October 2015

1. Briefing to the Portfolio Committee on Economic Development Audit outcomes of the Economic Development portfolio for the 2014-15 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.

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. Contents Slide nr 1. The scope of AGSA audits 5 2. Overall audit outcomes for Economic Development portfolio 6 - 7 3.Auditor-General six key focus areas 8 - 14 4.Unauthorised/ Irregular / Fruitless & Wasteful expenditure 15-17 5. Combined assurance and assessment of assurance providers 18-19 6.Drivers of key controls for portfolio 20 7.Root causes and recommendations 21-22 Minister commitments to address root causes 23

5. The scope of AGSA audits

6. 2. Overall audit outcomes for Economic Development portfolio 2014-15 PFMA Unqualified no findings Unqualified with findings Qualified with findings Adverse with findings Disclaimer with findings 4 auditees 4 auditees 4 auditees

7. 2.1 Audit outcomes for auditees not audited by the AGSA 2014-15 PFMA Unqualified no findings Unqualified with findings Qualified with findings Adverse with findings Disclaimer with findings 2 auditees 2 auditees 2 auditees

8. 3. Auditor-General six key focus areas 2014-15 PFMA Quality of submitted financial statements Quality of submitted performance reports Compliance with legislation Good Concerning Intervention required Human resource management Information technology Financial health Improvement Stagnant or limited progress Regressed

9. 3.1 Quality of submitted financial statements 2014-15 PFMA Outcome after corrections Outcome if NOT corrected Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) 1 auditees 2014-15 Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 2auditees 2013-14 9

10. 3.2 Quality of annual performance reports 2014-15 PFMA 100% Annual performance reports of were reliable and useful which remained the same as the previous year With no findings With findings Improved Usefulness Reliability Stagnant or little progress Regressed Auditee did not prepare annual performance report (2014-15: 0) All auditees that submitted information, did so in time for audit 0 10

11. 3.3 Quality of submitted annual performance reports 2014-15 PFMA Outcome after corrections Outcome if NOT corrected Annual performance report not materially misstated Annual performance report contained material misstatements 0auditee 2014-15 Avoided findings by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 2013-14 2 auditees 11

12. 3.4 Most auditees did not comply with legislation in the following areas 2014-15 PFMA Quality of annual financial statements submitted Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure Management of procurement and or contracts Good Concerning Intervention required Management of strategic planning and performance Human resource & consequence management Internal audit & Audit committee Improvement Stagnant or limited progress Regressed

13. Good Concerning Intervention required 2014-15 PFMA 3.5 Financial health of the portfolio 13

14. 3.6 Information technology 2014-15 PFMA 2014-15 PFMA Status on the information technology focus areas Departments Public entities Security management Good Concerning Intervention required User access management IT service continuity Improved Stagnant or little progress IT governance Regressed

15. 2014-15 PFMA Unauthorised expenditure Expenditure not in accordance with the budget vote 4. UIFW expenditure definitions Irregular expenditure Expenditure incurred in contravention of key legislation Expenditure that should not have been incurred (incurred in vain that could have been avoided and no value for money) Fruitless and wasteful expenditure 15

16. 2014-15 PFMA 4.1 Irregular expenditure for portfolio Identified by auditees Identified by auditors 16

17. 2014-15 PFMA 4.2 Fruitless and wasteful expenditure for portfolio Identified by auditees Identified by auditors 17

18. Management assurance First level of assurance Oversight assurance Second level of assurance Independent assurance Third level of assurance Senior management Senior management Accounting officers/ authority Accounting officers/ authority Executive authority Coordinating / Monitoring institutions Internal audit Audit committee Oversight (portfolio committees / councils) Public accounts committee National Assembly 5. Combined assurance – complimentary mandate Required assurance levels Required assurance levels Required assurance levels Extensive Extensive Extensive Extensive Extensive Extensive Extensive Extensive 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 • 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 andthe implementation of commitments on corrective action made by management as well as quarterly progress on the action plans • 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

19. 2014-15 PFMA First level 5.1 Assessment of assurance providers for portfolio Improvement Stagnant or little progress Second level Regressed 19

20. 6. Driver of key controls for portfolio 2014-15 PFMA Good Concerning Intervention required Improvement Stagnant or little progress Regressed

21. 7. Root cause should be addressed 2014-15 PFMA Slow response by management in addressing the root causes of poor audit outcomes 2014-15 2013-14 • Slow response by management was one of the top three root causes in the prior year, however this year it is the main root cause of audit findings. This is due to action plans still being inadequate and implementation thereof not sufficiently monitored. Controls and processes to address previously identified deficiencies are not adequately implemented. Leadership relies heavily on the external audit process to identify and correct material misstatements in the financial statements. Improved Stagnant or little progress Regressed

22. 2014-15 PFMA 7.1 Root cause & Recommendation 22

23. 8. Minister commitments to address root causes 2014-15 PFMA Status of key commitments by minister Effective functioning of the internal audit unit, engaging with the chairperson of the audit committees, submitting financial statements that are free from material misstatements and compliance with supply chain management prescripts and laws and regulations at the department were implemented. Improving controls in human resource management and effective monitoring of the action plan to address external audit findings were still in progress. The minister committed to addressing the issues in human resource management and directed the acting accounting officer to take action against transgressors. Not implemented In progress Implemented New

24. Questions