Audit Committees Vital to Increasing Clean Audits in Public Sector
14 August 2013
AUDIT COMMITTEES VITAL TO INCREASING CLEAN AUDITS IN
The Public Sector Audit Committee Forum
has reacted strongly to the Auditor-General’s Consolidated General Report on
the Audit Outcomes of Local Government 2011-12. The report shows that local
government has actually lost ground, with only 48 percent of audited
organisations able to obtain an unqualified audit opinion—and most of them only
by correcting the mistakes identified during the audit process.
In addition, 94 percent of audited organisations were found to be
materially non-compliant with legislation, while there was an increase in the
already high levels of unauthorised, irregular as well and fruitless and
wasteful expenditure. The report also noted that key role players did not
provide assurance to improve controls and address risk areas and root causes.
More than 82 percent of the audited organisations whose financial
statements were disclaimed had audit committees and internal audit units.
"While we believe that audit committees play a key role in preventing
and addressing these challenges through their oversight role, these very
worrying results demonstrate that simply setting up these structures is not
enough—they need to be staffed by the right people with the right skills to be
effective,” says Parmi Natesan, senior governance specialist at the Institute
of Directors in Southern Africa, a member of the Forum.
Claudelle von Eck from the Institute of Internal Auditors, another Forum
member, elaborates: "Although we have some centres of excellence, there are
still too many entities where internal audit cannot possibly be effective as a
result of wrong appointments, internal auditors not being appointed at a senior
enough level, lack of understanding of the role of internal audit, resistance
to internal audit’s presence and recommendations, as well as intimidation to
sweep findings under the carpet.”
This view is supported by the report, which emphasises the need for an
organisational environment that supports the role of the audit committee and
good governance in general. According to Linda le Roux from the office of the
Auditor-General, "audit committees and internal audit units can only have a
positive impact on audit outcomes when the organisations they serve support
their efforts and respond to their advice and recommendations. ”
Oversight structures should encourage management to create an
environment in which audit committees and internal audit units can play a
constructive, value-adding role.
The report clearly links effective governance with internal control and
ultimately audit outcomes. It also makes the point that risk management,
effective audit committees and internal audit functions are key elements of the
Sheralee Morland, president of the Institute of Risk Management South
Africa, suggests that it is necessary to research to what extent all key role
players in local government understand their respective responsibilities. "Once
the roles have been clearly defined, we should consider including clearly
defined performance measures, with clear outcomes and key performance
indicators, on individual scorecards. Audit committees should then use an
annual consolidation of scorecard performance to identify weak points and
suggest management actions necessary to correct them,” she says.
Natesan explains that the Public Sector Audit Committee Forum has
already issued one guidance paper relating to the numerous challenges facing
public sector audit committees. This and subsequent papers are designed to help
the members of public sector audit committees overcome these challenges, which
will ultimately improve audit outcomes.
Public Sector Audit Committee Forum was founded in November 2011 by the
Institute of Directors in Southern Africa (IoDSA), The Institute for Internal
Auditors in South Africa, SAICA, The Institute of Risk Management South Africa,
the National Treasury, the Auditor-General and the Development Bank of Southern