PRESENTATION TO THE SELECT COMMITTEE ON SOCIAL SERVICES ON THE AUDIT OUTCOME: 2011/12 FINANCIAL YEAR 26 FEBRUARY 2013

2 TABLE OF CONTENTS AUDITED FINANCIAL RESULTS AUDIT OUTCOME 2011/12 WAY FORWARD CONCLUSION

3 AUDITED FINANCIAL RESULTS

4 AUDITED FINANCIAL RESULTS PER ECONOMIC CLASSIFICATION

5 AUDIT: 2011/12 FINANCIAL YEAR The audit of the 2011/12 financial year commenced in January No interim audit was conducted as the Head office was in the process of relocating from Watloo to Hallmark. The Annual Financial Statements were submitted on 31 May 2012 in line with the legislative framework. Towards the end of July 2012, the Auditor General (AG) reported material findings, all of which were resolved except the accounting treatment for revenue collected in Foreign Missions. This issue had the potential of a disclaimer opinion hence the department together with AG approached National Treasury to find a solution. Due to the unique dynamics of the DIRCO/DHA relationship National with regard to revenue generated at the foreign missions Treasury approved a new accounting policy for revenue received through DIRCO. Due to the fact that the issue was raised towards the end of the audit, the Department sought an extension of the audit through the Minister as it would not have met the 31 July 2012 deadline. The extension was duly granted by the AG.

6 AUDIT: 2011/12 FINANCIAL YEAR (cont…) The new accounting policy provides for the treatment of revenue received abroad as follows: I.Revenue; II.Payable (new); III.Receivable for departmental revenue; and IV.Contingent assets (new). Management had to revise the information to align with the new accounting policy, however, the policy had to be applied retrospectively from 2009/10 financial year. The process of revising the information in terms of the new accounting policy was as follows: Revenue had to be split between Fines, ‘Other’ Revenue, Repatriation Deposits and Unallocated credits Payments were applied only against the documents on hand

7 AUDIT: 2011/12 FINANCIAL YEAR (cont…) Whilst preparing the revised Annual Financial Statement, management was still debating the classification of unallocated credits which results from the following: One voucher is issued for all the money collected on a particular day – there is no split between revenue, fines and repatriation which makes it difficulty for DHA to correctly allocate these vouchers The voucher is in a foreign language The voucher contains a generic description “Consular fees” Due to the uncertainty around these transactions, management classified these items as unallocated credits which forms part of Payables. All issues were cleared except the transactions disclosed as contingent asset.

8 AUDIT: 2011/12 FINANCIAL YEAR (cont…) Contingent asset is disclosed in accordance with the new accounting policy where: there is a likelihood that DIRCO owes DHA funds but there are no supporting documentation the description on the documents on hand are not clear enough to help the department to allocate the vouchers. How is the Contingent Asset calculated? The amount is calculated as the difference between what DIRCO owes DHA in total, less the supporting documentation DHA has in its possession (confirmed revenue). Supporting documentation in the DHA’s possession for which DIRCO has not paid, is recorded as a receivable. In summary, there is a direct relationship between the Receivable and the Contingent Asset. Both these items are Disclosure Notes and are not recorded in the Trial balance of the DHA. These amounts were previously disclosed in the Supplementary Annexure to the AFS which were not audited.

9 AUDIT: 2011/12 FINANCIAL YEAR (cont…) At year end, the balance between DIRCO and DHA agrees. DIRCO shows a payable to DHA amounting to R226 million (2010/11: R397 million, 2009/10: R897 million) and DHA shows a Receivable to the same value. Over the years, the amounts have reduced. Because the matter is material, the DHA received a qualified audit opinion. The value of the misstatement was as follows:

