Audit committees could be one of Gordhan’s secret weapons

It is widely accepted that the appointment of Pravin Gordhan as Minister of Local Government and Traditional Affairs signals government’s seriousness about getting local government—and thus service delivery— on track. Minister Gordhan has been one of the ruling party’s top performers, first as the Commissioner at the South African Revenue Services and then as Minister of Finance.

As the Minister faces up to this new challenge, the positive role that competent audit committees could play in improving governance in local government, and thus enhancing performance should be borne in mind. That’s the opinion of 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).

"The Auditor-General’s Consolidated General Report on the Audit Outcomes of Local Government 2011-12 shows that this tier of government faces severe challenges at the leadership, financial and performance management, as well as governance levels,” says Natesan. It also shows that only 51 percent of audited organisations were able to obtain an unqualified audit opinion—and most of them only by correcting the mistakes identified during the audit process In addition, it notes that the quality of the financial statements submitted for auditing was poor, with only 14% of the auditees submitting financial statements with no material misstatements.

The Auditor-General noted that 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. Key role players did not provide assurance to improve controls and address risk areas and root causes.

According to Fay Mukaddam, IoDSA facilitator and a member of the PSACF working group, "In the private sector, audit committees are recognised as lynchpins of financial oversight, and need to play the same decisive role in the public sector. However, simply having an audit committee in place is not enough—more than 82 percent of the audited organisations whose financial statements were disclaimed had audit committees” "Audit committees need to have the right people with the right skills sitting on them to be effective—and they need the support of all other key governance role-players.”

"Good governance is the foundation for exceptional performance, and it’s clear from the findings that poor governance is one of the principal contributors to poor service delivery in local government,” Natesan concludes. "Strengthening audit committees in the public sector will go a long way towards providing the effective oversight that the important institutions of local government need—and assist the minister in achieving his goals.”

The PSACF, of which the IoDSA is a founding member and the Secretariat, has released a number of guidance papers to assist public sector audit committees strengthen their performance and effectively fulfil their responsibilities.