Auditor-General findings on DPSA, DPME & their entities annual performance plans and audits

Meeting report

AGSA on interim Audit of Predetermined Objectives (AOPO) review for DPSA and DPME portfolios
Mr Carl Wessels, Senior Manager, AGSA, said that responsibility lay with management and that the AG required compliance with laws and regulations. It was looking for clean audits with unqualified reports. The goals needed to be well-defined and understandable for the departments. AGSA investigated oversight, policy development, strategic planning, year-end reporting and operational planning and budgeting categories. It looked at the corporate plan, annual performance plan, performance agreements, quarterly performance reports, budget and annual performance plans when evaluating a department.

Good performance indicators should be well defined, verifiable, appropriate, relevant, cost effective and reliable. SMART (Specific, Measurable, Achievable, Relevant and Time-bound) performance targets needed to be established.

From 2009 to present, the AG had completed a phased-in approach, in terms of which audit reports contained material audit findings, not audit opinions. AGSA always reported on usefulness and reliability of information, and whether there had been any non-compliance.

Dealing with roles and responsibilities, Mr Wessels said ministers needed to ensure that institutions set up appropriate performance information systems, accounting officers needed to be accountable for establishing and maintaining systems to manage performance information, line managers were accountable for establishing and maintaining performance information processes, and other officials needed to be responsible for checking and collating performance data.

The role of accounting officers was to manage robust financial performance management systems, including internal controls, financial and risk management, procurement and evaluation. They had to look after commitment and ethical behaviour, and oversight/accountability.

The role of internal audit was to monitor internal controls, examine usefulness of performance information, compliance with laws and regulations, risk management and review of critical performance activities.

Support oversight included management assurance roles (senior management, accounting officer, and executive authority), oversight assurance roles (National Treasury, internal audit, and audit committee) and the roles of independent assurance (oversight portfolio committees, the public accounts committee, and the National Assembly)

A review of annual performance plans for a department included looking at its usefulness via presentations, taking account of consistency, key performance indicators and targets.  There had been no significant findings identified on usefulness of information for the Department of Public Service (DPSA), the National School of Government (NSG), the Public Service Commission (PSC), the Department of Performance, Monitoring and Evaluation (DPME) and the National Youth Development Agency (NYDA). The other entities were in the Public Service and Administration portfolio were the Public Sector Education and Training Authority (PSETA)  and the State Information Technology Agency (SITA).

The role of a portfolio committee needed to include consideration of legislation, budgets, mandates, accountability and oversight. When dealing with performance monitoring, it should make sure the plan lined up with the National Development Plan (NDP), that there were adequate human and finance resources available, and that the targets were realistic. It needed to ask the entities how they would achieve the plans with performance contracts/monitoring, and should ask for quarterly progress against the plans and review the annual reports.

The AG was hoping for robust financial performance, sound management, oversight and accountability, commitment to ethical behaviour, competent value-adding services and professionalism. AGSA’s motto was: “Creating a better and dignified life for all the citizens of SA through timely, effective, efficient and economical service delivery”.

AGSA on 2013/14 Audit Outcomes & General Report on DPSA as oversight department, HR and IT
Mr Wessels noted the specific problem areas for each of the entities in terms of emphasis of matters, qualifications, additional matters and predetermined objectives. On the DPSA’s predetermined objectives, there were quite a few findings, as 38% of the targets were not consistent with the strategic plan. Public Sector Education and Training Authority (PSETA) had received qualification  for insufficient recording keeping of supporting documents. DPME had material misstatements in its annual performance report. In the area of procurement and contract management, there had been eight bidders who had incorrectly filled in the form for the DPSA. Government officials had bid, stating that they were not employed by government. The NSG had incurred expenditure of R477 000 for which it did not have three quotations. In the NYDA, there had been R500 000 expenditure that had not received competitive bids. The Public Service Commission had a few errors on their books, while the NSG had expenditure that it had not budgeted for.

He emphasised that departments must leave a paper trail so that anyone could pick it up. For example, failing to pay within 30 days was acceptable if one was disputing the payment amount as long as there was written documentation. The NYDA had major issues with their information systems. With the Public Sector Education and Training Authority (PSETA), there was an issue, as it was found that it had implemented contract commitments that as a percentage of its accumulated reserves  was 135%, which was extremely dangerous. DPSA and NSG had some unauthorised expenditure.

