REPORT OF THE AUDITOR-GENERAL FOR THE YEAR ENDED 31 MARCH 2005
AUDITOR-GENERAL
REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS OF
VOTE 17 DEPARTMENT OF LABOUR FOR THE YEAR ENDED 31 MARCH 2005
1. AUDIT ASSIGNMENT
The financial statements as set out on pages 77 to 135, for the year ended 31
March 2005, have been audited in terms of section 188 of the Constitution of
the Republic of South Africa, 1996 (Act No.1 08 of 1996), read with sections 4
and 20 of the Public Audit Act, 2004 (Act No. 25 of 2004). These financial
statements, the maintenance of effective control measures and compliance with
relevant laws and regulations are the responsibility of the Accounting Officer.
My responsibility is to express an opinion on these financial statements, based
on the audit.
2. NATURE AND SCOPE
The audit was conducted in accordance with Statements of South African Auditing
Standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance that the financial statements are free of material
misstatement.
An audit includes:
· examining, on a test basis, evidence supporting the amounts and
disclosures in the financial
statements
· assessing the accounting principles used and significant estimates made
by management
· evaluating the overall financial statement presentation.
Furthermore, an audit includes an examination, on a test basis, of evidence
supporting compliance in all material respects with the relevant laws and
regulations, which came to my attention and are applicable to financial
matters.
The audit was completed in accordance with Auditor-General Directive No.1 of
2005.
I believe that the audit provides a reasonable basis for my opinion.
3. QUALIFICATION
3.1 Reconciliation between PERSAL and BAS
The reconciliation between PERSAL and BAS in respect of personnel expenditure
for the period 1 April 2004 to 31 March 2005 has not been performed by the
Department due to an inadequate internal control framework.
As a result, I am unable to verify the validity and accuracy of the amounts
transferred from PERSAL to BAS by way of the interface between the two systems.
No supporting documentation could be provided for material differences on a
monthly basis between the two systems.
Consequently, I am unable to confirm the validity and accuracy of the
compensation of employees.
Owing to numerous instances of non-compliance with policies and procedures that
were noted in the human resource management function, I am unable to satisfy
myself as to the accuracy of personnel expenditure as I could not perform
alternative audit procedures.
3.2 Lack of supporting documentation
Sufficient supporting documentation was not provided for audit purposes for
journals processed for claims recoverable amounting to R90 185 000 as disclosed
in note 12 of the annual financial statements.
I am unable to confirm the validity of these journals.
4. Qualified audit opinion
In my opinion, except for the effect on the financial statements of the
matters referred to in paragraph 3, the financial statements fairly present, in
all material respects, the financial position of the Department of Labour at 31
March 2005 and the results of its operations and cash flows for the year then
ended, in accordance with prescribed accounting practice and in the manner
required by the PFMA. .
5. EMPHASIS OF MATTER
Without further qualifying the audit opinion expressed above, attention is
drawn to the following matters:
5.1 Non-compliance
The following non-compliance with laws and regulations were noted due to
inadequate monitoring thereof by management:
Sec 76(4)(c) of PFMA - Procurement without tax clearance certificates
· Treasury Regulation 8.3.4 -
Inadequate certification of payroll reports
· Treasury Regulation 8.3.5 -
Not all pay-point certificates have been received on a monthly basis
· Treasury Regulation 16.6.5 -
Non submission of reports to Treasury
· Treasury Regulation 33.2.1 -
Inadequate reporting on financial misconduct.
5.2 Accounts payable amounts not confirmed
The Department of Labour collected on behalf of the Department of Public Works
the rental and maintenance of buildings from the Compensation Fund and the
Unemployment Insurance Fund. The amount of R7 611 407 is disclosed in note 16 of
the financial statements and annexure 6, as amounts owing to other departments.
A confirmation from the Department of Public Works could not be obtained due to
the lack of a reconciliation made by the Department of Public Works.
5.3 Reconciliation between the asset register and the general ledger
Due to non-compliance with asset management policies and procedures, the fixed
asset register is split and incomplete. Details of the asset number, accurate
asset location, transfers in and out and additions are not always captured.
There is no reconciliation between the two parts of the asset register to
ensure a proper audit trail.
5.4 Unallocated funds
The amount accumulated in SETA Zero at the National Revenue Fund as at 31 March
2005 is disclosed in note 26 of the financial statements. The Department has
not taken adequate action to investigate the nature of these monies to
determine whether it is in fact Skills Development Levy income so that it could
be allocated to the SETAs and the NSF where applicable as required by section
38{1) (c) (1) of the PFMA.
