National PFMA audit outcomes 2009-10

Reputation promise 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 constitutional’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

National – PFMA audit outcomes 2009-10 Summary of audit outcomes Audit outcomes Departments (including Parliament and National Consolidation) Public entities (including trading, constitutional institutions and other types of entities) 2009-10 2008-09 Opinion on financial statements:   Disclaimer 3 7 Adverse 2 Qualified 12 17 23 Financially unqualified with findings on predetermined objectives and/or compliance with laws and regulations 19 16 89 101 Financially unqualified with no findings on predetermined objectives or compliance with laws 4 6 110 87 Total number of audits reported on 35 34 222 220 Number of audits not finalised – 30September 2010 1 Total number of audits 225 221 Entities with findings arising from AGSA other legal reporting responsibilities: Predetermined objectives 24 22 92 Compliance with laws and regulations 21 76 68 Note changes in categories Where reports have findings on predetermined objectives and compliance, the total number of reports with these findings must be indicated in the two bottom lines of the table. (The same report may be included in the analysis of the opinion on the financial statements, predetermined objectives and on compliance.) All audits to be included - even those outstanding from previous years, where financial statements have not been submitted for auditing The auditee numbers (opinions and findings) required for this slide are available on the AS: MIS These may have to be inserted and added up manually if the table is not yet available on AS: MIS All information captured into the AS: MIS must be verified for accuracy and completeness Note the date for inclusion of reports finalised is 31 August 2010 Do not include audits with 30 June year ends Note inclusion of legislature and revenue fund in analysis of departments Annexure 1

National – PFMA audit outcomes 2009-10 Drivers of improved audit outcomes Leadership Auditees who have improved/ maintained previous good practice Auditees where Improvements are required Departments Public entities Provision of adequately skilled resources capable of implementing the financial reporting framework and performance management requirements, as well as adequate evaluation of the performance of existing staff : Financial Statements Predetermined objectives 17 176 18 46 20 167 15 54 Ensuring that proper actions are taken to address audit findings; key controls are implemented to mitigate risk of misstatement of financial statements and report on predetermined objectives: 14 150 21 72 16 137 19 84 Leadership’s implementation of action plans to address user access control deficiencies (Information Systems) 7 8 42 Note: 3 separate slides dealing with (1) Leadership, (2) Financial and performance management and (3) Governance. This includes issues addressed and to be addressed. (previously slides #4 and #15) Details of the ‘Key leadership matters addressed/to be addressed ’ should be drawn from management reports Reflect on how well stakeholder engagements / key control review have been done and why things may not have moved / commitments didn’t work. Notes to the slides should be specific when an entity is the main reason for the issues or when there are specific reasons for the matters reported. Notes to include discussion on commitments made that did not address the problems or that were not actioned. Note those entities who avoided qualifications by correcting material misstatements in financial statements identified during the audit Note: Departments include Parliament and National Consolidation, Public entities include trading and other types of entities Annexure 2 - Drivers – Departments Annexure 2 - Drivers - Public entities

National – PFMA audit outcomes 2009-10 Drivers of improved audit outcomes Financial and performance management Auditees who have improved/ maintained previous good practice Auditees where Improvements are required Departments Public entities Appropriate systems are in place to support the preparation of financial statements and performance reports: Financial Statements Predetermined objectives 15 172 20 50 16 151 19 70 Review of the financial statements and other information by management for completeness and accuracy prior to submission for audit: 13 139 22 83 17 147 18 74 Proper record keeping and management, ensuring that supporting documents are properly filed and easily retrievable: 189 33 170 51 4. Application systems susceptible to compromised data integrity (Information Systems) User access control Security management Business Continuity 2 4 7 8 21 26 23 43 42 29 Note: 3 separate slides dealing with (1) Leadership, (2) Financial and performance management and (3) Governance. This includes issues addressed and to be addressed. (previously slides #4 and #15) Details of the ‘Key leadership matters addressed/to be addressed ’ should be drawn from management reports Reflect on how well stakeholder engagements / key control review have been done and why things may not have moved / commitments didn’t work Notes to the slides should be specific when an entity is the main reason for the issues or when there are specific reasons for the matters reported. Notes to include discussion on commitments made that did not address the problems or that were not actioned. Note those entities who avoided qualifications by correcting material misstatements in financial statements identified during the audit Note: Departments include Parliament and National Consolidation, Public entities include trading and other types of entities Annexure 2 - Drivers – Departments Annexure 2 - Drivers - Public entities

