Water Board audit outcomes for...
Transcript of Water Board audit outcomes for...
Water Board audit outcomes for 2016-17
28 February 2018
Our reputation promise/mission
The Auditor-General of South Africa has a constitutional mandate and, as
the Supreme Audit Institution (SAI) of South Africa, exists to strengthen our
country’s democracy by enabling oversight, accountability and
governance in the public sector through auditing, thereby building public
confidence.
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ANNUAL PERFORMANCE PLAN (APP)
TARGETS PER APP
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“Plan-Do-Check-Act Cycle”, also the Deming cycle , courtesy of the International Organization for Standardization
AGSA theme for the current year to improve outcomes
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DO
PLAN
CHECK ACT
AGSA theme for the current year to improve outcomes
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The role and importance of leadership in the public sector
Leadership is a key driver of good Internal Controls, which are key to ensuring that auditees deliver on their priorities
in an effective, efficient and economical manner. (pg 122)
Good internal controls, which is the responsibility of leadership, will also ensure that quality financial statements and
performance reports are produced, and applicable legislation is complied with – especially around procurement and
contract management. (pg 122)
CONSOLIDATED General Report on National and Provincial Audit Outcomes
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Water value chain
Water Boards
DWS, WRC
TCTA
WSA WTE
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CMAs
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1 The Water Board audit outcomes
for 2016-17
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Our annual audits examine three areas
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The AGSA expresses the following different audit opinions:
Unqualified
opinion with no
findings
(clean audit)
Financially
unqualified
opinion with
findings
Auditee:
• Credible and reliable
financial statements
that are free of
material
misstatements
• Useful and reliable
performance as
measured against
predetermined
objectives
• complied with key
legislation
Auditee produced financial
statements without material
misstatements or could correct the
material misstatements, but
struggled in one or more area to:
• align their performance reports to
the predetermined objectives they
committed to in their APPs
• set clear performance indicators
and targets to measure their
performance against their
predetermined objectives
• report reliably on whether they
achieved their performance target
• determine the legislation that they
should comply with and implement
the required policies, procedures
and controls to ensure compliance
Qualified
opinion
Auditee:
• had material
misstatements on
specific areas in their
financial statements,
which could not be
corrected before the
financial statements
were published.
Adverse
opinion
Auditee:
• had the same
challenges as those with
qualified opinions but, in
addition, they had so
many material
misstatements in their
financial statements that
we disagreed with
almost all the amounts
and disclosures in the
financial statements
Auditee:
• had the same
challenges as those
with qualified opinions
but, in addition, they
could not provide us
with evidence for most
of the amounts and
disclosures reported
in the financial
statements, and we
were unable to
conclude or express
an opinion on the
credibility of their
financial statements
Disclaimed
opinion
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Regression in audit outcomes over three years – Water Boards
33% (Sediben
g, Lepelle,
Mhlathuze)
56% (Magalies
, Sedibeng, Lepelle, Amatola,
Rand)
11% (Overber
g)
45% (Umgeni,
Rand, Magalies, Amatola)
11% (Overber
g)
44% (Magalies
, Overberg, Lepelle, Amatola)
11% (Bloem)
33% (Umgeni, Mhlathuze, Bloem)
56% (Sediben
g, Mhlatuze, Umgeni, Bloem, Rand)
2016-17 2015-16 2014-15
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11% Overberg
67% Magalies Lepelle
Sedibeng Rand
Amatola Mhlathuze
67% Magalies Lepelle
Sedibeng Rand
Amatola Overberg
44% Magalies Lepelle
Overberg Amatola
22% Bloem
