Using the annual report as an oversight tool APAC ANNUAL TRAINING 2011 Presenter: Jayce Nair | Chief...

Using the annual report as an oversight tool

APAC ANNUAL TRAINING 2011

Presenter: Jayce Nair | Chief Director, National Treasury | 02 August 2011

1

Content

Part I – Overview of the annual report• Purpose of the annual report & role in accountability• Components of the annual report• Elements of the annual financial statements

Part II – Analysis of an annual report• Case study

Purpose of the Annual Report

• Primarily for accountability purposes

• Important tool in accountability loop

• Serves to inform oversight structures & other key stakeholders about the performance of an entity in relation to services provided

Accountability Loop

Policy development

Strategic planning

Implementation planning and

budgeting

Implementation

End-year reporting

Oversightby Parliament, provincial legislature or municipal council

INSTITUTIONnational department

provincial departmentmunicipality

state controlled institution

municipal entity

Specification of outcomes and outputs

Setting targets and resource allocation

Monitoring and management

Evaluation and adjustment

Identifying desired impacts

Policy development

Strategic planning

Implementation planning and

budgeting

Implementation

End-year reporting

Oversightby Parliament, provincial legislature or municipal council

INSTITUTIONnational department

provincial departmentmunicipality

state controlled institution

municipal entity

Specification of outcomes and outputs

Setting targets and resource allocation

Monitoring and management

Evaluation and adjustment

Identifying desired impacts

Accountability Instruments

Statutory Documents

• Strategic plans

• Estimates of National Expenditure / Budget Statement Two

• Section 32 in-year monitoring reports

• Annual reports

• Audit Report issued by external Auditor

• General Report of the Auditor-General on Audit Outcomes

Guides

• Regulations for preparing strategic plans

• Guide for the preparation of Annual Reports and AFS

• Guide to understand oversight reports of Departments

• Framework for Managing Programme Performance Information

Information on predetermined

objectives

HR information

Contents of an Annual Report

Annual Financial

Statements

Vision, Mission &

Values

Evaluating Annual Reports

• Process related questions

– Was the report delivered on time?

– Does the layout of the report facilitate understanding?

– Is the information communicated simply and clearly?

– Is the report original, or are key portions copied from previous reports?

– Is each measurable objective specified in the strategic plan reported on in the report?

– Is the service delivery information consistent with the mandate of the department?

– Was an excessive amount spent on the production of the annual report?

Annual Report

• Content related considerations:

– Look for an overview or summary of performance

– Look for the major goals and objectives of the department

– Look at the performance measures to assess how well the department is doing in achieving its objectives & how cost-effectively resources are being used

– Look at explanations to help determine wither the measures reported are useful or important for assessing performance

– Look at information to help understand what the results mean (narrative explanations, graphics & comparisons)

Statement of financial

performance

Revenue

Expenses

Surplus or deficit

General purpose financial statements

Statement of financial position

Assets

Liabilities

Net assets

Cash flow statement

Operating

Investing

Financing

Net cash

Statement of comparison of

actual and budget

information(based on

budget basis)Revenue

Expenses

Notes to the financial statements

Segment informationR,E,A,L:

Illustrative: Water, electricity, parks &

recreation, healthcare

Accounting policies Note disclosures

AFS issues to look out for

• Strength of management accounting function:

– The nature of the qualification as well as the root causes

– Has the entity been receiving repeated qualifications? Is it the same matters? Have they been resolved? Effectiveness of the Ac, control environment, and management commitment to address queries.

