1. Briefing to the portfolio committee on 13 October 2015 Audit outcomes of the health portfolio and health sector 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, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.
Need to consider the following:
All information to be included needs to have been audited and be accurate and correct.
If information included has not been audited, then it needs to be specified as such or specified that this was based on a sample tested.

3. 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 of assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR.

4. The scope of AGSA audits X
Provide assurance on whether the AFS is free from material 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 assurance that service delivery has been achieved
Report on material non-compliance with relevant key legislations
Do not report on ALL legislations – only key selected requirements from relevant legislations are audited
Identify 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. Contents Slide no. Health Portfolio :
1. Overall audit outcomes for health portfolio 7
2. Unauthorised/ Irregular / Fruitless & Wasteful expenditure 11
3. Section 4(3) outcomes for the Health portfolio 13
4. Combined assurance and assessment of assurance providers 15
5. Minister’s commitments to address root causes 16
Health Sector :
6. Overall audit outcomes for health sector 18
7. Overall improvement in audit outcomes 19
8. Movement of audit outcomes from 2013/14 and 2014/15 20

6. Contents Slide no.
9. Qualification areas Auditor-General focus areas Unauthorised/ Irregular / Fruitless & Wasteful expenditure Root causes should be addressed (top three) 27

7. 1. Overall audit outcomes – health portfolio
Overall stagnation in audit outcomes
Assurance levels
Key controls
Senior management
First level
Accounting officer/authority
Executive authority
Second level
Internal audit unit
2 (CMS, MRC) (NDoH)
Audit committee
3 (CMS, MRC, NDoH)
Unqualified with no findings
Unqualified with findings
Qualified with findings
Disclaimer with findings
Audits outstanding
Provides assurance
Provides some assurance
Provides limited/ no assurance
Vacancy
Good
Concerning
Intervention required 1
To improve/maintain the audit outcomes … 2
… the key role players need to assure that … 3
… attention is given to the key controls and …
… the risk areas and … 4
… the root causes are addressed … 5
Risk areas
Root causes
Legends
Quality of submitted financial statements
Quality of submitted performance reports
Supply chain management
Slow response by management in addressing the root causes of poor audit outcomes
Movement
Improvement
Stagnant or limited progress
Regressed
(2) CMS, NDoH
Human resource management
Financial health
Information technology
Good
Concerning
Intervention required

8. 1.1 Quality of submitted financial statements
PFMA
Outcome if NOT corrected
Outcome after corrections
no auditees
Financially unqualified (with findings/without findings)
Financially qualified (qualified/ disclaimed with findings)
Avoided qualifications by correcting material misstatements
during audit process
Outcome if NOT corrected
Outcome after corrections
67% (2)
CMS, MRC
1 auditee 8

9. 1.2 Quality of annual performance reports
PFMA
67%
A total of of annual performance reports were reliable and useful compared to 67% in the previous year.
With no findings
With findings
Improved
Usefulness
Reliability
Stagnant or little progress
Regressed
All auditees who submitted information did so in time for the audit. 9

10. 1.3 Most auditees did not comply with legislation in the following areas
PFMA 1. 2. 3.
Quality of annual financial statements submitted
Prevention of unauthorised, irregular and/or fruitless and wasteful expenditure
Management of procurement and or contracts
Good
Of concern
Intervention required 4. 5. 6.
Improvement
Management of strategic planning and performance
Human resource and consequence management
Internal audit and audit committee
Stagnant or limited progress
Regressed

11. 2. UIFW expenditure – portfolio
PFMA
Unauthorised expenditure
Irregular expenditure
Fruitless and wasteful expenditure
Expenditure not in accordance with the budget vote/ overspending of budget or programme
Expenditure incurred in contravention of key legislation, prescribed processes not followed
Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money!
Definitions
Legends:
Decrease in expenditure
No change
Increase in expenditure
NDoH - R # R
CMS R
MRC R
R69 000
Totals R0 R R
# - An irregular payment amounting to R391 million was made contrary to the DORA payment
schedule. This was recovered prior to the end of the financial year.

12. 2.1 Irregular expenditure – portfolio (CY vs. PY split)
PFMA
Irregular expenditure relating to CY
Irregular expenditure relating to PY
Irregular expenditure identified in CY
Expenditure incurred in contravention of key legislation, prescribed processes not followed
Expenditure incurred in contravention of key legislation, prescribed processes not followed
Expenditure incurred in contravention of key legislation, prescribed processes not followed
Definitions
NDoH R R R
CMS R -
MRC R
Totals R R

13. 3. Section 4(3) outcomes for the health portfolio
PFMA
The National Health Laboratory Services (NHLS)
Movement
AUDIT OPINIONS
PREDETERMINED OBJECTIVES
COMPLIANCE WITH LAWS AND REGULATIONS
Unqualified with findings
With no findings
With findings
Improved
Stagnant or little progress
Regressed

