Auditing of Performance Information in the Public Sector Performance Audit Capabiliy Statement INTERNAL AUDIT, RISK & COMPLIANCE SERVICES
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Introducing KPMG KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We go to market by Line of Business or Industry, serving all of the major industries across our economy. This focus allows our professionals to rapidly understand our clients needs within the context of their business and the broader relevant industry. KPMG in South Africa is wholly owned by South Africans, headed up by a democratically elected Board. The Board in turn appoints the Chairman, Chief Executive and Executive Committee. We are proud to be South Africans, operating in the global marketplace. Our passion for the country, Transformation (Broad-Based Black Economic Empowerment) and upliftment of communities is self-evident. Our Black Economic Empowerment (BEE) credentials are comparable with the best in class and, in many cases, considerably better. Our Transformation Framework, against which we drive the attainment of our BEE objectives and measure ourselves, comprehensively covers Ownership Equity, Employment Equity, Procurement Equity and Corporate Social Investment. We are proud to have achieved an EmpowerDex rating of AA. KPMG s values are central to everything we do. The benefits of a values-based organisation for our clients are: Outstanding relationships with management, built on a premise of trust, integrity, commitment and remaining fully independent Our local knowledge, skills, experience and capacity, supported as necessary by other professionals in KPMG KPMG Values We emphasise our values because it defines our sense of shared identity: who we are, what we do and how we do it. Unrivalled technical knowledge, confidently expressed and fully supported A proven cultural fit across all levels and with our clients, in particular reflecting our shared passion for Transformation and commitment to continuously challenge our own resources to better reflect the demographics of our country. KPMG international offices KPMG's global network of member firms seeks to balance quality with local knowledge and autonomy. Our organisation, which can trace its origins to 1870, is a global leader among professional services providers. With more than 123 000 people worldwide, our professionals, using industry knowledge, provide Audit, Tax, and Advisory services from over 700 cities in 140 countries. KPMG is a truly global firm, able to service our clients wherever they have operations or business interests. Underpinning the KPMG brand, globally, are our outstanding professionals working together to deliver value. We lead by example We work together We respect the individual We seek the facts and provide insight We are open and honest in our communication We are committed to our communities Above all, we act with integrity 3
Our African Footprint To better service our clients in Africa, the KPMG practices in sub-sahara Africa have been organised into five clusters, collectively referred to as the Africa region: East Africa (Kenya, Tanzania and Uganda) West Africa (Ghana, Nigeria, Sierra Leone and The Gambia) Central Africa (Malawi, Zambia and Zimbabwe) Southern Africa (Botswana, Mauritius, Namibia, South Africa and Swaziland) Lusophone Africa (Angola and Mozambique). This extensive network of practices ensures that our clients have access to a blend of professionals who are familiar with local conditions, including language barriers, as well as to skilful resources, no matter where they may be located in Africa. KPMG in South Africa KPMG has been operating in South Africa since 1895. By organic growth and strategic mergers, the firm has grown into one of the largest professional services firms in the region. We offer a comprehensive array of business services to our clients within both the public and private sector. KPMG has the following 11 offices in South Africa: Bloemfontein Cape Town Durban East London Johannesburg Nelspruit Pietermaritzburg Polokwane Port Elizabeth Pretoria Secunda. This network allows KPMG to provide the best and nearest resource to our public sector clients. 4
KPMG Advisory service offerings KPMG Advisory works with our clients to address challenges in: Growth (creating value) - working closely with our clients as they expand and restructure, either through acquisitions or organically. Governance (preserving value) - providing support to our clients as they adapt to new regulatory environments and assist in all areas of risk governance. Performance (maximising value) - assisting with improving our clients efficiency and capacity for growth. We bring individual specialists together in multidisciplinary teams who get to the heart of the real issues clients face. As a result, we deliver robust solutions that make positive differences to their businesses and form genuine, lasting relationships on a global basis. Our approach combines these skills to address complex issues facing clients. Our core specialist skills are housed in various business units and it is by combining these various skills that we can develop quality solutions that address our clients needs. South Africa s 11 Advisory service lines Accounting Advisory Services Global Conversion Services Accounting Support Alternate Service Delivery Financial Management Services Business Performance Services Strategy Facilitation and Development Business Performance Improvement Supply Chain Management Sourcing (Shared Services, Outsourcing) Sustainable Cost Reduction Performance Measurement, Management and Reporting People Services Revenue Enhancement BEE Advisory Organisational Redesign Change Management Corporate Finance Mergers and Acquisitions Services Valuations Financing Corporate Recovery