ATC080610: Reports on 19 -26: AISA; Mine Health and Safety Council; Boxing South Africa; Department of Sport and Recreation; IEC; SAMDI; Government Printing Works & Department of Home Affairs

Public Accounts (SCOPA)

Nineteenth Report of the Standing Committee on Public Accounts on the Africa Institute of Southern Africa, dated 10 June 2008

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of Africa Institute of Southern Africa (AISA), for the year ended 31 March 2007.
The Committee noted the disclaimer audit opinion expressed by the Auditor-General. The Committee raised concerns specifically on the following matters and reports as follows: 
Governance arrangements 

 The Committee noted the following internal control weaknesses:

1.1 the services of internal auditors were terminated with the result that AISA operated for 17 months without this function, and for the current year under review no internal audits were performed;
1.2 the Accounting Authority has not conducted regular risk assessments as required by Treasury Regulations and the universal corporate governance principles;
1.3 the Fraud Prevention Plan was incomplete;
1.4 key vacant executive positions were filled by incumbents in an acting role, this coupled with the lack of an approved organisational chart, led to staff being uncertain about their responsibilities and roles in the decision-making structure and
1.5 AISA does not have a comprehensive set of approved financial policies and procedures.

The Committee recommends that the Accounting Authority ensures that:

management implements appropriate asset register policies and procedures to ensure that the register is regularly updated for accuracy and completeness;
control mechanisms are put in place to ensure that the internal audit functions are appropriately in line with corporate governance principles and
management must comply with internal control policies and monitor the implementation thereof.
The Accounting Authority provides the Committee with the action plan indicating procedures to be taken by management to address the above issues within 60 days after the adoption of this report by the National Assembly.

Capacity or people-related issues 

The Committee noted that:
non-compliance with GAAP and International Accounting Standards were identified;  
a number of significant material audit adjustments and disclosure changes were made due to lack of financial skills and
AISA experienced high attrition of senior management staff.  The entire top three tiers of management resigned during the year under review, giving rise to a severe leadership vacuum.  Most senior management positions were not filled and were occupied by employees in acting capacities.  

The Committee recommends that the Accounting Authority ensures that:
management develops and implements adequate monitoring controls to ensure that financial statements submitted for auditing purposes comply with prescribed accounting frameworks; and
all vacant posts, especially those in the financial environment are filled urgently and a progress report be submitted to Parliament on a quarterly basis.

System-related matters 
The Committee noted that: 

3.1 The performance information was not timeously presented for audit purposes due to inadequate policies and procedures that did not facilitate accurate recording and reporting of performance information.
3.2 Lack of origination, retention, safeguarding and supporting documentation resulted in instances where balances and transactions could not be substantiated. 

The Committee recommends that the Accounting Authority ensures that:
policies and procedures are developed and implemented according to the required standards.
compliance to Treasury Regulations is adhered to as required in the revenue cycle.

Report to be considered

Twentieth Report of the Standing Committee on Public Accounts on the Mine Health and Safety Council, dated 10 June 2008

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the Mine Health and Safety Council   for the year ended 31 March 2007.
The Committee noted the qualified audit opinion expressed by the Auditor-General.  However, the Committee raised its concerns on the following matters and therefore reports as follows: 

Capacity or people-related issues (vacancies in key positions and lack of relevant skills)

The Committee noted the following issues highlighted in the audit report:
1.1 the suspension of the Chief Financial Officer (CFO); 

1.2 the appointment of an employee in an acting capacity as CFO who was not in possession of the relevant skills and qualifications, thus        losing institutional knowledge of the finance function; 

1.3 that in the absence of a suitably qualified CFO, the finance department was not able to discharge of its functions. This is exacerbated by a lack of appropriate accounting skills in the organization. 

The Committee recommends that the Accounting Authority: 
establishes and reviews reasons for the high staff turnover and that it develops and implements strategies to eliminate this problem, especially regarding key staff positions;
ensures that the organization attracts and retains the best candidates, especially for specialist positions;
puts in place internal control measures, including the employment of competent and qualified people; 
ensures that finance staff are appropriately skilled and trained enabling them to account for transactions and balances on the required basis of accounting and enabling them to maintain an adequate fixed asset register and
ensures that processes are streamlined to facilitate staff understanding their responsibilities and that compliance with legislation is monitored at a senior level.

