National & provincial Departments of Health 2009/10 performance: Auditor-General's briefing

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12 October 2010
Chairperson: Mr B Gowanda (ANC)
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Meeting Summary

The Auditor General South Africa (AGSA) gave a presentation on its findings on the National Department of Health and nine provincial Department of Health audits for 2009/10. The presenters explained the various types of audit opinion that could be issued, and how a department could achieve an unqualified audit, even when irregularities were disclosed, provided that the financial statements reflected the true financial position. It was also possible that financial statements may be correct although service delivery was not on par. With effect from 2011 performance information would also be included in AGSA reports, although at present skills audits were not done by this department. A summary of the AGSA findings showed that four departments had received disclaimers, three had received adverse opinions, and only the Western Cape and National Department of Health (NDOH) had received unqualified opinions, with matters of emphasis. The National Department and North West had focused on difficulties in the past and had action plans to address the shortcomings. However, none had totally clean administration, because of non-compliance issues, or failure to achieve targets for service delivery. AGSA concluded that in the entire health sector, oversight responsibility would need to be improved, and leaders would need to be involved in the implementation of policies and systems being put into place. Six of the ten departments needed to improve their attitude towards compliance and adherence issues. AGSA made suggestions for improvement in respect of financial and performance management, the need to have a single and consistent system for the sector, the need to improve governance, particularly risks and fraud prevention plans and the need for internal audit to be done consistently. Inaccurate and incomplete registers were found and should be corrected, and documentation must be found for the auditors to audit. All ten departments needed to improve the quality of their financial statements and correct transversal material misstatements, with seven needing to make material adjustments to disclose irregular expenditure. Lack of documentation was a problem. There was a need to report fully and to comply with regulations, in order that all information could be verified. Seven out of the ten departments did not comply with requirements to submit documentation on time, and six lacked effective and efficient systems and internal controls around performance. Various inaccuracies around procurement and contract management resulted in irregular expenditure, including the failure to obtain the correct quotations, lack of approved supplier databases and extension of contracts incorrectly. There were also irregularities around sick leave and annual leave in excess of entitlement. In general, the District Health Information Systems (DHIS) could not be relied upon. The information on targets met did not always correlate with the spending.  the year. Therefore there was no relation between the budgeted grant given and the targets met. Hospital revitalisation had achieved significantly under target. Shortcomings in the NDOH included failure to adhere to the frameworks, failure to evaluate information from the provinces and failure to insist on timely submission of information from the provinces.

Members expressed their concern about the numerous discrepancies. They asked about the role of AGSA, whether it was possible for it to maintain more of a presence and to “coach” departments, what actions it could take to help those with poor results, and whether the results indicated the need for more funding, particularly for the Hospital Revitalisation Grant. Members wondered if management were aware of the provisions of the Public Finance Management Act, whether management letters were used and monitored, and how key controls could be monitored. Members also enquired whether there was correlation between provincial and national audits, and how the NDOH could receive an unqualified audit when it had failed to ensure compliance by the provincial departments.

Meeting report

Department of Health Financial Statements & Performance: Auditor-General’s Briefing
The Chairperson noted that he hoped that the Auditor-General would give the Committee information about both the National and Provincial Departments of Health (NDOH and PDOHs) since this Committee must oversee service delivery overall, which generally occurred in the provinces.

Ms Alice Muller, Corporate Executive, Auditor-General South Africa, noted that the Auditor-General (AG) input was intended to empower the Committee with knowledge, so that its oversight could be more effective and efficient. She explained how roadshows were being conducted by AGSA and how the outcomes were presented to the Cabinet.

She noted the different types of audit opinions that could be given by AGSA. An unqualified opinion could be issued, with comments on service delivery, which meant that although the financial information was largely correct, there were still service delivery issues within that department which needed to be resolved. Currently none of the Departments of Health within the sector were recorded as having a clean bill of health even if they had managed to correct their financial administration, which meant that there were service delivery issues needing to be addressed.

Ms Corne Myburgh, Business Executive: AGSA, stated that her presentation would focus on the National Department of Health (NDOH) and the nine provincial departments. She noted, with reference to Slide 3, that there was an increase in disclaimer audit opinions for departments based on their financial statements, from two in 2008/09 to four in 2009/10 (Eastern Cape, Gauteng, Northern Cape and the Free State provinces). There was a decrease in adverse audit opinions and qualified audit opinions, from six to three provinces (KwaZulu Natal (KZN), Limpopo and Mpumalanga). Western Cape was one of the departments receiving an unqualified opinion in 2009/10, and she noted that this department had received unqualified reports for the last five years. However, the NDOH had moved between qualified and unqualified reports in previous years. It had finally achieved an unqualified audit this year, mainly due to accurate documentation being available, which enabled the AG to audit the revenue and goods and services, which it had not been able to do in previous years. An improvement was also noted for the North West province, which had also gone from having a qualified to unqualified audit opinion. This was because North West had become aware of its risks or shortcomings, and had followed through on action plans to address them.