5.5 Expenditure of the National Skills Fund (NSF) and Sheltered Employment
Factories
Expenditure relating to the operations of the NSF and personnel expenditure of
Sheltered Employment Factories has been included as expenditure of the
Department due to the lack of a legal form for both entities.
6. APPRECIATION
The assistance rendered by the staff of the Department of Labour during the
audit is sincerely appreciated.
SA Fakie
Auditor-General
Pretoria
29 July 2005
AUDITOR-GENERAL
Report of the Auditor-general to Parliament on the
Financial Statements of the Compensation Fund for the year ended 31
March 2005
I. Audit Assignment
The financial statements as set out on pages 63 to 82, for the year
ended 3 I March 2005, have been audited in terms of section 188 of the
Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read
with sections 13 and 20 of the Public Audit Act, 2004 (Act No. 25 of 2004) and
section 20(2) of the Compensation for Occupational Injuries and Diseases Act,
1997 (Act No. 61 of I 997).These financial statements, the maintenance of
effective control measures and compliance with relevant laws and regulations
are the responsibilities of the accounting authority. My responsibility is to
express an opinion on these financial statements, based on the audit.
2. Nature and Scope
The audit was conducted in accordance with Statements of South African
Auditing Standards. Those standards require that I plan and perform the audit
to obtain reasonable assurance that the financial statements are free of
material misstatements.
An audit includes:
· examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, · assessing the accounting principles used and significant estimates made
by management, and
· evaluating the overall financial
statement presentation.
Further more, an audit includes an examination, on a test basis, of evidence
supporting compliance in all material respects with the relevant laws and
regulations, which came to my attention and are applicable to financial matters.
The audit was completed in accordance with Auditor-General Directive No. I of
2005 dated 17 January 2005.
I believe that the audit provides a reasonable basis for my opinion.
3. Qualification
3.1 Accuracy of contribution income
As
a result of management policies and procedures not being adequately followed, a
material breakdown in internal accounting controls occurred in the following
areas:
· the monitoring, approval and
the accuracy of assessment information.
· A sample of assessments tested revealed the existence of materially
incorrect assessments that arose
from duplicate assessments and the inaccurate estimation of employers’
earnings.
Although audit exceptions detected have been corrected in the financial
statements, the large volume
of assessments issued does not allow the performance of sufficient alternative
auditing procedures to confirm the accuracy of contribution income. .
Consequently, I am unable to express an opinion on the accuracy of revenue
contributions of R2, 567 billion.
3.2 Valuation of assessment debtor
As a result of management policies and procedures not being adequately
followed, a material breakdown in internal accounting controls occurred that
affected the monitoring of individual assessment debtors and debt collection. A
sample of assessment debtors tested revealed the existence of materially
incorrect assessment debtors and accounting entries due to human error.
Although the exceptions noted have been corrected in the financial statements,
the large number of assessment debtors does not allow the performance of
sufficient alternative audit procedures to confirm the reasonableness of
assessment debtors.
Consequently, I am unable to express an opinion on the valuation and accuracy
of assessment debtors totalling R2, 466 billion.
4. Qualified Audit Opinion
In my opinion, except for the effect on the financial statements of the
matters referred to in paragraph 3, the financial statements fairly present, in
all material respects, the financial position of the Compensation Fund at 3 I
March 2005 and the results of its operations and cash flows for the year then
ended, in accordance with South African Statements of Generally Accepted
Accounting Practice and in the manner required by the Public Finance Management
Act (Act No I of 1999).
5. Matters of Emphasis
Without further qualifying the audit opinion expressed above, attention
is drawn to the following:
5.1 Material adjustments
The annual financial statements were submitted to the Office on 31 May
2005 as required by the PFMA. The following material adjustments were, however;
made to these financial statements:
· Assessments incorrectly raised
of R3 I 420 000.
· Increase in provision for
impairment of receivable by R371 55 I 000.
· Increase in
provision for outstanding claims by R 2 627 000.
The revised annual financial statement was received on the 20th of July 2005.
5.2 General computer controls
A follow-up review of control weaknesses identified in the information
systems environment was done. Progress had been made in resolving reported
weaknesses. Control weaknesses still exist due to the absence of documented
procedures for:
· Security administration and
monitoring
· Logical access security
· Monitoring of user and
administrator activity.
5.3 Non-compliance with Treasury regulations.
The investment policy of the Fund as required by Treasury regulation
number 31.3 was only approved by the accounting authority on 5 May 2005. For
the year under review, investments with the PIC were not monitored in terms of
an approved investment policy.
5.4 Processing of claims
The Fund is still experiencing a backlog in the processing of claims.
