PRESENTED BY: RAVEEN SARJU

(SENIOR AUDIT MANAGER : TRANSVERSAL AUDITS )

ETHEKWINI MUNICIPALITY AUDIT AND RISK ASSURANCE SERVICES (EMARAS)

INTERNAL AUDIT

THE AUDITING OF PERFORMANCE INFORMATION PRESENTATION

27 NOVEMBER 2015

AGENDA

NO DESCRIPTION

A. AN UNDERSTANDING OF INTERNAL AUDITING

B. STRUCTURE OF THE MUNICIPALITY AND THE RELATIONSHIP BETWEEN THE ROLE PLAYERS

C. LEGISLATIVE REQUIREMENTS

D. THE ROLE OF INTERNAL AUDIT & THE AUDIT PROCESS

E. THE ROLE OF OVERSIGHT COMMITTEE– AUDIT COMMITTEE

The MFMA and King III strongly emphasize the need for an audit

committee and an internal audit function:

OUR PRIMARY CONSIDERATION

Institute of Internal Auditors (IIA)

Internal Audit is an independent, objective, assurance and

consulting activity that adds value to and improves an organization's

operations. It helps an organisation accomplish its objectives by bringing a

systematic, disciplined approach to evaluate and improve the

effectiveness of governance, risk management, and control processes.

What is Internal Auditing?

AttributeStandards

PerformanceStandards

Standards

Implementation Standards

Our values…… our office ambiance…….

Integrity

Accountability

Honesty

Equality

Fairness

Objectivity

Confidentiality

Competency

Values

Our reputation……

We care

We belong We serve

EMARAS Motto:We assure, we consult and we add value

The relationship between various role players

(Subcommittees, City Manager, Deputy City Manager, Units etc)

Council Structure enhancing Independence & Accountability

Accountability relationships

9

Council

Auditor-General Executive

Independent, objective information

Transparency

Audit

Political

Operational

Policy Direction and Oversight

Accountability relationships

Oversight Roles – Integrated Assurance Framework

Treasury Finance and

Administration (internal

control unit)

Council Executive Committee

COUNCIL

STEWARDSHIP

ASSURANCE

PERFORMANCE

Enterprise Risk

management

Information

Communication and

Technology

Shared services: Human

ResourcesSkills development

Marketing and

customer services

INTERNAL AUDIT COMBINED ASSURANCE

Legal and

compliance Ombudsman

Outsources services

Performance

Management

NATIONAL TREASURY

REGULATORSEXTERNAL AUDIT

OVERSIGHT

Section 79 Committees Administration Committees

Community & Emergency Services Committee

Economic Development & Planning Committee

Finance & Procurement Committee

Governance and & Human Resources

Committee

Human Settlements & Infrastructure

Speaker And Party Whips

Committee

Aids Committee

Municipal Public Accounts

Committee

Audit Committee

Risk Committee

Bid Specification Committee

Bid Evaluation Committee

Bid Adjudication Committee

City Manager DCM’s / Heads/ Senior

Manager

Performance Management

Unit

LEGISLATIVE REQUIREMENTS

LEGISLATIVE REQUIREMENTS

Constitution

Section 152 set out the aims and objective of the municipality and guides municipality in all its activities including planning and service delivery.

White Paper On Local Government

Measures the overall state of local government, monitor effectiveness and delivery strategies and ensurethat scares resources are used effectively.

Municipality Structures Act

Set out the obligation to achieve S152 objectives of the Constitution and set out the responsibility forestablishing the KPI and attaining the standards set by the KPI at the highest level.

Municipality Systems Act

Places a legal obligation to establish performance management system: set targets, monitors an review performance based on indicators linked to their Integrated Development Plan.

Municipality Financial Management Act

Section 17(3) requires the setting of measurable performance objectives during budget process and set out the roles and responsibilities of mayor, chief financial officer and the accounting officer.

National Treasury Regulations

Framework for managing programme performance information: Clarify definitions, standards, roles andresponsibilities for performance information and it improve integrated structures, systems and processesrequired to manage performance information.

PERFORMANCE REGULATIONS / LEGISLATIONS

The Constitution

of RSA, 1996 –chapter 7

Section 152 The White Paper on

Local Government,

1998

Municipality Structures

Act, Act 117 of 1998

Municipality Performance Management Regulations,

2001

Municipality Performance Management Regulations,

2006

Municipality Financial

Management Act, Act 56 of

2003

MFMA Circulars No.

11, 13, 32

DIFFERENCE BETWEEN AUDIT OF PERFORMANCE INFORMATION (AOPI) AND PERFORMANCE

INFORMATION

Performance Information (PI)

= Non-Financial Information about the Service Delivery of Government

AoPIAudit of Performance Information

PAPerformance Auditing

Part of Regularity Auditing

Focused on non-financial information in Annual Report

Done by audit professionals

Audit criteria: Compliance (has this happened), as

part of regularity audit process Quality of PI (as per audit criteria)

Individual audits

Focused on a specific government policy or management process

Done by subject matter experts

Audit criteria are the 3E’s:

Economy

Efficiency

Effectiveness

THE ROLE OF INTERNAL

Assess the functionality of the Performance Management & Evaluation Unit.

Evaluate whether the system complies with applicable Acts.

Determine whether the performance measurements are reliable in

measuring performance.

Continuously audit the performance measurements of the municipality.

Submit quarterly reports on the audits of performance information to the

municipal manager and the performance audit committee.

