1. Overview of the audit focus areas 14 July 2015

2. 2 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. Our reputation promise

3. Our annual audits examine three areas 1 FAIR PRESENTATION AND RELIABILITY OF FINANCIAL STATEMENTS 2 RELIABLE AND CREDIBLE PERFORMANCE INFORMATION FOR PREDETERMINED OBJECTIVES 3 COMPLIANCE WITH KEY LEGISLATION ON FINANCIAL AND PERFORMANCE MANAGEMENT

4. Local government – our audits and messages – 2014/15 Financial statements Annual performance report Compliance with key legislation Required to report on: Development priorities Quality of submitted AFS Quality of submitted APR SCM HR Financial health ICT Roads infrastructure Water and sanitation Effective leadership culture Oversight responsibility HR management Policies and procedures Audit action plans Proper record keeping Processing and reconciling controls Regular and reliable reporting IT systems controls Risk management Internal audit Audit committees Strategic planning performance management Budget management Transfer of funds and conditional grants Asset and liability management Revenue management Expenditure management (including UIFW) Financial statement and annual report Consequence management HR management Audit committees Internal audit Procurement and contract management From the audit process: Key controls Risk areas Coordinating departments – COGTA, treasuries and Premier’s office

5. Annual performance reportCompliance with key legislationRisk areasPerformance audit areas

6. Audit of annual performance report Main criteria Sub-criteriaSub-criteria Compliance with regulatory requirements Applicable to performance management and reporting UsefulnessUsefulness Measurability Relevance Consistency ReliabilityReliability Validity Accuracy Completeness

7. Good performance indicators Well defined Clear, unambiguous definition so that data will be collected consistently and easy to understand and use Well defined Clear, unambiguous definition so that data will be collected consistently and easy to understand and use Verifiable Possible to validate the processes and systems Verifiable Possible to validate the processes and systems Cost-effective Usefulness of the indicator must justify the cost of collecting the data Cost-effective Usefulness of the indicator must justify the cost of collecting the data Appropriate Avoid unintended consequences and encourage service delivery improvements Appropriate Avoid unintended consequences and encourage service delivery improvements Relevant Relate logically and directly to an aspect of the institution's mandate Relevant Relate logically and directly to an aspect of the institution's mandate Reliable Accurate enough for its intended use and respond to changes Reliable Accurate enough for its intended use and respond to changes * Source: NT FMPPI

8. SMART performance targets S M A R T PECIFIC EASURABLE CHIEVABLE ELEVANT IME BOUND Nature and required level of performance can be clearly identified Required performance can be measured Realistic given existing capacity Required performance is linked to achievement of goal Time period/deadline for delivery is specified * Source: NT FMPPI

9. Specific focus from 2014/15 Selection for audit - development priorities that addresses basic services: Water Sanitation Electricity Waste removal Inclusion of KPIs for basic services (as prescribed by MSA and regulations)

10. Annual performance reportCompliance with key legislationRisk areasPerformance audit areas

11. Compliance focus areas Strategic planning performance management -IDP and SDBIP (including public participation) -KPI requirements -Performance management system Strategic planning performance management -IDP and SDBIP (including public participation) -KPI requirements -Performance management system Budget management -Approval (new budget) -Implementation and monitoring (current budget) Budget management -Approval (new budget) -Implementation and monitoring (current budget) Asset and liability management -Asset control (including capital assets) -Investments -Short and long terms debt -Guarantees and securities Asset and liability management -Asset control (including capital assets) -Investments -Short and long terms debt -Guarantees and securities Revenue management -Policies -Revenue collection -Property rates Revenue management -Policies -Revenue collection -Property rates Expenditure management -Expenditure control -30 day payment -Prevention and reporting of UIFW Expenditure management -Expenditure control -30 day payment -Prevention and reporting of UIFW Financial statement and annual report -Submission and quality of AFS -Annual report processes Financial statement and annual report -Submission and quality of AFS -Annual report processes Consequence management -UIFW -Fraud and improper conduct in SCM -Financial misconduct Consequence management -UIFW -Fraud and improper conduct in SCM -Financial misconduct Audit committees - Existence - Operations Audit committees - Existence - Operations Internal audit - Existence - Operations Internal audit - Existence - Operations UIFW = unauthorised, irregular, fruitless and wasteful

