Presentation to MPAC

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Nov 10, 2013 (3 years and 11 months ago)

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Presentation to MPAC


Our collective contribution to clean administration

12 MAY 2011




Presented by : PRAKASH NARISMULU

AUDIT RESEARCH & DEVELOPMENT

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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.

EFFECTIVE OVERSIGHT

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Oversight

4

Oversight Body

Vote

Strategic
Planning

Budgeting

Implementation

Reporting


Institution

Department

Public
Entity

Municipality

Municipal entity


Alignment to the
budget

Review

Setting
Targets &
Resource
Allocations

Monitoring
and reviews
of reports &
budgets

Effective Accountability means Effective Oversight

EFFECTIVE
ACCOUNTABILITY
EFFECTIVE OVERSIGHT
What does effective
oversight require?
SCRUTINY

Executive under obligation
to account for its actions and decisions

Parliament has to actively use powers
to make executive account

Information flow from executive to Parliament
CONTROL/ACTION

Parliament needs to impose sanctions on the Executive if
dissatisfied: De Jure and De Facto consequences
Effective oversight also equals not straying into executive’s terrain,
thereby compromising parliament’s ability to hold to account

Formal powers of Parliament only
provide for oversight potential, not
effective oversight


Effective oversight and effective
accountability closely linked


Care to observe separation of
powers


Formal powers and how
they are used


Consequences


De Jure


De Facto


Different oversight
mechanisms

Oversight’s Contribution to Clean Administration



Oversight of the:



Strategic Planning process


Budgeting Process


Implementation of the strategic plan and budget


Effective in
-
year and year
-
end reporting




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Strategic Planning


Is the strategic plan in line with the legislative requirements/
objectives?


Ensure that the strategic plan and strategic initiatives are aligned
with the government priorities, national plan of action, Cabinet
Legotla and Medium Term Expenditure Framework (MTEF)


Enquire / identify


The challenges in meeting the strategic objectives,


the initiatives to address them and


evaluate how success will be measured.



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Budgeting


Budget Preparation



Is the budget aligned to the strategic plan ?


Have adequate resources been allocated to the priority
areas?


Are there budget constraints and how have they been dealt
with?


Focus on changes in the budget from one year to the other



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Implementation / Monitoring


Effective continuous monitoring


Is spending on the right track and in line with strategic plan
priorities?


Is there evaluation of monthly and quarterly reports


Developed action plans to address audit findings and
improve financial management and accountability


Designed, implemented and maintained internal
controls(relevant to financial and non
-
financial information)


Identify, prevent and detect fraud.


Are there adequate governance arrangements in place and
are they effective (internal audit and audit committee)




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Reporting


Oversight on Reporting



Keeping management accountable and determining whether :


Complying with responsibilities as set out in the MFMA


There was compliance with Council’s Appropriation


Resources were utilised effectively and efficiently


Review the annual report of the municipality / entity including
the audit report and consider both the financial and non
-
financial information presented.


Regularly attending audit steering committee meetings





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THE AUDIT PROCESS

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Mandate and Standards

Regularity


Constitutional
Mandate S188



S4 & 20 of PAA



S4(3) may opt not to
perform certain
public entities listed
in PFMA.



Full application of
ISAs



Supplemented by
public sector
perspectives based
on ISSAIs

Performance



S4 & 20 PAA



Full application of
ISAs and ISSAIs

Investigations


S5 of PAA



Based on ISA
principles



Own documented
standards and
methodology

Special



S4 of PAA



Full application
Of ISA’s after
consideration of
decisions to
accept in own
guidance

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Different Types of Audits Conducted


Mandatory Annual Audits


Regularity Audit


Report on the Financial Statements


Report on other and legal and regularity requirements


Findings on the report of Predetermined Objectives


Findings on Compliance with Laws and Regulations


Status of Internal Control pertaining to the above.




Discretionary Audits


Investigations


Report on Factual findings with regards to Financial misconduct, maladministration
and impropriety. Based on allegations or matters of public interest


Special Audits


Report on Factual findings e.g. donor funding certificates for legislative compliance.


Performance Audits (Including Environmental Audits )


Economic, Efficient & Effective Utilization of scarce resources


Effect of policy implementation , excluding policy evaluation


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The Regularity Audit Process

Engagement Activities


Engagement Risk Assessment


Determine Skills &
Competence of audit team


Establish terms of Engagement

Planning


Risk assessment at:


Overall FS level


Detailed Accounts and
Transaction Level

Perform the Audit


Design audit procedures to
address risk identified in
planning


Perform planned procedures

Evaluate, Conclude and
Reporting


Evaluate all evidence obtained


Communication Findings


Prepare Management Report


Prepare Auditor’s Report

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Audit of the Financial Statements


Required in terms of the Constitution and the Public Audit Act



The auditor forms an opinion on whether the financial statements are
prepared in all material aspects in accordance with the applicable financial
reporting framework.

