Question NW3403 to the Minister of Finance

Reply:

1. NATIONAL TREASURY

The department has developed an audit action plan to address audit findings and improve on the quality of reporting on both the financial statements and performance information. The audit action plan will be presented quarterly to the NT Audit Steering Committee, where the responsible officials identified as per the action plan will be invited to provide progress updates on the proposed action plan.

The monitoring of the audit action plan will be facilitated by Internal Audit, wherein they will engage with the respective responsible officials on the inputs for the action plans to be implemented as well as monitoring the effectiveness of the corrective measures.

Continuous improvements on the effectiveness of the Internal Control through frequent assessment and enhancement of current controls to detect and prevent any deficiencies that may potentially hamper the department to achieving a clean audit. These includes amongst others the strengthening controls on the effectiveness of:

• Contract Management review processes to detect and prevent any possible Unauthorised, Fruitless & Wasteful, and Irregular Expenditure;

• Proactively engaging relevant stakeholders such as Office of the Accountant General, Internal Control and Audit Steering Committee on significant extra ordinary transactions that pose a potential for material misstatements i.e. Land Bank and ESKOM; and

• Identifying high risks areas coming from prior year audit to initiate early engagements and discussions to prevent the reoccurrence of material findings.

Of the 11 entities reporting to the Minister of Finance, 6 entities received an unqualified audit opinion, while 5 received an unqualified audit opinion with emphasis of matters.

2. ACCOUNTING STANDARDS BOARD (ASB)

We have only ever received unqualified (“clean”) audits since the inception of the ASB in 2002. This includes the audit for the financial year ended 31 March 2023.

3. CO-OPERATIVE BANKS DEVELOPMENT AGENCY (CBDA)

The CBDA is a relatively small entity without its own internal audit function. The CBDA appointed a service provider to perform qualify reviews during the 2022/23 annual financial statements. This measure resulted in an unqualified audit outcome with no material misstatement for the 2022/23 annual financial statements.

Five of the findings on material misstatements of the 2022/23 annual financial statements were resolved and one, relating to non-compliance with legislation, was resolved. The only outstanding finding relates to consequence management, which is in progress. The Acting Managing Director, after his re-appointment in July 2023, has now concluded the remaining consequence management matters and has sent it to NT Internal Audit for due diligence, as requested by the CBDA Audit Committee. All consequence management issues will be finalised during this financial year.

Yet again, a service provider has been appointed to perform qualify reviews for the 2023/24 annual financial statements.

The AMD is confident that the measures put in place will achieve a 100% clean audit for the 2023/24 financial year.

4. DEVELOPMENT BANK OF SOUTHERN AFRICA (DBSA)

N/A - DBSA achieved a clean audit.

5. FAIS OMBUD

We confirm that the FAIS Ombud Office achieved a clean audit for the 2022/23 financial year and will continue to strive to achieve it.

6. FINANCIAL INTELLIGENCE CENTRE (FIC)

The Financial Intelligence Centre (FIC) has achieved a clean audit in its 2022/23 financial year. The FIC will continue on this trajectory of rigorous financial management in the current financial year.

7. FINANCIAL SECTOR CONDUCT AUTHORITY (FSCA)

The Financial Sector Conduct Authority (FSCA) has adopted a comprehensive approach to maintain a clean audit status from the Auditor-General of South Africa (AGSA). Its commitment to financial prudence, transparency and accountability drives its efforts to ensure that Annual Financial Statements (AFS) are free from material misstatements, whether due to fraud or error and the Annual Performance Report (APR) meets the highest standards of accuracy and compliance. The following are the key measures the FSCA has put in place to maintain a clean audit status:

1. Annual Financial Statements

A dedicated team of qualified and experienced personnel is responsible for preparing the AFS. They ensure strict compliance with relevant accounting standards, the Public Finance Management Act (PFMA) and other applicable legislation. The Executive Committee (EXCO), Strategic Management Committee (SMC), Audit and Risk Committees provide oversight of the FSCA’s monthly, quarterly and annual financial reporting.

2. Irregular, Fruitless and Wasteful Expenditure

To prevent irregular or wasteful expenditure, the FSCA has implemented a rigorous multi-level approval process and established a system of internal controls. These measures ensure that all financial transactions align with organisational goals and adhere to FSCA internal policies and applicable legislation.

3. Predetermined Objectives

The FSCA’s Monitoring and Evaluation unit reviews quarterly reports and verifies the submissions against each division’s portfolio of evidence to ensure that all reports accurately reflect the performance against the predetermined objectives laid out in the Annual Performance Plan.

