National Youth Development Agency & Commission for Gender Equality 2010/11 Audit Reports; Commission for Gender Equality 2010/11 Annual Report

Meeting report

Audit Report of the National Youth Development Agency 2010/11
Mr Yusuf Essack, Senior Manager in the Office of the Auditor-General, explained that the legislative requirements for auditing were rooted in the Public Finance Management Act (1999), the Constitution (1996), and the Public Audit Act (2004). The different audit opinions were: unqualified (unmodified), qualified, disclaimer and adverse. An unqualified opinion was expressed when the auditor concluded that the financial statements gave a true and fair view (or were presented fairly, in all material respects) in accordance with the applicable financial reporting framework. The addition of an emphasis of matter paragraph(s) did not affect the auditor’s opinion on whether the financial statements were fairly presented. A qualified opinion was expressed when the auditor concluded that an unqualified opinion could not be expressed but that the effect of any disagreement with management regarding departures from financial reporting framework, or limitation on scope was not so material and pervasive as to require an adverse opinion or a disclaimer of opinion. A disclaimer of opinion was expressed when the possible effect of a limitation on scope was so material and pervasive that the auditor had not been able to obtain sufficient appropriate audit evidence to form an opinion and accordingly was unable to express an opinion on the financial statements. An adverse opinion was expressed when the effect of a disagreement with management regarding departures from the financial reporting framework was so material and pervasive to the financial statements that the auditor concluded that a qualification of the report was not adequate to disclose the misleading or incomplete nature of the financial statements.

The NYDA’s audit opinion for the 2009/10 and /2010/11 financial years were unqualified. This year it managed an unqualified audit opinion with emphasis of matters for significant uncertainties; restatement of corresponding figures; irregular expenditure; fruitless and wasteful expenditure; and material impairments. The compliance issues were regarding the Public Finance Management Act (PFMA), National Treasury Regulations, and the Preferential Procurement Policy Framework Act. It had control deficiencies in areas regarding leadership and financial and performance management. The significant uncertainties was for a contingent liability due to claims from third parties of R5.86 million of which the outcome could not be determined at date of the audit report. The entity incurred irregular expenditure of R67.65 million as a result of non-compliance with supply chain management prescripts. The NYDA incurred fruitless and wasteful expenditure of R2.05 million due to interest paid on late payment of supplier invoices and borrowings. Material impairments to the amount of R38.75 million were incurred in the current year as a result of the impairment of loans advanced by the NYDA. At 31 March 2011, of the total gross loans receivable of R178.46 million, R142.37 million (which included the R38.75 million), had been impaired as the recoverability of these loans were doubtful.

The NYDA compliance findings indicated that the accounting authority submitted financial statements for auditing that were not prepared in all material aspects in accordance with generally accepted accounting practice. There were material misstatements for interest income, loans receivable, other receivables from exchanged transactions and trade and other payables from exchanged transactions. Certain goods and services with a transaction value of over R500 000 were not procured by means of a competitive bidding process. Certain goods and services with a transaction value of between R10 000 and R500 000 were procured without inviting at least three written price quotations. Awards were made to bidders who did not submit all the required bid documents. The preference point system was not applied in all procurement of goods and services above R30 000. Not all invitations for competitive bidding were advertised for a minimum period of 21 days. The accounting authority did not take effective and appropriate steps to prevent irregular and fruitless and wasteful expenditure. The NYDA entered into borrowing positions without obtaining prior authorisation from the Minister of Finance. A joint venture agreement was entered into requiring both partners to contribute an agreed amount. The NYDA did not contribute the full agreed amount and the shortfall was contributed by the other partner on behalf of the NYDA, resulting in the NYDA borrowing funds that attracted interest.

