Meeting SummaryThe Auditor-General of South Africa (AGSA) briefed the Committee on the audit outcomes of the Department of Basic Education (DBE) and its entities. The presentation looked at the key controls, progress of the DBE in meeting previous commitments, what was recommended for clean administration, key focus areas, sector audit outcomes and levels of assurance, as well as tabling a pyramid of accountability showing the roles of the Committee, audit and internal audit, and departmental processes. In the case of the Department of Basic Education (DBE or the Department) in particular, supply chain management, staffing and under-compliance with policies and procedures were of particular concern. The South African Council for Educators (SACE) and the Education Labour Relations Council (ELRC), had remained largely the same, with an unqualified opinion. Umalusi and the SACE had shown a significant improvement in the key focus areas. For the DBE, although slight (but insufficient) improvements were made in supply chain management, human resources and IT controls, there was no improvement in performance outcomes and there were still material errors in the financial statements. There was a need to check on the credibility of information submitted, and a particular concern was that some disclosures and commitments to future payments were not always reflected. The accuracy of these monthly reports needed to be scrutinised. Although this year still showed irregular expenditure, due to carry-over of a contract that did not comply with government regulations, the position should be regularised by the next audit, because a new contract with another service provider was now in place. There had been reductions in irregular expenditure of the ELRC due to improved financial management. Some deficiencies in key controls were still apparent in the DBE. Management of leave was a continuing problem, and DBE needed to focus more on its compliance with the legislation and Treasury regulations. The internal audit function of DBE was outsourced instead of being handled in-house. In relation to the provincial audit outcomes, Limpopo and Eastern Cape had received disclaimers and the Western Cape showed poorer performance in this year. The sector focus areas were outlined. It was important to examine the routine of monthly, weekly and daily reporting, and to ensure commitment at all levels. The assurance model was explained, noting that if one element was weak, this could negatively affect the rest of the chain.
Members asked if AGSA had outsourced the audit or attended to it itself, questioned the sampling process, asked if there was any indication of corruption and also raised questions on the underspending and whether there was value for money achieved. They also asked about the tools for performance measurement, what types of interventions would be needed, and requested clarity on certain aspects of the slide presentation.
Department of Basic Education – Audit Outcomes for year ended 31 March 2012
Mr Jan Van Schalkwyk. Corporate Executive, Auditor-General South Africa (AGSA) gave a general comment that, overall, there was no substantial change in the audit outcomes of departments in the 2011/12 financial year. Lack of compliance was a key area of concern when conducting the audits. In the case of the Department of Basic Education (DBE or the Department) in particular, supply chain management was of particular concern.
but particularly concerning was supply chain management in the case of the DBE. He said he wanted to form an overall picture of the audit before moving onto the actual presentation.
Mr Van Schalkwyk gave an overview of the audit process and purpose of this presentation before moving to the DBE outcomes. He noted that he would touch on the key controls, progress of the DBE in meeting previous commitments, what the Auditor-General South Africa (AGSA) recommended for clean administration, and key focus areas. He would also look at sector audit outcomes and focus areas, the pyramid of accountability and combined levels of assurance.
Mr Van Schalkwyk noted that there had been no substantial changes in the audit outcomes of the DBE, nor in the status of key controls. The critical areas, for the DBE, remained as issues of staffing and under-compliance with policies and procedures, expenditure and budget. Umalusi showed some disconnect between what it set out to do and what was actually done. The South African Council for Educators (SACE) and the Education Labour Relations Council (ELRC), had remained largely the same, with an unqualified opinion. Although there had, overall been some progress on audit outcomes, it was still not satisfactory.
Mr Van Schalkwyk noted the DBE had made some improvement in the area of supply chain management, human resources (HR) and IT controls, but had made no improvement in performance outcomes and the fact that there were still material errors in the annual financial statements submitted. He alerted the Committee to the need to check that the performance information was credible; action needed to be taken where it was not. He was also concerned about how comprehensive the reporting was, in the light of the fact that some disclosures and commitments to future payments were not always reflected. The accuracy of these monthly reports needed to be scrutinised.
Umalusi and the SACE had shown a significant improvement in the key focus areas.
Mr Godfrey Diole, Senior Manager, Auditor-General South Africa, discussed irregular, fruitless and wasteful expenditure. He explained the irregular expenditure within the DBE, by saying that a contract entered into by the former Department of Education had resulted in the service provider not complying with government regulations. Irregular expenditure by the DBE amounted to R81.7 million in 2010/11, and R74.8 million in 2011/12. The problem should not, however, carry forward to the next financial year since the DBE had now managed to enter into a new contract with another service provider. He noted that the irregular expenditure of the ELRC decreased from R2.5 million in 2010/11 to R644 000 in 2011/12, largely due to improved financial management.
Mr Diole gave an analysis on the deficiencies in DBE key controls, which he noted with concern.
Mr Diole then outlined the progress of the DBE in meeting the prior year commitments. Management of leave was still a problem, but that was common to several other departments as well. This was possibly attributable to incorrect capturing of leave on the system.
Mr Diole then looked at the recommended commitments for clean administration. He stressed that the audits used a sampling basis. He commented, in relation to compliance, that the DBE had to focus more on becoming fully compliant with the Public Finance Management Act (PFMA) and Treasury Regulations.
Another area of concern was that the internal audit function of the DBE was being outsourced, although ideally it did need to be operated in-house.
