THE DEPUTY AUDITOR-GENERAL’S REFLECTIONS

Stable core, disruptive edge

2024 marks the 113th anniversary of the Auditor- General of South Africa (AGSA) as an institution, 30 years of those in the specific and noble service of strengthening our constitutional democracy. It remains crucial that we not only maintain our abilities, but also grow from strength to strength to deliver our mandate, serve the people of South Africa and retain public confidence.

While our integrated annual report provides us with an opportunity to pause, reflect and report on the preceding performance period, it is important that in doing so we also reflect on the long-term trajectory of the institution’s sustainability and viability. We also reflect on whether our actions in the performance period have served not only to meet our short-term, annual objectives, but also to position us for long-term strength and institutional integrity, resilience and sustainability, forever mindful that our pursuit of short-term gains does not come at the expense of long-term goals.

Maintaining a stable core

Our work in 2023-24 was largely about continuing to repair and restore the capabilities adversely affected during the pandemic years, along with an alignment of our broader base of capabilities being fit to deliver on our #cultureshift2030 aspiration.

Leadership capacity, capability and alignment

The scale, complexity and dynamism of our operating context requires a fully capacitated, capable, engaged and aligned leadership team to collectively steer the organisation towards its strategic goals. Over the course of the reporting period, we finally strengthened our operations with a full complement of executive leadership. We are now well placed to accelerate our strategic ambitions.

Having a leadership team is one thing, getting it to lead the organisation in a manner that aligns to our vision, reinforces our values, drives performance and, most importantly, develops and nurtures our people is the difference between strategic success and failure. Our leadership DNA was developed as the philosophy that defines desirable leadership skills, traits and characteristics, which we translated into a leadership 360 assessment tool. The aim was to guide leadership on best practices in the AGSA context and to use the outcomes to craft tailored leadership development programmes across our various leadership levels.

Fit for purpose staff establishment and internal culture shift

Future-fit staff establishment

To effectively apply our new strategy we assessed whether our staff establishment was fit-for- purpose relative to the strategic requirements of #cultureshift2030. While the pandemic delayed the process of finalising that assessment, we picked the process up again in the review period. We assessed every role from the most junior to the exco level and successfully facilitated the adjustment process to its conclusion.

As difficult as restructuring processes are generally, we are proud that the painstaking and diligent approach we took meant that we had no retrenchments and were able to reassign all the affected people who did not opt for the voluntary separation package. With the restructuring process now finalised, we are at an optimal level to sustainably advance into our strategic future.

Enabling culture

Of cardinal importance to us is having a stronger, more direct and consistent impact on the lived experience of both the wider public and the members of Team AGSA. The past two years have not been easy. Apart from the generally intense, deadline-driven and high pressure context that is natural to audit work, the client environment continued to be difficult, with our staff often contending with pushbacks, threats and intimidation.

High inflation and correspondingly high interest rates brought cost of living pressures that aggravated the long-term effects of covid-19 on mental health, and skills acquisition and development. The combination of these and other factors were formidable challenges to the health and wellness of our staff. In response we pursued an AGSA culture characterised by trust, collaboration, wellbeing and work-life integration. We also successfully delivered on a range of initiatives including the AGSA culture index to define our desired organisational culture, assessed and tracked staff engagement and relative culture levels and proactively supported employee wellbeing.

We developed a framework for managing change within our operating context to enhance wellness and contribute to systematic and timely capability development, while conducting risk assessments and empowering staff with the necessary training and awareness to guide them on recognising, reporting and responding to various risk scenarios.

Recruitment, retention, training and development

A proud hallmark of the AGSA legacy has been our contribution to advancing the transformation and professionalisation of the audit sector in South Africa. Since the advent of our trainee auditor scheme, the AGSA has produced 2 017 chartered accountants (CAs) by supporting young people to fund their studies and providing them with training opportunities. We also maintain a rigorous training and capacity development programme for our broader organisation to keep skills and competencies sharp and current.

Our efforts distributed R5,8 million to 36 active bursars on the AGSA bursary scheme, contributed R15 006 247 to the Thuthuka bursary fund and yielded 174 candidates passing the Saica Assessment of Professional Competence (APC) exam during the review period. This bought the total number of newly qualified CAs to more than 700 over the past three years. Another focus has been to diversify the skills recruited into our young professionals programme, responding to a client context that increasingly demands a wider set of capabilities, including data analytics.

