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Budgetary review and recommendations reportAdd subtitle here

XX Month XXXX

Briefing to Portfolio Committee on Home Affairs Portfolio

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Reputation promise

The Auditor-General of South Africa (AGSA) has a constitutional mandate and, as the supreme audit institution (SAI) of South Africa, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

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Role of the AGSA in the reporting 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 Budgetary Review and Recommendations Report (BRRR).

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Our focus1

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Our annual audit examines three areas

1FAIR PRESENTATION AND

RELIABILITY OF FINANCIAL

STATEMENTS 2RELIABLE AND CREDIBLE

PERFORMANCE INFORMATION

FOR PREDETERMINED

OBJECTIVES

3COMPLIANCE WITH KEY

LEGISLATION ON FINANCIAL

AND PERFORMANCE

MANAGEMENT

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The AGSA expresses the following different audit opinionsUnqualified opinion

with no findings

(clean audit)

Financially unqualified

opinion with findingsQualified opinion Adverse opinion Disclaimed opinion

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)

• complied with key

legislation in conducting

their day-to-day

operations to achieve

their mandate

Auditee produced

financial statements

without material

misstatements or could

correct the material

misstatements, but

struggled in one or more

area to:

• align performance reports to the predetermined objectives they committed to in APPs

• set clear performance indicators and targets to measure their performance against their predetermined objectives

• report reliably on whether they achieved their performance targets

• determine the legislation that they should comply with and implement the required policies, procedures and controls to ensure compliance

Auditee:

• had the same

challenges as those with

unqualified opinions

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

Auditee:

• had the same

challenges as those

with qualified opinions

but, in addition, they

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

Auditee:

• had the same

challenges as those with

qualified opinions but, in

addition, they had so

many material

misstatements in their

financial statements that

we disagreed with

almost all the amounts

and disclosures in the

financial statements

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The overall audit outcomes are indicated as follows:

Unqualified with no findings

Unqualified with findings

Qualified with findings

Adverse with findings

Disclaimed with findings

Audits outstanding

Movement over the previous year is depicted as follows:

Improved

Unchanged Movement of 5% or less: slight improvement slight regression

Regressed

The percentages in this presentation are calculated based on the completed audits of 3 auditees, unless indicated otherwise

Department of Home Affairs-DHA

Government Printing Works-GPW

Electoral Commission of South Africa-IEC

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The 2017-18 audit outcomes2

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DO

PLAN

CHECKACT

ACCOUNTABILITY = PLAN + DO + CHECK + ACT

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Little improvement in plan-do-check-act cycle

Status of audit action plans remain unchanged

Usefulness of performance indicators and targets remain unchanged

PLAN

DOOverall internal controls remain unchanged

Basic financial and performance management controls remain unchanged

ICT controls remain unchanged

Vacancies in CFO positions remain unchanged

CHECKAssurance provided by:

• Senior management and accounting officer/ authority remains unchanged(provides assurance)

• Executive authority was assessed and remains unchanged (provides assurance)

• Internal audit units and audit committees remain unchanged (provides assurance)

• Portfolio committee remains unchanged (provides assurance)ACTCompliance with consequence management legislation remains unchanged

Investigation of previous year UIFW remains unchanged

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Portfolio snapshot (2017-18)

Quality financial

statements: 0%

(2016-17: 0%)

Clean audits: 0%

(2016-17: 0%)

Quality performance

reports: 67%

(2016-17: 67%)

No findings on compliance

with legislation: 0%

(2016-17: 0%)

Irregular expenditure:

R184m

(2016-17: 333m)

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Audit outcomes of portfolio over four years

3 auditees

33%DHA

33%DHA

33%IEC

100% (3)

DHAGPW…

100% (3)

DHAGPWIEC

67%(2)

GPWIEC

33%GPW

2017-18 2016-17 2015-16 2014-15

3 auditees 3 auditees3 auditees

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Movement table (2017-18 over 2016-17)

Audit outcome

MOVEMENT

Improved Unchanged Regressed New auditee

+

Outstanding audits

Unqualified

with

no findings = 2

Unqualified

with findings =

4

DHA

GPW

IEC

Qualified with

findings = 0

Adverse with

findings = 0

Disclaimed

with findings =

0

0 3 0

Colour of the number indicates the audit opinion from which the auditee has moved.

