1. AUDIT REPORT
Department of Cooperative Governance and Traditional Affairs (COGTA) 2010/11
Portfolio Committee
18 October 2011
Parliament

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. Agenda Executive summary Legislative requirements Focus areas Opinions
Audit report structure
Audit outcomes achieved 2010/11
Basis for qualification
Emphasis of matters
Predetermined objectives
Compliance
Internal controls
Other matters
Entities

4. 1. Executive summary COGTA Audit Report Objective
Discussion of the audit report of the Department of Cooperative Governance and Traditional Affairs for the 2010/11 audit cycle for the financial year ended 31 March 2011.
Objective
What opinion means?
Significant findings?
Public interpretation?
Conclusion?

5. 2. 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
3. Public Audit Act (Act No.25 of 2004)
Sections 20 – Auditor-General must prepare audit report containing opinion/conclusion on:
Financial statements and financial position
Compliance and financial management
Predetermined objectives

6. 3. Content of audit report
Focus areas and content of audit report:
Opinion
Matters highlighted :
Matters important to users of financial statements:
Disclosed by department
Detected by audit
Predetermined objectives
Compliance matters
Internal Controls
Other i.e investigations

7. 4. Opinions Different audit opinions: Unqualified (unmodified)
Disclaimer
Adverse

8. 4. Opinions Overall summary description per opinion: Audit Opinion
Unmodified
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.

9. 4. Opinions Overall summary description per opinion: Audit Opinion
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.

10. History of audit opinions:
2008-9
2007-8
Disclaimer
Adverse
Qualified X  X
Unqualified with other matters
Unqualified with no other matters
Goal:
Unqualified opinion with no findings on predetermined objectives or compliance with laws and regulations!!!!

11. 5. Audit report structure
Index:
Report on the financial statements
Introduction
Accounting officer/authority’s responsibility
Auditor-General’s responsibility
Opinion
Emphasis of matters
Additional matters
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
Now please refer to handout for annual report for audit report of COGTA

12. 5. Audit report structure
Emphasis of matter/Additional matter
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 matter
Additional 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

13. 5. Audit report structure
Matters highlighted
Emphasis of matter:
Financial reporting framework
Significant uncertainties
Revision of previously issued AFS
Restatements of corresponding figures
Material underspending
Accruals
Going concern/funding/financial sustainability
Additional matter:
Prior year audited by predecessor auditor
Material inconsistencies included in annual report
Unaudited supplementary schedules

14. 6. Audit outcomes achieved 2010/11
Actual annual report of COGTA: refer to annexure
Opinion:
Qualified audit opinion
Area of Qualification:
Completeness of Irregular expenditure disclosed
Other matters highlighted:
Emphasis of matters
Irregular expenditure
Significant uncertainties
Restatement
Fruitless and Wasteful expenditure

15. 6. Audit outcomes achieved 2010/11
Actual annual report of COGTA: refer to annexure
3. Predetermined objectives
Reliability of information
4. Compliance
PFMA
National Treasury Regulations
Other legislation
Internal control
Summary of control deficiencies in 3 Fundamentals:
Leadership
Financial and performance management
Governance

16. 7. Basis for Qualification
Actual annual report of COGTA: refer to annexure
Irregular Expenditure
No proper system in place to ensure that where irregular expenditure could not be prevented, that it was detected/identified by the departments to ensure adequate and complete recording and disclosure thereof in the annual financial statements.

17. 8. Emphasis of matters
NB!
Audit only highlight if matter is disclosed in the financial statements of the entity
Significant uncertainties
Litigation against department of R : highlighted as outcome is unknown
Restatement of corresponding figures
Prior year figures (R ) corrected in current year financial statements: highlighted if material or significant
Irregular expenditure
Expenditure of R incurred in contravention of act, law or regulation. Majority related to expenditure incurred in contravention of the DoRA and PFMA/Treasury Regulations: highlighted as it is material and significant to users.
expenditure = spending of public funds
Indication of financial management
Fruitless and Wasteful expenditure
Interest in legal fees R : highlighted as expenditure = spending of public funds
“avoided”

18. 9. Predetermined Objectives
Reliability of information
Validity: The following matters were noted:
Source information or evidence was not provided was thus validity could not be determined.
Compliance
Non-compliance with Treasury Regulations, refer to compliance table.
Recommendation
Maintain sufficient and appropriate supporting evidence for reported targets. System to collect and collate evidence to ensure correct and adequate reporting.
A system to ensure review and monitoring of compliance with laws and regulations when strategic plans are compiled, approved and submitted

