APAC ANNUAL TRAINING - MAY 2010 Audit of Performance Information (AoPI) Mr Kimi Makwetu Deputy-Auditor General APAC ANNUAL TRAINING - MAY 2010

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.

Outline Background Legislative requirements Performance management process AGSA recent audit outcomes Way forward During this workshop I will introduce you to the area of performance information and the audit thereof and we will look at the strategy of the Auditor-General in this regard. In terms of what performance information is we would look at the current requirements in terms of Treasury Regulations where departments are reporting on performance and we would explore some of the definitions

Background – international perspective Supreme audit institutions (SAIs) do not only conduct financial audits Also provides assurance on performance information produced by government departments and entities Why was this necessary? Public sector reforms Improving public reporting Providing better information on what taxpayers are getting for their taxes Over the past several decades supreme audit institutions around the world have moved from only carrying out financial audits to a wide range of value-for-money and/or performance audits. Less widely known is the gradual growth of another “line of business”, namely that of providing assurance on performance information produced by governments for tabling in legislatures and Parliaments. This was necessitated by, amongst others, public sector reform in certain countries, such as South Africa, which included significant initiatives to improve public reporting. This included providing legislatures and the public with better information on what government programmes are accomplishing – in answer to the question: what value are taxpayers getting for their taxes? The more performance information plays a significant role in governance and accountability, the more focus there will be on the quality and timeliness of the information. Consequently, legislatures in some instances have turned to their auditors to provide them with some assurance that the performance information provided by government can be trusted, with the main objectives of increasing accountability and ensuring the credibility of the information. Globally, performance reporting is increasingly becoming an integral part of an effective accountability framework. In South Africa, as in many other countries[1], it is a legislative requirement for accounting officers to report annually on the performance of the entities against predetermined objectives, in terms of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA) and the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA). As part of the legislative accountability framework, performance reports are primarily used by legislatures, members of the public and other interested parties to assess the success of service delivery in the use of funds approved by the legislatures. [1] In several other countries it is a legislated requirement, for example the Government Accountability Act (1995) in Alberta, Canada; the Budget Transparency and Accountability Act (2000) in British Columbia; the Public Administration Act (2000) in Quebec. In Western Australia, under the provisions of the Financial Administration and Audit Act (1985) (FAAA), and as detailed in Treasurer’s Instruction 904, as part of their annual reporting process, accountable officers and authorities are required to report performance indicators.

AoPI Audit of Performance Information Difference between AoPI and performance auditing Performance Information (PI) = Non-Financial Information about the Service Delivery of Government AoPI Audit of Performance Information PA Performance Auditing Part of annual regularity auditing process Focused on non-financial information in Annual Report Audit criteria: Compliance (has this happened), as part of regularity audit process Quality of PI (as per audit criteria) Done by audit professionals Separate individual audits Focused on a specific government policy or management process Audit criteria are the 3E’s: Economy Efficiency Effectiveness Done by subject matter experts NOTE TO THE TRAINERS Auditing of performance information can be defined as an annual audit of reported actual performance against predetermined objectives. This is an integral part of the annual regularity audit, confirming the credibility of the reported performance information in the annual reports of government entities. Performance auditing can be defined as an independent evaluation of the management measures instituted by a government entity to ensure the economical procurement and efficient and effective utilisation of resources. The key evaluation concepts can further be defined as follows: Economical – to procure resources of the right quality in the right quantities at the right time and place at the lowest possible cost. Efficient – to achieve the optimal relationship between the output of goods, services or results and the resources used to produce them. Effective – to achieve policy objectives, operational goals and other intended effects. The insight gained through auditing and analysing the audit outcomes to the level of root causes is shared with stakeholders through audit reports, creating foresight in the process of strategic planning, enhancing good governance and service delivery in the country.

Legislative requirements - auditing Sections 20(2)(c) and 28(1)(c) of Public Audit Act An audit report must reflect an opinion or conclusion relating to the performance of the auditee against predetermined objectives Applicable to all spheres of government, including: national, provincial and local government public entities those the AG opts to perform and opts not to perform institutions funded with public monies institutions that receive money for public purposes NOTE TO THE TRAINERS The information related to the performance against predetermined objectives is subject to audit in terms of section 20(2)(c) or section 28(1)(c) of the Public Audit Act, 2004 (Act No. 25 of 2004)[1] (PAA). Both of these provisions require that an audit report must reflect such opinions and statements as may be required by any legislation applicable to the auditee who is the subject of the audit, but must reflect at least an opinion or conclusion on the reported information relating to the performance of the auditee against predetermined objectives. Section 13 of the PAA furthermore requires the Auditor-General to determine the standards to be applied in performing such audits. The Auditor-General, subsequently, has adopted a phasing-in approach to compliance with sections 20 and 28 of the PAA until such time as the environment promotes a state of readiness to provide reasonable assurance in the form of an audit opinion or conclusion. Also refer to the 2010 AG directive with latest on AGSA audit approach – also refer slide 17 in this presentation.

