Principles of Performance Auditing: Auditor-General of South Africa briefing

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Justice and Correctional Services

26 March 2013
Chairperson: Mr L Landers (ANC)
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Meeting Summary

The Portfolio Committee on Justice and Constitutional Development met with the Office of the Auditor-General of South Africa (AGSA) to discuss the principles of Performance Auditing, with a view to help the Committee gain better insight into the auditing process and hence carry out its oversight functions of government departments more effectively.

The AGSA's presentation commenced with a brief outline on issues to be considered in the presentation. Annual mandatory audits required to be performed by the Office of the AGSA on government departments and agencies were financial statements, report on predetermined objectives, and compliance with law and regulations; discretionary audits were with regard to performance audits such as infrastructure audits.  The presentation further discussed the audit criteria on which basis departments’ audit reports were based, namely, compliance with regulatory requirements, usefulness, and reliability. Performance indicators for the Department on the usefulness criteria included well defined, verifiable and targets' SMART [specific, measurable, attainable, realistic or relevant, and timely] indicators. In the last financial year, the Special Investigating Unit (SIU) received a finding in this regard based on the time of submission of its Strategic Plan and the correlation between its Annual Performance Plan (APP) and its outcomes. With regard to reliability, the validity, accuracy and completeness of reported performance of the Department were taken into consideration. Explanations for major variances were required. The SIU also received a finding in this regard as its reports could not be corroborated by valid, accurate and complete documentation. Additional Matters considered in the audit report of the Department were achievement of planned targets and material adjustments to the annual performance report. With regard to achievement of planned targets, a finding was established where greater than 20% of planned targets were not achieved; the Department and the National Prosecuting Authority (NPA) had findings in this regard. The Department and the SIU had findings with regard to material adjustments to the annual performance report. The presentation further discussed some of the root causes for findings identified in the audit report of the Department including - inadequate training of staff; lack of controls to ensure adequate oversight over performance information; inefficient internal controls; and lack of supporting documentation or incoherent presentation of supporting documentation. The presentation proffered recommendations for improvement.

Members noted that the concerns of the Committee with regard to the SIU had consistently been highlighted in past deliberations with the office of the AGSA and requested further details on the findings on reliability of information provided by the SIU and adjustments to its annual reports. Members asked how the Office of the AGSA assisted departments in achieving National Priorities. Members questioned whether the Office of the AGSA had carried out any audits on the infrastructure of the Department, particularly court buildings and, if not, whether the Office of the AGSA had considered an audit on court buildings and who was responsible for determining discretionary audits.
 

Meeting report

Introduction
The Chairperson welcomed all present. He explained that the Committee had invited the Office of the Auditor-General of South Africa (AGSA) to brief the Committee on factors taken into consideration in its auditing functions. The presentation should thus be viewed in the light of being a tool aiding the Committee gain better understanding of the auditing process and hence carry out its oversight functions on government departments more effectively. The Chairperson requested the Office of the AGSA to begin the presentation.

Outline
Mr Yusuf Essack, AGSA Senior Manager, commenced the presentation with a brief outline on issues to be considered. Annual mandatory audits required to be performed by the Office of the AGSA on government departments and agencies were financial statements and report on predetermined objectives and compliance with law and regulations. Discretionary audits were with regard to performance audits such as infrastructure audits (see document).  With regard to the strategy adopted on audit of predetermined objectives, only material findings were escalated into audit reports; the long term plan was to improve this trend with regard to predetermined objectives. In the performance of its oversight functions and considering audit reports, Parliament needed to take the following factors into consideration - ensure there was a clear correlation between the National Development Plan (NDP) and plans of departments; departments plans must clearly spell out impact on departmental mandate; service delivery of departments must relate to their mandates; there must be clear alignment between the strategic plan of the department in question and the budget; and compliance with Budget Review and Recommendation Report (BRRR) processes should also be taken into consideration.

Audit criteria
Mr Essack further discussed the audit criteria on which basis departments’ audit reports were based. The first criterion discussed was compliance with regulatory requirements and sub criteria of this were existence of supporting documentation and timeliness.  Under this head, auditors considered departments’ compliance with the Public Finance Management Act (No. 1 of 1999) (PFMA) and other relevant legislation and regulations. In the previous financial year, only the Special Investigating Unit (SIU) of the Department of Justice and Constitutional Development had a fining in this regard. The second criterion taken into consideration in the audit process was usefulness and this directly related to the planning of departments and monitoring efficacy on plans throughout the financial year. Sub criteria of this were: Presentation - conformity of Plans with format issued by National Treasury; and Measurability - this was further subdivided into indicators and targets. Each predetermined objective was broken down into indicators and such indicators must be well defined and unambiguous. Targets were specific tools used as measurements for each of these indicators; Consistency - the consistency of objectives in the Annual Performance Plans, Strategic Plans, and Quarterly Reports were all measured under this sub criteria. Room for amendments of targets existed subject to the approval of the Executive, but no amendments to objectives were allowed. Most departments usually had no findings under the sub criterion Relevance. This sub criterion took into consideration the relevance of departmental plans to its mandate.

The third and final criterion considered in the audit process was Reliability and this related this related to the actual performance of departments. Sub criteria of this were – Validity, which took into consideration the existence of documentation to support performance: in this regard, the audit did not question under/over performance at specific levels, but only on an overall basis of targets; Accuracy, which took into consideration the accuracy or otherwise of information supplied; and Completeness, which took into consideration under/over reporting of departments on their targets. In general, the Office of the AGSA had noted a marked improvement on indicators in Strategic Plans over the years and forming of SMART targets by departments.

