1. Portfolio Committee on Appropriations Audit of predetermined objectives 26 March 2013

2. 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.

3. 33 Topics for discussion BackgroundLegislative requirementsAudit strategy and approachAudit outcomes for PFMA 2011-12Way forward

4. 44 Audits performed by AGSA Annual mandatory audits Financial statements Report on predetermined objectives Compliance with laws and regulations Discretionary audits Performance audits e.g. infrastructure General approach and outcome

5. 55 Audit of Predetermined Objectives Audit of Predetermined Objectives vs. Performance audit Performance information Mandatory audit (section 20(2)(c) of the PAA) Includes compliance with laws and regulations Reflects an opinion or conclusion on performance information Reporting is done annually as part of the regularity audit process Done as part of the regularity audit process and by the regularity auditor Reviews and confirms the validity and completeness of information Reporting at entity level and tabled in the relevant legislature Annual assurance on the credibility of an auditee’s reporting of their performance Performance Audit Discretionary audit (section 20(3) of the PAA) Includes compliance with laws and regulations Reporting is factual and does not include an audit opinion Report is not limited to annual information and can cover more than one financial year Done by performance auditors and may include subject matter experts Evaluates the 3 E’s at organisational, programme or project level Reporting at entity level and tabled in the relevant legislature Factual report : whether goods & services acquired economically, applied efficiently and managed effectively towards achieving the desired goals

6. 66 Combined assurance Oversight assurance Second level of assurance Oversight assurance Second level of assurance Coordinating / Monitoring institutions Coordinating / Monitoring institutions Internal audit Internal audit Audit committee 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 Strategic Plans & APP and quarterly progress Audit committee – monitor the implementation of commitments on corrective action made by management as well as quarterly progress on the plans Senior management Senior management Accounting officers/ authority Accounting officers/ authority Executive authority Executive authority Required assurance levels Extensive Management’s assurance role Senior management – take immediate action to address specific recommendations and adhere to financial management and control systems Accounting officers/ authority – hold officials accountable implementation of plan and report quarterly and annually progress Executive authority – monitor the progress of performance and enforce accountability and consequences Management assurance First level of assurance Management assurance First level of assurance Senior management Senior management Accounting officers/ authority Accounting officers/ authority Independent assurance Third level of assurance Independent assurance Third level of assurance Oversight (portfolio committees / councils) Oversight (portfolio committees / councils) Public accounts committee Public accounts committee External audit External audit Extensive Required assurance levels Role of independent assurance Oversight (portfolio committees /councils) – review strategic and performance plans as well as the accounting officer’s quarterly reports on performance Public accounts committee – exercise specific oversight on a regular basis External audit – provide independent assurance on the usefulness of plans and the reliability and credibility of reported performance information and identify instances non-compliance 6

7. 77 Clean administration – from annual audits Unqualified financial statements* No findings of predetermined objectives No findings on compliance with laws and regulations *Not qualified, disclaimed or adverse opinion General approach and outcome

8. 8 Annual audit of reported actual performance against predetermined objectives, indicators and targets as contained in the annual performance report. Integral part of the annual regularity audit process, confirming the Compliance with laws and regulations Usefulness of performance reporting Reliability of performance reporting Integral part of the annual regularity audit process, confirming the Compliance with laws and regulations Usefulness of performance reporting Reliability of performance reporting Audit of predetermined objectives defined as:

9. 9 An audit report must reflect an opinion or conclusion relating to the performance of the auditee against predetermined objectives Sections 20(2)(c) and 28(1)(c) of the Public Audit Act (PAA) Applicable to all spheres of government Legislative requirements - auditing

10. 10 Public Finance Management Act (PFMA), 1999 (Act No.1 of 1999) Treasury Regulations issued in terms of the PFMA, 2002 Public Service Regulations (PSR), Part III B: (Only applicable to departments) Guidelines, instruction notes, practice notes, issued by National Treasury Framework for managing programme performance information (issued by the National Treasury in May 2007) Framework for strategic and annual performance plans (issued by National Treasury in August 2010) Framework for managing programme performance information (issued by the National Treasury in May 2007) Framework for strategic and annual performance plans (issued by National Treasury in August 2010) Legislative requirements for planning, budgeting & reporting of performance info

11. 11 AccountabilityAchievement of targets Improved service delivery Alignment of Performance to Strategic Plans Audit of predetermined objectives

