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Presentation to Portfolio Committee on Department of Higher Education and Training

Audit outcomes for SETA’s17 November 2010

Presented by : Meisie NkauRienk Grobler

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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.

THE AUDIT PROCESS

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The Regularity Audit Process

Engagement Activities

Determine Skills & Competence of audit teamEstablish terms of Engagement

Planning

Risk assessment at:Detailed Accounts and Transaction Level

Perform the Audit

Design audit procedures to address risk identified in planning

Evaluate, Conclude and Reporting

Evaluate all evidence obtained Prepare Management ReportPrepare Auditor’s Report

Overall FS level

Perform planned proceduresCommunication Findings Engagement Risk Assessment

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Auditor and management responsibility

Accounting Authority’s responsibility for the Financial Statements The accounting authority is responsible for the preparation and fair presentation of these

financial statements in accordance with Standards of Generally Recognised Accounting Practice (GRAP) and in the manner required by the Public Finance Management Act of South Africa (PFMA). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor-General’s Responsibility An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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Audit of the Financial Statements

Required in terms of the Constitution and the Public Audit Act

The auditor forms an opinion on whether the financial statements are prepared in all material aspects in accordance with the applicable financial reporting framework.

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Internal Control

Status of Internal control relevant to the audit of the financial statements, predetermined objectives and compliance with laws and regulations are reported under the three fundamentals of effective internal control.

Leadership Financial and Performance Management Governance

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Internal Control (cont.)

Leadership

• Tone at the top creating an environment favorable to good financial management and service delivery

• Identify key controls aimed at achieving the organisation’s objectives

• Assessing skills / competencies of finance staff, ensuring the right staff mix and managing consultants to ensure effective skills transfer

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Internal Control (cont.)

Financial and Performance Management

• Complete and accurate monthly financial statements (on an accrual basis) and quarterly performance reports, plus continuous monitoring of both

• Implementation of sound financial and performance management systems

• Proper controls over documentation to ensure that they are easily retrievable

• Operating basic internal controls for an efficient financial and performance management environment

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Internal Control (cont.)

Governance

• Adequately resourced and effectively functioning internal audit and audit committee

• Maintenance of effective risk management strategies, including fraud prevention plans

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The Different Audit Opinions

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Unmodified The financial statements present fairly in all material respects.

Qualified (except for) The auditor concludes that , except for specifically listed material

misstatements, the financial statements remain a fair reflection. Adverse

The auditor disagrees with the representation made by management in the financial statements to the extent of confirming that it is not a fair reflection of the financial position, financial performance and cash flows.

Disclaimer Where there is a lack of sufficient appropriate audit evidence to the

extent that the auditor is not able to form an opinion on the financial statements as a whole

Emphasis of Matter and Additional Matter Paragraphs

If its considers necessary to include additional communication in the auditors report that does not have an effect on the auditors opinion, the following would be used:

An emphasis of matter paragraph only to draw user’s attention to a matter presented or disclosed in the financial statements that is of such importance that its is fundamental to their understanding of the financial statements

An other matter/ Additional Matters paragraph: to draw users attention to any matter other than those presented or disclosed in the financial statements that is relevant to users understanding of the audit, the auditor’s responsibilities or the auditor’s report

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Clean Administration

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Clean Administration

Auditor’s Report with no: Qualification on the financial statements Findings on Predetermined objectives Findings on Compliance with Laws and Regulations Internal Control deficiencies

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AGSA contribution to Clean Administration

Simplicity, Clarity and Relevance of Messages

Identifying stakeholder needs and expectations of AGSA reports Ensuring AGSA reports are written in simple, plain, non-technical

language that the target audience will understand Contextualising audit messages to enhance understanding

Visibility of the Leadership

Ensuring efficiency and effectiveness of Stakeholder interactions Developing required leadership competencies through mentoring,

coaching and leadership programs and processes for effectively managing change

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.

SETA AUDIT OUTCOMES 2009/2010

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SETA AUDIT OUTCOMES 2009/2010

Audit opinions 2008/09Financially unqualified (with no findings of internal control) 8(35%)Financially unqualified (with findings of internal control) 11 (48%)Qualified 2 (8.5%)Disclaimer 2 (8.5%)

Audit opinions 2009/10Financially unqualified (with no findings of internal control) 16 (70%)Financially unqualified (with findings of internal control) 5 (22%)Disclaimer 2 (8%)

SETA AUDIT OUTCOMES 2009/2010

Reasons for the improvements in audit opinions

• Management and the Boards have taken corrective action to address prior year findings. ( Keeping to commitments and adequate plans in place)

• Ensuring that the staff has the necessary skills and competencies (In some instances appointing consultants where adequate skills could not be obtained)

• Having adequate policies and procedures in place• Improving on the general control environment at the entities• Sound governance structures (Internal audit and audit committees)

SETA AUDIT OUTCOMES 2009/2010

Other reporting responsibilities

Predetermined objectives

08/09 – 5 SETA’s had findings on predetermined objectives in the audit reports

09/10 – 6 SETA’s had findings on predetermined objectives in the audit reports

SETA AUDIT OUTCOMES 2009/2010

Other reporting responsibilities

Compliance with laws and regulations

08/09 – 10 SETA’s had findings on compliance with laws and regulations

09/10 – 5 SETA’s had findings on compliance with laws and regulations

Although a significantly improved it is still a concern

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Emphasis of matters

Emphasis of matter

Material amendments to the current years financial statements only reported in the management letters. For 09/10, 10 SETA’s had material amendments to the financial statements after is was submitted for audit purposes

The following emphasis of matter were reported Restatement of corresponding figures ( Reclassification of amount or prior period error

indentified detected and corrected in the current year) Raised 9 SETA’s for 09/10 in the audit reports

Other emphasis of matters raised Significant uncertainties (Pending litigation and the SETA’s possibly being placed under

administration) Raised for 10 SETA’s for 09/10 in the audit reports Irregular expenditure/Fruitless & wasteful expenditure Raised for 10 SETA’s for 09/10 in the

audit reports Material losses through criminal conduct Raised for 3 SETA’s for 09/10 in the audit reports Financial sustainability/ Going concern Raised for 1 SETA for 09/10 in the audit reports

Going forward

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Way forward to address the errors and misstatement on financial statements

Implementation of proper internal controls:

• Leadership• Financial and performance management• Governance

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Areas that might impact on the audit reports in future

New SETA landscapeLack of supporting documentation due to some SETA’s coming to an end, new

SETA’s starting and some sections being taken over by other SETA’s

Handover process between the SETA’s (Leaner ships, commitments, funds)

Predetermined objectivesCurrently only significant findings in the audit reportMaterial findings for 09/10• Adequate supporting documentation not available• Adequate policies and procedures not in place• Adequate systems to monitor and report on predetermined objectives are not in

place (Information reported not accurate)• Lack of skills specifically with regards to predetermined objectives

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Areas that might impact on the audit reports in future

NSDS III• Targets are number based and does not measure impact with NSDS II.• Correct targets set in the Strategic plans are critical. Complies with the National

Treasury Framework for managing programme performance information ( Simple, Measurable, Accurate, Relevant, Time bound)

• Special consideration should be given Medium Term Budget Policy Statement

Compliance with Laws and regulationsHorizontal audit procedures for supply chain managementIrregular and fruitless and wasteful expenditure incurred

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Questions?

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