The Auditor General South Africa (AGSA) presented an overview of the audit findings of the Department of Arts and Culture (DAC) and its entities. The general comment was made that if departmental officials attended to their jobs with diligence and accuracy, a number of the problems could have been avoided. In the case of the DAC, problems were largely attributable to lack of strong leadership, continuous monitoring, accountability and discipline. AGSA summarised the import of the various audit opinions. DAC had improved in producing evidence to support the information recorded in the financial statements. Entities who had improving their performance to clean audits were Afrikaans Taal Museum, Market Theatre and Iziko, whilst five others managed to retain clean audits from the previous year. National Museum and Williams Humphreys regressed from a previously clean audit to unqualified. State Theatre and Performing Arts Council of Free State had moved from unqualified to qualified opinions, and South African Heritage Resources Agency (SAHRA) moved from a qualified audit to a disclaimer. Film and Video Foundation, PanSALB, Nelson Mandela Museum, Robben Island, SAHRA and State Theatre were struggling with the basics, and five entities’ information was not reliably supported with documentation. Eleven of the entities submitted financial statements of poor quality and had to have their financial statements corrected, including the DAC itself. 52% of entities had adverse findings on supply chain management. There had been R8 million of irregular expenditure in the DAC. On the performance side, seven entities’ targets were not useful. 19% of the entities did not have the proper human resources processes in place, and vacancies at senior management level were of continuing concern, and impacted on the Department’s ability to prepare accurate financial statements and improve. PanSALB and the SAHRA had struggled with lack of leadership. On the performance side, four entities achieved between 90% and 100% of targets, twelve achieved between 80% and 90%, but four did not achieve more than 60% of targets. This meant that money was not being spent as it should be. 31% of the entities had complied fully with laws and regulations. Improving on the previous year, there was no unauthorised expenditure in the DAC, but there was R8.8 million of irregular expenditure in DAC, and R61.7 million in the entities. This indicated the need for processes to be enhanced. In addition, R1.3 million in fruitless and wasteful expenditure was identified within the DAC, and R2.8 million in the public entities.
Members expressed their concern that the Minister and Deputy Minister rarely attended portfolio committee meetings, and also about the absence of the DAC from this meeting. They were very worried about the unauthorised and irregular expenditure, asked about condonation of this, but also commented that rarely was such expenditure recovered. The extent of the performance audits was questioned. AGSA clarified in response to questions, that its role was only to identify and report information on performance and to identify non-compliance, and it was then up to the leadership of the departments to act on the information. The performance of every employee should be carefully monitored against performance agreements. A DA member expressed doubts whether any steps would in practice be taken against those defaulting, and said that strong questions, particularly about PanSALB and SAHRA, both of which had been deteriorating for some time, had to be asked. Members asked how they could ensure that performance improved, and commented that the filling of posts and more regular monitoring were vital.
Audit findings of Department of Arts & Culture 2011/12: Auditor-General South Africa (AGSA) briefing
Ms Corne Myburgh, Senior Manager, Auditor-General South Africa, briefed the Committee on the audit outcomes of the Department of Arts and Culture Portfolio.
Ms Myburgh reminded the Committee of the Combined Assurance on Risk Management model, which was introduced to the Committee at a previous meeting. This was based on the idea that risks should be identified early on in the process and when the auditors came in, there should not be any surprises to the Department or to the entities.
There were three tiers of assurance. Firstly, the Senior Managers of the entities or the department, should have checks and balances to ensure that monitoring was happening, and the second stage was that reviews should pick up on if there was non-compliance. She stressed that any departments should not wait, because the last tier was the auditors.
Ms Myburgh pointed out that departments should not be hoping that the auditors would fix problems that could have been avoided if the departments attended to their jobs, every day, with diligence and with accuracy.
Ms Myburgh said that the Auditor-General South Africa (AGSA) had not seen a great deal of movement in the three years. In 2009/2010, 15% of departments had a qualification, and 63% were unqualified. She explained that “qualification” meant that the Auditor-General (AG) identified certain components where there was not enough evidence to express an opinion. Of the departments, 22% had clean audits, which meant that there were no findings on poor performance information. Although many departments had managed to retain their unqualified audit status, they needed still to improve to clean audits.
Ms Myburgh then summarised the performance of the Department of Arts and Culture (DAC) entities. There were only five entities without qualifications, out of 27. The entities that improved their audit outcomes, from unqualified with findings, to clean, were the Afrikaans Taal Museum, Market Theatre and Iziko. The National Museum and William Humphrey Art Gallery regressed from a clean to an unqualified opinion. The State Theatre and Performing Arts Council of Free State (PACOFS) had moved from unqualified to qualified audit opinions, and the South African Heritage Resources Agency (SAHRA) moved from a qualified audit to a disclaimer.
