AGSA Strategic Plan and Budget

2016 to 2019

AG Presentation to SCoAG

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Our reputation promise/mission

The Auditor-General of South Africa has a constitutional mandate and, as

the Supreme Audit Institution (SAI) of South Africa, exists to strengthen our

country’s democracy by enabling oversight, accountability and

governance in the public sector through auditing, thereby building public

confidence.

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Our strategic roadmap to 2024

Main external trends considered in this plan

Performance measures per strategic goal

The 2016-17 budget

Presentation outline

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A transformational organisation that is vision

and values driven

Our strategic roadmap to 2024

Va

lue

-ad

d

Vis

ibil

ity

Via

bil

ity

The Auditor-General of South Africa has a constitutional mandate and, as the Supreme

Audit Institution (SAI) of South Africa, exists to strengthen our country’s democracy by

enabling oversight, accountability and governance in the public sector through

auditing, thereby building public confidence.

A competent and value-adding auditor-general

Oversight and

accountability

Strong financial and

performance management

systems

Commitment and ethical

behaviour by all

A sustained positive impact on the lives of our people, the country’s

financial health and its democracy

2016

2024

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First year of implementation.

The 2016-19 strategic plan and budget is the second

document in support of the long-term strategy.

No major changes in the plan – a few elements have been

fine-tuned based on our experience and progress so far.

We are here to present those new aspects.

Introduction

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More rigorous engagement by various stakeholders on the

audit outcomes.

Low economic growth, shortage of cash in the system.

An escalation of debt owed to the AGSA, specifically by the

local government.

An increased competition for skilled labour and insufficient

quality of school education.

Major trends considered in the current plan

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Value-add

auditing: Focusing on the

important audit areas

and influencing the

public sector players to

use public funds as

intended

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Measure: % closure of gaps identified through the stakeholder survey done in 2015. Target: 90%-100% completion of the actions for 2016-17. Note: The stakeholder survey will be repeated every three years.

Major initiatives

• Continue to develop deep knowledge of the clients’ needs.

• Intensify and institutionalise the use of publicly available information.

• Regularly review our audit portfolio for continued relevance to maximise the

benefit to the public sector.

Priority focus: Value chain analysis.

Objective 1: Demonstrate value-add auditing

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Objective 1: Demonstrate Value-add auditing

Major initiatives

• Address the expectations of the users of our reports and the extent to which

they promote oversight and corrective actions.

• Enhance the packaging of reports/messages in response to the stakeholders’

needs.

Priority focus: Streamlining of the GR process.

Measure: Clear articulation of root causes and simple and relevant recommendations in our reports. Measure: % adherence to quality standards in our general reports. Target: 95%-100%.

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Objective 2: Ensure high quality of our audits

Measure: % adherence to quality standards – audit engagements.

Target: 85%-90% (C1, C2 and C3 rating).

Major initiatives

• Improve the effectiveness of the pre-issuance review process.

• Benchmark our audit practices internationally.

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Quality control process

Technical guidance

provided to ABUs

ABUs conduct the audits

QC reviews performed on

selected engagements

Re-reviews done by IRBA

QCAC provides final scores for

ABUs and AGSA

Results communicated and remedial actions taken

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The quality of our audits exceeds that of the private sector audit firms. Our QC

targets are stretched.

No QC targets are specified by other SAIs.

In relation to other SAIs, our level of quality is very high.

The following % failure on audit files reported in 2015 by audit regulators:

• Canada – 18%, UK – 33%, Netherlands – 45-52%.

• SA – 43%.

A formal benchmarking exercise is planned against best practices in other

comparable SAIs, including assessment of quality of audit files.

Quality of audits at the AGSA

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Visibility for

impact: Enabling and

encouraging our

stakeholders to take the

required actions

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Objective 1: Achieve impact through visibility

programmes

Measure: % high-quality focused external stakeholder interactions

(emphasis on partnering with the stakeholder).

Targets: 70%-75%.

Major initiative

Create capacity for impactful stakeholder engagement by:

- evaluating the resources (people, tools) required for effective, economic and

efficient interaction programmes

- elevating the engagement model to an auditor-auditee partnership level.

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Major initiatives • Improve our Information systems’ capabilities. • Provide appropriate tools for impactful stakeholder engagement – enhance

current key control programme. Priority focus: Key control enhancement.

Measure: % implementation of methodology, tools and processes for

visibility programmes per reporting period.

Target: 95%-100% achievement of deliverables in the implementation plan

for 2016-17.

Objective 1: Achieve impact through visibility

programmes

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Objective 1: Achieve impact through visibility

programmes

Measure: Approved thought leadership programme

Target: 95%-100% achievement of deliverables in the implementation plan for 2016-17.

Major initiatives

• Formalise an external thought leadership programme with a specific focus on

accounting officers and chief financial officers using appropriate forums.

