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Media statement recently released on the 2010-11 PFMA audit outcomes

The 2010-11 audit outcomes of national and provincial departments and public entities show a combination of improvement, stagnation and regression as a reflection of the tone set by the national and provincial leadership.

Setting the right tone and playing an active role in governance, and interaction with oversight structures are a pivotal step on the part of leadership towards improvement in the audit outcomes of national and provincial departments as well as public entities.

Our assessment of the national audit outcomes of government departments and national entities over the 2010-11 financial year reflects an overall improvement in four departments and 30 public entities, which amounts to a total of 34 improvements. Overall regressions in audit outcomes within the national sphere of government amounted to 61 (six departments and 55 public entities).

Clean audit outcomes were received by three national departments (8%), namely the Department of Public Enterprises, the Department of Science and Technology and the Department of Environmental Affairs. Financially unqualified reports (with findings) were received by at least two thirds of the national departments. The main reason for these national departments and national public entities not attaining the clean audit status is due to internal control weaknesses in financial reporting, service delivery reporting and compliance with laws and regulations. Overall, three quarters of the national departments avoided audit qualifications, in comparison with two thirds received for the last two years. In this vein the national departments are catching up with the public entities which have been operating at around 90% without audit qualifications for the past three years. Public entities are in essence leading in the clean audit space at the level of more than 40% for the last three years, compared to national departments that have been declining for the last three years (from 15% two years ago and 8% this year).

The Department of Public Works is the only national department that received a disclaimer of opinion, which, together with an adverse opinion, are the worst categories of audit findings. Seven national public entities received such audit opinions; these included the National Arts Council of South Africa, Property Trading Entity, Road Traffic Infringement Agency, Road Traffic Management Cooperation, Water Trading Account, Public Service Sector Education Seta and Technology Innovation Agency.

With the exception of the National Treasury Consolidation, all 39 departments had their financial statements submitted and audited by the reporting date. Of the public entities three still remain that have not submitted their financial statements. These are: Thubelisha homes, Third Party Funds, and Compensation Commission for Occupational Diseases.

At provincial level, provinces that had the highest number of public entities that had not submitted their financial statements by the cut-off date were North West (10) and Northern Cape (5).

Clean audit outcomes were received by 46 provincial departments, legislatures and entities (19%).

The provinces with clean audit outcomes were...

KwaZulu-Natal (12), Gauteng (9), Free State (7), Western Cape (6), Mpumalanga (5), Limpopo (4), Eastern Cape (3), with North West and Northern Cape not attaining any clean audits.

Legislatures are in essence leading in the clean audit space registering five clean audits out of nine (56%) this year, having improved significantly from only one last year and none the year before that.

Financially unqualified reports were received by 58% of auditees within the provincial sphere. Once again, the main reasons for these provincial auditees not attaining the clean audit status mirror those of the national sphere, namely internal control weaknesses in financial reporting, service delivery reporting and compliance with laws and regulations.

Overall, the five provinces that have succeeded in reducing their audit qualifications to less than a third of audit qualifications are...

Eastern Cape (27%), Gauteng (6%), KZN (14%), Mpumalanga (11%), Western Cape (4 %)

Additional effort is still required in the following remaining provinces:

Free State (33%), Limpopo (39%), Northern Cape (47%) and North West (52%) as they are still registering higher levels of audit qualifications.

Of the 12 disclaimers in the provinces, the four big departments that remain with audit disclaimers are Health (in Limpopo and NC), Education (in Eastern Cape) and Public Works, and Roads and Transport (NW).

Regarding the commitments made by the leadership and oversight structures after the previous year’s report that were shared with the national and provincial office-bearers, our assessment indicates that they were not followed up sufficiently to ensure effective monitoring of the implementation of commitments through periodic review and monitoring of the status of key controls. This year’s findings indicate that audit outcomes only improved in areas where the leadership had set the correct tone and took a hands-on approach to addressing shortcomings in their control environments. Leadership in these departments personally took on the oversight role of their control environments and this led to a remarkable improvement in outcomes. Stagnation and regression occurred mainly where leadership did not set the right tone in leading change in their respective environments.

After sharing the above results with the executive leadership and oversight structures, it was encouraging to receive a commitment that, going forward, the leadership would dedicate at least one hour in 90 days of their time to proactively monitor the status of internal controls in their departments and entities with a view to taking corrective and timely action, in conjunction with their internal auditors and audit committees.

This was a turning point in our experience of the leadership dedication towards clean audits to the extent that a firm commitment was made that what needs to happen will happen within the national and provincial spheres of government.

Operation Clean Audit 2014 will be achieved if such commitments by the leadership are successfully implemented and carried through. With such a tone expressed, I am convinced that, with approximately three years to go before the lapse of the 2014 target, the target is attainable.

The key pillars of sustainability towards clean audits remain; first of all, the appointment of adequately skilled administrators at the levels of HoD and CFO whose task would be to produce credible reports which are validated on a monthly basis. The second pillar is the appointment of adequately experienced internal auditors and audit committees whose task it will be to review the credibility of information and objectively report to the leadership. If the leadership focuses primarily on these pillars, regular monitoring by the executive leadership and legislature would be more effective and sustainable.

In monitoring the effectiveness of internal controls keen emphasis needs to be directed towards these critical areas of government operations, effective management of human resources, information technology, and the administration and reliable reporting on financial management, service delivery and compliance with laws and regulation, particularly supply chain management.

While overwhelming media coverage following our recent release of the general reports on the national and provincial spheres of government focused largely on the symptoms of some weaknesses in systems of internal control that drive findings such as unauthorised, irregular, and fruitless and wasteful expenditure, our engagements with the leadership as well as our reports highlight the need to focus on the root causes of findings. Such a keen focus on the basic pillars of a healthy internal control environment will lessen the likelihood of the recurrence of the symptoms. The leadership and other role players have given specific commitments in this regard, which are outlined in the two reports and which my management team will follow up.

As regards irregular, fruitless and wasteful expenditure in particular, a perception of complete or outright loss of state funds was created, which is not entirely correct. While, undeniably, in some of the identified instances there may have been a direct loss of funds through corruption and other means, this does not necessarily imply that government (and ultimately the taxpayers of the country) did not benefit at all from the disbursement of funds. In many instances, the overriding concern from my office was that the funds were used without adherence to the prescribed policies and legal prescripts which are designed to ensure efficient, transparent and economical procurement.

We as the AGSA are committed to persist in our efforts to work with the leadership during the quarterly engagement meetings to provide insights into the status of internal controls in their environments so as to ensure migration towards clean audit results.

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