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2
Reputation promise
The Auditor-General of South Africa (AGSA) 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
Role of the AGSA in the reporting process
Our role as the AGSA is to reflect on the audit work performed to assist the portfolio committee in its oversight role of assessing the performance of the entities taking into consideration the objective of the committee to produce a Budgetary review and recommendations report (BRRR).
5
“Plan-Do-Check-Act Cycle”, also the Deming cycle , courtesy of the International Organization for Standardization
AGSA theme for the current year to improve outcomes
The AGSA expresses the following different audit opinions:
Unqualified
opinion with no
findings
(clean audit)
Financially
unqualified opinion
with findings
Auditee:
• Credible and reliable
financial statements
that are free of material
misstatements
• Useful and reliable
performance as
measured against
predetermined
objectives
• complied with key
legislation
Auditee produced financial
statements without material
misstatements or could correct the
material misstatements, but
struggled in one or more area to:
• align their performance reports to
the predetermined objectives
they committed to in their APPs
• set clear performance indicators
and targets to measure their
performance against their
predetermined objectives
• report reliably on whether they
achieved their performance target
• determine the legislation that they
should comply with and
implement the required policies,
procedures and controls to
ensure compliance
Qualified
opinion
Auditee:
• had material
misstatements on
specific areas in their
financial statements,
which could not be
corrected before the
financial statements
were published.
Adverse
opinion
Auditee:
• had the same challenges
as those with qualified
opinions but, in addition,
they had so many material
misstatements in their
financial statements that
we disagreed with almost
all the amounts and
disclosures in the financial
statements
Auditee:
• had the same
challenges as those with
qualified opinions but, in
addition, they could not
provide us with evidence
for most of the amounts
and disclosures reported
in the financial
statements, and we
were unable to conclude
or express an opinion on
the credibility of their
financial statements
Disclaimed
opinion
9
…. compliance with key legislation and….
To improve/maintain the overall audit outcomes, financial statements processes,
1 3 2
Four year trend – Overall audit outcomes
…. performance planning and reporting must be improved by….
Regression in audit outcomes in the current year
2016-1
PFMA
• DWS was qualified on Transfers. DWS converted indirect grants (6B)
into direct grants (5B) and applied an incorrect accounting treatment.
• WTE’s qualification on PPE, was due to not allocating the carrying
amount of the assets under construction to each specific asset and
assessing them for impairment due to improper recording.
• Also WTE could not reconcile the financial liability on TCTA to the
underlying accounting models as it was not timely verified with TCTA.
• DWS and WTE were also qualified on completeness of irregular and
fruitless and wasteful expenditure as they did not have adequate
controls to identify UIFW within projects.
• Financial statement preparation remains a
concerns as material adjustments are effected
to AFS submitted for audit at DWS and WTE
• Inadequate monitoring of SCM legislation
resulted in non-compliance with SCM legislation
especially due to poorly motivated deviations;
• Although internal controls detect U.I.FW
expenditure, controls are not mature yet to
prevent incurring U.I.FW expenditure.
• Management implemented recommendations made by the DPME
and the AGSA interim audits on the APPs by crafting clearer and
unambiguous indicators and targets that conform to the smart
principles.
• Indicators and targets are now aligned to the mandate of the entities
• The department made material adjustments to the reasons for
variances given in the APR submitted for audit.
• We comment WRC for obtaining a clean audit this year in all three
areas
Three year trend –
Compliance with key legislation
67% (DWS, WTE)
100% (3)
DWS WTE WRC
100% (3)
DWS WTE WRC
33% (WRC)
2016-17 2015-16 2014-15
Three-year trend –
Quality of annual
performance plans
Three year trend –
Quality of submitted
annual performance reports
[VALUE]DWS
[VALUE]
DWS WTE
100% (3)
DWS WTE WRC
[VALUE] WTE WRC
[VALUE]
WRC
2016-17 2015-16 2014-15
[VALUE]
DWS
67% DWS WTE
[VALUE] (3)
DWS WTE WRC
[VALUE] WTE WRC
33% WRC
2016-17 2015-16 2014-15
Unqualified
with
no findings
Unqualified
with findings
Qualified
with findings
Adverse
with findings
Disclaimed
with finding
Audits
outstanding
--------------------------------------------------
67% (DWS, WTE)
33% (WTE)
33% (DWS)
100% (WRC, WTE, DWS)
67% (WRC, DWS)
67% (WRC, WTE)
33% (WRC)
2016-17 2015-16 2014-15 2013-14
11 With no
material findings With
material findings Outstanding
audits No APR/
late submission 11
DW
S
WT
E
WR
C
- Audit committee
- Proper record keeping
- Daily and monthly controls
- Regular, accurate & complete finanial and
- Review and monitor compliance
- Design and Implement IT controls
GOVERNANCE
- Audit Action plans
- ICT governance
- Risk management
- Internal Audit
FINANCIAL AND
PERFORMANCE MANAGEMENT
- Oversight responsibility
- Effective HR management
- Policies and procedures
LEADERSHIP
- Effective leadership
Status of Key controls
Good Concerning Intervention required
4 … providing attention to the key controls by…
Regression in audit outcomes in the current year - continued
• Dedication is required from DWS and WTE management, to deal with the matters pertaining to
internal control, rather than focussing on being reactive to audit findings.