There was very little fruitless expenditure in the portfolio overall. In the NYDA, a few duplicate invoices were being investigated. Implementation of the Public Administration Management (PAM) Bill made for additional clarity and reduced conflicts of interest. Key areas of concern remained the lack of posts being filled. There was a distinct lack of Information Technology (IT) support, goals and implementation in government departments. There was a lack of common policies and guidelines. There were basic security issues. DPSA should actively pursue the PAM bill, and needed to be pro-active in its approach. A key focus for the government was to focus on IT services. The cost of the new information system would be within budget and would launch SA into a new era with regard to IT. Most provinces had a poor audit for human resources, apart from the Western Cape, which was at 100%. The consequences for actions needed to be governed by a good performance management system.

AGSA General Report on 2013/14
For national departments and public entities, the regression in the overall audit outcome was due the failure to implement controls to ensure compliance with key legislation and regulations as well as failure to prepare financial statements and performance reports that are free of material misstatements.

The main findings arising from the audit, as reported in the audit reports, which should be addressed to improve the overall audit outcomes, are as follows:

Financial statements
The AGSA recommended that the DPSA and the NSG trading entity for submitting annual financial statements for auditing that were free from material misstatements. The NSG and SITA submitted financial statements for auditing that contained material misstatements. They received an unqualified audit opinion only because they corrected all the misstatements identified during the audit. This continued reliance on the auditors to identify corrections is not a sustainable practice. It places undue pressure on legislated deadlines and unnecessarily increases in audit fees.

The following controls should be strengthened to create a control environment that supports reliable financial reporting:

• The misstatements identified at the NSG department related to disclosure notes that are one-off items compiled at year-end. Had this entity prepared regular, accurate and complete financial statements, including disclosure notes that are supported and evidenced by reliable information, the misstatements could have been avoided.

• SITA should implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support financial reporting. They identified material misstatements in numerous classes of transactions, account balances and disclosure notes, which were subsequently corrected by management.

Annual performance report
The published annual performance reports of the DPSA and SITA included information on their performance against predetermined objectives that was not useful and or reliable for the following programmes and objectives they had selected to audit.

DPSA’s Centre for public service innovation was not useful. SITA’s drive for economies of scale in the acquisition of large ICT goods and services and Improving supply chain management mean time to respond was not reliable.

The NSG department and the NSG trading entity submitted annual performance reports for auditing that contained material misstatements. They avoided material findings in their audit reports only because they corrected all the misstatements identified during the audit.

The following controls should be strengthened to create a control environment that supports useful and reliable reporting on the performance of the portfolio:

• The entities should define up-front which supporting documentation will be required and by when and an independent verification by the internal audit unit should be performed on the validity, accuracy and completeness of reported information.

Compliance with key legislation
AGSA identified material non-compliance with key legislation by the DPSA, the NSG, NSG trading entity and SITA in the following areas:

Procurement and contract management:
• Various instances of non-compliance were identified at SITA as the procurement agent for ICT goods and services on behalf of government. Such non-compliance related to procurement without obtaining three quotations (also applicable to the NSG), procurement without inviting competitive bids, deviations from competitive bids without valid reasons and contracts awarded to suppliers who had not submitted the required procurement documentation.

• At the DPSA and SITA instances were noted where government officials employed by SITA and other government departments had interests in suppliers rendering services to the DPSA, SITA and other government departments that used the preferred suppliers identified by SITA.

Expenditure management
• The NSG department, NSG trading entity and SITA did not take reasonable steps to prevent irregular expenditure. Unauthorised expenditure incurred in the portfolio amounted to R13.7 million which related to initiatives launched by the previous minister as a result of the Public Administration Bill. The minister appointed an advisory task team, which increased expenditure in this regard. The NSG also held an event to launch the NSG that was not budgeted for. Neither entity incurred unauthorised expenditure in the prior year.

The total irregular expenditure incurred in the portfolio amounted to R38.4 million, with SITA being the largest contributor, incurring R35.2 million. The main contributing factor towards this irregular expenditure was non-adherence to supply chain management (SCM) prescripts because of a lack of competencies and skills within the SCM unit.

The following controls should be strengthened to create a control environment that complies with legislation:
• Systems and processes that result in proper service delivery planning, implementation, reporting, monitoring and oversight should be put in place in order to eliminate unauthorised expenditure.
• SCM-related record keeping should be improved to ensure that SCM decisions can be verified against the SCM policy. In addition, consequence management should be applied for all SCM transgressions.
• Independent reviews should be performed on all strategic procurement projects where all procurement files should be assessed/ verified on a cyclical basis for compliance with legislation, regulations and policies.
• The impact of non-compliance with legislation and regulations should be clearly explained and internalised by all involved in the SCM environment.