• Facilitate an appropriately structured international programme.

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Objective 2: Engage actively with citizens

Measure: % implementation of an approved citizen engagement plan. Target: 95%-100% achievement of deliverables in the engagement plan for 2016-17.

Major initiatives

• Implement the provincial and national media engagement plans for

reaching citizens.

• Formalise the use of social media to reach a wider spectrum of the society.

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Viability Attracting, acquiring and

retaining a high calibre

of resources.

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Objective 1: Maintain financial and legal viability and

independence

Measure Targets 2016-17

Net surplus/sustainability margin (%) 1%-2%

% debt collected over 12 months – national BUs 96%-99%

1% debt collected from the NT – centrally 100%

% debt collected over 12 months – provincial BUs 70%-85%

Major initiatives

• Review all initiatives to ensure alignment with cost containment and

revenue enhancement efforts.

• Develop and implement a revenue optimisation strategy.

Priority focus: Small scale audits / improvement of recovery time. 19

Objective 2: Align internal competencies and capabilities

Measure Targets

2016-17

Occupancy level 89%-91%

Staff Turnover 10,5%-11,5%

Major initiatives

• Implement an approved people strategy.

• Maximise opportunities for development of our audit staff through

exposure to section 4(3) audits.

Priority focus: Performance management.

Measure: % implementation of the

people strategy.

Target:

- Implement an enhanced reward and

recognition programme.

- Implement a strategy aligned

competency framework and curriculum.

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Objective 3: Increase operational efficiencies

Measure Targets 2016-17

% implementation of the AGSA operating

model improvements

Implement the support service

delivery model

% completion and implementation of an

appropriate audit software

95%-100% achievement of

deliverables in the project plan for

2016-17

Priority focus: Audit software project.

Major initiatives

• Ensure completion and implementation of appropriate responsive audit software.

• Develop, implement and continuously enhance an economic, efficient and

effective operating model.

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Objective 4: Increase internal visibility

Major initiatives

• Pursue strong strategic engagement, using proven methods and

continuously new ways of involving staff in the running of the

organisation.

• Internal visibility programme driven by the top leadership.

Measure: % conducted strategic alignment sessions by top

leadership (CEs, NLs, DAG) – as per stakeholder plan.

Target: 90%-95%

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Objective 4: Increase internal visibility

Major initiatives

• Establish an internal innovation programme to systematically

drive an improved culture of innovation.

• Formalise and institutionalise common project initiation and

management principles.

Measure: % implementation of an internal innovation

programme.

Target: 95%-100% achievement of deliverables in the

innovation plan for 2016-17.

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Objective 5 : Embed the concept of sustainability

Major initiative: Implement the approved sustainability strategy.

Measure: % implementation of an approved sustainability strategy.

Target

- Complete an environmental awareness programme.

- Implement an environmental management accounting

mechanism.

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Vision and values

driven: Leading by example to

demonstrate clean and

effective administration is

possible and achievable

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Objective 1: Continue to be a transformational

organisation

Performance measure Targets 2016-17

% implementation of a transformation

strategy

Intensify the ESD programme.

Enhance our work with universities

BBBEE level Level 2

Major initiatives

• Implement our approved transformation strategy.

• Accelerate the enterprise development programme.

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Transformation at the AGSA

1. Management control

- Focus on recruitment or

development of African females in

decision-making positions

2. Skills development

- L&D programmes

- Learnerships

- Bursaries

- Support to selected previously

disadvantaged universities

- Schools programme

3. Enterprise and supplier

development

- AGSA enterprise and development

programme

- Drive preferential procurement

4. Socio-economic development

- Corporate social investment

- Recruitment of people with

disabilities

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Objective 2: Ensure our own clean administration

Performance measures Targets 2016-17

External audit opinion on the AGSA Clean audit

Rate of closure of audit findings 95%-100%

Major initiatives

• Drive constant and consistent implementation of adequate and

effective internal controls.

• Continue to conduct risk assessments.

• Continuously refine and update policies and procedures to reflect

best practices.

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BUDGET

2016 - 17

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Funding principles & summary income statement

Trend analysis (2013-14 to 2016-17): Audit income & tariff

Annexure A: Quality of annual financial statements of

auditees

Annexure B: AGSA debt and debt management

Discussion outline

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Funding principles & summary income statement

Funding

principles

Budget

2013-14

Budget

2014-15

Actual

2014-15

Budget

2015-16

Budget

2016-17

- CWC % of audit income ≤23% 24% 23% 24% 23% 21%

- Gross profit ≥32% 31% 32% 33% 33% 32%

- Overhead % of audit income 30% 34% 35% 30% 33% 33%

- Surplus % of audit income 1% to 4% 1.0% 1.2% 5% 1.5% 1.0%

R million R million R million R million R million

Audit income 2 474 2 658 2 750 2 943 3 090

- Own hours 1 810 1 972 1 983 2 146 2 301

- Contract Work 590 616 656 666 657

- S&T recoverable 113 119 115 138 147

- Present value of revenue adj. (39) (49) (4) (7) (15)

Direct costs 1 701 1 800 1 840 1 974 2 115

Gross profit 773 858 910 969 975

Other income 81 97 60 61 69

Overhead expenses 829 924 832 987 1 013

Surplus 25 31 138 43 31

The key financial ratios for budget 2016-17 are in line with funding principles.

