AUDIT COMMITTEE ACCOUTABILTY –NEW TRENDS SJ Masite, CIA,CMIIA, CFE, QIAL 26 March 2018

WOMEN AS AGENT OF CHANGE cont. 3.

INTRODUCTION What’s changing and how audit committees are responding

WHAT ARE THE MAIN CHARACTERISTICS OF GOOD GOVERNANCE

Irregular expenditure incurred Irregular expenditure increased during the 2016-17 financial year. The expenditure mainly relates to non-compliance with procurement process requirements as: Certain goods and services were procured without inviting competitive bids, Certain goods and services were procured without obtaining the required price quotations, and Certain deviations were approved by the accounting officer even though it was not impractical to invite competitive bids, This was mainly due to lack of oversight by senior management. 2016-17 MFMA Identified by the auditees Identified during the audit R8 170 million (21 067 instances)

LEGISLATIVE REQUIREMENT Section 166 of the MFMA requires that each municipality and municipal entity must have an audit committee. The audit committee must advise the municipal council, the political office bearers, the accounting officer and the management of the municipality or municipal entity on matters relating to: > Internal financial control and internal audits; > Risk management; > Accounting policies; > The adequacy, reliability and accuracy of financial reporting and information;

LEGISLATIVE REQUIRMENTS cont. > Performance management; > Effective governance; Compliance with the Act, the annual Division of Revenue Act and any other applicable legislation; > Performance evaluation; and > Any other issues referred to it by the municipality or municipal entity

AUDIT COMMITTEE RISK CONTROL Area Audit committee should report to Council Mayco and Council should ask Audit Committee Risk and Control Summary of the key risks facing per the Strategic Risk Strategy the municipality and how these are being addressed Effectiveness of internal controls and any additional measures that should be implemented to address identified Strategic Risks including Legal Law suits facing the Municipality. Report on the Development and implementation of Consequences Management Framework by management. Is the Audit Committee satisfied that these key risks have been adequately addressed? What key control breakdowns have taken place? Is the Audit Committee satisfied that these have been adequately dealt with and will they be prevented in future?

AUDIT COMMITTEE AND ASSURANCE Area Audit committee should report to Council Mayco and Council should ask Audit Committee Assurance Significant AG Audit findings, recommendations and updated status thereof significant internal audit findings, recommendations and updated status thereof are implemented by management and monitor and evaluated by Mayco and Council. Report to Council the level of the functionality of ITC governance including major IT initiatives like mSCOA and IT risks facing the municipality Is the Audit Committee satisfied that the Auditor General management letter exceptions and audit report findings are adequately dealt by management with and is the risk of repeat findings which could impact the audit opinions managed effectively? If there was a negative audit opinion, is the Audit Committee satisfied that effective measures have been put in place to achieve a “clean administration and clean audit audit”? Is the Audit Committee satisfied that these ITC key risks have been adequately addressed?

There are AUDIT COMMITTEE AND COMPLIANCE Area Audit committee should report to Council Mayco Council should ask Audit Committee Compliance Any areas of non-compliance with the MFMA, DORA and any other applicable legislation. Any non- compliance to the delegations systems ( eg. Circular 73 AS CIRCULATED), Council policies & resolutions and Compliance Register to be reported to Council on quarterly basis How did the areas of non-compliance arise and what is going to be done to prevent them from happening in future? There are

AUDIT COMMITTEE ASSURANCE TO MAYCO AND COUNCIL cont.. Area Audit committee should report to Council Mayco and Council should ask Audit Committee Finance Recommendations of draft section 72 report, Budget Adjustment and Financial Statements to the Council for approval. The Audit Committee’s credible and authoritative view on the financial position including the functionality of the Turnaround Strategy of the municipality. Is the Audit Committee satisfied with financial governance including the skills and competence of the finance function and the processes around the finance reporting? Is the Audit Committee satisfied with the appropriateness of the accounting policies used in the preparation of those financial statements? Is the Audit Committee satisfied with the financial position of the municipality? If not, what could be done to improve the financial position of the municipality?

