The Auditor-General South Africa (AGSA) briefed the Committee on how it would carry out audits, and the specific perspective in response to the latest Budget Vote. The presentation included a brief description of how the audit procedure would work, as well as on identification of risks and focus areas in the 2010/11 financial year audit. There was a particular focus on the approach to Supply Chain Management and the objectives of and selection of samples in that approach. AGSA would also look to management of contracts, whether payments were made only for goods and services received, and the identification and reporting on fraud indicators and disclosure of irregular, fruitless and wasteful expenditure. The three objectives, to highlight risk and weaknesses, to test compliance and to report on weaknesses, were highlighted and explained. It was stressed that AGSA worked on selection of samples, and it was necessary to understand and test systems and controls relevant to monitoring, collecting and reporting performance information. The main- and sub-audit criteria were set out. The risks, focus areas and particular risks in the IT environment, for South African Police Service (SAPS) audits were set out, noting that particular focus was placed on systems and internal controls, as well as management, at station and unit levels, of organised crime and visible policing. Another focus area was auditing, comparison and confirmation of performance information. The indicators on specific programmes were highlighted. An IT governance and frameworks had not been designed, a business continuity plan was not in place and change management controls were not adequate.
Members were concerned about the absence of headquarters as a sample in the presentation, particularly given recent media reports. They enquired whether AGSA had any authority to take action, or demand information, and noted the response that AGSA did not have a mandate to hold people accountable, but that fell to the Minister, the Standing Committee on Public Accounts, the Portfolio Committee and the Accounting Officer. There was concern about the lack of supporting documents and whether AGSA had any power to force production of those documents. Members asked how the samples were selected, whether matters uncovered would be followed up, what was being done in regard to outstanding contracts, and noted the perception of corruption within SAPS, especially in regard to Supply Chain Management, forensic laboratories and IT. Members asked about awards to employees and declaration of interests, whether distribution of purchased goods was followed up, and whether there would be a particular focus on IT, contracts that duplicated services, and the leases of SAPS. They noted that a draft report on IT should be finished by the end of March. They finally expressed concern as to what could be done about instances of corruption from previous years.
Audit report information: Auditor-General South Africa (AGSA) briefing
Ms Corne Myburgh, Business Executive, Auditor-General South Africa, briefed the Committee on the mission and procedures of the Auditor General (AGSA) when conducting audits.
The mission of AGSA was to strengthen the country's democracy by enabling oversight, accountability and governance in the public sphere via auditing.
In order to illustrate how AGSA would act when conducting an audit, Ms Myburgh highlighted the identification of risks, as well as the focus areas for the 2010/11 financial year. In particular, she highlighted AGSA's approach to Supply Chain Management (SCM), the objectives of the approach, as well as how the samples had been selected. AGSA would determine whether legislative requirements for fair and competitive procurement had been adhered to.
One of the other approaches she highlighted was the management of contracts and whether payments were made only for goods and services received.
She said that the final objective of the AGSA was to identify and report possible fraud indicators and particularly to look at those people charged with governance. This approach addressed expenditure, as well as the disclosure of irregular, fruitless and wasteful expenditure.
Ms Myburgh highlighted the three objectives of the approach. The first objectives of the approach was to ensure that significant risk relating to possible fraud in procurement processes was appropriately and consistently responded to, as well as to ensure the proper and consistent reporting of weaknesses. She said that the second objective was to ensure correct and consistent compliance testing, as well as the identification of irregular expenditure. The final objective related to the proper and consistent reporting of weaknesses.
Ms Myburgh noted to the Committee how, in the area of SCM, AGSA had selected the samples. In regard to predetermined objectives AGSA was acknowledging the opportunity to prepare for reporting on predetermined objective opinions. The approach on this also linked in with the understanding and testing of systems and controls that were relevant to monitoring, collecting and reporting performance information.
Ms Myburgh then highlighted AGSA's audit criteria, under the categories of main and sub-criteria. The main criteria pertained to compliance with reporting requirements, reliability and usefulness of reported information. The sub-criteria for reliability were validity, accuracy and completeness of records, and the sub-criteria for usefulness were measurability, consistency and relevance.
Ms Myburgh then focused on the Department of Police / South African Police Service (the Department or SAPS) audit, highlighting the risks for predetermined objectives, the focus areas for predetermined objectives, as well as the risks in the Information Technology (IT) environment. (See attached presentation for more information).
