PERFORMANCE AUDITING

Cobus Janse van Rensburg, Certified Internal Auditor

THE EVER-INCREASING DEMAND FOR PERFORMANCE AUDITING IN SA

In South Africa, the demand for performance auditing services reflects the nation's ongoing efforts to enhance accountability and efficiency amid various economic, political and social challenges. This article examines the status of the demand for performance auditing services in South Africa, exploring the key factors driving this demand and challenges faced in meeting it.

Performance auditing is an essential aspect of ensuring accountability, transparency, and effective governance within public sector organisations and is distinct from financial auditing as it focuses on evaluating the so-called “Three E’s” (economy, efficiency, and effectiveness) of operations, programs, or activities.

Performance auditing aims to provide stakeholders with essential information regarding the achievement of objectives, and the prudent use of resources.

Performance auditors assess whether organisations are delivering services effectively and efficiently, identify areas for improvement, and recommend corrective actions. Although performance audits are conducted in both the public and

private sectors, this type of audit is more prevalent in the public sector. The main reason for this is because the public sector does not have the “built-in” performance measure of profit.

As the main mandate of public sector organisations relate to service delivery, performance measurement becomes more subjective and complicated. For example, different stakeholders may have different ways to define quality education, which is only one of the many public sector objectives.

Performance auditing aims to assist in overcoming this challenge by independently evaluating the measures implemented by management to ensure that government objectives are achieved (effectiveness) and that these objectives are achieved by utilising public resources in the most economical and efficient way possible.

There are many factors that drive the demand for performance auditing in South Africa. The three main drivers are briefly discussed below:

Government accountability

With a history of governance challenges, corruption scandals, state capture and inadequate service delivery, a greater emphasis is placed on enhancing accountability within government organisations. Performance audits play a crucial role in evaluating the effectiveness of public policies and programs, ensuring that taxpayers' money is utilised efficiently.

Government organisations are also forced to account for inadequate performance, as the Auditor General of South Africa (AGSA) performance audit reports are public documents.

Regulatory requirements and audit plans

Although performance auditing is not required by law like its financial audit counterpart, it is also mandated by the AGSA to assess the performance of all government departments.

Additionally, internal audit functions of public sector organisations are also including performance audits in their annual internal audit plans. Compliance with these mandates and plans drives the demand for audit services.

Economic development

As South Africa strives for economic development and social progress, there is heightened scrutiny on the performance of public services, infrastructure projects, and development initiatives. Performance audits assist with the identification of bottlenecks and inefficiencies that hinder progress. Furthermore, one of the main objectives of public sector organisations is to achieve the largest possible outcomes with as little resources as possible.

As economy and efficiency are two of the main three pillars of performance auditing, these audits can greatly assist the public sector to achieve this.

Challenges facing the effective delivery of performance audits

Despite the increasing demand for performance auditing services, several challenges hinder their effective delivery. Firstly, as performance is defined differently for each category of service delivery, a skill shortage of sector-specific expertise exists, especially in specialised sectors such as healthcare, education, and infrastructure. Most performance auditors come from a financial background and lacks the specific skills required to understand the intricacies of these sectors. On the other hand, sector specific experts may not always fully understand audit related processes. A clear need exists for the development of “all-rounder” performance audit professionals.

Secondly, thorough performance audits are generally quite costly.

This is due to many factors, but mainly because a performance audit is not necessarily based on a financial year and may require in-depth analysis and research processes to evaluate program effectiveness and efficiency.

Budgetary constraints within public sector organisations may limit the scope and frequency of audits.

This is true for both the AGSA and the internal audit functions of public sector organisations, such as national departments, provincial departments and municipalities. Thirdly, political interference can undermine the independence and objectivity of performance audits, especially when audits uncover irregularities or inefficiencies within government organisations. The recent allegations around state capture are sufficient proof that South Africa faces a serious risk of political interference, which can also affect audit outcomes. Safeguarding auditor independence is crucial for maintaining public trust in audit findings.

Lastly, performance audits rely on accurate and reliable data to assess organisational performance effectively. However, data availability and quality issues, including data fragmentation, outdated systems, and incomplete records, can impede the audit process and compromise the reliability of findings. For example, one of the primary challenges is the fragmentation of data across different government departments and entities in South Africa.

Government systems often operate in silos, leading to fragmented data that is dispersed across multiple databases and platforms. This makes it difficult for auditors to access comprehensive datasets necessary for conducting thorough performance audits, hindering their ability to make informed assessments and recommendations.

Consider the government objective of public safety. The efforts of at least three government departments must be adequately coordinated to achieve this objective, namely the Police, Justice and Correctional Services. A successful performance audit of this objective will require reliable data from all three departments, which might be difficult due to fragmentation.

Addressing the demand for performance audits

To address the challenges associated with meeting the demand for performance auditing services in South Africa collaborative efforts from government, regulatory bodies, professional organisations, and audit firms are required. Strategies to enhance the effectiveness of performance auditing can include capacity building, concerted efforts to safeguard auditor independence against political interference, leveraging technology to increase data analytics capabilities and campaigns to increase public awareness of the importance of performance auditing.

The demand for performance auditing services in South Africa reflects a growing recognition of the importance of accountability, transparency, and effective governance in driving socioeconomic development. While challenges exist in meeting this demand, concerted efforts to address capacity constraints, funding limitations, and governance issues can strengthen the effectiveness of performance audits and contribute to improved organisational performance and public trust.

By prioritising capacity building and professional investment, safeguarding of auditor independence, leveraging technology and marketing the importance of performance auditing, South Africa can greatly improve its government accountability framework and contribute to an improved public service.