Department of Higher Education and Training 2015/16 Annual Report: Auditor-General briefing

Meeting report

The Chairperson of the Select Committee noted that it was the first time since the Fifth Parliament that a joint meeting of the Portfolio Committee on Higher Education and Training and the Select Committee on Education and Recreation had convened. Although the mandates of the two Committees were distinctly different it was inter-related and complementary. Parliament discerned that the two Committees should join whenever matters under review were the same, because it could save on resources and time as well as share expertise. It would prove practical, because the Members of Parliament were ultimately working for the same constituency, despite the different party representation and its various mandates. The function of the Auditor-General South Africa (AGSA) was to ensure that the finances provided by South African citizens were handled in a manner that adheres to South African laws. AGSA would advise whether the funds were spent as allocated within the legal framework given to DHET. Its programmes were: Programme 1: Corporate Services/ Administration; Programme 2: Human Resource Development, Planning and Monitoring Co-ordination; Programme 3: University Education; Programme 4: Vocational and Continuing Education and Training, and Programme 5: Skills Development. Of the 14 governmental outcomes, DHET was responsible for the Outcome 5 which entailed a capable workforce to support an inclusive growth path. AGSA has determined whether the targets set were reached and if the information given to AGSA properly assisted it to formulate an audit opinion.

Mr Joshua Baganzi, AGSA Senior Manager, explained the role of AGSA in the Budget Review and Recommendation Report (BRRR) process and that the audit examined DHET financial statements; its predetermined objectives, and its compliance with laws and regulations. The different audit opinions were outlined. He reported on the DHET and its entities, which does not include TVET colleges or universities, which was conducted separately.

AGSA noted an improvement for the overall audit outcomes of this portfolio with a noticeable increase in clean audits over the past three years. However, the outcomes of the last year were stagnant with an equal number of improvements and regressions.

Looking at the Skills Education Training Authorities (SETAs), six had sustained their clean audit status over the last two years and four sustained clean audits over three years.
• In 2015-16, 36% or ten SETAs had clean audits, which was an improvement from the 32% or nine entities in 2014-15 and only 19% or five entities in 2013-14.
• 50% or 14 entities had unqualified with findings audits in 2015-16, which was better than 61% or 17 entities in 2014-15 and 70% or 19 entities in 2013-14.
• There were no adverse findings or disclaimers.
• Yet qualified with findings audits had fluctuated back to three entities (11%) in 2015-16 from two entities (7%) in 2014-15, which had started with 11% in 2013-14.
• The three SETAs with qualified with findings opinions were the Mining Qualifications Authority (MQA); Wholesale and Retail (W&R) SETA and the Public Service Sector Education and Training (PSETA). MQA was added in 2015-16, but W&R SETA and PSETA had qualified audits in 2014/15. The entities could not prove or explain the commitments cited in the financial statements. Commitments and disclosure of grant expenditure is practically their core business. Their inability to justify their commitments led AGSA to grant them the qualified opinion.
• One entity (3%) had an outstanding audit.

AGSA noted an improvement from the previous year in compliance with key legislation. Half of the auditees in the portfolio had significant findings on non-compliance in the current year compared to two-thirds in the prior year. Main areas of non-compliance related to material misstatements in submitted financial statements, supply chain management, and non-prevention of irregular, fruitless and wasteful expenditure. Monitoring of compliance of auditees should be enhanced to prevent recurring findings.

AGSA noted no significant improvement for performance planning and reporting (predetermined objectives).
- Quality of the Annual Performance Plan: 68% or 19 entities passed as adequate quality, as opposed to 29% or eight entities that were not adequate and 3% or one entity that did not submit one in 2015-16.
- Usefulness of the indicators and targets in the APP regressed slightly over the three-year period, although the number of auditees with no findings remained consistent compared to the prior year.
- Management needs to improve their oversight processes over the development of APPs and implement processes that will ensure indicators are verifiable and measurable and targets meet the SMART criteria (i.e. specific, measurable, realistic and timely).
- Quality of submitted annual performance reports: 68% passed as adequate quality reports, as opposed to 29% or eight entities that were not adequate and 3% or one entity that did not submit in 2015-16. 75% or 21 entities and 67% or 18 entities had quality annual performance reports for 2014-15 and 2013-14 respectively. This was opposed to 25% or seven entities and 33% or nine entities that did not have quality annual performance reports for 2014-15 and 2013-14 respectively.
- Seven auditees avoided material findings in their audit reports only because they corrected all the misstatements identified during the audit process.
-  Twelve auditees included information on their performance against predetermined objectives, which was not useful and/or reliable for some of the programmes and objectives selected for audit.
- Improvement is required over the management of performance information that includes adequate reviews of performance reports against relevant supporting information to ensure reported achievements are accurate and complete

