Report of the Auditor-General to Parliament on the Financial Statements of Vote 15 - National Department of Health for the year ended 31 March 2002

1.AUDIT ASSIGNMENT

The financial statements as set out on pages ¡Ç to ¡Ç, for the year ended 31 March 2002, have been audited in terms of section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read with sections 3 and 5 of the Auditor-General Act, 1995 (Act No. 12 of 1995). These financial statements, the maintenance of effective control measures and compliance with relevant laws and regulations are the responsibility of the accounting officer. My responsibility is to express an opinion on these financial statements, based on the audit.

2.NATURE AND SCOPE

The audit was conducted in accordance with Statements of South African Standards. Those standards require that I plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.

An audit includes:

• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
• assessing the accounting principles used and significant estimates made by management, and
• evaluating the overall financial statement presentation.

Furthermore, an audit includes an examination, on a test basis, of evidence supporting compliance in all material respects with the relevant laws and regulations that came to my attention and are applicable to financial matters.

I believe that the audit provides a reasonable basis for my opinion.

3.QUALIFICATION

3.1 Reversal of stale warrant voucher

The National Treasury approved the establishment of the South African National Aids Trust on 28 March 2001 on condition that, where applicable, the Public Finance Management Act, 1999 (Act No.1 of 1999) (PFMA) and relevant regulations apply to the trust as if it were a schedule 3A public entity and amendments to the trust deed be allowed only with the concurrence of the Minister of Health and the Minister of Finance. The department issued a warrant voucher amounting to R20 million to the South African National Aids Trust as per this approval in the previous financial year. It was later discovered that the trust deed of the South African National Aids Trust had not been finalised at the time of effecting the payment and that finalisation thereof was expected to take place early in the 2001-02 financial year. At the time of this report the warrant voucher had become stale but had not been cancelled and the relevant accounting entries reversed. This resulted in the expenditure being overstated and voted funds to be surrendered understated by R20 million.

At the date of this report the trust had not been established.

4.AUDIT OPINION

In my opinion, except for the matter referred to in paragraph 3, the financial statements fairly present, in all material respects, the financial position of the Department of Health at 31 March 2002 and the results of its operations and cash flows for the year then ended in accordance with prescribed accounting practice.

5.EMPHASIS OF MATTER

Without further qualifying the audit opinion expressed above, attention is drawn to the following matters:

5.1 Statutory reporting responsibilities

5.1.1 Conditional grants

In terms of section 38(i) of the PFMA, the accounting officer of the department must ensure that the provisions of the Division of Revenue Act, 2001 (Act No. 1 of 2001) (DORA) are complied with when the transfer of funds takes place.

Although the department does have a framework in place to monitor the conditional grants transferred to the provinces, there are certain limitations in this monitoring framework which result amongst others from the following:

• The DORA requires the provincial departments to submit reports to the national department. These reports are not always submitted timeously, with the result that corrective action is taken too late or in some cases not at all.
• The lack of capacity in some clusters of the national department to perform effective monitoring through physical inspections. These are deemed necessary for certain grants that are transferred.
• The lack of skills in some clusters of the department to properly evaluate the information submitted in the reports by the provincial departments and to identify any possible transgressions of the conditions attached to the grants.
• The lack of capacity of the internal audit section of the department to subject the information submitted by the provincial departments to internal audit prior to the consolidation and onward submission to the National Treasury.

In certain cases there were some transgressions of or non-compliance with the DORA. These have been summarised below.

1. National department The late submission of business/strategic plans for specific conditional grants by certain provinces was not adequately followed up by the department.
   • Funds were held back without the National Treasury having been informed of this fact within seven (7) days of the grant being withheld.

   However, these funds were subsequently paid over to the provinces.

   • At the request of the Eastern Cape Province, R1,1 million was paid directly by the national Department of Health to contractors for work that was done in the Eastern Cape, from the Hospital Rehabilitation and Redistribution (HR&R) conditional grant. This money should have been transferred to the Eastern Cape Provincial Treasury as part of the HR&R conditional grants. The Eastern Cape Province should have paid the contractors directly after conducting a proper review of the work performed.
2. Provincial departments
   • In some provinces compliance with the DORA could not be verified/confirmed due to amongst others non-submission of certain documents requested. The Eastern Cape and North-West Provinces are given as example.
   • In the North-West Province the Primary Schools Nutrition Programme was underspent and no valid reasons could be furnished for this. A forensic audit is still in progress and will be reported on separately.
   • In the Limpopo Province grants that were underspent in the previous year were rolled forward to the year under review. The approval for the rollover of the funds could not be furnished for audit purposes.
3. Report of the National Treasury to the Auditor-General in terms of section 20 of the Division of Revenue Act, 2001 (Act No. 1 of 2001)

The following are some of the key issues highlighted by the National Treasury in areas of non-compliance with the Division of Revenue Act by most departments which administer conditional grants:

• Non-compliance with section 8 of the DORA as the framework reports were not submitted on time.
• Transfers were delayed without communicating this to the National Treasury.
• Funds were often transferred to provinces as per payment schedules even where trends reflected very low spending or where there was no spending.
• Non-compliance with section 9(1) of the act as some poverty allocations to the department might not have been gazetted before transfers were made to provinces.
• Inconsistencies with regard to information supplied by provincial treasuries and national departments.
• The national department withheld payments to some provinces to directly settle expenditure incurred by the national department on behalf of the provinces.
• Programme managers failed to alert the National Treasury of changes in the payment schedule and transferred funds that were less or more than the funds stipulated on the payment schedule.
• Payments into banking accounts other than the authorised banking accounts of provinces.

5.1.2 Purchase of equipment on behalf of the province

The national department purchased dental equipment for the Eastern Cape Provincial Government for an estimated amount of R3 million and no written agreement between the Eastern Cape Provincial Government and the national Department of Health could be furnished for audit purposes. The national department tried to reduce the Eastern Cape's grants for the HR&R; however, the National Treasury ordered the national department to pay over the grant. At the date of this report there was no indication that the money had been refunded by the Eastern Cape Provincial Government. However, according to correspondence from the Eastern Cape Province the monies would be refunded in the 2002-03 financial year.

5.1.3 Donor funding

1. Overspending on donor funding

   The income statement shows that R22 770 000 was overspent on projects that were funded by a donation. On 22 July 2002 the department received a letter from the Delegation of the European Union in South Africa confirming that the department would be reimbursed for outstanding project expenses in accordance with the Financing Agreement and European Union Regulations.

2. Donor funding and interest in the Reconstruction and Development Fund not withdrawn or claimed The amount available to the department in the Reconstruction and Development Fund at 31 March 2002 was approximately R32,7 million, which was made up of a donation of approximately R68 583 and the balance being interest earned on other donations which were withdrawn by the department. The department indicated that it was busy following up this matter as there was some uncertainty as to whether the interest earned should be claimed by the department or whether this interest should be refunded to the relevant donors.

5.2 Other matters emphasised

5.2.1 Internal audit

During the year under review no reliance could be placed on the work of internal audit. This was due mainly to the fact that internal audit work did not cover the areas that we as external auditors considered to be high-risk areas within the department. The position of head of internal audit was vacant during the last quarter of the financial year. However, subsequent to year-end, the department did appoint a head of internal audit and also filled some of the vacant posts within this section.

6.APPRECIATION

The assistance rendered by the staff of the Department of Health during the audit is sincerely appreciated.

S A Fakie
Auditor-General
Pretoria