Governance arrangements 

The audit report highlighted that the entity:
2.1 lacked a proper control environment;
2.2 lacked the appropriate number of employees;
2.3tasks were not appropriately aligned with compliance   responsibilities;
2.4 lacked knowledge of the PFMA and all applicable regulations; 
2.5 failed to establish an appropriate formal code of conduct for      employees and other policies addressing acceptable operational       practices. 

The Committee recommends that the Accounting Authority ensures that: 
management has a proactive approach to risk managing and that reported items are addressed as a matter of urgency;
adequate supervisory controls ensures that policies and procedures are adhered to and
the code of conduct is appropriately amended to deal with matters of non-compliance. 

Conclusion 
The Committee recommends that the Accounting Authority furnish it with a progress report covering all the above-mentioned issues within 60 days of the adoption of this report by the National Assembly.

Report to be considered

Twenty First Report of the Standing Committee on Public Accounts on the Annual Report and the report of the Auditor-General on the financial statements of Boxing South Africa for the financial year ending 31 March 2007, dated 10 June 2008

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of Boxing South Africa for the financial year ending 31 March 2007.

For the 2006/07 financial year an unqualified audit opinion was expressed by the Auditor-General on the financial statements of Boxing South Africa. The Committee raised concerns on the following matters and reports as follows: 

 Capacity or people-related issues
The Auditor-General identified the following shortcomings with regard to capacity or people related issues:
1.1 a high vacancy rate;
1.2 insufficient segregation of duties;
1.3 inadequate supervision and reviewing and
1.4 the General Manager had been on suspension since 19 May 2006.

The Committee recommends that the Accounting Officer ensures that:
all vacant positions are filled to ensure that there is enough capacity for the entity to deliver on its mandate;
the entity complies with the sections of Treasury Regulations and PFMA which governs the segregation of duties;
there is proper supervision and reviewing of processes in the entity and
a progress report on the suspension of the General Manager be submitted to Parliament within 30 days after the adoption of this report by the National Assembly.

Governance Issues
The Auditor-General identified the following shortcomings with regard to governance issues:
21.        the audit committee was not fully operational during the year under review and was due for restructuring in the following financial year,
            there was no risk strategy and assessment plan in place,
2.3          non compliance with laws and regulations.

The Committee therefore recommends that the Accounting Officer ensures that:
a          the restructuring of the audit committee are finalised and fully operational;
b          risk assessment and fraud prevention plans are in line with Treasury Regulations and
c          performance information is submitted in line with the requirements of the PFMA.

Systems related issues
lack of independent reviews by management caused shortcomings in internal controls;
            insufficient processes to safeguard financial documentation and assets;
            insufficient policies and procedures for all the entity’s activities.


The Committee recommends that the Accounting Officer ensures that:
a          Policies and procedures are developed and approved to ensure adequate control.
b          The department complies with all applicable laws and regulations.

Report to be considered.

Twenty Second Report of the Standing Committee on Public Accounts on the Annual Report and the report of the Auditor-General on the financial statements of the Department of Sport and Recreation South Africa for the financial year ending 31 March 2007, dated 10 June 2008.

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the report of the Auditor-General on the financial statements of the Department of Sports and Recreation South Africa for the financial year ending 31 March 2007.

For the 2006/07 financial year a qualified audit opinion was expressed by the Auditor-General on the financial statements of the Department of Sports and Recreation SA.  The committee raised concerns on the following matters and reports as follows:

Asset management
1.1 Capital assets
The following deficiencies, amongst others, were reported by the Auditor-General:
(I)         Assets of R1 735 770 from the former South African Sports Commission and various other assets did not appear on the LOGIS asset register;
(ii)         The physical existence of assets with a value of R691 710 could not be verified;
(iii)        Capital assets of R800 362 were incorrectly classified as services on LOGIS asset register.

The Committee recommends that the Accounting Officer ensures that a proper asset register is maintained and that periodic asset counts and follow-up on any discrepancies are performed.

1.2 Intangible assets
The closing balance as per the LOGIS asset register of R128 731 did not correspond with the closing balance of R501 000 as per note 27 of the financial statements. Various intangible assets were acquired during the year, and those were not reflected in the financial statements.

The Committee recommends that:
The department establishes controls to ensure that all intangible assets are recorded and disclosed and
reconciliations are performed to verify data completeness.

