AGSA SCoAG 2009
Annual report presentation
October 2009
Page 1
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.
This is our reputation promise.
2
Table of contents

Overview

Key highlights

Simplicity

Visibility of leadership

Strengthen human resources

Funding

Lead by Example

Conclusion
3
Overview of AG Commitment
The AGSA remains committed to the following goals in order to impact positively on
all aspects of public sector accountability:
–
ensuring simplicity, clarity and relevance of the messages contained in all our reports,
including the quality, timeliness and deepening of stakeholders’ understanding of our
reports
–
improving the visibility of our leadership through clear communication in championing
the implementation of audit recommendations
–
strengthening the human resource strategy with particular emphasis on the
comprehensive trainee auditor scheme
–
focusing on the funding model with a view to stabilising our margins and cash flow
situation
–
leading by example on matters of risk management, internal controls and transformation
4
Key Highlights
•
Communication of audit report outcomes to key stakeholder through road shows
•
Annual quality results of category “excellent” exceeded and surpassed that of prior years
•
50% improvement in the timely submission of annual financial statements for PFMA organisations
•
36% improvement in the timely submission of annual financial statements for MFMA municipalities
•
Completion of audit reports within the statutory deadlines
–
PFMA organisations (99%)
–
Other PFMA organisations (98%)
–
MFMA organisations (92%)
•
Significant decrease in vacancies of 35% from 2007 (724) to 2009 (471)
•
Achievement of retention rate of 11% compared to industry average of 16%
•
AGSA hosted the AFROSAI 11th General Assembly in Pretoria from 13 to 17 October 2008. It was
attended by delegates and observers from 51 countries
5
Simplicity and clarity of our reports
Key Achievements
• Continued our efforts to influence the achievement of unqualified reports in all spheres of
government, which is central to the realisation of our constitutional mandate
• Communicated with simplicity, clarity and relevance to our stakeholders through road shows and
door-to-door visits
• Continued focus on the quality and timeliness of our products including audit reports
• Streamlined performance auditing function
• Continued our contribution in international auditing to the United Nations Board of Auditors
• Tabled to Parliament 38 performance audits reports, 6 of national departments, 2 of public entities,
30 provincial departments.
6
Quality results summary
Figure 1: Annual quality control results
Annual QC results
Performance Year
2009
2008
Poor
Good
Excellent
2007
2006
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Actual Performance
Overall Commentary:
• Results of category “excellent” exceeded results of prior years
• Results of category “poor” show improvement compared to prior years
7
PFMA and MFMA timeliness results
Table 1: The AGSA’s PFMA performance in meeting legislated reporting timelines (Results as at 31 July 2008)
Submission of AFS as
prescribed by the PFMA
Entities
%
Completion of the audit within
the statutory deadlines
Number
%
Number
PFMA organisations
95%
340
99%
338
Other PFMA
organisations
90%
99
98%
97
439
99%
435
Total
Table 2: The AGSA’s MFMA performance in meeting legislated reporting timelines (Results as at 31 November 2008)
Submission of AFS as
prescribed by the MFMA
Entities
%
Completion of the audit within
the statutory deadlines
Number
%
Number
Municipalities
84%
225
92%
206
Municipal entities
81%
42
98%
41
267
93%
247
Total
8
Simplicity and clarity of our reports
Key Challenges
Initiatives
Insufficient capacity to do performance audits
Regular reviews by the Performance Audit
Advisory Committee
9
Actual performance versus target at 31 March 2009
Table 3: Summary of actual performance against targets
Main focus
area
Sub-focus area
Target 2008-09
Actual performance 2008-09
Auditing
Quality
Excellent performance (C2 &
C3): 80%
Good performance (R1): 20%
Poor performance (R2): 0%
Excellent performance (C2 & C3):
84%
Good performance (R1): 9%
Poor performance (R2): 7%
Timeliness
95%: PFMA organisations
95%: Other PFMA
organisations
80%: MFMA organisations
99%: PFMA organisations
98%: Other PFMA organisations
92%: MFMA organisations
Auditing of
Performance
information
100% achievement of
milestones set for the year
93%: PFMA
90%: MFMA
10
Visibility of Leadership
Key achievements
•
Engaged the media on the audit process so that they can appropriately communicate
audit outcomes
•
Reviewed our vision, mission and values so as to drive a performance-driven culture
•
Trained and empowered our leadership to better understand their leadership
communication role
•
Signed a Memorandum of Understanding (MoU) with the Public Protector and the Office
of the Public Service Commission.
