1. Briefing to the Portfolio Committee on Public Enterprise Audit outcomes of the Public Enterprise 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, 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 is accurate and correct
If information included is not 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 in assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR.

4. Combined assurance – complimentary 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 and 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 on any report which it may deem necessary
National Assembly – provide independent oversight on the reliability, accuracy and credibility of National and provincial government

5. Contents Slide nr
1. Overall audit outcomes for Public Enterprise portfolio 6
2. Auditor-General six key focus areas
3. Unauthorised/ Irregular / Fruitless & Wasteful expenditure 11
4. Drivers of key controls for portfolio 12
5. Assessment of assurance providers 13
6. Root causes and recommendations – 15
Entities included in the portfolio not audited by the AGSA 16 – 18
Minister commitments to address root causes 19

6. 1. Overall audit outcomes for Public Enterprise portfolio
PFMA
Unqualified no findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimer with findings
3 auditees
3 auditees
3 auditees

7. 2. Auditor-General six key focus areas
PFMA
Quality of submitted financial statements
Quality of submitted performance reports
Compliance with legislation 1 2 3
Good
Concerning
Intervention required
Human resource and consequence management
Information technology
Financial health
Improvement 4 5 6
Stagnant or limited progress
Regressed

8. 2.1 Quality of annual performance reports
67%
PFMA
Annual performance reports of were reliable and useful compared with 33% in the previous year
With no findings
With findings
Improved
Usefulness
Reliability
Stagnant or little progress 1 2
Regressed
Auditee did not submit performance report on time
Auditees that submitted information, did so in time for audit 1 2 8

9. 2.2 Most auditees did not comply with legislation in the following areas
PFMA
Quality of annual financial statements submitted
Prevention of irregular and/ or fruitless and wasteful expenditure
Management of procurement and or contracts 1 2 3
Good
Concerning
Intervention required
Management of strategic planning and performance
Human resource & consequence management
Internal audit & Audit committee
Improvement 4 5 6
Stagnant or limited progress
Regressed

10. 2.3 Financial health of the portfolio
Good
Concerning
Intervention required
PFMA
Focus areas for financial health
Status
Comment
Going concern
South African Express Airways SOC Limited
Working capital should be monitored and managed closely in order to plan ahead for possible shortfalls in cash.
Implementation of its SAX 20/20 vision objectives which aligns with the overall state aviation turnaround strategy.
Only to be included if going concern or accruals/payables or commitments have been included in the audit report. 10

11. 3. UIFW expenditure definitions
Unauthorised expenditure
Irregular expenditure
Fruitless and wasteful expenditure
Legends:
Decrease in incurred expenditure
No change
Increase in incurred expenditure
Finding not repeated
New finding
Repeat finding
Expenditure not in accordance with the budget vote/ overspending of budget or programme
Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed
Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money!
Definitions
DPE - R R
SAFCOL
Not applicable R R
SA Express R R
Totals R R

12. Intervention required
4. Driver of key controls for portfolio
PFMA
Good
Concerning
Intervention required
Improvement
Stagnant or little progress
Regressed
Good
Concerning
Intervention required

13. 5. Assessment of assurance providers for portfolio
PFMA
First level
Improvement
Stagnant or little progress
Second level
Regressed
Please note that no assessment for PC. This can however be discussed with chair one-on-one to start preparing them for next year when this will be included
Provides assurance
Provides some assurance
Provides limited/ no assurance
Vacancy
Not
Established/ Evaluated 13

14. 6. Root causes should be addressed (top three)
PFMA
Slow response by management in addressing the root causes of poor audit outcomes
Slow response by management has been one of the top three root causes for the portfolio in the past two years in audit findings. This is due to action plans still being inadequate and implementation thereof not monitored. There is also no improvement in assurance provided by management and no improvement in the basic internal controls. Senior management did not take immediate action and hold officials accountable for not adhering to the implemented internal controls.
Instability or vacancies in key positions
Improved
Stagnant or little progress
The vacancies that exist should be filled with appropriately qualified individuals who are held accountable for their responsibilities
Regressed
Lack of consequences for poor performance and transgressions
The leadership did not always hold staff accountable for poor performance and transgressions and this creates the perception that these results are acceptable and tolerated. There was an overall lack of concessive consequences for poor performance and transgressions experienced at the entities

15. 6.1 Root causes & Recommendations (top three)
PFMA
Root causes
Recommendation
Slow response by management in addressing the root causes of poor audit outcomes
The leadership within the entities must fully enforce the requirements of their Supply Chain Management (SCM) policies and procedures which should be continuously aligned to all applicable legislation while maintaining the ability of the entities to be profitable businesses.
DPE should monitor on a quarterly basis the status of implementation of action plans by SOCs.
Instability or vacancies in key positions
Key finance and procurement divisions need to be filled with staff members with required skills in order to ensure all legislation are adhered to at all times.
Lack of consequences for poor performance and transgressions
Officials who contravene the relevant legislation and policies should be subjected to the appropriate consequences.
Daily and monthly oversight processes and sign offs by senior management should also include key monitoring and evaluation of compliance with legislation with specific focus on SCM which tends to be a weakness within the portfolio 15

16. PFMA
7. Entities included in the portfolio not audited by the Auditor-General of South Africa

17. 7.1 Audit outcomes per section 4(3) entity in the portfolio
PFMA
Entity
Financial statement opinion
Predetermined objectives
Compliance with legislation
Movement from
Alexkor
Unqualified
With no findings
- Fruitless and wasteful expenditure
Denel
Eskom
- Irregular expenditure
Transnet
With findings on usefulness
- Irregular and fruitless and wasteful expenditure
Improved
Stagnant or little progress
Regressed

18. 7.2 UIFW expenditure definitions per section 4(3) entity in the portfolio
Unauthorised expenditure
Irregular expenditure
Fruitless and wasteful expenditure
Legends:
Decrease in incurred expenditure
No change
Increase in incurred expenditure
Finding not repeated
New finding
Repeat finding
Expenditure not in accordance with the budget vote/ overspending of budget or programme
Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed
Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money!
Definitions
Eskom
Not applicable R R
Transnet R R
Denel -
Alexkor R
Totals R R

19. 8. Minister commitments to address root causes
PFMA
Status of key commitments by minister
All SOCs in the portfolio must provide the DPE with action plans and progress made to address audit findings and achieve clean audits.
Focus on sustainability of the clean audit and clean administration in order to lead by example for the SOCs.
The engagements between the audit committee and board chairpersons of SOC and the executive as per the DPE calendar.
Internal audit must implement processes to review actions taken by SOCs to improve audit outcomes.
DPE portfolio managers to attend audit committee and board meetings to pick up and identify issues earlier to avoid surprises.
Support measures for SOCs to conduct business in a sustainable manner with no financial support from the state.
DPE and SOCs must prepare interim financial statements subject to an interim audit
Conclude the Government Shareholder Management Act.
Not implemented
In progress
Implemented
New

20. Questions