Recommendations made by the Auditor-General indicated that management should ensure that the procurement of goods and services was in line with the Treasury Regulations and the prescripts of the National Treasury. Documented policies and procedures should be in place to guide the operations of the entity to comply with legislation and regulations. Those should be communicated to all staff and compliance should be rigorously enforced by the supply chain management unit. Processes should be implemented with oversight by the accounting authority to prevent and detect irregular and fruitless and wasteful expenditure, as well as non-compliance with relevant policies, laws and regulations. All loans reflected in the loan book should be assessed for impairment on a monthly basis. The provision for impairment so determined should be accounted for. The entity should implement a comprehensive review process of the financial statements prior to submission for audit to ensure compliance. The internal control deficiency indicated that the accounting authority did not have sufficient monitoring controls to ensure compliance with all applicable laws and regulations, and more specifically with regards to compliance with supply chain management prescripts determined by the National Treasury. Management did not implement daily and monthly controls over trade and other payables and around the loan management system. The financial statements contained numerous misstatements and were mainly due to staff members not fully understanding the requirements of the financial reporting framework as well as inadequate review of the financial statements by senior management, prior to submission for auditing.

The Auditor-General recommended that NYDA must develop an action plan to address all audit findings. The action plan should be monitored regularly at audit steering committees and feedback would be provided at audit committee meetings. Greater focus should be placed on compliance matters. The recoverability of loans advanced by the NYDA should be closely and regularly monitored to prevent unnecessary impairments.
 
Discussion
Ms P Lebenya (IFP) was confused by the NYDA receiving an unqualified audit report whilst so many irregularities were highlighted. She asked how an entity could get an unqualified audit with so many irregularities, and fruitless and wasteful expenditure. She noted that the “significant uncertainties” were not concluded yet and asked how long it would take to reach a conclusion.

Ms G Tseke (ANC) asked if the World Youth Festival was part of the audit and asked what the findings were.

Ms D Robinson (DA) noted that there were so many serious problems highlighted in the press about the NYDA and asked if there were any member of the NYDA to respond to some questions.

The Chairperson responded that the meeting was for the Auditor-General to present the findings of the NYDA Audit Report. The NYDA would be called to Parliament on another occasion to answer questions.

Ms L Mashiane (COPE) asked if the NYDA had an Audit Committee and if it was functional. She asked if the board was functional and wanted to know about investigations into fruitless and wasteful expenditure.

Ms P Peterson-Maduna (ANC) asked how it was possible for the entity not to have daily or monthly controls.

Mr Yusuf Essack replied that Members should separate the Audit Report from the Financial Statements because they were two different issues that might be linked at times. It was possible for an entity to have an unqualified audit report if it disclosed all irregularities. The contingent liability had received attention and the matter should be concluded before the end of the financial year. The World Youth Festival auditing was included in the Audit Report with all the findings of irregularities. The NYDA did have an Audit Committee which was suppose to sit at least twice per annum. However the committee sat more than twice but the Auditor-General proposed it have meetings on a quarterly basis. The Internal Auditing was fully functional but one should differentiate between the audit findings and bad management because most of the challenges were due to bad management.

The NYDA board was functional but there was much room for improvement for its leaders. The board should exercise greater oversight on the financial statements and compliance issues. The Auditor-General did not launch any investigations into the NYDA but the Public Protector had been tasked to investigate the World Youth Festival. The Auditor-General had concluded that the entity had enough funding to continue its mandate into the next financial year. The daily and monthly control should be happening regularly to avoid many of the highlighted challenges. The entity needed to pay more attention on daily and monthly control especially now that it had a new Chief Financial Officer.

Ms P Lebenye (IFP) highlighted that the reports of the NYDA claimed the success of programmes which was not initiated and driven by the entity. She asked if the Auditor-General looked at such things when auditing.

Ms D Robinson (DA) asked why the NYDA claimed that it achieved programmes that were done by other departments because one get the impression that so many things was achieved by the entity while she was not sure about that notion. The NYDA claimed they needed more money while it had so many irregularities, wasteful and fruitless expenditure.

Ms L Mashiane (COPE) asked if the NYDA had set up an internal investigation into all the irregularities, wasteful and fruitless expenditure.

