Third Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor-General on the financial statements of the National Prosecuting Authority for the financial year ending 31 March 2008, dated 10 February 2009.

 

The Standing Committee on Public Accounts (SCOPA), heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the National Prosecuting Authority for the financial year ending 31 March 2008.

 

For the 2007/08 financial year, a disclaimer of opinion was expressed by the Auditor-General on the financial statements of the National Prosecuting Authority (NPA). The following issues were the main reasons for the disclaimer:

 

1.       Irregular, fruitless and wasteful expenditure

 

The supply chain environment within the NPA is not conducive to maintaining an appropriate procurement and provisioning system as envisioned by section 38(1) (a) (iii) of the PFMA. This was the main reason for the disclosure of R423 million worth of irregular expenditure awaiting condonement. Audit evidence indicated that this was furthermore understated by a potential R86 million.

 

The NPA failed to disclose R1 million worth of fruitless and wasteful expenditure identified during the audit process. An indication of possible fraudulent activities prompted the NPA to launch an investigation into procurement activities, the outcome of this investigation was not available at the time of the audit report. It was therefore uncertain at the time of the audit whether the outcome of the investigation will influence the irregular expenditure figures mentioned above and to what extent.

 

The Committee therefore recommends that the Accounting Officer ensures that the outcome of the investigation is submitted to the Committee and action is taken to avoid discrepancies with regard to the above-mentioned issues.

 

 

2.       Tangible assets

Ineffective asset management resulted in the following:

 

a)       The closing balance of tangible assets could not be supported by an asset register;

b)       Minor assets disclosed were understated by R11 million;

c)       Finance lease assets were not disclosed in the financial statements.

              It was therefore not possible to express an opinion on the existence,      completeness, valuation, rights and obligations of the closing balance of the tangible assets disclosed.

 

The Committee therefore recommends that the Accounting Officer ensures that:

 

a)             An updated asset register is in place and reviewed by management regularly;

b)             Policies that are related to financial reporting must be communicated throughout the entity.

 

3.       Housing guarantees

 

The existence, completeness, valuation, rights and obligations pertaining to housing guarantees could not be verified as the systems of control were not in place. Active housing guarantees were identified for officials who resigned and were transferred to other national departments. As at 31 March 2008, there was an unexplained difference between housing guarantees as disclosed in the financial statements versus housing guarantees per report from the PERSAL system.

 

The Committee therefore recommends that the Accounting Officer ensures that:

 

a)       The information on PERSAL is updated on a daily basis and management should make sure that policies and procedures are implemented.

 

b)       Information on housing guarantees with names of people who were transferred to other departments must be submitted to Parliament within 60 days after the adoption of this recommendation by the house.

c)       Written report to be submitted to Parliament on wrong appointments made by the NPA on all consequent issues as raised by the Auditor-General within 60 days after the adoption of this recommendation by the House.

 

4.       Leave entitlement

 

The Auditor-General reported that it was not possible to express an opinion on the completeness, valuation and accuracy of the leave provision and leave gratuities disclosed in the financial statements due to the leave records on the PERSAL system being incomplete. The incompleteness of the information on the system is mainly due to inadequate policies and procedures to address the capturing and submission of leave forms.

 

The Committee therefore recommends that the Accounting Officer ensures that:

 

a)       Policies, guidelines and procedures are in place and management must monitor the implementation of these policies;

b)       Leave forms must be completed, approved by relevant managers and be captured on the PERSAL system on a daily basis.

 

5.       Financial management

 

The Auditor-General reported that a deficient budgeting system resulted in the following:

a)   Funds being spent very late in the financial year, R100 million spent in March 2008 compared to R56 million in November 2007 (highest amount spent during any other month in the financial year).

b)   A bank overdraft of R29 million as at 31 March 2008 due to reprioritised funds that was not available as at year end.

c)   Lack of proper financial management was also reported in 2005/6 when the late finalisation of the budget reprioritisation process by the

 

      Department of Justice and Constitutional Development resulted in an additional allocation being approved and received by the NPA in March 2006. At that point in time it was emphasised that the pressure to spend such funds at such a late stage in the financial year significantly increases the risk of normal procurement processes not being complied with.

