ATC140311: Report of the Standing Committee on the Auditor-General on the Strategic Plan and Budget for 2014-17 Financial Years, dated 7 March 2014.
The Standing Committee on the Auditor-General
(SCOAG) having considered the Strategic Plan and Budget of the Auditor-General
of South Africa for the financial years 2014-17, reports as follows:
Background and Introduction
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
projected revenue and expenditure for the two financial years following the
year to which budget and business plan relates.
Section 38 (2)
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
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
It is therefore
against this background that the SCOAG is compelled to consider the Strategic
Plan and budget of the AGSA and draw some recommendations for the National
Assembly to approve.
this report seeks to
highlight the performance targets set for, to achieve the five commitments and
goals presented in the 2014-17 strategic plan of AGSA (projection of
non-financial performance). The report further highlights and analyse the key
aspects of AGSAs budget for 2014/15 financial years and the outer years of the
Strategic Plan and Budget 2014-17. Lastly, this report summarises the key
findings and aspects of this report; based on that recommendations are drawn.
2. Projection of non-financial performance
Based on the full
understanding of AGSAs Constitutional mandate, that is to strengthen the
countrys democracy, the environment at which AGSA operates and being
cognisance of risks that can potentially impact on its ability to execute its
mandate, AGSA has translated its mandate into five strategic commitments.
Currently, AGSAs strategy is anchored around the five strategic goals of:
Simplicity, clarity and relevance of messages, Visibility of Leadership,
Funding, Strengthening Human Resources and Leading by example. These strategic
goals are summarised as follows:
clarity and relevance of messages
The focus of this strategic goal is on
enhancing and consolidating AGSAs audit efforts to provide one consistent,
simple, clear and relevant audit message of spotless quality. The main reason
for ensuring that the audit messages contained in AGSAs audit reports are
relevant is to enable those charged with government to act on and implement
recommendation made by AGSA so as to improve public sector administration. This
goal is premised on two objectives which are: to provide value-adding
recommendations to stakeholders based on audit results; and continued
excellence of the quality of audits performed.
The first objective relies on AGSAs ability
to identify the relevant root causes of failures in the control environment of
and the reasons for insufficient delivery on
predetermined objectives. Thus, AGSA seeks to encourage improvement in the administration
of the public sector and ultimately to reach the goal of
. For that good cause, AGSA is targeting 100
percent over the 2014/15 to 2016/17 financial years respectively, to produce
reports that are clear to communicating relevant root cause and
last objective concentrates on the quality of audits performed, which measures
the relevance of AGSAs opinions.
This is directly dependent on the effective
functioning of the organisations systems of quality control consisting of
leadership responsibilities, ethical requirements,
of client relationships, human resource development, audit performance and
monitoring AGSAs standards against the International Standards of Quality
AGSAs commitment on achieving this strategic goal, AGSA has set 100 % target
over the three financial years covers by this Strategic plan.
Visibility of AGSA leadership
to continue with its journey of leadership visibility to share its insights
and recommend good practices. By doing
so, AGSA will also mitigate, to a large degree, the risk that sometimes its
mandate is not always fully understood by its stakeholders. Most importantly,
the visibility programme enhances public awareness and debate around the audit
In view of
the above, AGSA plans to ensure a close liaison with all levels of executives,
councils and other oversight structures in all three spheres of government.
Moreover, AGSA aims to interact with governing bodies and standard setters,
private firms and everyone who is focused on enabling and encouraging clean and
strategic goal is grounded on the objective to develop stakeholder
relationships to encourage clean administration. As such AGSA has set a target
of 100% over the financial years 2014/15-2016/17 respectively to conduct and
escalate, where necessary, high quality, value adding stakeholder interaction.
current funding model has enabled the AGSA to generate sustainable finances
over the last few years; hence there will be no change in its funding model so
as to ensure that the AGSA operates independently for the foreseeable future.
To achieve the funding as a strategic goal, AGSA objects to execute the
organisation mandate economically, efficiently, and effectively.
Subsequently, a target is set at 1 per cent
to achieve net surplus in 31 March 2015 and thereby increase to 2% for 2015/16
and 2016/17 financial years respectively. Creditors are set to be paid within
45 days from their voucher dates.
target for debt collection in 2014/15 in all national business units is set at
98%-100% for 2014/15 financial year and the outer years respectively.
The debts collected from the National
Treasury in 2014 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 of such
, such excess must be defrayed from the National
Treasurys vote provided that the National Treasury is of the view that the
has financial difficulty to settle the cost
. The target is set at 96 to 98 per cent for debts
collected in all provincial business units.
Importantly, in this Strategic
Plan, AGSA has emphasized to pay a special attention to effective debt
collection, particularly, local government. Surprisingly, AGSA has omitted to
set a target for this critical aspect. Debt collection, particularly to local
government has been a persistent challenge over the previous years and is still
Strengthen human resources
To have a motivated,
high-performing and diverse workforce, AGSA set a target at:
90 per cent
to achieve occupancy level over the three financial years covers in this
12% Staff Turnover over the Financial years of
Strategic Plan 2014-17
3.75 rating in achieving culture index for 2014/15,
3.77 and 3.79 ratings for 2015/16 and 2016/17 respectively.
3.74 rating in achieving leadership index for 2014/15,
3.76 and 3.78 ratings for 2015/16 and 2016/17 financial years respectively.