10 Other issues raised in the audit report Emphasis of matter: Significant uncertainty relating to various other pending legal claims amounting to R1.2 billion Restatement of corresponding figures for Receivable for Departmental revenue to be surrendered, accruals, payables, contingent assets, commitments and Receivable for Departmental Revenue  Majority of the restatement relate to the change in Accounting Policy for Foreign Revenue  In terms of commitments not all contracts entered into were disclosed due to poor contract management processes Additional matters: Late finalisation of the audit Predetermined Objectives (This is applicable to all Programmes) –The following findings were raised regarding performance information:  30% of performance indicators not well defined  26% of the indicators not verifiable due to inadequate processes and systems  32% of actual reported performance not valid when compared to the source information or evidence provided

11 Other issues raised in the audit report Predetermined Objectives  26% of reported performance not accurate  22% of actual reported performance not supported by audit evidence Compliance with laws and regulations –Annual financial statements, performance and annual report  Material misstatements were identified by the AG during the audit in Commitments, Accruals, Contingent Liability, Leave liability, Moveable assets and Revenue –Revenue Management  Appropriate processed were not developed and recording reconciliation and safeguarding of information relating to revenue –Expenditure Management  Effective controls were not taken to prevent irregular expenditure  Payments were not always settled within 30 days ­There has been a improvement in the 2012/13 financial year due mainly to decentralisation of procurement and payment to Provinces and roll out of LOGIS –Internal Audit (IA) Function  IA Function did not have a 3-year rolling strategic plan (The 3 year plan was approved and implementation commenced on 20 January 2012)  IA Function did not have an annual internal audit plan and did not report to the Audit Committee (The annual internal audit plan was approved and implementation commenced on 20 January 2012)  IA Function did not evaluate the reliability and integrity of financial and operation information

12 Other issues raised in the audit report Compliance with laws and regulations –Procurement and contract management  Contractors were not selected for four offices according to the criteria of the Construction Industry Development Board (CIDB)in terms of levels. The offices were Lusikisiki Regional Office; Ladysmith Regional Office; Ratanda Thuso Office; and Pietermaritzburg regional Office. This resulted in Irregular Expenditure amounting to R3.9million.  The contracts were not recorded on the register of the CIDB as reflected on there website.  44 employees of the department performed remunerative work outside their employment without permission as required by the Public Service Act. ­The contracts were awarded throughout state institutions. ­There were two instances amounting to R , where an employee or close family member did business with the Department.  Non disclosure by employees (or family members) of business interest in contracts awarded by Government.  Letters have already been issued to the affected employees to provide reasons why they must not be charged for financial misconduct. –Human Resources  Non certification of monthly payroll as required by Treasury Regulations.  Vacant funded posts were not advertised within 6 months as required by PSR.  Performance Agreement s of 46 employees were not signed by 31 May 2011.

13 WAY FORWARD In addressing qualification, management has developed the following plan: Acquiring an accounting system to record these transactions Develop a procedure manual for Missions and Officials to ensure there is consistency Monthly monitoring and reporting of progress made The Immigration Act has been amended where the Department will not charge a repatriation deposit from travellers instead a traveller will be required to produce a “return ticket”. However regulations still need to be finalised. Capacitation of this area with officials to perform supervisory functions. In addressing all the other issues raised by the AG, Debriefing session has been scheduled with the AG and National Treasury to diagnose the root cause of the findings. Develop an audit action plan with inputs from all managers (Due: 15 November 2012). Sign off of action plan by EXCO. Weekly meetings for monitoring progress. Monthly reporting to Audit Action Monitoring Committee. Updating of existing policies and procedures. Ongoing audit of action plan and audit of interim financial statements by Internal Audit. Interim audit by AG to be conducted in line with the decentralisation of functions to the provinces. Monthly Management Pack, including Financial Statements. Oversight of the action plan by the Audit Committee

14 CONCLUSION: The management of the Department would like express its sincere appreciation to the Hon Chair and members of the Portfolio Committee for their continued support during the financial year under review. The Department would also like to thank the Auditor General for the dedication shown during the audit in ensuring that the department improves its financial management processes. In addition, the Department would like to thank the Audit Committee and National Treasury, specifically the Office of the Accountant-General for their continued support during this audit cycle.

15 THANK YOU