•
Auditor-General was appointed as the first vice-chair of INTOSAI and continued as
President of AFROSAI
•
AFROSAI held its 11th General Assembly in Pretoria, South Africa from 13 to 17 October
2008. The assembly was hosted by the AGSA and was attended by delegates and
observers from 51 countries.
11
PFMA audit outcomes
(Source: AG presentation to Parliament on 18 November 2008)
Figure 2: PFMA audit outcomes
PFMA Audit Outcomes
Overall Commentary:
250
• Total number of Auditees increased from
361 in 2006-07 to 463 in 2007-08
200
150
2006-2007
2007-2008
100
50
0
Qualified
Adverse
Disclaimers
Financially
unqualified
(with other
2006-2007
5
13
101
174
68
2007-2008
9
21
105
216
112
• There has been 4% increase on
disclaimers, 61% increase on adverse
qualification , 80% increase on qualified
and 24% improvement on financially
unqualified with other matters and 65%
without other matters
Financially
unqualified
(with no other
Note:
Includes following:
• National departments (34)
• National Public Entities (195)
• Constitutional Institutions (9)
• Provincial departments (119)
• Provincial Public Entities (106)
Total = 463
12
MFMA audit outcomes as per general report on *
(Source: General Report 2007-2008
Figure 2: MFMA audit outcomes
MFMA Audit Outcomes
120
Overall Commentary:
100
•
80
2006/2007
60
2007-2008
40
20
0
Disclaimar
Adverse
Qualified
Financialy
Unqualifed
with other
Financialy
Unqualifed
with no other
2006/2007
99
19
69
51
1
2007-2008
86
9
55
88
1
•
Out of 239 municipalities whose audit outcomes
are reported for 2007-08 , 74 entities improved and
22 regressed while the audit outcomes of 143
remain unchanged
There is a 13% reduction on disclaimers, 53%
reduction on adverse qualification, 20% reduction
on qualified and 73% improvement on unqualified
with other matters
Note:
This excludes municipal entities and metros
13
Visibility of Leadership
Key Challenges
Initiatives
Quality and timely submission of annual financial
statements to the AGSA
Transparency accountability of governance
structure
Leadership visibility prior, during and post auditing
Compliance to financial accounting practices by
auditees
14
Actual performance versus target at 31 March 2009
Table 5: Summary of actual performance against targets
Main focus area
Sub-focus area
Target 2008-09
Actual performance 2008-09
AGSA Leadership
Leadership
effectiveness
100% achievement
of milestones set
for the year
Achieved 100% milestones of
milestones set for the year
AGSA Reputation
Overall reputation
index
100% achievement
of milestones set
for the year
Achieved 100% milestones set for
the year
15
Strengthen Human Resources
Key Achievements
•
Entered into a temporary arrangement of management secondments to address
vacancies, skills transfer and minimising reliance on contract work
•
Improved retention of staff i.e. 11% against an industry average of 16%
•
Reviewed our Human capital policies and procedures
•
Reviewed our performance management system so as to enable personal accountability
•
Repositioned the TA Scheme to ensure optimal ROI and introduced an audit clerk and
audit supervisor positions for those trainees that are temporarily not studying
•
105 AGSA staff members received RGA qualification (65 qualified in 2007-08)
•
30 passed SAICA and 30 passed IRBA examinations
•
Overall 35% decrease of vacancies from 2007 to 2009
16
AGSA establishment profile by level
Job Level
No. of Staff
Race
African
Indian
Coloured
White
Other
Auditor-General
1
1
Deputy Auditor-General
1
1
Head of Audit
1
Corporate Executives
6
3
1
Business Executives
27
10
3
2
12
Senior Managers
164
43
29
11
78
3
Managers
461
117
80
28
227
9
Assistant Managers
