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BRIEFING ON AUDIT REPORTS

BRIEFING ON AUDIT REPORTS National Department of Public Works (DPW) and the Property Management Trading Entity (PMTE) 2010/11 Public Works Portfolio Committee 12 October 2011 Parliament. Reputation promise/mission.

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BRIEFING ON AUDIT REPORTS

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  1. BRIEFING ON AUDIT REPORTS National Department of Public Works (DPW) and the Property Management Trading Entity (PMTE) 2010/11 Public Works Portfolio Committee 12 October 2011 Parliament

  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. Agenda • Legislative requirements • Opinions • Audit report structure • Audit outcomes achieved 2010/11 • Basis for disclaimer of opinions • Emphasis of matters • Predetermined objectives • Compliance • Internal controls • Other reports • Recommendations • Audit outcomes of public entities in the Public Works portfolio

  4. 1. Legislative requirements Legislative requirements 1. Public Finance Management Act (Act No.1 of 1999) Accounting Officer: Section 40(1)(a) & (b) – Record keeping responsibilities by accounting officer and preparing financial statements for audit Section 40(1)(c) – Submission of financial statements to Auditor-General for audit Auditor-General: Section 40(2) – Audit financial statements and submit report to accounting officer 2. Constitution of the Republic of South Africa (1996) Section 188 – must audit and report on accounts, financial statements and financial management of government institutions 3. Public Audit Act (Act No.25 of 2004) Sections 20 – Auditor-General must prepare audit report containing opinion/conclusion on: • Financial statements and financial position • Compliance and financial management • Predetermined objectives

  5. 2. Opinions • Different audit opinions: • Unqualified (unmodified) • Qualified • Disclaimer • Adverse

  6. 2. Opinions (continued) Overall summary description per opinion:

  7. 2. Opinions (continued) Overall summary description per opinion:

  8. 2. Opinions (continued) History of audit opinions: Goal: Unqualified opinion with no findings on predetermined objectives or compliance with laws and regulations

  9. 3. Audit report structure • Now please refer to actual audit reports • Report on the financial statements • Introduction • Accounting officer/authority’s responsibility • Auditor-General’s responsibility • Opinion • Emphasis of matters • Additional matters • Report on other legal and regulatory requirements • Predetermined objectives • Compliance with laws and regulations • Internal control • Leadership • Financial and performance management • Governance • Other reports • Investigations • Performance audits • Agreed upon procedures

  10. 3. Audit report structure (continued) • Emphasis of matter/Additional matter • Why? • To draw the users of financial statements’ attention to a matter • HIGHLIGHT! • Difference? • Opinion? • “My opinion is not modified in respect of these matter(s)”

  11. 3. Audit report structure (continued) • Matters highlighted • Emphasis of matter: • Financial reporting framework • Significant uncertainties • Revision of previously issued AFS • Restatements of corresponding figures • Material underspending • Accruals • Going concern/funding/financial sustainability • Additional matter: • Prior year audited by predecessor auditor • Material inconsistencies included in annual report • Unaudited supplementary schedules • Revision of previously issued AFS • Financial reporting framework

  12. 4. Audit outcomes achieved 2010/11 • Opinions: • Other matters highlighted:

  13. 4. Audit outcomes achieved 2010/11 (continued) • Predetermined objectives • Performance on predetermined objectives reported in DPW • Usefulness of information • Reliability of information • 4. Compliance • Material non-compliance were reported in DPW and PMTE • PFMA • National Treasury Regulations • Other legislation • Internal control • Summary of control deficiencies in 3 Fundamentals: • Leadership • Financial and performance management • Governance

  14. 5. Basis for disclaimer of opinions

  15. 5. Basis for disclaimer of opinions (continued)

  16. 5. Basis for disclaimer of opinions (continued)

  17. 5. Basis for disclaimer of opinions (continued)

  18. 6. Emphasis of matters (DPW) • NB! • Audit only highlight if matter is disclosed in the financial statements of the entity • Material underspending of the vote and conditional grants • Immovable asset management programme: R235,202 million (5%), as a result did not achieve objectives fast-tracking of construction of selected schools and the energy-efficiency intervention. • Expanded public works programme: R500,843 million (35%) mainly due to under reporting and poor performance of reporting bodies eligible for incentive grant. • Restatement of corresponding figures • Prior year figures for commitments and accruals corrected in current year. • Material losses • R54,836 million worth of irrecoverable debtors were written off.