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Audit of pre
-
determined objectives


Required in terms of Sections 4, 20 and 28 of the Public Audit Act



Findings on whether reported performance information is valid, accurate
and complete. Whether a performance management process exist with
proper controls to enable relevant and useful reporting on and oversight of
service delivery



Audit conclusion included in the management report of an entity on the
usefulness and reliability of reported information relating to the
performance of the entity against predetermined objectives


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Audit of Predetermined Objectives



Individual audits



Focused on a specific government
policy or management process



Audit criteria are the 3E’s:



Economy



Efficiency



Effectiveness



Done by subject matter experts



Part of Regularity Auditing




Focused on non
-
financial information in
Annual Report




Audit criteria:



Compliance (has this happened),
as part of regularity audit process



Quality of PI (as per audit criteria)





Done by audit professionals

Performance Auditing

Difference between Audit of Predetermined
Objectives and
Performance
A
uditing

Performance Information (PI)

= Non
-
Financial Information about the Service Delivery of Government

Compliance with Laws and Regulations



Reporting is limited to key legislation e.g.


Municipal Finance Management Act (MFMA),


Related Legislation ( e.g. MSA, MSA )


Division of Revenue Act (DoRA)


Companies Act 2008


Specific enabling legislation




Material instances of non
-
compliance are reported per category.




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Internal Control


Status of Internal control relevant to the audit of the financial statements,
predetermined objectives and compliance with laws and regulations are
reported under the three fundamentals of effective internal control.



Leadership


Financial and Performance Management


Governance


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Internal Control (cont.)

Leadership



Tone at the top creating an environment favorable to good financial
management and service delivery



Identify key controls aimed at achieving the organization's objectives



Assessing skills / competencies of finance staff, ensuring the right staff
mix and managing consultants to ensure effective skills transfer


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Internal Control (cont.)


Financial and Performance Management



Monthly financial statements and quarterly performance reports, plus
continuous monitoring of both



Implementation of sound financial and performance management
systems



Proper controls over documentation to ensure that they are easily
retrievable



Operating basic internal controls for an efficient financial and
performance management environment

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Internal Control (cont.)

Governance



Adequately resourced and effectively functioning internal audit and
audit committee



Maintenance of effective risk management strategies, including fraud
prevention plans

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Format of the Audit report


Report on the Financial Statements


Opinion paragraph



Report on other legal and regulatory requirements


Findings on the report on predetermined objectives


Findings on compliance with applicable laws and regulations



Status of Internal control


Leadership


Financial and performance management


Governance



Information on other audits conducted


Investigations


Agreed upon procedures


Performance audits



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The Different Audit Opinions

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Unmodified


The financial statements present fairly in all material respects.


Qualified (except for)


The auditor concludes that , except for specifically listed material
misstatements, the financial statements remain a fair reflection.


Adverse


The auditor disagrees with the representation made by management in the
financial statements to the extent of confirming that it is not a fair reflection
of the financial position, financial performance and cash flows.


Disclaimer


Where there is a lack of sufficient appropriate audit evidence to the extent
that the auditor is
not able

to form an opinion on the financial statements
as a whole

Emphasis of Matter and Additional Matter Paragraphs


If its considers necessary to include additional communication in the
auditors report that
does not have an effect on the auditors opinion
,
the following would be used:



An
emphasis of matter
paragraph only to draw user’s attention to a
matter presented or disclosed in the financial statements that is of
such importance that its is fundamental to their understanding of the
financial statements



An
other matter/ Additional Matters
paragraph: to draw users
attention to any matter other than those presented or disclosed in the
financial statements that is relevant to users understanding of the
audit, the auditor’s responsibilities or the auditor’s report

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CLEAN ADMINISTRATION?

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MFMA audit outcomes 2009
-
10

Movement in audit outcomes over 2008
-
09 financial year


Municipalities

Improvement
Unchanged
Regressed
Total reported on
Prior year opinion on
audit outstanding 2009-
10
Disclaimer / Adverse
60
33
Qualified
50
5
Financially unqualified
with findings*
120
7
Financially unqualified
with no findings*
7
1
Total
57
164
16
237
46
51
9
26
6
26
93
18
1
5
2
* Findings on predetermined objectives and compliance with laws and regulations

MFMA audit outcomes 2009
-
10

Movement in audit outcomes over 2008
-
09 financial year


Municipal entities

Improvement
Unchanged
Regressed
New municipal
entities
Total reported on
Prior year opinion
on audit
outstanding 2009-
10
Disclaimer / Adverse
5
1
Qualified
1
5
Financially unqualified
with findings*
2
29
3
Financially unqualified
with no findings*
10
Total
12
32
2
3
49
4 + 1
outstanding
since 2004-05
= 5
4
1
1
1
25
3
1
10
0
Clean Administration



Auditor’s Report with
no:



Qualification on the financial statements


Findings on Predetermined objectives


Findings on Compliance with Laws and Regulations


Internal Control deficiencies



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AGSA contribution to Clean Administration


Simplicity, Clarity and Relevance of Messages



Identifying stakeholder needs and expectations of AGSA reports


Ensuring AGSA reports are written in simple, plain, non
-
technical
language that the target audience will understand


Contextualizing audit messages to enhance understanding



Visibility of the Leadership



Ensuring efficiency and effectiveness of Stakeholder interactions


Developing required leadership competencies through mentoring,
coaching and leadership programs and processes for effectively
managing change


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Questions?


Thank you!

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