• Monthly AFS with full disclosures were not prepared and interim AFS did not have full disclosure
which resultsin a concerted effort to compile AFS at year end, increasing the risk of misstatements.
• Instability in leadership, especially DG at the department and suspensions of key finance and
operational personnel also exasperated stability.
• Rigorous review of SCM legislation is required at DWS and WTE where deviations resulted on non-
compliance with SCM legislation. Also applicable to SCM by implementing agents.
• Budget processes and monitoring of cash flows should be improved.
• Effective controls over implementing agents should urgently be implemented and regularly
monitored.
Fir
st
leve
l
… the key role players as part of their role in combined assurance
Assurance providers per level
WRC / DWS / WTE
WRC
WRC
WRC
DWS / WTE
DWS / WTE WRC
DWS / WTE
DWS / WTE
Senior management
Accounting officer/authority
Executive authority
Internal audit unit
Audit committee
Portfolio committee T
hir
d
leve
l
Sec
on
d
leve
l
Basis for PC evaluation:
• Oversight role ito robust budget vote process, review of the annual report including the
audit report, quarterly reporting;
• Follow up on progress made by the entities to address poor audit outcomes;
• Recommendations made in relation to key audit matters; and
• Follow up on key matters reported in the committee’s prior year BRRR report.
The Portfolio committee performed the legislative oversight requirements and it robustly
engages the department on its role and mandate.
Senior management and accounting officer at both DWS & WTE did not provide the
necessary assurance as various lack internal controls resulted in unfavourable outcomes.
Controls around these areas were committed to be improved in the prior year.
Provides assurance
Provides some
assurance
Provides limited/ no assurance
Vacancy Not
established
5
Improved
Stagnant
Regressed
12
All
Programmes Usefulness Reliability
Material
adjustments
Budgeted
amount
(R ‘000)
Spent
amount
(R ‘000)
%
Spending
No. of
targets
planned
No. of targets
achieved
%
Achievement Programme 1-
Administration Not audited Not audited - R1 547 743 R1 504 930 97.2% 13 11 85%
Programme 2-
Water Planning and
Information
Management
No
material
finding
No
material
findings
X R 749 656 R 695 604 92.8% 12 8 67%
Programme 3-
Water Infrastructure
Development
No
material
findings
No
material
findings
X R12 130 318 R12 082 462 99.6% 18 5 28%
Programme 4-
Water and
Sanitation Services
No
material
findings
No
material
findings
X R778 488 R1 070 757 137.5% 6 5 83%
Programme 5-Water
Sector Regulation No
material
findings
No
material
findings
X R318 392 R 281 685 88.5% 23 8 35%
Totals 15 524 597 15 635 438 99.7% 72 38 53%
Quality of APP and analysis of expenditure per programme vs performance
achievements
14
Kindly refer to page 48-85 of the annual report for the detail of where management has reported on the their achievement of the above targets for each programme
as included in the Annual Performance Report.
Outcomes of programmes/objectives selected for testing:
15
Key projects audited as part of the statutory audit
10 key projects were audited at DWS and WTE. Despite that projects are not achieving the desired progress, the
spending of nine of these projects compared to project budgets is at (excluding the project that was not budgeted for)
4
• Targets were not achieved (projects are still under construction, yet
there are overspending on the funds allocated per year).
• Multi year key projects, which started in earlier years, were only
included in the APR for the current year.
• SCM processes were not followed on most of the projects due to
emergency of water shortages although they were multi year projects –
this resulted in irregular expenditure.
• Certain projects which did not go through the SCM processes (not
through a tender process) have been identified and a value for money
audit (follow the money), as part of the statutory audit. Potential fruitless
and wasteful expenditure was identified on these projects that can
result in an overstatement of the value of the assets created.
• One project (Mopani Emergency Project) has not been budgeted for in
the current year, yet spending was incurred during the year under
review.