397
207
34
25
126
5
Trainee Auditors
952
824
50
38
34
6
Administrative Personnel
210
117
10
33
49
1
Other
109
82
11
7
9
2,329
1,405
218
144
538
TOTAL
1
2
24
17
AGSA establishment profile by gender
Job Level
Male
Female
Auditor-General
1
Deputy Auditor-General
1
Head of Audit
-
1
Corporate Executives
4
2
Business Executives
21
6
Senior Managers
113
51
Managers
247
214
Assistant Managers
199
198
Trainee Auditors
464
488
Administrative Personnel
36
174
Other
48
61
1,134
1,195
18
Overall AGSA vacancy stats
Figure 4 : Overall vacancy per band
Job Level
No. of
Staff
Total AGSA Vacancy per Band
Vacanci
es
Auditor-General
1
-
Deputy AuditorGeneral
1
-
400
350
Head of Audit
1
-
6
-
31/03/08
Corporate
Executives
31/03/09
Business Executives
27
-
Senior Managers
164
15
Managers
461
88
Assistant Managers
397
133
Trainee Auditors
952
228
450
300
3/3/2007
250
200
150
100
50
0
B
(Cooperate
Executive
C (Senior
Manager)
D
(Manager)
E
F(
G (Trainee
(Assistant Administrati
Auditor)
Manager)
ve
3/3/2007
3
18
127
160
14
402
7
0
14
84
133
9
215
Administrative
Personnel
210
31/03/08
31/03/09
0
15
88
133
7
228
Other
109
-
2,329
471
Overall commentary:
TOTAL
• There has been a decrease in vacancy from 2007 to 2009 by
• 31% at Band D
• 17% at Band E and
• 43% at Band G
• Overall decrease of 35% in vacancies from total of 724 in 2007 to 471 in 2009
• Highest vacancies at the middle management and trainee auditor levels
19
Trainee auditors by qualifications and year of study
Figure 4: Trainee auditors by qualifications and year of study
TAs by Qualifications and Year of Study
350
300
Y1
250
Y2
200
Y3
150
Y4
100
Y5
50
0
Matric
Diploma
Y1
3
3
Y2
1
0
Y3
0
Y4
Y5
Tot
Higher
Diploma
Degree
Honours
CTA
Part 1
Part 2
237
12
3
2
0
1
289
17
4
6
0
14
0
236
14
9
7
1
0
4
0
56
3
0
0
0
0
0
0
6
0
0
0
0
4
21
1
824
46
16
15
1
928
Overall commentary:
• Critical shortage of CTAs
• Low pass rates
20
Strengthen Human Resources
Key Challenges
Initiatives
Ongoing vacancy challenge at Audit
Assistant Manager and Audit Manager
levels.
• Continuously reviewing human capital policies and
procedures
• Implement and monitor trainee auditor scheme to focus on
growing own talent
• Retain and attract professionals
• Exploring different sources to attract talent
• Increase AGSA branding and visibility in the labour market
• Continue with the DMS initiative, where appropriate
• Ongoing review of remuneration practices
Unsatisfactory pass rate trainee auditors
• Consistent application of academic progress study policies
• Utilise DMS professionals for training and development of
our trainee auditors
• Continue to focus on mentoring and coaching as a key
leadership skill
• Continue to provide academic support
• In future, AGSA will focus on CTAs
21
Actual performance versus target at 31 March 2009
Table 7: Summary of actual performance against targets
Main focus area
Sub-focus area
Target 2008-09
Actual performance 2008-09
People
Learning and
growth
Retain 30% of
trainees that
qualified
Since the implementation of the
trainee auditor programme in 2001,
we have cumulatively retained 55%
of our qualified trainees
Retention of staff
Less than 16% staff
turnover rate
11% staff turnover rate
22
Funding
Key achievements
•
Completed financial turnaround plan
•
Amended AGSA funding model
23
Financial Highlights
2009
R’000
2008
R’000
Revenue
1,375,925
1,108,899
Direct audit cost
(1,069,668)
(829,829)
Gross Profit
306,257
279,070
Other Income
54,277
14,020
Expenses
(376,631)
(301,391)
Net deficit for the
year
(16,097)
(8,301)
Overall Commentary:
• Revenue is up by 24%
• Gross profit margin 22%
(2008: 25%)
• Operating expenses is
maintained at 27% of
revenue.
