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Annual report presentation October 2009
AGSA SCoAG 2009 Annual report presentation October 2009
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This is our reputation promise.
Mission The Auditor-General of South Africa 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. This is our reputation promise.
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Table of contents Overview Key highlights Simplicity
Visibility of leadership Strengthen human resources Funding Lead by Example Conclusion
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Overview of AG Commitment
The AGSA remains committed to the following goals in order to impact positively on all aspects of public sector accountability: ensuring simplicity, clarity and relevance of the messages contained in all our reports, including the quality, timeliness and deepening of stakeholders’ understanding of our reports improving the visibility of our leadership through clear communication in championing the implementation of audit recommendations strengthening the human resource strategy with particular emphasis on the comprehensive trainee auditor scheme focusing on the funding model with a view to stabilising our margins and cash flow situation leading by example on matters of risk management, internal controls and transformation
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Key Highlights Communication of audit report outcomes to key stakeholder through road shows Annual quality results of category “excellent” exceeded and surpassed that of prior years 50% improvement in the timely submission of annual financial statements for PFMA organisations 36% improvement in the timely submission of annual financial statements for MFMA municipalities Completion of audit reports within the statutory deadlines PFMA organisations (99%) Other PFMA organisations (98%) MFMA organisations (92%) Significant decrease in vacancies of 35% from 2007 (724) to 2009 (471) Achievement of retention rate of 11% compared to industry average of 16% AGSA hosted the AFROSAI 11th General Assembly in Pretoria from 13 to 17 October It was attended by delegates and observers from 51 countries
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Simplicity and clarity of our reports
Key Achievements Continued our efforts to influence the achievement of unqualified reports in all spheres of government, which is central to the realisation of our constitutional mandate Communicated with simplicity, clarity and relevance to our stakeholders through road shows and door-to-door visits Continued focus on the quality and timeliness of our products including audit reports Streamlined performance auditing function Continued our contribution in international auditing to the United Nations Board of Auditors Tabled to Parliament 38 performance audits reports, 6 of national departments, 2 of public entities, 30 provincial departments.
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Figure 1: Annual quality control results
Quality results summary Figure 1: Annual quality control results Overall Commentary: Results of category “excellent” exceeded results of prior years Results of category “poor” show improvement compared to prior years
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PFMA and MFMA timeliness results
Table 1: The AGSA’s PFMA performance in meeting legislated reporting timelines (Results as at 31 July 2008) Submission of AFS as prescribed by the PFMA Completion of the audit within the statutory deadlines Entities % Number PFMA organisations 95% 340 99% 338 Other PFMA organisations 90% 99 98% 97 Total 439 435 Table 2: The AGSA’s MFMA performance in meeting legislated reporting timelines (Results as at 31 November 2008) Submission of AFS as prescribed by the MFMA Completion of the audit within the statutory deadlines Entities % Number Municipalities 84% 225 92% 206 Municipal entities 81% 42 98% 41 Total 267 93% 247
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Simplicity and clarity of our reports
Key Challenges Initiatives Insufficient capacity to do performance audits Regular reviews by the Performance Audit Advisory Committee
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Actual performance versus target at 31 March 2009
Table 3: Summary of actual performance against targets Main focus area Sub-focus area Target Actual performance Auditing Quality Excellent performance (C2 & C3): 80% Good performance (R1): 20% Poor performance (R2): 0% Excellent performance (C2 & C3): 84% Good performance (R1): 9% Poor performance (R2): 7% Timeliness 95%: PFMA organisations 95%: Other PFMA organisations 80%: MFMA organisations 99%: PFMA organisations 98%: Other PFMA organisations 92%: MFMA organisations Auditing of Performance information 100% achievement of milestones set for the year 93%: PFMA 90%: MFMA
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Visibility of Leadership
Key achievements Engaged the media on the audit process so that they can appropriately communicate audit outcomes Reviewed our vision, mission and values so as to drive a performance-driven culture Trained and empowered our leadership to better understand their leadership communication role Signed a Memorandum of Understanding (MoU) with the Public Protector and the Office of the Public Service Commission. Auditor-General was appointed as the first vice-chair of INTOSAI and continued as President of AFROSAI AFROSAI held its 11th General Assembly in Pretoria, South Africa from 13 to 17 October The assembly was hosted by the AGSA and was attended by delegates and observers from 51 countries.
