1. Briefing to the Portfolio Committee: Water and Sanitation
Audit outcomes of the portfolio for the financial year
18 October 2016

2. The AGSA’s promise and focus
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The AGSA’s promise and focus

3. Role of the AGSA in the BRRR process
Reputation promise
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The Auditor-General of South Africa (AGSA) 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.
Role of the AGSA in the BRRR process
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 entities, taking into consideration the objective of the committee to produce a BRRR.

4. 1 2 3 Our annual audits examine three areas 2015-16 PFMA
FAIR PRESENTATION AND RELIABILITY OF FINANCIAL STATEMENTS 2
RELIABLE AND CREDIBLE PERFORMANCE INFORMATION FOR PREDETERMINED OBJECTIVES 3
COMPLIANCE WITH KEY LEGISLATION ON FINANCIAL AND PERFORMANCE MANAGEMENT

5. Unqualified opinion with no findings (clean audit)
Financially unqualified opinion with findings
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Auditee produced financial statements without material misstatements or could correct the material misstatements but struggled to:
align its performance reports to the predetermined objectives it committed to in its APPs
set clear performance indicators and targets to measure its performance against its predetermined objectives
report reliably on whether they achieved its performance targets
determine which legislation it should comply with and implement the required policies, procedures and controls to ensure compliance.
Auditee:
produced credible and reliable financial statements that are free of material misstatements
reported in a useful and reliable manner on performance as measured against predetermined objectives in the annual performance plan (APP)
observed / complied with key legislation in conducting their day-to-day to operations to achieve on its mandate.

6. Qualified opinion Adverse opinion Disclaimed opinion
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Auditee:
had same challenges as those that were unqualified with findings but, in addition, it could not produce credible and reliable financial statements
had material misstatements on specific areas in its financial statements, which could not be corrected before the financial statements were published.
Adverse opinion
Auditee:
had same challenges as those that were qualified but, in addition, they
had so many material misstatements in its financial statements that we disagreed with almost all the amounts and disclosures in the financial statements.
Disclaimed opinion
Auditee:
had same challenges as those that were qualified but, in addition, they
could not provide us with evidence for most of the amounts and disclosures reported in the financial statements, and we were unable to conclude or express an opinion on the credibility of their financial statements.

7.
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The audit outcomes

8. Audit outcomes over three years – Water and Sanitation portfolio
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Unqualified with no findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimed with findings
Audits outstanding
3 auditees
3 auditees
3 auditees

9. Improvement over two years in the most common qualification areas
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10. 3 Performance management linked to programmes/ objectives tested 3
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Performance management linked to programmes/ objectives tested 3

11. Quality of performance information
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Usefulness of annual performance information
Reliability of performance information
With no material findings
With material findings
WTE’s reporting is incorporated with DWS

12. Material findings on usefulness and reliability
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Improved
Usefulness
The finding on the usefulness of information was the following:
Programme 5 - The indicators are not well-defined to ensure that they have clear, unambiguous definitions so that data will be collected consistently
A total of 30% targets were not specific at DWS
Reliability
The findings on reliability of information were the following at DWS:
Programme 3 – one indicator - number of households provided with (interim or basic) water supply in the 27 priority districts - could not be verified as not all the lists of households could be obtained.
Programme 5 – three indicators – sufficient appropriate evidence not obtained and indicators not complete
Regressed

13. No material findings reported Material findings reported
Key projects selected for audit
Budget vs Spending
Financial Management (AFS)
Contract management
Pre-determined Objectives
Hazelmere Dam
Budget R498 million
Actual to date R209 million
Clan William Dam
Budget R3.0 billion
Actual to date R353 million
All the expenditure incurred on these infrastructure projects was correctly disclosed in the Work In Progress in the Financial Statements
Contract management was adhered to on these projects, however delays were noted on the Clan William Dam, which will impact timely delivery of the project and escalation of costs
Performance information was reported reliable – as these are multi year projects the following was reported in the APR:
Hazelmere Dam - achieved
Clan William Dam – not achieved
Programme 3 – Indicator 38 – two dams where betterment is implemented
Raising of Hazelmere Dam
Raising of Clan William Dam
Hazelmere Dam
The raising of the dam is on track for completion within budget and on time
Clan William Dam
Target of placing m3 concrete on the wall was not achieved
Delays emanated from the decision to procure a commercial contractor for the main works
Construction South (division of WTE) has in the meantime commenced with site preparation and, with assistance of the service provider initially meant to provide supervision and contract management of the main works, commenced with the preparation of the tender proposal document
The R353 million was spent on site establishment and construction of the N7 road by SANRAL
The tender process for appointment of the main contractor is expected to be finalised during October 2016
No material findings reported
Material findings reported
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14.
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Compliance

15. Stagnation in compliance with legislation
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With no material compliance findings
With material compliance findings
Outstanding audits
3 auditees
3 auditees

