REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL

STATEMENTS OF VOTE 2-PARLIAMENT FOR THE YEAR ENDED 31 MARCH 2005

 

1. AUDIT ASSIGNMENT

The financial statements as set out on pages 49 to 107, 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 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, 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

Payables

With reference to paragraph 2.8 of the 2003/04 audit report, the correctness of the leave balances that were transferred from PERSAL system to Manqoba Information Technology System could still not be verified since the information could not be submitted for audit purposes. Due to the aforementioned as well as the lack of controls to ensure the correctness of captured leave data and the completeness of leave submitted, the reasonableness of the provision for leave, which amounts to R9 423 620, could not be verified.

 

4. QUALIFIED AUDIT OPINION

In my opinion, except for the effect on the financial statements of the matter referred to in paragraph 3, the financial statements fairly present, in all material respects, the financial position of Parliament 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 Constitution, 1996 (Act 108 of 1996).

 

5. EMPHASIS OF MATTER

Without further qualifying the audit opinion expressed above, attention is drawn to the following matters:

 

5.1 Transfers and subsidies

For the year under review no formal policy surrounding transfers and subsidies was implemented, no control mechanism was in place to obtain written assurances that the respective political parties implemented effective, efficient and transparent financial management and internal control systems, in respect of transfer payments amounting to R73 693 507.

 

5.2 Parliamentary shop

Notwithstanding various shortcomings highlighted in paragraph 5.1 of the 2003/04 audit report the following was again noted:


(a) The financial statements submitted for audit purposes indicated a loss of R240 411 for the financial year.


(b) A stock list as at
31 March 2005 could not be submitted for audit purposes to verify the stock balance of R173 839. According to the annual stocktake reports for the period ending 31 March 2005, surpluses and deficits of R122 764 and R50 973, respectively, were found.


(c) The report issued in respect of an investigation done by the finance office also highlighted the fact that there was doubt over the accuracy of the sales, stock and purchase figures. Various sales invoices were not allocated to sales and not all the sales invoices could be submitted.

 

5.3 Weaknesses in internal control

During the audit various internal control weaknesses were identified and reported in the management letter and informal queries that were issued during the audit. As a result of the issues mentioned in the informal queries it is evident that various internal and external audit findings in respect of previous audits did not receive the necessary attention or corrective actions were not taken. There is no policy or system in place to follow-up internal and external audit findings to ensure that corrective steps are taken timeously. The internal control weaknesses identified included, inter alia, the following:


(a) Policies and Procedures
(i) During the year under review draft policies regarding assets, debt and donor funding were compiled but were not approved except, for the last-mentioned policy which was approved during March 2005.
(ii) Process flows and procedure manuals did not make reference to the applicable laws,

regulations and policies and it could therefore not be ascertained whether there are in line

with relevant laws and regulations.


(b) Stock
No specific control measures were in place to ensure that all stock purchases were updated on the stock master file after receipt of the inventory items. Proof of regular reconciliations between the inventory control account in the general ledger and inventory master file (stock list) could also not be submitted for audit purposes. Furthermore, the Manqoba inventory system did not make provision to flag duplications in requisition numbers. Due to the above, uncertainty exists relating to the accuracy of the stock amounting to R487 000. Notwithstanding paragraph 5.4(7) of the previous audit report, reconciliations were still not performed between the stock usage and meals served. Furthermore, stock shrinkages were not monitored for the period under review.


(c) Risk Management
Although a fraud prevention plan existed, the plan was not effectively implemented during the financial year under review and no fraud register could be submitted for audit purposes.


(d) General
(i) No specific controls were implemented to identify related parties and transactions. Sufficient appropriate audit evidence could not be obtained regarding the identification and disclosure by management of related parties and transactions that are material to the financial statements.
(ii) No service level agreement exists with the supplier of the Manqoba system in respect of maintenance, upgrades, back-up services and security.


