International Journal of Government Auditing – April 2013
Legislation in South Africa has highlighted the importance of auditing performance information. The Public Audit Act, 2004 (Act No. 25 of 2004) requires the Auditor- General of South Africa (AGSA) to express an audit opinion or conclusion on the performance information reported by South African government institutions. Over the past 8 years, the AGSA has been extensively involved with researching, developing, reviewing, consulting on, and gradually implementing an audit approach that will allow it to express an audit opinion on nonfinancial performance information.
This article provides a brief overview of the developments and outcomes obtained over the phased-in period since the initiative was launched.
Supreme audit institutions around the world have progressed from conducting only financial audits to providing assurance on performance information presented by governments for tabling in legislatures and parliaments.
This type of audit has become crucial in countries, such as South Africa, that are undergoing public sector reform. It includes significant initiatives to improve public sector reporting by providing legislatures and the public with better information on what government programs are accomplishing.
Auditing performance information enables the auditor to conclude on whether performance reported against predetermined objectives is useful and reliable, in all material respects, based on predetermined criteria. In South Africa, the audit of performance information is conducted in accordance with the requirements of the Public Audit Act.
The audit of performance information is an integral part of the annual regularity audit process in South Africa and confirms the credibility of the performance information government institutions report annually. This audit should not be confused with performance auditing, which can be defined as an independent audit of the management measures governments institute to ensure economical procurement and efficient and effective utilization of resources.
With the implementation of the Public Finance Management Act (PFMA) in 1999 and the Municipal Systems Act (MSA) in 2000, the concepts of performance management and reporting were formally introduced to the South African public sector. Since then, the focus on reporting performance against predetermined objectives in the public sector has continued to gain momentum.
Reports on performance information are included with the financial statements in the annual reports of all public sector institutions. These reports are used primarily by legislatures, members of the public, and other interested parties and stakeholders to determine whether approved funds have been used to meet service delivery requirements and targets. Performance information focuses on both qualitative and quantitative aspects of an institution, thereby ensuring that users not only obtain information on the numbers in the financial statements but also have a holistic picture of the institution’s well-being and, specifically, whether the institution is achieving its set performance objectives.
It is understandable that as the importance and role of performance information in governance and accountability increases, there would be a greater focus on the credibility, quality, and timeliness of such information. Consequently, legislatures have in some instances (as in South Africa) turned to government auditors to provide them with the assurance that the performance information government institutions report can be trusted.
The AGSA, in consultation with relevant role players (including the National Treasury and Presidency), has followed a phased-in approach to auditing performance information. Since 2004–2005, auditors have been auditing the policies, processes, systems, and procedures used to manage and report on performance against predetermined objectives as part of the annual regularity audit process. Material shortcomings in performance management processes, systems, and reporting procedures that are identified during the audit process are reported as factual audit findings in the "report on other legal and regulatory requirements" section of the auditor's report.
Performance information in South Africa is audited and audit conclusions in this regard are prepared in accordance with International Standards on Assurance Engagements (ISAE) 3000: Assurance Engagements Other Than Audits or Reviews of Historical Financial Information.
In the absence of a comprehensive framework for performance management and reporting relevant to government institutions, the Auditor-General annually determines the sources of criteria against which the subject matter will be evaluated as a basis for the audit. In essence, this comprises relevant laws and regulations as well as frameworks, circulars, and guidance issued by the National Treasury and the Presidency regarding the planning, management, monitoring, and reporting of performance information.
During the audit, the performance information is audited against the criteria of presentation, measurability, relevance, consistency, validity, accuracy, and completeness.
Since the 2009–2010 financial year, an audit opinion has been prepared for internal management purposes only to assist government institutions in identifying and addressing further weaknesses and shortcomings in performance management and reporting practices. This will help government institutions prepare for the final phase of the implementation of the performance information audit, which will involve providing an audit opinion on performance information in the auditor’s report.
The three broad areas identified as weaknesses during the audit of performance information are
The root causes identified for noncompliance with regulatory requirements include
Further areas include inadequate training and guidance on performance management, monitoring, and reporting processes and practices.
The factors that contribute to published information not being useful include
Annual performance reports were not always being reliable due to
The latter was identified as the most important of unreliable published performance information.
Government institutions can move towards compliance by making sure that the legislation governing performance management and reporting is thoroughly understood and implemented. Furthermore, proper performance management systems should be put in place to ensure that information is reliable and that effective communication and coordination exist within the organization. Investing in a strong internal audit division will also serve as a long-term support system to ensure the credibility of reported performance information.
In addition to ensuring that performance information systems are implemented properly, there has to be a credible process for monitoring and evaluating actual performance that is supported by sufficient, appropriate source documentation.
Performance management and reporting should be viewed not as another burden but as an important factor in ensuring accountability and proper service delivery.
The introduction of legislation in South Africa to ensure performance planning, management, monitoring, and reporting (as well as the audit of performance information) can be seen as one of the most important public sector reforms introduced to increase oversight and accountability. Although the developments in this regard are still in their infancy, the benefits for improved service delivery, accountability, oversight, and governance in the public sector cannot be disputed.