Briefing to the Portfolio Committee: Cooperative Governance and Traditional Affairs Audit outcomes of the portfolio for the 2014-15 financial year 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, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

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.

Content The scope of AGSA audits 5 Overall audit outcomes 6 Unauthorised/ irregular / fruitless and wasteful expenditure 10 4. Combined assurance 11 5. Root causes and recommendations 12

1. The scope of the AGSA audits What we do  What we don’t do X Provide assurance that AFS are free from misstatements that will affect users Do not provide assurance on the appropriateness of the departmental budgets Report on usefulness and reliability of the information in the annual performance report Do not provide commentary on service delivery Report on material non-compliance with relevant key legislations Do not report on ALL legislations – only key selected requirements from relevant legislations are audited Identifying the key internal control deficiencies to be addressed We assess the risk of fraud, but we are not responsible for – Fraud identification Fraud prevention

2. Overall audit outcomes – CoGTA Portfolio Overall stagnation in audit outcomes Assurance levels Key controls Senior management First level Accounting officer/authority Executive authority Second level Internal audit unit Audit committee Third level Portfolio committee Unqualified with no findings Unqualified with findings Provides assurance Provides some assurance Provides limited/ no assurance Vacancy Not established Good Concerning Intervention required 1 To improve/maintain the audit outcomes … 2 … the key role players need to assure that … 3 … attention is given to the key controls and … … the risk areas and … 4 … the root causes are addressed … 5 6 … and the commitments are honoured. Risk areas Root causes Status of key commitments by minister Quality of submitted financial statements Quality of submitted performance reports Supply chain management Slow response by management (Accounting officer and senior management) Quarterly audits will be performed in line with the community work programme (CWP) implementation manual. Non-compliance and/or matters of concern identified will be communicated on a quarterly basis to the accounting officer and the executive authority. Irregular expenditure reports will be compiled monthly by unit heads, who will declare if any irregular expenditure was incurred and sign off on the reports. Internal audit will validate the monthly reporting to the accounting officer. Fully operational internal audit function at MISA and regular meetings with the chairperson of the audit committee. DCoG, DTA, MISA, MDB CoGTA, MISA, MDB Internal and external audit findings will form part of DCoG’s SMS members performance agreements. Instability or vacancies in key positions Management will compile monthly financial statements with disclosure notes in order to improve on the quality of annual financial statements submitted for audit. These financial statements must be reviewed by the accounting officer and the internal audit function to ensure validity, completeness and accuracy of the financial statements. Human resource management Information technology DCoG, MISA Financial health MISA, CRL , MDB Lack of consequences for poor performance and transgressions DCoG, MISA, CRL CoGTA Action plans to address repeat findings will be implemented and monitored in a timely manner. Good Concerning Intervention required 2014-15 2013-14 Not implemented In progress Implemented New

2.1 Quality of submitted financial statements Outcome if NOT corrected Outcome after corrections 2014-15 5 auditees Legend: Financially unqualified with/without findings Financially qualified (qualified/ disclaimed with findings) Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 3 auditees 2013-14

2.2 Quality of annual performance reports 67% of reports were reliable and useful compared with 40% in previous year. of auditees that submitted information, did so in time for audit auditees did not prepare annual performance report (2013-14: 0%) 100% 0% Legends: With no findings With findings Improvement Stagnant or limited progress Regressed Usefulness Reliability

2.3 Most auditees did not comply with legislation in following areas Quality of annual financial statements submitted Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure Management of procurement and or contracts Legends: With no findings Intervention required With findings Improvement Stagnant or limited progress Regressed Management of strategic planning and performance Human resource & consequence management Internal audit & Audit committee

3. U,I,FW expenditure Unauthorised expenditure Irregular expenditure Fruitless and wasteful expenditure Legends: Decrease in incurred expenditure No change Increase in incurred expenditure Finding not repeated New finding Repeat finding Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Definitions DCOG - R155 375 000 DTA R2 252 000 R6 518 000 MISA R6 673 085 R73 228 840 R512 303 SALGA CRL Rights Commission MDB R3 051 825 Totals R8 925 085 R238 173 665 R512 303

4. 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

5. Top three root causes and recommendations Slow response by management (Accounting officer and senior management) Regular monitoring of the action plans to ensure that the identified deficiencies are addressed to avoid repeat findings and continued non-compliance. Although internal control processes exist, it must be consistently monitored and adhered to by all employees. Regular assessments of the status of internal controls, especially regarding financial statement preparation and implementation of the CWP, must be undertaken by management to address deficiencies as and when they arise. Instability or vacancies in key positions The accounting officers of DCoG and MISA should provide feedback to the executive authority on the progress made in filling of key vacancies at key management level on a quarterly basis. Lack of consequences for poor performance and transgressions The accounting officers should intensify their focus on ensuring that transgressors are held accountable and that action is taken as required by the PFMA. Action taken against repeat transgressors should be done so in a timely manner, in order to eliminate repeat findings.

Questions