Umgeni 33%
Bloem Umgeni
Mhlathuze
56% Bloem
Umgeni Mhlathuze Sedibeng
Rand
2016-17 2015-16 2014-15
11% Overber
g
56% Sediben
g, Mhlathu
ze Lepelle Amatola
Rand 33%
Magalies
Amatola,
Overberg
33% Overber
g Mhlathu
ze Amatola
33% Magalie
s, Umgeni, Bloem 67%
Sedibeng
Mhlathuze
Umgeni Lepelle, Bloem, Rand
67% Bloem Lepelle Sediben
g Umgeni
Rand Magalie
s
2016-17 2015-16 2014-15
11% Overber
g
22% Amatola Overber
g
44% Magalie
s Overber
g Mhlathu
ze Amatola
44% Sediben
g, Lepelle Rand
Mhlathuze
78% Magalie
s; Sediben
g Mhlathu
ze Umgeni, Lepelle, Bloem, Rand
56% Bloem Lepelle Sediben
g Umgeni
Rand
44% Magalie
s, Umgeni, Bloem,
Amatola,
2016-17 2015-16 2014-15
Unqualified
with
no findings
Unqualified
with findings
Qualified
with findings
Adverse
with findings
Disclaimed
with finding
Audits
outstanding
Three year trend – Overall audit outcomes
Three year trend –
Compliance with key legislation
Three-year trend –
Quality of annual
performance plans
Three year trend –
Quality of submitted
annual performance reports
Material findings on performance reports reported at seven of the eight
completed water boards were mainly due to:
• Indicators not being clearly defined in identifying the source
information and method of calculation;
• Targets not being specific in clearly identifying the nature and required
level of performance; and
• Sufficient appropriate audit evidence not being available to confirm
reliability of the reported performance; or
• Reported performance not being reliable when compared to source
information
3 …. performance planning and reporting must be improved by….
Material non-compliance was identified at 7 of the 8
completed water board audits and related mainly to :
• Not preventing irregular and fruitless and/or
wasteful expenditure;
• Not procuring through a competitive bidding
process although required;
• Submitting AFS for audit late and with
misstatements;
• Not safeguarding assets; and
• Not collecting all revenue due to the boards
…. compliance with key legislation and….
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• Sedibeng was qualified on completeness of irregular
expenditure, trade and other receivables, trade payables and
property, plant and equipment.
• Lepelle was qualified on property, plant and equipment. The
entity did not componentise, review useful lives, depreciate some
assets and assess assets for impairment.
• Mhalthuze was qualified on property, plant and equipment and
completeness of irregular expenditure.
• Over berg has not submitted the 16/17 financial statements for
audit purposes.
To improve/maintain the overall audit outcomes, financial statements processes,
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Improved Unchanged Regressed Outstanding
Unqualified with no findings
Bloem Water
Unqualified with findings
Magalies Water
Amatola Water
Rand Water
Umgeni Water
Qualified with findings
Sedibeng Water
Lepelle Water
Mhlathuze Water
Adverse or disclaimed with
findings
Outstanding Overberg Water
Movement
Outcome
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Movement in audit outcomes
4 1
2016-17
Water Boards
Unqualified with no findings
Unqualified with findings
Qualified with findings
Adverse with findings
Disclaimed with findings
Audits outstanding
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9 auditees
Regression in qualification areas Qualification areas over two years at the Water Boards
Cost of portable
water
Irregular
expenditure
Trade and other
receivables
Trade and other
payables
Property, Plant and
Equipment
Inventory, Employee
cost & Revenue
Audit year
Auditee 2016
-
17
2015
-
16
2016
-
17
2015
-
16
2016
-
17
2015
-
16
2016
-
17
2015
-
16
2016
-
17
2015
-
16
2016
-
17
2015
-
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Sedibeng x x x x
Lepelle x
Mhlathuze x x
Overberg o/s x o/s o/s o/s x o/s x o/s x
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Sedibeng Lepelle Mhlathuze
Qualification
details
The system to identify IE is inadequate and
the entity could not provide evidence for
trade and other receivables and trade
payables on restatement of corresponding
figures. Entity did not adequately review
the useful lives
The entity did not componentise, review
useful lives, depreciate some assets and
assess assets for impairment.
