1. Portfolio Committee on Public Enterprises Review of 2015/16 Annual performance plans Presenters: Sybrand Struwig – Senior Manager AGSA Waleed Omar –Manager AGSA

2. Reputation promise/mission
The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.
Emphasise – through auditing. AGSA/ auditors does not form part of management or decision-making.
Auditors audit the measurement of performance by management and is not responsible for the measurement of performance but to determine whether performance reporting is credible.

3. Topics to discuss 1. Background
2. Legislative requirements and framework for performance management and reporting
3. Audit process
4. Roles and responsibilities
5. Interim review of 2015/16 Annual Performance Plans
6. Oversight responsibility of Portfolio Committee

4. Background

5. Audits performed by the AGSA
Annual mandatory audits
Financial statements
Report on predetermined objectives
Compliance with laws and regulations
Discretionary audits
Performance audits, e.g. infrastructure
AGSA is a constitutional institution, established in terms of 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.
Mandatory audits in terms of section 20(2) of PAA -Reporting takes place annually as part of the regularity audit process
AOPO forms integral part of the regularity audit process. Focuses on the planning, implementation, monitoring and reporting on performance information. Provide annual assurance on whether the report on predetermined objectives is useful and reliable
Discretionary audit (section 20(3) of the PAA includes performance audits.
Reporting is not limited to annual information and can cover more than one financial year. Focuses on a specific government programmes, projects or management process. Factual reporting on whether resources had been acquired economically, applied efficiently and managed effectively towards achieving the desired goals

6. No findings on predetermined objectives
Clean administration – from annual audits
Unqualified financial statements
No findings on predetermined objectives
No findings on compliance with laws and regulations
The drive for clean administration includes all financial management processes. Clean administration will therefore be reflected in a ‘clean’ audit report which includes –
- An unqualified audit opinion on the financial statements
No findings on predetermined objectives
No findings on compliance with laws and regulations

7. Audit of predetermined objectives defined
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.

8. 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

9. Legislative requirements and framework for performance management and reporting

10. Legislative requirements and framework
Public Finance Management Act , 1999 (Act No. 1 of 1999) (PFMA)
Treasury Regulations issued in terms of the PFMA, 2002
National Treasury Framework for managing programme performance information (issued by the National Treasury in May 2007)
Guidelines, instruction notes issued by National Treasury
National Treasury Framework for strategic plans and annual performance plans
(issued by the National Treasury in August 2010)
In terms of the PFMA, it is a legislative requirement for accounting officers /accounting authorities to report annually on the performance of the entity against predetermined objectives [section 40(3)(a)].
The PSR, Part III B requires an executive authority to prepare a strategic plan for her or his department.
The framework (FMPPI) issued by National Treasury provides guidance on how to practically adhere to the legislative requirements and reporting on performance, specifically the setting of indicators and targets.
The framework for strategic plans and annual performance plans provides guidance on the development of strategic and annual performance plans. The guidance sets out the framework to align strategic and annual performance planning.
In terms of the audit standards an audit can only by conducted against an approved or recognised framework. The principles and requirements of the legislation and regulations above constitutes the framework for management and reporting on predetermined objectives which is used as the basis for the audit of performance information – similar to the financial reporting framework s such as GRAP which is used for purposes of audit of financial statements.
This represents the performance management and reporting framework against which the performance information should be managed and reported.
The principles and requirements set out in the framework are used as a basis for the audit.

11. Performance planning, budgeting and reporting cycle
To ensure effective and efficient organisational performance management all institutions should have this overall performance management process and system in place, as set out in the Framework for managing programme performance information as issued by the National Treasury.
The planning, budgeting and reporting cycle describes the relationship between these processes and emphasises that the executive is accountable to the relevant elected representative body for the entire process. The performance information process begins when policies are being developed, and continues through each of the planning, budgeting, implementation and reporting stages. Full and regular reports are required at each stage of the process.
Performance information should also be available to managers at each stage of the planning, budgeting and reporting cycle so that they can adopt a result-based approach to managing service delivery. This approach emphasises planning and managing with a focus on desired results, and managing inputs and activities to achieve these results.
It is important to manage performance as a process and not as an event.

