3 minute read
Unleashing the full potential of audit committees and internal audits
by kwedamedia
In the realm of public sector auditing and accounting, the Auditor General’s reports under the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) serve as crucial barometers, providing insights into the efficiency and effectiveness of governance structures. The latest reports underscore a critical issuethe underutilisation of Audit Committees and Internal Audit Units as resources for enhancing governance.
The PFMA Perspective
The 2022-23 AGSA PFMA report reveals that, despite the significant role of Audit Committees and Internal Audit Units in advising on internal controls, risk management, and compliance, their impact remains suboptimal. While Audit Committees show a marginally higher influence, a staggering 20% of auditees did not implement their recommendations. Internal Audit Units, designed to offer independent assurance on controls and risk mitigation, face similar challenges, with 26% having little to no impact due to management's failure to act on their suggestions.
The MFMA Outlook
Shifting the focus to the 2021-22 AGSA MFMA report, a more nuanced picture emerges. Audit Committees demonstrated slightly better effectiveness, with 51% making some impact.
However, the report highlights that 34% faced inertia from management in implementing their recommendations. Coordinating institutions and executive council members played a role in interventions, yet their impact was limited. To unlock the full value of investments in Audit Committees and Internal Audit Units, municipalities need to ensure robust implementation, monitoring and accountability mechanisms for the recommendations.
Key Challenges and Opportunities
Despite the strides made in aligning governance structures with legislative requirements, challenges persist, particularly in the quality of financial statements
and performance reports. The reports prompt us to reflect on the following key challenges and explore opportunities for improvement:
Lack of Implementation:
Among potential obstacles is the ongoing problem of management failing to execute recommendations. There is a need for a paradigm shift, fostering a culture that values and acts upon the insights provided by Audit Committees and Internal Audit Units.
Ineffective Support Initiatives:
Coordinating institutions and executive council members must reassess and strengthen their support initiatives. This includes bolstering structures such as disciplinary boards and municipal public accounts committees to enhance accountability.
Monitoring and Accountability:
Municipalities should establish robust mechanisms for monitoring and ensuring accountability. This involves actively tracking the implementation of recommendations related to financial and performance management and holding responsible officials accountable for any lapses.
Recommendations for Improvement
Enhanced Collaboration:
Foster collaboration between Audit Committees, Internal Audit Units, and coordinating institutions to create a unified front in addressing governance challenges.
Capacity Building:
Invest in capacity-building programmes to empower Audit Committees and Internal Audit Units with the necessary skills and resources, ensuring they can fulfil their roles effectively.
Strengthening Disciplinary Mechanisms:
Local governments should focus on fortifying disciplinary mechanisms, ensuring they are robust and capable of addressing lapses promptly.
Transparent Reporting:
Promote transparency in reporting by municipalities, enabling stakeholders to assess the true impact of Audit Committees and Internal Audit Units on governance.
The Auditor General’s reports serve as a call to action for public sector auditors and accountants. To optimise the governance structures in place, concerted efforts are required to overcome challenges and seize opportunities for improvement.
By doing so, we can unlock the full potential of Audit Committees and Internal Audit Units, ushering in a new era of effective and accountable public sector governance.
