Audit Outcomes & Assurance Providers in Public Enterprises 2014-15

1. Briefing to the Portfolio Committee on Public EnterpriseAudit outcomes of the Public Enterprise 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. Combined assurance – complimentary mandate 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 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

5. Contents Slide nr 1. Overall audit outcomes for Public Enterprise portfolio 6 2.Auditor-General six key focus areas 7 - 10 3.Unauthorised/ Irregular / Fruitless & Wasteful expenditure 11 4. Drivers of key controls for portfolio 12 5.Assessment of assurance providers 13 6. Root causes and recommendations 14 – 15 Entities included in the portfolio not audited by the AGSA 16 – 18 Minister commitments to address root causes 19

6. 1. Overall audit outcomes for Public Enterprise portfolio 2014-15 PFMA Unqualified no findings Unqualified with findings Qualified with findings Adverse with findings Disclaimer with findings 3 auditees 3 auditees 3 auditees

7. 2. Auditor-General six key focus areas 2014-15 PFMA Quality of submitted financial statements Quality of submitted performance reports Compliance with legislation 1 2 3 Good Concerning Intervention required Human resource and consequence management Information technology Financial health Improvement 5 4 6 Stagnant or limited progress Regressed

8. 2.1 Quality of annual performance reports 2014-15 PFMA 67% Annual performance reports of were reliable and useful compared with 33%in the previous year With no findings With findings Improved Usefulness Reliability Stagnant or little progress 2 1 Regressed Auditee did not submit performance report on time Auditees that submitted information, did so in time for audit 1 2 8

9. 2.2 Most auditees did not comply with legislation in the following areas 2014-15 PFMA Quality of annual financial statements submitted Prevention of irregular and/ or fruitless and wasteful expenditure Management of procurement and or contracts 3 1 2 Good Concerning Intervention required Human resource & consequence management Internal audit & Audit committee Management of strategic planning and performance Improvement 4 5 6 Stagnant or limited progress Regressed

10. Good Concerning Intervention required 2014-15 PFMA 2.3 Financial health of the portfolio 10

11. 3. UIFW expenditure definitions Fruitless and wasteful expenditure Unauthorised expenditure Irregular expenditure Legends: Decrease in incurred expenditure No change Increase in incurred expenditure Finding not repeated New finding Repeat finding Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed Definitions

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

13. 2014-15 PFMA First level 5. Assessment of assurance providers for portfolio Improvement Stagnant or little progress Second level Regressed 13

14. 6. Root causes should be addressed (top three) 2014-15 PFMA Slow response by management in addressing the root causes of poor audit outcomes 2014-15 2013-14 • Slow response by management has been one of the top three root causes for the portfolio in the past two years in audit findings. This is due to action plans still being inadequate and implementation thereof not monitored. There is also no improvement in assurance provided by management and no improvement in the basic internal controls. Senior management did not take immediate action and hold officials accountable for not adhering to the implemented internal controls. Instability or vacancies in key positions Improved Stagnant or little progress • The vacancies that exist should be filled with appropriately qualified individuals who are held accountable for their responsibilities Regressed Lack of consequences for poor performance and transgressions • The leadership did not always hold staff accountable for poor performance and transgressions and this creates the perception that these results are acceptable and tolerated. There was an overall lack of concessive consequences for poor performance and transgressions experienced at the entities

15. 2014-15 PFMA 6.1 Root causes & Recommendations (top three) 15

16. 2014-15 PFMA 7. Entities included in the portfolio not audited by the Auditor-General of South Africa

17. 7.1 Audit outcomes per section 4(3) entity in the portfolio 2014-15 PFMA Improved Stagnant or little progress Regressed

18. 7.2 UIFW expenditure definitions per section 4(3) entity in the portfolio Fruitless and wasteful expenditure Unauthorised expenditure Irregular expenditure Legends: Decrease in incurred expenditure No change Increase in incurred expenditure Finding not repeated New finding Repeat finding Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed Definitions

19. 8. Minister commitments to address root causes 2014-15 PFMA Status of key commitments by minister Focus on sustainability of the clean audit and clean administration in order to lead by example for the SOCs. All SOCs in the portfolio must provide the DPE with action plans and progress made to address audit findings and achieve clean audits. The engagements between the audit committee and board chairpersons of SOC and the executive as per the DPE calendar. Internal audit must implement processes to review actions taken by SOCs to improve audit outcomes. DPE portfolio managers to attend audit committee and board meetings to pick up and identify issues earlier to avoid surprises. Support measures for SOCs to conduct business in a sustainable manner with no financial support from the state. DPE and SOCs must prepare interim financial statements subject to an interim audit Conclude the Government Shareholder Management Act. Not implemented In progress Implemented New

20. Questions