4. Procurement and Contract Management

The FSCA procurement decisions benefit from the expertise of supply chain professionals and the counsel of the Head of Office of General Counsel, who advise the Bid Adjudication Committee on the legal aspects of all procurement decisions.

5. Compliance with Key Legislation

The compliance unit continuously monitors the FSCA’s adherence to relevant policies, legislation governing financial matters, including the PFMA and other applicable legislation.

6. Effective Internal Control Systems

The internal audit function overseen by the Audit Committee reviews internal controls annually in alignment with the FSCA's risk profile. The audit annual plan incorporates a pre-assessment of financial and performance reporting. Additionally, all findings raised from audits, if there are any, are recorded in the audit tracker and implementation of controls as per the audit recommendations, are monitored on a monthly basis. The Governance, Risk and Assurance department conducts a thorough annual risk assessment to identify potential risks related to financial and performance reporting and takes steps to mitigate them. Regular training is provided to personnel responsible for financial and performance reporting to ensure that reports produced are in accordance with applicable laws and regulations.

7. Governance

The FSCA has four governance committees in place authorised to provide oversight and make recommendations to EXCO. These are the Remuneration, Risk, Audit, and Social and Ethics Committees. These committees have approved terms of reference that outline the purpose, scope, and operational rules for each committee. All committees have annual evaluation processes in place to measure the effectiveness of each committee.

Through these measures, the FSCA is dedicated to achieving and maintaining a clean audit status, demonstrating a commitment to uphold the highest standards of financial integrity, transparency and accountability.

8. GOVERNMENT EMPLOYEES PENSION FUND (GEPF)

The GEPF has received unqualified audit outcomes for 26 consecutive years from 1998 to 2023.

9. GOVERNMENT PENSIONS ADMINISTRATION AGENCY (GPAA)

The Government Pensions Administration Agency (GPAA) has historically never achieved a clean audit due to irregular expenditure and the inadequate consequence management related to it. The GPAA has made a concerted progress towards a clean audit outcome during 2022/23 financial year under the guidance of the newly appointed Chief Executive Officer and the Acting Chief Financial Officer. This is evidenced by a visible R14 million (33%) decrease in the irregular expenditure of (R29 million) reported during 2022/23 against the R43 million reported during 2021/22. The R25 million of irregular expenditure was due to the historic irregular recurring contracts emanating from previous financial years. The CEO GPAA has taken a firm stance and decision to terminate these recurring irregular contracts in order to halt the continuation of irregular expenditure.

The decrease in irregular expenditure was achieved due to management initiatives of improving the internal controls around the procurement processes. The GPAA CEO, Acting Chief Financial Officer and relevant Chief Directors also improved on the implementation of historical pending consequence management cases relating to irregular expenditure.

All these initiatives took place even though the GPAA has operated without the following Level 15 Executive positions for a decade:

Chief Financial Officer

Chief Operations Officer

Head Corporate Services

A decade long lack of Director-General Positions at GPAA has led to this void and the fact that we are currently operating at over 200 contract positions, has led to the instability of the work force. The finalisation of vacant Director General positions is currently in the DG: Treasury’s desk and we await feedback. Subsequently on the 7 June 2023; The Minister of Finance has recommended to the Minister DPSA the GPAA structure for approval. The GPAA still await the approval of the baseline structure from DPSA. Some supply chain management vacancies still need to be filled to improve on the capacity and performance of the unit. The approval of the structure will ensure that operationally we are more stable and rigid in achieving our mandate and circumvent matters that impede the organisation from achieving a clean audit, amongst others.

Management’s efforts has been carried forward into 2023/24 and the results should reflect a significant improvement.

10.GOVERNMENT TECHNICAL ADVISORY CENTRE (GTAC)

GTAC had achieved a clean audit for the 2022/23 year

11. INDEPENDENT REGULATORY BOARD FOR AUDITORS (IRBA)

The IRBA already receives a clean audit.

12. LAND BANK

Actions at entity level

Reason for Land Bank’s unqualified audit with findings:

The Land and Agricultural Development Bank of South Africa (Land Bank) received an unqualified audit opinion with findings for FY2023 due to internal control deficiencies that were identified by the Auditor General of South Africa on the reporting of collateral that resulted in material adjustments. The underlying collateral management system works as intended. The finding resulted from the erroneous reporting wherein some portfolios’ collaterals were duplicated.

Remedial Action

The Board of Land Bank instituted an extensive remedial plan post the disclaimed audit opinion in FY2020. The remedial plan process continues to be implemented with focus not only on areas where deficiencies were identified but broadly across the different processes of the Bank to ensure that adequate internal controls are in place.

