Audit Committees Vital to Increasing Clean Audits in Public Sector

AUDIT COMMITTEES VITAL TO INCREASING CLEAN AUDITS IN PUBLIC SECTOR

The Public Sector Audit Committee Forum[1] 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 governance process.

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.

[1] The 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 Africa.