Auditor-General buoyed by government's recent pronouncements that firm measures will be put in place to strengthen public sector governance

PRETORIA - Government's recent pronouncements, in particular the public service administrative initiatives linked to the National Development Plan, are positive and welcomed measures that are likely to bolster public sector governance considerably when they are implemented, Auditor-General (AG) Terence Nombembe said today.

Announcing the 2011-12 audit results of national and provincial government at a media briefing with high-ranking government and parliamentary leaders as guests, Nombembe said although the set of audit outcomes for the period under review showed slow progress towards total clean administration, he was encouraged and convinced that the tangible remedial measures recently announced by the government would go a long way in addressing the public sector's current administrative and governance deficiencies.

While commending both national and provincial government's recent pronouncements towards improving governance, Nombembe today painted a general trend of stagnant results for both national and provincial departments, with fewer than a quarter of those audited receiving clean audit opinions and 50 unable to maintain the clean reports they received in the previous year.

Of the 536 audited entities, only 117 (22%) have received clean audit opinions. The majority of auditees are still experiencing challenges, with 297 (55%) receiving financially unqualified audit opinions with findings compared to 279 (53%) in the previous year. Seventy-four (14%) received qualified opinions, whilst an adverse opinion or disclaimer was expressed on 17 (3%) audits. Thirty-one (6%) of the audits are outstanding, mainly due to the non-submission of financial statements by the relevant entities. Auditees that moved a notch to clean audits

The 33 (7%) auditees that addressed weaknesses highlighted in their previous year's audits and moved to clean audit results this year include: Five departments - the Public Service Commission, Free State Legislature, Mpumalanga Premier's Office, Western Cape Department of Environmental Affairs and Development Planning and Western Cape Provincial Treasury. Twenty-eight public entities, consisting of 15 national public entities and 13 provincial public entities, the majority of which are in the Western Cape and Gauteng.

Leading by example in sustaining positive results

The 78 (61%) auditees that were able to maintain their previous year's clean audit standing include the provincial treasuries of the Free State, Kwazulu-Natal and Mpumalanga, the Free State Premier's Office, the Western Cape Legislature and the Department of Public Enterprises. Public entities that sustained their clean audits include the South African Revenue Service, the Unemployment Insurance Fund, the Land Bank and the Independent Regulatory Board for Auditors, as well as 15 smaller funds, boards and trusts.

Those that regressed from clean audit opinions

The auditees that regressed from clean audit opinions include the following:

The Mpumalanga Legislature and the Wholesale and Retail SETA regressed from a clean audit to a qualified audit opinion. The Gauteng and KwaZulu-Natal Premier's Offices and the Provincial Legislatures of the Eastern Cape, Gauteng and KwaZulu-Natal retained financially unqualified opinions on financial statements but regressed owing to material findings on predetermined objectives (PDO) and/or compliance.

Five provincial departments regressed due to material findings on compliance and one national department due to material PDO findings.

Thirty-seven public entities, which include eight provincial public entities (five in Gauteng), two major public entities/ government enterprises, 21 national public entities and six smaller funds and trusts.

Leadership must put concerted effort into implementing and monitoring audit recommendations

The AG said his office's assessment was that stagnation and regression occurred mainly where leadership did not set the right tone in leading change in their respective portfolios.

Reflecting on the commitments made by government leadership and oversight structures after the previous year's report was shared with the national and provincial office bearers, Nombembe said he was pleased that there were now concerted government efforts aimed at addressing and implementing the audit recommendations that leadership had committed to.

Nombembe said in response to the previous year's audit outcomes, there were encouraging undertakings and commitments by both the executive and legislative arms of government to intensify their efforts to bring about positive change within the administration. However, the latest results indicated that "many government leaders did not own and drive these commitments, thus leaving implementation of these undertakings to flounder until the next audit starts".

"Our assessment of the commitments indicates that they were not followed up sufficiently to monitor their implementation effectively through periodic review and monitoring of the status of key controls. It is evident from this year's results that audit outcomes only improved in areas where the leadership adopted a hands-on approach to addressing shortcomings in their respective portfolios.

Leadership in these portfolios personally took on the oversight role of their control environments and this led to a remarkable improvement in outcomes." The AG said government's recent pronouncements on clean administration were pleasing, as they were an emphatic call to all public servants to take the drive towards overall clean administration seriously.