With regard to the predetermined objectives risk, Ms Myburgh noted that one of the risks would be the lack of effective, efficient and transparent systems and internal controls for performance management. A further risk attached to the management at station and unit levels responsible for the investigation of organised crime and visible policing.
Ms Myburgh said that other focus areas pertained to auditing, comparing and confirmation of reported performance information, and conducting procedures that would assess and ensure that valid, accurate and complete performance information was being recorded.
She then highlighted the indicators on programmes (see attached presentation)as well as all other relevant areas on which AGSA would focus.
Ms Myburgh noted the specific risks in the IT environment, and noted that an IT governance framework and controls had not been designed. She also noted that a comprehensive business continuity plan was not in place and that the change management controls had not been adequately designed for CAS and OPAM systems.
Ms A Van Wyk (ANC) referred to Supply Chain Management (SCM), noting that a certain amount of research had been carried out in relation to the police buildings and the non-adherence to certain National Treasury (NT) requirements around tenders. She wanted to know if AGSA could not add that to its samples. Overall, she was concerned as to why Headquarters was not included in the sampling.
Ms Myburgh said that AGSA could send the samples from the 24 stations that had been selected.
Ms Van Wyk asked if SAPS was involved in determining those samples or if it was the AGSA's choice alone.
Ms Myburgh said that these samples were selected by AGSA, so they were independent samples. SAPS had not been involved in selecting the sample.
Ms D Kohler-Barnard (DA) wanted to know what AGSA did in the event that it might discover fraud. She referred to the instances where the tender process had been short circuited in particular, and enquired how AGSA would proceed further if that type of fraud was uncovered. She also wanted to know if AGSA followed the matters up with SAPS.
Ms M Molebatsi (ANC) was concerned with what AGSA was doing regarding outstanding contracts.
Ms Myburgh said that AGSA would consider the financial implications of these contracts, and also looked to whether those implications had been disclosed and reported.
Ms Molebatsi was also concerned about AGSA not receiving supporting documentation, and enquired what AGSA would do in this case, and whether AGSA had recovered the supporting documents afterwards.
Ms Myburgh said that if AGSA did not receive the documentation after asking for it, then it would make a note on that in the Annual Report.
Rev K Meshoe (ACDP) wanted to know whether, when documentation was not being supplied, AGSA had the power to demand the relevant documentation.
Ms Myburgh said that if AGSA could not get the supporting documents, it would then approach the Accounting Officer. AGSA often held meetings with the Minister, although AGSA itself was not in a position to hold people accountable. Ms Myburgh said that AGSA could not demand the supporting documentation.
She added that the Minister, the Portfolio Committee, the Accounting Officer and the Standing Committee on Public Accounts (SCOPA) needed to hold the relevant people accountable where instances of non-compliance with requests were reported. She added that AGSA did not have the powers of a public prosecutor.
Rev Meshoe was concerned whether AGSA would be able to make interventions if it discovered irregularities with contracts. For instance, he enquired what would be done if AGSA discovered that a company had been offered tenders fraudulently; whether an actual intervention would be made, or if this would simply be put on record.
Mr M George (COPE) noted that there was a perception that there was considerable corruption within SAPS, especially with regards to SCM, forensic laboratories and IT.
Mr G Lekgetho (ANC) sought clarity on whether AGSA had fraud prevention mechanisms in place.
Ms Van Wyk was concerned about the awards to employees and how these were going to be derived. She noted that it was only since this financial year that directors also needed to declare their interests.
Ms Van Wyk sought clarity on the distribution process in regard to SCM. She asked whether the AGSA was following up with regards to the distribution of products once purchases were made.
The Chairperson wanted to know if IT was going to be included in the predetermined objectives.
Ms Myburgh said that at the moment AGSA was busy with a performance audit on contractors and consultants, and that there was a lot of focus on IT within this audit. She confirmed that a draft report should be finished by the end of March.
The Chairperson was concerned whether AGSA would be focusing on contracts that were duplicating services, as well whether the AGSA was going to look into the 1 003 leases of SAPS.
Ms Myburgh explained that the difference between a performance audit and an irregularity report was that the AGSA worked on a sample. She explained that AGSA could not undertake 100% testing on every transaction. When doing a performance audit, there was a specific theme and focus area around which AGSA would select and test its samples.
The Chairperson expressed concern as to what the AGSA would do in the instances of corruption that had taken place a long time ago
The meeting was adjourned.
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