Mr Y Essack replied that the fruitless and wasteful expenditure were mainly in two areas: interest paid on late payment to suppliers and borrowings. The board members were all executive members who received monthly salaries. The Auditor-General looked at the entity’s Key Performance Goals and evaluated if targets were met, and auditing was done accordingly. The AG always examined and evaluated if reported information was credible. Non-compliance and irregular expenditure needed serious attention by the NYDA.

The Chairperson indicated that Members would want to ask more questions and asked the Auditor-General to avail himself when the NYDA would report to Parliament. Some activities highlighted by the entity as its done by it were actually done by other departments and it seemed as if the mandate of the NYDA was unknown.

Commission for Gender Equality 2010/11 Audit Report
Mr Essack said the Commission for Gender Equality audit position had improved from receiving disclaimers in 2007/8 and 2008/9 and a qualified opinion in 2009/10’s to that of an unqualified opinion with emphasis of matters for 2010/11. Emphasis of matters were received for irregular expenditure (amounting to R10,3 million) and fruitless and wasteful expenditure (R207 568), and the restatement of corresponding figures. National Treasury guidelines were not followed when reporting on predetermined objectives. The Auditor-General recommended that CGE had to ensure that the targets in the strategic plan conform to the “SMART” principle as required by the Treasury Framework.

 CGE had to implement a transparent system and internal controls for performance management, which show the institution’s processes for performance planning, monitoring, measurement, review and reporting.  This included processes for quarterly reporting. Findings indicated non-compliance with PMFA and National Treasury Regulations/Practice Notes. Control deficiencies highlighted challenges regarding leadership, and financial and performance management. The irregular expenditure related to transactions in contravention of the Preferential Procurement Policy Framework Act and Regulations, the PFMA, Treasury regulations and National Treasury Practice Notes. The fruitless and wasteful expenditure was for interest and penalties due to late Pay as You Earn (PAYE) payments to the South African Revenue Service as well as interest on a bank overdraft. The irregular expenditure related to transactions in contravention of the Preferential Procurement Policy Framework Act and Regulations, PFMA, Treasury regulations and National Treasury Practise Notes. The fruitless and wasteful expenditure was due to interest and penalties for late Pay As You Earn payments to the South African Revenue Service as well as interest on the bank overdraft. Prior year figures were corrected in current year financial statements due to an error discovered during the audit.

The AG recommended that the CGE strengthen its internal controls to prevent, detect and adequately disclose irregular and fruitless and wasteful expenditure. The Commission should implement a review process to ensure compliance with laws and regulations in preparation of financial statements. The National Treasury’s guidelines were not followed in terms of reporting. The reasons for major variances between planned and actual reported targets were not explained. Reported objectives, indicators and targets reported were not complete compared to the planned objectives, indicators and targets. Planned and reported targets were not specific, measurable and time bound. The AG recommended that the CGE implement transparent systems and internal controls for performance management, which represented how the institution’s processes of performance planning, monitoring, measurement, review and reporting would be done, including processes for quarterly reporting.
The CGE had to ensure that the targets in the strategic plan conform to the “SMART” principle as required by the Treasury Framework.

Compliance findings indicated that the accounting officer did not established procedures for quarterly reporting. The accounting officer did not take effective and appropriate steps to prevent irregular and fruitless and wasteful expenditure. Not all payments were settled within 30 days of receipt of an invoice. No separate supply chain management unit was established for the first three quarters of the year. Not all goods and services with a transaction value between R10 000 and R500 000 were procured by inviting at least three written price quotations. Goods and services with a transaction value above R500 000 were not procured by means of a competitive bidding process. A proper asset control system did not exist to eliminate theft, losses, wastage and misuse not prevented by CGE. The Commission had bank balances in overdraft without approval from the Minister of Finance. Financial statements submitted had not been prepared in all material aspects in accordance with generally recognised accounting practice and supported by full and proper records and were subject to material and/or significant adjustments.