Government commits to implementing strict measures to ensure overall good governance in the public sector

During this year's addresses on the State of the Nation and Provinces, the national and provincial governments committed to accelerating the good governance drive in the public sector by implementing key control measures that will ensure clean administration.

These are just some of government's recent key announcements aimed at bolstering the public sector's clean administration drive:

Unpacking the workings of the mooted National Development Plan (NDP), Minister in the Presidency for National Planning Trevor Manuel said government will shortly put in place measures to re-skill and re-orientate public servants on the basics of key legislation such as the Public Service Act (PSA) and the Public Finance Management Act (PFMA). He also said government will be strict in ensuring that there are consequences for those public servants who fail to do the work that is required to improve public administration.

Public Service and Administration Minister Lindiwe Sisulu recently announced that her department would soon introduce legislation that will prohibit public servants from doing business with government. She said there should be consequences for those civil servants who benefit from state contracts.

During a parliamentary debate on his State of the Nation Address, President Jacob Zuma said government was concerned about the over-reliance on consultants to do what the state is supposed to do. He said this goes to the core of what the NDP says about creating capacity for the state to ensure that state machinery functions efficiently and efficiently.

In his Budget Speech, Finance Minister Pravin Gordhan said the state had given assurances that a chief procurement officer would be announced soon, as part of combating corruption and aligning supply chain and procurement processes. Such central coordination would change the current situation where state procurement "took place across too many localities", while "there is very little visibility of all these transactions".

This, the AG said, would go a long way in addressing government's supply chain challenges. The AG's general report shows that failure to comply with supply chain management laws was reported in the management reports of 287 (57%) [2010-11: 282 (58%)] of the auditees, while at 219 (43%) [2010-11: 228 (47%)] auditees the findings were material enough to warrant reporting in the auditor's report. At an overall level there has been no improvement, with an equal number of auditees that improved and regressed.

Endorsing Minister Sisulu's call to curb public servants' doing business with government, Minister Gordhan said Treasury would align the Public Finance Management Act with the provisions of the Public Service Act to complement Minister Sisulu's efforts.

Most premiers used their 2013 addresses on the State of the Province to announce remedial plans aimed at improving their internal governance systems; filling critical vacancies by recruiting suitably qualified officials; upskilling their workforce; ensuring there were consequences for those who failed to perform to agreed standards or breached/transgressed laws that govern their business environments; and combating corruption.

Government moves to address some of the AGSA's flagged governance issues

The Auditor-General of South Africa (AGSA) recently released a report calling on government to implement stricter controls to get the best value for money for services provided by external consultants to the public sector. Three years ago, through a special report, the AGSA also highlighted the conflict of interest when public servants, and at times their relatives, do business with government.

Nombembe says he is pleased that government, through its recent pronouncements, is finally putting tangible measures in place to deal not only with these conflicts, but also with a number of administrative issues highlighted by his office at various intervals that would result in a great surge towards clean administration when addressed earnestly.

"I believe government's recent pronouncements and other mooted measures, when implemented, will go a long way in instilling a sense of pride in those charged with the big responsibility of being the custodians of our public administration. Such commitment, I am convinced, will have a direct and far-reaching positive impact on future audit outcomes. Those who achieved improved audit results this year have proven beyond doubt that this is possible - they ensured that all basic internal control systems for their respective portfolios were in place and rigorously monitored to avoid administrative relapses or governance regressions," said Nombembe.

Government also needs to factor in basic control measures flagged by the AG's office

In addition to government's intended good governance measures, the AG urged government leadership to factor in the basic internal control measures his office has constantly flagged as requirements for clean administration.

To this effect, Nombembe said he was still concerned about the increase in the number of auditees (at 74% this year) that received poor audit results because they failed to comply with basic laws applicable to the running of their administration.

Performance reports show noticeable progress, but there is still room for improvement

The AG is pleased, however, with the continued improvement in the usefulness and reliability of the annual performance reports. Three hundred and three (60%) auditees do not have any material findings on the usefulness and reliability of their annual performance reports - improving from 266 (54%) in the previous year. As a result of this noticeable improvement, his office was able to make clearer assessments of service delivery risks, "but not to the full extent necessary", as some key departments responsible for national outcomes such as the health, education and human settlement sectors continued to have material shortcomings in this area.

