PC briefing financial year 2012-13
CONTENTS
1. Introduction2
2. Audit opinion history3
3.Key focus areas4
4.Drivers of internal control9
5.Other matters of interest10
6.Other reports11
7.Combined Assurance on Risk Management in the Public Sector12
8.Commitments 13
9.Entities included in the portfolio not audited by the AGSA 13
- Introduction
1.1Reputation promise of the Auditor-General of South Africa
The Auditor-General has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.
1.2Purpose of document
The purpose of this briefing document is for the Auditor-General of South Africa (AGSA) to provide an overview of the audit outcomes and other findings in respect of Human Settlements portfolio for the 2012/13 financial year.
1.3Overview
The Department of Human Settlements determines finances, promotes, communicates and monitors the implementation of housing and sanitation programmes in South Africa.
Government has set itself the target of making a positive impact on the quality of life of 500 000 households by 2014, by upgrading informal settlements. The upgrade will provide households with security of tenure and access to essential services in sites that are close to economic and other social amenities.
Vision
A nation housed in sustainable human settlements
Mission
"To facilitate the creation of sustainable Human Settlements and improved quality of household life.”
Objectives
To meet the objective of sustainable human settlements and improved quality of household life, the Department has identified the following areas of priority:
- Accelerated delivery of housing opportunities
- Access to basic services
- More efficient land use
- An improved property market.
Entities
The National Home Builders Registration Council (NHBRC) is a regulator body of the home building industry. Their goal is to assist and protect housing consumers who have been exposed to contractors who deliver housing units of substandard design, workmanship and poor quality material.
Mission of NHBRC: To protect the housing consumer and regulate the home building environment by promoting innovative home building technologies, setting home building standards and improving the capabilities of home builders.
1.4Organisational structure
The organisation structure reflected above was accurate as at 31 March 2013, refer to page 11 of the annual report. Subsequently a new Minister, Ms C September, was appointed as a result of a cabinet reshuffle in July 2013. The DDG: Strategy and planning also resigned and the CD: Internal audit is still acting. DDG: performance monitoring unit was appointed during June 2013.
ATEGY &
1.5Funding
The department is primarily funded through funds appropriated in terms of the annual Appropriation Act (and the Adjustments Appropriation Act), the final appropriation for the 2012/13 amounted to R25137 805000 (2011/12: R22825 541000).
- Audit opinion history
AUDIT OPINIONS / 08/09 / 09/10 / 10/11 / 11/12 / 12/13
- National Department of Human Settlements
- National Home Builders Registration Council
- South african Housing Fund (Dormant entity)
QUALIFICATION ISSUES / 08/09 / 09/10 / 10/11 / 11/12 / 12/13
- Irregular Expenditure
PREDETERMINED OBJECTIVES / 08/09 / 09/10 / 10/11 / 11/12 / 12/13
- National Department of Human Settlements
- National Home Builders Registration Council
COMPLIANCE WITH LAWS AND REGULATIONS / 08/09 / 09/10 / 10/11 / 11/12 / 12/13
- National Department of Human Settlements
- National Home Builders Registration Council
AUDIT OPINION LEGEND
CLEAN AUDIT OPINION: No findings on PDO and Compliance
UNQUALIFIED with findings on PDO and Compliance
QUALIFIED AUDIT OPINION (with/without findings)
DISCLAIMER/ADVERSE AUDIT OPINION
2.1Significant emphasis of matters
-Significant uncertainties
With reference to note 18 to the financial statements, the department has disclosed an amount of R22 413 000 for invoices received from the Department of Public Works (DPW) for office accommodation. The department does not occupy the building and ultimate outcome of the matter cannot presently be determined and no provision for any liability that may result has been made in the financial statements.
-Material underspending of the budget
As disclosed in the appropriation statement, the department has materially underspent the budget on programme 4, sub programme: Rural Household Infrastructure Grant to the amount of R135 059 000 on a total adjusted budget of R340 625 000. Of the amount spent, R126 011 000 related to payments made in the last month. As a consequence, the department has not achieved on certain of its objectives of providing sanitation services to the rural communities.
2.2Qualification paragraph
No qualification paragraphs were included in the departments or public entities in the department’s portfolio for the 2012/13 financial year as none of them obtained qualified audit opinions.
- Key focus areas
PC briefing financial year 2012-13
3.1Predetermined objectives
Entity / Finding / Root cause / RecommendationNational Department of Human Settlements / Presentation- Adequate and reliable corroborating evidence could not be provided for all major variances as disclosed in the annual performance report. / This was due to the absence of information systems regarding collecting and collating of supporting evidence as well as a lack of understanding what is required in terms of collecting information to support accurate performance reports. / Evidence to support explanations must be providedto and validated by the Enterprise Architecture unit on a quarterly basis for all reported deviations.
