1.
Briefing to the Portfolio Committee: Trade and Industry Audit outcomes of the portfolio for the financial year (excluding dti)
PFMA

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

3. Role of AGSA in the BRRR process
Reputation promise
PFMA
The Auditor-General of South Africa (AGSA) 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.
Role of 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.
To provide the portfolio committee with applicable information and guidance on the Trade and Industry portfolio’s audit outcomes so that the committee can ensure effective oversight.
To enable the oversight structure to focus on areas that will lead to good governance.

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
PFMA
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 activities to achieve their mandate.
Auditee produced financial statements without material misstatements but struggled to:
align their performance reports to the predetermined objectives they committed to in their APPs; and/or
set clear performance indicators and targets to measure their performance against their predetermined objectives; and/or
report reliably on whether they achieved their performance targets; and/or
determine which legislation they should comply with and implement the required policies, procedures and controls to ensure compliance.

6. Qualified opinion Adverse opinion Disclaimed opinion
PFMA
Auditee:
had same challenges as those that received an unqualified opinion with findings but, in addition, they could not produce credible and reliable financial statements
had material misstatements on specific areas in their financial statements, which could not be corrected before the financial statements were published
did not comply with key legislation in certain instances.
Adverse opinion
Auditee:
has so many material misstatements in their financial statements that we disagree with almost all the amounts and disclosures in the financial statements.
was unable to provide sufficient supporting documentation for amounts in the financial statements and achievements reported in the annual performance report.
did not comply with key legislation.
Disclaimed opinion
Auditee:
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.
was unable to provide sufficient supporting documentation for amounts in the financial statements and achievements reported in the annual performance report.
did not comply with key legislation.

7. The 2015-16 audit outcomes and key messages
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The audit outcomes and key messages 2

8. Improvement in audit outcomes over 3 years
Three year trend – Compliance with key legislation
Three-year trend – Quality of annual performance plans
Three year trend – Quality of submitted annual performance reports
Three year trend – Overall improvement in audit outcomes
Unqualified with no findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimed with finding
Audits outstanding 1
To improve/maintain the overall audit outcomes, financial statements processes,
…. compliance with key legislation and…. 2 3
…. performance planning and reporting must be improved by….
The portfolio’s overall outcomes have improved due to leadership and management at the CT, NGB and NLC implementing and monitoring adequate action plans which addressed previously identified internal control deficiencies. In implementing these action plans, management also addressed the audit recommendations of the prior year. The minister embraced the concept of clean audits and with the support of the leadership at SABS, NCR and NCT they managed to maintain their clean audit outcomes. Leadership at these entities instilled a culture of continuously enhancing key controls, implementing recommendations timeously and holding staff accountable.
The level of assurance provided has improved which is evident from the overall improvement in the outcomes relating to compliance with key legislation in the areas of the quality of the submitted financial statements and material procurement and contract management findings. Action plans need to be implemented and intensified at entities such as the NCC, NRCS and CIPC to address non-compliance with key legislation.
The quality of annual performance reports improved as two auditees (20%) submitted annual performance reports which had material misstatements in This is due to adequate monitoring and reviews by management to ensure that the annual performance report is free of material misstatements with regards to reported targets.
PFMA
With no material findings
With material findings
Outstanding audits
No APR/ late submitted 8

9. Assurance providers per level
Improvement in audit outcomes over 3 years - continued
Status of Key controls
Assurance providers per level
Senior management
First level
Accounting officer/authority
Executive authority
Internal audit unit
Second level
Audit committee
Third level
Portfolio committee
Provides assurance
Provides some assurance
Provides limited/ no assurance
Vacancy
Not
established
Good
Concerning
Intervention required 4 5
… providing attention to the key controls by…
… the key role players as part of their role in combined assurance
Overall the interventions implemented at the trade and industry entities have proven to be successful based on the overall improvement in the audit outcomes of entities at portfolio level. Despite the portfolio receiving only one modified financial audit outcome, focussed interventions and commitments are still required in order to improve the current status of the audit outcomes at the CIPC, NRCS and NCC. Specific controls relating to the findings as a result of material adjustments to the submitted annual financial statements and annual performance report should be implemented.
The level of assurance provided has improved. Improved assurance was provided by key role players at the level of the accounting officer/authority, senior management and internal audit contributed towards sustained and improved key controls. The assurance provided by the executive authority and the portfolio committee in their support to drive clean administration and improved audit outcomes is adequate as reflected in the improved audit outcomes. It must however be noted that the assurance provided by key role players at the NCC and NRCS have not improved adequately and attention is still required in addressing the prior year’s findings. Furthermore, internal audit at the NCC regressed as it did not identify instances of material non-compliance relating to SCM legislation, which was subsequently identified by the AGSA.
PFMA
Improved
Stagnant
Regressed 9

