ATC121204: Report of the Standing Committee on the Auditor-General on the Auditor-General of South Africa Budget and Strategic Plan for the 2013/14 Financial Year, dated 20 November 2012
REPORT OF THE COMMITTEE ON THE AUDITOR-GENERAL ON THE AUDITOR-GENERAL OF
SOUTH AFRICA BUDGET AND STRATEGIC PLAN FOR THE 2013/14 FINANCIAL YEAR, DATED 20
The Committee on the Auditor-General having considered the Budget and Strategic Plan of the Auditor-General of South Africa for the financial year 2013/14, reports as follows:
The Public Audit Act (PAA) no. 25 of 2004,
Section 38 (1) requires that the affairs of the Auditor-General (AG) be
conducted in accordance with a business plan and a budget prepared by the AG
for each financial year. The budget must include the estimated and projected
revenue and expenditure that relates to the business plan including the basis
on which audit fees for the year relate.
Section 38 (3) of the PAA requires that the
AG must at least six months before the start of a financial year submit the
budget and a business plan to the oversight mechanism and the National Treasury
for planning and preparing the national annual budget.
Section 38 (3) further requires that the
oversight mechanism consider the budget and business plan and within two months
of receipt, submit the recommendations to the Speaker for tabling in the
National Assembly and the National Treasury.
The Auditor-General has a constitutional
mandate and, as the Supreme Audit Institution (SAI) of
The purpose of this paper is to highlight the
performance targets set for achieving the five commitments and goals presented
in the 2013/14 strategic plan of AGSA. The report further analyses the budget
of AGSA for consideration by the Committee on Auditor-General as an oversight
mechanism of the AG.
2. Projection of
Office of the Auditor-General undertakes to discharge its mandate as the SAI of
AGSA commits to five
predetermined measurable objectives that were set for the medium-term plan to
ensure improvement its performance. The
predetermined objectives aims to realise a clean audit outcome by 2014, an
initiative introduced by the Minister of Cooperative Governance and Traditional
The following measurable predetermined objectives in 2013/14 are used to
evaluate the performance of the Office of the Auditor-General:
clarity and relevance of messages
The target for this
objective is set at 3 points on the rating scale of 4 points for 2013/14
financial year which is indicated by a clear communication of relevant root
cause and recommendations.
It will also
focus on increasing the volume of performance audits to 10 per cent of the
audit work within five years and a growth strategy and plan for the medium term
to 2018 to be finalised soon.
In 2013/14 AGSA will
focus on increasing the implementation of performance audit as follows:
Increasing integration of performance audit initiatives, observations
and outcomes into regularity audits to ensure consistent and comprehensive
Enhance interactions with internal and external stakeholders to ensure
an understanding of performance audit messages and to influence corrective
action in areas where deficiencies have been identified;
Create sufficient capacity to perform research and conduct performance
Utilise specialist capacity effectively within the Performance Auditing
Business Unit to
complex areas within the various spheres of government.
of AGSA leadership
AGSA set a target at
3 points within the rating of 4 points to develop strong stakeholder
relationships that encourage clean administration measured at high quality,
value-adding stakeholder interactions to be conducted and escalated.
A target is set at 1
per cent to achieve net surplus in 31 March 2014 and pay creditors within 45
days from their voucher dates.
for debt collection average in 2013/14 in all national business units is set at
99 per cent to 101 per cent.
collected from the National Treasury in 2013/14 for the municipalities of low
capacity, the target is set at 100 per cent. Section 23 (6) of the PAA provides
that if an audit fee exceeds one per cent of the total current and capital expenditure
, such excess must be defrayed from
the National Treasurys vote provided that the National Treasury is of the view
has financial difficulty
. The target is set at 96 to 98 per cent for debts
collected in all provincial business units.
To have a
motivated, high-performing and diverse workforce, AGSA set a target at:
90 per cent
to achieve occupancy
3.4 rating in achieving culture index; and
3.4 rating in achieving leadership index.
industry norm is rated at 3.2 per cent according to the five point
scale from 1 to 5.
human capital initiatives are to intensify the relevant training and skills
development and to create audit professionals with integrity and ethics.
continue adhering to standards of excellence for clean administration, AGSA
committed to obtain a clean audit report in 2013/14.