However, despite such improvements within these provinces, it was found that none of the departments currently had clean administrations, including those three departments with unqualified opinions. This was because they either had non-compliance issues, or issues relating to service delivery predetermined objectives.

Most of the provinces were reported to have complied with laws and regulations, with the exception of the Limpopo province. The non-compliance issues of this province had not escalated to the point that the AG felt that it should be included in the audit report as non-compliance. It was found that the Eastern Cape had regressed from a qualified to a disclaimer audit opinion, whereas the North West and the National departments improved from qualified to unqualified opinions.

The audit reports gave insight as to the areas on which departments must focus in order to improve. She set these out under different headings

In respect of leadership, the auditors focused on oversight and responsibility, tone at the top and action to mitigate risks. AGSA noted that in the entire health sector oversight responsibility would need to be improved and leaders would need to be involved in the implementation of policies and systems being put into place. Six of the ten departments were noted as needing to improve their attitude towards compliance and adherence issues. Nine of the ten departments were noted as needing to improve their action to mitigate risks.

In respect of financial and performance management, the focus was on the quality of financial statements, proper record keeping and adequate systems being in place. The quality of financial statements by all the departments still needed attention. AGSA suggested that in order for departments to avoid the year-end rush they should rather ensure that daily and monthly activities and corrective steps were put into place, so that financial statements could be presented more accurately. This required departments to be more consistent and thorough. Nine out of ten (excluding the National department) needed to enhance their record keeping, so that proper documentation could be provided to support the reports included in the Annual Report. All health sector systems need to be improved, as it was found that the whole sector did not have one system that was used to generate information from province to province. The use of many different systems that did not support each other led to information being recorded inaccurately.

In respect of governance, the focus of AGSA had been on risk identification, fraud prevention and the use of internal audits. It was found that six departments needed to be more proactive in identifying risks and correcting and addressing them. Five departments required an improvement in their fraud prevention plans, and five departments also needed to be more proactive with regard to their internal audit processes.

The focus in the financial statements qualifications was on capital assets, receivables, other disclosure items, revenue, expenditure, and unauthorised, fruitless, wasteful and irregular expenditure. Generally, it was found by AGSA that inaccurate and incomplete registers were present, there was lack of documentation for auditors to audit, inadequate systems were in place to record and account for disclosure items, there was lack of adequate patient administration, and lack of documentation to support disclosed expenditure.

All ten departments needed to focus on enhancing the quality of their financial statements and correct transversal material misstatements. Seven departments needed to make material adjustments, ensuring that irregular expenditure was fully disclosed. Lack of documentation was also noted as something that needed to be improved.

Generally it was found that there was a need to focus on predetermined objectives (service delivery). There was also a need for efficient and effective reporting systems, since six departments were found not to be complying with regulations set (Eastern Cape, Free State, Gauteng, Limpopo, Western Cape and National department). Such inaccuracies resulted in all ten departments providing information which could not be verified by supporting documentation.

The AGSA also made findings on compliance with laws and regulations. Seven departments were not submitting their monthly and quarterly reports within the required timeframe, and six departments had a lack of effective and efficient and transparent systems and internal controls regarding performance management. Five departments failed to settle their creditors’ accounts within the required 30 days from the receipt of the invoice.

In the 2009/10 year, various inaccuracies around procurement and contract management were found, which resulted in irregular expenditure. Nine departments did not go through the process of obtaining three quotations for amounts between R10 000 and R500 000. Approved supplier databases for quotations and tenders were lacking in some departments, contracts were continuously extended without following required processes, and some employers were found to also have interests in the businesses with whom they were dealing.

In regard to human resources, sick leave irregularities were found by AGSA. For sick leave some staff failed to provide medical certificates to support the number of the days they had been booked off. Payroll reports were also not established on a monthly basis in some departments, and because of this, some staff who may have already left the department were still receiving salary payments. Five departments were found to have negative capped leave credits, which meant that staff were taking more leave than their entitlement. Senior management posts also remained vacant for more than 12 months in five of the departments.

The health sector used the District Health Information Systems (DHIS), but AGSA reported that this system could not be relied upon, since there were no manual controls to support or add on where general controls lacked. Inadequate and ineffective backup practices existed within the system, and it was also noted that the physical and environmental controls were not as effective as they should have been.

Ms Muyburgh noted that “unauthorised expenditure” referred to expenditure made in excess of the vote or budget for a programme. “Irregular expenditure” meant that the department did not follow the procurement processes prescribed. Eight of the ten departments initially disclosed unauthorised expenditure amounting to R5 million, but during the audit process R98 million additional unauthorised expenditure was identified.

