The DST received a final appropriation of R5b and spent 99.47% of the allocation in the 2012/13 financial year which amounted to under-spending of 0.53% which was an increase as compared to 0.08% in 2011/12. Most of the funding went to human capital and knowledge systems and socio economic partnerships. The NRF received the most funding (R1.06b) followed by CSIR (R743m), TIA (R456m), SANSA (R126m), HSRC (R214m), AISA (R34m) and finally ASSAf (R16m).
AGSA audits focused on four key areas:, financial statements, predetermined objectives, compliance with laws and regulations and internal controls. The NRF, CSIR and HSRC received unqualified opinions with no findings and the DST and AISA received unqualified opinions with findings on compliance and predetermined objectives. SANSA and TIA had findings on predetermined objectives as their indicators were not well defined. There was an overall improvement in compliance with laws and regulations as a result of commitments from management.
The presentation elaborated on the findings in certain audit focus areas. This section outlined specific findings for each entity, determined a root cause of the finding and made recommendations as a result of the findings. For predetermined objectives, overall, the quality of performance indicators remained unsatisfactory. For supply chain management, there were no significant deficiencies in supply chain management in the current year, but the number of entities in the portfolio with findings had increased. For human resources, HR management regressed for the portfolio due to material findings on non-compliance, although the number of findings reduced across the portfolio. For Information technology controls, IT environments in the portfolio were well governed with minimal or no deficiencies.
AGSA summarised the state of the internal controls at each entity, listing which ones were good, which ones were causing concern, and which ones required intervention. Overall, key controls on leadership and financial performance management improved as a result of proper monitoring and evaluation of key controls by management. Governance remained the same with key control deficiencies at TIA and SANSA. There were no Other Matters. AGSA mentioned that there was an ongoing investigation at TIA into allegations of nepotism related to appointments and procurement of goods and services, intimidation, gross violation of the investment decision process, failure of the corporate governance structure and mismanagement of funds and assets.
Performance auditing ensures that the department and its entities comply with the National Treasury requirements on reporting on pre-determined objectives, that management did proper monitoring during planning to ensure compliance to the National Treasury framework and to obtain feedback on a quarterly basis. No resolutions made.
The Committee felt that the presentation document did not provide sufficient detail. The Chairperson commented that the Budget Review and Recommendation Report (BRRR) guidelines encouraged the Portfolio Committees to access the Office of the Auditor-General reports to the departments which should be used to guide the BRRR report. The AGSA, the department executive authority and the Portfolio Committee Chairperson had met privately to engage on the department performance. The Chairperson said that these engagements had been useful to him, and believed it would be helpful to disseminate this information to all committee members.
AGSA agreed, noting that it produced a key control document which tracked progress. They would provide this information to the Committee on a quarterly basis so at the end of the year everyone knew what was going on. AGSA’s role was to follow up on its recommendations during these quarterly engagements. If the Committee was informed about these, they could do informed oversight.
Members also raised questions about specific audit performance and asked why, in the areas of control and accountability, procurement legislation was not being adhered to. Was it because of complexity, management laziness or staff turnover? Members asked why a department of this calibre did not follow HR regulations. Members asked why, after a year, there was a problem with a certain service provider and why was no verification was done. With regards to the TIA investigation, they asked what AGSA would do on receiving the TIA investigation report.
The Chairperson began the meeting by welcoming the Auditor-General South Africa (AGSA) delegation and initiated introductions of all parties present. Aside from the AGSA delegation, DST officials were present.
Mr Musa Hlongwa, AGSA Business Executive, noted that AGSA had a constitutional mandate to strengthen South Africa’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. The Science and Technology portfolio consists of the Department of Science and Technology (DST), three Schedule 3A public entities (African Institute of SA (AISA), Human Sciences Research Council (HSRC) and National Research Foundation (NRF)), one Schedule 3B public entity with subsidiaries - Council of Scientific and Industrial Research (CSIR) and three Schedule 3A public entities not audited by the AGSA in terms of section 4(3) of the Public Audit Act - the Technology Innovation Agency (TIA), the South African National Space Agency (SANSA) and the Academy of Science for South Africa (ASSAF).
The presenter outlined the organizational structure of the department and slide 4 of the presentation noted the leadership of every section of the portfolio. The DST received a final appropriation of R5b and spent 99.47% of the allocation in the 2012/13 financial year which amounted to under-spending of 0.53% which was an increase as compared to 0.08% in 2011/12. The reasons cited for this were staff turnover (decreased compensation of employee cost) and decrease in procurement of goods and services. Most of the funding went to human capital and knowledge systems and socio economic partnerships. The NRF received the most funding (R1.06b) followed by CSIR (R743m), TIA (R456m), SANSA (R126m), HSRC (R214m), AISA (R34m) and finally ASSAf (R16m). The National Advisory Council on Innovation (NACI) did not appear on this list because it was funded through the DST budget.
