Auditor-General's Performance Audit requirements and procedures

Basic Education

29 August 2011
Chairperson: Ms H Malgas (ANC)
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Meeting Summary

Officials from the Auditor-General South Africa (AGSA) briefed the Committee on audit procedures, reminded Members of the information presented earlier in the year during a Workshop, and noted that from 2006 AGSA had also been conducting performance audits of departments. The role and function of AGSA was outlined and it was stressed that proper auditing strengthened a constitutional democracy by enabling oversight, and emphasising accountability and good governance.
The reasons why the AGSA no longer confined itself only to financial audits were highlighted. The Performance Indicators were outlined, and the AGSA also explained the differences between the regularity and individual audits, and the possible findings in audit reports. The National Treasury guidelines and relevant legislation was outlined and explained. It was stressed that the findings or outcomes were always compared to the plans, budgets and strategic reports that had to be submitted at a prior date. There was a tightly-managed process of continuous monitoring an evaluation. Guidelines were provided by National Treasury as to how the various reports must be drawn, and the frameworks were tabled. It was emphasised that leadership played a critical role in achieving good financial and governance practices. The role of the internal audit unit was also explained. AGSA also explained the difference between mandatory and regulatory audits. It was noted that audits had been completed at all provincial departments, reports were compiled and most responses had been received.

Members were interested as to how audits would enhance final outcomes in education, asked whether the dates for submission of information remained constant, and enquired how targets would be set, checked, commented upon or changed. Members noted the variances in figures given in relation to the workbook costs, and also noted the underspending, and it was emphasised that these were the kinds of matters that the audits sought to highlight and address.  

Meeting report

Auditor-General’s Performance Audit on Department of Basic Education (DBE)
Ms Meisie Nkau, Business Executive, Auditor-General South Africa, reminded the Committee of the training workshop and the presentations on performance audits, which she noted was intended to enhance the capacity of Members of this Committee to undertake their responsibilities in oversight.

She also noted that the Auditor-General South Africa (AGSA) had a Constitutional mandate to strengthen South Africa’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

Ms Nkau highlighted the background to the Auditor-General’s responsibilities, including the reasons why AGSA did not, any longer, limit itself to doing only financial audits, but also provided assurances by auditing the performance information of government departments and entities. This was necessary to inform public sector reforms, to improve public reporting, and to provide better information on what taxpayers were getting from the taxes they paid.

Ms Nkau highlighted the Performance Information (PI) areas, noting that these provided part of the regular audits. She said that auditing took the form of regularity auditing and individual audits. Regularity audits focused on the non-financial information that was set out in the annual reports of departments. Individual audits focused on the three ‘E’s of Economy, Efficiency and Effectiveness. Individual audits were completed by subject matter experts.

Ms Nkau also said that there were specific guidelines around the legislative requirements for auditing for the entities. An audit report must reflect an opinion or conclusion relating to the performance of the entity who had been audited, against predetermined objectives. These objectives would relate to planning, budgeting and reporting as established at an earlier, predetermined date. The legislative requirements related to the annual report, and the fact that the financial statements must fairly reflect a set of predetermined objectives.

National Treasury also had regulations, and there was a tightly managed performance management process of continuous monitoring and evaluation. This process would be robust, thereby eliminating the chance of slip-ups and errors. By year-end, the desired outcomes, as set at the beginning of the year, should have been met. She drew Members’ attention to the requirements set out on slide 6 (see attached presentation for full details). She noted that the National Treasury guidelines were applicable to budgets and expenditure, so departments and entities should have plenty of guidance available to them on setting budgets and expenditure.

There were also guidelines around annual reports, in respect of the format and content of performance reporting. If any information was omitted from an annual report, reasons would have to be provided for doing so. Reasons must also be given if there were major variances between the targets and the final outcomes. She tabled the formats that were required for any variance or deviation in respect of outcomes and objectives.

Ms Nkau then tabled the National Treasury Framework for managing programme performance information, noting that this provided a comprehensive guideline. This too was made available to all government entities.

Ms Nkau reported on the readiness of the public sector to submit reports of performance information and noted a comparison of the 2010 and 2011 years in respect of the audit on predetermined objectives. 56% of entities had complied in the 2011 year, compared to 22% in the year before. Departments were increasingly seeing the merit in the guidelines and reports. 3% of departments had failed, in the last year, to submit their reports.

Ms Nkau explained the approach that would be taken when undertaking audits from 2010 onwards, drawing Members’ attention in particular to slide 20, which related to the understanding and testing of internal policies, procedures and controls, which it was vital that entities must have in place, in order for a proper audit to be conducted.

Ms Nkau emphasised that leadership, in all organisations, played a critical role in achieving good financial and governance practices. Outcomes were driven by leadership, and it was up to the leadership to create an honest and trustworthy environment in which employees should operate. Government had to have such structures in place. It was vital to have an understanding of, and to test, all systems and controls relevant to collecting, monitoring and reporting performance information. It was important to note that if there was consistency in the IT processes and in leadership approach, then this should be reflected in the Annual Report, and it would also be shown in the strategic or annual performance plans, quarterly reports and annual performance report. Each document must be valid, accurate, relevant and complete.

