IMFO RISK & AUDIT INDABA

1. “There is no passion to be found playing small – in settling for a life that is less than the one you are capable of living” – Tata Madiba IMFO RISK & AUDIT INDABA Krish Kumar, 20 April 2015

2. INTRODUCTION • Improvement in audit outcomes – 9% clean and 41%unqualified. However, still a lot of improvement required. • Key issues: irregular expenditure, SCM issues, water and electricity loss in distribution • Internal Audit practitioners are central in addressing these issues in terms of: • Identifying risks and suggesting controls • Advising management • Monitoring implementation and effectiveness • Working according to the profession’s ethical standards • South Africa about the best in world in terms of auditing standards – Global Competitiveness Report • Auditors have a vital role to play and can add great value.

3. VALUES LIVED BY A VIRTUOUS INTERNAL AUDITOR • Integrity • Objectivity • Confidentiality • Competence “You are not just paid to work. You are paid to be uncomfortable – and to pursue projects that scare you.” 3

4. VALUES LIVED BY A VIRTUOUS INTERNAL AUDITOR Integrity • Perform work with honesty, diligence and responsibility • refrain from engaging in any conduct that would prejudice carrying out duties ethically, and • abstain from supporting any activity that might bring the profession into disrepute. “Be a master of your craft. And practice + practice + practice.” 4

5. VALUES LIVED BY A VIRTUOUS INTERNAL AUDITOR Objectivity • Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the activity or process being examined • make balanced assessments of all the relevant circumstances and • are not unduly influenced by their own interests or by others in forming judgments “Surround yourself with people courageous enough to speak truthfully about what’s best for your organisation and the customers you serve.” 5

6. VALUES LIVED BY A VIRTUOUS INTERNAL AUDITOR Confidentiality • Respect the value and ownership of information received; • do not disclose information without proper authority unless so required by law; • refrain from using confidential information unethically. “Every moment in front of a customer is a moment of truth to either show you live by the values you profess – or you don’t.”

7. VALUES LIVED BY A VIRTUOUS INTERNAL AUDITOR Competence Internal Auditors must: • maintain a high level of ethics, • apply their knowledge, skills and experience needed for the performance of their work, • demonstrate professional expertise, • abide by laws and regulations, • provide relevant information, and • behave responsibly and successfully. “Leadership is no longer about position. Now, it’s about passion. And having an impact through the genius level work that you do.”

8. ETHICAL BEHAVIOUR • Ethical behaviour is crucial in local government. • As Internal Audit practitioners you have a responsibility to ensure that ethical standards permeate through your municipality. • Lead by example! Must set the tone for the municipality • “Example is not the main thing in influencing others. It is the only thing” – Albert Schweitzer “ Apart from the values and ethics which I have tried to live by, the legacy I would like to leave behind is a very simple one – that I have always stood up for what I consider to be the right thing, and I have tried to be as fair and equitable as I could be” – Ratan Tata

9. COMPETENCE OF AUDITORS • The IIA SA(Institute of Internal Auditors of South Africa) defines an Internal Audit Professional as someone who: • - has an academic qualification • has gone through the IIA SAs structured on-the-job training program (Professional Training Program) • has gone through a test of competence (IAT, GIA and CIA) • who is a member of the IIA. • These four elements must be in place as they speak to the Internal Auditor’s competence and accountability to a code of ethics. “Work hard. Build an exceptional family life. What’s the point of reaching the mountain top but getting there alone.”

10. COMPETENCE OF AUDITORS • The skills required can be divided into three broad categories: cognitive skills, behavioural skills, and general competencies • Cognitive skills include technical skills, analytical/design skills, and appreciative skills. • Technical skills include balanced scorecard, business process analysis, forensic skills, financial analysis, risk analysis, IT skills, and total quality management. • As part of behavioural skills they included personal skills, interpersonal skills and organisational skills. • General competencies include communication skills, problem identification and solving skills, and accounting framework tools “Become obsessed with the user experience such that every touchpoint of doing business with you leaves people speechless. No, breathless”

11. COMPETENCE OF AUDITORS • Specific skills and competency requirements, taken from mandatory guidance documents, include, inter alia: • - adding value • - risk management, analysisand interpretation • - integrity • - objectivity • - confidentiality (IIA 2011) • I have already discussed all of the above, except adding value which I will now discuss. “If you’re in business, you’re in show business. The moment you get to work, you’re on stage. Give us the performance of your life”

