Department of Trade and Industry & its entities Audit findings: Office of the Auditor-General briefing

Meeting report

Briefing by Office of the Auditor-General
Ms Corne Myburgh, Business Executive, Office of the Auditor-General, focused her presentation on the entities only, because the audit outcomes of the Department of Trade and Industry (DTI) had not yet been signed off. The annual audits examined three areas: fair representation and reliability of financial statements, reliable and credible performance information for predetermined objectives, and compliance with key legislation on financial and performance management.

The overall audit outcomes for 2015-16 had improved due to leadership and management at the Companies Tribunal (CT), the National Gambling Board (NGB), the National Credit Regulator (NCR), the South African Bureau of Standards (SABS), and the National Lotteries Commission (NLC). These entities were implementing and monitoring adequate action plans which addressed previously identified internal control deficiencies. The leadership at these entities had instilled a culture of continuously enhancing key controls, implementing recommendations timeously, and holding staff accountable.

On compliance with key legislation, Ms Myburgh said the level of assurance provided had improved and this was evident from the overall improvement in the outcomes relating to compliance with key legislation in the areas of the quality of the submitted financial statements and material procurement, and contract management findings. Action plans still needed to be implemented and intensified at entities such as the National Consumer Commission (NCC), the National Regulator for Compulsory Specifications (NRCS) and the Companies and Intellectual Property Commission (CIPC) to address non-compliance with key legislation.

Regarding performance planning and reporting, she said the quality of annual performance reports had improved, as two auditees (20%) had submitted annual performance reports which had material misstatements in 2015-16. This was due to adequate monitoring and reviews by management to ensure that the annual performance report was free of material misstatements with regard to reported targets.

Regarding the status of key controls, the overall interventions implemented at the DTI entities had proven to be successful, based on the overall improvement in the audit outcomes of the entities at portfolio level. Despite the portfolio receiving only one modified financial audit outcome, focussed interventions and commitments would still be required in order to improve the current status of the audit outcomes at the CIPC, NRCS and NCC.

The level of assurance provided had improved. Improved assurance had been provided by key role players at the level of the accounting officer/authority and senior management, and internal audit had contributed towards sustained and improved key controls. The assurance provided by the executive authority and the Portfolio Committee in their support to drive clean administration and improved audit outcomes was adequate, as reflected in the improved audit outcomes. It had to be noted, however, that the assurance provided by key role players at the NCC and NRCS had not improved adequately and attention was still required to address the prior year’s findings.

She also highlighted that in the performance management linked to programmes and objectives tested, there had been no material findings on the usefulness and reliability of information provided. Irregular expenditure had been reduced form R39m to R17m.

Ms Myburgh commented that the root cause for the chronic problems was the result of a slow response by management at some entities, and this was due to action plans not being adequately implemented and monitored. The leadership did not always hold staff accountable for poor performance and transgressions, and this created a perception that these were accepted and tolerated.

The Office of the AG had met with the Minister on 15 July 2016, and the anticipated audit outcomes had been discussed with him. Specific internal control deficiencies had been brought to his attention. The Minister had expressed his appreciation for these bi-annual meetings with the AGSA.
The Minister had also indicated that an internal investigation should be lodged at the CIPC to determine who was responsible for the salary over-payments, and corrective action should be taken against those who had not complied.

The Office of the AG proposed there should be regular monitoring of the action plans to ensure that the identified deficiencies were addressed to avoid repeat findings and continued non-compliance. The Committee had to request management of the entities to provide feedback on the implementation and progress of the action plan during quarterly reporting. Although internal control processes existed, they had to be consistently monitored and adhered to by all employees. Regular assessments of the status of internal controls, especially regarding financial statement preparation and the implementation of the different accords, must be undertaken by management to address deficiencies as and when they arise.

The Committee must request management of the entities to provide quarterly feedback on the status of key controls. Lastly, the accounting officers or authorities should intensify their focus on ensuring that transgressors are held accountable and that action is taken, as required by the Public Finance Management Act (PFMA). Action against repeat transgressors should be taken timely in order to eliminate repeat findings. The list of actions taken must be provided quarterly to the Committee for follow up.
 

Discussion

Mr B Mkongi (ANC) commented that it was important for Members to recognise there had been a general improvement in the functions and accountability of the entities of the DTI. This meant the Committee should applaud the move. More still needed to be done, especially with two entities – the NRCS and NCC -- not speedily improving. If there was a lack of improvement by them, it would create problems with service delivery. Regarding the over-payment of salaries, he wanted to know if this had been a mis-payment, or a deliberate remuneration of friends, and whether there was a recovery plan in place if this had been a mistake.