The entity capitalised costs which did not
qualify for capitalisation and they did not
adequately review the useful lives of PPE
as required by accounting standards.
Root Cause • Inadequate review by line managers
on daily and monthly controls and
inadequate quality assurance reviews
by management on the financial
statements
• Inadequate system implemented to
identify and account for Irregular
Expenditure
• Inadequate review by line managers
on daily and monthly controls and
inadequate quality assurance reviews
by management on the financial
statements
• Inadequate internal controls over the
asset register in accordance with
applicable accounting frameworks
• Inadequate review by line managers
on daily and monthly controls and
inadequate quality assurance reviews
by management on the financial
statements
• Inadequate comprehension of specific
accounting standards governing
assets.
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Performance management linked to programmes/ objectives tested
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Objectives
Key outcome (what is it intended to
achieve?) Findings raised on quality of APR
Number of water boards reporting
performance
Achieved
Partially
achieved
Not
achieved
Not
reported
on
Bulk portable
water quality
compliance
To measure whether water quality
standards were met
None 5 3
0 0
Manage
avoidable water
losses
To reduce avoidable water losses in
treatment and distribution systems
Sufficient appropriate audit evidence could not be obtained
due to water meters not functioning
Limitations imposed on the auditor’s work
6 0 2 0
Reliability of
supply
To ensure that there are no unplanned
interruptions to bulk supply
exceeding 24 hrs
The method of calculation for the achievement of the planned
indicator was not clearly defined
Lack of proper performance management systems to support
the reliability of reporting on this objective
Audit evidence obtained did not agree to the reported
performance
7 0 1 0
Increased access
to services
Contribution to national objectives of
extending services
Underlying targets for this objective not specific in clearly
identifying the nature and required level of performance
Source information and method of calculation not clearly
defined
Sufficient appropriate audit evidence not available
Evidence not agreeing to reported achievements
Performance management systems not in place to facilitate
reliable reporting
3 0
4 1
Key predetermined objectives findings linked to key service delivery
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Objectives
Key outcome (what is it intended to
achieve?) Findings raised on quality of APR
Number of water boards reporting
performance
Achieved
Partially
achieved
Not
achieved
Not
reported
on
Bulk supply
agreements
concluded with
municipalities /
other customers
To ensure that statutory agreements
and service level agreements are in
place
Source information and method of calculation not clearly
defined
Limitations imposed on the auditor’s work
5 1 1 1
Implementation
of Ministerial
directives
New ministerial directives issued are
implemented on time
Source information and method of calculation not clearly
defined
Indicator not well defined
Targets were not clear in identifying the nature and required
level of performance
Reporting against the objective was not reliable when
compared to evidence
0 0 5 3
Support Rural
development
Total number of identified
municipalities supported
Source information and method of calculation not clearly
defined
Reporting against the objective was not reliable when
compared to evidence
4 0 3 1
The objectives highlighted in red above i.e. “Increased access to services” and “Implementation of Ministerial directives” were the
areas in which the water boards performed the worst.
This impacted negatively on the objective to build new infrastructure to enable the delivery and provision of water in areas where access
to water is limited.
Key predetermined objectives findings linked to key service delivery
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3 Compliance
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38% (3)
62% (5)
11% (1)
62% (5)
11% (1)
11% (1)
89% (8)
22% (3)
78% (6)
Findings on compliance with key legislation
2016-17 2015-16
Regression in compliance with legislation and quality of financial statements
22% (2)
44% (4)
44% (4)
25% Sedibeng, Amatola
50% Lepelle,
Sedibeng, Magalies, Mhlathuze
62% Lepelle,
Sedibeng, Magalies, Mhlathuze Amatola
Management of procurement and/
or contracts
Revenue management
Material misstatements in submitted
annual financial statements
Quality of submitted financial statements
Outcome if
NOT corrected
Outcome
after corrections
Two auditees - Magalies & Amatola Water Board avoided qualifications
due to the correction of material misstatements during the audit process.