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 annual performance plan slightly regressed and quality of submitted annual performance reports slightly regressed
Outcomes of programmes/objectives selected for testing:
Auditee:
Movement
Programmes/ Objectives
Usefulness
Reliability
Companies and Intellectual Property Commission
Programme 1: business regulation and reputation
No material findings reported.
Programme 3: service delivery and access
National Credit Regulator
Strategic objective 1: to promote increased access to credit through responsible granting
Strategic objective 2: to protect consumers from abuse and unfair practices in the consumer credit market and address over indebtedness
Strategic objective 3: to enhance a consumer credit market regulatory framework
Strategic Objective 5: To ensure effective implementation of National Credit Amendment Act
National Consumer Tribunal
Programme 1: adjudication
Programme 2: administration
Improved
Stagnant
Regressed
No material findings reported
Material findings reported
PFMA

12. Quality of annual performance plan slightly regressed and quality of submitted annual performance reports slightly regressed
Outcomes of programmes/objectives selected for testing:
Auditee:
Programmes/ Objectives
Usefulness
Reliability
National Regulator for Compulsory Specifications
Strategic goal 1: to develop, maintain and administer compulsory specifications and technical regulations
No material findings reported.
Strategic goal 2: to maximise compliance with all specifications and technical regulations
National Gambling Board
Programme 1: compliance
Programme 2: stake holder liaison and advisory services
National Lotteries Commission
Objective 1: to enhance administration, ensure compliance with applicable legislation and policy prescripts
Objective 2 : to ensure financial sustainability, control and discipline in line with applicable legislation and policy prescripts
Objective 3: to implement relevant initiatives geared towards ensuring compliance with the lotteries act
Objective 4: to ensure fair and equitable grant allocations
National Consumer Commission
Programme 2: consumer safety and protection
Programme 3: research; advocacy and empowerment of participants in consumer market
Improved
Stagnant
Regressed
No material findings reported
Material findings reported
PFMA

13. Quality of annual performance plan slightly regressed and quality of submitted annual performance reports slightly regressed
Outcomes of programmes/objectives selected for testing:
Auditee:
Movement
Programmes/ Objectives
Usefulness
Reliability
Companies Tribunal
Programme 1: adjudication
No material findings reported.
Programme 2: administration
South African Bureau of Standards
Strategic objective 1: growth
Strategic objective 2: customer centricity
Improved
Stagnant
Regressed
No material findings reported
Material findings reported
PFMA

14.
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Financial management

15. 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 4: Auditees who avoided qualifications due to the correction of material misstatements during the audit
Material misstatements in submitted annual financial statements
Outcome if NOT corrected
Outcome after corrections
Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure
Figure 3: Qualification areas over three years
Outcome if NOT corrected
Outcome after corrections
Management of procurement and/ or contracts
With no material misstatements
With material misstatements
Improved
Stagnant
Regressed

16. Unauthorised, irregular as well as fruitless and wasteful expenditure (U.I.F) increase over 3 years and follow up action
PFMA
Definition
UIF amounts incurred by entities in portfolio
Investigations of U.I.F expenditure
9 auditees (90%) [ : 9 (90%)] lodged investigations to determine root cause and consequences of U.I.F incurred
Expenditure not in accordance with the budget vote/ overspending of budget or programme
9 Entities
Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! 9
Entities
Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed
Investigated
Not investigated

17.
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Top three root causes, follow up on commitments and proposed recommendations 5

18. Status of key commitments by minister
Top three root causes, follow up on commitments and proposed recommendations 1 2 3
… the following root causes must be addressed …
… through honouring the following commitments made by the executive authority……
… and implementation of the following proposed commitments by the Portfolio committee and management…
Root causes
Status of key commitments by minister
Regular monitoring of the action plans to ensure that the identified deficiencies are addressed to avoid repeat findings and continued non-compliance. PC must request management to provide feedback on the implementation and progress and of the action plan during quarterly reporting.
Although internal control processes exist, it must be consistently monitored and adhered to by all employees. Regular assessments of the status of internal controls, especially regarding financial statement preparation and implementation of the different accords, must be undertaken by management to address deficiencies as and when they arise. PC must request management to provide quarterly feedback on status of key controls.
The accounting officers/authorities should intensify their focus on ensuring that transgressors are held accountable and that action is taken as required by the PFMA. Action against repeat transgressors should be taken timely, in order to eliminate repeat findings. List of actions taken must be provided quarterly to PC for follow up.
Slow response by management (Accounting officer and senior management)
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
Instability or vacancies in key positions
To follow up quarterly on key control assessments and the reports from the audit committees on audit related matter
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
Lack of consequences for poor performance and transgressions
Obtain an action plan from NCC to address findings on predetermined objectives and compliance with legislation. Progress on the action plans will be tracked on a quarterly basis by the chairpersons of the audit committees
Internal investigation should be lodged at the CIPC to determine who is responsible for the salary overpayment and corrective action should be taken against those who did not comply
Slow response by management was noted at some entities and this was due to action plans not adequately being implemented and monitored.
The leadership does not always hold staff accountable for poor performance and transgressions, which creates a perception that these are accepted and tolerated.
Not implemented
In progress
Implemented
New
We met with the minister on 15 July The anticipated audit outcomes were discussed with the minister. Specific internal control deficiencies were elevated for the minister’s attention. The minister expressed his appreciation for these bi-annual meetings with the AGSA.
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19.
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Questions?