In relation to targets, AGSA noted that the health sector met 53% of the target set for 2009/10 financial year, although 99% of the HIV/AIDS grants was spent during the year. Therefore there was no relation between the budgeted grant given and the targets met.

With regards to the hospital revitalisation grants in the provincial audits, it was found that the actual achievements were significantly lower than the objectives and measurable outcomes defined in the business plans and project implementation plans (PIPs). It was concluded that although a number of hospitals were accepted into the plan, there was no mention made of the projects which were actually completed, in use, or even completed within budget. AGSA therefore considered this information not to be useful.

AGSA found various shortcomings in relation to the NDOH. For example, it was found that although there was a framework in operation, NDOH failed to adhere to it.  Evaluation of information submitted by the provincial departments was not done, resulting in inconsistencies. Late submission of business plans from provincial departments, as well as late and non-submission of quarterly, monthly and annual performance information also hampered NDOH.

Ms Murray concluded that there was therefore not one provincial department that was totally healthy, even amongst those who had received unqualified opinions. She stated that it was relatively easy to sort out the finances, but was difficult to sort out service delivery. If the sector could not resolve the financial issues, and achieve basic financial discipline, this meant that its capacity to achieve service delivery left much to be desired. She suggested that the Portfolio Committee on Health also needed to play a role in ensuring that there were very stringent financial controls being implemented by all departments in the sector.

The Chairperson said that AGSA’s presentation would assist the Committee in its oversight function.

The Chairperson asked AGSA for its prognosis of the overall health sector, given the findings. He also stated that he wished he could have met with the AGSA delegation before meeting with the Department of Health on the previous day.

Ms M Segale-Diswai (ANC) stated that the findings of the report were not positive. She asked what the role of AGSA was, and whether it would monitor and coach departments consistently throughout the year, so that the departments could improve their condition. She also asked for clarification on the meaning of a department being classified as financially unqualified. She wondered what actions AGSA took to help provinces that had disclaimer or adverse reports.

Ms Muller responded that the mandate of the Auditor-General was to give assurance to departments on financial statements, on an annual basis. For the past two years AGSA had increased its leadership visibility, including attending Portfolio Committee meetings, meaning that it could have more visibility in communicating leadership, financial and governance issues to political bodies, thus empowering them with the necessary information so that they could effect change.

Ms Muller added that five out of the ten departments were not conducting internal audits. This was linked to lack of leadership and it was leadership’s responsibility to take action on matters such as this.

The Chairperson queried if unauthorised expenditure was an indication of the Department of Health being under-funded, especially considering the inequalities in South Africa.

Ms A Luthuli (ANC) stated that she found the findings of the report overwhelming. She enquired about the role of AGSA in performing background checks on personnel employed in departments. She also asked about the role of AGSA in keeping a continuous eye on matters, hopefully avoiding the type of issues that had been set out in the presentation.

Ms Muller stated that the Auditor General did not do skills audits, but only financial audits. Skills audits were being done by the Public Service Commission, or by consultants. With effect from 2011, the AGSA reports would be able to give an opinion on performance information and service delivery matters
The Chairperson stated that he was unsure about the precise brief of the AGSA, but felt that its role, similar to the Portfolio Committee, was one of oversight. He asked if it was possible that AGSA present its findings regularly to departments, instead of doing this annually only. The previous meeting with NDOH seemed to indicate that it was aware of its shortcomings and was willing to resolve them.

Mr M Waters (DA) also found the report shocking. He referred to Slide 19, relating to “unauthorised and irregular expenditure”. He had a problem with large bank overdrafts that were still being paid by the departments. He questioned the sustainability of this system. He asked AGSA whether provinces were receiving enough funds under the revitalisation grants. He also stated that maintenance of hospitals was an equally important point that needed looking into. He suggested that the Portfolio Committee should thoroughly engage with the Department of Health on the particular matter of HIV/AIDS budget spending and targets met.

Ms Muller stated that sustainability of health departments was a concern, because of the shortage of money in departments. It was not always possible to what extent the departments were under-funded and to what extent their resources were not being properly used. Therefore, it would not be advisable to increase departments’ funding when they could not account for the usage of funds. She also stated that there was a disconnection between the revitalisation grant and the provision of resources, and this was an important point for leadership and leadership co-ordination.

Mr D Kganare (COPE) asked that that the role of AGSA be clarified. He asked about the need for continuous internal audit. He also asked if there was a way for AGSA to assess the skills and qualifications of financial managers in the health departments. He queried whether management in the Health Department understood the Public Finance Management Act (PFMA). He enquired if AGSA monitored management letters, and whether it was possible for AGSA to raise previous shortcoming of health departments in its management letters. He also asked if there could be a balance between infrastructure and human resources in terms of revitalisation of hospitals. 