– Extent of funds shifted or virement for last six months

– Expenditure by programme with reference to service delivery achievements per programme as well as explanation for variances in expenditure

– Compliance with legislation including that of Public entities under the same executive authority’s responsibility

AFS issues to look out for

• Common anomaly types:

– Errors identified relating to the previous financial year

– Any unusual transactions that do not relate to the purpose of the entity

– Follow items in the qualification paragraph of the AG to the various reports

– Understand the extent & the nature of unauthorised expenditure, as well as uncleared unauthorised expenditure

– The impact of unauthorised expenditure to service delivery in the future

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Audit Committee Report

• An audit committee report should cover:

– Membership and attendance to committee meetings;

– the effectiveness of the internal control systems;

– the effectiveness of the internal audit function;

– the risk areas of the entity’s operations to be covered in the scope of internal and external audits;

– Significant accounting & auditing concerns, and follow up recommendations made by internal & external; and

– the entity’s compliance with legal & regulatory provisions.

13

Accounting Officer’s Report

• Management’s opportunity to deal with the state of financial affairs, the activities and the results of the entity

• Capacity constraints

• Entity’s business strategy going forward

• Managements response & plans to address any significant audit findings & SCOPA resolutions

• Corporate Governance Arrangements

• Entities reporting to the departments incl their compliance with PFMA

• Organisations receiving transfer payments

• Events after reporting date

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Appropriation Statement

• Content:

– Includes a summary of the Appropriation Act according to the various programme and sub-programme allocations

– Shifting and virement of funds

– The actual expenditure split as above

• Use of content for reader:

– Variances between actual performance and compliance with adjusted budget with explanations for material variances in notes

– Links to the service delivery table in the AO’s review

15

Statement of Financial Performance

• Content:

– Overview of the entity’s total actual performance over the specified period with a surplus/deficit being the difference between amounts received and paid during the year


– Information in appropriation statement analysed at entity level in econ. classification

– Understanding of the surplus/deficit: split into surplus/deficit on Appropriated funds, Departmental receipts and Local and foreign aid assistance.

16

Statement of Financial Position

• Content

– This statement illustrates the assets and liabilities of the entity at the end of its reporting period.

• Use of content for the reader

– Cash resources available in the entity & indicates any overdrafts

– Suspense accounts maintained by the entity

– Unauthorised expenditure to be approved

– Debt: inter-departmental debt & staff debt

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Cash Flow Statement

• Content

– Presents the movement in cash (receipts and payments made/received during the year) in terms of operating activities, investing activities and financing activities

• Use of content for the reader

– Analysis of current (operating activities) and non-current (investing & financing activities) revenue and expenditure transactions

– Cash impact of movements in assets and liabilities

18

Notes to the Financial Statements

• Content

– Accounting policies

– Supplementary information to the primary statements

• Use of content for reader (examples)

– Extent of consulting fees v.s employee related costs

– Extent of spending on training and staff development

– Material losses, unauthorised, fruitless and wasteful expenditure

– Analysis of aging of receivables (indicates collectability and commitment to collection of debt)

– Extent of donor support

19

Accounting Policies

• Content:

– Are the principles, bases, rules and practices applied by the entity in preparing and presenting the financial statements


– Provides framework used to prepare AFS

– how transactions, balances and events are recognised and disclosed in the annual financial statements

– Provides insight to the numbers influenced by management’s judgement

20

Disclosure Notes & Appendices

• Content:

– Provides useful information on balances not recognised in the primary statements


– Indication of contingent liabilities, commitments and accruals (to assess impact on future resources)

– Irregular expenditure and fruitless & wasteful expenditure & steps taken by management to deal with the incidents

– Estimations on the doubtful debts

– Related party transactions (to assess impact of inter-entity transactions on performance)

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Home Affairs

Vote 42009/10

Mini Case Study

Documents used

For the 2009/2010 financial year:

• Strategic plan for 2009/2010 – 2011/2012

(future APP 2009/10 linked to 5 year strategic plan)

• ENE 2009

• Annual report 2009/10

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Home Affairs

Aim: to protect and regulate the interests of the inhabitants of the Republic of South Africa regarding their individual status, identify and specific rights and powers, and to manage a supporting service for this

Programme 1Administration

Programme 2Services to Citizens

Programme 3Immigration Services

Programme 4Transfers to Agencies

Provide for the overall management of the department and centralised support services

Carry out the department’s core functions: grant rights and citizenship to eligible persons

Control immigration in line with South Africa’s skills and investment needs. Manage refugees and asylum seekers in South Africa

Provide financial support to the Film and Publication Board, the Government Printing Works and the Electoral Commission

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Strategic Plan (2009 – 2012)

Looking ahead...