Except for the actuarially calculated provision created for outstanding claims,
it is not possible to determine the impact of the backlog on the completeness
of claims due to the volume of transactions. As a result of the lack of an
appropriately documented framework for third party claims, proper internal
control procedures to support the complete and timeous lodging of
third party claims are not in place.
6. Appreciation
The assistance rendered by the staff of the Compensation Fund during the audit
is sincerely appreciated.
N. Manik for Auditor-General Pretoria
31 July 2005
REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS OF THE
SHELTERED EMPLOYMENT FACTORIES FOR THE YEAR ENDED 31 MARCH 2005
1. AUDIT ASSIGNMENT
The financial statements as set out on pages 136 to 152, for the year ended 31
March 2005, have been audited in terms of section 188 of the Constitution of
the Republic of South Africa, 1996 (Act No.1 08 of 1996), read with sections 4
and 20 of the Public Audit Act, 2004 (Act No. 25 of 2004). These financial
statements, the maintenance of effective control measures and compliance with
relevant laws and regulations are the responsibilities of the Accounting
Officer. My responsibility is to express an opinion on these financial
statements, based on the audit.
2. NATURE AND SCOPE
The audit was conducted in accordance with Statements of South African Auditing
Standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance that the financial statements are free of material
misstatement.
An audit includes:
· examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements
· assessing the accounting
principles used and significant estimates made by management
· evaluating the overall
financial statement presentation.
Furthermore, an audit includes an examination, on a test basis, of evidence
supporting compliance in all material respects with the relevant laws and
regulations, which came to my attention and are applicable to financial
matters.
The audit was completed in accordance with Auditor-General Directive No. 1 of
2005.
I believe that the audit provides a reasonable basis for my opinion.
3. QUALIFICATION
3.1 Financial statements
Due to the lack of an appropriate documented and approved policy and procedure
framework, as well as the lack of independent checks and reconciliations at the
Sheltered Employment Factories (the Factories), the following shortcomings
relating to the financial statements were noted;
· Debtors: the validity,
accuracy and completeness of debtors could not be verified due to lack of
supporting evidence.
Interest is not being charged on amounts owing as required by section 80 of the
Public Finance Management Act (Act 1 of 1.999) (PFMA) and Treasury Regulation
11.5 (TR 11.5).
Due to a lack of an appropriate documented and approved policy and procedure
framework, the impairment of debtors disclosed in the financial statements of R
12,96 million includes a write-off of debtors of R 4,61 million which
was done without authorization from the Accounting Officer (Director-General)
in contravention of TR 11.4. Included in the R4, 61 million is a wages suspense
account of R1, 58 million that could not be verified.
· Assets; Asset items
transferred to the Pretoria Factory during the year were not recorded in the
asset register.
With reference to note 2, assets of R2, 31 million was disposed during the
year, but the disposal is not reflected on the cash flow statement and proceeds
not recorded in the income statement. .
Assets were disposed without the authorization of the Department of Labour
(Department) as required by the Memorandum of the Administration of the
Sheltered Employment Factories (Memorandum) and the assets were also not
disposed of by tender or auction as required by section 76 (1) (k) of the
Public Finance Management Act and Treasury Regulation 10.2.1.
· Inventory; Assets obtained
from government departments and refurbished for resale are neither recorded in
the asset register nor in inventory
· Suspense accounts; The annual
financial statements were compiled from a ledger that contained suspense
accounts. These amounts included in the suspense accounts: R1, 6 million
(debit) and R851 253 (credit) could not be verified due to a lack of supporting
documentation.
· Bank accounts; 11 bank accounts, amounting to R300 963, are not
recognized in the financial statements. An investment account was opened in the
financial year without the authority of the National Treasury.
3.2 Compliance with laws and regulations
The following non-compliance with laws and regulations were identified;
· Advance payments amounting to
R1, 63 million was made to service providers in contravention of TR15.0.1.2.
· Several payments in excess of
R2 000, amounting to R2, 97 million, was made by cheque, which is in
contravention of TR 15.12.3 · Invoices were not settled within 30 days as
required by TR 8.2.3. ·
· Government property
was sublet to a private firm. No evidence could be provided that the
Director-General of the Department had approved this arrangement as required by
TR 10.2.4. The rent of R500 per month was not recorded in the ledger and not
recognised as income in the financial year.
· Payments amounting to R958
564, including VAT of R104 525, were made to non-VAT
vendors in contravention of the VAT Act (Act No 89 of 1991).
· The Pretoria Factory was
carrying out a business of a medical scheme by effecting salary deductions from
factory workers and defraying some or all of their medical expenses in
contravention of the Medical Schemes Act (Act 131 of 1998).