24
Financial Highlights
• Revenue Analysis
2009
R'000
2008
R'000
Own Hours Revenue
824,304
691,152
Contract Work
Revenue
551,621
417,747
Total Revenue
1,375,925
1,108,899
Less Direct cost
(1,069,668)
(829,829)
Gross Profit
306,257
279,070
Gross Profit % on
Own Hours Revenue
37%
40%
Gross Profit % on
Total Revenue
22%
25%
• Own hours revenue increased by
19% due to increased in number of
audit staff.
• Contract work revenue is up by
32% due to scarcity of audit
professionals.
• There is no mark- up on contract
work allocated.
Note:
Own hours revenue is made up of
• Own hours revenue local, Own hours
revenue International and Subsistence
and Travel revenue
25
Revenue Analysis cont.
06’07
R’000
07’08
R’000
08’09
R’000
Total Revenue
893,750
1,108,899
1,375,925
Own hours
(includes
Subsistence &
Travel)
593,878
691,152
824,304
Contract Work
299,872
417,747
551,621
Own hours billed
2,012,113
2,071,254
2,221,462
Audit staff
1,628
1,767
2,103
Average charge
out hours/ Audit
Staff
1,235
1,172
1,056
26
Comparison of actual results with the approved budget
(08’09)
Indicator
Actual
R’000
Budget
R’000
Variance
R’000
Variance
%
Revenue
1,375,925
1,292,642
83,283
6%
Own hours
824,304
924,340
(100,036)
-11%
Contract work
551,621
368,302
183,319
50%
Direct cost
(1,069,668)
(901,273)
(168,395)
19%
Gross profit
306,257
391,369
(85,112)
-22%
Other Income
42,082
2,916
39,166
1343%
Expenses
(376,631)
(391,354)
14,723
-4%
Net interest
received
12,195
5,428
6,767
125%
Net (deficit)
surplus for year
(16,097)
8,359
(24,456)
-293%
27
Comparison of actual results with the approved budget
(08’09) cont.
Overall commentary:
1. Own hours revenue is under budget by R100 million due to the
following;
– Vacancies (R135 million)
– Higher recovery rate R35 million
– Volume variance R4 million
– Other recoveries R11million
– Subsistence and Travel decreased by (R15 million)
2. Contract work revenue is above budget due to scarcity of audit
professionals.
3. Net interest received had a favourable variance due to a positive bank
balance and higher than budget interest rates prevailing during the
reporting year.
