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Annual Report 2004-05

Annual Report 2004-05. Presentation to the Ad Hoc Committee 28 November 2005. Q1: Public Audit Act, schedule of compliance. Q1: Public Audit Act compliance status - background.

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Annual Report 2004-05

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  1. Annual Report 2004-05 Presentation to the Ad Hoc Committee 28 November 2005

  2. Q1: Public Audit Act, schedule of compliance

  3. Q1: Public Audit Act compliance status - background • Having reviewed the PAA requirements and the impact thereof, the AG identified a need to align existing policies, guidelines and procedures; and in certain instances to develop new policies, guidelines and procedures. • For all completed projects, policies, guidelines and procedures have been established. This is reflected in the previous slide. • Remaining to be done are the implementation plans, change management and training to encourage consistent understanding and application of the PAA throughout the AG. This will be completed for full compliance by end-March 2006. • The outstanding project (one) is dependent on the establishment of the parliamentary oversight mechanism, with whom the AG must define stakeholder relationship priorities.

  4. Q2: 2003-4 audit reports not considered by legislatures

  5. Q3: Code of Ethics • See the separate document

  6. Q4: Statistics on contracts awarded to BEE firms Firms are divided into three groups based on their size. Subject to the discretion of the Auditor-General, the apportionment of the total contract rand value is as follows. Non BEE firms are encouraged to accelerate transformation within themselves and within the profession as a whole – BEE criteria therefore has a 70% weighting • Big 4 firms allocated • 45% • R75 million • Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers • Medium firms allocated • 35% • R59 million • Fisher Hoffman, Gobodo, Grant Thornton, Moores Rowland, SAB&T, Sizwe Ntsaluba • SMME firms allocated • 20% • R34 million • 47 firms

  7. Q5: Criteria for awarding contracts to audit firms • Extent of work contracted out is based on capacity shortfall (± 20%). • Contract work is awarded to audit firms using preset criteria defined in the contract work guideline. The guideline was developed in consultation with the audit firms, SAICA and the BEE Commission in 2001. • The criteria consist of two major areas: • Black economic empowerment – 70% weighting • Quality control – 30% weighting • In order to be considered, the following minimum score must be achieved: • Gauteng and KwaZulu-Natal – 50 points • North West and Limpopo – 33 points • All other provinces – 40 points • Work is not allocated to firms who do not achieve minimum score. • Work is not contracted out: • Conflict of interest (independency issues) • For certain key auditees, e.g. SARS, Treasury

  8. Q6: Level of municipal compliance with submission timelines 2004-05 • Timeous submission - 148 (52%) • Late submission - 136 (48%) 2003-04 • Timeous submission 17 (6%) • Late submission 267 (94%)

  9. Q7: Reasons why municipalities do not supply information in good time • Lack of financial management capacity • Systems of internal control, including ICT systems • Staff capacity, competencies and availability • Attitude and low priority • Outstanding financial statements from prior years • Migration to new accounting standards • Weak governance oversight processes

  10. Q8: National and provincial audit completion dates • 100% national and 97% provincial represent PFMA compliance with the two-month audit completion requirement. • 13% national and 12% provincial represent audits completed after 31 July 2004, primarily due to resubmission of financial statements and/or late submission of audit evidence (still within 2 months of submission)

  11. Q9: Listing of late submission of financial statements • All national departments submitted their financial statements on time (i.e. by 31 May 2004), and 97% of provincial departments. The two provincial departments that did not submit on time were: Eastern Cape (Health), and KZN (Finance Consolidated). • However, as stated in the response to question 8, there were instances of resubmissions to effect corrections to the financial statements and/or late submissions of audit evidence, in order to prevent an audit qualification.

  12. Q10: Reasons for non-tabling of special investigation reports • Special audits/investigations are often requested by the auditee and result in a management report to the auditee. • The practice has been to table those special audits/investigations reports, which in the opinion of the AG: • Reveal significant findings and have a high public interest imperative • Which have been requested by the public or the legislature • Disclosure on page 24 is provided to comply with section 5(1)(a)(iii) of the Public Audit Act.

  13. Q10: List of special investigations not tabled Provincial Departments: Mpumalanga Department of Education – Tender Board Department of Health - Procurement Limpopo Department of Health – Contract administration Pubic and other entities: Petroleum Agency of South Africa – Tenders National Development Association – Misconduct Umgeni Water – Procurement National : Department of Trade and Industry – Incentive schemes Department of Defence : Far North Command - Procurement South African Police Service : Logistics – Procurement

  14. Q10: List of special investigations not tabled Local Government: • Eastern Cape • Kou-Kama Municipality • Buffalo City Municipality • Nyandeni Municipality • Chris Hani Municipality • Maletswai Municipality • Port Elizabeth Metro • Ngqushwa Municipality • King Sebata Municipality • Mbhashe Municipality • Free State • Metsimaholo Municipality • Gauteng • Westonaria Municipality • Limpopo • Bela-Bela Municipality

