Department of Women, Children and People with Disabilities Audit Report 2010/11

Meeting report

Audit Report: Department of Women, Children and People with Disabilities (DWCPD) 2010/11
Mr Yusuf Essack, Senior Manager: Auditor-General South Africa (AGSA), noted the Department of Women, Children and People with Disabilities had achieved an unqualified audit opinion with an emphasis of matters on unauthorised and irregular expenditure. The predetermined objectives were lacking in terms of usefulness and reliability of information. There were compliance issues regarding the Public Finance Management Act (PFMA), National Treasury Regulations, and other legislation. Internal control had deficiencies regarding leadership, financial and performance management, and governance. If problem matters were disclosed in the financial statement of the entity, the audit opinion would only highlight it as Emphasis of Matters instead of giving a qualified audit opinion. The unauthorised and irregular expenditure included overspending on the budget vote of R3, 729 million and the amount of R6, 358 million savings on capital expenditure was used to defray the current over-expenditure.  

The recommendations made by the AG on the Emphasis of Matters were that the Department should implement a review process to ensure compliance with laws and regulations in the preparation of financial statements. The entity had to strengthen controls to prevent, detect, and adequately disclose irregular expenditure.  Adequate planning and project management was important to ensure that allocated funds were spent appropriately and timely in order to achieve objectives within the allocated budget. The usefulness of information in the predetermined objectives was lacking and there was no clear and logical link between the objectives, outcomes, outputs, indicators, and performance targets. The indicators and the planned and reported targets were not measurable in identifying actual, required performance. The AG therefore recommended that the Department should ensure that it operated in terms of an approved strategic plan, that the indicators were well defined, and that the strategies in the strategic plan conform to the SMART (Specific, Measurable, Attainable, Relevant, and Time-bound) principle required by the Treasury Framework. Quarterly reports had to be submitted and approved by the Executive Authority in order to track performance against the approved objectives. The Ministry had to maintain sufficient and appropriate support evidence for reported targets, and the collecting and collating of evidence to ensure correct reporting.

Compliance findings indicated that that the Strategic Plan was not consistent with the Medium Term Expenditure Framework and was not compliant with prescripts. The quarterly reporting was ineffective and there was no system for an Audit of Performance Outcomes. The expenditure was not in accordance with the budget vote. There were non-submissions of monthly revenue and expenditure reports to National Treasury. The financial statements submitted were subject to material and/or significant adjustments. The Audit Committee and internal audit functions were not in place, and unauthorised and irregular expenditure were not prevented and detected by the department. The internal control deficiency indicated inadequate monitoring controls to ensure proper implementation of the processes of planning, budgeting, implementation and reporting on an Audit of Performance Outcomes, and to ensure compliance with laws and regulations. Payments due to creditors were not always settled within 30 days from the receipt of an invoice and awards were made to suppliers in the absence of tax clearance certificates. Human Resource planning was not undertaken and performance agreements were not in place for senior managers. The payroll certificates were not signed by persons in charge of pay points and not all money due to the Department had been collected. There were also inadequate monitoring controls to ensure funds were utilised in accordance with the approved budget and for the purposes for which it had been intended and an ineffective in-year monitoring of compliance with laws and irregularities. Staff members who prepared financial statements did not fully understand the requirements of the financial reporting framework and there was inadequate review of financial statements by senior management, prior to submission for auditing.

The AG recommended the implementation of an adequate review process of financial statements prior to submission for audit to ensure compliance. A system had to be in place to ensure that the Department procured goods and services in a transparent, cost effective and effective manner.  Compliance to laws and regulations had to be adhered to during procurement in order to prevent irregular expenditure. Despite a concerted effort to ensure payments were effected within 30 days, instances of non-compliance were still noted.  Action needed to be taken against non-complying individuals as the processes were in place and required adherence to them. Risk management needed to ensure compliance with required laws and regulations. Governance structures needed to be given priority to provide oversight over financial, performance, governance and compliance matters. Vacancies at senior levels had to be filled to ensure critical line functions were accountable to senior management and internal controls were implemented and monitored.

The internal control deficiency indicated inadequate monitoring controls to ensure proper implementation of the processes of planning, budgeting, implementation and reporting on an Audit of Performance Outcomes (AoPO), and to ensure compliance with laws and regulations. There were also inadequate monitoring controls to ensure funds were utilised in accordance with the approved budget and for the purposes for which it had been intended and an ineffective in-year monitoring of compliance with laws and irregularities. Staff members who prepared financial statements did not fully understand the requirements of the financial reporting framework and there was inadequate review of financial statements by senior management, prior to submission for auditing. Risk assessment was not conducted and governance structures, as prescribed, were not in place. Going forward, the Department had to develop an action plan to address all audit findings and the action plan would be monitored regularly at audit steering committees and feedback would be provided at audit committee meetings. Vacancies in key management positions had been filled after year-end, however the impact was not yet known. The internal audit and audit committee was receiving attention but greater urgency was required as half of the following financial year had already past. It was important to have an audit opinion of predetermined objectives in the audit report in future and greater focus was needed on compliance matters.

Discussion
The Chairperson thanked the Auditor-General for the audit report and reminded Members to ask questions which were only relevant to the AG. She did not fully understand what the unauthorised and wasteful expenditure comprised of and asked for more clarity. She was aware of the wasteful expenditure due to traveling and accommodation and asked for the exact amount of the over-expenditure.

The AG replied that unauthorised and irregular expenditure to the amount of R3, 728 million was incurred as a result of overspending on the budget vote. Attention was drawn to note 24 of the financial statement disclosing irregular expenditure to the amount of R6, 629 million for the year under review. Of this amount, R6, 358 million related to savings on capital expenditure in four programmes, which was used to defray current over-expenditure in the relevant programmes. The over-expenditure reflected on page 57 of the Annual Report was mainly due to Subsistence and Travel Allowances. The exact amount which led to over-expenditure on traveling and accommodation was R16, 030 million.

The Chairperson said it seemed as if Members were reserving their questions for when the Department would make its presentation and thanked AGSA for the report.

Meeting was adjourned.