What is an audit of predetermined objectives? Annual audit of reported actual performance against predetermined objectives, indicators and targets as contained in the annual performance report It is an integral part of the annual regularity audit process, confirming – compliance with related laws and regulations usefulness of performance information reliability of performance reporting The audit of predetermined objectives is defined as an annual audit of reported actual performance against predetermined objectives. This is executed as an integral part of the annual regularity audit, confirming compliance with applicable laws and regulations, usefulness and reliability of the reported performance information as published in the annual reports of government institutions.

Applicable to all spheres of government Auditing requirements Sections 20(2)(c) and 28(1)(c) of the Public Audit Act (PAA) require that: An audit report must reflect an opinion or conclusion on the performance of the auditee against predetermined objectives In relation to AOPO, sections 20 and 28 of the PAA give the AG the mandate to express an audit conclusion. Section 20 applies to AGSA staff The AGSA has powers to delegate its functions. There are public entities that can appoint auditors subject to consultation with the 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. Applicable to all spheres of government

Audit criteria Main criteria Sub-criteria Compliance with regulatory requirements Applicable to performance management and reporting Presentation Measurability Usefulness Relevance Consistency During the audit of performance information the following audit criteria is tested: Compliance with regulatory requirements: Testing against compliance with regulatory requirements is done in relation to performance management and reporting. Examples of this include the need for auditees to have approved strategic plans and annual reports that include the auditee’s performance against predetermined objectives. 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 relevant legislation (PFMA) 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 and consistency of planned and reported performance information 2 Test the reported performance information against relevant source documentation to verify the validity, accuracy and completeness of reported performance information 3 Conclude on the usefulness and reliability of the reported performance for selected programmes or objectives per indicator 4 The AGSA’s audit approach to AOPO involves the following – Understanding of internal policies, procedures and controls related to management of and reporting on performance information. Understanding and testing of systems and controls relevant to recording, monitoring and reporting on performance information. Verifying the existence, measurability and relevance of planned and reported performance information. Verifying consistency between the Strategic plan/APP and the annual performance report. Verifying the presentation of performance against predetermined objectives in the APR against the format and content requirements as required ito the National Treasury. On this basis auditors conclude on the usefulness of the reported performance information for selected programmes or objectives. Comparing reported information for selected programmes or objectives to relevant source documentation to verify validity, accuracy and completeness thereof. On this basis, auditors conclude on the reliability of reported performance information of each of the selected programmes or objectives.

Audit reporting – Management report An audit conclusion will be expressed for ALL departments, constitutional institutions, trading entities and public entities in the management report, on the – USEFULNESS of reported performance for selected programmes or objectives RELIABILITY of the reported performance for selected programmes or objectives Audit conclusions are prepared in terms of International Standards of Assurance Engagements (ISAE) 3000: Assurance engagements other than audits of review of historical financial information. This conclusion is currently only reported in the management report . A separate conclusion is expressed on – -the usefulness of the reported performance for selected programmes or objectives. -the reliability of the reported performance for selected programmes or objectives. The material misstatements identified that results in a conclusion reported, will be included in the management report as the basis for the conclusions with due consideration of both quantitative and, especially, qualitative materiality considerations.

Audit reporting – Auditor’s report REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Predetermined objectives Usefulness of information Material audit findings focusing on presentation, consistency, relevance and measurability of reported performance information for selected programmes or objectives Reliability of information Material audit findings focusing on reliability of reported performance information for selected programmes or objectives Compliance with laws and regulations Material misstatements and shortcomings related to AOPO will be reported in the audit report in the section on “report on other legal and regulatory requirements’” No conclusion is included in the audit report. Matters of a non-compliance with laws and regulations relevant to performance management systems, processes and reporting will be reported as non-compliance findings in the ‘compliance with laws and regulations ‘ section. All other findings will be reported in the section for “predetermined objectives” as one of the following – Usefulness of information: all material audit findings relating to the presentation, consistency, relevance and measurability of reported performance information for selected programmes or objectives. Reliability of information: all material findings relating to the accuracy, validity and completeness of reported performance information for the selected programmes or objectives. The findings will agree to the basis of conclusions reported in the management report. Compliance findings relevant to the performance management and reporting

