1. Higher Education and Training: audit outcomes 2013/14 14 th October 2014

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. Agenda 1.Purpose of the presentation 2.Internal controls dashboard 3.Assurance levels 4.Audit outcomes for the department and its entities 5.Audit outcomes for the FET colleges 6.Audit outcomes for the universities

4. To provide members of parliament with the necessary information on the audit outcomes for the portfolio to enable the Portfolio Committee to effectively execute their oversight function Purpose of presentation

5. INTERNAL CONTROL DASHBOARD

6. Internal control dashboard What is an internal control? Internal control is defined as a process effected by an entity’s governing body (accounting officer/authority or equivalent), management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the efficiency and effectiveness of operations, reliability of reporting (financial and non-financial) and compliance with laws and regulations.

7. Internal control dashboard Primary purpose of internal controls The primary purpose of internal control is to help management better control the organisation. Everyone in the organisation has some responsibility for internal control. Internal control is a multi- dimensional iterative process of on- going tasks and activities.

8. Internal controls dashboard Why implement internal controls? The implementation of effective internal control helps achieve important objectives and sustain and improve performance. Objectives are derived from the regulatory environment or regulations. The objectives are driven by the mandate and the mission and vision. The objectives reflect how the auditee seeks to create, preserve and realise value. Setting objectives is a prerequisite to internal control and a key part of strategic planning. An organisation establishes a mission, sets strategies, establishes the objectives (goals) it wants to achieve and formulates the plan for achieving them.

9. Internal control dashboard What is the objective of internal controls in the public sector? 1.Accountability and reporting The process whereby organisations and individuals are held responsible for their decisions and actions, including their stewardship of public funds, fairness and all aspects of performance. 2. Compliance with laws and regulations Laws and regulations mandate the collection and spending of public money and the way of operating. Acting in accordance with government policy. 3. Operational Executing orderly, ethical, economical, efficient and effective operations. This relates to the achievement of the mission, the fundamental reason for the auditee’s existence.

10. Internal control dashboard Orderly: In a well-organised way, methodical. Ethical (moral principles): Ethical behaviour and prevention and detection of fraud and corruption: Public servants should serve the public interest with fairness and manage public resources properly. Economical (not wasteful or extravagant): Getting the right amount of resources, of the right quality, delivered at the right time and place, at the lowest cost. Efficient (relationship between the resources used and the outputs produced to achieve the objectives): The minimum resource inputs to achieve a given quantity and quality of output. Effective (accomplishment of objectives): Extent to which the outcomes of an activity match the objective.

11. Internal control dashboard 4. Safeguarding of resources against loss, misuse and damage Resources in the public sector generally embody public money and their use in the public interest requires special care. Other resources, such as information, source documents and accounting records, are key to achieving transparency and accountability of government operations. They are also in danger of being stolen, misused or destroyed.

12. Internal control dashboard Key drivers of internal control Leadership Culture of honesty, ethical principles and good governance Oversight responsibilities Effective HR management Policies and procedures Action plans Information technology (IT) governance framework

13. Internal control dashboard Key drivers of internal control Financial and performance management Proper record keeping Daily and monthly processing of information Regular (monthly) and accurate financial and performance reports supported by reliable documents Review and monitor compliance Design and implement IT controls Governance Risk management Internal audit Audit committee

14. ASSURANCE LEVELS

15. Senior management Senior management Accounting officers/ authority Accounting officers/ authority Executive authority Executive authority 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 Management assurance First level of assurance Senior management Senior management Accounting officers/ authority Accounting officers/ authority Assurance levels Oversight assurance Second level of assurance Oversight assurance Second level of assurance Coordinating / Monitoring institutions Coordinating / Monitoring institutions Internal audit Internal audit Audit committee 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 Independent assurance Third level of assurance Oversight (portfolio committees / councils) Oversight (portfolio committees / councils) Public accounts committee 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

16. AUDIT OUTCOMES FOR THE DEPARTMENT AND ITS ENTITIES

17. Audit outcomes for the department and its entities

18. Audit outcomes for the department and its entities – assurance levels

19. Audit outcomes for the department and its entities – key controls

20. Audit outcomes for the department and its entities – risk areas

21. Audit outcomes for the department and its entities – root causes

22. Audit outcomes for the department and its entities - commitments

23. AUDIT OUTCOMES FOR THE FET COLLEGES

24. Audit outcomes for the FET’s

25. Audit outcomes for the FET’s – assurance levels

26. Audit outcomes for the FET’s – key controls

27. Audit outcomes for the FET’s – key risk areas

28. Audit outcomes for the FET’s

29. AUDIT OUTCOMES FOR THE UNIVERSITIES

30. The AGSA and the audits of Universities Background -Universities are established in terms of the Higher Education Act (HEA) 101 of 1997 as amended. -Pre-amble to the HEA states inter alia “ AND WHEREAS IT IS DESIRABLE for higher education institutions to enjoy freedom and autonomy in their relationship with the State within the context of public accountability and the national need for advanced skills and scientific knowledge”. -Concept of autonomy was often interpreted by the institutions to mean that they are not part of the “public sector” and therefore the AGSA should not be involved in their audits. -AGSA General Notice 1111 of 2010, made special mention institutions of higher education falling within the ambit of s4(3) of the Public Audit Act (PAA), in response to calls for their inclusion from DHET and the Portfolio Committee for Higher Education and Training.

31. The AGSA and the audits of Universities Background (cont.) -AGSA involvement started in 2011 and is currently limited to:  providing guidance to auditors on the audit of compliance with legislation and predetermined objectives.  Attendance of audit committees more on an observer role than an active participatory role. -Currently universities appoint own auditors after consultation with the AGSA i.t.o. s25 of the PAA. -Legislative environment is quite thin e.g. no prescribed requirements pertaining to procurement in the HEA. -New regulations for reporting issued in June 2014 have more stringent requirements planning and reporting on performance.

32. Audit outcomes of the Universities Regression in audit outcomes Financial statements (F) Compliance with legislation (C) Audit outcomes area UnqualifiedQualifiedAdverse/disclaimerAudits outstanding With no findings in audit report With findings in audit report

33. 33 Outcomes Improved Unchanged Regressed Unqualified with no findings 17 Stellenbosch Tshwane Cape Peninsula, Central, Durban, NMMU, North West, Rhodes, UCT, Fort Hare, UJ, UKZN, Pretoria, Free State, UWC, Wits, Venda Unqualified with findings 6 Limpopo UNISA Walter Sisulu Mangosuthu Zululand Vaal Qualified with findings 0 Adverse or disclaimer with findings 0 33 Movements of the universities reported on 3 3 2 2 3 3 Improvement Regression 23 0% 26% 0% 23 74% 15 2 2 3 3 18

34. Audit outcomes of universities over the past 5 years Unqualified with no findings Unqualified with findings Qualified with findings Adverse or disclaimer with findings

35. Compliance findings -PAYE not deducted on certain fringe benefits or incorrectly calculated (2) -No council or minister approval for construction of permanent building (1) -VAT related (2) -Conflicts of interest (3) -HR related (1)

36. QUESTIONS???