Departments of Cooperative Governance and Traditional Affairs & entities 2015/16 audit outcomes: Auditor-General briefing

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Cooperative Governance and Traditional Affairs

11 October 2016
Chairperson: Mr M Mdakane (ANC)
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Meeting Summary

The Portfolio Committee received a briefing from the Office of the Auditor-General of South Africa (AGSA) on the audit outcomes of the 2015/16 annual reports of the Department of Cooperative Governance and Traditional Affairs (COGTA), and entities reporting to it.

In terms of the 2015-16 audit outcomes and key messages, the portfolio’s overall outcomes had regressed as a result of the Department of Cooperative Governance (DCoG) receiving a qualified audit opinion on goods and services and assets. The Department of Traditional Affairs (DTA), the Cultural, Religious and Linguistic (CRL) Rights Commission, and the Municipal Demarcation Board (MDB) had consistently achieved unqualified audit outcomes, with material findings on compliance and/or predetermined objectives, over the period. The South African Local Government Association (SALGA) had successfully managed to achieve a financially unqualified audit outcome with no significant findings on compliance with legislation and predetermined objectives (clean audit) for the fourth consecutive year.

Regarding compliance with legislation, the portfolio remained a concern, as four of the five entities still had non-compliance findings. The entities were commended, as the number of compliance matters reported had been reduced by 64% since the prior year. The DCoG, DTA, CRL Rights Commission and MDB had not yet been able to prevent irregular expenditure, however, while the financial statements of the DTA had also required material adjustments in order to receive an unmodified audit opinion. Non-compliance with supply chain management (SCM) laws and regulations remained a concern at the DCoG, especially with regard to the procurement of goods and services for the Community Works Programme (CWP).

The report noted that focused interventions and commitments were required in order to improve the current status of the overall audit outcomes. Leadership had to ensure that adequate oversight was performed and that action plans were appropriate to address the root causes identified. Such action plans had to be monitored and effectively assessed on an ongoing basis to ensure timely action could be taken if progress was not being made, or action plans were inadequate. The level of assurance provided by senior management, accounting officers/authorities and the Executive Authority, had remained stagnant. Efforts in developing and implementing post audit action plans to address audit findings were commended, however, although the adequacy of DCoG’s action plan remained a concern due to the regression in the audit outcome.

AGSA requested the Portfolio Committee to reinforce the following commitments:

  • Require entities to compile monthly financial statements;
  • Request entities to have action plans on which feedback must be presented quarterly (progress reporting);
  • Request entities to take action against transgressors;
  • Review quarterly reports on performance information; and
  • Review implementation and assessment of key controls.

Members of the Committee sought clarity on the issues affecting the general regression in the Department, and asked for details on Programme 3 with regard to performance management, to determine what the root cause of the non-availability of information was. Other issues raised included the relationship between AGSA and the Department, and what further assistance could be given to it.

Meeting report

Office of the Auditor-General: Briefing

Ms Ilze Slabbert, Senior Manager, Auditor-General of South Africa (AGSA) said that in terms of the 2015-16 audit outcomes and key messages, the portfolio’s overall outcomes had regressed as a result of the Department of Cooperative Governance (DCoG) receiving a qualified audit opinion on goods and services and assets. The Department of Traditional Affairs (DTA), the Cultural, Religious and Linguistic (CRL) Rights Commission, and the Municipal Demarcation Board (MDB) had consistently achieved unqualified audit outcomes, with material findings on compliance and/or predetermined objectives, over the period. The South African Local Government Association (SALGA) had successfully managed to achieve a financially unqualified audit outcome with no significant findings on compliance with legislation and predetermined objectives (clean audit) for the fourth consecutive year.

It should be noted that no outcome had been included for the DTA for 2013-14, as the department had started operating only in 2014-15.

In terms of compliance with legislation, the portfolio remained a concern, as four of the five completed entities still had non-compliance findings. The entities (except for the DCoG) were commended, as the number of compliance matters reported had been reduced by 64% since the prior year. The DCoG, DTA, CRL Rights Commission and MDB had not yet been able to prevent irregular expenditure, however, while the financial statements of the DTA had also required material adjustments in order to receive an unmodified audit opinion. Non-compliance with supply chain management (SCM) laws and regulations remained a concern at the DCoG, especially with regard to the procurement of goods and services for the Community Works Programme (CWP).

The quality of annual performance plans for the completed entities had regressed due to the MDB receiving material findings on the usefulness of reported performance information for the 2015-16 financial year. No material findings relating to the quality of performance plans at the DTA, SALGA and CRL had been identified.

Material adjustments had been made to the submitted annual performance reports by the DCoG which, together with the MDB had received material findings pertaining to reliability. This constituted a regression, as the MDB had not had any findings pertaining to the annual performance report in the previous two financial years. The DTA, SALGA and the CRL Rights Commission had maintained a clean status pertaining to their annual performance reports.

