1. WELCOME AGSA 5TH PARLIAMENT CAPACITY BUILDING PRESENTATION
10 September 2014
WELCOME

2. 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.
Honourable Chairperson and honourable members, we thank you for providing the AGSA with the opportunity to demonstrate to you how our reports can be used to enable oversight, accountability and improved governance in the public sector.
As is reflected in our Mission statement – we exist in order to support you in your oversight role.
The Annual Reports of national departments and public entities tabled every year are powerful accountability instruments, and the reports of the Auditor-General contained therein is an important departure point when assessing the performance of departments.
I must point out that the audit report should never be read in isolation, but be read with the rest of the annual report, especially the chapter on programme performance and of course the financial statements.
The story that our report tells the reader is always supplemented by the bigger story being told in the whole of the annual report.

3. PURPOSE OF PRESENTATION
To provide members of parliament with the necessary information/guidance on the role of the AGSA to enable them to effectively execute their oversight function.

4. CONTENT Audit mandate and process Oversight role Oversight body
Combined assurance model
AGSA contribution to oversight
Audit mandate and process
AGSA mandate & Legislative requirements
AGSA aspiration to the public service
3. The work we do
AGSA products
Good administration
4. Briefing process

5. THE ROLE OF OVERSIGHT

6. AG audits accountability information
The role of oversight
Oversight body
Vote
Assess & adjust
Identify the desired impacts
Strategic planning
Specify performance
indicators
Institution
Department
Public entity
Year-end reporting
AG audits accountability information
Budgeting / operational planning
Oversight Cycle
This illustration has been taken from the NT framework for managing program performance information and clearly illustrates where oversight begins and ends. Oversight is an ‘all-year’ process: Parliament’s oversight role –
starts before the budget is passed with the scrutiny of departmental strategic plans and their alignment to the budget,
continues during the spending year, and
concludes after the end of the spending year through the review of annual reports and AGSA reports.
At any given time, therefore, information from multiple years is being considered by Parliament: plans and budgets for next year; implementation for the current year; and reporting on last year's performance. Although performance information is reported publicly during the last stage, the performance information process begins when policies are being developed, and continues through each of the planning, budgeting, implementation and reporting stages.
Oversight activities of the various oversight committees therefore relate to in-year spending, the achievement of the policy objectives / service delivery objectives of spending, and regular, efficient and effective spending.
The yellow part indicates the role of the AG as the external auditor of the national government departments when at year-end the departments submits information on their financial and non-financial performance during the year to the AGSA for auditing.
The departments are responsible for producing financial and non-financial information throughout the year, disclose it at the end of the year in formats prescribed by authorities such as National Treasury and the Accounting Standards Board, whereafter it is submitted to the AGSA for auditing.
Implementation /
in-year reporting
Monitor & take corrective
action
Set targets & allocate
resources

7. Strategic planning Enquire about / identify: Evaluate:
Is the strategic plan in line with the legislative requirements / objectives?
Ensure that the strategic plan and strategic initiatives are aligned with the government priorities, national plan of action and Medium Term Expenditure Framework (MTEF)
Enquire about / identify:
challenges in meeting the strategic objectives
initiatives to address them
Evaluate:
how success will be measured
Notes
Contrary to popular belief, influencing the audit opinion does not begin at the Reporting stage but rather right after Policy Development.

8. Budgeting Budget preparation
Is the budget aligned with the strategic plan?
Have adequate resources been allocated to the priority areas?
Are there budget constraints and how have they been dealt with?
Focus on changes in the budget from one year to the other

9. Implementation/Monitoring
Is departmental spending on the right track and in line with strategic plan priorities?
Does management evaluate monthly and quarterly reports?
Do action plans exist to address audit findings and improve financial management and accountability?
Are there designed, implemented and maintained internal controls (relevant to financial and non-financial information)?
Are procedures in place to identify, prevent and detect fraud?
Are adequate governance arrangements in place and are they effective (internal audit and audit committee)?