Ms Myburgh, explained that the over-payment issue had been part of an annual salary increase. An incorrect base to calculate the increases had been used. It was difficult to say whether they should be paid back or not. That was why the Minister had said it should be investigated. The PFMA stipulated it should be investigated and corrected.

Mr A Williams (ANC) asked why the NCC was showing a drop in its financial and performance management, and governance.

Ms Myburgh said that its financial statements were worse than last year in terms of financial and management key controls. It was difficult to state what the percentage of the regression was. The entity needed to look at record keeping. She was unsure whether it used a manual or electronic system, but irrespective of that, the information had to be available and accurate.

Mr N Koornhof (ANC) remarked that there had been a slight improvement at the NRCS, while the NCC appeared to be in trouble. He wanted to know if the AG was engaging with these entities to help them to improve matters, or if this was the responsibility of the DTI.

Ms Myburgh replied the AG Office did engage with the entities. It conducted workshops and was always available if they wanted assistance.

Mr G Hill-Lewis (DA) enquired why there was a lack of consequences for poor performance and regression.

Mr Lionel October, Director-General: DTI, said the DTI was trying to improve monitoring and evaluation of the entities by going through the audit outcomes to ensure they achieved a clean audit. That was why the Department had established the Agency Management Unit. He said some of the accounting officers of these entities had been refusing to co-operate with the DTI accounting officers. It had been discovered there was a lack of strong internal audit systems in some of these entities. The DTI had engaged with the entities to ensure they put internal audit committees into place. The DTI accounting officers were now having regular meetings with the chairpersons of the internal audit committees of the entities, though the DTI had no power over them. The DTI had advised the entities to build their own strong internal systems, rather than relying on outsourcing.

The Chairperson wanted to know the names of the entities that were refusing to cooperate with the DTI accounting officers.

The Director-General said it had been entities like the CIPC and the National Gambling Board. This matter was historical, because they had been refusing to co-operate, and this had ended up in court cases which the DTI had won. At least co-operation was now happening, and it was just a question of putting systems in place and implementing them.

The Chairperson wanted to know what the DTI had done to make sure assurance providers per level had been improving. Why, in the opinion of the AG, did the NRCS remain a challenge? What were the root causes, because it was difficult to deal with chronic problems?

Ms Myburgh, on the issue of improved assurance providers, said they had to make sure there was monitoring and review by senior managers. It was about the discipline of making sure accurate information was available. The same applied to internal audit -- there must be involvement of senior managers.

She reported that the NRCS had received a qualification. Its improvement had been linked to its revenue. Its database was being improved. The only problem was that the inspection they do is not linked to finances. If they could do that, it would move out of the qualification. About the chronic problems, she indicated there had been improvements. There was a need to address outstanding matters and act swiftly on the ones identified.

The Chairperson enquired why some entities had not been audited by the AG, and asked how they had been performing.

Mr Shabeer Khan, Chief Financial Officer: DTI, said the AG did not audit the entities in terms of the Public Audit Act. Some of the reasons were because of audit constraints. Most audits from these entities were clean, and that could explain why some entities were not audited by the AG. Another reason was that some of these entities had independent boards that saw themselves as not part of the Department or government, although they were lying to themselves. That was why there were now some regulatory bodies in place of some of the Boards. Most entities had these regulatory bodies, although they could independently determine their own policies and operations.

The Chairperson remarked that the NCC had been in the intensive care unit, but the Committee was pleased to see it was improving. It would be much happier if the NRCS could improve its database and inspection, to avoid its chronic problems. This was not something they could not do, because the information was there.

Mr Khan commented that the Agency Management Unit was a model that had been developed a few years ago. It was something that was going to become law in the future, so that it could be used by all other state departments.

The Chairperson then asked Members to go through the draft of the Colloquium Report, though it was not yet ready for distribution and consideration. She asked them to come up with recommendations and conclusions, and to forward their thoughts to the Committee Secretary by 13 September 2016.

Adoption of Minutes

The Chairperson took the Members through the minutes of 30 August 2016, page by page.

Ms P Mantashe (ANC) moved their adoption.

Mr Williams seconded her.

The meeting was adjourned.