ATC101116: Report Annual Report of the Auditor-General for the 2009/10 Financial Year
Report of the Standing Committee on the Auditor-General on the Annual Report of the Auditor-General for the 2009/10 Financial Year, dated 16 November 2010
The Standing Committee on the Auditor–General, having considered the Annual Report of the Auditor- General 2009/2010, reports as follows:
The Auditor-General of South Africa (AG), as a chapter 9 institution supporting democracy, is required to account to the National Assembly and to report on its activities and functions, at least, once a year. In addition, section 10(1) of the Public Audit Act No. 25 of 2004 requires the Auditor-General (AG) to report annually to the National Assembly on his or her activities and the performance of his or her functions.
The National Assembly established the Standing Committee on the Auditor-General (the Committee) in terms section 10(3) of the Public Audit Act No. 25 of 2004 as an oversight mechanism to monitor the performance of the Auditor-General. The AG’s annual report forms a significant part of this Committee’s responsibility in terms of meaningfully overseeing the performance of AG.
2. Legislative Mandate
The legislative mandate of the AG is provided in section 188 of the Constitution and in sections 3 and 4 of the Public Audit Act. These pieces of legislation/s clearly highlight the AG’s responsibility of auditing and reporting on all spheres of Government as well as public entities.
3. Mission Statement
The Auditor-General’s mission, as stated in its 2009/10 annual report, is to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector, thereby building public confidence.
4. Compliance to Reporting Standards by the Auditor-General
The AG tabled its report within the prescribed timeframes as stipulated in the Public Finance Management Act (PFMA). The report outlines the activities performed by the AG’s Office during the year under review.
5. The Auditor-General’s Remarks
The Auditor-General emphasised that its office is committed to providing assurance and confirming credibility in respect of how public funds have been utilised. Furthermore, the AG’s office pays critical attention to the role the AG’s leadership plays in facilitating a common understanding of the Auditor-General’s mandate among both internal and external stakeholders. The AG stressed that the ultimate goal is to achieve clean administration, with good governance characterised by clean audit findings. The AG envisages that the fulfilment of the noble mandate of supporting democracy in South Africa is to improve its business processes continuously in order that the AG can lead by example in the field of public accountability. The Auditor-General further indicated that leading by example values the benefit of supreme audit institutions in changing the lives of ordinary citizens.
In keeping to the promise of continuously communicating audit findings in a simple, clear and relevant manner, the AG’s office began road-shows to present audit outcomes and entered into dialogue with the Executive in all spheres of Government. In terms of its 2008/9 recommendations on audit outcomes, the AG stipulated that any intervention for clean audit outcomes would require an effort from the Executive leadership. Therefore, the AG encouraged full involvement by the Executive leadership which includes Ministries, Premiers and Mayors to achieve clean audit results.
6. Deputy Auditor-General’s Role
The Deputy Auditor-General (DAG) is the Accounting Officer in the administration of the Auditor-General [in terms of section 43(1) of the Public Audit Act. The DAG, in his review report, states that the AG had set and committed to meeting a set of strategic measurable objectives, and were rated based on actual performance against set targets.
7 Measuring Actual Performance against Targets
The Auditor-General of South Africa committed to five measurable objectives for the 2009/10 financial year. Those measurable objectives were measured based on targets versus actual performance as indicated below:
7.1 Commitment 1 ensuring simplicity, clarity and relevance of the message contained in AG’s Auditing of performance information, Performance auditing and Relevance index reports.
Auditing of performance information – Performance measured with predetermined audit coverage milestones as defined in the Audit of performance information in which targets were set at 100 percent for 2009/10 financial year of the PFMA cycle. The AG’s actual performance met the set target of 100 percent. The Committee congratulates the AG on this achievement.
Performance Auditing – The target in relation to audit income from performance audits was set at R49.7 million. It is appreciated that the AG’s actual performance on audit income from performance audit amounts to R52.1 million, exceeding the target by R2.4 million.
Relevance index – In the survey conducted by International Organisations of Supreme Audit Institution (INTOSAI), AGSA achieved 87 percent, which was reported as a very solid result.
