ATC131106: Second report of the Committee on Public Accounts on the Report of the Auditor-General on the 2011/12 Financial Statements of the Department of Labour , dated 20 August 2013

Second report of the Committee on Public Accounts on the Report of the Auditor-General on the 2011/12 Financial Statements of the Department of Labour , 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 Labour (the Department). The Committee noted the unqualified audit opinion, highlighted areas which required urgent attention by the Accounting Officer and reports as follows:

1. Usefulness and reliability of information:

The Auditor-General reported the following:

a)     Performance targets were not specific, time-bound, or well-defined.

b)    Planned and reported indicators were not verifiable.

c)     For the selected programmes a total of 22% and 47% of the indicators relevant to Inspection and Enforcement Services and Public Employment Services respectively were not valid, accurate or complete when compared to the source information.

d)    Of the total number of 140 planned targets, only 82 were achieved during the year under review. This represents 41% of total planned targets that were not achieved during the year under review.

The Committee recommends that the Accounting Officer ensures that:

a)     The planned and reported performance targets and objectives are specific, measurable and time-bound.

b)    The planned and reported indicators are clearly defined and understandable.

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

2. Annual financial statements

The Auditor-General reported that:

The financial statements submitted for auditing were not prepared in all material respects in accordance with the requirements of section 40(1) of the PFMA. Material misstatements of capital assets: PPP and disclosure items identified by the auditors were subsequently corrected, resulting in the financial statements receiving an unqualified 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.

3. Asset management

The Auditor-General reported that:

Proper control systems to safeguard and maintain assets were not implemented, as required by section 38(1) (d) of the Public Finance Management Act and Treasury Regulation 10.1.1(a) as a material number of minor assets had no physical location and condition recorded.

The Committee recommends that the Accounting Officer ensures that:

a)     A verifiable asset register; which contains asset descriptions, dates on which they were acquired, as well as serial numbers; is created and updated on a monthly basis.

b)    Proper control systems and policies are implemented to safeguard and maintain assets, and that appropriate action is taken against individuals who do not comply with the prescribed policies.

4. Revenue management

The Auditor-General reported that:

The accounting officer did not take effective and appropriate steps to collect all money due as required by section 38(1) (c) (i) of the PFMA and TR 11.2.1, 15.10.1.2(a) and 15.10.1.2 (e).

The Committee recommends that the Accounting Officer ensures that:

a)     The monthly debtors’ reconciliations are prepared and reviewed through regular monitoring to ensure that the debtors’ balances are correct at the end of the financial year.

b)    The Department implements a system to assist in accounting for these transactions, and the system should automatically calculate the outstanding balances at financial year end, including the correct interest for the period.

5. Procurement / supply chain management

The Auditor-General reported the following:

a)     The Department did not comply with paragraph 16A.3 of the Treasury Regulations as the supply chain management policy is not sufficiently documented with regard to measures to prevent non compliance with the SCM system and processes.

b)    Goods and services of a transaction value above R500 000 were procured without inviting competitive bids, as required by Treasury Regulations 16A6.1. Deviations were approved by the accounting officer even though it was not impractical to invite competitive bids, in contravention of Treasury regulation 16A6.4.

c)     The accounting officer did not report the deviation from normal procurement processes to National Treasury and the Auditor General as required by paragraph 16A.6.4 of the Treasury regulations.

d)    Contracts and quotations were awarded to bidders who did not submit a declaration on whether they are employed by the state or connected to any person employed by the State, which is prescribed in order to comply with Treasury regulation 16A8.3.

e)     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.

The Committee recommends that the Accounting Officer ensures that:

a)     The Department’s Supply Chain Management (SCM) policy is updated, encompassing all the elements of the PFMA, Treasury Regulations, Preferential Procurement Policy Framework Act (No. 5 of 2000), Preferential Procurement Regulations and Supply Chain Management Practice Notes issued by the National Treasury. This will ensure an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective.

b)    Appropriate disciplinary measures are taken against officials who do not comply with SCM requirements.

c)     Supply chain personnel are trained in all SCM policies and procedures.

6. Internal control

The Auditor-General reported that:

The accounting officer did not effectively exercise oversight responsibility regarding compliance with laws and regulations and related internal controls relating to assets, supply chain management and reporting on predetermined objectives. Management did not establish an IT governance framework that supports and enables the department to report efficiently on its activities, including reporting on predetermined objectives which resulted in the ICT strategy for the department and its entities reporting to it not being developed and approved.

The Committee recommends that the Accounting Officer ensures that:

a)     There is oversight responsibility over financial management and internal controls, and appropriate disciplinary measures are taken against individuals who fail to exercise this responsibility.

b)              Internal controls are strengthened and monitored continuously to ensure compliance

with the Department’s policies and procedures.

c)      There is regular monitoring and review of the policies related to the safeguarding and maintenance of assets.

d)      An ICT governance framework is established and implemented.

7. Financial and performance management

The Auditor-General reported that:

Management did not prepare adequate, regular and complete financial and performance reports that are supported and evidenced by reliable information. Material differences which were not identified by management prior to submission of the financial statements were identified between the financial statements and the supporting schedules for PPP assets, lease commitments, commitments and accruals. Further, differences were noted on the figures reported in the annual performance report and the auditor’s recalculation.

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.

8. Investigations

The Auditor-General reported that:

The disciplinary process resulting from the outcome of the forensic investigation at Indlela which was instituted by the Department of Higher Education and Training has not been finalised at the date of the report for the department to consider the impact on its financial statements.

The Committee recommends that:

The Accounting Officer follows up on the progress of the investigation with the Department of Higher Education and report to the Committee in the next quarterly report as required below.

Conclusion

The Committee further 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.