ACCOUNTING

Accounting municipal blessings

Accounting

Outsourced chartered accountants can make a difference in achieving clean audits and efficiency for local government and other state entities.

Every year the Auditor-General of South Africa publishes findings regarding the state of financial controls in the public sector. It particularly highlights municipalities across South Africa that fail to obtain the coveted “clean audit” status that would indicate that they are effectively discharging their responsibilities.

With the focus on municipalities meeting their service delivery objectives, but often not having the capacity or skilled resources available to meet audit expectations, a “middle way” has to be found. Slingsby Mda, Associate Director of Financial Accounting Outsourcing (FAO) at Deloitte, says there are positive examples that could lead the way.

With all levels of the public sector focused on service delivery, the development of relationships that are designed to fill skill shortage gaps and so bolster outputs, is gaining momentum as municipalities and other government entities seek to improve their operational capacity.

Mda says this is especially apparent in the formation of focused partnerships that are taking place in the SETA sector, where a number of the organisations opt to use the services of advisory firms to strengthen and improve financial controls within their financial administrative functions.

“The resulting partnerships have seen various state service providers, particularly at municipal and SETA levels, using professional accountants who work within their organisations to provide support for executive management, so that financial controls can be improved and service delivery can be maximised,” he says.

According to Mda, outsourced chartered accountants make a difference in achieving clean audits and efficiency for municipalities and other state entities through economies of scale as they have perfected the system through the multiple clients that they service. The teams leverage off of each other when they encounter complicated transactions. They understand the Auditor General (AG) requirements and prefer to engage the AG upfront on contentious technical issues. They are independent from the organisations they serve and are not easily bullied into non-compliance as it were.

However, he emphasises that you can throw in the best accountants, but until you have management support, commitment, will and buy-in you will never achieve a clean audit. After all the clean audit reflects the state of affairs in the entity. It is therefore critical that we forge an open partnership with management where all the “ships are sailing in the same direction”.

Asked whether he thinks that enough municipalities in South Africa have embraced outsourced chartered accountants to help in this regard, Mda says this is not only limited to municipalities. “The word outsourcing is sometimes regarded as taboo both in the private and public sector until one spells out the benefits highlighted above. We find that outsourcing is not the immediate answer and we normally build trust during the courtship phase where we second one or two individuals and if the business case makes sense, we eventually take over the function. In those instances, we would absorb any affected staff members into our firm. We also encourage partial outsourcing, whereby you would outsource a portion of the finance division like accounts receivable,” he says.

Mda further highlights that the outsourcing model also works well in a newly established entity whereby we set up the systems for an initial three year minimum period before handing over a stable financial environment to the company. He says they have also seen that the model works well for multinational companies that set up shop in South Africa and only want to send their operational team.

“Public entities have the core mandate of ensuring that services are delivered to the public, and that those services are delivered timeously. Our work therefore enables management to focus on core operations and service delivery knowing that the finances are well taken care of. We also use technology as an enabler thereby making the process simpler and introducing shared sercices for similar transactional functions,” according to him.

Looking at successful public private partnerships, and its relationship to service delivery, outsourcing leads to better use of time as you free up valuable management time that can be better spent elsewhere. The teams are capacitated with the necessary skills, skills transfer takes place ensuring that a higher level of accounting outsourcing is adhered to.

So how can the public-sector, and indeed the country, benefit from the exposure these young people (placed in positions at municipalities) get? As Mda explains, it will make the public sector more attractive and able to attract scarce and critical skills and improve efficiencies in the public sector.

“The benefits become even more significant when one considers that specialised support can be tailored to meet the overall or specific demands of a financial department within public entities, with employment time being matched to these needs” he says.

He concludes by pointing out that two of the common fallacies when evaluating whether outsourcing makes sense are: “the assumption that it prejudices job creation or development of finance skills; and to only focus on salaries and ignore any other costs that result from the employment of the individual, such as apportioned rental for office space, computer costs.”

Who should make use of outsourcing high-level financial skills?

The following are prime areas suitable for outsourcing:

  •  Where finance is an enabler for the business rather than an integral part of operations.
  • Newly formed entities where management wants to focus on operations to get the business up and running for an interim period of up to three years, whilst being assured that the finances are sound.
  • Where the entity by virtue of its location (if it’s in an unattractive area) or nature (municipal environment) struggles to attract requisite skills.
  • Where the finance function is very complex in nature and better left to a pool of experts to limit errors.
  • Where the entity has a high turnover in the finance division thereby affecting the integrity and credibility of the financial information.
  • Limited outsourcing, such as where debtors are outsourced rather than the full finance function.
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