SCoAG update - Finance Turnaround Plan 31 March 2008 Deputy Auditor-General Kimi Makwetu.

SCoAG update - Finance Turnaround Plan31 March 2008

Deputy Auditor-General

Kimi Makwetu

SCoAG April 2008

Content

1. Background

2. Financial Management Capability

3. Finance Turnaround Plan

4. Project status

5. Monitoring and control

6. Conclusion

SCoAG April 2008

1. Background

• An Acting CFO was appointed and a finance turnaround project was mobilised in July 2007 as a result of the deteriorating performance of the financial management unit.

• The financial management unit performance issues arose primarily as a result of inadequate leadership.

• The diagnostic phase was performed during August to October and the weaknesses and areas of exposure identified. Key risk areas identified during the diagnostic were actioned in parallel to the diagnostic. A detailed turnaround plan was finalised in December 2007.

• The Audit Committee has been appraised of the turnaround project findings, status and way forward in August 2007, November 2007 and February 2008.

• This report summarises the current project status and way forward for SCoAG.

SCoAG April 2008

2. Financial Management Capability (1 of 2) STRATEGIC ALIGNMENT

• The vision of the AG is ‘We are the independent world-class provider of public sector audit and related value-added services’. The constitution requires that the AG audit and report on accounts, financial statements and financial management of the government.

• The AG has adopted the Financial Management Capability Model* (FMCM) as the de facto standard for assessing the adequacy of financial management of the government.

• Consequently, it is an imperative that the AG demonstrates leadership at financial management best practice in terms of its own business.

• The generic goals of the FMCM are:

1. To ensure that management have support for decision making;2. To ensure the availability of timely, relevant and reliable information, both financial and non-financial;3. To contribute to managing the risks to the organisation;4. To help the organisation make efficient, effective and economical use of resources;5. To establish a supportive control environment;6. To enable the organisation to comply with authorities and safeguard its assets.

• These goals are achieved by establishing 25 key financial management processes or practices and ensuring compliance thereto. The FMCM separates these 25 financial management processes into 4 levels. Each level and relevant set of processes is a building block for the next level up.

* - source – Financial Management Capability Model Auditor-General Canada, 1999. Adapted for AG SA.

SCoAG April 2008

2. Financial Management Capability (2 of 2) FINANCIAL MANAGEMENT FRAMEWORK

• T h e AG h a s c o mmi t te d o v e ra l l to a c h i e v i n g 7 5 % l e v e l 2 a n d 2 5 % l e v e l 3 o f CMM b y th e e n d o f th e 2 0 0 8 p e rfo rma n c e y e a r.

• T h e F MCM fra me wo rk c o mp r i s e s 5 l e v e l s o f ma tu r i ty :

• T h e f i n a n c e tu rn a ro u n d d i a g n o s t i c i d e n t i f i e d th a t a l th o u g h th e A G h a s e s ta b l i s h e d L e v e l 2 Co n tro l p ra c t i c e s ( a n d a n u mb e r o f L e v e l 3 In f o rma t i o n a n d L e v e l 4 Ma n a g e d p ra c t i c e s ) a n u mb e r o f t h e L e v e l 2 p ra c t i c e s h a d re g re s s e d a n d re q u i re re n e we d c o mp l i a n c e f o c u s a n d i mp ro v e me n ts .

* - Not e that t he AG has intr oduced one addit ional level for purposes of audit ing t he government and hence assesses 6 levels of maturity. This new level, Level 2, is called the Developmental level and represent s a t ransitory stage before achieving full ‘contr ol’ st atus.

Level* Maturity Indicators

1 Start-up Dependent upon often-isolated efforts of individuals. Repeatability and sustainability questionable.

2 Control Control framework effective to control/reduce risks and produce complete and accurate financial and operational data. Planning and budgeting. Operating control. Sufficient funds. Statutory compliance.

3 Information Integrated, product costs, units manage and reduce risks, financial management climate throughout organisation. Performance measurement. Resource management. Quality measurement. Risk management.

4 Managed Predictive quantitative information used to balance economic use of resources and producing cost-effective results. Information and knowledge management. Cost, quality, turnaround and risk process statistical performance information.

5 Optimizing Internal & external bench-marking drives continuous improvement, best practices.

SCoAG April 2008

3. Finance turnaround plan. (1 of 4)2008 PERFORMANCE MANAGEMENT

• The finance turnaround plan has been developed based upon the results of the diagnostic performed in the second half of 2007 and the AG strategic requirement of achieving capability maturity of level 5 within the foreseeable future. World-wide experience has shown that it takes at least 4 to 5 years to progress from Level 1 to Level 5.

• The objective for the 2008 performance year is to close the gaps and achieve level 2 – Control status.

• The 2008 plan comprises 99 milestones distributed across the People, Product and Process dimensions. These milestones are under-pinned by a detailed plan for each dimension. The detailed plans have been work-shopped and agreed with the managers and staff in Finance. These milestones and plans form the core of the Finance business unit balanced scorecard and all finance staff individual performance contracts. These milestones are included in the Chief Operating Officer and Chief Financial Officer 2008 performance contracts.