Ms Muller agreed that the AGSA analysis was not sufficient and for this reason AGSA had engaged with the heads of departments, MECs and Ministers on a key control exercise, which would involve the monitoring of five key points in their departments. They must therefore monitor daily activities and documents, make monthly reconciliations of all accounts, count assets monthly and prevent non-compliance with laws and regulations, implement measures to detect and deal with non-compliance, and link financial information with service delivery monthly. AGSA was to check the key controls implemented in the departments, and discuss the result with the MECs and political leadership in the next quarter (between November 2010 and January 2011), to ensure that the basic disciplines were being adhered to. AGSA had also requested the National Treasury to provide more training, so that these issues could be resolved.

She noted that it was important that management must get a better understanding of the Public Finance Management Act (PFMA). She understood the importance of the use of management letters, but stated that the focus should rather be on provinces doing things properly on a daily basis.

The Chairperson commented that it was also important to assess what this Portfolio Committee, in its year of office, had done to address the situation, in light of its mandate.

Ms M Dube (ANC) asked whether audits done through national departments were based on information given through provincial departments, or whether they were done from province to province without relying on information from the national department. She also asked if there was a uniform format of accounting used throughout the province. She enquired if this report would be presented to other bodies, such as the National Treasury and National Department of Health.

Ms Muller stated that AGSA did have a session scheduled with the National Treasury to discuss performance indicators and challenges across the country, not only in health, but also in other sectors, which showed similar challenges in performance information. She explained the difference between national and provincial audits. Provincial audits were done by the Provincial Auditor-General and National Audits were done department by department, and the information was then collated. Ms Muller also pointed out that because there were different systems used throughout the provinces, there were many inconsistencies found, thus resulting in information being inaccurate and unreliable. There was therefore a need for the NDOH to provide guidance to rectify this.

Mr E Sulliman (ANC) asked why the NDOH had received an unqualified opinion despite the many shortcomings raised in the Auditor-General’s Report.

Ms Muller explained that the mandate of the Auditor General was to give an opinion on whether the financial statements gave a fair representation of the real position. She further explained that AGSA could give an unqualified opinion if departments disclosed, in their financial statements, any under spending or irregular expenditure, because the financial statements had thus fairly set out the position, but here it would be noted that there were outstanding matters. The NDOH had received an unqualified audit report, based on its financial status, but there were some issues which still needed to be corrected.

Ms E More (DA) also questioned why the NDOH  received an unqualified report, when the provincial department had received qualified reports. She pointed out that the National Department surely bore the responsibility to ensure that provinces were acting correctly. She also asked whether the use of Information Computer Technology (ICT) had a negative impact on record keeping by departments. She asked who would be finally accountable for unauthorised or irregular expenditure.

Ms M Mafolo (ANC) shared Ms More’s concerns.

Ms Muller responded that the National Department was now taking responsibility for the provinces, as it was now aware that it had to give policies, guidance, and monitor policies, to ensure that targets were met. The New Accounting Officer would also help in ensuring that these requirements were taking place.

The Chairperson stated that the challenge for the NDOH was that it had no way of actually managing provincial departments. This matter of accountability was being looked into by the Minister of Health. He also stated that no monitoring processes were being followed in departments. He asked AGSA how it would deal with situations where departments by-passed the accurate use of procedures and systems that were in place, in order to achieve service delivery more quickly.

Ms Muller stated that in a general sense, some of the health sector’s problems could be resolved if adequate attention was paid to the leadership of departments. She repeated her definition of disclaimer reports, adverse reports, qualified reports and unqualified reports. She agreed that when urgent procurement must take place, there was likely to be “irregular” expenditure. National Treasury regulations did take this into account, and allowed that departments could procure in an emergency, but still should follow a process. Any deviation from that would need to be justified.

Ms Dube asked for future clarification on the various technical jargon used.

The Chairperson explained the words that had been queried.

Ms Muller agreed that he was correct. She said in future she would provide a short document to the Committee to explain the terminology.

The Chairperson said that this had been provided already, but some Members unfortunately had not received it.

He thanked and released the team from AGSA.

Other Committee business
The Chairperson noted the request by some Members for a report-back on the Brazilian model.

The Chairperson confirmed that the dates and venue of the British American Tobacco (BAT) visit overseas were still to be confirmed. He noted enquiries about the overseas fact-finding visit.

The Chairperson noted that the meeting for adoption of the Department of Health Annual Report was still to be set.

The Chairperson asked that Committee Members should report to the Committee on any external meetings that they might have attended.

The meeting was adjourned.


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