 

The Committee therefore recommends that the Accounting Officer ensures that:

 

a)              Control activities are developed with consideration of their cost and potential effectiveness in mitigating risks to the achievement of financial reporting objectives.

 

6.       Non-compliance with the Preferential Procurement Policy Framework Act and Supply Chain Management Practice

 

The Auditor-General reported that:

 

a)   Tenders were not in all instances awarded to suppliers with the highest points;

b)   The tender process was not followed in all required instances;

c)   Procurement not from approved database of suppliers;

d)   Goods and services exceeding R1 million (VAT included) procured in terms of the TR 16A6.4 were not in all instances reported to the National Treasury and the Auditor-General.

 

The Committee therefore recommends that the Accounting Officer ensures that:

 

a)   Management lead by example in terms of being competent, independent and support the achievement of effective internal control over financial reporting.

b)   The entity complies with Procurement policies, Supply Chain Management Practices and applicable legislation.

c)   Disciplinary procedures must be instituted against officials responsible for any tender irregularities.

 

7.       Progress made on previous SCOPA resolutions

 

The Auditor-General reported on progress made on implementation of outstanding SCOPA resolutions as at 31 July 2008 (date of finalisation of the 2007/8 audit report) and highlighted the following outstanding matters:

 

a)   A system or process to be put in place to enable CARU to fulfil its mandate: As at the audit report date, an Electronic Case Management system was in the process of being developed. However, it was not fully operational during the 2007/8 financial year;

b)   Policies and procedures to be implemented: No progress made on this matter up until the audit report date;

c)   Vacancies to be filled: No vacancies were filled during the 2007/8 financial year, however all vacancies were filled in April 2008.

 

The Committee therefore recommends that the Accounting Officer ensures that:

 

a)    A written report is submitted to Parliament on all the outstanding resolutions and the actions taken by the entity within 60 days of the adoption of this recommendation by the House.

 

8. Conclusion

 

The Committee is concerned with the absence of adequate policies and guidelines that regulate the day to day operations of the entity.

 

Report to be considered.

 

2.  First Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor-General on the financial statements of the Department of Home Affairs for the financial year ending 31 March 2008, dated 10 February 2009.

 

The Standing Committee on Public Accounts (SCOPA), heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the Department of Home Affairs for the financial year ending 31 March 2008.

 

For the 2007/08 financial year a disclaimer of opinion was expressed by the Auditor-General on the financial statements of the Department of Home Affairs. The Committee requests the Accounting Officer to urgently address the following:

 

1.        Departmental revenue and receivables

 

The Auditor-General reported that a number of requested processed application documents and deposit slips could not be obtained from the Department. An alternative analytical review procedure was performed by multiplying the number of documents issued, with the official tariff for the service. This resulted from:

(i) Control activities identified as necessary are not in place and/or not being    applied;

(ii) Appropriate polices, procedures, techniques and mechanisms do not exist with respect to each of the entity’s revenue activities;

 

The Committee recommends that the Accounting Officer ensures that:

 

a)       Management implement measures at the regional and district offices to ensure that documents are available for queries and audit;

b)       Files are properly maintained and kept up to date;

c)       Management implement measures to reconcile the transactions which were recorded on cash register rolls to the applications processed on the mainframe application system.

 

2.         Revenue from foreign mission

 

The Auditor-General reported that revenue from foreign missions dating as far back as the 2004/5 financial year was recorded in the current financial year due to delays in the Department receiving the supporting vouchers. There was an inadequate audit trail for foreign mission revenue received and recorded from the sub-system utilised by the department to the accounting records of the department and vice versa due to the following:

 

·         Appropriate policies, procedures and techniques do not exist with regard to Foreign Affairs voucher.