Liquidation and Insolvency Voluntary Liquidations Curator Bonis Deceased Estates Exit Strategy Advisory Financial Risk Management Credit/Operation/Market/Liquidity Risks: Assessment, Model, Build/Validation, Management Economic Capital Measurement, Management, Planning Capital Adequacy & Regulatory Reporting Insurance Risk/Actuarial Services Financial Instruments Accounting Finance & Treasury Management Asset Management Securitisation Regulatory & Compliance Forensic Fraud and Financial Investigations Fraud Risk Management Dispute Advisory Services Regulatory Compliance Forensic Technology Corporate Intelligence Sustainability Services Intellectual Property Anti-Money Laundering Ethics Line Internal Audit, Risk & Compliance Services Internal Audit Sourcing Enterprise Risk Management Corporate Governance IT Advisory ERP Advisory Security Services/Security Privacy and Continuity IT Attestation IT Project Advisory IRM in External Audit IRM in Internal Audit/IT Audit Co-outsourcing IT Governance and Performance IT Sourcing Project Advisory Services Programme Management Project Offices Major Projects Advisory Restructuring Cash Management Financial Restructuring Crisis Cash Management Turnaround Planning and Implementation Turnaround Executive Management Exit Planning and Implementation Strategic Cash Management Lender Advisory Services Transaction Services Buy and Sell Side Advice (Pre and Post Deal) Capital Markets (JSE Services) Reporting Accountant Reports Working Capital Renews Profit Forecasts 5
Advisory Internal Audit, Risk & Compliance Services (larcs) KPMG IARCS has a total of 272 dedicated, qualified and experienced professionals in South Africa supported by regional offices in many African countries. Our larcs practice adds value to our clients growth, governance and performance initiatives, by specialising in the following disciplines: Internal audit outsourcing and co-sourcing including a dedicated team of experienced internal audit practitioners. Governance, focusing on Sarbanes Oxley (SOX) and financial reporting control related support, as well as general corporate governance. Our SOX team has supported several of the largest SOX related projects in South Africa and our corporate governance practitioners have been involved in key governance projects. Our dedicated Enterprise Risk Management (ERM) specialists are leaders in this emerging field of sound business management. Our service delivery in each discipline is executed in terms of our world-class methodologies for each discipline. Our internal audit methodology, for example, is presented below. Internal Audit Methodology Our risk-based internal audit approach uses our global Internal Audit Methodology to focus our work on the areas of key business risk, significant processes and current areas of concern. This defines a plan that does not replicate other controls or assurance. Our approach is adapted to incorporate clients risk assessment, where appropriate. Our methodology is reflected below: Key stages in our approach Potential benefits to our clients Issue Tracking Strategic Analysis Resolution Enterprise Risk Assessment Planning Engagement Project Managment Execution Reporting Internal Audit Plan Development Reporting Execution Examine the key strategic drivers to identify significant risks Identify the processes used to manage key risks Define our audit parameters Initial review and challenge of the current risk mitigation activities Develop an audit plan focused on assessing controls and/or operational efficiency Execute the core audit plan Report and follow-up Flexible planning Prompt response to emerging issues Effective, efficient audit with an emphasis on added value Value added reporting No surprises Valuable feedback and advice Assessment of control design and effectiveness Monitoring of compliance with corporate policies Comparison with the best in class practices Ideas that can help manage risk and improve performance 6
Auditing of Performance Information in context The Public Finance Management Act, 1999 (Act No 1 of 1999) (PFMA) paved the way to modernise the system of financial management within the South African public sector. In terms of the PFMA, the accounting officer/authority for a department, trading entity, public entity or constitutional institution must submit the annual report to the relevant treasury and executive authority within five months of the end of the financial year. This annual report must fairly present the state of affairs of the department, trading entity, public entity or constitutional institution, its business, its financial results, its performance against predetermined objectives and its financial position as at the end of the financial year concerned. The information relating to the performance against predetermined objectives is subject to audit by the Auditor-General in terms of Section 20(2)(c) of the Public Audit Act, 2004 (Act No. 25 of 2004). Section 13 of the Public Audit Act requires the Auditor-General to determine the standards to be applied in performing such audits. The Auditor-General has accordingly adopted a phased-in approach for compliance with the relevant section of the Public Audit Act until such time as the necessary standards have been determined and the environment promotes a state of readiness for providing the required assurance. KPMG s Audit of Performance Information capability To aid our public sector clients in preparing for the Auditor-General s annual audit of performance information, KPMG provides the following range of services to our clients: Readiness assessments Managing performance and reporting results is a necessary and important requirement of the PFMA as it enables Parliament, provincial legislatures, municipal councils and the public to track the organisations performance and