AGSA noted improvement in the status of the key controls which can be sub-divided into leadership; financial and performance management, and governance.
- At a leadership level – audit action plans should be developed to address root causes and implementation should be monitored to prevent recurring audit findings. Staff should be held accountable by management to implement the action plans. 60% of the leadership was good, 33% showed a concern and 7% of the leadership required intervention for 2015-16.
- At the financial and performance management level – daily and monthly processing and reconciling of transactions should take place throughout the year to ensure accurate and complete financial statements, including disclosure notes, and performance reports prepared at regular intervals. Adequate reviews of reports should take place and record management should be enhanced. Compliance monitoring should also be enhanced. 49% was good, 41% was concerning and 10% required intervention in 2015-2016.
- At the IT governance level – most ICT controls over financial systems were adequate and operated effectively at DHET. Some weaknesses were identified on performance information systems and outdated network infrastructure at DHET contributed to security management findings. Most of the SETAs had challenges with the adequacy of controls in the focus areas of IT governance, user access management, information technology service continuity and security management. This was mainly due to the lack of capacity or required skills to design and implement such controls, inadequate management oversight and lack of consequences for not resolving audit findings. 88% was good, 12% was concerning and none required intervention in 2015-16.

AGSA noted improvements for the assurance provided by the first and second levels of assurance providers that supports the overall improvement in audit outcomes for the portfolio.
- At the first level: Senior Management showed an improvement with seven having provided assurance, 18 entities provided some assurance and two senior managers provide limited or no assurance. Accounting officers/authority showed improvement with 11 that provided assurance, 15 that provided some assurance and one that provided limited assurance. The Executive authority was stagnating, however, with the one executive authority that provided some assurance. The first levels of assurance should be further improved by implementing the recommendations of external and internal audit to strengthen the internal control environment. Consequence management should be implemented to hold staff accountable for improvement and maintenance of internal controls. Regular self-assessment of the status of key controls should be performed.
- At the second level: the internal audit unit showed an improvement with 25 that provided assurance and only two that had provided some assurance. The audit committee also improved with 26 that had provided assurance and only one that had provided partial assurance. The second level of assurance can be further strengthened by focusing the internal audit unit and directing the work of the audit committee towards evaluating the adequacy of action plans, reliability of progress against action plans, status of key controls, credibility of monthly financial statements and quarterly performance reports and compliance with legislation. - At the third level: the Portfolio Committee on Higher Education and Training was evaluated for their oversight function and was audited as having provided adequate assurance for 2015-16.

Slide 11 provided detail on the improvement in compliance with key legislation in the portfolio:
• Material misstatements in submitted annual financial statements showed an improvement, 41% or 11 entities in 2015-16 compared to 64% or 18 entities in 2014-15.
• Unauthorised, irregular, as well as fruitless and wasteful expenditure showed regress with 22% or six entities in 2015-16, as opposed to 7% or two entities in 2014-25.
Revenue management remained stagnate at 4%, which was one entity in 2015-16 that was the same entity lacking in revenue management in 2014-15.
• Supply chain management (SCM) showed regression, because it reflected at 22% or six entities in 2015-16 compared to 18% or five entities in 2014-15.
• SCM findings could further be explained of the three-year period as follows:
- Uncompetitive or unfair procurement processes were 22% in 2015-16, 19% in 2014-15, 30% in 2013-14.
- Inadequate supply chain management controls were 0% in 2015-16, 7% in 2014-15, 4% in 2013-14.
- Inadequate contract management were 0% in 2015-16, 4% in 2014-15, 7% in 2013-14.
- Awards to close family members of employees were 0% in 2015-16, 7% in 2014-15, 0% in 2013-14.

The three SETAs responsible for the three qualified audit opinions in the portfolio incurred qualifications in ‘Other disclosure items’ and some in ‘Expenditure’ and ‘Liabilities’ within their accounting books.

Auditees who had material misstatements were 41% or 11 entities. Eight of 11 auditees avoided a qualified audit opinion only because they corrected all of the misstatements during the auditing process. After correction, only 11% or three entities had material misstatements which meant the relevant supporting documentation could not be provided as proof. In 2014-15, 64% or 18 entities had misstatements, but after the correction only 7% or two entities had misstatements. Although the quality of financial statements submitted for audit improved, 11 auditees replied on the audit to produce credible financial statements. Most of the identified misstatements were in the area of commitments disclosure notes.

Mr Baganzi noted the increase of unauthorized, irregular as well as fruitless and wasteful expenditure over the three-year period. Irregular expenditure increased during the current year by 62% from R351 million in the prior year to R569 million. Irregular expenditure was incurred by 19 entities during the current year, but just two entities (National Skills Fund and Safety and SASSETA) combined contributed 59% of the total irregular expenditure. 56% of irregular expenditure was as a result of non-compliance with supply chain management. Other irregular expenditure incurred related mainly to exceeding legislation admin limits for SETAs; contravention of discretionary grant policies; overpayments of subsistence and travel allowance as well as salaries. 92% of irregular expenditure was identified by management of the various entities, with only 8% indentified during the audit process. Fruitless and wasteful reduced significantly by 93% from R27 million incurred by 10 entities in the prior year, of which SASSETA was the main contributor, to R2 million in the current year incurred by 14 entities. There was no unauthorized expenditure throughout the three-year period. It should be noted that 100% of the 23 entities lodged investigations to determine root causes and consequences of unauthorized, irregular, fruitless and wasteful expenditure in 2015-16, as well as 100% of the 14 entities lodged investigations in 2014-15.

