BRIEFING ON AUDIT REPORT Commission for Gender Equality 2010/11 Portfolio Committee on Communication 11 October 2011 Parliament

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 Legislative requirements Opinions Summary of audit outcomes Audit report structure Audit outcomes achieved 2010/11 Emphasis of matters Predetermined objectives Compliance Internal controls Other matters

1. Legislative requirements 1. Public Finance Management Act (Act No.1 of 1999) Accounting Officer: Section 40(1)(a) & (b) – Record keeping responsibilities by accounting officer and preparing financial statements for audit Section 40(1)(c) – Submission of financial statements to Auditor-General for audit Auditor-General: Section 40(2) – Audit financial statements and submit report to accounting officer 2. Constitution of the Republic of South Africa (1996) Section 188 – must audit and report on accounts, financial statements and financial management of government institutions 3. Public Audit Act (Act No.25 of 2004) Sections 20 – Auditor-General must prepare audit report containing opinion/conclusion on: Financial statements and financial position Compliance and financial management Predetermined objectives

2. Opinions Different audit opinions: Unqualified (unmodified) Disclaimer Adverse

2. Opinions Overall summary description per opinion: Audit Opinion Unmodified An unqualified opinion is expressed when the auditor concludes that the financial statements give a true and fair view (or are presented fairly, in all material respects) in accordance with the applicable financial reporting framework. Unmodified (with emphasis of matter) The addition of such an emphasis of matter paragraph(s) does not affect the auditor’s opinion on whether the financial statements are fairly presented. Modified (Qualified) A qualified opinion is expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management regarding departures from financial reporting framework, or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.

2. Opinions Overall summary description per opinion: Audit Opinion Disclaimer A disclaimer of opinion is expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence to form an opinion and accordingly is unable to express an opinion on the financial statements. Adverse An adverse opinion is expressed when the effect of a disagreement with management regarding departures from the financial reporting framework is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.

History of audit opinions: 3. Summary of audit outcomes History of audit opinions: Opinion 2010-11 2009-10 2008-9 2007-8 Disclaimer   X Adverse Qualified Unqualified with other matters Unqualified with no other matters Goal: Unqualified opinion with no other matters or findings on predetermined objectives and compliance with laws and regulations

4. Audit report structure Index: Report on the financial statements Introduction Accounting officer/authority’s responsibility Auditor-General’s responsibility Opinion Emphasis of matters Additional matters Report on other legal and regulatory requirements Predetermined objectives Compliance with laws and regulations Internal control Leadership Financial and performance management Governance Other reports Investigations Performance audits Agreed up procedures Now please refer to handout for actual audit report of CGE

4. Audit report structure Emphasis of matter/Additional matter Why? To draw the users of financial statements’ attention to a matter HIGHLIGHT! Difference? Opinion? “My opinion is not modified in respect of these matter(s)” Emphasis of matter Additional matter to draw users’ attention to a matter presented or disclosed in the financial statements which is of such importance that it is fundamental to their understanding of the financial statements to draw users’ attention to any matter other than those presented or disclosed in the financial statements which is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report

4. Audit report structure Matters highlighted Emphasis of matter: Financial reporting framework Significant uncertainties Revision of previously issued AFS Restatements of corresponding figures Material under spending Accruals Going concern/funding/financial sustainability Additional matter: Prior year audited by predecessor auditor Material inconsistencies included in annual report Unaudited supplementary schedules

5. Audit outcomes achieved 2010/11 Actual audit report of CGE: refer to handout Opinion: Unqualified audit opinion Other matters highlighted: Emphasis of matters Irregular and fruitless and wasteful expenditure Restatement of corresponding figures

5. Audit outcomes achieved 2010/11 Actual audit report of CGE 3. Predetermined objectives Presentation of information Usefulness of information 4. Compliance National Treasury Regulations/ Practise notes PFMA

5. Audit outcomes achieved 2010/11 Actual audit report of CGE 5. Internal control Summary of control deficiencies in 2 fundamentals: Leadership Financial and performance management 6. Other reports Investigation

6. Emphasis of matters NB! Audit only highlight if matter is disclosed in the financial statements of the entity Irregular and fruitless and wasteful expenditure Emphasise the occurrence of irregular and fruitless and wasteful expenditure, as disclosed in the financial statements amounting to R10,3 million and R207 568 respectively. The irregular expenditure relates to transactions in contravention of the Preferential Procurement Policy Framework Act and Regulations, PFMA, Treasury regulations and National Treasury Practise Notes. The fruitless and wasteful expenditure relates to interest and penalties due to late PAYE payments to the South African Revenue Services as well as interest on the bank overdraft. 2. Restatement of corresponding figures Prior year figures was corrected in current year financial statements due to an error discovered in the during the audit. `

6. Emphasis of matters Recommendation CGE must strengthen its internal controls to: Prevent; Detect; and Adequately disclose irregular and fruitless and wasteful expenditure CGE should implement a review process to ensure compliance with laws and regulations in preparation of financial statements.

