PC briefing financial year 2012-13
CONTENTS
1. Introduction2
2. Audit opinion history5
3.Key focus areas6
4.Drivers of internal control33
5.Status of commitments34
6.Other matters of interest34
7.Other reports 35
8.Combined Assurance on Risk Management in the Public Sector36
- Introduction
This document contains a brief summary of the audit outcomes for the department of Agriculture, Forestry and Fisheries (DAFF) and its entity’s.
1.1Reputation promise of the Auditor-General of South Africa
The Auditor-General of South Africa 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
To brief the Portfolio Committee on the 2012-13 audit outcomes of the DAFF portfolio.
1.3Overview
The DAFF and five entities received a financially unqualified audit opinion with findings on reporting against predetermined objectives and/or compliance with laws and regulations.
The overall movement (regression) in audit outcomes was caused by National Agricultural Marketing Council (NAMC) that regressed from a clean audit opinion to an unqualified with findings audit opinion.
1.4Organisational structure
BRANCHES
CHIEF DIRECTORS
1.5Funding
The departments 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 year amounted to R5868927000 (R4964449000).
- Audit opinion history
DESCRIPTION / 08-09 / 09-10 / 10-11 / 11-12 / 12-13
Audit opinions
Department of Agriculture, Forestry and Fisheries (DAFF)
Agricultural Research Council (ARC)
Marine Leving Resource Funds (MLRF)
National Agricultural Marketing Council (NAMC)
Ncerha Farms / n/a
Onderstepoort Biological Products (OBP) / n/a
Perishable Products Export Control Board (PPECB) / n/a
Qualification issues
- Current assets
- Fixed assets
Other matters
- Predetermined objectives
DAFF / X / X / X / X
ARC / X
MLRF / None / none / none / none
Ncerha Farms / X / X / X / none
OBP / X / X / X / X
- Compliance with laws and regulations
DAFF / X / X / X / X
ARC / X / X / X / X
MLRF / X / X
Ncerha Farms / X / X / X / X
OBP / X / X / X / X
AUDIT OPINION
CLEAN AUDIT OPINION: No findings on PDO and Compliance
UNQUALIFIED with findings on PDO and/or Compliance
QUALIFIED AUDIT OPINION (with/without findings)
DISCLAIMER/ADVERSE AUDIT OPINION
- Key focus areas
1
PC briefing financial year 2012-13
3.1Predetermined objectives
Entity / Finding / Root cause / RecommendationDAFF / Usefulness of information
Reasons for variances not reported
In respect of a total of 39% of targets not achieved, no explanations were given for variances between planned and actual achievements reported in the annual performance report, as required per the National Treasury annual report preparation guide. / This was due to a lack of coordination between the regional offices and head office. / Management must review performance information on a quarterly basis to ensure reporting during the year and at year-end is valid, accurate and complete.
Usefulness of information
Reasons for variances not supported by sufficient appropriate evidence
The National Treasury Guide for the preparation of the annual report requires that explanations for variances between the planned and reported (actual) targets should be provided in all instances and should also be supported by adequate and reliable corroborating evidence. Adequate and reliable corroborating evidence could not be provided for 24% major variances as disclosed in the annual performance report. The institution’s records did not permit the application of alternative audit procedures. / This was due to a lack of coordination between the regional offices and head office.
Reliability of information
Programme 2: Agricultural production, health and food safety
Reported performance not reliable
The National Treasury Framework for managing programme performance information (FMPPI) requires that institutions should have appropriate systems to collect, collate, verify and store performance information to ensure valid, accurate and complete reporting of actual achievements against planned objectives, indicators and targets.
Significant targets with respect to the agricultural production, health and food safety programme are materially misstated. / This was due to the lack of frequent review of validity of reported achievements against source documentation.
Reliability of information
Programme 3: Food security and agrarian reform
Reported performance not reliable
The National Treasury FMPPI requires that institutions should have appropriate systems to collect, collate, verify and store performance information to ensure valid, accurate and complete reporting of actual achievements against planned objectives, indicators and targets.
Significant targets with respect to the food security and agrarian reform programme are materially misstated / This was due to the lack of frequent review of validity of reported achievements against source documentation.
Reliability of information
Programme 5: Forestry
Reported performance not reliable
The National Treasury FMPPI requires that institutions should have appropriate systems to collect, collate, verify and store performance information to ensure valid, accurate and complete reporting of actual achievements against planned objectives, indicators and targets.
I was unable to obtain the information and explanations I considered necessary to satisfy myself as to the reliability of information presented with respect to the forestry programme. / This was due the fact that the institution could not provide sufficient appropriate evidence to support the information on the forestry programme.
