Statistics South Africa 2009/10 Annual Report: briefing by Office of the Auditor-General

Meeting report

Mr Eugene Zungu, Corporate Executive in the Office of the Auditor-General (AGSA), said that last year Statistics South Africa (Stats SA) had received a financially unqualified audit, but with “findings on predetermined objectives and/or compliance with laws and regulations.” The compliance findings had related to payments not made within 30 days, while damages and losses were not addressed timeously. The predetermined objectives finding related to incomplete quarterly reports and targets. This year, Stats SA had again received a financially unqualified audit, but with no findings on predetermined objectives or compliance issues.

Ahead of the 2009/10 period, AGSA had outlined some of the commitments that were required for Stats SA to obtain a clean audit. These included the implementation of action plans to address both the external and internal audit findings, in particular material misstatements in the financial statements, non-compliance with laws and regulations, key governance matters, as well as reporting on pre-determined objectives. Regular financial statements also needed to be prepared which complied with the stringent accounting frameworks.

Overall, the improvement in the audit outcomes in 2009/10 had been driven by the leadership of the department, in the form of the accounting officer, who had taken ownership for its audit outcomes.

Mr Zungu explained that a “clean” report did not mean there were no errors or financial misstatements – which happened even in more sophisticated private sector companies. It meant that the department had an effective internal control environment, which enabled it to identify and prevent errors from occurring, or take corrective action, if necessary. The key factors required for effective internal control were:
▪ Leadership oversight, setting the tone at top management level;
▪ Appropriate financial disciplines, focusing on basics such as daily recording of transactions as they occurred, daily filing, appropriate closing off of the books, accounting for assets on a monthly or quarterly basis, and the regular preparation of financial statements; and
▪ Governance structures to assess the effectiveness of the internal controls on a regular basis.

The audit had identified several areas where improvements were necessary. There were concerns that the department did not have adequate systems in place, as it had struggled in certain instances to provide disclosure notes, while the user access controls for its information systems required attention to prevent possible fraudulent access to the systems.

No material errors had been uncovered in the audit of capital and current assets, liabilities, revenue or expenditure, although there were some problems in dealing with disclosures related to accruals and commitments. An amount of R263 000 had been identified as “fruitless and wasteful expenditure.”
This was for services procured and paid for, but not utilised. A further amount of R1,015 million, categorised as “irregular expenditure,” referred to the payment of overtime to certain employees, which exceeded 30% of their gross monthly salaries. This had been disclosed in the department’s financial statements, and it was currently investigating the matter with a view to taking corrective action. No unauthorised expenditure had been picked up during the course of the audit.

Discussion
Dr D George (DA) said fruitless, wasteful and irregular expenditure in government departments raised concern among the public. In this instance, where a problem had been identified, what were the consequences? Did the Office of the Auditor-General have some process that had to be followed if the department did not improve?

Dr Z Luyenge (ANC) also commented that when services were paid for and not used, this raised serious concerns about the Department’s financial management.

Mr Zungu said the Auditor-General’s role was to receive a set of financial statements or the annual report from the department, and perform the audit. In this instance, the areas of wasteful or irregular expenditure had been picked up by the Department itself, and included in its report, so the auditors were happy that the report represented a true picture of what had happened during the period under review. At this stage, having signed off the report, the Auditor-General’s work ended. Any further action in such cases needed to be taken by the management or board of the institution, or even the Portfolio Committee on Finance.

The Chairperson said the presentation and discussion had provided the Committee with a very useful preparatory platform ahead of the Stats SA Annual Report presentation the following day.

The meeting was adjourned.