SCoAG April 2008

3. Finance turnaround plan. (2 of 4)2008 OBJECTIVES & MILESTONES - PEOPLE

• The short term objectives are as follows:

o Ensure Finance has competent long-term senior leadership and operating effectively by July 2008.

o Ensure Finance has competent interim management operating effectively by February 2008 and overlaps with the long-term appointments.

o Ensure finance staff are committed to realistic and measurable targets which under-pin the turnaround plan by the end of April 2008.

o Ensure hygiene motivational issues are addressed including clear line-of-sight, job related pay, communication and performance management training for managers by August 2008.

o Develop AG wide risk/internal control culture implementation plan by June 2008

ID Task Name Finish

2 PEOPLE '08 Jul 31

3 Structure approved '08 Feb 29

4 CFO starts '08 May 01

5 SM Fin Acc, Man Acc and PPT starts '08 Jun 02

6 Managers FAM, SCM, AR, PM, Pr & T starts '08 Jun 03

7 2007 performance ratings agreed '08 Apr 21

8 2008 performance IPCs signed '08 Apr 28

9 Communication protocols operationalised '08 Jun 02

10 Finance pay re-calibrated '08 Jun 30

11 Complete CFO handover and support '08 Jun 30

12 Complete 'fit-for-purpose' training '08 Jul 31

13 CSA culture plan (BEGV) '08 Jun 30

02/29

05/01

06/02

06/03

04/21

04/28

06/02

06/30

06/30

07/31

06/30

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb2008 Qtr 1 2008 Qtr 2 2008 Qtr 3 2008 Qtr 4 2009 Qtr 1

SCoAG April 2008

3. Finance turnaround plan. (3 of 4)2008 OBJECTIVES AND MILESTONES - PRODUCT


o Deliver improved funding model and budget 2010-2012.

o Deliver improved and relevant monthly financial reporting and forecasting to the AG executive management.

o Deliver unqualified 07/08 AFS by 30 June 2008.

o Deliver improved finance policies and establish service level agreements.

o Establish improved executive and Audit Committee risk/internal control reporting by June 2008.ID Task Name Finish

14 PRODUCTS AND SERVICES '08 De c 15

15 PD: Funding model - 1st SCoAG consultation '08 Apr 07

16 PD: Funding model - SCoAG decision '08 Jun 18

17 PM: Unqualified 2008 AFS '08 Jun 30

18 PI: Budget 2010-12 - SCoAG '08 Sep 17

19 PI: EXCO financial reporting '08 Nov 25

31 PD: Rolling Forecast 08: 9+3 '08 Jan 25

32 PD: Rolling Forecast 09: 0+12 '08 May 05

33 PD: Rolling Forecast 08: 3+9 '08 Jul 25

34 PD: Rolling Forecast 08: 6+6 '08 Nov 20

35 PI: BSC reporting '08 Nov 25

41 PD: Monthly control e xception reporting '08 Nov 25

52 PD: Monthly COO (FTP & Risk) reporting '08 Nov 25

63 PI: Monthly CSA accurate and comply '08 Nov 25

73 PM: Procurement - CWC 08 allocated '08 Feb 28

74 PM: Procurement - CWC 09 Tender approved '08 Nov 27

75 PD: Service level agreements agreed '08 Sep 30

76 PD: Service level performance reporting '08 Nov 28

77 PI: Procurement policy agreed '08 Jun 12

78 PI: 11 Finance policies agreed '08 Sep 18

79 PI: Policies operationalised '08 Dec 15

80 PM: SCoAG FTP update '08 Apr 08

81 PM: SCoAG FTP update '08 Jun 27

82 PM: SCoAG FTP update '08 Sep 30

83 PM: Audit Comm FTP update '08 Feb 28

84 PM: Audit Comm FTP update '08 Jul 17

85 PM: Audit Comm FTP update '08 Nov 13

86 Improved EXCO/AC risk/internal control reporting (BEGV)'08 Jun 30

04/07

06/18

06/30

09/17

01/25

05/05

07/25

11/20

02/28

11/27

09/30

11/28

06/12

09/18

12/15

04/07

06/27

09/30

02/28

07/17

11/13

06/30


SCoAG April 2008

3. Finance turnaround plan. (4 of 4)2008 OBJECTIVES & MILESTONES - PROCESS


o Resolve relevant high and moderate risk audit findings before 07/08 financial year end.

o Achieve 100% level 2 – Control status in terms of processes and compliance by the end of the performance year.

o Improve audit finding and diagnostic relevant processes and standard operating procedures by end of the performance year.

o Ensure stability of financial systems throughout the year by actively participating in and influencing the Peoplesoft ERM upgrade.

