Audit Committee in the Public Sector 30 September 2015 Corporate Executives: Barry Wheeler

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.

Content Introduction to Audit Committees (AC) in Public Sector External audit as a partner to AC Discussion AOPO as an enabler to AC’s fulfilling their responsibilities Consequence management Relationship of AC / AC chairs and Executive Authority Discussion

Introduction to Audit Committees in Public Sector

Purpose Advisory and Oversight Financial management Internal and External audit Risk management Internal control Performance management Compliance

Introduction to Audit Committees in Public Sector Appointment Local Government National, Provincial Department Public Entities ConstitutedMFMAPFMA Treasury Regulations PFMA Companies Act Section166S76(4)(d) S3.1.2/3 S94(6) AppointedCouncilAccounting Officer or relevant Treasury in consultation with Executive Authority Board

Introduction to Audit Committees in Public Sector Composition Independence Free of undue influence Number of members Appropriate skills Meetings Type of models Audit & Risk committee vs Audit Committee KZN AC structure

Introduction to Audit Committees in Public Sector Roles and Responsibilities Basic Roles and Responsibility Terms of reference / Audit committee charter Control environment, internal control policies and procedures Internal and external audit reports Competence of CFO and finance team Entity’s performance, performance systems and targets Compliance with legal and regulatory provisions

Introduction to Audit Committees in Public Sector King III Responsibility Financial risk and reporting Review of internal financial controls Fraud risks and IT risks Increased focus due to increased reliance and importance Business continuity Information security and privacy Support of internal and external audit and CIO Combined assurance

Introduction to Audit Committees in Public Sector Oversight over Internal Audit Responsibility Review and approve Internal Audit (IA) charter Involvement in combined assurance plan Approve IA plan and budget Review quarterly progress against plan Ensure IA reports annually on its quality assurance External independent quality review Assess independence, skills and size of IA team Challenges Role of IA is not taken seriously No extensive focus on IA at AC meetings

Introduction to Audit Committees in Public Sector Oversight over Internal Audit (cont.) Audit committee and internal audit establishment

Introduction to Audit Committees in Public Sector Oversight over Internal Audit (cont.) Public entities: Audit committees / Internal audit and impact on audit outcomes AC NOT ESTABLISHED (22) IA NOT ESTABLISHED (42)

Introduction to Audit Committees in Public Sector Oversight over Internal Audit (cont.) Public entities: Audit committees / Internal audit and impact on audit outcomes AC ESTABLISHED (278)IA ESTABLISHED (268)

Introduction to Audit Committees in Public Sector Oversight over Internal Audit (cont.) National and Provincial departments: Audit committees and impact on audit outcomes National departments audit committees 39 (98%) auditees have established audit committees in National departments 123 (100%) auditees have established audit committees in Provincial departments Provincial departments audit committees

Introduction to Audit Committees in Public Sector Oversight over Internal Audit (cont.) National and Provincial departments: Internal audit and impact on audit outcomes 40 (100%) of auditees in national departments have established internal audit units 122 (99%) of auditees in provincial departments have established internal audit units National departments internal audit unitsProvincial departments internal audit units

Introduction to Audit Committees in Public Sector Terms of Reference / AC charter Items to included in the charter Authority Composition and Remuneration Chair must be independent and not political office bearer Responsibility of committee & committee members Declare potential / actual conflict of interest Meetings Invitations to CFO, CRO, CAE Reporting and evaluation Report on Acc Officer operations and AC activities Annual evaluation of AC by Acc Officer and Exec Authority Assessment arrangement

External Audit as a partner to Audit Committees

External Audit as a partner to Audit Committees Difference between public and private external auditors Public Sector SCOAG approves fees AC does not approve fees / scope Private Sector Board approves fees AC approves fees

External Audit as a partner to Audit Committees Scope of External Audit shared with AC Scope of External Audit Strategic Plan and areas to be covered Cost of audit Matters raised by AC That will impact audit Dealt by Acc Officer and Internal Audit Deliverables include management report and audit report Sharing of information and concerns

Discussion

Audit of Performance Objectives as an enabler to Audit Committees fulfilling their responsibilities

Audit of performance objectives as an enabler to AC fulfilling their responsibilities Enable AC to fulfil its responsibility towards predetermined objectives to ensure service delivery Clear understanding of entity’s mandate Necessary expertise and appropriate skills Roles and responsibility outlined in AC charter

Audit of performance objectives as an enabler to AC fulfilling their responsibilities (cont.) Planning documents Budgets Performance agreements Other oversight responsibilities AC Oversight

Audit of performance objectives as an enabler to AC fulfilling their responsibilities (cont.)

