2022/23 Audit Outcomes of WC Provincial Departments and Entities: AGSA briefing; Provincial Treasury 2022/23 Annual Report

Meeting report

Opening Remarks

The Chairperson welcomed the members of the Committee to the meeting and noted that the Committee will receive a briefing from the Auditor-General of South Africa (AGSA) on the 2022/23 Audit outcomes of the Western Cape Provincial Departments and Entities. In addition, the Provincial Treasury will brief the Committee on the 2022/23 Annual Report process pertaining to Departments and Entities of the Provincial Government of the Western Cape. She noted that the presentation from Provincial Treasury was meant to refresh the minds of the Committee going into the Annual Reports season in Parliament.

The Chairperson allowed members of the Committee, as well as the delegations from the AGSA and Provincial Treasury, to introduce themselves.

Thereafter, apologies were noted.

AGSA Presentation

Mr Thomas Mamogwe, Deputy Business Unit Leader, AGSA Western Cape, presented the 2022/23 Audit Outcomes of the PFMA for the Western Cape Provincial Departments and Entities. He said in the 2021-22 financial year, they wanted to leverage the stable control environment and financial governance practices to have a greater impact on service delivery to the people of the province. In the past, the province was always responsive to AGSA’s messages and showed commitment and action to improving service delivery to the people of the province. However, their commitments remained in progress with no significant measurable impact apart from maintaining their current outcomes. AGSA also observed a citizen-centric culture by the provincial government engaging with and listening to the citizens on various platforms.

One of the recommendations by the AGSA in the 2021/22 financial year was that the Department of the Premier should continue the coordination with Provincial Treasury (PT), Local Government (LG), and other partners in the accountability ecosystem so that service delivery and lived experience of citizens is continuously focused on and improved. The collaboration between the three departments is reflected in the sustained overall audit outcomes. The Department of the Premier reviewed annual performance plans for alignment to national and provincial goals (MTSF) and also monitors actual performance on a quarterly basis. However, in the housing space, the province still continues to struggle with the need and delivery. They are still finding ways to better manage the current and future needs within the infrastructure space through the formation of the Department of Infrastructure.

There was an overall improvement in audit outcomes of the province from 2019/20 to the 2022/23 financial year, with unqualified audits with no findings increasing and a decrease in the unqualified audits with findings. The drivers of the improvements in audit findings included leadership’s timely responsiveness to recommendations and continuous reviewing of performance information. There was also a culture of good governance, embedded financial management disciplines, as well as accountability at the level of the auditee.

(See Presentation)

Discussion

The Chairperson said she did a quick calculation of the irregular expenditure of R360 million divided by the R80.9 billion budget of the 2022/23 financial year and it amounted to 0.444% of the total provincial budget. She was proud to hear of the 100% unqualified audits.

Ms N Nkondlo (ANC) wanted to know the relationship between the slide that spoke about misstatements and the slide that spoke about the quality of reporting. Regarding management reports, how many alterations of management reports would it take the AGSA to interact with the respective auditee for the issue to be resolved? Is it possible for the Committee to request those management reports to understand how the issues were responded to by the auditee?

Mr L Mvimbi (ANC) noted the AGSA mentioned that some of their areas of focus in conducting their audits include financial statements, performance, as well as compliance with legislations and asked whether any of the auditees of the AGSA in the province had taken them to court in the current financial year. Were there any auditees that questioned whether the AGSA was within its powers to audit them? He also asked that the Committee be given access to the management reports as it would assist them in clarifying some of the questions that they have. He said it would help if the Committee were allowed to access the management reports of the Western Cape Department of Education (WCED), the Western Cape Department of Human Settlements (WCDHS), as well as Wesgro.

The three auditees that had unqualified audit reports with findings, WCED, WCDHS, and Wesgro had most of their findings on procurement due to previous contracts that were taken. Does this mean there could be a recurring effect in the next financial years, or could the Departments turn this around so they can also have unqualified audits without findings?

The Chairperson asked if there were any fruitless and wasteful expenditure identified as well as how the provincial audit outcomes compared to other provinces.