What audit reporting entailed
Mr Essack discussed in detail what audit reporting entailed (see document). An audit conclusion was prepared and included in the management reports for all departments, constitutional institutions, trading entities, Parliament and provincial legislature. The audit outcomes were based on randomly selected programmes within the departments; however each of the randomly selected programmes were fully audited. Performance indicators for the Department on the usefulness criteria included well defined, verifiable and targets' SMART indicators. In the last financial year, the SIU received a finding in this regard based on the time of submission of its Strategic Plan and the correlation between its Annual Performance Plan and its outcomes. With regard to reliability, the validity, accuracy and completeness of reported performance of the Department was taken into consideration. Explanations for major variances were required. The SIU also received a finding in this regard as its reports could not be corroborated by valid, accurate and complete documentation. Additional Matters considered in the audit report of the Department were achievement of planned targets and material adjustments to the annual performance report. With regard to achievement of planned targets, a finding was established where greater than 20% of planned targets were not achieved; the Department and the National Prosecuting Authority (NPA) had findings in this regard. The Department and the SIU had findings with regard to material adjustments to the annual performance report.

Root causes for findings
Mr Essack further discussed some of the root causes for findings identified in the audit report of the Department including - inadequate training of staff; lack of controls to ensure adequate oversight over performance information; inefficient internal controls; and lack of supporting documentation or incoherent presentation of supporting documentation. He also proffered recommendations for improvement, the key drivers of which were leadership, effective performance management systems and proper governance (see document).

Discussion
Ms D Schäfer (DA) remarked that the concerns of the Committee on the SIU had consistently been highlighted in past deliberations with the Office of the AGSA. She requested further details regarding the findings on reliability of information provided by the SIU and adjustments to its annual reports.

Mr Essack replied that the Office of the AGSA had communicated the outcome of the audit on the SIU earlier, including proposed recommendations. With regard to the details on reliability of information supplied, the actual reported performance could not be corroborated for more than 20% of information supplied. The reason for this may have been related to vacancies at Senior Management level and the absence of policy documents to guide the reporting process in the SIU.  With regard to adjustments made to annual reports of the SIU, there had been no documentation to support the adjustments.

Prof L Ndabandaba (ANC) commended the presentation by the Office of the AGSA and asked what led to the phrase ‘no audit opinion’ in audit reports.

Mr Essack explained that the conclusion was usually included in the management report; only findings were escalated to the audit report. The long term goal of the AGSA was to have the opinions included in the audit reports.

Prof Ndabandaba asked whether departments were invited on road shows with the AGSA.

Mr Essack replied that departments were briefed on portfolios of the different road shows organised by the AGSA as they applied to the departments in question. The AGSA also had engagements at the levels of the Portfolio Committees, Directors-General, and Standing Committee on Public Accounts (Scopa).

Ms C Pilane-Majake (ANC) expressed concerns with regard to the practice of National Treasury's approving departmental reports before they were tabled at Parliament, particularly with respect to budgets.

Ms Pilane-Majake asked if the mechanisms on the ground were effective with respect to convergence with National Treasury in terms of approved plans and monitoring procedures and ability to meet National Priorities. How did the Office of the AGSA assist departments in achieving National Priorities?

Mr Essack replied that it was important clearly to separate management and executive roles from audit functions. Auditors from the Office of the AGSA audited departments based on the information supplied by the departments; this was viewed in the light of the National Development Plan amongst other factors.  Areas of concerns were highlighted and discussed with the departments but auditors had no input on the content of the information supplied. The overall conclusion of the audit was limited to the audit process; auditors did not question policies and only advised on reporting processes. Further, it was important to remember that not all National Outcomes impacted on every department - there were direct and indirect correlations for each outcome to every department. In the audit process, only direct correlation to National Outcomes of the departments was taken into consideration.

Ms Pilane-Majake asked with concern how the Office of the AGSA was able to identify indicators on departments’ inability to respond to the challenges of poverty, unemployment and inequalities through their mandates.

Mr Essack replied that the concerns were noted. The AGSA had quarterly engagements with Ministers, accountants of departments, etc., to highlight warning signals to departments and discuss areas of concerns. With regard to predetermined objectives, the usefulness of these objectives directly helped in dealing with the challenges of poverty, unemployment and inequalities in the society.

Mr J Jeffery (ANC) remarked that the presentation had been too generic; it was useful to have a more tailored approach with specific focus on the Department of Justice and Constitutional Development. He asked what departments needed to do to achieve unqualified audits and which officers were responsible when unqualified audits were not achieved.

The Chairperson cautioned that these were issues to be addressed at a further meeting with the AGSA.

Mr Essack replied that the presentation had been prepared on a broad scope, hence the lack of details about the Department of Justice and Constitutional Development. The request for more tailored presentations was noted.

Mr Jeffery referred to the performance audit of infrastructure and questioned whether the Office of the AGSA had carried out any audits on the infrastructure of the Department, particularly court buildings. If not, had the Office of the AGSA considered an audit on court buildings and who was responsible for determining discretionary audits?

Mr Essack replied that the suggestion to audit Court buildings was noted and would be communicated to the AGSA. A Committee set up by the AGSA determined performance areas to be audited.

Mr Jeffery responded that it had become crucial to carry out an infrastructure audit on court buildings. The concern in this regard was to ensure the maintenance of existing buildings and ensure they were functional. Functional infrastructure impacted on access to justice, hence the concerns.

The Chairperson thanked Mr Essack for the presentation and ensuing deliberations.

Committee Report on the Suspension of Magistrate L Myles: consideration and adoption
Members considered the Committee’s Report on the suspension of Magistrate L Myles.

Ms Schäfer moved for the adoption of the report. Prof Ndabandaba seconded the motion.

The Committee adopted its Report.

The Chairperson thanked all in attendance and adjourned the meeting.
 

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