Root causes
The leadership and senior management of the entities should address the root causes of poor audit outcomes and inadequate controls as follows:
• Senior management should take immediate action and hold officials accountable for not adhering to the implemented internal controls.
• Ensure that the portfolio has adequate skills and resources to report appropriately and effectively in terms of financial and service delivery.
• Fill all vacancies with people with the requisite skills and provide training to address development gaps of existing staff.

Specific areas where internal audit units and audit committees can jointly make significant contributions to the audit outcomes include the following:
• Encourage their auditees to submit regular financial and performance data.
• Monitor the implementation of the auditees’ action plans in respect of prior year audit findings.
• Thoroughly review financial statements before their submission for auditing with a view to detecting material misstatements.
• Monitor action taken in the case of known transgressions.
• Ensure that internal audit coverage plans assign appropriate resources to the six key risk areas we identified.
• Thoroughly review the auditees’ quarterly reports to satisfy themselves that the information contained therein is credible.

Impact of key role players on audit outcomes
The first and second levels of assurance should be improved through the timeous implementation of internal and external audit recommendations to strengthen the control environment. The internal audit units and audit committees should implement an effective and consistent method to follow up on actions taken to address audit findings relating to internal control weaknesses.

Risks to service delivery
The accounting authority and senior management of SITA should address the following matters which could affect service delivery in the portfolio:

• Capital expenditure at SITA: The entity has significantly underspent its capital expenditure budget for the last six years. This is concerning as the entity has aging infrastructure and a lack of adequate investment herein may negatively impact service delivery. The current position of the integrated financial management system (IFMS) project further compounds the situation since the entity has elected not to invest in infrastructure supporting the legacy system.

Constitutional institutions
The Office of the Public Service Commission (PSC) is included in the portfolio but reports to the Public Service Commission as the executive authority. The overall audit outcome of the PSC regressed because the financial statements submitted for auditing contained material misstatements, resulting in an unqualified opinion with findings on compliance with key legislation. The main findings arising from our audit, which should be addressed to improve the overall audit outcomes, are as follows:

Financial statements
The PSC received an unqualified audit opinion only because it corrected the misstatement we identified during the audit. The misstatement related to a disclosure note that is a one-off item compiled at year-end. If the PSC had prepared regular, accurate and complete financial statements, including disclosure notes that are supported and evidenced by reliable information, the misstatement could have been avoided.

Root causes
The leadership and senior management of the PSC should address the root causes of inadequate controls as follows:
• Fill all vacancies with people with the requisite skills, and provide training to address development gaps of existing staff.
Impact of key role players on audit outcomes
The assurance provided by the key role players should be maintained by ensuring stability at the level of accounting officer and senior management at the PSC.

Discussions based on presentation 1
Mr M Booi (ANC) stated that there were huge levels of corruption and departments were rife with problems. This presentation had been very broad and had not talked to the reality of the situation. He asked what the AG was going to do about this.

The Chairperson stated that perhaps the invitation had not been explicit enough and they had not explained what they had expected from the AG. However, they needed to know what was actually happening in the departments. What were the real issues? What were the transgressions for poor performance? She requested the AG to send the Committee more detailed information regarding their concerns via email? She was worried that there was a lack of compliance with the Public Finance Management Act (PFMA). With over 80% non-compliance, was this document relevant?

Mr M Ntombela (ANC) asked if there were specific cases that they needed to look at?       Were the risks not taken into consideration for these departments?

Ms R Lesoma (ANC) asked when the Committee would receive the reports requested. She then asked how best the Committee could manage misconduct.

Mr A van der Westhuizen (DA) agreed that the AG needed to provide a more accurate report of what was happening in departments. He asked how the Committee should restructure the invitation to facilitate these meetings better.

Mr S Motau (DA) asked how sure the DG was that the new information system would remain within the budget.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Mr Wessels said that the AG had responded to the invitation they had received. He apologised, as AGSA had not intended to waste Members’ time by preparing documents and flying down to provide information which was not required. AGSA had felt that it needed to go back to basics, as there were a lot of new Members on the Committee. The Department of Monitoring and Evaluation was the place to go for specific issues within other departments. DPSA was preparing a register for people that had been found guilty of misconduct so that they would not be able to resign and re-apply for a job in another department. It needed to look at the follow-up after dismissal, including the possibility of laying criminal charges.

There was no discussion of the second presentation.

The meeting was adjourned.