1. Briefing to the portfolio committee on trade and industry on the audit outcomes of their portfolio for the financial year
October 2015

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. Purpose of the presentation
To provide the portfolio committee with applicable information and guidance on the trade and industry portfolio’s audit outcomes so that they can ensure effective oversight.

4. Content Department budget vs expenditure 5
2. Overall audit outcomes for the trade and industry portfolio 6
3. Auditor-general’s six key focus areas 7
4. Unauthorised/irregular/fruitless and wasteful expenditure 13
5. Combined assurance and assessment of assurance providers 16
6. Drivers of key controls for the portfolio 20
7. Root causes and recommendations 23
Minister’s commitments to address root causes 27
Role of the accounting officer 28
Remedies to address transgressions and poor performance 29

5. 1. Department budget vs expenditure 2014-15
Actual expenditure
Underspending
Variance %
Programme 1: Administration    
63 796 
8,0 
Programme 2: International trade and economic development    
3 670 
 2,5
Programme 3: Broadening participation    
7 708 
 0,8
Programme 4: Industrial development    
7 285 
 0,4
Programme 5: Consumer and corporate regulation    
1 953 
 0,6
Programme 6: Incentive development and administration    
40 500 
 0,7
Programme 7: Trade and investment South Africa
8 518
2,3

6. 2. Overall audit outcomes for the trade and industry portfolio
Unqualified without findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimed with findings
11 auditees
11 auditees
11 auditees

7. 3. Auditor-general’s six key focus areas
Quality of submitted financial statements
Quality of submitted performance reports
Compliance with legislation
Good
Concerning
Intervention required
Human resource management
Information technology
Financial health
Improvement
Stagnant or limited progress
Regressed

8. 3.1 Quality of submitted financial statements
Outcome if NOT corrected
Outcome after corrections
4 auditees
Avoided qualifications by correcting material misstatements
during the auditing process
Outcome if NOT corrected
Outcome after corrections
Financially unqualified with findings
Financially qualified (qualified/ disclaimed with findings)
36% (4)
6 auditees
64% (7)

9. 3.2 Quality of annual performance reports
73%
of reports were reliable and useful compared with 45% in previous year.
of auditees that submitted information, did so in time for auditing.
100%
With no findings
With findings
Usefulness
Reliability
73% (8)
73% (8)
27% (3)
27% (3)
Improvement
Stagnant or limited progress
Regressed

10. 3.3 Quality of submitted annual performance reports
Outcome if NOT corrected
Outcome after corrections
0 auditees
Avoided findings by correcting material misstatements
during the auditing process
Annual performance report not materially misstated
Annual performance report contained material misstatements
Outcome if NOT corrected
Outcome after corrections
2 auditees

11. 3.4 Most auditees did not comply with legislation in the following areas
Quality of annual financial statements submitted
Prevention of unauthorised, irregular and fruitless and wasteful expenditure
Management of procurement and contracts
Good
Concerning
Intervention required
Management of strategic planning and performance
Human resource & consequence management
Internal audit & audit committee
Improvement
Stagnant or limited progress
Regressed

12. 3.5 Information technology
IT governance
Security management
IT controls embedded and functioning effectively
IT controls to be implemented
IT controls to be designed
User access management
IT Security continuity
Improvement
Stagnant or limited progress
Regressed

13. 4. UIFW expenditure definitions
Unauthorised expenditure
Expenditure not aligned to the budget vote
Irregular expenditure
Expenditure in contravention of key legislation
Fruitless and wasteful expenditure
Expenditure that should not have been incurred (incurred in vain, could have been avoided or was not value for money)

14. 4.1 Irregular expenditure of the portfolio
Identified by auditees
Identified by auditors

15. 4.2 Fruitless and wasteful expenditure for portfolio
Identified by auditees
Identified by auditors

