Briefing to the Portfolio Committee on Basic Education on the audit outcomes of the Provincial Departments of Education and related entities For the year ended 31 March 2010 13 October 2010 By: Meisie Nkau

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.

Agenda discussion points Audit outcome on the Provincial and National Departments of Education Conclusions on audit of pre-determined objectives Overview on Education Sector Auditing Highlights on the performance (financial and non-financial) of the entities related to the Department of Education

Audit outcome on the Provincial and National Departments of Education for the past three years (Financial information) Province Opinion 09/10 Opinion 08/09 Opinion 07/08 Eastern Cape Disclaimer Adverse Free State Qualified - Gauteng KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West Western Cape National Department Number of modified reports 6 4 5 Percentage (%) 60% 40% 50%

Audit outcome on the Provincial and National Departments of Education for the past three years (continue)… 2009/10 Financial year (Financial reporting) Ideally, departments should strive for an clean audit report, which is an unqualified opinion on the financial statements, without the need to include other matters under the auditor’s opinion paragraph. Only the national department received a clean audit report. There were no clean audit reports in all of the nine provincial departments. The Gauteng, KwaZulu-Natal and Western Cape, received unqualified reports with other matters noted in the report. All the remaining provincial departments received qualified audit opinions ranging from qualified audit reports (three reports), to a disclaimer (one report) and an adverse report (one report).

Audit outcome on the Provincial and National Departments of Education for the past three years (continue)… 2009/10 Conclusion The overall performance of the provincial education departments in terms of internal controls remained to be unsatisfactory. Six of nine provinces received either a disclaimer or a qualified audit opinion. Of concern is that the number of provinces that received a disclaimer of audit opinion has grown from one in 2008/09 to three in the 2009/10 financial year. The root causes for the negative audit outcomes indicated above lie in the internal control deficiencies identified in the three fundamental areas of internal control, namely, leadership, financial and performance management and governance.

Audit outcome on the Provincial and National Departments of Education for the past three years (continue)… Assessment of deficiencies in terms of the three fundamentals of internal control Leadership Overall, in all departments that received either a disclaimer or qualified audit opinion, the leadership of the department either failed to exercise adequate oversight responsibility over compliance with laws and regulations, did not provide an environment conducive to good accountability and service delivery, or did not address control weaknesses identified in prior years by external audit over the achievement of complete and accurate financial and performance reporting.

Audit outcome on the Provincial and National Departments of Education for the past three years (continue)… Assessment of deficiencies in terms of the three fundamentals of internal control – continued Financial and performance management In all departments that received disclaimers of audit opinions on financial statements, the overriding factor was a lack of documented trail to support transactions included in the financial statements. The lack of supporting documentation meant that the occurrence, validity and completeness of transactions included in financial statements could not be verified. In those departments that received disclaimers in particular, there was a lack of internal controls over record keeping and management. In such an environment, fraud and abuse of public resources can be easily perpetrated, resulting in irregular, unauthorised, fruitless and wasteful expenditure and other forms of non compliance with laws and regulations.

Audit outcome on the Provincial and National Departments of Education for the past three years (continue)… Assessment of deficiencies in terms of the three fundamentals of internal control – continued Governance In all provincial departments, a number of investigations took place during the year under review that related to fraud and other forms of non compliance to the laws and regulations. The underlying cause in most of those cases was either a lack of effective internal audit function or fraud prevention plan not being implemented and monitored.

Summary of audit outcomes – comparison between 2009/10 and 2008/09 Province Unchanged Improvement Regression Eastern Cape X - Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West Western Cape National Department Number of audits 5 2 3 Percentage (%) 50% 20% 30%

Budgeted and actual expenditure per province Eastern Cape 20 529 488 21 165 545 17 875 193 Free State 8 005 432 7 846 210 6 713 036 Gauteng 19 981 832 20 058 080 16 688 394 KwaZulu-Natal 26 058 854 26 230 746 22 991 742 Limpopo 16 311 033 17 864 636 14 691 919 Mpumalanga 10 683 793 10 940 089 9 360 979 Northern Cape 3 169 930 3 183 574 2 852 550 North West 8 473 135 8 390 526 7 178 647 Western Cape 10 663 812 10 613 313 9 192 461 Subtotal: Provincial 123 877 309 126 292 719 107 544 938 National Department 21 922 129 21 415 241 19 709 070 Total: 145 799 438 147 707 960 127 253 991

Unauthorised expenditure Province Overspending on vote/main division of vote R’000 Eastern Cape 709 000 Free State - Gauteng 76 248 KwaZulu-Natal 253 286 Limpopo 803 591 Mpumalanga 343 016 Northern Cape 13 644 North West Western Cape National Department Total 2 198 785

Irregular expenditure Province Irregular expenditure R’000 Eastern Cape 1 406 600 Free State 94 790 Gauteng - KwaZulu-Natal 32 394 Limpopo 171 Mpumalanga 936 Northern Cape 35 582 North West 150 Western Cape 470 National Department Total 1 571 093

Fruitless and Wasteful Expenditure Province Irregular expenditure R’000 Eastern Cape 58 000 Free State 18 925 Gauteng 20 282 KwaZulu-Natal 2 248 Limpopo 5 066 Mpumalanga 159 Northern Cape - North West 328 Western Cape 645 National Department Total 105 653

Financial statements areas qualified for only modified reports

Financial statements areas qualified - continued The proportion of audits that received either a qualification or disclaimer per qualification area has decreased when compared to 2008/09. However, the situation remains largely unchanged when taking into account the fact that the number of qualified audits has increased in 2009/10 when compared to 2008/09 as indicated under the summary of audit outcomes above.