12. Treasury Regulations issued in terms of the PFMA
Strategic planning and budgeting requirements
Treasury Regulations issued in terms of the PFMA
Chapter 5: Strategic planning requirements for departments, trading entities and constitutional institutions
Chapter 29: Corporate planning requirements for schedule 2, 3B and 3D public entities
Chapter 30: Strategic planning requirements for schedule 3A and 3C public entities
Public Service Regulations, part III B.1(a), (g): Only applicable to departments
The chapters highlighted contain the detailed requirements relevant to strategic planning and budgeting.
(Note: Due to the volume they are not documented here but specific sections can be highlighted)

13. Treasury Regulations issued in terms of the PFMA
Reporting requirements
PFMA
Treasury Regulations issued in terms of the PFMA
Section 40(3)(a): Applicable to departments, constitutional institutions and trading entities.
Section 55(2)(a): Applicable to public entities.
Chapter 18: Reporting requirements for departments, trading entities and constitutional institutions
Chapter 28: Reporting requirements for all public entities
PSR, part III B.1(f)(i)-(iii) & J.1, J.3: Monitoring and management of performance information for departments
In terms of the PFMA, it is a legislative requirement for accounting officers /accounting authorities to report annually on the performance of the entity against predetermined objectives [section 40(3)(a)/55(2)(a)].

14. Annual performance report submission
All departments, constitutional institutions, trading entities and public entities must submit the annual performance report for audit purposes with the annual financial statements (by 31 May) to enable the auditors to perform the necessary final audit procedures.

15. Key performance accountability documents
1. Strategic/Corporate plan
2. Annual performance plan (APP)
3. Budget
4. Quarterly performance reports
5. Performance agreements
6. Annual performance report
Consistent structures to facilitate understanding and accountability
Enable linkage between plans and actual performance
The key performance planning documents for departments /entities are the annual performance plan (APP), budget and strategic plan (SP).
The SP, APP and budget are forward-looking, set out what the department /entity intends to do and the funds it will raise and spend.
The annual report, on the other hand, is backward-looking as it reports on actual performance at the end of the financial year, reporting on how the APP and budget were implemented.
Annual reports must be aligned with the planning documents and department budget for the year reported on.
This means that the APP, budget, SP , quarterly performance reports and annual report should have similar and consistent structures to facilitate understanding and to enable the linkage between plans and actual performance

16. Reliable Well defined Verifiable Cost-effective Appropriate Relevant
Good performance indicators should be:
Reliable
Must be accurate enough for its intended use and respond to changes
Well defined
Clear, unambiguous definition so that data will be collected consistently and will be easy to understand and use
Verifiable
Possible to validate the processes and systems
Cost-effective
Usefulness of the indicator must justify the cost of collecting the data
Appropriate
Avoid unintended consequences and encourage service delivery improvements
Relevant
Must relate logically and directly to an aspect of the institution's mandate
As per the NT Framework for managing programme performance information (FMPPI) , suitable indicators need to be specified to measure performance in relation to inputs, activities, outputs, outcomes and impacts.
A good performance indicator should be:
Reliable: the indicator should be accurate enough for its intended use and respond to changes in the level of performance.
Well defined: the indicator needs to have a clear, unambiguous definition so that data will be collected consistently, and be easy to understand and use.
Verifiable: it must be possible to validate the processes and systems that produce the indicator.
Cost-effective: the usefulness of the indicator must justify the cost of collecting the data.
Appropriate: the indicator must avoid unintended consequences and encourage service delivery improvements, and not give managers incentives to carry out activities simply to meet a particular target.
Relevant: the indicator must relate logically and directly to an aspect of the institution's mandate, and the realisation of strategic goals and objectives.
Based on the nature of the indicator, some of the characteristics may be more important.
Currently the indicators tend to be more of a quantitative nature than qualitative . Indicators should also include qualitative aspects .
In setting indicators, management also need to try and limit the number of indicators as it will impact the proper management and reporting thereof.
The guidance on “technical indicator descriptions’ contained in annexure E of the Framework for strategic plans and annual performance plans issued by National Treasury applicable to PFMA can be used in defining indicators.
For purpose of the audit we only focus on indicators being well defined and verifiable.

