2. Portfolio Summary: Department and Entities4

Portfolio Committee on Higher Education and Training briefing financial year 2013-14

CONTENTS

1. Introduction3

2. Portfolio summary: department and entities4

3.Audit outcomes for FET colleges12

4.Audit outcomes for universities15

5. Annexure: Audit opinion history 16

Introduction

1.1Reputation promise of the Auditor-General of South Africa

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

1.2Purpose of document

The purpose of this briefing document is to provide an overview of the audit outcomes, key internal control deficiencies and recommended actions in respect of the Higher Education and Training portfolio as result of the 2013-14 audits.

Portfolio summary: department and entities

2.1. Audit opinion history

The audit outcomes for the department and its entities for the past 3 years have been summarised below (Refer to attached annexure on page 16 for detailed outcome per auditee)

The overall audit outcome remained largely unchanged from the previous year for the portfolio. Slight improvements were noted because of HWSETA and SAQA improving to clean audit outcomes and SASSETA and Services SETA improving from qualified opinions on discretionary grants and discretionary commitments to unqualified opinions with findings. CATHSETA regressed from an unqualified audit opinion with findings to a qualified opinion. ETDP regressed from an unqualified opinion with no findings to an unqualified opinion with findings.

Financial statements

3.1 Qualified opinions

The published financial statements of CATHSSETA, LGSETA and PSETA included the following material misstatements which resulted in qualified opinions on the financial statements:

CATHSSETA:

Irregular expenditure incurred was not identified and disclosed by the entity. This was as a result of inadequate systems to identify non-compliance with relevant legislation.
CATHSSETA recorded project administration expenses in discretionary project expenditure as disclosed. We could not obtain sufficient evidence regarding the project administration expenses.This was as a result of inadequate supporting documents to year-end journals.
We could not obtain sufficient evidence that property, plant and equipment disclosed existed and was complete. This was as a result of the entity not maintaining a proper system of internal controls over property, plant and equipment.

LGSETA:

We could not obtain sufficient evidence to confirm if the discretionary grant commitments disclosed was complete and accurate for the current and prior years. This was as a result of the entity not maintaining complete and accurate records for the discretionary grant commitments.

PSETA:

We could not obtain sufficient evidence regarding conditional grant expenses and the related conditional grant liability disclosed. This was a result of the entity not maintaining proper accounting and related documents. This is a recurring finding.

3.2 Unqualified opinions due to corrections of material misstatements

The Department of Higher Education and Training, AGRISETA, CETA, CHE, CHIETA, EWSETA, ETDP, FP&M SETA, FOODBEV SETA, MQA, NSF, NSFAS, QCTO, SASSETA, Service SETA, TETA and W&R SETA received an unqualified audit opinion only because they corrected all the misstatements we identified during the auditing process.

3.3 Key internal control deficiencies

The following internal control deficiencies were identified that gave rise to the qualifications or material corrections to financial statements:

Daily and monthly financial controls are not in place.
Action plans to address internal and external audit reports were developed and implemented late. These action plans were not closely monitored. Audit recommendations from the previous year were not implemented which gave rise to repeat findings.
Records management systems in place do not allow for easy retrieval of documents required for audit purposes.

3.4 Recommended actions

The following controls should be strengthened to create and sustain a control environment that supports reliable financial reporting:

Daily and monthly processing and reconciling of transactions should take place throughout the year to ensure accurate financial statements are prepared.
Action plans to address internal and external audit reports should be developed and implemented within one month of receipt of reports. The progress on the successful implementation of the action plans should be monitored on a monthly basis.
Management should improve its record management systems to ensure that appropriate records supporting the financial statements are readily available.

Audit of pre-determined objectives (annual performance report)

4.1 Audit outcome

The published annual performance report of the Department of Higher Education and Training, AGRISETA, CETA, CATHSSETA, LGSETA, NSF, NSFAS, PSETA, QCTO, Services SETA and TETA included information on their performance against predetermined objectives that was not useful and/or reliable for the following programmes or objectives we had selected to audit.

Auditee / Programme/objective / Not
useful / Not
reliable
DHET / Programme 4: vocational and continuing education and training / X
Programme 5: skills development / X
AGRISETA / Objective 2: establish private partnerships to encourage better use of workplace skills plan / X / X
Objective 3: strengthening the agricultural and rural development processes and strategies to promote food security and the growth of rural economy / X / X
CATHSSETA / Programme 1: coordinate research and skills planning for the sector / X / X
Programme 2: address sector middle level skill / X / X
Programme 5: address sector high level skill / X / X
Programme 11: provision of quality training for employed workers / X / X
Programme 13: support for small and emerging businesses through skills development / X / X
LGSETA / Programme 2: sector skills planning / X / X
Programme 3: learning programmes / X / X
Programme 4: educational training quality assurance / X / X
NSF / Programme 1: skills development funding / X
NSFAS / Student centres financial aid / X / X
PSETA / Programme 1: skills planning and research / X
Programme 2: learning programmes / X
Programme 3: ETQA / X
Programme 5: Finance / X
Programme 7: projects / X
QCTO / Programme 2: occupation qualification management / X
Services SETA / Programme 4: learning interventions / X
Programme 6: qualifications and quality management / X / X
TETA / Programme 2: occupationally directed programmes / X
CETA / Objective 2: increasing access to occupationally directed programmes in the construction sector / X / X
Objective 3: promoting the growth of a public FET college system that is responsive to the constructions sector’s skills needs and priorities / X / X
Objective 4: addressing the low level of youth and adult language and numeracy skills to enable training in construction / X / X

