Strengthening Democracy through Auditing: The Role of the Auditor-General in South Africa

1. AGSA 5TH PARLIAMENT CAPACITY BUILDING PRESENTATION WELCOME

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

3. Purpose Of Presentation To provide members of parliament with the necessary information/guidance on the role of the AGSA to enable them to effectively execute their oversight function

4. Topics for discussion

5. 1. Background

6. Audits performed by the AGSA

7. Clean administration – from annual audits

8. Audit of predetermined objectives defined Annual audit of reported actual performance against predetermined objectives, indicators and targets as contained in the annual performance report. • It is an integral part of the annual regularity audit process, confirming the – • compliance with related laws and regulations • usefulness of performance information • reliability of performance reporting.

9. 2. Legislative requirements for performance information

10. Audit of Predetermined Objectives (AoPO) vs. Performance audit Audit of Predetermined Objectives AoPO Performance Audit Mandatory audit (section 20(2)(c) of the PAA) Includes compliance with laws and regulations Discretionary audit (section 20(3) of the PAA) Includes compliance with laws and regulations Reflects an opinion or conclusion on performance information Reporting is factual and does not include an audit opinion Reporting is done annually as part of the regularity audit process Report is not limited to annual information and can cover more than one financial year Done as part of the regularity audit process and by the regularity auditor Done by performance auditors and may include subject matter experts Reviews and confirms the validity and completeness of information Evaluates the 3 E’s at organisational, programme or project level Reporting at entity level and tabled in the relevant legislature Reporting at entity level and tabled in the relevant legislature Annual assurance on the credibility of an auditee’s reporting of their performance Factual report : whether goods & services acquired economically, applied efficiently and managed effectively towards achieving the desired goals

11. Auditing Sections 20(2)(c) and 28(1)(c) of the Public Audit Act (PAA) An audit report must reflect an opinion or conclusion on the performance of the auditee against predetermined objectives Applicable to all spheres of government

12. Planning, budgeting and reporting of performance information Public Finance Management Act , 1999 (Act No. 1 of 1999) (PFMA) Treasury Regulations issued in terms of the PFMA, 2002 Public Service Regulations (PSR), part III B: (Only applicable to departments) Guidelines, instruction notes, issued by National Treasury National Treasury Framework for managing programme performance information (issued by the National Treasury in May 2007) National Treasury Framework for strategic plans and annual performance plans (issued by the National Treasury in August 2010) This represents the performance management and reporting framework against which the performance information should be managed and reported. The principles and requirements set out in the framework are used as a basis for the audit.

13. Strategic planning and budgeting Treasury Regulations issued in terms of the PFMA Chapter 5: Strategic planning requirements for departments, trading entities and constitutional institutions. Chapter 29: Corporate planning requirements for schedule 2, 3B and 3D public entities. Chapter 30: Strategic planning requirements for schedule 3A and 3C public entities. Public Service Regulations, part III B.1(a), (g): Only applicable to departments.

14. Reporting requirements PFMA Treasury Regulations issued in terms of the PFMA Section 40(3)(a): Applicable to departments, constitutional institutions and trading entities. Section 55(2)(a): Applicable to public entities. Chapter 18: Reporting requirements for departments, trading entities and constitutional institutions. Chapter 28: Reporting requirements for all public entities. PSR, part III B.1(f)(i)-(iii) & J.1, J.3: Monitoring and management of performance information for departments.

15. Submission of annual performance report for auditing: All departments, constitutional institutions, trading entities and public entities must submit the annual performance report for audit purposes with the annual financial statements (by 31 May) to enable the auditors to perform the necessary final audit procedures.

16. 3. Performance information framework

17. Performance planning, budgeting and reporting cycle Oversight body Vote Identifythe desired impacts Assess & adjust Strategic planning Specify performance indicators Institution Department Public entity Year-end reporting AG audits accountability information Budgeting / operational planning Implementation / in-year reporting Monitor & take corrective action Set targets & allocate resources

18. Key performance accountability documents Consistent structures to facilitate understanding and accountability Enable linkage between plans and actual performance

19. Good performance indicators should be: Reliable Accurate enough for its intended use and respond to changes Well defined Clear, unambiguous definition so that data will be collected consistently and will be easy to understand and use Verifiable Possible to validate the processes and systems Cost-effective Usefulness of the indicator must justify the cost of collecting the data Appropriate Avoid unintended consequences and encourage service delivery improvements Relevant Relate logically and directly to an aspect of the institution's mandate * Source: NT FMPPI

20. SMART performance targets S Nature and required level of performance can be clearly identified PECIFIC M Required performance can be measured EASURABLE A Realistic given existing capacity CHIEVABLE R ELEVANT Required performance is linked to achievement of goal T Time period/deadline for delivery is specified IME BOUND * Source: NT FMPPI

21. 4. Audit process

22. AGSA strategy 2004-05 – 2008-09 2009-10 – 2013-14 • Completed phased audit approach • Audit to the extent necessary to express an audit conclusion • Audit conclusion in the management report for all departments, constitutional institutions, trading entities and public entities. • Audit reports contain audit findings – not audit opinions • Phased-in approach • Factual audit findings reported in both management and audit reports • No audit opinion in audit reports • Interaction with stakeholders (NT, Presidency, DPSA) to determine and test audit approach • Inputs to drafting of NT frameworks (FMPPI)

23. Audit criteria Main criteria Sub-criteria Existence Compliance with regulatory requirements Timeliness Presentation Measurability Usefulness Relevance Consistency Validity Reliability Accuracy Completeness

24. Audit approach Understand and test the design and implementation of the performance management systems, processes and relevant controls. 1 Test the measurability, relevance, presentation and consistency of planned and reported performance information. 2 Test the reported performance information against relevant source documentation to verify the validity, accuracy and completeness of reported performance information. 4 Conclude on the usefulness of the reported performance information for selected programmes or objectives. 3 Conclude on the reliability of the reported performance for selected programmes or objectives. 5

25. Audit reporting – Management report An audit conclusion will be expressed for ALL departments, constitutional institutions, trading entities and public entities in the management report, on – USEFULNESS of reported performance for selected programmes or objectives. RELIABILITY of the reported performance for selected programmes or objectives.

