Fourth Report of the Standing Committee on Public Accounts on the Report of the Auditor-General on the 2008/09 financial statements of the Department of Labour, dated 24 August 2010

Introduction

The Standing Committee on Public Accounts (the Committee), heard evidence on and considered the contents of the Annual Report and the Report of the Auditor-General on the 2008/09 financial statements of the Department of Labour (the Department). The Committee noted the qualified audit opinion, highlighted areas which required urgent attention of the Accounting Officer, and reports as follows:

1. Capital Assets

The Auditor-General reported that the Department established an Asset Management Unit in March 2008 to address the deficiencies identified and reported in the prior year‘s audit report. However, the audit still revealed, amongst others, the following significant shortcomings in the management and control of assets and the asset register.

a) A number of assets on the asset register were included at incorrect values.

b) The asset register was not adequately maintained in accordance with the requirements of National Treasury Regulations.

c) The reconciliation of the prior year balance as disclosed in the financial statements with the asset registers for the financial years ending 31 March 2007 and 2008 is still outstanding.

The Committee recommends that the Accounting Officer ensures that:

a) The Department employs professionally skilled personnel and that ongoing monitoring and supervision are undertaken to enable management to determine whether controls are present and functioning;

b) Personnel are provided with in-service training;

c) Adequate controls are designed and implemented to ensure that a complete and accurate fixed asset register is maintained and updated on a regular basis;

d) Disciplinary action is taken against underperforming staff ;

e) Monthly reconciliations are performed as prescribed; and

f) Shortages or losses that were incurred due to an inadequate asset register are identified and reported on.

2. Governance Issues

The Auditor-General reported the following:

a) The Audit Committee met seven times during the year under review and carried out its functions as required in Section 77 of the Public Finance Management Act, 1999 (Act No. 1 of 1999).

b) The operations of the internal audit function established as required in Section 77 of the Public Finance Management Act, 1999 were limited due to staff vacancies. As a result, they were unable to carry out all their audits in terms of their annual plan.

The Committee is concerned about the lack of stability at senior management level where personnel have been in acting positions for an extensive period. The Department experiences vacancy levels in excess of 10% in all of the programmes and acknowledges that this is a major impediment to service delivery.

The Committee recommends that the Accounting Officer ensures that:

a) The Department’s Audit Committee takes corrective action with regard to internal control deficiencies;

b) Personnel with adequate skills are employed;

c) The head of human resources and senior management fills vacant posts urgently;

c) Disciplinary action is taken against management and staff who fail to perform their duties as required; and

d) Management implements a performance management system where staff performance is evaluated against specific key performance areas to enable management to take appropriate steps based on agreed deliverables.

3. Non-compliance with Laws and Regulations

The Auditor-General reported the following:

a) The Department did not maintain an effective, efficient and transparent system of financial and risk management and internal control, as transfer payments were made to entities without service level agreements in place.

b) The Department did not have an approved Fraud Prevention Plan.

c) The Accounting Officer did not take reasonable steps to recover debt before debts owed to the State were written off as irrecoverable debts.

d) Regular assessment of supply chain management performance to identify whether the system is functioning effectively was not performed.

e) The performance contract of the chief financial officer was not signed by the relevant officials.

f) Lack of approved controls to verify the accuracy and completeness of levies, interest and penalties transferred to the sector education and training authorities (SETAs) and National Skills Fund as is required by practice note 1 of 2008 issued in terms of the Skills Development Act (No. 97 of 1998).

The Committee recommends that the Accounting Officer ensures that:

a) Control activities are identified and developed with consideration of their cost and their potential effectiveness in mitigating risks;

b) Management establishes, documents and implements a fraud prevention plan;

c) Management maintains an effective risk management policy which continuously evaluates and updates the financial management and internal control risks;

d) Reasonable steps are taken to recover debts before they are written off and further steps are taken to recover debts from the individuals responsible;

e) Criminal charges are laid against individuals who have committed financial misconduct;

f) Internal control deficiencies are identified and communicated in a timely manner to those responsible for taking corrective action;

g) An effective and well capacitated internal audit division is established;

h) Management implements regular assessments of supply chain performance to ensure that deficiencies are corrected;

i) The entity addresses areas of responsibility and establishes lines of reporting in order to support effective internal control over financial reporting; and

j) Effective policies and procedures in relation to financial reporting are established and communicated.

4. Conclusion

The Committee further recommends that the Executive Authority submits a progress report on the implementation of all the above recommendations to the National Assembly within 60 days of the adoption of this report by the House.

Report to be considered.