The top three root causes for audit findings were:
1) Slow response by management (specifically the accounting officer and senior management) by ten out of 17 entities in 2015-16 and 18 out of 19 entities in 2014-15. Slow response by management should be addressed through timely compilation of action plans that address root causes arising from audits and are communicated to all levels of staff.
2) Lack of consequences for poor performance and transgressions by seven out of 17 entities for 2015-16 and nine out of 19 entities in 2014-15. Consequence management should be implemented for non-performance.
3) Instability or vacancies in key positions for six out of 17 entities in 2015-16 and four out of 19 in 2014-15. 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.

He explained that to address the root causes AGSA had met with the Minister of Higher Education and Training on 19 July 2016 and discussed the outcomes and status of the implementation of commitments made to resolve it. Five prior commitments were already implemented and five were in process of being implemented. Although some commitments were assessed by the department as implemented, it has not yet had the desired impact on audit outcomes: Monitoring and/or enhancements of the commitments will be required to achieve a positive impact on future audit outcomes; Issuing of regulations for TVET colleges rather than policies that are not enforceable, are recommended; Alignment of performance indicators between entities within DHET portfolio and DHET performance indicators and targets are recommended.

AGSA proposed recommendations to the Portfolio Committee to deal with the root causes:
• Slow response by management – Committee must get independent assurance from internal audit and audit committee that completeness and credibility of information presented to the Portfolio Committee on a quarterly basis has been verified or at least that the controls systems used to produce quarterly reports are reliable and credible. This includes obtaining independent assurance regarding the status of action plans and key controls presented by management.
• Lack of consequences for poor performance and transgressions – the accounting officers/authorities and senior management should intensify their focus on ensuring that transgressors are held accountable and that action is taken as required by the consequence management. List of action taken against transgressors must be provided quarterly to Portfolio Committee for follow up.
• Instability or vacancies in key positions: Committee should request quarterly feedback on the filling of key vacancies and actions taken to address instability.
Additionally, Committee should commit to request DHET and entities to report on their impact.

Mr Baganzi then elaborated on the Technical Vocational Education and Training (TVET) colleges audit outcomes by AGSA, which currently encompasses 30 TVET colleges only, but by the following year AGSA would want to incorporate the other 20 TVET colleges as well. For 2015-16, 3% or one entity was unqualified with no findings; 20% or six entities were unqualified with findings; 20% or six entities were qualified; 3% or one entity had adverse opinions; 34% or ten entities had disclaimers, and 20% or six entities had outstanding audits. AGSA has discovered that the TVET colleges did not have proper record management, neither had they staff with the required financial skills to prepare the financial information.

On the 20 TVET colleges not audited by AGSA: 30% or six entities were unqualified with no findings; 15% or three entities were unqualified with findings; 5% or one entity was qualified; 6% or one entity had a disclaimer, and 45% or nine entities had outstanding audits. It should be noted that colleges were not required to report on their performance against predetermined objectives.

The audit outcomes for universities were not conducted by AGSA. The number of universities receiving clean audits had regressed from 74% in 2013-14 and 68% in 2014-15 to just 58% or 15 universities in 2015-16. AGSA had deduced that the regression was due to the implementation of policies, such as supply chain regulations and the reporting on performance against predetermined objectives. In 2015-16, 15% or 4 universities were unqualified with no findings; 4% or one university was qualified and 23% or 6 universities had outstanding audits.

Discussion
Dr B Bozzoli (DA) commented that there were over 100 entities in DHET, yet AGSA had presented a short and superficial report, which was quite disturbing. For all the TVET colleges merely two pages dealt with it. SETAs were more detailed and it was understood that universities were not audited by AGSA, but even so it was superficial reporting on them as well. What should be received would be an individual reporting on each entity. It may be a lot of work for the Committee to revise, but it is presumed that such detailed reports do exist. This was particularly since there were so many entities that had received qualified or poorer audit opinions. It is quite shocking that AGSA had not presented an expansive audit report. Another point was that AGSA seemingly acts as a ‘nanny’ to the entities, because of the assistance that AGSA had given for audit corrections. For instance, in 2014-15, 10 entities would have had audits with no material misstatements before corrections, but after corrections 26 entities had audit outcomes with no material misstatements. What does ‘after corrections’ mean, would the corrections be repeated and was it a sign of failure in the entities? AGSA seems to ‘nanny’ the entities to success. On other matters, the irregular expenditure of R569 million in 2015-16 was over double the amount of R248 million in 2013-14. This irregular expenditure was said to derive primarily from SASSETA and the National Skills Fund, which is a R3 billion organization. Given the magnitude of the irregular expenditure thorough explanations were necessary, but instead a simple mention of it was made by AGSA with insufficient detail. The Committee needs to hear from each organization as well as from AGSA about the matters at fault. Money is short in the system and it cannot be allowed to permit entities to waste funds. Hence the entities should be held accountable for wasteful expenditure.

