1. Briefing to the Portfolio Committee on Basic Education Audit outcomes of the Basic Education 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, 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. 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. Contents Slide Nr 1. Scope of AGSA audits5 2.Overall audit outcomes 6 3.Unauthorised/ Irregular / Fruitless & Wasteful expenditure11 4.Root causes and recommendations 12 5. Minister commitments 13 6. Combined assurance14 7. Sector audit outcomes15

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/maintain the audit outcomes … 1 3 … the key role players need to assure that … 2 Overall regression in audit outcomes Assurance levels Slow response by management (Accounting officer and senior management) Lack of consequences for poor performance and transgressions Provides assurance Provides some assurance Provides limited/ no assurance Vacancy Not established Senior management Accounting officer/authority Executive authority Internal audit unit Audit committee 1. Quality of submitted financial statements 6. Information technology 4. Financial health 3. Supply chain management 5. Human resource management Risk areas Second level … attention is given to the key controls and … 5 4 2. Quality of submitted performance reports GoodConcerningIntervention required Unqualified with no findings Unqualified with findings 2014-152013-14 2. Overall audit outcomes – Basic Education portfolio 6 Qualified with findings Disclaimer with findings Improvement Stagnant or limited progress Regressed Legends A = DBE B = ELRC C = Umalusi D = SACE MovementPortfolio

7. 7 Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) Umalusi submitted quality financial statements for the 2013-14 and 2014-15 financial years 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 3 auditees (DBE, SACE &ELRC) 2.1 Quality of submitted financial statements 2014-15 PFMA A = DBE B = ELRC C = Umalusi D = SACE

8. 2.2 Quality of annual performance reports 8 Auditee did not prepare annual performance report 8 With no findings With findings 2014-15 PFMA Annual performance reports of were reliable and useful compared with 1 in the previous year 1 Usefulness Reliability All auditees that submitted information, did so in time for audit Regressed Stagnant or little progress Improved SACE Umalusi, SACE & ELRC

9. 2014-15 PFMA 9 2.3 Most auditees did not comply with legislation in the following areas 1. Quality of annual financial statements submitted 2. Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure Good Concerning Intervention required Regressed Stagnant or limited progress 3. Management of procurement and or contracts 4. Management of strategic planning and performance 5. Human resource & consequence management 6. Internal audit & Audit committee Improvement Umalusi and SACE Umalusi SACE Umalusi, SACE & ELRC Umalusi

10. 2014-15 PFMA 10 2.4 Emphasis of matters Good Concerning Intervention required Stagnant or limited progress Improvement Matters Details Accruals and payables exceeding 30 days deemed unauthorised expenditure (Annual report page 198 par 8-9) Accruals and payables that exceeded the payment term of 30 days as required by treasury regulation 8.2.3 amounted to R329 million. This amount, in turn, exceeded the voted funds to be surrendered of R167 million as disclosed in note 14 to the financial statements as per the statement of financial performance by R162 million. The amount of R162 million would therefore have constituted unauthorised expenditure had the amounts due been paid in a timely manner. This was mainly a result of: Material underspending of the infrastructure budget during the 2012-13 and 2013-14 financial years The increased performance in delivery by contractors during the current financial year of which no budget was available The rejection of the application for roll-over funds by the National Treasury Payables (Annual report page 198 par 10) The department received money from an implementing agent for infrastructure expenditure incurred during the 2014-15 financial year without the approval of the Ministry and without the agreement of the department, which was in contravention of section 66(2) of the PFMA. The implementing agent deposited the money into the department’s bank account without prior approval from the department and the expenditure incurred in this regard was recorded by the department. This is disclosed in note 16 to the financial statements.

11. Basic EducationR6 844 000R727 654 000- ELRC-- - SACE--- Umalusi - -- TotalsR6 844 000R727 654 000- Expenditure incurred in contravention of key legislation, prescribed processes not followed 3. Unauthorised, Irregular and Fruitless and wasteful 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! Legends: Decrease in incurred expenditure No change Increase in incurred expenditure Definitions 11

12. 4. Root causes and recommendation Lack of consequences for poor performance and transgressions Slow response by management in addressing the root causes of poor audit outcomes Recommendation: Monitoring and evaluation processes particularly with regard to the implementation of the action plan developed should be strengthened by frequent monitoring by dedicated staff who can detect, or preferably prevent the slow response from management. Recommendation: The performance management system of the DBE must be strengthened to ensure alignment of the annual performance plan of the department to the performance contracts of employees. Performance reviews conducted must thereafter focus on officials being held accountable for poor performance and transgressions. This will ensure that officials are held accountable and to minimise the environment where poor performance and transgressions will continue. 2014-15 2013-14 Improved Regressed Stagnant or little progress 12 2014-15 PFMA

13. 6. Minister commitments to address root causes 2014-15 PFMA 13 Status of key commitments by minister Strengthen performance management in the department to ensure individual commitment Appoint suitably skilled officials for all phases of the infrastructure delivery process and strengthen leadership oversight in this area, including review of quarterly reporting on performance by the monitoring and evaluation unit. Implement daily, weekly and monthly checks and balances to ensure the credibility and completeness of financial and performance information presented to management and oversight committees. Not implementedIn progressImplementedNew Continuous oversight monitoring of provinces on areas affecting the management of predetermined objectives (service delivery) and management of conditional grants. Ensure alignment of strategic objectives to all individual’s performance contracts. Ensuring that effective internal controls are implemented across all 3 levels (financial administration, performance information and compliance with laws and regulations) at the National Department. DBE to prepare complete monthly financial and performance reports that include disclosure items and also encourage this to all provincial departments of education.

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 7. 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. 9. Sector audit outcomes – (2014-15) 15

16. Questions