Programme managers who do not provide all information required for accurate and complete performance reporting must be subject disciplinary action.
Intranal audit to verify an annual basis the evidence to support major variances.
Consistency- A total of 38% of the reported indicators and targets are not consistent or not complete with the indicators and targets as per the approved annual performance plan. / This was due to management’s lack of understanding of their reporting requirements during the strategic planning phase. / The responsibilty for ensuring the consistency of strategic and annual performance plans as well as the performance reports must be clearly allocated to a specific unit.
This consistency of these documents must be included in the performance agreements of the responsible officials.
Relevance- A total of 25%of indicators did not relate logically and directly to an aspect of the institution’s mandate and realisation of strategic goals and objectives as per the three year strategic plan.
Indicators and targets are output based and involve the compilation of reports. Indicators should be designed around achieving the objectives of the departments and should be activity based with reports being provided as support for the level of performance achieved in respect of these activities. / This was due to the lack of development and implementation of proper performance planning and management practices to provide for the development of performance indicators and targets included in the annual performance plan. / Management should not reports as indicators and targets but should develop indicators and targets based on the activities to be performed to achieve desired outcomes.
Reliability of information
Significantly important targets with respect to
Programme 2: Human Settlements Delivery Frameworks, Programme 3: Human Settlements Strategy and Planning and
Programme 5: Chief Financial Officer are not reliable when compared to the source information or evidence provided. / This was due to the lack of monitoring of the completeness of source documentation in support of actual achievements. In particular no evidence of the validation process of inputs from other entities within the sector was provided for audit. / Management must ensure that processors are in place to validate the information received from provincial departments and entities within the sector and that this information is submitted as evidence to support achievements on a quarterly basis.
National Home Builders Registration Council / Usefulness-Measurability- A total of 20% of the indicators were not well defined in that clear, unambiguous definitions were not available to allow for data to be collected consistently. / This was due to the fact that management was aware of the requirements of the FMPPI but did not receive the necessary training to enable application of the principles. / Management responsible for the targets should ensure that theSMART principles asper the National TreasuryFramework for Managing Programme PerformanceInformationis fullyunderstood,to ensure that all targets comply with the principles.
3.2Financial health status
There were no matters to report on the financial health status of both entities.
3.3Supply chain management
Entity / Finding / Root cause / RecommendationNational Home Builders Registration Council / The accounting authority did not take effective steps to prevent irregular expenditure expenditure, as required by section 51(1)(b)(ii) of the Public Finance Management Act. / Leadership did not exercise sufficient oversight to ensure compliance. Although the entity’s polices are aligned to the applicable legislation there is a lack of monitoring by senior officials to ensure compliance is monitored and enforced. / Consequence management at the NHBRC should be strengthened to avoid repeated non-compliance.
The preference point system was not applied in all procurement of goods and services above R30 000 as required by section 2(a) of the Preferential Procurement Policy Framework Act.
Goods and services of a transaction value above R500 000 were procured without inviting competitive bids, as required by Treasury Regulations 16A6.1.
Invitations for competitive bidding were not always advertised for a required minimum period of 21 days, as required by Treasury Regulations
3.4Human resources
Entity / Finding / Root cause / RecommendationNational Department of human Settlements / Funded vacant posts were not filled within 12 months as required by Public Service Regulation 1/VII/C.1A.2. / The effect of delay in filling a number of critical posts at Chief Director level can be seen in the entity’s inability of achieve on a significant portion of its planned objectives. / The accounting officer must ensure that the filling of these vacant key management posts are made a priority
Persons in charge at pay points did not always certify that the employees receiving payment were entitled thereto, as required by TR 8.3.4. / Lack of monitoring controls in place to ensure adherence to this requirement. / The accounting officer must ensure that officials responsible for payroll certifications are be held accountable where non-compliances are noted.
3.5Information technology controls
Entity / Finding / Root cause / RecommendationNational department of Human Settlements / IT security policies is not reviewed and updated on a regular basis.
This finding has been reported in the prior year and plans to address it have not been effectively implemented. / Although IT action plans have been develpoed these actions have not been effectively implemented and sufficiently monitored resulting in little progress having been made in this regard.
Policies are also not reviewed and updated regularly. / The accounting officer must review and approve the existing IT security policy.
Although a comprehensive and approved Disaster Recovery Plan (DRP) had been established for the Department, the following shortcomings were identified:
- The plan has never been updated since approval, in 08 October 2008.
- Evidence could not be provided that the plan has ever been tested.
- Evidence could not be provided that the plan was kept off site.
The DRP should also be tested subsequent to approval and implementation and evidence of the testing should be documented.