AGSA audits focus on four key areas: financial statements, predetermined objectives, compliance with laws and regulations and internal controls. The outcomes of the portfolio have generally remained unchanged. The NRF, CSIR and HSRC received unqualified opinions with no findings and the DST and AISA received unqualified opinions with findings on compliance and predetermined objectives. AISA had instances of non-compliance as material adjustments were made to the annual financial statements and a finding on predetermined objectives as the performance targets were not specific and time bound. The DST had findings related to performance information that as the indicators were not reliable and supporting documents were not received for some of the indicators. Laws and regulations on compensation of employees had not been followed for new appointments. SANSA and TIA had findings on predetermined objectives where indicators were not well defined. There was an overall improvement with laws and regulations as a result of commitments from management.
With respect to significant emphasis of matters, the ability for AISA to continue as a going concern was noted as a result of the anticipated incorporation of AISA into the HSRC. The assumption to prepare the Annual Financial Statements on a going concern basis would be inappropriate if funding from DST was not received as AISA would not be in a position to continue as a going concern with its current mandate.
Significant additional matters were then outlined for several entities. For DST, of 66 targets, 19 were not achieved (29%). For DST and AISA, material audit adjustments were identified, some of which were corrected by management and those which were not corrected were reported accordingly. NRF achieved 17 of its 46 targets (37%). For NFR and TIA, material audit adjustments identified during the audit were all corrected by management. None of the entities in the portfolio had a qualified, adverse or disclaimer of opinion in 2012/13.
Mr Hlongwa elaborated on the specific findings for each entity, the root cause of the finding and the recommendations made by AGSA as a result of the findings. For predetermined objectives (see presentation slide 13 and 14), overall, the quality of performance reports remained unsatisfactory. For supply chain management (slide 16 and 17), there were no significant deficiencies, but the number of entities in the portfolio with findings had increased. For human resources (slide 18), HR management regressed in the portfolio due to material findings on non-compliance in that DST did not follow the verification process for new appointments, although the number of findings reduced across the portfolio. For Information technology controls (slide 18), IT environments in the portfolio were well governed with minimal or no deficiencies. Significant deficiencies at AISA were related to the implementation of controls for user account management, IT security and IT continuity. This was attributed to lack of alignment of controls to IT procedures and policies. For Financial Health Status, there were no financial health concerns in the portfolio. For Material Misstatements to Financial Statements, every entity submitted good quality financial statements, but it remained a challenge for AISA to improve as a result of failure to implement action plans on internal control deficiencies that were previously identified.
The presentation continued with a breakdown of the drivers of internal control and slide 21 summarized the state of the internal controls at each entity, listing which ones were good, which ones were causing concern, and which ones required intervention. The table on slides 22 to 24 detailed the internal control deficiencies for each entity. Overall, key controls on leadership and financial performance management improved as a result of proper monitoring and evaluation of key controls by management. Governance remained the same with key control deficiencies at TIA and SANSA. There were no other matters of interest.
On the topic of other Auditor-General reports, it was mentioned that there was an ongoing investigation at TIA into allegations of nepotism related to appointments and procurement of goods and services, intimidation, gross violation of the investment decision process, failure of the corporate governance structure and mismanagement of funds and assets. The investigation was still ongoing at the date of the audit report and the potential impact on the financial statements could not be determined. No performance audits were conducted in the Science and Technology portfolio during the 2012/13 year.
Tracking previous commitments, a Chief information Officer was appointed at the DST to ensure that IT controls were implemented. A commitment in progress was that the Minister, at every quarterly meeting, would follow up on performance information findings for the department on an ongoing basis. A new commitment announced was to ensure that the department and its entities comply with the National Treasury requirements on reporting on pre-determined objectives, that management did proper monitoring during planning to ensure compliance to the National Treasury framework and to obtain feedback on a quarterly basis.
Ms M Dunjwa (ANC) thanked the DST and some of its entities for their work. She asked why, in the areas of control and accountability, the procurement legislation was not being adhered to. Was it because of complexity? Was it because management was lazy? Was it because of staff turnover? She commented that there were certain areas where explanations were given, but the issues had not been corrected.
The Chairperson stated that it was evident that there were a lack of controls with procurement. He asked what the AGSA did to ensure controls were instituted. It was useful that AGSA had commented on this, but no tough action had been taken.