2.    Staff related issues
2.1 Performance bonuses
The Department of Sports and Recreation paid bonuses amounting to R1 066 682 to all staff on level 12 and below for the year under review without performance reviews. This was done contrary to what was prescribed by the Department of Public Service and Administration.

The Committee recommends that:
The above amount is regarded as irregular expenditure as it was made contrary to the requirements of the Public Service Regulations. 
Performance bonuses should only be paid when staff has been assessed based on performance contracts signed, and in accordance with policy.

2.2 Transitional allowances paid
The department paid transitional allowances amounting to R1 807 377, contrary to Public Service and Administration regulations.

The Committee recommends that the above amount is regarded as irregular expenditure as it was made contrary to the requirements of the Public Service Regulations.

3.   Receivables for departmental revenue
An amount of R810 608 relating to royalties which should have been transferred from the former South African Sports Commission did not include all the outstanding amounts as obtained from the entity which administers the royalties.

The Committee recommends that the Accounting Officer ensures that:
A final decision regarding the handling of royalties are made between the executive authority, the accounting authority and National Treasury as a matter of urgency
South African Rugby Union management and the department’s agent (MIG) are followed up with regard to royalties owed to the department 

4.   Goods and Services: Special Services
An amount of R2 412 074 was paid as allowances to athletes, per category, in preparation for the Olympic Games 2008.  The payment of these athletes was administered by TuksSport (Pty) Ltd.  No verification for validity and accuracy of these payments could be performed as no details of athletes were attached to the invoice.

The Committee recommends that:
All relevant approvals and valid supporting documentation are obtained before any payments are made.
The department should consider paying the athletes itself and not outsource this function to save some costs. 
The department follow-up on this matter and report back to Parliament within 60 days after the adoption of this report by the National Assembly.

Material non-compliance with applicable legislation
Division of Revenue Act, 2006 (Act No. 2 of 2006); 
5.1 Mass participation
                        (i) insufficient monitoring and reporting;
(ii) programme implementation agreements were not available or not signed by Sports Recreation South Africa and
                        (iii) business plans not timely approved.

(B) 2010 FIFA world cup soccer
                        (i) monthly reports not submitted to National Treasury;
                        (ii) approved business plans from host cities not submitted and
(iii) detailed stadium development plans were not completed or attached to signed         contracts                                                          

The Committee recommends that:
the department ensures compliance with DoRA to address all the above shortcomings and report back to Parliament within 60 days after the adoption of this report by National Assembly.

6.     Supply chain management
The department did not comply with the tender process as stipulated in the Supply Chain Management Circular no.9 of 2005/06 as issued by National Treasury, and thus non compliance with section 38(1) (a) of the PFMA.

The Committee therefore recommends that:
procedures for proper planning and monitoring of tender activities are implemented by the department and
officials should comply with policies and procedures.
            

7. Leases, accruals and commitments
The Committee noted with concern that the department does not have the necessary control systems/policies and procedures in place to facilitate accurate reporting of the above.

The Committee therefore recommends that:
Comprehensive policies and procedures be developed and implemented as a matter of urgency.

8. Information systems audit
An information systems audit revealed that due process was not followed when users are created or removed or when user rights are amended; and that password control settings on BAS were inadequate.

The Committee therefore recommends:
that the above shortcomings be addressed as a matter of urgency as it could compromise data integrity.

9.  Internal control
The Committee furthermore noted with concern the internal control shortcomings and root causes reported on in paragraph 19 of the AG’s report. These include amongst others: 
A lack of policies and procedures;
No on-the-job training;
No approved delegations and job descriptions;
No performance evaluations and
Insufficient safeguarding of assets.

The Committee therefore recommends:
That a detailed action plan, indicating proper timeframes,  are compiled to address the control shortcomings in the AG’s report and be submitted to SCOPA within 60 after the adoption of this report by the National Assembly.

10.   Conclusion
The Committee is concerned with the absence of approved policies and procedures that should guide the day- to- day activities of the department.

Report to be considered.

Twenty Third Report of the Standing Committee on Public Accounts on the Annual Report and the report of the Auditor-General on the financial statements of Independent Electoral Commission  for the Financial Year ending 31 March 2007, dated 10 June 2008.

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the financial statements of the Independent Electoral Commission (IEC) for the financial year ending 31 March 2007.