ID Task Name Finish

87 PROCESSES '08 Dec 18

88 Revised CSA questions implemented '08 Jul 31

89 2007 high and mod Audit findings cleared, excl. SOPs '08 Mar 31

90 Fixed assets improvements developed, tested and operationalised'08 Jun 30

91 Billing improvements developed, tested and operationalised'08 Sep 29

92 S&T improvements developed, tested and operationalised'08 Aug 29

93 Monthly reporting improvements developed, tested and operationalised'08 Jun 30

94 Continuous improvement process developed, tested and operationalised'08 Jun 30

95 Forecasting improvements developed, tested and operationalised'08 Jul 31

96 Budget improvements developed, tested and operationalised'08 Jul 31

97 Accounts payable improvements developed, tested and operationalised'08 Oct 30

98 HR termination improvement developed, tested and operationalised'08 Oct 31

99 Peoplesoft upgrade supported '08 Dec 18

07/31

03/31

06/30

09/29

08/29

06/30

06/30

07/31

07/31

10/30

10/31

12/18


SCoAG April 2008

3. Project status. (1 of 3)OVERALL AND PEOPLE

Overall status:

• Overall progress and momentum is good. Actual percentage complete is 15% versus planned completion of 17%. The slight delay is due to later start of additional resources than planned. The critical path remains on track.

People status:

• This is the most critical component of the turnaround plan and receiving significant focus. The new structure has been approved and a full complement of 5 senior leadership (4 interim and 1 long-term) has been secured until end July 2008. The senior leadership includes the Acting CFO and Senior Manager Process (both CA’s) contracted in mid 2007.

• A competent long-term CFO has been recruited, after a rigorous selection process, and will join on 1 May 2008. The Acting CFO will perform a controlled hand-over during May and longer, if required. The recruitment of the 3 long-term senior managers is well progressed. The recruitment of the 6 vacant manager positions has also commenced.

• The 2007 balanced scorecard and performance ratings is well progressed and ready for audit.

SCoAG April 2008

3. Project status. (2 of 3)PRODUCT

Product status:• The funding model project sanctioned by SCoAG at the end of October 2007 has

been mobilised. A position paper has been developed and agreed with internal stakeholders. The Minister of Finance and DG National Treasury has been briefed in principle. A pre-liminary review has been held with certain technical specialists in NT. A cash advance request has been submitted to NT and further follow-up will be scheduled during April. Refer to a separate detailed report on this matter.

• The rolling forecast practice has been further rolled out in the AG. The latest rolling forecast for 2007/08 indicates that previous forecast deficit of R16.5m will be reduced to break-even or a small surplus as a result of operating and capital expenditure cost cutting started in October 2007.

• A major focus is on ensuring that an unqualified/unmodified 2007/08 AFS is delivered by the end of June 2008. Initiatives started in the second half of 2007 (e.g. Balance sheet cleanup and resolving prior year audit findings) have made significant progress towards ensuring that the AG financial statements and accounting records and controls are in a good state for the year-end audit. Recent internal audits have indicated a significant improvement trend and management is confidant that the Annual Financial Statements will remain unqualified.

SCoAG April 2008

3. Project status. (3 of 3)PRODUCT and PROCESS

Product status (continued):

• Improved financial reporting to the AG executive management is progressing per plan.

• The Audit Committee had raised significant concerns at the November 2007 update. The Audit Committee was provided a detailed status update in February 2008 on the finance turnaround and management was complimented on the progress made to date.

Process status:

• 44 audit recommendations were made by internal and external audit in prior years. Significant focus has been placed on resolving the significant risk findings. 70% of all findings have been resolved to date and one remaining significant risk finding will be resolved during April. The remaining findings mostly relate to improving processes and standard operating procedures and these are planned to be addressed during the second half of the performance year.

• A significant focus is on enhancing early warning risk and internal control Executive and Audit Committee reporting.

SCoAG April 2008

5. Monitoring and Control

• Weekly and monthly status updates are provided to the CFO by the Finance senior management.

• A monthly Steering Committee, chaired by the DAG, comprising the Chief Operations Officer, Head of Auditing, Chief Financial Officer and Head of Human Capital reviews the status and risks relating to the finance turnaround project.

• A monthly status, risks and issues report is presented to the Executive Committee.

• The status of the finance turnaround project is a standard agenda item for the Audit Committee.

• The status of the finance turnaround project is a standard agenda item for the Standing Committee of the Auditor-General.

SCoAG April 2008

6. Conclusion

• The Finance turnaround plan is detailed and clearly identified accountability for delivery.

• The plan has been shared and is well understood by the Finance management, staff, the DAG, COO, Head of Auditing, the Governance unit, the Strategy unit, the Human Capital unit, the internal auditors and the external auditors.

• The plan, although requiring significant effort and focus, is not complex.

• The recruitment and handover to the long-term senior management will take place in a staggered and phased manner. The interim management will be released in a phased manner as knowledge transfer takes place and project momentum is protected.

• Executive management is confidant that the turnaround approach and plan will ensure long-term financial stability for the AG.

SCoAG update - Finance Turnaround Plan 31 March 2008 Deputy Auditor-General Kimi Makwetu.

Documents

Transcript of SCoAG update - Finance Turnaround Plan 31 March 2008 Deputy Auditor-General Kimi Makwetu.