Ms Dunjwa, referring to Slide 18 of the presentation (regarding DST HR), asked why a department of this calibre did not follow regulations. She was not satisfied with this as it was unacceptable.
Ms J Kloppers-Lourens (DA) stated that her expectations were that AGSA should have interpreted what was read in the document because Members did not have a financial background and they should have been informed in such a manner that they could properly digest the document. Members should have received the document ahead of time and AGSA should have given examples to clarify their presentation. The time used for the presentation was not well spent. She was concerned about TIA and SANSA and asked for more clarification on what was wrong with both entities. Referring to slide 14, it merely stated 14 indicators were not well defined. Members needed to see these entities and do proper oversight with respect to their performance. Despite finding a root cause, there were no recommendations for DST – why not? What should the recommendations have been? On slide 18, on service provider verification, she asked for an explanation of why, after a year, there was a problem with the service provider and why there was no verification. What should happen in the future? On slide 21, with respect to aligning the slips of TIA and SANSA, she asked for further clarification. She commented that AGSA mentioned a investigation report on TIA that Members expected to receive in September but this had been delayed. What would AGSA do upon receiving the report?
Ms Dunjwa referred to slide 18 on AISA and commented that the findings upon review of AISA’s security management controls were scary. The root cause was identified as inadequate monitoring and asked what this meant. She asked if the security issues were related to computer security, server security or payroll. What were the dangers involved with inadequate security? She had expectations that AGSA would explain and unpack the findings.
The Chairperson said that the observations of the committee members were that the presentation could have better sought to unpack the complications involved with assessing finances and financial controls. Also if Members could have received the document in advance, they could come with questions. The Chairperson said that when he had met with AGSA previously, they had been very helpful. The presentation could have been more helpful in shedding light on what the Auditor General did to correct these matters. He stated that the Public Protector had a constitutional mandate and she could take penalty measures against a department that made the same mistakes after the AG had shown them what needed correcting. In 2015, the Public Protector would initiation a programme that would penalize entities that did not adhere to the AG audit report. The AG was supposed to assure the Committee that when it picked irregularities, it suggested solutions to correct the problems.
Mr Hlongwa thanked the Chairperson and stated that his colleague, Lydia Motla, Audit Manager at AGSA, would help him with some of the specifics. With respect to members’ comments regarding the complexity of the document, he reminded members that the presentation was a summarized explanation of the audit opinions, and the opinions themselves would give the members more information on where they sought clarification. The presentation would have been bulkier, but too much information could be troublesome. The situation was a Catch 22, where too little information was not sufficient, but too much detail could be a problem.
The Chairperson said that the Committee wanted a simplified version using examples to make it even simpler..
Mr Hlongwa suggested that it would be logical to deal with matters of simplification on case by case basis.
Ms Dunjwa said that in the DST audit, there was nothing that asked why the DST did not follow regulations during recruiting.
Ms Motla said that as part of the Annual Report, there was a management report but it was not published – it was only distributed to management. AGSA tried to make sure the Committee understood what they were saying. The details the members sought were in the management report which should be circulated to the Committee.
Mr Hlongwa added that there was a lot of information in the management report. He and his colleagues were auditors and they did not have management information.
The Chairperson said that the Committee did not know the information given. AGSA should have determined what information the Committee had access to and what was relevant before they met. The Committee could not know about a report without having heard about it and the Committee could not ask for something they did not know about. He asked AGSA to take into considerations that some of the Committee members had never met with the entity and therefore had no idea how information was to be presented.
Ms Kloppers-Lourens stated that the management report should have been sent two weeks prior to the meeting because Members could read. The focus should have been on explanation and unpacking of information. She restated that AGSA should have sent the report beforehand so the entity did not have to read the document to Members.
Mr Hlongwa said that AGSA had taken note of these comments, and they should have sent documents in advance. There might have been some confusion between what the department should do and what the auditors should do. AGSA wanted members to let them know specific issues that they had before coming to the meeting so they could have provided clarification. If there were further questions AGSA could address them.
The Chairperson said Members expected an explanation session rather than a reading session. He had hoped the Office of the Auditor General would have shown the Committee what they had shown him when he met with the AG. When the Committee interrogated entities, the information provided to him by the AG's Office was useful. The Committee would like to use the tools of Parliament which was information from the Auditor General and oversight information. The issue could not be resolved at the time and so asked AGSA to respond to Members’ questions.