7.2 Commitment 2 to improving the visibility of AGSA’s leadership through clear communication in championing the implementation of audit recommendations. The predetermined objective was to improve on the overall reputation index.
Visibility of leadership – The target set in this regard related to measuring and tracking compliance with communication, stakeholders’ relationship management and branding milestones for 2009/10. The actual performance could not be determined due to the fact that the survey will be conducted in the 2010/11 financial year by an independent firm.
However, AGSA improved on the reputation per identified key stakeholder group. The target for this was set at 60 to 79.9 percent achievement of all milestones in identified action plans. AGSA exceeded this target by achieving 88.5 percent of all milestones in identified action plans.
The target on compliance with excellent reputation and key messages in identified documents was set at 100 percent in terms of compliance with specifics and 45 to 79.9 percent where contextualisation is required. AGSA achieved 100 percent on complying with specifics and 88.7 percent where contextualisation is required. The Committee congratulate AGSA as it met the target of 100 percent on complying with the specifics and exceeded the target by 8.8 percent where contextualisation is required.
Furthermore, the target on complying with all printed material requirements was also set at 100 percent. And AGSA achieved 100 percent of this target. AGSA set the target at 60 to 79.9 percent in complying with office environment branding requirements. The actual performance has not been determined yet due to budgetary constraints, therefore, top management deferred the measurement of this output.
7.3 Commitment 3 to strengthen the human resource strategy, with particular emphasis on the comprehensive Trainee Auditor Scheme.
The Trainee Auditor Scheme - The aim of the scheme was to reduce the number of unqualified staff. The target was set at 5 percent reduction in the number of unqualified staff from baseline. AGSA achieved actual performance of 32.4 percent or 93 unqualified staff that became qualified auditors in this regard. From the baseline of 287 unqualified staff in 2009, the AG reduced this by 93 in 2010, leaving a total of 194 unqualified staff. It is appreciated that the Trainee Auditor Scheme had been maintaining the trend over the years in addressing the issue of capacity.
Labour Turnover per Category - The target was set at 8.2 percent which is the industry norm and 20 percent turnover reduction for band D from baseline per annum. AGSA experienced 6.6 percent labour turnover which is below the 8.2 percent industry norm. AGSA furthermore achieved 43 percent turnover reduction for band D in 2009/10 from 20 percent baseline per annum. It is appreciated that AGSA retained 100 percent of the trainee auditors who passed the Chattered Accountant (CA) qualification examinations or qualified as Registered Government Auditors (RGA).
Improvement in the Culture Index – The commitment of AGSA was to implement all actions that are drivers on the culture index. AGSA achieved the target as it implemented all actions that are drivers of the culture index.
7.4 Commitment 4 focusing on the funding model with a view to stabilising AGSA’s margins and cash flow situation.
Audit income and efficiencies – The target was set at 34 percent for the 2009/10 financial year. However, the AG fell short by 4 percent in the actual performance. In other words the target amounts to R1.682 billion in 2009/10 but the actual amount recovered was R1.613 billion.
Efficiency Gains (Net Surplus) – The target for net surplus was set at 4 percent, which was exceeded by 2 percent as the actual performance was 6 percent. This is a great improvement to be noted for AGSA as it recorded deficits in the in 3 previous consecutive years.
Debt Collection – The predetermined objective was to improve debt collection by encouraging debtors to comply with payment terms. The target in this regard was set at 30 days for National Government to settle its audit fees. This was achieved as the national government paid its debt in 19 days. The target for Provincial Government to pay its audit fees was also set at 30 days. With regard to debt collection as far as Provincial Government is concerned, this target was not achieved as provincial departments only paid their audit fees it in 59 days rather than the targeted 30 days. Target also was set for the Local Government to improve in paying its audit fees within 90 days (3 months). However, the audit fees of Local Government structures were only paid in 162 days. Moreover, Local Government owes AGSA an amount of R140 million in 2009/10, which accumulates from the 2008/9 financial year.
International Audits - AGSA sets a limit of 5 percent for overall revenue collected from international audits. In 2009/10, the income from international audits made up 2 percent or R32.6 million of total audit income, which is within the target limit. This is acceptable as it is within the limit.
