Auditor-General of South Africa 2013 Strategic Plan

Meeting report

Introduction by Chairperson
The Chairperson welcomed members and the delegation from the Office of the Auditor-General. He apologized on behalf of the Committee for the fact that although the Auditor-General had been available the previous week, the Committee had not been able to meet, as the Chairperson had been at the Magistrates’ Commission.

Presentation of AGSA Strategic Plan
Mr Kimi Makwetu, the Deputy Auditor-General, said the presentation comprised an overview of the AGSA commitments, the focus of the plan, strategic environment context, strategic risk profile, strategic goals, objectives and performance measures, sustainability strategy and an outline of the budget for 2013 to 2016.

The strategic plan focused an increase in performance audits, the integration of performance audits and investigations with regularity audits, improving the quality of audit report, collecting debt more effectively; institutionalizing a project management approach within the organization, and intensifying the learning and development initiatives through the work of the newly-established learning and development unit, with an emphasis on creating a sustainability strategy.

Goals of AGSA
Simplicity, Clarity and Relevance of messages
AGSA’s objective was to identify and clearly communicate root causes and make recommendations, and to ensure the continued excellence of the quality of audits performed. This goal focused on increasing the volume of performance audits to 10% of the audit work within five years, and intensifying the proactive evaluation of fraud risk through assessment of processes and financial statement reporting.

Visibility of Leadership
This goal aimed to develop strong stakeholder relationships to encourage clean administration. The focus was to increase the rigour of the analysis in general reports, ensure continuity in understanding the audit outcomes, encourage acceptance of ownership for internal controls by the appropriate responsible officials, and intensify visibility at all levels, widening the circle of engagements.

Funding
The focus remained on providing value-for-money audits to the public sector. AGSA paid special attention to effective debt collection, as this had the potential to undermine its very existence as an independent assurance provider. The main challenge remained the collection of debt from local government auditees. The initiatives focused on an increase in the efficiency and effectiveness of audits, analyzing and understanding the efficiencies of the entire public auditing process, the enhancement of the outsourcing of contract audit work, and the provision for minimum surplus margins.

Strengthening of Human Capacity
The strategic focus remained on further enhancing and building a high-performance culture – attracting, retaining and cultivating key talent, and building a high-skilled work force that was representative of the demographics of the country. The initiatives focused on intensifying the development of relevant training skills, creating audit professionals with impeccable integrity and ethics, developing a leadership pipeline and making active use of the total performance system to build high-performing teams.

Leading by Example
As a supreme audit institution, AGSA accepted responsibility for leading by example through consistently behaving in an ethical manner, producing quality work that demonstrated its unquestionable competence and technical ability, and effectively sharing information and knowledge. The initiatives focused on making operational excellence the standard method of work and identifying and institutionalizing critical good practices. The plan also included enhancing audit software and solutions, maturing the information governance of AGSA, and optimizing infrastructure.

Sustainability
The sustainability aspects of the operations of AGSA were presented. The entity acknowledged that, like any other organisation, it had an impact on the physical environment and the society in which it operated, thus all matters that related to its sustainability as a business were regarded as important.  AGSA was committed to establishing the baseline for electricity use, water use, paper use, paper waste generated, business travel, carbon footprint, the completion of annual disclosure of interest declarations, and incidents of integrity breaches by AGSA staff.

Budget 2013 – 2016
AGSA had budgeted for a gross profit percentage in relation to revenue of 31% for 2013/14  There had been increases for bad debt provision of R15.4m (376% higher than 2012/13), stakeholder relations R7m (19%), irrecoverable subsidies and transfers R3.9m (23%), learning and development R26m (32%) and technological services R16m (41%).  A surplus of R25.34m, representing 1,02% of audit income, was forecast.  This was expected to increase to R56m in 2014/15, and to R66m the following year.  With an overall departmental salary increase of 8.1%, the audit tariff would be increased by 5.7%.  For the 2013/14 financial year, the estimates were: revenue R2.474bn, direct costs R1.7bn, and gross profit R773.1m.

Discussion
AGSA was asked if it was acquiring specific technical skills to be able to assist with performance audits. Was it satisfied that the Special Investigating Unit (SIU) and Public Protector had the necessary skills to investigate issues of finance?

Mr Makwetu replied that in the strategic plan, AGSA had demonstrated how it was going to tackle the issue of skills. It was attracting a wide variety of skills and was partnering with the Council for Scientific and Industrial Research (CSIR) to enhance technical performance and facilitate the insourcing of required expertise. Regarding the skills of the SIU and the Public Protector, there was cooperation between AGSA and these institutions where there was the need for financial skills in an investigation or operation.  AGSA had existing Memorandums of Understanding with the various institutions which had operations of a financial nature.

Ms F Bikani (ANC) asked if there had been an improvement in debt collection. The issue of bad debts had been reported since 2009, and it was important to report on the progress made.

Mr Makwetu replied that AGSA would submit to the Committee a report on the debts owed to the Auditor-General.

The Chief Financial Officer of AGSA, Mr Raj Mahabeer, said that the majority of the debts were local government auditees.  AGSA had done a five-year analysis and found that the level of debt had grown from R101m to R206m. The problematic provinces were North West, Northern Cape, Eastern Cape, Free State and Limpopo. The bad debt provision from the last financial year had been increased from R45m to R74m.

The Chairperson said that there was a need for AGSA to clarify who could request special audits, and whether auditees or a portfolio committee could require AGSA to perform a special audit, over and above its normal audits. Was there a possibility of integrating investigations, performance audits and regularity audits, or had the focus for now have to be on regularity audits, with the rest being gradually factored in? What informed the decision to carry out one and not the other?  With regard to leading by example, what were some of the major achievements of the AGSA?  How coordinated was the demarcation of responsibilities between AGSA, the SIU and the Public Protector?

Mr Makwetu replied that the integration of investigations and audits was a work in progress, although there were hurdles. Regularity audits had to be done at the end of the year, while performance audits could be done at any stage in or outside of the financial year.  Investigations were done according to requests. There was a sharing of information in this regard, and detailed communication and coordination. The integration into a single audit was going to be done over a period of time.
 
On the achievements of AGSA, Mr Makwetu said that AGSA had gained a reputable status in the international arena. The report of the United Nations Board of Auditors had been presented at the General Assembly in New York and there had been notably positive comments about AGSA.  AGSA had sponsored the adoption of a resolution on the independence of global Supreme Audit Institutions.

Mr J Steenheissen (DA) asked what the status of the strategic plan was.

Mr Makwetu replied that the strategic plan was a work in progress.

Ms Bikani asked for the total number of BEE companies and firms with which AGSA was working.  The reason for her question was to establish the level of empowerment resulting from the work of AGSA.

Mr Makwetu replied that all registered audit firms in the country were eligible to get work and contracts from AGSA. There was a database of about 48 firms, and the majority of these firms were medium-sized companies. The details were provided in the Annual Report.

The Chairperson asked what criteria were used to allocate work to the various firms.

Mr Makwetu replied that AGSA allocated work every two years, and it normally called for proposals.  Some of the issues considered included capacity, quality, conflict of interest, and certain declarations and disclosures. The process was proactive and well balanced.

The meeting was adjourned.