Additional matter
Material adjustments to the annual performance report
Material misstatements in the annual performance report were identified during the audit, some of which were corrected by management. Those that were not corrected are included in paragraphs of material findings. / Lack of monitoring and evaluation of AoPO throughout the year.
OBP / Usefulness of annual performance report:
Measurability
Performance targets not specific and measurable
The FMPPI requires that performance targets be specific in clearly identifying the nature and required level of performance. Planned and reported targets were not sufficiently specific in clearly identifying the nature and the required level of performance for the selected objectives. Sixty – two per cent (62%) of the planned and reported targets were not specific. / Exercise oversight responsibility regarding financial and performance reporting and compliance and related internal controls
The special project and planning executive did not ensure that all set target are measureable / Management should ensure that all the targets meet the SMART criteria and that the targets are aligned to the strategic objective and goal of the organization.
Usefulness of annual performance report:
Measurability
Performance targets not specific and measurable
The FMPPI requires that performance targets be measurable. Planned and reported targets were not all measurable for the selected objectives. Sixty – two per cent (62%) of the planned and reported targets were not measurable.
Additional matter
Achievement of planned targets
Of the total number of 74 targets planned for the year, 24 of targets were not always achieved during the year under review. This represents 32% of total planned targets that were not achieved during the year under review.
MLRF / Usefulness of information
Reported objectives not consistent with planned objectives
Treasury Regulation 30.1.3(g) requires that the annual performance plan should form the basis for the annual report, therefore requiring consistency of objectives, indicators and targets between planning and reporting documents. A total of 100% of the reported objectives are not consistent with the objectives, as per the approved annual performance plan. / This was due to the limited review/monitoring of the completeness of reporting documents by management. / The annual performance report should be adequately reviewed bythe Chief Directorate: Fisheries Operations Support and the Monitoring and Evaluation branch to ensure consistency with the annual performance plan.
Usefulness of information
Reported indicators not consistent with planned indicators
Treasury Regulation 30.1.3(g) requires that the annual performance plan should form the basis for the annual report, therefore requiring consistency of objectives, indicators and targets between planning and reporting documents. A total of 77% of the reported indicators were not consistent with the indicators as per the approved annual performance plan. / This was due to the limited review/monitoring of the completeness of reporting documents by management.
Usefulness of information
Reported targets not consistent with planned targets
Treasury Regulation 30.1.3(g) requires that the annual performance plan should form the basis for the annual report, therefore requiring consistency of objectives, indicators and targets between planning and reporting documents. A total of 43% of the reported targets were not consistent with the targets as per the approved annual performance plan. / This was due to the limited review/monitoring of the completeness of reporting documents by management.
Usefulness of information
Performance indicators not well defined
The FMPPI requires that indicators should have clear unambiguous data definitions so that data is collected consistently and is easy to understand and use. A total of 26% of the indicators were not well defined in that clear, unambiguous data definitions were not available to allow for data to be collected consistently. / This was due to the performance information process being centralised to the monitoring and evaluation branch of the Department of Agriculture, Forestry and Fisheries (DAFF) and consequently there was no designated person assigned to perform the review function at the entity. / The coordinator for managing performance information should review the definitions of the performance indicators against the criteria outlined in the National Treasury Framework for Managing Programme Performance Information prior to it being included in the annual performance plan and published on the entity’s website.
Additional matters
Achievement of planned targets
Of the total number of 32 targets planned for the year, 18 were not achieved during the year under review. This represents 56% of total planned targets that were not fully achieved during the year under review. This was due to underspending of the budget relevant to strategic
goal 1: Increase profitable production of food, fibre and timber products by all categories of producers. / This was due to under spending of the budget relevant to strategic
goal 1: Increase profitable production of food, fibre and timber products by all categories of producers.
The entity has not appointed a service provider to manage and operate the vessels during the 2012/2013 financial year. / Investigations should be finalised. It is recommended that a service provider be appointed to manage and operate the vessels in time to ensure that the entity’s objectives are achieved.
Additional matters
Material adjustments to the annual performance report
Material audit adjustments in the annual performance report were identified during the audit, of which 50% were corrected by management and those that were not corrected have been reported accordingly. / This was due to the limited review/monitoring of the completeness of reporting documents by management. / The annual performance report should be adequately reviewed bythe Chief Directorate: Fisheries Operations Support and the Monitoring and Evaluation branch to ensure consistency, accuracy and completeness thereoff.
