1. AUDIT REPORT Department of Energy 2010/11 Energy Portfolio Committee 13 October 2011 Parliament

2. 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. 3 Energy portfolio audit outcomes 2010-11 Audit outcomes Energy 2010-112009-10 Financially unqualified with no findings on predetermined objectives or compliance with laws and regulations 2533 Financially unqualified with findings on predetermined objectives and/or compliance with laws and regulations 2213 Financially unqualified financial statements100% Qualified opinion00 Adverse opinion00 Disclaimer of opinion00 Financially qualified financial statements0% Total number of audits reported on4746 Number of audit reports not issued by 30 September 201100 Total number of audits4746 Total number of auditees in which findings arose from the AGSA's other legal reporting responsibilities: Predetermined objectives findings only26 Compliance with laws and regulations findings only83 Findings on both predetermined objectives and compliance with laws and regulations 124

4. 4 Agenda 1.Legislative requirements 2.Opinions 3.Emphasis of matters / Additional matters 4.Audit of predetermined objectives 5.Compliance with laws and regulations 6.Audit report structure 7.Audit outcomes of the Department of Energy 2010-11 8.Energy portfolio outcomes 2010-11

5. 5 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 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: i.Financial statements and financial position ii.Predetermined objectives iii.Compliance and financial management

6. 6 2. Opinions Different audit opinions: –Unqualified (unmodified) –Qualified –Disclaimer (Modified) –Adverse i.Financial statements and financial position

7. 7 2. Opinions (Cont.) Overall summary description per opinion: Audit OpinionDescription Unmodified (Unqualified) 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. i.Financial statements and financial position

8. 8 2. Opinions (Cont.) Overall summary description per opinion: Audit OpinionDescription 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. i.Financial statements and financial position

9. 9 3. Emphasis of matters/ Additional matters 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 matterAdditional 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

10. 10 3. Emphasis of matters/ Additional matters (Cont.)

11. 11 Main criteria Sub-criteriaSub-criteria Existence (2) * Timeliness Presentation Measurability (9) * Relevance Consistency (4) * Validity (1) * Accuracy (1) * Completeness (2) * Compliance with regulatory requirements UsefulnessUsefulness ReliabilityReliability 4. Audit of predetermined objectives ii.Predetermined objectives * Number in brackets represents number of audit clients in the Energy portfolio with material findings on the sub-criteria

12. 12 5. Compliance with laws and regulations The subject matters which the AGSA focuses on determined by legislation: 1.Strategic planning and performance management (1) * 2.Budgets 3.Annual financial statements, performance and annual reports (10) * 4.Audit committees (3) * 5.Internal audit (7) * 6.Procurement and contract management (2) * 7.Human resource management and compensation 8.Expenditure management (8) * 9.Transfer of funds and/or conditional grants 10.Revenue management 11.Asset management 12.Financial misconduct iii.Compliance and financial management * Number in brackets represents number of audit clients in the Energy portfolio with material noncompliance findings

13. 13 6. Audit report structure Report on the financial statements  Introduction  Accounting officer/authority’s responsibility  Auditor-General’s responsibility  Opinion  Emphasis of matters (if applicable)  Additional matters (if applicable) 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

14. 14 7. Audit outcomes of the Department of Energy 2010-11 Actual audit report of Department of Energy: 1.Opinion: Unqualified audit opinion 2.Other matters highlighted: Emphasis of matters  Unauthorised and Irregular expenditure Additional matters  Unaudited supplementary schedules (standard for departments)  Financial reporting framework (standard for departments)

15. 15 7. Audit outcomes achieved 2010/11 (Cont.) Actual audit report of Department of Energy 3. Predetermined objectives  Usefulness of information 4.Compliance  DoRA  PFMA - (Irregular and unauthorised, submission of AFS, material adjustments to AFS, inconsistent performance information between the annual report and strategic plan). 5.Internal control Summary of control deficiencies in 2 Fundamentals:  Leadership  Financial and performance management

16. 16 8. Energy portfolio audit outcomes Audit outcomes Energy 2010-112009-10 Financially unqualified with no findings on predetermined objectives or compliance with laws and regulations 2533 Financially unqualified with findings on predetermined objectives and/or compliance with laws and regulations 2213 Financially unqualified financial statements100% Qualified opinion00 Adverse opinion00 Disclaimer of opinion00 Financially qualified financial statements0% Total number of audits reported on4746 Number of audit reports not issued by 30 September 201100 Total number of audits4746 Total number of auditees in which findings arose from the AGSA's other legal reporting responsibilities: Predetermined objectives findings only26 Compliance with laws and regulations findings only83 Findings on both predetermined objectives and compliance with laws and regulations124

17. QUESTIONS