1. Briefing to the Portfolio Committee: Higher Education and Training Audit outcomes of the portfolio for the 2014-15 financial year 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, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. 2

3. Content 1.Purpose of the presentation 4 2.Scope of AGSA audits 5 3.Overall audit outcomes for the department and its entities 6 4.Unauthorised / irregular / fruitless and wasteful expenditure 10 5. Root causes and recommendations 11 6. Audit outcomes for TVET colleges audited by the AGSA 12 7. Combined assurance 14 8. Minister commitments 15 3

4. 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 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 on service delivery 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 The scope of AGSA audits

6. … the risk areas and … … the root causes are addressed … First level Root causes Key controls GoodConcerningIntervention required To improve the audit outcomes … 1 3 … the key role players need to assure that … 2 Overall improvement in audit outcomes Assurance levels Slow response by management (Accounting officer and senior management) Lack of consequences for poor performance and transgressions Instability or vacancies in key positions Provides assurance Provides some assurance Provides limited/ no assurance Vacancy Not established Senior management Accounting officer/authority Executive authority Internal audit unit Audit committee Portfolio committee Third level Quality of submitted financial statements Information technology Financial health Supply chain management Human resource management Risk areas Second level … attention is given to the key controls and … 5 4 Quality of submitted performance reports GoodConcerningIntervention required Unqualified with no findings Unqualified with findings 2014-152013-14 1. Overall audit outcomes – Higher Education and Training Portfolio 6 Qualified with findings Disclaimer with findings Improvement Stagnant or limited progress Regressed Legends Movement Leadership Governance Financial and performance management [1] [2] [3] [4] [5] [6]

7. Legend: Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) 1.1 Quality of submitted financial statements Outcome if NOT corrected Outcome after corrections Avoided qualifications by correcting material misstatements during audit process 2014-15 Outcome if NOT corrected Outcome after corrections 2013-14 15 auditees 17 auditees 7 [1]

8. Legends: With no findings With findings Improvement Stagnant or limited progress Regressed 1.2 Quality of annual performance reports of reports were reliable and useful compared with 16 in previous year. of auditees that submitted information, did so in time for audit 16 27 Reliability 8 [1]

9. Legends: With no findings Intervention required With findings Improvement Stagnant or limited progress Regressed 1.3 Most auditees did not comply with legislation in following areas Quality of annual financial statements submitted Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure Management of procurement and or contracts Management of strategic planning and performance Human resource & consequence management Internal audit & Audit committee 9

10. DHET -R1 252 000- SETAS & NSFN/AR349 194 578R26 690 301 OTHER PUBLIC ENTITIESN/AR504 000R990 Totals- R350 950 578 R26 691 291 Expenditure incurred in contravention of key legislation, prescribed processes not followed 2. U,I,FW expenditure Unauthorised expenditure Expenditure not in accordance with the budget vote/ overspending of budget or programme Irregular expenditure Fruitless and wasteful expenditure Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Definitions 10 Top 5 contributors - irregular expenditure SASSETA (R126 million) CATHSETA (R123 million) EWSETA (R29 million) NSF (R28 million) FOODBEV (R11 million) Legends: Decrease in incurred expenditure No change Increase in incurred expenditure Top 5 contributors - FW expenditure SASSETA (R25 million) CATHSETA (R400 000) PSETA (R271 000) EWSETA (R165 000) SERVICES SETA (R144 000)

11. 3. Top three root causes and recommendations Instability or vacancies in key positions Lack of consequences for poor performance and transgressions Slow response by management in addressing the root causes of poor audit outcomes Recommendation: Slow response by management should be improved through timely compilation of action plans arising from audits, regular monitoring of progress made to address internal control deficiencies and communicating the action plan to address internal control deficiencies to all levels of staff. Quarterly reviews of progress on the implementation of actions plans should be performed by internal audit. This will provide an independent assurance on whether satisfactory progress is being made by management in addressing internal control deficiencies. Recommendation: The performance management processes of staff should be strengthened to incorporate internal controls responsibilities in performance contracts for all staff. Consequence management should be implemented for non- performance. Recommendation: All funded vacant positions should be filled with individuals that have the appropriate qualifications and skills as a matter of urgency. In addition, a gap analysis should be performed in relation to the current level of skills and competencies. An action plan should be put in place to address the gaps identified 2014-15 2013-14 Improved Regressed Stagnant or little progress 11

12. Audit outcomes for the TVET colleges audited by the AGSA 12

13. 13

14. 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 4. Combined assurance – complimentary mandate 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 14

15. 5. Minister commitments to address root causes 15 Status of key commitments by minister Not implementedIn progressImplementedNew Standardisation of remuneration of board members and sub-committees of Board for SETA’s. Develop policies and procedures for collation, verification and reporting on performance targets achieved Improve monitoring responsibilities of DHET over its entities, universities and FETs Improve the performance and consequence management system. Monitor the rotation of auditors of universities every 5 years. Appointment and monitoring of services delivered by administrators appointed at universities, TVET’s and entities Issuing of regulations for supply chain management (SCM) processes and reporting on performance information for universities and TVET’s. Assess the performance of accounting authorities of TVET colleges and perform regular performance reporting. Implement measures to streamline information systems at TVET colleges.

16. Questions 16