19. 10. Compliance Summary of compliance findings Category of finding Act
Description
Strategic planning and performance management
TR 5.2.1
Strategic plan was not submitted 10 days prior to discussion of department’s budget vote.
PFMA(38(1) (a)(i) &(b)
The accounting officer did not ensure that the department maintains effective and efficient systems systems of internal controls regarding performance planning
TR 5.2.3(d)
The strategic plan did not include measurable objectives
Annual financial statements, performance and annual reports
PFMA
40(1)(a)&(b)
Financial statements submitted were subject to material and/or significant adjustments and certain supporting evidence for AoPO was not provided to audit

20. 10. Compliance Summary of compliance findings Category of finding Act
Description
Internal audit
PFMA 38(1)(a)(i)
TR 3.2
Internal audit function did not assist accounting officer in evaluating internal controls
Procurement and contract management
PFMA 76(4)(c)
PN 8 0f 2007/8
Three quotations not obtained for goods procured
Expenditure management
PFMA(38(1)(c) (ii)
TR 9.1.1
Irregular expenditure was not prevented by the department
PFMA(38(1)(f)
TR 8.2.3
Payments due to creditors were not always settled within 30 days from receipt of an invoice
Transfer of funds and/ or conditional grants
DoRA 10(1)(c)
Payments made not in accordance with approved payments schedule
DoRA 10(1)(d)
Transfer payments not paid into primary bank account of municipality

21. 10. Compliance Recommendation
Implementation of an adequate review process of financial statements prior to submission for audit to ensure compliance.
A system to ensure that the department procures goods and services in a transparent, cost effective and efficient manner. Compliance to laws and regulations should be adhered to during procurement in order to prevent irregular expenditure i.e (signed off checklist indicating steps followed prior to approval for payment). The department should also implement a system to ensure that irregular expenditure not prevented is:
Detected; and
Adequately disclosed as irregular expenditure
System/process to ensure payments to suppliers are affected within 30 days. Action needs to be taken against non-complying individuals as the processes are in place and just require adherence thereto.
Risk management processes need to ensure compliance with required laws and regulations such as DoRA, PFMA, TR etc.
Internal audit to be fully capacitated

22. Internal control deficiency Financial and performance management
11. Internal controls
Internal control deficiency
Leadership
Financial and performance management
Governance
The accounting officer did not exercise oversight responsibility regarding financial and performance reporting and compliance with laws and regulations and related internal controls X
Management did not prepare regular, accurate and complete financial and performance reports that are supported and evidenced by reliable information.
Management did not review and monitor compliance laws and regulations.
The accounting officer did ensure that there is an adequately resourced and functioning internal audit unit that identifies internal control deficiencies and recommends corrective action effectively

23. 12. Other matters Investigations Agreed upon procedures
Ongoing investigations into alleged SCM irregularities by employees.
Agreed upon procedures
Donor funding from EU – Project Masibambane
Performance Audit: Readiness of government to report on its performance
Going forward
CoGTA has developed action plans to address all audit findings. These action plans should be monitored and regular feedback given to the executive authority. Regular audit steering committee should be held and feedback be provided at audit committee meetings.
Vacancies in key management positions were filled during the period under review (CFO) also post year end (CAEs)
Discretion applied regarding appointment/usage of consultants, knowledge and skills transfer must be a prerequisite
Audit opinion of predetermined objectives in audit report in future.
Focus on key controls review process and feedback by AGSA

24. 13. Entities Entity Audit Outcomes Audit Opinion
Findings on Predetermined objectives
Findings on Compliance
Significant deficiencies in internal control
Leadership
Financial and performance management
Governance
South African Local Government Association (SALGA)
Financially unqualified
Emphasis on:
Irregular expenditure
Fruitless and wasteful expenditure
Going concern
Validity of reported information
Strategic planning and performance management
Annual financial statements
Expenditure management
Procurement and contract management X
Municipal Demarcation Board (MDB)
Financially unqualified
No findings
Annual financial statements
Procurement and contract management

25. 13. Entities Entity Audit Outcomes Audit Opinion
Findings on Predetermined objectives
Findings on Compliance
Significant deficiencies in internal control
Leadership
Financial and performance management
Governance
CRL Rights Commission
Financially unqualified
Emphasis on:
Irregular expenditure
Fruitless and wasteful expenditure
Going concern
Usefulness of information
Strategic planning and performance management
Annual financial statements
Expenditure management
Procurement and contract management
Internal audit
Audit committee X

26. QUESTIONS???