Department of Basic Education Audit Committee Presentation Portfolio

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The presentation outlines the purpose, responsibilities, and key aspects of the Department of Basic Education Audit Committee's activities, including oversight on internal and external audits, risk management, financial statements quality, and irregular expenditure investigations. It emphasizes the four lines of defense model for assurance, with a focus on internal audit as a key provider of assurance to the Audit Committee.

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DEPARTMENT OF BASIC EDUCATION AUDIT COMMITTEE PRESENTATION PORTFOLIO COMMITTEE ON BASIC EDUCATION 17 OCTOBER 2023

PRESENTATION OUTLINE Purpose Audit Committee Responsibility Internal Audit Role General improvements/challenges in control environment Regularity Audit (Root Causes/Action) Performance Information audit (Annual Report) Financial Performance of DBE Audit Action Plan Monitoring the investigations on Irregular and Fruitless and Wasteful Expenditure Conclusion 2

PURPOSE To brief the Portfolio Committee on the Audit Committeeactivities of the Department of Basic Education (DBE). 3

AUDIT COMMITTEE RESPONSIBILITY Oversight over Internal and External Audit; Oversight over the implementation of Internal and External Audit recommendations; Oversight over Risk Management; Oversight over the quality of Financial Statements; and Oversight over the system of internal control for the generation, collation and reporting of Performance Information. Oversight on investigation progress on irregular expenditure and material irregularities 4

FOUR LINES OF DEFENCE Assurance model: Management - First line: the way risks are managed and controlled day-to-day. Assurance comes directly from those responsible for delivering specific objectives or processes. It may lack independence, but its value is that it comes from those who know the business, culture and day-to-day challenges. Risk and Compliance - Second line: the way the organisation oversees the control framework so that it operates effectively. The assurance provided is separate from those responsible for delivery, but not independent of the management chain, such as risk and compliance functions. Internal Audit - Third line: objective and independent assurance, e.g., internal audit, providing reasonable (not absolute) assurance of the overall effectiveness of governance, risk management and controls. The level and depth of assurance provided will depend on the size and focus of the internal audit function and management s appetite for internal audit assurance. External Audit - Fourth line: assurance from external independent bodies such as the external auditors and other external bodies. External bodies may not have the existing familiarity with the organisation that an internal audit function has, but they can bring a new and valuable perspective. Additionally, their outsider status is clearly visible to third parties, so that they can not only be independent but be seen to be independent. 5

INTERNAL AUDIT Key assurance provider to the Audit Committee Conducted thirteen (13) audits as per approved risk-based audit coverage plan, and thirteen (13) management request on consulting engagements ASIDI Audits at two (2) Implementing agents ( NECT, and TMT Limpopo) on the review of SCM compliance process, contractor's payments, and project management. Performance Information quarterly reviews were conducted, and findings are also shared during the Branch Reviews. Reviews on the annual report and annual financial statement and areas of improvement were communicated prior submission to the AGSA audit. A follow up on AGSA previous findings review was conducted for DBE and Implementing Agents, 77% of previous findings were resolved. Presented the quarterly progress reports against the approved plan at the Audit Committee meetings. Coordinated the audit steering committee meeting with management to discuss all audit reports and audit action plan prior the audit committee meetings. 6

INTERNAL AUDIT ROLE management through recommendations to improve internal controls. Participated and shared the internal control weaknesses and improvement in a coordinated workshop on the Audit Action Plan held on 1 September 2022 together with AGSA, DG s Office, CFO, Finance, Infrastructure Branch and all Branches, as well as all implementing agents to reflect on areas that must be improved to strengthens internal controls. In respect of the recently concluded AGSA audits, an Audit Committee meeting to review the current audit action plan held on the 16 August 2023 Conducted investigations on irregular and fruitless and wasteful expenditure, and reports were referred after DG s consideration to Labour Relations for consequence management and Legal Service to start the recovery processes. Participate as a consulting service to provide advice at Technical Evaluations Committees, BEC and BAC. Reviewed the National Teacher Awards Adjudication process and conducted a follow up and 60% implemented recommendations and 40% partially implemented Advise audit assurance, by providing 7

INTERNAL AUDIT ROLE Conducted SCM Stock Ordering and Inventory Management follow up review and have tested 50% implemented recommendations and 50% were partially implemented on control deficiencies previously identified. Performance information reviewed quarter 2 and Annual Report review prior submission to AGSA by 31 May 2023. Reviewed the PPP Agreement procurement process follow up tested implementation of recommendations 80% implemented and 20% partially implemented. Review of quarter 2 interim financial statement and the annual financial statement prior submission to AGSA by 31 May 2023. Reviewed the supply chain management process and contractors' payments at Implementing agents, The National Education Collaboration Trust (NECT), and The Mvula Trust (TMT) Limpopo. Implementation of recommendation TMT Limpopo 80% implemented, 20% not implemented Implementation of recommendation NECT 20% implemented, 60% partially implemented, and 20% not implemented. 7

