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.

Agenda Audit of Predetermined Objectives and Service Delivery Conclusion

AUDIT OF PREDETERMINED OBJECTIVES

Audit of Predetermined Objectives OVERSIGHT: Parliament, provincial legislature or municipal council Identify desired impacts Assess and adjust Specify performance indicators Monitor Set targets and take corrective and allocate action resources Policy development Strategic Planning INSTITUTION National department Provincial department Municipality Public entity Municipal entity Operational planning and budgeting End-year reporting Implementation and in-year reporting

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 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. Section 40(3)(a) - annual performance report 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) 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 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

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 Existence Timeliness Usefulness Presentation Measurability Relevance Consistency Reliability Validity Accuracy Completeness

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. The indicator should be accurate enough for its intended use and respond to changes in level of performance Reliable The indicator should have clear, unambiguous definition so that data will be collected consistently, and be easy to understand and use Well-defined It must be possible to validate the processes and systems that produce the indicator Verifiable The usefulness of the indicator must justify the cost of collecting the data Cost-effective Must avoid unintended consequences and encourage service delivery improvements, and not give managers incentive to carry out activities simply to meet a particular target Appropriate Must relate logically and directly to an aspect of the institution’s mandate and the realisation of strategic goals and objectives. Relevant

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 Time-bound 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 The time period or deadline for delivery is specified S M A R T

Audit of Predetermined Objectives AGSA Audit process Understand and test the design and implementation of the performance management systems, processes, and relevant controls 1. Understand Test the measurability, relevance, presentation & consistency of planned and reported performance information 2. Test Usefulness Conclude on the usefulness of the report on predetermined development priorities or objectives 3. Conclude Usefulness Test the reported performance information to relevant source documentation to verify the validity, accuracy & completeness of reported performance information 4. Test Reliability Conclude on the reliability of the reported performance for selected development priorities or objectives 5. Conclude Reliability

Audit of Predetermined Objectives Audit Outcomes of 2011/12 on AoPO Compliance with regulatory requirements Existence Timeliness Usefulness Presentation Measurability Relevance Consistency Reliability Validity Accuracy Completeness NDHS NHBRC Additional Matter paragraph included in audit report: >20% of targets not achieved for both entities. No matters reported Reported in audit report

Audit of Predetermined Objectives Lack of monitoring and oversight over PDO processes Lack of understanding of the principles of FMPPI Inadequate Systems and processes Root Causes

Audit of Predetermined Objectives Accountability Achievement of targets Improved service delivery Alignment of Performance to Strategic Plans

AoPO: Combined assurance Senior management Accounting officers/ authority Executive Required assurance levels Extensive Management’s assurance role Senior management – take immediate action to address specific recommendations and adhere to financial management and control systems Accounting officers/ authority – hold officials accountable implementation of plan and report quarterly and annually progress Executive authority – monitor the progress of performance and enforce accountability and consequences Management assurance First level of assurance Oversight assurance Second level of assurance Coordinating / Monitoring institutions Internal audit Audit committee Extensive Required assurance levels Oversight’s assurance role National Treasury/ DPSA – monitor compliance with laws and regulations and enforce appropriate action Internal audit – follow up on management’s actions to address specific recommendations and conduct own audits on the Strategic Plans & APP and quarterly progress Audit committee – monitor the implementation of commitments on corrective action made by management as well as quarterly progress on the plans Independent assurance Third level of assurance Oversight (portfolio committees / councils) Public accounts committee External audit Extensive Required assurance levels Role of independent assurance Oversight (portfolio committees /councils) – review strategic and performance plans as well as the accounting officer’s quarterly reports on performance Public accounts committee – exercise specific oversight on a regular basis External audit – provide independent assurance on the usefulness of plans and the reliability and credibility of reported performance information and identify instances non-compliance

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 !!!) Adapted from Osborne and Gaebler, 1992, Reinventing Government

Audit of Predetermined Objectives Audit of Predetermined Objectives vs. Performance audit AoPO Mandatory audit (section 20(2)(c) of the PAA) Includes compliance with laws and regulations Reflects an opinion or conclusion on performance information Reporting is done annually as part of the regularity audit process Done as part of the regularity audit process and by the regularity auditor Reviews and confirms the validity and completeness of information Reporting at entity level and tabled in the relevant legislature Annual assurance on the credibility of an auditee’s reporting of their performance Performance Audit Discretionary audit (section 20(3) of the PAA) Includes compliance with laws and regulations Reporting is factual and does not include an audit opinion Report is not limited to annual information and can cover more than one financial year Done by performance auditors and may include subject matter experts Evaluates the 3 E’s at organisational, programme or project level Factual report : whether goods & services acquired economically, applied efficiently and managed effectively towards achieving the desired goals

Conclusion Focus Areas Overall assessment Way forward 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 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 Focus Areas 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