Ms Nkau then turned to the audit criteria and noted that the audits must comply with reporting requirements, be useful and be reliable. In addition, this audit information must give timelines and conform to a certain presentation. The information must be measurable, relevant and consistent, as well as complete.

Ms Nkau briefly reminded Members of the rules against which the Auditor General gauged all reporting frameworks, which were clearly set out for departments and entities, who were, in addition, obliged to submit their annual performance information, for audit purposes, by 31 May of each year.

Ms Nkau presented some examples of what the audit report could contain (see attached presentation, slide 27). Factors that might lead to adverse or disclaimer audit opinions, if there was a pervasive failure, might include a lack of reporting on all objectives, indicators and targets in line with the approved performance plan, a reporting on objectives, targets and indicators that had not been approved or included in the strategic or performance plan, and a failure to give reasons for variances between targeted or actual performance. There would also be a problem if there was no logical link between objectives, indicators and targets, if there was lack of consistency on these between the performance plan and annual performance report, and if changes to planned objectives, indicators and targets were not disclosed.

Ms Nkau gave examples of what would be regarded as material findings that could lead to a qualified audit report.

Ms Nkau also set out the role of the Internal Auditor, who was essentially the “eyes and ears” of management, checking systems and showing management where improvements could be made before the external auditors conducted their audits. An internal audit should be assessing the risks and control measures in respect of performance information, as well as ensuring and checking the alignment of objectives, indicators or measures and targets between the strategic or annual performance plan, the budget, quarterly reports and the annual report. In assessing the risks and control measures in the systems used to manage and report performance information, regard should be had to both manual and electronic systems. The internal auditors should also assess the accuracy, completeness and validity of performance information reported in quarterly and annual reports.

Ms C Janse van Rensburg, Business Executive, AGSA, noted that the office of the Auditor-General had provided performance audit services to government since 1975. She stated that this encompassed both the regulatory audits and mandatory audits, and within the Specialised Services Unit, both investigatory and performance audit units operated. She outlined briefly the lines of audit that could be conducted in respect of entities. She reiterated that the three ‘Es’ – Economy, Efficiency and Effectiveness - received focus. She summarised that ‘Economy’ meant the right quality, quantity, time and place of audit, at the lowest price, and meant that AGSA would utilise the best subject-matter experts when doing the performance audits. She noted that auditors would analyse and compare documents, so there was interaction with both internal and external stakeholders. Research was carried out, and information was evaluated. The two types of audit encompassed entity specific and transversal performance audits.

Ms van Rensburg noted that at present, all audits had been completed at provincial departments. Comments had been made, and responses had been received, except in some areas in the Eastern Cape. Reports had been complied and submitted to the National Department of Basic Education.

Ms Janse van Rensburg concluded by identifying four main sectors for future audits, which would be health, education, public works and social development.

Discussion
Ms F Mushwana (ANC) asked how these audits would enhance final outcomes in education.

Ms Nkau answered that audits allowed entities to revisit their targets and the way in which these had been set. This then led to consideration of budget and governance questions, including roles of leadership, and this should guide the way in which employees worked.

Mr N Kganyago (UDM) asked when the date of submission was, and whether the AG had a discretion.

Ms Nkau responded that the date of submission would not change and was always set for 31 May.

Mr A Mpontshane (IFP) asked about compliance, and asked whether AGSA itself would set targets for an entity, or whether the entity would set its own targets and AGSA would then determine whether they were measurable. He asked when the targets would be set. He also questioned whether AGSA could tell a department that its targets were too low.

Ms Nkau answered that she had already addressed some of these questions during delivery, but it had raised some important topics for debate. Targets should not be set but then changed ‘willy-nilly’ or on a whim. They should receive serious consideration before they were set and should not be changed without equally serious deliberation.

Mr K Dikobo (AZAPO) noted that AGSA had not appeared to be too well prepared with its visual presentation.

Ms Nkau apologised for this.

Mr Dikobo noted the comment on non-compliance in relation to slide 18, and questioned why the figures seemed to be so high.

Mr R Bhoola (MF) asked for an explanation on the variance between the budgeted amount for the printing of workbooks and the actual cost of those workbooks. He also noted that an amount of R583 million remained unspent.

Ms Nkau explained that these were precisely the kinds of targets that were mentioned earlier, where the audit findings would highlight the difference between the budgeted amount and actual expenditure.

Ms A Mashishi (ANC) asked whose responsibility it was to assist the Departments or entities.

Ms Janse van Rensburg said that was part of the AGSA’s function.

Mr D Smiles (DA) wondered if the AG was going to do an audit on the Department of Labour in the future.

Conclusion
The Chairperson summarised the conclusions in respect of the Department of Basic Education. She noted that the Department of Basic Education (DBE) would have to produce annual reports. National Treasury had the framework in place, in terms of the Public Finance Management Act (PFMA). Some variances had already been highlighted, and the Department would need to come back and explain these to the Committee. In respect of performance, she noted that some matters of emphasis had been raised, and there seemed to be a need to make some paradigm shifts. She reminded the Committee that under expenditure and over expenditure were equally serious. A recommendation of the AG from past years had not been followed. She urged Members to study the presentation in full, and said that she would ask AGSA to brief the Committee again if necessary.

The meeting was adjourned.

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