 

The Committee recommends that the Accounting Officer ensures that:

 

a)       The Department should implement a system where every deposit paid back to the Foreign Nationals can be traced to the deposit received. Where it is found that the Department of Foreign Affairs did not supply the Department of Home Affairs with a voucher for the deposit received, the Department of Foreign Affairs should be liable to pay the deposit back;

b)       The Department should implement a process whereby all missions report monthly the net revenue and expenses incurred on behalf of the Department of Home Affairs.

c)       The mission should maintain a register for all vouchers issued which should be faxed through to the Department monthly.

 

3.   Foreign credit transactions

 

The Auditor-General reported that during the year the Department recorded foreign credit transaction of R9, 606 million to the departmental revenue. Included in this amount were repatriation deposits received and foreign gains calculated on repatriation refunds, both of which do not belong to the Department and should be transferred to the Immigration Control Account.

 

 

 

The Committee recommends that the Accounting Officer ensures that strategies are in place that will overcome the problems that were identified by the Auditor–General.

 

4.     Capital assets

 

The Auditor-General reported that assets amounting to R393, 304 million reflected in the assets register could not be verified at various Home Affairs offices across the country. Vehicles belonging to the Government Garage amounting to R4, 437 million were erroneously included in the Department asset register due to the necessary control activities not being applied.

 

The Committee recommends that the Accounting Officer ensures that:

 

a)       All assets are bar-coded with a unique number that should be entered into the asset register together with a proper description of the asset;

b)       The Department adhere to the guidelines set out in the Asset Management Framework;

c)       The Department must retain all primary evidence, such as invoices for a period 5 years as required by the Treasury Regulation 17.2.3.

d)       The list of Department vehicles must be regularly reviewed and compared to the vehicles on the fixed assets register and all vehicles that belong to the government garage should be removed from the register.

 

5.    Leases

The Auditor-General reported that the Department could not provide an appropriate list of all leases as recorded to the financial statements and there was an unexplained R46, 404 million between the lists provided for audit.

 

The committee recommends that the Accounting Officer ensures that:

 

Policies and procedures are effectively applied to ensure proper control over lease agreements. The policies and procedure must also include supporting documentation to ensure that lease commitments are complete.

 

6. Cash and cash equivalents

The completeness and valuation of cash and cash equivalents could not be verified by the Auditor-General due to the following:

 

(i) Various general ledger bank suspense accounts included in the bank reconciliation were not cleared and allocated to the centres and reconciled or reported on a monthly basis as per the Treasury Regulation 17.1.2 (b) – (d);

(ii) The accuracy and allocation of amounts included in these bank suspense could not be substantiated and included credits of R20, 898 million (2007: R35, 594 million) at year-end of which R13, 375 million arose prior to 1 April 2007 and debits of R7, 867 million.

 

The Committee recommends that the Accounting Officer ensures that:

 

a)       Reconciliation of accounts is followed up and cleared on a timely basis as required by the Treasury Regulation 17.1.2 (b);

b)       Senior personnel must be held accountable to review these accounts to ensure that adequate follow up on reconciliation occurs.

 

7. Lindelani Detention Centre

 

The Committee raised the following concerns with regard to the Detention Centre:

 

(i) The rationale of the costing as stipulated in the contract with the centre.

 

 

 

 

 

(ii) That the negotiated savings as reported by the Accounting Officer was not substantial. 

 

The Committee recommends that the Accounting Officer ensures that:

 

The Department must further negotiate the remuneration terms of the contract with regard to actual levels. A report must be submitted to Parliament within 60 days of the adoption of this recommendation by the National Assembly. 

 

8.    Conclusion

 

The Committee is concerned with the weakness of Internal Controls and the absence of approved policies and procedures which should guide the day to day activities of the Department.

 

Report to be considered.

 

3.  Second Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor-General on the financial statements of the Department of Correctional Services for the financial year ending 31 March 2008, dated 10 February 2009.

 

The Standing Committee on Public Accounts (SCOPA), heard and considered evidence on the Annual Report and the Report of the Auditors on the financial statements of the Department of Correctional Services for the financial year ending 31 March 2008.

