1. Simplicity, clarity and relevance of messages In order to determine where it is going and how it will get to its destination, the AGSA developed a document with goal setting known as the Strategic Plan. The development of goals is a key step in effective strategic planning. These goals are written targets which AGSA commits to achieve in the 2012/13 financial year. The AGSA strategic plan presents the following commitments: Simplicity, clarity and relevance of reports
These commitments aim to identify root causes and also make recommendations. The AGSA set a target at 3 points to a 1 to 4 rating scale on clear communication of relevant root causes and recommendations to the AGSA's stakeholders.
The performance indicators of this objective will be the quality of reports, management reports, dashboard reports, general reports or other communication such as presentations, and briefings. Committing to this objective, it is also adherence to fundamental requirement 4 of the International Organisation of Supreme Audit Institutions (INTOSAI) the framework for communicating and promoting the values and benefits of SAIs. INTOSAI requires that SAIs report in a language that is understood by stakeholders and allow the stakeholders act on those reports.
3.2 Visibility of leadership The AGSA committed to develop stakeholder relationships so as to encourage clean administration. A target is set at 3 points within the scale of 4 points to pursue high quality, value-adding where stakeholder interactions are conducted and intensified.
The actual performance will be indicated by providing information through stakeholder interactions on quarterly basis, road-shows and presentation of experience. The AGSA leadership will share the audit outcomes of the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) auditees with the legislative arms of government as well as structures such as the Association of Public Accounts Committees (APAC), the South African Local Government Association (SALGA) and the Speakers Forum.
In this objective the AGSA observes the fundamental requirement 13 of the INTOSAI which requires that SAIs strengthen communication with stakeholders for better understanding of the SAI's responsibilities, audit work and results.
3.3 Strengthen human resources In this objective the AGSA promises to have a motivated, high performing and diverse workforce in which aims to achieve the culture index by 3.2 points, leadership index by 3.2 points and employee engagement index by 3.2 points. A target is set at 3.2 points for each index which is within the industry norm of 5 points.
The performance indicator will be the results of the conducted survey, focus group interviews and other assessments rated according to the Likert scale of 5 points from 1 to 5. The achievement ascribes to mainly relevant skills and matching competencies, implementation of learning and development unit to close knowledge and skills gaps for all employees, executive development, enhancement of the total performance of performance management system, growing own talent through the Trainee Audit Scheme, and deepening public sector insight and knowledge.
The AGSA commits to adhere to fundamental requirement 10 of the INTOSAI which requires that SAIs ensure that they have appropriate resources to perform their work in accordance with relevant standards and other requirements.
4. Leading by example The AGSA in this objective devotes to continual improvement of the quality and timeliness of the AGSA reports, adherence to standards of excellence for clean administration, maximise the AGSA's contribution to transformation.
Targets were as follows: . A target is set at 87 per cent for adherence to all quality standards of audit reports, the performance will be indicated by the results of the quality control assessment; . A target is also set at 3 points for adherence to all quality standards of non-audit deliverables which will be indicated on a 4 point rating scale from 1 to 4;
. A target is set at 100 per cent for complying with the statutory and legislative deadlines for submission of strategic plan and budget, annual report, and general reports;
. To maximise the AGSA's contribution to transformation a target is set at 3 points for achieving and identifying the Broad Base Black Economic Empowerment (BBBEE) rating plan. The achievement of this target is attributed to engagement session with all relevant stakeholders on the AGSA's BBBEE strategy, the Corporate Social Investment (CSI) focusing on rural schools programme, implementation of a high-level 3 year plan on enterprise development, implementation of the BBBEE plan and focusing on preferential procurement employment, management control and skills development; and
. Committing to this objective the AGSA also adheres to fundamental requirement 11 of the INTOSAI which requires that SAIs adhere to the same appropriate rules and philosophy that SAIs expect from auditees as a minimum to promote good governance.
5. Funding The AGSA commits to execute its mandate economically, efficiently and effectively in this objective. A target is set at 2.07 per cent of the revenue for achieving a net surplus. The actual performance will be indicated by the conclusion of the analysis of the income statement at the end of 2012/13 financial year.
A target is also set at 45 days from voucher date for payment of the AGSA's creditors. The actual performance of this target will be indicated by the analysed ageing report of creditors.
. North West, Free State, Northern Cape, Eastern Cape and Mpumalanga a target is set at 55 to 60 per cent for debt collection within 30 days from the date of invoice.