28
Sources of revenue
Figure 8: Sources of revenue (R’000)
Overall Commentary:
1,000,000
• Average tariff for 2008
was R313/hour and it
increased to R347/hour
in 2009
800,000
600,000
400,000
200,000
0
Own revenue
Contract
31/03/08
691,152
417,747
31/03/09
824,304
551,621
• Contract work as a % of
total revenue was 38%
for 2008 and 40% for
2009
29
Financial Highlights
Total cost is R1.446 billion. The major cost drivers for AGSA are
Contract work - R551.621 million (38%), Recoverable staff cost –
R464.644 million (32%) and Support staff cost – R198.998 million (14%)
Expense Analysis - 31 March 2009
Depreciation expense
1.2%
AFROSAI - Conference
0.6%
Subsistence and travel
3.7%
Amortization expense
0.2%
Retirement benefit
obligations
0.0%
Contract work recoverable
38.1%
Other operational
expenditure
10.2%
Support staff cost
13.8%
Recoverable staff cost
32.1%
Contract work recoverable
Recoverable staff cost
Support staff cost
Other operational expenditure
Subsistence and travel
Depreciation expense
AFROSAI - Conference
Amortization expense
Retirement benefit obligations
30
Analysis of other key cost drivers
The other key cost drivers for 08’09 in relation to budget are as
follows:
Actual
R’000
Budget
R’000
Variance
Subsistence and travel
irrecoverable
10,555
7,350
3,205
Contract work irrecoverable
12,062
18,329
(6,267)
Accommodation
51,907
42,322
9,585
Internal audit fees
3,163
2,200
963
Provision for impairment of
receivable
4,710
-
4,710
Technological services
21,814
25,023
(3,200)
Stakeholder relations
7,846
8,325
(479)
Recruitment costs
10,208
12,749
(2,541)
Stationery and printing
5,658
5,759
(101)
Other operating costs
20,122
20,662
(540)
Total
148,045
142,719
5,326
Overall commentary:
•
•
•
•
•
S& T variance is due to
reorganisation in Eastern cape
Contract work irrecoverable due
to saving on projects not rolled
out as planned.
Accommodation variance is due
to straightlining of leases on
premises as per IAS 17.
Technological services variance
was due to saving on license
fees and 3G cards costs lower
than budget
Recruitment costs saving was
due to changes in recruitment
approach from using agents to
online recruitment.
31
Cash flow statement Analysis
2009
R’000
2008
R’000
%
Growth
Net cash inflow from
operating activities
46,474
406
11 347%
Net cash outflow from
investing activities
(36,750)
(20,923)
76%
Net cash inflow /
(outflow) from
financing activities
53.024
(1,774)
3 089%
Net increase /
(decrease) in cash
and cash equivalents
62,748
(22,291)
381%
Cash and cash
equivalents at end of
the year
180,838
117,318
54%
Overall Commentary:
• The growth in cash holdings was
due to non refundable National
Treasury grant of R90 million
received during the reporting
period.
32
Debtors Ageing Analysis – 31 March 2009
Current
R’000
30 days
R’000
60 Days
R’000
90 Days
R’000
120 Days
R’000
120 Days
R’000
Total
R’000
National
52,235
7,213
4,547
(695)
49
1,293
64,642
Provincial
70,472
2,073
1,500
550
873
7,427
82,895
Local
45,123
8,047
4,438
14,304
9,725
23,014
104,651
Statutory
28,054
1,450
972
2,704
1,470
6,293
40,943
Other
25,285
390
842
325
293
3,039
30,174
Total
221,169
19,173
12,299
17,188
12,410
41,066
323,305
%
68%
6%
4%
5%
4%
13%
100%
Note: Total balance excludes provision for impairment of receivables amounting to R25
million.
33
Ageing of trade payables
Current
R’000
30
days
R’000
60
Days
R’000
90
Days
R’000
120+
Days
R’000
Total
R’000
Trade payables
– Contract work
63,256
30,140
19,036
5,527
4,860
122,819
Trade payables
- Other
27,007
4,638
9,142
444
15,240
56,471
United Nations
contract –
prepaid income
18,346
-
-
-
-
18,346
Total
108,609
34,778
28,178
5,971
20,100
197,636
%
55%
18%
14%
3%
10%
100%
34
Funding
Key Challenges
Initiatives
• Continued erosion of AGSA margins
• Monitoring and Controlling overheads and contract
work
• Declining working capital from 1.01
in year 2008 to 0.86 in year 2009
• Ability of local and provincial
government to settle their accounts
on time
• Increased outstanding debt of R323
million as at 31 March 2009 from
R255 million as at 31 March 2008
• Streamlining debt collection
• Engaging political heads
