Auditor-General 2023-2026 Strategic Plan and Budget

Meeting report

AGSA on draft strategic plan and budget 2023 – 2026

Ms Tsakani Maluleke, Auditor-General (AG), and Mr Vonani Chauke, Deputy Auditor-General (DAG), said that the strategic plan and budget presented the strategic and financial plan of the AG for the period 1 April 2023 to 31 March 2026. Based on the #cultureshift2030 strategy, it had set targets for the first year and made projections for the remaining two years of the three-year cycle.

The presentation outlined the strategic context, stating that audit outcomes must be more progressed. The coalface of service delivery in local government and state-owned enterprises (SOEs) was of significant concern for the AGSA, government, Parliament, and citizens. The continued misuse of state resources and persistent weaknesses in systems of transparency, accountability, and performance were of significant concern to the citizens of South Africa broadly. The negative impact on the lived realities of people was the more important story of the impact on the lived reality of ordinary South Africans that was represented by the numbers, findings, and audit outcomes. Regressing outcomes and the lived reality of ordinary South Africans they represented had a detrimental impact on democracy.

The AGSA drew its strategy from the South African Constitution and the Public Audit Act (PAA). Having reflected on the South African context and the root causes of the persistent undesirable outcomes, the AG had resolved that if there was no focus on improving the public sector culture, outcomes would not change materially.

After describing the status and functions of the AGSA, the presentation outlined the theory of change. The AG wanted to meaningfully contribute towards reversing the trend of persistent accountability and performance failures. To realise the aspiration of a substantial and direct impact on the lived reality of ordinary South African, the AG relied on leveraging capabilities towards ten generating insights and applying influence on stakeholders in a manner that shifted the culture of the public sector towards one of performance, accountability, transparency, and integrity. The theory of change assumed that the AG would realise its strategic aspiration of making an impact on the lived reality of ordinary South Africans by sustainably and efficiently shifting the public sector culture through insight, influence, and enforcement.

The AG presented its strategic aspiration by focusing on six strategic goals.

Strategic goal 1: Sustainably acquire, develop and maintain the quantity, quality and configuration of resources and capabilities to achieve and sustain its desired levels of impact.

Strategic goal 2: Efficiently unlock latent capacity in the existing resource base and the people, and lower the cost and effort with which one derives each marginal unit of quality, insight, influence and enforcement.

Strategic goal 3: Shift the public sector culture. Move a critical mass of auditees towards organisational cultures characterised by performance, transparency, integrity and accountability.

Strategic goal 4: Generate audit insights that illuminate understanding, drive action and yield results.

Strategic goal 5: Influence and move stakeholders from mere awareness, to action and advocacy of AGSA's messaging.

Strategic goal 6: Through enforcement, apply powers directly and indirectly to recover resources lost to the state and taxpayers, and ensure the application of consequences for wrongdoing.

The presentation noted the implementation approach and plan. The early insight into the implementation of the strategy was critical.

Critical aspects of the implementation approach and plan:

The staff and leadership enthusiastically support the new strategy;
Good uptake on the concept of the accountability ecosystem by various role players;
Developing the public sector culture baseline was well underway;
Targeted audit approaches – a suite of audited methodologies already developed and piloted, e.g., disclaimer auditees;
Expanding and prosperous narrative around service delivery in GRs;
Confident implementation of their extended powers - an excellent chance to issue a certificate of debt soon; and
A strong start around the development of much-needed technological capabilities, e.g., audit software and digital transformation.

The AG also noted the implementation of extended powers. It significantly scaled up the material irregularity (MI) process implementation across all categories of auditees. There were fast-tracked plans, which ensured the full MI definition was applied. The AG would implement expanded powers in every audit conducted by the end of the 2024-25 financial year.

The AG prioritised collaboration with public bodies. A substantial part of implementing the MI process depended on the work of various public bodies and law-enforcement agencies. The work with the Fusion Centre during the first real-time audits was enriched cooperation with the Special Investigating Unit (SIU) and the Office of the Public Protector. It had opened opportunities to leverage these relationships to support audits. Engagements with the Competition Commission and the Directorate of Priority Crime Investigation (DPCI) enhanced their audit teams' capacity to review the supply chain management (SCM) processes. The AG would continue to build relationships with public bodies and improve collaboration processes – from referrals for investigations to proactive sharing of risks identified during the audits, to enhancing the capacity of the audit teams.