INTERNAL AUDIT Monitoring the Performance Information on a quarterly basis and annual target milestones achievements through internal audits to verify reliability of evidence reported; Enhanced effective coordination of verification of reported evidence with Strategic Planning and Branches; Reviewing and monitoring of the evidence that support performance indicators and changes that are required which might affect the reliability of evidence; Reviewing and follow up audits on ASIDI on the control's effectiveness of previous findings, irregular expenditure, commitment (provision and retention disclosure); Reviewed the AGSA previous year findings in the management report 2021/22 and total of 40 findings, 36 follow up audit conducted, 28 implemented, 1 partially implemented, 2 not resolved, 5 not tested (only covered in the current audits) Reviewing and monitoring the improvement on non-compliance regarding Supply Chain Management for two (2) Implementing Agents.8

AUDIT COMMITTEE MEETINGS Meeting Date Purpose 2022/2023 1 April 2022 Review of the audit action plan to address areas of control weaknesses and previous findings or potential qualification areas AGSA status of records review 2021/22 Review of internal audit reports, commitment of management of action plan, and progress Risk Management progress reports Performance Information (Annual Performance Plan) reporting Q4 Budget and Expenditure report Q4 Investigation status report on completed, in progress and cases referred to Labour Relation Approval of the three year rolling risk based audit plan 27 May 2022 Review of Annual Report (Annual Performance Plan) 2021/22 Review of the Annual Financial Statement 2021/22 Internal Audit Charter and Audit Committee Charter for review and approval Internal Audit Report on the review of the Annual Report and Annual Financial Statement 9

AUDIT COMMITTEE MEETINGS Meeting Date Purpose 2022/2023 26 July 2022 Review of the AGSA Management Report and audit report 2021/22 29 August 2022 Review of the audit action plan to address areas of control weaknesses and previous findings or potential qualification areas Review of internal audit reports, commitment of management of action plan, and progress Q1 Risk Management progress reports Q1 Performance Information (Annual Performance Plan) reporting Q1 Budget and Expenditure report Q1 Investigation status report on completed, in progress and cases referred to Labour Relations 29 November 2022 Review of the audit action plan and progress to address areas of control weaknesses and previous findings or potential qualification areas Review of internal audit reports, commitment of management of action plan, and progress Q2 Risk Management progress reports Q2 Performance Information (Annual Performance Plan) reporting Q2 Budget and Expenditure report Q2 Investigation status report on completed, in progress and cases referred to Labour Relations 9

AUDIT COMMITTEE MEETINGS Meeting Date Purpose 2022/2023 15 February 2023 Review of the audit action plan and progress to address areas of control weaknesses and previous findings or potential qualification areas AGSA Audit Strategy and engagement letter for 2022/23 audit cycle Review of internal audit reports, commitment of management of action plan, and progress Q3 Internal Audit three year rolling risk based audit plan 2023/24 Risk Management progress reports Q3 Performance Information (Annual Performance Plan) reporting Q3 Budget and Expenditure report Q3 Investigation status report on completed, in progress and cases referred to Labour Relations 9

AUDIT COMMITTEE MEETINGS Meeting Date Purpose 2023/24 18 April 2023 Review of the Audit Action Plan to address areas of controls weaknesses Presentation on the progress on Material Irregularities Internal Audit Report and performance review Q4 Performance Information quarterly report Q4 Budget and Expenditure reports Q4 Risk Management Progress reports Q4 Investigation Status on completed, in progress Approval in Internal Audit Charter 2023/24 29 May 2023 Review of Annual Report (Annual Performance Plan) 2021/22 Review of the Annual Financial Statement 2021/22 Internal Audit Charter and Audit Committee Charter for review and approval Internal Audit Report on the review of the Annual Report and Annual Financial Statement 27 July 2023 Review of the AGSA Management Report and audit report 2022/23 11

CONTROL ENVIRONMENT Stability in leadership (Accounting Officer) providing leadership and excellent support to the Audit Committee; Most branches has leadership stability and monitoring is enhanced; Stability in the governance structures (Audit Committee and Risk Committee); Monitoring of the risk management activities, Branches quarterly reporting progress on mitigation action on identified risks and emerging risks; Monitoring the risk maturity level overall through risk maturity assessment, to track improvement on the management of risks from Strategic, Operational and project level (improvement 2022/22: Rating 3.7 and 2022/2023: Rating 3.7; and Financial Statement quality there is some improvement, although material misstatements still an area that requires strengthening and regular monitoring. 12

