Briefing to the Portfolio Committee: Social Development 12 October 2016

Briefing to the Portfolio Committee: Social Development Audit outcomes of the portfolio for the 2015-16 financial year

2015-16

PFMA

Social Development portfolio 12 October 2016

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2015-16

PFMA

The AGSA’s promise and focus

Reputation promise

The Auditor-General of South Africa (AGSA) 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.

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2015-16

PFMA

Role of AGSA in the BRRR process

• 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 entities taking into consideration the objective of the committee to

produce a BRRR.

• To provide the portfolio committee with applicable information and

guidance on the Social Development portfolio’s 2015-16 audit

outcomes so that they, the committee, can ensure effective

oversight.

• To enable oversight to focus on areas that will lead to good

governance.

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Our annual audits examine three areas

1 FAIR PRESENTATION AND

RELIABILITY OF FINANCIAL

STATEMENTS 2 RELIABLE AND CREDIBLE

PERFORMANCE INFORMATION

FOR PREDETERMINED

OBJECTIVES 3

COMPLIANCE WITH KEY

LEGISLATION ON FINANCIAL

AND PERFORMANCE

MANAGEMENT

2015-16

PFMA

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Auditee:

• produced credible and reliable financial

statements that are free of material

misstatements; and

• reported in a useful and reliable manner

on performance as measured against

predetermined objectives in the annual

performance plan (APP); and

• observed/complied with key legislation in

conducting their day-to-day to achieve on

their mandate.

Unqualified opinion with no findings

(clean audit)

Financially unqualified opinion with

findings

Auditee produced financial statements without

material misstatements but struggled to:

• align their performance reports to the

predetermined objectives they committed to

in their APPs; and/or

• set clear performance indicators and targets

to measure their performance against their

predetermined objectives; and/or

• report reliably on whether they achieved their

performance targets; and/or

• determine which legislation they should

comply with and implement the required

policies, procedures and controls to ensure

compliance.

2015-16

PFMA

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Auditee:

• 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.

• was unable to provide sufficient supporting documentation for amounts in the

financial statements and achievements reported in the annual performance

report.

• did not comply with key legislation.

Qualified opinion

Adverse opinion

Disclaimed opinion

Auditee:

• had same challenges as those that were unqualified 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.

• did not comply with key legislation in certain instances.

Auditee:

• has so many material misstatements in their financial statements that we

disagree with almost all the amounts and disclosures in the financial

statements.

• did not comply with key legislation.

2015-16

PFMA

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2015-16

PFMA

The 2015-16 audit outcomes and key messages

To improve the audit outcomes ,

1 3 …. compliance with key legislation and….

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Three year trend – Overall stagnation in audit outcomes

…. To maintain the performance planning and reporting ….

29% SASSA

NDA

29% SASSA

NDA

29% SASSA

NDA

71% DSD

Funds

71% DSD

Funds

2015-16 2014-15 2013-14

71%

DSD

Funds

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Stagnation in audit outcomes over 3 years

2015-16 PFMA

• The accounting authorities of the South African Social

Security Agency (SASSA) and the National Development

Agency (NDA), which are public entities of the department,

should exercise oversight and strengthen its internal

controls to create a control environment that supports

reliable financial reporting, useful and reliable reporting on

the performance information and compliance with

legislation by implementing proper record keeping and

appropriate reviewing controls.

• The accounting authorities of SASSA and the NDA should strengthen the internal controls to create a control environment that supports compliance with legislation by implementing proper record keeping and regular review processes that are supported by appropriate documentation.

Three year trend –

Compliance with key legislation

29% SASSA

NDA

29% SASSA

NDA

29% SASSA

NDA

71% DSD

Funds

71% DSD

Funds

71% DSD

Funds

2015-16 2014-15 2013-14

Three-year trend –

Quality of annual

performance plans

Three year trend –

Quality of submitted

annual performance reports

100% 100% 100%

2015-16 2014-15 2013-14

100% 100% 100%

2015-16 2014-15 2013-14

With no material findings

With material findings

Outstanding audits

No APR/ late submitted

Unqualified

with

no findings

Unqualified

with findings

Qualified

with findings

Adverse

with findings

Disclaimed

with finding

Audits

outstanding

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

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• The accounting authority of SASSA should strengthen

internal controls relating to proper record keeping and

the performance of daily controls that supports

compliance with SCM requirements to adequately

ensure the prevention of irregular expenditure.

