The Auditor-General South Africa briefed the Committee on the 2009/10 audit outcomes of the Department of Transport and its entities. Although the Department of Transport received an unqualified report, in respect of its financial performance, it was stressed that this did not mean that everything was being done correctly. The three key drivers of delivery by departments were named as leadership; financial and performance management and governance. The presenters tabled schedules that showed which areas were acceptable and which required more attention. The comments presented covered not only the National Department of Transport (DoT) but also its entities. Eight of the entities had unchanged audit outcomes, one had improved, and one had regressed. It was highlighted that it was the responsibility of leadership to ensure that clean administration was maintained on a sustainable basis, to ensure compliance with laws and regulations and to deal with account management. The various findings on account management procedures and administrative access control were set out. The importance of audit committees was explained, highlighting that they were essential governance structures for both financial reporting and performance information and service delivery. Financial statement qualifications were fully set out on Slide 7, in respect of the Cross Border Road Transport Agency, the non-establishment of the Road Traffic Infringement Agency, and the consequent overstatements in the records of the Road Traffic Management Corporation (RTMC). Transversal material misstatements required to be corrected, and these had resulted from ineffective leadership monitoring and the fact that no monthly financial statements were produced. Several instances of fruitless and wasteful expenditure were reported, of which RTMC was responsible for 37% and Road Accident Fund for 49%. RTMC and the South African Maritime Safety Authority (SAMSA) accounted for 99% of the total irregular expenditure incurred. There was also unauthorised expenditure, arising from overspending on the bus subsidies in the Public Transport Programme. AGSA reported that it could not be sure about the usefulness of reports on pre-determined objectives. Reports on non-compliance with regulatory requirements was set out in Slide 17, whilst Slide 19 set out findings on procurement and contract management. AGSA had not conducted audits on the Section 4(3) entities of Airports Company SA and the Air Traffic and Navigation Services Company Limited (ATNS)
Members of the Committee raised questions on those entities audited by AGSA and those audited by private firms, and asked why this was done and what implications this had. Members asked how AGSA would ensure that entities improved in the next financial year, and how AGSA dealt with reported or suspected instances fraud and corruption, as well as discussing how far the mandate of AGSA extended, and the role of management and leadership. They asked whether better leadership monitoring should improve the quality of the accounting, whether AGSA suggested that it would be useful for the Committee to receive quarterly reports, whether there had been improvements in skills of personnel. They also enquired who was responsible for ensuring repayment of amounts, and who was controlling the process, and enquired whether there were any common threads to be identified across the entities. Members also enquired whether AGSA was aware of or had had reference to the Ministerial Task Team report into the operations of the RTMC, and noted that the Committee had called on the Minister to explain the situation there. They asked if much had changed at high level, what was happening on the transfers of bus subsidies and Gautrain funding, and what was used to measure the drivers. They suggested that the annexures might be easier to analyse if they were amended The Committee stressed that it was necessary not only to look at how much had been spent, but at what had been achieved through that spending.
Department of Transport 2009/10 Consolidated Audit Outcomes: Auditor-General South Africa (AGSA) presentation
Mr Graham Randall, Business Executive, Auditor-General South Africa, tabled and presented a report from the Auditor-General (AGSA) on the consolidated audit outcomes of the Department of Transport (the Department or DoT) as set out in Annexure 1. The DoT had received an unqualified audit. However, this did not mean that everything at the Department was correct. He noted that AGSA had recently embarked on a more constructive strategy to deal with audits in the Department. When the Auditor-General received the financial statements from the entities, it would point out any errors and ask the entity to correct them.
AGSA had identified three key drivers for departments, as leadership; financial and performance management and governance. He noted that AGSA’s Annexure 2(A) dealt with leadership issues, Annexure 2(B) dealt with financial and performance management, and Annexure 2(C) dealt with governance issues.
Mr Randall tabled and explained Annexure 2(A). Those areas marked in green on the Annexure were areas in which matters were acceptably handled, while red markings indicated areas to which more attention must be paid. Attention was needed, at a high level, to the preparation of financial statements and pre-determined objectives. An extra column was added, which dealt with leadership monitoring and nurturing of public entities. Attention must also be paid to this area.
Mr Vinay Ramballi, Senior Manager, Auditor-General South Africa, then indicated that the Auditor-General had a Constitutional mandate and existed to strengthen South Africa’s constitutional democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. The presentation by AGSA would cover the National Department of Transport (NDoT) and the 12 public entities falling under it.
Slide 3 gave a summary of the 2009/10 audit outcomes for the Department of Transport (DoT) and its entities. The audit outcomes were unchanged for eight of the public entities, while one had improved, and one had regressed.
