Briefing to the portfolio committee on 13 October 2015 Audit outcomes of the health portfolio and health sector 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, 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 be accurate and correct. If information included has not been 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 of assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR.

The scope of AGSA audits  X Provide assurance on whether the AFS is free from material 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 assurance that service delivery has been achieved Report on material non-compliance with relevant key legislations Do not report on ALL legislations – only key selected requirements from relevant legislations are audited Identify the key internal control deficiencies to be addressed We assess the risk of fraud, but we are not responsible for – Fraud identification Fraud prevention

Contents Slide no. Health Portfolio : 1. Overall audit outcomes for health portfolio 7 2. Unauthorised/ Irregular / Fruitless & Wasteful expenditure 11 3. Section 4(3) outcomes for the Health portfolio 13 4. Combined assurance and assessment of assurance providers 15 5. Minister’s commitments to address root causes 16 Health Sector : 6. Overall audit outcomes for health sector 18 7. Overall improvement in audit outcomes 19 8. Movement of audit outcomes from 2013/14 and 2014/15 20

Contents Slide no. 9. Qualification areas 21 10. Auditor-General focus areas 22 11. Unauthorised/ Irregular / Fruitless & Wasteful expenditure 25 12. Root causes should be addressed (top three) 27

1. Overall audit outcomes – health portfolio Overall stagnation in audit outcomes Assurance levels Key controls Senior management First level Accounting officer/authority Executive authority Second level Internal audit unit 2 (CMS, MRC) 1 (NDoH) Audit committee 3 (CMS, MRC, NDoH) Unqualified with no findings Unqualified with findings Qualified with findings Disclaimer with findings Audits outstanding Provides assurance Provides some assurance Provides limited/ no assurance Vacancy 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 Risk areas Root causes Legends Quality of submitted financial statements Quality of submitted performance reports Supply chain management Slow response by management in addressing the root causes of poor audit outcomes Movement Improvement Stagnant or limited progress Regressed (2) CMS, NDoH Human resource management Financial health Information technology Good Concerning Intervention required 2014-15 2013-14

1.1 Quality of submitted financial statements 2014-15 PFMA Outcome if NOT corrected Outcome after corrections no auditees Financially unqualified (with findings/without 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 67% (2) CMS, MRC 1 auditee 2013-14 8

1.2 Quality of annual performance reports 2014-15 PFMA 67% A total of of annual performance reports were reliable and useful compared to 67% in the previous year. With no findings With findings Improved Usefulness Reliability Stagnant or little progress Regressed All auditees who submitted information did so in time for the audit. 9

1.3 Most auditees did not comply with legislation in the following areas 2014-15 PFMA 1. 2. 3. Quality of annual financial statements submitted Prevention of unauthorised, irregular and/or fruitless and wasteful expenditure Management of procurement and or contracts Good Of concern Intervention required 4. 5. 6. Improvement Management of strategic planning and performance Human resource and consequence management Internal audit and audit committee Stagnant or limited progress Regressed

2. UIFW expenditure – portfolio 2014-15 PFMA Unauthorised expenditure Irregular expenditure Fruitless and wasteful expenditure Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Definitions Legends: Decrease in expenditure No change Increase in expenditure NDoH - R398 333 000 # R188 000 CMS R8 436 000 MRC R729 000 R69 000 Totals R0 R407 498 000 R258 000 # - An irregular payment amounting to R391 million was made contrary to the DORA payment schedule. This was recovered prior to the end of the financial year.

2.1 Irregular expenditure – portfolio (CY vs. PY split) 2014-15 PFMA Irregular expenditure relating to CY Irregular expenditure relating to PY Irregular expenditure identified in CY Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in contravention of key legislation, prescribed processes not followed Definitions NDoH R394 201 000 R4 132 000 R398 333 000 CMS R8 436 000 - MRC R729 528 Totals R403 366 528 R407 498 528

3. Section 4(3) outcomes for the health portfolio 2014-15 PFMA The National Health Laboratory Services (NHLS) 2014-15 2013-14 Movement AUDIT OPINIONS PREDETERMINED OBJECTIVES COMPLIANCE WITH LAWS AND REGULATIONS Unqualified with findings With no findings With findings Improved Stagnant or little progress Regressed

3.1 Section 4(3) outcomes – compliance and irregular expenditure 2014-15 PFMA Irregular expenditure 2014-15 2013-14 NHLS R341 100 000 R7 900 000 Totals New finding in current year Repeat finding Non-compliance with legislation Properties belonging to the NHLS were not registered in its name, leading to non-compliance with the NHLS Act. There was a lack of proper control systems to safeguard and maintain assets, resulting in non-compliance with the PFMA. A material adjustment needed to be made to the annual financial statements to avoid a qualified opinion. The accounting authority did not take effective steps to prevent irregular expenditure as required by the PFMA. Legends: Decrease in expenditure No change Increase in expenditure

