PERFORMANCEpmg-assets.s3-website-eu-west-1.amazonaws.com/191011AGSA...2 Performance briefing •...

PERFORMANCE

2018-19

BRIEFING

SAI SA

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

Performance briefing • 2018-192

VALUE-ADDING AUDITS

AUDITS CONDUCTED BY THE AGSA INCREASE

• In 2018-19 we conducted 23% more audits than

in 2012-13. The audit business units continued to

absorb the increase

• Financial and going concern matters remained

a challenge at most of our auditees and,

specifically, for a number of strategic SOEs

• Audit outcomes for departments, public entities

and municipalities regressed


Increase in total number of audits

TIMELINESS OF AUDITS DECREASES

• Completion rate remains below 90%

• Reports signed off late over the past 2 PFMA

cycles

• General report team forced to move deadlines to

include the results for major departments and

SOEs in the report

• A number of audits did not meet the deadline for

the 2017-18 MFMA audit cycle

• The MFMA audits that were finalised on time

placed excessive pressure on staff, who worked

excessive overtime

Timelines of audits


• 904 (2017-18: 820) audits were completed

within the legislated time frame

SUMMARY OF AUDITS TAKEN BACK

2013-14

SOEs audited for the first time6

13

2018-19

of 21 schedule 2 entities

audited by us

Currently, we audit the TCTA,

with Transnet in the pipeline

KPMG / Nkonki

audits taken back5


S4(3) AUDITS AND GOVERNANCE AND DELIBERATION ON THE AUDITS TAKEN BACK

• For audits not conducted by the AGSA, we implement enhanced oversight initiatives

• Arising from our analysis of the value chains in the water services sector and associated audit

risks, we decided to take over the audit of TCTA, starting from the 2018-19 financial year

• In the previous year, we seconded staff to the audit to facilitate an understanding of the

auditee

• A similar approach was adopted with the Transnet audit to enable skills and knowledge

transfer, which will assist with the audit in the future


- an overall understanding of our auditee’s spending- an analysis of payment and other data that identified potential areas of fraud risks

- increased efficiency of auditing by focusing the audit sample selection on high- risk expenditure and SCM processes

SPECIALISED AUDIT SERVICES

Overall value

Impact


Investigations

SPECIALISED AUDIT SERVICES (continued)


- assurance on the security, reliability and availability of IT systems and data so regularity auditors can rely on IT controls

- extended the size of our audit sample- strengthened the quality of our audit opinion

Overall value

Impact

Information systems audit



- holistic evaluation of projects/programmes

- understanding of areas of performance over and above financial performance

- deeper understanding of reasons for poor performance: project planning, economical procurement, efficiency and effectiveness

Overall value

Impact

Performance audit



- focus on service delivery and areas not part of the traditional audits of financialstatements, compliance and AoPO

- actors that have an impact on service delivery are elevated to accounting officers and those charged with governance

- our messages/insights assisted government to take action in the maintenance and repairs of medical equipment, distribution of stock to healthcare facilities and the progression of pupils with disabilities through the school system taken seriously

Overall value

Impact

Stand-alone audits

1

3

AUDIT METHODOLOGY IMPACT ON AUDITS

Implementing the audit methodology allowed our audit teams to:

Enhance knowledge of the auditee

Focus on what matters

Apply a

consistent risk

approach: risk

assessment and

response options

enhancing

efficiencies

Phase in the value chain approach

Integrate information systems audit into audit processes

Increase the use of fraud experts


INTEGRATED VALUE CHAIN APPLICATION AND OUTCOMES

• Successfully applied on health, education and water infrastructure at metros

• Water infrastructure development by the Department of Water and Sanitation

• Expanded public works programme coordinated by the Department of Public Works

• Housing development finance by the Department of Human Settlements

All programmes performed inadequately due to these basic failures

Poor project

planning

Poor project and

financial management

No corrective action

to address project

failures and

SCM irregularities

Poor project

and grant monitoring


AUDIT CONTESTATIONS: 2017-18 vs 2018-19

The contestations related mainly to the:

