Sport and Recreation SA 2011/12 Audit Outcomes

Meeting report

Opening Remarks
The Chairperson welcomed the delegation from Auditor-General’s Office and noted that the Portfolio Committee was an oversight and policy structure which tried to ensure the separation of powers was reinforced all the time. Its duty was not to defend the Department but to ensure that it delivered on its mandated goals. The presentation from the AG’s Office would assist the Committee in its oversight functions over the Department and its entities.

Presentation on the PFMA Audit Outcomes
Mr Musa Hlongwa, Business Executive: Auditor-General’s Office introduced his team to the Committee and said the main aim of briefing was to present the audit outcomes of the 2011/12 financial year for the Department of Sport and Recreation (DSR), Boxing SA and the SA Institute for Drug Free Sport (SAIDS).

The DSR and SAIDS had both received unqualified reports with other findings. The other findings related to compliance with laws and regulations, and also with the presentation of performance information, with predetermined objectives. Boxing SA had received a qualified audit opinion. Therefore none of the three entities had received a clean audit.

Mr Abrie Adendorff, Senior Manager, AG’s Office, said the purpose of the briefing was to give an inside view by AG into the issues that had led to the unqualified audit for DSR and SAIDS, and qualified opinion for Boxing SA. There were 210 positions in the DSR, of which 36 were vacant. Boxing SA had 10 positions and SAIDS had 11 positions. The DSR had a budget of R820m, Boxing SA had R10m budget and SAIDS had R11m budget.

Mr Adendorff said that in terms of the audit opinion history of the past three years, DSR had received unqualified opinions, with findings on predetermined objectives and compliance, Boxing SA had received qualified opinions for the last two financial years, and SAIDS had received an unqualified opinion, with findings on predetermined objectives and compliance. All three entities had not received clean audits and the AG was working hard with the Department and entities to receive clean audit opinions in the future.

In terms of key focus areas in the DSR, there had been an improvement in the supply chain management (SCM), but there had been regression in predetermined objectives and human resource management, while in IT controls there had been no improvement. There had been some serious errors in the annual financial statements that were submitted for audit. Boxing SA had improved in its human resource management but there had been no improvement in other areas. SAIDS had also improved its IT controls and human resource management areas but there had been no improvement in supply chain management, predetermined objectives, and there had been material errors in the annual financial statements that had been submitted.

Mr Adendorff said that with regard to SCM, the DSR contractual obligations had not been met because the money owed by the department had not been settled within 30 days, or an agreed period, as required by section 38(1)(f) of the Public Finance Management Act (PFMA) and Treasury Regulation 8.2.3, which meant that the Department had had to pay interest. The root cause was the lack of understanding of SCM laws and regulations, resulting in a misinterpretation of the applicable legislation. The recommendation by the AG was correct implementation SCM laws and regulations to ensure compliance.

The Accounting Officer had not taken effective steps to prevent irregular as well as fruitless and wasteful expenditure as required by section 38 of the PFMA and Treasury Regulation 9.1.1. The lack of monitoring and review of compliance with laws and regulations was the root cause of the finding. The AG had recommended that adequate planning should be enforced by management to ensure compliance in the SCM unit.

Mr Adendorff said that in some cases, sufficient appropriate audit evidence could not be obtained that goods and services with a transaction value between R10 000 and R500 000 were procured by inviting at least three written price quotations from prospective suppliers as per Treasury requirements. The AG recommended implementation of SCM laws and regulations to ensure compliance.

With regard to Boxing SA, Mr Adendorff said that the finding in SCM was that the Accounting Officer did not take effective steps to prevent irregular as well as fruitless and wasteful expenditure. The accounting authority had not taken effective and appropriate disciplinary steps against officials who had made or permitted irregular and fruitless and wasteful expenditure. In certain instances, awards had been made to suppliers who had failed to provide written clearance from the South African Revenue Service. The root cause was that inadequate planning had resulted in non-compliance. The AG recommended that adequate planning should be enforced by management to ensure compliance in the SCM unit.

With regard to SAIDS, the finding was that the Accounting Officer had not taken effective steps to prevent irregular expenditure. Goods and services with a transaction value of below R500 000 had been procured without obtaining the required price quotations, as required by Treasury regulations. Inadequate controls in the SCM unit had resulted in non-compliance with the SCM laws and regulations. There was also a lack of monitoring and review of compliance with laws and regulations, and inadequate planning, all of which resulted in the non-compliance. The AG recommended that management should ensure that SCM policies and procedures were in line with the laws and regulations of SCM to ensure compliance. Adequate planning should be enforced by management to ensure compliance in the SCM unit.

