Department of Science and Technology on its 2015/16 Annual Report with Auditor-General input

Meeting report

Auditor-General of South Africa (AGSA) on 2015/16 audit committee on the DST and its entities
Mrs Zeenat Alli, Manager, AGSA, commenced the presentation with the reputable promise of the AGSA that “The AGSA has a constitutional mandate and, as the supreme audit institution of South Africa, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence”.

She elaborated on the five different outcomes that the AGSA can issue:

-the unqualified opinion with no findings (clean audit) resulted when produced credible and reliable financial statements free of material misstatements;

-financially unqualified opinion with findings, auditee produce financial statements without material misstatement but did not meet predetermined objectives and/ or failed to comply with legislation;

-Qualified opinion, auditee failed to produce credible and reliable financial statements;

-Adverse opinion, AGSA disagree with most amounts in financial statement due to non-compliance with legislation;

-and lastly the Disclaimer opinion, where the auditee failed to produce evidence of amounts disclosed in the financial statements and not complying with relevant legislation

The portfolio’s overall outcomes have regressed in 2015-16 due to the Department of Science and Technology (DST) moving from an unqualified audit opinion with no other findings to an unqualified audit opinion with findings on compliance with legislation. The National Research Foundation (NRF), the Council for Scientific and Industrial Research (CSIR) and the Human Sciences Research Council (HSRC) retained their unqualified audit opinion with no other findings. The entire portfolio has consistently submitted quality annual financial statements timeously and no material adjustments were made to any of the submitted financial statements. It should be noted that Council for the African Institute of South Africa (AISA) was incorporated into the HSRC with effect from 1 April 2014 and operates as a programme under the HSRC.

The AGSA had three roles in terms of the Budgetary Review and Recommendations process. First, its role is to reflect on the audit work performed to assist the portfolio committee in its oversight role in assessing the performance of the entities taking into consideration the objective of the committee to produce a BRRR.

Ms Alli stressed that the shortfall for the 2015/16 financial year, although not material, could become important if left unattended to.  Management needed to enhance their review process in this regard by improving their leadership and good governance structure, amongst other things.

When analysing the predetermined objectives of the Department and the National Research Foundation, the AGSA identified material misstatements in the annual performance report submitted for auditing. Management subsequently corrected these misstatements thus avoiding any material findings in the audit report. The common root cause for this was the lack of appropriate systems to collect, collate, verify and store information by the programmes to ensure compliance with chapter 5 of the National Treasury Framework for managing performance information (FMPPI). As part of the recoomendations the AGSA stated that management should implement appropriate systems to collect, collate, verify and store information by the programmes to ensure compliance with chapter 5 of the FMPPI and management should enhance review and monitoring controls to ensure that misstatements are prevented or detected and corrected timely before reporting on the annual performance report.

Mr Faizel Jogee, Senior Manager, AGSA, discussed compliance with legislation and the quality of financial statements submitted by the DST and its various entities.

In terms of the former, the AGSA found that the Department did not settle contractual obligations and money owed within 30 days, as required by section 38(1) (f) of PFMA and Treasury Regulation 8.2.3. The common root cause for this was the ineffective review and monitoring of compliance with laws and regulations by senior management. A recommendation was made to ensure basic financial disciplines and daily/monthly processing and reconciling of transactions are occurring and payments are made in a timely manner.

The financial health of the portfolio remained good with the exception of DST being unable to settle its creditors timely resulting in a significant increase in its accruals and payables compared to the previous years.

The portfolio did not incur any unauthorised expenditure.

The portfolio incurred R12million of irregular expenditure as a result of non-compliance with supply chain management regulations, of which 35% was identified by the auditees. There was an overall decrease in irregular expenditure by 52% from the previous year.

The Department, National Research Foundation and Human Research Council incurred fruitless and wasteful expenditure. The negligence of staff members thus relating largely to traffic fines issued to staff members on hired vehicles, flights missed and failure to utilise booked hotel rooms was the root cause for this.

The management will provide attention to key controls by:

- implementing controls at DST to ensure that invoices received are processed and captured timely on the system for payment.

-Management should enhance review and monitoring controls to ensure that misstatements are prevented or detected and corrected timely before reporting on the annual performance report.

-Preparing monthly/interim AFS with full disclosures in an effort to reduce the risk of misstatements at year end and DST, NRF and HSRC.

-Providing adequate oversight on the compliance and related internal controls surrounding to ensure preventative measures are being implemented.