16. 5. Combined assurance – complementary mandate
First level of assurance: Management
Senior management
Accounting officers/authority
Executive authority
Extensive assurance
Senior management –immediately address recommendations and adherence to financial management and internal control systems
Accounting officers/authority – hold officials accountable for implementing internal controls and quarterly and annual reporting
Executive authority – monitor progress of performance and enforce accountability and consequences

17. 5. Combined assurance – complementary mandate
Second level of assurance: Oversight
Coordinating/monitoring institutions
Internal audit
Audit committee
Extensive assurance
National Treasury/ DPSA – monitor compliance with legislation and enforce appropriate action
Internal audit – follow up on management’s actions to address recommendations, conduct own audits on the key focus areas in internal control environment and report quarterly on progress
Audit committee – monitor risks and implement commitments on management’s corrective action as well as quarterly progress on action plans

18. 5. Combined assurance – complementary mandate
Third level of assurance: Independent
Oversight (portfolio committees/councils)
Public accounts committee
National assembly
Extensive assurance
Oversight (portfolio committees) – review and monitor quarterly progress on implementing action plans to address deficiencies
Public accounts committee – exercise regular oversight on any report which it may deem necessary
Audit committee – monitor risks and implement commitments on management’s corrective action as well as quarterly progress on action plans

19. 5.1. Assessment of assurance providers for the portfolio
Improvement
Stagnant or limited progress
Regressed
Provides assurance
Provides some assurance
Provides limited/ no assurance
Vacancy
Not
established/ evaluated

20. 6. Drivers of key controls for the portfolio
Drivers of internal control: Leadership
Department and entities
Effective leadership culture
Oversight responsibility
HR management
Policies and procedures
Action plans
IT governance
Department of Trade and Industry
Companies Intellectual Property Commission (CIPC)
Companies Tribunal (CT)
National Consumer Commission (NCC)
National Credit Regulator (NCR)
National Consumer Tribunal (NCT)
National Gambling Board (NGB)
National Lotteries Board (NLB) and National Lottery Distribution Trust Fund (NLDTF)
National Regulator for Compulsory specification (NRCS)
South African Bureau of Standards (SABS)
Small Enterprise Development Agency (SEDA)

21. 6. Drivers of key controls for the portfolio (continued)
Drivers of internal control: Financial and performance management
Departments and entities
Proper record keeping
Processing and reconciling controls
Reporting
Compliance
IT systems controls
Department of Trade and Industry
Companies Intellectual Property Commission (CIPC)
Companies Tribunal (CT)
National Consumer Commission (NCC)
National Credit Regulator (NCR)
National Consumer Tribunal (NCT)
National Gambling Board (NGB)
National Lotteries Board (NLB) and National Lottery Distribution Trust Fund (NLDTF)
National Regulator for Compulsory specification (NRCS)
South African Bureau of Standards (SABS)
Small Enterprise Development Agency (SEDA)

22. 6. Drivers of key controls for the portfolio (continued)
Drivers of internal control: Governance
Departments and entities
Risk management
Internal audit
Audit committee
Department of Trade and Industry
Companies Intellectual Property Commission (CIPC)
Companies Tribunal (CT)
National Consumer Commission (NCC)
National Credit Regulator (NCR)
National Consumer Tribunal (NCT)
National Gambling Board (NGB)
National Lotteries Board (NLB) and National Lottery Distribution Trust Fund (NLDTF)
National Regulator for Compulsory specification (NRCS)
South African Bureau of Standards (SABS)
Small Enterprise Development Agency (SEDA)

23. 7. Top three root causes that should be addressed
1. Management slow to address root causes of poor audit outcomes
This year: Main cause Last year: Main cause
Reasons:
Action plans are inadequate and implementation is not monitored adequately
Controls and processes to address previously identified deficiencies are not implemented
Heavy reliance on external audit process to identify and correct material misstatements
Improvement
Stagnant or limited progress
Regressed