  19. 7. Predetermined Objectives (DPW) • Usefulness of information • Consistency: Reported performance against predetermined indicators and targets was not consistent with the approved strategic plan. • Measurability: For the selected programmes (programme 2 to 4), 26% of the planned and reported targets (all pertaining to programme 2) were not: • specific in clearly identifying the nature and the required level of performance; • measurable in identifying the required performance. • Reliability of information • Validity, accuracy and completeness: Sufficient appropriate evidence in relation to programme 2: immovable asset management and programme 3: EPWP could not be obtained. Therefore validity, accuracy and completeness of the reported performance against predetermined objectives for the aforementioned programmes could not be verified.

  20. 8. Compliance Summary of compliance findings

  21. 8. Compliance (continued)

  22. 8. Compliance (continued)

  23. 8. Compliance (continued)

  24. 8. Compliance (continued)

  25. 8. Compliance (continued)

  26. 9. Internal controls Leadership • The accounting officer did not exercise oversight responsibility regarding financial and performance reporting and compliance as well as related internal controls. • The accounting officer did not in all instances establish and communicate policies and procedures to enable and support the understanding and execution of internal objectives, processes and responsibilities. • Although an audit action plan to address internal control deficiencies had been compiled by the department, the progress indicated in the plans was not effectively managed and timeous feedback on the progress was not provided. • The accounting officer did not implement effective human resource management to ensure that adequate and sufficiently skilled resources were in place and that performance was monitored. • In the case of PMTE there were no documented policies and procedures, yearend closure plans or initiatives to ensure compliance with SA Statements of GAAP throughout the reporting period.

  27. 9. Internal controls (continued) Financial and performance management • Proper record keeping was not always implemented in a timely manner to ensure that complete, relevant and accurate information was accessible and available to support financial and performance reporting. • Implemented controls over daily and monthly processing and reconciling of transactions were ineffective. • The accounting officer did not prepare regular, accurate and complete financial and performance reports that were supported and evidenced by reliable information. • The reviewing and monitoring of compliance with applicable laws and regulations were ineffective.

  28. 9. Internal controls (continued) Governance • Regular risk assessments, including the consideration of IT risks and fraud prevention, were not effectively conducted. • A risk strategy to address identified risks was not developed and monitored. • The accounting officer did not ensure that the internal audit unit was adequately resourced to ensure that the unit could effectively assist in identifying internal control deficiencies and develop recommendations in respect of corrective action to be taken to address the internal control deficiencies identified.

  29. 10. Other reports Investigations • Ongoing investigation into alleged abuse of urgent and emergency procurement as well the utilisation of sole suppliers. • Ongoing investigation to probe irregular expenditure in respect of the leasing of properties as well as an alleged irregular award of a tender and the incapacity of a contractor to fulfil his duties. • Investigations were conducted into complaints and allegations of maladministration and improper and unlawful conduct by the DPW and the SAPS relating to the leasing of office accommodation in Pretoria and Durban. Performance audit • Readiness of government to report on its performance. 

  30. 11. Recommendations • Adequate planning and project management to ensure that allocated funds are spent appropriately and timely in order to achieve objective. • Policies/procedures/systems to be put in place for all material types of transactions and performance information. • Above to be communicated to all staff, monitored and action to be taken against transgressors. • Record keeping must be improved. • Audit action plan must be updated to include realistic targets with deadlines and parties responsible for implementation must be held accountable. • Progress on implementation of action plan must consistently be monitored and immediate action must be taken when targets/deadlines are not met.

  31. 11. Recommendations (continued) • A proper risk assessment must be conducted and this must inform internal audit’s scope of work. • Internal audit to be fully capacitated. • Decisive and immediate action must be taken in respect of non-compliance with laws and regulations. • Focus on key control feedback by AGSA. • Appointment of permanent staff in the finance department of the trading entity, must have the required skills to enable compliance with SA GAAP. • Discretion to be applied regarding usage of consultants, skills transfer must be a prerequisite.

  32. 12. Audit outcomes of public entities in the Public Works portfolio

  33. QUESTIONS???

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