• potential regression of audit outcomes

• disagreements or rejection of audit findings or technical consultations

• expectations of a clean audit not materialising

• recurrence of the previous year’s qualifications

40

16

55

33

PFMA

MFMA

2018-19 2017-18


Audit contestations

AUDIT QUALITY ASSESSMENTS AGSA audit quality improvement plan

Capacitate the Quality Control BU

Coaching and review support for new, acting and

non-complying SMs

Strengthen pre-issuance capacity

Greater accountability from contracted audit firms

Capacitate audit teams

Detailed root cause analysis

72%83% 87% 78% 84%

0%

20%

40%

60%

80%

100%

F18-19 F17-18 F16-17 F15-16 F14-15

All 16 PAA phase 1 provincial and national audits have

been selected for pro-active reviewsNB: Both internal and external factors contributed to the

QC results


Audit quality assessments

72%vs target 80 - 90%

59auditfiles

Capacitate the Audit Research and Development BU

The effort allowed the organisation to implement the selected aspects of the MI definition during the

2018-19 PFMA audits at 16 identified auditees

Preparing the environment for implementing our enhanced mandate:


Engaged specifically

with public bodies

that are relevant to

implementing our

powers

Assessed the

criteria to

opt in or out

of audits

Created training

content and

trained all selected

audit teams and

specialists

Crafted and

approved

required

policies

Developed

and published

PAA

regulations

PUBLIC AUDIT ACT AMENDMENTS

VISIBILITY FOR IMPACT

FOCUSED ENGAGEMENTS

• focused on creating understanding around the audit

outcomes and securing commitmentsPortfolio committees

• centered on the role of the AGSA in assisting them to

promote clean audit outcomes and to lead by example

Coordinating ministries

• Engaged on the MFMA and PFMA audit outcomes and

used the opportunity to co-create solutions to the

challenges facing the public sector

APAC

• Escalating audit matters, tracking internal controls and

audit action plans

• Sharing audit outcomes and SoRR insights

• Introducing the PAA amendments

Accounting officers

We continued to use our provincial engagements to continually seek feedback on the services

we provide and respond to areas of development



ENHANCED OVERSIGHT

The APAC

capacity-building

sessions dealt with

integrated

outcomes of sector

reports, IFWE as a

result of SCM

The House

chairperson used

our insight and

made commitments

geared towards

improving audit

outcomes

APAC made

commitments - tracking

and monitoring

auditees’s

implementation of

AGSA

recommendations will

be done throughout

the year

Scopa used our

messages to

elevate key

governance

issues identified

in the

departments

and entities


REGULATORS AND STANDARD-SETTERS

Developing new accounting standards, resolving interpretations of the

existing standards and revising the standards e.g. the interpretation of

the Modified Cash Standard

OAG & ASB

Identifying procurement risks, dealing with contestations and resolving

matters arising from audits e.g. the risk and contestations on the

procurement of goods under contracts secured by other state organs

OCPO

Implementing our audit methodology, revising the guide on public

sector auditing, providing our perspective on the revision of SAAPS

and dealing with emerging audit matters in the public sectorIRBA

Encouraged and supported their development of guidance,

training and support to public sector IAs and ACs PSACF


By 31 March 2019 our audit teams successfully implemented the status-of-records reviews

at 666 of 671 eligible auditees (99% implementation rate)

STATUS-OF-RECORDS REVIEW

Achievements Challenges Mitigations

Increased accounting officers’ and authorities’ accountability and

empowered,influenced and enabled them to act

Timing of SoRR does not afford auditees time to make corrections

Ensure adequate timing between performing the review and time required for corrective action