· A lack of adequate monitoring and adherence to the State Tender Board
Regulations and section 217 of the Constitution (Act No.1 08 of 1996) resulted
in irregular spending. R39, 33 million was spent on the procurement of goods
and services, mostly without adhering to prescribed procurement requirements.
3.3 Limitation of scope
Due to lack of sufficient supporting documentation, payroll expenses of R411
034, administrative expenses of R3, 52 million and purchase transactions of
R201 557 could not be verified.
3.4 Leave provision
The Factories have approximately 1 300 employees who are entitled to an average
of 15 days leave per annum. No provision for accrued leave was provided for in
the annual financial statements. .
3.5 Disclosure.
The following inadequacies relating to disclosure was noted:
· A related party note is not
included in the financial statements to disclose a significant related party
identified in respect of transportation services which cost the Factories R8,14
million.
· The accounting
policy changed from compliance with South African Statements of Generally
Accepted Accounting Practice (GAAP) in the previous year to utilisation of
conventions other GAAP. A note indicating this change, the financial impact and
whether comparatives have been restated or not has not been included in the
financial statements.
· Material loans or advances of
R1, 63 million were made to service providers. These loans and conditions
attached to them have not been disclosed in the financial statements.
4. DISCLAIMER OF OPINION
Because of the significance of the matters referred to in paragraph 3 above, I
do not express an opinion on the financial statements.
5. EMPHASIS OF MATTER
Without qualifying the audit opinion expressed above, attention is drawn to the
following matters:
5.1 Internal control weaknesses
· Conflict of interest; due to
no framework to facilitate segregation of duties, the majority of invoices from
the transport corporations presented for payment, had been prepared and
authorised by senior staff members of the Factories.
· Monitoring
controls; controls to monitor performance, reconcile accounts to supporting
documentation, develop budgets and analyse variances, pre-authorise and review
journal entries and investigate and clear suspense accounts are lacking. This
is due to lack of a control framework to perform independent checks as well as
reconciliation.
· Preparation of management
accounts and their review is not carried out. Reporting frameworks to enable
the Department to monitor the "activities and financial operations of the
Factories are also lacking.
· Procedure and policies; there
is no documented and approved policies and procedures framework at the
Factories to ensure that operations and transactions are effectively
controlled.
· Formal security and disaster recovery plans have not been
developed, tested and documented to ensure that information system disasters
are prevented detected or recovered from in time.
5.2 Governance structures
The Memorandum requires the Department to establish a management committee
consisting of five members, the majority of wh9m will be external
representatives of non-profit organisations. This oversight body has not been
in existence in the year under review. There is no formal, documented and
approved organisational structure in place to indicate reporting and
responsibility structures at the Factories. Consequently the control
environment is compromised.
5.3 Skills base
The skills base in the finance and administration function at the Factories is
inadequate and the control environment is impacted negatively.
5.4 Performance Audit
Service delivery at Sheltered Employment Factories
The following shortcomings relating to the economic, efficient and effective
utilisation of resources were noted:
Restructuring
The restructuring process, reported on in previous years, that has been ongoing
since 1998, delivered no constructive results despite R484 546 having been
spent in 2001 on the relevant feasibility study. This could, in part, be
ascribed to the lack of a policy framework. Late acceptance of the tender to
contract in the necessary expertise to take this process forward caused further
delay.
Assets
Non-adherence to the Government disposal policy due to the absence of physical
security regarding assets had the result that obsolete and redundant stock of
R2; 2 million was kept for an unidentified number of years. This excludes
undisclosed stock held at the defunct Crown Mines factory.
Information technology
Due to the lack of proper authorisation and capacity, a private firm was
irregularly appointed and paid in advance for 1 800 hours of work. The
segregation of duties was inadequate since the same consultant was responsible
for, inter allia, maintaining both the system and application software,
effecting changes, capturing data, passing journals and processing credit and
debit notes.
5.5 Special investigation
During the financial year, the Department commissioned a special investigation
into the financial and operating activities of the Sheltered Employment
Factories. I will report on progress in my next report.
6. APPRECIATION
The assistance rendered by the staff of the Sheltered Employment Factories
during the audit
is sincerely appreciated. .
N Manik
for Auditor-General
Pretoria
19 August 2005
National Skills Fund: Report of the Auditor-General for the year ended 31
March 2005
AUDITOR-GENERAL
REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS OF THE
NATIONAL SKILLS FUND FOR THE YEAR ENDED 31 MARCH 2005
1. AUDIT ASSIGNMENT
The financial statements as set out on pages 153 to 174 for the year ended 31
March 2005 have been audited in terms of section 188 of the Constitution of the
Republic of South Africa, 1996 (Act No. 108 of 1996), read with sections 4 and
20 of the Public Audit Act, 2004 (Act No. 25 of 2004). These financial
statements, the maintenance of effective control measures and compliance wit!].
relevant laws and regulations are the responsibility of the Accounting Officer.
