Audit of predetermined objectives Presentation: Portfolio Committee on Justice and Constitutional Development March 2013

Reputation promise/mission The Auditor-General of South Africa 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.

Topics for discussion Background Legislative requirements Audit strategy and approach Audit outcomes for PFMA 2011-12 Way forward

Audits performed by AGSA Annual mandatory audits Financial statements Report on predetermined objectives Compliance with laws and regulations Discretionary audits Performance audits e.g. infrastructure General approach and outcome

Clean administration – from annual audits Unqualified financial statements* No findings of predetermined objectives No findings on compliance with laws and regulations General approach and outcome *Not qualified, disclaimed or adverse opinion

Audit of predetermined objectives defined as: Annual audit of reported actual performance against predetermined objectives, indicators and targets as contained in the annual performance report . Integral part of the annual regularity audit process, confirming the Compliance with laws and regulations Usefulness of performance reporting Reliability of performance reporting

Sections 20(2)(c) and 28(1)(c) of the Public Audit Act (PAA) Legislative requirements - auditing Sections 20(2)(c) and 28(1)(c) of the Public Audit Act (PAA) An audit report must reflect an opinion or conclusion relating to the performance of the auditee against predetermined objectives AG is constitutional institution, established in terms of the Chapter 9 of the Constitution to support constitutional democracy Section 188 of the constitution gives rise to the functions of the AG in terms of auditing. In relation to AOPO, sections 20 and 28 of the PAA gives the AG the mandate tp express an audit conclusion Section 20 applies to auditors of the AG’s office Now as you know, the AG has powers to delegate its functions. Now there are public entities who can appoint auditors subject to consultation with AG. Section 28 applies to those auditors in private practice who audit government institutions. The audit of predetermined objectives is applicable to all national and provincial departments and public entities and local government. Even the MSA relevant requires an audit from internal and external Applicable to all spheres of government

Legislative requirements for planning, budgeting & reporting of performance info Public Finance Management Act (PFMA), 1999 (Act No.1 of 1999) Treasury Regulations issued in terms of the PFMA, 2002 Public Service Regulations (PSR), Part III B: (Only applicable to departments) Guidelines, instruction notes, practice notes, issued by National Treasury Framework for managing programme performance information (issued by the National Treasury in May 2007) Framework for strategic and annual performance plans (issued by National Treasury in August 2010)

AGSA strategy to the audit of predetermined objectives Adopted a phased-in approach Factual audit findings reported in both management and audit reports No audit opinion in audit reports – only findings Regular interaction with stakeholders (NT, Presidency, DPSA) to determine and test audit approach Provided inputs to drafting of NT Frameworks (FMPPI) Completed phased audit approach Audit to the extent necessary to express an audit opinion Audit opinion in the management report Audit reports contain audit findings – not audit opinions

Auditing the planning, budgeting and reporting cycle

Audit criteria Main criteria Sub-criteria Existence Compliance with regulatory requirements Timeliness Presentation Measurability Usefulness Relevance Consistency Compliance with regulatory requirements: Existence : Objectives, indicators and targets must be predetermined and performance information must be reported against them Timeliness : Performance information must be reported within two months after year end Usefulness Presentation: Performance against predetermined objectives is reported using the relevant principles from the National Treasury guidelines. Measurability : Indicators are well defined and verifiable, and targets are specific, measurable and time bound, as required by the National Treasury Framework for managing programme performance information. Relevance : The indicators/measures relate logically and directly to an aspect of the institution's mandate and the realisation of strategic goals and objectives, as required by the National Treasury Framework for managing programme performance information. Consistency : Objectives, indicators and targets are consistent between planning and reporting documents as required by the National Treasury regulations. Reliability: Validity : Reported performance has occurred and relates to the institution. Accuracy : : Amounts, numbers and other data relating to reported performance have been recorded and reported correctly. Completeness : All actual performance that should have been recorded has been included in the reported performance information. Validity Reliability Accuracy Completeness

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

Audit reporting – Management report An audit conclusion will be prepared and included in the management reports for all departments, constitutional institutions, trading entities, public entities, Parliament and provincial legislatures

Audit reporting – Auditor’s report REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Predetermined objectives Reliability of information: Audit findings focus on the validity, accuracy & completeness of reported performance information Usefulness of information: Audit findings focus on the consistency, relevance, measurability & presentation of reported performance information. COMPLIANCE WITH LAWS AND REGULATIONS Report non-compliance matters in relation to the performance management and reporting processes

Performance indicators Usefulness Targets SMART criteria Verifiable Well defined Performance indicators

Reliability Explanations for major variances Complete Accurate Valid Reported performance

Additional matters Achievement of planned targets Greater than 20% of planned targets not achieved Material adjustments to the annual performance report

Inadequate training of staff Root causes Lack of controls to ensure adequate oversight over performance info Internal audit function did not conduct internal audits on performance information Supporting documentation was not available and/or is not presented in a way that it is easy to understand and does not support the reported performance Inadequate training of staff

Recommendations and way forward Key driver of internal control Recommendations for improvement Leadership Exercise oversight responsibility regarding financial and performance reporting and compliance and related internal controls Action plans to address internal control deficiencies should be specific, time bound and progress should be monitored Training and development of relevant performance management staff

Recommendations and way forward Key driver of internal control Recommendations for improvement Performance management system Develop and implement standard operating procedures Management to ensure clear definitions and technical standards for indicators and targets are developed Supporting documentation to be reviewed prior to submitting for audit Clearly defined roles and responsibilities Individual performance contracts should be aligned to the organisational objectives Continuous monitoring and reporting of performance

Recommendations and way forward Key driver of internal control Recommendations for improvement Governance The audit committee should ensure that internal audit provides assurance on a quarterly basis and monitors implementation of the action plans Internal audit should monitor the reporting against predetermined objectives on a regular basis Internal audit should provide assurance of the quarterly reports by conducting regular audits Reporting on predetermined objectives should be included in risk management strategy and practices

THANK YOU