THE AUDIT OF PREDETERMINED OBJECTIVES AGSA APPROACH 2011
THE AUDIT OF PREDETERMINED OBJECTIVES AGSA APPROACH 2011 -12 PFMA AUDITS
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.
Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. Background Mandate of the AGSA Planning, budgeting and reporting cycle Legislative requirements AGSA strategy to the audit of predetermined objectives AG Directive requirements Audit Criteria Audit approach Audit reporting
The power of measuring results If you do not measure results, you cannot tell success from failure If you cannot see success, you cannot reward it If you cannot reward success, you are probably rewarding failure If you cannot see success, you cannot learn from it If you cannot recognize failure, you cannot correct it If you cannot demonstrate results, you cannot win public support Adapted from Osborne and Gaebler, 1992, Reinventing Government
1. Background Supreme audit institutions (SAIs) do not only conduct financial audits Also provides assurance on performance information produced by government departments and entities Why was this necessary? Public sector reforms Improving public reporting Providing better information on what taxpayers are getting for their taxes
Audit of predetermined objectives defined as: Annual audit of reported actual performance against predetermined objectives, indicators/measures and targets. Integral part of the annual regularity audit, confirming the credibility of the reported performance information in the annual performance reports of • national and provincial departments • public entities, constitutional institutions, trading entities • Parliament and provincial legislatures
2. Mandate of the AGSA Constitution of SA Public Audit Act of 2004 Functions of the AGSA: Regularity(financial, performance information and compliance) and performance audits Investigations and special audits
Legislative requirements - Auditing Sections 20(2)(c) and 28(1)(c) of the Public Audit Act (PAA) An audit report must reflect an opinion or conclusion relating to the performance of the auditee against predetermined objectives Applicable to all spheres of government
3. The planning, budgeting and reporting cycle 9
4. Legislative requirements for planning, budgeting & reporting cycle 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)
4. Legislative requirements – Strategic planning & budgeting Treasury Regulations issued in terms of the PFMA Chapter 5: Strategic planning requirements for departments, trading entities, and constitutional institutions Chapter 29: Corporate planning requirements for schedule 2, 3 B and 3 D public entities Chapter 30: Strategic planning requirements for schedule 3 A and 3 C public entities Public Service Regulations, Part III B. 1(a)-(e), (g): Only applicable to departments
4. Legislative requirements - Implementation & reporting PFMA Section 40(3)(a): Applicable to departments, constitutional institutions and trading entities Section 55(2)(a): Applicable to public entities Treasury Regulations issued in terms of the PFMA Chapter 18: Reporting requirements for departments, trading entities and constitutional institutions Chapter 28: Reporting requirements for all public entities PSR part III B. 1(f)(i)-(iii) & J. 1, J. 3: Monitoring and management of performance information for departments
Submission of performance information to AGSA All departments, constitutional institutions, trading entities and public entities must submit the annual performance report for audit purposes with the annual financial statements (by 31 May) to enable the auditors to perform the necessary final audit procedures.
5. AGSA strategy to the audit of predetermined objectives 2009/10 to 2011/12 2004/05 to 2008/09 Ø Adopted a phased-in approach Ø Factual audit findings reported in both management and audit reports Ø No audit opinion in audit reports – only findings Ø Regular interaction with stakeholders (NT, Presidency, DPSA) to determine and test audit approach Ø Provided inputs to drafting of NT Frameworks (FMPPI) Ø Completed phased audit approach Ø Audit to the extent necessary to express an audit opinion Ø Audit opinion in the management report Ø Audit reports contain audit findings – not audit opinions
6. AG Directive The following represents the performance management and reporting framework against which the performance information will be evaluated as a basis for the audit conclusions: All relevant laws and regulations Framework for the managing of programme performance information (issued by the National Treasury) Circulars and guidance issued by the National Treasury regarding the planning, management, monitoring and reporting of performance information Refer to annual AG Directive
7. Audit criteria Main criteria Sub-criteria Existence Compliance with regulatory requirements Timeliness Presentation Measurability Usefulness Relevance Consistency Validity Reliability Accuracy Completeness
8. Audit approach 1 Understand test the design and implementation of the performance management systems, processes, and relevant controls 2 Test the measurability, relevance, presentation & consistency of planned and reported performance information 3 Conclude on the usefulness of the report on predetermined objectives 4 Test the reported performance information to relevant source documentation to verify the validity, accuracy & completeness of reported performance information 5 Conclude on the reliability of the reported performance for selected programmes or objectives
9. 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 Refer to annual AG Audit Directive
9. Audit reporting – Auditor’s report REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Reliability of information: Predetermined objectives Usefulness of information: Audit findings focus on the consistency, relevance, measurability & presentation of reported performance information. Audit findings focus on the validity, accuracy & completeness of reported performance information COMPLIANCE WITH LAWS AND REGULATIONS Report non-compliance matters in relation to the performance management and reporting processes
20 Public entities Total number of auditees reported on Legislatures Auditees with findings Provincial departments Auditees with no findings National departments PFMA 2010 -11 Audit Outcomes Predetermined objectives 10 50 7 247 314 26% 45% 70% 63% 57% 28 65 3 144 240 74% 55% 30% 37% 43% 38 115 10 391 554
Categories of predetermined objectives findings Total number of auditees with findings 21 Total Performance information not reliable Public entities Performance information not useful Legislatures Variances not explained Provincial departments Non-compliance National departments (Percentage are out of total number of auditees, per auditee type) 14 29 1 86 130 37% 25% 10% 22% 23% 6 13 2 21 42 16% 11% 20% 5% 8% 21 31 3 89 144 55% 27% 30% 23% 26% 16 50 2 57 125 42% 43% 20% 15% 23% 28 65 3 144 240
Root causes of defective service delivery reports Lack of monitoring by leadership Ineffective audit committee oversight Inadequate formal planning for PDO reporting Organisation al structures not aligned Lack of accountability and consequences for actions / inaction Structures not capacitated Inadequate PDO reporting internal audit not included in testing performance systems and Poorly defined agreements data roles and responsibilities 22 Do not meet regulatory requirements Not useful Not reliable
Drivers of sustainability Leadership • Challenge credibility of information • Confirm adequate resources for service delivery • Regular reliable monthly management information 23 Financial and Performance Management • Provide credible information • Robust and reliable structures and systems Governance • Internal audit to validate key controls and provide assurance on performance reports • Audit Committees to validate performance reports to executive
THANK YOU
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