My responsibility is to express an opinion on these financial statements, based
on the audit.
NATURE AND SCOPE
The audit was conducted in accordance with Statements of South African Auditing
Standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance that the financial statements are free of material
misstatement.
An audit includes:
·
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements,
·
assessing the accounting principles used and significant estimates made
by management, and
·
evaluating the overall financial statement presentation.
Furthermore, an audit includes an examination, on a test basis, of evidence
supporting compliance in all material respects with the relevant laws and
regulations, which came to my attention and are applicable to financial
matters.
The audit was completed in accordance with Auditor-General Directive No.1 of
2005.
I believe that the audit provides a reasonable basis for my opinion.
3. QUALIFICATION
3.1 Structure and accountability of the National Skills Fund
·
it is a Fund established in terms of legislation (section 27(1) of the
Skills Development Act)
·
substantially funded by way of a levy in terms of national legislation.
·
accountable to Parliament.
The Department of Labour has met on a regular basis with National Treasury to
establish direction for the way forward. Due to delays at National Treasury
this process was negatively impacted. The decision taken is that the NSF should
prepare a business case, to indicate the impact of listing and to determine
what systems of internal control and accountability should be put in place, by
December 2005. Thereafter the legal form will be formalised.
Operating expenditure amounting to R998 986 000 (85% of the total operating
expenditure) was tested. The completeness of operating expenditure could not be
verified due to a significant audit adjustment of R3.4 million made. This was
as a result of project expenditure incorrectly allocated to the Department of
Labour.
However, the large volume of transactions processed within the Department of
Labour does not permit the performance of sufficient alternative auditing
procedures to confirm the completeness, validity and accuracy of expenditure
reflected in title annual financial statements reflected in the Fund's annual
financial statements.
3.2 Commitments to be transferred
In Note 15 to the annual financial statements of the National Skills Fund
contracted commitments to be transferred as at year end, is disclosed as R779
034 000. The amount is overstated with R6 934 000 due to the confirmations
obtained from the Sector Education and Training Authorities. An amount of R60
577 000 could not be verified through confirmations. This is a result of
inadequate file administration and timeous approval of contracts.
3.3 Bank and cash
Bank and cash is disclosed in the annual financial statements of the NSF as an
overdraft of R4.597 million (2004: R6.315 million). This is a balancing figure
and no additional procedures could be performed to confirm this amount. All
transactions (including non-cash transactions) processed by the NSF are
processed through the bank account.
3.4 Accounts payable and receivable
The National Skills Fund uses a policy whereby advances should be paid back in
the same year that it is granted. There was no movement in the accounts
payable, amounting to R3 091 000 and the accounts receivable, amounting to R1
141 000 between the current and prior year. The NSF could not provide any
supporting documentation to support these amounts.
For the items included in 3.2 to 3.4 no alternative audit procedures could be
performed.
4. DISCLAIMER OF AUDIT OPINION
Because of the significance of the matters referred to in the above paragraphs,
I do not express an opinion on the financial statements.
5. EMPHASIS OF MATTER
Without further qualifying the audit opinion expressed above, attention is
drawn to the following matters:
5.1. Funds not utilised - Manpower Development Authority of Bophuthatswana
[MANDAB] : R41 605181
The amount of R41 605181 is included in Investments. This amount was
transferred to the National Skills Fund from the North West Province on 1
November 1999 and was earmarked for training.
The Department established a MANDAB steering committee on 16 October 2002 to
approve projects and to determine criteria for the disbursement of funds. It
was the intention of the steering committee to allocate the total funds to
training projects within 18 months. The MANDAB Steering Committee allocated R
34 211 740.00 on 2 February 2005 for skills development, into projects
capitally funded by various stakeholders within the North West Province. At
year end, only an amount of R1 218530 had been paid over for training projects.
5.2 Unappropriated funds
Attention is drawn to note 16 to the financial statements. As at 31 March 2005,
the amount accumulated in Seta Zero was R45 513 375. As at year-end, the
allocation of the balance of this account to the NSF and the Sector Education
Training Authorities had not been done by the Department of Labour.
6. APPRECIATION
The assistance rendered by the staff of the National Skills Fund during the
audit is sincerely appreciated.
N Manik
for Auditor-General
Pretoria
31 July 2005
AUDITOR-GENERAL
Department of Labour Annual Report 2004/05