The afore-said targets
AGSAs commitment to human capital initiatives
which aimed to intensify the relevant training and skills development and to
create audit professionals with integrity and ethics.
Lead by example
To continue adhering to
standards of excellence for clean administration, AGSA commits to obtain a
clean audit report over the years.
continue improving the timeliness of AGSAs reports as legislated, the target
is set at 90 per cent for 2014/15 to submit for both audit
reports of Public Finance Management Act 1 of
1999 (PFMA) and Municipal Finance Management Act 56 of 2003 (MFMA) by AGSA.
Further, a target of 95 percent is set by AGSA to submit performance audit
reports timeously for 2014/15 financial year.
To maximise the AGSAs
contribution to transformation, a target is set at 2 points on a rating scale
of 5 to achieve the identified Broad-Base Black Economic Empowerment (B_BBEE)
in 2014/15 committing to be reviewed by an independent reviewer.
Lastly, AGSA also committed
to a sustainable performance review by acknowledging the importance of
environmental and sustainable development issues.
3. Projection of financial performance
Projection of financial
performance encapsulates the projected financial statements of AGSA. The
projected financial statements are made up of projected financial position,
financial performance and flow of cash from operating activities and other
activities. 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 standing, thereby pave a
statement of financial position (balance sheet)
: The projected statement
of financial position projects AGSAs equity and obligations, and working
capital over the 214/15-206/17 financial years;
statement of financial performance (comprehensive income statement):
The projected statement of
comprehensive income identifies AGSAs projected revenue and expenses for the
2014/15-2016/17 financial years;
cash flow statement
: The cash flow statement of AGSA estimates the
amounts of cash that will flow in and out of the institution over the
2014/15-2016/17 financial years.
statement influences AGSAs continuity and ability to pay suppliers, remunerate
its employees and honour its short term liabilities.
4. Budget Analysis
Audit income which is made
up of own hours, contract work, subsistence and travel is budgeted to generate
a total revenue amounting to R2.658 billion for 2014/15 financial year, R2.854
billion and R3 083 billion for 2015/16 and 2016/17 respectively. It is
worth noting that the own contract revenue has increased by 9 percent between
2013/14 and 2014/15 financial years and thereby increase by 8 percent for
2015/16 and 2016/17 financial years respectively. On the other hand, revenue
from Contract Worker has decrease by 4 percent for 2014/15 financial year and
thereafter budgeted to stabilise at 5 percent and 8 percent for 2015/16 and
2016/17 financial years respectively.
Direct audit cost includes
contract work of audit income, staff remuneration from audit business units and
subsistence and travel has been budgeted an amount of 1.799 billion for the
financial year 2014/15. This represents a 6 percent increase when it is
compared to 2013/14 financial year.
Operating costs are
associated with the administration expenses on day to day basis.
Total operating costs has been budgeted an
amount of R875.2 million for the 2014/15 financial year, which represents a
percentage increase of 11 percent. Some of operating cost which play a significant
share to operating costs item include amongst others a 100 percent increase in
the funds budgeted for Senior Management Workshop; and 46 percent overseas trip
Other expenses are budgeted
to increase to R33.7 million for the 2014/15 financial year. This represents a
significant increase of 64 percent compared for the 2015/16 financial year.
Amongst other expenses that contributed significantly to this huge increase in
other expenses item, include provision for bad debts which increase by a
noticeable 34 percent.
Section 23 (1) of the PAA
requires that the AG determines the basis for the calculation of audit fees to
be recovered from
in respect of audits
performed. Furthermore, tariffs are based on the average staff costs per band
and interval, mark-up factor and recoverable hours. The average 201/15 budget
tariff is R576 which is more than by R30 compared to R546 for 2013/14.
6. Audit Directives
Section 13 of the PAA
requires that the AG must determine the standards, scope and nature of audits
after consulting with the Committee. AGSA has consulted with Standing Committee
on Auditor-General and SCOAG has given AGSA a go ahead to use the current audit
Summary of key findings and aspects
In this Strategic Plan,
AGSA has emphasized to pay special attention to effective debt collection,
particularly, regarding local government. But there was no clear
explanation on the strategy that AGSA aims to adopt in this regard. This
has been a persisting challenge to AGSA so a strategy to overcome this
challenge is needed. Moreover, this commitment is translated into neither
AGSAs non-financial performance nor financial performance since no target
set for the collection of debtors from local government.
Revenue which is
planned to be generated from Own Hours has increase by 9 percent for the
period between 2013/14 and 2014/15 financial year. Whilst revenue
generated from contract workers is budgeted to increase by 4 percent for
the period between 2013/14 and 2014/15 financial year. The two significant
increases in these revenues are in line with AGSAs plans which include
the increase of scope of audit to audit Further Education and Training
(FET) Colleges and Universities, and to intensify the implementation of
Direct audit costs
increase by 6 percent for 2014/15 financial year. However, this increase
is below the expectations considering AGSAs plans such as to expand the
audit scope by producing audits for FET colleges and universities. This
increase can only cover inflation related increase.
The Standing Committee on
Auditor-General recommends that:
The House approves the
AGSA audit tariffs increase from R546 (2013/14) to R576 for 2014/15
The House also
approves the AGSAs requests with regard to audit directive of the 2014/15
In order to address
and recoup the outstanding audit fees owed by municipalities, AGSA should
interact with the Minister of Co-operative Governance and Traditional
), as well as the Minister of
Report to be considered.
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