In terms of predetermined objectives, Mr Adendorff said that in the DSR the reliability of information was lacking. Reported performance was not valid. The National Treasury Framework for Managing Programme Performance Information (FMPPI) required that processes and systems which produced the indicator should be verifiable. A total of 27% and 78%of the actual reported performance relevant to the Sport Support Service and Mass Participation programmes respectively, were not valid when compared to the source information and/or evidence provided. This was due to a lack of monitoring and review of procedures for the recording of actual achievements by senior management. There was a lack of understanding of the FMPPI, resulting in incorrect applications or interpretations. There was also a lack of key controls in the relevant systems of collection, collation, verification and storage of actual performance information. The recommendation from the AG was that the entity should address these issues. Workshops should be conducted with the National Treasury to ensure clear guidance on expectations when the strategic plan was being drafted. These workshops should be implemented during the drafting of the targets and indicators for inclusion in the strategic plan, to ensure that they conformed to the “SMART” principle.
With regard to Boxing SA, the AG took issue with the usefulness of information, reported targets were not consistent with planned targets, and there was non-compliance with the Treasury Regulation 30.1.3(g) which required that the annual performance report / strategic plan should form the basis for the annual report, therefore requiring the consistency of objectives, indicators and targets between planning and reporting documents. A total of 40% of the reported targets were not consistent with the targets as per the approved annual performance report / strategic plan. This was due to a lack of oversight on the performance objective function.

The performance indicator was not well defined. The National Treasury Framework for managing programme performance information (FMPPI) required that indicators/measures should have clear and unambiguous data definitions so that data was collected consistently and was easy to understand and use. A total of 67% of the indicators/measures relevant to the Pro M programme – Partnerships with stakeholders, compliance with statutory and regulatory requirements and clear policies direction, developed external procedure documents, aligned boxing programmes were not well defined. Clear, unambiguous data definitions were not available to allow for data to be collected consistently, and this was due to the fact that although management was aware of the requirements of the FMPPI, it had not received the necessary
There was also a lack of key controls in the relevant systems of collection, collation, verification and storage of actual performance information. Inadequate planning during the strategic planning phase had resulted in targets being included over which the entity had no control. The AG recommended that the department should ensure it followed up on its action plans to ensure that appropriate action was taken timeously to address these issues. Workshops should be conducted with the National Treasury to ensure clear guidance on expectations when the strategic plan was being drafted. The recommendations of AGSA and those workshops should be implemented during the drafting of the targets and indicators for inclusion in the strategic plan, to ensure that they conformed to the “SMART” principle. Adequate planning should be done when the strategic plan was being compiled and regular review and monitoring of progress of performance against supporting evidence should be conducted by management to ensure that targets were achieved.
Mr Adendorff said that with SAIDS, the usefulness of information was inadequate, as none of the major variances between planned and actual achievements were explained in the annual performance report for the year under review, as required by National Treasury. This was due to a lack of documented and approved internal policies and procedures to address reporting processes and events pertaining to performance management and reporting.

He also noted that reported targets were not consistent with planned targets. The Treasury Regulation 30.1.3(g) required that the strategic plan should form the basis for the annual report, which required the consistency of objectives, indicators and targets between planning and reporting documents. A total of 46% of the reported targets were not consistent with the targets as per the approved strategic plan. This was due to policies and procedures not being implemented to ensure compliance with Treasury regulations. The root cause was the lack of understanding of the requirements of the FMPPI and resultant inadequate implementation during the planning and drafting phase of the strategic plan. The AG recommended that the management should ensure that clear understanding of the FMPPI was obtained by those responsible for drafting the strategic plan to ensure that all targets and indicators were well crafted and conformed to the “SMART” principle. Reporting of predetermined objectives should be done in accordance with the FMPPI and all variances should be explained adequately.

In the DSR, the human resource plan was not in place, as required by the Public Services Regulation 1/iii/B.2(d). The reason was that the draft plan was with the Department of Public Services and Administration (DPSA), awaiting approval. The recommendation was that the plan required by the DPSA should be signed off.

