The Public Finance Management Act (Act 1 of 1999 as amended by Act 29 of 1999) aims at improving financial management in the public sector in order to maximize delivery through the efficient and effective use of limited resources. The Act places an obligation on Accounting Officers to ensure that departments or constitutional institutions have and maintain a system of internal audit:
The Department of Health took the opportunity to become one of the first departments to establish an Internal Audit Unit and Audit Committee. It also assisted other departments in establishing their Internal Audit function. I would like to record on behalf of the Audit Committee our appreciation of the work done by the Director-General and the former head of Internal Audit Unit.
Audit Committee
The Audit Committee of the Department was established in terms of section 38 of the Exchequer Act No 66 of 1975, augmented by way of the Government Gazette No 5791 dated 1 November 1996, which made it the responsibility of the Accounting Officer to establish an effective Audit Committee.
The appointment, functions and composition of the Audit Committee are in terms of section 76 (4)(d) and 77 of the Public Finance Management Act (PFMA), as amended.
The Committee, as legislated, performs an advisory function in relation to the Accounting Officer and a monitoring function in relation to the Internal Audit Unit.
The Audit Committee:
The Committee is scheduled to meet four times in a year and its composition is as follows:
Internal Audit Unit
The Internal Audit Unit was established in terms of S38 (1)(a)(i) and 76 (4)(e) of the PFMA, as amended. It has an independent reporting structure with the head the Unit reporting administratively to the Director-General of the Department and functionally to the Audit Committee.
In terms of an approved internal audit charter, which is renewed on an annual basis, the following audits are performed by the Unit:
However, due to the turnover of senior officials in the Unit, the Unit was unable to fully focus on its planned activities. This has resulted in planned assignments not being carried out by the Unit and efforts being concentrated in ad hoc assignments.
In view of the above, the Audit Committee and management of the Department, have - among other measures taken to resolve the situation - increased the staff establishment of the unit to 17. A total of 11 positions have been filled.
Currently the Department of Health is in the process of co-sourcing the Internal Audit Unit with an audit firm to ensure that the staff are trained and capacity is built through skills transfer.
However, the process of filling new posts has taken long and we view this as an obstacle to the effective functioning of the Unit. For the DOH to have an effectively functioning Unit all approved posts must be filled as soon as possible. Furthermore, the head of the Unit should have uncompromised support and access to senior managers and the Accounting Officer.
Committee's statutory responsibilities
As mentioned earlier, the statutory role of the Committee is a dual one: advising the Accounting Officer and undertaking monitoring for the Internal Audit Unit.
The PFMA read in conjuction with the Treasury Regulation provides that the Committee has a responsibility, in essence, to report on:
To conclude this brief outline on responsibility, I want to state that the Committee's mandate, does not extend to the conduct of management consultancies.
However, the existing mandate does afford the Committee the opportunity, and indeed the responsibility, to provide assistance, advice and guidance to Departmental management, the Minister of Health and the Internal Audit Unit.
Some might be inclined to suggest that the notions of adding value and performing an audit committee function are mutually exclusive. One of my aims is to dispel any such view. On the contrary, I consider the mandate of the PFMA and the Treasury Regulation provides a unique opportunity for the Committee to contribute positively to the development and operations of the public sector -- in other words, to add value. That is my main aim.
In the financial year under consideration, audit strategy documents provided management with a succinct but comprehensive outline of how the Unit would undertake its audit.
In my view these documents provide management with a useful independent, external perspective of the risks associated with programmes.
Effectiveness of internal controls
The internal controls of the Department, as reported by management and assessed by the Internal Audit Unit during the financial year, were found to be effective but could be improved. Cost-effective actions have been taken by management to ensure that the Department's objectives and goals remain appropriate and that its system of internal controls remains current in terms of service delivery.
Management was also able to review and modify its systems of internal control in line with the recommendations made by the Internal Audit Unit.
Actions taken by management to enhance internal controls include:
The Department developed its strategic plan on fraud prevention during the 2001/02 financial year. The plan is an important document that draws together all fraud prevention and detection initiatives that have been adopted by the NDOH, including the implementation of a Fraud Hotline.
The Department, through its Internal Audit Unit, regularly updates its risk management profile to take into account any changes to the environment including improvements in systems and new initiatives. The plan is an integral part of the Internal Audit Plan.
The Department has continuously ensured that internal policies adhered to the relevant laws, regulations and sound business practices by submitting them to the Internal Audit Unit for proactive advice and evaluation, without abdicating its responsibility to the Unit.
Employment equity
Management has put in place a structure to improve equity measures in the Department. This, in our view, is a move in the right direction.
Quality of in-year reports
We cannot comment on the quality of in-year management reports and monthly reports submitted in terms of the Division of Revenue Act as we were not afforded with the opportunity for our review and/or comment on the said reports on every sitting of the committee.
Financial statements
The Financial Statements as presented to us were not signed either by the Chief Financial Office or the Director-General and therefore we cannot give an opinion on the reliability and accuracy thereof.
Debtors
The number of debtors is a concern to us. Questions arise as to whether:
Irregular Expenditure
We are concerned to see a number of irregular expenses reported in the financial year in review, more especially in the light of the amount of money involved and the fact that most come from a particular programme. Most are due to a failure to adhere to tender procedures.
This indicates that the DOH still has a problem in adhering to procurement processes and this warrants immediate action for improvement.
With the exception of the above comments, it appears that the Financial Statements have been prepared in accordance with the guide from the National Treasury.
Concluding remarks
The Committee has long been a very strong supporter of the need for a viable and effective Internal Audit Unit in the public sector and strongly believes that it is an integral element of the internal control structure in this sector.
Adding value by contributing positively to the responsibility of the public sector, generally and in respect of individual managers within the DOH, is the Committee's continuing concern. To add value in a climate of continuous improvement flowing from the ongoing public sector reforms is the major challenge of the Committee now and into the future.
I have every confidence that the strategic directions we have introduced, and which we will keep under constant review, will provide a sound platform for a cooperative (or preferably a partnering) relationship between the Internal Audit Unit and the Office of the Auditor-General. Such a relationship should allow both sides to contribute their respective skills and experience to continually improve public sector performance and accountability.
This will require the goodwill, assistance and cooperation of all parties -stakeholders, individual managers and the executive authority. I should note that the relationship between the Committee and the managers of the DOH has been, on whole, a cooperative and positive one.
There will be an increasing focus on performance reporting, information and assessment in the period ahead. This is part of the demand by the SCOPA and the executive authority for the public service to move to more responsive and accountable systems for measuring programme outcomes.Together we can provide the necessary assurance that efficiency and effectiveness are receiving focused attention. We can also jointly identify where improvements can be made and locate examples of best practice on which we can indeed build a public service.
I would like to record my thanks for the considerable assistance provided by the Internal Audit Unit in the preparation of this report. However, they are not responsible for the views expressed here.