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Briefing to the Portfolio Committee: Social Development 12 October 2016
Briefing to the Portfolio Committee: Social Development Audit outcomes of the portfolio for the 2015-16 financial year
2015-16
PFMA
Social Development portfolio 12 October 2016
Reputation promise
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.
3
2015-16
PFMA
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 in 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 Social Development portfolio’s 2015-16 audit
outcomes so that they, the committee, can ensure effective
oversight.
• To enable oversight to focus on areas that will lead to good
governance.
4
Our annual audits examine three areas
1 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
2015-16
PFMA
5
Auditee:
• produced credible and reliable financial
statements that are free of material
misstatements; and
• reported in a useful and reliable manner
on performance as measured against
predetermined objectives in the annual
performance plan (APP); and
• observed/complied with key legislation in
conducting their day-to-day to achieve on
their mandate.
Unqualified opinion with no findings
(clean audit)
Financially unqualified opinion with
findings
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.
2015-16
PFMA
6
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.
Qualified opinion
Adverse opinion
Disclaimed opinion
Auditee:
• had same challenges as those that were unqualified 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.
Auditee:
• has so many material misstatements in their financial statements that we
disagree with almost all the amounts and disclosures in the financial
statements.
• did not comply with key legislation.
2015-16
PFMA
To improve the audit outcomes ,
1 3 …. compliance with key legislation and….
2
Three year trend – Overall stagnation in audit outcomes
…. To maintain the performance planning and reporting ….
29% SASSA
NDA
29% SASSA
NDA
29% SASSA
NDA
71% DSD
Funds
71% DSD
Funds
2015-16 2014-15 2013-14
71%
DSD
Funds
8
Stagnation in audit outcomes over 3 years
2015-16 PFMA
• The accounting authorities of the South African Social
Security Agency (SASSA) and the National Development
Agency (NDA), which are public entities of the department,
should exercise oversight and strengthen its internal
controls to create a control environment that supports
reliable financial reporting, useful and reliable reporting on
the performance information and compliance with
legislation by implementing proper record keeping and
appropriate reviewing controls.
• The accounting authorities of SASSA and the NDA should strengthen the internal controls to create a control environment that supports compliance with legislation by implementing proper record keeping and regular review processes that are supported by appropriate documentation.
Three year trend –
Compliance with key legislation
29% SASSA
NDA
29% SASSA
NDA
29% SASSA
NDA
71% DSD
Funds
71% DSD
Funds
71% DSD
Funds
2015-16 2014-15 2013-14
Three-year trend –
Quality of annual
performance plans
Three year trend –
Quality of submitted
annual performance reports
100% 100% 100%
2015-16 2014-15 2013-14
100% 100% 100%
2015-16 2014-15 2013-14
With no material findings
With material findings
Outstanding audits
No APR/ late submitted
Unqualified
with
no findings
Unqualified
with findings
Qualified
with findings
Adverse
with findings
Disclaimed
with finding
Audits
outstanding
----------------------------------------------------
8
• The accounting authority of SASSA should strengthen
internal controls relating to proper record keeping and
the performance of daily controls that supports
compliance with SCM requirements to adequately
ensure the prevention of irregular expenditure.
• The accounting authority of the NDA must implement
appropriate review and monitoring controls over
compliance with key legislation especially on
expenditure management, procurement and the
quality of financial statements.
• The accounting officer of DSD and accounting authority of SASSA
must continue to ensure effective leadership and appropriate
oversight over senior management in the preparation of quality
performance reports that comply with applicable legislation that are
supported by source documentation.
• The accounting authority of the NDA must ensure that quality
performance reporting is performed as the NDA only received an
unqualified conclusion on predetermined objectives due to material
adjustments that were made to Programme 1 after being identified
through the audit.
Status of Key controls
Good Concerning Intervention required
4 … providing attention to the key controls by…
9
Stagnation in audit outcomes over 3 years- continued
• The accounting authorities of SASSA and the NDA should strengthen the internal controls to create a
control environment that supports compliance with legislation by implementing proper record keeping
and regular review processes that are supported by appropriate documentation. The NDA needs to be
appropriately capacitated to ensure that adequate oversight can be provided by leadership and
governance structures. F
irst
leve
l
… the key role players as part of their role in combined assurance
Assurance providers per level
6
6
6
5
1
1
2
1
Senior management
Accounting officer/authority
Executive authority
Internal audit unit
Audit committee
Portfolio committee T
hir
d
leve
l
Sec
on
d
leve
l
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 entities to address poor audit outcomes;
• Recommendations made in relation to key audit matters; and
• Follow up on key matters reported in the committee’s prior year BRRR report.
The Portfolio committee performed in terms of the legislative oversight requirements and it robustly
engages the department on its role and mandate.
Efforts of the accounting authority of the NDA and senior management at the NDA and SASSA, in
developing and implementing post audit plans and audit recommendations, needs to be strengthened.
-------------------------------------------------
-------------------------------------------------
Provides assurance
Provides some
assurance
Provides limited/ no assurance
Vacancy Not
established
5
2015-16 PFMA Improved Stagnant Regressed 9
DS
D
SA
SS
A
ND
A
DR
F
RR
F
SR
F
SP
F
- Design and Implement IT controls
GOVERNANCE
- Risk management
- Internal Audit
- Audit committee
- Audit Action plans
- ICT governance
- Proper record keeping
- Daily and monthly controls
- Accurate & complete reports
- Review and monitor compliance
LEADERSHIP
- Effective leadership
- Oversight responsibility
- Effective HR management
- Policies and procedures
FINANCIAL AND
PERFORMANCE MANAGEMENT
Quality of annual performance plans and annual performance reports remained
unchanged
Outcomes of programmes selected for testing:
Auditee Movement
Programmes/
Objectives Usefulness Reliability
DSD
Programme 2: Social assistance No material findings reported. No material findings reported.
