13 October 2015

1. Briefing to the Portfolio Committee:Higher Education and TrainingAudit outcomes of the portfolio for the 2014-15 financial year 13 October 2015

2. Reputation promise/mission The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

3. Content Purpose of the presentation 4 Scope of AGSA audits 5 Overall audit outcomes for the department and its entities 6 Unauthorised / irregular / fruitless and wasteful expenditure 10 5. Root causes and recommendations 11 6. Audit outcomes for TVET colleges audited by the AGSA 12 7. Combined assurance 14 8. Minister commitments 15

4. Purpose of the presentation Annually oversight committees set aside time to focus on assessing the performance of departments. On completion of the process, portfolio committees are required to develop department-specific reports, namely budgetary review and recommendations reports (BRRR) which express the committee`s view on the department’s budget for recommendation to the National Treasury ahead of the following year`s budget period. Our role as the AGSA is to reflect on the audit work performed to assist the portfolio committee in its oversight role in assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR.

5. The scope of AGSA audits

6. 1. Overall audit outcomes – Higher Education and Training Portfolio Key controls Assurance levels Overall improvement in audit outcomes Financial and performance management Senior management Leadership Governance First level Accounting officer/authority Executive authority Second level Internal audit unit Audit committee Third level Portfolio committee 3 1 2 … the key role players need to assurethat … … attention is given to the key controls and… To improve the audit outcomes … 5 4 … the root causes are addressed … … the risk areas and… Risk areas Legends Root causes Quality of submitted financial statements Quality of submitted performance reports Supply chain management Slow response by management (Accounting officer and senior management) [1] [2] [3] Movement Improvement Stagnant or limited progress Regressed Lack of consequences for poor performance and transgressions Human resource management Information technology Financial health [4] [5] [6] Instability or vacancies in key positions 2014-15 2013-14

7. 1.1 Quality of submitted financial statements Outcome after corrections Outcome if NOT corrected [1] 15 auditees 2014-15 Legend: Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 17 auditees 2013-14

8. 1.2 Quality of annual performance reports 16 of reports were reliable and useful compared with 16in previous year. of auditees that submitted information, did so in time for audit 27 Legends: With no findings With findings Improvement Stagnant or limited progress Regressed Reliability [1]

9. 1.3 Most auditees did not comply with legislation in following areas Quality of annual financial statements submitted Prevention of unauthorised, irregular and/ or fruitless and wasteful expenditure Management of procurement and or contracts Legends: With no findings Intervention required With findings Improvement Stagnant or limited progress Regressed Management of strategic planning and performance Human resource & consequence management Internal audit & Audit committee

10. 2. U,I,FW expenditure Fruitless and wasteful expenditure Unauthorised expenditure Irregular expenditure Top 5 contributors - irregular expenditure SASSETA (R126 million) CATHSETA (R123 million) EWSETA (R29 million) NSF (R28 million) FOODBEV (R11 million) Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation, prescribed processes not followed Definitions Top 5 contributors - FW expenditure SASSETA (R25 million) CATHSETA (R400 000) PSETA (R271 000) EWSETA (R165 000) SERVICES SETA (R144 000) Legends: Decrease in incurred expenditure No change Increase in incurred expenditure

11. 3. Top three root causes and recommendations Slow response by management in addressing the root causes of poor audit outcomes Recommendation: Slow response by management should be improved through timely compilation of action plans arising from audits, regular monitoring of progress made to address internal control deficiencies and communicating the action plan to address internal control deficiencies to all levels of staff. Quarterly reviews of progress on the implementation of actions plans should be performed by internal audit. This will provide an independent assurance on whether satisfactory progress is being made by management in addressing internal control deficiencies. 2014-15 2013-14 Lack of consequences for poor performance and transgressions Improved Stagnant or little progress Recommendation: The performance management processes of staff should be strengthened to incorporate internal controls responsibilities in performance contracts for all staff. Consequence management should be implemented for non-performance. Regressed Instability or vacancies in key positions Recommendation: All funded vacant positions should be filled with individuals that have the appropriate qualifications and skills as a matter of urgency. In addition, a gap analysis should be performed in relation to the current level of skills and competencies. An action plan should be put in place to address the gaps identified

12. Audit outcomes for the TVET colleges audited by the AGSA

14. 4. Combined assurance – complimentary mandate Management assurance First level of assurance Oversight assurance Second level of assurance Independent assurance Third level of assurance Senior management Senior management Accounting officers/ authority Accounting officers/ authority Executive authority Coordinating / Monitoring institutions Internal audit Audit committee Oversight (portfolio committees / councils) Public accounts committee National Assembly Required assurance levels Required assurance levels Required assurance levels Extensive Extensive Extensive Extensive Extensive Extensive Extensive Extensive Extensive • Management’s assurance role • Senior management– take immediate action to address specific recommendations and adhere to financial management and internal control systems • Accounting officers/ authority– hold officials accountable on implementation of internal controls and report progress quarterly and annually • Executive authority– monitor the progress of performance and enforce accountability and consequences • Oversight’s assurance role • National Treasury/ DPSA– monitor compliance with laws and regulations and enforce appropriate action • Internal audit– follow up on management’s actions to address specific recommendations and conduct own audits on the key focus areas in the internal control environment and report on quarterly progress • Audit committee– monitor risks andthe implementation of commitments on corrective action made by management as well as quarterly progress on the action plans • Role of independent assurance • Oversight (portfolio committees)– review and monitor quarterly progress on the implementation of action plans to address deficiencies • Public accounts committee– exercise specific oversight on a regular basis on any report which it may deem necessary • National Assembly – provide independent oversight on the reliability, accuracy and credibility of National and provincial government

15. 5. Minister commitments to address root causes Status of key commitments by minister Standardisation of remuneration of board members and sub-committees of Board for SETA’s. Appointment and monitoring of services delivered by administrators appointed at universities, TVET’s and entities Develop policies and procedures for collation, verification and reporting on performance targets achieved Improve monitoring responsibilities of DHET over its entities, universities and FETs Issuing of regulations for supply chain management (SCM) processes and reporting on performance information for universities and TVET’s. Improve the performance and consequence management system. Assess the performance of accounting authorities of TVET colleges and perform regular performance reporting. Implement measures to streamline information systems at TVET colleges. Monitor the rotation of auditors of universities every 5 years. Not implemented In progress Implemented New

16. Questions