25

Strategic Goal 1 : To provide secure, efficient and accessible services and documents to citizens and lawful residents in accordance with national priorities, legislation and international standards

Measurable objective 1.1: To ensure effective, efficient and accessible service delivery to clients through the provision of enabling documentation

Measurable output

Performance indicator

Target 2009/10 Target 2010/11 Target 2011/12

Products and services renderedwithin specified time frames

Number of daysto issue unabridgedbirth, marriageand death (BMD)certificates for newregistrations

90% of allapplicationscorrectlyprocessed andissued within20 days atoffices of origin



Number of days to issue IDs (first issue)

Applicationsfor ID (firstissue) correctlyprocessed andissued within45 days



number of days toissue passports

Correctly processed and issued within 10 days



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• Strategic Goal 1 & Measurable Objective 1.1

• Programme 2: Services to Citizens

Improve the provision of specified services and products to eligible citizens and residents by reducing the time taken to issue valid documents as indicated below:• unabridged birth, marriage and death certificates: from 180 to 240

days in 2007/08 to 16 days in 2011/12• first issue of an identity document: from 60 days in 2008/09 to 40

days in 2011/12• passports and travel documents: from 10 days in 2008/09 to 5 days

in 2011/12

Linking Objectives & Programmes

27

Translation into Budget Structure

2008/09Current

2009/10 2010/11Projected

2011/12

Services to citizens 1,225,758 1,336,936 1,403,304 1,398,491

Revised estimate in ENE1,111,511

28

Estimates of Expenditure (ENE)

2009

29

Programme 2: Services to Citizens

• Selected performance indicators in ENE:

• Expenditure estimates:

Indicators 2008/09Current

2009/10 2010/11Projected

2011/12

Number of days to issue an unabridged birth, marriage and death certificate

180-240 5 5 5

Number of days to issue an identity document (first issue)

60 60 30 30

Number of days to issue all passports and travel documents

10 10 5 5

Estimates 2008/09Current

2009/10 2010/11Projected

2011/12

Services to citizens 1,111,511 1,336,936 1,403,304 1,398,491

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Annual Report 2009/10

Looking back….

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Measurable output


Target 2009/10 Actual Reason for variance

Products and services renderedwithin specified time frames

Number of daysto issue unabridgedbirth, marriageand death (BMD)certificates for newregistrations


AchievedThe population register hasbeen adapted to ensure thatthe details of both parents arerecorded on initial registration.Hence, unabridged certificates fornew registrations can be printedand issued as soon as the initialregistration has taken place

N/A

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Measurable output



Number of days to issue IDs (first issue)


Partially achieved the average turnaround time for the year was 51 days

The followingchallenges wereencountered:*Prolonged turnaround times for retrieval oforiginal birth records*Prolonged turnaround times for verification of permanent residence*System downtimesand delays due to unstable BACM system

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Measurable output



number of days toissue passports


Partly achievedThe average annual turnaroundtime is 29 days for passports issued in terms of the manual process and 14 days for passports issued through means of the live capture system (40 offices)

The followingchallenges wereencountered:*Technicalcomplications with the transfer of data fromthe old to the newpassports*Delayed live capture rollout to additional offices*A passport backlog of 63 000 was accumulated and was eliminated by the end of July 2009

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• Of the 30 measurable objectives for Programme 2:

– 14 (47%) were achieved

– 10 (33%) were partially achieved

– 4 (13%) were not achieved

– 1 (3 %) was cancelled

– 1 (3 %) was missing from report (no target set for 2009/10)

• Compared to strategic plan – one additional measurable objective in annual report (comparing tables)

• Additional targets and actuals reported in AR not in ST

• 100 % of programme budget utilised

Overall programme performance

35

AGSA report on predetermined objectives

Planned and Reported Indicators/Measures Not Well Defined

For the selected programmes, 38 percent of the immigration services’ planned and reported indicators/ measures were not clear, with an unambiguous definition to allow for data to be collected consistently

Audit Committee report notes management’s intention to establish and manage a performance information system & reporting framework of Performance InformationPositive report back in AO review

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Utilisation of Funds

Services to citizens Adjusted approp.