hold the organisation accountable. We conduct readiness reviews to assess the progress made by the organisation in fairly presenting its business, its financial results, its performance against predetermined objectives and its financial position in its annual report as required by the PFMA. In conducting these reviews, emphasis is placed on the key processes that generally should exist within an organisation to effectively report its performance information. These include: - The overall management of the performance reporting process within the organisation - The organisations strategic and operational planning processes - The processes adopted by the organisation to collect, process and collate its performance information - The mechanisms adopted by the organisation to effectively report on the progress made in achieving its strategic and operational objectives by way of in-year and annual reporting 7
Management assistance in developing measurable performance measures and indicators The Treasury Regulations issued in terms of the PFMA require the accounting officer/ authority for a department, trading entity, public entity or constitutional institution to develop a strategic plan that, inter alia, includes key performance measures and indicators for assessing the organisations performance in delivering the desired outcomes and objectives. We accordingly assist management with the development of these strategic performance measures and indicators to ensure that these are specific, measurable, attainable, relevant and time bound. We also perform peer reviews to evaluate the strategic plans of our clients and report on the extent to which the objectives provide a clear link between the programmes output/s and the organisations goals. Development of policy and procedure manuals At any given time within the public sector, information from multiple years is being considered: plans and budgets for next year, implementation for the current year, and reporting on last year s performance. Although performance information is reported publicly during the last stage, the performance information process begins when policies are being developed and continues through each of the planning, budgeting, implementation and reporting stages. The organisation requires reliable and accurate performance information to report on the strategic objectives that were set. To aid organisations in formalising the performance reporting process, we assist our clients with the development of the required policy and procedure manuals. These manuals provide clear system descriptions, document flow of information as well as examples of the prescribed documentation. Including from when the strategic planning process commences up to when the annual performance of the organisation is reported. Internal Audit assistance According to the Treasury Regulations, the Internal Audit Function must assist the accounting officer/authority in maintaining effective controls by evaluating those controls to determine their effectiveness and efficiency, and by developing recommendations for enhancement or improvement. 8
The controls subject to evaluation should encompass the following: - the information systems environment - the reliability and integrity of financial and operational information - the effectiveness of operations - safeguarding of assets - compliance with laws, regulations and controls. With the abovementioned in mind, it is imperative for the Internal Audit Function to review the reliability and integrity of financial and operating information as well as review operational progress to ascertain whether results are consistent with established objectives and goals. We accordingly assist the Internal Audit Function of our clients with the development of step-by-step audit manuals to guide them in auditing the performance information of the organisation. We also perform peer reviews to evaluate and report on the approach and methodologies adopted by the Internal Audit Function to effectively audit the organisations performance information. Training courses We provide high-level awareness workshops and training courses, tailor-made to address the requirements of management (as well as the Internal Audit Function). It helps them understand the concepts, procedures and working methodologies associated with the audit of performance information. We have a good understanding of the challenges facing organisation in this sector. Our experience allows us to add significant value to our clients. 9
Performance audit clients KPMG is proudly associated with the provision of auditing of performance information advisory services to numerous public sector clients. Some of our clients include: Competition Tribunal Financial Intelligence Centre Financial Services Board Gauteng Department of Treasury Gauteng Office of the Premier Gauteng Department of Health Gauteng Shared Service Centre Gauteng Department of Transport and Public Works Independent Electoral Commission South African Police Service 10
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kpmg.co.za Contacts Ashley Smith Managing Director Tel: +27 11 647 7133 Fax: +27 11 647 5600 Cell: +27 83 458 8415 Email: ashley.smith@kpmg.co.za Wean Strydom Tel: +27 12 431 1322 Fax: +27 12 431 1301 Cell: +27 83 458 8415 Email: wean.strydom@kpmg.co.za Paresh Lalla Tel: +27 11 647 7542 Fax: +27 11 647 5600 Cell: +27 83 276 5373 Email: paresh.lalla@kpmg.co.za Sikkie Kajee Tel: +27 12 431 1324 Fax: +27 12 431 1301 Cell: +27 83 282 2060 Email: sikkie.kajee@kpmg.co.za Kobus Henning Tel: +27 12 431 1341 Fax: +27 12 431 1301 Cell: +27 83 458 0734 Email: kobus.henning@kpmg.co.za The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 2009 KPMG Services (Proprietary) Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in South Africa. MC 4539