WCED Audit Findings; State of readiness of WCG to conduct Performance Audits in the Western Cape

Meeting report

Briefing on the Audit of South African Association of Public Accounts (SAAPAC) - SAAPAC

Mr Mkhuleko Hlengwa, Chairperson of the Accounts Committee and General Secretary of the South African Association of Public Accounts (SAAPAC), presented SAAPAC’s audit.

SAAPAC, by its design and as per one of its objectives, is also about coordinating the efforts of national and provincial legislative sectors to enhance oversight of financial management and accountability at the municipal level. The Association realised the importance of this approach when, in 2017, it took a resolution to build a coordinated effort in the local government sphere by establishing the National Association of Municipal Public Accounts Committees (NAMPAC), which is a vehicle to drive mechanisms created for enhanced oversight on financial management and accountability at local government sphere.

He said that Members hesitated to pay the annual SAAPAC subscription fee of R138 000 because the entity had not been submitting audited financial statements since 2019. In addition, the minutes of executive committee meetings had not been forthcoming.

[See presentation attached for further details]

Discussion

The Chairperson thanked SAAPAC for the presentation.

Ms L Maseko (DA) recounted that the election was in 2020. Thus, the organisation should be functional in terms of its membership fees. The constitution provided that association membership by provinces is regulated by the payment of membership fees.

She expressed concern that, as the Executive, the chairperson was unable to find proof of payments despite the availability of bank statements. The constitution and minutes informed that the elected are signatories for the accounts. She asked the reason for the omission thereof. She recommended that the required amendments should be implemented on an urgent basis.

She also expressed concern for the audit company selected to perform the audit. Is there a focal person for the payment of accounts and activities of the Association?  

It is concerning that the audit company is yet to assess which provinces omitted to pay membership fees. It could mean that there was a default of the constitution for several years. It refers to the Auditor-General of South Africa (AGSA) and how SAAPAC would be held accountable. It also negatively reflects on national accountability.

She asked why receipts and laptops could not be located when SAAPAC relocated offices and how the matter would be addressed.

SAAPAC’s Responses

Mr Hlengwa responded that the concern that SAAPAC’s books are not in order is valid, as SAAPAC is accountable to the Committee. SAAPAC implemented some steps to address the challenges. The Executive elected in 2020 noted that SAAPAC lacked an internal financial policy. It was utilising the AG’s policy because the Secretariat was housed in the office of the AG. The Executive developed an internal policy before the 2022 AGM but adoption is pending.

When the Executive was appointed in 2020, it was during the time of Covid-19. Thus, meetings were held virtually. As limited activities were implemented (except virtual meetings), there was limited spending.

The Council of Delegates meeting was held but participant numbers were limited. The AG provided the venue, and SAAPAC reimbursed the AG for the cost. Similarly, the SARS account also needed to be paid. It could not be paid from another account. However, the matter was resolved and payment was processed.

He said in-person meetings and activities commenced in March 2022 in Cape Town. Thus, until March 2022, the account was dormant and payments could not process. Only a subscription could be paid. Thus, auditors would easily be able to audit the bank account due to the dormancy from 2020 to 2021.

On the election of members without membership fees, he said that the first meeting was convened by the previous leadership in Johannesburg. The previous leadership were not members but participated as a means of assistance to the new leadership.

The issue of the lack of access to the affiliation fees by the new Executive was discussed at the meeting. It was agreed not to call the meeting an AGM but an elective meeting. He said that he was confident that the matter would be resolved by the time the special AGM would be held. The financial statements would be ready and 2023 would be audited. However, the high cost of the audit company is a challenge.

The Executive agreed to utilise the company in the interim while it searches for a lesser expensive company. SAAPAC’s budget is slightly above R300 million.

The AG stopped supporting SAAPAC in 2018, when the Speaker’s Forum took a decision. The accounts in 2018 were in order. Following 2018, the challenges started, particularly when the AG team previously assigned to support SAAPAC was no longer in place. Further, there was a lack of a consistent secretariat.

Once the current audit is completed, SAAPAC would fully brief its members. The Association is aware of the 2022’s AGM resolution calling for a forensic investigation but it would require facts. Once the facts are established, the final decision would be taken on the feasibility of a forensic investigation.

Ms Maseko thanked SAAPAC for the feedback and recommended that the Speaker’s Forum negotiate with the AG to return to the previous functional system, as the current system is non-functional.

The Chairperson thanked SAAPAC for the presentation. He noted the challenges of accountability.

Briefing on the Audit of the Western Cape Education Department (WCED) – WCED

Mr Brent Walters, HOD, Department of Education in the Western Cape, presented on the WCED’s audit. He said that workshops were held with key staff on accountability in terms of Resolutions 9.3 2021/22 (1.1). It elevated the function of performance reporting, and it improved procedures and processes. It also increased oversight. The WCED also prioritised staff training, upskilling and stakeholder support.