Mr Y Cassim (DA) agreed with Dr Bozzoli about the lack of detail. He further commented that AGSA have had an inconsistent manner of presentation. For instance, last year the Audit Report by AGSA presented the information in a tabulated fashion that had specified the entities that received qualified reports and below, as well as further breakdown in the tables of the areas that the entities had faltered in. Apart from the mere mention of the most severe three faulty SETAs and another mention of SASSETA and NSF, no other descriptions of the 100+ entities were given. What was currently received was the number of entities but no specifications as to which entities received qualified audits and below, neither in which areas of fault. Additionally, DHET needs to be held accountable as the issue of Annual Performance Plan versus the Annual Performance Report had been recurring for a few years, and it is the duty of DHET to ensure that the APPs set by the entities adhered to the SMART principle in the first place, and so it would be more likely that the success of the Annual Performance Reports would be inevitable or better probable. The Portfolio Committee could review individual entities that had the recurring errors in annual performance reports. However, ultimately the entities had first presented their APPs to DHET, which should have advised on compliance to the SMART principle and provided monitoring and co-ordination. The recurring issues of fault may indicate that DHET had faltered to provide adequate accountability, and should in turn be held responsible. In conclusion, the lack of clarity could hinder proper oversight, because there were instances in which slight improvement was cited by AGSA for the three-year period, but with closer scrutiny it can be seen that regression took place from the last year to the current. Hence a tabulated presentation was preferred, with the list of each entity in the relevant audits, as well as the areas they had faltered in.

Mr E Siwela (ANC) commented that the three root causes and the recommendations given by AGSA were not entirely new, but repetition, especially the slow response by management and the lack of consequences for poor performance and transgressions. Does this mean that the ability or performance of AGSA to influence DHET for better outcomes was having no impact or was it a situation of work ethic that refused to self-correct? SASSETA had been a serial offender of irregular expenditure and fruitless and wasteful expenditure to the point that the SETA was placed under administration. What was the opinion of AGSA, whether the administration of the SASSETA has managed to put in place an effective system or proper controls? How comparable were the audit fees paid by the colleges audited for the first time by AGSA in 2015-16 versus the fees in the years prior?

Ms M Nkadimeng (ANC) commended the entities that received a clean audit, but expressed concerns for the risks involved for those entities that did not produce quality annual performance reports with no material findings. The quality of the submitted annual performance reports was noted as unchanged, but with scrutiny it can be seen that the quality of the submitted annual report had actually worsened from last year to the current with 75% or 21 entities in 2014-15 to 68% or 19 entities in 2015-16. Lack of consequences for poor performance and transgressions were listed amongst the root causes, but what was the opinion of AGSA as to the exact cause of the poor annual performance reports submitted? In the discussions with DHET was AGSA confident that adequate remedial action was taken and what would be the advice to the Portfolio Committee to address this weakness?

Mr M Khawula (IFP; Kwazulu-Natal) queried the rationale behind slide 9 evaluated the Portfolio Committee, but had omitted the Select Committee on Education and Recreation. Were any percentages missing for procurement management on slide 11? Regarding the corrections given by AGSA to the entities, since it allows the entities to then resubmit for accuracy, would that allowance not border on fraud? The scanty information given for the magnitude of irregular expenditure was a concern. Lastly, degrees are only awarded from universities, including commerce and accountancy degrees. However, if the universities were not doing as well as they should in their audits because they had failed to submit proper accounting documentation, but they themselves teach accounting, it could only be concluded as a grievous concern.

Ms L Dlamini (ANC; Mpumalanga) also expressed a need for a detailed report and requested a performance report alongside the annual performance report that was just financially themed. Since the Annual Report may be misleading, because receiving a clean audit may be perceived as a successful entity, but the entity could have little impact on changing the lives of citizens. The irregular expenditure that was defined as expenditure incurred in contravention of key legislation; goods delivered but prescribed processed not followed, which amounted to R569 million for 2015-16, spent mainly by SASSETA and NSF was not a new phenomena. In the opinion of AGSA- why has it continued to occur? In the Management Letter to DHET what was recommended to overcome this? Also, if there were any violation of the Public Finance Management Act (PFMA), were there any corrective action taken since by DHET? If not, what would be the recommendations to the Joint Committees for oversight especially regarding the irregular expenditure? Of TVET colleges audited by AGSA key findings highlighted that internal audit and risk management systems at most colleges were not of the required standard. Given that these matters received explicit guidance, what more, in the opinion of AGSA, was the cause of TVET colleges’ ongoing inabilities to master core functions of financial requirements?

Ms M Moshodi (ANC; Northern Cape) queried that given the strict guidelines that underpin internal audit and the regressions showed from last year to the current financial year, what were the reasons for it and had it negatively impacted the overall performance of DHET? Secondly, what were the proposals for change given to DHET by AGSA?