Planning, managing and reporting on performance The process The findings Indicators not well defined ((12) 38%) or verifiable ((8) 25%) Targets not measurable ((9) 28%) or specific enough ((6) 19%) Plan and budget 4 had no performance management systems 3 had inadequate performance management systems 1 had no mechanisms to monitor or review performance Monitor and in-year reporting Report performance in annual performance report (APR) Reported information not consistent with what was included in the plan 59% (19) Reported achievement was not reliable at 73% (26) municipalities There is no progress made towards useful and reliable performance reporting. This affects the ability of communities to hold municipalities accountable and makes it difficult for provincial and national government to track progress towards the service delivery goals.

Findings on water infrastructure projects and maintenance in local government Water infrastructure projects at 10 WSA municipalities Maintenance of water infrastructure at 10 responsible municipalities The projects in progress do not address the cause of the water backlog reported Projects exceeded planned completion date Projects had significant findings on supply chain management No policy on maintenance of water infrastructure No maintenance plan Conditional assessment not done to inform the maintenance plan and budget Maintenance was not budgeted for Appropriate steps not taken to prevent over-/underspending of the budget allocation for routine water infrastructure maintenance Targets and time frames for routine maintenance of water infrastructure were not achieved 67% 44% 33% 22% 33% 11% Vhembe – Reservoir visited: The reservoir was full but water was leaking from the pipes and the pressure in the tap in the community was very poor, people stood in queues for water. Mopani – Boreholes and reservoir built but never used: Generators were bought but were just standing there – there is no water source! Money was spent in an uncoordinated manner without proper planning and involvement of other role players. Mopani does not even know how many boreholes they have. Bushbuckridge - Construction of a pipeline and elevated tank at New-Forest and Orinoco B14. The project has been repeatedly delayed since its inception. The municipality initially awarded the contract to consulting engineers in 2014. According to the design report dated 6 August 2014 (as compiled by engineers) the project was scheduled to be finalised in February 2016. The project only commenced in February 2015 due to differences between the municipality and Rand Water as the implementing agent. The project was halted as a result of a conflict that ensued between the consulting engineer and Rand Water, which led to the termination of the contract with the consulting engineer. Another consulting Engineering form was appointed and construction was resumed in April 2016. However, during the site visit the construction had stopped (August 2016). The reasons for halting the project are unknown. Effect: The target of provisioning of the water infrastructure to the community by February 2016 was not met. The project was classified as an absolute necessity by Rand Water. The auditors could not determine what losses had been incurred because of all the stoppages and conflicts between Rand Water and other project stakeholders. This was due to failure to submit information. Contermanskloof Reservoir – This project relates to the provision of professional services at the Contermanskloof reservoir. The reservoir will provide storage capacity for 100 mega-litres once completed. Professional services include the planning, design, tender administration and site supervision for the construction and monitoring of the reservoir and associated infrastructure. The Contermanskloof Reservoir is a multi-year project with multiple components and contracts. The reservoir is anticipated to be completed in June 2020. The project phase for the financial year ended June 2016 had been completed, as required, with no underspending noted. 11% 11% 22% 8

Sanitation infrastructure projects at 10 WSA municipalities Sanitation infrastructure projects and maintenance Sanitation infrastructure projects at 10 WSA municipalities The projects do not address the cause of the sanitation backlog reported Projects exceeded planned completion date Projects had significant findings on supply chain management 44% 22% 11%

Recommendations CoGSHTA/ Premier assist in development of standard/ customised indicator for basic service delivery, Performance forum be used to provide technical competencies, Development of standard operating procedures, proper control over compilation of performance reports Integrate collection of performance information with other departments- technical etc. Robust internal audit review of usefulness and reliability performance information

3 3 Audit methodology

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