Resolutions 9.3 2021/22 - How the Department and AGSA will deal with the audit findings to mitigate a future recurrence of an unqualified audit outcome with findings

- Performance indicators are monitored quarterly

- Performance indicators are part of the departmental risk register

- Internal follow-ups on previous audit findings

- Strengthen and review the indicators

- Mitigate risks by collating evidence sets to mitigate risks

- The performance targets are submitted to Audit Committee quarterly.

The spending and impact of the NSNP, including how the other provinces in South Africa spent and reported on the impact of this programme:

- There is no empirical study conducted to see the impact of the NSNP however, the increased learner numbers prove a dire need to feed learners.

-  A total of 518 387 Learners are fed nutritious meals in 1038 schools daily.

- Learner numbers increased by 18 314 from March 2022 to May 2023.

- The improvement in learner attendance, punctuality, increased well-being, especially in the Foundation Phase and high learner retention rate is a credit to the programme.

- Introducing chicken livers into the NSNP menu increased the Recommended Dietary Allowance (RDA) to meet sufficient nutrient requirements.

SCOPA Briefing Note - Auditor-General of South Africa (AGSA)

Mr L Masiza, Senior Manager, AGSA, presented the AGSA’s executive summary of the audit matters specially requested by SCOPA. The document was issued under embargo until SCOPA is briefed on specially requested matters.

Special requests – Moving to unqualified audit opinion with no audit findings:

As per the audit opinion history presented, it is evident that the Department has been experiencing challenges in appropriately managing its performance information to ensure that they are free from material misstatements.

For the Department to improve on its implemented internal controls about the management of the performance information, WCED would need to adequately implement the following detailed measures:

- Management should develop standard operating procedures that are detailed enough to be linked to the roles and responsibilities of the employees responsible for collating, reviewing and reporting on performance information. These should be linked to the indicator description manual and the required supporting documentation.

- It would need to develop credible action plans that could be allocated to process owners and consistently monitored to address internal control deficiencies identified through internal and external audit processes in prior years to avoid repeat audit findings on pre-determined objectives. This will improve the accountability process within the Department as well.

- Leadership and management should enhance the performance management and reporting process to ensure that sufficient reviews are in place to prevent or detect and correct errors and inconsistencies.

- An increased effort should be made to monitor performance against the annual targets during the internal quarterly monitoring. The performance information should be reviewed against the technical indicator description for reliability.

- An in-year detailed review will aid the reviews performed during the annual reporting period and ensure the information provided for audit is consistent with the planned indicator and free from material errors. Additionally, the Department should continue to maintain internal controls in the areas of financial reporting and compliance with applicable laws and regulations.

Expenditure and Impact on National School Nutrition Programme (NSNP):

The grant allocated to the Department in the 2021/22 financial period in respect of this programme was R441 319 000, and the amount spent was R441 319 000, equating to 100% of the grants received.

How the Department can mitigate the reoccurrence of the prior year’s audit findings:

- The 2022/23 audit is in progress and therefore any audit findings identified will be discussed as the audit progresses.

- The audit process further includes frequent communication with management through audit steering committee meetings to ensure all the risks and potential misstatements are appropriately discussed.

- This includes following up an audit action plan to determine whether internal control deficiencies identified in the prior audit periods are appropriately implemented.

[See the attached presentation for more details]

Discussion

Ms Maseko asked the WCED to advise Members on how the prevalence of loadshedding impacted its performance targets and how it would support schools without backup energy supplies. What would be the WCED’s contingency plan for a total blackout of power supply?

Mr D America (DA) requested the AG to inform of the measures to effectively implement roles and responsibilities.

On issues of internal control, he asked whether the Audit Committee assessed the internal control measures to be adequate and implemented adequately. Are there any other areas of concern?

He emphasised the meaningful impact of the SNP on educational outcomes. He asked the WCED whether the funding meets the increased demands and would service delivery levels be maintained.  

Mr I Sileku (DA) asked the WCED what mitigating measures are in place to deal with load shedding and to ensure it does not affect the SNP. He added that he welcomes the increased nutritional value of the meals.

On the audits of the WCED, he noted the unqualified audits of the last three years. Have there been any improvements in the outcomes to achieve a clean audit?

Department’s Responses

Mr Walters responded that data is consistently inputted to monitor performance targets and to assess what is outstanding on indicators. This is conducted for the whole year every quarter.

On improved outcomes, the AG would decide on progress made. Substantial effort was made by the WCED to implement the AG’s recommendations, particularly at the district level.  

On the sample basis of the nutrition programme, the AG is aware that the sample is based on 18 schools. The WCED would assess the basis of sampling.

On the internal controls, the WCED identified the technical gaps and implemented course correctives. A cross-functional task team was established to ensure that the WCED is on track and that every indicator is supported by evidence and best practices.