12. 12 Audit of Predetermined Objectives Public sector reforms Improving public reporting Providing better information on what taxpayers are getting for their taxes Why was this necessary? If you do not measure results, you cannot tell success from failure If you do not measure results, you cannot tell success from failure If you cannot see success, you can not reward it If you cannot see success, you can not reward it If you cannot reward success, you are probably rewarding failure If you cannot reward success, you are probably rewarding failure If you cannot see success, you can not learn from and improve on it If you cannot see success, you can not learn from and improve on it If you cannot recognize failure, you cannot correct it If you cannot recognize failure, you cannot correct it If you cannot demonstrate results, you cannot win public support (Service Delivery !!!) If you cannot demonstrate results, you cannot win public support (Service Delivery !!!) Adapted from Osborne and Gaebler, 1992, Reinventing Government

13. 13  Completed phased audit approach  Audit to the extent necessary to express an audit opinion  Audit opinion in the management report  Audit reports contain audit findings – not audit opinions  Completed phased audit approach  Audit to the extent necessary to express an audit opinion  Audit opinion in the management report  Audit reports contain audit findings – not audit opinions  Adopted a phased-in approach  Factual audit findings reported in both management and audit reports  No audit opinion in audit reports – only findings  Regular interaction with stakeholders (NT, Presidency, DPSA) to determine and test audit approach  Provided inputs to drafting of NT Frameworks (FMPPI)  Adopted a phased-in approach  Factual audit findings reported in both management and audit reports  No audit opinion in audit reports – only findings  Regular interaction with stakeholders (NT, Presidency, DPSA) to determine and test audit approach  Provided inputs to drafting of NT Frameworks (FMPPI) AGSA strategy to the audit of predetermined objectives

14. 14 Auditing the planning, budgeting and reporting cycle

15. 15 Main criteria Sub-criteriaSub-criteria Existence Timeliness Presentation Measurability Relevance Consistency Validity Accuracy Completeness Compliance with regulatory requirements UsefulnessUsefulness ReliabilityReliability Audit criteria

16. 16 Audit of Predetermined Objectives Understand and test the design and implementation of the performance management systems, processes, and relevant controls 1. Understand Test the measurability, relevance, presentation & consistency of planned and reported performance information 2. Test Usefulness Conclude on the usefulness of the report on predetermined development priorities or objectives 3. Conclude Usefulness Test the reported performance information to relevant source documentation to verify the validity, accuracy & completeness of reported performance information 4. Test Reliability Conclude on the reliability of the reported performance for selected development priorities or objectives 5. Conclude Reliability AGSA Audit process

17. 17 Audit reporting – Management report An audit conclusion will be prepared and included in the management reports for all departments, constitutional institutions, trading entities, public entities, Parliament and provincial legislatures

18. 18 Usefulness of information: Audit findings focus on the consistency, relevance, measurability & presentation of reported performance information. Reliability of information: Audit findings focus on the validity, accuracy & completeness of reported performance information REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Predetermined objectives COMPLIANCE WITH LAWS AND REGULATIONS Report non-compliance matters in relation to the performance management and reporting processes Audit reporting – Auditor’s report

19. 19 Audit Outcomes of 2011/12 on Predetermined objectives Compliance with regulatory requirements Usefulness Reliability DPME - Audit of Predetermined Objectives No matters reported Reported in audit report Additional Matter paragraph included in audit report: >20% of targets not achieved

20. 20 Lack of understanding of the principles of FMPPI New Department that was not fully established for the whole year under review Lack of monitoring and oversight over PDO processes Root Causes DPME Root Causes DPME DPME - Root Causes

21. 21 DPME - Recommendations and way forward Key driver of internal control Recommendations for improvement LeadershipExercise oversight responsibility regarding financial and performance reporting, compliance and related internal controls Action plans to address internal control deficiencies should be specific, time bound and progress should be monitored Training and development of relevant performance management staff

22. 22 DPME - Recommendations and way forward Key driver of internal control Recommendations for improvement Performance management system Develop and implement standard operating procedures Management to ensure clear definitions and technical standards for indicators and targets are developed Supporting documentation (data definitions) Ensure adherence to FMPPI Clearly defined roles and responsibilities Individual performance contracts should be aligned to the organisational objectives Continuous monitoring and reporting of performance

23. 23 DPME - Recommendations and way forward Key driver of internal control Recommendations for improvement Governance The audit committee should report on the acceptability of the quarterly reports submitted to National Treasury and should also ensure that internal audit provides assurance on a quarterly basis and monitors implementation of the action plans Internal audit should monitor the reporting against predetermined objectives on a regular basis Reporting on predetermined objectives should be included in risk management strategy and practices

24. 24 Audit Outcomes of 2011/12 on AoPO Compliance with regulatory requirements UsefulnessReliability Audit of Predetermined Objectives - NYDA No matters reported Reported in audit report