Achievement of planned
targets – projects
56% (5)
44%
(4)
Targets achieved
Targets not achieved/
not evaluated
Key findings
49%
16
# Key Projects audited
Budget
versus
spending
Financial
management
(AFS)
Compliance
(incl. to
Contract
requirements)
Pre-
determined
objectives
Implementation
party
1 Eastern Cape – Greater Mbizana Regional Bulk Water
Supply Umgeni Water Board
2 KZN – Lower Thukela Bulk Water Supply Scheme Umgeni Water Board
3 Limpopo – Giyani Bulk Water Services and Giyani
Water Services Lepelle Water Board
4 Mpumalanga – Northern Nsikazi Bulk Water Scheme Rand Water
5 North West – Taung / Naledi Dr Ruth Segomotsi
Mompati District
Municipality
6 Limpopo – Mopani Emergency Project WTE construction unit
7 Limpopo – Nwamitwa Dam Lepelle Water Board
8 Limpopo – Raising of the Tzaneen dam wall Lepelle Water Board
9 Western Cape – Raising of Clan William Dam wall Started by WTE, in the
process to appoint
external service provider
10 Eastern Cape – Mzimvumbu Water Projects Started by WTE in process
to move to TCTA
Executive summary on Key Projects audited as part of the statutory audit
16
Material
findings / concerns noted No material
findings / concerns noted
-R 500
R 0
R 500
R 1 000
R 1 500
R 2 000
R 2 500
2014/15 2015/16 2016/17
Cash/Cashequivalents
Surplus/Deficit foryear
R’000 000
Diminishing Cash Flow
Financial Viability: DWS
Figure 1: Going concern considerations
The figures above should be read in conjunction with the qualification
areas reported on Transfer and subsidies, Irregular expenditure and
Fruitless and wasteful expenditure.
Material uncertainty related to going concern/financial
sustainability included in the audit report:
The department incurred a net loss of R89 million, overdraft of
R194 million and unauthorized expenditure of R406 million
during the year ended 31 March 2017 and, as of that date the
department’s current liabilities exceeded its total assets by R454
million. It is an indication that a material uncertainty exists that
may cast significant doubt on the department’s ability to continue
as a going concern (thus its ability to undertake its objectives
where the vote has been depleted).
18
-R 4 000 000
-R 3 000 000
-R 2 000 000
-R 1 000 000
R 0
R 1 000 000
R 2 000 000
R 3 000 000
R 4 000 000
2014 2015 2016 2017
CashReserves
NetProfit/Loss
Financial Viability : WTE
The expenditure incurred moved closer to the revenue and in 16/17
FY exceeded revenue.
Figure 1: Going concern considerations
0
2 000 000 000
4 000 000 000
6 000 000 000
8 000 000 000
10 000 000 000
12 000 000 000
14 000 000 000
16 000 000 000
18 000 000 000
14/13 14/15 15/16 16/17
Revenue
Expenditure(InclEmployee comp)
Key financial health indicators The cash reserves are consistently diminishing over the years and
so are the profits. This is a strong indicator of going concern
challenges with a current year Overdraft of R2.186 billion (PY –R0)
19
Liquidity ratios Ratios
Current ratio 0.91
Current acid ratio 0.81
Component 2016-17 2015-16 Movement
Revenue R10 296 475 R9 494 713 8%
Total trade
Receivables R10 301 980 R8 415 301 22%
Provisions for
impairment R6 774 299 R4 717 762 44%
Payables R1 943 563 R1 168 507 66%
• A healthy current ratio is deemed at 2:1 and the entity’s ration is
less than one.
• Current acid ration should be 1:1 which is also less than one.
It thus indicates that the entity will experience significant challenges
in paying their current liabilities as and when they fall due. This
inability to pay results in increased accruals.
R’000
• The increase in receivables of 22% is not as a result of increase in
revenue/ business, but due to the inability of the entity to collect its
debt owed to it.
• The inability to collect monies due to it, resulted in a significant
impairment of receivables, as these are now deemed highly unlikely
to be recovered.
• Payables also increased drastically from the prior year with 66% as
the entity is not able to pay its short term liabilities as and when they
fall due.
• All these indicate highly unfavourable indicators of going concern .