Increased engagement levelsSoliciting written commitments from

accounting officers/authoritiesProactively engage auditee on

commitments

Promoted enhanced, relevant and insightful engagements

Auditees who have clean audits not seeing value in the programme

Continuous engagement to demonstrate value in safeguarding

against vulnerable areas of risk

Served its purpose as early warning indicator/mechanism

Availability of accounting officersUse other methods to communicate

and escalate results

• Our PFMA and MFMA briefings continued to receive widespread

coverage on national and provincial media platforms

• In provincial media briefings, the business executives informed the

regional/local/community journalists on the audit outcomes

• Developed & disseminated a citizens’ report, which is a simple summary of

the 2017-18 PFMA general report

• The use of #AGReport allowed us to increase the number of people seeing

our MFMA and PFMA messages

• AG was interviewed on the PAA by major media agencies

• Rolled out a campaign (#PAAEvolution)


CITIZEN ENGAGEMENTS


THOUGHT LEADERSHIP

Academic institutions

• University of Witwatersrand

• University of Cape Town

• Tshwane University of Technology

Professional association/bodies

• SA Institute of Chartered Accountants

• Institute of Internal Auditors

• Integrated Reporting Council of SA

• African Women Chartered Accountants

Banking Sector

• RMB breakfast session

• RMB Morgan Stanley investor conference

• Banking Association of South Africa Summit

Human rights associations

• The Dullah Omar Institute for Constitutional

Law, Governance and Human Rights

participation

• The launch of Ibrahim Index of African

Governance 2018

• Institute of Justice and Reconciliation

Awards


THOUGHT LEADERSHIP (continued)

Publications

• African Women Chartered Accountants

Passion magazine, Saica Accountancy SA,

• Saiga’s online newsletter and journal, and

• Association of Chartered Certified

Accountants publication

Thought leadership on internal controls

with accounting officers and CFOs

• Shared knowledge and insight on internal controls

through the Audit thought leader magazine

• shared internal control matters:

Public Sector Manager (PSM) magazine, Cigfaro

journal and Salga’s Accountability magazine

• Started face-to-face round-table discussions to

share and equip CFOs and accounting officers

with relevant knowledge on internal control

• Met with municipal managers of NC, Limpopo and

WC

• Our international visibility continued to be excellent and the CBC work streams

achieved their targets for the period

• Two of our SMs completed an extensive young leaders’ programme under the

auspices of the Intosai Development Initiative

• We provided continual support to Afrosai-e

• 23 of our middle and senior managers attended various Afrosai-e training

initiatives

• Assisted SAI Namibia to develop its own ISA function

• Delegations from Uganda, Namibia, Rwanda, Malawi and Kenya benefitted

from our experience


INTERNATIONAL THOUGHT LEADERSHIP

VIABILITY

• Recruited: 862 employees, with 60% of non-TA appointments being internal candidates

264

598

Total

appointments

Internal appontments

External appointments

30

14

Leadership

appointments

Internal

External

179

419

External

appointments

Non-trainee auditors

Trainee auditors

179

264

External

appointments

Internal appointments

External appointmens

(less TAs)


EMPLOYEE RECRUITMENT

• High level of audit professionalisation:

1 227 audit professionals (35%) and 948 non-audit employees with tertiary education (27%)

• CA membership: grown by 25% since 2015

• High retention levels of professionals who qualify as CA(SA)

Year CA (SA) RGA ACCA CISA Total

2019 633 467 42 85 1 227

2018 622 436 45 81 1 184

2017 619 464 39 76 1 198

2016 548 358 34 64 1 004

2015 547 345 27 61 980


NUMBER OF AUDIT PROFESSIONALS INCREASES

• CAs since its inception: 1 009

• Learnership contracts: 1 344

• African females: 53%

• 2019 recruited CTA-qualified TAs: 56%

• AGSA 15 Training offices accredited

by Saica

TA scheme

235(56% of the

recruited

TAs)

217(58% of the

recruited

TAs)107

(29% of the

recruited

TAs) 17(4% of the

recruited

TAs)

