Strengthening audit committees in local government is key

In his first report as Auditor-General, Kimi Makwetu notes a small improvement in the audit outcomes for local government. Overall, the consolidated general report on the audit outcomes of local government for 2012-13 shows a net improvement in audit outcomes with the number of improvements exceeding the number of regressions.

The number of clean audits has risen to 30, an increase of 4 percent over last year, representing 9 percent of the 319 institutions audited. The report also stated that a further 41 percent 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 percent of auditees - this despite the fact that 95 percent of auditees have audit committees. Particular areas of concern were highlighted: 38 percent of audit committees did not evaluate information systems and 31 percent did not evaluate performance information. The most telling finding, says 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 percent) of all audit committees were assessed as having a positive impact on the audit outcome of their organisations. It is especially concerning 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.”

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.” Further guidance and training is available through the PSACF.”