Department of Justice audit matters: discussions with the Auditor General |

Meeting report

Fundamental Elements of Internal Control: Auditor General of South Africa (AGSA) briefing
Ms Trudie Botha, Senior Manager, Auditor General of South Africa, informed the Committee that the Auditor General South Africa (AGSA) aimed to live up to its promise of complying with its Constitutional mandate and remaining the Supreme Audit Institution (SAI) of South Africa. It existed to strengthen the country’s democracy by enabling oversight through auditing, thereby building public confidence. Internal controls were important for achieving the operating, financial reporting and compliance objectives of an entity. The problem was that policies were designed by top management, but the implementation and monitoring were often lacking. Internal control ensured that policies were implemented and adhered to. The fundamental elements of internal control were leadership, which had to deliver good financial management and service delivery. Management was evaluated by observing whether or not sufficient action was taken by management to address non-compliance.

Management had to ensure that there were sound financial systems and documentation. This was often lacking. It was important for the Committee to be familiar with the audit reports of the Auditor-General (AG) and to better understand them.

She explained that a Regulatory Audit was conducted to assess compliance with laws, regulations and the applicable accounting framework. An audit opinion was usually expressed, based on the state of the financial statements. The AG also checked to see if internal controls were present during the Regularity Audit. The AG reported on good governance practices and whether there had been compliance with enabling legislation and National Treasury regulations. The AG always evaluated whether there was value for money throughout all the transactions of a government entity.

The Audit of Performance Information was relatively new. The result of this new audit was that the strategic plan of a government entity that was approved by Parliament was evaluated in order to ascertain whether the strategic plans were in fact achieved. The strategic plan was evaluated to see if there were measurable objectives and time frames in place. A Performance Audit was based on a specific pre-determined area of operation of a government entity – such as the use of consultants. The AG investigated whether or not resources were used economically, efficiently and effectively.

The AGSA had an investigative unit that conducted forensic investigations, where there were indications of fraud and maladministration. The findings could be made public. Special Audits occurred where an auditee approached the AG to request a specific audit. The procedures were normally agreed upon beforehand. AGSA was an independent body, which acted without fear, favour or prejudice. It was accountable to the National Assembly and was protected by the Constitution. The audit process involved the management of a government entity throughout.

Ms Botha summarised that an unqualified audit opinion meant that the AG was satisfied that the financial statements were fairly presented in all material aspects within the reporting framework. An unqualified audit opinion with other matters (matters of emphasis) noted that the AG was satisfied with the general accuracy of the financial statements, but there were other matters worth mentioning. Even if the AG gave a qualified opinion, it could still be satisfied that the financial statements were presented, but that there might be specific errors such as invalid, inaccurate or incomplete statements. An adverse opinion was simply that the AG was not in agreement with the representation made by management, since the financial statements did not represent or give a fair reflection of the financial position. An audit disclaimer was an opinion that was issued where all internal controls had broken down, or where reliable source documents could not be obtained to check the accuracy of any information.

Discussion
Mr M Gungubele (ANC) asked AGSA what were its proactive responsibilities, which would assist in effective auditing, in regard to the general systems of government. He also asked for an explanation of the difference between the Audit of Performance Information and a Performance Audit.

Ms Botha replied that a Performance Audit was an audit that had a specific theme, which related to a specific area of operations. The emphasis was on an economic, efficient and effective use of resources. It was based on a specific theme in an area that the AG had decided upon. The Audit of Performance Information was part of the normal audit process. The AG conducted an audit on the targets and objectives of government entities in their strategic plans, in order to try to ascertain whether the plans and objectives had been achieved. The AG engaged with managers to identify risk areas at the end of an audit. Management had to have audit action plans, which would be monitored by the AG.

Audits for the Department of Justice and Constitutional Development: briefing
Ms Botha said that the last three audits of the Department of Justice and Constitutional Development (the Department) had resulted in qualified audit opinions. The areas of concern were third party funds and the asset register. Although there were also instances where Supply Chain Management practices were also not followed, with some payments not made within 30 days, this was a minor aspect.

There were significant weaknesses in the Department’s performance of its strategic objectives. The AG also raised concerns regarding the accuracy of some of the information provided by the Department in its annual reports. The AG’s recommendations were that the Asset Register had to be maintained and updated throughout the year. Individuals had to be assigned to various assets in order for there to be accountability.

