Page 1 Portfolio Committee on Water and Environmental Affairs 14 July 2009

2 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.

3 Audit Legislation Section 20 of the Public Audit Act (Act No 25 of 2004) requires at least an opinion or conclusion on: 1)Whether the annual financial statements of the auditee is fairly presented 2)Compliance with applicable legislation in relation to financial matters, financial management and other related matters; and 3)Performance information against pre-determined objectives. In addition the AG may report on whether the auditees resources were procured economically and utilised effectively and efficiently

4 Audit legislation (continue) Gazette 31057, 15 May 2008, referred to in audit report Confirm auditing standards Basis approach to –Financial opinion –Compliance with legislation –Auditing of performance information –Evaluation of financial management –Performance auditing –Investigations –Special audits Confirmation of the basis of accounting

5 Phases of the audit process Engagement activities Planning Execution Reporting Interim and final audits

6 Phases in the audit process 1) Engagement activities Engagement meetings with management and those charges with governance (Accounting officer and/or executive authority Confirm terms of engagement (Engagement letter)

7 2) Planning Obtain and update the understanding of the entity and its environment Determine and assess risks Identify and evaluate internal controls to mitigate risk Develop a overall strategy based on risks identified and effectiveness of controls

8 3) Execution Request for information by auditors Execute procedures, identify and document audit findings Communicate audit findings with management. Receive management comments and/or additional information

9 4) Conclusion and finalisation Meetings with management and those charges with governance to confirm factual correctness of audit findings Evaluation of management comments Conclude and prepare audit report for discussion with accounting officer and audit committee

10 Interim and Final audits Do not express an opinion after a interim audit Benefit of Interim audit: –Timely communication of matters of concern –Avoid number of findings at final audit as auditees has time to implement corrective actions

11 Communication with those charged with governance Audit findingAudit evidence Audit response / report Supervision, review and quality assurance Elements of an audit Audit findings model Audit documentation PUBLIC DOCUMENT Audit Steering Committees General availability of key staff Early availability of all evidence Responsiveness to requests

12 Communication Timeous and regular communication is critical for a successful audit. Communication with those charged with governance throughout audit –Accounting officer, audit committee, management, boards of directors, executive, portfolio committees, etc. Regular Steering meetings attended by at least CFO and senior manager from AGSA Day to day interaction between auditee and AGSA

13 Audit reports Audit opinion –Unqualified, qualified, disclaimer, adverse Emphasis of matter –Going concern –Significant uncertainty –Highlight a matter affecting the financial statements which is included in a note to these statements –Material inconsistency of other information included in the annual report –Basis of accounting (departures and deviations)

14 Audit Reporting format Extended format –Root cause reporting –Creating context for audit findings –Lifting the bar on reporting on issues of governance –Alignment with auditing standards –Streamlined, complete general report process

15 Audit report format Section 1: Report on Financial statements Introduction, responsibilities Opinion Emphasis of matter Section 2: Other Matters Give context to section 1 through root cause analysis and reflections on matters of governance Section 3: Other reporting responsibilities Reporting on performance information

16 Auditing of performance information An annual audit of reported actual performance against predetermined objectives, as an integral part of the annual regularity audit, done at entity level Roles in this process: –Development of reporting framework – specialist (Treasury, Stats SA. Etc) –Policy development, strategic planning and budget – cabinet and legislatures –Implementation, monitoring, corrective action and reporting on performance – executive authority –Review and confirm validity, completeness of the performance reports – Auditor-General

17 Strategy to audit Performance information A phased approach for implementation –Started in –Completed implementation by Separate audit opinion/conclusion on performance information in audit report by

18 Audit approach : Performance information Obtain an understanding and test the - internal policies, procedures and controls related to the management of performance information - systems relevant to collect, monitor and report performance information. Evaluate: - Existence of performance information - Consistency of performance information between: Strategic/annual performance plan, quarterly reports and annual performance report - Presentation (compliance) in the annual report Compare reported performance information to: - relevant source documentation and conduct substantive procedures to ensure valid, accurate and complete reporting.

19 Audit reporting: Performance information –No audit opinion on performance information 2008/09 –What will be reported under “other reporting responsibilities” Non-compliance with PFMA and related regulations Material difference between measurable objectives, indicators and targets in annual performance report and strategic or annual performance plans No measurable objectives, indicators and targets in strategic plans, while reported in annual performance report Actual reported performance information does not address all predetermined objectives, indicators and targets Actual reported performance information cannot be substantiated by adequate documentation or differs significantly when compared with source documentation, or system used for generating the performance information was not adequate Annual actual performance information was not received in time for audit purposes

20 No.Good Practice 1 Clear trail of supporting documentation that is easily available and provided timely 2Quality of financial statements and management information 3Timeliness of financial statements and management information 4Availability of key officials during audits 5 Development and compliance with risk management and good internal control and governance practices 6Supervision / monitoring Good Practices

21 Timeframes Phase Planning Interim Audit Final audit Receive financial statements Audit on financials and reporting Audit report General report Consolidated report Timeframe August/ September September – February March - May 31 May 1 June – end July 31 July October

22 Auditee2007/08 Audit outcomeAudit concerns 2008/09 Department of Water Affairs and Forestry Qualified Assets Lack of a system to record and manage performance information Water Trading AccountQualified Unallocated deposits Assets Water Research CommissionUnqualified-

23 Questions?