1. Role of Internal Auditors in Actuarial Valuations

2. OBJECTIVE OF THE VALUATION
Liability
To determine the liability of the municipality/Entity that has accrued up to the valuation date in relation to the sponsored scheme
GRAP
To provide the Entity with sufficient information to comply with the accounting standards

3. THE ROLE PLAYERS
Internal audit
Actuaries
Management

4. Management’s role
Designing and implementing internal controls over maintenance, safekeeping and generation of information
Generation and submission of information to the actuaries
Generation and submission of information
Present valuations in the financial statements, in line with GRAP
Financial Reporting
Management
It is management’s responsibility to implement internal controls over the generation of information. Examples of controls including:
Reviewing information prior to submission to the actuaries;
Reconciling the information to source documents.
Internal Audit

5. Role of internal audit and reliance on the work of actuarial expert
Internal audit is required to develop a risk based plan and this is done through development of an audit universe that is holistic and takes into account all auditable activities “risky” of an organization
One of the core principles of Internal Auditing is Competency. This requires Internal Auditors to possess the knowledge, skills and experience needed in the performance of internal audit services.
Actuarial work is one key area that is so significant, however the internal auditors may not possess the necessary competent to provide assurance on
Internal audit can interact with the work of Actuaries in one of the two ways, broadly:
Where Actuaries have been appointed as part of Management’s risk management processes and Internal Audit relies on their work as part of the combined assurance process; or
Where Internal Audit contracts own expert to assist in the assurance process due to the nature and complexity of such work.

6. Specific Considerations
Whether Actuaries are appointed by Management or by the Chief Audit Executive:
They should form part of the combined assurance plan.
If appointed by Management, Internal Audit should identify which aspects of their work they intend relying on.
The chief audit executive should consider the competency, objectivity, and due professional care of the Actuaries
Detailed scope, objectives and desired output should be clearly documented and agreed to by signing the terms of reference contained in the engagement letter.
Implementation guidance for standard 2050 provides specific guidance on how coordination and reliance can be achieved when the Internal Auditor relies on or uses the work of other internal or external assurance providers in providing governance, risk management, and control assurance to the organization, provided that certain safeguards are in place.

7. Role of internal auditor
Before submission of information
Reviewing the design and implementation of internal controls over generation of information
Establish if the actuaries have necessary skills and experience
After receipt of Valuation Report
Review assumptions applied by Specialist for consistency with submitted information and also source thereof (i.e. mortality tables, discount rates, active employees, etc.)
The years in between engagement of Specialist
Review assumptions if they are still relevant and correct
Management
It is management’s responsibility to implement internal controls over the generation of information. Examples of controls including:
Reviewing information prior to submission to the actuaries;
Reconciling the information to source documents.

8. Actuarial valuation process
Identify a reputable valuator with the necessary qualifications (not required by standard);
Provide the valuator with the required information to enable them to perform the valuation;
Obtain the valuation report from the valuators;
Check that the information used by the valuator agrees to the information provided to the valuator; and
Use the valuation report to recognize the obligation (or surplus) and expenses and revenue as required by GRAP
Disclose all the relevant information as required by the standard

9. Actuarial valuation (GRAP 25)
Using actuarial techniques to make a reliable estimate of the amount of benefit that employees have earned in return for their service in the current and prior periods.
Discounting that benefit using the recognized Projected Unit Credit Method in order to determine the present value of the defined benefit obligation and the current service cost;
Determining the fair value of any plan assets;
Determining the total amount of actuarial gains and losses to be recognized;
Where a plan has been introduced or changed, determining the resulting past service cost; and
Where a plan has been curtailed or settled, determining the resulting gain or loss

10. Actuarial valuation (GRAP 25)-Disclosure
The following information should be disclosed:
Accounting policy
Description of defined benefit plans
Movement in present value of obligation
Movement in fair value of plan asset
Amounts recognised in statement of financial position and performance
Effect of changes in medical cost trends
Actuarial assumptions
Summary of benefit plans for current and previous 4 periods

11. Some critical assumptions
Discount rates used
Current and Projected future inflation rate
Retirement age (63 vs 65) and withdrawal rate
Mortality rate
Projects future salary increases.
Other important factors
Average age of employees
Average retirement subsidy rate
Number of employees/pensioners

12. Audit consideration
How management determines the completeness, relevance and accuracy of the data used to develop accounting estimates.
The review and approval of accounting assumptions and consistent application of those assumptions.
The review and approval of accounting estimates

13. Audit approach (What, when, why, how??) What?
Reviewing the accounting policy adopted by management and/or council for actuarial valuations.
Confirming the method used and assessing if the method used in making accounting estimate complies with GRAP 25 requirements.
Reviewing the controls in place to ensure that the appropriate assumptions, data, are used
Reviewing the assumptions underlying the accounting estimates and whether they are consistency with prior years.
Data analytics for completeness and accuracy validations
Validating the data used against the records to ensure that accurate date has been used.

14. Audit approach (What, when, why, how??) When?
The testing of actuarial valuation should be done at least twice a year as follows:
Reviewing the efficiency and effectiveness of the controls over the preparation of the AFS during the review of interim FS
Reviewing the AFS during the month of July/August or April/May

15. Audit approach (What , when, why, ??) Why?
The following are some of the risks that should be responded to:
Overstatement of actuarial gains or understanding of actuarial losses
Inadequate controls to ensure that the amounts disclosed are accurate.
Misstatement of opening balances
Understatement of post employment obligation.
Changing of assumptions to reflect positive results

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THANY YOU

17. References
International Standards for the Professional Practice of Internal Auditing (Standards)
IIA Position Paper: The three lines of defence in effective Risk Management and Control
GRAP 25/IAS19
MFMA Circular 65