o f w h a t – b e c a u s e t h e AG ’s O ff i c e m i g h t h a v e r e a l i s e d t h e r e w e r e h u g e p r o b l e m s ? T h e o p i n i o n s t h a t had been expressed before that everything was fine were possibly very wrong o r was this siz e d e c i d e d u p o n b e c a u s e t h e r e w a s a s e n s e t ha t 10 t here is a lot of t rou bl e here ? We n ee d a lo t o f p eo p l e . Or is that something you would not know because you did not make the decision on t he s iz e? M R S O K O M B E L A: Chair the size was because of the size of the a u d i t o f SAA. Because SAA at the time was th e b ig g est State -O w n e d E n t i t y tha t we had because they g e n e r a t e d r e v e n u e i n e x c e s s o f 3 0 b i l l i o n Rand s . So that was a big Te a m. T he issu e o f risk as w ell Ch airpe rson, yes, we d i d c o n s i d e r r i s k s a l s o w e w e r e f orm u l a t i n g t h e Te a m. H ow e ve r, I thin k o n e o f t he big f act ors w as the fa ct t hat SAA is a b ig comp any. So , w e n e e d e d t o e n s u r e t h e n t h a t w e h a v e g o t s u ff i c i e n t r e s o u r c e s . 20 CHAIRPERSON : O k a y, t h a n k y o u . ADV MICHAEL MBIKIWA : How did this investment that you m a d e i n t h e SAA audit compare with other audi ts th at t he AG pe rfo rms? M R S O K O M B E L A: I t w as – Ch a i r i t w a s a b i g i n v e s t m e n t . I t w a s a b i g i n v e s t m e n t i n t h e s e n s e t h a t I t h i n k i n o t h e r a u d i t s w e d o w r i t e o ff f e e s but not to this magnitude. So, when I look into the investment time that Page 132 of 146 20 FEBRUARY 2020 – DAY 216 we did not clai m a t S A A v i s a v i e o t h e r Auditor s t h a t I h a v e b e e n i n v o l v e d with, this is the biggest. ADV MICHAEL MBIKIWA : It occu rs to me tha t somet hing I d id no t cove r earlier in the context of the mandate and role of the AG is the way that t he A G ge nerat es re v enue. D o p u b l i c e n t i t i e s p a y f e e s t o t h e Auditor - G e n e r a l rather t h a n t h e Auditor -G e n e r a l b e a l l o c a t e d f u n d s ? M R S O K O M B E L A: Chair the – th e r e a r e i n d e p e n d e n t i s s u e s t h a t I t h i n k t he l aws I t hi n k ha v e been mad e sp ecif i c a l l y f o r t h e Auditor -G e n e r a l b e c a u s e t h e Auditor -G e n e r a l d o e s n o t g e t a n a l l o c a t i o n o r a n e q u i t a b l e 10 s h a re . S o h o w t h e Auditor G e n e r a l o p e r a t e s h i s b u s i n e s s m o d e l i s t h a t you need to have professionals that are going to bill the clients and that e n s u r e s ou r independence. So, when we audit, we also like any other audit firm table the b u d g e t i n t h e – wi t h M a n a g e m e n t i n t h e A u d i t C o m m i t t e e s a n d r e q u i r e s t o t hem to approv e li k e any oth er p e rson . And we h ave t o ju st ify w hy a c e r t a i n a u d i t f e e n e e d s t o b e p a id a s o p p o s e t o u s g i v e n a n a l l o c a t i o n because that would impair our independence. There may be unintended c o n s e q u e n c e s f o r u s a s a n a u d i t o ff i c e t o b e g i v e n a n a l l o c a t i o n . ADV MICHAEL MBIKIWA : In de e d. Th a nk yo u. I wo uld no w like to t u rn 20 t o t he s ub st anc e o f t h e a u d i t i n th e 2 01 7 f ina nci a l y e a r a n d i n p a r t i c u l a r t he area s of c on c ern t hat you i d e n t i f i e d . I a m a w a r e I h a v e s k i p p e d o v e r t he c omp leti o n o f th e aud it in yo u r a ff idavit b u t I t h ink it m ake s se n