0 0 0

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100% (3)

100% (3)

(3)DHAGPWIEC

(3)DHAGPWIEC

2017-18 2016-17

100%

100%

(1)IEC

(2)DHAGPW

(3)DHAGPWIEC

2017-18 2016-17

100% 100%

(3)DHAGPWIEC

(3)DHAGPWIEC

2017-18 2016-17

Audit of financial statementsFindings on

annual performance reports

Findings on compliance

with key legislation

Unqualified Qualified Adverse Disclaimed

AFS submitted

on time

AFS and APR submitted

with no material

misstatements

With no findings

With findings

Movement on the quality of financial statements, annual performance reports and compliance

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100% (3)

33% (1)

100% (3)

67% (2)

Governance

Financial andperformance management

Leadership

Status of internal control

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Assurance provided

First

le

ve

l

(3) DHA, GPW, IEC

(3) DHA, GPW, IEC

(3) DHA, GPW, IEC

(2) IEC, GPW (1) DHA

(3) DHA, GPW, IEC

(3) DHA, GPW, IECSenior

management

Accounting officer/authority

Executive authority

Internal audit unit

Audit committee

Portfolio committee

Third

le

ve

l Se

co

nd

le

ve

l

Provides assurance

Provides some assurance

Provides limited/ no assurance

Not established

--------------------------------------------------------------------------------------------------------

Assurance

--------------------------------------------------------------------------------------------------------

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Financial health and financial management3

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IEC,GPW

IEC,GPW

DHA

DHA

2016-17

2017-18

Two or less unfavourable indicators

More than two unfavourable

indicators

Significant doubt that operations can

continue in future and/or auditee

received a disclaimed or adverse

opinion, which meant that the

financial statements were not

reliable enough for analyses

DHA

81% of the budget for the next three years (excluding budget for compensation of

employees and transfers and subsidies) will be utilised by the department to settle

obligations that the department has already committed to at year-end. Therefore, the

department will have 19% of the budget for the next three years (excluding the

budget for compensation of employees and transfers and subsidies) to fund its future

operations and to maintain future service delivery at the desired levels in next three

years. It is highly unlikely that 19% of the budget that will be available to fund future

operations and to maintain future service delivery at the desired levels for next three

years will be sufficient and as result future service delivery may be compromised and

this could also result in future cash flow problems (as the department may not have

sufficient budget to fund future operations).

Key concerns identified

Financial health

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Unauthorised, irregular as well as fruitless and wasteful expenditure over 5 years

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

R 32 million

R million

R million

R 43 million

R million

R million

R 85 million

R million

R million

R 333 million

R million

R million

R 183 million

R 1 million

R million

Irregularexpenditure

Fruitless andwasteful expenditure

Unauthorised expenditure

2017-18 2016-17 2015-16 2014-15 2013-14

Fruitless and Wasteful expenditure

The highest contributor for the fruitless and wasteful

expenditure is IEC

Irregular expenditure is incurred as follow;

• DHA (R38 568 000) – The irregular expenditure relates to amongst others the payments made to the security tender

• GPW (R61 687 000)-Irregular expenditure relates to Intervatecontract

• ,IEC (R83 329 912) majority of payments relates to payment on lease of head office building

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Irregular expenditure and supply chain management

Unchanged in SCM compliance(2016-17: 0% with no findings)

With no findings With findings With material findings

Irregular expenditure decreased from R333 million to R184 million (more than 50%

decrease)

R47 555prohibited awards

to other state

officials

False declarations

of interest made by

2 suppliers

Uncompetitive

and unfair

procurement

processes at

67% of auditees

9% (R16 million) of the irregular expenditure was payments/ expenses in previous years only uncovered and disclosed for the first time in 2017-18

91% (R168 million) of the irregular expenditure includes payments made on contracts irregularly awarded in a previous year - if the non-compliance is not investigated and condoned, the payments on multi-year contracts continue to be viewed and disclosed as irregular expenditure

R 71 million

R 16 million

R 262 million

R 168 million

2016-17 2017-18

(2)DHAIEC

(2)GPWIEC

GPW DHA

2017-18 2016-17

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Most common findings on supply chain management

0%

0%

0%

0%

17% DHA

33% DHA , GPW

17% DHA

33% DHA

Performance of contractors not monitored on monthly basis

Inadequate contract performance measures and monitoring

Suppliers' tax affairs not in order

Preference point system notapplied or incorrectly applied

Declarations of interest not submitted

Competitive bidding not invited

Local content minimumthreashold for local production

not adhered to

Three written qoutations notinvited

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Allegations of financial and/or fraud and SCM misconduct (3 auditees)

0%

0%

0%

Allegations not investigated

Investigationstook longer than three months

Allegations not properly investigated

Previous year unauthorised, irregular and fruitless and wasteful expenditure reported for

investigation

100% 100%

2017-18 2016-17

Not investigatedInvestigated

Fraud and consequence management

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Management (accounting officers and senior

management), do not respond with the required

urgency to our messages about addressing risks and

improving internal controls.100% (3)

Slow response to improving key controls and addressing risk areas

Inadequate consequences for poor performance and transgressions

Instability or vacancies in key positions

Root causes

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Recommendations

• There must be timely consequences for officials who deliberately or negligently ignore their duties and contravene legislation. A list of action taken against transgressors must be provided quarterly to PC for follow up of all irregular, fruitless and wasteful expenditure incurred.

• The PC should monitor implementation of commitments by accounting officers / authorities and Executive Authority.

• PC should request management to provide feedback on the implementation and progress of action plans to ensure improvement in the audit outcomes of the portfolio.

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