12. VALUE ADD: HOW? • By defining and establishing internal audit functions and sources of assurance • • By providing independent quality reviews of existing internal functions and strategies • • Providing insights to senior staff on current trends and topics, such as sector update bulletins and regular liaison meetings • • Adopting a proactive approach to consulting with Management during the early stages of a project to ensure that you maximise value and reduce future recommendations “Small daily improvements over time create stunning results”

13. VALUE ADD: HOW? • Improvement audits can drive real and measurable change within an organisation, but only if: • 1. The underlying (root) cause of the performance issue has been identified • 2. Management played a role in identifying the cause • 3. Management play a role in developing the action to improve the issue • 4. Recommendations are SMART: Specific, Measurable, Actionable, Timely and Realistic “Strive not to be a success, but rather to be of value.” – Albert Einstein

14. VALUE ADD: HOW? • Ernst & Young identify the following measures to transform Internal Audit to become value-adding: • 1. Align itself with the organization’s key business objectives • 2. Improve audit efficiency and effectiveness, and streamline processes to drive cost savings • 3.Offer broader risk coverage and be proactive about current and emerging risks • 4. Enable cost efficiencies across all business units • 5. Identify and employ the right internal and external skills • 6. Contribute to sustainable business improvements “A dynamic organization is exposed to a staggering array of risks, as rich and diverse as the opportunities it enjoys.” – Shimpi

15. VALUE ADD: WHERE? • Some key areas where you can add value: • - SCM – irregular expenditure, use of s36 and s116(3) • - Irregular Expenditure • - Cashiers • - Housing • - Payroll • - Valuation roll • - End-to-end billing process and system • - Rightsizing of city fleet “Corporate governance is about successfully managing the three R’s: risk, return and reputation … it is long hand for good, commonsense commercial management.” - Nobby Clarke

16. VALUE ADD: WHERE? • Some key areas where you can add value: • - Water and electricity losses: check that every meter issued is on the system, check that every connection is metered, check that every metered property is being billed • - IT projects – ERP, etc • - Compliance issues – professional pride • - Are we maximising the collection of revenue? Are all meters being billed? • - Benchmarking performance against best practices and norms & standards “The time to audit a project is when you can still add value. Auditing a project at the end is like knifing a wound” - Joy Gumz

17. STRATEGIC PARTNERS • Need to move from traditional focus on compliance to include suggesting ways to improve processes and providing insights that influence strategy.  • Internal auditors, who have a wealth of knowledge about their organizations, are in a really good position to continue down the path of value creation.  • It requires using technology, being smarter about audit approaches, and getting more involved, both at the business unit or process level and the strategic thinking level.  • The new approach to internal audit allows for auditors to work with management by reaching strategic and business objectives by improving governance, risk management, and internal controls. “The purpose of work is to help people. The other rewards are inevitable by-products of this singular focus.”

18. KEY FINANCIAL RISKS? • Funding of housing function • IRPTN costs • Flat growth in rates base • Impact of economic climate on collection rates • Tariff increases above inflation – affordability • Sustainability of free basic services package • Aging infrastructure • Adequacy of spend on Repairs & Maintenance • Unfunded mandates • Cost of borrowings • Overall financial sustainability

19. OTHER KEY RISKS? • Reputational risks • Fraud and corruption • Legal risks • Recruitment and retention of staff with necessary skills • SCM compliance and ensuring value for money • Urban-rural migration – impact on service delivery backlogs • Energy security, loadshedding, etc • Food security • Unemployment and poverty – economic development • Water scarcity

20. PROFILE OF A VALUE-ADD AUDIT UNIT • Extensive staff expertise • A challenging work environment – to keep top flyers motivated • Organisational alignment • Participative, qualitative, real-time risk assessment • Provide an array of audit services, such as: • - risk based audits: working with management to identify the business risks they face • - process audits: auditing an entire business process rather • and looking for ways to improve the process instead of simply trying to find control weaknesses. • - Pre-implementation reviews: participating on new system development teams and/or reviewing the project at certain defined milestones.

21. STRATEGIC PARTNERS • To begin the new audit process, internal auditors need to look at the risks that stem from strategic and business objectives. By looking at the risks that affect strategic business objectives, auditors are able to determine more effectively what information is most relevant to management.  • Internal auditors can audit strategic risks. • Internal auditors can operate in an advisory capacity on strategy “Keep promises and be impeccable with your word. People buy more than just your products and services. They invest in your credibility.”