se t o deal with that when we get to the end of it. M R SOKOMBELA : H’ m m . CHAIRPERSON : Ye s . J u s t b e f o r e y o u p r o c e e d . Page 133 of 146 20 FEBRUARY 2020 – DAY 216 ADV MICHAEL MBIKIWA : In de e d C h a i r. CHAIRPERSON : I t hin k I he ard e vide nce som e t ime last year t ha t on e or m o r e o f t h e y e a r s f r o m 2 0 11 t o 2 0 1 6 – 2 0 1 5 m a y h a v e b e e n a y e a r o r t here m ay hav e be e n y e a r s w h e r e S A A f a i l e d t o p r e s e n t th eir f in a ncia l statements and so on for some time. I s th a t so meth in g t ha t y ou remember ? M R S O K O M B E L A: Chair what I can remember i s t h a t b o t h t h e 2 0 1 4 / 1 5 audit results and the 2015/16 audit results were only released in September 2016. Those two financ i a l y e a r s . 10 CHAIRPERSON : And would that timing indicate th at t he re may h ave b e en problems or not? M R S O K O M B E L A: Th e ch a lle ng e Ch air a t t he t ime wa s SAA not b ein g able to prove its going concern. CHAIRPERSON : Yes . M R S OKO M B E L A: Whether it is a going conc e r n . CHAIRPERSON : Th at i s w hy – a n d t h a t w a s d u r i n g s o m e o f t h o s e y e a r s t hat y ou are ta l ki ng about . M R S O K O M B E L A: Absolutely Chair. CHAIRPERSON : 20 O k a y. B e c a u s e I s e e m t o remember th at a t a ce rta i n t i me when M ini s te r N e n e w a s s t i l l t h e M i n i s t e r o f F i n a n c e a n d I t h i n k i t was during a time when there were issues a b o u t a i r b u s e s a n d s o m e d e a l . T h e re w as a n i s s ue betw ee n th e Board o f S A A a n d t h e M i n i s t e r o f F i nanc e abo ut t he p res enta tion of su bmissio n o f f in a ncia l sta t e me n t s . J a o k a y. M R S O K O M B E L A: Yes . Page 134 of 146 20 FEBRUARY 2020 – DAY 216 ADV M I C H A E L M B I K I WA: In f act , in 20 1 7 the re wa s a dela y in the f i n a nc ia l s ta te me nt s , w as the re n ot? M R S O K O M B E L A: Absolutely Chair. ADV MICHAEL MBIKIWA : You deal with that at paragraph 65. Would y ou l i k e t o e x p l a i n t h a t? M R S O K O M B E L A: Absolutely Chair. CHAIRPERSON : O r b e f o r e y o u d o t h a t l e t m e a s k t h i s q u e stio n. Wou ld a delay in submitting financial statements on the part of a public entity like SAA be the kind of thing that would indicate to an auditing firm that t h e r e 10 m a y b e p r o b l e m s o r n o t n e c e s s a r il y ? Wo u l d i t b e s o m e t h i n g t o b e f l a g ged? Wou ld i t be so m e t h i n g t h a t a t t r a c t s t h e i r a t t e n t i o n t o s a y l e t u s look deep into this? M R S O K O M B E L A: Chair it depends in terms of what it is that is maybe m a k i n g t h e e n t i t y . . . (intervenes). CHAIRPERSON : Th e reas o n f o r t h e d e l a y. M R S O K O M B E L A: Delay, the reason for t h e d e l a y. F o r a n d e x a m p l e a t SAA one of the things that they could not be able to prove was whether t hey will be abl e to c onti nue to ope rate . CHAIRPERSON : Yes . 20 M R SOKOMBELA : Excuse me - b e c a u s e o f mo n e y. CHAIRPERSON : Yes . M R S O K O M B E L A: Yes , they did no t ha ve mon ey. CHAIRPERSON : Yes . But is that the k ind of thing that would s ay to an Auditor who is responsible for auditing that entity when you audit this entity you need to be really careful – look carefully before you issue an Page 135 of 146 20 FEBRUARY 2020 – DAY 216 u n q u a l i f i e d a u d i t o r n o t re a l l y ? M R S O K O M B E L A: I t w i ll b e on e of th e fa ctors Ch airpe rson . CHAIRPERSON : Yes . M R S O K O M B E L A: To s a y y o u – we c a l l i t i n a u d i t i n g p r o f e s s i o n a l scepticism. CHAI R PE R SO N: Yes . M R S O K O M B E L A: You nee d t o b e s c e p t i c a l a n d e n s u r e t h e n t h a t whatever was trou b l i n g t h e e n t i t y b e f o r e y o u s i g n t h e a u d i t r e p o r t . CHAIRPERSON : J a . 