The Root Cause for Non-Implementation of Internal Audit recommendations

Dr Mfanufikile Mwelase

Senior Audit Manager: eThekwini Municipality Audit and Risk Assurance Services

Post 1994, the South African public sector embarked on a process to restructure its operational efficiency through the then-public management approach, which essentially meant a

conversion of the traditional management mechanisms within the public sector to mirror private sector practi-ces (Coetzee & Erasmus, 2017).

The move to embrace a new approach when dealing with performance management meant that, amongst other role players, Internal Auditing had to execute a more leading role in assisting management in improving organisational performance.

An organisation’s ability to achieve its goals depends on how well its internal auditing operates.

Lenz (2013) submitted that ‘Internal Auditing Effectiveness’ is a concept that describes how Internal Auditing supports the organisation in the achievement of its goals by positively impacting the quality of corporate governance within that organisation. Practically, internal auditing assists an organisation when its recommendations are implemented by those managing its operations (Huong, 2018).

Despite all efforts made towards ensuring more efficiency, productivity and therefore better performance, the South African public sector has, however, not performed well.

The performance of the local government has continued to deteriorate. In her 2021-2022 Municipal Finance Management Act (MFMA) General Report, South Africa Auditor-General Tsakane Maluleke indicated that “Local government has been characterised by dysfunctional municipalities, financial mismanagement, council and administrative instability, and crumbling municipal infrastructure. This leads to deteriorating standards of living and service delivery failures, resulting in service delivery protests.”

In 2023, Maluleke went further to say that the state of local government is deteriorating and requires urgent attention as municipalities continuously fail to address issues of accountability, integrity, performance and good governance. The main proposal from the AGSA office to rescue the situation is that a culture of accountability must be enforced to improve performance and thereby improve service delivery.

The report and proposed solution by the AGSA raise important questions about the effectiveness of the current accountability mechanisms at local government, particularly Internal Auditing.

If Internal Auditing exists to assist management to better manage risks, governance and internal controls then how did we get to the situation as described in the 20212022 MFMA General Report?

Has Internal Auditing as a function failed to discharge its legislated mandate within this sector?

To understand the reasons for what appears to be failures of Internal auditing and to possibly derive worthwhile reforms, one has to understand the legislative framework that governs the functioning of Internal Auditing.

When South Africa adopted the constitution as the supreme law of the country in 1996, the aim of the government, amongst others, was to empower communities at local government to take responsibility for community services to improve the quality of life of all citizens and free the potential of each person (Moller & Dickow, 2002).

THE KEY PIECES OF LEGISLATION

In addition, the government further intended to encourage people to take an active role in effective governance and service delivery practices. The government machinery adopted by the state to implement the ideals enshrined in the constitution consists of three spheres, namely, local, provincial and national spheres of government. Whilst some people would argue that the National and Provincial spheres of government are important, performance indicators have indicated over the years that the proper functioning of local government as part of government machinery is essential for the achievement of constitutional objectives since that sphere is where service delivery to all citizens take place.

To achieve identified objectives, the constitution prescribed legislation and/or laws or acts which are

instruments of government in its efforts to organise society and protect citizens, for through legislation government can allocate rights and obligations to individuals and authorities to whom the legislation applies. Regulations, guidelines, standards, circulars and interpretation statements were then derived from legislation to further provide guidance for Municipalities and thus form what is referred to as The Municipal Legislative Framework (de Jager, 2000).

Key pieces of legislation which form part of the Municipal Legislative Framework aimed at guiding each Municipality to achieve the set Constitutional objectives include the Municipal Systems Act, the Municipal Structures Act and the Municipal Finance Management Act. A focus on the Municipal Structures Act (enacted into law in 1998) is important for understanding the reason for what appears to be failures of Internal Auditing in local government. Chapter Two of the Municipal Structures Act stipulates that there must be a Municipality for every Municipal area in the Republic and that each Municipality (Chapter Three) must have a council (comparable to a Board of Directors in the private sector) to run its affairs.

FREE FOR ALL

This chapter further indicates that “Every citizen who is qualified to vote for a particular municipal council has the right- (a) to stand as a candidate in an election for that council” (with a few exceptions as per section 158 (1) of the Constitution)

In terms of the Legislative Framework, a person who is qualified to vote is one who should

be a South African citizen, at least 18 years or older, with an ID book. In a nutshell, this means that the main requirements/criteria to be part of the highest decision-making body of a Municipality which is similar to the Board (in the private sector) is that one must be a South African.

Therein lies the source of the many problems found in local government. Some political parties indeed have

their criteria for selecting individuals who can stand for public office. It is also true that some councillors have formal qualifications, and some have experience in one or another field.

But the lack of certain standards or prerequisites beyond being a registered voter for the purpose of getting elected as a councillor has led to a free-for-all scenario, which has left councils across the country with simply inadequate governance.

The complexities involved in running a 21st-century municipality in an information-driven society that is forever evolving, combined with the type of mechanism to elect leaders that South Africa has opted for, has created many of the problems the Auditor-General has highlighted in her report and has contributed to the frustration of many Internal Auditors across the country.

In many instances, the Internal Auditing log of previously reported issues reflects the issues raised in the 2021-2022 MFMA General Report. This means that Internal Auditors have been raising similar issues around weaknesses in the management of risks, governance and internal controls over many years, but management is not heeding their call.

When those same issues are reported by Internal Auditing to oversight committees, as required by the prescripts, little to no action is taken to ensure management implements recommendations. If the current trajectory continues, we can unfortunately be sure that municipalities will reach unprecedented lows of dysfunctionality.

The current legislative framework, which is at the centre of the malaise, should be improved upon as a mechanism to arrest the deterioration witnessed in local government. Many democratic societies with currently high-performing public sector organisations have, over the years and amongst other initiatives, been able to adapt their election mechanisms to include an element of selection.

The current legislative framework, which is at the centre of the malaise, should be improved upon as a mechanism to arrest the deterioration witnessed in local government. Many democratic societies with currently high-performing public sector organisations have, over the years and amongst other initiatives, been able to adapt their election mechanisms to include an element of selection.

SOUND ELECTION ELEMENT

The selection element of the election process would naturally be a process of carefully identifying individuals within society with a proven track record of success around a few agreed-upon key societal imperatives for a particular municipal area and creating a pool of eligible candidates for voters to elect from.

As an example, a proven track record around economic development as a Key Performance Area (KPA) and maybe GDP (or similar) growth and job creation as Key Performance Indicators (KPIs) under that KPA would possibly be a reasonable selection criteria item to be considered for a councillor seat.

Similarly, a comprehensive list of important KPAs and KPIs derived from key societal challenges for a particular municipal area would then inform the selection criteria, meaning individuals the council candidates must demonstrate their ability to perform in those areas.

Individuals who can sufficiently demonstrate their capability to perform would then make it to the list of candidates that can be elected. If individuals with a proven track record of high performance in critical areas are elected, that would certainly improve the quality of governance found at councils around the country. That would help cultivate a culture of accountability where the recommendations from Internal Auditing are implemented, thus resulting in improvements in the areas of efficiency, productivity and performance at the local government level.