Briefing by the AGSA on key issues and concerns regarding the audit of the Department of Labour (DOL) For the year ended 31 March September 2010

2 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.

3 Discussion points Audit Outcomes 2009/2010 Department of Labour Unemployment Insurance Fund Compensation Fund Commission for Conciliation Mediation and Arbitration(CCMA) Productivity South Africa National Economic Development and Labour Council(Nedlac)

4 Highlights on the financial performance of DOL Report paragraph09/1008/0907/0806/0705/0 6 Tangible capital assets-QQQ- IT assets (Public Private Partnership)QQ--- Significant uncertaintiesEOM---- Irregular expenditureEOM---- Report on predetermined objectives (previously audit of performance information) ROLRROM ROLRR: Report on other legal and regulatory requirements EOM: Emphasis of matter Q:Qualification OM: Other matters

5 Highlights on the financial performance of DOL (cont) Report paragraph – compliance with rules and regulations 09/1008/0907/0806/0705/06 Non-compliance with applicable legislation - TR (2008/09 &2009/10) - TR 3.2.7, 8.1.1, 8.2.3, (2009/10) - TR 2.1.3, 11.4, 16A.3.2 (2008/09) - PFMA 38.1 (c) and (d) (2008/09 &2009/10) - PFMA 40(1)(d) (2009/10) ROLRROM -- Internal controlsROLRROM--- InvestigationsOROM- - - ROLRR: Report on other legal and regulatory requirements OM: Other matters OR: Other reports

6 Highlights on the financial performance of DOL (cont) Reasons for qualified opinion Inadequate supporting documentation and lack of monitoring on the PPP partnership asset Material differences between the general ledger and financial statements The IT assets register was not adequately maintained in accordance with the requirements of National Treasury as a number of assets: did not have purchase dates, did not have physical locations and a number of assets had no cost prices

7 Highlights on the performance of DOL (cont) Qualified opinion: Performance Information Significant Findings Reported in the Audit Report Inadequate presentation of reported information Lack of reporting on all predetermined objectives in the annual report Reported information not consistent with planned objectives, indicators and targets Reported indicators not reliable when compared to source information Internal Control Deficiencies Leadership -Lack of oversight over financial and performance information -Management did not implement actions to address findings raised on the PPP asset during previous years Financial and performance management -Lack of proper supporting documentation to substantiate amounts disclosed in the financial statements on the PPP assets Governance -Ineffective Internal audit due to capacity constraints

8 Summary of significant financial information for DOL 09/10 R’000 08/09 R’000 Percentage variance Irregular expenditure % Contingent asset % The major increase in irregular expenditure is due to expenditure that was incurred without following proper delegation levels and supply chain procedures that were not properly followed.

9 PART B: DEPARTMENT OF LABOUR ENTITIES 09/10 Audit opinion 08/09 Audit opinion Performance outcomes Unemployment Insurance Fund(UIF)Unqualified Significant findings Compensation FundQualifiedDisclaimerClean audit outcome Commission for Conciliation, Mediation and Arbitration Unqualified Significant findings Sheltered Employment FactoriesAdverseUnqualifiedClean audit outcome Productivity South AfricaUnqualified Clean audit outcome National Economic Development and Labour Council (NEDLAC) Unqualified Clean audit outcome

10 UNEMPLOYMENT INSURANCE FUND(UIF) Reasons for significant outcome Financial Performance The fund has adequate financial systems in place as can be seen from the maintenance of an unqualified opinion trend for the current and prior year Performance Information UIF: Qualified Conclusion Reported information not consistent with planned objectives Planned and reported performance targets not specific and/or time bound Planned and reported indicators not well defined Reported targets not reliable (valid/accurate/complete) when compared to source information provided to support the reported target. Reported targets not reliable (valid/accurate/complete) since inadequate source information was provided Performance Management Lack of adequate systems for reporting on predetermined objective

11 COMPENSATION FUND Reasons for qualification Financial Performance The fund has a significant challenge in maintaining adequate controls over supporting documentation Revenue and Debtors: Inadequate monitoring controls over overdue assessment debtors resulted in the accumulation of incorrect provisional assessments and materially incorrect debtors with credit balances. A backlog in the scanning of documentation on to the Fund’s electronic document management system for claims incurred have resulted in the Fund not being able to retrieve appropriate supporting documentation in support of claims incurred. Emphasis of matter Irregular expenditure incurred due to non compliance with Supply Chain Management processes Fruitless Expenditure incurred as a result of interest paid on late payments of medical claims

12 COMPENSATION FUND Internal Controls Leadership -Lack of adequate follow up on action plans Financial and performance management -Lack of financial systems to support reporting on the assessment of revenue and debtors as well as medical claims Investigations in progress Ongoing investigation relating to alleged fraud on possible fraudulent payment of medical claims

13 COMMISION FOR CONCILIATION,MEDIATION AND ARBITRATION Reasons for emphasis of matter Financial Irregular Expenditure of R million from prior years was incurred and related to non compliance with Supply Chain Management processes. Fruitless expenditure incurred related to penalties on late payment of provident fund amounting to R The sustainability of the entity as a going concern is in doubt as at year end the expenses of the entity exceeded its liabilities. Performance Reporting Inadequate quarterly reporting, there was no effective performance monitoring and evaluation as there was no tracking of progress against output Planned and reported indicators not well defined Internal Control Leadership Lack of adequate oversight Financial and performance management Lack of adequate monitoring and review by management

14 SHELTERED EMPLOYMENT FACTORIES Reasons for adverse opinion Financial Performance Non compliance with the prescribed financial standards including inadequate supporting documentation relating to inventories, cost of sales, property plant and equipment and disclosures Emphasis of matter Irregular expenditure for non compliance with supply chain management processes Fruitless and wasteful expenditure on overpayments of salaries to resigned employees Internal Controls Leadership Lack of oversight responsibility Financial and performance management Lack of quality, reliable monthly financial statements and management information Governance Risk identification, Internal Audit, Adequacy of systems for preparation of performance information