The AG had found that the DSR had no IT security policy, controls were not adequately designed, there was inadequate user account management, no formal IT strategic Plan, and no formal updated disaster recovery plan. The main reason was that there was a lack of policy regarding new users and maintenance of user IDs. There was a failure by management to address prior findings in the action plan. The AG recommended that management should ensure that prior year matters were implemented, as contained in its action plan. IT policies should be updated and revised where needed to ensure that user account management matters and security were addressed.

Mr Adendorff said the AG had found that Boxing SA had no IT security policy, controls were not adequately designed, there was inadequate user account management, no formal IT strategic plan, and no formal updated disaster recovery plan. The prime cause was a lack of policy regarding new user and maintenance of user IDs. There was a failure by management to address prior findings in the action plan. The AG recommended that management should ensure that prior year matters were implemented as contained in its action plan. IT Policies should be updated and revised where needed to ensure that user account management matters and security were addressed.

The DSR financial statements had not been prepared in accordance with the prescribed financial reporting framework and were not supported by full and proper records, as required by section 40(1)(b) of the PFMA. Material misstatements of disclosure items, identified by the auditors in the submitted financial statements, had been subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion. Inadequate preparation of financial statements by management and a lack of monthly reconciliations processes had resulted in adjustments to annual financial statements (AFS).  Management should ensure that AFS were prepared regularly on a month to month basis.

Mr Adendorff said Boxing SA financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and were not supported by full and proper records, as required by section 40(1)(b) of the PFMA. Material misstatements of disclosure items identified by the auditors in the submitted financial statements had subsequently been corrected, resulting in the financial statements receiving an unqualified audit opinion. There had been inadequate preparation of financial statements by management and a lack of monthly reconciliations, resulting in adjustments to the AFS. The AFS prepared should be adequately supported by substantiating evidence to corroborate validity, accuracy and completeness thereof.

The same situation had also been found at SAIDS, where financial statements had not been properly prepared because of inadequate preparation and a lack of monthly reconciliations processes. The AFS that were submitted should be the final set approved by the leadership and supported by the required documentation.

Other compliance matters in the DSR audit were the strategic plan, where the accounting officer had not ensured that the department had maintained an effective, efficient and transparent system of internal control regarding performance management. It had been recommended that management should ensure that all laws and regulations were complied with, and that policies and procedures were in place.

Mr Adendorff said there was a proposal that the Minister should follow up quarterly on key controls assessments and reports from the audit committee on audit-related matters. Of interest was the fact that no unauthorised expenditure had been incurred by any of the entities in the portfolio. He concluded by informing the Committee about other AG reports, where investigations were being conducted and undertaken by the AGSA.

Discussion
Mr T Lee (DA) said he appreciated the report from the AG’s Office. Since the DSR had under-spent on sport in the previous financial years, were they happy with the Department’s report on expenditure?

Mr G Mckenzie (COPE) noted that the percentage of leadership in all three entities was low, at 28%, and they needed to concentrate on that area to turnaround performance levels.

Mr M Dikgacwi (ANC) stated that Boxing SA needed to get a qualified person for the Chief Financial Officer (CFO) position, because it had previously been held by a young person who battled when it came to discussion and engagement. If they wanted to take boxing out of the mess it was in, they would have to employ a qualified professional person.

Mr Adendorff responded he had to talk with the chairperson of the board. He knew who had applied for the CFO position. He informed the Committee that he had personally phoned the chairperson of the board and warned him to be careful when they were selecting a CFO as he was concerned they would take a person who was not qualified.

With regard to the leadership question, Mr Adendorff agreed with Mr Mckenzie that leadership was a major concern, but if Members looked at the spending patterns of sport in the report, he could assure them that all the different programmes of sport had done very well in the past year.  The sport budget had been 98% spent, which was a good achievement.

The Chairperson concurred that 98% spending was good achievement, but its impact was not known, and there needed to be a follow-up on that issue. The duty of the Committee would be to assess the impact of the 98% in terms of the real work of the Department. As Members went around performing their oversight function, they should confirm whether this 98% was making life better for the people who received those funds. This matter had been raised by the AG in respect of conditional grants, where they people received grants but used them for other purposes.

The Chairperson thanked the delegation from the AG’s Office for their presentation. It would go a long way in assisting the Committee in its oversight function.

The meeting was adjourned.