67%
33% WRC
67%
33% WRC
DWS WTE
Figure 1: Findings on compliance with
key legislation – all auditees
2016-17 2015-16
Improvement in compliance with legislation and poor quality of financial statements
Prevention of unauthorised, irregular and/
or fruitless and wasteful expenditure
Management of procurement and/
or contracts
Consequence management
100% (3)
67% (DWS / WTE)
67% (DWS / WTE)
67% (DWS /WTE)
67% (DWS / WTE)
Material misstatements in submitted
annual financial statements
67% (DWS / WTE)
Figure 3: Auditees who avoided qualifications due to the correction of material misstatements
during the audit
Outcome if
NOT corrected
Outcome
after corrections
2016-17
With no material misstatements With material misstatements
-------------------------------------------------------------------------------------------------------------------------------------------------
Figure 2: Qualification areas over two years
Improved Stagnant Regressed
Fruitless
and
Wasteful
Irregular
expenditure Transfers
Fin
Liabilities
(TCTA) PPE
Accruals /
Commitmen
ts
Auditee
2016
-17
2015
-16
2016
-17
2015
-16
2016
-17
2015
-16
2016
-17
2015
-16
2016
-17
2015
-16
2016
-17
2015
-16
DWS X X X X
WTE X X X X X
DWS
WTE
20
Unauthorised, irregular as well as fruitless and wasteful expenditure disclosed in the
financial statements in DWS and WTE 2016-17
PFMA
R 431 million
R 68 million
R1 764 million
R 14 million
R1 689 million
R 60 million
R 406 million
Irregular expenditure
Fruitless and wastefulexpenditure
Unauthorisedexpenditure
Expenditure
incurred in
contravention
of key
legislation;
goods
delivered but
prescribed
processes not
followed
Expenditure
not in
accordance
with the
budget vote/
overspending
of budget or
programme
Expenditure
incurred in
vain and
could have
been avoided
if reasonable
steps had
been taken.
No value for
money!
Definition UIFW amounts incurred by entities in portfolio Nature of UIFW expenditure R’million
2016-17 2015-16 2014-15
Appointment of the service provider bythe implementing Agent on an
emergency basis (IA - DWS), Possibleirregular due to overpayments of RBIG,MWIG and sanitation contracts, Other
DWS and WTE
Penalties and interest, Accomodation,transportation, standing time and
overpayment to suppliers
R114 million was due to a transfer to anImplenting agent that was not approvedby National Treasury and R292 million
was due to the Bucket Eradicationprogramme where overspending
occurred - invoices from previous yearspaid in current year
• R114 million was due to a transfer to an
Implementing agent that was not approved
by National Treasury; and
• R292 million was due to the Bucket
Eradication programme where
overspending occurred - invoices from
previous years paid in current year
• Follow the money audit conducted showed
that there were potential fruitless and
wasteful expenditures which were not
identified and disclosed in the annual
financial statements.
• WTE procured an information system for
municipalities and water boards to be used
over a period of 5 years and none of these
entities used the system in the current year
resulting in FEW
• DWS implementing agents did not follow
normal SCM processes
• WTE created panel from where they source
suppliers without going through tender
resulting in IE
• WTE deviations approved without justifiable
reasons.
• Procured IT systems without going through
SITA
• DBAC made recommendations and
approvals without a quorum.
Audit report impact
Unauthorised
expenditure was not
qualified , however it
contributed to the
material uncertainty
on going concern
reported.
Fruitless and
wasteful expenditure
was qualified at DWS
& WTE due to
significant doubt on
the completeness of
the expenditure
which was disclosed
by management for
DWS & WTE in the
annual report.
Irregular expenditure
was qualified for both
DWS and WTE due
to significant doubt
on the completeness
of the expenditure
which was disclosed
by management for
DWS and WTE in the
annual report.
21
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
22
Fraud and consequence management
Investigations to be conducted on allegations of financial
and/or fraud and SCM misconduct within DWS and WTE –
(non compliance included in the audit report)
50% (WTE)
50% (WTE)
100% (DWS / WTE)
Disciplinary stepswere not takenagainst officials
who had incurredand permitted…
Disciplinaryhearings were notheld for confirmed
cases
Allegations not properly
investigated / noevidence obtained
Previous year unauthorised, irregular and fruitless and
wasteful expenditure reported for investigation
The four categories of investigations to be conducted.
• Unauthorised expenditure
• Fruitless and Wasteful Expenditure
• Irregular Expenditure
• Financial misconduct and other.
All allegations within the department received through
• the National Hot-line,
• DG’s office or
• from requests from Chief directors,
are investigated by the Forensics division or Internal audit at DWS.
• Two auditees had material findings on non-compliance with legislation on consequence management
The Department was requested to provide feedback to SCOPA
during the year with regards to Irregular expenditure pertaining to
2015-16.