IRREGULAR, FRUITLESS & WASTEFUL EXPENDITURE Irregular and Fruitless and Wasteful Expenditure: IA assist the Accounting Officer with the investigation of irregular, fruitless and wasteful expenditure. Departmental Investigation Committee was established to investigate, and the investigation unit under Internal Audit. Previous cases of irregular expenditure were investigated in the 2021/22, 100% of R3.2 billion, and 95% of 2022/23 R1.035 billion were completed by year end. A few cases were finalized after year end. Management to implement consequence management, progress on some cases was monitored and improve the control measures. Audit committee had a special meeting to monitor improvement with consequence management Management is in the process of requesting condonation for concluded irregular expenditure investigations and where consequence management was concluded; National Treasury approved condonation of DBSA ASIDI projects to an amount of R800 million in 2021/22 Condonation of R172 410 796.21 was granted by National Treasury through 2022/23 and condonation approved by Accounting Officer R1 496 billion Recovery process letters were written to Implementing Agents or departments through Legal Services. 13

CHALLENGES Strengthening of quality assurance by some Branches still need to improve. Capacity in ASIDI, and Supply Chain management. Prior audit findings not addressed fully, management still working on addressing them. Synergy between finance and ASIDI(There is an improved working relationship between Finance and ASIDI). ASIDI and Finance to strengthen quality assurance and accountability of work done by Implementing Agents. Supply Chain management is an area that requires more strengthening on control environment and capacity. 14

EXTERNAL AUDIT (KEY ASSURANCE PROVIDER) The Auditor-General has added value to the department and is a trusted assurance provider to the AC AC has seen progress with regard to the regularity audit outcome of the department: 2020 2021 2022 2023 Audit outcome Qualified Unqualified with findings Unqualified with findings Unqualified with findings Qualification Matters raised 2 - - - Compliance matters 3 4 3 4 Quality of financial statements still need to improve to prevent adjustments resulting from the audit 15

REMAINING MATTERS Weaknesses in quality assurance. Continued improvement in the management of Implementing Agents (contract management). Capacity challenges to monitor effectively. Project managers not performing. Information for preparation of AFS provided too late to finance. Capacity and quality to complete financial statements that will be free of adjustments after the audit. 16

ASIDI ACTION Continue to improve monitoring of Implementing Agents, PSU and ASIDI staff to improve the process. Full set of half-year financial statements are prepared, enhance theaccurate records. Submission of information for preparation of AFS timely. Regular monthly reconciliations to be prepared to prevent misstatements in the financial statements. More internal audit effort directed. Interim audit by AG. Possible disciplinary action against persons that caused irregular, fruitless and wasteful expenditure. 17

MATERIAL IRREGULARITIES Matter of great importance to the AC. Separate agenda item and we monitor the progress with investigations into MI s. Four (4) MI s identified and follow ups and report on progress monitored on quarterly basis. Progress on consequence management implementation was tracked for all MI in the year under review 18

REVIEW OF THE ANNUAL REPORT The annual report was reviewed prior to the submission to the AGSA. Management worked with Internal Audit to correct other gaps identified during the review meeting prior to submission date. In the last review there were a number of annual indicators with report consolidation at year end and were signed after 31 March 2022. Some branches to improve on quality of evidence and timely submission. 19

AUDIT OUTCOMES: PERFORMANCE INFORMATION Programme 2 Limited Future Risk Improvement Unqualified Material adjustments to information Validated evidence during the year and during the year end audit to mitigate the risk Programme 3 Limited Future Risk Material adjustment of information Validated evidence during the year and during the year end audit to mitigate the risk Management to the Technical Indicator Description for reporting Programme 4 Existing Future Risk Material adjustment and findings raised Validated evidence during the year and during the year end audit to mitigate the risk Management of the Technical Indicators Description for reporting 20

PROPOSED IMPROVEMENT Audit Committee (AC) recommended: Management to strengthen quality assurance of reported information timely. More detailed work by Internal Audit on quarterly performance information reports and financial statement reviews. Management to improve or address the capacity challenges in Strategic Planning. Further strengthen accountability and monitoring of Implementing agents, especially the penalty clauses in the MOA s 21

MANAGEMENT AUDIT ACTION PLAN Audit Committee (AC) has received a management action plan to address AG findings. AC has monitored progress. AC approved follow up audits to be conducted by Internal Audit for ASIDI irregular expenditure completeness, contractors timely payments, project management. A special Audit Committee meeting was held after the AGSA report was issued to review management action plan to address root cause to issues raised on the audit report a on 16 August 2023 to discuss improvement actions and to determine whether it will address the root cause of findings. 22

CONCLUSION The Audit Committee will continue to address all matters within responsibility. The Audit Committee will pay specific attention to the high risk and high impact issues and monitor implementation of consequence management to assist in moving towards a clean audit. its mandate and 23