17. S M A R T SMART performance targets PECIFIC EASURABLE CHIEVABLE
Nature and required level of performance can be clearly identified
PECIFIC M
Required performance can be measured
EASURABLE A
Realistic given existing capacity
CHIEVABLE R
Required performance is linked to achievement of goal
ELEVANT
The FMPPI also provides guidance on setting of performance targets. Performance targets express a specific level of performance that the institution, programme or individual is aiming to achieve within a given time period.
A useful set of criteria for selecting performance targets is the "SMART" criteria:
Specific: the nature and the required level of performance can be clearly identified
Measurable: the required performance can be measured
Achievable: the target is realistic given existing capacity
Relevant: the required performance is linked to the achievement of a goal
Time bound: the time period or deadline for delivery is specified
For purpose of the audit we only focus on targets being specific, measurable and time bound.
Time period/deadline for delivery is specified T
IME BOUND

18. Audit process

19. AGSA strategy 2004-05 to 2008-09 2009-10 to 2014-15 Phased-in approach
Factual audit findings reported in both management and audit reports
No audit opinion in audit reports
Interaction with stakeholders (NT, Presidency, DPSA) to determine and test audit approach
Inputs to drafting of NT frameworks (FMPPI)
Completed phased audit approach
Audit to the extent necessary to express an audit conclusion
Audit conclusion in the management report for all departments, constitutional institutions, trading entities and public entities
Audit reports contain material audit findings – not audit opinions
The objective of an audit of predetermined objectives is to enable the auditor to conclude whether the report on predetermined objectives is useful and reliable, in all material respects, based on predetermined criteria.
Since the AGSA has adopted a phased-in approach to compliance with sections 20 and 28 of the Public Audit Act (PAA) until such time as the environment promotes a state of readiness to provide reasonable assurance in the form of an audit conclusion in the audit report This constitutes an audit of the policies, processes, systems and procedures for the management of and reporting on performance against predetermined objectives as part of the regularity audit process.
Since the phased-in approach has been completed. An audit conclusion is now included in the management report while the audit report contains the material audit findings on usefulness and reliability.

20. 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

21. 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
Conclude on the usefulness of the reported performance information for selected programmes or objectives 3
Test the reported performance information against relevant
source documentation to verify the validity,
accuracy and completeness of reported performance information 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.
Conclude on the reliability of the reported performance for
selected programmes or objectives 5

22. 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.

23. 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
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 with laws and regulations
Compliance findings relevant to the performance management and reporting

24. Roles and responsibilities

25. Roles and responsibilities:
FMPPI (chapter 5): Effective management of performance information requires a clear understanding of different responsibilities as well as the structures and systems involved in managing performance
Ministers/MECs
Accounting officer or head of an institution (assisted by chief information officer)
Line managers
Other officials
To ensure that institutions under their control set up appropriate performance information systems
Accountable for establishing and maintaining the systems to manage performance information
Accountable for establishing and maintaining the performance information processes and systems within their areas of responsibility
Responsible for capturing, collating and checking performance data relating to their activities
Refer to chapter 5 of the Framework for Managing Programme Performance Information

26. Role of accounting officer Robust financial and performance management
Understanding and monitoring of the accounting officer’s mandate are key to improving internal control environment
Role of accounting officer
Robust financial and performance management
systems
Oversight and
accountability
Commitment and
ethical behaviour
Effective, efficient and transparent systems for
financial and risk management
internal controls (under control of audit committee)
procurement and evaluation
Effective, efficient, economical and transparent use of resources
Prevention of unauthorised, irregular and fruitless and wasteful expenditure and, if discovered, reporting to treasury
Efficient and economic management of available working capital
Manage and safeguard assets and liabilities
Take appropriate disciplinary steps against any official contravening the PFMA
The role of the accounting officer is critical to ensure:
timely, credible information + accountability + transparency + service delivery
Chapter 5 of the Public Finance Management Act, 1999

27. Review of critical performance management activities
Role of internal audit
The functions of internal audit relevant to performance information and management should typically include the following:
Monitoring of internal controls relating to performance information processes
Examination of the usefulness and reliability of performance information
Review of critical performance management activities
Review of compliance with laws and regulations relevant to performance planning, management and reporting
Risk management
Also refer to Treasury Regulations (TR) (applicable to departments) and TR (applicable to public entities) for the responsibilities of the internal audit function
ISA 610 Using the work of internal auditors states that the external auditor has sole responsibility for the audit opinion expressed and that responsibility is not reduced by the external auditor’s use of the work of the internal audit function or internal auditors to provide direct assistance on the engagement.
Refer to ISA 610