Mr Ramballi highlighted Slide 4, on leadership, and said that leadership must ensure that clean administration was maintained on a sustainable basis, and prevent any regression of audit outcomes. Leadership must also act decisively to address compliance with laws and regulations. Audits often identified lack of, or incomplete user account management procedures, such as access request forms not completed or ensuring that users’ access remained commensurate with job responsibilities, or lack of monitoring of activities of the system administrators/ controllers. Sometimes, inactive or unused user identification was not timeously removed from the system or deactivated, and excessive access rights were assigned to some or a higher number of users.
In respect of the financial and performance management drivers, on Slide 5, Mr Ramballi said that key findings had been that critical user accounts were shared for basis administration, access control procedures were not consistently implemented, conflicting rights had been assigned to certain users, back-up standards and procedures were incomplete and there was lack of change control processes to authorisation requests, with password complexity requirements also being inadequate.
Slide 6 dealt with the governance drivers. He explained that audit committees were essential governance structures that assisted management with the review of the design and implementation of sound internal controls, to achieve good governance and accountability over financial reporting and performance information or service delivery.
The financial statement qualifications were set out on Slide 7. He noted that the current system used for the issuing of fines at the Cross Border Road Transport Agency (CBRTA) did not promote identification of the number of fines issued. In addition, when payments were made, the details of the entity making the payment could not easily be identified or tracked. The fact that the Road Traffic Infringement Agency (RTIA) had not been established resulted in the overstatement of the records of the Road Traffic Management Corporation (RTMC). This would be able to be addressed by formal establishment of the RTIA and the transfer of functions to this agency.
Slides 8 and 9 contained details of the transversal material misstatements corrected. The transversal misstatements had not been identified by the entities’ internal controls and occurred as a result of ineffective leadership monitoring and because neither monthly, nor even six-monthly financial statements were produced by the finance unit.
Slides 10, 11 and 12 dealt with the reported fruitless and wasteful expenditure. The RTMC and Road Accident Fund (RAF) respectively accounted for 37% and 49% of the fruitless and wasteful expenditure (see attached slide for full details). Slides 13 and 14 dealt with irregular expenditure. The RTMC and the South African Maritime Safety Authority (SAMSA) accounted for 99% of the total irregular expenditure incurred. Slide 15 dealt with unauthorised expenditure. This had arisen as a result of the overspending on the bus subsidies public transport programme.
Slide 16 dealt with the report on pre-determined objectives. The objective of an audit of pre-determined objectives was to enable the auditor to determine whether the reports on performance against pre-determined objectives was reliable, accurate and complete, in all material respects, based on pre-determined criteria. He noted that the Autopax Passenger Services (Pty) Ltd pre-determined objectives were reported on in the Passenger Rail Agency of South Africa (PRASA) Annual Report.
The presenters then outlined Slides 17 to 19 (see attached slides for full details). Slide 17 dealt with the material findings and shortcomings in the processes, systems and procedures, as contained in the section of the audit entitled “Report on other legal and regulatory requirements”. AGSA reported on compliance with regulatory requirements, considered the usefulness of predetermined objectives, and the reliability of reports on those pre-determined objectives.
Slide 18 provided a summary of the main categories of non-adherence to laws and regulations, isolating specific issues of non-compliance.
Slide 19 dealt with the findings on procurement and contract management.
He noted that AGSA did not conduct audits on so-called Section 4(3) entities. Slide 21 set out the audit conclusions.
Mr S Farrow (DA) wanted clarification on why entities such as the Civil Aviation Authority (CAA) and Airports Company of South Africa (ACSA) were not included in the audit, noting that public funds were used to support these entities, and asked what would need to happen so that they did fall under AGSA’s audit. He also asked what mandate was given to private audit companies when they conducted an audit, particularly in that they accounted separately for private funds as opposed to money generated from operations.
Mr Randall responded that AGSA has the option to audit all government departments and entities. However, for a number of years quite a number of entities had used their own private auditors, and AGSA had not to date exercised the option of appointing or re-appointing these private auditors. In future this would change. An improved public sector auditing report format was used for the 2009/10 audit reports, but private auditing firms could apply their own methodology. He noted that Section 4(3) audits were those audits that AGSA elected not to perform, in terms of the Public Audit Act of 2004. He explained that around 20% of the audits of all government entities were contracted out to the private sector, both to maintain relations with that sector and to ensure that AGSA was aligning itself properly to what was being done in that sector. Whenever audits were contracted out, AGSA had its own audit controller who would oversee the audit and the audit report was signed off by AGSA. The CAA was audited by AGSA. ACSA and the Air Traffic and Navigation Services Company Limited (ATNS) were audited under Section 4(3).
Mr M de Freitas (DA) wanted to know how AGSA would ensure that entities like the RTMC and Cross Border Road Traffic Agency (CBRTA) improved in the following year. He asked whether AGSA would assist them or become involved in any way. He also wondered if there was any mechanism to alert various entities about AGSA’s concerns, and whether they would be given any assistance to improve. Finally, he asked how AGSA would report on any gross irregularities or corruption that might be suspected.
