Clean audit 2014: where to from here?

Cashmore Muchaonyerwa says we must get a few things right first

In 2009, the cooperative governance and traditional affairs department set a target that all 283 municipalities and nine provincial departments in South Africa should have clean audits by 2014.

This target was ambitious and will certainly not be achieved given that for the 2013 financial year, only 9% of municipalities obtained clean audits and 25% of national and provincial government departments and public entities (as outlined by Auditor-General (AG) Kimi Makwetu this week) have achieved clean audits for the 2014 financial year.

Although the target was not achieved, the programme should be acknowledged as one that has contributed to the long journey of public sector transformation, at least from a financial reporting, performance reporting and compliance point of view.

Since 2009 we have seen an improvement in audit outcomes from municipalities, government departments and entities.

We need to build on the positives of Operation Clean Audit (Opca) 2014 and reflect on what we need to do better.

South Africa needs a well-performing public finance management system to improve governance, enhance the quality of service delivery and achieve greater value for money on public expenditure.

Achieving clean audits demonstrates a fully functional entity and this ultimately enhances public confidence and accountability.

So all entities must strive to achieve a “clean audit”.

But positive audit outcomes should be taken as the beginning of transformation, not the ultimate test.

The late former minister of cooperative governance Sicelo Shiceka’s statement at the launch of the clean audit campaign remains true.

“We are launching Operation Clean Audit 2014 today, but what matters the most to me is how to address the needs of our people through clean audits. What matters most?...?is how an audit query is addressed, in a sustainable way, to improve service delivery.”

At the end of the day, it all comes down to service delivery.

Government institutions are there to ensure the provision of services to communities in a sustainable manner.

It is imperative that the pursuit of positive audit outcomes is done in a manner that enhances governance systems, internal controls, overall financial management and delivery on projects.

This will ensure that government institutions are functioning well as a system and that positive audit outcomes will come.

Regulatory audits have inherent limitations because they do not provide an assurance that all applicable laws and regulations have been complied with, will not identify fraud and will not provide assurances that service delivery has been achieved. Therefore “clean audits” do not tell us the full story.

We have experienced a number of service-delivery protests and unfortunately, municipalities that achieve positive audit outcomes have not always been excluded. We also have about 30% of our municipalities in financial distress, but they do not always have adverse or disclaimed audit opinions.

All too often, the focus is more on the audit opinion and not enough is given to other key areas that are crucial for an effective government system.

The AG says greater focus needs to be on capacity building, building robust internal control systems in government and improving the drivers of key controls through financial and performance management.

This will ensure that there is a correlation between audit outcomes and service delivery.

The AG generally issues an audit report accompanied by the management letter on all regular audits performed.

The report expresses the AG’s opinion on the financial statements, compliance with laws and regulations and performance information.

The management letter provides detailed findings on the audit, including internal control deficiencies, governance matters and various risks. This letter does not matter to most people as long as a positive audit outcome is achieved.

This is unfortunate as I believe this is where the business of the institution is discussed in detail.

It is important that all matters in the letter be evaluated and acted upon even where the institution obtains a positive audit outcome.

It is important to note that Opca is a sub-programme of the local government turnaround strategy that had the following as key priorities:

»?Accelerate service delivery;

» Enhance good governance;

»?Promote sound financial management;

»?Fight corruption; and

»?Facilitate a sustainable infrastructure.

As the overaching programme, it seems to have been overshadowed by the drive for clean audits.

We sometimes see the detrimental effects of not emphasising a comprehensive programme that addresses the root causes of state institution failures in the form of a lack of correlation between audit improvement, service delivery, economic development and job creation.

Now that we are at the end of Opca, the focus should be more on comprehensive turnaround and the professionalisation of government institutions to enhance internal controls, governance and oversight, eliminate corruption and speed up service delivery with positive audit opinion being one of the outcomes.

Muchaonyerwa is head of public sector financial management solution at Grant Thornton

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