Mr M Mbatha (EFF) queried the explanation of the three- year period given from slide 8 onwards (see documentation attached). Although AGSA had cited ‘improvements’, if individually compared by year no real improvement occurred. Additionally, it appears that several entities were perpetual culprits that may be why no real improvement took place. If so, it was indeed necessary, as Mr Cassim requested, that a specific list of the entities were noted instead. For instance, the issue of compliance with key legislation had 22 entities with material findings in 2013-14, 18 entities in 2014-15 and now 14 entities in 2015-16. It could be presumed that the same 14 entities of 2015-16 were included in the initial 22 entities of 2013-14. If so, they were common culprits and the Committees should know exactly which entities they were, how they failed to comply with key legislation and what AGSA recommendations were to rectify the faults. This information was particularly necessary for the Portfolio Committee to conduct oversight, because when the various entities would make presentations they tend to use sophisticated language and manner of presentation that bypasses their errors. Their faults could be easily overlooked. However, had it been known beforehand that a particular entity faltered with compliance and that entity made a presentation; even though its presentation would not simply outline its errors, proper oversight could still be achieved, because the matter of compliance would have been monitored during the presentation. If entities had not provided AGSA with proper information, why was their names not stipulated, so that proper follow-up could occur? Also, Honourable Khawula made a valid concerning the correction of documentation, because once AGSA had highlighted the missing information, how could it be guaranteed that the new information submitted was not falsified by the entity just to suffice what was requested? Lastly, personal experience had witnessed that AGSA had sent junior staff-members to the entities to conduct auditing. This may result that the possibility of cohesion was likely within the ranks of AGSA. In conclusion, the Joint Committees were aware of their oversight function, but it was the responsibility of AGSA to pinpoint what exactly the entities had already done wrong in 2015-16.

Ms J Kilian (ANC) noted that the exact details of which entities faltered were presumable available via DHET as well as by the Management Letters sent to the various entities. The sector of TVET colleges presented a dismal picture (see slide 16 of document attached), because the six auditees that had outstanding audits seemed to elude financial scrutiny or disclaimer audit outcomes by AGSA. The TVET colleges that were not audited by AGSA (see slide 17 of document attached) have had auditees that had outstanding audits in the past, by had increased from two colleges in 2014-15 to nine colleges (45%) in 2015-16. If read in conjunction with the footnotes by AGSA: “TVET colleges are not subject to procurement requirements of the PFMA, TR and PPPFA. Colleges are not required to report on their performance against predetermined objectives”, it may explain the omissions, but was a serious matter of concern. Has it been reported on in the past or reported to DHET? Which entity was meant to close the gap? How would the gap be filled? There was no accountability on the expenditure of public funds and performance and neither were they subject to supply chain management. This was worrisome. Has AGSA reported it in the past too? Secondly, the issue of consequence management: the lack of consequence for poor performance and transgressions was earlier listed as a root cause. The issue was also a recurring message without consequence by AGSA before the Portfolio Committee on Telecommunications and Postal Services yesterday too. If none consequences for serious transgressions were imposed, it could be expected that legislation would be repeatedly undermined and the offences repeated. If one considers the Public Finance Management Act (PFMA), it was very onerous, even accounting officers of the SETAs has onerous responsibilities and judiciary responsibilities. Thus, the question posed to AGSA would be, was AGSA aware of any legal penalties on any of the subsections, which referred to the accounting officers as well as accounting authorities? The accounting officers would in some SETAs relate directly to the accounting authority, and in some instances they would be questionable to a board. Was AGSA aware of any legal consequence imposed on those responsible for misuse of funds? The R569 million spent on irregular expenditure by 19 entities, predominantly spent by two, had indicated that a time had come for criminal charges laid in terms of section 86, apart from the internal system of reprimand.

Ms P Samka (ANC; Eastern Cape) queried legislative compliance. The management of strategic planning had implied that intervention was required, but lack of tangible progress reflected. What were the underlying causes for it and in which areas should oversight be improved?

Mr C Hattingh (DA; North West) commented that to retrieve the Management Letters were possible and even statements from the entities, but to decipher its information was impractical, because not knowing where to start with would prove difficult. The Annual Report on page 208 addressed leadership and deficiencies of leadership, but the explanations had become very generic overview. For example, the key words such as “sufficient controls were not implemented by parties”, has proven a crosscut matter due to the format, because every entity, included universities had cited that explanation. Another example was that, “management did not develop action plans sufficient to address prior year reported internal control deficiencies” was also generic and consequently cited. Even though a commitment by the Minister was noted by AGSA on slide 14 (see document attached), it was also ultimately generic. It seems that it a deep-cutting resolution was required to fully overcome all of the regressions. However, leadership first required resolve, because the issues on hand were recurring. Perhaps the leadership was an ‘untouchable area’, but the problems and its consequences would not repeat itself if the leadership was in order as it was meant.

Ms T Mpambo-Sibhukwana (DA; Western Cape) queried if AGSA had advised or could advise DHET on the impact of the instability or vacancies in key positions and/or intervention measures? Also, if AGSA would recommend for the years going forward, which time frames to fill the vacancies be best suited?

Mr C Kekana (ANC) queried that since financial matters related to performance, how would AGSA describe the performance of universities? What would AGSA give the universities as a percentage of performance? Universities were meant to produce Chartered Accountants, Directors, Managers and other forms of leadership for the whole country. Would it be sensible to deduce that since the audit of universities were not completely up to standard, that it can be presumed that the capacity of the human capital that universities produced were also not up to standard? All of these have had implications on society and the economy. Hence what was AGSA general interpretation and what was the decisive action needed to change, because it cannot be had that the country fails, just because good performance was not well maintained?