(Overberg Water Board outstanding)
Outcome if
NOT corrected Outcome
after corrections
2016-17
With no material misstatements
With material misstatements Outstanding audit
38% (3)
2015-16
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Fruitless and wasteful expenditure and Irregular expenditure
R 104m
R 0.2m
R 298m
R 8.4m
Irregularexpenditure
Fruitlessand wastefulexpenditure
Expenditure
incurred in
contraventio
n of key
legislation;
goods
delivered
but
prescribed
processes
not followed
Expenditure
incurred in
vain and
could have
been
avoided if
reasonable
steps had
been taken.
No value for
money!
Definition UIF amounts incurred by entities in
portfolio
2016-17 2015-16
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Nature of UIFW expenditure R’million Audit report impact
No qualification
paragraphs were
issued at any of the
water board related
to fruitless and
wasteful.
Irregular
expenditure was
qualified for both
Sedibeng and
Mhlathuze due to
significant doubt on
the completeness
of the expenditure
which was
disclosed by
management for
both water boards
in the annual
report.
• Interest and penalties paid to SARS due to late
payment (Lepelle R347k, Rand Water R1.9m)
• No show to conference hence accommodation
and conferences expenditure incurred declared as
FWE (Mhlathuze R232k)
• Settlement of Umgeni CE’s salary for 2018 & 2019
year (R5.2m)
• Non-compliance with various procurement legislation:
- Sedibeng R143m,
Contracts not advertised on CIDB R46m and obtained quotations
instead of following open tender processed for R66m . Paid R20m to
supplier before conducting the competitive bidding processes
- Amatola R79m,
Competitive bidding not followed and bids not advertised for minimum
required time and in the correct media (total accumulated = R189m)
- Lepelle R9m,
Extension of expired contracts, non-compliance with panel selection
and deviations not in line with NT regulations.
• Awarding construction contracts to suppliers where CIBD grading less
than the value of contract awarded (Mhlathuze R12m & Magalies R24m),
• Non-compliance with PPPF as bid not evaluated for functionality
(Magalies R17m).
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UIFW expenditure – AGSA key messages
“As long as the political leadership, senior management and officials do not make accountability for
transgressions a priority, irregular, unauthorised and fruitless and wasteful expenditure as well as
fraud and misconduct will continue. An environment that is weak on consequence management
is prone to corruption and fraud, and the country cannot allow money intended to serve the people
to be lost!
Most auditees have the required policies and processes to ensure that transgressions and fraud
are identified and acted upon, but chose not to use it – a clear indicator of a lack of commitment to
accountability”. AGSA GR press briefing
CONSOLIDATED General Report on National and Provincial Audit Outcomes
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Recommendations We propose the following recommendations to improve SCM, which will also reduce the irregular expenditure incurred:
Strengthen the SCM control environment by appointing suitably skilled and qualified heads of SCM/Budget units where vacancies
exist and conduct regular training to improve skills (DO).
Focus on preventing irregular expenditure and non-compliance – this should be a key performance measure in senior officials’
contracts (DO).
Implement SCM compliance checklists to supplement policies and procedures (DO).
Unauthorised, irregular and fruitless and wasteful expenditure incurred should be dealt with by the accounting officer or authority. We
therefore recommend that the accounting officer or authority act as required by the legislation. (PFMA)
Submit regular reports to management, governance and oversight structures on compliance with key legislation (CHECK).
A less tolerant approach by all parties, including those charged with governance and oversight, will result in accountability and
consequences being enforced against those who intentionally fail to comply with legislation (CHECK).
Institute corrective or disciplinary action for misconduct (ACT).
Swiftly deal with investigations – the best practice in this regard is three months (ACT).
Ensure that management refers IFW expenditure where criminality is suspected/ indicative of fraud and corruption to SAPS and or
other investigate bodies (ACT).