14. 3.1 Section 4(3) outcomes – compliance and irregular expenditure
PFMA
Irregular expenditure
NHLS R R
Totals
New finding in current year
Repeat finding
Non-compliance with legislation
Properties belonging to the NHLS were not registered in its name, leading to non-compliance with the NHLS Act.
There was a lack of proper control systems to safeguard and maintain assets, resulting in non-compliance with the PFMA.
A material adjustment needed to be made to the annual financial statements to avoid a qualified opinion.
The accounting authority did not take effective steps to prevent irregular expenditure as required by the PFMA.
Legends:
Decrease in expenditure
No change
Increase in expenditure

15. 4. Combined assurance – complementary mandate
Senior
management
Accounting
officers/
authority
Executive
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
Oversight assurance
Second level of assurance
Coordinating/
monitoring
institutions
Internal
audit
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
Oversight
(portfolio
committees/
councils)
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

16. 5. Minister’s commitments to address root causes
PFMA
Status of key commitments by minister
Controls will be strengthened to review and monitor compliance with legislation.
A qualified chief financial officer will be recruited at the CCOD.
An electronic health patient registration system will be designed and implemented to support the reliable recording of health data.
Not implemented
In progress
Implemented
New

17. Health sector outcomes
PFMA
Health sector outcomes

18. 6. Overall audit outcomes for health sector
PFMA
Unqualified no findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimer with findings
Audits outstanding 18

19. 7. Overall improvement in audit outcomes
PFMA 19

20. 8. Movement of audit outcomes from 2013/14 to 2014/15
PFMA 20

21. 9. Qualification areas 21 21 2014-15 PFMA Improved
Stagnant or little progress
Regressed 21 21

22. 10. Auditor-general’s focus areas
10.1 Quality of submitted financial statements
PFMA
Outcome if NOT corrected
Outcome after corrections
Financially unqualified with findings
Financially qualified (qualified/ disclaimed with findings)
1 auditee (LP)
Financially unqualified with findings
Financially qualified (qualified/ disclaimed with findings)
Avoided qualifications by correcting material misstatements
during audit process
Outcome if NOT corrected
Outcome after corrections
100% (10)
3 auditees
(NAT, NW, WC) 22 22

23. 10.2 Quality of annual performance reports
PFMA
100%
Annual performance reports of of auditees were not reliable compared to 90% in the previous year. The APR was not useful for of auditees, remaining unchanged from the previous year.
30%
With no findings
With findings
Usefulness
Reliability
Improved
Improved
Usefulness
Stagnant or little progress
Stagnant or little progress
Regressed
Regressed 23 23

24. 10.3 Most auditees did not comply with legislation in the following areas following areas
PFMA
2014/15
2013/14 24

25. 11. UIFW expenditure sector (Erratum)
PFMA
Unauthorised expenditure
Irregular expenditure
Fruitless and wasteful expenditure
Expenditure not in accordance with the budget vote/ overspending of budget or programme
Expenditure incurred in contravention of key legislation, prescribed processes not followed
Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money!
Definitions
Correction of errors in first submission EC R R R FS R R R GP R0 R R
KZN R R R LP R R MP R R R
NAT R R NC R R R NW R R R WC R
Totals R R R
Legends:
Decrease in expenditure
No change
Increase in expenditure

26. 11.1 Irregular expenditure sector (CY and PY split)-(Erratum)
PFMA
Irregular expenditure relating to CY
Irregular expenditure relating to PY
Total irregular expenditure identified for the year
Expenditure incurred in contravention of key legislation, prescribed processes not followed
Expenditure incurred in contravention of key legislation, prescribed processes not followed
Expenditure incurred in contravention of key legislation, prescribed processes not followed
Definitions EC R R R FS R R R GP R R0
KZN R R R LP R MP R
NAT R R R NC R R R NW R WC R R R
Totals R R R
Correction of errors in first submission

27. 12. Root causes should be addressed (top three)
PFMA
2014/15
2013/14 27

28. 12.1 Root causes should be addressed (top three)
PFMA
Root causes
Recommendation
Slow response by political leadership and senior management in addressing the root causes of poor audit outcomes
Leadership and senior management should continue to equip themselves with knowledge and skills they need to perform their oversight and governance duties.
Ensure that senior management addresses, in a sustainable manner, the weaknesses in key controls reported by the AGSA and internal auditors.
Leadership should hold one another accountable.
Lack of consequences for poor performance and transgressions
In order to improve the performance and productivity of officials, leadership should set the tone by implementing sound performance management processes, evaluating and monitoring officials’ performance and consistently demonstrating that poor performance has consequences.
Instability or vacancies in key positions
We recommend that key positions be filled as soon as possible with officials who have the appropriate competencies to ensure quality financial statements and performance reports as well as compliance with legislation. 28

29. Questions