Mr Randall responded that there was a fine line between assisting and motivating, but nonetheless ensuring that AGSA maintained its independence. It was most important that AGSA should not lose its objectivity. Quarterly meetings were held between representatives of AGSA, the accounting officers of entities, and the relevant Ministers. AGSA also looked at key controls of the entities, and would communicate on them regularly, and monitor the progress, so that the audits were effective. It was not the specific mandate of AGSA to identify fraud. There was a business unit that deals with special investigations, and it applied a case-driven approach.
Ms D Dlakude (ANC) wanted to know if any improvements were apparent when comparing the 2008/09 audit and the 2009/10 audit. She asked whether it was likely that unqualified audit reports would continue if the leadership monitoring procedures were implemented as suggested by AGSA.
Mr Randall responded that, looking at the overall portfolio, there had been little change and most issues were similar to those outlined in the previous year. However, it was necessary to look closely at the quality of the financial statements and the quality of reporting on pre-determined objectives (PDOs).
Mr P Maluleka (ANC) wanted to know if AGSA thought would be helpful for the Committee to interact with departments and entities on a more regular basis, perhaps quarterly.
Mr Randall said he would be reluctant to make suggestions to the Committee, but noted that governance issues were important. At audit committee level, there were quarterly reports produced on the PDOs. It was necessary then to look at whether these objectives were required and appropriate for that entity. He did say that it was necessary to adopt a proactive approach. It must also be borne in mind that many of the goals of the entities were financial in nature.
Mr S Farrow (DA) referred to Slide 14, dealing with irregular expenditure. He wanted to know how there had been accounting for the money that was repaid, which could be close to R100 million, and wondered who was controlling that process, and whether the transaction fee would be stopped.
Mr Randall responded that he was not sure what happened to the money at the RTMC. The accounting officer needed to be asked to give a response on that. The RTMC needed to give attention to many matters.
Mr P Mbhele (COPE) wanted to know if there were any areas of weaknesses or errors common to the three areas of leadership, financial and performance management and governance, across the entities.
Mr Randall said that there were weaknesses in the reporting of financial statements, and reporting on PDOs.
Mr Ramballi responded that skilled human resources were also lacking.
Mr Farrow wanted to know whether AGSA had seen the Ministerial Task Team report into the operations of the RTMC, and whether this report by AGSA tied into those findings.
Mr Randall responded that as far AGSA would review investigatory reports, especially the implications on the financial statements and PDOs. AGSA had noted and reported that there had been an investigation. However, the follow up actions were in the hands of the respective governing bodies. This report was finalised subsequent to year-end, and would thus only be reviewed during the audit of the 2010/11 financial year.
The Chairperson enquired whether there had been any improvement in obtaining skilled personnel resources.
Mr Randall responded by saying that, at a high level, not much had changed. The formerly strong entities had remained strong and the weaker entities continued to grapple with their issues. SAMSA had shown some improvement.
The Chairperson referred to the last two columns of Annexure 2(A). RTMC had not been nurtured by the Department to assume its responsibilities. The management system of E-Natis had not been established at the RTMC because of a failure by the Department to assist. The contractor was implementing whilst ground was being prepared for the RTMC to assume responsibility to run with the programme. He wondered why there was no red marking in this column to reflect that the RTMC did not play its role.
Mr Randall agreed that the markings on this column could be confusing. The markings appeared only for departmental actions, not those of the entity. He agreed that the red markings should refer to the RTMC, by reason of lack of leadership monitoring and nurturing of public entities. Perhaps this column needed to be revised. He stressed that monitoring and performance of entities was not part of the mandate of AGSA.
The Chairperson suggested that different colours be used on the annexure to allow for easier analysis of the columns. She noted that the Minister had been asked to explain the situation at the RTMC. The Committee viewed the problems at RTMC very seriously.
Mr Farrow wanted to know what was happening with the bus subsidies, and the Gautrain, especially in terms of expenditure.
Mr Ramballi responded that the transfers of the bus subsidies were picked up by the auditors of the provincial departments, and that the transfers of the Gautrain funding was handled by the National Department, who tested compliance with the conditions.
The Chairperson wanted to know what yardstick was used to measure the three drivers.
Mr Randall responded that it was necessary to look at the auditing performance, and AGSA had a unit to deal with this.
The Chairperson appreciated the work done by AGSA. She said that a developmental State like South Africa should be more concerned with what changes had been effected by the monies received. The strategic plan should outline what an entity wanted to achieve, as well as assessing the material and human resources that would be needed, which would then be costed. Any measurements should be applied not only to the costs, but also to the progress and impact of the programmes.
The meeting was adjourned.
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