The Chairperson of the Portfolio Committee asked AGSA to relay to them about the reliability of the information received, especially of DHET itself when the audit process was undertaken. The views expressed in the questioning implied that the Joint Committees might have to engage with the Standing Committee on Public Accounts due to the repetition of issues. From AGSA, what was the ultimate objective? Were clean audits the pursuit at the cost of sacrifice of service delivery? Notably there are laws that dictate legal audit processes. Had the previous recommendations given by AGSA had any impact? If not, what were the reasons for that? What in the view of AGSA still needed to be done for change? Hypothetically, if the given information was presented as scales instead, was there a balance or was AGSA tipping the scales to create equilibrium and if so, which entities were favoured by the tipping process?

The Chairperson of the Select Committee queried that there was the impression that after the entities had submitted misstatements there was an opportunity for them to redo the errors and resubmit. The question posed then would be why had the entities submitted misstatements in the first place and why was an opportunity warranted for resubmission? Since the individuals who works with the accounting function of the entities were qualified and consequently should have submitted correct information the first time round. Had the resubmission not implied an error of negligence or had deeper reasons impeded the initial accuracy? Since the audit outcomes of universities were not done by AGSA, but yet presented within the Annual Report, how sure was AGSA of the information that was concluded for universities? Was the information verifiable? Does the auditing firms for the universities changed every five years or so, or does the universities utilize the services of the same accounting firms and so a relationship develops that may affect the authenticity of the documents submitted? Since if universities may not change their audit firms every five years and so a relationship may be developed that could possibly falsify or presume information, and if so was such a situation ethical?

Mr Baganzi answered that AGSA does not ‘nanny’ the entities, but does allow their clients to do an initial application and then final application after any misstatements had been picked up particularly regarding public information. The only misstatements that were allowed correction though were either a wrong application or accounting standard. AGSA does not allow a client to ‘post-find’ information, which was to find correct evidence to support their claims. It should be empathized that what was only allowed was correction of wrong application or interpretation of an accounting plan because that was permissible by the audit standards. However, in terms of PFMA, section 14 was applicable for DHET and section 5 was applicable for its entities. If a client required correction for the financial statements, then that client would be deemed as non-compliant. In the presentation, the non-compliance cited had referred to mainly supply-chain management and the correction of the financial statements, which meant that there was a mismatch between PFMA and the standard of the submissions for audit. Hence, most of the entities had received a non-compliant with key legislation audit, because PFMA dictates that once submitted first-hand with material misstatements or omissions alterations cannot be made. The client cannot fix misstatements that referred to giving follow-up information, or sufficing evidence that was previously missing, but they are allowed to rectify the standard of presentation or reporting framework of information already submitted. For instance, if information was misinterpreted, because it meant to be accounted for a period of four years, but the entity accounted for it over five years, AGSA would require the misstatement to be accounted for over the correct period of time without reproducing documentation already submitted or initially neglected to submit. AGSA would not allow any client or entity to revert and submit omitted information, even if it pertaining to just three months ago. All correction of misstatements pertained to the accounting framework, not its content.

He agreed that the presentation was brief without as much as requested by the MPs, but since DHET has had the biggest portfolio of over 100 entities it was impractical to present the specifics in two hours. Thus an overall synopsis for the portfolio was given. The focus was financial, but should the Joint Committees require detailed information it could be made available upon request, because the reporting process of AGSA was two-fold. AGSA would issue an Audit Report that was summarized version resulting from the auditing and it was a public document. AGSA would also issue a Managing Report that would detail all of the issues found. The Annual Report does highlight the issues discovered, but its particulars were in the Managing Report, which the Joint Committees could retrieve via DHET.

The Chairperson of the Portfolio Committee commented that there seem to be a misunderstanding, because irrespective of the volume of the information every detail was meant to be brought up front, and it was in the domain of Parliament to decide which information was irrelevant. It was unfitting to advise Members of Parliament to retrieve information elsewhere.

Mr Baganzi answered that the details of the irregular expenditures were also described in the Managing Report. Should the Joint Committees require further explanatory information regarding the entities responsible, AGSA could revert with it. Regarding the consistency of the reporting presentation, it had been noted and future presentations shall elaborate on the three areas of scrutiny in tabulation. Some of the questions were directed to DHET.

Mr Mbatha injected that should AGSA feel that any question be directed to DHET the particular question on hand should be repeated first. Otherwise it seems as though AGSA was bypassing accountability.

Dr Bozzoli emphasised that the criticism given was about the current Annual Report 2015-16. The criticism by the MPs was not recommendations for a better report next year, but a call for new report immediately.

Ms Dlamini advised that the MPs allow AGSA to complete the answering then a follow-up session occur.

The Chairperson of the Select Committee agreed, but clarified that should the responses not answer adequately the MPs would interject.

Mr Baganzi answered that some of the questions and answers were crosscutting. He explained that AGSA had reported the issues of mismanagement of funds to DHET of the guilty entities, but to hold it accountable was for DHET regarding the irregular expenditure.

