The Auditor General South Africa (AGSA) briefed the Committee on the audit outcomes for the 2010/11 financial year, for the Department of Social Development (DSD) and South African Social Security Agency (SASSA), the National Development Agency (NDA) and the other six Funds that were nominally under the ambit of the DSD, although they were in fact dormant. The Department had been trying to effect the necessary legislative changes to close off these Funds, but had not yet succeeded. The financial position had improved. In the 2009/10 financial year, SASSA had received a disclaimer, but since it had then appointed an external audit firm to attend to its financial matters, it had achieved an unqualified report. The DSD report was qualified, because some of the SASSA files that were called for as part of the random audit had not contained the correct information, and there were also matters of non-compliance with the Public Finance Management Act, the Treasury Regulations and the Social Assistance Act. The NDA had received an unqualified audit report for the last two years, although there was comment on the internal controls. In general, the Auditor-General suggested that DSD had to take greater responsibility, take effective steps to prevent irregular expenditure, and correct its challenges with the lines of reporting. There were not sufficient links between reported objectives and the indicators of performance, and there were not sufficient checks to ensure that all complete, relevant and accurate information was accessible and available when requested. Members were generally satisfied with the Auditor-General’s report, noted the improvements in SASSA, but questioned the transfers of funds, asked if the contract with the auditing company would continue past 2012, and asked for more clarity on the internal controls.
The Committee adopted its fourth-term programme, with minor amendments.
Department of Social Development Audit Report 2010/11: Auditor General South Africa (AGSA) briefing
Mr Barry Wheeler, Corporate Executive, Auditor-General South Africa (AGSA) gave a general introduction to his presentation, saying that his briefing would enable the Committee to interact better with the Department of Social Development (DSD) on the Annual Report and financial statements for 2010/11.
Mr Abrie Adendorff, Senior Executive, AGSA, noted that AGSA celebrated its centenary this year. AGSA had a Constitutional mandate as a Supreme Audit Institution (SAI) of
Mr Adendorff explained that AGSA had audited the financial statements of the Department of Social Development (DSD), the South African Social Security Agency (SASSA), and the National Development Agency (NDA). He briefly outlined the vision and mission of the DSD, and noted that it had a very large budget. The activities of the DSD were divided into five programmes, that handled administration, comprehensive security, policy development on review and implementation support for welfare services, community development, and strategy and governance. He noted that the social development portfolio also included the South African Social Security Agency (SASSA), who attended to the consideration and administration of the comprehensive social security grants. The National Development Agency was another of the entities. Other funds that fell under the general administration of DSD included a Disaster Relief Fund, a Social Relief Fund, Refugee Relief Funds, the State President’s Fund and the High School Vorentoe Disaster Fund, which was eventually closed on 26 August 2010.
Mr Adendorff noted that the total budget of DSD for 2010/11 amounted to R 95.94 billion. An amount of R83.49 million was transferred from DSD to NDA, and R5.63 billion was transferred from DSD to SASSA. Some of the other Funds under the DSD umbrella were dormant, with no movement into or out of these Funds, which was why they should be closed.
Mr Adendorff noted that in the previous financial year, 2009/10, SASSA had received a disclaimer audit opinion, because it had not submitted its financial statements on time, that the DSD had received a qualified report and the other six entities had an unqualified report. In 2010-2011, there were no disclaimers and only one qualified report, which was an improvement. All the entities received unqualified audit reports. This was achieved because after 2009/10, the Minister and the then-Acting Director General had specifically formulated a plan to resolve the issues and improve the Department’s audit performance. An audit company had been appointed, and its contract was due to expire in 2012. The Minister had also seen to the appointment of new financial staff in the head office, and in all nine provincial offices. That had cost the Department approximately R15 million. Part of the reason behind this was to assist SASSA with its turnaround strategy and SASSA had achieved an unqualified opinion in 2010/11. NDA and the other Funds under the DSD umbrella had no audit qualifications for the past two years.
