Audit outcomes of the portfolio for the 2015-16 financial year PFMA

The AGSA’s promise and focus 2014-15 MFMA 1 1 The AGSA’s promise and focus 2 2

Role of AGSA in the BRRR process Reputation promise 2015-16 PFMA The Auditor-General of South Africa (AGSA) 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. Role of AGSA in the BRRR process 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 entities taking into consideration the objective of the committee to produce a BRRR. To provide the portfolio committee with applicable information and guidance on the Small Business Development portfolio’s 2015-16 audit outcomes so that they, the committee, can ensure effective oversight. To enable oversight to focus on areas that will lead to good governance. 3 3

1 2 3 Our annual audits examine three areas 2015-16 PFMA FAIR PRESENTATION AND RELIABILITY OF FINANCIAL STATEMENTS 2 RELIABLE AND CREDIBLE PERFORMANCE INFORMATION FOR PREDETERMINED OBJECTIVES 3 COMPLIANCE WITH KEY LEGISLATION ON FINANCIAL AND PERFORMANCE MANAGEMENT 4 4

Unqualified opinion with no findings (clean audit) Financially unqualified opinion with findings 2015-16 PFMA Auditee: produced credible and reliable financial statements that are free of material misstatements; and reported in a useful and reliable manner on performance as measured against predetermined objectives in the annual performance plan (APP); and observed/complied with key legislation in conducting their day-to-day to achieve on their mandate. Auditee produced financial statements without material misstatements but struggled to: align their performance reports to the predetermined objectives they committed to in their APPs; and/or set clear performance indicators and targets to measure their performance against their predetermined objectives; and/or report reliably on whether they achieved their performance targets; and/or determine which legislation they should comply with and implement the required policies, procedures and controls to ensure compliance. 5 5

Qualified opinion Adverse opinion Disclaimed opinion 2015-16 PFMA Auditee: had same challenges as those that were unqualified with findings but, in addition, they could not produce credible and reliable financial statements. had material misstatements on specific areas in their financial statements, which could not be corrected before the financial statements were published. did not comply with key legislation in certain instances. Adverse opinion Auditee: has so many material misstatements in their financial statements that we disagree with almost all the amounts and disclosures in the financial statements. was unable to provide sufficient supporting documentation for amounts in the financial statements and achievements reported in the annual performance report. did not comply with key legislation. Disclaimed opinion Auditee: could not provide us with evidence for most of the amounts and disclosures reported in the financial statements, and we were unable to conclude or express an opinion on the credibility of their financial statements. was unable to provide sufficient supporting documentation for amounts in the financial statements and achievements reported in the annual performance report. did not comply with key legislation. 6 6

The 2015-16 audit outcomes and key messages PFMA 2 The 2015-16 audit outcomes and key messages 2 7 7

Improvement in audit outcomes over 3 years Compliance with key legislation performance plans annual performance reports Overall improvement in audit outcomes no findings with findings ---------------------------------------------------- with findings with findings with finding outstanding 1 outcomes, financial statements processes, key legislation and…. 2 3 …. performance planning and reporting must be improved by…. The improvement at Seda is attributable to leadership ‘s response to implement and monitor action plans to address the findings raised in the previous years. Financial statement preparation remains a concerns as material adjustments are effected to AFS submitted for audit; Inadequate monitoring of SCM legislation resulted in non-compliance with SCM legislation. Inadequate review of the strategic plan resulting in non-compliance with the Treasury Regulations. At Seda, leadership implemented detailed reviews of AFS supporting schedules and rigorously monitored compliance with legislation. Lack of adequate review . Lack of policies and standard operating procedures at the department coupled with key vacancies . 8 2015-16 PFMA material findings material findings audits late submitted 8

Assurance providers per level Improvement in audit outcomes over 3 years - continued Status of Key controls Assurance providers per level Senior management First level officer/authority Executive authority ------------------------------------------------- Second level Internal audit unit Audit committee ------------------------------------------------- Third level Portfolio committee Provides assurance Provides some assurance no assurance Vacancy established Not Good Concerning Intervention required 4 5 … providing attention to the key controls by… … the key role players as part of their role in combined assurance There has been an improvement in the status of internal controls as evidenced by the clean audit. This is attributable to leadership who have maintained a strong internal control environment that is supported by experienced and skilled staff. At the department, there was vacancies i.e. no CFO for the year under review. Furthermore monthly disciplines of record keeping and reconciling transactions to ensure the credibility of financial and performance reports presented to oversight committee are not fully effective. The assurance provided by key role players has improved compared to previous years at SEDA, which is clearly reflected in the improved key controls, particularly those relating to reviewing and monitoring of compliance. The assurance provided by key role players at the level of senior management and the accounting officer needs to be improved at the department. Internal control processes for financial and performance reporting as well as compliance are in place but not fully effective. The Portfolio committee performed in terms of the legislative oversight requirements and it robustly engages the department on its role and mandate. 9 2015-16 PFMA Improved Stagnant Regressed 9