Ms Slabbert said that focused interventions and commitments were required in order to improve the current status of the overall audit outcomes. The DTA, MDB and the CRL Rights Commission had to enhance their controls to prevent irregular expenditure, whilst the MDB also needed to strengthen key controls pertaining to performance information to address the material findings on their usefulness and reliability. The key controls relating to financial and performance management at the DCoG required focused attention to move the Department from a qualification, back to an unqualified audit outcome. Leadership had to ensure that adequate oversight was performed and that action plans were appropriate to address the root causes identified. Such action plans were to be monitored and effectively assessed on an ongoing basis so as to ensure timely action could be taken if progress was not being made, or if action plans were inadequate.

The level of assurance provided by senior management, accounting officers/authorities and the Executive Authority had remained stagnant. Efforts to develop and implement post-audit action plans to address audit findings were commended, however, although the adequacy of the DCoG’s action plan remained a concern due to the regression in the audit outcome. Internal audit and audit committees had contributed towards improved key controls, but these governance structures must continue to place intense focus on driving an improvement in key controls with the objective of moving the DCoG, the DTA, the CRL Rights Commission and the MDB towards clean audit outcomes.

Ms Slabbert said that the top three root causes included a slow response by management (accounting officer and senior management), instability or vacancies in key positions, and a lack of consequences for poor performance and transgressions. In this regard, action plans had to be updated timely -- as and when findings arose -- with relevant actions to address the real root causes so as to ensure the findings were not repeated. These plans should be monitored on a monthly and quarterly basis.

The instability in the chief executive officer (CEO) and chief financial officer (CFO) positions at the MDB during the financial year had negatively impacted on the audit outcomes on predetermined objectives. These positions had been subsequently filled, however. Compliance with legislation should be emphasised by enforcing consequences for unsatisfactory performance which hampered sustained progress towards clean administration.

In terms of key commitments, the action plans to address repeat findings would be implemented and monitored in a timely manner. A meeting had been held with the Minister on 19 July 2016. No new commitments had been received. The outcomes had been discussed with the Minister and the status of the implementation of the key commitments had been followed up with the Minister. The Minister had indicated that he would appreciate it if the audit team could continue with the quarterly engagements regarding the status of the key controls in the portfolio.

Ms Slabbert concluded by requesting the Portfolio Committee to reinforce the following commitments:

  • Require entities to compile monthly financial statements;
  • Request entities to have action plans on which feedback must be presented quarterly (progress reporting);
  • Request entities to take action against transgressors;
  • Review quarterly reports on performance information; and
  • Review implementation and assessment of key controls.

Discussion

Mr K Mileham (DA) asked AGSA to unpack Programme 3 with regard to performance management in the Department, to determine what the root cause of the non-availability of information was. With regard to the audit outcomes of the Department for the past three years, taking into consideration the key controls, he asked what had changed from its last unqualified audit to its current qualified audit, and was that limited to the Community Works Programme (CWP) project, or was it broader to the whole Department?

Mr A Mudau (ANC) asked what sort of assistance or workshops could be given to all departments in order to improve on their audits.

Mr N Masondo (ANC) asked for clarity with regard to the general regression in the Department.

Ms B Maluleke (ANC) asked whether the AG’s office received satisfaction from the officials of the Department in respect of the challenges they experienced. What was the relationship between the AG’s office and the Department in this regard? Did the Department have a problem with document management, because if it had not given AGSA evidence, there might be something wrong?

Ms Slabbert responded that Programme 3 was one of the programmes where AGSA had found that targets and indicators were reducible, which was the reason for the variances. All the targets and indicators had been measurable, but when the annual performance report (APR) had been presented, the reasons for the variances could not be substantiated.

The reliability issue, specifically in relation to performance information, was actually a concern because if the Department was using the Promenade system, it was an electronic system where all the evidence had to be uploaded, and it had not been appropriately used during the year. Therefore, it definitely had a challenge to get the evidence to report on its actual performance.

Ms Slabbert said the issue of general regression was very much related to the CWP project, although AGSA was not saying the Department should have been clean like SALGA but for the CWP programme. However, it would probably still have had issues in terms of material corrections in its financial statements, some non-compliance, etc. Therefore, if the CWP programme had not been there, maybe the Department could have got an unqualified opinion. What AGSA had seen was that the CWP programme had received its own oversight from within the Department, but it had been unable to find coordination between the CWP unit and the finance unit of the Department. Therefore, there was a need for the CWP unit and the finance unit to work together and improve coordination in this respect.

Obviously, the internal audit unit of the Department was not dysfunctional, but what needed to be done was that the findings which the unit raised with the Department should be taken more seriously as a matter of urgency.

Ms Slabbert said that with regard to the Department’s relationships, their stakeholder engagements were of good quality. Where they had struggled a lot in the last financial year had been because the finance unit had been under-staffed, and throughout the audit they had not been able to get financial information on time. A lot of processes had been delayed and management processes had not been completed timeously. Lack of time was not the problem, though, because they had a good relationship with the CFO, the DG had an open door policy and they could go to him at any time, but obviously the record keeping was something they needed to improve.

The Chairperson thanked the presenter for her presentation, and said the Committee was looking forward to having more robust engagements with the AG’s office in order to help it in its oversight of the Department and its entities.

The meeting was adjourned.

 

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