15 October 2013 Audit outcomes - Briefing to the Chairperson of the Department of Mineral Resources PC

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 governan in the public sector through auditing, thereby building public confidence.

Agenda Subject Slide number 1.Portfolio audit outcomes and key control status 4 – 9 2.Progress on previous commitments 10 3. Key focus areas 11 4. Other matters of interest 12 5. Pyramid of Accountability 13 6. Combined level of assurance 14

1. Portfolio audit outcomes and key control status Opinions 2011/12 2012/13 Entity Financial Statements Predetermined Objectives Compliance Department of Mineral Resources (DMR) Unqualified opinion with findings on compliance and predetermined objectives Unqualified Revenue management, Significant adjustments to the AFS, HR management and expenditure management Qualified opinion Financial and performance management, HR Management , Revenue management and non-compliance with enabling Act (MPRDA) South African Diamond and Precious Metals Regulator (SADPMR) No findings The State Diamond Trader (SDT) Council for Mineral Technology Research (MINTEK)

1. Portfolio audit outcomes and key control status - Continues Opinions 2011/12 2012/13 Entity Financial Statements Predetermined Objectives Compliance Mine Health Safety Council (MHSC) Unqualified opinion with findings on compliance and predetermined objectives Unqualified Irregular and fruitless and wasteful expenditure, Procurement management and Significant adjustments to AFS Adverse Irregular and fruitless and wasteful expenditure, Procurement management and Internal audit Council for Geosciences (CGS) Procurement and contract management, Material adjustments to the AFS and irregular and fruitless and wasteful expenditure Procurement and contract management, Material adjustments to the AFS and Asset management

1. Portfolio audit outcomes and key control status Dept/Entity Key control status (regression/ improvement/ unchanged) Leadership Financial and Performance Management Governance DMR SADPMR SDT MINTEK MHSC CGS

2. Further analysis on DMR key controls classified as causing concern: 2. Further analysis on DMR key controls classified as causing concern: Leadership   Good   In progress   Intervention required

3. Further analysis on DMR key controls classified as causing concern: 3. Further analysis on DMR key controls classified as causing concern: Financial and performance management   Good   In progress   Intervention required

4. Further analysis on DMR key controls classified as causing concern: 4. Further analysis on DMR key controls classified as causing concern: Governance   Good   In progress   Intervention required

5. Progress on prior year commitments Commitment made Current Status Comment The filling of key vacancies to facilitate effective monthly reporting In progress The CFO position has subsequently been filied. There are key positions that are still to be filled. Timeous review of the rehabilitation provision for mines through the use of specialists Implemented No issues were raised during the 2012/13 audit on this area The governance structures (Internal audit) to review all financial information produced. Although the reviews were performed by internal audit, concerns still exists as shown by the qualified opinion due to misstatements on receivables. Relook at the structure of support provided to the DG. Improve the quality of information and daily disciplines of junior staff members New The commitment will reviewed during the course of the 2013/14 financial year

6. Key focus areas Auditee Supply Chain Predetermined Objectives HR Management IT Controls Material errors in submitted AFS DMR Some improvement No matters No improvement SADPMR SDT MINTEK MHSC CGS

7. Other matters of interest Auditee Irregular Expenditure Fruitless and Wasteful   Movement 2011/12 2012/13 DMR R21.4m R24.7m SADPMR SDT MINTEK MHSC R6.9m R9.6m CGS R 0.80

8. PYRAMID OF ACCOUNTABILITY Speaker/ Legislature SCOPA/PC’s Executives Accountable Leadership Audit Committee Internal Audit Skills, competence ethics and integrity Daily, weekly, monthly financial and performance disciplines Embedded systems of IC underpinned by policies and procedures Monthly reporting on financial and performance/ Interim financial statements Understanding of requirements as well as cause and effect Accountable and transparent government "Public Accountability" Oversight Flow of credible information Re-enforcing accountability at all levels, escalation and robust communication Reporting and governance "Assurance Agents" The bottom layer of the pyramid illustrates the foundation for the first line of defence in administration (that ensures credibility of information) being skills, competence, etc; embedded systems of IC; understanding of requirements, cause and effect. Daily, weekly monthly financial and performance disciplines (including reporting will be fully supported and fit into this environment easily. For the reporting and governance layer, the foundation is effective and accountable leadership and effective internal audit and they support the audit committee with credible information for them to be effective in carrying out their functions. With both layers functioning properly, credible information will be submitted and reported to oversight committees. "First in of defence" Administration

9. Assurance Model The assurance model mirrors the accountability model.

Thank you