The AG suggested a system for performance management which described and represented how the institution’s processes of performance planning, monitoring, measurement, review and reporting should be conducted, organised and managed, including procedures for quarterly reporting to the executive authority.
Processes should be put in place to prevent and detect fruitless and wasteful expenditure and could be achieved through staff and management training as well as constant communication and reinforcement by line managers to all staff.

Despite a concerted effort to ensure payments were effected within 30 days, instances of non-compliance were still noted. Action needed to be taken against non-complying individuals as the processes were in place and just required adherence. A system needed to be in place to ensure that CGE procures goods and services in a transparent, cost effective and efficient manner. Compliance to laws and regulations should be adhered to during procurement in order to prevent irregular expenditure. The Commission had to implement a proper control system regarding assets and proper cash flow management to avoid bank accounts being in overdraft. The entity had to ensure the implementation of an adequate review process of financial statements prior to submission for audit to ensure compliance.

The internal control deficiency indicated that the accounting officer and management did not exercise an oversight responsibility regarding financial and performance reporting and compliance. Management did not develop action plans to address the internal control deficiencies, and did not prepare regular, accurate and complete financial and performance reports that were supported and evidenced by reliable information. Management did not review and monitor compliance with all laws and regulations. Other reports indicated two investigations conducted by two independent parties (requested by the former Deputy Speaker of Parliament) regarding complaints and allegations of improper conduct, financial impropriety and maladministration. The investigation covered the 2007/08 and 2008/09 financial years and was concluded during the year under review, with detailed recommendations for immediate implementation by CGE. Two separate reports were tabled on the outcome of these investigations. The findings identified were predominately due to the non-adherence to the CGE’S internal policies/procedures and to laws and regulations. It also pointed to inadequate planning, monitoring and oversight by the leadership of the CGE to ensure performance, compliance and ethical behaviour. The National Assembly took a resolution to establish an Ad Hoc committee to monitor the implementation of the recommendations. Substantial progress had been made regarding the implementation of the recommendations. The AG suggested that the CGE develop an action plan to address all audit findings going forward and a greater focus on compliance matters.

Discussion
The Chairperson indicated the Committee would have expected no irregular expenditure or non-compliance after all the previous investigations of the CGE but it seemed as if the trend continued.

Ms L Mashiane (COPE) was surprised that nothing unbecoming was found under the investigations. The Committee should be concerned about irregularities and wasteful and fruitless expenditure of departments under its oversight. It was an area on concern where people came off scot-free while irregularities continued within the entity. The matter needed serious attention.

Ms P Lebenya (IFP) thanked the AG for a job well done but thought it would not be fruitful to discuss the report in the absence of the CGE. The CGE had presented so many turnaround strategies previously and it seemed as if things continued to fail. The CGE had to come and give an account.

Ms D Robinson (DA) indicated that she would withhold her questions until the CGE was present. The CGE still lacked commissioners and it seemed as if the Committee did not have enough tooth to enforce certain issues.

Ms M Matladi (UCDP) replied that adverts for Commissioners were recently posted in the newspapers and did not understand why some Members had to be so critical of the CGE.

The Chairperson thanked those present but did not agree with the statement that the Committee was “toothless.”

Afternoon session
Commission for Gender Equality Annual Report 2010/11
Ms Keketso Maeme, Chief Executive Officer of the CGE, explained its mandate and noted that the Commission consisted of Service delivery and Support departments. The three pragmatic departments were Legal Services, Public Education and Information, and Policy and Research. The Support departments were Human Resources, Information Technology, Communications, Finance and Administration. She highlighted the achievements for Legal Services relating to the CEDAW Project, Beijing Project, and the Millennium Development Goals (MDGs). The total number of cases brought forward from the previous financial year was 213 and the number of new files opened was 255. In 2009/10 total files closed amounted to 51% in comparison to 60.2% in 2010/11 which was a 9% increase. CGE had litigated in the Mpumalanga chieftaincy matter (Sehlare Royal Council, Chiloane vs the Premier and others). Nineteen cases were monitored countrywide. The purpose of monitoring was to ascertain functionality of courts. Two Employment Equity hearings were held which were necessitated by the findings in the CGE Private Sector Report, the Commission on Employment Equity 2009 Report and the Public Service Commission Report. A total of 20 companies (departments and private sector) were invited to account.