26. Audit reporting – Auditor’s report REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Predetermined objectives Usefulness of information Material audit findings focusing on presentation, consistency, relevance and measurability of reported performance information for selected programmes or objectives. Reliability of information Material audit findings focusing on reliability of reported performance information for selected programmes or objectives. Compliance with laws and regulations Non-compliance findings relevant to the performance management systems and processes.

27. 5. Roles and responsibilities

28. Roles and responsibilities: FMPPI (Chapter 5): Effective management of performance information requires a clear understanding of different responsibilities as well as the structures and systems involved in managing performance.

29. Role of internal audit • The functions of internal audit relevant to performance information and management should typically include the following: • Monitoring of internal controls relating to performance information processes • Examination of the usefulness and reliability of performance information • Review of critical performance management activities • Review of compliance with laws and regulations relevant to performance planning, management and reporting • Risk management • Also refer to Treasury Regulations (TR) 3.2.11 - 3.2.12 (applicable to departments) and TR 27.2.10 -27.2.11 (applicable to public entities) for the responsibilities of the internal audit function.

30. Oversight Role: Reporting • Keeping management accountable and determining whether there is – • Compliance with reporting responsibilities as set out in the PFMA • Compliance with Parliament’s Appropriation Act • Effective and efficient utilisation of resources • Review the annual report of the department / entity including the audit report, and consider both the financial and non-financial information presented.

31. Oversight Role: Strategic planning • Is the strategic plan in line with the legislative requirements / objectives? • Ensure that the strategic plan and strategic initiatives are aligned with the government priorities, national plan of action and Medium Term Expenditure Framework (MTEF) • Enquire about / identify: • challenges in meeting the strategic objectives • initiatives to address them • Evaluate: • how success will be measured

32. Oversight Role: Budgeting • Budget preparation • Is the budget aligned with the strategic plan ? • Have adequate resources been allocated to the priority areas? • Are there budget constraints and how have they been dealt with? • Focus on changes in the budget from one year to the other

33. Oversight Role: Implementation /Monitoring • Is departmental spending on the right track and in line with strategic plan priorities? • Does management evaluate monthly and quarterly reports? • Do action plans exist to address audit findings and improve financial management and accountability? • Are there designed, implemented and maintained internal controls (relevant to financial and non-financial information)? • Are procedures in place to identify, prevent and detect fraud? • Are adequate governance arrangements in place and are they effective (internal audit and audit committee)?

34. 6. Audit outcomes

35. Analysis of Prior Year Audit Outcomes for the Portfolio 1. Portfolio audit outcomes

36. Analysis of Prior Year Audit Outcomes for the Portfolio 1. Portfolio audit outcomes

37. Analysis of Prior Year Audit Outcomes for the Portfolio 1. Portfolio audit outcomes

38. Analysis of Prior Year Audit Outcomes for the Portfolio 1. Portfolio audit outcomes

39. Performance information must be presented using the National Treasury Annual reporting guidelines. Actual performance information in tables and narrative in annual report must be consistent. Reasons for major variances between planned and actual performance must be explained and should be supported by corroborating evidence. Audit of Predetermined Objectives Usefulness of 2012/13 Annual Performance Report Requirement Presentation Not all variance explanations could be supported with supporting documentation Conclusion Objectives, indicators and targets must be consistent between planning and reporting documents. Requirement Consistency Changes to objectives, indicators and targets not approved. Reported targets not consistent with planned targets Conclusion Indicators should be well-defined and verifiable. Targets should be specific, measurable and time-bound. Requirement Measurability Conclusion 21% of the performance indicator is not well defined The indicators relate logically and directly to an aspect of the institution's mandate, and the realisation of strategic goals and objectives Requirement Relevance Conclusion No material findings reported.

40. Audit of Predetermined Objectives No Additional Matter paragraphs included in audit report. No matters reported Reported in audit report

41. Performance information must be presented using the National Treasury Annual reporting guidelines. Actual performance information in tables and narrative in annual report must be consistent. Reasons for major variances between planned and actual performance must be explained and should be supported by corroborating evidence. Audit of Predetermined Objectives Usefulness of 2011/12 Annual Performance Report Requirement Presentation Conclusion No material findings identified Objectives, indicators and targets must be consistent between planning and reporting documents. Requirement Consistency No material findings identified . Conclusion Indicators should be well-defined and verifiable. Targets should be specific, measurable and time-bound. Requirement Measurability Performance indicator not well defined Conclusion The indicators relate logically and directly to an aspect of the institution's mandate, and the realisation of strategic goals and objectives Requirement Relevance No material findings identified. Conclusion

42. Audit of Predetermined Objectives Additional Matter paragraphs included in audit report: Achievement of planned target No matters reported Reported in audit report

43. Analysis of Prior Year Audit Outcomes for the Portfolio

44. Analysis of Prior Year Audit Outcomes for the Portfolio

45. Million Bags

46. Thank You