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PFMA audit outcomes (Source: AG presentation to Parliament on 18 November 2008)
Figure 2: PFMA audit outcomes Overall Commentary: Total number of Auditees increased from 361 in to 463 in There has been 4% increase on disclaimers, 61% increase on adverse qualification , 80% increase on qualified and 24% improvement on financially unqualified with other matters and 65% without other matters Note: Includes following: National departments (34) National Public Entities (195) Constitutional Institutions (9) Provincial departments (119) Provincial Public Entities (106) Total = 463
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MFMA audit outcomes as per general report on
MFMA audit outcomes as per general report on * (Source: General Report Figure 2: MFMA audit outcomes Overall Commentary: Out of 239 municipalities whose audit outcomes are reported for , 74 entities improved and 22 regressed while the audit outcomes of 143 remain unchanged There is a 13% reduction on disclaimers, 53% reduction on adverse qualification, 20% reduction on qualified and 73% improvement on unqualified with other matters Note: This excludes municipal entities and metros
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Visibility of Leadership
Key Challenges Initiatives Quality and timely submission of annual financial statements to the AGSA Leadership visibility prior, during and post auditing Transparency accountability of governance structure Compliance to financial accounting practices by auditees
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Actual performance versus target at 31 March 2009
Table 5: Summary of actual performance against targets Main focus area Sub-focus area Target Actual performance AGSA Leadership Leadership effectiveness 100% achievement of milestones set for the year Achieved 100% milestones of milestones set for the year AGSA Reputation Overall reputation index Achieved 100% milestones set for the year
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Strengthen Human Resources
Key Achievements Entered into a temporary arrangement of management secondments to address vacancies, skills transfer and minimising reliance on contract work Improved retention of staff i.e. 11% against an industry average of 16% Reviewed our Human capital policies and procedures Reviewed our performance management system so as to enable personal accountability Repositioned the TA Scheme to ensure optimal ROI and introduced an audit clerk and audit supervisor positions for those trainees that are temporarily not studying 105 AGSA staff members received RGA qualification (65 qualified in ) 30 passed SAICA and 30 passed IRBA examinations Overall 35% decrease of vacancies from 2007 to 2009
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AGSA establishment profile by level
Job Level No. of Staff Race African Indian Coloured White Other Auditor-General 1 Deputy Auditor-General Head of Audit Corporate Executives 6 3 2 Business Executives 27 10 12 Senior Managers 164 43 29 11 78 Managers 461 117 80 28 227 9 Assistant Managers 397 207 34 25 126 5 Trainee Auditors 952 824 50 38 Administrative Personnel 210 33 49 109 82 7 TOTAL 2,329 1,405 218 144 538 24
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AGSA establishment profile by gender
Job Level Male Female Auditor-General 1 Deputy Auditor-General Head of Audit - Corporate Executives 4 2 Business Executives 21 6 Senior Managers 113 51 Managers 247 214 Assistant Managers 199 198 Trainee Auditors 464 488 Administrative Personnel 36 174 Other 48 61 1,134 1,195
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Overall AGSA vacancy stats
Figure 4 : Overall vacancy per band Job Level No. of Staff Vacancies Auditor-General 1 - Deputy Auditor-General Head of Audit Corporate Executives 6 Business Executives 27 Senior Managers 164 15 Managers 461 88 Assistant Managers 397 133 Trainee Auditors 952 228 Administrative Personnel 210 7 Other 109 TOTAL 2,329 471 Overall commentary: There has been a decrease in vacancy from 2007 to 2009 by 31% at Band D 17% at Band E and 43% at Band G Overall decrease of 35% in vacancies from total of 724 in 2007 to 471 in 2009 Highest vacancies at the middle management and trainee auditor levels
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Trainee auditors by qualifications and year of study
Figure 4: Trainee auditors by qualifications and year of study Tot 4 21 1 824 46 16 15 928 Overall commentary: Critical shortage of CTAs Low pass rates
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Strengthen Human Resources
Key Challenges Initiatives Ongoing vacancy challenge at Audit Assistant Manager and Audit Manager levels. Continuously reviewing human capital policies and procedures Implement and monitor trainee auditor scheme to focus on growing own talent Retain and attract professionals Exploring different sources to attract talent Increase AGSA branding and visibility in the labour market Continue with the DMS initiative, where appropriate Ongoing review of remuneration practices Unsatisfactory pass rate trainee auditors Consistent application of academic progress study policies Utilise DMS professionals for training and development of our trainee auditors Continue to focus on mentoring and coaching as a key leadership skill Continue to provide academic support In future, AGSA will focus on CTAs
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Actual performance versus target at 31 March 2009
Table 7: Summary of actual performance against targets Main focus area Sub-focus area Target Actual performance People Learning and growth Retain 30% of trainees that qualified Since the implementation of the trainee auditor programme in 2001, we have cumulatively retained 55% of our qualified trainees Retention of staff Less than 16% staff turnover rate 11% staff turnover rate
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Funding Key achievements Completed financial turnaround plan
Amended AGSA funding model
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Financial Highlights 2009 R’000 2008 R’000 Revenue 1,375,925 1,108,899
Direct audit cost (1,069,668) (829,829) Gross Profit 306,257 279,070 Other Income 54,277 14,020 Expenses (376,631) (301,391) Net deficit for the year (16,097) (8,301) Overall Commentary: Revenue is up by 24% Gross profit margin 22% (2008: 25%) Operating expenses is maintained at 27% of revenue.