Ms Myburgh then explained that a disclaimer meant that the AG was unable to express an opinion because it had not been provided with all the relevant documentation that would enable it to make a finding.
48% of the entities did not have findings on the supply chain management, but 52% of them had findings. R8 million expenditure of the Department of Arts and Culture had been identified as irregular expenditure this year.
There was an improvement in the quality of service delivery. However, there were seven entities whose targets were found not to be useful. That was of concern because a very basic requirement was that targets should be in place, and the AG had now been commenting on targets for six years. In this case, the AG found that the entities’ targets were not specific, time bound or measurable.
The DAC had resolved its previous problems around producing evidence so that the AG was able to find evidence to support entries in the books.
The entities who struggled simply to get the basics right, were the Film and Video foundation, Pan-South Africa Language Board (PanSALB), the Nelson Mandela Museum, Robben Island Museum, SAHRA and the State Theatre. In the case of the National Library, Nelson Mandela, Robben Island, SAHRA and the State Theatre, the information was not reliable because the AG could not trace supporting documentation for what was reported in the annual reports.
In relation to human resources management, the AG had tested the recruitment process by asking whether contracts were in place, whether an advertisement process was followed, whether a panel considered the applications, and whether, on appointment, performance management contracts would be signed. 19% of the entities did not have these processes in place and many management positions were vacant.
The AG had further found that there were no active processes to get the right people in the right positions, and this was felt to be one of the major reasons why the DAC was not progressing and moving on. This impacted on the DAC’s ability to prepare accurate financial statements, since nobody was driving the processes of making sure that the controls were in place. She cited the new leadership at the Arts Council and said that this had been directly responsible for moving that Council from an adverse opinion to a qualified audit.
She commented that at the moment, PanSALB had no proper leadership, being under the control of an Acting Chief Executive Officer only. There had been no permanent CEO for the last two years, and the Board had been dismissed. PanSALB came very close to having a disclaimer this year. It had not even submitted performance information, as a direct result of having no leadership. Although the human resources side did not regress, the AG had a serious concern about the leadership positions which had not been filled.
There was not a regression of material errors and omissions in financial statements. However, it must be noted that 41% of the entities submitted financial statements that were not of high quality. Eleven entities submitted financial statements that had to be corrected: namely, DAC itself, Afrikaans Taal Museum, PanSALB, Arts Council, Film and Video foundation, the National Library, SAHRA, the State Theatre and William Humphrey. All had to make material corrections to their financial statements.
The DAC had managed to correct all the misstatements in the submitted financial statements, when these were identified by the AG, and this resulted in the DAC not having any qualifications.
Ms Myburgh said that 15 entities out of the 26 falling under DAC had submitted quality financial statements. Six entities had to go back to make material corrections to prevent a qualification. SAHRA had not done any corrections on its statements.
Ms Myburgh then moved on to discuss performance. Four entities achieved between 90% and 100% of the targets that were included and approved in their strategic plans. Twelve entities achieved between 80% and 90%. 16% of entities managed to achieve what they promised and approved at the beginning of the financial year. Four entities did not achieve more than 60% of their targets. This was concerning, and the AG had questioned what these entities were doing with their money, as it was not being spent as it was supposed to be. National Heritage Council, PACOFS, SAHRA and State Theatre did not achieve what they were supposed to achieve. She noted that in the case of PanSALB, the information was not provided so that the AG could not see what this body had actually achieved.
Ms Myburgh explained that when the AG made findings on non-compliance with laws and regulations, this meant that a policy and procedure process was not in place. This did not include achieving targets. There were findings of non compliance against the DAC in 2010 and 2011/2012. In 2010/2011, only 27% of the entities did not have non-compliance findings. In 2011/2012 there was a slight improvement to 31%. However, overall, there was still far too much non-compliance by the entities and DAC.
Ms Myburgh noted that the audit position of 17 of the 25 entities did not change from last year, with non-compliance findings in both years. There were three entities that did manage to improve: the Afrikaans Taal Museum, Iziko, and Market Theatre. Iziko and Market Theatre managed to move to getting a clean audit. Five other entities who had clean audits in the previous year managed to get clean audits again in this financial year. The two regressions were William Humphrey and the National Museum.
Ms Myburgh moved on to speak about unauthorised expenditure. She noted that this occurred where the DAC or an entity had spent more than the allocated funds, either overall, or in the different programmes. No unauthorised expenditure in the DAC was identified for 2012, an improvement on the previous year, where there had been R50 million reported as unauthorised.
She then explained that irregular expenditure was said to occur when procurement processes were not followed. R8.8 million was identified as irregular expenditure in the DAC this year, as a result of the audit process. In the entities, R61.7 million was identified as irregular expenditure. Their processes must therefore be enhanced to prevent and detect irregular expenditure.
