1. Page 1 Presentation to the Portfolio Committee on Tourism 21 July 2010 An overview of the External Audit Process and Types of Audits

2. 2 Reputation promise/mission 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 through auditing, thereby building public confidence.

3. 3 Different types of audits – mandatory audits of the AGSA FINANCIAL AUDIT Audit of the financial statements Required in terms of sections 4 and 20 of the Public Audit Act Opinion on the fair presentation of information in the financial statements

4. 4 Different types of audits – mandatory audits of the AGSA (cont.) FINANCIAL AUDIT (Contd.) Audit of performance against pre-determined objectives Findings on whether performance information is fairly reflected (i.e. valid, accurate and complete) and to enable good oversight of service delivery –Required in terms of sections 4, 20 and 28 of the Public Audit Act –Conclusion included in the management report of an entity on the usefulness and reliability of reported information relating to the performance of the entity against its predetermined objectives

5. FINANCIAL AUDIT (Contd.) Compliance with laws and regulations –Material instances of non-compliance with laws and regulations are reported in a narrative format as factual findings. These instances are listed per Act and categorised as prohibited actions and non adherence. Internal control –Deficiencies in internal control relevant to the audit of the financial statements and the report on predetermined objectives and compliance with laws and regulations are reported under the 3 fundamentals of effective internal control. We do not express an opinion on the effectiveness of internal control. 5 Different types of audits – mandatory audits of the AGSA (cont.)

6. 6 Different types of audits – discretionary audits of the AGSA Performance auditing (including environmental auditing) –Permitted in terms of sections 4 and 20 of the Public Audit Act –Economic, efficient and effective utilisation of scarce resources –Considers the effects of policy implementation, but does not evaluate policy

7. 7 Different types of audits – discretionary audits of the AGSA (cont.) Investigations –Permitted in terms of section 5 of the Public Audit Act –Factual findings relating to financial misconduct, maladministration and impropriety –Based on allegations or matters of public interest

8. 8 Different types of audits – discretionary audits of the AGSA (cont.) Special audits –Permitted in terms of section 5 of the Public Audit Act –Agreed-upon procedures (required reviews relating to, for example, donor funding, certificates to ensure legislative compliance, etc. )

9. 9 Independence equals credibility External audits must be independent and objective in order to provide assurance that is credible All types of audits are post facto (after the fact/decisions made); As such, section 5 of the Public Audit Act prevents the AGSA from performing any work that may subsequently need to be audited

10. 10 International Standards on Auditing (ISAs) (determined through due process by IFAC involving the whole international auditing profession Regularity auditing Full application of ISAs Supplemented by public sector perspectives based on ISSAIs Performance auditing Full application of ISAs and ISSAIs Structure of the auditing standards Investigations Based on ISA principles Own documented standards and methodology Special audits Full application of ISAs, after consideration of decisions to accept in own guidance ISSAIs – International Standards for Supreme Audit Institutions (public sector perspective to ISAs)

11. Different types of audit opinions Unmodified opinion Qualified opinion Adverse opinion Disclaimer of opinion 11

12. 12 Unmodified opinion This is when the auditor comes to the conclusion that the financial statements present fairly, in all material respects, the financial position, financial performance and cash flows of the auditee THIS IS THE IDEAL AUDIT OUTCOME

13. 13 Qualified opinion (except for) The auditor concludes that, except for specifically listed material misstatements, the financial statements remain a fair reflection

14. 14 Adverse opinion The auditor disagrees with the representation made by management in the financial statements to the extent of confirming that it is NOT a fair reflection of the financial position, financial performance and cash flows

15. 15 Disclaimer of opinion Where there is a lack of sufficient appropriate audit evidence to the extent that the auditor is not able to form an opinion on the financial statements as a whole

16. 16 Responsibilities – management –Prepare financial statements and annual performance report –Design, implement and maintain internal controls (relevant to financial and non-financial information) –Select accounting policies –Disclose non-compliance with laws and regulations –Plan, implement, monitor and report on performance information –Provide access to auditors –Identify, prevent, detect and disclose fraud –Account for and disclose related party transactions –Develop and implement action plans to address audit findings and improve financial management and accountability

17. 17 Responsibilities – auditor –Independence –Ensure leadership visibility throughout the audit –Determine if financial statements and performance report are free from material misstatement –Do test checks on amounts and disclosures in financial statements and annual performance report –Consider and evaluate internal controls (relating to both financial and performance information) –Evaluate accounting policies –Evaluate presentation of financial statements and performance report –Evaluate non-compliance –Provide reports that ensure simplicity and clarity of audit messages

18. 18 Timing of reports Objective: we have internal frameworks to ensure that timely, high-quality reports are issued ActivityTime requirement Turnaround time for responding to audit issues raised By mutual agreement, not exceeding a week Draft management report PFMAEnd June MFMAEnd October Finalisation PFMA31 July MFMA30 November

19. 19 Potential risks for Dept of Tourism Harmonization of National Tourism initiative Vacancies – key personnel Record keeping Governance structures (internal audit and audit committee) Supply chain management Delegations of authority Fixed assets IT systems (transversal systems) Strategic plans (performance information)

20. 20 Questions….