The AG could not find agreements relating to assets leased by the Department, due to its decentralised nature. The problem existed particularly at provincial level. The National office had been advised to put a system in place that would identify all the leased assets and then track all the lease agreement contracts.

Leave for personnel was also a concern. The recommendations were that monthly leave reconciliations had to be done, and that no leave should be taken prior to approval.

The Department received various third party funds – including those for court processes, such as bail or payment into court or fines, and for maintenance for beneficiaries. The Department had to account for these funds. The problem was that the funds were not monitored or accounted for. The amount disclosed by the Department for third party funds could not be verified as accurate by the AG. A further problem was that the Department treated third party funds as a separate entity without any enabling legislation. The AG therefore had recommended that the Department had to have proper systems to monitor third party funds, must have qualified personnel to handle all funds received at the courts, and that enabling legislation for third party funds to be treated as a separate entity must be introduced.  

Non-compliance relating to public service regulations, performance contracts and appointment processes was identified. AGSA had suggested that there must be training for personnel, and a compliance checklist for third party contracts had to be developed to enable staff to confirm if everything was above board.

AGSA had also identified significant weaknesses in the performance of the Department’s strategic plans. The Department was advised that before strategic plans were presented in Parliament it had to ensure that they were clearly linked with the Department’s mandate. The Department had to be specific on its objectives, which also had to be measurable, and should state time frames. The Department had to develop efficient, effective and transparent systems to ensure proper planning and monitoring. The Department also had to have quarterly reports on its strategic objectives. More importantly the Department had to ensure that the annual report was consistent with the strategic plans and quarterly reports.

Discussion
Ms M Smuts (DA) commented that the National Prosecuting Authority (NPA) had, in its strategic plan, moved its corporate services to the Department. She said that this surely was not covered in any legislation nor was this part of the Department’s mandate. She asked that AGSA must check on the position during the next audit, especially as the Department of Public Service and Administration (DPSA) was not informed of the position.

Ms Botha replied that the NPA was actually a programme that fell under the Department’s mandate. The NPA was still a separate entity but was treated as part of the Department. The AG was aware that there was an intention for the two to merge.

Mr J Jeffery (ANC) said it was a pity that the briefing on the Department’s audit history was not in writing. He felt that it was important to distinguish the responsibilities of the Portfolio Committee and those of the Standing Committee of Public Accounts (SCOPA), so that the two did not clash. The Portfolio Committee performed ongoing monitoring. The issue of third party funds was worrying, as it was an ongoing problem.

Mr Jeffery commented that the reports of the AG were not user friendly or easy to read. He also noted that the report of the AG on the Department’s use of consultants was supposed to be tabled before Parliament, and enquired if this had been done.

Ms Botha replied that the report would be tabled during the course of this year. The difficulty in reading the reports of the AG was noted.

Mr Jeffery requested the audit results of the other entities that fell under the Department, such as the South African Human Rights Commission, Legal Aid South Africa and judges and magistrates.

Mr Gungubele said that there had to be a common understanding between the Department, AGSA and the Committee in relation to the Performance Audit Information. He questioned whether AGSA would always have to react if things were “out of order” or whether this was part of the monitoring during the planning stages.

Ms S Sithole (ANC) said that the ideal situation would be that no Department should appear before SCOPA. An appearance before SCOPA reflected poorly on the Department and its responsible Committee in Parliament. Oversight had to be rigorous, timely and should be conducted on an ongoing basis. Unless this was done, there would always be the necessity for departments to appear before SCOPA. The AG had to improve its relationship with the legislature. 

The Chairperson summarised the suggestions of the Committee, in particular that the Committee wanted a closer relationship with the AG.

The officials from AGSA were excused at this point.

Other business
Ms Smuts requested that the Committee should recall the NPA, as the Specialised Commercial Crimes Unit (SCCU) had remained disbanded despite the fact that the Minister of Justice said that the units under the NPA would remain intact. A new strategic plan should be re-tabled before the Committee. This was a real concern. 

Mr Gungubele said that from he thought the budget vote had gone through after the Committee’s interaction with the Department. The Committee had to primarily interact with policy matters such as strategies and objectives.

The Chairperson said that the issue had to be debated at a later stage, as it was an important one.

The meeting was adjourned.