Mr Simbongile Manzi, AGSA Senior Manager, clarified that the information provided to the Joint Committees was available for public review. Unfortunately the financial particulars of the Management Reports were not subject to public availability. The synopsis or classification of the audit findings was meant to explain the state of the SETAs in itself. To answer the query of the audit fees for the TVET colleges, it should be noted that the fees were similar to previous years, because the accounting system of the TVET colleges were not mature. As a result, the extent of work done on the new colleges were similar to the audit work conducted on the more established colleges, thus the audit fees were similar. Should the established TVET college accounting system mature faster than the new TVET colleges, the differentiation in the fees would occur. Since the universities were not audited by AGSA the particulars of its audits were available from the individual university. The only information that AGSA could present of the universities was the results or classifications of its audit outcomes by the university audit firms. Therefore, if the result was that a university received a qualified audit, the result was the only information for public availability, but its reasons for receiving a qualified report were attainable at the university itself. After the meeting AGSA could advise the Joint Committees on the audit outcomes of each of the 100+ SETAs individually, whether it received unqualified, qualified or disclaimer etc. audit reports, because its classification was publically available. The query why the TVET colleges perpetually failed in its adherence to accounting assessment could be answered that there was yet vacancies in critical financial roles, such as the Chief Financial Officer (CFO). These instabilities certainly undermined the abilities of the TVET colleges to improve its financial accountability and control. The lack of leadership to direct the financial personnel within the colleges as well as incompetent support staff contributed to inadequate institutionalized sound controls to improve financial administration and reporting. To answer the increase of TVET colleges that had outstanding audits, it should be noted there was none legislation that dictated a deadline for the colleges to submit its financial books for audit. The DHET would inform the colleges when to submit, but because it was not legally compulsory, some TVET colleges would not comply and consequently receive a classification of ‘outstanding audit’, as opposed to being escalated to a classification of ‘non-compliance’, because the audit would proceed without their submissions. Some colleges do not have an adequate system to be able to report on their financial statements. If they were able to improve on those systems they would then be able to report on their financial happenings and do so on time, but currently their financial accountability was yet primitive.

To answer the queries of the performance of universities, it should be understood that the scope of AGSA was to report on the financial statements only, and review whether the financial statements and its audits were credible and if it had complied with laws and regulations. The actually performance of universities could be scrutinized by another independent institution, but to comment on it was beyond the scope of AGSA. Also, since there was no legal mandate to change auditors every five years or so, approximately 50% or more of the universities were utilizing the same private audit firms. Although in recent years a few had changed their private auditing firms. Currently, the South African Institute of Chartered Accountants (SAICA) was investigating whether it was feasible to prescribe a period after which the private audit firms for the universities should be changed. It has been proposed and up for public comment and by next year the conclusions would be made if a prescribed period would benefit the sector. The general public also included the financial administrators who would complete the financial statements at the universities.

To answer the concern of the reliability of information, it should be understood that ultimately the reliability of information submitted would affect the classification that it was given, e.g. qualified with findings, adverse with findings etc. Since any omissions would mean that there were “material misstatements or limitations in the submitted AFS” and resulted in a qualification. The qualification also affected whether AGSA was satisfied with the other submitted documentation.

Mr Baganzi answered that the rationale of slide 11 was that the comparison was done over three years and that there was none missing figures, but should be read as the first bar in navy blue for the year of 2015-16 and the blue bar beneath it as for the year 2014-15. Thus, for example, Procurement Management had regressed to 22% or six entities in the year 2015-16 from only 18% or five entities in 2014-15 that had fault of non-compliance.

To answer the query of the performance of the administrator of SASSETA, the issues highlighted was recurring and relevantly reported, as with the other entities, but none change could be implemented by AGSA. He explained that AGSA had not eye witnessed nor was aware of any criminal charges laid against anyone in terms of section 86 of the PFMA, but once forensics had investigated and an offender was found, s/he was either dismissed or had resigned.

Mr Manzi answered the query of junior staff sent to the auditees, but empathising that AGSA was a training environment so it would not do away with junior staff, because they require training and experience to be accredited as Charted Accountants. It was inherent that junior staff was both working in AGSA environment and tasked with auditing, but complex auditing matters were tasked for the more experience accountants, whilst straight-forward auditing were tasked for the junior staff, because AGSA cannot eradicate using junior staff. The concern that the TVET colleges were not obligated to comply with the PFMA; PPPFA neither subject to reporting regulations and had AGSA reported the gap to DHET, could be assured that AGSA had indeed made DHET aware of its implications. Also, the issue of compliance to legislation was problematic in both the TVET college sector and the university sector, but DHET had made progress regarding the compliance from universities, because DHET had promulgated a new reporting system that was enforced in 2014-15, but practiced by universities from January 2015. However, DHET had not made the same progress with the TVET colleges, and it would be advised that DHET urgently devise a reporting system for the TVET colleges. As a whole the compliance by DHET had required improvement, but if the TVET college sector and the university sector were to be included in the PFMA it would require an amendment of legislation. Therefore, AGSA had communicated the concerns to DHET and it was now the responsibility of the legislative framework to evaluate if there was consistency between what those institutions had needed to deliver to public and was delivering, despite the technical lack of legal obligation.