The AG had strengthened the accountability ecosystem. A supreme audit institution could not independently drive good performance and management of public resources. The AG called for all role players to be active in improving the management of public resources and service delivery.

The AG endeavours to understand the mandate of relevant role players, to provide insight into their performance, and to locate solutions for sub-standard or undesirable outcomes to influence improvement in performance that, in turn, would bring an improvement in the lives of ordinary South Africans.

The AG addressed the observations and recommendations of the Judicial Commission of Inquiry into State Capture. It committed to developing and executing a programme that considered the Commission's findings, observations and recommendations on audits and audit risk assessments, scoping and processes; audit methodology and its effectiveness, as well as skills, systems and tools to perform fraud data analytics and identify indicators of fraud corruption and capture as early as possible; and an expanded narrative on fraud and corruption.

The AGSA highlighted its organisational needs:

Organisational engagement on the #cultureshift2030 strategy;
Leadership alignment and culture shift;
Resourcing for success;
Strengthening the ethical posture;
Financial sustainability; and
Improving technological capabilities.

The presentation outlined the budget, funding model principles, and financial indicators. The AG would optimise access to the resources required to fulfil its mandate. The Standing Committee on the Auditor-General (SCAG) confirmed the current funding model in 2008. Since then, all principles and key financial indicators have been consistently met. However, some of the desired surpluses had yet to translate into cash, resulting in a backlog of significant capital expenditure (CAPEX) and infrastructure projects. The AG's budgeted cash to cover 2023/24 was 2.0 months, in line with its blue strategic target of 2.0 to 2.5 months.

In line with the culture shift strategy, the AG would review its funding model to consider pricing services based on the value of insights (messages) it provides to auditees and other stakeholders instead of salaries and the volume of recovered hours. The organisation was driving a strategy to improve operational processes, technology and audit methodology to improve audit efficiencies, i.e., leveraging technology by automating the business and audit processes. The investment in technology would result in a move in cost structure from the human aspect to technology. This would not translate into hours and rates, as technology would eliminate people's mundane tasks by automating processes. The AG's funding model had been financially sound in funding operations and minor CAPEX projects. It had, however, been unable to fund major CAPEX projects. The reviewed funding model would be shared with the SCAG for consideration and approval once it had been finalised.

The summary income statement was as follows:

Budgeted revenue for 2023-24 was expected to grow by 5% from the 2022/23 budget, which was in line with the projected consumer price index (CPI) of 4.6% to 5%;
Budgeted overhead expenses were expected to grow by 3%, which was below CPI, driven mainly by annual salary increases and investment in staff development;
Some of the budgeted overhead expenses were decreased or kept the same as the 2022/23 budget in support of the cost containment strategy.

The capital expenditure was as follows:

The year-on-year CAPEX increase was driven mainly by investment in computer software and hardware in support of the improvement in information communication technology (ICT) infrastructure and systems;
The 2023/24 budgeted surplus was insufficient to cover the CAPEX, and it would need to draw from reserves, which would negatively impact cash cover going forward.

The AG presented a pivotal update to the 2022/23 audit cycle's Auditor-General directive, and the necessary updates to give effect to the implementation of the new audit methodologies in the 2022/23 cycle. This involved including a finding's engagement methodology, using relevant principles from the pronouncements by the International Auditing and Assurance Standards Board (IAASB). This methodology was established as pronouncements by the IAASB, and the International Standards for Supreme Audit Institutions (ISSAIs) did not have an existing standard for a finding's engagements for the audit of compliance and Audit of Predetermined Objectives (AoPO). The implementation of the findings engagement for all compliance at all auditees also resulted in the removal under the audit of compliance of International Standard on Assurance Engagements (ISAE) 3000 and the consequent listing of subject matters and legislation, as this was required only for limited assurance engagements by the standard.

