SCoAG 30 September 2008 Page 1 Reputation promise 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, thereby building public confidence.

SCoAG 30 September 2008 Page 2 Content 1.Budget Assumptions 2.Projected Income Statement 3.Income statement commentary 4.Overhead 5.Overhead commentary 6.Audit Income movement 7.Net surplus as % of Audit Income 8.Strategies to achieve a net surplus of 6% 9.Training and development 10.Sensitivity analysis 11.Debtors current position 12.Suggestions of improving cash collections

SCoAG 30 September 2008 Page 3 Budget Assumptions  No limitations applied to tariffs  Budgeted for anticipated headcount rather than predefined vacancy percentage  Tariffs determined by applying mark-up factor of 2.22 to direct costs.  Available hours reduced from 2025 to 2009 per head  Tariff increases impacted by market related salary increases.  Recovery rate percentage reduced from an average of 70% to 68.7%

SCoAG 30 September 2008 Page 4

SCoAG 30 September 2008 Page 5 Income statement Commentary FC 08/09: skills shortage results in the increase in contract work and hence reduction in gross profit to 25% B 09/10 is based on available and achievable resources 35.1% increase in own hours rates Salary expenditure inflationary increase of 15%

SCoAG 30 September 2008 Page 6 Overhead Operating cost Staff Remuneration – support Other personnel expenditure Contract Work –Irrecoverable Accommodation Liaison Professional Assistance Technological Services Auxiliary Services Other Forecast 08/09 368, ,090 28,447 19,601 41,928 17,363 54,805 26,451 11,621 33,644 Budget 09/10 493, ,017 35,521 18,120 47,970 29,142 79,737 32,616 14,468 38,314 Movement Budget 124,955 62,927 7,074 (1,481) 6,041 11,779 24,932 6,165 2,846 4,670 % 34% 47% 25% (8%) 14% 68% 45% 23% 24% 14%

SCoAG 30 September 2008 Page 7 Overhead commentary Increase in overhead is mainly driven by support service increase in staff numbers and a 15% budgeted salary increase compared to 7% the previous year. The increase in professional assistance is as a result of re introduction of compulsory technical training for audit staff

SCoAG 30 September 2008 Page 8 AUDIT INCOME MOVEMENT vs BUDGET Audit income grows 32% versus PY. The increase in own hours is largely attributable to increase in tariffs.. CWC increase is due to 8.2% shortfall in own hours capacity.

SCoAG 30 September 2008 Page 9 Net Surplus as % of Audit Income Forecast 31 March 2009 Budget 31 March 2010 Budget 31 March 2011 Budget 31 March 2112 Net Surplus / ( deficit) (34,4) Net surplus as % of Audit Income (3%)4%5%4%

SCoAG 30 September 2008 Page 10 Strategies to achieve a net surplus of 6%  Reduce contract work to less than 30% of Audit income  Develop and retain key skills  Introduce control measures to reduce the escalation of overhead cost.

SCoAG 30 September 2008 Page 11 Training and development hours Available Hours Training Hours % Business executives 38,1713,0598% Operational leaders 6, % Senior managers 261,17020,9308% Audit managers 679,04268,27610% Auditors 807,618114,17214% Trainee accountants 1,815,028302,06417% Total3,607,056509,78415%

SCoAG 30 September 2008 Page 12 Debtors current position The collection of debtors remains a major challenge especially with local authorities and provincial governments whose average debtors’ days have increased by 39 and 13 days respectively. (Refer to table below) The poor payment history by local authorities is putting strain on cash flow.

SCoAG 30 September 2008 Page 13 Suggestions of improving cash collections Building relationships with Provincial Premiers and Director Generals. This would enable a quick and favourable response if Section 23(5) of the Public Audit Act (PAA) were to be invoked. This section states that a relevant Provincial Treasury may after consultation with the Auditor-General direct that audit fees recoverable from an auditee be defrayed from a vote on the provincial budget identified by the relevant provincial treasury. Letters of demand sent to auditees ( after 60 days) should be copied to the relevant Provincial Treasury, as an early warning flag of a potential debt which could end up being paid by the Provincial Treasury. Business Units which have assigned a Senior Manager as a debtors’ champion have proven to be more successful in cash collections than those who have not assigned one. The debtors follow up processes in these BU’s are similar and most important achieve results. These good practices should be rolled out to other Business Units.