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Budgetary review and recommendations report Science and technology portfolio

03 October 2017

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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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ANNUAL PERFORMANCE PLAN (APP)

TARGETS PER APP

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“Plan-Do-Check-Act Cycle”, also the Deming cycle , courtesy of the International Organization for Standardization

AGSA theme for the current year to improve outcomes

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DO

PLAN

CHECK ACT

AGSA theme for the current year to improve outcomes

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1

The AGSA’s Public Audit Act Promise and Focus

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Our annual audits examine three areas

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The AGSA expresses the following different audit opinions:

Unqualified

opinion with no

findings

(clean audit)

Financially

unqualified opinion

with findings

Auditee:

• Credible and reliable

financial statements

that are free of

material

misstatements

• Useful and reliable

performance as

measured against

predetermined

objectives

• complied with key

legislation

Auditee:

• Credible and reliable

financial statements

that are free of material

misstatements

• Did not produce useful

and reliable

performance as

measured against

predetermined

objectives

• Did not comply with

key legislation

Qualified

opinion

Auditee:

• had material

misstatements on

specific areas in their

financial statements,

which could not be

corrected before the

audit report was

issued.

Adverse

opinion

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

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

Disclaimed

opinion

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The 2016-17 audit outcomes and key messages

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…. compliance with key legislation and….

To improve/maintain the overall audit outcomes, financial statements processes,

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Four year trend – Overall audit outcomes

…. performance planning and reporting must be improved by….

Regression in audit outcomes in the current year

2016-1

PFMA

• DST retained their unqualified with findings due to a regression on

the performance information despite the improvement on compliance

with legislation issue that impacted them on the prior year.

• HSRC and NRF regressed from an unqualified audit opinion with no

findings to an unqualified audit opinion with findings on compliance

with legislation and performance information respectively.

• Senior management should implement audit action plans that are

based on the audit findings, root causes and recommendations.

• Ensure basic financial disciplines and monthly processing and

reconciling of transactions are done regularly.

• Increase in irregular expenditure is a

concern at HSRC due to adequate steps

not taken to prevent irregular expenditure

occurring.

• Officials should be held accountable for

non-compliance with legislation resulting in

irregular expenditure.

• Proactive measures should be implemented

to prevent irregular expenditure.

• Management at DST and NRF should implement appropriate

systems to collect, collate, verify and store information by the

programmes to ensure that the reported targets are valid,

accurate and complete.

• Management at DST and NRF should enhance their review

and monitoring controls to ensure that misstatements are

prevented or detected and corrected timely before reporting

on the annual performance report.

Three year trend –

Compliance with key legislation

25% (HSRC)

25% (DST)

75% (DST, CSIR, NRF)

75% (NRF, CSIR, HSRC)

100%

2016-17 2015-16 2014-15

Three-year trend –

Quality of annual

performance plans

Three year trend –

Quality of submitted

annual performance reports

100% 100% 100%

2016-17 2015-16 2014-15

50% (DST, NRF)

50% (CSIR

, HSRC

100% 100%

2016-17 2015-16 2014-15

Unqualified

with

no findings

Unqualified

with findings

Qualified

with findings

Adverse

with findings

Disclaimed

with finding

Audits

outstanding

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

75% (DST, HSRC, NRF)

25% (DST)

25% (DST)

75% (CSIR, HSRC, NRF)

75% (CSIR, HSRC, NRF)

100% (DST, CSIR, HSRC, NRF)

25% (CSIR)

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

11 With no

material findings With

material findings Outstanding

audits No APR/

late submitted 11

Status of Key controls

Good Concerning Intervention required

4 … providing attention to the key controls by…

Regression in audit outcomes in the current year - continued

• Dedication is required for DST and NRF management, to ensure

information supporting the annual performance reports are adequately

reviewed to ensure that the reported target is valid, accurate and complete.

• Controls should be enhanced to ensure compliance with SCM legislation at

HSRC.

• Adequate steps should be taken to prevent irregular expenditure from

occurring.

Fir

st

leve

l

… the key role players as part of their role in combined assurance

Assurance providers per level

4

4

1 (CSIR)

1

1

4

3 (DST/HSRC/NRF) 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 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 the legislative oversight requirements and it

robustly engages the department and its entities on its role and mandate.