The ambition of our recruitment and talent development is to increase the concentration of top talent within our ranks to maintain the world- class standards of the institution. We are proud that in the review period we continued to retain our high-performing employees with a 5,2% staff turnover, well below the industry benchmark of 10% – 12%.

Financial sustainability

Improving financial performance through efficiencies

Financial sustainability for the AGSA extends beyond simply being a matter of funding our operations and being able to continue to operate as a going concern, it is also key to maintaining our independence. While we increased our net surplus in the previous period, it was because of the strategic decision to tighten our belt in response to the challenging and uncertain economic conditions.

Our focus in the review period was to maintain or elevate our cost optimisation efforts while making specific revenue enhancing and margin uplift interventions. We are once again proud that we achieved a significant improvement in our margins by leveraging our internal resources and improving productivity.

It is worth mentioning that while we have seen the gains in our revenue and net surplus over the course of the review period, our revenue only accounts for 0,217% of total government expenditure, which is in line with the global benchmark for governments’ spending on their supreme audit institutions. This increasing trend, particularly in our net surplus, is important to allocating a material proportion of the surplus towards the significant, necessary, largely self-funded capex programmes related to our digital transformation and information and communication technology (ICT) capabilities.

Improving liquidity through enhanced collections

A perennial escalation of debt over the past decade means that it becomes difficult to convert substantial proportions of our revenue and surplus into cash in the bank. This has largely been driven by fees owed by local government and state-owned and public entities, which collectively account for 74% of our debt book.

Many of these debtors are in financial distress. Our inability to collect on these debts is a significant risk to our financial sustainability, and ultimately our independence. Given that context, it is commendable that we have completed the review period with an improved cash balance of R1,154 billion, representing a cash margin of safety of 2,5 months, up from the previous year’s 1,6 months.

Defending our institutional integrity and strengthening our ethical posture

Our quality, credibility and the public confidence we enjoy gives us permission to operate.

Maintaining a robust quality, risk and ethical management framework is therefore critical. During the year under review we successfully operationalised and evaluated the System of Quality Management (SoQM) in line with implementing ISQM in the previous year, which the auditor-general has evaluated as providing reasonable assurance that we achieved the objectives of ISQM 1 as at 30 November 2023. According to the ISQM, this evaluation is to be performed annually, with the next one planned for 28 November 2024.

Our continuous assessment recently done in June 2024, in line with our SoQM, indicates challenges in this area as we incurred regressions in our quality control. Our post-issuance quality review process yielded an engagement review quality rating of 69% compared to a target of 80%.

Our ethics maturity assessment, undertaken in March 2024, saw us move from an AA-rating to an A-rating which, while not inherently bad, falls short of the high ethical standards that we have set for ourselves and endeavour to maintain. The importance of quality and ethics matters led our leadership team to begin the work of identifying the root causes for these regressions. In 2024-25 we will focus on implementing improvement actions.

On the other hand, we are pleased that our risk management controls have proven their effectiveness at detecting regression, sounding the alarm and activating expeditious response, led from the front by senior leadership.

Reputational strength and stakeholder value

During the period under review, we introduced the AGSA public sentiment rating. To establish the baseline rating, we issued an independently managed stakeholder perception survey. The survey aimed to help us identify the areas in which our stakeholders believe we are doing well to leverage on these going forward, especially when it comes to our influence work) and the areas where they believe we can do better (so we ensure that our medium to long-term planning includes improvement plans for these areas). We were pleased and reassured of the value that we, as the country’s supreme audit institution, provide based on the mostly positive responses that we received. The majority of respondents indicated that they experience the AGSA and its employees as:

• professional
• value-adding (through the audit insights and recommendations we provide)
• able to help them improve the performance of their organisations.

The areas where they believe we can improve included us providing a better understanding of our #cultureshift2030 strategy and, generally, more communication with them. To address these, our focus in 2024-25 will include the development and implementation of an organisation-wide stakeholder improvement plan, which will then be used as the basis for more targeted, business-unit led improvement plans as well. For us, focusing on addressing these areas of improvement is important, especially with auditees because we remain focused on them seeing and experiencing the AGSA as a strategic partner and matters such as good communication are a key part of such a business relationship.

Shaping the future

In addition to restoring and aligning our core capabilities, our focus over the past two-years has been on developing the capabilities and taking the steps that will propel us into the future. While these may seem like ambitious and somewhat futuristic, audacious undertakings in the present, we see them as down-payments on the future, without which this institution will not preserve its ability to sustainably fulfil its mandate over the next 50 years.

