24 November 2016 AUDITING OF PREDETERMINED OBJECTIVES

Transcription

1 24 November 2016 AUDITING OF PREDETERMINED OBJECTIVES

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 Content 1. Introduction 2. Legislative requirements and framework for performance management and reporting 3. Audit strategy and approach 4. Findings for local government Recommendations and good practices

4 Need for reporting on predetermined objectives Supreme audit institutions (SAIs) do not only conduct financial audits. They also provides assurance on the reporting of predetermined objectives produced by municipalities, government departments and entities Why is this necessary? Public sector reforms Improving public reporting Providing better information on what government is accomplishing regarding service delivery

5 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

6 Difference between auditing of predetermined objectives (AOPO) and performance auditing AoPO Audit of Predetermined Objectives PA Performance Auditing 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: compliance with related laws and regulations usefulness of performance information reliability of performance reporting 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

7 Legislative requirement audit of predetermined objectives 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

8 AGSA strategy to to to Phased-in approach Factual audit findings reported in both management and audit reports No audit opinion in audit reports Interaction with stakeholders (NT, Presidency, DPSA) to determine and test audit approach Inputs to drafting of NT frameworks (FMPPI) Completed phased audit approach Audit to the extent necessary to express an audit conclusion Audit conclusion in the management report for all highcapacity municipalities and their entities Audit reports contain audit findings not audit opinions Completed phased audit approach Audit to the extent necessary to express an audit conclusion Audit conclusion in the management report for all municipalities and their entities Audit reports contain audit findings not audit opinions This will continue until the environment shows a state of readiness to provide an audit conclusion in the audit report

9 Audit Approach The audit approach for the audit of predetermined objectives is similar to that of the audit of the financial statements in the following ways: 1 Obtaining an understanding of the entity's information system and related control activities. 2 3 Assessing risks of material misstatement to form a basis for designing and performing further audit procedures. Obtaining sufficient appropriate evidence on which to base the conclusion on the validity, accuracy, and completeness of reported performance information. Auditees need to instil the relevant controls to ensure that the reported performance for each indicator is valid, accurate and complete in the same way controls are implemented to ensure line items in the financial statements are valid, accurate and complete Proper record-keeping measures should be in place to ensure that information is accessible and available to support performance reporting

10 Audit criteria (derived from performance management and reporting framework) Main criteria Usefulness Sub-criteria Presentation Measurability Relevance Consistency Definition Performance reporting using the relevant NT reporting principles Indicators are well defined and verifiable Targets are specific, measurable and time bound Indicators relate logically and directly to the entity mandate and realisation of strategic goals and objectives Objectives, indicators and targets are consistent between planning and reporting documents. Reliability Validity Accuracy Completeness Reported performance has occurred, have been recorded and reported correctly and completely.

11 Measurability and relevance Measurability of indicators Measurability of targets Relevance of indicators Test well defined Test verifiability Specific Measurable Time-bound Direct and logical link of indicators and targets To mandate, strategic goals and objectives

12 What do auditors test when auditing measurability? Measurability of indicators Test whether indicators are : well defined (Does the indicator have a clear definition and is there technical indicator descriptions for each indicator? ) verifiable (Is it possible to verify the processes and systems that produce the indicator?) Measurability of targets Test whether targets are: Specific (Is the nature and required level of performance clearly identified?) Measurable (Can the required performance be measured?) Time-bound (Is the time period/deadline for delivery specified?)