Mr Adendorff reported that the DSD’s own audit was still qualified in respect of matters related to transfers and subsidies, but this arose because of limitations placed on the DSD by SASSA. The auditors had selected 2 762 grant beneficiary files for examination, for the purposes of the audit, but 42 of those files did not contain the correct detail or sufficient information for the beneficiaries’ grants, although grants were still approved.
The auditors had therefore assumed that there were certain limitations on the correctness of information, extrapolated to the population, based on grant type and province, but this was a substantial improvement on the last financial year, when the Department was not able to account properly for R10 million of funding.
He confirmed again that the NDA had had an unqualified audit report for the past two years, which seemed to indicate that it was running smoothly.
Mr Adendorff noted that the audit processes had looked into matters such as the flow-of-funds model adopted between the DSD and SASSA. It suggested that DSD had to take greater responsibility for the large amounts. However, the auditors were generally happy with the processes that were followed by the NDA and SASSA. In respect of SASSA, the auditors had concentrated on the material impairment of debtors. The NDA audit emphasised the user accumulated surplus, which was again restated as a result of an error discovered in March 2011.
AGSA had found that DSD had not complied with section 43(3) of the Public Finance Management Act (PFMA) seven day requirement in respect of virements and certain virements were therefore not approved. DSD had also not complied with section 40(1)(a) and section 40(3)(a) of the PFMA. Treasury Regulation 4.1.2 required that investigations into irregular expenditure should be done within 30 days, but DSD failed to comply on this point. It also did not report as required under Treasury Regulation 9.1.2. It had not complied with the Regulations 2 and 3, as well as 11, 18 and 19 of the Social Assistance Act, as it failed to attach the necessary documentation to the applications. There was also a matter of emphasis relating to the lack of effective steps to prevent irregular expenditure, in respect of the NDA, contrary to section 5(1)(b)(ii) of the PFMA.
Mr Adendorff mentioned that the Department still had challenges in respect of the reporting lines. The oversight responsibility of by the Department had not focused in detail on the operational function performed by its agencies. He also mentioned that DSD’s management had not ensured sufficient guidance that would ensure that a logical link was maintained between reported objectives and indicators. The financial and performance management systems did not ensure that there was sufficient oversight over the tabled strategic plan, in order to ensure full compliance with Treasury Regulation 5.2.2(d). SASSA had already started with its plan of financial and performance management. Management did not implement proper record keeping in a timely manner, to ensure that complete, relevant and accurate information was accessible and available to support financial and performance reports. The performance of the NDA was not measured against predetermined objectives, indicators and targets, as was required by the PFMA.
Mr Adendorff concluded that an audit was being conducted on the readiness of Government to report on its performance, and the findings on this would be reported separately.
The Chairperson thanked the AGSA for their clear and concise report. She also stated that there was a quite an improvement on subsidies, which proved that SASSA could indeed attend to the proper management of files.
Ms P Tshwete (ANC) was pleased to note the improvements in SASSA, particularly in regard to spending.
Mr R Bhoola (MF) wanted clarity as to why there was a transferring of funds, as stated on page 5. He wondered if the contract would continue with the auditing company. He also asked if all internal controls were now in place.
Ms Tshwete also asked for more clarity on the issue of internal controls, and questioned how the Committee could monitor the DSD’s leadership on this issue.
Mr Adendorff stated that there were no transfers to the five Funds under the DSD umbrella and that the Department had been trying to close off these Funds by effecting the necessary changes to the legislation, but had not been able to do so yet.
Mr Adendorff confirmed that the external audit company had done a good job on the quarterly audit reports, and was busy transferring skills to the SASSA financial staff, who should be able to attend to the financial statements themselves after the contract had ended. SASSA, being an independent entity, had to exercise its own internal controls. The Director General of DSD could not dictate to this entity how it should run itself.
The Chairperson noted that the Auditor-General’s comments would be discussed with DSD.
Draft Fourth Term Committee Programme: Adoption
The Chairperson tabled and read through the Draft Programme of the Committee for October to November 2011. She noted that the presentation scheduled for 12 October would be postponed and the meeting on 7 December was now to be brought forward to 29 November.
Members adopted the programme, with minor changes.
The meeting was adjourned.
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