1. Education sector regularity audit outcomes 2014-15 Presentation to the Standing Committee on Appropriations Presented by: SM – Godfrey Diale Xx Month xxxx

2. 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.

3. 2014-15 PFMA Discussion points 3 Focus of the audit Education sector budget Status of financial statements Status of annual performance reports Status of compliance with key legislation Root causes

4. 2014-15 PFMA 1 Focus of the audit 1 4

5. Focus of our audits We Audit… to determine… Financial statements Fair presentation and reliability of information (no material misstatements) Annual performance reports Whether the reported information is reliable and credible (no material findings) Compliance with legislation Whether the auditee complied with key legislation on financial and performance management (no material non-compliance)

6. Definitions of audit movements Movement is depicted as follows Improved stagnant or little progress Regressed

7. 2014-15 PFMA 2 What is the budget for the education sector ? 2 10

8. Education sector allocation 2014-15 PFMA 2 10

9. 2014-15 PFMA 2 What is the status of financial statements? 2 9

10. 2014-15 PFMA Unqualified with no findings Unqualified with findings Qualified Adverse or disclaimer 10 Three-year trend – financial statements 10 auditees

11. Consolidated audit outcomes for the education sector AuditeeOutcomes (2014/15)Outcomes (2013/14) Movemen t Audit OpinionPDOsNon-compliance with laws and regulations Audit OpinionPDOsNon-compliance with laws and regulations Eastern CapeQualified Yes QualifiedYes Free StateUnqualified with findings Yes QualifiedYes GautengUnqualified with findings NoYes Unqualified with findings NoYes KwaZulu- Natal Unqualified with findings Yes QualifiedYes LimpopoDisclaimer Yes DisclaimerYes MpumalangaQualified NoYes Unqualified with findings NoYes Northern Cape Unqualified with findings Yes QualifiedYes North WestUnqualified with findings Yes Unqualified with findings Yes Western Cape Unqualified without findings No Unqualified with findings NoYes Basic Education Unqualified with findings Yes Unqualified with findings Yes

12. 2014-15 PFMA 12 Outcome if NOT corrected Outcome after corrections 2014-15 Outcome if NOT corrected Outcome after corrections 2013-14 Quality of submitted financial statements Avoided qualifications by correcting material misstatements during audit process 6 auditees 5 auditees Financially unqualified (clean audit/ unqualified with findings) Financially qualified (qualified/ adverse/ disclaimed with findings) 2014-15 PFMA 12

13. Financial statement areas qualified (uncorrected material misstatements) New findingsRepeat findings Finding addressed from previous year 13 2014-15 PFMA

14. 2014-15 PFMA 3 What is the status of annual performance reports? 3 14

15. Three-year trend – findings on annual performance reports With no findingsWith findings Education Sector 3 7 3 7

16. 2013-14 PFMA Quality of annual performance reports submitted for auditing With no material misstatements With material misstatements) 16 Outcome if NOT corrected Outcome after corrections Avoided findings on their annual performance reports by correcting material misstatements during audit process 2014-15 Outcome if NOT corrected Outcome after corrections 2013-14 2 auditees 1 auditees With no material misstatements With material misstatements) 2014-15 PFMA

17. Findings on usefulness and reliability of annual performance reports Usefulness The performance Indicators were not well defined. The performance targets were not specific enough to ensure that the required performance could be measured and reported in a useful manner. Reliability Reported information could not be traced back to the source data or documentation to determine if reported information is accurate, complete and valid when compared to the source. With no material misstatements With material misstatements) 2014-15 PFMA

18. Findings on usefulness and reliability of annual performance reports With no material misstatements With material misstatements) 2014-15 PFMA

19. 2014-15 PFMA 4 What is the status of compliance with key legislation? 4 19

20. Three-year trend – compliance with key legislation Education Sector 2014-15 PFMA 20 Without Findings With Findings

21. 21 Most common areas of non-compliance Quality of the financial statements submitted Unauthorised, irregular and fruitless and wasteful expenditure Expenditure management Supply chain management 90% (9) 80% (8) 100% (10) 90% (9) 70% (7) 90% (9) 80% (8) Regressed Human resource management 2014-15 2013-14 2014-15 PFMA 21

