Presentation: Audit of Predetermined Objectives
Portfolio Committee of the Department of Human Settlements
27 March 2013
Reputation promise/mission
The Auditor-General of South Africa has a constitutional mandate
and, as the Supreme Audit Institution (SAI) of South Africa, it
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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Agenda
1. Audit of Predetermined Objectives and Service Delivery
2. Conclusion
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AUDIT OF
PREDETERMINED
OBJECTIVES
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Audit of Predetermined Objectives
OVERSIGHT:
Parliament, provincial legislature or municipal council
Policy
development
•
Assess and adjust
Identify desired impacts
Strategic
Planning
INSTITUTION
End-year
reporting
Monitor
and take corrective
action
5
National department
Provincial department
Municipality
Public entity
Municipal entity
Implementation
and in-year
reporting
Specify
performance
indicators
Operational
planning and
budgeting
Set targets
and allocate
resources
Audit of Predetermined Objectives
Legislative Requirements
AGSA
Constitution
Chapter 9
Section 188 –
must audit
and report on
accounts,
financial
statements
and financial
management
of government
institutions
6
Public Audit
Act
(No. 25 of 2004)
Section 20 –
AGSA must
prepare audit
report containing
opinion/
conclusion on:
- Financial
statements
and financial
position
- Compliance
and financial
management
- Predetermined
objectives
(performance)
Departments
Public Finance
Management
Act
(No. 1 of 1999)
Section 38(1)(a)(i)
– has and
maintains
effective, efficient
and transparent
systems of
financial and risk
management and
internal control.
Treasury
Regulations
Chapter 5 Strategic
Planning
Guidelines,
Instruction
Notes,
Practice
Notes, issued
by National
Treasury
Public
Service
Regulations
(PSR)
Part III B:
(Only
applicable to
departments)
Regulations
1(a)-(f),(g)
Section 40(3)(a) annual
performance
report
Available on Treasury website www.treasury.gov.za/legislation/pfma/circulars
Also refer to AG Directive General Notice 34783 of 2011 issued 28 November 2011
FMPPI
Framework
for
managing
programme
performance
information
(issued by
the National
Treasury in
May 2007)
Chapter 5
&
Framework
for Strategic
Plans and
Annual
Performance
Plans par.
4&6
Audit of Predetermined Objectives
Definition:
Annual audit of reported actual performance against predetermined objectives,
indicators and targets as contained in the annual performance report of
municipalities and their entities.
Audit consists of the following Main Criteria:
Compliance
with regulatory
requirements
E
x
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s
t
e
n
c
e
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T
i
m
e
l
i
n
e
s
s
Reliability
Usefulness
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Audit of Predetermined Objectives
Performance Indicators
Suitable indicators need to be specified to measure performance in relation to inputs, activities,
outputs, outcomes and impacts. Indicators must measure things that are useful from a management
and accountability perspective.
Reliable
•The indicator should be accurate enough for its intended use and respond to changes in
level of performance
Well-defined
• The indicator should have clear, unambiguous definition so that data will be collected
consistently, and be easy to understand and use
Verifiable
• It must be possible to validate the processes and systems that produce the indicator
Cost-effective
• The usefulness of the indicator must justify the cost of collecting the data
Appropriate
• Must avoid unintended consequences and encourage service delivery improvements,
and not give managers incentive to carry out activities simply to meet a particular target
Relevant
• Must relate logically and directly to an aspect of the institution’s mandate and the
realisation of strategic goals and objectives.
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Audit of Predetermined Objectives
Performance Targets
Once a set of suitable indicators has been identified for a programme or project, the level of performance
the institution and its employees will strive to achieve this must be specified. Suitable performance
targets relative to current baselines are specified.
Specific
Measurable
Achievable
Relevant
The nature and
required level of
performance can
be clearly
identified
The required
performance can
be measured
The target is
realistic given
existing capacity
The required
performance is
linked to the
achievement of a
goal
S
M
A
9
R
Timebound
The time period or
deadline for
delivery is
specified
T
Audit of Predetermined Objectives
AGSA Audit process
1. Understand
• Understand and test the design and implementation of the performance
management systems, processes, and relevant controls
2. Test
Usefulness
• Test the measurability, relevance, presentation & consistency of
planned and reported performance information
3. Conclude
Usefulness
• Conclude on the usefulness of the report on predetermined
development priorities or objectives
4. Test
Reliability
• Test the reported performance information to relevant source
documentation to verify the validity, accuracy & completeness of
reported performance information
5. Conclude
Reliability
• Conclude on the reliability of the reported performance for selected
development priorities or objectives
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Audit of Predetermined Objectives
Audit Outcomes of 2011/12 on AoPO
Compliance
Usefulness
with regulatory
requirements
Reliability
NDHS
NHBRC
E
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Additional Matter paragraph included in audit report: >20% of targets not achieved for both entities.
