REPORT OF THE AUDITOR-GENERAL TO
PARLIAMENT ON THE FINANCIAL
STATEMENTS AND PERFORMANCE
INFORMATION OF VOTE NO. 27: DEPARTMENT
OF LAND AFFAIRS FOR THE YEAR ENDED 31
MARCH 2009
Reputation promise/mission
The Auditor-General has a constitutional mandate
and, as the Supreme Audit Institution (SAI) of South
Africa, it exists to strengthen our country’s democracy
by enabling oversight, accountability and governance
in the public sector through auditing, thereby building
public confidence.
Outline
• Background
• Current Year’s Audit Report
– Areas of qualification
– Emphasis of the matter paragraph
•
•
•
•
•
Prior Year’s Areas of Qualification Resolved
Audit of Performance Information
Key Governance responsibilities
Overall areas of concern
Areas of improvement
Background
• We have audited the financial statements of the
Department of Land Affairs (DLA) which comprise:
– the appropriation statement,
– the statement of financial position as at 31 March
2009,
– the statement of financial performance,
– the statement of changes in net assets and
– the cash flow statement for the year then ended,
– a summary of significant accounting policies and
– other explanatory notes, and
– the accounting officer’s report,
Background continued…
The accounting officer’s responsibility for the financial
statements
The accounting officer is responsible for the preparation and fair
presentation of these financial statements in accordance with the
modified cash basis of accounting determined by the National
Treasury, as set out in accounting policy note 1.1 and in the manner
required by the Public Finance Management Act, 1999 (Act No. 1 of
1999) (PFMA) and for such internal control as the accounting officer
determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
Background continued.
The Auditor-General’s responsibility
•
•
As required by section 188 of the Constitution of the Republic of
South Africa, 1996 read with section 4 of the Public Audit Act,
2004 (Act No. 25 of 2004) (PAA) AG’s responsibility is to
express an opinion on the financial statements based on the
audit.
Audit conducted in accordance with the International Standards
on Auditing read with General Notice 616 of 2008, issued in
Government Gazette No. 31057 of 15 May 2008.
Current Year’s Audit Report
A Qualified Report with an Emphasis of the matter
Paragraph was issued.
Areas of Qualification
1. Receivables for departmental revenue
2. Immovable Assets ( State Land)
Areas of Qualification continued …
1. Receivables for Departmental Revenue
1.1. Lease debtor’s database not up to date and insufficient
supporting documents;
1. 2. Prior year’s balance restated with no sufficient supporting
documents; and
1. 3. Some of the disclosure items omitted on the Notes to the AFS
( Aging of debtors).
As a result of a lack of supporting documentation, we were unable
to verify valuation, existence and completeness of the receivable
for departmental revenue. Consequently, we could not perform any
alternative procedures to determine whether any adjustments to
the amounts disclosed in the financial statements for receivables
for departmental revenue might be necessary.
Root Causes (Weaknesses) : Receivables on
Departmental Revenue
1. No system in place for lease management (Excel template is
used) and the integrity of the inputs received from all regions is
impaired;
2. Incomplete lease records ( the lease contracts not all available
for audit and the lease receivable database inaccurate and
incomplete); and
3. Insufficient staff capacity with the necessary skills for the lease
management.
Areas of Qualification continued …
2. Immovable Assets( State Land)
2.1. No complete asset register;
2.2. Immovable property registered in the name of other entities and
departments was recorded in the immovable asset register of the
department; and
2.3. Immovable property that should have been registered in the name of
the national government was still not registered and was therefore not
included in the asset register of the department.
Therefore we were not able to perform alternative procedures to
confirm the completeness and valuation of, and rights and obligations
regarding tangible capital assets disclosed in the financial statements.
Root Causes (Weaknesses) : Immovable
Assets
1. The vesting process not complete.
2. State Land registered in another parties name and
3. The state land register and records inaccurate and not complete.
Areas of Qualification
Area
qualified
Recurring/new
Reported in the Past 3
years
(Yes/No)
Receivables
for
departmental
revenue
Recurring
Yes
Immovable
Assets ( State
Land)
Recurring
Yes ( but different issue in
the prior years – refer to PY
audit report section)
Emphasis of the matter paragraph
•
Fruitless and wasteful expenditure as a result of irregularities in
the acquisition of land reform projects and irregular expenditure
since Provision of Land Assistance Act was not approved
retrospectively and assets other than land were acquired; and
•
Non-compliance with Treasury Regulations as a result of accruals
which exceeded the payment terms of 30 days and which could
have constituted unauthorised expenditure had the invoices been
paid in time ( as a result of funds shifted to Deeds registration
Trading Account )
Prior Year Audit Report
1. Area qualified
PLAS ( Tangible Capital Assets).
Details of qualification
R824million difference between Assets register, BAS (GL) and the Annual Financial
Statements and insufficient record for PLAS projects .
How Resolved
Use of Consultants .
Root Cause for use of consultants
Key vacancies and insufficient staff capacity.
Areas of Concern
The problem rectified can re-occur as a result of lack of skills transfer since the PLAS
record might not be adequately kept up to date as consultants were used to rectify
the problem and skills on PLAS assets and records maintenance were not transferred
to the DRDLR employees.
Prior Year Audit Report Continued …
2. Area qualified
Biological Assets
Details of qualification
No system in place to keep and update the record of biological assets.
