PROGRESS IN ADDRESSING ISSUES RAISED BY THE OFFICE OF THE AUDITOR GENERAL 2011/12 AUDIT

1. PROGRESS IN ADDRESSING ISSUES RAISED BY THE OFFICE OF THE AUDITOR GENERAL 2011/12 AUDIT HUMAN SETTLEMENTS PORTFOLIO COMMITTEE 17 APRIL 2013 Thabane Zulu

2. INDEX • Objective • Background • Action Plan Overview • Audit Report Matters

3. OBJECTIVE • To update the Portfolio Committee with progress regarding issues raised by the Office of Auditor General in their 2011/12 audit report.

4. BACKGROUND • Upon completion of the audit and receipt of the AG’s audit report an action plan was developed to address matters raised by the AG. • Action Plan was presented in all the Audit Committee (AC) meetings during the course of the financial year and updated with AC’s input. • The action plan has been monitored and updated on a monthly basis by branch CFO and verified by the Internal Audit unit

5. ACTION PLAN OVERVIEW • Department had a total of fifty-four (54) audit findings on the action plan. • Planned actions were proposed by various responsible managers. • During the financial year 2012/2013 the plan was monitored by the CFO’s office and verified by Internal Audit Units on a monthly basis.

6. ACTION PLAN OVERVIEW cont, • To date forty (40) out of fifty-four (54) have been fully addressed (100% complete). • The remaining fourteen (14) ranges between 60% complete and 80% complete. • 60% completion means Task Progressing well • 80% completion means Task Virtually Complete.

7. ACTION PLAN OVERVIEW cont, • As the remaining actions have taken longer to complete Audit committee advised that they be categorized as: • Long Term • Medium Term and • Short Terms • Depending on what is required and how long it will take to implement.

8. ACTION PLAN OVERVIEW cont. • Responsible managers were requested to re-assess their respective planned actions and categorize them. • They then committed themselves as to when and how they will be addressing those incomplete planned actions

9. 2011/12 AUDIT REPORT MATTERS • Restatement of corresponding figures – • The annual financial statements were adjusted and corrected to include Mvula and IDT amounts to be paid in future. • In addressing the above the department’s decision is that multiyear commitments will be created in the system although this may result into incorrect commitments for the year.

10. AUDIT REPORT MATTERS cont, • The Contingent liabilities, the corresponding figure for 31 March 2011 was restated as a result of an error discovered during 2011-12 in the financial statements of the department. • A note was made after the correction and restatement of the balances. Financial statements were amended. Agreed with Treasury and AG that in future contingent liabilities relating to provinces will not be included.

11. AUDIT REPORT MATTERS cont, • Material under spending of the rural household infrastructure grant – • Department appointed more service providers to address under spending. • Performance indicators not well defined andtargets not specific and are not measurable.- • Department appointed a service provider to assist the department on the future Strategic plan to align with the SMART principles . Sessions were held with branch on the proposed strategic plan. • The strategic plan has since been adjusted and was endorsed by the AG

12. AUDIT REPORT MATTERS cont, • The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and were not supported by full and proper records, as required by section 40(1) (b) of the PFMA. – • It was agreed that the Chief Directorate Sanitation will prepare monthly reconciliations, share them with the Chief Directorate Financial management during meetings to assist in addressing problems identified in the reconciliation.

13. AUDIT REPORT MATTERS cont, • The evaluation criteria, system to be used in awarding preference points for procurement and maximum points to be awarded for historically disadvantaged individuals were not specified in bidding documents, as required by section 7 of the Preferential Procurement Policy Framework Act of South Africa, 2000 (Act No. 5 of 2000). • Requests for quotations were updated to include the evaluation criteria. This was a prior finding which was addressed last year, but due to payments being made this year the finding was also included in this year’s report.

14. AUDIT REPORT MATTERS cont, • The accounting officer did not take effective steps to prevent irregular as well as fruitless and wasteful expenditure, as required by section 38(1)(c)(ii) of the PFMA and Treasury Regulation 9.1.1. • Measures have been put in place to ensure that all payments submitted for BAS payment are first routed to Supply Chain Management for compliance checking. Furthermore, meetings were held with the responsible Chief Directorates to highlight compliance matters. Disciplinary measures were instituted against the officials who were affected

15. AUDIT REPORT MATTERS cont, • Monies owed by the department were not settled within 30 days Treasury Regulation 8.2.3. • The Department has implemented an Invoice Register, centralised the receipting of invoices from service providers, installed an invoice box for all invoices received after hours. Periodical circulars are issued to staff reminding them about this prescript.

16. AUDIT REPORT MATTERS cont, • Human resource management and compensation, A human resource plan was not in place, as required by Public Service Regulation 1/III/B.2 (d). The HR Plan is being reviewed following the turnaround process that has been concluded. During the last few months of the financial year the HR unit embarked on a recruitment drive.

17. AUDIT REPORT MATTERS cont, • Persons in charge at pay points did not always certify that the employees receiving payment were entitled thereto, as required by Treasury Regulation 8.3.4. – • Auditor-General was informed through a formal letter dated 22 May 2012 signed by the Director-General of the department’s impracticality of complying with TR8.3.4 and TR8.3.5 in respect of the payroll certification. Several measures have been put in place to prevent the non compliance however it is highly impractical and as a result the non compliance is still recurring from year to year.

18. AUDIT REPORT MATTERS cont, • Employees were appointed without following a proper process to verify the claims made in their applications, in contravention of Public Service Regulation 1/VII/D.8. • Since July 2011 verifications for all salary levels are done by the South African Qualification Authority (SAQA) with a view to verify the qualifications of new employees.

19. AUDIT REPORT MATTERS cont. • Proper control systems to safeguard and maintain assets had not been implemented, as required by section 38(1) (d) of the PFMA and Treasury Regulation 10.1.1(a). • Work Study has been conducted in the CFO branch with the recommendation of additional capacity and mapping of activities within the branch to improve the current systems, to also address the identified gaps as well as preventing risks/gaps in the implementation process

20. Remedial strategies • To alleviate some of the technical processes identified in 2011/12 audit the department continued with its adopted strategy of submitting monthly financial statements to AG for auditing; • The CFO branch is embarking on the process of evaluating the effectiveness of the current controls and procedures with a view of implementing new controls and tools that address the current failures and possible risks in the system.

21. Remedial strategies • As some of the invoices are still not payable within the 30 days due to disputes between the department and suppliers the ‘’Dispute Stamp’’ is used on these invoices for the AG to be aware that they are in dispute but are receiving attention; • In instances where officials are the causes of delays a proposal has been submitted to HR, Labour relations to institute disciplinary processes against such acts.

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