Briefing to the portfolio committee: water and sanitation Audit outcomes of the portfolio for the financial year 14 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, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. 2

Content 1.Purpose of the presentation 4 2.Scope of AGSA audits 5 3.Overall audit outcomes – Water & Sanitation portfolio 6 4.Unauthorised/irregular/fruitless and wasteful expenditure10 5.Top three root causes and recommendations 11 6.Combined assurance – complementary mandates 12 7.Minister’s commitments to address root causes13 3

1. 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 in assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR. 4

2. The scope of AGSA audits X Provide assurance that AFS are free from 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 commentary on service delivery Report on material non-compliance with relevant key legislations Do not report on ALL legislations – only key selected requirements from relevant legislations are audited Identifying the key internal control deficiencies to be addressed We assess the risk of fraud, but we are not responsible for – Fraud identification Fraud prevention 5

… the risk areas and … … the root causes are addressed … First level Root causes Key controls GoodConcerningIntervention required To improve/maintain the audit outcomes … 1 3 … the key role players need to assure that … 2 Assurance levels Slow response by management (accounting officer and senior management) Lack of consequences for poor performance and transgressions Instability or vacancies in key positions Provides assurance Provides some assurance Provides limited/ no assurance Vacancy Not established Senior management Accounting officer/authority Executive authority Internal audit unit Audit committee Portfolio committee Third level Quality of submitted financial statements Information technology Financial health Supply chain management Human resource management Risk areas Second level … attention is given to the key controls and … 5 4 Quality of submitted performance reports GoodConcerningIntervention required Unqualified with no findings Unqualified with findings Overall audit outcomes – water and sanitation portfolio 6 Qualified with findings Disclaimer with findings Status of key commitments by minister Overall stagnation in audit outcomes Establish a structure for the department that incorporates the sanitation function. The focus risk assessment will be discussed by top management and monitored by the audit committee. Provide a business process re- engineering committee (BPRC) implementation plan with milestones to the portfolio committee. The monitoring of the new WTE CFO is ongoing. The minister requested a joint team consisting of the DWS, the AGSA and the NT to work proactively towards addressing issues of concern, so that there would be a common understanding of issues before reporting time. Not implemented In progress Implemented

3.1 Quality of submitted financial statements Outcome if NOT corrected Outcome after corrections Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections auditees zero auditees Financially unqualified with/without findings Financially qualified (qualified/ disclaimed with findings) 7

Legends: With no findings With findings Improvement Stagnant or limited progress Regressed 3.2 Quality of annual performance reports reports were reliable and useful compared to 3 in the previous year. auditees who submitted information did so in time for the audit. 4 6 UsefulnessReliability 8

3.3 Most auditees did not comply with legislation in following areas Quality of annual financial statements submitted Prevention of unauthorised, irregular and/or fruitless and wasteful expenditure Management of procurement and/or contracts Management of strategic planning and performance Human resource and consequence management Internal audit and audit committee Legends: With no findings Intervention required With findings Improvement Stagnant or limited progress Regressed 9

DWS -R R WTE-R R WRC-R R1 836 TCTA-R R IUCMA--- BGCMA--- Totals-R R Expenditure incurred in contravention of key legislation, prescribed processes not followed 4. UIFW expenditure Unauthorised expenditure Expenditure not in accordance with the budget vote/ overspending of budget or programme Irregular expenditure Fruitless and wasteful expenditure Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Legends: Decrease in expenditure No change Increase in expenditure Definitions 10

5. Top three root causes and recommendations Lack of consequences for poor performance and transgressions Instability or vacancies in key positions Slow response by management in addressing the root causes of poor audit outcomes Recommendation: Implement proper record keeping to ensure that the annual financial statements are supported by complete and proper records. The audit committees should strengthen action plans to ensure that financial reporting and related controls prevent misstatements by engaging with the internal audit unit. Senior personnel should regularly review and monitor daily and monthly processing of transactions to ensure compliance with applicable policies and procedures. Recommendation: Staff should be held accountable for poor performance and for any transgression. Recommendation: All critical positions must be filled on time Improved Regressed Stagnant or little progress 11

Senior management Senior management Accounting officers/ authority Accounting officers/ authority Executive authority Executive authority 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 Management assurance First level of assurance Senior management Senior management Accounting officers/ authority Accounting officers/ authority 6. Combined assurance – complementary mandate Oversight assurance Second level of assurance Oversight assurance Second level of assurance Coordinating/ monitoring institutions Coordinating/ monitoring institutions Internal audit Internal audit Audit committee 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 Independent assurance Third level of assurance Oversight (portfolio committees/ councils) Oversight (portfolio committees/ councils) Public accounts committee 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 12

7. Minister’s commitments to address root causes Not implemented In progressImplementedNew Status of key commitments by minister 13 The focus risk assessment will be discussed by top management and monitored by the audit committee. Establish a structure for the department that incorporates the sanitation function. Provide a business process re- engineering committee (BPRC) implementation plan with milestones to the portfolio committee. The monitoring of the new WTE CFO is ongoing. The minister requested a joint team consisting of the DWS, the AGSA and the NT to work proactively towards addressing issues of concern, so that there would be a common understanding of issues before reporting time.

Questions