10. Reporting
Keeping management accountable and determining whether there is –
Compliance with reporting responsibilities as set out in the PFMA
Compliance with Parliament’s Appropriation Act
Effective and efficient utilisation of resources
Review the annual report of the department / entity including the audit report, and consider both the financial and non-financial information presented.

11. Combined assurance model
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

12. AGSA contribution to oversight
Provide briefings to committees:
On audit reports before the portfolio committee compiles their BRRR (read with the annual report)
Update on progress of current year audits. Sharing of audit risks & status of key controls
Before the APPs is reviewed by the portfolio committee to discuss the findings identified from the pro-active audit of the PDOs of the department
Acts as an expert witness during public hearings
Road shows after tabling of the general report (PFMA & MFMA)
Regular follow-up on the progress of implementation of resolutions
Interactions with the chairpersons (quarterly)
Assist in building capacity of members via APAC.

13. AUDIT MANDATE AND PROCESS

14. AGSA Mandate and Legislative requirements
1. Constitution of the Republic of South Africa (1996)
Section 188 – must audit and report on accounts, financial statements and financial management of government institutions and report to Parliament / legislature that has a direct interest in the report.
2. Public Audit Act (Act No.25 of 2004)
Sections 20 – Auditor-General must prepare audit report containing opinion/conclusion on:
Financial statements and financial position
Compliance and financial management
Predetermined objectives

15. AGSA Mandate and Legislative requirements continues
3. Public Finance Management Act (Act No.1 of 1999)
Accounting Officer:
Section 40(1)(a) & (b) – Record keeping responsibilities by accounting officer and preparing financial statements for audit
Section 40(1)(c) – Submission of financial statements to Auditor-General for audit
Auditor-General:
Section 40(2) – Audit financial statements and submit report to accounting officer

16. AGSA Mandate and Legislative requirements continues
In addition to what is prescribed in Section 4(1) of the PAA and subject to any legislation the Auditor-General may audit and report on the account , financial statements and financial management of :
Funded from the National Revenue or
Provincial Revenue Fund or a municipal fund or
Any institution authorised by legislation to receive funds for public purpose.

17. AGSA’S aspirations for the Public Service
Creating a better and dignified life for the citizens of South Africa through timely, effective, efficient and economical SERVICE DELIVERY
DWS Mission
“To effectively manage the nation’s water resources to ensure equitable and sustainable socio-economic development and universal access to water”.
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
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

18. Accountability and reporting
The AGSA is accountable to the National Assembly and has to report on its activities and performance of its functions in terms of section 10 of the Public Audit Act (PAA).
The main accountability instruments are the AGSA's budget and strategic plan, as well as the annual report, both of which are tabled annually in the National Assembly.
The Standing Committee on the Auditor-General (SCoAG), established in terms of section 10(3) of the PAA, oversees the performance of the AGSA on behalf of the National Assembly.

19. Visibility of the AGSA beyond the mandate
The AGSA provides the oversight committees in parliament and all legislatures with briefings on root causes and recommendations on corrective measures to improve audit outcomes before the entity hearings.
Developing required leadership competencies through mentoring, coaching and leadership programmes and processes for effectively managing change.
The AGSA consults widely with the stakeholders in the executive and legislatures prior to tabling the General Reports that consolidate the audit outcomes of National, provincial and municipalities
The General Reports are tabled in Parliament & Legislatures

20. THE WORK WE DO

21. AGSA Products
Regularity Audit - Mandatory
Verify whether there is no omitted information on financial statements
Consists of – Financial, Compliance , PDO and Internal control
Full application of international auditing standards
Regularity audit are supported by:
Information systems audit
ISA focus on the assessment of the information systems environment, use of Computer Assisted Audit Techniques (CAATs) in audits and data analytics
DISCRETIONARY
(Section 20(3) of the PAA)
1. Evaluate measures to ensure economic procurement of resources and efficient and effective application of the same
2. Effect of policy implementation (not policy evaluation)
3. Reporting is factual and does not include an audit opinion
4. Audit is conducted by performance auditors and may include subject matter experts
5. Focuses on a specific government programme, project or management project
DISCRETIONARY
An independent process to prevent or detect fraud/ crime in the public sector
Specific focus area of financial misconduct maladministration & impropriety
Performance Audits
Investigations
DISCRETIONARY
Agreed upon procedures, i.e. donor funding certificates
Special Audits

