Health sector audit outcomes 2011/12: Auditor-General of South Africa (AGSA) briefing

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Health

08 October 2012
Chairperson: Mr B Goqwana (ANC)
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Meeting Summary

The AGSA reported that a new evaluation of the combined assurance on risk management in the public service model had been developed. The basic premise was to ensure effective risk management was taking place in the public sector while assisting health departments in their drive for clean audits. Unfortunately there had been virtually no movement in the provinces over the past year in terms of changes to audit opinions. Findings were found across all nine provinces with nearly all categories requiring intervention including poor human resources management, information technology (IT) exposures, Supply Chain Management contravention, and poor quality of service delivery. Material misstatements were found across all 10 departments. Repeat findings within the auditing process meant the same issues keep coming up year after year which was a serious area of concern.

Drivers of internal control were measured by leadership, financial and performance management, and governance. Regular meetings on these drivers were being held with provincial directors-general; however, there was still little change year to year.

Although it had been a major challenge for departments in the past, unauthorised expenditure decreased slightly from last year from R1.5 billion to R1.3 billion. However, irregular expenditure had increased dramatically, while fruitless expenditure saw a marginal increase. The national Department of Health was also reviewing the organisational structures with the objective of standardisation across all provinces. The importance of performance management and performance management contracts to be in place for all senior management was noted. The appointment process was another area of concern as people were not being appointed appropriately.

Root causes that categorised challenges in the health sector included a significant number of vacancies, instability in key leadership positions, and a lack of financial and performance management skills. In the area of accountability all health departments had action plans in place to address challenges; however, the responsibility for monitoring the implementation of these plans was not taken seriously. There was also a need for consequences for transgressions and poor performance. Improvements to sustainability would come through implementing long term solutions rather than short term fixes.

Members expressed outrage over the unchanged results from year to year audits and a lack of consequences for poor performance and transgressions. Irregular expenditure was also a key area of concern.

The AGSA had a plan to initiate workshops with the provinces on leadership to improve accountability, and enhance leadership in a direct attempt to build capacity. The AGSA audited financial statements which meant they checked to see if expenditure was properly accounted for but they were not checking if service delivery was taking place. A clean audit did not guarantee that service delivery was taking place. Feedback from auditors in Western Cape revealed that the difference in the province from others was in the area of leadership; clear action plans had been developed and monitoring was continually conducted on those plans with regular interaction between provincial managers and auditors.

Meeting report

Health sector audit outcomes: Auditor-General of South Africa (AGSA) briefing
Ms Jolene Pillay, AGSA Senior Manager, opened her presentation by remarking on the ongoing drive towards clean audits across the health sector. In this regard a new evaluation of the combined assurance on risk management in the public service model had been developed. The basic premise was to ensure effective risk management was taking place in the public sector while assisting health departments in their drive for clean audits. Different levels of assurance needed to be provided to various stakeholders: management assurance, oversight assurance, and independent assurance in that order. Management needed to take more ownership of the internal environment prior to an audit. Within oversight there were legal and risk committees as required by legislation. The AGSA did not assess these committees as departments were not yet ready for this level of auditing.

Independent assurance was derived from internal and external audits. This came after all other levels of assurance had been completed. A colour code would be used throughout the presentation; green meaning meeting requirements, yellow meaning an area of concern, and red meaning significantly lower level of assurance than was required (slide 3).

Unfortunately there had been virtually no movement in the provinces over the past year in terms of changes to audit opinions ('Three year audit outcomes', bar chart, slide 4; 'movement in audit outcomes from 2010-11, slide 5).

Slide 6 referred to modified opinions for sector procedures performed around certain service delivery areas. Findings were found across all nine provinces with nearly all categories requiring intervention including poor human resources management, IT exposures, Supply Chain Management contravention, and poor quality  service delivery reporting. Material misstatements were found across all 10 departments. Repeat findings within the auditing process meant the same issues keep coming up year after year which was a serious area of concern. ('Status of focus areas', pie charts, slide 6).

Drivers of internal control were measured by leadership, financial and performance management, and governance. 80% of assessed departments on leadership and financial and performance management were not taking the right action to achieve the results that were required. Only the Western Cape had good controls, while the national Department also had some controls in place but improvement was still required. On governance 70% of assessments caused concern with a further 30% requiring intervention. Regular meetings on these drivers were being held with provincial DGs however there was still little change year to year. (Pie charts, slide 7)

There were no material misstatements in submitted financial statements at the national Department and Western Cape, while there were partial corrections across the remaining eight provincial departments (pie chart, slide 8).