National – PFMA audit outcomes 2009-10 Drivers of improved audit outcomes Governance Auditees who have improved/ maintained previous good practice Auditees where Improvements are required Departments Public entities Maintaining effective risk assessments and strategies including fraud prevention plans to address identified weaknesses: Financial Statements Predetermined objectives 23 185 12 37 27 182 8 39 Ensuring effective internal audit functions that monitor the adequacy and implementation of internal control: 26 197 9 25 36 Establishment of functioning audit committees that promotes independent accountability and service delivery: 30 206 5 16 202 19 An IT governance framework that directs the positioning of IT, resource requirements, risk and internal control management (Information Systems). 4 22 28 Note: 3 separate slides dealing with (1) Leadership, (2) Financial and performance management and (3) Governance. This includes issues addressed and to be addressed. (previously slides #4 and #15) Details of the ‘Key leadership matters addressed/to be addressed ’ should be drawn from management reports Reflect on how well stakeholder engagements / key control review have been done and why things may not have moved / commitments didn’t work Notes to the slides should be specific when an entity is the main reason for the issues or when there are specific reasons for the matters reported. Notes to include discussion on commitments made that did not address the problems or that were not actioned. Note those entities who avoided qualifications by correcting material misstatements in financial statements identified during the audit Note: Departments include Parliament and National Consolidation, Public entities include trading and other types of entities Annexure 2 - Drivers - Departments Annexure 2 - Drivers - Public entities

National – PFMA audit outcomes 2009-10 Financial statement qualification areas at Departments This graph combines the results of departments and entities This graph will be drawn off the AS: MIS - As an interim measure, an Excel workbook template can be provided to generate the graph Note that the denominator for the current and previous year must be indicated in the heading Qualified includes disclaimer and adverse opinions in this instance

National – PFMA audit outcomes 2009-10 Financial statement qualification areas at public entities This graph combines the results of departments and entities This graph will be drawn off the AS: MIS - As an interim measure, an Excel workbook template can be provided to generate the graph Note that the denominator for the current and previous year must be indicated in the heading Qualified includes disclaimer and adverse opinions in this instance

National - PFMA audit outcomes 2009-10 Transversal material misstatements corrected at Departments

National - PFMA audit outcomes 2009-10 Transversal material misstatements corrected at public entities

Departments (including Parliament and National Consolidation) National – PFMA audit outcomes 2009-10 Findings on reporting of predetermined objectives Category of finding Departments (including Parliament and National Consolidation) Public entities (including trading, constitutional institutions and other types of entities) 2009-10 2008-09 Non-compliance with regulatory requirements 56% 44% 22% 29% Reported information not useful 53% 47% 28% 19% Reported information not reliable 17% 15% Information not submitted for audit by 31 May 2010 3% 6% 2% Total number of audits with findings 24 22 92 89 Findings for 2009-010 are available on the AS: MIS 2008-09 findings to be extracted for the provincial General Report 11 11