Internal audit External audit AC adequate reviews Audit findings and recommendations iro performance information and management

Audit of performance objectives as an enabler to AC fulfilling their responsibilities (cont.) AC should ensure quarterly reporting to stakeholder on: -Work performed by internal auditors (IA) and AC iro performance management; -Effectiveness of internal controls and additional measures that must be implemented to address identified risks related to performance management; -A summary of the key issues dealt with and an updated status thereof; -An assessment of compliance with statutory requirements and performance management best practices; -Alignment of planning documents, budget, performance agreements and in- year reports; -An assessment of the performance management system, including recommendations for improvement; -Other relevant comments that may enhance governance and accountability; -Overall business progress made towards achievement of pre-determined objectives and report to the Accounting Officer (AO) instances of non- achievement or slow progress;

Audit of performance objectives as an enabler to AC fulfilling their responsibilities AC should ensure quarterly reporting to stakeholder on (cont. ): -Review the adequacy and effectiveness of the process whereby annual and quarterly performance targets are set, and subsequent performance information are generated, collated, assessed and reported specifically the functionality and integrity of the mechanisms, systems and processes utilised for performance management; and -Assess whether the performance measures used were adequate and reliable enough in measuring the performance of the department on key or general performance indicators as determined by the department.

Consequence management

PrescriptSectionSummary Practice note 04 of 2008/09 n/aCondonation of irregular exp. was provided by the relevant authority. (NT/PT) PFMASec 34 (1)Unauthorised exp. approved by Parliament/ provincial legislature. Sec 38 (1) (h) (iii)Steps taken against any officials who made or permitted UIFW. Treasury regulationsSec 9.1.4Loss was recovered/ in process of being recovered. Sec and 2Loss was recovered/ in process of being recovered. Sec 16A.9Various sections on possible fraud and improper conduct in SCM. Sec 4Various sections on allegation of financial misconduct.

Consequence management (cont.) Consequence management is the responsibility of Accounting Officer Minimum that AC should ensure that consequence management is implemented: o Clearly define AC role and responsibility in charter; o Ensure management has an understanding of AC role and responsibility; o Follow up on consequence management actions committed by management. This could be a standing agenda item at AC meetings; o AC should take feedback given by management and consider whether actions are adequate; o AC should hold AO accountable for actions not implemented; and o Feedback should be given to Executive Authority (EA).

Relationships of AC / AC chairpersons with executives

AC should ensure that: -AC chair report back to executives after each meeting; -Regular meetings and feedback with ministers / premier / MEC are held; -Effective and healthy working relationships with the executives; -Open communication and level of trust to ensure sharing of information and concerns with the executives; and -Practical recommendations on their interactions.

Relationships of AC / AC chairpersons with executives (cont.) PFMA outcomes - National departments: Communication with executive authorities and impact on audit outcomes 33 audit committees of National departments communicate with their executive authorities This represents 85% of the audit committees in national departments AC communicates with executive authority

Relationships of AC / AC chairpersons with executives (cont.) PFMA outcomes - National departments: Communication with executive authorities and impact on audit outcomes 5 audit committees of National departments do not communicate with their executive authorities This represents 15% of the audit committees in national departments

Relationships of AC / AC chairpersons with executives (cont.) PFMA outcomes - Provincial departments: Communication with executive authorities and impact on audit outcomes 108 audit committees of provincial departments communicate with their executive authorities This represents 91% of the audit committees in provincial departments

Relationships of AC / AC chairpersons with executives (cont.) PFMA outcomes - Provincial departments: Communication with executive authorities and impact on audit outcomes 11 audit committees of provincial departments do not communicate with their executive authorities This represents 9% of the audit committees in provincial departments

Discussion

References PSACF paper: “Relationship between Audit Committee and Council – local government” PSACF paper: “Terms of Reference and Annual Planner for National and Provincial Government Audit Committees” PSACF paper: “The Relationship between the Public Sector Audit Committee and Management” PSACF paper: “Public Sector Audit Committee in overseeing Internal Audit” Public Finance Management Act Companies Act of 2008 Municipal Finance Management Act (Act 56 of 2003) Treasury Regulations King III ACF Position paper 13: Guidelines for the audit committee’s approach to Information Technology (IT) risk AGSA 2013/14 audit outcomes