The AG outlined the critical decisions required:

Comments on the strategic plan and budget;
Comments on the AG's annual directive;
Confirmation of the date(s) for the discussion of the status of the MIs;
Approval of the retention of surplus
Confirmation of the re-appointment of the external auditor

Discussion

The Chairperson said the AG's presentation provided a practical overview of the critical areas of interest. It highlighted the culture change and the effect of the audit outcomes as far as the public sector was concerned. It was related to the ability of the state to maximise resources for the benefit of communities. The AG's contribution was shaped by the information technology (IT) strategy. This impacted the effectiveness of the audit function.

He noted the impact of the threats experienced by the AG. This could hamper the AG's ability in the physical audit space. He recommended maximising technological influence to change the spectre as far as the processes were concerned. He said the funding model should assist in how the AG's work was conducted. Auditees must pay for the work that the AG has completed.

He said that the ability of the AG to build appropriate infrastructure was essential. He referred to an article the AG had shared with him on the nature of the New Zealand audit office. The article revealed how progressive South Africa's audit approach was compared to New Zealand's. The AG in South Africa was noteworthy for its timely reporting, accountability and making a positive impact. 

Ms N Hlonyana (EFF) congratulated the AG on the budgetary surplus, even though its auditees owed it almost R1 billion. This was commendable, as many departments could not have a surplus. She commended the AG for leading by example in obtaining clean audits. She encouraged the AG to take serious measures against those auditees that owed it money. She welcomed the new system of remote working proposed by the AG.

Mr O Mathafa (ANC) recorded his concern about outstanding debts. To assist the AG in recovering outstanding debt, some Members had previously submitted questions to the Treasury and the Minister of Finance for guidance. Treasury had confirmed that the Office of the AG had a stable financial position. There were sufficient funds to cover current liabilities in cash and cash equivalents.

The Committee recognised that there were municipalities in distress. There should be continuous intervention by the Minister of Finance. The Minister of Finance had dedicated R72.6 million for the 2022/23 financial year, R124 million for the 2023/24 financial year and R128 million in 2024/25 to assist financially distressed municipalities in paying the AG's audit fees.

He said that the AG should explore legal steps against those auditees that owed it money. The issue of audit fees should be consistently discussed with the auditors. He asked if the AG's dispute resolution mechanism guided the issue of audit fees.

He commended the strategy's inclusion of data analytics and technological investment. He supported the AG's priority to recruit young and vibrant chartered accountant candidates for employment in the mainstream auditing system.

He said that Members had engaged with the AG to strengthen internal operations, and the presentation showed that the AG was committed in this regard.

Ms Z Kota-Mpeko (ANC) stressed the importance of the AG's vision, mission and constitution. She agreed with the AG that the issue of outstanding debts and internal challenges must be resolved effectively. Cultural change was vital in terms of the timely submission of reports. This ensured the closure of gaps between the audit outcomes and service delivery. Payments by public users must be enforced. 

AGSA Responses
Ms Maluleke assured Members of the AG's commitment to ensuring clean audits and implementing effective debt collection. She thanked them for presenting the issue of outstanding debts to the Treasury. The AG would ensure comprehensive and transparent feedback on the reconciliation between the Treasury's commitment to the outstanding fees and the funds ultimately received.

The AG would consider legal steps as an option to collect the payment of outstanding debts from municipalities. It agreed that the culture change started with the municipalities. Municipalities must pay for the audit services they receive. Similarly, municipalities must also collect the revenue that was due to them.

It was a continuous process to ensure the closure of gaps between the audit outcomes and service delivery. The AG was finalising the 2022 municipal audit, and the results would be presented to the Committee at the beginning of 2023.

The Chairperson noted that the AG's briefing emphasised the importance of accountability and the value for money to meet the needs of the people. Actual auditing was indicative of auditing performance. He recommended that the AG's municipal audit focus on the lack of impact and financial accountability by departments providing services.

He stressed the importance of the culture of ethical conduct in the office of AG, as emphasised in the AG strategy. The observation of accountability and ethical conduct was critical.

He appreciated that the AG was focused on performance, a critical aspect of financial accountability, and asked the AG to submit more information on the MI process to be presented to the Committee at the beginning of 2023.

He thanked the AG for the briefing.

The meeting was adjourned.