  15. Q11: Leadership effectiveness study Key outcomes: Defined standardised leadership behaviour of the AG Defined tools to perform baseline assessment of current leadership status Defined tools/practices to assist with development and leverage of strengths Defined CSA process on key controls Defined measurement tool to determine leadership shift Defined leadership style: Warm people orientation with high task focus Empowers so that all team members are performing at full potential Inspires so that purposes can be achieved through others Defined end results: Employees find it easy to challenge the status quo Employees and management live by the values of the AG Individual and especially teamwork accomplishments are acknowledged and rewarded accordingly Employees feel valued and appreciated Employees are skilled and capable to perform their work The AG has the best training and development schemes

  16. Q11: Leadership effectiveness study details 7 Test competencies & occupational personality against the indicators 1 Vision & strategic direction 4 Corporate identity 8 Identify development plan 2 Communication VA/OA 5 Identify levels of responsibility 9 Monitor implementation of the development plan 3 Inspiring/motivating to achieve vision 6 Identify behavioural indicators per level ROI defined by leadership & corporate culture index to measure the extent of change

  17. Q11: Leadership effectiveness benchmarks The leadership effectiveness study was benchmarked against: • information from the ASTD (American Society of Training & Development) conference • the methodology of the People Business Group • the methodology of the Pacific Institute • the methodology of SHL

  18. Q12: Strategic alignment performance target • A 50% target is an initial baseline for all start-up survey projects, recommended by the survey provider

  19. Q13: Aids programme Policy framework: An HIV/Aids awareness policy was launched in 2002. Then, the policy on life-threatening diseases which includes all critical illnesses was established in 2003 (see separate document). HIV/Aids programmes: The HIV/Aids programme is managed through the AG’s Employee Wellness Programme. It includes: • Employee awareness training • Manager awareness and counselling training • A prevalence level study conducted for the AG in 2003 (5% prevalence) • Voluntary counselling testing awareness campaign • Testing of employees on health days • Use of an independent service provider for managing the EWP Future focus: • During 2006-07 the programme focus will be on an absenteeism and health trend analysis.

  20. Q14: Reasons for low pass rates Full-time bursary pass rates: 27% • Selection criteria • 2004 pilot programme: 38 students as recommended by external service providers and identified by the AG were not selected according to the new stringent criteria of the AG. • New criteria were introduced after review of the pilot results. • Selection of the service provider • 2004 pilot programme: Initially there were two service providers, selected on the basis of their track record. • The programme has been amended and limited to one service provider on the basis of its commitment to the more stringent terms and conditions of the AG.

  21. Q14: Reasons for low pass rates (continued) Part-time bursary pass rates: 38% • Root cause analysis • Inadequate AG monitoring of test results • Performance assessments only based on final exam results • Work priorities overrode study needs during peak periods • AG response for the 2006-07 year • A proactive monitoring system has been established to provide information on test results to facilitate timelycorrective action and support. • Performance assessments will include test results. • As part of the strategic imperative the method of work was a focus area at the Senior Management Workshop aimed at, inter alia, providing sufficient time for trainees to focus on their studies throughout the year. • Beyond these interventions, improvement in the pass rates is dependent on students’ attitudinal discipline and eagerness to qualify.

  22. Q15: Impact of the study assistance investment • In an environment where most employees are part-time students and the complexity of the subject matter is increasing, the probability of success without study support would have been even lower than the reported 38%. • In response to a quest to achieve better pass rates, the AG is progressively shifting its bursary focus towards stringently selected full-time students. The increase in the student numbers for full-time studies is in line with the medium to long-term strategic intention to attract adequately qualified trainees. This is demonstrated in the 2006-07 budget, note 12.7.

  23. Q16: Definition of MQF • Each job type in the employ of the Auditor-General requires appropriate minimum qualifications and experience as determined through the SAQA framework.

  24. Q17: MQF effectiveness Implementation • Staff who are currently employed require a personal development plan to achieve minimum qualifications. • New staff are appointed having achieved the minimum qualifications. Outcomes • Sustainability of the trainee accountant scheme with accessible role models • Full compliance with profession’s standards and norms as confirmed by the Public Accountants’ and Auditors’ Board • Professionalism of Corporate Services

  25. Q18: Staff retention strategies • Succession planning policy is being developed and is aimed at the succession planning for senior management. • Trainee retention policy is in place and is aimed at succession for management levels.