The Committee reports as follows:
For 2006/07 an unqualified audit opinion was expressed for the IEC.  However, the Committee requests the Accounting Officer to assure Parliament that:

the Commission’s current IT infrastructure is ready and capacitated to provide a stable platform to support the next national and provincial elections in 2009; and voter education will be done in a visible and concerted manner.

Conclusion
The Committee congratulates the IEC for an unqualified report from the auditors, and hopes this will be maintained.

Report to be considered.

Twenty Fourth Report of the Standing Committee on Public Accounts on the Annual Report and the report of the Auditor-General on the financial statements of the South African Management Development Institute (SAMDI) for the financial year ending 31 March 2007, dated 10 June 2008.

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the report of the Auditor-General on the financial statements of the South African Management Development Institute (SAMDI) for the financial y ear ending 31 March 2007.

The Committee notes that for the 2006-07 financial year, the Auditor-General expressed an unqualified audit opinion for SAMDI, on both the Vote and the Training Trading Account. The Committee raised a number of concerns and reports as follows:

1. Main vote

1.1 Systems-related matters

1.1.1 Monitoring of internal controls

The Auditor-General reported that there was inadequate monitoring of controls to ensure proper recording and disclosure of fixed assets.  This resulted in material corrections being made to the financial statements submitted for auditing purposes.

In terms of Treasury Regulation 10.1 and section 38(1) (d) of the Public Finance Management Act, the Accounting Officer of a department must take full responsibility and ensure that a proper control system exists for the recording and safeguarding of assets.

The Committee recommends that the Accounting Officer ensures that:
the fixed asset register is updated timeously;
a proper filing system is developed to record all purchases and disposals of fixed assets and
reconciliations between the different systems are performed on a monthly basis.
 
2. Training Trading Account

2.1 Systems-related matters

2.1.1 Internal control activities

The Auditor-General reported that there were inadequate systems and procedures to properly account for revenue and receivables, ensuretimeous collection of debtors, and to ensure compliance with Generally Accepted Accounting Practices (GAAP). This resulted in material corrections being made to the financial statements submitted for auditing purposes.

The Committee recommends that the Accounting Officer ensures that:
Controls are implemented or improved to ensure that all receipts are allocated in a timely manner.
Debtors with credit balances are followed up timeously and.
Controls are implemented to ensure that revenue is split in accordance with the requirements of IAS 39.

3. Monitoring

The Auditor-General reported that there was inadequate monitoring of controls to ensure the completeness of payables and commitments at financial year-end.

SCOPA recommends that the Accounting Officer ensures that there is adequate monitoring of controls by management. 

SCOPA further recommends that the entity provides the Committee with a progress report on the abovementioned issues within 60 days of the adoption of this report by the National Assembly.
 
Report to be considered.

Twenty Fifth Report of the Standing Committee on Public Accounts on the Annual Report and the report of the Auditor-General on the financial statements of the Government Printing Works for the financial year ending 31 March 2007, dated 10 June 2008.

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the annual report and the report of the Auditor-General on the financial statements of the Government Printing Works for the financial year ending 31 March 2007.

The Committee notes that for the 2006/07 financial year an adverse audit opinion was expressed by the Auditor-General on the financial statements of the Government Printing Works (GPW). The Committee reports as follows:

 Receivables
The Auditor-General reported that receivables were not initially recognised at fair value and were subsequently not measured at amortised cost as required.  Estimations indicated that debtors were understated by R3, 245 million, income overstated by R15, 573 million and interest received understated by R18, 818 million.

The Committee recommends that the Accounting Officer ensures that:
corrective measures that are effective and efficient are implemented by management to ensure that monies due to GPW are collected on time and
appropriate policies and procedures are put in place with respect to the activities of GPW and that compliance is ensured.

2.         Inventory – Work in progress (WIP)
The Auditor-General reported that:
work in progress to the amount of R19, 093 million could not be verified, and 
no reliance could be placed on the WIP report due to inconsistencies that existed.

The Committee recommends that: 
a)   reconciliation must be performed between the Cost Record Report and the WIP report,
b)   proper supporting documentation must be in place for each WIP 

3.                     Payables
            
The Auditor-General reported that goods received, control account included long-outstanding amounts of R1, 690 million for prior years and R5, 380 for current year.  These amounts might be overstatements of payables.

The Committee therefore recommends that:
this issue is addressed as a matter of urgency; and
monthly reconciliation is done and reviewed by senior managers.