4. Combined assurance – complementary 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, 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 of any report that it may deem necessary National Assembly – provide independent oversight of the reliability, accuracy and credibility of national and provincial government

5. Minister’s commitments to address root causes 2014-15 PFMA Status of key commitments by minister Controls will be strengthened to review and monitor compliance with legislation. A qualified chief financial officer will be recruited at the CCOD. An electronic health patient registration system will be designed and implemented to support the reliable recording of health data. Not implemented In progress Implemented New

Health sector outcomes 2014-15 PFMA Health sector outcomes

6. Overall audit outcomes for health sector 2014-15 PFMA Unqualified no findings Unqualified with findings Qualified with findings Adverse with findings Disclaimer with findings Audits outstanding 18

7. Overall improvement in audit outcomes 2014-15 PFMA 19

8. Movement of audit outcomes from 2013/14 to 2014/15 2014-15 PFMA 20

9. Qualification areas 21 21 2014-15 PFMA Improved Stagnant or little progress Regressed 21 21

10. Auditor-general’s focus areas 10.1 Quality of submitted financial statements 2014-15 PFMA Outcome if NOT corrected Outcome after corrections Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) 2014-15 1 auditee (LP) Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 100% (10) 3 auditees (NAT, NW, WC) 2013-14 22 22

10.2 Quality of annual performance reports 2014-15 PFMA 100% Annual performance reports of of auditees were not reliable compared to 90% in the previous year. The APR was not useful for of auditees, remaining unchanged from the previous year. 30% With no findings With findings Usefulness Reliability Improved Improved Usefulness Stagnant or little progress Stagnant or little progress Regressed Regressed 23 23

10.3 Most auditees did not comply with legislation in the following areas following areas 2014-15 PFMA 2014/15 2013/14 24

11. UIFW expenditure sector (Erratum) 2014-15 PFMA Unauthorised expenditure Irregular expenditure Fruitless and wasteful expenditure Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Definitions Correction of errors in first submission EC R90 403 000 R451 828 000 R74 413 000 FS R11 167 000 R328 760 000 R7 966 000 GP R0 R124 371 000 R159 759 000 KZN R 127 693 000 R839 000 000 R3 033 000 LP R544 881 000 R43 356 000 MP R10 591 000 R1 918 896 000 R3 614 000 NAT R398 333 000 R188 000 NC R91 636 000 R622 486 000 R6 267 000 NW R262 564 000 R763 834 000 R20 374 000 WC R49 018 000 Totals R594 054 000 R6 041 407 000 R318 970 000 Legends: Decrease in expenditure No change Increase in expenditure

11.1 Irregular expenditure sector (CY and PY split)-(Erratum) 2014-15 PFMA Irregular expenditure relating to CY Irregular expenditure relating to PY Total irregular expenditure identified for the year Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in contravention of key legislation, prescribed processes not followed Definitions EC R63 132 000 R388 696 000 R451 828 000 FS R20 425 000 R308 335 000 R328 760 000 GP R124 371 000 R0 KZN R708 803 000 R130 197 000 R839 000 000 LP R544 881 000 MP R1 918 896 000 NAT R394 201 000 R4 132 000 R398 333 000 NC R537 169 000 R85 317 000 R622 486 000 NW R763 834 000 WC R 24 426 000 R 24 592 000 R49 018 000 Totals R5 100 138 000 R941 269 000 R6 041 407 000 Correction of errors in first submission

12. Root causes should be addressed (top three) 2014-15 PFMA 2014/15 2013/14 27

12.1 Root causes should be addressed (top three) 2014-15 PFMA Root causes Recommendation Slow response by political leadership and senior management in addressing the root causes of poor audit outcomes Leadership and senior management should continue to equip themselves with knowledge and skills they need to perform their oversight and governance duties. Ensure that senior management addresses, in a sustainable manner, the weaknesses in key controls reported by the AGSA and internal auditors. Leadership should hold one another accountable. Lack of consequences for poor performance and transgressions In order to improve the performance and productivity of officials, leadership should set the tone by implementing sound performance management processes, evaluating and monitoring officials’ performance and consistently demonstrating that poor performance has consequences. Instability or vacancies in key positions We recommend that key positions be filled as soon as possible with officials who have the appropriate competencies to ensure quality financial statements and performance reports as well as compliance with legislation. 28

Questions