5.4 Previous audit reports


(a) Tax RSA account Reference is made to paragraph 4.1.2 of the 2001/02 audit report [followed up as per par. 5.5(1) of the 2003/04 audit report], where it was reported that detail could not be provided in respect of the finalization of the 1997 tax reconciliation and the amount of R468 555 paid in this respect. During the follow-up of this matter it was found that a tax reconciliation performed during the year under review in respect of the 1997 year indicated that there was actually an overpayment in respect of the 1997 tax year. Parliament is in the process of claiming the amount back from SARS.


(b) Parliamentary Association
With reference to page 51, paragraph 4.2.4 of the 2002/03 audit report [followed up as per par. 5.5(3) of the 2003/04 audit report], information regarding the future use of the availability arrangements in respect of the Parliamentary Association could still not be obtained. It was noted in the memo dated
19 April 2005 from the Chief Legal Adviser that the Speaker had instructed that the money be transferred to the Parliamentary Disaster Fund. This fund has however not yet been established.


(c) Legislation
Information regarding the progress made on the finalisation and implementation of Parliament’s own legislation to manage Parliament’s finances, which is currently known as the “Financial Administration of Parliament and the Provincial Legislatures Bill” and Parliament’s own “Treasury Regulations” that were discussed in the Standing Committee on Public Accounts hearing on the 2001/02 audit report [reported in par. 5.5(2) of the 2003/04 audit report], could still not be submitted.


(d) Fixed statutory amount
In accordance with section 8(2) of the Remuneration of Public Office Bearers Act, 1998 (Act No. 20 of 1998) the amount of the contribution to be made to the pension fund by the national government, of which a Member of the National Assembly or a permanent delegate is a Member, shall be determined by the Minister of Finance. With reference to paragraph 5.3.2 of the previous audit report, authorisation by the Minister of Finance, in accordance with the abovementioned Act, could still not be submitted for the 17% employer’s contribution made by Parliament in respect of pension.

 

5.5 Matters of public interest


(a) Fraudulent travel warrants
The irregularities that were discovered with regard to the billings made to Parliament by travel agents inrespect of Members’ travel were followed up during the audit. The total value of payments made to the respective travel agents during the period of trading from January 1998 to July 2003 amounted to approximately R96 million of which approximately R61 million (63 per cent) was tested. The forensic audit that was conducted into this matter indicated that the loss suffered by Parliament in this regard amounted to R17,2 million for the period tested, ranging from December 2001 to July 2003. Parliament has commenced with the necessary processes to recover the money. An amount of R387 000 has already been recovered by Parliament after year end.


(b) Implementation of a new financial system
During the audit it was found that Parliament is in the process of replacing the current Manqoba financial system with an Enterprise Resource Planning (ERP) solution. The Manqoba financial system was implemented at Parliament during the latter part of 2003 at a cost of approximately R12 million. The process of developing a Master Systems Plan (MSP) for Parliament has commenced during July 2004 and the requirement for obtaining offers for the implementation of the MSP and procurement of an ERP solution was waived in February 2005. A decision was made to discontinue the Manqoba financial system and replace it with the new system. Following the waiver of the tender requirements, the contract has been awarded during April 2005 to a supplier for the supply of an Enterprise Resource Planning System solution; creation of the database; and performance of the services to Parliament.

 

5.6 Information systems audit of the general controls surrounding the computerised information system environment

A follow-up audit was performed in respect of the general controls review surrounding the computerized information system environment. Fifteen of the 22 recommendations made in the previous year have already been implemented. However, certain weaknesses were identified that still existed for the financial year under review, as detailed below:

• An IT committee was not in operation;

• Operators manuals were not formally documented and approved,

• No disaster recovery plan was in place; and .

• There were no policies and procedures in place to ensure user account management.

 

6. APPRECIATION

The assistance rendered by the staff of Parliament during the audit is sincerely appreciated.

 

 

Auditor-General

Pretoria

31 July 2005

AUDITOR-GENERAL