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DEFENCE PORTFOLIO COMMITTEE
19 October 2005
DEPARTMENT OF DEFENCE PERFORMANCE: AUDITOR-GENERAL BRIEFING
Documents handed out:
Office of the Auditor-General - Public Sector Audit Process: briefing
Office of the Auditor-General - Financial Service Overview: briefing
Department of Defence Audit Report
Department of Defence: Audit Report History
Parliament of RSA – Announcements, Tablings and Committee Reports
ARMSCOR Annual Report 2004 – 2005 (available at www.amscor.co.za)
Auditor-General Report 2003 – 2004 [please email firstname.lastname@example.org]
The Office of the Auditor-General briefed the Committee on the financial performance of the Department of Defence. A detailed explanation of the audit process was provided. Members were concerned about the lack of resources that were pointed out in the audit report. Members wanted frequent updates from the Auditor-General on the performance of the Department. It was recommended that the Committee work in unison with the Standing Committee on Public Accounts (SCOPA) to facilitate the sharing of information between the two Committees.
Mr R Mosaka (Office of the Auditor-General) provided an explanation of the audit process. The audit process could be defined as an official examination of accounts or as a searching examination. The objective of an audit of financial statements was to express whether the statements were a fair representation. There were five types of audits:
-Comprehensive (Regularity/ Financial)
-Sustainable development and
The audit process had four stages. They were pre-engagement activities, audit planning, execution and reporting. The audit report could be used as an oversight tool. The qualification paragraph in the audit report produced findings on which qualified opinions were based. The two types of reports that would be produced would be unqualified or modified reports. In modified reports, matters that would affect the auditor’s opinion would be a limitation of scope or disagreement with management. The resultant opinion of the auditor would be a disclaimer of opinion, a qualified opinion or an adverse opinion. Qualification and emphasis of matter paragraphs were important to ensure that accountability was observed.
The second briefing by Mr Mosaka dealt with financial management. He defined financial management as a process that exercised control over resources in order to fulfil objectives and accurate reporting. The need for management to be held accountable was vital. The tools needed for financial management were controlling the business, implementing internal control systems, having a control environment and having specific management control measures.
The purpose of financial management processes was to question the effectiveness and efficiency of organisational performance and service delivery. The financial management capability model had six levels of maturity that auditees would be evaluated upon. The six levels were: start up, development, control, information, management and optimisation. Levels one to three dealt with financial and management control while levels four to six dealt with financial management performance.
Mr O Monareng (ANC) commented that some provinces were performing well while others were not. He asked what the main attributes for the failure of some provinces to comply with the guidelines were. He questioned whether South Africa was in line with other developing nations when it came to the auditing process.
Mr Mosaka replied that a general report was done on the provinces. The report aimed to highlight the root causes of the management problems. He noted that the General Outcomes Report supplied a summary of the performance of the Department.
Mr C Botes (Centre Manager at the Auditor-General Office) gave a presentation of the audit opinions of the Auditor-General on the Department of Defence from the past few years. There were four root causes that contributed to the qualification:
-Non-compliance with policies and procedures (internal controls)
-The lack of an appropriate integrated computerised system
-The lack of independent review and reconciliation (internal controls) and
-the lack of skilled, competent and trained staff.
A summary of the root causes was supplied and it was noted that they had been similar over the past few years.
There were three recommendations made to the Committee. The first emphasised a focus on the Audit Committee and Internal Audit. They could provide information from the bi-annual reports to Members regarding their work done on performance issues. The second was to monitor the progress of the Department of Defence regarding its long-term strategy for improved financial management. The third recommendation was to address the Standing Committee on Public Accounts (SCOPA) areas of concern that would help fix the Department’s weaknesses.
Mr M Sayedali-Shah (DA) asked whether 'emphasis of matter' could be explained. He queried whether foreign and local aid related to peacekeeping initiatives. He questioned whether the Auditor-General had an insight into the benefits of "nips and dips" or whether it had been part of another Department.
Mr Botes replied that the Emphasis of Matter was a matter that was not serious enough to qualify the financial statements, but that the Auditor-General wanted to bring to the attention of Parliament. Local and foreign aid comprised donor-supported projects by the United States. The Auditor-General had audited "nips and dips" projects as part of the Trade and Industry audit. More information about "nips and dips" could be provided.
Mr L Diale (ANC) commented that the reports had given Members a good insight into the performance of the Department. He asked what the causes of the Department’s poor performance were. He questioned whether it was a lack of skills and capabilities.
Mr Mosaka responded that a focus on outcomes was not advised because the process had to be handled first.
Mr Botes added that the problematic areas were focused on. He noted that it was not the job of the Chief Financial Officer or staff in the financial division to manage finances and resources. The performance contracts of senior management should include financial management responsibilities.
Dr G Koornhof (ANC) noted that valuable recommendations had been made. The reports from SCOPA were useful. He commented that informed interaction with SCOPA was missing. He suggested that Members should attend the Auditor-General’s briefings to SCOPA. He asked whether ARMSCOR was listed as a public entity.
Mr Mosaka commented that there had been problems during separate briefings between SCOPA and the Department. The Committee, more than SCOPA, should focus on issues of financial management control while monitoring. This approach would cover a wide range of concerns on a regular basis.
Mr Botes claimed that ARMSCOR had been audited by an outside firm. The Auditor-General had provided an unqualified audit opinion for ARMSCOR. The briefings attended by the Committee and SCOPA had been beneficial.
The Chairperson commented that the 2004/ 2005 Auditor-General’s Report should be understood in conjunction with the 2003/ 2004 report in order to act as a useful reference for Members.
The meeting was adjourned.
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