1. Presentation: Audit of Predetermined Objectives
Portfolio Committee of the Department of Human Settlements
27 March 2013

2. 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.

3. Agenda Audit of Predetermined Objectives and Service Delivery
Conclusion

4. AUDIT OF PREDETERMINED OBJECTIVES

5. 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

6. 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
Also refer to AG Directive General Notice of 2011 issued 28 November 2011

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

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

14. 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

15. 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

16. 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

17. 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