22
… the following root causes must be addressed …
Slow response by management (Accounting officer
and senior management)
Lack of consequences for poor performance and
transgressions
Instability or vacancies
in key positions
To strengthen the internal controls with reference to implementing agents.
Status of key commitments by minister
To establish a structure in the department to incorporate the
sanitation function.
To take ownership/ control over all processes within the department.
To strengthen the internal controls within the department, especially around accruals, commitments (disclosure notes)
and irregular expenditure.
Implemented In progress Not implemented New
… through honouring the following commitments made by the executive authority……
2 1
The focus risk assessment will be discussed by top management and monitored by the audit committee.
67% (2)
67% (2)
67% (2)
67% (2)
67% (2)
67% (2)
2016-17 2015-16
Instability in leadership with specific reference to the Director General position
Insufficient policies and procedures relating to implementing agents
Insufficient oversight control over decisions taken by one division that affect
another division.
Insufficient control of budget processes
Management did not ensure adequate record keeping at all times
• We met with the minister on 26 July 2016. The outcomes were
discussed with the minister and the slow progress of the
implementation of the above commitments were followed up with
the minister.
• New commitments were solicited from the minister in the prior year
and certain of the prior year’s commitments were reinforced and
are to be tracked quarterly by the minister and feedback provided
during our quarterly engagements .
2016-17 PFMA
Top four root causes, follow up on commitments and proposed recommendations … and implementation of the following
proposed recommendations to the PC.
1. PC must request management
to provide feedback on the
implementation and progress
and of the action plans to
address poor audit outcomes
during quarterly reporting.
2. PC must request management
to provide quarterly feedback on
status of key controls,
especially around project
management/ payments on key
projects implemented by
implementing agents.
3. PC must be request quarterly
feedback on the progress of
filling vacancies at DWS.
4. List of action taken against
transgressors must be provided
quarterly to PC for follow up for
all irregular and fruitless and
wasteful expenditure incurred.
5. PC must request feedback on
actions implemented to improve
the financial health, budget
management and control and
turnaround plans/ interventions.
3
24
67% (2)
Officials did not act in the best interest of the auditee
in managing the financial and performance affairs of
the entity
24
DWS WTE
DWS WTE
DWS WTE
DWS WRC
DWS WTE
DWS WTE
DWS WTE
Root Causes
Status of key focus areas
Oversight and monitoring
(Unchanged)
Financial management
(Unchanged)
Performance management
(Unchanged)
Procurement and contract management
(Unchanged) Compliance management
(Regressed)
HR management
(Unchanged)
IT management
(Unchanged)
Financial health
(Regressed)
Status of
records review
Pro-active
follow up
procedures
Financial and non – financial information
(internal and external reports/documents
& discussions with senior managers)
Feedback linked to Focus Areas
AGSA audit methodology improvements
Engaging accounting officers in conversations that are insightful, relevant and have an
impact
Identify matters that add value in putting measures
and action plans in place well in advance to mitigate
risks
Assess progress made in implementing action plans/
follow through with commitments made in previous
engagements
Provide our assessment of the status of key focus
areas that we reviewed
Identify key areas of concern that may derail progress
in the preparation of financial and performance
reports and compliance with relevant legislation and
consequential regression in audit outcome
Key control engagements / status of records review – objectives
26
26
28
Sou
rce:
Rob
ert K
litga
ard
(aca
dem
ic a
nti-c
orru
ptio
n re
sear
ch)
Correlation between low accountability, corruption and impact on service delivery
Corruption
Service Delivery
28
1. Eastern Cape: Greater Mbizana Regional Bulk Water Supply
2016-17 PFMA No material
findings reported
Project budget R 550 million
Actual to date R 377 million
• 2012/13 FY – R 121 Million
• 2013/14 FY - R160 Million
• 2014/15 FY – R88 Million
• 2015/16 FY- R 7 Million
• 2016/17 FY- R 918 000
The project is still within the
budget
Construction on the last
contract was at 98% complete
in June 2016
• No material findings
noted.
• Even though SCM
processes were adhered,
contract management was
not at all times adhered to.
• Planned targets for the
project were not achieved
with reference to the
planned completion date
Construction was
completed but still
awaiting the completion
certificate.
It should be noted that
this project was only
included in the DWS
indicators from 2016/17
although the project
was initiated in 2008.
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: Feb 2008
• Planned completion date: Feb 2016
No feedback has been received from Eskom with regard to the power points applied for at the Bizane Town and KwaNke
Progress report as at 31 March 2017
• As per department when the project is handed over for operation and maintenance to deliver water to the targeted recipients and practical completion certificates
is issued only then are the project considered as complete.