3.6Material Mistatements to Financial Statements
Entity / Finding / Root cause / RecommendationNational department of Human Settlements / The financial statements submitted for auditing were not fully prepared in all material respects in accordance with the prescribed financial reporting framework as required by section 40(1)(b) of the Public Finance Management Act.
Material misstatements of expenditure for capital assets, prepayments, lease commitments, accruals, contingent liabilities and immovable assets disclosure items identified by the auditors in the submitted financial statement were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion. / The processes to support complete and accurate financial statements should include the review of all schedules by senior managers of the respective branches prior to inclusion in the financial statements. / A complete set of financial statements including all relevant disclosure notes should be compiled and reviewed on a monthly basis by the CFO and quarterly by the audit committee.
The Portfolio committee must request entities to compile the monthly AFS and provide the committee with feedback on a quarterly basis when the department does its quarterly performance reporting to the committee.
- Drivers of internal controls
Drivers of internal control
Leadership / Financial and performance management / Governance
Entity / Effective leadership culture / Oversight responsibility / HR management / Policies and procedures / Action plans / IT governance / Proper record keeping / Processing reconciling controls / Reporting / Compliance / IT systems controls / Risk management / Internal audit / Audit committee
NDHS
NHBRC
Legend Drivers / Good / Causing Concern / Intervension required
- Other matters of interest
(a)Fruitless and wasteful expenditure:
Auditee / Irregular expenditureMovement / Amount
R
2013 / Amount
R
2012
1 / National Home Builders Registration Council / / R271 000 / 0
(b)Irregular expenditure:
Auditee / Irregular expenditureMovement / Amount
R
2013 / Amount
R
2012
1 / National Department of human Settlements / / R556 000 / R12,1m
2 / National Home Builders Registration Council / / R276,7m / R201,3m
- Other reports
-Investigations
No investigations are currently underway as undertaken by the AGSA.
-Performance audits
No performance audits are currently underway as undertaken by the AGSA.
-Special audits
The Office of the Auditor-General was requested on 29 November 2012 by the previous minister to conduct a special audit into the procurement, implementation, performance and project management of the Rural Household Infrastructure Grant (RHIG). The report had not been finalised on the date of the report.
- Combined Assurance on Risk Management in the Public Sector
PC briefing financial year 2012-13
- Commitments
The commitments received from the prior year were not fully implemented by the department and entity. It is imperative that regular monitoring and review of these commitments be performed in order to ensure effective implementation.
Commitments received from the prior year were not fully implemented by the department and entities. It is imperative that regular monitoring and review of these commitments be performed in order to ensure effective implementation. The committee committed to the following:
- Require entities to compile monthly financial statements;
- Request entities to have action plans on which feedback must be presented quarterly (progress reporting);
- To request entities to take action against transgressors;
- Review quarterly reports on performance information; and
- Review implementation and assessment of key controls.
Of the above commitments, 20%(1) has been implemented, 20%(1) is in progress and 60(%) have not been implemented.
It is imperative that the committee re-inforce these commitments to ensure progression towards clean adiministration by the entities in the portfolio.
We have already met with the recently appointed minister and also obtained commitments from the minister regarding implementing measures to improve the audit outcomes at Human Settlements.
- Entities included in the portfolio not audited by the Auditor-General of South Africa
AUDIT OPINIONS / 12/13 / 11/12 / 10/11
- Estate Agency Affairs Board
- Housing Development Agency
- National Housing Finance Corporation Ltd
- National Urban Reconstruction & Housing Agency
- Rural Housing Loan Fund
- Servcon Housing Solutions (Pty) Ltd
- Social Housing Foundation
- Social Housing Regulatory Authority
- Thubelisha Homes
PREDETERMINED OBJECTIVES / 12/13 / 11/12 / 10/11
- Housing Development Agency
- Social Housing Regulatory Authority
COMPLIANCE WITH LAWS AND REGULATIONS / 12/13 / 11/12 / 10/11
- Servcon Housing Solutions (Pty) Ltd
- Social Housing Regulatory Authority
The Estate Agency Affairs Board (EAAB) has with effect from 17 May 2012 been moved from the Department of Trade and Industry to the Department of Human Settlements. The minister of Human Settlements is henceforth, the Executive Authority of the EAAB.
The outcomes of the EAAB did not form part of the Human Settlements portfolio in the prior year, and hence impacts on the following comparatives:
•As at the date of this report, the outcomes of Servcon and Thubelisha had not been finalised as they have are under liquidation.
•Five (56%) of the nine auditees had an unqualified opinion with no findings – a regression from the five (63%) of eight auditees in the previous year due to the inclusion of the EAAB in the current year and Thubelisha’s audit opinion, which was clean in the prior year, being outstanding.
The audit outcomes of the entities in the portfolio not audited by the Auditor-General of South Africa show no significant changes in audit opinion as the majority of reports remained in the category of a clean audit opinion.