The Department of Higher Education and Training, AGRISETA, CETA, CATHSETA, EWSETA, ETDP, FOODBEV SETA, HWSETA, INSETA, NSF, NSFAS, PSETA, QCTO and SASSETA submitted annual performance reports for auditing that contained material misstatements.

The EWSETA, ETDP, FOODBEV SETA, HWSETA, INSETA, and SASSETA avoided material findings in their audit reports only because they corrected all the misstatements we identified during the auditing process.

4.2 Key internal control deficiencies

The following internal control deficiencies were identified that gave rise to the findings on the annual performance reports:

Lack of adequate processes in place to monitor compliance with legislative requirements, specifically relating to ensuring the strategic plans and annual performance plans are aligned to the “SMART” criteria.
Inadequate policies and procedures in place over the collation, verification and reporting on actual performance achievements.
Daily and monthly financial controls are not in place.
Audit recommendations from the previous year were not implemented which gave rise to repeat findings.
Lack of consequence management for non-performance.

4.3 Recommended actions

The following controls should be strengthened to create and sustain a control environment that supports useful and reliable reporting on the performance of the portfolio:

Processes should be developed and implemented to monitor compliance with laws and regulations affecting performance management.
Processes should be developed and implemented to collect, collate, verify performance information to ensure valid, accurate and complete reporting of actual achievements against planned objectives, indicators and targets as required by the framework for managing programme performance information (FMPPI). This includes daily and monthly processing and reconciling of performance information throughout the year and maintaining a proper record management system.
Action plans to address internal and external audit reports should be developed and implemented within one month of receipt of reports. The progress on the successful implementation of the action plans should be monitored on a monthly basis. Management should be held accountable to implement action plans.
The staff performance management system should include holding individuals accountable to address internal control deficiencies identified relevant to performance planning and reporting.

Compliance with legislation

5.1 Audit outcome

We identified material non-compliance with legislation by the Department of Higher Education and Training, AGRISETA, CETA, CATHSSETA, EWSETA, INSETA, LGSETA, MERSETA, PSETA, QCTO, SASSETA and Service SETA in one or more of the following areas:

AGRISETA, EWSETA, MERSETA and PSETA did not always request 3 quotations for procurement below R500 000.
CATHSSETA, INSETA and PSETA did not always follow competitive bidding processes.
AGRISETA and PSETA did not always request tax clearance certificates before making awards to suppliers.
CHE and PSETA did not always obtain declarations of whether bidders or anyone related to the bidder is employed by the state.
SASSETA made a construction award to a bidder that did not comply with a requirement of the Construction Industry Development Board.
Some officials of the Department of Higher Education and Training did not obtain approval for other remunerative work.
CETA did not always advertise bids in at least the government tender bulletin.
AGRISETA, CETA, CATHSSETA, EWSETA, LGSETA, MERSETA, PSETA, QCTO and Services SETA did not take reasonable steps to prevent irregular expenditure.
The Department of Higher Education and Training, CETA and CATHSSETA did not maintain an effective system of internal controls over performance management.
CATHSSETA did not report on all strategic objectives in the annual performance report as included in the strategic and annual performance plans.
The internal audit at SASSETA did not review the effectiveness of internal controls.
The Department of Higher Education and Training did not always complete the required verification checks prior to the appointment of new staff. The department also had vacant posts for more than 12 months.
CATHSSETA and QCTO did not maintain adequate controls over asset management.
NSFAS did not take effective and appropriate steps to collect all money due to them.

SERVICES SETA incurred R63,9 million in irregular expenditure, which was 43,8% of the total amount of R146 million irregular expenditure incurred by the national portfolio. The amount of irregular expenditure incurred by Services SETA has decreased compared to R141,4 million incurred in the prior year. The nature of the irregular expenditure is as a result of non-compliance with supply chain management legislation and the skills development act SETA grant regulations. 97% of the irregular expenditure incurred was identified by the auditee’s own processes of internal controls.

Concerns around the supply chain management processes were noted in 55% of the portfolio. This is reflected in the audit outcomes for compliance with legislation where most of the findings reported on related to procurement and contract management and irregular expenditure. Controls should be implemented to monitor compliance with supply chain management processes.

5.2 Key internal control deficiencies

The following internal control deficiencies were identified that gave rise to the findings on compliance with legislation:

Inadequate processes in place to monitor compliance with laws and regulations to prevent irregular expenditure.
Audit recommendations from the previous year were not implemented which gave rise to repeat findings.
Lack of consequence management for non-performance.

