Briefing to the Director –General in light of the report of the Auditor-General 2004/05

DEPARTMENT OF HOME AFFAIRS RESPONSE TO THE DISCLAIMER OF OPINION BY THE AUDITOR-GENERAL ON THE 2004/05 FINANCIAL STATEMENTS


Point	Qualification	Root Causes	Departmental Corrective Measures	Other Interventions with stakeholders
1.	Foreign Affairs Vouchers in transit accounts	The overall arrangement in handling of the account due to amounts others: Dependency on Department of Foreign Affairs (DFA) as dictated by the mandate of the DFA; Lack of capacity at DFA; Inadequate representation of financial personnel at missions and previous lack of empowering of Foreign offices to report directly to DHA HQ in this regard; Poor internal controls at HQ financial Administration in dealing with this matter; and Poor and/or lack of periodical reviews and supervision by managers to teams that were dealing with this account.	We have cleared all transactions that could be supported by authentic documentation. All un-substantiated deposits from DFA that were effected towards the end of March 2006 have been returned to DFA subject to every deposit supported by authentic vouchers. The 2005-06 annual Financial Statements have taken into account a DFA debtor of R180 million in light of the above corrective measures. Constructive disciplinary action has been instituted against officials who did not take due care in dealing with this account as per section 45 of the PFMA.	Inter-Departmental IT project team between DFA and DHA in an attempt to automate foreign offices Periodical Meeting between DHA and DFA to address issues of common interest took place National Treasury offered to assist in aspects that would resolved the challenge faced by both DFA and DHA in order to demonstrate to the Auditor-General that attempts are made to clear this matter.

2.	Source Documents not captured	In addition to lack of connectivity there has been a clear disregard of the Basic Accounting System (BAS) capturing instructions and practice notes as well as system controller’s directives in terms of receipts capturing by some provincial offices resulting in; Rolling of cash and fraud Lack of reconciliation of deposit and receipting; and Lack supervision teams by delegated officials. Although training was provided, officials at provincial offices still failed to adhere to the requirements of capturing receipts as and when due and in some instances receipts were captured wrongly.	As at the end of July 2005 Basic Accounting System (BAS) has been implemented in 146 offices that could be connected and have the necessary Telkom infrastructure. (This was the Department’s target. Un-captured receipts have since been recalled to Head Quarters (HQ) for proper capturing by budget and system control directorate. Un-reconciling deposits are matched and reconciled and allocated to various revenue items in order to clear the exceptions on the deposit account. Deposit account has been automated via SAFETYNET system to monitor offices that do not bank properly. Certain offices have been identified for redesigning the cash halls and the pilot project has been mapped and designed with the assistance of National Treasury’s Paymaster general (PMG) unit and the rollout would take place once the plan has been approved by the strategic management committee (SMC). Disciplinary action in terms of section 45 of the PFMA is underway for all officials implicated in the rolling of cash and those who neglected their duties	National Treasury’s PMG and BAS systems units are working together with DHA Finance in resolving this matter. Directorate Financial Administration is working on a proposal to sort assistance from stakeholders in the comprehensive cash-hall management.

3.	Alien Deposit Account	Financial statements containing income and expenditure were made available to the Auditor-general but due to lack of clear directive as to how this account should have been accounted for and time constraints from the Auditors, the Auditor-General did not audit the accounts.	All supporting documentation is available for review by the auditors. Refunds are now centralized	National Treasury has been consulted in an attempt to resolve the treatment of this account. Further to the audit committee meeting on 22 March 2006 representatives of the Auditor-General have indicated that the Office of the Accountant -General is being consulted to provide guidance in terms of the accounting and disclosure of the account. The latest information is that National Treasury has considered the account and are in the process of issuing guidelines.