Regulations stipulated that any entities of the Department should not aim to procure brands but must go for the product required and based on that they could determine the best products. By procuring brands the Department limited competition. This contract, amongst others, that was problematic because it contravened the regulatory standards.

All goods and services in terms of the contract were received. This meant there was major reduction in the amount of irregular expenditure.

The area for improvement was supply chain management by documenting of the deviations, and full explanation for them going out on deviation. In addition, Mr Jogee highlighted slow response by management in the DST and NRF on issues such as paying creditors within 30 days.

Mr Jogee suggested that management in the departments and its entities should adopt to solve the abovementioned shortcomings. He recommended regular monitoring to ensure that creditors were paid timeously and that financial record errors were minimised.

The existing internal monitoring system must be attended to by all employees for proper results.

Errors in the financial reports provided to the AGSA by the departments could be ruled out if the reports were monitored regularly, on a monthly or quarterly basis, instead of waiting until the end of the financial year end. Current report errors were not material enough to note but could later become a problem if not rectified.

Disclosure notes must contain more information than currently provided and Mr Jogee recommended the department could perhaps provide training to the staff on the correct manner to complete disclosures notes. This must be done on a monthly or quarterly basis and supporting and adequate information must be attached to the notes.

Mr Jogee suggested that where there was non-compliance, officials should be held personally liable.

He further noted the commitments addressed by the Minister during the prior year, which the DST and its entities had been successful in providing regular feedback on major meetings and progress in the departments concerning financial reports.

On 18 March the AGSA met with the Minister to discuss the progress of the recommendations and did follow-ups. AGSA sent briefing notes to the Minister on a quarterly basis on any concerns it had or progress.

Section 4(3) of the Public Regulations Act allows for independent auditors. As a result, three entities in the DST were not audited by the AGSA, the Technology Innovation Agency (TIA) – audited by Ngubane and Company/Johannesburg Incorporated; South African National Space Agency (SANSA) – audited by SizweNtsalubaGobodo and Academy of Science for South Africa (ASSAF) – audited by SizweNtsalubaGobodo. The first two had clean audits and the ASSAF’s audit indicated results of unqualified opinion.

Discussion
Mr N Koornhof (ANC) was aware that the DST provided a considerable grant amount to the Medical Research Council but that was not documented in the audit report. He asked if the AGSA followed that money sent by the DST and considered it wisely and correctly used.

Mr N Paulsen (EFF): said the audit report is very good and that every department will indeed be pleased to have the same report. The real problem depended on the mandate of the Department. The audit reports would always be good because the Committee was dealing with the elite sciences which constituted a very small number of our constituency. He suggested the mandate be changed to affect issues that changed the life of all South Africans, for example, issues of electrification, water and education, of farming and climate change. If the Department widened their scope to include these issues it would present a real challenge on the reporting outcomes. He did not expect anything less than a good audit report given the scope of work. If not inclusive the report would always come out smelling like roses. Issues must affect the broader population.

Mr C Mothale (ANC) said that comment would have to be discussed in a different meeting. The information provided by the AGSA at this point was enough to help the Portfolio Committee to converse with the departments.

The Chairperson said the department could not duplicate duties of their department. They should instead be looking at issues such as whether the one week is enough to motivate young minds; how to get more young people interested in science and technology and dealing with making the departments comply with the 30-day payment rule that needed improvement. The report would enable the Committee to do necessary follow ups and not lose track of the DST. The reports must be given timeously by the departments for audits.

Mr N Paulsen (EFF) said AGSA spoke of key control and leadership and showed this over a three-year period. What criteria did AGSA use to determine good leadership? Good leadership Was subjective because he thought he was an effective leader whereas others might not necessarily agree.

Mr Jogee responded that the R63 million grant was awarded to the Medical Research Council (MRC). AGSA relied on accurate financial reports from the MRC and the DST to track the grant effectively and conduct necessary audits on a portion of the money. Other audits were done by the Department of Health Auditor General. Lots of contracts fell within AGSA’s mandate. Who looked at supporting documents and discovery notes to analyse the correctness of our audits?

On dates, what the Committee could do depended on the quarterly reports of the DST.

The list of commitments by the Minister and senior auditors could be made available to the Committee.

To tighten parts of auditing and making accurate audits AGSA needed to revisit the controls put in place and improve them while putting them to good use.

Final remarks
As the programme was handed out Mr Paulsen said that it was a waste of trees.

The Chairperson commended the report, it wold be useful to guide the Committee in future. The Committee would also follow up on issues raised and ensure they were addressed within a good timeframe. She commended the AGSA for the new tracking system, which was a good stepping stone in the right direction.

The meeting adjourned.