Mr Diole turned to sector audit outcomes per province. He noted that the provincial Departments of Education in Limpopo and the Eastern Cape had a disclaimer audit outcome. He also noted the Western Cape had regressed in its audit outcome. He stressed that government needed to ensure that people were held accountable for audit outcomes.
Mr Diole then outlined the sector focus areas for 2011-2012, all of which were quite challenging. They included HIV and AIDS Life Skills Education, the National School Nutrition Programme, technical secondary schools re-capitalisation, learner/teacher support material (LTSM), the Learner Transport Scheme (LTS) and allocation of funds to schools and education infrastructure.
Mr Van Schalkwyk then spoke to the pyramid of accountability. He said that it was necessary to look to the foundation level, and particularly to examine the routine of monthly, weekly and daily reporting. Commitment was needed at all levels. He commented that this Portfolio Committee was at the top of the pyramid, to ensure oversight, moving down to the building blocks that formed the basic processes. The middle section comprised the internal audit unit, audit committee and accountable leadership.
Mr Van Schalkwyk looked at the assurance model and its elements, and explained that this represented a chain of actions and responsibilities which were interlinked so that if one element was lacking, this would negatively affect the rest of the chain. Key actors in this model were internal and external audit units, senior management and executive authorities. The emphasis in this model lay on the flow of credible information.
The Chairperson noted this was a very good report that highlighted a number of issues raised by the Committee on previous occasions, such as outdated policies, strategies and financial reports. She said it was very important for Members to have clarity on the detail of the audit report.
Mr Z Makhubele (ANC) wanted clarification whether AGSA had carried out the audit itself or had outsourced the function, due to capacity constraints. He also asked whether the AG’s findings had in any way found corruption. He also questioned whether those “found on the wrong side of the law” were given the opportunity to explain themselves.
Mr K Dikobo (AZAPO) questioned what the term “no finding” meant. He also questioned what the ticks represented, in the section for recommended commitments for clean administration. He commented, in relation to the Pyramid of Accountability, that he regarded the role of the Committee as primarily directed to oversight and not accountability, and wondered whether the AG had a different understanding.
Mr D Smiles (DA) asked why under-spending was not mentioned in the briefing, but was highlighted in the annual report. This was particularly important given that there was such a significant figure for the under-spending. He commented that the sector audit outcomes seemed to show that education was in crisis. He said the Committee needed to improve its oversight, although he did comment that on some points, the Committee had raised its concerns continuously, and asked how the AGSA recommended that the Committee could strengthen the situation.
Mr A Mpontshane (IFP) wanted the opinion of the AG on the textbook contract situation in Limpopo.
The Chairperson interjected that this was in fact an ongoing matter, which had come to light in the period after this audit, but AGSA could comment if it wanted.
Mr W Madisha (COPE) questioned the reference to the “old department”.
AGSA responded that this referred to the former “Department of Education”, before its split into two departments.
Ms A Lovemore (DA) questioned the performance and measurement tools. She also commented that it seemed that some targets could not be managed, and the targets set for other areas were shamefully low, and needed to be re-thought. She also called for clarity on some slides in the presentation.
Ms A Mashishi (ANC) questioned the education infrastructure in provinces and sought clarity on certain terms used in the AGSA report.
Ms N Gina (ANC) asked for more information on the audits of the sectors.
The Chairperson questioned if there was value for money found in the samples that AGSA had selected.
Mr Van Schalkwyk clarified that the AGSA had primarily presented a review of the audit performance of the DBE and was not really looking at the whole sector. He reminded the Committee that the sections highlighted in yellow on the slides indicated that interventions were being made, whilst those noted in red were problematic because they were not being attended to. Grey areas indicated no findings, and that was positive, because it meant that the AGSA had not found any errors. The tick-marks under the table of recommended commitments for clean administration indicated what the entity had committed to do.
Overall, he commented that the DBE was progressing quite well but there was not satisfactory service delivery reports in the provinces, and this was a very important area that the Committee must address. The majority of the performance indicators were not well defined.
In relation to the sector audit outcomes, he said the main problems lay in the provinces and this was evident by the fact that some provinces were not even submitting the service reports.
Mr Van Schalkwyk commented that the under-expenditure would be emphasised by AGSA only if there was a big discrepancy found between budgets and what was actually spent. At the moment, this area was outside the ambit of the AG.
Mr Diole commented that it was not the call of the Auditor-General to say who should monitor the provinces; instead this was a decision to be taken by the executive and government.
Mr Van Schalkwyk commented that there seemed to be a wrong impression created of what was meant by AGSA using “audit sampling”. The audit samples were not random, but precise and representative, in that they examined certain periods, certain programmes, and policies in areas of risk, and looked at the flow of money.
The Chairperson asked when AGSA would speak to sector reports.
Mr Van Schalkwyk said that AGSA relied on provinces for the submission of these reports but they should be completed by end October.
The Chairperson noted that the oversight of this Committee was similar to that of other committees. She questioned whether the DBE had any work study plan for what it had completed in the financial year.
Mr Diole said this was referred to as the Annual Performance Plan.
The Chairperson said the Department did have an Annual Performance Plan, but that this would have to be more carefully checked to determine whether the DBE was on target. She noted that the AGSA report, together with the financial reports and HR plan, were important for the completion of the Budget Review and Recommendation Report (BRRR).
The meeting was adjourned.
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