24. 7. Top three root causes that should be addressed
2. Vacancies in key positions
A problem is that appointments are made in jobs with no job descriptions. Therefore it becomes increasingly difficult to determine the level of competence needed to perform the job. Also, auditees do not always assess the competencies of the finance and SCM staff, which means that they would not be aware of any shortcomings.
This year: Second cause Last year: Third cause
Reasons:
Vacancies in key positions are not filled in good time
Improvement
Stagnant or limited progress
Regressed

25. 7. Top three root causes that should be addressed
3. Lack of consequences for poor performance and transgressions
This year: Third cause Last year: Not a main cause
Reasons:
Staff not always held accountable by leadership for poor performance and transgressions – creates a perception that these are accepted and tolerated.
Improvement
Stagnant or limited progress
Regressed

26. 7.1. Top three root causes and recommendations
Slow response by management
Adequate action plans must be implemented within strict timelines. Action plans should be implemented and reviewed at least quarterly by the audit committee. Internal audit should assess whether the implementation has achieved the required outcome.
Vacancies in key positions
Vacancies in key positions should be filled as soon as possible with individuals who possess the necessary competencies .
Lack of consequences for poor performance and transgressions
Performance assessments should be conducted more frequently and staff must be reprimanded if there are no improvements in performance.
Leadership must ensure that staff who transgress internal control policies and procedures face consequences.

27. 8. Status of minister’s commitments to address root causes
Develop and implement an action plan to address all identified audit findings which will be monitored by the accounting officer, internal audit and audit committee, and escalated to the executive authority when necessary.
NRCS will be assisted in addressing the revenue recognition problem. The DTI and NRCS has established a joint team working towards establishing an appropriate revenue model for the NRCS to ensure an improved audit outcome.
To follow up quarterly on key control assessments and the reports from the audit committees on audit related matters.
NGB would be assisted by the DTI to address the audit findings.
Obtain action plans for CIPC, NLB, NGB, and the Companies Tribunal to address the audit findings on predetermined objectives, and from NRCS to address the qualified audit opinion. Progress on the action plans will be tracked on a quarterly basis by the chairpersons of the audit committees.
The process of compiling quarterly financial statements for all Trade and Industry entities will be re-enforced. This will assist in having the discipline of accurate capturing/reporting addressing the number of material corrections to financial statements.
Implemented
In progress
Not implemented
New

28. Role of accounting officer Robust financial and performance management
9. Understanding and monitoring the accounting officer’s mandate is key to improving internal controls
Role of accounting officer
Robust financial and performance management
systems
Oversight and
accountability
Commitment and
ethical behaviour
Ensure effective, efficient and transparent systems for
financial and risk management
internal controls (under control of audit committee)
procurement and evaluation
Ensure effective, efficient, economical and transparent use of resources
Prevent unauthorised, irregular and fruitless and wasteful expenditure and, if discovered, report to Treasury
Manage available working capital efficiently and economically
Manage and safeguard assets and liabilities
Take appropriate disciplinary steps against any official contravening the PFMA
Role of the accounting officer is critical to:
timely, credible information + accountability + transparency + service delivery
Chapter 5 of Public Finance Management Act, 1999 (PFMA)

29. 10. Accountability and remedies to address transgressions and poor performance
Questions raised on …
The need for accountability and consequences and how they can be enforced.
Legislation provides the answers…
Legislation clearly defines accountability and the remedies.
Details available on pages 44 to 65 of our booklet:
In Brief: The Auditor-General of South Africa

30. 10.1. AGSA booklet gives overview of legislation
In Brief: The Auditor-General of South Africa
Highlights legislation that enables remedies for transgressions and poor performance within national and provincial departments
Addresses typical matters as reported in general reports:
Failure to comply with legislated obligations and responsibilities
Unauthorised, irregular and fruitless and wasteful expenditure
Possible fraud and corruption
Poor work performance – officials and suppliers
Other non-compliance with legislation

31. Questions