10 M R S O K O M B E L A: I f t here is n o issu e, y ou a re sure th at th er e is n o issue. CHAIRPERSON : Yes . O k a y, t h a n k y o u . ADV MICHAEL MBIKIWA : Th an k you . Yo u w ere go ing to e xplain t h e d e l a y i n t h e f in anc ial st at eme nts specif ically in 201 7 . M R S O K O M B E L A: Chair in 2017 it became – i t was the same issue. Because I remember when we joined – wh e n w e b e c a m e th e Auditor s o f South African Airways ther e w a s a p r o b l e m w i t h S A A n o t b e i n g a b l e t o p a y its loans or its debt when it is for due. So, there were lots of d e l i b e r a t i o n s t h a t t h e e x e c u t i v e M a n a g e m e n t Te a m a n d t h e Board were 20 m a k i n g w i t h t h e C o n s o r t i u m o f B a n ks a t t h e t i m e b e c a u s e t h e f i n a n c i a l s i t u at ion at t he t ime i t w as ve ry d ifficu lt fo r th em a n d t h e b a n k s a l s o w e r e not willing to extend for a longer period of time. Fo r an ex amp l e t h ey will ext end it fo r th ree mon th s a nd ext en d i t f or th ree mon th s a nd then th e ch a llen g e th e n th at SAA h a d is tha t i f y o u extend, made to pay you in three months’ time, the financial reporting Page 136 of 146 20 FEBRUARY 2020 – DAY 216 f r ame wo rk t ha t I p repare f inan cial st ate me nt s u sing a s SAA re qu ire s me t o mak e a dec l ara ti o n i n my fin ancia l stat e me n t s t h at in t h e n ext 1 2 m o n t h s I w i l l s t i l l b e a b l e t o o p e r a te . So, if I am not able to pay my c r e d i t o r s o r t h e b a n ks w i t h i n t h e n e x t 1 2 m o n t h s I d o n o t h a v e – I c a n n o t d e m o n s t r a t e t h a t I w i l l h a v e t h e m o n e y. T h e n t h e a c c o u n t i n g f r a m e w o r k t hen do es no t all o w t hen for th e fin a n c i a l s t a t e m e n t s t o b e p r e p a r e d o n a going concerned basis. It would be maybe on a liquidation basis or whatever basis then that they need to be prepared with. So, then that in 2017 Chair then that became a big issue 10 because there were no – there was no funding that SAA can have. And t he Board was not comfortable at the time to submit financial st a t e m e n t s t o us fo r au dit . F or an exa mp le in terms o f t h e le g isla t io n t h e p ub l i c entity like SAA is required to submit financial statements for us to audit b y 3 1 s t o f M a y e a c h y e a r. H o w e v e r, i n 2 0 1 7 th e y cou ld n o t su bmit t h e f i n a nc ia l s ta te me nt s bec ause t h e y c o u l d n o t p r o v e g o i n g c o n c e r n a t a l l . And they had to obtain a formal commitment form their shareholder which i s S o u t h A f r i c a n G o v e r n m e n t w h e t h e r t h e n th e i r s h a r e h o l d e r w i l l b e a b l e t hen t o in jec t fur th er equ ity in to the bu siness. J a , s o I t h i n k t h a t was the challenge Chair that they had even 20 t hough t h ey e nde d u p givin g u s I th ink f inan cia l st at e me n t s by 3 1 s t o f October 2017 because there were a couple of – there were funds then t hat t he s ha reh ol de r at the time National Treasury gave to SAA and they wer e a b l e t h e n t o p r o v e g o i n g c o n c e r n . T h e