16. Slight improvement in compliance with legislation and quality of financial statements
Figure 1: Findings on compliance with
key legislation – all auditees
Figure 2: Findings on compliance with key SCM legislation – all auditees
Figure 3: Quality of submitted financial statements
Two auditees (67%) [ : 1 (33%)] avoided qualifications due to the correction of material misstatements during the audit process
Material misstatements in submitted annual financial statements
100% (3)
67% (2)
Prevention of unauthorised, irregular and/or
fruitless and wasteful expenditure
Outcome if NOT corrected
Outcome after corrections
100% (3)
100% (3)
Management of procurement and/ or contracts
100% (3)
Figure1:
Material misstatement in submitted annual financial statements.
67%(2) DWS and WRC
Consequence management
33%(1) WRC
100% (3)
Outcome if NOT corrected
Outcome after corrections
Consequence management 0%
33% (1)
With no material misstatements
With material misstatements

17. Fruitless and wasteful expenditure and Irregular expenditure
PFMA
Definition
UIF amounts incurred by entities in portfolio
Investigations of U.I.F expenditure
Three auditees (100%) lodged investigations to determine root cause and consequences of U.I.F incurred
Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money!
3 entities
100%
Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed
3 entities
100%
Investigated
Not investigated

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Key controls, assurance providers, commitments made, top four root causes and proposed recommendations 6

19. Financial and performance management
Some improvements in key controls
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Leadership
Good
Concerning
Intervention required
Financial and performance management
Improved
Stagnant or little progress
Regressed
Governance

20. Improvement in assurance provided by key role players
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Provides assurance
Provides some assurance
Provides limited / no assurance
Third level of assurance
External independent assurance and oversight
First level of assurance
Management / leadership
Second level of assurance
Internal independent assurance and oversight
Accounting officers/ authorities
Executive authorities
Audit committees
Senior management
Portfolio
committee
Internal audit
units
Basis for PC evaluation:
Oversight role ito robust budget vote process, review of the annual report including the audit report, quarterly reporting;
Follow up on progress made by the auditees to address poor audit outcomes and key matters in the BRRR report.
Recommendations made in relation to key audit matters;
Improved Stagnant or little progress Regressed

21. Follow up on commitments by the minister
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To establish a structure in the department to incorporate the sanitation function
The focus risk assessment will be discussed by top management and monitored by the audit committee.
Implemented
To provide a business process re-engineering committee (BPRC) implementation plan with milestones to the portfolio committee.
In progress
Not Implemented
To take ownership / control over all processes within the department.
To strengthen the internal controls within the department.
New
To strengthen the internal controls with reference to implementing agents

22. Top root causes
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Lack of proper communication in the sector and regional offices about delivering of projects, planning, compliance. 2
Slow response in addressing audit findings, improving key controls and addressing risk areas
Insufficient internal controls over implementing agents – specific to SCM procedures at implementing agents, documentation and control 3 4
Instability in management (after year-end)

23. Actions required to improve audit outcomes
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Appointment of the DG and to ensure that there is stability in the CFO position at the DWS
Management should act on recommendations made by the AGSA in a timely manner and implement action plans for internal controls that are sustainable
Accounting officer / authority must successfully implement basic internal controls and accounting disciplines by preparing regular and accurate financial statements and performance reports (interim reports)
Controls over implementing agents should be implemented / strengthened to ensure that SCM rules are adhere to and that the funds are used for intended purposes
Senior management, leadership and oversight structures should continue to pay close attention to the occurrence of supply chain management transgressions. Investigate the incidents of non-compliance, take appropriate corrective steps, and implement consequence management
Ensure there is integrated planning, proper communication and coordination in the water sector to ensure that the vision and mission of the DWS are achieved
Operation and maintenance strategy should be enhanced
Appoint / retain technical staff at finance / project planning
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24. Actions required by the Oversight structures
Oversee the appointment of the DG and to ensure that there is stability in the CFO position at the DWS
Senior management, political leadership and oversight structures should continue to pay close attention to the occurrence of supply chain management transgressions. Investigate the incidents of non-compliance, take appropriate corrective steps, and implement consequence management
When Water boards (IA’s) are called before the committee, that the committee stresses the importance of controls over projects as the implementing agents to ensure that SCM rules are adhere to and that the funds are used for the intended purposes
Oversee that there is integrated planning, proper communication and coordination in the water sector to ensure that the vision and mission of the DWS are achieved
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25.
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PFMA cycle: Section 4(3)

26. Entities included in the portfolio not audited by AGSA: PAA (section 4(3) audit entities)
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Three year audit outcome of auditees within the Water & Sanitation portfolio which are not audited by the AGSA in terms of PAA section 4(3):
Auditee:
Three year Trend
Audit Outcomes
Audit Outcomes
AFS
AoPO
Compliance
Trans-Caledon Tunnel Authority (TCTA) a r
Breede-Gouritz Catchment Management Agency (BGCMA)
Inkomati-Usuthu Catchment
Management Agency (IUCMA)
Improved
Stagnant
Regressed
Outcome legend
Unqualified with no findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimed with finding
Audits outstanding a
No Material Findings r
Material findings

27.
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Questions