Briefing to the Portfolio Committee: Defence Audit outcomes of the Defence portfolio for the 2014-15 financial year October 2015

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

Purpose of the presentation Annually oversight committees set aside time to focus on assessing the performance of departments. On completion of the process, portfolio committees are required to develop department-specific reports, namely budgetary review and recommendations reports (BRRR) which express the committee`s view on the department’s budget for recommendation to the National Treasury ahead of the following year`s budget period. Our role as the AGSA is to reflect on the audit work performed to assist the portfolio committee in its oversight role in assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR.

Content Overall audit outcomes for Defence portfolio 5 Auditor-General’s six key risk areas 6 - 9 Unauthorised/ irregular / fruitless and wasteful expenditure 10 Drivers of key controls for portfolio 11 Root causes and recommendations 12 Combined assurance and assessment of assurance providers 13 - 14 Minister’s commitments to address root causes 15

1. Overall audit outcomes for Defence portfolio 2014-15 PFMA Unqualified no findings Unqualified with findings Qualified with findings Adverse with findings Disclaimer with findings Audit not finalised 6 auditees 6 auditees 5 auditees 2014/2015 DoD – Unqualified with findings DMV – Qualified Armscor - Unqualified with no findings CCB – Unqualified with findings SANDF - Unqualified with no findings SDA - Outstanding

2. Auditor-General six key risk areas 2014-15 PFMA Quality of submitted financial statements (2.1) Quality of submitted performance reports (2.2) Compliance with legislation (2.3) Good Concerning Intervention required Human resource management Information technology Financial health Improvement Stagnant or limited progress Regressed

2.1 Quality of submitted financial statements 2014-15 PFMA Outcome if NOT corrected Outcome after corrections 1 auditee Financially unqualified with / without findings Financially qualified (qualified / disclaimed with findings) 2014-15 Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 3 auditees 2013-14 7

2.2 Quality of annual performance reports 2014-15 PFMA 100% of auditees that submitted information, did so in time for audit of reports were reliable and useful compared with 50% in previous year. 50% With no findings With findings Improved Stagnant or little progress Usefulness Reliability Regressed 8

2.3 Auditees did not comply with legislation in the following areas 2014-15 PFMA Quality of annual financial statements submitted Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure Management of procurement and or contracts Good Concerning Intervention required Management of strategic planning and performance Human resource & consequence management Internal audit & Audit committee Improvement Stagnant or limited progress Regressed DMV

3. Unauthorised, Irregular and Fruitless & Wasteful Expenditure 2014-15 PFMA Unauthorised expenditure Irregular expenditure Fruitless and wasteful expenditure Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Legends: Decrease in incurred expenditure No change Increase in incurred expenditure Finding not repeated New finding Repeat finding Definitions DoD - R558 842 000 R63 000 DMV R28 973 000 R802 000 Armscor R34 456 720 R790 CCB R121 000 R3 000 SANDFF SDA R267 995 000 R57 242 000 Totals R0 R890 387 720 R58 110 790 92% identified by auditees 0.69% identified by auditees

4. Driver of key controls for portfolio 2014-15 PFMA DoD DMV Armscor CCB SANDFF SDA Leadership Effective leadership culture Oversight responsibility HR management Policies and procedures Action plans IT governance Financial and performance management Proper record keeping Processing and reconciling controls Reporting Compliance IT systems controls Governance Risk management Internal audit Audit committee Improvement Stagnant or little progress Regressed Please note that no assessment for PC. This can however be discussed with chair one-on-one to start preparing them for next year when this will be included Good Concerning Intervention required 11

5. Top three root causes and recommendations Management should timely respond to internal and external audit findings and develop and implement proper recordkeeping. The accounting officer should implement consequence management to prevent non compliance with laws and regulations. The accounting officer should ensure that there is stability in key positions to facilitate the adequate review of the annual financial statements before their submission for auditing. 2014-15 PFMA 2014-15 2013-14 Improved Stagnant or little progress Regressed 12

6. Combined assurance – complimentary mandate Senior management Accounting officers/ authority Executive Required assurance levels Extensive Management’s assurance role Senior management – take immediate action to address specific recommendations and adhere to financial management and internal control systems Accounting officers/ authority – hold officials accountable on implementation of internal controls and report progress quarterly and annually Executive authority – monitor the progress of performance and enforce accountability and consequences Management assurance First level of assurance Oversight assurance Second level of assurance Coordinating / Monitoring institutions Internal audit Audit committee Extensive Required assurance levels Oversight’s assurance role National Treasury/ DPSA – monitor compliance with laws and regulations and enforce appropriate action Internal audit – follow up on management’s actions to address specific recommendations and conduct own audits on the key focus areas in the internal control environment and report on quarterly progress Audit committee – monitor risks and the implementation of commitments on corrective action made by management as well as quarterly progress on the action plans Independent assurance Third level of assurance Oversight (portfolio committees / councils) Public accounts committee National Assembly Extensive Required assurance levels Role of independent assurance Oversight (portfolio committees) – review and monitor quarterly progress on the implementation of action plans to address deficiencies Public accounts committee – exercise specific oversight on a regular basis on any report which it may deem necessary National Assembly – provide independent oversight on the reliability, accuracy and credibility of National and provincial government

6.1 Assessment of assurance providers for portfolio 2014-15 PFMA Armscor First level Armscor Improvement Stagnant or little progress Second level SDA Regressed Please note that no assessment for PC. This can however be discussed with chair one-on-one to start preparing them for next year when this will be included Provides assurance Provides some assurance Provides limited/ no assurance Vacancy Not Established/ Evaluated 14

7. Minister commitments to address root causes 2014-15 PFMA Status of key commitments by minister None Fill the vacant posts of Department of Defence internal audit. A task team will be established to assist Department of Military Veterans (DMV) in addressing matters affecting the performance of the department. Improve governance. Set clear expectations and responsibilities and establish a culture of respect and accountability Not implemented In progress Implemented New

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