n t h e y s u b m i t t e d t o u s a n d t hen we en de d up s i g ni ng th e fin a ncia l stat ement s o n t h e 8 t h o f D e c e m b e r 2017. Page 137 of 146 20 FEBRUARY 2020 – DAY 216 ADV MICHAEL M B I K I WA: Th an k yo u. CHAIRPERSON : Th at – s o rry. That difficulty that SAA struggled with which you h a v e j u s t t o l d m e a b o u t i n 2 0 1 7 a b o u t t h e s e f i n a n c i a l statements not being able to prove that for the next 12 months they will b e a b l e t o b e – t o p a y c r e d it o r s . I g e t t h e i m p r e s s i o n t h a t t h a t i s a v e ry serious situation that any company can find itself in – any entity can find itself in. I s i t pos s i bl e th a t a n Auditor who had been auditing such a c o m p a n y f o r t h e p r e v i o u s f o u r y e a r s o r s o c o u l d i s s u e a c l ea n a u d i t f o r 10 e a c h o n e o f t h o s e p r e v i o u s y e a r s wi t h o u t h a v i n g p i c k e d u p a n y p r o b l e m t hat sh ows th at in d u e c o u r s e t h e r e i s g o i n g t o b e t h i s p r o b l e m ? O r i s i t possible that they may pick such a problem up but it would not be the t i me f or t he m to sa y t here i s a p r o b l e m b e c a u s e m a y b e t h e p r o b l e m w i l l m a n i f es t i t s el f i n an ot he r fina n cial year? Bu t I wou ld h a ve th ou g ht t h at when you do – wh e n y o u a u d i t t h i s y e a r y o u a r e s u p p o s e d t o a l e r t M a n a g e m e n t t o w hat pr ob lems may a rise in the fin a ncia l year – i n the next financial year as well if possible. I k now y ou s a i d t h a t y o u Auditor s a u d i t h i s t o r y b u t a r e y o u a b l e to assist me? 20 I f y o u a s k m e o n l a w, I w i l l t e l l y o u t h a t i f a c e r t a i n a problem in a case arises on the last day of the trial, I might be able to tell y o u t h a t t h a t p r o b l e m s h o u l d h a v e b e e n p i c k e d u p mu c h e a r l i e r. M R S O K O M B E L A: H’ m m . CHAIRPERSON : So, is t h i s n o t p o s s i b l e i n a u d i t i n g ? M R S O K O M B E L A: Chair I know that I said we audit history. And the issue of going concern is one of the exceptions to that because if you find Page 138 of 146 20 FEBRUARY 2020 – DAY 216 out that the entity has got liquidity problems, they may be able to c o n v i n c e y o u a s a n Auditor th at , with ing 1 2 mo nth s w e ca n st ill su rviv e . But there might be a lot of uncertainties in that process as an Auditor. Th at i s why th en a n Auditor th en – th e a u d i t i n g s t a n d a r d s e s p e c i a l l y t hat d eals w ith g o in g con cern , beca use t h ere is a spec i f i c a u d i t i n g s t a n d a r d t h a t d e a l w i t h g o i n g c o n c e r n , g i v e s t h e n a n Auditor a n o p t i o n t o h i g h l i g h t t h e u n c e r t a i n t y i n t h e a u d i t r e p o r t t o s a y, i n a s m uc h as this entity is saying that they are a going concern I am highlighting to y o u t h a t t h e r e a r e t h e s e u nc e r t a i n t i e s t h a t a r e t h e r e . A n d t h e r e a s o n f o r 10 t hat Ch airp ers o n is t hat the re are ma ny pe o p le t h at use s f ina n cia l statements and the audit report is the one that most people that are using f i n a nc ia l s t a t e m e n t s t h e y a l w a y s g o a n d r e a d . And it is important th e n th at fo r yo u a s a n Auditor th en yo u highlight those challenges so that when then people are making decisions b a s e d o n t h o s e f i n a n c i a l s t a t e m e n t s , th e y kn ow th e n th a t the Auditor