Presentation to MPAC

1. Presentation to MPAC Our collective contribution to clean administration 12 MAY 2011 Presented by : PRAKASH NARISMULU AUDIT RESEARCH & DEVELOPMENT

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. Effective Oversight

4. Oversight Oversight Body Vote Strategic Planning Review Alignment to the budget Institution Department Public Entity Municipality Municipal entity Reporting Budgeting Setting Targets & Resource Allocations Implementation Monitoring and reviews of reports & budgets

5. Effective Accountability means Effective Oversight • Formal powers of Parliament only provide for oversight potential, not effective oversight • Effective oversight and effective accountability closely linked • Care to observe separation of powers • Formal powers and how they are used • Consequences • De Jure • De Facto • Different oversight mechanisms

6. Oversight’s Contribution to Clean Administration Oversight of the: • Strategic Planning process • Budgeting Process • Implementation of the strategic plan and budget • Effective in-year and year-end reporting

7. 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, Cabinet Legotla and Medium Term Expenditure Framework (MTEF) • Enquire / identify • The challenges in meeting the strategic objectives, • the initiatives to address them and • evaluate how success will be measured.

8. Budgeting • Budget Preparation • Is the budget aligned to 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

9. Implementation / Monitoring • Effective continuous monitoring • Is spending on the right track and in line with strategic plan priorities? • Is there evaluation of monthly and quarterly reports • Developed action plans to address audit findings and improve financial management and accountability • Designed, implemented and maintained internal controls(relevant to financial and non-financial information) • Identify, prevent and detect fraud. • Are there adequate governance arrangements in place and are they effective (internal audit and audit committee)

10. Reporting • Oversight on Reporting • Keeping management accountable and determining whether : • Complying with responsibilities as set out in the MFMA • There was compliance with Council’s Appropriation • Resources were utilised effectively and efficiently • Review the annual report of the municipality / entity including the audit report and consider both the financial and non-financial information presented. • Regularly attending audit steering committee meetings

11. THE AUDIT PROCESS

12. Mandate and Standards

13. Different Types of Audits Conducted • Mandatory Annual Audits • Regularity Audit • Report on the Financial Statements • Report on other and legal and regularity requirements • Findings on the report of Predetermined Objectives • Findings on Compliance with Laws and Regulations • Status of Internal Control pertaining to the above. • Discretionary Audits • Investigations • Report on Factual findings with regards to Financial misconduct, maladministration and impropriety. Based on allegations or matters of public interest • Special Audits • Report on Factual findings e.g. donor funding certificates for legislative compliance. • Performance Audits (Including Environmental Audits ) • Economic, Efficient & Effective Utilization of scarce resources • Effect of policy implementation , excluding policy evaluation

14. The Regularity Audit Process

15. Audit of the 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 applicable financial reporting framework.

16. Audit of pre-determined objectives • Required in terms of Sections 4, 20 and 28 of the Public Audit Act • Findings on whether reported performance information is valid, accurate and complete. Whether a performance management process exist with proper controls to enable relevant and useful reporting on and oversight of service delivery • Audit 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 predetermined objectives

17. Audit of Predetermined Objectives Difference between Audit of Predetermined Objectives and Performance Auditing Performance Information (PI) = Non-Financial Information about the Service Delivery of Government Performance Auditing • Part of Regularity Auditing • Focused on non-financial information in Annual Report • Audit criteria: • Compliance (has this happened), as part of regularity audit process • Quality of PI (as per audit criteria) • Done by audit professionals • Individual audits • Focused on a specific government policy or management process • Audit criteria are the 3E’s: • Economy • Efficiency • Effectiveness • Done by subject matter experts

18. Compliance with Laws and Regulations • Reporting is limited to key legislation e.g. • Municipal Finance Management Act (MFMA), • Related Legislation ( e.g. MSA, MSA ) • Division of Revenue Act (DoRA) • Companies Act 2008 • Specific enabling legislation • Material instances of non-compliance are reported per category.

19. Internal Control • Status of Internal control relevant to the audit of the financial statements, predetermined objectives and compliance with laws and regulations are reported under the three fundamentals of effective internal control. • Leadership • Financial and Performance Management • Governance

20. Internal Control (cont.) Leadership • Tone at the top creating an environment favorable to good financial management and service delivery • Identify key controls aimed at achieving the organization's objectives • Assessing skills / competencies of finance staff, ensuring the right staff mix and managing consultants to ensure effective skills transfer

21. Internal Control (cont.) Financial and Performance Management • Monthly financial statements and quarterly performance reports, plus continuous monitoring of both • Implementation of sound financial and performance management systems • Proper controls over documentation to ensure that they are easily retrievable • Operating basic internal controls for an efficient financial and performance management environment

22. Internal Control (cont.) Governance • Adequately resourced and effectively functioning internal audit and audit committee • Maintenance of effective risk management strategies, including fraud prevention plans

23. Format of the Audit report • Report on the Financial Statements • Opinion paragraph • Report on other legal and regulatory requirements • Findings on the report on predetermined objectives • Findings on compliance with applicable laws and regulations • Status of Internal control • Leadership • Financial and performance management • Governance • Information on other audits conducted • Investigations • Agreed upon procedures • Performance audits

24. The Different Audit Opinions • Unmodified • The financial statements present fairly in all material respects. • Qualified (except for) • The auditor concludes that , except for specifically listed material misstatements, the financial statements remain a fair reflection. • Adverse • 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. • Disclaimer • 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

25. Emphasis of Matter and Additional Matter Paragraphs • If its considers necessary to include additional communication in the auditors report that does not have an effect on the auditors opinion, the following would be used: • An emphasis of matter paragraph only to draw user’s attention to a matter presented or disclosed in the financial statements that is of such importance that its is fundamental to their understanding of the financial statements • An other matter/ Additional Matters paragraph: to draw users attention to any matter other than those presented or disclosed in the financial statements that is relevant to users understanding of the audit, the auditor’s responsibilities or the auditor’s report

26. Clean Administration?

27. MFMA audit outcomes 2009-10Movement in audit outcomes over 2008-09 financial year – Municipalities * Findings on predetermined objectives and compliance with laws and regulations

28. MFMA audit outcomes 2009-10Movement in audit outcomes over 2008-09 financial year – Municipal entities

29. Clean Administration • Auditor’s Report with no: • Qualification on the financial statements • Findings on Predetermined objectives • Findings on Compliance with Laws and Regulations • Internal Control deficiencies

30. AGSA contribution to Clean Administration • Simplicity, Clarity and Relevance of Messages • Identifying stakeholder needs and expectations of AGSA reports • Ensuring AGSA reports are written in simple, plain, non-technical language that the target audience will understand • Contextualizing audit messages to enhance understanding • Visibility of the Leadership • Ensuring efficiency and effectiveness of Stakeholder interactions • Developing required leadership competencies through mentoring, coaching and leadership programs and processes for effectively managing change

31. Questions?Thank you!