Top 3 categories of non-compliance and SCM issues National – PFMA audit outcomes 2009-10 Findings on compliance with laws and regulations Top 3 categories of non-compliance and SCM issues Number Percentage Departments (including Parliament and National Consolidation) SCM issues that resulted in irregular expenditure (Irregular expenditure relating to SCM at departments = R 59 Million) 18 53% Payments not done within 30 days 15 44% HR Management 11 32% General/ fiduciary and reporting responsibilities of accounting officers and internal audit not operating effectively throughout the year 6 18% Transversal material misstatements corrected 25 74% Public entities (including trading, constitutional institutions and other types of entities) SCM issues that resulted in irregular expenditure (Irregular expenditure relating to SCM at entities = R 337 million) 52 24% General/ fiduciary and reporting responsibilities 22 10% Internal audit 21 Audit committee 8% 106 48% This data to be drawn from ‘compliance workbooks’ completed by ABUs Limited to non-compliance issues included in audit reports Annexure 3 - Compliance issues 12 12

Top 5 findings on procurement and contract management National – PFMA audit outcomes 2009-10 Findings on procurement and contract management resulting in irregular expenditure Top 5 findings on procurement and contract management Number Percentage Amount Departments (including National Revenue Fund) R 3 price quotations not invited - reasons not recorded and approved 15 44% 5 250 168 Preference point system not applied in procurement > R30 000 7 21% 9 409 407 Competitive bidding deviation not justified 6 18% 9 442 527 Awards to suppliers who failed to provide valid tax clearance certificates 27 225 791 3 price quotations not invited - deviation not justified 5 15% 2 229 983 Public entities (including trading, constitutional institutions and other types of entities) 26 41 050 126 9% 44 369 464 R500 000 with no competitive bidding - reasons not recorded and approved 118 417 655 12 7% 110 999 012 22 268 419 This data to be drawn from ‘Procurement and contract management workbooks’ completed by ABUs. Annexure 4 13 13

Interest identified in suppliers National – PFMA audit outcomes 2009-10 Findings on procurement and contract management – interest in suppliers Interest identified in suppliers Number of entities/ departments Number of instances Interest identified in suppliers Employees of department/ entity 15 59 Close family members of employees 2 Close family members of other role-players in SCM process – not employed by department/ entity 1 14 Non-compliance or irregularities identified where interest identified Supplier did not declare the interest 7 Employee did not have approval for performing other remunerative work (departments only) 3 13 Person with interest did not declare interest 4 8 Person with interest was involved in making award to supplier Interest was not included in annual declarations (senior managers at departments only) This data to be drawn from ‘Procurement and contract management workbooks’ completed by ABUs. 14 14

Unauthorised expenditure National – PFMA audit outcomes 2009-10 Irregular and Unauthorised expenditure Annexure 4 Department Unauthorised expenditure Department of Transport R 362,394,000

Most significant findings National – PFMA audit outcomes 2009-10 Findings from audit of human resource management at departments Most significant findings Number Percentage Human Resource Management No human resource plan 13 38% Performance agreements of senior managers not signed             8 24% Acting allowances paid more than 12 months                                      Management of vacancies Positions vacant for more than 12 months : Senior Management 11 32% Positions vacant for more than 12 months: Finance division 9 26% No improvement in overall vacancy rate No improvements in senior management vacancy rate 7 21% This data to be drawn from ‘Human resource workbooks’ completed by ABUs 16 16

National – PFMA audit outcomes 2009-10 Findings of information systems audits General General controls I Departments (including Parliament and National Consolidation) Public entities (including trading and other types of entities) Number Percentage Lack of IT governance framework to direct the positioning of IT, resource requirements, risk and internal control management 23 85% 28 56% Inadequate security management controls to prevent unauthorised access to the operating systems (e.g. Windows, Linux, etc.) that grant access to the application systems 26 93% 42 84% Inadequate user access controls to detect and prevent unauthorised access, capturing and approval of transactions on the application systems that are used to prepare the financial statements (e.g. BAS, PERSAL, LOGIS) 43 86% Lack of business continuity and disaster recovery plans that would ensure the availability of financial and performance information in instances of data loss or disaster 29 58% Key matters to be addressed DPSA (using SITA) in collaboration with NT, to prescribe a comprehensive IT governance framework which provides guidance towards IT strategic alignment and decision making, resourcing, risk management and internal control Accounting officers to ensure implementation of the comprehensive IT governance framework In the interim, Accounting Officers to implement actions plans developed to address IT related audit findings and recommendations ISA will populate slide Annexure 5 - IT Audit Focus areas 17 17

