Audit of Performance Information (AoPI) AGSA approach

Audit of Performance Information (AoPI)AGSA approach

Reputation promise/mission The Auditor-General has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

Outline • Background • Legislative requirements • AG strategy to AoPI • Audit approach • Audit reporting • Role of the internal auditor

Background • Supreme audit institutions (SAIs) do not only conduct financial audits • Also provides assurance on performance information produced by government departments and entities • Why was this necessary? • Public sector reforms • Improving public reporting • Providing better information on what taxpayers are getting for their taxes

AoPIAudit of Performance Information Difference between AoPI and performance auditing Performance Information (PI) = Non-Financial Information about the Service Delivery of Government PAPerformance Auditing • Part of Regularity Auditing • Focused on non-financial information in Annual Report • Audit criteria: • Compliance (has this happened), as part of regularity audit process • Quality of PI (as per audit criteria) • Done by audit professionals • Individual audits • Focused on a specific government policy or management process • Audit criteria are the 3E’s: • Economy • Efficiency • Effectiveness • Done by subject matter experts

Legislative requirements - auditing • Sections 20(2)(c) and 28(1)(c) of PAA • An audit report must reflect an opinion or conclusion relating to the performance of the auditee against predetermined objectives • Applicable to all spheres of government, including: • national, provincial and local government • public entities • those the AG opts to perform and opts not to perform • institutions funded with public monies • institutions that receive money for public purposes

Legislative requirements – planning, budgeting and reporting • PFMA • Treasury Regulations National Treasury guidance: • Annual report preparation guide • Framework for managing programme performance information

Legislative requirements – reporting:PFMA sections 40(3)(a) & 55(2)(a): The annual report and audited financial statements mustfairly present the state of affairs of (...) and its performance against predetermined objectives Legislative requirements – reporting: PFMA sections 40(3)(a) & 55(2)(a): The annual report and audited financial statements must fairly present the state of affairs of (...) and its performance against predetermined objectives

II. Treasury Regulations: Performance management process

II. Treasury Regulations

III. Guidelines and frameworks issued by the National Treasury • Treasury guidelines - Preparation of the Estimates of National Expenditure • Treasury guidelines – Preparation of Expenditure Estimates for the Medium Term Expenditure Framework • Treasury Practice Note 4 of 2009-2010 Submission of corporate plans in terms of section 52 of the PFMA • Treasury guidelines applicable to provincial departments - Pre-determined indicators and targets. • Provincial Budget and Programme Structures for publication - Budget. • Framework for strategic plans and annual performance plans, issued by the National Treasury, August 2010. (Note: Although the principles in this Framework will only be audited with the 2011-12 audit cycle the NT encourage all auditees to implement the principles as soon as possible).

III. Annual report guidanceFormat and content of reporting on pi • Departments (national & provincial): • Under programme performance section in AR • Reporting requirements as per guide: • Must report on each and every performance measure and target specified in its strategic and performance plan • Where unable to do so, this must be stated explicitly • State the reasons for major variances between target and actual

III. Annual report guidanceFormat – Departments (national and provincial) Reasons for major variances

III. Annual report guidanceFormat – Public entities

IV. NT Framework for managing programme performance information • Applicable to all entities in the national, provincial and local spheres of government • Copies available at http://www.treasury.gov.za/publications/guidelines • Contents: • Introduction • Planning, budgeting and reporting • Key performance information concepts • Developing performance indicators • Managing performance information • Publishing performance information • Roles and responsibilities

AG strategy to audit performance information ■ Phase-in approach by the AGSA since 2005-06 together with National Treasury ■ Stakeholder engagements to clarify approach and essence of AOPI has taken place and will continue throughout 2011 ■ Summary of findings for 2010 arising from the audit of reporting on predetermined objectives: . 18

AGSA audit approach – 10/11 and beyond • Understanding and testing of the internal policies, procedures and controls related to the management of performance information. • Understanding and testing of systems and controls relevant to collecting, monitoring and reporting performance information. • Audit and confirm: - Existence of performance information - Consistency of performance information between: • Strategic/annual performance plan, quarterly reports and annual performance report - Presentation in annual report • Audit and compare reported performance information to relevant source documentation and conduct procedures to ensure validity, accuracy and completeness of reported performance information.

Audit criteria

Performance information framework • AGSA recognises the following as sources of criteria against which the performance management system and annual performance report will be evaluated as a basis for an audit conclusion/opinion: • All relevant laws and regulations • Framework for the managing of programme performance information, issued by the National Treasury • Relevant frameworks, circulars and guidance issued by the National Treasury and the Presidency regarding the planning, management, monitoring and reporting of performance information.

Submission of performance information to AG All departments and entities must submit the annual performance information for audit purposes with the annual financial statements by 31 May to enable the auditors to perform the necessary final audit procedures.

Audit reporting • Management report (interim and final) • Report on all material shortcomings identified during execution of audit procedures and audit programmes

Audit reporting • Audit report 2010-11: • No separate audit opinion on performance information in audit report BUT an indication what the impact on audit opinion would have been in an annexure to the management report Audit report – way forward: • One audit report containing audit opinion on financial statements, other matters and audit opinion on performance information • Audit opinion on performance information to be report under “other legal and regulatory responsibilities” heading in audit report • Format: • Audit opinion: Unmodified or qualified or adverse or disclaimer of opinion • Basis for qualified or adverse or disclaimer of opinion • Emphasis of matter • Other matters

Audit report - examples • Qualified audit opinion: (audit findings are material) • Lack of reporting on all the objectives, indicators and targets as per the approved strategic or annual performance plan • Reporting on objectives, indicators and targets in addition (not approved) to those as per the approved strategic or annual performance plan • Reasons for variances between planned and actual performance is not included • Logical link between objectives, indicators and targets do not exist • Objectives, indicators and targets not consistent between plan and annual performance report • Changes to planned objectives, indicators and targets are not disclosed The above can lead to adverse or disclaimer of audit opinions in the case of audit findings being pervasive

Audit report - examples • Qualified audit opinion: (audit findings are material) • Lack of effective, efficient and transparent systems and internal control to provide sufficient, appropriate audit evidence to substantiate reported performance information • Sufficient audit evidence not provided to substantiate reported performance information • Evidence provided to substantiate reported performance information not valid, accurate or complete • Annual performance report was provided too late to conduct any audit work on reported information All of the above can lead to a disclaimer of opinion in the case of audit findings being pervasive

ROLE OF THE INTERNAL AUDITOR • Annual internal audit plan to identify planned audit work relevant to: • Performance management • Performance measurement • Performance reporting at different levels within the department or entity Internal auditors to assess and audit the following: • Risks and control measures over performance information • Alignment of objectives, indicators/measures and targets between strategic/annual performance plan, budget, quarterly report and annual report. • Risks and control measures of the systems used to manage and report performance information (this should include both manual and electronic systems) • The accuracy, completeness and validity of performance information reported in quarterly and annual report

DISCUSSION AND QUESTIONS

Audit of Performance Information (AoPI) AGSA approach