No matters reported
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Reported in audit report
Audit of Predetermined Objectives
Inadequate
Systems and
processes
Root
Causes
Lack of
understand
ing of the
principles
of FMPPI
Lack of monitoring
and oversight over
PDO processes
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Audit of Predetermined Objectives
Accountability
Alignment of
Performance
to
Strategic
Plans
Achievement of targets
Improved service
delivery
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AoPO: Combined assurance
Management assurance
First level of assurance
Senior
management
Accounting
officers/
authority
Executive
authority
Required assurance levels
Extensive
Extensive
Extensive
Oversight assurance
Second level of assurance
Coordinating /
Monitoring
institutions
Internal
audit
Audit
committee
Required assurance levels
Extensive
Extensive
Extensive
Management’s assurance role Oversight’s assurance role
Independent assurance
Third level of assurance
Oversight
(portfolio
committees /
councils)
Public
accounts
committee
External
audit
Required assurance levels
Extensive
Extensive
Extensive
Role of independent assurance
• Senior management – take
• National Treasury/ DPSA – monitor • Oversight (portfolio committees
immediate action to address
compliance with laws and
/councils) – review strategic and
specific recommendations and
regulations and enforce appropriate
performance plans as well as the
adhere to financial management
action
accounting officer’s quarterly
and control systems
• Internal audit – follow up on
reports on performance
• Accounting officers/ authority –
management’s actions to address
• Public accounts committee –
hold officials accountable
specific recommendations and
exercise specific oversight on a
implementation of plan and report
conduct own audits on the Strategic
regular basis
quarterly and annually progress
Plans & APP and quarterly progress • External audit – provide
• Executive authority – monitor the • Audit committee – monitor the
independent assurance on the
progress of performance and
implementation of commitments on
usefulness of plans and the
enforce accountability and
corrective action made by
reliability and credibility of reported
consequences
management as well as quarterly
performance information and
progress on the plans
identify instances non-compliance
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Audit of Predetermined Objectives
Why was this necessary?
Public sector reforms
Improving public reporting
Providing better information
on what taxpayers are
getting for their taxes
If you do not measure results,
you cannot tell success from failure
If you cannot see success,
you can not reward it
If you cannot reward success,
you are probably rewarding failure
If you cannot see success,
you can not learn from and improve on it
If you cannot recognize failure,
you cannot correct it
If you cannot demonstrate results,
you cannot win public support (Service Delivery !!!)
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Adapted from Osborne and Gaebler, 1992, Reinventing Government
Audit of Predetermined Objectives
Audit of Predetermined Objectives vs. Performance audit
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AoPO
Performance Audit
Mandatory audit (section 20(2)(c) of the PAA)
Includes compliance with laws and regulations
Discretionary audit (section 20(3) of the PAA)
Includes compliance with laws and regulations
Reflects an opinion or conclusion on
performance information
Reporting is factual and does not include an
audit opinion
Reporting is done annually as part of the
regularity audit process
Report is not limited to annual information and
can cover more than one financial year
Done as part of the regularity audit process and
by the regularity auditor
Done by performance auditors and may include
subject matter experts
Reviews and confirms the validity and
completeness of information
Evaluates the 3 E’s at organisational,
programme or project level
Reporting at entity level and tabled in the
relevant legislature
Reporting at entity level and tabled in the
relevant legislature
Annual assurance on the credibility of an
auditee’s reporting of their performance
Factual report : whether goods & services acquired
economically, applied efficiently and managed effectively
towards achieving the desired goals
Conclusion
Focus Areas
• The above
assessment
indicates that
there are still
matters noted on
the usefulness of
the Strategic
plans and work to
be done on the
movement
towards clean
administration and
reporting on
service delivery
Overall
assessment
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• Focus on ensuring that the
Strategic Plans conform to
the National Treasury
“SMART” criteria: Specific;
Measurable; Attainable;
Relevant; and Time bound
• Also focus on:
• Supply Chain Management
• HR Management
• IT Control
• Material amendments to
AFS
• Departments must ensure
that 2013/14 Strategic Plans
are updated with findings
reported
• Adequate preparation of
complete Monthly AFS with
full disclosure notes
• Preparation of Monthly Key
Controls by entities
• Focussed Quarterly key
controls assessments and
discussions (Ministers)
• Action against transgressors
(consequence
management)
• Timely implementation of
action plans
Way forward