22. AGSA products (service types and value add)
Performance Auditing:
Focuses on a specific government policy or management process
BEST RESOURCE BASED ON NEED
BEST RESULTS USING WHAT WE HAVE
GOAL REACHED =
VALUE FOR MONEY +
SERVICE DELIVERY =

23.  X The regularity audit – what we do & what not
Provide assurance that AFS are free from material misstatements
Provide assurance that all applicable laws and regulations have been complied with
Report on usefulness and reliability of the information in the annual performance report
Identification of fraud
Report on material non-compliance with relevant laws and regulations
Provide assurance that service delivery has been achieved
Identify key internal control deficiencies to be addressed

24. Last quarter of current year / First quarter of following year
Timelines of regularity audit cycle
31 March
Year end
(PFMA)
31 July
Audits complete (PFMA)
(AGSA)
Last quarter of current year / First quarter of following year
General reports (PFMA) published

25. Audit of financial statements and specific focus areas
Required in terms of the Constitution and the Public Audit Act
The auditor forms an opinion on whether the financial statements are prepared in all material aspects in accordance with the specific applicable financial reporting framework.
Predetermined objectives
Service-delivery issues with focus on the reliability and usefulness of performance information which includes the measurement of targets as set out in the beginning of the financial year, were actually achieved.
Compliance with laws and regulations
Reporting on material non-compliance with key legislation.

26. Good Administration / Clean audit
Financially Unqualified AFS (free from material misstatement)
No material findings on Compliance with laws and regulations
No material findings on the Performance Report (Predetermined Objectives)
Good Administration / Clean audit
ER: This slide and the next one speaks to the same message – can we delete one of them?

27. Different types of audit opinion
Unqualified/ unmodified
Financial statements give a true and fair view (or are presented fairly, in all material respects) in accordance with the applicable financial reporting framework.
Unmodified with emphasis of matter
The addition of such an emphasis of matter paragraph(s) does not affect the auditor’s opinion on whether the financial statements are fairly presented
Qualified
The effect of any disagreements with management re departures from financial reporting framework, or limitation on scope is not so material and pervasive (unqualified opinion cannot be expressed )
Audit terminology
THE THREE ASPECTS WE AUDIT
The audit of financial statements The financial statements submitted for auditing must be free from material misstatements. Misstatements refer to incorrect or omitted information in the financial statements. Examples include the incorrect or incomplete classification of transactions, or incorrect values placed on assets, liabilities or financial obligations and commitments.
The objective of an audit of financial statements is to express an audit opinion on whether the financial statements fairly present the financial position of auditees at financial year-end and the results of their operations for that financial year.
We can express one of the following audit opinions:
CLEAN AUDIT OUTCOME: The financial statements are free from material misstatements (in other words, a financially unqualified audit opinion) and there are no material findings on reporting on performance objectives or non-compliance with legislation.
FINANCIALLY UNQUALIFIED AUDIT OPINION: The financial statements contain no material misstatements. Unless we express a clean audit outcome, findings have been raised on either reporting on predetermined objectives or non-compliance with legislation, or both these aspects.
QUALIFIED AUDIT OPINION: The financial statements contain material misstatements in specific amounts, or there is insufficient evidence for us to conclude that specific amounts included in the financial statements are not materially misstated.
ADVERSE AUDIT OPINION: The financial statements contain material misstatements that are not confined to specific amounts, or the misstatements represent a substantial portion of the financial statements.
DISCLAIMER OF AUDIT OPINION: The auditee provided insufficient evidence in the form of documentation on which to base an audit opinion. The lack of sufficient evidence is not confined to specific amounts, or represents a substantial portion of the information contained in the financial statements.

