Department of Science and Technology + entities 2016/17 Annual Reports, with Auditor-General input

Meeting report

Auditor-General South Africa (AGSA) briefing

Mr Faizel Jogee, Senior Manager, AGSA, said the key audit outcomes and message for 2016/17 was that the Department of Science and Technology (DST) had retained its unqualified opinion, with findings.  The Human Sciences Research Council (HSRC) and National Research Foundation (NRF) had regressed from an unqualified audit opinion with no findings, to an unqualified audit opinion with findings on compliance with legislation and performance, respectively. Of concern was the increase in irregular expenditure at the HSRC, which was due to adequate steps not being taken to prevent this from occurring.

To ameliorate some of the adverse findings and improve or maintain the overall audit outcomes, and to comply with key legislation, AGSA therefore recommended that senior management should implement audit action plans that were based on the audit findings, work on the root causes highlighted and follow recommendations. The Department should also follow basic financial disciplines and regular monthly processing of transactions. Officials should be held accountable for non-compliance with legislation should it result to irregular expenditure, and proactive measures should be implemented to prevent irregular expenditure.

AGSA further recommended that performance planning and reporting must be improved by the management of DST and NRF through the implementation of appropriate systems to collect, collate, verify and store information on the programmes to ensure that the reported targets were valid, accurate and complete. Management at DST and NRF should enhance their review and monitoring controls to ensure that misstatements were prevented or detected and corrected timeously before reporting on the annual performance report. On the status of key controls, AGSA recommended that the DST and NRF management should be dedicated to ensuring that information supporting the annual performance reports was adequately reviewed and that the reported target was valid, accurate and complete. Controls should be enhanced to ensure compliance with supply chain management (SCM) legislation at the HSRC and adequate steps needed to be taken to prevent irregular expenditure from occurring.

There were three entities included in the portfolio that were not audited by AGSA in terms of existing legislation. They were allowed by law to appoint a private auditor. These entities were the Technology Innovation Agency (TIA), South African National Space Agency (SANSA) and the Academy of Science South Africa (ASSAF).  AGSA worked closely with these private auditors in order to comply with AGSA’s methodology for performance information and compliance. TIA and SANSA had maintained their clean audits, as in previous years. ASSAF had had unqualified findings specifically with regard to compliance to legislation and adherence to the provisions of Public Finance Management Act (PFMA). AGSA had found that the SCM prescripts were not being followed by ASSAF.

AGSA had revised its audit methodology so as to ensure that Parliament and other entities continued to receive a valuable and relevant product. This had come about as a result of a robust and methodical process that involved in-depth research, numerous local and international discussions, and thousands of hours of testing.  AGSA’s audits would now be more focused and integrated with a robust risk approach, allowing for more accountability and good governance. It would engage more with accounting officers in conversations that were insightful, relevant and that would make more impact.

Finally, AGSA was of the opinion that corruption would increase where there was monopoly and discretion and a lack of accountability. Monopoly within government was a problem, because there were certain government departments that provided a certain service wholly, such as the Council for Scientific and Industrial Research (CSIR). This leads to monopoly, because discretion was given to certain individuals in these entities, and a lack of accountability festered corruption. The level of accountability therefore needed to be increased to root out corruption.

Discussion

The Chairperson thanked AGSA for the presentation, and commented that it pointed the Committee towards certain areas where it was imperative for it to strengthen its oversight role over the Department and its entities. At a recent meeting with the Director General (DG), areas of weakness in the DST had been discussed, and this presentation would help the Committee do its work effectively.

Dr A Lotriet (DA) said that the problems at ASSAF had being ongoing for some years. The Minister and National Treasury had discussed ASSAF issues year after year. The Committee had to act because it was a stain on the DST’s audit outcome every year.

Mr C Mathale (ANC) asked how AGSA had come to the conclusion that that there was effective leadership, while there was a slow response by senior management and accounting officers to issues raised by AGSA in its audit outcomes. This smacked of laxity and an ineffective leadership. When AGSA interacted with the Department, was it normally via the accounting officer, and what were its experiences when any red flags were raised?  Was it also the accounting officer that responded to AGSA? If there was a lack of response, could the Committee assume this was coming from the accounting officer, and not from management? Could this be clarified?

He asserted that the role of the Committee relation to AGSA’s work was sometimes confusing. At what point could the input of the Committee be used beneficially? It was now interacting at a point when AGSA’s report was completed -- a point at which it asked the “why” questions, with no bite. Should the Committee not have a relationship with AGSA where it could make the necessary interventions proactively, so that its input could be taken into consideration earlier on in the findings stage, in concert with AGSA?  Were the DST and its entities being audited by KPMG, and if so, to what extent could those audit reports be relied upon?