22. MAKING A DIFFERENCE • There is a saying, “When you were born, you cried while the world rejoiced. Live your life in such a way that when you die, the world cries while you rejoice.” • To be a leader is to make phenomenal contributions that make the world better and cause a lasting difference. To lead is to serve. And to be of use. We can all lead. • Currently and in the future you will have many leadership roles to play in your life, however, the most important leadership role is how you lead your own life. • Only two things matter in the end: • - who you became; and • - how many lives you touched • Live a life that matters. “If you have talent, use it in every which way possible. Spend it lavishly – like a millionaire intent on going broke.” – Brendan Francis

23. MAKING A DIFFERENCE • Oseola McCarty was a washerwoman and appeared destined for a life of obscurity. McCarty was taught to save money by her mother. • Over time, bank personnel noticed McCarty’s accumulated savings and asked what she would like to do with this money? • When she was 87, this African-American made astonishing news. She donated $150,000, saved through decades of frugal living, to the University of Southern Mississippi (USM) and requested scholarships be given to deserving students who couldn’t pay their way through college. • McCarty’s life story illustrates the point that anyone can be a leader and make a difference in this world. “If you are not going to make a difference, get out of my way.” – Bono

24. TAKE CARE OF THE RELATIONSHIPS • Leadership is about relationships. • The smartest, fastest and most effective leaders all understand that the whole game is about people. • It’s about developing teammates, serving customers, and making the world a whole lot better by the way you show up in it. • Learn to listen like a master. • Commit to being more inspirational. • Keep your promises. • Staggeringly great opportunities will come your way. “The most important single ingredient in the formula of success is knowing how to get along with people.” – Theodore Roosevelt

25. COMMIT TO EXCELLENCE • No human being is perfect. • Every single one of us is a work in progress. • Successful people commit themselves to excellence in everything that they do. • They are constantly pushing the envelope and raising their standards. • What would your life look like if you raised your standards well beyond what anyone could ever imagine of you? • Each day is your life in miniature. As you lead your day, so you craft your life. • Strive for world class quality in every thing that you do and you will end up living a world class life. “No man will make a great leader who wants to do it all himself or to get all the credit for doing it.” – Andrew Carnegie

26. FOCUS & HARD WORK • An amazing life isn’t constructed via revolution: one bold act on a sunny Tuesday that makes you great. • No. All exceptional achievement (whether it’s chess mastery, entrepreneurial success, or financial wealth) is the result of daily, consistent actions that over time creates explosive results. • It’s all about the hard work. It’s all about the steady practice. It’s all about the insane levels of persistence. • Be disciplined – the price of discipline is always less than the pain of regret. • Focus + daily improvement + time = GENIUS “If everyone was satisfied with themselves, there would be no heroes.” – Mark Twain

27. THINK LIKE AN ENTREPRENEUR • Embracing the mindset of an entrepreneur will serve you well. • Entrepreneurs get that the only way to win is to hunt for the opportunity amid adversity. • They get that what makes the best the best is not how you perform when all’s going well but how masterfully you show up when everything’s falling apart. • Treat it like your own business “If one advances confidently in the direction of his dreams and endeavours to live the life which he has imagined, he will meet with a success unexpected in common hours.” – Henry David Thoreau

28. LEAVE A LEGACY • To live in the hearts of the people around you is to never die. • Success is wonderful but significance is even better. • You were made to contribute and to leave a mark on the people around you. • In failing to live from this frame of reference, you betray yourself. • True leaders are constantly building their legacies by adding deep value to everyone that they deal with and leaving the world a better place in the process. “The goal isn’t to live forever. The goal is to create something that will.” – Chuck Palahniuk, author of “Fight Club”.

29. 7 DEVOTIONS • Be so good at what you do that we can’t take our eyes off you. • Go minimalist like Michelangelo. He saw his David in the marble and stripped away everything else that was not part of his vision. • Ignore cynics, dismiss critics – move away from negativity. • Rehabilitate yourself from the addiction of distraction – 60 minutes per day away from technology. • The 10X value obsession. Give your internal and external customers 10 times the value they paid for. • Avoid the seduction of success – do not become complacent – make victory your new normal. • Leave people better than you found them. “Be the change you want to see in the world.” – Mahatma Gandhi

30. CONCLUSION • The modern role for Internal Audit and Risk is now focused on driving value and efficiency • Key values: integrity and honesty, objectivity, confidentiality and competence of auditors • Rather than focus on findings look at root cause and have competency to go beyond the findings and add real value • Need to become strategic partners • Sustainability is a key issue • Continue to raise the reputation of Internal Audit & Risk • Take pride in your work – quality, excellence, focus, hard work • Make difference and leave a legacy – remember the 7 Devotions • Keep up the great work, but keep striving for clean audits

31. THE END Live with the 3 E's … Energy, Enthusiasm, Empathy, and the 3 F's … Faith, Family, Friends.