2019 2018 2017 2016

Recruitment CTA-qualified trainees


TRAINEE AIDITOR SCHEME OVERVIEW


TRAINEE AIDITOR SCHEME JOURNEY

• ITC exam written: 398 candidates (193) successful

• APC exam taken: 273 candidates and 111 were successful

398340

218

120

2019 2018 2017 2016

ITC candidates

2019 2018 2017 2016 273

224

8446

2019 2018 2017 2016

APC candidates


AGSA SAICA EXAM OUTCOMES

TA pipeline

TRAINEE AUDITOR PIPELINE


Academic

trainees appointed

20Thuthuka

sponsored students

230Thuthuka

investment

R16 millionThuthuka CTA

students placements

64

Of the 32 Centenary Scholarship Fund beneficiaries,

External

bursary scheme

131 students

18 students have

been absorbed

into our trainee

auditor scheme

6 students are

currently being

placed in the

organisation

4 students have been

released due to illness

or breach of contract

• All executives participated in the leadership assessment (LADC) programme

• The launch of the following programmes was a highlight in our leadership development journey:

• Executive development programme (EDP) in partnership with UCT School of Business

• Leadership development programme (LDP) in partnership with Enterprise University of Pretoria

• Auditor development programme (ADP) in partnership with the

Independent Regulatory Board for Auditors (IRBA)

• We support our trainees with extensive backing that includes

dedicated study leave and structured study programmes

These programmes have greatly enhanced our employee value proposition (EVP)


LEADERSHIP DEVELOPMENT PROGRAMME

• We provided training programmes geared towards the technical and behavioural skills

necessary to respond to the current environment, which included audit methodology

training and reporting framework training

• Our average training hours were 21,3 hours (2017-18: 8,31)

• The PAA 5-day training programme is integrated training that includes technical and

behavioural skills training. The amended PAA is being phased-in at selected audits

• Specific training interventions aimed at capacitating teams auditing

S4(3) auditees were introduced to equip and empower our audit teams with

adequate skills and knowledge transfer


TECHNICAL TRAINING

• We unpacked the underlying factors that can create an adaptive, enabling and constructive culture

•

• The process allowed employees to co-create actionable interventions for implementation in 2019-20

•

• The culture plan key themes:

• leadership effectiveness

• trust, courage and fear

• leadership alignment/engagement

• The EWP usage rate was 29,6% compared to the industry benchmark of 16%,

particularly in the group trauma interventions (GTI) scheme


ORGANISATIONAL CULTURE

• Enhancements to improve and streamline business processes by automating

controls on PeopleSoft

• Implemented the security information and event management (SIEM) solution,

which alerts management and the ICT staff of the risk exposure in specific areas

within the ICT environment

• Continued to optimise our audit software TeamMate R11


SYSTEMS AND TOOLS

VISION AND VALUES DRIVEN

Achieved level 1 B-BBEE contributor status for the first time in our history

BU B-BBEE level

Year Level 1 Level 2

2018-19 6 22

2017-18 6 16

2016-17 0 18

2015-16 0 10

2010-11: Level 3

2014-15: Level 2

2018-19: Level 1


OUR CONTRIBUTION TO TRANSFORMATION

• Three enterprise to supplier

development (ESD) firms merged with

two firms to form a medium-size firm

• ESD firms created 160 jobs in 2018-19

• 6 of 27 ESD beneficiaries graduated

• Four firms opened new branches

• Supported 16 schools including rural,

special needs and semi-urban schools


OUR CONTRIBUTION TO TRANSFORMATION

595 575

0

200

400

600

800

2018-19 2017-18

Total CWC

333 320

0

100

200

300

400

2018-19 2017-18

51% black-owned firms

107 109

0

50

100

150

2018-19 2017-18

30% black women-

owned firms506

402

0

200

400

600

2018-19 2017-18

Levels 1&2

Expenditure in millions

• Further revised the ethics policy

• Enhanced the cooling-off period provision

• Held ethics conversations throughout the AGSA

• Internally implemented the whistle-blowing mechanism

• Either revised policies affected by the amended PAA or

developed new policies to ensure an updated

compliance environment


ETHICS MANAGEMENT

33

4

Complaints

Resolved In progress

• Our control environment remains relatively healthy

• The ICT controls remain an area for improvement. The following key interventions

address this challenge:

• On-board a service provider to assist us improve our information security

capabilities

• Enhance information technology processes (policies and procedures)

• Institutionalise a demand management process to match information

technology development capacity (including resources) with business needs

• These interventions will enable us to improve our findings closure rate of 78%


RISK MANAGEMENT

VIABILITY - AFS

10

FINANCIAL PERFORMANCE HIGHLIGHTS: 2018-19


… emerging from a financial year with a lot of economic challenges and a tough trading

environment, the organisation remains financially viable ...

achieved audit income targets, despite losing R111 million revenue to unbilled hours.