Internal Audit role in Performance Management System (PMS)

PLAN VS. REALITY

RISK BASED APPROACH

Frequency of the KPIs in the relevant Performance Management reporting cycle. (quarterly, biannually andannually per plan)

Service Delivery Backlogs – KPIs directly relate to the level of service in addressing backlogs, performanceof business against objectives

KPIs financed by external or grant funding - KPIs that require compliance with conditions of finance orgrant agreement.

Legislative reporting requirements of KPIs – KPIs that require monthly reporting to National Treasury andother external parties

Qualitative consideration - take into account the information needs of the stakeholders and users of theperformance information, the qualitative significance of the development priorities and strategic objectivesagainst qualitative criteria (basic service delivery, financial sustainability).

Quantitative consideration – relate to the Total budget both Capital and Operating budget size) of thedevelopment priority and strategic objectives as reflected in the Integrated Development Plan (IDP).

QUALITIES OF AUDIT EVIDENCE

EVALUATION OF PORTFOLIO OF EVIDENCE

• Information is the best attainable information through the use of appropriate methods. Reliable information is competent, valid which accurately represents the status of the KPI being reported.

• Information supports engagement observations and recommendations and is consistent with the objectives for the engagement.

• Information is factual, adequate, and convincing so that the prudent person would reach the same conclusion. The information should have a degree of persuasiveness .

• Information helps the Municipality to meet its goals

Useful Sufficient

ReliableRelevant

Qualities of audit evidence

EVALUATION FOR PERFORMANCE SCORE REPORTED

ACCURACY

COMPLETENESS

Accuracy is free from errors and distortions and are faithful to the underlying facts. The re-performance of a

calculation or formulae with the same information should yield the same result as the actual score presented by the

KPI owner.

Completeness include all significant and relevant information that the auditor will be able to verify and

validate from source documentation to final result of the KPI status reported and vice versa (i.e. from final result

back to source documentation)

VALIDITY

The information supports the actual score reported based on source documents and actual work completed to fairly

represent that status of the KPI achievement for the reporting period in question.

Specific

Measurable

Achievable

Relevant

Time - Bound

SMART principles

“SMART” acronomy

A strategic outcomes oriented goal should ideally be written as a statement of intent that is specific, measurable, achievable and time bound. A useful set of criteria for selecting performance targets is the "SMART" criteria:

• The nature and the required level of performance can be clearly identifiedSpecific

• The required performance can be measured.Measurable

• The target is realistic given existing capacity.Achievable

• The required performance is linked to the achievement of a goalRelevant

• The time period or deadline for delivery is specifiedTime-bound

AOPI AUDIT OBJECTIVES

Review performance information as reported in the scorecard and the evidence in support of the performance scores

Determine the accuracy, completeness and validity of performance information reported

Evaluate the targets in terms of the “SMART” criteria

Evaluate the risks and control measures of the systems used to manage and report performance information

AOPI AUDIT PROCESS

Evaluate portfolio ofevidence in terms ofAccuracy, Validity andCompleteness

Confirm the achievementor non- achievement ofthe performance target

Conclude on the KPI’s interms of the ‘’SMART”criteria

Report audit findings torespective plan owners,KPI owners andPerformancemanagement unit(PME)to take appropriate action

Determine trend analysisof KPI’s that arecontinuously not achievedthroughout theperformance reportingcycles

Conclude on whetherperformance reportedagainst predeterminedobjectives is useful andreliable, in all materialaspects based onpredetermined criteria

THE ROLE OF OVERSIGHT COMMITTEES

Council

Mayor / EXCO

Portfolio/ EXCO

Committee’s

MPAC

Audit and

Risk

Committee

Oversight role

Submit audit report to EXCO

& Council at least twice

during the financial year.

Audit Committee role in implementation of PMS

Review and comment on compliance with statutory requirements and performance management best practices and standards.

Review and comment on the alignment of the Integrated Development Plan, the Budget, Service Delivery and Budget Implementation Plan and performance agreements.

Review and comment on relevance of indicators to ensure they are measureable and relate to services performed by the municipality and its entities.

Reviews compliance with in-year reporting requirements.

Review the quarterly performance reports submitted by internal audit.

Review and comment on the municipality’s and entities annual reports within the stipulated timeframes. Review and comment on the municipality's performance management system and make recommendations for its improvement.

Meet Quarterly during the financial year.

Review the municipality’s Performance Monitoring and Evaluation system and make recommendations to EXCO & Council.

Audit Committee roles in PMS

Review Annual report in terms of matters raised by AG

including Performance management and seek

accountability and responsibility in developing their

report to Council.

MPAC roles in developing PMS

KPIs not meeting the ‘SMART’ principle.

Subject process for translating achievement of SDBIP projects to KPI achievement.

Evidence not submitted for audit.

Inadequate evidence (sufficiency, relevance, accuracy).

Oversight of changes/deletions of KPIs during Midterm.

Challenges

31

Areas of Improvement & Learnings

Engagement of DCMs and relevant clusters on audit outcomes

Monthly Action tracking as part of cluster meetings; and quarterly Self Assessment outcome prior to audit

Quarterly business Performance presentations by Clusters and Units to A BUSINESS PERFORMANCE meeting and reporting to CM

Engagement with PME throughout audit process

AG liaisons on AOPI issues, scope as well as reliance work

“I DO RIGHT- EVEN

WHEN NOBODY IS

WATCHING”

An Anti Fraud and Corruption pledge by: The Premier and The Mayor –ETM

SETTING THE TONE 2nd Line of Defence parties 3rd Line of defence SYNERGY = COHESIVE

KNIT TEAM

o

1 2 3

Political Leadership

WORK – admin. Leadership

GOOD GOVERNNACE = SUSTAINABLE SERVICE DELIVERY (EEEE’S)

We belong, We care and We serve

Integrated Government

We all have a role to play !!!