Briefing to the portfolio committee:water and sanitation

Audit outcomes of the portfolio for the 2014-15 financial year

14 October 2015

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 ourcountry’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

2

Content

1. Purpose of the presentation 4

2. Scope of AGSA audits 5

3. Overall audit outcomes – Water & Sanitation portfolio 6

4. Unauthorised/irregular/fruitless and wasteful expenditure 10

5. Top three root causes and recommendations 11

6. Combined assurance – complementary mandates 12

7. Minister’s commitments to address root causes 13

3

1. 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

2. The scope of AGSA audits

XProvide 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 commentary 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

5

DW

S

WT

E

WR

C

TC

TA

IUC

MA

BG

CM

A

GOVERNANCE

LEADERSHIP

FINANCIAL AND PERFORMANCE MANAGEMENT

… the risk areas and … … the root causes are addressed …

Firs

t le

vel

Root causes

Key controls

Good Concerning Intervention required

To improve/maintain the audit outcomes …1 3… the key role players need to assure that …2

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 authorityInternal

audit unit

Audit committee

Portfolio committee

Third

le

vel

Quality of submitted financial statements

Information technology

Financial health

Supply chain management

Human resource management

Risk areas

Seco

nd

leve

l … attention is given to the key controls and …

54

Quality of submitted performance reports

Good Concerning Intervention required

Unqualified with no findings

Unqualified with findings

50% (3/6)

67% (4/6)

33% (2/6)

50% (3/6)

2014-15 2013-14

3. Overall audit outcomes – water and sanitation portfolio

6

Qualified with findings

Disclaimer with findings

Status of key commitments by minister

2014-15 2013-14 2012-13

17%(DWS)

50% (DWS, WTE,

WRC) 33%(DWS,WTE)

66% (WTE, WRC, TCTA,

BGCMA33% (WRC,

BGCMA)

17%(IUCMA) 50%

(TCTA,IUCMA,BGCMA)

33%(TCTA,IUCMA)

5

5

3DWSWRCWTE

6

4

1 TCTA

3

1BGCMA

2WRC

IUCMA

3 DWSWRC

BGCMA

3

2DWSWTE

41

IUCMA4

DWS,WTE,WRC,TCTA

1

3 DWSWRCWTE

3

3WTEWRC

IUCMA

1 DWS

2 4

33% (2/6)

33% (2/6)

Overall stagnation in audit outcomes

Establish a structure for the department that incorporates the sanitation function.

The focus risk assessment will be discussed by top management and monitored by the audit committee.

Provide a business process re-engineering committee (BPRC) implementation plan with milestones to the portfolio committee.

The monitoring of the new WTE CFO is ongoing.

The minister requested a joint team consisting of the DWS, the AGSA and the NT to work proactively towards addressing issues of concern, so that there would be a common understanding of issues before reporting time.

Not implemented In progress Implemented

3.1 Quality of submitted financial statements

Outcome if NOT corrected

Outcome after corrections

Avoided qualifications by correcting material

misstatements during audit process

2014

-15

50%DWS, WRC,

WTE

50%(3)

Outcome if NOT corrected

Outcome after corrections

2013

-14

2 auditees

zero auditees

Financially unqualified with/without findings

Financially qualified (qualified/ disclaimed with findings)

50%(3)

50% (3)WTE, TCTA,

IUCMA

17%(1)

DWS

66%(5)

50%DWS, WRC,

WTE

50%(3)

7

Legends:

With no findings

With findings

Improvement

Stagnant or limited progress

Regressed

3.2 Quality of annual performance reports

reports were reliable and useful compared to 3 in the previous year.

auditees who submitted information did so in time for the audit.

4

6

Usefulness Reliability

8

2013-14

2014-15

50%

67%

50% (DWS, WRC, WTE)

33% (DWS, WTE)

33% (DWS, WTE)

67% (4)

33% (DWS, WTE)

67% (4)

3.3 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 and consequence

management

Internal audit and audit committee

3 DWS, WRC, BGCMA

3

3 DWS,WTE,WR

C

3

1 IUCMA

4DWS,WTE,

WRC,TCTA

1

2 DWS, WTE

4

3

TCTA5

Legends:

With no findings

Intervention required

With findings

Improvement

Stagnant or limited progress

Regressed

9

DWS - R87 935 575 R1 545 000

WTE - R2 954 000 R581 000

WRC - R3 192 678 R1 836

TCTA - R11 023 067 R2 272 706

IUCMA - - -

BGCMA - - -

Totals - R105 105 320 R4 400 542

Expenditure incurred in contravention of

key legislation, prescribed processes

not followed

4. UIFW 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 inexpenditure

No change

Increase in expenditure

Definitions

10

5. Top three root causes and recommendations

33% (DWS, WRC)

50% (DWS, WTE, WRC)

33% (DWS, WRC)

50% (DWS, WRC, TCTA)

67% (DWS, WTE, TCTA, BGCMA)

33% (DWS, WTE)

Lack of consequences for poor performance and transgressions

Instability or vacancies in key positions

Slow response by management in addressing the root causes of poor audit outcomes

Recommendation:Implement proper record keeping to ensure that the annual financial statements are supported by complete and proper records. The audit committees should strengthen action plans to ensure that financial reporting and related controls prevent misstatements by engaging with the internal audit unit. Senior personnel should regularly review and monitor daily and monthly processing of transactions to ensure compliance with applicable policies and procedures.

Recommendation:Staff should be held accountable for poor performance and for any transgression.

Recommendation: All critical positions must be filled on time.

2014-15

2013-14

Improved

Regressed

Stagnant or little progress

11

Seniormanagement

Accountingofficers/authority

Executiveauthority

Required assurance levels

Extensive Extensive 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 assuranceFirst level of assurance

Seniormanagement

Accountingofficers/authority

6. Combined assurance – complementary mandate

Oversight assuranceSecond level of assurance

Coordinating/monitoringinstitutions

Internalaudit

Auditcommittee

Extensive Extensive 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, conduct own audits on the key focus areas in the internal control environment, and report on quarterly progress

• Audit committee – monitor risks andthe implementation of commitments on corrective action made by management as well as quarterly progress on the action plans

Independent assuranceThird level of assurance

Oversight(portfolio

committees/ councils)

Publicaccounts

committee

National Assembly

Extensive Extensive 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 of any report that it may deem necessary

• National Assembly – provide independent oversight of the reliability, accuracy and credibility of national and provincial government

12

7. Minister’s commitments to address root causes

Not implemented In progress Implemented New

Status of key commitments by minister

13

The focus risk assessment will be discussed by top management and monitored by the audit committee.

Establish a structure for the department that incorporates the sanitation function.

Provide a business process re-engineering committee (BPRC) implementation plan with milestones to the portfolio committee.

The monitoring of the new WTE CFO is ongoing.

The minister requested a joint team consisting of the DWS, the AGSA and the NT to work proactively towards addressing issues of concern, so that there would be a common understanding of issues before reporting time.

Questions