To continuously improve the timeliness of
AGSA as legislated, the target is set at 95 per cent in 2013/14 for
A target is
set at 90 per cent for submitting audit reports of Public Finance Management
Act 1 of 1999 (PFMA) and Municipal Finance Management Act 56 of 2003 (MFMA) by
contribution to transformation, a
target is set at 3 points on a rating scale of 5 to achieve the identified
Broad-Base Black Economic Empowerment (B_BBEE) in 2013/14 committing to be
reviewed by an independent reviewer.
committed to a sustainable performance review by acknowledging the importance
of environmental and sustainable development issues. In leading by example,
AGSA promised to establish the baselines for the following:
Electricity and water use;
Paper use and paper waste generated;
Business travel by vehicles and by flights;
Completion of annual disclosure of interest declarations; and
Incidents of integrity beach by
sustainability performance review is the King III best practice initiative that
an organisations board should use to ensure that the organisation is seen to
be a responsible corporate citizen, appreciate that strategy, risk, performance
and sustainability are inseparable, and realise that sustainability reporting
and disclosure should be integrated with the organisations financial reporting.
3. Projection of
leading by example that the
can adopt including
the projections of the financial performance of financial statements.
The projected financial statements are not only
provided as a snapshot, but they are also a powerful tool that AGSA uses to
evaluate its strengths and weaknesses in financial performance and pave the way
Therefore, the projected
financial statement of AGSA projects the financial position, income and cash
movement and guide
financial performance and
its standing by suggesting ways to achieve clean audit at the end of 2013/14
statement of financial position (balance sheet)
: The projected statement of financial position
assets and liabilities reflected in short
and long term obligations;
statement of comprehensive income:
The projected statement of comprehensive income or
(profit and loss statement) identifies
projected revenue and expenses for the 2013/14 financial year;
cash flow statement of AGSA forecasts the amounts of cash and cash equivalents over
the 2013/14 financial year.
projects the cash and cash equivalents of AGSA, which influence its continuity
and ability to pay suppliers. Remunerate its employees and honour the short
of financial statements also serve as a planning tool that can be used by
to address the uncertainty of clean audit outcome without
relying only on guidance of accounting procedures and policies during the
4. Budget Analysis
budget of AGSA amounts to R 2.555 billion in 2013/14, increasing by R73.5
million from R2.226 billion in 2012/13 financial year.
income includes own hours, contract work, subsistence and travel and present
value of revenue adjustments.
revenue amounts to R2.474 billion.
income comprises of interest received, interest received SCMB (
write out in full
) and sundry income which amounts to R80.709
audit cost includes contract work of audit income and subsistence and travel
amounting to R1.8 billion.
costs are associated with the administration expenses on day to day basis.
Operating costs remain the same regardless of
a number of variables that can vary according to quantity.
Total operating costs amounts to R828.6
The key drivers of the operating
costs are the salaries, salary increment and maintenance of business
expenses are associated with non-operating activities, such as interest
expenses on liabilities, bad debts provision and depreciation.
Depreciation is the decrease in value of
assets, and the allocation of the costs to periods in which the assets are
Generally, the cost is allocated,
as depreciation expense in the period in which the asset is expected to be
Such expense is recognised for
AGSA made provision
for depreciation in 2013/14 amounting to R47.4 million, increasing by R7.3
million from R40 million in 2012/13 financial year.
provision for bad debts amounts to R20.5 million in 2013/14 increasing from
R5.1 million in 2012/13.
budget for capital expenditure is provided to acquire the following assets:
Furniture and equipment;
Computer software; and
Leasehold improvement and obligation.
capital expenditure budget are the amounts to be spent on:
Acquiring fixed assets and in some cases, intangible assets such as
Repairing of existing assets to improve its useful life; and
Restoring property or adapting it to a new or different use.
surplus is the profit remaining after subtracting the operating expenses,
taxes, interest, insurance and other expenses.
AGSA projected net surplus of R25 million or 1.02 per cent of total
income in 31 March 2014, decreasing from R46 million or 2.07 per cent in 31
The AG reduced the projected
surplus by increasing the operational costs to avoid potential conflict between
trying to maximise surplus and carrying out the operational activities.
23 (1) of the PAA requires that the AG determines the basis for the calculation
of audit fees to be recovered from
respect of audits performed.
increasing the audit tariffs by 5.7 per cent in 2013/14 financial year.
The tariffs increase is affected by the
market related salary increase of 8.1 per cent.
The salary increase is one of the major cost drivers that determine the
budget of AGSA in 2013/14 financial year.
6. Audit Directives
13 of the PAA requires that the AG must determine the standards, scope and
nature of audits after consulting with the Committee.
However, the AG advised the Committee that it
was not necessary to update the audit directive of 2012/13 that was published
in the Government Gazette No. 34783, volume 557 of 28 November 2011 as it would
still be effective in 2013/14 financial year.
on Auditor-General recommends that:
Parliament approves the audit tariffs increase of 5.7 per cent for the
financial year 2013/14; and
Parliament also approves the Auditor-Generals request that the audit
directive of 2012/13 as published in the Government Gazette No. 34783, volume
557 of 28 November 2011, remain in force.
Report to be
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