1. Briefing to the Portfolio Committee: Defence Audit outcomes of the Defence portfolio for the financial year
October 2015

2. Reputation promise/mission
The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

3. Purpose of the presentation
Annually oversight committees set aside time to focus on assessing the performance of departments. On completion of the process, portfolio committees are required to develop department-specific reports, namely budgetary review and recommendations reports (BRRR) which express the committee`s view on the department’s budget for recommendation to the National Treasury ahead of the following year`s budget period. Our role as the AGSA is to reflect on the audit work performed to assist the portfolio committee in its oversight role in assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR.

4. Content Overall audit outcomes for Defence portfolio 5
Auditor-General’s six key risk areas
Unauthorised/ irregular / fruitless and wasteful expenditure 10
Drivers of key controls for portfolio 11
Root causes and recommendations 12
Combined assurance and assessment of assurance providers
Minister’s commitments to address root causes 15

5. 1. Overall audit outcomes for Defence portfolio
PFMA
Unqualified no findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimer with findings
Audit not finalised 6
auditees 6
auditees 5
auditees
2014/2015
DoD – Unqualified with findings
DMV – Qualified
Armscor - Unqualified with no findings
CCB – Unqualified with findings
SANDF - Unqualified with no findings
SDA - Outstanding

6. 2. Auditor-General six key risk areas
PFMA
Quality of submitted financial statements (2.1)
Quality of submitted performance reports (2.2)
Compliance with legislation
(2.3)
Good
Concerning
Intervention required
Human resource management
Information technology
Financial health
Improvement
Stagnant or limited progress
Regressed

7. 2.1 Quality of submitted financial statements
PFMA
Outcome if NOT corrected
Outcome after corrections
1 auditee
Financially unqualified with / without findings
Financially qualified (qualified / disclaimed with findings)
Avoided qualifications by correcting material misstatements
during audit process
Outcome if NOT corrected
Outcome after corrections
3 auditees 7

8. 2.2 Quality of annual performance reports
PFMA
100%
of auditees that submitted information, did so in time for audit of reports
were reliable and useful compared with 50% in previous year.
50%
With no findings
With findings
Improved
Stagnant or little progress
Usefulness
Reliability
Regressed 8

9. 2.3 Auditees did not comply with legislation in the following areas
PFMA
Quality of annual financial statements submitted
Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure
Management of procurement and or contracts
Good
Concerning
Intervention required
Management of strategic planning and performance
Human resource & consequence management
Internal audit & Audit committee
Improvement
Stagnant or limited progress
Regressed
DMV

10. 3. Unauthorised, Irregular and Fruitless & Wasteful Expenditure
PFMA
Unauthorised expenditure
Irregular expenditure
Fruitless and wasteful expenditure
Expenditure not in accordance with the budget vote/ overspending of budget or programme
Expenditure incurred in contravention of key legislation; goods delivered but prescribed processes not followed
Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money!
Legends:
Decrease in incurred expenditure
No change
Increase in incurred expenditure
Finding not repeated
New finding
Repeat finding
Definitions
DoD - R
R63 000
DMV R R
Armscor R
R790
CCB R
R3 000
SANDFF
SDA R R
Totals R0 R R
92% identified by auditees
0.69% identified by auditees

11. 4. Driver of key controls for portfolio
PFMA
DoD
DMV
Armscor
CCB
SANDFF
SDA
Leadership
Effective leadership culture
Oversight responsibility
HR management
Policies and procedures
Action plans
IT governance
Financial and performance management
Proper record keeping
Processing and reconciling controls
Reporting
Compliance
IT systems controls
Governance
Risk management
Internal audit
Audit committee
Improvement
Stagnant or little progress
Regressed
Please note that no assessment for PC. This can however be discussed with chair one-on-one to start preparing them for next year when this will be included
Good
Concerning
Intervention required 11

12. 5. Top three root causes and recommendations
Management should timely respond to internal and external audit findings and develop and implement proper recordkeeping.
The accounting officer should implement consequence management to prevent non compliance with laws and regulations.
The accounting officer should ensure that there is stability in key positions to facilitate the adequate review of the annual financial statements before their submission for auditing.
PFMA
Improved
Stagnant or little progress
Regressed 12

13. 6. Combined assurance – complimentary mandate
Senior
management
Accounting
officers/
authority
Executive
Required assurance levels
Extensive
Management’s assurance role
Senior management – take immediate action to address specific recommendations and adhere to financial management and internal control systems
Accounting officers/ authority – hold officials accountable on implementation of internal controls and report progress quarterly and annually
Executive authority – monitor the progress of performance and enforce accountability and consequences
Management assurance
First level of assurance
Oversight assurance
Second level of assurance
Coordinating /
Monitoring
institutions
Internal
audit
Audit
committee
Extensive
Required assurance levels
Oversight’s assurance role
National Treasury/ DPSA – monitor compliance with laws and regulations and enforce appropriate action
Internal audit – follow up on management’s actions to address specific recommendations and conduct own audits on the key focus areas in the internal control environment and report on quarterly progress
Audit committee – monitor risks and the implementation of commitments on corrective action made by management as well as quarterly progress on the action plans
Independent assurance
Third level of assurance
Oversight
(portfolio
committees /
councils)
Public
accounts
committee
National Assembly
Extensive
Required assurance levels
Role of independent assurance
Oversight (portfolio committees) – review and monitor quarterly progress on the implementation of action plans to address deficiencies
Public accounts committee – exercise specific oversight on a regular basis on any report which it may deem necessary
National Assembly – provide independent oversight on the reliability, accuracy and credibility of National and provincial government

14. 6.1 Assessment of assurance providers for portfolio
PFMA
Armscor
First level
Armscor
Improvement
Stagnant or little progress
Second level
SDA
Regressed
Please note that no assessment for PC. This can however be discussed with chair one-on-one to start preparing them for next year when this will be included
Provides assurance
Provides some assurance
Provides limited/ no assurance
Vacancy
Not
Established/ Evaluated 14

15. 7. Minister commitments to address root causes
PFMA
Status of key commitments by minister
None
Fill the vacant posts of Department of Defence internal audit.
A task team will be established to assist Department of Military Veterans (DMV) in addressing matters affecting the performance of the department.
Improve governance.
Set clear expectations and responsibilities and establish a culture of respect and accountability
Not implemented
In progress
Implemented
New

16. Questions