Building Support for an Impact-Focused Audit Function

Gert van der Linde, World Bank

Uganda, Kampala

May 19, 2004

Building Support for an Impact-Focused Audit Function

• Good governance

• Value proposition

• Quality Assurance

• Professionalism

Governance

• SA realities:– Cash utilisation was the key measure of performance

– Focus on inputs and not on results

– Fragmented and unclear accountabilities and legal frameworks

– Poor quality and late information

– Poor compliance with existing legislation

– Weak financial management

– Wastefulness & inefficiency, fraud & theft

• In summary, Poor Accountability

Accountability Framework

Outcomes Outputs Programs

Inputs:

Salaries

Supplies

Capital exp, etc.

Organization:

Departments

Branches

Cost Centers

How much?Quality?When?Cost?

Economy

Efficiency

Effectiveness

= Budget

Performance Agreements

Accountable for what is controlled

Executive Authorities

• Determine policy and budgets • Performance targets/contract with Director-General

(Accounting Officer) and Accounting Authority of public entities (normally the Board)

• Monitor implementation– Consider monthly reports on budget

– Regular reporting to cabinet/ executive council

• Monitor public entities• Table annual report & audit report within 6 months

Obligations on Accounting Officers

• Deliver contracted outputs

• Ensure expenditure in line with the purpose as voted

• Appropriate steps to prevent unauthorized, irregular and wasteful expenditure

• General fiduciary responsibilities, including risk management, internal controls, internal audit & audit committees

• Enforce disciplinary measures

• Monthly in-year reporting

• Annual Report, including Annual Financial Statements

Internal Audit

• Accounting Officer must establish and maintain a system of internal audit under direction of an audit committee

• Audit committee at least 3 persons – One from outside public service

– Majority not employed by department, unless approved

– Chairperson may not be in employ of department

• Internal audit function and audit committee may be established for two or more departments if treasury considers appropriate

Audit Committee Impact

• High profile individuals attracted

• Introduced risk awareness in departments

• Called for risk responsive audit plans

• Called for well-qualified HIA

• Assisted in getting units resourced

• Assured independence

• Improved credibility of Accounting Officers

 1.      ANALYSIS OF AUDIT COST AND VALUE ADDED Internal Audit capacity is budgeted at 227 200 hours at an average budgeted cost per hour approximating R250, all costs included. With the average cost per outsourced audit hour estimated at R650 (based on current external audit costs per hour), the annual saving in audit costs to the Group amounts to approximately R91m.  2.      CONCLUSION We believe that our audit approach and the planned assignments address the areas of principal operational risks to which the Absa Group is exposed. We look forward to providing increased levels of assurance on the effectiveness of the control environment to management, the GACC and the Board.

Value proposition

Value Proposition

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Probability0 1 2 3 4 5 6 7 8 9 10 11

1

2

3

4

5

6

7

8

9

10

11

0

Ser

iou

snes

s

TREASURY - AGRIS

Control Profile

6

13

2

1

4

5

3

9

8

= Risk area6

12

107

11

Low Risk AreasMedium Risk Areas

High Risk Areas

1 - Implementation of trading strategy

2 - Marketing of products / services

3 - Market / product liquidity

4 - Obtaining of credit approvals

5 - Security documentation

6 - Management of counterparty exposures

7 - Dealing and pricing systems

8 - Quoting of rates9 - Trading10 - Income generation11 - Fee / commission

structure12 - Position revaluation13 - VaR / Sensitivity

Analysis

Quality AssuranceOn the basis of the GAIN performance benchmark, Absa Group Internal Audit continued to perform well above the performance index calculated for all the respondent companies. Our performance index of 185 (2001: 189 and 2000: 178) compares favourably against the average of 156 (2001: 157) for all participants. The Absa performance indicator has decreased mainly because of two factors:         Average years of staff experience in internal audit came down from 12 to 10 years. This was caused by the retirement of 12 staff with a relatively high number of years of experience in credit inspection. This function has been discontinued and a revised credit audit approach implemented that would adequately assure the retail and commercial credit operations of the Group.         An increase in the average number of days per audit, mainly caused by longer audit planning and fieldwork to accommodate changes resulting from the new operating model.  Should the above factors be adjusted to its previous scores, the performance indicator would have been slightly higher than that of 2001.

Quality Assurance  Absa

Assess-ment

Absa2002

Absa2001

Respon-dents 2002         

Performance Index        

Total weighted score achieved 185.24

189.00 155.79

Weighted score by measure:        

a.    Years of audit staff experience (4) 32.37 38.84 25.65

b.    Audit recommendations implemented

27.68 27.68 27.68

c.    Management expectations 24.60 18.45 20.78

d.    Internal audit role viewed by AC(7) 18.45 18.45 20.20

e.    Auditee satisfaction survey results 24.00 24.00 23.95

f.      Significant areas of risk covered 24.60 24.60 14.31

g.    Audit assignment cycle time (6) 33.54 36.98 23.22

Professionalism

• Institute of Internal Auditors• International Standards for the Professional

Practice of Internal Auditing• IIA Code of Ethics - four core principles of

practice: – Integrity, – Objectivity, – Confidentiality, and – Competency

• Certification

Building Support for an Impact-Focused Audit Function

Questions?