FINANCE

The quest to restore confidence

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Following South African municipalities’ latest audits, the outcomes suggest improvements in the auditing process, coupled with private partnering, is the way to go.

Following the 2012/13 municipal audit outcomes, Auditor-General Kimi Makwetu has noted a slight improvement in local government spending. The consolidated general report revealed a net improvement in audit outcomes.

Commenting on the release of the Auditor-General’s local government audit report, in which only 9% of all the municipalities and municipal entities achieved clean audits, Nonkululeko Gobodo, Chairperson of SizweNtsalubaGobodo, southern Africa’s largest black-owned accounting firm, says meaningful transformation within the public sector will require a unique approach with an all-encompassing focus on the citizen and delivering on the public promise.

“While there is general consensus that the time has come to restore confidence in the public sector, the question remains as to how we as citizens and business can assist government in making this happen. We can no longer sit back and expect government to solve issues that affect each and every one of us. Rather, business needs to partner with government and provide the expertise necessary to ultimately professionalise the public sector into high performing entities,” she comments.

Gobodo believes that the underlying problem currently facing the public sector is that departments lack clear public service propositions that allow them to focus on providing the best possible service. “Here we need to inject a sense of pride in public service that attracts the right people with the right skills. Only through making the public sector attractive internally will young professionals be prepared to gear themselves up for public service.

“An additional focus should be on up-skilling and empowering people, particularly financial directors, to become the drivers of the change and progress required in the sector. Adopting this approach will ensure outcomes are directed towards realising a tangible benefit not only to the public sector but the country as a whole,” she explains.

For Gobodo, only through business partnering with government can a solution be found that will ensure local government departments meet public expectations. “While public confidence in government delivery is largely determined by good governance and compliance, this is only one aspect of what needs to be factored into what constitutes overall public expectation.

“Going forward, together with skills and capacity building, citizens also expect to see overall improved performance, financial function effectiveness and efficiency in delivery, as well as accountability in terms of implementing anti-corruption controls and measures,” she explains.
Gobodo says that the transformation required to ensure a sustainable sector will require a unique approach. “A holistic approach is required that is citizen-led in both proposition design and operational alignment. We have developed a customised Public Sector Advisory unit that focusses on governance and compliance, performance improvement, financial function effectiveness, skills and capacity building, and anticorruption services which we believe are core requirements to meeting public promise and expectation.

“Our approach includes detailed public service propositions that address the product, service and access needs of South African citizens. It also sets a clear objective on how these services should be delivered and will give the strategic clarity on where government departments should be focusing their efforts,”
she comments.

However, for Gobodo it is leadership that will be a key determiner of strategy success. “It is essential to have leaders in place who understand strategy and how to lead strategic transformation. This requires leaders who are able to, and are willing to, make the sometimes tough decisions.

“These leaders then need to ensure that they foster an approach that encourages partnering so that both parties realise the benefit. In other words, it is important to form a partnership in not only identifying the best course of action but also to realise the full benefit,” she concludes.

The Institute for Directors says that the final report also showed that the number of clean audits has risen to 30, an increase of 4% over last year, representing 9% of the 319 institutions audited.

The report also stated that a further 41% received a “financially unqualified opinion with findings”, meaning that while they have accounted accurately for their financial transactions, 138 auditees still did not follow the required processes. In addition, almost 70% of auditees incurred fruitless and wasteful expenditure with an overall value of R815 million. This expenditure increased by 31% from the previous year.

“Audit committees are supposed to provide a high level of independent oversight, but results show that they only provide the required level at 26% of auditees – this despite the fact that 95% of auditees have audit committees. Particular areas of concern were highlighted: 38% of audit committees did not evaluate information systems and 31% did not evaluate performance information,” the institute says.

It also points out that the most telling finding, according to Parmi Natesan, senior governance specialist at the Institute of Directors in Southern Africa (IoDSA) and a member of the Public Sector Audit Committee Forum (PSACF), is that the report shows that only just over half (54%) of all audit committees were assessed as having a positive impact on the audit outcome of their organisations. It is especially worrying that audit committees are found to be “not yet effective in providing internal assurance and oversight” due to “insufficient focus on the reliability of performance information and evaluation of information technology controls and compliance.”

The Institute further mentions that from a closer reading of the report, it seems clear that the performance of audit committees in local government needs improvement, especially given their critical oversight role. The IoDSA and the PSACF regard the audit committee as being a key contributor to good governance. It plays a crucial role in overseeing financial and performance management, compliance with legal and other regulatory requirements and internal controls.

“The Auditor-General provides a number of useful recommendations to help audit committees improve their contributions,” says Natesan. The Institute of Internal Auditors of South Africa (IIA SA) welcomed the Auditor-General’s report on the audit outcomes of municipalities and municipal entities for the financial year 2012–13 with cautious optimism.

The CEO of the IIA SA, Claudelle Von Eck, stated that “the improved municipal audit outcomes are heartening, though this trend needs to speed up considerably in order to meaningfully improve the quality of life for the majority of South Africans”.

Von Eck commended the 30 municipalities and municipal entities that achieved clean audits this year, saying that “when well-qualified, competent and dedicated public servants and strong oversight bodies work together to ensure good governance and accountability, they lead the way for others to follow”.

According to IIA SA, the challenges most under-performing municipalities face relate mainly to the lack of compliance and the failure of internal controls, as explained by the Auditor-General. Internal auditors play a vital role in providing assurance over compliance, risk and internal controls. “The IIA SA is playing its part by strengthening the internal audit profession at all levels of government through its increased focus on the professionalisation of internal audits, its learnership programmes and continuing professional development opportunities such as the annual Public Sector Forum, as well as courses aimed specifically at upskilling internal auditors in the public sector. In addition, the profession as a whole will benefit from the new certifications pathway, which came into effect this year and which includes the requirement that internal auditors serve 'articles' that will enable candidates to gain much-needed practical experience.”

Von Eck says that the IIA SA has a solid partnership with the Auditor General of South Africa, and that they share a common vision of enhancing the skills of public sector auditors. She added that the growing public interest in the Auditor General’s work is most encouraging, noting that “Mr Makwetu’s tireless engagement of municipal leaders on good governance matters will no doubt be well supported by the Minister of Cooperative Governance and Traditional Affairs, Pravin Gordhan, who is well known for his ability to institute strong systems and processes. This augurs well for the future of local government.”

 

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