• The accounting authority of the NDA must implement

appropriate review and monitoring controls over

compliance with key legislation especially on

expenditure management, procurement and the

quality of financial statements.

• The accounting officer of DSD and accounting authority of SASSA

must continue to ensure effective leadership and appropriate

oversight over senior management in the preparation of quality

performance reports that comply with applicable legislation that are

supported by source documentation.

• The accounting authority of the NDA must ensure that quality

performance reporting is performed as the NDA only received an

unqualified conclusion on predetermined objectives due to material

adjustments that were made to Programme 1 after being identified

through the audit.

Status of Key controls

Good Concerning Intervention required

4 … providing attention to the key controls by…

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Stagnation in audit outcomes over 3 years- continued

• The accounting authorities of SASSA and the NDA should strengthen the internal controls to create a

control environment that supports compliance with legislation by implementing proper record keeping

and regular review processes that are supported by appropriate documentation. The NDA needs to be

appropriately capacitated to ensure that adequate oversight can be provided by leadership and

governance structures. F

irst

leve

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

Assurance providers per level

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1

1

2

1

Senior management

Accounting officer/authority

Executive authority

Internal audit unit

Audit committee

Portfolio committee T

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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 poor 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 in terms of the legislative oversight requirements and it robustly

engages the department on its role and mandate.

Efforts of the accounting authority of the NDA and senior management at the NDA and SASSA, in

developing and implementing post audit plans and audit recommendations, needs to be strengthened.

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

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Provides assurance

Provides some

assurance

Provides limited/ no assurance

Vacancy Not

established

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2015-16 PFMA Improved Stagnant Regressed 9

DS

D

SA

SS

A

ND

A

DR

F

RR

F

SR

F

SP

F

- Design and Implement IT controls

GOVERNANCE

- Risk management

- Internal Audit

- Audit committee

- Audit Action plans

- ICT governance

- Proper record keeping

- Daily and monthly controls

- Accurate & complete reports

- Review and monitor compliance

LEADERSHIP

- Effective leadership

- Oversight responsibility

- Effective HR management

- Policies and procedures

FINANCIAL AND

PERFORMANCE MANAGEMENT

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3

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2015-16

PFMA

Performance management linked to programmes/ objectives tested

Quality of annual performance plans and annual performance reports remained

unchanged

Outcomes of programmes selected for testing:

Auditee Movement

Programmes/

Objectives Usefulness Reliability

DSD

Programme 2: Social assistance No material findings reported. No material findings reported.

Programme 4: Welfare services policy

development and implementation

support No material findings reported. No material findings reported.

SASSA

Programme 1: Administration

No material findings reported. No material findings reported.

Programme 2: Benefit Administration

and Support No material findings reported. No material findings reported.

NDA

Programme 1: Resource mobilisation

No material findings reported.

No material findings reported as

management corrected material

misstatements identified.

Programme 2: Capacity building

No material findings reported. No material findings reported.

Funds N/A The audit of performance information is not conducted for any of the four relief funds as the funds are established in terms of

the Fund Raising Act and not the PFMA.

2015-16 PFMA No material

findings reported Material

findings reported

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Financial management

2015-16

PFMA

100% (7)

14% (1)

86% (7)

Figure 1: Findings on compliance with

key legislation – all auditees

2015-16 2014-15 2013-14

Slight improvement in compliance with legislation and

quality of financial statements

2015-16 Outcome if

NOT corrected Outcome

after corrections

100% (7)

14% (1)

86% (6)