The review period saw us taking the first implementation steps, readying us to accelerate those initiatives in the following year. In parallel, we activated the governance frameworks necessary to ensure disciplined delivery, sound capex management and optimal benefit realisation from these initiatives. Our key initiatives in that regard have included:

Digital transformation

A key imperative underpinning our #cultureshift2030 strategy is to digitally transform the organisation in a way that delivers marked benefits including improved efficiencies, cost savings and functional gains. Already, we are feeling the adverse impacts of manual processes and non-intuitive processes on our quality ratings and as our operating environment continues to undergo this scale of change while assuming the dynamism that it has, shifting our digital capabilities towards the cutting edge has become a necessity, rather an indulgence.

Audit software programme

Over the course of the review period, the digital transformation journey gained traction with a number of key projects – of note is the audit software project (ASP), our effort to re-platform our strategic business operations to meet the dynamic demands of the modern audit landscape. The procurement of future fit audit software to replace the current software is a game changer not only for AGSA but for the audit profession in South Africa.

Given the size of capex investment that this project demands, we are proud that in the review period we finalised the procurement process of a suitable partner with significant cost savings compared to the initial budget. Once finalised, this programme will have delivered an integrated platform comprising a TeamMate replacement; a central auditee database, audit budget management, audit project management and resource planning; a unified platform for all audit software; collaboration with auditees; and management of stakeholder engagements.

Enterprise resource planner

In 2023-24, we also approved the enterprise resource planning (ERP) business case and journey map, as we recognised the need for an integrated system to efficiently manage human capital, financial, and procurement functions. However, as we became increasingly focused on implementing the ASP (with the significant and dedicated human and financial resource that this required), the leadership had to reconsider the practicality of fully implementing both projects simultaneously.

The business reality of limited time, people and financial resources sometimes requires trade-offs, and we eventually decided to limit the scope of the ERP. In 2023-24, we focused on approving the ERP business case and journey map. The focus for 2024-25 will be data clean-up and automating the processes that are currently creating the greatest inefficiencies. The major aspects of the ERP plan will then commence in the 2025-26 financial year.

In memoriam

In the review period we were saddened by the passing of the following members of Team AGSA. We celebrate the memory of their service to the institution and our country more broadly, even as we continue to express our sincere condolences to their families and loved ones:

• Xola Mkwane
• Mpho Khanye
• Zamukwanda Ngubane
• Luthando Masiza
• Thato Springbok

Outlook for the year ahead

In 2023-24, we established an enterprise-wide programme management office (EPMO). From 2024-25 onwards, this EPMO will be the cornerstone of all our strategic projects, including all the digital transformation projects begun this year. Our aim is to use the EPMO to enhance project management capabilities in the organisation and ensure a focus on efficient and effective projects, just as we have done in other areas of the business.

In addition to maintaining and building on the financial management practices that resulted in the strong performance we saw in 2023-24, in 2024-25 we plan to focus on continued engagements with the National Treasury on reviewing criteria for municipalities that are in financial distress and securing funding for these municipalities’ audit fees.

Also included in our priorities going forward is our revamp of the young professionals’ programme, including the CA(SA) component. Our work with young professionals not only helps bring to life the AGSA’s goals on transformation and professionalisation, including of the public service, but is also a critical component of our internal capacitation. One of our key success indicators for the programme is our trainee programme pass rates, something we aim to increase over the next few years, in line with our organisational value of excelling in all that we do.

Conclusion

All things considered, 2023-24 was a year in which Team AGSA delivered the kind of performance that sets us up for accelerated impact in the coming years. While we have had to contend with increased complexity and risk, we have also resolved to invest in the capabilities that will position this institution for high-performance, resilience and sustainability in the future, in spite of the heightened complexity.

Underpinning this hard-won performance that we can best summarise in this document using facts and figures, are the individual names of the passionate, dedicated, competent and courageous people that make up Team AGSA. I am particularly grateful to each one of the culture shifters for their unwavering commitment to our pivotal mandate of strengthening constitutional democracy. As we look towards the next reporting period our priorities will be to:

• urgently reverse strategic declines and mitigate vulnerabilities, with a particular focus on our quality and ethics
• get the administration into steady-state execution of the #cultureshift2030 strategy
• ramp-up the initiatives that position us for sustainability, viability and impact into the long-term.

We stand ready, willing and able to continue to serve with diligence.

Vonani Chauke
Deputy Auditor-General