For the year under review, annual performance reports indicate that about 42% of auditees (102 departments and 112 public entities) achieved 80% or fewer of their planned service delivery targets, while the remaining 58 % achieved more than 80% of their targets. The AG's general report also highlights risks to the financial health of national and provincial government flowing from poor budget management, cash and debtors management by departments and financial management by some public entities. These indicators reflect that mthe fiscus could be placed under further pressure if such risks are not addressed.

It is important that government should implement the recommendations in the AG's general report. The national Parliament and legislatures have embraced the report as a valuable strategic tool that will assist them in their task of evaluating or approving provincial and national government performance plans.

Quality of financial statements and long-standing human resource challenges need focused, urgent attention

Nombembe said government needs to equally address the quality of the financial statements submitted for audit and weaknesses in supply chain management, human resource management and information technology controls. There has been minimal to no improvement in these critical areas.

"A concerted effort is required to address government's long-standing human resource capacity and productivity challenges. Vacancies in key positions and instability in leadership positions affect the pace of sustainable audit improvements. Ineffective performance management is evident at some auditees, which means that officials who perform poorly are not dealt with decisively. In our direct interactions with executive and legislative leadership (at national and provincial level) there's always a rightful and understandable call for officials to be held accountable and for consequences where poor performance, misappropriation of state resources and fraud occur.

"To this effect my office has produced a handy booklet that directs those charged with governance to a range of laws at their disposal which will enable them to take the necessary action where there has been transgression. My assessment is that the full might of the law is yet to be used in dealing with transgressions highlighted in our audit reports and in those of other state watchdog agencies. Our highlighting the legal remedies at government's disposal is a starting point for our responsible leaders, respective legislatures and departments to take the necessary action. I would like to believe the government, when it starts implementing its new measures, will also factor in our recommendations."

State of internal controls still needs improvement

Overall, Nombembe says, the state of key internal controls to prevent, detect and correct non-compliance with laws and errors in the financial and performance reports has regressed because auditees have not designed and implemented such controls in a sustainable manner. He says checks and balances for all key processes, monthly reporting and validation processes to ensure the credibility of all management information are basic controls which skilled professionals should be able to implement.

Information technology (IT) management still a challenge for a majority of departments and entities

The AG's report shows that the majority of departments and public entities experienced challenges with the design and implementation of IT controls that provide assurance on the confidentiality, integrity and availability of financial information.

Moreover, delays in the approval, roll-out and implementation of a government-wide IT governance framework resulted in the IT governance processes not being implemented effectively at the majority of national departments and public entities. Business continuity plans had also not been designed to ensure that all critical business processes supported by IT systems would be identified and included in a recovery plan.

AG calls for government to be monitored collaboratively He cautioned that government should be monitored in a collaborative manner. Departments should not wait for his office to pick up internal control lapses during audits on issues that could have been detected by and during internal assurance processes.

"My office only provides independent assurance on the credibility of financial and performance information, and compliance with selected legislation. We are not the only provider of assurance to the citizens that government is delivering services in a responsible and accountable manner. Government's senior management, accounting officers, internal audit, audit committees and executive authorities have, by law, monitoring powers vested in them. They should all effectively exercise these powers so that audit outcomes and service delivery issues are first dealt with through self-monitoring. "The treasuries, offices of the premier, public service administration and other coordinating and monitoring institutions should fulfil their legislative role to guide, support, coordinate and monitor government. The legislatures and Parliament should be scrupulous and courageous in performing their oversight function in order to make an impact in terms of clean administration. At the moment, my assessment is that not all of these role players are playing their part in providing the level of assurance required to create the momentum to improve audit results, and provide comfort to citizens that the public administration machinery is able to operate and monitor itself daily without waiting for external guidance or supervision. We are very encouraged that government's recent pronouncements dealt with some of the issues my office has been raising in its recommendations towards an improved public service," he said.

Praise for leaders who continue to lead by example towards improved audit results

Although progress towards clean audits is currently slow, Nombembe praised those government leaders and officials who led by example and set the right tone which translated into their entities achieving improved or maintaining positive results. He said such feats should be set as benchmarks to be emulated by the rest of the public sector in the drive towards overall clean administration. "That we have key senior government ministers and parliamentary leaders with us here today, is a welcome sign that our government is indeed willing to cooperate and be responsive to positive and developmental counsel that will ensure the public sector machinery is effective and able to run smoothly in fulfilling its mandate of efficiently serving the taxpayers."