4.	Payables Inter-responsibility clearing account; and Conversion receipts deposit	Lack of reviews by managers that led to accumulation of the account. The backlog on the account could not be cleared before the end of the financial year.	Account has been cleared. Disciplinary action taken against officials who did not do their work in this regard.	None

5.	Completeness of Revenue	Lack of reviews by managers as indicated in paragraph 2 above.	Please refer to action in paragraph 2 above as this matter is related	None

6.	Unexplained debit to income	The amount was explained to the auditors as a balancing figure that was subsequently adjusted. In passing the entry there was no financial loss or irregularity, however, the lack of understanding the Auditors did not want to take any risk for not reporting the entry.	Rectified in the compilation of the 2005-06 AFS	None

7.	Goods and services	There has always been serious disagreements between the department and the auditors in terms of what type of documents were required and presented in that there were instances where auditors requested a journal and were provided with a journal and subsequently claimed to have not been provided a payment advice that was never request. Furthermore auditors removed documents from site and did not account fro that. During the relocation from the old Head Quarters (HQ) to the new premises certain documentation could not be located and accounted for by the Department as reported in the Portfolio Committee during our presentation on 07 February 2006. This caused poor document management resulting in uncontrolled and unauthorized removal of supporting documentation by auditors and some finance as well as unauthorized officials of DHA from the premises.	Controls have been improved in that : Secured filling rooms have been installed and the Director Financial Administration manages access to the safe and the request of documentation maintained in the filling room. An audit of documentation against the payment register for 2005/06 has been done and found that all records reflected on BAS are indeed in the storeroom. Disciplinary action has been instituted against officials implicated in the unauthorized removal of source documentation during 2004/05.	None

8.	Expenditure on capital assets Supporting documents Capital expenditure on vehicles	Please refer to 7 above.	Please refer to 7 above

9.	Financial statement disclosures Leave entitlement Accruals	The Department utilized the Department of Public Service Administration (DPSA) circular and the bases used were in accordance with the prescribed calculation. However, the Auditor-general insisted that the Department disclose that provision according the formula prescribed by the Labour Relations Act.	This is a transversal matter and the Office of the Accountant General indicated that they were following up this matter with the Auditor-General.	The Department is awaiting the guidance from the National Treasury in this regard on the correct basis to use in the 2005/06 financial year to avoid the disclaimer.

10.	Fraud and corruption	Lack of reviews by managers.		Disciplinary action

11.	Weaknesses in internal control
11.1	Control over fixed assets			An electronic fixed assets management system is in place and stock taking has been performed
11.2	Filling and retention of documentation	Please refer to point 7	Please refer to point 7	Please refer to point 7
11.3	Control over clearing accounts	Please refer to point 7	Please refer to point 7	Please refer to point 7
11.4	Control over receivables	Please refer to point 7	Please refer to point 7	Please refer to 2

12.	Internal audit	Capacity constraints IA under-resourced - not adequate and sufficient financial & human resources Competencies of the existing resources required additional development & empowering Structure Level of the Head of unit not at appropriate level – D:IA forced to juggle both strategic and operational issues Previous year’s backlog For the 2005/06 financial year, IA was responsible for completing the work it had started and not completed during the 2004/05 financial year which had resulted in Auditor-General not relying on its work as only 19% of its work was completed. Impact of investigating financial irregularities Current limited and developed resources stretched as they had to be used to handle the investigations of financial irregularities, which was at the expense of the planned audit work	Capacity constraints & Structure IA subjected to job evaluation and upgraded to Chief Directorate level Compliance IA units established at provincial level to focus on planned audit work An additional post at the level of Director created - Directors to focus on operational issues so as to enable the Head of the unit at Chief Director level to focus on strategic matters Specialised Forensic unit established to focus on investigations of financial irregularities as well as Computer audit unit to focus on IS issues Budget allocation for the compensation of employees revised and increased subject to available financial resources. In this regard the filling of the newly created posts would be prioritized over a number of years IA activities The Department would be inviting proposals from competent external resources to assist the in-house resources with the execution of audit work as per approved annual plan Budget allocation reprioritization to accommodate the funding of securing external resources Successful service provider would also be expected to enter into an arrangement that shall facilitate the transfer of skills and competencies to in-house staff and enable a degree of self reliance to be built up Audit Committee Department would engage in a process to obtain additional resources in terms of members with certain skills in order to strengthen the Audit Committee

13.	Annual financial statement issues Comparative information Conditional grants Amendments to AFS Surplus and Ageing of receivables			The compilation of the 2005-06 has taken care of this

14.	Finalisation of the audit	Late commencement of the Audit	The Department has dedicated teams that handle audit issues and turn around time on the auditors’ requests has been improved.	Audit progress meeting are put in place to prevent bottlenecks.