5.3 Recommended actions

The following controls should be strengthened to create and sustain a control environment that supports compliance with legislation:

Processes should be in place to monitor compliance with laws and regulations to prevent irregular expenditure.
Action plans to address internal and external audit reports should be developed and implemented within one month of receipt of reports. The progress on the successful implementation of the action plans should be monitored on a monthly basis.
The staff performance management system should incorporate holding individuals accountable to address internal control deficiencies identified relevant to compliance.

6. FET colleges

6.1 Financial statements

The deadline set by the DHET for the completion of FET college audits for the year ended 31 December 2013 was 30 June 2014
Of the fifteen audits to be undertaken by the AGSA the start of the audit of Maluti FET college was delayed till early August due to management not being in a position to submit the annual financial statements for audit by the stipulated date
Of the remaining fourteen audits, five audits were completed by the deadline of 30 June 2014, while seven audits have been completed in the period since then. Significant delays were experienced in finalising all the audits that were not completed by 30 June 2014. The reasons for the delays range from lack of proper accounting records to disagreements with management, management not being available to discuss final reports, management insisting on making further corrections to submitted annual financial statements and council not yet having approved the annual financial statements.
The audit outcomes for the completed audits and the anticipated audit outcomes for those not yet finalised as shown below are a cause for concern and highlight the urgent need to sufficiently capacitate the finance functions of the colleges:

COLLEGE / FINANCIAL OPINION 2013 / FINANCIAL OPINION 2012
Central Johannesburg / Qualified / Unqualified with findings
East Cape Midlands / Adverse or
Disclaimer (anticipated) / Unqualified with findings
Esayidi / Qualified / Unqualified with findings
Ikhala / Disclaimer / Adverse
King Hintsa / Disclaimer / Disclaimer
Letaba / Disclaimer (anticipated) / Unqualified with findings
Lovedale / Disclaimer / Unqualified with findings
Maluti / Delayed / Disclaimer
Mnambithi / Unqualified with findings / Unqualified with no findings
Northern Cape Urban / Qualified / Unqualified with findings
Northlink / Qualified / Unqualified with no findings
Orbit / Qualified / Unqualified with no findings
South West Gauteng / Qualified / Qualified
Tshwane South / Disclaimer / Unqualified with no findings
Western College / Disclaimer / Unqualified with no findings
AUDIT OPINION
CLEAN AUDIT OPINION: No findings on predetermined objectives (PDOs) and compliance
UNQUALIFIED with findings on PDOs and compliance
QUALIFIED AUDIT OPINION (with/without findings)
DISCLAIMER/ADVERSE AUDIT OPINION

6.2 Compliance with legislation

Material non-compliance with the FET College Act was identified in the following areas:

Ten (10) of the colleges did not keep complete accounting records of all assets, liabilities, income and expenses and disclosures of the college.
Eleven (11) FET colleges did not have internal audit functions and risk management systems
The internal audit function of Orbit FET college was not independent as they also performed some management functions.
Central JHB and Orbit FET colleges did not have an audit committee.
Northern Cape Urban, Central JHB and Orbit FET colleges did not submit the strategic plan to the Minister at least 30 days before the start of the financial year.
Lovedale FET college did not prepare the strategic plan.
Lovedale and Orbit FET colleges did not establish an interim council to perform the functions relating to the governance of the college until a permanent council is established.
The appointment of the lecturers and support staff at Lovedale and Northern Cape Urban FET colleges were not approved by the council.
Esayidi FET college entered into loan or overdraft agreement without the approval of the Minister.

6.3 Key internal control deficiencies

The following transversal internal control deficiencies were identified at FET’s that resulted in a regression of audit outcomes at the FET’s:

Inadequate finance skills: Sustainability of SAICA Support CFO Project - with the high level of vacancies at CFO level, limited skills transfer has taken place.
Inadequate risk management and governance structures: various FETs have no risk management, internal audit functions and no audit committees in place.
Weaknesses in IT systems and controls
Some FETs do not have proper IT systems in place to collate financial information. This threatens the reliability of data produced.
Decentralised systems – across campuses. No integration – finance, payroll and student data resulting in complex consolidation processes.
No formally documented and approved business continuity plan (BCP) and a disaster recovery plan (DRP). College might not be able to continue critical business processes reliant on IT systems
Backups not stored at a secure offsite storage facilities

Weak procurement policies and non adherence to procurement policy recommended by DHET during the financial year.
Lack of policies and procedures to enable and support understanding and execution of internal control objectives, processes, and responsibilities by all staff.
Lack of policies and procedures to detect conflict of interest of council members and/or employees.
Poor records management resulting in loss of audit trail.
Inadequate/no monthly processing and reconciliation controls for student debtors, fixed assets registers, bank and cash and trade payables.
Non-compliance with the guidelines for the administration and management of the DHET FET college bursary scheme
Material impairement or write off’s of students debtors without following due processes to recover the money.
Land not registered in the names of the FET colleges. Some are registered in name of private owners
Differences between the total monthly GDE Persal paid employees cost and the year end employees cost confirmation received from GDE.

6.4 Recommended actions