ATC150618: Sixth Report of The Committee on Public Accounts on the Report of the Auditor General on the annual report and financial statements of the Department of International Relations and Cooperation for the 2013/14 financial year, dated 20 May 2015.

Public Accounts (SCOPA)

Fifth Report of The Committee on Public Accounts on the Report of the Auditor General on the annual report and financial statements of the Department of Defence for the 2013/14 financial year, dated 20 May 2015.
 

1. Introduction

 

The Committee on Public Accounts (the Committee) heard evidence on and considered the contents of the Annual Report and the Report of the Auditor-General (AG) on the 2013/14 financial statements of the Department of Defence (the Department). The Committee noted the qualified audit opinion, highlighted areas which required the attention of the Accounting Officer, and reports as follows:

 

2. Intangible capital assets, financial and performance management

 

The Auditor-General identified the following:

 

1. The balance for intangible capital assets could not be confirmed due to lack of sufficient appropriate audit evidence; and
2. Restatement of corresponding figures to rectify the prior year misstatement could not be confirmed as there was lack of supporting evidence to substantiate the restatement.

 

The Committee recommends that the Accounting Officer ensures the following:

 

1. A proper system is implemented to ensure that all intangible assets are recorded and accurately valued;
2. An asset verification exercise is performed on a regular basis; and
3. Manual and automated controls should be designed to ensure adequate record keeping, supporting accurate and complete financial reporting.

 

3. Restatement of corresponding figures

 

The Auditor-General identified that:

 

Corresponding figures for 31 March 2013 have been restated as a result of errors discovered during 2013/14 financial year.

 

The Committee recommends that the Accounting Officer ensures that:

 

1. Policies and procedures are approved to ensure that financial information is verified before submitted for audit;
2. Adequate checks and balances should be performed and reviewed by senior finance personnel; and
3. Adequate oversight and monitoring of financial information on a regular basis.

 

4. Fruitless and wasteful expenditure

 

The Auditor-General has reported that:

 

1. Fruitless and wasteful expenditure to the amount of R307.497 million, mainly comprising a payment relating to a contract that was cancelled; and

 

1. The Accounting Officer did not take effective steps to prevent irregular, fruitless and wasteful expenditure, as required by section 38(1)(c)(ii) of the PFMA, Treasury Regulation 9.1.1 and 16A6.1, as well as section 55(3) of the Defence Act.

 

The Committee recommends that the Accounting Officer ensures that:

 

1. There is a system  and policies of internal control that will prevent and detect fruitless and wasteful expenditure, as required by section 38(1)(c)(ii) of the Public Finance Management Act (No.1 of 1999)(PFMA) and that these policies are communicated to all levels in the Department;
2.  The department appraise Parliament of the details of disciplinary actions taken against officials responsible for incurring fruitless and wasteful expenditure, in terms of section 38(1)(h)(iii) of the PFMA; and
3. The Department adequately reviews and monitors compliance with applicable policies and laws.

 

5. Irregular expenditure

 

The Auditor-General has reported that:

 

Irregular expenditure amounting to R1.074 billion was incurred. This amount relates to increase in salaries paid to uniform members, which was not approved by the Minister of Finance as required in terms of section 55(3) of the Defence Act, 2002 (No.42 of 2002).

 

The Committee notes that this approval has now been received from the Minister of Finance. However, the Committee recommends in future, such requests should be submitted to the Minister of Finance timeously.

 

6. Compliance with legislation

 

6.1 Internal Audit

 

The Auditor-General reported that the Accounting Officer did not ensure that the Department has a fully operational internal audit function in place as required by Treasury Regulations. As a result, internal audit section was not able to perform its functions.

 

The Committee recommends that the Accounting Officer ensures that:

 

• The internal audit unit is fully capacitated and performs all functions necessary to ensure credibility and reliability of information as well as functions to improve finance management of the department.                                         

 

 6.2 Audit Committee

 

The Auditor-General reported that:

 

As a result of internal audit function not fully functional, the audit committee could not review the following:

 

      a)  The effectiveness of the internal audit function;

1. Annual work programme of the internal audit function;
2. Reports of significant investigations issued by the internal audit function;
3. Responses of management to specific recommendations made by internal audit function;
4. Risk areas of the institution’s operations covered the scope of internal audits; and
5. Accounting and auditing concerns identified from internal audits, as required by Treasury Regulations (TR 3.2.10(b), (c), (e) and (g).

 

The Committee recommends that the Accounting Officer ensures that:

 

The Audit Committee perform its duties, including that of reviewing the effectiveness of internal control system, as required by Treasury Regulations 3.1.10.

 

6.3 Financial statements, performance information and annual report

 

The Auditor-General has reported the following:

 

1. The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and/or supported by fully and proper records, as required by section 40(1)(a) and (b) of the PFMA; and
2. Material misstatements were identified by the auditors in the notes to the submitted financial statements were subsequently corrected, but the supporting records for intangible capital assets could not be provided, this resulted in the financial statements receiving a qualified audit opinion.

 

The Committee recommends that the Accounting Officer ensures that:

 

1. Management ensure the accuracy and reliability of information supporting the financial statements; and
2. Material errors and misstatements be rectified before financial statements are submitted for audit.

 

7. Consultants, contractors and agency/outsourced service

 

During the financial year under review, the expenditure for consultants, contractors and agency/outsourced services amounted to R3.332 billion (2012/13: R2.773 billion).

 

The Committee acknowledges that utilise the services of consultants is sometimes necessary for the Department of Defence. 

The Committee recommends that the Accounting Officer ensures that:

 

1. The amount be significantly reduced;
2. There is a skills retention strategy in place to ensure that critical skills are transferred from consultants to departmental staff so as to reduce the reliability on consultants and costs;  and
3. Department recruits employees with adequate financial skills.

 

8. 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.