h a s h i g h l i g h t e d t h os e s p e c i f i c i s s u e s . CHAIRPERSON : And actually when yo u a u d i t a n e n t i t y i s i t n o t t h e position that part of the usefulness of your report is that other people who may do business with this entity may look at that report or look at to see 20 whether this is a f in anc ially viable en t ity to do b u sine ss w ith . Is t ha t right? M R S O K O M B E L A: Absolutely Chair. CHAIRPERSON : So therefore, when any Auditor a u d i t s i t i s o n e o f t h e c r i t i c a l t h i n g s t o d o t o s e e w h e t h e r w ha t th e y sa y a b ou t the fina nci al h e a l t h o f t h i s e n t i ty i s a c c u r a t e . Page 139 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A: Absolutely Chair. CHAIRP ERSON: Because they know other people and other businesses may rely on this report to do business with them for the next 12 months or whatever. M R S OKO M B E L A: Absolutely Chair. CHAIRPERSON : O k a y, t h a nk y o u . M R S O K O M B E L A: Absolutely. ADV MICHAEL MBIKIWA : Is t h ere – j u s t t o p i c k u p o n t h a t C h a i r. Is t here ot her re li an ce t hat is p laced o n a u dit re p o rt s o th e r t h a n by o t h er 10 businesses? M R S O K O M B E L A: Th e re i s a l o t o f v a r i o u s u s e r s o f r e p o r t s C h a i r. I f i t i s a p u b l i c e n t i t y f r o m t h e s h a r e h o l d e r o f t h a t p u b li c e n t i t y b e c a u s e w e w i l l rely on the audit report to see if governance issues – i f m a y b e t h e Board i s r u n n i n g t h e e n t i t y p r o p e r l y. P a r l i a m e n t e s p e ci a l l y t h e n t h e o v e r s i g h t l i k e y o u r P o r t f o l i o C o m m i t t e es i n P a r l i a m e n t w o u l d l i k e a l s o- would rely o n t h a t a ud i t r e p o r t . Creditors or the suppliers of the business because for then to s e e t h a t t h e i r m o n i e s a r e s af e a l s o , t h e y n e e d t o s e e i n t e r m s o f h o w th e audit reports looks like. The employees also of the entity because also 20 t hey w ant t o s ee t he i r prosp ects whether then their salaries are still going t o be pai d or no t. J a , s o t h e r e i s a w h o l e h o s t o f d i ff e r e n t u s e r s w i t h d i ff e r e n t o b j e c t i v e s a n d d i ff eren t a ge nd a s t ha t th ey wou ld w an t to ut ilise t he audi t report for. CHAIRPERSON : And well from what you are s a y i n g i t s e e m s t o m e t h a t t heref ore an y Auditor a u d i t i n g a n e n t i t y w o u l d p a y p a r t i c u l a r a t t e n t i o n t o Page 140 of 146 20 FEBRUARY 2020 – DAY 216 t he ques t io n of th e go ing conce rn stat us o f t he en t i t y g o i n g f o r w a r d f o r t he nex t whate v er ma y be 1 2 m o n t h s o f w h a t e v e r p e r i o d . I s t h a t c o r r e c t ? M R S O K O M BELA: Chair that is correct because we even have an auditing standard that deals with going concern. CHAIRPERSON : Yes . M R S O K O M B E L A: So that is th e n – th a t th e n de mo n strat e th e s e r i o u s n e s s o f e v a l u a t i ng g o i n g c o n c e r n a s a n Auditor. CHAIRPERSON : Yes . ask the question. 