Shifting of funds

Virement Final approp.

Actual exp.

Current payments 1 212 152 (258) 85 060 1 296 954 1 296 954

Transfers and subsidies 3 082 - 390 3 472 3 472

Payments for capital assets

144 423 258 (72 754) 71 927 71 927

TOTAL 1 359 657 - 12 696 1 372 353 1 372 353

Extract from the Appropriation Statement – Programme 2

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Utilisation of Funds

Services to citizens Adjusted approp.

Shifting of funds

Virement Final approp.

Actual exp.

Current payments 3 713 905 -102 964 57 953 3 668 894 3 600 519

Transfers and subsidies 1 316 459 - 4 013 1 320 472 1 320 472

Payments for capital assets

233 420 102 964 -61 966 274 358 274 418

TOTAL 5 263 784 - - 5 263 724 5 195 409

Extract from the Appropriation Statement – VOTE 4

Amount reported in AS 5 263 784Payments for capital assets misstated

Variance of 68 375 on Goods and Services – Programme 3Actual approp. & expenditure numbers

inconsistently reported in AR

38

Report of Audit Committee

• Noted and was satisfied with commitment to improve control environment

• Lack of capacity in strategic positions hampers improvement

• Main concerns reported –

– Lack of adherence to laid down procedures regarding procurement

– Lack of co-ordination within the department (SMS & frontline offices)

• Comprehensive internal audit plan developed & implemented

AGSA report notes that deficiencies are not ID & corrected timeously. Only 48 % of intended audits carried out, insufficient work in high risk areas. Reporting on internal controls inadequate.

39

Report of AGSA

• Qualified on existence, completeness and accuracy of capital assets reported in AFS (R1,606 billion)

• Was an audit qualification in 2008/09

• R274 million spent in 2009/10 and R305 million in 2008/09 with R84 million planned for 2010/11

Audit committee report notes management’s intention to improve record keeping

Accounting Officer’s report notes the significant progress in the management of fixed assets. This includes verification exercises, barcoding, office numbering etc. All necessary data in respect of the asset register have been loaded on BAUD and employees within the AMU have been trained to operate the system.

40

Report of AGSA

• EOM on restatement of comparatives (refers to notes)

• Not clear from notes that adjustment has been made and the impact

• EOM on unauthorised and irregular expenditure (from 2005/06) amounting to R99,883 million

Accounting Officer’s report reports that irregular expenditure was previously erroneously recorded as unauthorised expenditure

Accounting Officer’s report reports that matter will be taken to SCOPA for authorisation

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Report of AGSA

• EOM on incurrence of irregular expenditure amounting to R321,640 million

Accounting Officer’s report reports that the majority relates to non-compliance of procurement processes by SITA in 2006 in awarding WAIO tender (R261,426 million). Condonement required by DPSA - approval pending.

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Annual Financial Statements

• Management commentary provided in notes to AFS

Consultants, contracts and agency/outsourced services – “The department’s new leadership embarked on a project where departmental officials have now resumed and taken over projects initiated by the Turnaround team. It is worth mentioning that there is now a reduction on the dependency and reliance on consultants within the department.”Spending decreased by R60,372 million (10.5 %)

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Annual Financial Statements

• Increase in printing costs for passports

• Disallowance damages and losses:

• Improvement in collection of staff debt

• Large amounts of unconfirmed inter-departmental balances

Loss control committee established to facilitate resolution

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