• Certificate of completion still to be issued
Programme 3 – PPI no 2.3.7 – Number of large water and wastewater projects under construction
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
31
2. Kwa-Zulu Natal - Lower Thukela Bulk Water Supply Scheme
2016-17 PFMA No material
findings reported
Project budget R1.6 Billion
Actual to date R 1. 06 Billion
• 2011/12 FY - R27.4 Million
• 2012/13 FY - R43.6 Million
• 2013/14 FY - R107 Million
• 2014/15 FY - R185 Million
• 2015/16 FY- R279.1 Million
• 2016/17 FY- R423 Million
R423 million compared to
voted budget of R213 million
for 2016/17 was spent,
however the project is still
within overall budget
This project was
converted from the
District Municipality (an
indirect grant.(6b)) to a
direct transfer (Umgeni
WB). DWS did not
account for this
appropriately.
.
Contract management was
not adhered to ,there was a
deviation to appoint a
Professional Service Provider
which was not in line with the
Umgeni Water SCM policy
which resulted in IE for DWS.
Planned targets for the project
were not achieved with
reference to the planned
completion date
We have tested the
reliability of the project
and no exceptions
were identified
It should however be
noted that this project
was only included in
the DWS indicators
from 2016/17.
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: July 2011
• Original planned completion date: 25 November 2015
• Revised contractual completion date: 31 August 2016
• Anticipated Completion date: 27 February 2017
The reason was to reprioritise available funds to drought interventions.
Progress report
• Five (5) of the Six (6) contracts have effectively been completed and practical completion certificates issued with only the final Mechanical and Electrical
installation and wet commissioning being undertaken
• Civil works for the Weir & Abstraction Works and Water Treatment Works are at 100% and 98% respectively
• Construction on the last contract is at 98% (Water Treatment Works)
Programme 3 – PPI no 2.3.5 – Number of mega water and wastewater projects under construction
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
32
3. Limpopo - Giyani Bulk Water Services and Giyani Water Services
2016-17 PFMA No material
findings reported
• Project budget was revised
from 2.5 Billion to 2.8 Billion
as per IA
• Actual expenditure to date
R 2.5 billion
• 2016/17 Actual expenditure
R915 million compared to
voted budget of R750
million
• The new business plan
refers to project totalling in
excess of R10 billion
Fruitless and Wasteful
expenditure will result in
the value of the asset
being overstated
Possible receivable to
refund overcharging of
management fees
In previous year identified as
irregular expenditure due to
the basis of an emergency
Lack of contract management
on these projects,
irregularities were identified.
Scope of work changed
significantly from inception of
the project. No industry
recognised from of contract
between IA and contractor.
CIDB guidelines not followed
No signed contracts between
DWS and the implementing
agent
The reliability of the
project was tested and
there were no
exceptions identified
It should be noted that
this project was only
included in the DWS
indicators from
2016/17.
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: 28 August 2014 as an emergency intervention to restore water supply in Giyani – this was completed
• Initial completion date: September 2014
• Project expected completion date: during 2018/19 financial year as per new business plan
Progress report
• The initial emergency – restoring of the water supply was achieved. The subsequent objectives to serve the entire
Mopani District has not yet been achieved.
Value for money audit
As part of the audit an assessment of the value for money received on this project was conducted. There is estimated amounts for Fruitless and Wasteful expenditure
identified during the audit that can potentially result in the value of the asset being overstated. The following areas have been identified where the department may
have overpaid on this project.
• Project management fees & double invoices paid (double counting of professional hours)
• Excessive professional fees (rates) & excessive construction rates
The recommendation to the department is to stop the project and conduct a full investigation to determine the actual fruitless and wasteful expenditure on this project
Programme 3 – PPI no 2.3.5 – Number of mega water and wastewater projects under construction
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
33
4. Mpumalanga - Northern Nsikazi Bulk Water Scheme
2016-17 PFMA No material
findings reported
• Project budget R 262
million
• Actual expenditure to date
R 167.1 million
• 2015/16 R 47 million
• 2016/17 R 120.1 million
Voted budgeted funds for the
year R111 million
Construction on the last
contract is at 61%
No material findings
noted.
We could not obtain evidence
of proper contract
management – documents
from the IA was not obtained.
Planned targets for the project
were not achieved with
reference to the completion
date.