The highlights of its Public Education and Information department included:
▪ Launching a Human Trafficking “Red-card” campaign in collaboration with the National Prosecuting Authority and FIFA Local Organizing Committee.
▪ A CEDAW (Convention on the Elimination of Discrimination against Women) Mock session (29 Nov to 1 December 2010) was held in partnership with UNIFEM (UN Development Fund for Women) and the Centre for Human Rights at the University of Pretoria. The purpose of the session was to assist the government delegation in preparing for the CEDAW Review in Geneva and secondly to facilitate a greater understanding of the obligations of the government in terms of the CEDAW Convention.
▪ Dialogues were held to launch the provincial Beijing Declaration and Platform for Action Reports. Reports were launched in partnership with Sonke Gender Justice in the Eastern Cape, Gauteng and Kwazulu-Natal. Recommendations on its respective reports were shared. In the North-West, Northern Cape and Mpumalanga, the CGE hosted and shared its national and provincial reports. In the North-west, Northern Cape and Mpumalanga, the CGE hosted and shared its national and provincial reports respectively.
▪ The Commission hosted a consultative dialogue in September 2010 to discuss the findings and recommendations of its MDG report with its stakeholders.

The highlights for the Public Education and Information as well as Research department were noted. The predetermined objectives were assessed against actual implementation. The highlights for each province were noted. Finally a report was given on CGE’s media and communications interaction for the year.

Discussion
The Chairperson asked for more explanation about the irregularities and wasteful and fruitless expenditure which were not mentioned in the presentation. She asked what had happened to the turnaround strategies.

Ms P Lebenya (IFP) thanked the CGE for the presentation and acknowledged the financial statements with their various problems and challenges. She asked when the turnaround strategies would be resolved and asked about the incident between the CGE and its Chairperson.

Ms C Blaai (COPE) asked what happened to members involved in irregular, wasteful and fruitless expenditure. She asked if they were suspended with pay or were there other measures in place for dealing with the issue.

Ms L Mashiane (COPE) was concerned that the CGE did not yet have an effective financial management system. She noted that the Department of Women, Children and People with Disabilities would be having a National Conference and asked how the CGE would work with the Ministry and how it would ensure that there was no duplication of the programme.

Mr Mfanozelwe Shozi, Acting Chairperson of the CGE, replied that the Commission had developed a turnaround strategy and tried by all means to address irregularities. The entity did not confirm any acts of fraud in the 2010/11 financial year. The Commission did have an Audit Committee and the Acting Chairperson would encourage it to discuss issues of irregularities. It was much better to address irregularities now that the Commission had a permanent CEO and CFO.

The CEO indicated that it was clear from the report that the supply chain management had been set up to address the irregularities. She said the Commission had set funds aside to engage in various dialogues during the National Conference.

The Acting Chairperson said that the Commission would monitor strategic plans, especially on Gender Based Violence for 365 days. The entity would also strengthen its role regarding monitoring and evaluation and implementation on various programmes.

The Chairperson thanked the CGE for the report and indicated that she could see huge progress and hoped that the following report would be clean of irregularities. She asked about the Commissioner vacancies and what impact it had on the mandate of the Commission.

The Acting Chairperson replied that the lack of Commissioners caused a lot of strain on the effective and sufficient running of the CGE. The Commission currently had six Commissioners and adverts were posted in newspapers for the vacant posts. It could take up to a year for Commissioners to be employed in the CGE because the employment process was very time consuming.

The Chairperson responded that the Committee would ensure that the process was speeded up.

Meeting adjourned