The Office of the Auditor-General briefed the Committee on the Department of Defence and Military Veterans’ audit outcomes. The Department had received a qualified opinion because it did not have proper records for its tangible and intangible assets. The Department did not disclose any financial information for the current and prior financial years. It did not maintain a proper register that was supported by relevant documentation. The existence, completeness and valuation of tangible and intangible assets could not be verified. One of the root causes of the problems related to a lack of leadership within the Department. Management did not have approved policies and procedures to guide managers at the lowest level to ensure compliance with National Treasury disclosure requirements for recording and disclosing tangible and intangible assets.
Members discussed what Operation Clean Audit entailed; The Auditor-General’s office was of the view that there was a credible plan in place to address the problems relating to tangible and intangible assets within the Department of Defence and Military Veterans. The Department had to provide the Committee with more details about the flight cancellation fees for external missions under wasteful expenditure and more details on cases of irregular expenditure that were currently under investigation including details as to who was involved and what the amounts were. The Committee wondered if the Department’s performance management system complied with the relevant regulations and if their financial records showed that the Department had improved from 2008/09 to 2009/10. Members noted there that there was a lack of skills within the Department, especially regarding asset management.
The Chairperson informed the Committee that the meetings scheduled for 20 and 21 October 2010 were going to be postponed. The Minister had sent a letter saying that she was unable to attend the meetings, which had been scheduled to discuss the Department of Defence and Military Veterans’ (DDMVs) Annual Report. She had another engagement that she had to attend to. The Minister hoped Members would accept her apology.
Mr L Mphahlele (PAC) said that the Minister’s apology was fair and the Committee should accept it.
The Chairperson noted that the Committee accepted the apology. He proposed that the meeting be rescheduled for 26 October 2010. Members just had to wait for the Minister’s response.
Office of the Auditor-General Briefing
Mr Theunis Eloff, Senior Manager: Office of the Auditor General (AG), explained to the Committee why the DDMV received a qualified opinion. The qualification was received in respect of tangible and intangible assets. The DDMV did not disclose any financial information for the current and prior financial years. It did not maintain a proper register that was supported by relevant documentation. The existence, completeness and valuation of tangible and intangible assets could not be verified.
One of the root causes of the problems related to a lack of leadership within the Department. Management did not have approved policies and procedures to guide managers at the lowest level to ensure compliance with National Treasury disclosure requirements for recording and disclosing tangible and intangible assets. The manual and automated systems were not adequate to facilitate the preparation and accurate recording and disclosure of various categories of assets. The AG found that there was a lack of involvement by the Accounting Officer (AO) and Chief Financial Officer (CFO) in previous years. Management did not have approved policies and procedures, project plans were not adequately monitored, personnel were not aware of the requirements, policies regarding asset counts were outdated and there was a lack of training for staff. He also saw that the AO and CFO did not exercise oversight responsibility over the progress of current projects and all assets plus inventory were recorded in a system that was primarily an inventory system. The Department has since developed a project plan to address the deficiencies that were found in the asset register. They were also involved in project called Operation Clean Audit.
The AG expressly highlighted matters of irregular expenditure. He found that there had been irregular expenditure to the amount of R1 billion related to employee costs. This could also be attributed to a lack of leadership. The AG found that there had been insufficient monitoring of compliance with laws, regulations and policies. The DDMV was currently in the process of appointing a Compliance Officer.
The AG questioned the reliability of some of the performance information that was reported by the DDMV. The validity, accuracy and completeness of some of the reported targets could not be verified. This was due to the lack of leadership within the Department. The DDMV did not have the necessary key controls in place to effectively manage performance against predetermined objectives. Record keeping pertaining to performance management was not adequate, resulting in information not always being readily available for auditing. Management also did not have sufficient approved set procedures in place, and there was no high level monitoring in place to ensure proper record keeping. The Department had now implemented standard operating procedures to ensure accuracy, completeness and validity.
In terms of governance, the DDMV did not have an approved fraud prevention plan and an internal audit function was not fully operational for the year under review. The head of internal audit had not yet been appointed. The A-G identified the poor skills level, the lack of standard operating procedures, and challenges with accruals, leases and employee costs as possible factors that could impact negatively on the 2010/11 audit outcomes.
Mr L Diale (ANC) asked what Operation Clean Audit entailed.