22. Status of supply chain management (SCM) Limitation on planned scope of audit of awards Awards to employees Awards to close family members of employees Uncompetitive or unfair procurement processes Inadequate contract management Most common findings: Three written quotations not invited and/or deviations not justified Competitive bids not invited and/ or deviations not justified Declarations of interest not submitted by providers 22 2014-15 PFMA With findings With material findings

23. 2013-14 PFMA 23 Identified by the auditees Identified during the audit Decrease in unauthorised expenditure Overspending of budget/ main sections in budget cause of 100% of occurrences Highest contributor (97%) Education – FS (R589m) Nature R609 million [4 (40%) auditees] R 991 million [7 (70%) auditees] R1 052 million [6 (60%) auditees] Unauthorised expenditure incurred

24. Unauthorised expenditure per province

25. 2013-14 PFMA 25 Irregular expenditure incurred Decrease in irregular expenditure Nature R4 381 million [10 (100%) auditees] R3 054 million [10 (100%) auditees R7 646 million [10 (100%) auditees] Identified by auditees Identified during audit Non-compliance with SCM legislation cause of 98% of occurrences Main areas of non-compliance -Procurement without competitive bidding or quotation process -Non-compliance with procurement process requirements -Non-compliance with legislation on contract management Highest contributors Limpopo Department of Education (R994 million) (23%) Gauteng Department of Education (R1 246 million) (28%) National Department (R728 million) (17%)

26. Irregular expenditure per province Province Nature and extent of unauthorised expenditure Related to SCMRelated to compensation of employees Other 2014-152013-142014-152013-142014-152013-14 R’000 Eastern Cape R82 503R30 467R0R23 643R4 515R1 021 Free State R141 909R199 767R0 R95 809R79 Gauteng R1 246 355R948 495R0 KwaZulu-Natal R447 991R1 003 288R0R1 671 237R0R1 084 Limpopo R989 099R2 018 608R0R42 794R5 216R45 924 Mpumalanga R161 903R55 521R0R1 647R0R1 180 Northern Cape R344 700R348 390R0R383R1 220R0 North West R131 701R30 564R0R23 512R0 Western Cape R105R4 700R0 R156R7 Basic Education R727 654R771 299R0

27. 2013-14 PFMA 27 Fruitless and wasteful expenditure incurred Nature Decrease in fruitless and wasteful expenditure Interest on overdue accounts and late payments Litigation costs and claims Limpopo: Unused infrastructure (build without proper needs assessment) Eastern Cape: Suspended officials Highest contributors Education - LP (R72 million – 82%) Education – EC (R9 million – 10%) Identified by the auditees Identified during the audit R 89 million [9 (90%) auditees] R864 million [8 (80%) auditees] R 820 million [9 (90%) auditees]

28. Fruitless and wasteful expenditure per province ProvinceFruitless and wasteful expenditure Incurred to prevent irregularities, loss as well as fruitless and wasteful Other 2014-152013-142014-152013-14 R’000 Eastern Cape R4 143R69 364R4 439R0 Free State R0 R385R3 599 Gauteng R0R1 207R2 226R0 KwaZulu-Natal R0R9 479R3 076R0 Limpopo R0R168 616R72 698R0 Mpumalanga R0 R68R2 220 Northern Cape R0R338R294R0 North West R0 R408R0 Western Cape R0 R1 013R137 Basic Education R0 R28R2 298

29. 2014-15 PFMA 29 Root causes should be addressed Inadequate attention to daily management disciplines Slow response by the political leadership and senior management Inadequate consequences for poor performance and transgressions Root Causes

30. Key control analysis LEADERSHIP Culture of honesty, ethical business practices and good governance Exercise oversight responsibility Effective HR management Policies and procedures Action plans to address internal control deficiencies IT governance framework FINANCIAL AND PERFORMANCE MANAGEMENT Proper record keeping Controls over daily and monthly processing and reconciling of transactions Regular, accurate and complete financial and performance reports Review and monitor compliance with applicable laws and regulations Design and implement formal controls over IT systems GOVERNANCE Appropriate risk management activities Adequately resourced and functioning internal audit unit Audit committee promotes accountability and service delivery