13 What is appropriate audit Relevant evidence? Appropriate evidence Reliable evidence

14 Examples of relevant and reliable evidence Relevant Evidence is relevant to planned target and reported achievement e.g. Target is to build a dam but evidence provided is a report on a infrastructure plan to be developed The primary sources or origin of the actual performance is available to the auditor Reliable Evidence is more reliable when In documentary form e.g. paper, register, electronic or other media Generated through management and information systems with proper controls All source information exist and is complete e.g. a list of houses built that can be verified against completion certificates Information is valid e.g. every entry in register can be traced to a invoice/payment certificate or appropriate record

15 Audit reporting management report An audit conclusion will be expressed for ALL municipalities and municipal entities in the management report, on USEFULNESS of reported performance information for the selected development priorities/ objectives RELIABILITY of the reported performance for selected development priorities/objectives

16 Audit reporting audit report REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS Predetermined objectives Usefulness of information Material audit findings focusing on consistency, relevance and measurability of reported performance information for selected development priorities and objectives Reliability of information Material audit findings focusing on reliability of reported performance information for the selected development priorities and objectives Compliance with laws and regulations Non-compliance findings relevant to the performance management systems and processes

17 Findings for local government

18 MFMA: Timing of submission and quality of APR improved over 5 years. Auditees continue to avoid material findings due to corrections during audit. 94% (218) MFMA 38% (107) 79% (207) 33% (93) 78% (203) 26% (72) 80% (198) 85% 19% (53) (201) 20% (55) With no findings With material findings (reported in audit report) No APR/late submitted 68% (189) 66% (183) Outstanding audits 56% (154) 62% (172) 65% (181) Submitted APR with material misstatements 4% (11) 2% (6) 5% (13) 9% (25) 13% (36) 14% (40) municipalities

19 Findings for local government There has been a significant improvement in the submission of APRs since when 14% of municipalities had either not prepared APRs or not submitted them on time for the audit. This contributed to significant improvement in the Free State, the Northern Cape and North West as a result of continued monitoring by provincial treasuries and the provincial departments of cooperative governance. There was also a further slight improvement in compared to the previous year. There has been an overall increase in the number of municipalities with no material findings on the quality of their APRs since the number has almost doubled. The main improvements during and occurred in the Eastern Cape, the Free State and KwaZulu-Natal.

20 Findings for local government The improvement in these provinces was as a result of increased awareness of the requirement to report on performance and improved key controls. Our interactions with leadership and their willingness to implement our recommendations including the implementation of performance information systems that are managed by competent personnel contributed to the improvement. Overall, 79 municipalities (29%) had no material findings in the current and previous year, which means the controls and processes required to produce credible performance reports are in place to ensure sustainability. The figure also shows a reduction since in the number of municipalities that submitted APRs that contained material misstatements. 53 municipalities (21%) had no material findings in their audit report ONLY because they corrected all the misstatements we had identified during the audit. This is an improvement compared to the previous year.

21 MFMA: Findings on usefulness and reliability MFMA (261 APRs prepared) 47% (123) 56% (147) Findings on usefulness (259 APRs prepared) 57% (147) 57% (148) Findings on reliability (247 APRs prepared) 61% (150) 68% (167) (236 APRs prepared) 58% (136) 73% (172) (232 APRs prepared) 54% (126) 71% (164)

22 Findings on usefulness and reliability Significant improvement in the usefulness of the information in the APRs since The number of municipalities with findings on usefulness decreased by 10% compared to the previous year. The most common findings on usefulness in were: > Indicators not well defined (33%) > Indicators not verifiable (30%) > Reported information was not consistent with the objectives (29%) > Targets not measurable (23%) or > Targets not specific (23%) The usefulness of the reported information improved as municipalities corrected their performance indicators and targets as part of the annual planning and budget processes.

23 Findings on usefulness and reliability A slight regression in the reliability of APRs since , with a slight improvement compared to the previous year. The processes and controls required to produce reliable information on performance have shown little improvement over the period. In the past five years there has been an improvement in municipalities reporting on delivery of services in accordance with planned targets. Progress made towards useful and reliable performance reporting is slow, makes it difficult for provincial and national government to track progress towards the service delivery goals in the MTSF and national development plan

24 Findings on the usefulness and reliability of annual performance reports remained stagnant The annual performance reports of reliable 63% the auditees were useful and MFMA Budget R59 billion (90%) Budget R6,4 billion (10%) With no findings % 37% With findings % 38% % 56% With no findings With findings 24