10 Now a g a i n s t t h a t b a c k g r o u n d o r m a y b e I s h o u l d H a d PwC a n d N k o n k i i n t h e i r a u d i t r e p o r t s o f 2 0 11 / 2 0 1 2 f i n a n c i a l y e a r, 2 0 1 2 / 2 0 1 3 , 2 0 1 3 / 2 01 4 , 2 0 1 4 / 2 0 1 5 a n d e v e n 2 0 1 5 / 2 0 1 6 , h a d t h e y i n d i c a t ed a n y t h i n g t h a t s h o w e d y o u t h a t t h e r e m a y be problems – there could be problems of on the status of SAA as a going concern or had they not? M R S O K O M B E L A: Chair based on my inspections of the report I h a v e n o t seen any of those on their audit reports. CHAIRPERSON: Yes . M R S O K O M B E L A: Yes . CHAIRPERSON : And I k n o w I m a y b e g o i n g m u c h a h e a d o f y o u b u t m a y b e f o r c o m p l e t e n e s s i t i s i m p o r t a n t t o d e a l w i t h i t n o w. H a v i n g l o o k e d 20 a t w h a t PwC a n d N k o n k i h a d d on e d id y o u f o r m a n y o p i n i o n w h e t h e r h o w it came about that they did not flag this issue? How they could have m i s s e d i t ? I s t h a t s o m e t h i n g t h a t y o u a r e a b l e t o e s t a b l i s h t o s a y, w e l l m a y b e i t i s i n e x p l i c a b l e h o w t h e y d i d n o t p i c k i t u p . A n y Auditor worth h i s or her salt would have picked this up. O r i t w a s a l i t t l e t r i c k y, i t i s c o m p l i c a t e d , i t i s u n d e r s t a n d a bl e i f Page 141 of 146 20 FEBRUARY 2020 – DAY 216 s o m e Auditor d i d n o t p i c k i t u p . O r y o u m i g h t s a y, n o b u t r e a l l y t h e s e were very experienced Auditor s . T h i s i s a b i g a u d i t i n g f i r m PwC, N ko n k i i s a m e d i u m f i r m a s y o u s a i d , t h e r e i s n o w a y t h e y were not aware of this. So, if they did not flag it o r say anything it must be pointing to something else. M R S O K O M B E L A: Chair .. .(in terve n es). CHAIRPERSON : I kn ow I ma y b e pu tt in g you in a d ifficu l t p os i t i o n . M R S O K O M B E L A: J a . CHAIRPERSON : 10 But I want to try an d u nd e rstan d beca use o ne o f th e t hi n gs t hat we are trying to do is what happened, why were certain things not picked up for SAA to be where it ended up being and in terms of State Capture wh o p la y e d w h a t r o l e ? A n d d i d e v e r y b o d y d o t h e i r p a r t t he w a y t hey sh oul d ha v e do ne? M R S O K O M B E L A: Chair on m y s i d e I w o u l d n o t l i k e t o s p e c u l a t e i n t e r m s o f w h a t w e r e t h e c i r c u m s t a n c e s t h a t t h e p r e v i o u s Auditor s h a d t o – o r were faced with or they had to e v a l u a t e a t t h e t i m e . H o w e v e r, i f t h e c i r c u m s t a n c e s w e re t h e s a m e a s o u r o w n c i r c u m s t a n c e s w h e n w e t o o k b a c k SAA audit. Ja, it would be surprising why they would not have h i g h l i g h t e d t h a t . H o w e v e r, I t h i n k t h e m o s t i m p o r t a n t t h i n g C h a i r i s t h a t I 20 a m v e ry c a r e f u l t o s a y I a m g o i n g t o g o t o t h e p e r i o d t h a t I wa s n o t involved. CHAIRPERSON : Yes . M R S O K O M B E L A: Bec a u s e t h e r e m a y b e s p e c i f i c c o n s i d e r a t i o n s o r certain considerations that they may have made. CHAIRPERSON : Yes . Page 142 of 146 20 FEBRUARY 2020 – DAY 216 M R S O K O M B E L A: Th at mad e the m no t to h i g h l i g h t t h e i s s u e o f g o i n g concern. CHAIRPERSON : Ye s . No, I think you have put it quite carefully and I t hi n k – s o y o u s a y i f t h e y w e r e f a c e d w i t h t h e s a m e c i r c u m s t a n c e s t h a t you were faced with looking at SAA, you would be surprised why they did n ot p ic k i t . Yo u d o n o t k n o w i f t h e y w e r e f a c e d w i t h t h e sa m e c i r c u m s t a n c e s , c a n I t h e n p u t t h i s , b u t b e i n g a n Au d i t o r o f m a n y y e a r s ’ experience have got any reason to think their circumstance may have b e e n d i ff e r e