Repeat qualifications dominated the movement in detailed financial statements at 67% on capital assets, 75% in receivables, 100% on other disclosure items, 60% on expenditure, 33% on revenue, and 83% on unauthorised, fruitless, wasteful and irregular expenditure (bar chart, slide 9).

Nine departments issued the same audit findings as the previous financial year, with Western Cape as the only standout with no findings for this year or last. Predetermined objective (PDO) findings found that the information for four departments was useful, while three were non-compliant, but nine departments were encountering huge challenges in terms of reliability. Movement in the number of auditees with findings on the PDO had not changed year to year and stood at an overwhelming 90% requiring intervention.

There was a major challenge for South Africa’s 4 500 healthcare facilities as reported information was unreliable across the country. The national Department had, however, started to implement manual controls and the success of this implementation would determine whether or not the AGSA would be able to access reliable information. (Bar chart, pie charts, slide 10).

Findings on compliance with laws and regulations on expenditure management, annual financial statements and reports, human resources (HR), procurement, asset management, and service delivery issues which primarily related to Division of Revenue Act and transfer payment requirements were presented (bar chart, pie charts, slide 11).

Although it had been a major challenge for departments in the past, unauthorised expenditure decreased slightly from last year from R1.5 billion to R1.3billion; however, irregular expenditure had increased dramatically, while fruitless expenditure saw a marginal increase (bar chart, slide 12).

Management of vacancies had increased at seven departments but since the national Department was still in the midst of cleaning up its personnel database the information within the presentation was incorrect as a result. The national Department was also reviewing the organisational structures with the objective of standardisation across all provinces. The importance of performance management and performance management contracts to be in place for all senior management was also noted. Another area of concern was the appointment process as people were not being appointed appropriately. ('HR management – key findings', bar chart, slide 13).

Supply chain management was a high risk area. The biggest concern was a significant increase in number of findings which correlated with increases in irregular expenditure. Uncompetitive and unfair procurement processes had increased from 90% to 100% while awards made to state officials and family members also grew from 70% to 90%. (Bar chart, slide 14).

Root causes that categorised challenges in the health sector included a significant number of vacancies, instability in key leadership positions, and a lack of financial and performance management skills. In the area of accountability all health departments had action plans in place to address challenges however the responsibility for monitoring the implementation of these plans was not taken seriously. There was also a need for consequences for transgressions and poor performance. Improvements to sustainability would come through implementing long term solutions rather than short term fixes. A turnaround in the discipline required to enable credible monthly reporting on compliance and financial performance areas was also called for. (Slide 15).

Discussion
The Chairperson expressed serious concern over the lack of change across the sector, excepting the national department of health. Irregular expenditures were another obvious source of worry. When was the Committee going to be talking about clean audits and improvements to service delivery?

Ms M Segale-Diswai (ANC) opened the questions by saying it would have been useful to have the hard copy presentation ahead of time. She asked for a definition of ‘no finding’. When there is an intervention required, did it actually happen? If there was no intervention made, what was the response from AGSA? She noted that although there had been a decrease in unauthorised spending, the amount was still in the billions of rand.

The Chairperson said there had been no real analysis of service delivery by any department. He noted that the same problems were occurring again and again and asked who should be held accountable for these missteps.

Ms D Robinson (DA) said facilities were being mismanaged. There was a need to hold managers at hospitals accountable. People who had been found guilty of misappropriation were simply being transferred from one place to another without real punishment. The challenge was to root out these people and ensure that tender processes, improper management, and procurement processes were addressed. There was a dire need for remediation to stop repeat offences.

She stressed that although some of these matters were ‘under investigation’ the findings were never presented to the Committee. Since health dealt with people’s lives, it was of the utmost importance that this issue be followed constantly.

Ms P Kopane (DA) said that the Auditor-General had highlighted that regular meetings with provincial MECs and DGs were being held but yet there was little or no progress made from year to year. Why did senior managers not sign performance agreements and failing that why were bonuses still granted? The amount of irregular expenditure showed that the departments were not following their obligations. The Department never followed up with the results of investigations or explained how it went about them. Serious challenges were facing South Africa and although the money and resources were available there was still a need to employ the right people and hold people accountable for their actions.

The Chairperson said that in the Eastern Cape there was a problem of underfunding. He asked that the differences between unauthorised and irregular expenditure be unpacked. When would effective leadership be exercised? If the head was not working well, you could not expect the followers to act appropriately.

