1. Click to edit Master subtitle style 1Page 1 Presentation to Portfolio Committee on Department of Higher Education and Training Audit outcomes for SETA’s 17 November 2010 Presented by : Meisie Nkau Rienk Grobler

2. 22 Reputation promise/mission The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

3. THE AUDIT PROCESS 33

4. The Regularity Audit Process Engagement Activities Determine Skills & Competence of audit teamEstablish terms of Engagement Planning Risk assessment at:Detailed Accounts and Transaction Level Perform the Audit Design audit procedures to address risk identified in planning Evaluate, Conclude and Reporting Evaluate all evidence obtainedPrepare Management ReportPrepare Auditor’s Report Overall FS level Perform planned proceduresCommunication FindingsEngagement Risk Assessment 44

5. Auditor and management responsibility Accounting Authority’s responsibility for the Financial Statements  The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with Standards of Generally Recognised Accounting Practice (GRAP) and in the manner required by the Public Finance Management Act of South Africa (PFMA). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor-General’s Responsibility  An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 55

6. Audit of the Financial Statements  Required in terms of the Constitution and the Public Audit Act  The auditor forms an opinion on whether the financial statements are prepared in all material aspects in accordance with the applicable financial reporting framework. 66

7. Internal Control  Status of Internal control relevant to the audit of the financial statements, predetermined objectives and compliance with laws and regulations are reported under the three fundamentals of effective internal control.  Leadership  Financial and Performance Management  Governance 77

8. Internal Control (cont.) Leadership Tone at the top creating an environment favorable to good financial management and service delivery Identify key controls aimed at achieving the organisation’s objectives Assessing skills / competencies of finance staff, ensuring the right staff mix and managing consultants to ensure effective skills transfer 88

9. Internal Control (cont.) Financial and Performance Management Complete and accurate monthly financial statements (on an accrual basis) and quarterly performance reports, plus continuous monitoring of both Implementation of sound financial and performance management systems Proper controls over documentation to ensure that they are easily retrievable Operating basic internal controls for an efficient financial and performance management environment 99

10. Internal Control (cont.) Governance Adequately resourced and effectively functioning internal audit and audit committee Maintenance of effective risk management strategies, including fraud prevention plans 1010

11. The Different Audit Opinions 1111  Unmodified  The financial statements present fairly in all material respects.  Qualified (except for)  The auditor concludes that, except for specifically listed material misstatements, the financial statements remain a fair reflection.  Adverse  The auditor disagrees with the representation made by management in the financial statements to the extent of confirming that it is not a fair reflection of the financial position, financial performance and cash flows.  Disclaimer  Where there is a lack of sufficient appropriate audit evidence to the extent that the auditor is not able to form an opinion on the financial statements as a whole

12. Emphasis of Matter and Additional Matter Paragraphs  If its considers necessary to include additional communication in the auditors report that does not have an effect on the auditors opinion, the following would be used:  An emphasis of matter paragraph only to draw user’s attention to a matter presented or disclosed in the financial statements that is of such importance that its is fundamental to their understanding of the financial statements  An other matter/ Additional Matters paragraph: to draw users attention to any matter other than those presented or disclosed in the financial statements that is relevant to users understanding of the audit, the auditor’s responsibilities or the auditor’s report 1212

13. Clean Administration 1313

14. Clean Administration  Auditor’s Report with no:  Qualification on the financial statements  Findings on Predetermined objectives  Findings on Compliance with Laws and Regulations  Internal Control deficiencies 1414

15. AGSA contribution to Clean Administration  Simplicity, Clarity and Relevance of Messages  Identifying stakeholder needs and expectations of AGSA reports  Ensuring AGSA reports are written in simple, plain, non-technical language that the target audience will understand  Contextualising audit messages to enhance understanding  Visibility of the Leadership  Ensuring efficiency and effectiveness of Stakeholder interactions  Developing required leadership competencies through mentoring, coaching and leadership programs and processes for effectively managing change 1515

16. . SETA AUDIT OUTCOMES 2009/2010 1616

17. SETA AUDIT OUTCOMES 2009/2010 Audit opinions 2008/09 Financially unqualified (with no findings of internal control) 8(35%) Financially unqualified (with findings of internal control) 11 (48%) Qualified 2 (8.5%) Disclaimer 2 (8.5%) Audit opinions 2009/10 Financially unqualified (with no findings of internal control) 16 (70%) Financially unqualified (with findings of internal control) 5 (22%) Disclaimer 2 (8%)

18. SETA AUDIT OUTCOMES 2009/2010 Reasons for the improvements in audit opinions Management and the Boards have taken corrective action to address prior year findings. ( Keeping to commitments and adequate plans in place) Ensuring that the staff has the necessary skills and competencies (In some instances appointing consultants where adequate skills could not be obtained) Having adequate policies and procedures in place Improving on the general control environment at the entities Sound governance structures (Internal audit and audit committees)

19. SETA AUDIT OUTCOMES 2009/2010 Other reporting responsibilities Predetermined objectives 08/09 – 5 SETA’s had findings on predetermined objectives in the audit reports 09/10 – 6 SETA’s had findings on predetermined objectives in the audit reports

20. SETA AUDIT OUTCOMES 2009/2010 Other reporting responsibilities Compliance with laws and regulations 08/09 – 10 SETA’s had findings on compliance with laws and regulations 09/10 – 5 SETA’s had findings on compliance with laws and regulations Although a significantly improved it is still a concern

21. . Emphasis of matters

22. Emphasis of matter  Material amendments to the current years financial statements only reported in the management letters. For 09/10, 10 SETA’s had material amendments to the financial statements after is was submitted for audit purposes The following emphasis of matter were reported  Restatement of corresponding figures ( Reclassification of amount or prior period error indentified detected and corrected in the current year) Raised 9 SETA’s for 09/10 in the audit reports  Other emphasis of matters raised  Significant uncertainties (Pending litigation and the SETA’s possibly being placed under administration) Raised for 10 SETA’s for 09/10 in the audit reports  Irregular expenditure/Fruitless & wasteful expenditure Raised for 10 SETA’s for 09/10 in the audit reports  Material losses through criminal conduct Raised for 3 SETA’s for 09/10 in the audit reports  Financial sustainability/ Going concern Raised for 1 SETA for 09/10 in the audit reports

23. Going forward 2323

24. Way forward to address the errors and misstatement on financial statements Implementation of proper internal controls: Leadership Financial and performance management Governance 2424

25. Areas that might impact on the audit reports in future New SETA landscape Lack of supporting documentation due to some SETA’s coming to an end, new SETA’s starting and some sections being taken over by other SETA’s Handover process between the SETA’s (Leaner ships, commitments, funds) Predetermined objectives Currently only significant findings in the audit report Material findings for 09/10 Adequate supporting documentation not available Adequate policies and procedures not in place Adequate systems to monitor and report on predetermined objectives are not in place (Information reported not accurate) Lack of skills specifically with regards to predetermined objectives 2525

26. Areas that might impact on the audit reports in future NSDS III Targets are number based and does not measure impact with NSDS II. Correct targets set in the Strategic plans are critical. Complies with the National Treasury Framework for managing programme performance information ( Simple, Measurable, Accurate, Relevant, Time bound) Special consideration should be given Medium Term Budget Policy Statement Compliance with Laws and regulations Horizontal audit procedures for supply chain management Irregular and fruitless and wasteful expenditure incurred 2626

27. Questions? 2727