Provides assurance

Provides some

assurance

Provides limited/ no assurance

Vacancy Not

established

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Improved

Stagnant

Regressed

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DS

T

NR

F

CS

IR

HS

RC

- Audit committee

- Proper record keeping

- Daily and monthly controls

- Regular, accurate & complete finanial and

performance reports

- Review and monitor compliance

- Design and Implement IT controls

GOVERNANCE

- Audit Action plans

- ICT governance

- Risk management

- Internal Audit

FINANCIAL AND

PERFORMANCE MANAGEMENT

- Oversight responsibility

- Effective HR management

- Policies and procedures

LEADERSHIP

- Effective leadership

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Performance management linked to programmes/ objectives tested

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Programmes Usefulness Reliability

Material

adjustments

Budgeted

amount

(R ‘000)

Spent

amount

(R ‘000)

%

Spending

No. of

targets

planned

No. of targets

achieved or

overachieved

%

Achievement Programme 1-

Administration Not audited Not audited - R 356 110 R 332 629 93.4% 15 13 87%

Programme 2-

Technology

Innovation

No

material

finding

No

material

findings

X R1 027 588 R1 016 471 98.9% 11 10 91%

Programme 3-

International

Cooperation and

Resources

Not audited Not audited - R 121 316 R 118 466 97.6% 10 10 100%

Programme 4-

Research

Development and

Support

No

material

findings

No

material

findings

X R4 157 604 R4 152 019 99.9% 11 9 82%

Programme 5-

Socio-economic

Innovation

partnerships

No

material

findings

Material

finding X R1 766 378 R1 764 009 99.9% 15 13

87%

Totals R7 428 996 R7 383 594 99.4% 62 55 89%

Quality of APP and analysis of expenditure per programme vs performance

achievements

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Kindly refer to page 72 to 108 of the annual report for the detail of where management has reported on the their achievement of the above targets for each

programme as included in the Annual Performance Report.

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Financial health and financial management

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Improvement in financial health

100% (4)

75% (3)

100% (4)

25% (1)

2014-15

2015-16

2016-17

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

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Figure 1: Findings on compliance with

key legislation – all auditees

2015-16 2014-15 2013-14

Compliance with legislation and quality of financial statements

Figure 2: Quality of submitted

financial statements

2016-17

Outcome if

NOT corrected

Outcome

after corrections

0 auditees (0%) [2015-16: 0(%] avoided qualifications

due to the correction of material misstatements

during the audit process

100% (4)

100% (4)

Outcome if

NOT corrected

Outcome

after corrections

2015-16

100% (4)

100% (4)

With no material misstatements

With material misstatements

2015-16

PFMA

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25% (HSRC)

25% (DST)

Expenditure management (payment within 30 days)

Prevention and/or follow-up of irregular expenditure

Unauthorised, irregular as well as fruitless and wasteful expenditure disclosed in the

financial statements 2016-17

PFMA

R 25 million

R 1 million

R 12 million

R 12 million

R 4 million

R million

Irregular expenditure

Fruitless and wastefulexpenditure

Unauthorisedexpenditure

R 0 million

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 UIFW amounts incurred by entities in portfolio Nature of UIFW expenditure

2016-17 2015-16 2014-15

• DST (R2 000) - Penalty fees charged for

cancellation of bookings

• NRF (R890 000) - Volunteers were paid

beyond their contract period and also

stipends paid to invalid volunteers/students

• CSIR (R6 997) - A customs penalty was

levied on the CSIR, due to under

declaration of imported items.

• HSRC (R3 307 000) - The expenditure was

mainly due to CCMA pay-outs and

settlement agreements.

• Irregular expenditure resulted mainly

from non-compliance with National

Treasury’s supply chain

management prescripts:

• DST: R176 000

• NRF: R4 545 000

• CSIR: R920 000

• HSRC: R6 465 000

Audit report impact

No impact

Non compliance on

irregular expenditure

not being prevented

was reported in

HSRC due to

increase in irregular

expenditure and lack

of monitoring of

compliance with

supply chain

management

legislation.