R69 million (2018: R72 million) was the AGSA contribution to the fiscus because of

budgetary constraints at auditees

healthy surplus of R71 million which is 2,1% of audit income and within the

AGSA funding model target of 1%~ 4%

These results were achieved through:

• staff pooling between national and provincial business units, resulting in an

additional R101 million in own hours’ income

• audit methodology programme that brought efficiencies and reduced

unbilled hours

• audit teams achieving better productivity rates (own hours’ revenue)

• TeamMate optimisation, which enabled management to track and report on the

progress of each audit project resulting in the audit process efficiencies

FINANCIAL PERFORMANCE HIGHLIGHTS: 2018-19 (continued)


11



Negotiated a R50 million debt settlement with National Treasury, over and above

the appropriation of R48 million to liquidate some of the old debt for financially

distressed debtors and 1% debtors

The cost-conscious culture embedded in our employees over the years

continues to have a positive impact on the AGSA. This is evident in savings on

operational expenses, including:

• using internal resources instead of outsourced services

• optimisation and improved recovery of skills development levy


The president’s assent to the Public Audit Excess Fee Act, 2019 is another step closer

to funding excess fees of financially distressed auditees as a direct charge against

the National Revenue Fund. We will be able to charge the NRF from 1 April 2020 as

proclaimed by the Minister of Finance.

Favourable cash balance of R723 million (2018: R664 million), including

short-term investments, with a margin of safety of 2,7 months. This is close to

the AGSA target of 3 months, the highest since this measure was introduced


12

Income statement2018-19 2017-18

R million R million

Revenue 3 464 3 247

Direct audit cost (2 190) (2 063)

Gross profit 1 274 1 184

Other income 1 1

Contribution to overheads 1 275 1 185

Overheads (1 266) (1 186)

Operating surplus/(deficit) 9 (1)

Net interest income 53 61

Surplus 62 60

Actuarial gains - retirement benefit obligations

9 7

Comprehensive surplus 71 67

Surplus % of revenue 2,1% 2,1%

Optimisation included (summary):

• staff pooling

• the revised audit methodology

• reduce the cost of doing business (overhead

expenditure) through cost control and expenditure

rationalisation

The benefits included:

• revenue increase of 6,7%

• continuous rise in own hours income to 83% in 2018-19

• reduction in outsourced work to 17% of audit income

• total actual overheads of R1 266 million (budget was R1

302 million), including the R4 million to support the

amended PAA and the R42 million adjustment for the

IFRS 9 provision for doubtful debtors

INCOME AND EXPENDITURE


According to section 38(4), the AGSA can retain a surplus after consultation

with the National Treasury and with Scoag’s approval. In line with the section’s

requirements, the AGSA consulted with the National Treasury in August 2019

The AGSA therefore requests Scoag’s approval to retain the 2018-19 surplus of

R71 million to fund some of our strategic projects. These priorities include:

• People programmes aimed at closing gaps on special and critical skills, and

improving staff’s culture and engagement levels

• Funding legal and specialist fees, and intensively training our staff on the

amended PAA. This includes opportunity costs that will arise from training our

teams

• Procuring new accommodation for our head office. Our current lease

expires on 28 February 2021. An estimated R57 million will be required for

tenant installation. This cost is required to renovate the new building and

align it to the AGSA’s values and branding

R71

R67

2018-19 2017-18

Surplus

2018-19 2017-18

RETENTION OF SURPLUS 2018-19


OVERSIGHT DISCUSSION

End

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