28. Different types of audit opinion continues
There is lack of sufficient appropriate audit evidence to express an opinion.
Disclaimer
The auditor disagrees with the representation made by management in the financial statements to the extent of confirming that it’s not a fair reflection of the financial position, performance and cash flow.
Audit terminology
THE THREE ASPECTS WE AUDIT
The audit of financial statements The financial statements submitted for auditing must be free from material misstatements. Misstatements refer to incorrect or omitted information in the financial statements. Examples include the incorrect or incomplete classification of transactions, or incorrect values placed on assets, liabilities or financial obligations and commitments.
The objective of an audit of financial statements is to express an audit opinion on whether the financial statements fairly present the financial position of auditees at financial year-end and the results of their operations for that financial year.
We can express one of the following audit opinions:
CLEAN AUDIT OUTCOME: The financial statements are free from material misstatements (in other words, a financially unqualified audit opinion) and there are no material findings on reporting on performance objectives or non-compliance with legislation.
FINANCIALLY UNQUALIFIED AUDIT OPINION: The financial statements contain no material misstatements. Unless we express a clean audit outcome, findings have been raised on either reporting on predetermined objectives or non-compliance with legislation, or both these aspects.
QUALIFIED AUDIT OPINION: The financial statements contain material misstatements in specific amounts, or there is insufficient evidence for us to conclude that specific amounts included in the financial statements are not materially misstated.
ADVERSE AUDIT OPINION: The financial statements contain material misstatements that are not confined to specific amounts, or the misstatements represent a substantial portion of the financial statements.
DISCLAIMER OF AUDIT OPINION: The auditee provided insufficient evidence in the form of documentation on which to base an audit opinion. The lack of sufficient evidence is not confined to specific amounts, or represents a substantial portion of the information contained in the financial statements.
Adverse

29. Audit of Predetermined Objectives
Definition:
Annual audit of reported actual performance against predetermined objectives, indicators and targets as contained in the annual performance report of departments and their entities.
Audit consists of the following Main Criteria:
Compliance with regulatory requirements
Usefulness
Reliability
Existence
Timeliness
Presentation
Measurability
Relevance
Consistency
Validity
Accuracy
Completeness

30. Audit report structure
Report on the financial statements
Introduction
Accounting officer/authority’s responsibility
Auditor-General’s responsibility
Opinion
Emphasis of matters
Additional matters
Report on other legal and regulatory requirements
Predetermined objectives
Compliance with laws and regulations ( Treasury regulations, PFMA, etc.)
Internal control
Leadership
Financial and performance management
Governance
d) Other reports
Investigations
Performance audits
Agreed up procedures

31. Emphasis of matter/additional matters
Why? – to draw the users of financial statements attention, i.e.
Going concern
Internal control weaknesses
Financial management
DoRA
Fraud or suspected fraud
Unauthorised, irregular and fruitless and wasteful expenditure
Emphasis of matter
Additional matters
to draw users’ attention to a matter presented or disclosed in the financial statements which is of such importance that it is fundamental to their understanding of the financial statements
to draw users’ attention to any matter other than those presented or disclosed in the financial statements which is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report

32. BRIEFING PROCESS

33. Briefing process TOOLS Annual Report including
State of the Nation Address/ Budget speeches
Estimates of National Expenditure
Accounting officer and audit committee ’s Reports
AGSA Briefing Notes
Annual Report including
Audit Report & Performance Report
TOOLS

