The Auditor-General, Terence Nombembe tables the 2010/11 general report on national and provincial audit outcomes
17 Jan 2012
The 2010/11 audit outcomes of national and provincial departments and public entities show a combination of improvement, stagnation and regression as a reflection of the tone set by the national and provincial leadership.
“Setting the right tone and playing an active role in governance, and interaction with oversight structures is a pivotal step on the part of leadership towards improvement in the audit outcomes of national and provincial departments as well as public entities”.
These were the words of the Auditor-General (AG), Terence Nombembe today on his release of the 2010/11 general reports on the national and provincial audit outcomes of government.
An assessment of the national audit outcomes of government departments and national entities reflects an overall improvement in four departments and 30 public entities, which amounts to a total of 34 improvements. Overall regressions in audit outcomes within the national sphere of government amounted to 61 (six departments and 55 public entities).
Clean audit outcomes were received by three national departments (8%) namely the Department of Public Enterprises, the Department of Science and Technology and the Department of Environmental Affairs. Financially unqualified reports (with findings) were received by at least two thirds of the national departments. The main reason for these national departments and national public entities not attaining the clean audit status is due to internal control weaknesses in financial reporting service delivery reporting and compliance with laws and regulations.
Overall three quarters of the national departments avoided audit qualifications in comparison with two thirds which was received for the last two years. In this vein the national departments are catching up with the public entities that have been operating with around 90% without audit qualifications for the past three years.
Public entities are in essence leading in the clean audit space at the level of more than 40% for the last three years compared to national departments who have been declining for the last three years (from 15% two years ago and 8% this year).
Of the worst categories of audit opinions of adverse or disclaimers, only one national department received a disclaimer of opinion this year, the Department of Public Works. Seven national public entities received such audit opinions; these included the National Arts Council of South Africa, Property Trading Entity, Road Traffic Infringement Agency, Road Traffic Management Cooperation, Water Trading Account, Public Service Sector Education Seta and Technology Innovation Agency.
With the exception of the National Treasury Consolidation, all 39 departments had their financial statements submitted and audited by the reporting date. Of the public entities there still remains three entities that have not submitted their financial statements. These are; Thubelisha homes, Third Party Funds, and Compensation Commission for Occupational Diseases.
On the provincial level provinces that had the highest number of public entities that had not submitted their financial statements by the cut off date were North West (10) and Northern Cape (5).
Clean audit outcomes were received by 46 provincial departments, legislatures and entities (19%). The provinces with clean audit outcomes were KwaZulu-Natal (KZN) (12), Gauteng (9), Free State. (7); Western Cape, (6) Mpumalanga (5) Limpopo (4) Eastern Cape (3) with North West and Northern Cape (NC) not attaining any clean audits. Legislatures are in essence leading in the clean audit space registering five out of nine (56%) this year, having improved significantly from 1 only last year and none the year before that.
Financially unqualified reports were received by 58 % of auditees within the provincial sphere. Once again, the main reasons for these provincial auditees not attaining the clean audit status mirrors that of the national sphere, namely internal control weaknesses in financial reporting, service delivery reporting and compliance with laws and regulations.
Overall the five provinces that have succeeded in reducing their audit qualifications to less than a third of audit qualifications are Eastern Cape (27%), Gauteng (6%) KZN (14%) Mpumalanga (11%) Western Cape (4 %). Additional effort is still required in the following remaining provinces; Free State 33% Limpopo (39%) NC (47%) and North West (52) % as they are still registering higher levels of audit qualifications.
Of the 12 disclaimers in the provinces, the four big departments that remain with audit disclaimers are Health (in Limpopo and NC), Education (in Eastern Cape) and Public Works and Roads and transport (NW).
Nombembe reflected on the commitments made by the leadership and oversight after the previous year’s report was shared with the national and provincial office bearers. “Our assessment of the commitments indicates that they were not followed up sufficiently to ensure effective monitoring of the implementation of commitments through periodic review and monitoring of the status of key controls,” stressed Nombembe.
“This year’s findings indicate that audit outcomes only improved in areas where the leadership had set the correct tone and took a hands-on approach to addressing shortcomings in their control environments. Leadership in these departments personally took on the oversight role of their control environments and this led to a remarkable improvement in outcomes.” Stagnation and regression occurred mainly where leadership did not set the right tone in leading change in their respective environments.
“After sharing the above results with the executive leadership and oversight structures, it was encouraging to receive a commitment that, going forward, the leadership, would dedicate at least one hour in 90 days of their time to monitor proactively the status of internal controls in their departments and entities with a view to taking corrective and timeous action, in conjunction with their internal auditors and audit committees.
“This was a turning point in our experience of the leadership dedication towards clean audits to the extent that a firm commitment was made that what needs to happen will happen within the national and provincial spheres of government.”
“Operation clean audit 2014 will be achieved if such commitments by the leadership are successfully implemented and carried through,” concluded Nombembe. “With such a tone expressed, I am convinced that, with approximately three years to go before the lapse of the 2014 target, the target is attainable.”
“The key pillars of sustainability towards clean audits remain; first of all the appointment of adequately skilled administrators at the levels of Head of Departments and Chief Financial Officers whose task would be to produce credible reports which are validated on a monthly basis. The second pillar is the appointment of adequately experienced internal auditors and audit committees whose task will be to review the credibility of information and objectively report to the leadership. If the leadership focuses primarily on these pillars, regular monitoring by the executive leadership and legislature would be more effective and sustainable,” commented Nombembe
In monitoring the effectiveness of internal controls keen emphasis needs to be directed towards these critical areas of government operations, effective management of human resources, information technology, and the administration and reliable reporting on financial management, service delivery and compliance with laws and regulation, particularly supply chain management.
“We as the Auditor-General of South Africa are committed to persist in our efforts to work with leadership during the quarterly engagement meetings to provide insights on the status of internal controls in their environments so as to ensure migration towards clean audit results.”
Commenting on the overall picture of audit outcomes, Nombembe remarked, “Attaining and sustaining positive audit results is indeed possible, as evidenced by these results and the level of renewed commitment demonstrated by the leadership”.
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Issued by: Auditor-General South Africa
17 Jan 2012
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