  26. Q19: Accessibility of the AG to potential trainee accountants • Strengthened relationship with all tertiary institutions • Regular access and visits to these institutions through open days • AG bursary to full-time students through the Denel, Thuthuka, NSOA and other programmes (refer to the 2006-07 budget, note 12.7)

  27. Q20: Recruitment criteria for trainee accountants • Employment equity targets • Minimum qualification criteria (ratio of CTA/ postgraduate and graduate qualification) • Competency assessment results • Interview results

  28. Q21: Relationship with accreditation bodies • Accreditation relationship • Each professional institute / accreditation body is annually assessed against the AG normative framework. • The normative framework confirms that the institute has retained its SAQA accreditation and its curriculum meets the professional MQF requirements of the AG. • Stakeholder relationship • These bodies form part of the AG reputation and stakeholder programme, where the relationship is managed to nurture the mutual benefit of both parties.

  29. Q22: Equalisation of opportunities • A more robust implementation of the affirmative action principles could have created a perception that opportunities have been minimised for certain groups within the AG. • This has created a need for an intensified education campaign, with employee involvement to: • define and understand the future affirmative action targets; • clarify the process for deriving the targets; • clarify the strategic objectives and benefits these targets seek to achieve; and • spell out the affirmative action benefits for the individual, the AG, the profession and the country.

  30. Q23: Affirmative action target There is no difference, the Auditor-General is to clarify the interpretation in the meeting.

  31. Q24: Employment Equity Forum decisions Since the appointment of the forum in October 2004, no decisions were taken other than to deal with the strategic matters as outlined in the annual report.

  32. Q25: Auditee dissatisfaction with the FMCM • The financial management capability model (FMCM) is an enhancement to the current audit reporting format. • The survey results are an indication of the auditees’ level of understanding of this reporting format. • In the first year of its use, the result further indicates the inconsistent application of this format by auditors. • Corrective steps taken by the AG include: • standardised format of management letters • focused training for the auditors

  33. Q26,27,28: Stakeholder satisfaction results • The AG has initiated a process to understand these results in relation to ongoing feedback received from stakeholders throughout the year. • A root cause analysis has been undertaken to explain the discrepancies that could be brought about by: • A lack of clarity and adequacy of the questions • Inadequacy of the targets against benchmarks • Inappropriate survey methodology and timing • Inconsistency of tracking process in relation to an annual survey • By the nature of the AG work and reporting framework, it is expected that the level of satisfaction by PAC will be higher than the auditee. • The results of the survey apply equally to the auditors of the AG and private audit firms. This principle is reinforced through the contract work process.

  34. Q29,30: Quality assurance levels and future plans • Root causes identified via senior management roadshows (June 2005) • Project management problems arising from conflicting non-audit & audit responsibilities during peak audit periods • Inadequate project management of the audit process throughout the year, resulting in bottlenecks during peak audit periods • Inconsistent method of work • Insufficient levels of training for management wrt audit review requirements • AG response • Immediate introduction of the pre-issurance reviews for the 2005 audit cycle • Introduction of the consistency reviews to facilitate consistency of audit conclusions during 2005 audit cycle • There was a strategic imperative to swiftly address these inadequacies during the 2005 Senior Management Workshop. • Adequate resources have been provided in the 2006-07 budget.

  35. Q31: Quality assurance process • This is an independent quality assurance process conducted annually by the Public Accountants’ and Auditors’ Board (PAAB). • The results are submitted to an assessment committee consisting of the Auditor-General, the Deputy Auditor-General and a representative from the oversight mechanism. • The role of this committee is to review the PAAB report and confirm the results, using criteria set in the quality assurance strategy. • Exco has the responsibility to use these results to take decisions relating to corrective action and performance measurement.

  36. Q32: Collation of quality information • The coverage is done on a sample basis. • The sample includes coverage of all senior managers. • A random sampling is used but defined such that it includes at least an audit with a fee in excess of R1 million. • The selection covers audits done in national, provincial and local government and public entities.

  37. Q33: international peer review results • See separate document.

  38. Q34,35: Corporate Services restructuring • See the 2006-07 strategic plan, section 4.2 (core business support).

  39. Q36: Retention of surplus Approval of retention of reserve • Once the 2006-07 budget has been considered by Parliament, the application will be made for the retention of 2004 and 2005 surpluses. • This process will be completed by end of March 2006.

  40. Q37: Environmental audits • This audit discipline is part of the AG’s research priorities to expand its performance audit focus in a considered way. • As such, the impact of this strategy, including the skills requirements and retention, will be well considered.

  41. Q38: Auditing Professions Bill • The AG had a representative on the panel that considered the bill during its formulation. • The AG has been a board member of the PAAB where the bill has been continuously reviewed and considered.

  42. Q39: Impact of the Auditing Professions Bill • Significant areas of impact • Compliance with quality control standards • Disciplinary procedures • Immediate reporting of material irregularities • AG option to audit the Independent Regulatory Board of Auditors (replacing the PAAB) • It will be inappropriate for AG to serve on IRBA • Implementation of APA and funding model

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