She then said that fruitless and wasteful expenditure was money that was spent in vain, in circumstances that could have been prevented. R1.3 million in fruitless and wasteful expenditure was identified within the DAC, and R2.8 million in the public entities. The one positive was that at least this unauthorised, irregular, fruitless and wasteful expenditure had reduced from the 2010 levels.
Ms Myburgh concluded by reiterated that the main reasons for the negative outcomes stemmed from overall lack of leadership, continuous monitoring, accountability and discipline.
Mr P Ntshiqela (COPE) commented that the huge amounts of money that were seen as unauthorised and irregular expenditure were in fact tantamount to corruption. He asked how unauthorised expenditure could ever be regarded as authorised at a later stage.
Ms Myburgh replied that with regard to fruitless and wasteful expenditure, there was a process of condoning within the Department and within the entity, essentially an in-house review process. There was a different process for the unauthorised expenditure. Everything was disclosed in the financial statements, but the final condonation rested with Parliament, who could indicate approval by either supporting funding requests, or not.
Ms E Van Schalkwyk (DA) said that she understood that the Auditor General looked at the theoretical framework, and asked if the Auditor General was doing any performance audits.
Ms Myburgh replied that AGSA did have a performance audit unit, and that currently this was focusing more on transversal audits, through a committee chaired by the Auditor-General.
The Acting Chairperson asked what the consequences of unauthorised expenditure and non-compliance were. It seemed that nothing was being done about them, and he thought solutions were required.
Ms Myburgh replied that it was the AG’s mandate simply to identify and report information on performance and to identify non-compliance. It was then critical for the leadership of the institutions to take this information and act on it. From a practical point of view, this meant that the performance agreement must be considered, since every employee was to be measured against that performance agreement. If an employee did not deliver, this should impact on the salary increases and the decision whether to award a bonus. Not everyone should be receiving the same benefits, increases and bonuses, if they were not working on the same level.
Mr N van den Berg noted that Ms Myburgh had just given a long explanation of people not doing their jobs, and the question was what should happen next. In his party, the Democratic Alliance, a person failing to do his or her job would not be allowed back, but he doubted, and this was of serious concern, whether anything would actually happen to the people in question in the DAC.
Mr van den Berg further stated that there was no insistence that irregular expenditure was never paid back, so effectively the money was just gone and no one was held responsible for it.
Mr van der Berg was particularly bothered about the fact that not all the information was provided to the AG. He noted that the disarray in PanSALB and SAHRA was not a recent occurrence; both had been deteriorating over the years, yet nothing was being done. He said that the Committee would have to be very specific and ask harsh questions of the DAC, which bore the responsibility to rectify the matter. He was very concerned about the whole issue.
Mr P Ntshiqela (COPE) asked for his view to be recorded that the Committee needed more of these presentations, to empower Members to exercise oversight and find out what was going on. This was a major problem. He also noted his concerns that overall, the DAC had achieved only 75% performance and asked the AGSA’s advice on how the Committee could ensure that performance improved.
Ms Myburgh replied that the DAC should to be asked what it was currently doing to fill the vacant and critical posts. The Director General should be asked to take action if they had not been filled. Performance agreements should also be signed. There should be day to day monitoring by senior managers in regard to financial management. Quarterly financial statements should also be prepared.
Mr S Ntapane (UDM) requested clarity on the terms ‘unqualified report’ and ‘clean audit report.’
Ms Myburgh explained that the AG had to make a finding on whether the financial statements presented were a fair representation of the financial activities for the year. In order to do this, it was necessary to consider whether performance information was useful, reliable, and to state whether it had been possible to verify the accuracy of the information presented. Both of the terms meant that the financial statements in question were fair and accurate representations of what had transpired. However, whilst a clean audit meant that there were n no adverse comments about lack of compliance, or failure to meet pre-determined objectives, an unqualified report meant that although the financial statements were accurate, there were adverse findings either in relation to performance information, compliance, or both.
Ms van Schalkwyk expressed her disappointment with fact that Mr Xaba, Director General of the Department of Arts and Culture, was not present. She also noted her concern that the Minister and Deputy Minister never attended portfolio committee meetings, and that they were only seen at budget vote speeches and conferences.
The Acting Chairperson stated that the internal audit must exercise a watchful eye over the predetermined goals of the entities and the Department. This would help the Committee when doing oversight over the Department. He commented that fruitless and wasteful expenditure should have been discovered and prevented by internal audit or senior managers, even before being disclosed by the auditors. The Department should have continuous monitoring to ensure that these matters were not only discovered at year-end.
Mr van den Berg thanked Ms Myburgh for her presentation, and said that everyone was working together for the people of South Africa. The Committee should focus on vacant positions, as that was certainly an area where something immediate could be done, and should follow up with the DAC, monthly, what had been done. He also suggested that the Committee should be placing pressure, on a more regular basis, on the DAC in relation to financial information, in order to do proper oversight.
The meeting was adjourned.
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