7. Predetermined objectives Presentation National Treasury’s guidelines were not followed in terms of reporting Reasons for major variances between planned and actual reported targets were not explained. Usefulness of information Reported objectives, indicators and targets reported were not complete compared to the planned objectives, indicators and targets Planned and reported targets were not specific, measurable and time bound

7. Predetermined objectives Recommendation CGE must implement effective, efficient and transparent system and internal controls regarding performance management, which describe and represent how the institution’s processes of performance planning, monitoring, measurement, review and reporting will be conducted, organised and managed. This included processes for quarterly reporting. CGE must ensure that the targets in the strategic plan conform to the “SMART” principle as required by the Treasury Framework.

8. Compliance Summary of compliance findings Category of finding Act Description Performance objectives TR 5.3.1 The accounting officer did not established procedures for quarterly reporting. Expenditure management PFMA38 (1)(c)(ii) PFMA38 (1)(f) and TR8.3.2 The accounting officer not take effective and appropriate steps to prevent irregular and fruitless and wasteful expenditure. Not all payments were settled within 30 days of receipt of an invoice. Procurement management TR 16A.4.1 PFMA 76(4)(c)) TR16A.6 .1/4 No separate supply chain management unit was established for the first three quarters of the year. Not all goods and services with a transaction value between R10 000 and R500 000 were procured by inviting at least three written price quotations. Goods and services with a transaction value above R500 000 were not procured by means of a competitive bidding process.

7. Compliance Summary of compliance findings Category of finding Act Description Asset management TR 10.1 Proper control system didn’t exist for assets to eliminate theft, losses, wastage and misuse not prevented by CGE Borrowings PFMA 66(1) and (4) CGE had bank balances in overdraft without approval from the Minister of Finance. Annual financial statements, performance and annual reports PFMA 40(1)(a)& (b) Financial statements submitted had not been prepared in all material aspects in accordance with generally recognised accounting practice and supported by full and proper records and were subject to material and/or significant adjustments

7. Compliance Recommendation A system for performance management which describe and represent how the institution’s processes of performance planning, monitoring, measurement, review and reporting should be conducted, organised and managed, including procedures for quarterly reporting to the executive authority. Processes should be put in place to prevent and detect fruitless and wasteful expenditure. This can be achieved through staff and management training as well as constant communication and reinforcement by line managers to all staff. Despite a concerted effort to ensure payments are affected within 30 days, instances of non-compliance were still noted. Action needs to be taken against non-complying individuals as the processes are in place and just require adherence thereto.

7. Compliance Recommendation A system to ensure that CGE procures goods and services in a transparent, cost effective and efficient manner. Compliance to laws and regulations should be adhered to during procurement in order to prevent irregular expenditure. Implementation of a proper control system regarding assets. Proper cash flow management to avoid bank accounts being in overdraft. Implementation of a adequate review process of financial statements prior to submission for audit to ensure compliance.

Internal control deficiency Financial and performance management 8. Internal controls Internal control deficiency Leadership Financial and performance management Governance The accounting officer and management did not exercise oversight responsibility regarding financial and performance reporting and compliance. X Management did not developed action plans to address the internal control deficiencies. Management did not prepare regular, accurate and complete financial and performance reports that were supported and evidenced by reliable information. Management did not review and monitor compliance will all laws and regulations

9. Other reports Investigations Two investigations conducted by two independent parties were requested by the former deputy speaker of parliament, regarding complaints and allegations of improper conduct, financial impropriety and maladministration. The investigation covered the 2007-08 and 2008-09 financial years and was concluded during the year under review, with detailed recommendation for immediate implementation by CGE. Two separate reports were tabled regarding the outcome of these investigations. The findings identified are predominately due to the non-adherence to the CGE’S internal policies/procedures and laws and regulations. It also point to inadequate planning, monitoring and oversight by the leadership of the CGE to ensure performance, compliance and ethical behaviour. The National Assembly took a resolution to establish an Ad Hoc committee to monitor the implementation of the recommendation. Substantial progress has been made regarding the implementation of the recommendations.

10. Other matters Going forward CGE must develop an action plan to address all audit findings. Greater focus on compliance matters.

QUESTIONS???