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4 Financial Health and Governance
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Am
atol
a
Blo
em
Lepe
lle
Um
geni
Ran
d W
ater
Mag
alie
s
Mhl
athu
ze
Sed
iben
g
Financial Health indicators
Achievement of performance objectives
The financial health assessment of the water boards compared to their percentage achievement of consistently audited
objectives is analysed below.
Favourable indicators
Concerning indicators
76%-100% achieved
50%-75% achieved
0-49% achieved
Financial health status
Key Observations:
The general correlation between the financial health status and performance of the water boards is supplemented by additional reasons for non-achievement of
targets as described below:
Water boards generate own revenue by delivering services to municipalities and other water users and fund their activities from this own generated revenue.
In addition when Ministerial directives are issued, the Department of Water and Sanitation (DWS) is supposed to advance funds for the implementation of
these directives.
Funds for implementation of Ministerial directives were not received timeously from DWS for implementation and performance on this objective at Mhlathuze
and Lepelle. For Mhlathuze this in itself did not translate to a concerning financial health situation.
Mopani Municipality entered into a debt payment arrangement with Lepelle due to financial health concerns which impacted on the water board’s ability to
maintain infrastructure as required. Furthermore performance indicators and targets of Lepelle were not adequately developed in terms of the requirements
of the FMPPI and did not consider the processes and resources to ensure indicators and targets are measurable and achievable.
Community protests delayed the achievement of the objective of increasing access to services at Magalies, therefore although funding was not cited as a
major constraint, targets in terms of this objective could not be achieved.
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Governance Boards were appointed and are functional at all of the water boards except for Mhlathuze and Overberg. The term of the board at Mhlathuze expired and a new
board has not been appointed as yet. An interim chief executive was appointed who is fulfilling the role of accounting authority whilst there is still no board.
The contracts of the board members of Overberg have been terminated by the minister and the board had not yet been replaced as at
31 December 2017.
Water board Vacant key positions
Amatola CEO; Director for planning and development; Director of corporate services (interim appointment made); CFO (suspended and acting CFO in place)
Lepelle CFO (retired 30 June 2017 and acting CFO in place)
Magalies CEO; General Manager: Finance; General Manager: Corporate Services; Finance Manager
Mhlathuze CEO (suspended and interim CEO appointed); COO (interim COO appointed)
Overberg CFO (suspended); Financial manager
Water Board Senior management Accounting authority Executive authority Audit committee Internal audit
Amatola
Bloem
Lepelle
Magalies
Mhlatuze
Rand Water
Sedibeng
Umgeni
Provides assurance
Provides some assurance
Provides limited
assurance
The annual report is used to report on the financial position of auditees, their performance against predetermined objectives and overall governance. One of the important oversight functions
of Parliament is to consider auditees’ annual reports. To perform this oversight function, they need assurance that the information in the annual report is credible. To this end, the annual
report includes our auditor’s report, which provides assurance on the credibility of the financial statements and the annual performance report, as well as on the auditee’s compliance with
legislation.
Our reporting and the oversight processes reflect on past events, as it takes place after the end of the financial year. However, management, the leadership and those charged with
governance contribute throughout the year to the credibility of financial and performance information and compliance with legislation by ensuring that adequate internal controls are
implemented.
We assess the level of assurance provided by these assurance providers based on the status of internal controls and the impact of the different role players on these controls.
5 Actions required / Recommendations
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• Key positions should be filled within reasonable time to ensure stability in leadership.
• Quality review should be implemented to ensure that information reported in the AFS and APR is accurate, valid
and complete and where needed training should be provided.
• Management should provide monitoring and corrective actions to address audit findings.
• Management should design adequate procedures governing circumstances in which deviations from SCM
process are allowed to ensure a procurement process which is fair, transparent and cost effective. This should
also include procedures to prevent and detect Irregular Expenditure.
• Management should ensure that appropriate systems and processes are designed to support the reliable
recording and reporting of all indicators included in the annual performance plan.