28. Support oversight – complimentary mandate
Senior
management
Accounting
officers/
authority
Executive
Required assurance levels
Extensive
Management’s assurance role
Senior management – take immediate action to address specific recommendations and adhere to financial management and internal control systems
Accounting officers/ authority – hold officials accountable on implementation of internal controls and report progress quarterly and annually
Executive authority – monitor the progress of performance and enforce accountability and consequences
Management assurance
First level of assurance
Oversight assurance
Second level of assurance
Coordinating /
Monitoring
institutions
Internal
audit
Audit
committee
Extensive
Required assurance levels
Oversight’s assurance role
National Treasury/ DPSA – monitor compliance with laws and regulations and enforce appropriate action
Internal audit – follow up on management’s actions to address specific recommendations and conduct own audits on the key focus areas in the internal control environment and report on quarterly progress
Audit committee – monitor risks and the implementation of commitments on corrective action made by management as well as quarterly progress on the action plans
Independent assurance
Third level of assurance
Oversight
(portfolio
committees /
councils)
Public
accounts
committee
National Assembly
Extensive
Required assurance levels
Role of independent assurance
Oversight (portfolio committees) – review and monitor quarterly progress on the implementation of action plans to address deficiencies
Public accounts committee – exercise specific oversight on a regular basis on any report which it may deem necessary
National Assembly – provide independent oversight on the reliability, accuracy and credibility of National and provincial government

29. Interim review of 2015/16 Annual Performance Plans

30. AGSA review of 2015/16 Annual Performance Plan
Usefulness
Presentation
As required by FMPPI
Consistency
APP objectives, indicators & targets = Strategic plan objectives, indicators & targets
Key performance indicators
Well defined
Verifiable
Targets
Time bound
Measurable
Specific

31. Findings from the AGSA review of 2015/16 Annual Performance Plan
Entity reviewed
Significant findings identified
Department of Public Enterprises
No significant findings identified on usefulness

32. Oversight responsibility of Portfolio Committee32

33. Oversight model OVERSIGHT:
Parliament, provincial legislature or municipal council
Identify desired impacts
Assess and adjust Specify performance
indicators
Monitor and take Set targets
corrective action and allocate
resources
Policy development
Strategic Planning
Accountability
INSTITUTION
National department
Provincial department
Municipality
Public entity
Municipal entity
Operational planning and budgeting
AGSA advises the committee members on the Interim work done the Annual Performance Plan.
Budgeting process including the Medium Term Budgeting Framework.
Quarterly reporting done throughout during implementation on both performance and budget.
End year reporting includes budget review processes to determine whether money spent is in line with Targets achieved.
End-year reporting
Implementation and in-year reporting

34. Oversight component - Portfolio committee mandate
Role of Portfolio Committees (Rule 201)
1. Legislation
consider, amend, approve or reject legislation (bills in its portfolio)
2. Budgets
consider and approve budgets and monitor expenditure of the Departments and entities reporting to them
3. Mandates
consider progress reports (monitoring) from line-function departments, and provincial and local government authorities and entities on their respective mandates
4. Accountability
ensure that all appropriate executive organs of state in its portfolio are held accountable for their actions (oversight); and
5. Oversight
conduct oversight over the executive authority and consult/liaise with any other executive organ of state and make recommendations

35. Considerations for Portfolio Committees when dealing with performance monitoring
APP aligns with NDP
Adequate resources (human and financial) available to achieve APPs?
Are the targets realistic ?
S M A R T
Ask ‘how’ the entities will achieve the APPs
e.g.
Performance contracts/ monitoring
Portfolio Committee should review quarterly progress against the APP targets
Portfolio Committee should review the annual achievement against APP targets
Portfolio Committee should track any changes to the APP
Is the Strategic Plans and Annual Performance Plans for entities aligned to the National Development Plan
Does the entity have adequate resources (human and financial) available to achieve predetermined objectives
Are the targets realistic (can it be done)
How are the entities ensuring that Strategic Plans and Annual Performance Plans will be achieved (performance contracts, quarterly monitoring, etc.)
The Portfolio committee should review the quarterly progress of entities with regard to predetermined objectives and contributions to NDP
The Portfolio committee should review annual achievement of predetermined objectives by entities (Annual Reports)
The Portfolio committee should approve and track changes to strategic plans and annual performance reports

36. AGSA’S aspirations for the Public Service
Transparent and stable reporting systems
Budgeting and planning processes
Focussed information management platforms
Strong internal audit capabilities
Robust financial and performance management systems
Oversight and accountability
Commitment and ethical behaviour by all
Competent and value-adding Auditor General
Creating a better and dignified life for the citizens of South Africa through timely effective, efficient and economical SERVICE DELIVERY
Reporting to enable effective oversight
Applying consequences for transgressions and poor performance
Professionalism
Visible commitment by all players in the public service
Demonstrated impeccable ethical behaviour and professionalism
Independent and relevant reporting by the AG
Value-adding input expressed by the AG
3636

37. Questions