WELCOME

AGSA5TH PARLIAMENT CAPACITY BUILDING PRESENTATION

23 September 2014

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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.

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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.

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CONTENT

1. Oversight role

• Oversight body

• Combined assurance model

• AGSA contribution to oversight

2. 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

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THE ROLE OF OVERSIGHT

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The role of oversight

Strategic planning

InstitutionDepartmentPublic entity

Implementation /in-year reporting

Year-end reporting Budgeting / operational

planning

AG audits accountability information

Identify the desired impacts

Specify performanceindicators

Set targets & allocateresources

Monitor & take correctiveaction

Assess & adjust

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Strategic planning

• 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

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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

Budgeting

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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)?

Implementation/Monitoring

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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.

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Combined assurance model

Seniormanagement

Accountingofficers/authority

Executiveauthority

Required assurance levels

Extensive Extensive 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 assuranceFirst level of assurance

Seniormanagement

Accountingofficers/authority

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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.

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AUDIT MANDATE AND PROCESS

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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:

i.Financial statements and financial position

ii.Compliance and financial management

iii.Predetermined objectives

AGSA Mandate and Legislative requirements

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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

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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.

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AGSA’S aspirations for the Public Service

• Independent and relevant reporting by the AG • Value-adding input expressed by the AG

• Visible commitment by all players in the public service

• Demonstrated impeccable ethical behaviour and professionalism

• Reporting to enable effective oversight • Applying consequences for

transgressions and poor performance

• Transparent and stable reporting systems• Budgeting and planning processes• Focussed information management platforms• Strong internal audit capabilities

Professionalism

Creating a better and dignified life

for the citizens of South Africa

through timely, effective,

efficient and economical

SERVICE DELIVERY

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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.

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• 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

Visibility of the AGSA beyond the mandate

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THE WORK WE DO

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• Verify whether there is no omitted information on financial statements • Consists of – Financial, Compliance , PDO and Internal control • Full application of international auditing standards

AGSA Products

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Regularity Audit - Mandatory

Regularity audit are supported by:

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 same2. 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

Information systems audit

Performance Audits Investigations

DISCRETIONARY

Agreed upon procedures, i.e. donor funding certificates

Special Audits

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

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The regularity audit – what we do & what not

X• 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

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Timelines of regularity audit cycle

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Audit of financial statements and specific focus areas

Financial statements•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.

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Good Administration / Clean audit

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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 )

Financial statements give a true and fair view (or are presented fairly, in all material respects) in accordance with the applicable financial reporting framework.

Different types of audit opinion

Unqualified/ unmodified

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

Unmodified with emphasis of matter

QualifiedQualified

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There is lack of sufficient appropriate audit evidence to express an opinion.

Different types of audit opinion continues

Disclaimer

Adverse

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 of Predetermined Objectives

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Audit report structure

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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

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BRIEFING PROCESS

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Briefing process

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Briefing process continues

- Reliable, accurate and complete Annual

Reports by entities

- AGSA review of annual reports critical in ensuring complete, reliable and accurate

reporting

- 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

Reporting by departments and entities

Actual Briefing process

- Oversight committees must

obtain an understanding of the

entity

- The Annual Report of the entity must be studied prior to the briefing and hearing

Understanding Mandate of entities by Oversight

- 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.

Recommend-actions by oversight

committees

-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.

Action plans by entities and

progress monitoring

EFFECTIVE BRIEFING PROCESS

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Department of Environmental Affairs (DEA) & its entities performance (2012/13)

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DEPARTMENT OF ENVIRONMENTAL AFFAIRSOverview of the Annual Report

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The Annual Report of the department consists of the following:

1.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.

DEPARTMENT OF ENVIRONMENTAL AFFAIRSOverview of the Annual Report

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The Annual Report of the department (Continued)

4. Annual Financial Statement Sections (DEA and it’s entities)

- 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 prepared in accordance with the Modified Cash Standards for DEA and SA GRAP for the entities.

• 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.

2012/13 audit outcomes breakdown

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2012/13 audit outcomes breakdown

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AUDIT OPINIONS 08/09 09/10 10/11 11/12 12/13

Department of Environmental AffairsN1 N1      

South African National Parks         

South African Weather Service         

South African National Biodiversity Institute         

iSimangaliso Wetland Park         

THANK YOU

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