25 auditees auditees 25 Quality of annual performance reports submitted for auditing regressed both submitted and after audit Outcome if NOT corrected 66% (45) 34% (23) Outcome if NOT corrected 40 % (27) 60 % (41) Outcome after corrections 37% (25) 38 % (26) 63% (43) Outcome after corrections 62 % (42) [20 auditees (29%) [ : 15 auditees (22%)] avoided findings due to the correction of material misstatements during the audit process] MFMA Annual performance report not materially misstated Annual performance report contained material misstatements

26 Status of performance in KwaZulu-Natal The results on reported performance information show a steady improvement of 27% over the past five years as 24 auditees reported findings in compared to 40 auditees in However, many managed to avoid findings on reported performance in only because they corrected misstatements identified during the audit process. Auditees that were able to provide credible performance reports managed R59 billion (90%) of the total local government budget within the province. It is encouraging to note that the ethekwini Metropolitan Municipality has had no material findings on performance reporting for five years. Daily and monthly checks and balances, regular and accurate reporting as well effective oversight and risk management are essential for improved performance reporting. A slight regression in the reliability of APRs since , with a slight improvement compared to the previous year.

27 Root causes of defective service delivery reports Lack of monitoring by leadership Inadequate formal planning for PDO reporting Organisational structures not aligned Do not meet regulatory requirements Not useful Not reliable Ineffective audit committee oversight Lack of accountability and consequences for actions / inaction Structures not capacitated Inadequate internal audit testing systems and data Poorly defined roles and responsibilities PDO reporting not included in performance agreements

28 Recommendations and good practices Policies and procedures to report on performance information should be developed and implemented A set of performance indicators that are well defined and verifiable should be developed Performance targets that comply with the SMART criteria should be developed Data definitions for all performance indicators should be defined CoGTA should support local government by developing customised indicators and targets The methodologies and systems used for compiling budgets should be improved to strengthen the link between budgets and performance targets The correlation between planned and actual performance (performance implementation) in relation to the budgeted versus actual expenditure (financial implementation) should be monitored and evaluated

29 Recommendations and good practices Predetermined objectives, financial reporting and compliance reporting should be viewed in an integrated fashion as these are inseparable processes Formal processes and systems for the collection, collation, verification and storing of actual performance information should be developed, documented and approved by municipal manager. Auditees should ensure that there is an adequately resourced and functioning internal audit unit, audit committee and MPAC that provides assurance over the quality of the quarterly and annual performance reports Management should maintain portfolios of evidence to support reported targets, which are reviewed monthly and audited by the internal auditors. There needs to be sufficient oversight and monitoring of performance during the reporting cycle to ensure that performance targets are reported as planned Larger auditees should consider a dedicated strategic planning and/or monitoring and evaluation unit

30 Recommendations and good practices Auditees should prepare an audit action plan based on the audit findings of the previous financial year, including definite actions to address these audit findings Leadership must insist on credible quarterly performance reports that link to key projects undertaken and progress to date Effective human resource management and timely filling of key posts, effective training programmes and performance appraisals, as well as succession planning Councils and MPACs need to be more persuasive in their quest for assurance from and accountability by audit committees and internal audit Induction and training programmes need to be further refined by CoGTA and Salga for these oversight structures to be effective.

31 Recommendations and good practices The coordinating departments (CoGTA and provincial treasury) can still amplify their support to mobilise resources and efforts in the province. Long-term proactive solutions should be found to address emerging risks Effective performance management is a fundamental ingredient for transparent and credible reporting. It is crucial that all data provided is carefully collated, reviewed and qualityassured by management, internal audit units and audit committees before being reported on. Auditees need to ensure that they have adequate skills and resources to perform proper strategic planning, performance monitoring and reporting in line with applicable requirements

32 Drivers of sustainability 32

33 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 recognise failure, you cannot correct it Adapted from Osborne and Gaebler, 1992, Reinventing Government

34 THANK YOU 34