3 Performance management linked to programmes/ objectives tested 3 2015-16 PFMA 3 Performance management linked to programmes/ objectives tested 3 10 10

Small Business Development Small Enterprise Development Agency Quality of annual performance plan and quality of submitted annual performance reports unchanged Outcomes of programmes selected for testing: Auditee: Movement: Objectives Usefulness Reliability Small Business Development N/A Programme 2: Cooperatives Development Important targets were not consistent and specific; and Important indicators were not well defined. No material findings reported. Programme 3: Enterprise Development and Entrepreneurship Important targets were not specific; and Small Enterprise Development Agency Programme 1: Enterprise Development Programme 2: Equitable access to support services Programme 4: Seda technology programme 2015-16 PFMA Improved Stagnant Regressed findings reported findings reported 11

2015-16 PFMA 4 4 Financial management 12 12

Improvement in compliance with legislation and quality of financial statements Figure 3: Quality of submitted financial statements Figure 1: Findings on compliance with key legislation – all auditees during the audit process annual financial statements NOT corrected 50% (1) after corrections 100% (1) 2015-16 or contracts 50% (1) SCM legislation – all auditees NOT corrected after corrections 2014-15 With no material misstatements With material 2015-16 2014-15 2013-14 13

Unauthorised, irregular as well as fruitless and wasteful expenditure increase over 3 years and follow up action 2015-16 PFMA Definition UIF amounts incurred by entities in portfolio Nature of U.I.FW expenditure R’million Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed 2015-16 2014-15 2013-14 14

Investigations of U.I.FW expenditure Follow up action of unauthorised, irregular as well as fruitless and wasteful expenditure over 3 years 2015-16 PFMA Investigations of U.I.FW expenditure 2 auditees (100%) [2014-15: 1 (100%)] lodged investigations to determine root cause and consequences of U.I.FW incurred. The investigations have not resulted in the dismissal of any official yet as the outcomes /recommendations 2015-16 2014-15 2013-14 2 Entities 1 Entity 1 Entity Investigated Not investigated 15

Root causes, follow up on commitments and proposed recommendations 2015-16 PFMA 6 Root causes, follow up on commitments and proposed recommendations 6 16 16

Status of key commitments by minister Root causes, follow up on commitments and proposed recommendations 1 … the following root causes must be addressed … 2 … through honouring the following commitments made by the executive authority…… Root causes Status of key commitments by minister in key positions There are no Minister Commitment as the audit of the department is a first time audit and SEDA was previously under the Trade and Industry portfolio 2015-16 2014-15 Not implemented In progress Implemented New Compliance with legislation should be reinforced by enforcing consequences for unsatisfactory performance which exasperate the lack of sustained progress towards clean administration. The minister requested that she would appreciate it if the audit team could continue with the quarterly engagements regarding the status of key controls in the portfolio. PC must request quarterly feedback on the progress of filling vacancies at key management level. PC must request management to provide quarterly feedback on status of key controls. PC must request management to provide feedback on the implementation and progress of action plan during quarterly reporting. 3 … and implementation of the following proposed commitments by the Portfolio committee and management… List of action taken against transgressors must be provided quarterly to PC for follow up. 17 2015-16 PFMA 17

Small Enterprise Finance Agency (SEFA) PAA (section 4(3) audit entities 2015-16 PFMA Three year audit outcome of auditees within the SBD portfolio which are not audited by the AGSA in terms of PAA section 4(3): Auditee: Three year Trend 2015-16 Compliance AFS AoPO Small Enterprise Finance Agency (SEFA) a Improved Stagnant Regressed legend Unqualified with no findings with findings with findings with findings with finding outstanding No Material Findings a r findings 18

Questions Questions 2015-16 PFMA 2015-16 PFMA www.agsa.co.za Auditor-General of South Africa Follow the AGSA on Twitter: https://twitter.com/AuditorGen_SA 19 19 19