AGSA also produces a General Report that gives detailed commentary on the institutions for 2015-16 and it would be published early November. Since the request for expansive commentary on the entities’ performance was made, a copy would be sent to the Joint Committees.

Mr Mbatha felt that AGSA had not clarified which exactly of the questions asked were meant for DHET to answer. Also, it was not implied that AGSA would not be a training environment, but there was a difference in tasking a trainee with an assignment that had the value of work expected from a trainee between tasking a trainee with an assignment that required greater expertise. Was it appropriate for information to be sent as a corrected request? Was it right to seek information, especially since it was subject to interpretation, because the option of seeking could be fraud?
           
Ms Kilian suggested that since to scrutinize the minute detail on the 100+ entities would be impractical, it would be advisable to receive a listing of the entities and its audits, because amongst the footnotes, for instance, UNISA was recorded and was verbally cited, but in another instance UNISA was listed amongst the footnotes, but none explanation was given. The entities could be given colouration so that over a period of time it was easy to indentify if regression took place. Also, on the agenda there was a session for briefing by DHET, thus it would be advisable to retain questions pertaining to DHET for then.

Mr Kekana commented that AGSA rightly answered that to analyse the performance of the universities was beyond its scope. However, the question was just to decipher ‘user-friendliness’. Since universities have institutional autonomy, the query was to decipher if they were handling their funds properly. The question also implied the reliability of the independent audit firms and whether they were trustworthy for the public. It was not just a matter of changing the private audit firms, but that they were reputable, and so the South African public could express confidence in. The answer given mentions that the private audit firms may have not changed in five years or so, but does not guarantee quality or grant any confidence whether the firms used were reputable and that the universities in their institutional autonomy were, indeed, held financial accountable with expenditure and that accuracy took place. Annual Audit Reports and performance reports were meant to be presented together, because surely if an entity had received a disclaimed audit it had indicated that something was wrong. The presentations by AGSA were meant to bring about guidance, so that if a particular university had received a clean audit, but was disclaimed beforehand, it could be pinpointed what was done differently for their success and vice versa. The auditing report ultimately was to reflect whether the country was achieving what it was meant to achieve.

The Chairperson of the Select Committee expressed that the office of AGSA was meant to revert with the magnitude of detail that the Joint Committees required.

Ms Nkadimeng revised that regarding the risks areas; there was a real concern of the quality of the submitted annual performance reports. The root causes were outlined with lack of consequences for poor performance and transgressions listed as the main reason. What in the opinion of AGSA was the reason for this? Also, in the discussion with DHET was AGSA confident that remedial action was taken to address this? Lastly, where should oversight be strengthened to address this weakness?

Mr Khawula revised why the presentation audited the performance of the Portfolio Committee but neglected mention of the Select Committee.

Ms Dlamini revised that was not the irregular expenditure not a contravention of key legislation? Also, since it was not a new phenomenon, why in the opinion of AGSA had it continue to occur? Had there been a violation of the PMFA was there any evidence of corrective measures that had been taken? Of TVET colleges audited by AGSA key findings highlighted that internal audit and risk management systems at most colleges were not of the required standard. Given that these matters received explicit guidance, what more, in the opinion of AGSA, was the cause of TVET colleges’ ongoing inabilities to master core functions of financial requirements?

Mr Baganzi answered that the quality of Annual Reports Submitted was impeded by the financial statements not being frequently updated as it should, e.g. quarterly, for the sake of ongoing accuracy. Thus, when consolidated after collation and verification, because of lack of ongoing monitoring mistakes were inevitable. Therefore, when reviewing in hindsight the targets indicated at the beginning of the year, there may be none supporting evidence, because throughout the year no proper monitoring of it was conducted.

Irregular expenditure was investigated 100% by forensics for 2015-16, and was investigated last year too. AGSA had recommended to the Portfolio Committee that the entities that were responsible for irregular expenditure account for their expenditure and present action plans to resolve it, as well as regular feedback on progress. AGSA have had interactions with the Portfolio Committee and could monitor the Committee’s oversight function, and so an assessment was made- it was not intended as an omission of the Select Committee.

Mr Manzi answered that it was indicated that some of the TVET colleges did not have permanency of key financial posts and that some of the supporting staff in the colleges did not have the right skills to adequately support the CFO management, which resulted in no progress for TVET colleges in the audit outcomes. It can be assured that the auditors of the universities were reputable private audit firms.

The Chairperson of the Select Committee concluded that the office of AGSA should revert adequately equipped with the information that the Joint Committees requested as it was clear that the MPs had not felt satisfied by the answers given. AGSA was meant to assist the Joint Committee in oversight and the report was critical to conduct it.

The Chairperson of the Portfolio Committee agreed that further engagement with AGSA was necessary, because there were, indeed, a high level of dissatisfaction. Since even if discussion with DHET would proceed, the quality of it would be limited. The Joint Committee shall communicate directly what they have wanted answered to the office of AGSA, to prohibit a situation that minimally answered when next engaged. Parliament had required that those before them were fully equipped without missing information or pages neither faulty equipment as the screen stuck midway and so reference to the hard copies were made. It was unprecedented, but the Joint Committee was unsatisfied and so cannot accept the given presentation.

The meeting was adjourned.