We have tested the
reliability of the project
and no exceptions
were identified
It should be noted that
this project was only
included in the DWS
indicators from 2016/17
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: 19 March 2015
• Completion date- 30 September 2017
The contractor is asking for an extension and the Implementing Agent is still assessing the request
Progress report
• Pipeline Construction (Sabie river – Nyongane pumpstation) – 94% complete
• Pipeline Construction (Nyongane pumpstation-Numbi reservoir) 51% complete
• The overall expenditure is based on the Total Contract amount 60% and the overall progress of the work done to-date is at 61%
• The delivery of the pump station material was expected to be in April 2017, and that is the final stage of the phase of the project
Programme 3 – PPI no 2.3.5 – Number of mega water and wastewater projects under construction
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
34
5. North West - Taung / Naledi
2016-17 PFMA No material
findings reported
• Project budget R 390
million
• Actual to date R 358.1
Million
• 2013/14 R 97.6 million vs
R 95.4 million
• 2014/15 R 112 million vs
R112 million
• 2015/16 R 63.7 million vs R
63.7 million
• 2016/17 R 77 million vs 64
million
Various phases of the project
are still under construction
This project was
converted from an
indirect grant.(6b) to a
direct transfer. Due to
the fact that the project
was initiated by the
department, the risks
and responsibilities are
still at DWS and not the
municipality which
resulted in the
qualification on the
audit report
As this was a conversion from
6B to 5B, contract
management was not fully
adhere to due to this
conversion
Planned targets for the project
were not achieved with
reference to the anticipated
completion date – reasons
detailed below
Reliability on the
project was performed
and no exception was
identified
It should be noted that
this project was only
included in the DWS
indicators from 2016/17
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: for phases 1 to 2D: 2009-
• Original planned completion date: 2016
• Anticipated Completion date: Unknown and for phase 2(D) – August 2017
Due to unrest protest and changes of scope the original planned completion date was not achieved. In additional the Traditional Authority is in negotiations with the
department due to bordering his land and claiming compensation – this also affected the completion date
Progress report
• Phase 1 to Phase 2B completed
• Phase 2C - Progress of the Works is at 99% complete with only the Roof Slab to construct and Hydrolic Pipes to install at the Abstraction Point.
• Phase 2D- Under construction
• Project phase 2(E)(1) – Pre- procurement stage (currently)
• Phase 2F- Future
Programme 3 – PPI no 2.3.7 – Number of large water and wastewater projects under construction
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
35
6. Limpopo – Mopani Emergency
2016-17 PFMA No material
findings reported
• The project has not been
budgeted for in the 2016/17
financial year
• Costs to date: R364 million
• Costs incurred in the current
financial year: R98 million
The project was put on hold
due to no funding.
• Inconsistent and
inappropriate
accounting treatment
of project costs and
revenue
• Main Account not
accounting for the
asset billed for
• Project not assessed
for indicators of
impairment
Inadequate oversight of
the project from the
project owner
The project was not
included in the APP.
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: for phases 1 to 2D: August 2014
• Original planned completion date: September 2014
Progress report
• For the 2016/17 financial year, the project was not budgeted for and current year project costs were billed to Main Account and prior year costs not billed.
• No contract exists between WTE and Main Account for the recovery of the project costs as a result revenue billed to Main Account does not meet the revenue
recognition criteria.
• Excessive administration costs were capitalised to the project due to the Construction Support office having less projects
• If no confirmed plans to fund and finalise the project, costs incurred to date are indicative of impairment and will be regarded as fruitless and wasteful expenditure.
• The project owner was not aware that the project was under his control, as a result, there was inadequate oversight of the project
• The project was not planned for in the annual performance plan although it was a multi-year project dating back a few years.
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
36
7. Limpopo – Nwamitwa Dam
2016-17 PFMA No material
findings reported
• Estimated initial cost: R1.3
billion
• Revised budget:
R3.7 billion
• Costs to date: R181 million
The project is currently in
detailed design phase.
Invoices from the
implementing agent did
not meet VAT Act
requirements
Irregular expenditure of
R155.9 million noted
on the project
Planned targets for the
project were partially
achieved.
Project was planned to
be in construction,
currently in detailed
design phase.
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: May 2010
• Original planned completion date: 2016
Progress report
• Invoices from the implementing agent, Lepelle Northern Water (LNW) did not meet the VAT Act requirements.
• WTE awaiting detailed tender specifications from the implementing agent. Contractor not yet appointed and the construction has not yet commenced. The costs
incurred to date mainly relate to the design of the road to be reallocated and professional fees.
• LNW did not follow procurement transcripts in appointing LTE for the project. LTE in turn appointed South Zambezi on the basis of a contract that was already
declared irregular by the Chief Procurement Officer from National Treasury.
