ATC110622: Seventh Report: Auditor General on annual report & financial statements of Department of Defence & Military Veterans for 2009/10 financial year

Public Accounts (SCOPA)

Seventh Report of the Committee on Public Accounts on the Report of the Auditor General on the annual report and financial statements of the Department of Defence and Military Veterans for the 2009/10 financial year, dated 22 June 2011.

 

1. Introduction

The 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 2009/10 financial statements of the Department of Defence and Military Veterans (the Department). The Committee noted the qualified opinion, highlighted areas which required the urgent attention of the Accounting Officer, and reports as follows:

 

2. Tangible and intangible assets

The Auditor-General identified the following:

a)       The Department did not disclose any financial information on tangible and intangible assets for both the current and prior year, contrary to the requirements of the financial reporting framework set by the National Treasury.    

b)       Due to historic inherent problems, the Department did not maintain a proper asset register, supported by relevant documentation, to enable the Auditor-General to quantify the misstatements of tangible and intangible assets.

c)       A project plan to address the asset register deficiencies was in process. However, existence, rights and obligations, completeness and valuation with regard to tangible and intangible assets could not be verified.

 

The Committee recommends that the Accounting Officer ensures that:

a)       Management implements a barcoding system that will ensure that all tangible assets are identifiable.

b)       A verifiable asset register, which contains asset descriptions, dates on which they were acquired, as well as serial numbers, is created and updated on a monthly basis.

c)       A dedicated asset management component is established within the department to manage assets according to the National Treasury guidelines.

d)       All assets are classified according to the Standard Chart of Accounts (SCOA).

e)       There is improvement to the current system, or implementation of a new system,    to ensure that asset values are in line with the accounting policy.

f)         All assets are valued as prescribed by the National Treasury.

g)       A proper system of record-keeping is implemented to ensure that documentation is readily available.

h)       Monthly reconciliations between the Financial Management System (FMS) and logistical system relating to additions and disposals of assets are performed.

i)         Policies and procedures relating to assets are amended to ensure that assets are counted annually before the end of each financial year.

 

The Committee has noted the following plans undertaken by the Department:

a) The short-term plan to focus on the utilisation of the existing systems, the Operating Support Information System (OSIS) and the Computerised Aided Logistical Management Information System (CALMIS), to establish an asset register, and compliance with modified cash basis accounting.

b) The long-term plan to focus on the implementation of a single integrated defence logistics information management system, including a single asset register, as well as integration to Integrated Financial Management Systems (IFMS) to enable the department to comply with accrual basis of accounting.

 

3. Restatement of corresponding figures

The Auditor-General identified that:

The corresponding figures for the year ended 31 March 2009 have been restated as a result of errors discovered during the year under review.

 

The Committee recommends that the Accounting Officer ensures that:

The financial statements and other information included in the annual report are checked and reviewed for completeness and accuracy prior to audit. All amendments to financial statements and information should be done before the annual audit commences.

 

4. Irregular expenditure

The Auditor-General identified that:

Irregular expenditure amounting to R1 billion occurred, mainly comprising of: housing allowances, new military dispensation, and performance awards which were paid during the year under review without following proper approval processes as prescribed in section  55 of the Defence Act (No.42 of 2002),  and section 2 of the Public Service Act (No.103 of 1994).

 

The Committee recommends that the Accounting Officer ensures that:

a)       Appropriate disciplinary measures are taken against employees who were responsible for incurring irregular expenditure in terms of section 38(1)(h)(iii) of the Public Finance Management Act (No.1 of 1999) (PFMA).

b)       The Department implements effective, efficient and transparent financial and risk management processes.

c)       The Department strengthens its internal control systems in order to avoid incurring further irregular expenditure.

 

5. Predetermined objectives – Reliability of reported information

The Auditor-General identified that:

For the three tested programmes, the validity, accuracy and completeness of the reported targets could not be established as sufficient appropriate audit evidence could not be provided for audit purposes.

 

The Committee recommends that the Accounting Officer ensures that:

a)       The planned and reported performance targets are specific, measurable and

      time-bound.

b)       The accomplishment of predetermined objectives and targets is monitored on a  

      continuous basis.

c)       In future, relevant supporting evidence is made available.

 

 

6. Non-compliance with laws and regulations

The Auditor-General identified the following:

a)       The Department did not comply with section 55 of the Defence Act (No.42 of 2002) regarding the approval of salaries relating to the latest military dispensation, housing allowances for uniformed members, and performance awards.

b)       The Department did not comply with the approval process prescribed in section 2 of the Public Service Act (No.103 of 1994) regarding these payments.

c)       The Department did not comply with section 38(1)(a)(ii) of the PFMA, as an internal audit function was not fully operational for the year under review.

d)       The Department did not have an approved fraud prevention plan as required by Treasury Regulation 3.2.1.

 

The Committee recommends that the Accounting Officer ensures that:

a)       The Department adheres to the applicable laws and regulations: including the PFMA, Treasury Regulations, Defence Act, Public Service Act, and appropriate disciplinary measures are taken against officials who do not comply with laws and regulations.

b)       The Department has an effective audit committee that promotes independence, accountability and effective risk assessment.

c)       The Department has a risk management strategy, which must include a fraud prevention plan.

 

7. Internal controls

7.1 Leadership

The Auditor-General identified the following:

a)       Management did not have approved policies and procedures to guide management at the lowest level to ensure compliance with National Treasury disclosure requirements with regard to the recording and disclosure of various categories of tangible and intangible assets.

b)       The Department did not have the necessary key controls in place to effectively manage performance against predetermined objectives.

c)       The Department did not effectively monitor compliance with laws, regulations and policies.

 

The Committee recommends that the Accounting Officer ensures that:

a)       There is oversight responsibility over financial reporting and internal control, and appropriate disciplinary measures are taken against individuals who fail to exercise this responsibility.

b)       The Department has the necessary key controls in place to manage performance effectively, against predetermined objectives.

c) There is ongoing monitoring of compliance with laws, regulations and policies.

 

7.2 Governance

The Auditor-General identified the following:

a)       The Department did not have an approved fraud prevention plan.

b)       The internal audit function was not fully operational for the year under review.

c)       The Head of Internal Audit was not appointed.

 

The Committee recommends that the Accounting Officer ensures that:

a) The Department has a fraud prevention plan that is reviewed on a continuous basis, and appropriate disciplinary measures are taken against individuals who do not adhere to it.

b) The internal audit function is fully operational throughout the year and assists in maintaining efficient and effective controls. The internal audit function should evaluate the controls on a continuous basis, and develop recommendations for improvement.

c) The Department appoints the Head of Internal Audit as a matter of urgency.

 

 

 

8. Other reports – Performance Audit

The Committee notes that there was a performance audit conducted on the Department’s use of consultants during the year under review.  The Committee will, in due course, consider the findings of the said performance audit.

 

9. Conclusion

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

 

Report to be considered.