Executive Summary /12 – 2013/14: Basis of Qualifications 2.Background 3.Progress and Interventions on Audit Report: 3.1 Asset Management 3.2 Irregular Expenditure 1

For the past 3 three years ending 13/14, the department obtained a qualified audit opinion on the following issues: Note 1: It was a qualification on opening balance /12 – 2013/14 : Basis of Qualification Basis of Qualification2013/142012/132011/12 Asset Management  Irregular Expenditure  -  Leave liabilityNote 1  - Conditional Grant Expenditure  -- 2

In the 2007/08 and 2008/09 financial year, the department incurred a combined unauthorised expenditure to the value of R2, 6278 billion, which resulted in the establishment of Joint Management Team “JMT” which comprised of Provincial Treasury and Department of Health senior management. The task of the JMT was to turnaround the financial management of the department and strengthening of the SCM processes. As result, the resources from Provincial Treasury were seconded to the department to cover position of Chief Financial Officer, GM: Supply Chain Management. At that time a number of the senior management in department were either dismissed due or suspended on allegation financial misconduct. Amongst suspended or dismissed were following senior managers: Chief Financial Officer; GM: Supply Chain Management; and GM: Infrastructure. To this date, only GM Infrastructure was filled four years ago. The Chief Financial Officer position was filled in October 2012 and was dismissed 13 months later due to financial misconduct. The matter is currently on appeal. The GM:SCM has not been filled for the past five years due to labour relations processes which were finalized in May 2015 and we are in the process of filling the post. 2.Background 3

As result of dismissals and suspensions, the functioning of the Infrastructure and finance (including SCM unit) were compromised which resulted in the significant infrastructure under- expenditure of R700 million in 2010/11 financial year. Lack of capacity at SCM unit also contributed to poor contract management in the department which resulted in number of month to month contracts not addressed resulting in irregular expenditure being incurred. Attempt by the JMT to address the asset management yielded no benefit due to control deficiencies in department’s business process of asset management. The identified control deficiencies were as follows: Identification of the location of the asset; Lack capacity, asset management policy and standardisation of processes; Asset not barcoded with the unique number; Asset disposed not removed in the fixed asset register; and Details pertaining to valuation. The above control deficiencies in the asset register compromised the audit assertions on completeness, valuation and existence hence it formed basis of qualification. 2.Background 4

In respect leave provision, the qualification was mainly due to late capturing of leave taken by the employees which misstated the balance disclosed in the 2012/13 financial year. Through interventions to address non-capturing of leave, the qualification was cleared in 2013/14 but only remained a qualification on the basis of opening balance not re-stated. On conditional grants, the qualification was in respect of the Persal-BAS interface journals in respect of the cost of employees paid which could not be substantiated as a result of grants reconciliation not performed. The reconciling of grants has been implemented. 2.Background 5

INTERVENTIONS TO ADDRESS IMPROVEMENT OF AUDIT OUTCOMES 6

In addressing the audit qualification of asset management, the department has received the assistance in terms of funding and resources from Provincial Treasury and National Health. In addition the Department has appointed the asset manager at Senior Management Services level. A project team has been established and managed by the Department’s asset manager. Its mandate includes amongst other things: Physical verification of all the department’s assets (Completeness and Existence); Valuation of the assets; Reconciliation of current year asset additions to BAS; Development of the asset management policy, training manuals and SOPs; Training of departmental officials on asset management. The above-mentioned mandates were implemented in term of the project plan, currently the auditors are conducting an audit for 2014/15 asset register for completeness, accuracy and valuation. 3.1Asset Management 7

The basis of qualification in relation to lack of system to identify all irregular expenditure due to a breakdown in the system of control over procurement. The department irregular expenditure emanates mainly from the month to month contracts. In addition, there were issues of non-compliance with the prescripts in relation to: Goods and service procured without inviting at least three written price quotations; Transaction value above R500,000 procured without inviting competitive bidding process; Awards made to prohibited suppliers; and Overtime payment in excess of the 30% basic salary In respect of overtime in excess of 30% of the basic salary, it is mainly represented by the health professional particularly in the areas of the scarce skills in category of Radiologists, Paramedic, etc. 3.2Irregular Expenditure 8

3.2Irregular Expenditure (Contd.) ActivityStatus Implementing period contracts. Periodic contracts for most of the month-to-month contracts have/are being implemented. Deviation template, guidelines and register have been implemented Improve contract management.The Department has developed and implemented the contract framework. The contract register is being updated regularly. We are in the process of strengthening the contract management unit in form of filling contract manager position. Improve the reporting of irregular expenditure to address of completeness and accuracy Monthly reporting of irregular expenditure is on-going. This is monitored by the head office SCM: M&E unit Develop and implement irregular expenditure guidelines Implemented 9

3.2Irregular Expenditure (Contd.) ActivityStatus Provide training to Bid Committees, Finance Managers, SCM Practitioners on SCM checklist and Irregular Expenditure template Implemented Appoint Irregular Expenditure Committee to address all incidents of irregular expenditure and make recommendations Implemented Strengthen monitoring and reporting of irregular expenditure Implemented 10

3.2Irregular Expenditure (Contd.) ActivityStatus Improve the control of such overtime exceeding 30% of basic salary Persal control has been implemented to block payment in excess of 30% Strengthen collaboration with Department of Public Works in terms of leases entered into on behalf of the Department Implemented 11

Thank You 12