PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGY PROF YASWANT GORDHAN CA (SA) AUDIT COMMITTEE CHAIRPERSON 11 OCTOBER 2012

TABLE OF CONTENTS Audit Committee responsibility Membership Risk Management Effectiveness of Internal Control Quality of management reports Evaluation of AFS Internal Audit 2

RESPONSIBILITIES OF THE AUDIT COMMITTEE The Audit Committee is responsible to exercise oversight responsibility over Internal Audit External Audit Risk Management Reporting (financial and non financial information) Compliance with applicable laws and regulations Internal Control

MEMBERSHIP The DoE Audit Committee consists of 3 members (All Chartered Accountants and specialists on various fields) Established in September 2010 Complied with its responsibilities arising from Sections 38 (1)(a) and 77 of the PFMA and Treasury Regulation Adopted a formal Terms of Reference and discharged all its responsibilities arising therefrom

Risk Management The Department has established a process for the management and monitoring of the risk management process. This initiative was enhanced with the appointment of a Chief Risk Officer in the current year. The committee reviewed the strategic risk register during the current year and recommended improvements to some of the processes. The maturity of the enterprise risk management process was found to be at an evolutionary stage and requires further commitment and improvement..

The effectiveness of Internal Control The Department has a system of internal control to provide cost-effective assurance that the Department’s goals will be economically, effectively and efficiently achieved. Internal Audit provided the Audit Committee and Management with quarterly internal audit reports in terms of its approved annual and three-year rolling Internal Audit Plan. From the various reports of Internal Audit and of the Auditor-General, it was noted that there were some deficiencies in the internal control system. Management has undertaken to address the deficiencies and to improve the internal control environment. 6

Quality of Management Reports 7 During the period under review, quarterly management reports were presented to the Audit Committee during its meetings. The Audit Committee was not entirely satisfied with the content and the quality of the reports (particularly the timely submission of reports and review thereof) The Audit Committee suggested certain improvements in the process of reporting. Management has undertaken to improve the timely presentation and the content of the required reports as suggested by the Audit Committee. Over the 2 year period ending 31 March 2012 notable improvement has been noted in the reporting of non financial information. An unqualified audit report was received from the AG on the Audit of Predetermined Objectives in the current year.

Evaluation of Annual Financial Statements 8 The Audit Committee has Reviewed and discussed the Auditor-General’s final Management Report with the Accounting Officer and Management. An undertaking has been given to address all the reported items; Reviewed and discussed with the Accounting Officer and Management the 31 March 2012 audited annual financial statements to be included in the 31 March 2012 Annual Report; Reviewed and discussed the appropriateness of the accounting policies and practices; Reviewed and discussed the unqualified audit opinion. The Audit Committee takes note of the other reported items included in the Auditor-General’s Report which the Accounting Officer and Management have committed to address in the ensuing financial year.

The Audit Committee reviewed the internal audit quarterly reports to ensure that internal audit activities were conducted in terms of the approved annual and three-year rolling plan. The Audit Committee, as in the previous year, again registered its concerns with the Accounting Officer and Management regarding the adequacy of resources within the Internal Audit function. Although some enhancements have been made, there is a necessity for an evaluation in accordance with the IIA Standards of the internal audit function. In July 2012 the Audit Committee had a meeting with the Minister of Energy and, inter alia, raised this internal audit capacity constraint. An assurance was given to address this problem. Internal Audit 9

The internal audit function of the DoE was established in April 2010 with 3 auditors That capacity was enhanced in April 2011 with the addition of five auditors A variety of audit assignments including IT, compliance, performance and financial audits have been planned and executed during the past 2 financial years but the level of assurance still needs enhancement Co-sourcing has been arranged during 2011 and 2012 but the funding for such is received towards the 3 rd Quarter and this affects the performance of the identified audits 10

Meeting with the Minister Skills audit for the whole department by an independent service provider Balance between internal and external audit Establishment of an ethics and social committee Increase in the number of AC members to enhance the risk management oversight responsibility Enhancement of oversight responsibility over DORA transfers Risk management capacity 11

THANK YOU 12