How Resolved
Use of Consultants
Root Cause for use of consultants
Key vacancies and insufficient staff capacity
Areas of Concern
The problem rectified can re-occur as a result of lack of skills transfer since the biological
assets record might not be adequately kept up to date by the DLA employees or the people
at the farms as a result of the lack of skills due to the specialised nature of the asset.
Prior Year Audit Report Continued.
3. Area qualified
Commitments
Details of qualification
Insufficient records which did permit the application of alternative procedures
How Resolved
Use of Consultants
Root Cause for use of consultants
Key vacancies and insufficient staff capacity and no formal system in place for the
management of commitments ( Excel is used to manage the 8,8 billion commitments)
Areas of Concern
The problem rectified can re-occur as a result of lack of skills transfer since the
commitments record might not be adequately kept up to date by the DLA employees
and the use of excel to manage the commitments which imposes data security and
integrity risk.
Prior Year Audit Report Continued …
4. Area qualified
Interest receivable from conveyancers
Details of qualification
No system was in place to collect and keep record of the interest due from attorneys ( held in
the trust accounts).
How Resolved
DLA employees recalculated and updated the interest receivables records and follow up with
attorneys was done.
Areas Improved
The department took initiative and embarked on a project to rectify the prior year’s reported
issues ( calculation and correct disclosure and recovery steps) on interest on conveyancers
by using own staff. In so doing the skills were transferred and operational procedures were
improved, which might be sustainable.
Audited Performance Information
•
•
Sufficient appropriate audit evidence in relation to the reported performance
information could not be obtained, as the relevant source documentation
could not be provided for audit purposes on time.
The department was not ready to get an opinion on the audit of performance
information audit since:
– There was no system in place at the department to address the
collection, monitoring, and accurate reporting on performance
information, however
– The department now has the policy on Programme Performance which
was only approved by the Accounting Officer on 23/03/2009.
Key Governance responsibilities
1. Clear trail of supporting documentation that is easily available and
provided in a timely manner
2. Quality of financial statements and related management information
3. Timeliness of financial statements and management information
4. Availability of key officials during audit
5. Development and compliance with risk management, effective internal
control and governance practices
6. Leadership/supervision and monitoring
Key Governance responsibilities
continued…
1. Clear trail of supporting documentation that is easily available
and provided in a timely manner
No significant difficulties were experienced during the audit
concerning delays or the availability of requested information.
However, the department requested that they only submit evidence
supporting the qualification paragraphs by 15 May. This made it
difficult for us to complete the audit at the reasonable timeframe in
order to allow the department sufficient time to follow up on problems
that were identified.
Key Governance responsibilities
continued…
2. Quality of financial statements and related management
information
The quality of the financial statements was not satisfactory. This was
as a result of several material adjustments on the Disclosure Notes to
the annual financial statements, which indicate that there is a lack of
guidance and understanding on what needs to be done regarding the
disclosure notes.
Key Governance responsibilities
continued…
3. Timeliness of financial statements and management
information
The annual financial statements were submitted for auditing as per the
legislated deadlines.
Key Governance responsibilities continued…
4. Availability of key officials during audit
We had no problems during the audit process with the availability of
key officials.
Key Governance responsibilities continued…
5. Development and compliance with risk management, effective
internal control and governance practices
•
•
•
Internal audit
The department had an internal audit function in operation throughout the financial
year. However the concern for the year was the fact that they only started late in the
year with the audit work as a result of the tendering process.
Audit committee
The department had an audit committee function in operation that adequately fulfilled
its duties.
Internal controls and risk management
There are still significant deficiencies in the design and implementation of internal
control in respect of financial and risk management. This is reflected in the qualification
on receivables for departmental revenue and tangible capital assets. The department
has not undertaken a risk assessment to assess any risks of fraud and consequently
did not updated the fraud prevention plan, as required by the Treasury Regulations.
Key Governance responsibilities continued.
6. Leadership/supervision and monitoring
It has been noted that there is leadership, supervision and monitoring
in place. However, there are key areas that require improvement
especially where the material adjustment to the annual financial
statements were made and the areas of qualification.
OVERALL AREAS OF CONCERNS.
• Key vacant positions ( esp. in the finance division whereby key positions
are temporarily filled by acting staff members)
• Use of consultants – Lack of knowledge transfers therefore the risk that
the problems rectified might re-occur again in the future.
• The completion of the restitution programme which requires billions of
rand and the risk of not meeting the restitution performance targets due
to budget constraints which might result in non compliance issues ( e.g.
shifting of funds from other programmes which might result in the
department not been able to honour other obligations).
• Areas which were qualified:
 Receivables for departmental revenue ( leases )and
 Tangible Capital Assets ( Completeness and rights of immovable
properties and asset register incomplete and inaccurate).
AREAS FOR IMPROVEMENT
• Submission of the correct documentation on time; Interim audit
to cover the qualification areas and any findings should be
addressed timeously when raised with management not during
the final audit to reduce the number of material adjustments
after year end;
• The department should draw up an action plan (involve the
AGSA) to address all the audit findings and implement and
monitor the achievement thereof early; and
• Appointment of skilled candidates and provide training to the
DRDLR employees on areas that; were qualified in the current
financial year; were material adjustments were made and areas
that were qualified in the prior year and rectified with the
involvement of consultants.
QUESTIONS