Audits not conducted by the AGSA National – PFMA audit outcomes 2009-10 Audits not conducted by the AGSA

National – PFMA audit outcomes 2009-10 Summary of audit outcomes – Audits not conducted by the AGSA Audit outcomes Major Schedule 2 entities Opinion on financial statements:   Disclaimer Adverse Qualified Financially unqualified with findings on predetermined objectives and/or compliance with laws and regulations 4 Financially unqualified with no findings on predetermined objectives or compliance with laws and regulations 13 Total number of audits reported on 17 Number of audits not finalised at 30 September 2010 Total number of audits Predetermined objectives 3 Compliance with laws and regulations Note changes in categories Where reports have findings on predetermined objectives and compliance, the total number of reports with these findings must be indicated in the two bottom lines of the table. (The same report may be included in the analysis of the opinion on the financial statements, predetermined objectives and on compliance.) All audits to be included - even those outstanding from previous years, where financial statements have not been submitted for auditing The auditee numbers (opinions and findings) required for this slide are available on the AS: MIS These may have to be inserted and added up manually if the table is not yet available on AS: MIS All information captured into the AS: MIS must be verified for accuracy and completeness Note the date for inclusion of reports finalised is 31 August 2010 Do not include audits with 30 June year ends Note inclusion of legislature and revenue fund in analysis of departments Listing of Major SOEs

National – PFMA audit outcomes 2009-10 Findings on reporting of predetermined objectives – Audits not conducted by the AGSA Findings on predetermined objectives Alexkor Limited South African Airways (Pty) Limited South African Broadcasting Corporation 1 Non-compliance with regulatory requirements   2 Reported information not useful 3 Reported information not reliable 4 Information not submitted for audit by 31 May 2010 Note changes in categories Where reports have findings on predetermined objectives and compliance, the total number of reports with these findings must be indicated in the two bottom lines of the table. (The same report may be included in the analysis of the opinion on the financial statements, predetermined objectives and on compliance.) All audits to be included - even those outstanding from previous years, where financial statements have not been submitted for auditing The auditee numbers (opinions and findings) required for this slide are available on the AS: MIS These may have to be inserted and added up manually if the table is not yet available on AS: MIS All information captured into the AS: MIS must be verified for accuracy and completeness Note the date for inclusion of reports finalised is 31 August 2010 Do not include audits with 30 June year ends Note inclusion of legislature and revenue fund in analysis of departments

National – PFMA audit outcomes 2009-10 Findings on compliance with laws and regulations – Audits not conducted by the AGSA Areas of non-compliance with laws and regulations Alexkor Limited South African Airways (Pty) Limited South African Broadcasting Corporation Transnet Limited 1 Audit committee (section 77 of PFMA and TR 27)   2 General responsibilities of accounting authorities (section 51 of PFMA) 3 Internal audit (section 51 (1)(a)(ii) of PFMA and TR 27.2.2 4 Irregular expenditure - SCM related (R'000) 187,225 867,000 Note changes in categories Where reports have findings on predetermined objectives and compliance, the total number of reports with these findings must be indicated in the two bottom lines of the table. (The same report may be included in the analysis of the opinion on the financial statements, predetermined objectives and on compliance.) All audits to be included - even those outstanding from previous years, where financial statements have not been submitted for auditing The auditee numbers (opinions and findings) required for this slide are available on the AS: MIS These may have to be inserted and added up manually if the table is not yet available on AS: MIS All information captured into the AS: MIS must be verified for accuracy and completeness Note the date for inclusion of reports finalised is 31 August 2010 Do not include audits with 30 June year ends Note inclusion of legislature and revenue fund in analysis of departments