AG commits his office to continue working with government in pursuit of total clean administration

The AG also reiterated his office's commitment to assisting auditees, highlighting that following the launch of government's Operation Clean Audit in July 2009, he had introduced regular engagements with municipal, provincial and national political leaders to share his office's assessment of key controls in the areas mentioned above and identify threats to clean audits. These engagements helped to create greater awareness of matters that require urgent attention to realise clean administration in all spheres of government.

About the AGSA:

The AGSA is the country's supreme audit institution. It is the only institution that, by law, has to audit and report on how government is spending taxpayers' money. This has been the focus of the AGSA since its inception in 1911 - the organisation celebrated its 100-year public sector auditing legacy in 2011.10

Media note:

The complete General report on the PFMA audit outcomes of national and provincial government is available on www.agsa.co.za.

About the national and provincial auditees

National and provincial government comprises 671 auditees [162 departments (including Parliament and the provincial legislatures) and 509 public entities]. Public entities include the major public entities, government business enterprises, national and provincial public entities, constitutional institutions and trading entities that are audited in terms of the Public Finance Management Act (PFMA), as well as other entities audited in terms of any legislation other than the PFMA. SOME NOTABLE HIGHLIGHTS

Submission of financial statements for audit

Only 40 (7%) auditees had not submitted annual financial statements by 31 May 2012, as required by the Public Finance Management Act (PFMA). By 15 October 2012 the audits of 31 (6%) auditees had not been finalised as a result of late or nonsubmission of the annual financial statements.

Two hundred and ninety-two (58%) auditees submitted financial statements with material misstatements. Two hundred and one (40%) auditees achieved a financially unqualified audit opinion because they corrected all the misstatements the AGSA identified during the audit.

Only two public entities had adverse opinions, moving from a qualified and disclaimed opinion in the previous year. The three public entities with adverse opinions in 2010-11 moved to disclaimed, qualified and unqualified opinions.

Audit opinions on the annual financial statements of five departments and four public entities were again disclaimed due to the unavailability of documentation and/or information to form an audit opinion. The opinions of two departments and four public entities regressed to disclaimers.

The annual financial statements of 27 departments were qualified again, 15 of which had failed to obtain financially unqualified audit reports for the past three years.

Twelve departments and eight public entities were able to improve their financial statements and received an unqualified opinion.

Reporting on predetermined objectives

Three hundred and seventeen (63%) auditees did not have any material findings on the usefulness and reliability of their annual performance reports - regressing from 319 (63%) in the previous year.

Eighty-three (17%) auditees submitted annual performance reports that contained material misstatements, 42 of which were able to avoid findings on the presentation and reliability of the reports because they corrected all misstatements identified as a result of the audit.

Based on the annual performance reports, 42% of auditees (102 departments and 112 public entities) achieved 80% or less of their planned service delivery targets.

Overall audit opinions remain unchanged in most cases

Although 62 auditees (12%) (17 departments and 45 public entities) improved, 80 auditees (16%) (25 departments and 55 public entities) regressed. Audit opinions (albeit some positive) remained unchanged in most cases.

Over the past three years there has been slow progress towards clean audits, with the number of clean audits declining from 152 in 2009-10 to 132 in 2010-11 and 117 in the year under review (2011-12).

The improved audit outcomes included those of 33 (7%) auditees (five departments and 28 public entities) that progressed to a clean audit outcome by addressing the weaknesses in predetermined objectives and/or findings on compliance reported last year.12

Only 78 (61%) of the auditees with clean audit opinions in 2010-11 were able to sustain their clean audit status. The 52 auditees that regressed from clean audits consist of 12 departments and 40 public entities.

Two hundred and twenty one (44%) auditees retained financially unqualified audit opinions with material findings on predetermined objectives and/or compliance. One hundred and forty (28%) of these auditees have not been able to progress to a clean audit for the past three years, failing to avoid material findings on predetermined objectives and/or compliance.

Ninety-eight (19%) auditees improved their overall outcomes on predetermined objectives and compliance but only 35 were able to move to a clean audit opinion. Ninety (18%) auditees regressed - 51 of them with no material findings on predetermined objectives and compliance in the previous year.

Issued by the Auditor-General of South Africa, March 12 2013

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