ATC131106: Fourth report of the committee on public accounts on the report of the Auditor-General on the 2011/12 financial statements of the Department of Correctional Services, dated 20 August 2013

Fourth report of the committee on public accounts on the report of the Auditor-General on the 2011/12 financial statements of the Department of Correctional Services, dated 20 August 2013

Introduction

The Standing Committee on Public Accounts (SCOPA) heard evidence on and considered the contents of the Annual Report and the Report of the Auditor-General on the 2011/12 financial statements of the Department of Correctional Services (the Department). The Committee noted the qualified audit opinion, highlighted areas which required the urgent attention of the Accounting Officer, and reports as follows:

1. Procurement and contracts

The Auditor-General reported the following:

a)     Sufficient appropriate audit evidence could not , in some cases be obtained that contracts relating to food, security and maintenance were awarded in accordance with the legislative requirements as some of  the documentation is in the possession of outside institutions pending investigations.

b)    Awards were sometimes made to suppliers that are listed on the National Treasury’s database as persons prohibited from doing business with the public sector in contravention of Treasury Regulations 16A.9.1(c).

c)     Some persons in service of the Department who had a private or business interest in contracts awarded by the Department failed to disclose such interest, as required by Treasury Regulation 16A8.4.

d)    Some persons in service of the Department whose close family members, partners or associates had a private or business interest in contracts awarded by the Department failed to disclose such interest, as required by Treasury Regulation 16A8.4.

e)     Some employees of the department performed remunerative work outside their employment in the department without written permission from the relevant authority as required by section 30 of the Public Service Act.

f)     Goods and services with a transaction value below R500 000 were procured without obtaining the required price quotations, as required by Treasury Regulation 16A.6.1.

The Committee recommends that the Accounting Officer ensures that:

a)     There is proper and adequate implementation of Supply Chain Management (SCM) laws and regulations, as well as compliance.

b)    The Department implements effective, efficient and transparent financial and risk management processes.

c)     The SCM policy and fraud prevention strategy are reviewed to ensure their enhancement and effectiveness in guiding the Department’s procurement transactions.

d)    Appropriate disciplinary measures are taken against employees that do not comply with laws and regulations.

2. Predetermined Objectives

2.1 Usefulness of information

The Auditor-General reported that:

Treasury Regulation 5.2.4 requires that the strategic and annual performance plan should form the basis for the annual report, therefore requiring the consistency of indicators between planning and reporting documents. A total of 22% of the reported indicators are not consistent with the indicators as per the approved strategic and annual performance plan. This is due to the lack of alignment between the Strategic Plan indicators and the Annual Performance Plan indicators.

The Committee recommends that the Accounting Officer ensures that:

Compliance with the regulation is reviewed and adhered to, and indicators in both the Strategic Plan and the Annual Performance Plan are aligned.

2.2 Reliability of information

The Auditor-General reported that:

The National Treasury Framework for managing programme performance information (FMPPI) requires that processes and systems which produce the indicator should be verifiable. The development programme has performance indicators where those participating offenders had to be calculated against those eligible for these programmes. I was unable to obtain all 60% of the information and explanations, I considered necessary to satisfy myself as to the validity, accuracy and completeness of the actual reported performance relevant to these performance indicators. This was due to limitations placed on the scope of my work due to the absence of information systems/the institution’s records not permitting the application of alternative audit procedures.

The Committee recommends that the Accounting Officer ensures that:

a)    Information is kept to support data reported on in the monthly statistics.

b)    Procedures are established and communicated to give personnel guidance to enable understanding and execution of internal control objectives.

c)    Action plans are developed and monitored to address any internal control deficiencies.

d)    The information systems and the Department’s record-keeping systems are developed and implemented to ensure reliability of information.

3. Human Resources

The Auditor-General reported the following:

a)     The accounting officer did not always implement effective measures to ensure that employees do not abuse sick leave, as required by Public Service Regulation /V/F(c).Furthermore, sufficient appropriate audit evidence could not be obtained that the accounting officer implemented effective measures to ensure that employees do not abuse sick leave, as required by Public Service Regulation 1/V/F(c).

b)    Employees received overtime compensation in excess of 30% of their monthly salaries, in contravention of Public Service Regulation I/V/D.2(d).Furthermore, sufficient appropriate audit evidence could not be obtained that monthly compensation for overtime was limited to 30% of employee’s monthly salary as required by Public Service Regulation 1/V/D. 2(d)

c)     An approved performance and career management policy for other employees than senior management was still in a draft format during the time of the audit.

The Committee recommends that the Accounting Officer ensures that:

a)     Management checks the completeness of the leave applications on the system and take into account the discrepancies identified.

b)    Management ascertains that leave applications are filed per employee record.

c)     Management ascertains that leave is captured on a regular basis.

d)    Controls over the payment of overtime are reviewed and that amounts paid to staff members are checked by a senior payroll administrator, prior to the payments being made.

e)     Policies and procedures are developed and approved by appropriate officials. These should be reviewed, communicated and made readily available for use by all officials within the department.

f)     The performance and career management policy for other employees than senior management is finalised without further delay.

4. Annual financial statements, performance and annual report

The Auditor-General reported that:

The financial statements submitted for auditing were not prepared in all respects in accordance with the prescribed financial reporting framework and supported by full and proper records as required by section 40(1)(a) and (b) of the PFMA. Material misstatements on accruals, commitments, contingent liabilities, irregular expenditure, fruitless and wasteful, employee cost, pre payments, capital assets, goods and services and leases identified by the auditors in the submitted financial statements were subsequently corrected, but the uncorrected material misstatement resulted in the financial statements receiving a qualified audit opinion.