Value for money audit
As part of the audit an assessment of the value for money received on this project was conducted. There is estimated amounts for Fruitless and Wasteful expenditure
identified during the audit that can potentially result in the value of the asset being overstated. The following areas have been identified where the department may
have overpaid on this project.
• Project management fees & double invoices paid
• Professional fees (rates) not in line with the norm & non-market rates charged on actual installation and costs paid.
The recommendation to the department is to conduct a full investigation to determine the actual fruitless and wasteful expenditure on this project
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
37
Programme 3 – PPI no 2.3.1 and 2.3.2 – Number of bulk raw water projects
8. Limpopo – Raising of the Tzaneen dam wall
2016-17 PFMA No material
findings reported
Irregular expenditure
of R43.6 million noted
on the project
Planned targets for the
project were partially
achieved.
Project was planned to
have appointed
contractor, currently in
tender documentation
phase.
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: 2010
• Original planned completion date: 2016
Progress report
• Invoices from the implementing agent Lepelle Northern Water (LNW) did not meet the VAT Act requirements.
• The costs incurred to date relate to detailed dam designs and earthworks stock piling
• Appointment of Blackhead Consulting was approved as a deviation from normal tender process. The reason for deviation was not justifiable as the project was not
an emergency, thus resulting in irregular expenditure.
Value for money audit
As part of the audit an assessment of the value for money received on this project was conducted. There is estimated amounts for Fruitless and Wasteful expenditure
identified during the audit that can potentially result in the value of the asset being overstated. The following areas have been identified where the department may
have overpaid on this project.
• Project management fees & double invoices paid
• Professional fees (rates) not in line with the norm & non-market rates charged on actual installation and costs paid.
The recommendation to the department is to conduct a full investigation to determine the actual fruitless and wasteful expenditure on this project
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
38
Programme 3 – PPI no 2.3.1 – Number of bulk raw water projects
• Original budget:
R88 million
• Revised budget:
R173 million
• Costs to date: R63
million
Invoices from the
implementing agent
did not meet VAT
Act requirements.
9. Western Cape – Raising of Clan William dam wall
2016-17 PFMA No material
findings reported
Irregular and fruitless
and wasteful
expenditure noted on
the project
Planned targets for the
project were not
achieved.
Project was planned to
be in construction,
currently in tender
evaluation, however
contract cannot be
awarded due to budget
constraints
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date: June 2014
• Original planned completion date: December 16/17
Progress report
• The tender for the main contractor’s work was advertised and is now closed. Bid evaluation process cannot commence due to insufficient budget allocations. This
delay will most likely result in escalation of costs for the project. Costs incurred on employee costs while the project is on halt, resulting in fruitless and wasteful
expenditure.
• Costs incurred to date mainly relate to construction of the N7 road by SANRAL (R228 million) and site establishment (R154 million).
• The APP for the project, retired employee of WTE, was appointed via a deviation from normal procurement process. Previous DG refused to extend the
employment contract of the APP after it had already been extended by two years. The APP was then appointed through a consulting company without following
procurement transcripts.
• The appointed consultant was awarded additional scope of work for Project Management via a deviation from normal procurement. WTE has an in-house
Infrastructure Development Directorate that should be providing Project Management services for the project.
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
39
Programme 3 – PPI no 2.3.1 and 2.3.2 – Number of bulk raw water projects
• Original budget:
R1.8 billion
• Revised budget:
R3 billion
• Costs to date: R79
million
No exceptions
noted
10. Eastern Cape – Mzimvumbu Water Projects
2016-17 PFMA No material
findings reported
No exceptions noted
Planned targets for the
project were partially
achieved.
Project was planned to
be in construction.
Minister has since
issued directive to
TCTA to implement the
project
Budget
vs
Spending
Financial
Management (AFS)
Key project dates
• Start date:
• Original planned completion date:
Progress report
• The contractor procurement, site establishment and commencement of the construction were not achieved.
• The Minister has since issued a directive that the project be implemented by TCTA in terms of Section 103(2) if the National Water Act, 1998.
• Due diligence on the work done to date by WTE is being performed by TCTA and TCTA is preparing a Project Charter which will provide an updated programme
and cost estimates.
Compliance Pre-determined
Objectives
Material
findings reported
Material
findings / concerns noted
No material
findings / concerns noted
40
Programme 3 – PPI no 2.3.1 and 2.3.2 – Number of bulk raw water projects
• Estimated initial
costs:
R14 billion
• Revised budget:
R20 billion
• Costs to date:
R153 million
No exceptions
noted
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