n t ? I n t e r m s o f w h a t a n Auditor n e e d s t o h a v e i n o r d e r t o p i c k 10 up certain things. I s t h e r e s o m e t h in g t h a t y o u t h i n k m i g h t h a v e b e e n d i ff e r e n t ? I k n o w yo u a r e – I a m n o t a s k i n g y o u t o b e d e f i n i t e . M R S O K O M B E L A: Yes . Chair may be what I c an s ay is that when we took b a c k – wh e n i t t o o k S A A t h e a u di t o f S AA, there were loans that were e x t e n d e d t o e n d o f D ec e m b e r 2 0 1 6 . CHAIRPERSON : Yes . M R S O K O M B E L A: And SAA d i d n o t h a v e m o n e y t o p a y t h e m . CHAIRPERSON : Yes . M R S O K O M B E L A: Th e au dit re po rt s w ere sig n ed on t he – o n September 2016. 20 CHAIRPERSON : Yes . M R S O K O MBELA : Th en th at is Oct ob e r, No vember, D ecembe r, t h a t i s t hr ee m ont hs a ft er t he audit repo rt h as b een sig n e d . CHAIRPERSON : Yes . M R S O K O M B E L A: So, I do not know whether maybe they when the audit report was signed whether they had sight of those c h a l l e n g e s o r n o t . Page 143 of 146 20 FEBRUARY 2020 – DAY 216 CHAIRPERSON : Yes . M R S O K O M B E L A: However, when we came we were inundated with t hos e t roubl es . CHAIRPERSON : Yes . M R S O K O M B E L A: Where SAA could not demonstrate their ability to pay t he lo ans f rom t he ban ks . CHAIRPERSON : Yes . O k ay, than k y o u . ADV MICHAEL MBIKIWA : Chair, that might be an approp riate moment at which to adjourn. I see it is 1 6 : 0 0 . 10 CHAIRPERSON : Yes . How muc h time do we need to finis h with him? ADV MICHAEL MBIKIWA : Chair I would think probably an hour and a half perhaps. CHAI RPE RS ON: O k a y. A n d t h e o t h e r w i t n e s s f o r t o m o r r ow is likely to t ak e how lo ng ? ADV MICHAEL MBIKIWA : Th e r e m a i n d e r o f t h e d a y C h a i r b u t w e a r e relatively confident we can complete with some hesitation. CHAIRPERSON : You mus t k now that y ou are on y our o w n o n m a k i n g a n y undertaking. ADV MICHAEL MBIKIWA : I c h e c k e d f i r s t C h a i r. I c h e c k e d f i r s t . 20 CHAIRPERSON : O k a y. M a y b e t h a t i s f i n e . S h o u l d w e s t a r t a l i t t l e e a r l y t omo rrow or s h oul d we s ti ck to no rma l time ? ADV MICHAEL MBIKIWA : Chair perhaps we could s t art at 0 9 : 3 0 . CHAIRPERSON : H’ m m . ADV MICHAEL MBIKIWA : If t ha t wo uld b e co n venie nt. CHAIRPERSON : But your fe e lin g is th at ma yb e e ve n 1 0:0 0 mig h t b e f ine . Page 144 of 146 20 FEBRUARY 2020 – DAY 216 ADV MICHAEL MBIKIWA : Even 10:00 might be fine indeed. CHAIRPERSON : O k a y, c a n w e l e a v e i t a t 1 0 :0 0 o n th e u n de rsta n ding t hat if I c h an ge m y m i nd and advis e y o u i n t h e c o u r s e o f t h i s e v e n i n g , y o u m i g h t b e a bl e j u s t t o a d v i s e t h e w i t n e s s a s t o b e h e r e a l i t t l e b i t e a r l i e r ? ADV MICHAEL MBIKIWA : Certainly Chair. CHAIRPERSON : O k a y. O k a y a l r i g h t . O k a y we ar e g o i n g t o a d j o u r n n o w and we will resume tomorrow at 10:00 unless everybody is advised d i ff e r e n t l y b e f o r e 0 9 : 0 0 t o m o r r o w. We a d j o u r n . REGISTRAR : All rise. 10 I NQ UI RY AD JOU RN S TO 21 FEB RU A RY 20 2 0 20 Page 145 of 146 20 FEBRUARY 2020 – DAY 216 TRANSCRIBER’S CERTIFICATE FOR COMMISSION OF INQUIRY INTO STATE CAPTURE HELD AT PARKTOWN, JOHANNESBURG DATE HELD : 2020-02-20 DAY: : 216 TRANSCRIBERS : B KLINE; M NETTA; D STANIFORTH; B DODD; D BONTHUYS Audio’s are typed verbatim, as far as audible/possible Page 146 of 146