The Committee recommends that the Accounting Officer ensures that:

The financial statements and other information included in the annual report are checked and reviewed for completeness and accuracy prior to audit. All amendments to financial statements and information should be done before the annual audit commences.

5. Material underspending of the budget

The Auditor-General reported that:

The Department has underspent on its budget by R893, 9 million. This may be an indication that not all projects planned for the year could  be carried out or could not be completed as planned. It should be noted however that a part of the underspending was used to fund the unauthorised expenditure that was approved during the year without funding.

The Committee recommends that the Accounting Officer ensures that:

Adequate planning and project management are implemented by management to ensure funds are spent for appropriate programmes in the budget year.

6. Strategic planning

The Auditor-General reported that:

The accounting officer did not, always, ensure that the Department had and maintained effective, efficient and transparent systems of financial and risk management and internal control as required by section 38(1)(a) of PFMA. Departmental systems to collate and report performance information are not adequate.

The Committee recommends that the Accounting Officer ensures that:

a)     The Department has and maintains effective, efficient and transparent systems for financial and risk management and internal control .

b)    The systems used to collect and collate information on predetermined objectives facilitate the preparation of reports

7. Receivables

The Auditor-General reported that:

The accounting officer did not always take effective and appropriate steps to collect all money due to the Department on time, as required by section 38(1)(c)(i) of the Public Finance Management Act and Treasury Regulations 15.10.1.2(a) and 15.10.1.2 (e).

The Committee recommends that the Accounting Officer ensures that:

Effective and appropriate steps are taken to collect on time all money due to the institution, as required by section 38(1)(c)(i) of the Public Finance Management Act and Treasury Regulations 15.10.1.2(a) and 15.10.1.2 (e).

8. Tangible Capital Assets

The Auditor-General reported the following:

a)     The accounting officer did not always implement proper control systems for the safeguarding and maintenance of assets to prevent theft, losses, wastage and misuse as required by Treasury Regulations 10.1.

b)    In 2010/11 financial year, non-cash additions and disposals were materially overstated by internal transfers of movable tangible capital assets between departmental stores. This was as a result of the LOGIS system used by the department being unable to account separately for internal transfers.

c)     During the current year the Department made adjustments to these disclosure notes in order to properly account for internal transfers but the adjustments made were materially misstated. Furthermore, the Department could not provide sufficient and appropriate audit evidence to confirm the completeness, occurrence and accuracy of the adjustments to the approximate value of R10 million.

d)    Asset register for both major and minor assets were misstated. There were assets that were not captured on the asset register and there were also assets that could not be physically identified. Furthermore, the asset register was not fairly valued since amounts used for some assets could not be substantiated .

The Committee recommends that the Accounting Officer ensures that:

a)     There are adequate internal controls for the safeguarding and maintenance of assets so as to prevent theft, losses, wastage and misuse.

b)    The Department conducts monthly asset verification tests to ensure that the asset register is up-to-date and is a true reflection of the assets that the Department owns.

c)     The asset register is reviewed to identify and correct assets that are incorrectly valued.

d)    The staff responsible for asset management in the Department are trained on policies and procedures that regulate the function in the public service.

e)     The systems used to collect and collate accounting information are reviewed and monitored so as to avoid misstatements in future adjustments.

9. Expenditure management

The Auditor-General reported the following:

a)     The accounting officer did not always take effective steps to prevent irregular / fruitless and wasteful expenditure, as required by section 38(1)(c)(ii) of the Public Finance Management Act and Treasury Regulation 9.1.1.

b)    The accounting officer did not always ensure effective internal controls were in place for payment approval and processing, as required by Treasury Regulation 8.1.1.

c)     Sufficient appropriate audit evidence could not be obtained, in all instances, that all money was spent with the approval of the accounting officer or an authorized official, as required by Treasury Regulations 8.2.1 and 8.2.2.

d)    Contractual obligations and money owed by the Department were not, in all instances, settled within 30 days or an agreed period, as required by section 38(1)(f) of the Public Finance Management Act and Treasury Regulation 8.2.3.

e)     Payments were made in advance of the receipt of goods or services in contravention of Treasury Regulation 15.10.1.2.

The Committee recommends that the Accounting Officer ensures that:

a)     There is timely monitoring and review of compliance with laws and regulations and implementation of strong internal controls so as to avoid non-compliance.

b)    Internal controls are strengthened and monitored continuously to ensure compliance with the Department’s policies and procedures.

c)     The Department implements effective, efficient and transparent financial and risk management processes.

d)    Contractual obligations are met and creditors paid within 30 days as required by section 38(1) (f) of the Public Finance Management Act and Treasury Regulation 8.2.3.

10. Fruitless, wasteful  and irregular expenditure

The Auditor-General reported that:

Fruitless and wasteful expenditure amounting to R71, 3 million was incurred during the current year. Furthermore, irregular expenditure amounting to R214, 652 million was incurred during the current year.

The Committee recommends that the Accounting Officer ensures that:

a)     Appropriate disciplinary measures are taken against employees who were responsible for incurring fruitless, wasteful and irregular expenditure in terms of section 38(1)(h)(iii) of the Public Finance Management Act.

b)    The Department implements effective, efficient and transparent financial and risk management processes.

c)     The Department strengthens its internal control systems in order to avoid incurring further irregular expenditure.

Conclusion

The Committee recommends that the Executive Authority submits a progress report on the implementation of the above recommendations to the National Assembly within 60 days after the adoption of this report by the House.

The Committee further recommends that the Accounting Officer submits quarterly reports on all the above-mentioned recommendations.

Report to be considered.