Specific remedial work is being undertaken on the management and reporting of collateral to address the audit findings raised by the Auditor General of South Africa (AGSA) in the FY2023 audit.

The Land Bank’s Internal Audit Department (which has been strengthened with the appointment of a permanent Chief Audit Executive effective 03 July 2023) provides an independent review of the remedial work by management.

Progress Monitoring and Oversight.

Implementation of the remedial plan is done through a dedicated management forum and monitored through the oversight role of the Audit and Finance Committee of the Board which meets on a monthly basis for this purpose.

13. OFFICE OF THE PENSION FUNDS ADJUDICATOR (OPFA)

Not applicable, the Office of the Pension Funds Adjudicator received a clean audit for the 2022-23 financial year.

14. OFFICE OF THE TAX OMBUD (OTO)

1. Section 19(1) of the Tax Administration Act, 2011 (Act 28 of 2011) (TAA) provides that the Tax Ombud reports directly to the Minister of Finance and the Office of the Tax Ombud must submit an annual report to the Minister of Finance, within 5 months of the end of the South African Revenue Service (SARS) financial year.
2. In turn, section 19(3) of the TAA makes provision for the Minister of Finance to table the annual report of the Office of the Tax Ombud to the National Assembly.
3. The Office of the Tax Ombud (OTO) is not a public entity in terms of the Public Finance Management Act, 1999 (Act 1 of 1999) (PFMA).
4. That said, the Auditor General South Africa (AGSA) currently performs the external audit assurance only on performance information of the Office of the Tax Ombud at the request of the Tax Ombud. The audit conclusion on the performance of the Office of the Tax Ombud against predetermined objectives is included in the 2022/2023 Annual Report of the Office of the Tax Ombud that was tabled by the Minister of Finance in the National Assembly on 29 September 2023 and discussed in the Standing Committee Finance on 11 October 2023.
5. Therefore, the Office of the Tax Ombud received no material findings on its audit of pre-determined objectives for the 2022/2023 financial year.
6. To maintain the status-quo the OTO will incorporate combined assurance approach within its governance structure that involves the integration and coordination of various assurance activities to provide a comprehensive and well-rounded view of risk management, control systems, and overall performance. This includes bringing together multiple assurance providers, such internal audit, external audit, and oversight committees, to collaborate and share information, findings, and insights.

15. PUBLIC INVESTMENT CORPORATION (PIC)

1. Audit opinion: unqualified audit opinion with a finding.

 

The Auditor-General’s finding indicated that the investment activities performed did not, in all instances, comply with investment policies and guidelines, in that in some instances, the risk relating to politically exposed persons (PEPs) identified was not assessed to ensure that the necessary enhanced due diligence and enhanced monitoring processes are applied to the high-risk PEPs identified, as required by the established policy.

1. Action:

• The identified PEPs have been included in the PEP register.

• The custodian of the PEP register is now the Compliance Department that gets weekly PEP activity from the system.

• The policy will also be workshopped to the business.

16. SOUTH AFRICAN REVENUE SERVICE (SARS)

SARS received clean audits for its Expenditure Accounts (Own Accounts) (1), Revenue Accounts (2) and the report on the Audit of the Annual Performance Report (3) in the 2022/2023 financial year. The three (3) audit opinions attest to the quality of financial management in SARS and is aligned to one of its Strategic Objectives focused on inculcating good stewardship of its resources across the organisation.

SARS Internal Audit regularly perform audits on areas of risk. SARS has appointed resources such as Governance Specialists in the finance teams. Controls have been embedded to detect and pro-actively manage risks related to the regulated environment.

SARS also implemented action plans to not only sustain the audit outcome from 2022/23 but to further embed good financial management practices.

17. SASRIA SOC LIMITED

1. Audit opinion: unqualified audit opinion with a finding.

Finding related to SASRIA’s failure to comply with section 55 of the PFMA insofar as it relates to the submission of the annual report, annual financial statements and the report of the auditors on those statements.

1. Actions to be put in place

• SASRIA will have an Audit Steering Committee, comprising of External Audit, other Assurance functions and management.

• Ensure active management and implement improvements in communication and efficacy of the audit process.

• External Audit will be requested to develop a project plan which will be approved by the Audit Committee. The progress against the plan will be monitored by the Steering Committee on a weekly/bi-weekly basis.

• Significant deviations from the plan will be escalated to the Executive Committee and if no improvement to the Audit Committee.