• Leadership should hold staff accountable for poor performance and transgressions (Consequence
Management).
• The risk management function should be capacitated and adequate IT governance framework should be
designed and implemented.
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Key actions required to improve/ maintain outcomes: Leadership and
Management
Concluding comments and Recommendations for effective oversight We recommend that the committees:
Continue to reinforce their focussed and robust engagements with departments and entities on the root causes for UIFW
expenditure.
Invite the office of the AGSA and governance structures (IAF and Audit committee) for briefings to gain insights,
especially in the status of records review for early engagement (linked to slide 30);
Conduct hearing with the presence of investigative and prosecutorial agencies and authorities;
Request feedback from investigative agencies on cases specific to their portfolios, related to UIFW, Fraud and Corruption;
Build collaborative relationships with other regulatory bodies such as NT, office of the Chief Procurement Officer on the status of
irregular expenditure; and
Demonstrate a willingness to avail yourselves to engage with stakeholders on key accountability issues.
Request auditees to regularly report fully on the implementation of key programmes/ projects in terms of planning, budgeting,
implementation and spending which correlates to actual progress in terms of delivery.
Continue to do regular and deliberate site visits on key projects to determine if what is on the ground correlates to reported
expenditure and service delivery.
Consider effectively utilising the media to create the necessary attention and focus on work done as well as creating public interest
on key matters/programmes.
Other entities/portfolios, which are achieving success can share their successes /challenges overcome, experienced during their
journey. Similarly the clean audit environments should share best practices and pitfalls to avoid.
Do not tolerate hearings/ briefings from departments/ auditees who come to parliament unprepared!
Consequence management must strongly be enforced for poor performance and transgressions, especially on UIFW
expenditure, as required by the PFMA!
Accountability must be promoted by oversight by requesting executives and accounting officers/authorities to ensure that
measures to deal with UIFW, are included as part of the performance management processes! (PFMA sections 38 and 51).
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Concluding comments and Recommendations
“Accountability and good governance are central to building an efficient, effective and developmental-oriented public
service. Accountability means that the leadership is answerable to the public and takes responsibility for their actions,
decisions and policies. These concepts of public interest and accountability are entrenched in the country’s constitution and
the legislation that governs national and provincial government”. AGSA GR press briefing
CONSOLIDATED General Report on National and Provincial Audit Outcomes
“Improvements can be attributed to the political leadership taking accountability and discharging oversight
responsibility through robust discussions and interrogating reports submitted by the administrative leadership” (pg 14)
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Status of key focus areas
Oversight and monitoring
(Unchanged)
Financial management
(Unchanged)
Performance management
(Unchanged)
Procurement and contract management
(Unchanged) Compliance management
(Regressed)
HR management
(Unchanged)
IT management
(Unchanged)
Financial health
(Regressed)
Status of
records review
Pro-active
follow up
procedures
Financial and non – financial information
(internal and external reports/documents
& discussions with senior managers)
Feedback linked to Focus Areas
AGSA audit methodology improvements
Engaging accounting officers in conversations that are insightful, relevant and have an
impact
Identify matters that add value in putting measures
and action plans in place well in advance to mitigate
risks
Assess progress made in implementing action plans/
follow through with commitments made in previous
engagements
Provide our assessment of the status of key focus
areas that we reviewed
Identify key areas of concern that may derail progress
in the preparation of financial and performance
reports and compliance with relevant legislation and
consequential regression in audit outcome
Key control engagements / status of records review – objectives
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AGSA audit methodology improvements (cont.)
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Sou
rce:
Rob
ert K
litga
ard
(aca
dem
ic a
nti-c
orru
ptio
n re
sear
ch)
Correlation between low accountability, corruption and impact on service delivery
Corruption
Service Delivery
Corruption arises when officials are given sole power (monopoly) to make
consequential decisions (discretion) without adequate oversight or control
(accountability).
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How to get in touch with the AGSA
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