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Financial Highlights Revenue Analysis 2009 R'000 2008 R'000
Own Hours Revenue 824,304 691,152 Contract Work Revenue 551,621 417,747 Total Revenue 1,375,925 1,108,899 Less Direct cost (1,069,668) (829,829) Gross Profit 306,257 279,070 Gross Profit % on Own Hours Revenue 37% 40% Gross Profit % on Total Revenue 22% 25% Own hours revenue increased by 19% due to increased in number of audit staff. Contract work revenue is up by 32% due to scarcity of audit professionals. There is no mark- up on contract work allocated. Note: Own hours revenue is made up of Own hours revenue local, Own hours revenue International and Subsistence and Travel revenue
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Revenue Analysis cont. 06’07 R’000 07’08 R’000 08’09 R’000
Total Revenue 893,750 1,108,899 1,375,925 Own hours (includes Subsistence & Travel) 593,878 691,152 824,304 Contract Work 299,872 417,747 551,621 Own hours billed 2,012,113 2,071,254 2,221,462 Audit staff 1,628 1,767 2,103 Average charge out hours/ Audit Staff 1,235 1,172 1,056
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Comparison of actual results with the approved budget (08’09)
Indicator Actual R’000 Budget R’000 Variance R’000 Variance % Revenue 1,375,925 1,292,642 83,283 6% Own hours 824,304 924,340 (100,036) -11% Contract work 551,621 368,302 183,319 50% Direct cost (1,069,668) (901,273) (168,395) 19% Gross profit 306,257 391,369 (85,112) -22% Other Income 42,082 2,916 39,166 1343% Expenses (376,631) (391,354) 14,723 -4% Net interest received 12,195 5,428 6,767 125% Net (deficit) surplus for year (16,097) 8,359 (24,456) -293%
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Comparison of actual results with the approved budget (08’09) cont.
Overall commentary: Own hours revenue is under budget by R100 million due to the following; Vacancies (R135 million) Higher recovery rate R35 million Volume variance R4 million Other recoveries R11million Subsistence and Travel decreased by (R15 million) Contract work revenue is above budget due to scarcity of audit professionals. Net interest received had a favourable variance due to a positive bank balance and higher than budget interest rates prevailing during the reporting year.
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Sources of revenue Figure 8: Sources of revenue (R’000)
Overall Commentary: Average tariff for 2008 was R313/hour and it increased to R347/hour in 2009 Contract work as a % of total revenue was 38% for 2008 and 40% for 2009
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Financial Highlights Total cost is R1. 446 billion
Financial Highlights Total cost is R1.446 billion. The major cost drivers for AGSA are Contract work - R million (38%), Recoverable staff cost – R million (32%) and Support staff cost – R million (14%)
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Analysis of other key cost drivers The other key cost drivers for 08’09 in relation to budget are as follows: Actual R’000 Budget R’000 Variance Subsistence and travel irrecoverable 10,555 7,350 3,205 Contract work irrecoverable 12,062 18,329 (6,267) Accommodation 51,907 42,322 9,585 Internal audit fees 3,163 2,200 963 Provision for impairment of receivable 4,710 - Technological services 21,814 25,023 (3,200) Stakeholder relations 7,846 8,325 (479) Recruitment costs 10,208 12,749 (2,541) Stationery and printing 5,658 5,759 (101) Other operating costs 20,122 20,662 (540) Total 148,045 142,719 5,326 Overall commentary: S& T variance is due to reorganisation in Eastern cape Contract work irrecoverable due to saving on projects not rolled out as planned. Accommodation variance is due to straightlining of leases on premises as per IAS 17. Technological services variance was due to saving on license fees and 3G cards costs lower than budget Recruitment costs saving was due to changes in recruitment approach from using agents to online recruitment.
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Cash flow statement Analysis
2009 R’000 2008 R’000 % Growth Net cash inflow from operating activities 46,474 406 11 347% Net cash outflow from investing activities (36,750) (20,923) 76% Net cash inflow / (outflow) from financing activities 53.024 (1,774) 3 089% Net increase / (decrease) in cash and cash equivalents 62,748 (22,291) 381% Cash and cash equivalents at end of the year 180,838 117,318 54% Overall Commentary: The growth in cash holdings was due to non refundable National Treasury grant of R90 million received during the reporting period.