Programme 4: Welfare services policy
development and implementation
support No material findings reported. No material findings reported.
SASSA
Programme 1: Administration
No material findings reported. No material findings reported.
Programme 2: Benefit Administration
and Support No material findings reported. No material findings reported.
NDA
Programme 1: Resource mobilisation
No material findings reported.
No material findings reported as
management corrected material
misstatements identified.
Programme 2: Capacity building
No material findings reported. No material findings reported.
Funds N/A The audit of performance information is not conducted for any of the four relief funds as the funds are established in terms of
the Fund Raising Act and not the PFMA.
2015-16 PFMA No material
findings reported Material
findings reported
100% (7)
14% (1)
86% (7)
Figure 1: Findings on compliance with
key legislation – all auditees
2015-16 2014-15 2013-14
Slight improvement in compliance with legislation and
quality of financial statements
2015-16 Outcome if
NOT corrected Outcome
after corrections
100% (7)
14% (1)
86% (6)
Outcome if
NOT corrected
Outcome
after corrections
2014-15
With no material misstatements
With material misstatements
Improved Stagnant Regressed
2015-16
PFMA
13
0%
29%
14%
29%
0%
29%
14%
14%
14%
14%
29%
14% NDA
SASSA
SASSA, NDA
SASSA, NDA
SASSA
NDA
NDA
SASSA, NDA
SASSA, NDA
NDA
Prevention of unauthorised, irregular and/
or fruitless and wasteful expenditure
Management of procurement and/or contracts
Submission of strategic plans
Material misstatements in submitted
annual financial statements
Figure 2: Quality of submitted
financial statements
1 auditees (14%: NDA) [2014-15: 1 (14%: SASSA)] avoided qualifications
due to the correction of material misstatements
during the audit process
Irregular as well as fruitless and wasteful expenditure analysis over
3 years
14
2015-16
PFMA
R82.64 million
R3.36 million
R -
R60.36 million
R5.48 million
R -
R1074.65 million
R8.59 million
R -
Irregularexpenditure
Fruitless andwasteful
expenditure
Unauthorisedexpenditure
Expenditure
incurred in
contravention of
key legislation;
goods delivered
but prescribed
processes not
followed
Expenditure not
in accordance
with the budget
vote/
overspending of
budget or
programme
Expenditure
incurred in vain
and could have
been avoided if
reasonable
steps had been
taken. No value
for money!
Definition
2015-16 2014-15 2013-14
UIFW amounts incurred by entities in portfolio Nature of U.I.FW expenditure R’million
R -
R -
R80.57 million
R2.07 million
R -
R -
R3.36 million
R8.22 million
R0.24 million
R39.66 million
R12.23 million
R0.08 million
R -
R5.4 million
R18.9 million
R10.6 million
R0.04 million
R -
R8.55 million
Procurement without competitivebidding or qoutation process
Non compliance withlegislation on contracts
Non compliance withprocurement process requirements
Other irregularexpenditure
Penalties and interest
Incurred to prevent irregularities
Other Fruitless and wastefulexpenditure
R -
R1 045.15 million
Investigations of unauthorised, irregular as well as fruitless and
wasteful expenditure
100%
3
Entities
2015-16
100%
3
Entities
2014-15
15
2015-16
PFMA
The four relief funds are not subject to the PFMA, therefore reporting on irregular and fruitless and wasteful
expenditure, is not a legal requirement and was therefore not reported on. They have accordingly not been
included in the above diagram.
Adequate investigations into irregular and fruitless and wasteful expenditure occurs at the DSD, SASSA and
the NDA however findings on the results of these investigations on consequence management at the NDA
have been identified.
Investigated Not investigated
100%
3
Entities
2013-14
Investigations of U.I.FW expenditure
3 auditees (100%) [2014-15: 3 (100%)] lodged investigations to determine root cause and consequences of U.I.FW incurred.
… the following root causes must be addressed …
Root causes
Slow response by management (Accounting
officer and senior management)
Lack of consequences for poor performance
and transgressions
Status of key commitments by minister
Monitoring and implementing action plans to ensure the movement to clean administration for SASSA and NDA.
To amend the existing action plan for the department to specifically address proper record keeping and review
processes as well as compliance with applicable legislation.
Evaluate the environment of the relief funds for closure or amalgamate with either the NDA or SASSA.
Filling of critical vacancies at SASSA and the NDA.
Implemented In progress Not implemented New
… through honouring the following commitments made by the executive authority……
2 1
14% (1/7)
14% (1/7)
14% (1/7)
14% (1/7) SASSA
NDA
2015-16 2014-15
17
• The key root cause that gave rise to significant findings of SASSA
is the slow response by management in implementation of
corrective measures.
• The accounting authority of the NDA should address the root
causes of poor audit outcomes and inadequate controls by
exercising value adding, review processes over the preparation of
annual financial statements that are supported by appropriate
documentation.
• Compliance with legislation should be reinforced by enforcing
consequences for unsatisfactory performance and transgressions
(ineffective investigations), which exasperate the lack of sustained
progress towards clean administration at the NDA.
• We met with the minister three times in the year. At these interactions, we
provided updates on the audit and made the minister aware of deficiencies in
internal control.
2015-16 PFMA
Top two root causes, follow up on commitments and proposed recommendations … and implementation of the following proposed commitments by the PC.
1. Monitor and implement the new
action plans to ensure the
movement to clean
administration for SASSA and
NDA.
2. Monitor the filling of critical
vacancies in the portfolio that
arose in the year
3
17
NDA SASSA
18
2015-16
PFMA
Questions
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Auditor-General of South Africa