12. Transfers and conditional grants - focus Municipality receive DORA grants: Focus on (1) Municipal infrastructure grant (MIG) (2) Urban settlement development grant (3) Municipal systems improvement grant (4) LG finance management grants Compliance with DORA Identify key projects/ programmes to audit MIG – focus is on water infrastructure projects Message on spending of grants, achievement of targets and impact of grant Municipality transfer funds: In accordance with DORA and MFMA

13. Annual performance reportCompliance with key legislationRisk areasPerformance audit areas Quality of submitted AFS Quality of submitted APR SCM HR Financial health ICT

14. Quality of submitted AFS and APR Material misstatements in submitted financial statements: Material misstatements identified through audit process Which could have been prevented or detected by auditee internal control system Not isolated incident or UIFW identified in audit process Non-compliance finding in audit report Material misstatements in submitted annual performance report Material misstatements identified through audit process Which could have been prevented or detected by auditee internal control system In audit report as “other matter”

15. Procurement and contract management (SCM) Through audit we cover: SCM internal controls Payments to fictitious suppliers Employees and councillors with interest in suppliers Close family members of employees and councillors with interest in suppliers Other state official with interest in suppliers Prohibited suppliers Prospective suppliers list Quotation processes Competitive bidding processes Unsolicited bids Contract management Requirements from MFMA, SCM regulations, PPPFA and CIDB requirements

16. HR management and consultants HR management Through audit we cover the compliance requirements for: Appointments and acting positions Suspensions HR planning and organisation Minimum competencies (effective) Performance management We also gather information on the following to assess control environment and report on in general report: Whether there are senior managers made responsible for strategic planning and for monitoring and evaluation Vacancies and stability in positions of key officials – MM, CFO, HoS, senior management, finance unit Key official progress towards minimum competencies Performance management aspects

17. HR management and consultants Consultants: Through audit we assess the following processes in managing consultants: Planning and appointment Availability of internal capacity Training and transfer of skills Performance management and monitoring We also gather information on the following to assess control environment and report on in general report: The extent of use of consultants – particularly for financial reporting and performance information Whether the audit identified material findings in the areas consultants did work and the reasons

18. Financial health indicators Indicators of financial health calculated and reported in the management report and at overall basis in the general report. Focus on: Budget management Creditor payment Revenue management Asset and liability management Cash management Grant management Purpose is to provide high level overview of financial situation at year –end to assist in focusing management understanding and scrutiny wrt financial management Expected to change significantly in future as auditees implement MFMA circular 71

19. Information technology controls ICT controls are assessed as part of audit process Specific attention is given to: IT governance Security management User access management IT service continuity

20. Annual performance reportCompliance with key legislationRisk areasPerformance audit areas

21. AGSA has discretion to also focus on additional areas that relate to service delivery through its mandate to do performance audits In past 2 years there has been a gradual phasing in of work on the following two areas: Water and sanitation Roads infrastructure Current focus is on planning and performance management processes.

22. Local government – our audits and messages – 2014/15 Financial statements Annual performance report Compliance with key legislation Required to report on: Development priorities Quality of submitted AFS Quality of submitted APR SCM HR Financial health ICT Roads infrastructure Water and sanitation Effective leadership culture Oversight responsibility HR management Policies and procedures Audit action plans Proper record keeping Processing and reconciling controls Regular and reliable reporting IT systems controls Risk management Internal audit Audit committees Strategic planning performance management Budget management Transfer of funds and conditional grants Asset and liability management Revenue management Expenditure management (including UIFW) Financial statement and annual report Consequence management HR management Audit committees Internal audit Procurement and contract management From the audit process: Key controls Risk areas Coordinating departments – COGTA, treasuries and Premier’s office