The Chairperson was appreciative of the proposal of involving the Committee proactively in the early stages of the audit process. Constant interactions with stakeholders could yield good results which would benefit all. The Committee had a staff shortage problem, and still needed the services of a researcher. Consequence management also needed to be reinforced to avoid negative outcomes for the Department, and this would be taken up with the DG when the DST presented to the Committee during the week.

The Committee needed a researcher to do its work effectively so that when entities were engaged, a clear plan could be devised without asking general questions and with a clear tracking system to measure improvements and shortcomings of the Department and its entities, which were the focus of the Committee’s oversight duties. Slow responses by government departments to valid queries should not be tolerated by the Committee, and in such cases consequence management measures should be invoked.  He asked whether there had been an improvement on payments to service providers within 30 days?

AGSA’s response

Mr Jogee responded that on performance information, there was sufficient information to verify the amount being reported. If information being requested came in batches or at once, AGSA always followed up and normally got the requested information. Based on the findings that impacted on the new technology product, what had been picked up was twofold. Firstly, there had been a target reported that related to an information technology (IT) prototype innovation product, but on further technical specification inspection of the products by AGSA, it had been found that the products did not tally with what had been reported. AGSA had met management to inform them that what they had been reporting on did not meet the technical specifications of the product. It had therefore been a bit confusing to classify the product as a complete one, and also to indicate at which stage the product was in terms of meeting intellectual property requirements, or even being classified as a completed product. Even the evidence provided was not clear enough for it to be reported. The Department had then been told that it needed to bear responsibility for the veracity and reliability of everything it was reporting on. In a nutshell, a lot of errors were picked up by AGSA in the DST reporting.

AGSA agreed that ASSAF issues had being ongoing for years and needed to be sorted out. Discussions on the AGSA process had been held with management, though it normally began at the lower management level when information was requested. It was only when there were problems that could not be attended to by lower management that AGSA engaged with the management heads to try to get the requested information. There were communication protocols in place and robust discussions took place during the audit process.

On effective leadership and oversight, AGSA looked at certain drivers within each level. Some of the salient issues AGSA considers included:

• Were they working on the basis of honesty?
• Were there ethical business practices?
• Was there good governance?
• Were they protecting and enhancing the good governance of the entity?
• Was enough monitoring taking place on the entity’s performance?
• Were controls in place and being implemented correctly?
• Was senior management taking proactive actions and did they adhere to financial management and internal control systems?

 

Regarding how AGSA could interact and assist the Committee to make an input in the initial stages of the audit process, it was unfortunate that the audit process took place at a certain period. It involved issuing findings, and when responses were received, they were evaluated and their impact assessed. This meant that a lot of back and forth discussions took place. AGSA would suggest that during the key records review stage -- which was the same time that the Committee had quarterly interactions with the Department and its entities, and when the key controls were being shared with the Department -- that such information should be passed on to the Committee.  This would enable it to be aware of the issues and problems AGSA had identified within the Department. It would enhance the quality of the Committee’s work and also keep it abreast of the issues raised by AGSA.

AGSA also meets with the Chairperson between February and March during the budget review and annual performance plan (APP) meetings, and these issues can also be raised then.

On the KPMG issue, AGSA contracts some of its work for the DST and its entities to external auditors. but none to KPMG. The three audits contracted to private firms were done by SizweNtsalubaGobodo. There were also processes in place to ensure ethical behaviour and robust quality control check mechanisms.

With regard to payments within 30 days, the Department had put in a lot of effort to ensure compliance within that time frame.

Looking at the DST’s financials, it would be noticed that their hard work had led to a substantial reduction in accruals compared to prior years. The focus in this financial year was on performance management, and complete and accurate reporting. A case in point was reporting on international joint agreements. Certain numbers had been reported that were not joint agreements, and expired agreements were still being reported as if they still existed.

On SCM, there had also been improvements, except at the HSRC there was an issue related to a relocation contract that had led to an increase in irregular expenditure.

It was the view of AGSA that financial information should be treated as a financial statement. The Department and its entities must ensure that their reports were accurate and complete.  Also, when the Department received reports from its entities, it must ensure that the report was understood and reviewed before being included in the performance report. The Departments and its entities should also untilise the services of its internal audit divisions because this ensured a second level assurance.

The Chairperson thanked AGSA for its work in helping the Committee to carry out its oversight role, and bemoaned the lack of cooperation from Parliament in releasing funds for the Committee to be able to go out to see things for itself. It was a very technical committee, and could do its work properly by going out to see what was happening on the ground.

The meeting was adjourned.