Portfolio Committee on Water and Environmental Affairs

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Portfolio Committee on Water and Environmental
Affairs

• 14 July 2009

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Reputation promise/mission

• The Auditor-General has a constitutional mandate
  and, as the Supreme Audit Institution (SAI) of
  South Africa, it exists to strengthen our
  countrys democracy by enabling oversight,
  accountability and governance in the public
  sector through auditing, thereby building public
  confidence.

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Audit Legislation

• Section 20 of the Public Audit Act (Act No 25 of
  2004) requires at least an opinion or conclusion
  on
• Whether the annual financial statements of the
  auditee is fairly presented
• Compliance with applicable legislation in
  relation to financial matters, financial
  management and other related matters and
• Performance information against pre-determined
  objectives.
• In addition the AG may report on whether the
  auditees resources were procured economically and
  utilised effectively and efficiently

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Audit legislation (continue)

• Gazette 31057, 15 May 2008, referred to in audit
  report
• Confirm auditing standards
• Basis approach to
• Financial opinion
• Compliance with legislation
• Auditing of performance information
• Evaluation of financial management
• Performance auditing
• Investigations
• Special audits
• Confirmation of the basis of accounting

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Phases of the audit process

• Engagement activities
• Planning
• Execution
• Reporting
• Interim and final audits

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Phases in the audit process

• 1) Engagement activities
• Engagement meetings with management and those
  charges with governance (Accounting officer
  and/or executive authority
• Confirm terms of engagement (Engagement letter)

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• 2) Planning
• Obtain and update the understanding of the
  entity and its environment
• Determine and assess risks
• Identify and evaluate internal controls to
  mitigate risk
• Develop a overall strategy based on risks
  identified and effectiveness of controls

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• 3) Execution
• Request for information by auditors
• Execute procedures, identify and document audit
  findings
• Communicate audit findings with management.
• Receive management comments and/or additional
  information

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• 4) Conclusion and finalisation
• Meetings with management and those charges with
  governance to confirm factual correctness of
  audit findings
• Evaluation of management comments
• Conclude and prepare audit report for discussion
  with accounting officer and
• audit committee

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• Interim and Final audits
• Do not express an opinion after a interim audit
• Benefit of Interim audit
• Timely communication of matters of concern
• Avoid number of findings at final audit as
  auditees has time to implement corrective actions

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Elements of an audit Audit findings model

• Audit Steering Committees
• General availability of key staff
• Early availability of all evidence
• Responsiveness to requests

Supervision, review and quality assurance
PUBLIC DOCUMENT
Communication with those charged with governance
Audit response / report
Audit finding
Audit evidence
Audit documentation
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Communication

• Timeous and regular communication is critical for
  a successful audit.
• Communication with those charged with governance
  throughout audit
• Accounting officer, audit committee, management,
  boards of directors, executive, portfolio
  committees, etc.
• Regular Steering meetings attended by at least
  CFO and senior manager from AGSA
• Day to day interaction between auditee and AGSA

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Audit reports

• Audit opinion
• Unqualified, qualified, disclaimer, adverse
• Emphasis of matter
• Going concern
• Significant uncertainty
• Highlight a matter affecting the financial
  statements which is included in a note to these
  statements
• Material inconsistency of other information
  included in the annual report
• Basis of accounting (departures and deviations)

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Audit Reporting format

• Extended format
• Root cause reporting
• Creating context for audit findings
• Lifting the bar on reporting on issues of
  governance
• Alignment with auditing standards
• Streamlined, complete general report process

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• Audit report format
• Section 1 Report on Financial statements
• Introduction, responsibilities
• Opinion
• Emphasis of matter
• Section 2 Other Matters
• Give context to section 1 through root cause
  analysis and reflections on
• matters of governance
• Section 3 Other reporting responsibilities
• Reporting on performance information

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Auditing of performance information

• An annual audit of reported actual performance
  against predetermined objectives, as an integral
  part of the annual regularity audit, done at
  entity level
• Roles in this process
• Development of reporting framework specialist
  (Treasury, Stats SA. Etc)
• Policy development, strategic planning and budget
  cabinet and legislatures
• Implementation, monitoring, corrective action and
  reporting on performance executive authority
• Review and confirm validity, completeness of the
  performance reports Auditor-General

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Strategy to audit Performance information

• A phased approach for implementation
• Started in 2005-06
• Completed implementation by 2009-10
• Separate audit opinion/conclusion on performance
  information in audit report by 2009-10

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Audit approach Performance information

• Obtain an understanding and test the
• - internal policies, procedures and controls
  related to the management
• of performance information
• - systems relevant to collect, monitor and
  report performance information.
• Evaluate
• - Existence of performance information
• - Consistency of performance information
  between
• Strategic/annual performance plan, quarterly
  reports and annual performance report
• - Presentation (compliance) in the annual
  report
• Compare reported performance information to
• - relevant source documentation and conduct
  substantive procedures to ensure valid, accurate
  and complete reporting.

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Audit reporting Performance information

• No audit opinion on performance information
  2008/09
• What will be reported under other reporting
  responsibilities
• Non-compliance with PFMA and related regulations
• Material difference between measurable
  objectives, indicators and targets in annual
  performance report and strategic or annual
  performance plans
• No measurable objectives, indicators and targets
  in strategic plans, while reported in annual
  performance report
• Actual reported performance information does not
  address all predetermined objectives, indicators
  and targets
• Actual reported performance information cannot be
  substantiated by adequate documentation or
  differs significantly when compared with source
  documentation, or system used for generating the
  performance information was not adequate
• Annual actual performance information was not
  received in time for audit purposes

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Good Practices
No. Good Practice
1 Clear trail of supporting documentation that is easily available and provided timely
2 Quality of financial statements and management information
3 Timeliness of financial statements and management information
4 Availability of key officials during audits
5 Development and compliance with risk management and good internal control and governance practices
6 Supervision / monitoring
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Timeframes

• Timeframe
• August/ September
• September February
• March - May
• 31 May
• 1 June end July
• 31 July
• October
• October

• Phase
• Planning
• Interim Audit
• Final audit
• Receive financial statements
• Audit on financials and reporting
• Audit report
• General report
• Consolidated report

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Auditee 2007/08 Audit outcome Audit concerns 2008/09
Department of Water Affairs and Forestry Qualified Assets Lack of a system to record and manage performance information
Water Trading Account Qualified Unallocated deposits Assets
Water Research Commission Unqualified -
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Questions?