3.2Supply chain management
Entity / Finding / Root cause / RecommendationDAFF / Procurement and contract management
A person in service of the department whose close family member had a private or business interest in a contract awarded by the department failed to disclose such interest, as required by TR 16A8.4. / Management did not ensure that goods and services were procured from suppliers who are ethical and honest throughout the bidding process by interrogating SBD4 forms for accuracy. / Management must implement controls to ensure that procurement of goods/services are made from suppliers who are ethical/ honest throughout the procurement process by doing verification checks on the background of owners, shareholders and directors of bidding entities.
Management must investigate the matter reported.
OBP / Procurement and contract management
Goods, works and services were in some instances not procured through a process that was fair, equitable, transparent, competitive and cost effective, as required by section 51(1)(a)(iii) of the PFMA. This resulted in irregular expenditure amounting to R 1,167, 056.48, which has been disclosed on the financial statements. / The entity was operating without an accounting authority for a significant part of the year. As a result the accounting authority did not provide effective leadership.
The Procurement manager did not review and monitor compliance with applicable laws and regulations. / Management should ensure that they obtain at least 3 quotations from different suppliers for purchasing of goods with value ranging between the terms of their SCM policy.
The supply chain manager should ensure that the requirements as set out in Treasury regulations16 are complied with for all procurements made by the entity.
Thefinancial managershoulduse the services of theinternal auditors to assist with the process of monitoring controls.
MLRF / Procurement and contract management
Goods and services of a transaction value above R500 000 were procured without inviting competitive bids, as required by Treasury Regulations 16A6.1. Deviations were approved by the accounting officer even though it was not impractical to invite competitive bids, which is
in contravention of Treasury Regulation 16A6.4. / The accounting authority did not sufficiently consider the supply chain management prescripts when approving the extension of certain contracts. The extensions were granted due to a lack of proper planning which is not a sufficient reason when dispensing with prescribed bidding processes. / The accounting authority should exercise due care over all extensions and scrutinize motivations for all extensions in detail and sufficiently consider the supply chain management prescripts when approving the extension of certain contracts and ensure that all supply chain management processes are adhered to..
The accounting authority should appoint a designated official to exercise oversight and monitor all contracts to ensure that sufficient time is allowed for fair and open bidding processes to occur.
Procurement and contract management
Quotations were awarded to bidders who did not submit a declaration on whether they are employed by the state or connected to any person employed by the state, which is prescribed in order to comply with Treasury Regulation 16A8.3. / The director: supply chain management did not perform adequate monitoring and review over the compliance to procurement processes in line with applicable laws and regulations. / The acting chief financial officer should update the entity’s supply chain management policy with the latest requirements of the legislation. SBD4 forms should be completed by all suppliers for all procurement
NAMC / Procurement and contract management
Goods and services of a transaction value above R500 000 were procured without inviting competitive bids, as required by Treasury Regulation 16A6.1. The ddeviation was approved by the accounting authority even though it was practical to invite competitive bids, resulting in contravention of Treasury Regulation 16A6.4. / The accounting authority did not exercise effective oversight responsibility over deviation compliance requirements in terms of supply chain management and as a result irregular expenditure was incurred by the entity.
Management did not adequately monitor adherence to the requirements of the Treasury Regulations for deviation from supply chain management processes and, as a result, irregular expenditure was incurred. / Management should ensure that all procurement regulations are complied with. Only in circumstances that can be motivated with appropriate reasoning and supporting documentation to indicate the impracticality of the process, can deviations from these processes be exercised.
3.3Compliance
Entity / Finding / Root cause / RecommendationDAFF / Strategic planning and performance management
The department did not have and maintain effective, efficient and transparent systems of financial and risk management and internal controls as required by section 38(1)(a)(i) of the PFMA. / This was due to a lack of coordination between the regional offices and head office. As well as a lack of monitorring and evalution by the department. / Management must review performance information on a quarterly basis to ensure reporting during the year and at year-end is valid, accurate and complete.
Annual financial statements, performance and annual report
The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and as required by section 40(1)(a) of the PFMA. Material misstatements of lease commitment and commitments disclosure notes identified by the auditors in the submitted financial statements were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion. / Lack of skilled personnel at regional offices and therefore accurate and complete disclosure
notes were not compiled.
Lack of formal guidelines and procedures for monthly and year-end reporting for personnel at regional offices and therefore misstatement still occur.
Management did not ensure that the commitments disclosure note is completely and accurately disclosed in the financial statement. / Management must run a completeness and accuracy test before submitting the final commitment schedule to ensure that all current contracts and/or purchase orders are disclosed in the commitments disclosure note.
Management must correct the errors above and ensure that the entire population of commitments are corrected and completely disclosed in the annual financial statements.
Management must provide training to personnel at the regional offices on accounting for commitments.
Formal guidelines and procedures must be compiled and distributed to regional offices.
Personnel must be held accountable for non-adherence to the guidelines and procedures implemented.