34. Briefing process continues
Reporting by departments and entities
Reliable, accurate and complete Annual Reports by entities
AGSA review of annual reports critical in ensuring complete, reliable and accurate reporting
Understanding Mandate of entities by Oversight
- Oversight committees must obtain an understanding of the entity
- The Annual Report of the entity must be studied prior to the briefing and hearing
- AGSA briefing of Root causes of audit outcomes
- Root causes are linked to the Key Focus Areas
Analysis and understanding of the Root causes of the audit outcomes by oversight
AGSA make recommendations to oversight in addressing the deficiencies reported
Actual Briefing process
Recommend-actions by oversight committees
Oversight committees issues their findings and must make recommendations which address the deficiencies identified by way of resolutions
Recommendations must have milestones and conform to the “SMART” principles
Send reports to executives for implementation.
Action plans by entities and progress monitoring
Entities must compile an action plan to address the deficiencies
Action plans must have deliverable milestones and also conform to the “SMART” principles
Progress on implementation of action plan and measures to improve the audit outcomes must be reported to oversight for monitoring.
EFFECTIVE BRIEFING PROCESS

35. Department of Water and Sanitation (DWS) & its entities performance

36. DEPARTMENT OF WATER & SANITATION Overview of the Annual Report
The Annual Report of the department consists of the following:
General information
- Minister’s foreword, Deputy Minister’s statement, Overview of the Accounting officer,
Strategic overview, Legislative mandate of the department, Organisational structure, Public
entities and statutory bodies reporting to the Minister.
2. Information on predetermined objectives and programme performance
- Audited in terms of the audit work performed on predetermined objectives.
3. Human resources (HR) management
- Includes statistical information on the HR elements of the department)

37. DEPARTMENT OF WATER & SANITATION Overview of the Annual Report
The Annual Report of the department (Continued)
4. Annual financial Statement Sections (DWS and WTE)
- Includes the following:
4.1) Report of the Audit committee
4.2) Report of the Accounting Officer
4.3) Report of the Auditor-General
4.4) Financial Statements
Appropriation Statement, Statement of financial performance, Statement of Financial Position, Statement of Net Assets, Cash flow statement, Notes
The financial statements are prepare in accordance with the Modified Cash Standards for DWS and SA GRAP for WTE.
In terms of the modified cash basis of accounting a transaction is only recognised when it is initiated by the receipt of payment of cash.

38. 2012/13 audit outcomes breakdown

39. 2012/13 audit outcomes breakdown

40. Key control assessment 2012/13
Leadership
The department did not exercise sufficient oversight responsibility regarding financial reporting over capital assets, reliability of performance information, compliance and related internal controls. The department did not have sufficient monitoring controls over the overall process of reporting, and regular reviewing of information to ensure the accuracy and completeness of financial and performance information.
The department did not have a suitable approved structure to support it in its execution of its mandate.
The department had many vacancies at Deputy Director General level.

41. Key control assessment 2012/13
Financial management
Existing manual and automated controls were not designed to ensure adequate record keeping to support accurate and complete financial reporting on assets, accruals and commitments and reliability of performance reporting which is accessible and available, as required by National Treasury.
Governance
The Main account and WTE share internal audit unit. The internal audit did not have adequate personnel to carry out its mandate.

42. Recommendations per assurance level
Senior
management
Accounting
officers/
authority
Executive
Management’s assurance
Ensuring daily checks and balances are in place to ensure credible monthly and quarterly reporting (AFS and APR)
There should be a process of consequence management for poor / non-performance
Implementation and continues monitoring of actions plans to address internal control deficiencies which have set milestones and expectations.
Capacitate internal audit.
Management assurance
First level of assurance
Oversight assurance
Second level of assurance
Coordinating /
Monitoring
institutions
Internal
audit
Audit
committee
Oversight’s assurance
Internal audit – to quality assure the monthly and quarterly financials and QMR’s before final sign-off by the executive authority and submission to the portfolio committee and to follow up on the status of the action plans implemented.
Audit committee – monitor risks and the implementation of commitments on corrective action made by management as well as quarterly progress on the action plans.
These oversight functions should be fully effective and operational throughout the year.
Independent assurance
Third level of assurance
Oversight
(portfolio
committees /
councils)
Public
accounts
committee
National Assembly
Review and monitor quarterly progress on the implementation of action plans to address deficiencies reported.

43. THANK YOU