REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION OF VOTE NO. 27: DEPARTMENT OF LAND AFFAIRS FOR THE YEAR ENDED 31 MARCH 2009

Reputation promise/mission The Auditor-General 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.

Outline Background Current Year’s Audit Report –Areas of qualification – Emphasis of the matter paragraph Prior Year’s Areas of Qualification Resolved Audit of Performance Information Key Governance responsibilities Overall areas of concern Areas of improvement

Background We have audited the financial statements of the Department of Land Affairs (DLA) which comprise: – the appropriation statement, –the statement of financial position as at 31 March 2009, –the statement of financial performance, –the statement of changes in net assets and –the cash flow statement for the year then ended, –a summary of significant accounting policies and –other explanatory notes, and –the accounting officer’s report,

Background continued… The accounting officer’s responsibility for the financial statements The accounting officer is responsible for the preparation and fair presentation of these financial statements in accordance with the modified cash basis of accounting determined by the National Treasury, as set out in accounting policy note 1.1 and in the manner required by the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA) and for such internal control as the accounting officer determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Background continued. The Auditor-General’s responsibility As required by section 188 of the Constitution of the Republic of South Africa, 1996 read with section 4 of the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA) AG’s responsibility is to express an opinion on the financial statements based on the audit. Audit conducted in accordance with the International Standards on Auditing read with General Notice 616 of 2008, issued in Government Gazette No of 15 May 2008.

A Qualified Report with an Emphasis of the matter Paragraph was issued. Areas of Qualification 1.Receivables for departmental revenue 2.Immovable Assets ( State Land) Current Year’s Audit Report

Areas of Qualification continued … 1. Receivables for Departmental Revenue 1.1. Lease debtor’s database not up to date and insufficient supporting documents; Prior year’s balance restated with no sufficient supporting documents; and Some of the disclosure items omitted on the Notes to the AFS ( Aging of debtors). As a result of a lack of supporting documentation, we were unable to verify valuation, existence and completeness of the receivable for departmental revenue. Consequently, we could not perform any alternative procedures to determine whether any adjustments to the amounts disclosed in the financial statements for receivables for departmental revenue might be necessary.

1. No system in place for lease management (Excel template is used) and the integrity of the inputs received from all regions is impaired; 2. Incomplete lease records ( the lease contracts not all available for audit and the lease receivable database inaccurate and incomplete); and 3. Insufficient staff capacity with the necessary skills for the lease management. Root Causes (Weaknesses) : Receivables on Departmental Revenue

Areas of Qualification continued … 2. Immovable Assets( State Land) 2.1. No complete asset register; 2.2. Immovable property registered in the name of other entities and departments was recorded in the immovable asset register of the department; and 2.3. Immovable property that should have been registered in the name of the national government was still not registered and was therefore not included in the asset register of the department. Therefore we were not able to perform alternative procedures to confirm the completeness and valuation of, and rights and obligations regarding tangible capital assets disclosed in the financial statements.

1. The vesting process not complete. 2. State Land registered in another parties name and 3. The state land register and records inaccurate and not complete. Root Causes (Weaknesses) : Immovable Assets

Areas of Qualification Area qualified Recurring/newReported in the Past 3 years (Yes/No) Receivables for departmental revenue RecurringYes Immovable Assets ( State Land) RecurringYes ( but different issue in the prior years – refer to PY audit report section)

Emphasis of the matter paragraph Fruitless and wasteful expenditure as a result of irregularities in the acquisition of land reform projects and irregular expenditure since Provision of Land Assistance Act was not approved retrospectively and assets other than land were acquired; and Non-compliance with Treasury Regulations as a result of accruals which exceeded the payment terms of 30 days and which could have constituted unauthorised expenditure had the invoices been paid in time ( as a result of funds shifted to Deeds registration Trading Account )

Prior Year Audit Report 1. Area qualified PLAS ( Tangible Capital Assets). Details of qualification R824million difference between Assets register, BAS (GL) and the Annual Financial Statements and insufficient record for PLAS projects. How Resolved Use of Consultants. Root Cause for use of consultants Key vacancies and insufficient staff capacity. Areas of Concern The problem rectified can re-occur as a result of lack of skills transfer since the PLAS record might not be adequately kept up to date as consultants were used to rectify the problem and skills on PLAS assets and records maintenance were not transferred to the DRDLR employees.

Prior Year Audit Report Continued … 2. Area qualified Biological Assets Details of qualification No system in place to keep and update the record of biological assets. How Resolved Use of Consultants Root Cause for use of consultants Key vacancies and insufficient staff capacity Areas of Concern The problem rectified can re-occur as a result of lack of skills transfer since the biological assets record might not be adequately kept up to date by the DLA employees or the people at the farms as a result of the lack of skills due to the specialised nature of the asset.