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None None

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Fraud and consequence management

Irregular expenditure reported for investigation

100% (7)

100% (7)

2016-17 2015-16

Not investigated Investigated Under

investigation

Supply chain management findings reported to management for investigation

50% (2), 2 instances

25% (1), 5 instances

Other SCM findingsreported for investigation

Employee(s) failed todisclose interest in supplier

Supplier(s) submittedfalse declaration of interest

SCM findings reported for investigation during the

2016-17 audit process

(all auditees)

Follow-up of the previous year’s SCM

findings reported for investigations

All investigated Some investigated None investigated

7 Other SCM-related allegations

Employee(s) failed to disclose interest in supplier

Supplier(s) submitted false declaration of interest

Under investigation

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Top root causes, follow up on commitments and proposed

recommendations

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… the following root causes must be addressed …

Root causes

Slow response by management (Accounting

officer and senior management)

Ineffective review and monitoring of compliance

with legislation

Status of key commitments by minister

Monitor the implementation of the audit action plans that are based on the audit findings, root causes and recommendations reported by the AGSA, internal audit, audit committees and other governance structures.

.

Minister to monitor the implementation of the audit action plan to address audit findings on performance information to ensure that the reported information is useful and reliable.

Implemented In progress Not implemented New

… through honouring the following commitments made by the executive authority……

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25% (HSRC)

75% (DST, NRF and HSRC)

2016-17

• Management should implement appropriate systems to

collect, collate, verify and store information by the

programmes to ensure that the reported targets are

valid, accurate and complete.

• Management should enhance review and monitoring

controls to ensure that misstatements are prevented or

detected and corrected timely before reporting on the

annual performance report.

• Regular monitoring of the action plans to ensure that

the identified deficiencies are addressed to avoid

repeat findings and continued non-compliance.

• Officials should be held accountable for non-

compliance with legislation and irregular expenditure

should be tracked, with proactive preventative

measures being implemented.

• We met with the minister on 31 July 2017. The audit

outcomes of the portfolio was discussed with the minister

and the progress of the implementation of the 2015-16

commitments were followed up with the minister.

• New commitments were obtained from the minister.

2015-16 PFMA

Top root causes, follow up on commitments and proposed recommendations … and implementation of the following proposed commitments by the PC.

1. Portfolio Committee must

monitor the

implementation of the

action plans to address

the audit findings

identified.

2. Portfolio Committee will

exercise oversight during

its quarterly reviews with

regards to compliance and

performance reporting to

ensure compliance taking

place and objectives are

being achieved.

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Entities included in the portfolio

not audited by AGSA: PAA (section 4(3) audit entities)

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Entities included in the portfolio not audited by AGSA:

PAA (section 4(3) audit entities)

Three year audit outcome of auditees within the Science and Technology portfolio which are not audited

by the AGSA in terms of PAA section 4(3):

Auditee:

Three

year

Trend

Audit Outcomes

2016-17

Audit Outcomes

2015-16

Audit Outcomes

2014-15

AFS AoPO Compliance AFS AoPO Compliance AFS AoPO Compliance

Technology

Innovation Agency

(TIA)

a

a

a

a

a

a

South African

National Space

Agency (SANSA)

a

a

a

a

a

a

Academy of

Science South

Africa (ASSAF)

N/A

r

N/A

r

N/A

r

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2016-17

PFMA

Improved

Stagnant

Regressed

AFS outcome

legend Unqualified with

no findings

Unqualified

with findings

Qualified

with findings

Adverse

with findings

Disclaimed

with finding

Audits

outstanding

No Material

Findings

Material

findings

a

r

7

AGSA audit methodology improvements

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AGSA audit methodology improvements

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Status of key focus areas

Oversight and monitoring

(Unchanged)

Financial management

(Unchanged)

Performance management

(Regressed)

Procurement and contract management

(Unchanged) Compliance management

(Unchanged)

HR management

(Unchanged)

IT management

(Unchanged)

Financial health

(Regressed)

Status of

records review

Pro-active

follow up

procedures

Financial and non – financial information

(internal and external reports/documents

& discussions with senior managers)

Feedback linked to Focus Areas

AGSA audit methodology improvements (cont.)

Engaging accounting officers in conversations that are insightful, relevant and have an

impact

Identify matters that add value in putting measures

and action plans in place well in advance to mitigate

risks

Assess progress made in implementing action plans/

follow through with commitments made in previous

engagements

Provide our assessment of the status of key focus

areas that we reviewed

Identify key areas of concern that may derail progress

in the preparation of financial and performance

reports and compliance with relevant legislation and

consequential regression in audit outcome

Key control engagements / status of records review – objectives

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Sou

rce:

Rob

ert K

litga

ard

(aca

dem

ic a

nti-c

orru

ptio

n re

sear

ch)

Correlation between low accountability, corruption and impact on service delivery

Corruption

Service Delivery

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Stay in touch with the AGSA

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