Mr Mamogwe said the AGSA will be tabling a general report that will outline the comparative picture of the different provincial audit outcomes. The management reports are meant for consumption by the management from the AGSA office rather than members of the public. The Committee could probably gain access to the management reports from the specific auditees but not from the AGSA office. The AGSA came to speak to the Committee regarding the issues pertaining Supply Chain Management (SCM), procurement, and contract management because sometimes their findings become material and they do not want provinces to redress because of findings that have been in management reports for a long time, which is why the issues were in the presentation. The Committee should not mistake those issues as material findings, but as findings that the Departments need to work on by coming up with credible action plans that are monitored quarterly by Treasury, the Committee and other oversight structures.

Within the audit process, the AGSA has multiple interactions with the auditees on various issues, including weekly Steering Committee Meetings to address findings. Such meetings tend to be for the AGSA to gain more information around specific issues and for them to consult for different interpretations of such issues, especially regarding legal matters. If the matters are not resolved after the multiple discussions and meetings, then the AGSA puts the matters as part of its findings. Some of the findings are first communicated with the auditee in writing, and the auditee would also respond with their view upon after their legal consultation, and a final verdict is reached after those interactions.

The Audit office has established a process to deal with issues of disputes on audits and there is a dispute resolution mechanism that is known by Provincial Treasury and the various Departments and Entities in the province. If a department or entity does not agree with the interpretation provided by the Audit office on a specific matter, they have the option to raise that as a dispute so that it can be dealt with accordingly. There were some disputes that were closed during the audit process and were not escalated to be arbitrated by the Head of Portfolio, and in most instances, the auditees and Audit office were satisfied with how their disputes were resolved. There were less than five disagreements that were escalated into disputes during the audit period in the current financial year.

The slide on the quality of financial statements shows that there were no findings, and the adjustments were minimal, so the credibility of the financial statements that were received by the Audit office was good. The slide of the quality of performance reporting shows that the Audit office receives Annual Performance Reports from the auditees so they can audit them. The Audit office considers whether those APRs are useful and whether they are reliable. Reliability refers to whether the numbers that are put in the report can be supported by evidence that the respective departments have performed. The Audit office confirmed through its reliability checks that 81% of the auditees provided performance reports that were backed up by evidence of their achievements. However, there was 19% of the reports that could not be supported by evidence of their achievements, and of that 19%, the Audit office offered its support to the respective departments to help them recover, and as a result, two of the departments managed to recover their numbers, and the other two could not correct those numbers.

Mr Rian Venter, Product Champion, AGSA Western Cape, said the total fruitless and wasteful expenditure of the 21 auditees in the province is R1.7 million.

Mr Mamogwe said in some of the multiyear contracts, the Audit office only reports on non-compliance on the year that it discovers it and does not report on it in following years. However, the Audit office cannot not report on irregular expenditure on subsequent years unless the irregular expenditure is condoned by law and is rectified. If the Departments self-disclose on the irregular expenditure and go through process to have the irregular processes written off, there are also some technicalities in how the Audit office reports on those in the audit outcomes.

The Chairperson said she had done a quick calculation of the fruitless and wasteful expenditure by dividing the R1.7 million by the R80.9 billion of the total budget and it amounted to 0.02% which made it negligible as it is a small percentage. She asked Mr Venter to confirm if her calculations were correct.

Mr Venter confirmed that the Chairperson’s calculations were correct.

Ms Nkondlo asked for a more simplified explanation of the two slides as she had asked for. She wanted to understand if 100% quality submissions referred to the quality of the evidence of how the money was spent by the Departments. She also asked for details on the low compliance on local content.

Mr Mamogwe said the quality of the financial statements and the adjustments that needed to be made during the audit processes were because of documentations that were not submitted or proof of assets, etc., so the quality of financial statements is linked to the adjustments that needed to be made. The 100% quality of submissions means the Audit office could not find any reasons to say that the financial statements have got any errors or misstatements. They could not say that the money was not accounted for.

The Chairperson also explained that the 100% meant that whether what was presented by the Departments was good or bad, what mattered was that the Departments provided all the information that was needed to the AGSA.

Mr Mamogwe agreed with the Chairperson and added that the details would then have to be unpacked in terms of whether they were good or bad, but the quality was the important part of the slide. Regarding the quality of performance slide, he said the 81% referred to everything that was reported in the correct way that was expected, and the 19% needed the audit process to assist the other Departments who could not provide enough information. The Department worked with those Departments who needed assistance, and they managed to report correctly, which took the 81% to 90%, and the remaining 10% was the Departments that could not report correctly by the end of the audit process. The Departments must align their targets to budgets so that if the Departments do not achieve their targets, but the budgets were spent, they must explain.

