Department of Rural Development and Land Reform (DRD&LR) Audit outcome for year ended 31 March 2012 9 October 2012

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. 2

To brief the Portfolio Committee on: DRDLR Portfolio Purpose of the meeting To brief the Portfolio Committee on: DRDLR Portfolio Subject Slide number 1.Portfolio Audit outcomes and key control status 4 - 8 2.Progress on previous commitments 9 3.Recommendation commitments for clean administration 10 -12 4. Key focus areas 13 5. Other matters of interest 14 6. Pyramid of Accountability 15 7. Combined level of assurance 16 3

1. Portfolio audit outcomes and key control status Opinions 2010/11 2011/12 Entity Financial Statements Predetermined Objectives Compliance DRD&LR Qualified opinion – Immovable assets Qualified Expenditure management, Financial and performance management , HR Management Qualified Usefulness and Reliability Improvement: HR Management Agricultural Land Holding Account (ALHA) Unqualified opinion with findings Not applicable – (Audited with DRD&LR) Expenditure management Unqualified opinion Regression: Revenue Management and Asset Management Deeds Trading Account Unqualified with findings Adverse SCM management, Financial and performance Qualified opinion SCM management, Financial and performance management 4

1. Portfolio audit outcomes and key control status Opinions 2010/11 2011/12 Entity Financial Statements Predetermined Objectives Compliance Ingonyama Trust Board Qualified opinion – immovable assets and provisions Unqualified opinion Expenditure management; Asset management; Revenue Management; Annual financial statements. Qualified opinion – immovable assets and provisions Regression: Budget; Procurement and contract management. 5

1. Portfolio audit outcomes and key control status Dept/Entity Key control status (regression/ improvement/ unchanged) Leadership Financial and Performance Management Governance DRDLR ALHA Deeds ITB 6

Further analysis on DRDLR key controls classified as causing concern

Further analysis on entities of DRDLR key controls classified as causing concern

2. Progress on prior year commitments Commitment made DRDLR ALHA Deeds ITB Current Status Comment Management to draft and implement new operational and financial policies to help the department/entity to mitigate risks, detect and prevent irregularities and safeguarding assets and records. X Intervention required overall Overall DRDLR and ALHA needs to draft, implement and update policies and procedures addressing all internal control deficiencies and giving guidance for operations Management to develop action plans to address weakness in system of internal controls and to give progress reports quarterly. These reports are made available to the audit committee and discussed at senior management committee (SMC) of the department The action plans has been drafted but has not been implemented or monitored General Controls on the IT systems Intervention required Still repeat findings Management committed to resolve immovable assets qualification Management committed to address the following, completeness of royalty revenue. valuation of land. - recovery of fruitless and wasteful expenditure Commitment to address AOPO findings reported for 2010/11 In progress Still in progress Commitment to conduct quarterly reviews on SCM process Improved Irregular expenditure relating to SCM decreased from the prior year

3. Recommended commitments for clean administration DRD&LR ALHA Deeds ITB Consultants skills transfer to be monitored and evaluated monthly progress reports from consultants on skill transfer  Effective implementation of approved organisational structure, taking into account the: skills gap identified and develop IT systems producing credible financial and non financial information bodies with skills relevant to finance, performance , compliance and information system Sustainability of in house Internal Audit Monitoring and compliance unit strengthened responsibility(compliance) Management self assessment using key control document. The department will need to develop a process and reconciliation of state land that will ensure a complete and accurate register is maintained. Interaction between the DRD&LR, DPW, National Treasury and other custodians of state land need to take place to ensure that all state land is complete and accurate. 10

3. Recommended commitments for clean administration DRD&LR ALHA Deeds ITB Monitor compliance with policies and procedures and take decisive action on non compliance  Monitoring of bad planning by entities resulting in an increase in non compliance with PFMA, Treasury Regulations etc. Identify and monitor strengths and weaknesses of the portfolio (Sustainability) Develop checks and balances to ensure credibility of all information. Monthly financial and performance reports that include disclosure items In line with best practice, update SCM policies to ensure that approval of requests to deviate from normal SCM process by the accounting officer/authority is based on recommendations by the bid adjudication committee based on their evaluation of the submission for such a request. Effective utilisation of Internal Audit: review internal audit scope to include adequate coverage of AOPO and Compliance in their plans 11

3. Recommended commitments for clean administration DRD&LR ALHA Deeds ITB Training programs to incorporate: understanding of why AFS are prepared (for operational management purposes, eg analysis of financial performance ) understanding of why key controls are essential understanding of why service delivery reporting is critical Continuous professional and skills development for all staff and monitoring thereof  Quarterly reinforcement of clean administration processes by Accounting Officer 12

Supply Chain Management Material errors in AFS submitted 4. Key focus areas Auditee Supply Chain Management AOPO HR IT controls Material errors in AFS submitted DRDLR Some improvement No improvement ALHA No matters This is done as part of DRDLR Deeds ITB 13

5. Other Matters of interest Auditee Irregular Expenditure Fruitless and Wasteful Movement 2010/11 2011/12 DRDLR 7,835,000 45,536,000 6,724,000 73,406,000 ALHA 439,000 45,000 Deeds 1,933,000 115,000 43,000 4,000 ITB 545,084 14

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 15

Assurance Model The assurance model mirrors the accountability model.

Thank You 17