Education, Health the audit report culprits

POLOKWANE – The two key service delivery departments, Health and Education, which are the cornerstones of the national development plan and the Limpopo Development Plan and account for approximately 76% of the provincial budget, received a qualified opinion and disclaimer of opinion in the recent Auditor-General Report, respectively.

The regression to a qualified opinion at the Department of Health can be ascribed to instability in the positions of accounting officer and chief financial officer following the withdrawal of the intervention team in terms of Section 100(1)(b) of the Constitution in January 2015. The AG report showed that the department showed an improvement of R259,1 million when it came to irregular expenditure and a R15,9 million improvement on fruitless wasteful expenditure(money spent on negligence, overdue accounts and penalties paid for some reason).

One of the main issues for the department’s performance pointed out by the AG was the fact that the department the position of the accounting officer was vacant for six months and the position of the chief financial officer was vacant for a year.

This hampered the drive towards creating a sustainable control environment with effective monitoring controls.

This was evident at the Department of Health, as the audit team identified a significant number of errors that were indicative of a breakdown in internal controls that the department could not correct.

The department showed a disclaimer (a statement that is meant to prevent an incorrect understanding of something) with findings when it came to predetermined objectives and compliance with legislation this was a repeat from the previous financial year.

The auditor-general finding stressed new concerns in the financial statement qualification areas of the department when it came to non-current assets other disclosure items as well as expenditure.

On the findings of predetermined objectives the department received a repeat disclaimer with findings on the report of information that is not reliable.

Findings on non-compliance by the Auditor-General show that the department received disclaimers with findings on material mismanagement or limitation in the submitted annual financial statements (AFS) and unauthorised irregular as well as fruitless and wasteful expenditure. Expenditure management and revenue management together with procurement management also received disclaimers with findings.

When it comes to findings in specific risk areas the Auditor-General found that the department received disclaimers with findings repeated on quality or submitted performance reports and supply chain management. Human resource management and information technology also showed a disclaimer with findings but was not repeated from the previous financial year.

Areas where the department improved included in the findings on non-compliance when it came to asset management, budgets, consequence management, strategic planning and performance management and HR management.

The Department of Education continued to disappoint with its performance and retained a disclaimer of opinion for a fifth consecutive financial year. This means that the AG was unable to complete an accurate audit report on the department for different reasons. When this happens, the auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could not be determined. The department was also placed under administration by the provincial treasury recently.

In the recent Auditor General’s report the Department of Education received a disclaimer with findings in the following areas:

– the predetermined objectives

– compliance with legislation

On financial statement qualification areas the department received more repeat disclaimer with findings from the previous financial year on non-current assets, current assets, liabilities, other disclosure items, expenditure and unauthorised, irregular as well as fruitless and wasteful expenditure (money spent on negligence, overdue accounts and penalties paid).

The AG findings on predetermined objectives showed that the department received a disclaimer with findings on reported information not being reliable.

Findings on non-compliance showed the department in a repeat disclaimer with findings on material mismanagement or limitations in submitted (AFS) Annual Financial Statements, unauthorised irregular as well as fruitless and wasteful expenditure, expenditure management, consequence management, strategic planning and performance management, transfer and conditional grants and procurement management.

The Education Department only showed an improvement on report information not being useful, asset management, revenue management and HR management as well as a R 336,3 million irregular expenditure from the previous financial year and lastly an improvement in fruitless and wasteful expenditure of R17,3million.

Audit report terms explained

Here are some of the terms easily explained:

• Fruitless and wasteful expenditure: Money that has been wasted on something like negligence, overdue accounts and penalties being paid.

• Unauthorised expenditure: Spending more money than was allocated for one thing and money used for other purposes than the money was planned for.

• Irregular expenditure: Money being spent over budget on unplanned items or paying more for something than it normally costs.

• Unqualified opinion: Often called a clean opinion, an unqualified opinion is an audit report that is issued when an auditor determines that each of the financial records provided by the small business is free of any misrepresentations.

In addition, an unqualified opinion indicates that the financial records have been maintained in accordance with certain standards.

This is the best type of report a business can receive.

Typically, an unqualified report consists of a title that includes the word “independent”.

This is done to illustrate that it was prepared by an unbiased third party.

The title is followed by the main body. Made up of three paragraphs, the main body highlights the responsibilities of the auditor, the purpose of the audit and the auditor’s findings.

The auditor signs and dates the document, including his address.

• Qualified opinion: In situations when a company’s financial records have not been maintained in accordance with the necessary standards, but no misrepresentations are identified, an auditor will issue a qualified opinion.

The writing of a qualified opinion is extremely similar to that of an unqualified opinion.

A qualified opinion, however, will include an additional paragraph that highlights the reason why the audit report is not unqualified.

• Adverse opinion: The worst type of financial report that can be issued to a business is an adverse opinion. This indicates that the firm’s financial records do not conform to required standards.

In addition, the financial records provided by the business have been grossly misrepresented. Although this may occur by error, it is often an indication of fraud.

When this type of report is issued, a company must correct its financial statement and have it re-audited, as investors, lenders and other requesting parties will generally not accept it.

• Disclaimer of opinion: On some occasions, an auditor is unable to complete an accurate audit report. This may occur for a variety of reasons, such as an absence of appropriate financial records.

When this happens, the auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could not be determined.

riana@nmgroup.co.za