Conclusions on audit of predetermined objectives included in management reports Province Disclaimer 2009-10 Adverse Qualified Unqualified with other matters Unqualified with no other matters Eastern Cape X Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West Western Cape National Department Percentage (%) 40% 20%

Conclusions on audit of predetermined objectives (continue)… A review of the bases for audit opinions revealed the following internal control deficiencies: Leadership The accounting officer did not exercise oversight responsibility over performance, reporting and compliance with laws and regulations, especially with regards to quarterly reporting. Also actions are not taken by management to address risks pertaining to the achievement of complete and accurate performance reporting. Performance management and reporting Reported information on predetermined objectives was not reviewed by management to ensure accuracy and completeness prior to submission for audit. Most of the findings that form the basis of qualified or disclaimers of audit opinion relate to non compliance with laws and regulations and reliability of reported information on predetermined objectives.

Movements in audit outcomes Conclusion Overall there is a general decline in the quality of audit outcomes for 2009/10 financial year compared to 2008/09 financial year. This is in line with the overall increase in internal control deficiencies in the fundamental areas of internal control, namely, leadership, financial and performance management and governance as shown above under the summary of audit outcomes above

EDUCATION SECTOR AUDITING Objective The education sector auditing aims to provide a picture of financial, performance and service delivery matters from a national and provincial departments perspective within the education sector. Service delivery issues are analysed to determine the factors that contribute to low service delivery and recommendations are made to improve service delivery in the selected areas. Deliverable Education SECTOR general report

Education Sector focus areas – 2009/10 The following specific sector service delivery focus areas were audited to identify and highlight any service delivery challenges in these areas: 1. HIV & Aids (Life Skills and Education) conditional grant to provinces* 2. National School Nutrition Programme conditional grant to provinces* 3. Dinaledi Schools Initiative 4. Learner Transport Scheme 5. Qualifications of Mathematics and Physical Science Teachers * Funded through the DORA allocation. Other three activities are funded through programmes within the Department.

Background on Sector auditing The Basic Education Sector consists of 9 provincial Departments of Basic Education and a National Department of Basic Education each having its own reporting structure. According to the NT Provincial Budgets And Expenditure Review 2005/06-2011/12 the total spending on education in South Africa will constitute 18,2 percent of total government expenditure by 2011/12. As part of the process of re-organising government departments when the new administration took over in May 2009, the Department of Education was split into two departments, namely the Department of Basic Education (DoBE) and the Department of Higher Education and Training. In light of the importance of education to the overall development of South Africa, it was believed that there needed to be a specific focus on improving education in schools, because it is significantly different from the principles applied at the higher education level.

Background on Sector auditing (continue)… The key strategic objective of the Department of Basic Education is to ensure that quality education is provided to all learners in the South African schooling system. This is achieved by ensuring that the department’s policies and the approved curriculum are effectively implemented, reviewed and refined. Currently, Government has made education the key priority. In so doing, it placed education and skills development at the centre of the current administration’s priorities. This required the creation of two Ministries with clear responsibilities. Basic Education will primarily focus on schools in order to achieve the goal of a quality basic education system. The Ministry of Higher Education and Training will deliver an improved higher education and training system which will provide a diverse range of learning opportunities for youth and adults.

Background on Sector auditing (continue)… A sector report can only be successfully prepared and published if the same procedures are performed at all departments. After discussion and inputs from amongst others, the National Treasury, the following focus areas from 09-10 were confirmed and three new focus areas were added for auditing during 2010-11 PFMA audit cycle:

Basic Education Sector focus areas – 2010/11 The following specific sector service delivery focus areas will be audited to identify and highlight any service delivery challenges in these areas: HIV & Aids (Life Skills and Education) conditional grant to provinces National School Nutrition Programme conditional grant to provinces Learner Transport Scheme Qualifications of Mathematics and Physical Science Teachers Leaner Teacher Support Material (New) Allocation of Funds to schools (New) Technical Secondary Schools Recapitalisation Grant (New)

Conclusion on Sector focus areas The 2009/10 Sector general report still in progress.

Entities related to the Department of Basic Education Education Labour Relations Council (ELRC) Council for Quality Assurance in General and Further Education and Training (Umalusi) South African Council for Educators (SACE)

Outcome of audits for entities related to the Department of Education – 2009/10 Entity 2009-10 2008-09 2007-08 Other matters reported Education Labour Relations Council (ELRC) Unqualified None (Umalusi) South African Council for Educators (SACE) Yes

Reported matters for SACE – 2009/10 South African Council for Educators (SACE) Non-payment to the South African Revenue Services (SARS) of employees’ tax withheld for the periods October 2009 to January 2010. Steps to remit payment to SARS have been initiated by management. Usefulness of reported performance information No system in place for the effective monitoring, evaluating and reporting. Reporting of targets were not in line with targets and objectives set out in the annual/ strategic plan

Reported matters for SACE – 2009/10 (continue)… Reliability of reported performance information Certain performance targets could not be validated due to management not maintaining appropriate documentation to support its targets achieved. Quarterly reports did not result in documented corrective action that needs to take place in order for the entity to achieve its objectives.

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