Outcome if

NOT corrected

Outcome

after corrections

2014-15

With no material misstatements

With material misstatements

Improved Stagnant Regressed

2015-16

PFMA

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0%

29%

14%

29%

0%

29%

14%

14%

14%

14%

29%

14% NDA

SASSA

SASSA, NDA

SASSA, NDA

SASSA

NDA

NDA

SASSA, NDA

SASSA, NDA

NDA

Prevention of unauthorised, irregular and/

or fruitless and wasteful expenditure

Management of procurement and/or contracts

Submission of strategic plans

Material misstatements in submitted

annual financial statements

Figure 2: Quality of submitted

financial statements

1 auditees (14%: NDA) [2014-15: 1 (14%: SASSA)] avoided qualifications

due to the correction of material misstatements

during the audit process

Irregular as well as fruitless and wasteful expenditure analysis over

3 years

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2015-16

PFMA

R82.64 million

R3.36 million

R -

R60.36 million

R5.48 million

R -

R1074.65 million

R8.59 million

R -

Irregularexpenditure

Fruitless andwasteful

expenditure

Unauthorisedexpenditure

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

2015-16 2014-15 2013-14

UIFW amounts incurred by entities in portfolio Nature of U.I.FW expenditure R’million

R -

R -

R80.57 million

R2.07 million

R -

R -

R3.36 million

R8.22 million

R0.24 million

R39.66 million

R12.23 million

R0.08 million

R -

R5.4 million

R18.9 million

R10.6 million

R0.04 million

R -

R8.55 million

Procurement without competitivebidding or qoutation process

Non compliance withlegislation on contracts

Non compliance withprocurement process requirements

Other irregularexpenditure

Penalties and interest

Incurred to prevent irregularities

Other Fruitless and wastefulexpenditure

R -

R1 045.15 million

Investigations of unauthorised, irregular as well as fruitless and

wasteful expenditure

100%

3

Entities

2015-16

100%

3

Entities

2014-15

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2015-16

PFMA

The four relief funds are not subject to the PFMA, therefore reporting on irregular and fruitless and wasteful

expenditure, is not a legal requirement and was therefore not reported on. They have accordingly not been

included in the above diagram.

Adequate investigations into irregular and fruitless and wasteful expenditure occurs at the DSD, SASSA and

the NDA however findings on the results of these investigations on consequence management at the NDA

have been identified.

Investigated Not investigated

100%

3

Entities

2013-14

Investigations of U.I.FW expenditure

3 auditees (100%) [2014-15: 3 (100%)] lodged investigations to determine root cause and consequences of U.I.FW incurred.

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Top two root causes, follow up on commitments and proposed

recommendations

2015-16

PFMA

… the following root causes must be addressed …

Root causes

Slow response by management (Accounting

officer and senior management)

Lack of consequences for poor performance

and transgressions

Status of key commitments by minister

Monitoring and implementing action plans to ensure the movement to clean administration for SASSA and NDA.

To amend the existing action plan for the department to specifically address proper record keeping and review

processes as well as compliance with applicable legislation.

Evaluate the environment of the relief funds for closure or amalgamate with either the NDA or SASSA.

Filling of critical vacancies at SASSA and the NDA.

Implemented In progress Not implemented New

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

2 1

14% (1/7)

14% (1/7)

14% (1/7)

14% (1/7) SASSA

NDA

2015-16 2014-15

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• The key root cause that gave rise to significant findings of SASSA

is the slow response by management in implementation of

corrective measures.

• The accounting authority of the NDA should address the root

causes of poor audit outcomes and inadequate controls by

exercising value adding, review processes over the preparation of

annual financial statements that are supported by appropriate

documentation.

• Compliance with legislation should be reinforced by enforcing

consequences for unsatisfactory performance and transgressions

(ineffective investigations), which exasperate the lack of sustained

progress towards clean administration at the NDA.

• We met with the minister three times in the year. At these interactions, we

provided updates on the audit and made the minister aware of deficiencies in

internal control.

2015-16 PFMA

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

1. Monitor and implement the new

action plans to ensure the

movement to clean

administration for SASSA and

NDA.

2. Monitor the filling of critical

vacancies in the portfolio that

arose in the year

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NDA SASSA

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2015-16

PFMA

Questions

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