Performance management and reporting requirements Performance management and reporting requirements for all public sector institutions introduced with: PFMA - 1999 Municipal Systems Act - 2000 MFMA - 2003 Regulations: Treasury Regulations Municipal Planning and Performance Management Regulations, 2001 NT Framework for managing programme performance information

Performance management process NOTE TO THE TRAINERS Highlight the following in the explanation of this slide: This picture has been taken from the NT framework for managing programme performance information Focus on the performance management process starting at the strategic planning process and ending at the year end reporting process. During the aopi the auditor will thus also interrogate the performance management process to understand the risks and controls within this process. Auditors are not only interested in the final reported performance information. Highlight the fact that the performance management process is firstly referring to an ORGANISATIONAL performance management process. The management of individual performance is part of the organisational performance management process and not the other way round.

NT Framework for managing programme performance information Legislative requirements and framework should form the basis of performance management system and processes at entities Applicable to all entities in the national, provincial and local spheres of government Copies available at http://www.treasury.gov.za/publications/guidelines Contents: Introduction Planning, budgeting and reporting Key performance information concepts Developing performance indicators Managing performance information Publishing performance information Roles and responsibilities Notes to trainers: In discussions highlight the fact that auditors mainly concentrate on the contents of chapter 3 and 5 of the framework for audit purposes. Also refer participants to the AG directive applicable to 0910 audits – reference is made in the AG directive to the use of the NT Framework.

AUDIT OUTCOMES 2008-09

Audit of Performance Information – main categories of findings Non-compliance with regulatory requirements The scope of audit work and audit findings relate to compliance with the PFMA and Treasury Regulations pertaining to the planning, management, monitoring, review and reporting of performance information. Usefulness of performance information Audit work focused on the consistency, relevance and measurability of planned and reported performance information. Reported performance information not reliable Audit work focused on whether the reported performance information could be traced back to the source data or documentation and whether the reported information is accurate and complete in relation to the source data, evidence or documentation. The objective of an audit of performance information is to enable the auditor to conclude whether the reported performance against predetermined objectives are reliable, accurate and complete, in all material respects, based on pre-determined criteria. Non-compliance with regulatory requirements – the scope of audit work and audit findings relate to compliance with the PFMA and Treasury regulations pertaining to the planning, management, monitoring, review and reporting of performance information. Usefulness of reported information – the audit work focuses on the consistency, relevance and measurability of planned and reported performance information. Reliability of reported performance information – the audit work focuses on whether the reported performance information could be traced back to the source data or documentation and whether the reported information is accurate and complete in relation to the source data, evidence or documentation. 11 11

National Constitutional Institutions Total for all types of entities Audit of Performance Information – Results for 2008-09 National departments and entities Main findings National Legislature National Constitutional Institutions National Departments National entities Total for all types of entities Non-compliance with regulatory requirements 0% 50% 44% 30% Usefulness of reported performance information 47% 15% 22% Reported performance information not reliable 25% 19% The overall incidences of key findings resulting from the audit of performance information in respect of the national sphere of government is concerned are summarised in this slide (Go through slide….) 12 12

Audit of Performance Information – Results for 2008-09 Provincial departments and entities Main findings Provincial Legislatures Provincial Departments Provincial Entities Total for all types of entities Non-compliance with regulatory requirements 38% 62% 60% 59% Usefulness of reported performance information 50% 42% 31% 35% Reported performance information not reliable 25% 56% 17% 36% The key findings resulting from the audit of performance information in the provincial sphere indicates that there is a high percentage on non-compliance than in the case of national, as well as a higher percentage of unreliable performance information. (Go through slide….) 13 13

Audit of Performance Information – Results for 2007-08 Municipalities Main findings Municipalities No reporting of performance information 42% Lack of internal auditing of performance information 41% Inadequate content of the IDP 32% Performance information was not received in time for audit purposes 30% The key common findings in respect of municipalities related to the following: • No reporting of performance information (42%) • Lack of internal auditing of performance measurement (41%) • Inadequate content of the Integrated Development Plan (32%) • Performance information was not received on time for audit purposes (30%). It is important that the internal control system of municipalities cover the process of reporting of performance information in order to address these issues. Further, internal audit plans must cater for internal review of performance measurement and audit committees should exercise oversight on the effective functioning of the control system relating to performance information. 14 14

Way forward National Treasury framework on performance information to be implemented by all departments, entities and municipalities Leadership awareness of the importance of performance information (e.g. accounting officers; executive authorities; oversight structures) Implementation partners regarding performance information (e.g. DPSA, NT) Role of internal audit, audit committees, councillors, etc AoPI audit opinions from AGSA in 2012

Thank you (go to next slide) The undertaking of the AGSA is to … to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. (go to next slide)