Trend analysis (2013-14 to 2016-17): Audit income & tariffs

2 474

546

2 658

576

2 943

602

3 090

637

Audit income

(R million)

Tariff

(Rands per hour)

2013-14 2014-15 2015-16 2016-17 Year on year % growth

Increase in audit income over a three year

period is mainly driven by: • New audits (South African Post office, Airports

Company South Africa and FET colleges)

• Increase in risk and scope

• Take back of audit work from private audit firms

• Also due to inefficiencies (see annexure A)

6% 5% 5.8%

7% 11%

5.0%

Audit income growth of 5% budget 2015-

16 to budget 2016-17 is below the CPIX

forecast of 6%

Annexure A: Quality of annual financial statements

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PF

MA

M

FM

A

PF

MA

M

FM

A

2012-13 2013-14

Material misstatements No material misstatements

EC FS GP KZN LP MP NC NW WC

2012-13 R 87 R 35 R 7 R 6 R 22 R 69 R 8 R 67 R 9

2013-14 R 78 R 48 R 6 R 12 R 15 R 21 R 56 R 67 R 9

2014-15 R 106 R 40 R 11 R 7 R 15 R 27 R 69 R 72 R 13

R 0

R 20

R 40

R 60

R 80

R 100

R 120

Mil

lio

n

Total local government debt by province The total outstanding debt as at 31

March 2015 was R709 million of which

local government debtors amounted to

R366 million or 52 %.

Local government debt continues to

grow year on year and debtors’ days

outstanding increased from 265 days in

2013/14 to 292 days against a target of

90 days. The increase in debtor’s days is

indicative of poor collection from this

sphere which impacts negatively to the

AGSA cash flow.

The collection challenges are mainly

concentrated in three regions namely;

EC, NC & NW which makes up 67% of

the total local government debt.

Actual

2014-15

Actual

2013-14

Actual

2012-13

Actual

2011-12

Actual

2010-11

R million Days R million Days R million Days R million Days R million Days

National 74 4 77 44 65 35 63 15 50 13

Provincial 142 29 115 25 93 41 124 37 110 27

Local 366 292 322 265 250 253 198 233 170 204

Statutory

bodies 127 169 93 99 97 114 58 79 49 91

Total 709 607 517 451 379

Annexure B: Debtors and debt collection

Provision for impairment of debtors

(R 146)

(R 179)

2013-14 2014-15

Total AGSA provision R million

6 % audit income

• The total debt provision has slightly increased to

25% of total debt (2013-14: 24%)

• However as a percentage of audit income, the

provision is maintained at 6% year on year.

6 % audit income

R 45

R 30

R 43

R 49 R 47

R 40

EC NC NW

Provision of debtors ( EC, NC & NW) R million

2013-14 2014-15

• The three regions with the most collection

challenges contribute 76% ( 2013-14: 81%) to

the total provision

Allocations from National Treasury

1% Budget AUDIT YEAR

2010-11 2011-12 2012-13 2013-14

R million R million R million R million

Budget requested by the

AGSA from NT

87.40 77.30 114.60 120.68

Approved & paid by NT 30.20 40.80 61.20 41.86n1

% approved & paid by NT

35% 53% 53% 35%

Section 23(6) of the Public Audit Act no 25 of 2004, states that if the audit fee exceeds one percent of the

total current and capital expenditure of such auditee for the relevant financial year, such excess must be

defrayed from the National Treasury’s vote, provided that the National Treasury is of the view that the

auditee has financial difficulty to settle the cost. This excludes national and provincial departments.

N1 – Amount allocated and not yet paid by National Treasury to AGSA

Proposals to unlock old debt, manage future debt and

improve collections

Old debt: Accumulated debt up to 31 March 2016

• Write-off accumulated interest of R30 million

• Offer settlement discounts with the oldest debt given higher discounts

Future debt: Debt from 1 April 2016 onwards

• Set audit fee for small entities such as museums, trusts, boards etc.

• Municipalities that are classified as low capacity & low revenue entities to be

audited at a nominal/ affordable fee.

• With the proposal mentioned above, National Treasury should honour to pay for

the 1% auditees in line with Public Audit Act.

How to get in touch with the AGSA

Follow the AGSA on Twitter: https://twitter.com/AuditorGen_SA

www.agsa.co.za

Auditor-General of South Africa

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