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Debtors Ageing Analysis – 31 March 2009
Current R’000 30 days R’000 60 Days R’000 90 Days R’000 120 Days R’000 120 Days R’000 Total R’000 National 52,235 7,213 4,547 (695) 49 1,293 64,642 Provincial 70,472 2,073 1,500 550 873 7,427 82,895 Local 45,123 8,047 4,438 14,304 9,725 23,014 104,651 Statutory 28,054 1,450 972 2,704 1,470 6,293 40,943 Other 25,285 390 842 325 293 3,039 30,174 Total 221,169 19,173 12,299 17,188 12,410 41,066 323,305 % 68% 6% 4% 5% 13% 100% Note: Total balance excludes provision for impairment of receivables amounting to R25 million.
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Ageing of trade payables
Current R’000 30 days R’000 60 Days R’000 90 Days R’000 120+ Days R’000 Total R’000 Trade payables – Contract work 63,256 30,140 19,036 5,527 4,860 122,819 Trade payables - Other 27,007 4,638 9,142 444 15,240 56,471 United Nations contract – prepaid income 18,346 - Total 108,609 34,778 28,178 5,971 20,100 197,636 % 55% 18% 14% 3% 10% 100%
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Funding Key Challenges Initiatives
Continued erosion of AGSA margins Monitoring and Controlling overheads and contract work Declining working capital from 1.01 in year 2008 to 0.86 in year 2009 Ability of local and provincial government to settle their accounts on time Increased outstanding debt of R323 million as at 31 March 2009 from R255 million as at 31 March 2008 Streamlining debt collection Engaging political heads Exploring legal debt collection process
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Actual performance versus target at 31 March 2009
Table 10: Summary of actual performance against targets Main focus area Sub-focus areas Target Actual performance Financial performance Efficiency gains (net surplus) Additional 1% on projected efficiency gains 0% on efficiency gains Deficit amounting to R16,1 million Debt collection National and provincial not more than 30 days Local government not more than 90 days National = 18 days Provincial = 37 days Local government = 104 days Statutory bodies = 38 Cost of auditing Additional 1% on the projected efficiency ratios of 30% 22% efficiency ratio Performance auditing 10% of total audit income 6% of total audit revenue International Auditing Not more than 5% of total audit income Income from international audits makes up 2% (R28m) of total audit income, which is within the targeted range of up to 5%
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Lead by Example Key achievements Developed AGSA BBBEE strategy
Achieved Employment Equity set target: 80% on targeted group and 20% on non-targeted group Crafted the organisational wide risk management framework to cover strategic, financial and operational risks that are monitored by EXCO on a regular basis Revamped ICT, HC and Finance processes
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AGSA BBBEE and Affirmative action profile
Figure 9: Achievement of affirmative action targets excluding trainee auditors (levels A to G) Overall Commentary: African: Increased from 55% to 60% (08 to 09) Colored: Decreased from 7% to 5% (08 to 09) Indian: Remained same at 9% White: Decreased from 28% to 25% ( 08 to 09) Disabled: Remained same at 1% Figure 10: Achievement of affirmative action targets excluding of trainee auditors (levels A to F) Overall Commentary: African: Increased from 38% to 39% (08 to 09) Coloured: Increased from 7% to 8% (08 to 09) Indian: Increased from 10% to 12% (08 to 09) White: Decreased from 44% to 38% (08 to 09)
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BBBEE audit work allocation
Table 12: Allocation of audit work to private audit firms Size of firms Allocation target ( % ) Budget ( RM ) % of budget total Actual % of Actual total Big and large 45% 101 146 47% Medium 35% 78 107 34% Small 20% 45 58 19% 100% 224 311* 10% *Note: The reporting is based on 20% allocation only
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Actual performance versus target at 31 March 2009
Table 13: Summary of actual performance against argets Main focus area Sub-focus area Target Actual performance Employment equity Transformation 80% from target groups and. 88% from target groups and 20% non-target groups. 12% non-target groups. Broad-based black economic empowerment (BBBEE) 100% compliance with BEE criteria per annum 100% Process Operational excellence Level of maturity of business process at least: 0% at CMM level 1* 75% at CMM level 2** 25% at CMM level 3*** 0% at CMM level 1 44% at CMM level 2 56% at CMM level 3 Note *: Absence of documented and standardised processes Note **: Although processes are standardised they are either not documented or not communicated Note ***: Processes are documented, standardised and communicated
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Conclusions Submission of timely performance reports addressed with auditees, with National & Provincial Treasuries AGSA Financial sustainability addressed through the implementation of the revised Funding model in 2009 AGSA Risks closely monitored Leadership visibility being improved More focus on the recruitment and retention of Trainee Auditors to address skills shortage Substantial development & growth of key processes BBBEE closely monitored
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