Ms C Dudley (ACDP) asked if it was known who was not implementing reforms; was it national, or certain provinces, a single person? When long term solutions were laid out, who was responsible for implementation? She noted that when everyone was responsible, no one was responsible. A lack of consequences for poor performance and transgressions was stressed. It was emphasised that an attempt to achieve zero tolerance in the workplace had been tested but any kind of consequence seemed to cripple the work even further due to a minimum of skills. She asked for comment on this Catch-22 situation.

Ms T Kenye (ANC) said 2013 was approaching rapidly with no clear changes. The issue of vacancies required an improved appointment process. What was the AGSA’s recommendation to the Department in this regard? She also expressed concern over budgeting and capacity building in the sector.

Responses
Ms Pillay said the annual report only dealt with the national Department while today’s presentation dealt with the entire health sector. ‘No finding’ meant there were procedures performed but there were no negative findings. 'Intervention required' meant that the current internal controls were not strong enough to enforce accountability with an appropriate action plan and other relevant factors. This was an indication of problems and a need for reform, one of which was the ability to identify the right people to fill vacant roles. It was emphasised as a point of clarity that the AGSA’s main role was one of reporting and monitoring. The expectation was that the Minister, DG or Portfolio Committee would then take action on these issues. This was the reason the AGSA came up with the combined assurance model as there was a need for accountability and for management to identify and attempt to solve issues well before the auditing process began. ‘Finding’ meant a problem had been found or there was a matter for improvement while a ‘new finding’ identified a problematic issue for the first time.

Did the audit correlate with service delivery?  As a point of clarify the AGSA audited financial statements which meant that the AGSA checked to see if expenditure was properly accounted for but did not check if service delivery was taking place. A clean audit did not guarantee that service delivery was taking place. If the department was getting a disclaimer, it would be a bigger cause for concern. Service delivery was a part of the AGSA’s mandate but the management report which dealt with service delivery was separate from the annual report. Sector service delivery issues had been identified across different departments.

In the area of cross functional responsibilities, the AGSA would be looking at the service agreements signed with the President. It would also work on how to hold the national and provincial departments accountable as they had totally separate and distinct organisational structures with everyone operating in their own way. The National Health Council whereby the Minister acted as chair and met with MECs to discuss issues facing the country was the forum the AGSA used to present sector findings and highlight areas of concern. Reporting structures was a legal issue which could not be answered at this time.

The AGSA fully supported consequences for transgressions, yet there was no evidence that action had been taken by departments and this was something that needed to be highlighted and put before the Minister, the DGs and the MECs.

Compiled information from the annual reports for the health sector on vacancy rates had been followed up  with the Minister who was putting processes in place to try and deal with it. However, vacancy rates might have been overstated due to misinformation on the personnel database. It was noted that some provincial departments might have a huge administrative support structure while others might have a much smaller organisational structure without reason. The national Department was currently reviewing the organisational structure of provincial departments with an aim to standardising them.

Unauthorised expenditure was non-budgeted spending or money budgeted for one thing but spent on another. Irregular expenditure did not necessarily translate into fraud but might indicate not following proper spending procedures and was sometimes used to compensate for over spending. Unauthorised expenditure also impacted on the following year’s budget creating a ripple effect. There was a clear need to budget appropriately. Irregular spending could be prevented only if people were aware of the rules governing spending and were then held to account should they be found to be conducting illegal acts.

There was a plan to initiate workshops with the provinces on leadership to improve accountability, and enhance leadership in a direct attempt to build capacity. If departments did not get appropriate people to run their operations after consultants from the AGSA left then the reform process would be stymied. There should be no quick fixes. Far too frequently there had been a back and forth between auditors and management yet no changes were made to staff and no implementation of controls was advanced. There was then an attempt to address these problems at the last minute or even during the auditing process.

In terms of punishing poor performance and other transgressions in the work place, there was a need to think about the nature of the transgression versus losing a person. If the transgression was minor, like forgetting to sign a document, then retrenching a person was uncalled for, but if the issue was more serious there was a need to think about it based on the ethical aspects of keeping someone on.

Feedback from auditors in Western Cape revealed that the difference in the province from others was in the area of leadership; clear action plans had been developed and monitoring was continually conducted on those plans with regular interaction between provincial managers and auditors. Western Cape had also done well on reporting of Predetermined Objectives (PDOs) and internal controls. Further, there was a lot of training in evidence and internal controls were significantly different from those of other provinces.

The meeting was adjourned.

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