1. Briefing to the Energy Portfolio Committee on Energy on the audit outcomes of the Energy portfolio for the financial year Presented by: Zolisa Zwakala, Carl Wessel and Lufuno Mmbadi
13 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, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.
Need to consider the following
All information to be included needs to have been audited and is accurate and correct
If information included is not audited then it needs to be specified as such or specified that this was based on a sample tested

3. Contents Slide nr. Purpose of the presentation 4
The scope of the AGSA audits 5
2. Overall audit outcomes for Energy portfolio 6
3. Auditor-General six key focus areas 7
4. Financial health
4. Unauthorised/ Irregular / Fruitless & Wasteful expenditure 12
5. Assessment of assurance providers 16
6. Drivers of key controls for portfolio 17
7. Root causes and recommendations
Minister commitments to address root causes 20

4. 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.

5.  X The scope of AGSA audits
Provide assurance that AFS are free from misstatements that will affect users
Do not provide assurance on the appropriateness of the departmental budgets
Report on usefulness and reliability of the information in the annual performance report
Do not provide assurance that service delivery has been achieved.
Report on material non-compliance with relevant key legislations
Do not report on ALL legislations – only key selected requirements from relevant legislations are audited
Identifying the key internal control deficiencies to be addressed
We assess the risk of fraud, but we are not responsible for –
Fraud identification
Fraud prevention

6. 1. Overall audit outcomes for Energy portfolio
PFMA
Unqualified no findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimer with findings
Not yet finalised
Outstanding
9 auditees
8 auditees
8 auditees

7. 2. Auditor-General six key focus areas for six auditee’s that were audited
PFMA
Quality of submitted financial statements
Quality of submitted performance reports
Compliance with legislation
Good
Concerning
Intervention required
Human resource and consequence management
Information technology
Financial health
Improvement
Stagnant or limited progress
Regressed

8. 2.1 Quality of submitted financial statements
PFMA
Outcome if NOT corrected
Outcome after corrections
3 auditees
Financially unqualified with findings
Financially qualified (qualified/ disclaimed with findings)
Avoided qualifications by correcting material misstatements
during audit process
Outcome if NOT corrected
Outcome after corrections
4 auditees 8

9. 2.2 Quality of annual performance reports
PFMA
Annual performance reports of six entities audited were reliable and useful compared with 57% in the previous year
67%
With no findings
With findings
Improved
Usefulness
Reliability
Stagnant or little progress
Regressed
EQF did not prepare annual performance report
All auditees that submitted information, did so in time for audit 1 1
SANEDI obtained a disclaimer on one programme and an adverse on another 9

10. 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

11. 3. Financial health of the portfolio
Good
Concerning
Intervention required
PFMA
Focus areas for financial health
Status
Comment
Significant uncertainties
CEF (Petro SA)
The requirements to fully close or decommission redundant exploration wells are being researched.
PetroSA has an obligation to rehabilitate and abandon its offshore and onshore operations valued at R9,3 billion which are currently not fully funded.
In terms of the recently promulgated National Environmental Management Act, 1998 (Act No. 107 of 1998) (NEMA), PetroSA is required to have a fully funded rehabilitation liability within the next 12 months from year-end.
Only to be included if going concern or accruals/payables or commitments have been included in the audit report. 11

12. 4. UIFW expenditure definitions
PFMA
Unauthorised expenditure
Expenditure not in accordance with the budget vote
Irregular expenditure
Expenditure incurred in contravention of key legislation
Fruitless and wasteful expenditure
Expenditure that should not have been incurred (incurred in vain that could have been avoided and no value for money) 12

13. 4.1 Irregular expenditure for portfolio
PFMA
Identified by auditees
Identified by auditors 13

14. 4.2 Fruitless and wasteful expenditure for portfolio
PFMA
Identified by auditors: R1.3 million
Identified by auditee: R3.4 million
Identified by auditees
Identified by auditors 14

15. 4.3 Irregular Expenditure- Reconciliation
PFMA
Entity
DOE
R’000
CEF Group
NERSA
SANEDI
Opening Balance
379
19 198
0.00
19 102
Incurred in current year 55
4 731
-1 704
426
Less prior year condoned
-379
Less current year condoned
-55
2 268
Closing balance
21 172 15

16. 5.1 Assessment of assurance providers for portfolio
PFMA
First level
Improvement
Stagnant or little progress
Second level
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
Evaluated 16

17. Drivers of internal control
6. Driver of key controls for portfolio
PFMA
Drivers of internal control
Department & Entities
Leadership
Financial & performance management
Governance
Effective leadership culture
Oversight responsibility
HR management
Policies and procedures
Action plans
IT governance
Proper record keeping
Processing and reconciling controls
Reporting
Compliance
IT systems controls
Risk management
Internal audit
Audit committee
DOE
CEF
NERSA
NNR
SANEDI
Equalisation Fund
Good
Concerning
Intervention required
Improvement
Stagnant or little progress
Regressed

18. 7. Root causes should be addressed
PFMA
Slow response by management in addressing the root causes of poor audit outcomes
Slow response by management was not one of the top three root causes in the prior year, however this year it is the main root cause of audit findings. This is due to action plans still being inadequate and implementation thereof not monitored. There is also no improvement in assurance provided by management and no improvement in the basic internal controls. Leadership relies heavily on consultants to assist with financial reporting as well as on the external audit process to identify and correct material misstatements in the financial statements.
Lack of consequences for poor performance and transgressions
Improved
Stagnant or little progress
The leadership did not always hold staff accountable for poor performance and transgressions and this creates the perception that these results are acceptable and tolerated. Furthermore, performance of staff is not monitored due to lack of adequate performance management systems. There was however an improvement since the prior year as certain auditees started implemented consequence management.
Regressed

19. 7.1 Root causes & Recommendations (top three)
PFMA
Root causes
Recommendation
Lack of consequences for poor performance and transgressions
Consequences management should be prioritised within the portfolio to ensure that the same transgressions are not repeated
Slow response by management
The entities should implement controls timeously as and when deficiencies are identified.
Compliance with legislation not reviewed and monitored
Entities should ensure that compliance is continuously monitored and reviewed. 19

20. 8. Minister commitments to address root causes
PFMA
Status of key commitments by minister
There were no commitments from the minister
Not implemented
In progress
Implemented
New

21. Questions