4.                     Special investigation 
The Auditor-General reported that in the Accounting Officer’s report reference is made to a forensic investigation that is still in progress. However, the Auditor-General reported that the final report dated 26 October 2005 indicated an amount of R66, 492 million which relates to fruitless and wasteful and/or irregular and/or unauthorised expenditure.  According to this report, the amount could increase substantially. The report indicated that Government Printing Works (GPW) officials do not follow applicable policies and procedures and that GPW should consider taking appropriate disciplinary steps in those instances.
This also relates to non-compliance with the PFMA section 38(1) (g), 38(1) (h) (iii) and 40(3) (b).

The Committee recommends that the Accounting Officer ensures that:
applicable policies and procedures are observed at all times and
appropriate disciplinary actions are taken where applicable and a report in this regard is submitted to Parliament within 60 days after the adoption of this report by the National Assembly.

5.                     Non-compliance with applicable legislation
The Auditor-General reported on the following shortcomings with regard to compliance with applicable legislation:
the fraud prevention plan was not implemented and a risk assessment plan was not approved, implemented and monitored as required by Treasury Regulation 3.2.1 and
the system of internal audit was not under the control and direction of the Audit Committee as required by section 38(a) (ii) of the PFMA.

The Committee therefore recommends that the Accounting Officer ensures that: 
policies and procedures are put in place;  
compliance with applicable legislation is ensured and
there is an update on the debtor’s collection list.

6.                     Conclusion
The Committee is concerned with the adverse audit opinion expressed by the Auditor-General and the fact that the GPW does not have appropriate policies, procedures, techniques and mechanisms to smoothly run its activities.

Report to be considered.

Twenty Sixth Report of the Standing Committee on Public Accounts on the Annual Report and the report of the Auditor-General on the financial statements of the Department of Home Affairs for the financial year ending 31 March 2007, dated 10 June 2008.

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the report of the Auditor-General on the financial statements of the Department of Home Affairs for the financial year ending 31 March 2007.

The Committee notes that for the 2006/07 financial year a disclaimer of opinion was expressed by the Auditor-General on the financial statements of the Department of Home Affairs. The Committee reports as follows:

 Cash and cash equivalents
The completeness and accuracy of cash and cash equivalents, departmental revenue and expenditure could not be verified by the Auditor-General due to the following:
1.1        not performing reconciliations of key accounting processes or resolving long-outstanding items and
1.2        non-compliance with policies and procedures.

The Committee recommends that the Accounting Officer ensures that:
reconciliation of suspense accounts is performed monthly and reviewed by senior officials and 
policies and procedures are developed and approved to ensure implementation of adequate controls.

2.         Payables
The accuracy and completeness of payables could not be verified by the Auditor-General due to the following:
2.1        a repatriation deposits suspense account which was not reconciled and 
2.2        the inter-responsibility suspense account which was not analysed and cleared as per Treasury Regulation 17.1.2.

The Committee recommends that the Accounting Officer ensures that:
there are approved monitoring controls over the review of reconciliations, clearing of suspense accounts and that there are supporting documentation
there are approved policies and procedures to govern the activities of the department

3.   Capital Assets
The existence, accuracy and completeness of property, plant and equipment could not be verified by the Auditor-General due to, amongst others, the following shortcomings:
3.1        no assets register was present for an audit for tangible capital assets to the value of R1 016, 149 million and 
3.2        management has been unable to provide appropriate documentation to support the   amount of R45, 939 million for transfers.

The Committee recommends that the Accounting Officer should:
compile a complete asset register and that this is reviewed by management;
ensure that its activities are based on approved policies and procedures to ensure that officials implement adequate controls.

4.         Departmental revenue and receivables
Various shortcomings were identified in the controls over departmental revenue, and included amongst others the following:
4.1        written policies and standard operating procedures have not been formalised or developed to guide the financial accounting processes and related controls over the revenue collected and
4.2        there was inadequate monitoring of controls over the reconciliations leading to revenue being incorrectly recorded.

The Committee recommends that the department should ensure that effective and efficient controls exist to ensure completeness and accuracy of the departmental revenue, receivables and cash received by the department.

5.    Conclusion

The Committee is concerned with the absence of approved policies and procedures that should guide the day-to-day activities of the Department. The Committee further recommends that an update report be submitted by the Department within 30 days after the adoption of the report by the National Assembly.