Briefing to the Portfolio Committee on Mineral Resources Audit outcomes of the mineral resources portfolio for the 2014-15 financial year Presented by: Zolisa Zwakala and Steven Maluleke 14 October 2015

Reputation promise/mission The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. Need to consider the following All information to be included needs to have been audited and is accurate and correct If information included is not audited then it needs to be specified as such or specified that this was based on a sample tested

Purpose of the presentation Annually oversight committees set aside time to focus on assessing the performance of departments. On completion of the process, portfolio committees are required to develop department-specific reports, namely budgetary review and recommendations reports (BRRR) which express the committee`s view on the department’s budget for recommendation to the National Treasury ahead of the following year`s budget period. Our role as the AGSA is to reflect on the audit work performed to assist the portfolio committee in its oversight role in assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR.

Contents Slide nr. 1. Overall audit outcomes for Mineral Resources portfolio 5 2. Auditor-General six key focus areas 6 Financial health 10 Unauthorised/ Irregular / Fruitless & Wasteful expenditure 11 5. Combined assurance and assessment of assurance providers 14 6. Assessment of assurance providers 15 7. Drivers of key controls for portfolio 16 8. Root causes and recommendations 17 9. Minister commitments to address root causes 19

1. Overall audit outcomes for the mineral resources portfolio 2014-15 PFMA Unqualified no findings Unqualified with findings Qualified with findings Adverse with findings Disclaimer with findings 6 auditees 6 auditees 6 auditees

2. Auditor-General six key focus areas 2014-15 PFMA Quality of submitted financial statements Quality of submitted performance reports Compliance with legislation Good Concerning Intervention required Human resource management Information technology Financial health Improvement Stagnant or limited progress Regressed

2.1 Quality of submitted financial statements 2014-15 PFMA Outcome if NOT corrected Outcome after corrections 3 auditees Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) 2014-15 Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 100% (6) 6 auditees 2013-14 7

2.2 Quality of submitted annual performance reports 2014-15 PFMA Outcome if NOT corrected Outcome after corrections Annual performance report not materially misstated Annual performance report contained material misstatements 1 auditee 2014-15 Avoided findings by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 2013-14 2 auditees 8

2.3 Most auditees did not comply with legislation in the following areas 2014-15 PFMA Quality of annual financial statements submitted Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure Management of procurement and or contracts Good Concerning Intervention required Management of strategic planning and performance Human resource & consequence management Internal audit & Audit committee Improvement Stagnant or limited progress Regressed Unchanged but good

3. Financial health of the portfolio Good Concerning Intervention required 2014-15 PFMA Focus areas for financial health Status Comment Commitments We  have noted a slight improvement on implementation of prior year commitments by the minister. We are  very encouraged by the commitment and spirit of cooperation that the minister has displayed. We recommend that the leadership strive towards fully implementing the remaining commitments by the end of the 2015-16 financial year. Accrual / Payables Payables are paid within the 30 days as required by National Treasury regulations Only to be included if going concern or accruals/payables or commitments have been included in the audit report. 10

4. UIFW expenditure definitions 2014-15 PFMA Unauthorised expenditure Expenditure not in accordance with the budget vote Irregular expenditure Expenditure incurred in contravention of key legislation Fruitless and wasteful expenditure Expenditure that should not have been incurred (incurred in vain that could have been avoided and no value for money) 11

4.1 Irregular expenditure for portfolio 2014-15 PFMA Identified by auditees Identified by auditors 12

4.2 Fruitless and wasteful expenditure for portfolio 2014-15 PFMA Identified by auditees Identified by auditors 13

5. Combined assurance – complimentary mandate Senior management Accounting officers/ authority Executive Required assurance levels Extensive Management’s assurance role Senior management – take immediate action to address specific recommendations and adhere to financial management and internal control systems Accounting officers/ authority – hold officials accountable on implementation of internal controls and report progress quarterly and annually Executive authority – monitor the progress of performance and enforce accountability and consequences Management assurance First level of assurance Oversight assurance Second level of assurance Coordinating / Monitoring institutions Internal audit Audit committee Extensive Required assurance levels Oversight’s assurance role National Treasury/ DPSA – monitor compliance with laws and regulations and enforce appropriate action Internal audit – follow up on management’s actions to address specific recommendations and conduct own audits on the key focus areas in the internal control environment and report on quarterly progress Audit committee – monitor risks and the implementation of commitments on corrective action made by management as well as quarterly progress on the action plans Independent assurance Third level of assurance Oversight (portfolio committees / councils) Public accounts committee National Assembly Extensive Required assurance levels Role of independent assurance Oversight (portfolio committees) – review and monitor quarterly progress on the implementation of action plans to address deficiencies Public accounts committee – exercise specific oversight on a regular basis on any report which it may deem necessary National Assembly – provide independent oversight on the reliability, accuracy and credibility of National and provincial government

6. Assessment of assurance providers for portfolio 2014-15 PFMA First level Improvement Stagnant or little progress Second level Regressed Please note that no assessment for PC. This can however be discussed with chair one-on-one to start preparing them for next year when this will be included Provides assurance Provides some assurance Provides limited/ no assurance Vacancy Not Established/ Evaluated 15

Drivers of internal control 7. Driver of key controls for portfolio 2014-15 PFMA Drivers of internal control Department & Entities Leadership Financial & performance management Governance Effective leadership culture Oversight responsibility HR management Policies and procedures Action plans IT governance Proper record keeping Processing and reconciling controls Reporting Compliance IT systems controls Risk management Internal audit Audit committee Department of Mineral Resources   Council for Geoscience Council for Mineral Technology Mine Health and Safety Council South Africa Diamond and Precious Metals Regulator State Diamond Trader Good Concerning Intervention required Improvement Stagnant or little progress Regressed

8.1 Root causes should be addressed (top three) 2014-15 PFMA Slow response by management in addressing the root causes of poor audit outcomes Management of the entities still provides some assurance. Some of the issues raised in the current year are similar to those that were raised last year e.g. significant adjustments to the AFS. Management should move quickly to address this issue as it is a recurring issue. 2014-15 2013-14 Key officials lack appropriate competencies Improved Stagnant or little progress Auditees do not always assess the competencies of the finance and SCM staff, which means that they would not be aware of any shortcomings. The lack of appropriate understanding of the financial reporting frameworks is one of the root causes for significant adjustments to the annual financial statements thus resulting in poor quality AFS and significant non-compliance issues. Regressed Instability or vacancies in key positions Entities have been battling to obtain sufficiently skilled resources to fill existing vacancies. Measures must be put in place in order to ensure key vacant positions are filled timeously.

8.2 Root causes & Recommendations (top three) 2014-15 PFMA Root causes Recommendation Slow response by management in addressing the root causes of poor audit outcomes Management should timeously implement the action plans to address all the issues that are raised during the audit process. This will enable entities to have enough time to appropriately address all the issues raised. Key officials lack appropriate competencies Assessments should be conducted timeously in order to identify deficiencies. Identified deficiencies should be promptly addressed through training courses and on the job training. Instability or vacancies in key positions Management should strive to fill feel critical positions timeously. Where entities battle to feel these positions, assistance from the executive authority should be requested. 18

9. Minister commitments to address root causes 2014-15 PFMA Status of key commitments by minister Not implemented In progress Implemented New

Questions