AGSA Creditors – AGSA set a target at 80 percent to pay its creditors within 45 days subsequent to authorisation of an invoice. During the year under review, the actual performance in terms of paying its creditors on time fell by 10 percent from the target to 70 percent. The failure to meet payment terms is linked to the challenge of debt collection from the auditees. For example only National Government paid its audit fees within 30 days as regulated by the PAA.
7.5 Commitment 5: leading by example on matters of risk management internal control and transformation, including producing timely quality audit products and services.
Quality – The predetermined objective relating to quality specifically related to compliance with quality review standards of audits. The target was set at 75 percent for 2009/10, AGSA achieved 100 percent in its actual performance. This is excellent, as anything that is rated 86 percent and above is excellent.
Timeliness of PFMA and MFMA Reports – Target was set to comply with statutory and legislative guideline. Compliance target was set at 80 percent for PFMA organisations to finish audits within 3 months of receiving their financial statements. The target of 80 percent was exceeded by 6.6 percent as AGSA completed 86.6 percent of all PFMA organisations’ audits in two months.
The target for MFMA organisations’ reports was set at 70 percent to complete audits within 3 months of receiving their financial statements. It is great achievement that the target of 70 percent was exceeded by 18 percent. This means AGSA audited a bigger number of the MFMA organisations in the 2009/10 financial year than in 2008/09.
Transformation –AGSA committed to ensuring compliance with Broad-Based Black Economic Empowerment (BBEE) legislation. The target was set at level 5 rating for 2009/10. However, a comprehensive rating will be conducted in 2011 by the external service provider.
Employment Equity - AGSA committed to employment equity, which entails complying with its Employment Equity Plan. The target for compliance with employment equity was set at 80 percent from the targeted groups and 20 percent from non-targeted groups. The target of 80 percent was exceeded on targeted groups by 9 percent. This is a great achievement to AGSA. However, with the non-targeted groups, the actual performance of AGSA fell below the target of 20 percent to 11 percent.
Business Process – AGSA committed to focus on improving human resources and finance processes, as well as upgrading the Information and Communication Technology (ICT) systems. Therefore, AGSA’spredetermined the capability maturity model (CMM) as an objective with regard to key non-audit processes. The target was set at level 3 rating. However, the actual performance achieved was 2.89, which was 0.11 below target. Therefore, AGSA did not achieve the target.
The rating for achievement of identified capability maturity level (technology as it was rated at level 3 rating) has not been determined yet. The focus was on upgrading the Organisation’s Information Communication Technology systems.
The 2010 Soccer World Cup Expenditure – AGSA incurred an expenditure of R771 000 for 50 tickets for match tickets for the Soccer World Cup. The AG invited other Auditor-Generals to attend the 2010 World Cup Soccer Tournament in South Africa. The invitation was intended to encourage exposure to the country prior to the hosting the XX International Conference of Supreme Audit Institutions (INCOSAI) in South Africa in November 2010. AGSA hosted a number of Auditor-Generals, predominantly from the African continent, during the World Cup. In addition, some members of AGSA executive joined the guests as hosts in the respective cities.
The Committee note that there is general improvement on AGSA’s overall performance in the 2009/10 financial year. The financial performance of the institution has improved as compared to the previous years and for this the Committee commends AGSA for this achievement.
9. Committee Recommendations
The Committee makes the following recommendations, that:
- the South African Local Government Association (SALGA) request its members to pay all outstanding audit fees owed to the Auditor-General of South Africa (AGSA);
- the Executive Leadership, including Ministers, Premiers and Mayors should work together to improve co-ordination, for the achievement of clean audit outcomes;
- AGSA should notify the Speaker, National Treasury and the provincial Member of the Executive Council’s for Local Government and Finance, of the failure by certain municipalities to submit financial statements and to put in place measures that will ensure full compliance in future;
- SALGA to investigate the reasons for the high staff turnover rate amongst senior managers in municipalities which had received disclaimers from the Auditor-General;
- AGSA provides municipalities with the recently drafted compiled check-list, which was modelled on a municipality that had received a qualified report; and
- AGSA considers making use of the media to publicise visits and road-shows to municipalities to conduct audits as a means of increasing awareness.
Report to be considered.
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