The indication of actual performance will be an analysed ageing report of debtors. A target for occupancy level is set at 85 per cent which will be indicated by the staff occupancy rate report from the PeopleSoft management system. The achievement of funding objective ascribes to interventions to debt collection and improvement of cash flow, generating sufficient surplus, limit the increases in audit tariffs, and evaluating and testing the appropriateness of implementing the planning and budgeting tool in the PeopleSoft Enterprise Resource Planning (PSERP). The predetermined objectives of the AGSA are presumed to be effective because they are specific, measurable, targeted and tied to a deadline.
4. BUDGET The AGSA's budget is an itemised forecast of income and expenditure for 2012/13 financial year. The main purpose of budgeting is that the AGSA estimates whether it can continue to operate with its projected income and expenses. Moreover to determine whether the AGSA will make a surplus or suffer a deficit at the end of the financial year.
Section 38(1) of the PAA requires that the affairs of the AGSA must be conducted in accordance with a budget and business plan prepared by the AGSA for each financial year which must include estimates of revenue and expenditure, for the year to which it relates.
In order to adhere to the requirements of the section 38(1) of the PAA, the AGSA compiled and attached its budget to the strategic plan for 2012/13 financial year. The AGSA indicates the financial highlights in its budget document as follows:
Revenue - is income that the AGSA receives from its audit service, usually from the audit fees. In AGSA's context revenue includes own hours revenue, and contract work revenue which is projected to R2.2 billion for the 2012/13 financial year.
Direct costs - are the expenses that are directly attributed to audit service in the perspective of the AGSA which is projected to R1.5 billion for the 2012/13 financial year.
Gross profit - in the AGSA's context gross profit is a variance between revenue and the cost of providing audit service, before deducting overhead (indirect cost), taxation, and interest payment which is projected to R680 million for the 2012/13 financial year.
Other income - is income from the AGSA's activities other than audit service (audit fees) such as investment interest, foreign exchange gains, and profit from the sale of non-inventory assets which is estimated to R73.5 million in the 2012/13 financial year. Other expenses - are the expenses that are not related to audit service such as interest expense, and administrative expenses which are projected to R707.6 million.
Net surplus - is a profit remaining after subtracting the operating expenses, and interest payment which is estimated to R46 million or 2.07 per cent for the 2012/13 financial year.
The following upward adjustments on human resource related compensation: . Bonus provision amounting to R22.58 million; . Leave provision amounting to R2.5 million; . Group life cover amounting to R0.5 million; . Unemployment Insurance Fund (UIF) amounting to R0.4 million; and . Long service award amounting to R4.2 million.
5. RECOMMENDED AUDIT TARIFFS Section 23(1) of the PAA requires the AGSA determines the basis for the calculation of audit fees to be recovered from auditees in respect of audits performed by the AGSA, after having consulted the oversight mechanism (the Committee) and the National Treasury.
Adhering to section 23(1) of the PAA, the AGSA recommended increase of tariffs rate in its strategic plan for 2012/13 which is calculated based on average staff costs per band and interval, mark up factor and recoverable hours. Despite the fact that the AGSA set a target of 2.07 per cent of revenue to achieve net surplus in 2012/13 the AGSA discounted its tariff rate from 7.1 per cent market rate to 5.6 per cent by 1.5 per cent amounting to R40.5 million. The increase in the average charge rate is determined by salary increase of 8.6 per cent in 2012/13 compared to 8.12 per cent for 2011/12. The 5.6 per cent of audit tariffs adjustment is influenced by the average staff costs per band and interval, mark up factor and recoverable hours.
6. AUDIT DIRECTIVES Section 13(1) of the PAA requires that the AGSA, after consulting the oversight mechanism, must determine: . The standards to be applied in performing audits which the AGSA must perform or opts to perform; . The nature and scope of such audits; and . Procedures for the handling of complaints when performing such audits.
. Best auditing practices, both locally and internationally; and . The capacity of the AGSA and the auditing profession to comply with those standards.
. Make different determinations on audit standards to be applied, nature and scope of audit, and procedures for the handling of complaints when performing audit for different categories of audits based on recognised best practice; or . Issue specific directives on these matters in any specific case.
The AGSA attached the General Notice XX of 2011(audit directive document) to the strategic plan for the 2012/13 financial year for consideration by the Committee as required by section 13(1) of the PAA.