Department Annual Audit Report: Auditor-General’s briefing

LABOUR PORTFOLIO COMMITTEE
17 October 2006
DEPARTMENT ANNUAL AUDIT REPORT: AUDITOR-GENERAL’S BRIEFING

Chairperson: Ms O Kasienyane (ANC)

Documents handed out:
Auditor-General’s Department Annual Audit Report

SUMMARY
The Auditor-General presented the Department Audit and shortcomings highlighted in this qualified report. The Department had received a qualified report for the past three years. His Office had also delivered qualified reports for the Compensation Fund, National Skills Fund and Sheltered Employment Factories. Only the Unemployment Insurance Fund had received an unqualified audit report.

The Committee was very concerned about this third consecutive audit report, and agreed that it should further discuss the report with the Department. Questions were raised about employment equity statistics, accountability problems between national and provincial departments; dealing with civil service corruption; funds accumulating in the Sector Education and Training Authorities (SETAs) zero account; and departmental responsibility for Sheltered Employment Factories.

MINUTES
Auditor-General’s briefing
The Auditor-General, Mr S Fakie, explained the role and mandate of his Office, types of audits, the different phases of the audit process, and various audit findings/opinions.

Department of Labour
His Office had delivered a qualified audit for the Department, partly because the true value of current assets had not been validated. The LOGIS system was inherently limited in its ability to provide supportive information for non-cash additions of R33 million to fixed assets and the asset register of the Public Private Partnership (PPP) with Siemen’s Business Services not indicating the value of the assets.

The Report also highlighted the following shortcomings:
- no monthly reconciliations had been done of travel and subsistence expenditures;
- non-compliance to laws and regulations due to Department staff capacity constraints;
- no system to link staff performance to the attainment of the Department strategic plan goals;
- a lack of proper policy and procedures to guide the financial year-end asset audit; and
- top management’s failure to approve policies on writing off long outstanding debts.

With regard to the Inspection and Enforcement Services, the Auditor-General identified the lack of a national database with reliable statistics of accidents, incidents and ill-health. The Incidents and Occupational Safety System (IOSS) was only functional at the provincial level. There was under-utilisation of the training centre at the Institute for the National Development of Learnerships, Employment Skills and Labour Assessment (INDLELA).

Unemployment Insurance Fund
The Auditor-General stated that an unqualified opinion had been expressed with an emphasis of matter for the following issues:
- ineffective controls around benefit payments to contributors;
- lack of monitoring of bank reconciliation processes;
- problems with the accuracy of contribution revenues;
- benefits paid in error;
- non-compliance to laws and regulations:
- inaccuracy of Department service expenses,
 the absence of a supply chain management system, and
-the ineffective functioning of the internal audit section.

Compensation Fund
The Office’s qualified opinion was based on the inaccuracy of revenue contributions, as well as the valuation of assessment debtors. Further issues raised were deficiencies in general computer and internal controls.

National Skills Fund (NSF)
The Auditor-General said that a qualified opinion had been expressed. The accounting framework had resulted in the financial statements not being fairly stated for the following reasons:
- the Basic Accounting System (BAS) used by the National Skills Fund did not cater for the accrual accounting system, so accruals had been materially understated;
- incorrect journal entries of other income due to a lack of qualified and skilled employees.
- the policy framework on structure and accountability, as well as the outstanding debt policy, had not been finalised; and
- there was no effective control of the Mandab funding.

Sheltered Employment Factories (SEF)
This report was qualified with a ‘disclaimer of opinion’ as the Auditor-General’s Office did not know whether fair representation has been achieved. Sufficient evidence for the following reportable items could not be obtained: fixed assets, accounts receivable, impairment of debtors, accounts payable, related party transactions, operating leases, and transport costs. This was due to:
- the lack of properly qualified/experienced staff in key positions;
- non-performance of internal audit reviews;
- the lack of a comprehensive policies and procedures manual specific to operations, and
- inadequate internal monitoring and external independent reviews.

Discussion
Mr C Lowe (DA) was concerned that this was the third year that the National Department of Labour had a received a qualified report, and asked what could be done. He also wanted to know whether the Auditor-General had audited the Department’s actions in terms of the Employment Equity Act.

The Auditor-General responded that the issue of this being the third qualified annual report in a row should be taken up with the Department. With regard to auditing Employment Equity statistics, he said his Office only audited functions of a financial nature.

Mr L Maduma (ANC) asked what measures were in place to deal with corrupt officials within the Department. Accountability problems were being seen between national and provincial office functions. He asked whether there were any systems in place to deal with this.

Mr Fakie explained that internal disciplinary procedures dealt with issues of corruption, and that the Auditor-General would only report on such issues if nothing was done internally. Regarding the relationship and accountability issues between national and provincial departments, it was explained that the national departments’ transfer of funds to the provincial departments was regulated by the Division of Revenue Act.

Mr T Anthony (ANC) wanted to know, in the light of the reconciliation problems, whether the PERSAL and BAS systems were used by all government departments. With regard to the Sector Education and Training Authorities’ (SETAs) zero account, it seemed considerable funds were accumulating without being withdrawn. He wanted to know the reason for this.

The Auditor-General explained that the PERSAL-, BAS- and LOGIS systems were transversal systems used by all national and provincial departments, and that it was the SETAs’ responsibility to monitor systems and any possible problems. With regard to the SETAs’ zero account, he reported that the Department was currently in the process of re-allocating funds.

The Chairperson asked why the Sheltered Employment Factories (SEF) fell under the Department of Labour and not the Department of Social Development, which would seem more appropriate.

Mr Fakie responded that the Sheltered Employment Factories (SEF) had been established after a Cabinet Memorandum in the 1940s, during which time SEF had been assigned to the then Department of Manpower.

Mr B Mkongi finally thanked Mr Fakie (whose term of office was coming to an end) on behalf of the Committee, for all his excellent work and wished him well for the future.

The meeting was adjourned.