When the AGSA looks at the prescripts around local content, it looks at whether there was advertisement of local content during the procurement of goods, whether local bidders were assessed for the specific provision of a service and whether the suppliers declared a percentage of local content that they would supply.

The Chairperson said this might have been the last AGSA formal engagement that this term of members of the WCPP because the year ends with Annual Reports and then Adjustment Budgets, and then next year will be the budget season. She thanked the AGSA delegation for their engagements with the Committee over the past years and allowed them to exit the meeting. 

Provincial Treasury Presentation

The Chairperson congratulated the Provincial Treasury for achieving the best audit outcomes for the past five years. She reminded the members that the same presentation was done for the Committee in the past three years, and it was being done to refresh their memories for how to read the Annual Reports, especially for the new members.

Ms Julinda Gantana, Acting HOD, WC Provincial Treasury, said they tried to summarised the main points of the presentation in the first nine slides.

Ms Adila Aboo, Director: Provincial Government Accounting and Compliance presented the Annual Report Process and Guidelines to the Committee. She said National Treasury provides an Annual Report Guide for National and Provincial Departments and a separate Annual Report Guide for Schedule 3A and 3C Public Entities. The annual report highlights significant achievements, performance information, governance, human resources information and financial information are reported in the Annual Report.

The information reported on includes the actual achievements in relation to the planned targets and budgets as published in the Strategic Plan, Annual Performance Plan, Estimates of Provincial Revenue and Expenditure; and Adjusted Estimates. The publishing of financial and non-financial information promotes accountability and transparency on the efficiency and effectiveness of government departments and improves trust and confidence in government service delivery. The reported information must be accurate and balanced, reporting the successes and explaining the shortcomings. The entire Annual Report is reviewed by the Auditor General to ensure that the information reported on in the Annual Report does not contradict the information that was audited.

The documents used to compile the Annual Report are more extensive compared to the documents used by public entities, for example, Employment Equity plan is utilised by Departments only.

• Part A: General Information
• For public entities additional information is included, namely
  • External Auditors Information – External Auditor’s Name and Address
  • Registered name of the public entity
  • Registered numbers and/or other relevant numbers
  • Bankers Information- Name of Bank and Address of Bank
  • Company Secretary – Full name and professional/designation
• Foreword by the Chairman of the Board for the Public Entity (as opposed to Foreword by MEC/Minister)
• Overview by the Chief Executive Officer for the Public Entity (as opposed to the Accounting Officer)
• The Annual Report Guide for Provincial Departments Guide contains a section for ‘Entities reporting to the MEC/Minister’ which outlines relevant Public Entity-related information reporting to the Executive Authority (not contained in the Annual Report Guide for Public Entities)
• Part B: Performance Information
• Performance in relation to Standardized Outputs and Output Indicators for Sectors with Concurrent Functions (Only for Departments)
• Service Delivery Improvement Plan (only for departments)
• Transfer payments section for Provincial Departments as opposed to revenue collection section for Public Entities
• Conditional Grants and Donor funds only applicable to Provincial Departments

The following are the oversight responsibilities of the Committee:

• Evaluating all information included in the annual report.
• Evaluating the financial statements of all departments and entities and ask questions that are relevant to confirm that all revenue, expenditure, assets, and liabilities have been included and reported on.
• Evaluating the audit reports issued by the Auditor General and reflect on any of the key messages delivered by the AGSA.
• Following up on prior scopa resolutions and identify if the organ of state has acted on those resolutions.
• The Committee may ask for any additional information not specifically disclosed in the annual report to ensure their oversight responsibility is carried out.
• At the end of the Public Accounts process, the committee will produce resolutions which must be given effect to by an organ of state.

(See Presentation)

The Chairperson thanked the Provincial Treasury for the amazing work they have done over the past five years and appreciated them for the engagement in the meeting. She then allowed them to exit the meeting as the Committee continued with its internal matters.

Consideration and adoption of Draft Committee Minutes of a meeting held on 21 September 2023

The Chairperson asked for a mover for the adoption of the Draft Minutes

Mr Mvimbi moved for the adoption of the minutes and was seconded by Ms Nkondlo.

The Chairperson thanked the members for their attendance and participation in the meeting.

The meeting was adjourned.