There are also AUDIT COMMITTEE AND FINANCE Area Audit committee should report to Council Mayco and Council should ask Audit Committee Finance Recommendations of draft section 72 report, Budget Adjustment and Financial Statements to the Council for approval. The Audit Committee’s credible and authoritative view on the financial position including the functionality of the Turnaround Strategy of the municipality. Is the Audit Committee satisfied with financial governance including the skills and competence of the finance function and the processes around the finance reporting? Is the Audit Committee satisfied with the appropriateness of the accounting policies used in the preparation of those financial statements? Is the Audit Committee satisfied with the financial position of the municipality? If not, what could be done to improve the financial position of the municipality? There are also

There are AUDIT COMMITTEE AND PERFOMANCE MGT AND GENERAL Area Audit committee should report to Council Mayco and Council should ask Audit Committee Performance Management Audit committee’s findings and recommendations in line with integrated development plans and service delivery and budget implementation plan. What are the main areas within performance management that the Audit Committee is concerned about and how can these be addressed? General Results of any Audit Committee and Internal Audit evaluations that have been conducted. Progress with any specific investigations delegated to the Audit Committee and their outcomes. Is the Audit Committee satisfied with its performance and that of Internal Audit and its Independence thereof? What external advice did the Audit Committee take in coming to its conclusions? There are

IT RISK There are also a number of risks associated with cyber security that can originate within the company but have a major external impact, such as when unauthorised information leaves the organisation. Eg Social Media

IT RISK cont.  “Audit committees have a critical role to play in ensuring that their organisations have robust cyber security defences – not in understanding the minutiae of the technology involved, but in leading governance and policy.” – Timothy Copnell Chairman of the UK Audit Committee Institute

Audit committees should certainly be on the alert when it comes to IT risk management. Taking a proactive, strategic approach – rather than a reactive, risk-mitigation one – is important. Does your company have a strategy for managing cyber crime and social media risk? If you have a broad corporate risk framework in place, are cyber security and social media part of it? Are directors themselves using secure IT technology when it comes to their devices and board-specific software? These are critical questions for audit committees to ask and answer, and they should consider sharing best practices with Mayco/EXCO on other board.  

2. REGULATORY/LAW CHANGE The impact of regulatory change following the corporate governance failings in the early 2000s cannot be overstated. On top of the challenges imposed by the regulatory environment, several other issues related to globalisation are, or should be, showing up on the audit committee agenda.

On top of the challenges imposed by the regulatory environment, several other issues related to globalisation are, or should be, showing up on the audit committee agenda. Audit committees should understand the asset/liability management processes employed by management to mitigate the risk of changes in interest rates. In addition, audit committees should understand what assets and liabilities are especially sensitive to interest changes, such as long-term pension obligations and valuations of long-lived assets.

ANNUAL EXTERNAL REPORTING SUITE Each of these disclosures present an opportunity to tell an important piece of the company’s story and together should result in a series of high-impact, focused reports with a common thread of key messages to the public regarding the company’s unique achievements, challenges and strategy. Whilst audit committees have traditionally looked over the whole annual report, the focus of their role has been largely around financial reporting, internal controls and going concern and in some cases the risk disclosures. The extension of the Board’s formal role to ensuring that the whole annual report is “fair, balanced and understandable” has broadened, deepened and formalised many audit committees’ oversight over the annual report

RECOMMENDATIONS Suitable candidates for an audit committee and maintaining a balanced composition, the accounting officer should seek to appoint candidates that have ability to: Perform the role as advisor to management; Communicate effectively with management; Carefully review information received and obtain clarification from management as and when appropriate; Raise relevant questions, evaluate responses and follow up on any matter that is unclear; Conduct responsibilities in the context of the municipality’s strategic objectives and overall corporate governance of the council;

RECOMMENDATIONS In determining suitable candidates for an audit committee and maintaining a balanced composition, the accounting officer should seek to appoint candidates that have ability to: Perform the role as advisor to management; Communicate effectively with management; Carefully review information received and obtain clarification from management as and when appropriate; Raise relevant questions, evaluate responses and follow up on any matter that is unclear; Conduct responsibilities in the context of the municipality’s strategic objectives and overall corporate governance of the council; Act independently and be proactive in advising the accounting officer regarding issues that require further management attention; Encourage openness and transparency;

REPORT TABLED AT LGPRESIDENTIAL 3RD SUMMIT BY AG(SA)

“Progressive Audit Committee aimed at assisting all stakeholders CONCLUSION “Progressive Audit Committee aimed at assisting all stakeholders and ELM to achieve the set goals and attain the status of clean administration