Ms Motla answered the questions about procurement. With respect to SANSA governance and compliance findings, AGSA assessed significance and the details were in the management report. With respect to supply chain, AGSA did not have significant issues. Tax certificates not being updated were things that were evaluated by AGSA. With respect to how much the department deviated from their procedures, these things were not included in the report because they were not significant although they were detailed in the management report. AGSA included CSIR’s Preferential Points Policy in their dashboard report but CSIR adhered, amended and implemented the AGSA’s recommendations. What was included in the Annual Report depended on significance. Some things could not be corrected without proper documentation. In some cases, AGSA was able to get the information and then dealt with the information and its implications accordingly. If AGSA did not highlight something in an audit report, it meant that corrections were made during the audit. For DST, there was a lack of supporting information, so corrections were made based on the lack of information. The weighting process was not followed, and AGSA engaged with management on this process. The DST indicated that they sent out the information but in some cases it was sent directly to certain employees and was not consolidated on the server. In the AGSA (first) dashboard report they assessed qualifications, criminal record and something else. There were qualifications check-ups and verification of compliance in the public service regulations. On AGSA quarterly dashboard report, it was confirmed that the service provider had been appointed. DST not having this in place was an oversight from the previous year. On IT controls and explanations on security management, the passwords were not encrypted. Those details were available in the management report but from the level of the auditors these issues were not important enough to be included in the audit report. With respect to what was wrong with SANSA and TIA, all the yellow flags were because of information. If something was not well defined or clear it was hard for everyone to understand. The entities have improved in financial statements, supply chain and other areas of compliance. On slide 16 of the presentation regarding DST compliance, this was noted after the report was sent out but it was already corrected.
Mr Hlongwa stated that AGSA could not comment about what would happen after the receipt of the TIA investigation report but AGSA would follow up.
Ms Kloppers-Lourens stated that she was well aware that AGSA was not conducting the TIA investigation and asked what would happen after AGSA received the TIA report because AGSA stated that the impact of the report could not be determined at this stage. She asked if they could sort this out.
Mr Hlongwa affirmed that AGSA would look into the matter.
Ms Kloppers-Lourens said, with reference to slide 18 of the presentation, that AGSA unpacked the verification process, but forgot the third criterion. She asked how AGSA verified new appointments or applicants, what the third criterion was and was it the type of information the Committee needed.
Ms Motla explained that the third criterion was verifying if the applicants were South African citizens. The other issues were very detailed but not technically detailed.
The Chairperson said that, having looked at the report, there was a generally unhealthy situation in AISA and it seemed to fall short of expectations. He asked what AGSA’s attitude was about this. He asked what the AGSA’s role was in assisting AISA. AISA had had these problems since the early 2000s. Many entities were improving, but AISA still had issues with general financial and compliance regulations. He asked what AGSA hoped to do to fix things.
Mr Hlongwa stated that there were a number of problems including financials and based on their findings, a number of recommendations had been made. AISA was to be incorporated into the HSRC and this should address those issues. But we did identify concerns in supply chain and financial management.
The Chairperson asked if AGSA hoped that it would be AISA’s problem and if the entity would sort it out.
Mr Hlongwa stated that whatever was going on with AISA, they would need to address it.
The Chairperson stated that the Committee wanted to see the management report and hopefully it could clarify more than what was clarified in the meeting. He asked how often the DST received management reports.
Mr Thulani Mavuso, DST Chief Operating Officer, stated that the department looked at the management reports to respond to what the AG sought in the audit and they would have received a formal report at the end of July. He was not aware of the status of the report because it was an internal management report and they had to take these recommendations forward. It would be important that the AG came up with a mechanism to take forward those issues. The current report summarized these but did not give details.
The Chairperson said that the Budget Review and Recommendation Report (BRRR) guidelines showed some of the tools that should be used to guide the BRRR report were reports from the department as well as Office of the AG reports to the department.
Ms Vuyokazi Mafilika, AGSA Parliamentary Manager, said that AGSA met with the department executive authority and the Chairperson. They produced a key control document, a document that had smiley faces and tracked progress. When AGSA was finished presenting it to the Chairperson, they had planned on making it available to the Committee. They could provide this information to the Committee on a quarterly basis so at the end of the year everyone knew what was going on. Using an analogy, she said the AG acted as a referee, and that they issued recommendations but the department had to implement them. AGSA’s role was to follow up on its recommendations during quarterly engagements. If the Committee was informed about these, they could do oversight.
The Chairperson said that these engagements had been useful to him, and believed it would be helpful to disseminate this information to all committee members. Therefore, when the BRRR process occurred, they would know where they stood.
Mr Hlongwa suggested that it may be helpful if, next time, AGSA presented what they did and what they did not do so the Committee would have a better understanding of what to expect from them.
The Chairperson stated that a quarterly interaction would serve well. He thanked AGSA for their presentation.
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