Department of Agriculture, Forestry &Fisheries Financial statements 2010/11: Auditor General's briefing

Meeting report

Department of Agriculture, Forestry &Fisheries (DAFF) Financial statements 2010/11: Auditor General’s briefing
Mr Yaasir Haffagee, Senior Manager, Auditor-General South Africa, briefed the Committee on the audit outcomes for 2010/11 of the Department of Agriculture, Forestry and Fisheries (DAFF) and its entities. He reported that the Auditor General (AGSA) had picked up irregular expenditure, due to ineffective monitoring controls that would have improved internal controls. Material findings were also recorded in relation to achievement of pre-determined objectives, and these too were ascribed to the lack of ongoing monitoring and lack of supervision, which had resulted in action plans not being implemented. He said that in relation to other issues, such as performance on strategic planning and performance management, the state of the annual financial statements, performance and annual report, procurement and contract management, and risk management, there was no change in the position of the Department. AGSA promised to provide inputs on the DAFF Action Plan to address the 2010/11 audit findings. The DAFF’s progress on its action plan would be reviewed and reported on a quarterly basis. Where DAFF had to make changes, it had promised to address the 2010/11 audit findings by 30 September 2012, and said that it would in future monitor and report on compliance with rules and regulations on all transactions on a quarterly basis.

Mr Haffagee then reported on the audit report in respect of the Agricultural Research Council (ARC). It had received an emphasis on matter on irregular expenditure, similar to previous years. This resulted largely from ineffective monitoring to improve compliance and internal controls. There were no significant findings on the report on pre-determined objectives. However, when compared to past years, there was an improvement, and ongoing monitoring and supervision was evident. Other issues around the annual financial statements, performance and annual report, and procurement and contract management remained unchanged, because of ongoing monitoring and evident supervision. The Office of the AG committed to report on progress on the Action Plan on a quarterly basis.

The National Agricultural Marketing Council (NAMC) received an unqualified audit. There were no significant findings on pre-determined objectives nor was there any material non-compliance with laws and regulations. Its management made an undertaking to formulate an Action Plan to maintain a positive audit outcome for both financial, compliance and Audit of Performance Outcomes (AoPO) related matters. Monitoring would happen on a quarterly basis.

The Onderstepoort Biological Products (OBP) received a qualified audit, and there had been regression in all areas. This was blamed squarely on inadequate record keeping, inadequate systems, and ineffective monitoring controls to improve compliance and internal controls. The management of the entity assured the Auditor-General (AG) that it would prioritise the appointment of key personnel and an internal audit committee, to ensure stability in the organisation, and would ensure sustainability of structures in the entity. The AG would audit and report on its progress on this Action Plan on a quarterly basis and would provide inputs on the Action Plan to address 2010/11 audit findings.

In respect of the Ncera Farms, an unqualified opinion was given. However, the entity was required to make a commitment to formulate an action plan to maintain positive this audit outcome, to address the instances of non-compliance with laws and regulations, and to implement and monitor on a quarterly basis.

The Perishable Product Export Control Board (PPECB) achieved an unqualified audit. No adverse findings were made in respect of pre-determined objectives and compliance with laws and regulations. Its management was required to formulate an action plan to maintain positive audit outcome and implement and monitor on a quarterly basis.

The main concerns of the AG, in respect of DAFF and its entities, related to the need to fill vacant posts, its internal audit capacity, and compliance with laws and regulations. In order to drive audit outcomes, the AG would conduct regular interactions with officials of all entities and establish quarterly key control dashboard reviews. It had already conducted AoPO workshops for DAFF, OBP and ARC.

Discussion
The Chairperson asked why the Department had opted not to have Ncera Farms and OBP audited by the AGSA. He also asked why the Marine Living Resource Fund was audited by the Western Cape auditors, and not by the national office.

Ms Meisie Nkau, Business Executive, AGSA, explained that certain entities, which were Section 4(3) entities within DAFF, were permitted, in terms of the Public Finance Management Act (PFMA) to appoint their own auditors, and this had applied to these entities. There was a control process, even where the AGSA did not audit those entities, and the auditing process was in line with that adopted by the AGSA. Although the AGSA had no immediate intention to take back the audits of those entities, the DAFF had been given permission by the Minister to opt for this if wished to do so.

Ms Nkau explained that the audit for the MLRF was done in the Western Cape, because this was where it was situated. Unfortunately, the accounting officers in respect of this entity were not able to be present at this meeting.

Mr N Du Toit (DA) enquired why the OBP was experiencing regression and if the investigations into allegations of possible irregularities in various areas were to be made available to the AG and Committee. He also enquired whether the lease accommodation payments, to the value of R2,96 million, in respect of the Forestry component at Head Office, were regarded as money unspent, or saved.

Ms Nkau said the OBP experienced major problems around its governance structure. The Chief Financial Officer had been moved to take up the position of Acting Chief Executive Officer. There were structural challenges that could have contributed to OBP’s regression. The AGSA would have access to the forensic reports, and these were, as a matter of course, requested, in order that the risks could be identified.

In regard to the lease, she noted that these were reflected in both spent and unspent expenditure.

Ms D Carter (COPE) asked why the risk management strategy and fraud prevention plan had not been finalised, and if an ISO system of standards could be implemented in the Department.

Mr Haffagee stated that every single entity had a risk strategy in draft form, but none had finalised their strategy yet. He said that management would have to look into the question of ISO to see whether it was feasible.

Mr S Abram (ANC) wanted to know what sort of mechanisms were in place to make sure that AGSA did receive adequate and accurate information from the Department. It seemed to him that the AGSA had not managed to acquire sufficient information from the Department.

Ms Nkau explained that it would be the responsibility of management to hold the officials accountable if they failed to provide accurate information to AGSA. She noted that, for example, the CFO, when presenting information to the Committee, had to ensure that all details were complete. The reporting guides would be scrutinised by AGSA.

The Chairperson asked if DAFF had an internal audit office.

Mr Haffagee confirmed that it did.

The meeting was adjourned.