Prior Year Audit Report Continued. 3. Area qualified Commitments Details of qualification Insufficient records which did permit the application of alternative procedures How Resolved Use of Consultants Root Cause for use of consultants Key vacancies and insufficient staff capacity and no formal system in place for the management of commitments ( Excel is used to manage the 8,8 billion commitments) Areas of Concern The problem rectified can re-occur as a result of lack of skills transfer since the commitments record might not be adequately kept up to date by the DLA employees and the use of excel to manage the commitments which imposes data security and integrity risk.

Prior Year Audit Report Continued … 4. Area qualified Interest receivable from conveyancers Details of qualification No system was in place to collect and keep record of the interest due from attorneys ( held in the trust accounts). How Resolved DLA employees recalculated and updated the interest receivables records and follow up with attorneys was done. Areas Improved The department took initiative and embarked on a project to rectify the prior year’s reported issues ( calculation and correct disclosure and recovery steps) on interest on conveyancers by using own staff. In so doing the skills were transferred and operational procedures were improved, which might be sustainable.

Audited Performance Information Sufficient appropriate audit evidence in relation to the reported performance information could not be obtained, as the relevant source documentation could not be provided for audit purposes on time. The department was not ready to get an opinion on the audit of performance information audit since: –There was no system in place at the department to address the collection, monitoring, and accurate reporting on performance information, however –The department now has the policy on Programme Performance which was only approved by the Accounting Officer on 23/03/2009.

Key Governance responsibilities 1.Clear trail of supporting documentation that is easily available and provided in a timely manner 2.Quality of financial statements and related management information 3.Timeliness of financial statements and management information 4.Availability of key officials during audit 5.Development and compliance with risk management, effective internal control and governance practices 6.Leadership/supervision and monitoring

Key Governance responsibilities continued… 1.Clear trail of supporting documentation that is easily available and provided in a timely manner No significant difficulties were experienced during the audit concerning delays or the availability of requested information. However, the department requested that they only submit evidence supporting the qualification paragraphs by 15 May. This made it difficult for us to complete the audit at the reasonable timeframe in order to allow the department sufficient time to follow up on problems that were identified.

Key Governance responsibilities continued… 2.Quality of financial statements and related management information The quality of the financial statements was not satisfactory. This was as a result of several material adjustments on the Disclosure Notes to the annual financial statements, which indicate that there is a lack of guidance and understanding on what needs to be done regarding the disclosure notes.

Key Governance responsibilities continued… 3.Timeliness of financial statements and management information The annual financial statements were submitted for auditing as per the legislated deadlines.

Key Governance responsibilities continued… 4.Availability of key officials during audit We had no problems during the audit process with the availability of key officials.

Key Governance responsibilities continued… 5.Development and compliance with risk management, effective internal control and governance practices Internal audit The department had an internal audit function in operation throughout the financial year. However the concern for the year was the fact that they only started late in the year with the audit work as a result of the tendering process. Audit committee The department had an audit committee function in operation that adequately fulfilled its duties. Internal controls and risk management There are still significant deficiencies in the design and implementation of internal control in respect of financial and risk management. This is reflected in the qualification on receivables for departmental revenue and tangible capital assets. The department has not undertaken a risk assessment to assess any risks of fraud and consequently did not updated the fraud prevention plan, as required by the Treasury Regulations.

Key Governance responsibilities continued. 6.Leadership/supervision and monitoring It has been noted that there is leadership, supervision and monitoring in place. However, there are key areas that require improvement especially where the material adjustment to the annual financial statements were made and the areas of qualification.

OVERALL AREAS OF CONCERNS. Key vacant positions ( esp. in the finance division whereby key positions are temporarily filled by acting staff members) Use of consultants – Lack of knowledge transfers therefore the risk that the problems rectified might re-occur again in the future. The completion of the restitution programme which requires billions of rand and the risk of not meeting the restitution performance targets due to budget constraints which might result in non compliance issues ( e.g. shifting of funds from other programmes which might result in the department not been able to honour other obligations). Areas which were qualified:  Receivables for departmental revenue ( leases )and  Tangible Capital Assets ( Completeness and rights of immovable properties and asset register incomplete and inaccurate).

AREAS FOR IMPROVEMENT Submission of the correct documentation on time; Interim audit to cover the qualification areas and any findings should be addressed timeously when raised with management not during the final audit to reduce the number of material adjustments after year end; The department should draw up an action plan (involve the AGSA) to address all the audit findings and implement and monitor the achievement thereof early; and Appointment of skilled candidates and provide training to the DRDLR employees on areas that; were qualified in the current financial year; were material adjustments were made and areas that were qualified in the prior year and rectified with the involvement of consultants.

QUESTIONS