Reputation promise

1. Reputation promise 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, thereby building public confidence.

2. Content • Budget Assumptions • Projected Income Statement • Income statement commentary • Overhead • Overhead commentary • Audit Income movement • Net surplus as % of Audit Income • Strategies to achieve a net surplus of 6% • Training and development 10.Sensitivity analysis 11.Debtors current position 12.Suggestions of improving cash collections

3. Budget Assumptions • No limitations applied to tariffs • Budgeted for anticipated headcount rather than predefined vacancy percentage • Tariffs determined by applying mark-up factor of 2.22 to direct costs. • Available hours reduced from 2025 to 2009 per head • Tariff increases impacted by market related salary increases. • Recovery rate percentage reduced from an average of 70% to 68.7%

5. Income statement Commentary • FC 08/09: skills shortage results in the increase in contract work and hence reduction in gross profit to 25% • B 09/10 is based on available and achievable resources • 35.1% increase in own hours rates • Salary expenditure inflationary increase of 15%

6. Overhead

7. Overhead commentary • Increase in overhead is mainly driven by support service increase in staff numbers and a 15% budgeted salary increase compared to 7% the previous year. • The increase in professional assistance is as a result of re introduction of compulsory technical training for audit staff

8. Budget 31 March 2009 31 March 2010 Movement Own Hours Available hours 3,628,800 3,607,056 (21,744) -1% Recoverability 70% 69% -2% Recoverable hours 2,550,771 2,476,333 (74,438) -3% Average Tariff 336 454 118 35% Value (R’m) 857 1,124.00 267.0 31% Contract Work Recoverable hours 896,113 1,038,387 142,274 16% Average tariff 411 488 78 19% Value (R’m) 368 507 139 38% S&T Recoverable Value (R’m) 67 74 7 10% 1,292 1,705 413 32% AUDIT INCOME MOVEMENT 2008-09 vs. 2009-10 BUDGET • Audit income grows 32% versus PY. The increase in own hours is largely attributable to increase in tariffs..CWC increase is due to 8.2% shortfall in own hours capacity.

9. Net Surplus as % of Audit Income

10. Strategies to achieve a net surplus of 6% • Reduce contract work to less than 30% of Audit income • Develop and retain key skills • Introduce control measures to reduce the escalation of overhead cost.

11. Training and development hours

12. Debtors current position • The collection of debtors remains a major challenge especially with local authorities and provincial governments whose average debtors’ days have increased by 39 and 13 days respectively. (Refer to table below) • The poor payment history by local authorities is putting strain on cash flow.

13. Suggestions of improving cash collections • Building relationships with Provincial Premiers and Director Generals. This would enable a quick and favourable response if Section 23(5) of the Public Audit Act (PAA) were to be invoked. This section states that a relevant Provincial Treasury may after consultation with the Auditor-General direct that audit fees recoverable from an auditee be defrayed from a vote on the provincial budget identified by the relevant provincial treasury. • Letters of demand sent to auditees ( after 60 days) should be copied to the relevant Provincial Treasury , as an early warning flag of a potential debt which could end up being paid by the Provincial Treasury. • Business Units which have assigned a Senior Manager as a debtors’ champion have proven to be more successful in cash collections than those who have not assigned one. The debtors follow up processes in these BU’s are similar and most important achieve results. These good practices should be rolled out to other Business Units.