• Exploring legal debt collection process
35
Actual performance versus target at 31 March 2009
Table 10: Summary of actual performance against targets
Main focus area
Financial
performance
Sub-focus areas
Target
Actual performance
Efficiency gains
(net surplus)
Additional 1% on projected
efficiency gains
0% on efficiency gains
Deficit amounting to
R16,1 million
Debt collection
National and provincial not
more than 30 days
Local government not more
than 90 days
National = 18 days
Provincial = 37 days
Local government = 104 days
Statutory bodies = 38
Cost of auditing
Additional 1% on the
projected efficiency ratios of
30%
22% efficiency ratio
Performance
auditing
10% of total audit income
6% of total audit revenue
International
Auditing
Not more than 5% of total
audit income
Income from international
audits makes up 2% (R28m)
of total audit income, which
is within the targeted range
of up to 5%
36
Lead by Example
Key achievements
•
Developed AGSA BBBEE strategy
•
Achieved Employment Equity set target: 80% on targeted group and 20% on nontargeted group
•
Crafted the organisational wide risk management framework to cover strategic, financial
and operational risks that are monitored by EXCO on a regular basis
•
Revamped ICT, HC and Finance processes
37
AGSA BBBEE and Affirmative action profile
Figure 9: Achievement of affirmative action targets excluding trainee auditors (levels A to G)
40%
30%
20%
10%
0%
African
Coloured
Indian
White
Disabled
2007-08 AG- Male
26%
3%
5%
14%
0.50%
2007-08 AG-Female
29%
4%
4%
14%
0.50%
2008-09 AG-Male
28%
2%
5%
13%
0.50%
2008-09 AG-Female
32%
3%
4%
12%
0.50%
Overall Commentary:
• African: Increased from 55% to
60% (08 to 09)
• Colored: Decreased from 7% to 5%
(08 to 09)
• Indian: Remained same at 9%
• White: Decreased from 28% to 25%
( 08 to 09)
• Disabled: Remained same at 1%
Figure 10: Achievement of affirmative action targets excluding of trainee auditors (levels A to F)
30%
20%
10%
0%
African
Coloured
Indian
White
Disabled
2007-08 AG- Male
18%
3%
6%
22%
0
2007-08 AG-Female
20%
4%
4%
22%
0
2008-09 AG-Male
18%
3%
7%
19%
0
2008-09 AG-Female
21%
5%
5%
19%
0
Overall Commentary:
• African: Increased from 38% to 39%
(08 to 09)
• Coloured: Increased from 7% to 8%
(08 to 09)
• Indian: Increased from 10% to 12%
(08 to 09)
• White: Decreased from 44% to 38%
(08 to 09)
38
BBBEE audit work allocation
Table 12: Allocation of audit work to private audit firms
Size of firms
Allocation
target
(%)
Budget
( RM )
% of budget
total
Actual
( RM )
% of Actual
total
Big and large
45%
101
45%
146
47%
Medium
35%
78
35%
107
34%
Small
20%
45
20%
58
19%
100%
224
100%
311*
10%
*Note: The reporting is based on 20% allocation only
39
Actual performance versus target at 31 March 2009
Table 13: Summary of actual performance against argets
Main focus area
Sub-focus area
Target 2008-09
Actual performance 2008-09
Employment equity
Transformation
80% from target groups
and.
88% from target groups and
20% non-target groups.
12% non-target groups.
Broad-based black
economic
empowerment
(BBBEE)
Transformation
100% compliance with
BEE criteria per annum
100%
Process
Operational
excellence
Level of maturity of
business process at
least:
• 0% at CMM level 1*
• 75% at CMM level 2**
25% at CMM level 3***
Level of maturity of business
process at least:
• 0% at CMM level 1
• 44% at CMM level 2
• 56% at CMM level 3
Note *: Absence of documented and standardised processes
Note **: Although processes are standardised they are either not documented or not communicated
Note ***: Processes are documented, standardised and communicated
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Conclusions
•
Submission of timely performance reports addressed with auditees, with National &
Provincial Treasuries
•
AGSA Financial sustainability addressed through the implementation of the revised
Funding model in 2009
•
AGSA Risks closely monitored
•
Leadership visibility being improved
•
More focus on the recruitment and retention of Trainee Auditors to address skills
shortage
•
Substantial development & growth of key processes
•
BBBEE closely monitored
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