Audit Outcomes 2010-11 Social Security Cluster 11 October 2011 Presented by: Abrie Adendorff Senior Manager AGSA

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.

PART 1 Introduction The purpose of the briefing note is to provide an insight by the Auditor-General South Africa into the issues resulting in the audit opinion on the financial statements of the Department of Social Development (DSD), the South African Social Security Agency (SASSA) and the National Development Agency (NDA). The mission of the Department is to ensure the provision of comprehensive social protection services against vulnerability and poverty within the constitutional and legislative framework, and create an enabling environment for sustainable development. The Department further aims to deliver integrated, sustainable and quality services, in partnership with all those committed to building a caring society.

The Activities of the Department The activities of the department are organised under the following five programmes: Programme: Budget 09/10 R’000 Expenditure 10/11 1. Administration 178 035 177 820 201 677 194 159 2. Comprehensive social security 85 652 549 84 465 729 95 150 156 93 260 988 3. Policy development, review and implementation support for welfare services 316 345 315 890 341 291 337 060 4. Community development 241 473 238 954 182 034 177 376 5. Strategy and governance 119 785 119 767 65 903 61 447 TOTAL 86 508 187 85 318 160 95 941 061 94 031 030

The Social Development portfolio consist of the following entities: Department of Social Development (DSD) – Vote No. 18 South African Social Security Agency (SASSA) National Development Agency (NDA) Funds under the umbrella of DSD Disaster Relief Fund Social Relief Fund Refugee Relief Fund State President fund High School Vorentoe Disaster Fund (closed 26 August 2010)

Funding of the entities Department of Social Development – Budgeted amount 10/11 – R95 941 061 000 (included in this amount is the amount for households – R87 492 902 000, programme 2 : Comprehensive social security, that is transferred to households by SASSA on behalf of the Department) National Development Agency – R83 469 000 (transferred from DSD) SASSA – R5 631 387 000 (transferred from DSD) Funds – these funds are dormant and no funds are transferred to it

Summary of audit opinions Description Unmodified An unqualified opinion is expressed when the auditor concludes that the financial statements give a true and fair view (or are presented fairly, in all material respects) in accordance with the applicable financial reporting framework. Unmodified (with emphasis of matter) The addition of such an emphasis of matter paragraph(s) does not affect the auditor’s opinion on whether the financial statements are fairly presented. Modified (Qualified) A qualified opinion is expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management regarding departures from financial reporting framework, or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.

Audit Opinion Description Disclaimer A disclaimer of opinion is expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence to form an opinion and accordingly is unable to express an opinion on the financial statements. Adverse An adverse opinion is expressed when the effect of a disagreement with management regarding departures from the financial reporting framework is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.

Type of qualified audit opinion Audit Outcomes 2010-11 Summary of audit opinions Type of qualified audit opinion 2010-11 2009-10 2008-09 Adverse Disclaimer 1 Qualified Unqualified 7 6 8

Audit qualification findings PART 2 Audit outcomes 2010-11 Audit qualification findings 2010-11 2009-10 2008-09 The Department of Social Development Transfers to Households Yes No Tangible and intangible assets Employee compensation Leases Revenue and Receivables Commitments and Accruals Liabilities Goods and services

Audit qualification findings Audit outcomes 2010-11 - continues Audit qualification findings 2010-11 2009-10 2008-09 South African Social Security Agency Revenue No Assets Yes Expenditure Liabilities Property Plant and Equipment Compensation of employees

Audit outcomes 2010-11 - continues The other entities within the Social Security Cluster had no audit qualifications in the prior two years: - The National Development Agency - Disaster Relief Fund - Social Relief Fund - Refugee Relief Fund - State President fund - High School Vorentoe Disaster Fund

2010-11 QUALIFICATION ISSUES The Department of Social Development The Department has been qualified on Transfers and Subsidies due to limitations placed on the audit by its agent, SASSA. Transfer to Households: 2762 Grant beneficiary files were selected for audit purposes. 42 Files representing 1.52% of the sample were not presented for audit or did not contain sufficient information necessary for the beneficiary to receive the grant.. This extrapolated to the population based on grant type and province amounted to a total scope limitation on the audit of R891 039 788,09. (2009-10 – R10.5 billion)

2010-11 QUALIFICATIONS The South African Social Security Agency SASSA received an unqualified audit opinion for the 2010-11 financial year. SASSA has had a disclaimer audit opinion for 2009-10 financial year and had an unqualified audit opinion for the 2008-09 financial year. The National Development Agency The NDA has had an unqualified audit opinion for the prior 2 years and for the 2010-11 financial year. The 5 DSD Funds All the funds have had unqualified audit opinions for the prior 2 years and for the 2010-11 financial year.

Other Audit Report Matters Emphasis of Matter Department of Social Development Emphasis of matter issues were included regarding the flow of funds model between the department and SASSA. South African Social Security Agency Emphasis was brought to the attention of users that various financial statement items were restated due to the correction of prior period errors. It was further emphasised that SASSA had material impairments of debtors to the amount of R3 774 287, (2009/10 – R63 922 862). The prior year impairment was done as part of the restatement of corresponding figures. National Development Agency Emphasis was brought to the attention of users that the accumulated surplus for 31 March 2010 has been restated as a result of an error discovered during the year ended 31 March 2011 in the financial statements of the NDA.

REPORT ON OTHER LEGAL AND REGULATORY REQUIRMENTS The following findings were identified on PREDETERMINED OBJECTIVES: Criteria per Audit Presentation Consistency Relevance Measurability Validity Accuracy Completeness Timeliness Existence DSD   X SASSA NDA

REPORT ON OTHER LEGAL AND REGULATORY REQUIRMENTS The following findings were identified on COMPLIANCE WITH LAWS AND REGULATIONS: Department of Social Development The PFMA: s43(3): Virement not approved. s40(1)(a): Full and proper records not maintained. s40(3)(a): The audited financial statements were not fairly presented resulting in a qualified opinion. Treasury regulations: TR 4.1.2: Investigation into irregular/fruitless expenditure not within 30 days. TR 9.1.2: Irregular expenditure not reported to National Treasury. The Regulations to the Social Assistance Act: Regs 2 & 3: Beneficiary eligibility criteria not complied with. Regs 11, 18 & 19: Documentation to accompany applications not maintained. South African Social Security Agency No material non-compliance identified.   National Development Agency The PFMA: s51(1)(b)(ii): No effective steps taken to prevent irregular expenditure.

INTERNAL CONTROLS Department of Social Development Leadership Due to the legislative reporting lines, the oversight responsibility fulfilled by the Department does not focus on the detail of the operational function performed by its agency, SASSA, which cascades down to the management of SASSA and its operational staff.   Management did not ensure proper guidance to ensure that there’s a logical link between reported objectives, indicators and targets to ensure that reported performance targets are specific and measurable.   Financial and performance management Management did not ensure that there was sufficient oversight over the tabled strategic plan to ensure that it complied to Treasury Regulation 5.2.2(d) and Framework for managing programme performance information (FMPPI) 5.2.7. South African Social Security Agency Management did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support financial and performance reporting. National Development Agency The performance of the entity is not measured against predetermined objectives, indicators and targets as required by the PFMA.

OTHER REPORTS Department of Social Development A performance audit is being conducted on the readiness of Government to report on it’s performance. The findings thereof, will be reported in a separate report.