 

For the 2007/08 financial year a qualified audit opinion was expressed by the Auditor-General on the financial statements of the Department of Correctional Services. The Committee requests the Accounting Officer to urgently address the following:

 

 

1.   Tangible capital assets

 

The accuracy, completeness and valuation of the assets could not be verified due to the unavailability of proper records on assets as required by section 40(1)(a) of the PFMA and Treasury Regulation 17.2.3. Thus assets were misstated by a material amount which cannot accurately be determined. Some of the deficiencies relate to the following:

 

a)      No evidence was provided for the amounts of R162 million (building and fixed structure) and R805 million (machinery and equipment) relating to adjustments made to the opening balances;

b)  Included in note 29.1 of the financial statements on page 134 of the Annual Report, are additions to machinery and equipment to the value of R87 million, whereas the fixed asset register amount for additions is R55 million. No reconciliation was provided for the difference of R32 million;

c)       No evidence was provided concerning the accuracy of the amounts disclosed in note 29.1 relating to work in progress on buildings and other fixed structures to the amount of R261 million.

d)       A difference of R108 million exists between the amounts as reflected on the closing balance of the tangible capital assets in note 29 of the financial statements and the fixed asset register.

 

The Committee recommends that the Accounting Officer ensures that:

 

a)       An accurate asset register is in place, to be reviewed by management and that a meeting should be convened with the Auditor-General and Treasury to resolve all outstanding matters.

b)       All outstanding policies and procedures are developed and implemented to effectively run the day to day business of the department.

c)       A service level agreement be finalised with the Department of Public Works

 

2.2.   Internal controls

  a)       Internal controls on all transactions and other significant events were not always clearly documented;

  b)         All documentation and records were not properly managed, maintained and periodically updated;

c)       Excessive adjustments to numbers or account classification were made prior to finalisation of financial reports;

d)       Transactions and events were not appropriately classified and promptly recorded so that they maintain their relevance, value and usefulness to assist management in controlling operations and making decisions.

 

The Committee recommends that the Accounting Officer ensures that:

 

a)       Adequate controls are in place and all transactions are documented, maintained and updated on a daily basis.

 

3.   Monitoring and  controls

 

a)       Data recorded by information and financial systems were not periodically compared and discrepancies were not examined.

b)       Assets recorded on financial systems were not reconciled to the fixed        asset register;

c)       Management did not have a strategy in place to ensure that ongoing monitoring is effective.

 

The Committee recommends that the Accounting Officer ensures that:

 

The monitoring of policies and procedures by Management is adhered to so as to ensure the implementation of adequate controls.

 

4.   Non compliance with applicable legislation

 

Correctional centres remain overcrowded resulting in non-compliance with section 7 of the Correctional Services Act, 1998 (Act No. 111 of 1998), which requires that prisoners be detained under conditions of human dignity.

 

The Committee recommends that the Accounting Officer ensures that:

 

Strategies to overcome overcrowding are developed in line with the above legislation.

 

5.   Matters of governance

 

a)   The financial statements submitted for audit were subject to material amendments resulting from the audit.

b)   Significant difficulties were experienced during the audit concerning delays or the unavailability of expected information.

c)   SCOPA resolutions have not been substantially implemented on asset management and medical aid contributions for continuing members.

 

The Committee recommends that the Accounting Officer ensures that:

 

a)       Information that is required by the Auditors must be submitted timeously so as to enable Auditors to finalise their audit on time.

b)       All SCOPA resolutions are implemented as a matter of urgency

 

6.  Conclusion

 

The Committee has noted with concern the state of internal controls and procedures in the Department and further requests the Department to ensure that monitoring controls and procedures are in place to ensure compliance with the applicable regulations. The Committee further recommends that the Department must submit a progress report on the implementation of the recommendations made on “The report of The Auditor-General on a Performance Audit of the Repair and Maintenance of Correctional Centres”. This must be submitted to Parliament within 60 days of the adoption of the above resolutions.

 

 Report to be considered.