annrep 1011 1 to 148.qxp - Department of Defence

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D E P A R T M E N T O F D E F E N C EDepartment of Defence and Military VeteransVote 21REPORT OF THE AUDITOR-GENERAL TO PARLIAMENTON VOTE NO. 21: DEPARTMENT OF DEFENCEAND MILITARY VETERANSU n a u d i t e d s u p p l e m e n t a r y s c h e d u l e sThe supplementary information set out in annexures 1A to 6 on pages 255 to 269 do not form part of the financial statements andis presented as additional information. I have not audited these schedules and, accordingly, I do not express an opinion thereon.R E P O R T O N O T H E R L E G A L A N D R E G U L A T O R Y R E Q U I R E M E N T SIn accordance with the PAA and in terms of General notice 1111 of 2010, issued in Government Gazette 33872 of 15 December2010, I include below my findings on the annual performance report as set out on pages 23 to 93 and material non-compliancewith laws and regulations applicable to the department.P r e d e t e r m i n e d o b j e c t i v e sThere are no material findings on the annual performance report.C o m p l i a n c e w i t h l a w s a n d r e g u l a t i o n sI n t e r n a l A u d i tThe accounting officer did not ensure that an internal audit function was in place as per requirements of Treasury Regulation(TR) 3.2.2. However, the Inspector General did perform certain compliance and other procedures which were reported to theaudit committee.F i n a n c i a l m i s c o n d u c tSufficient appropriate audit evidence was not available in all instances, to determine if the accounting officer ensured that investigationswere conducted into all allegations of financial misconduct made against officials within 30 days from the date of discoveryof the allegation as required in terms of TR4.1.2.A n n u a l f i n a n c i a l s t a t e m e n t s , p e r f o r m a n c e a n d a n n u a l r e p o r tThe accounting officer did not implement adequate control systems for the safeguarding and maintenance of assets to preventtheft, losses, wastage and misuse, as required by the PFMA section 38(1)(d) and TR 10.1.1(a).The accounting officer submitted financial statements for auditing that were not prepared in all material aspects in accordancewith modified cash basis of accounting determined by the National Treasury, supported by full and proper records in all instancesas required by section 40(1)(a) and (b) of the PFMA. Certain material misstatements identified with regards to operating leasecommitments were subsequently corrected, however, the uncorrected material misstatements in capital assets resulted in thefinancial statements receiving a qualified audit opinion in contravention of section 40(3)(a).H u m a n r e s o u r c e m a n a g e m e n t a n d c o m p e n s a t i o nSome senior managers did not enter into a performance agreement for the current year as per the requirements of PSR 4/III/B.1and Department of Defence Instruction: POL and PLAN No. 00065/2002 (Edition 2) dated 1 January 2005.180ANNUAL REPORT FY 2010/2011
D E P A R T M E N T O F D E F E N C EDepartment of Defence and Military VeteransVote 21REPORT OF THE AUDITOR-GENERAL TO PARLIAMENTON VOTE NO. 21: DEPARTMENT OF DEFENCEAND MILITARY VETERANSP r o c u r e m e n t a n d c o n t r a c t m a n a g e m e n tIn some instances goods and services with a transaction value of more than R500 000 were not procured by means of a competitivebidding process as per the requirements of TR 16A6.1, TR 16A6.4 and National Treasury Practice Note 6 and 8 of 2007/08.Awards were made to suppliers who did not declare their employment by the state or their connection with a person employedby the state or their relationship with persons involved in the evaluation and/or adjudication of the bids as per the requirementsof Practice Note 7 of 2009/10. Contrary to Supply Chain Management (SCM) requirements this is not a requirement in terms ofdepartmental policies.Instances were identified where senior managers did not disclose their business interest in a supplier to the department and to theexecutive authority as per the requirements of chapter 3(C1) of the Public Service Regulations.In some instances the SCM officials and/or other SCM role players and those whose close family members and/or partners and/orassociates had a private or business interest in contracts awarded by the department failed to disclose their interest and in somecases participated in the process relating to the awarding of the contract contrary to the requirements of TR 16A8.4(a) and (b).Some employees performed remunerative work outside their employment in the department without written permission from therelevant authority as per the requirements of section 30 of the Public Service Act and Department of Defence Instruction: PERSNo. 4/99 dated 22 December 1999.E x p e n d i t u r e m a n a g e m e n tThe accounting officer did not, in all instances, immediately upon the discovery reported irregular expenditure to the NationalTreasury as per the requirements of section 38(1)(g) of the PFMA.I N T E R N A L C O N T R O LIn accordance with the PAA and in terms of General notice 1111 of 2010, issued in Government Gazette 33872 of 15 December2010, I considered internal control relevant to my audit, but not for the purpose of expressing an opinion on the effectiveness ofinternal control. The matters reported below are limited to the significant deficiencies that resulted in the basis for the qualifiedopinion and the findings on compliance with laws and regulations included in this report.L e a d e r s h i pThe department did not exercise sufficient oversight responsibility regarding financial reporting over capital assets, complianceand related internal controls. This is evident as the department did not have sufficient monitoring controls to ensure the properimplementation of the overall process of reporting, and regular reviewing of information to ensure the accuracy, and completenessof the information reported.Management does not, in all instances, have approved updated policies and procedures, including the reporting process to guidemanagement at the lowest level to ensure compliance with National Treasury disclosure requirements.F i n a n c i a l a n d p e r f o r m a n c e m a n a g e m e n tExisting manual and automated controls are not designed to ensure adequate record keeping and accurate and complete financialANNUAL REPORT FY 2010/2011 181
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annrep 1011 1 to 148.qxp - Department of Defence

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