Mr Eloff replied that Operation Clean Audit was a process started by the previous Chief Financial Officer in the hope that it would assist the Department with dealing with all the qualifications they were getting form the AG. They hoped the process would streamline operations within the Department, and that this in turn would assist in addressing the issue of qualifications.
Mr D Maynier (DA) noted that the reason for the DDMV’s qualified audit opinion was due to issues with their tangible and intangible assets. The Minister indicated that she was serious about having a clean audit. A new Secretary of Defence was appointed, as well as new Chief Financial Officer and a new Compliance Officer was going to be appointed. It seemed that the Department was heading in the right direction. He asked if the AG was satisfied that there was a credible plan in place to address the problems relating to tangible and intangible assets. He wanted more details on cases of irregular expenditure that were currently under investigation. He understood that the Office of the AG would not be able to provide him with details at the meeting, but wondered if the Committee could be provided with details at a later stage. The information should include details such as who was being investigated and how much money was involved.
The Chairperson clarified that the issue of irregular expenditure was discussed in page 237 of the Department’s Annual Report.
Mr Maynier added that he understood that the Office of the AG would not be able to supply the Committee with the information today, but he wanted the AG to send the details to Members. He asked if the AG could provide the Committee with more details about the flight cancellation fees for external missions under wasteful expenditure. His primary concern was the performance management system. The AG’s office had taken samples of these programmes and when he audited them, it was found that 26% of the programmes’ targets could not be verified. He asked the AG to provide Members with details of which targets could not be verified per programme. There was a bigger problem with the performance management system. He wanted to know if it complied with the relevant regulations. For example, Operation Corona looked at border safeguarding. Their annual target was 100% compliance with approved border safeguarding tasks, and this was achieved. He wondered what this meant. Did it comply with regulations set out by the National Treasury? It seemed that the Department needed to review its own performance management system.
Mr Eloff answered that auditors were busy looking at the Department’s strategic plan for the year, especially with regard to their assets. They were concerned that more oversight was needed from the accounting officer. The Department now had a new Chief Financial Officer. This person had to review the strategic plan to ensure the Department complied with all of National Treasury’s regulations. The Department’s programme of action had to show what they would do about their assets over the financial year. They would not receive an unqualified report if they did not do this. The Department had to ensure that all their assets reflected properly on the system. Employees had to be trained to do this however.
Mr Eloff said he would make the information available to the Committee. He would send the information through the Chairperson. Performance management systems began with the budget. It was important for the Committee to look at the budget process and to ensure that the Department’s predetermined objectives were clearly defined and measureable. The Committee also had to remember that it was dealing with a very specialised environment. The point of auditing the Department’s performance management was to prepare them for the future. It showed the weaknesses within the defence system. The annual report showed that 26% of the Department’s programmes were not verified. Auditing the performance management system prepared the Department for when the AG would have to express an opinion on it. In focusing on the compliance procedures, it would teach the Department to be consistent, especially in the area of proper record keeping.
Ms C Mohale (ANC) asked if the Department’s financial reports showed that the Department had improved from 2008/09 to 2009/10.
Mr Eloff replied that there was an improvement within the Department, but not with audit qualifications. The AG’s audit report classified the Department as unchanged even though the entity worked very hard on their financial statements.
Mr Mphahlele thanked the AG’s office for a consoling report. He noted that the Department had not yet appointed a head of internal audit. He asked whose duty it was to appoint someone to the position and why the position had not yet been filled. What could the Committee do to ensure the head of internal audit was employed?
Mr Eloff answered that it was the accounting officer’s (the Secretary of Defence’s) duty to appoint the head of internal audit. The Department could comment on this matter.
Ms N Mabedla (ANC) said that the Department had to focus on developing their staff skills. There was a lack of skills within the Department, especially regarding asset management. She was worried that the staff did not receive enough training when the new method of managing assets was introduced.
Mr Maynier stated that his question did not have anything to do with the AG’s report. He noted that the AG did a performance audit on air combat capabilities within the South African Air Force. Why did the AG not do a performance audit this year?
Mr Eloff said that the main reason the AG did a performance audit on air combat capabilities was because there were many policies and procedures relating to air combat were not in place yet.
The Chairperson thanked the Office of the AG for a helpful presentation. He noted that there had been good progress in the Department and the Committee was looking forward to interacting with the Department and it accounting officer.
The meeting was adjourned.
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