The HOD assigned roles and responsibilities for each indicator manager, who in turn reported to the task team on progress. The reporting culture has changed to improve the credibility of the Department’s quarterly and annual reports. The APO posture has improved to enhance capability.

On the funding, the responsibility lies with the Provincial Treasury. On equitable share, he said that the nutrition is allocated according to the National DBE’s distribution of grants to schools. Additional funds were provided to counter inflation.

Mr Alan Meyer, DDG: Institutional Development and Coordination, agreed that funds are increased with the demands and inflation increases.

Regarding the expired stock, he said there is internal stock control at schools. Old stock is returned to the supplier.

In terms of load shedding, he explained that gas is utilised as an alternative to preparing food. The staff are trained in gas safety and safety certification is required. A prescribed, balanced and high-standard menu is followed. Over 1 038 schools with a total of around 500 000 learners receive meals.

AGSA response

Mr Masiza responded to the audit improvements in the last three years. Since 2020, the WCED received unqualified audits. There was material finding on learner textbooks in all grades per annum in 2020. The planned target of 99.8 percent was not specific. The evidence was materially defaulted and not reliable.

In 2021, the AGSA reported on learners retained in the school system and textbooks for every subject and grade. Two KPIs were identified and material misstatements were reported in the audit report.

Ms Sangeeta Kallen, Business Executive, AGSA, said that the AGSA issues audit findings on two levels, namely usefulness and reliability. The WCED’s indicators were not sufficient for gathering information and were not adequately defined.

The systems and processes were also pronounced. The WCED had grappled in these two areas. Subsequently, the WCED firmed up its standard operating procedures. Monitoring and reporting procedures would also be enhanced to improve reviews.

The AGSA elevated its recommendation that the WCED’s reviews should occur not only at the year-end but also as a continuous practice.

On the nutrition programme, the AGSA’s specialised team visited the sites to assess whether the WCED’s mandate was achieved in the rollout of the programme.

The State of Readiness of WCG to conduct Performance Audits in the Western Cape – WCED

Mr Walters presented the state of readiness of WCG to conduct performance audits in the Western Cape. He defined componentisation as the breaking down of significant parts of an asset into individual, separately-identifiable parts that have a different useful life from the main asset.

This is a requirement in terms of the existing accounting standard GRAP 17 and is mentioned in the Accounting manual for departments. For example, a motor vehicle is made up of different parts, such as the engine, transmission, wheels, and body. Each of these parts has a different useful life and will need to be maintained or replaced at different times.

Advantages of Componentisation:

- It allows for more accurate tracking of the cost and useful life of each significant part of an asset. This can help entities better manage their assets by identifying which parts require more frequent maintenance or replacement and planning for those costs.

- Second, it can help entities more accurately determine the depreciation expense for each component, which can improve the accuracy of their financial statements.

Disadvantages of Componentisation:

- One disadvantage is that identifying and tracking each significant part of an asset can be time-consuming and costly. This may require additional resources and expertise.

- Additionally, componentisation may increase the complexity of financial statements, making them more difficult to understand for users unfamiliar with the concept.

Conclusion:

- Componentisation is not yet a requirement.

- It is only for significant assets or significant individual parts that make up a significant asset.

- NT is revisiting the accounting framework as the systems are not mature enough to give effect to componentisation.

- Departments do not have the necessary tools/infrastructure to deal with componentisation.

[See the attached presentation for more details]

Presentation to the Standing Committee on Public Accounts on the Audit Process
Mission

The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution of South Africa, exists to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

Vision

To be recognised by all stakeholders as a relevant supreme audit institution that enhances public sector accountability

Departments and Entities: Componentisation of Assets

Departments

Departments are currently not required to componentise capital assets in terms of the Modified Cash Standard (MCS). Componentisation as an emerging risk in management reports to departments, as the Office of the Accountant General (OAG) has indicated in the past that it will be a requirement in future.

The OAG has not yet set a date for implementation. Depending on the timing, it would audit this aspect in the year preceding its full implementation. If a phased-in approach is followed, it would audit accordingly.

Entities

Entities are required to prepare financial statements regarding the GRAP reporting framework. Regarding GRAP 17, componentisation would apply to entities within the Western Cape. However, it is not a common occurrence due to the nature of the assets used by most entities. No findings have been identified to date.

Performance Auditing

An independent auditing process to evaluate the measures is instituted by management to ensure that allocated resources are procured economically and utilised efficiently and effectively.

[See the attached presentation for more details]

The Chairperson thanked the presenters for the briefing. He said that the report is self-explanatory, insightful and educational. He requested that the Secretariat provides copies of the report to Members for further perusal.

The Chairperson thanked Provincial Secretary, presenters, and Members for their attendance. 

The meeting was adjourned.