In the relentless drive to improve the governance environment within the public sector, and reach the goal of clean audits by 2014, the public sector as a whole has to adopt a zero-tolerance approach to non-compliance with laws and regulations. Such a proactive stance would go a long way in bolstering public confidence in our growing democracy.
Public confidence in government is paramount and can only be strengthened if leaders and officials within the public sector carry out their duties legally, effectively, efficiently, economically and, most importantly, in accordance with the set rules and regulations.
Any given nation is faced with a myriad of challenges and therefore adopts certain laws that are aimed at addressing some of these challenges. Our country is not unique and has its own share of obstacles. These include the plaguing realities of poverty, unemployment, health, etc. – the list is endless.
Our country has therefore adopted some of the most advanced laws and regulations in the world, to try and address the above challenges with the limited funds at our disposal.
Laws such as the Public and Municipal Finance Management Acts (Acts No. 1 of 1999 and 56 of 2003) (PFMA and MFMA) are aimed at ensuring proper management, transparency, accountability, stewardship and good governance in national, provincial and local government.
Auditing of compliance with laws and regulations by the AGSA As the Auditor-General of South Africa (AGSA) we are charged with monitoring compliance with these laws and regulations through the auditing of the public sector, but in the end, the onus to prevent and detect non-compliance rests on the leadership within government institutions.
Our work as the AGSA is dictated by the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA) which requires us to annually audit the public sector's compliance with applicable laws and regulations. Through the PAA framework, we as the AGSA have the responsibility to determine the scope of these audits and what standards to apply while taking into account recognised best practices.
While the AGSA is the only entity that audits compliance in government, there are other role players that have the responsibility to monitor compliance. Some of these are internal audit units of departments and municipalities, audit committees, compliance officers and various national departments and entities, especially those who have a coordinating role within government, namely the Treasury and the Department of Cooperative Governance and Traditional Affairs (COGTA) to name but a few.
The AGSA's ultimate vision with this type of auditing is to be able to express an audit opinion on compliance with laws and regulations, as we do on financial information. It is for this reason we have in the past couple of years drastically increased our scope of audit and enhanced our methodology.
All this is to ensure that overall accountability is improved and that the vital socio-economic objectives that we have set for ourselves as a developing nation are not undermined.
The focus areas and criteria of our audits are deter- mined per audit cycle based on public interest and service delivery expectations. Priority is given to areas where there is a high risk of non-compliance, or those that are the subject of significant legislative focus.
Areas where non-compliance affects reported financial and performance information are also given attention. Examples of criteria tested as part of the focus areas include:
Any findings on non-compliance and its root causes are reported to the management of the respective entities and to those charged with governance for actioning. The AGSA also adds further value to the process by making recommendations on how to remedy the situation, prevent and detect future non-compliance and ensure control by means of specific measures.
As indicated in my previous column on these engagements, the objective here is to proactively notify leadership of any risks and obtain their commitment in ensuring the consistent implementation of internal controls.
Until we get to the stage where we will be giving an audit opinion on compliance with laws and regulations, our current approach is to report only on material instances of non-compliance in the audit report which is published in the annual report of the auditees.
To give an illustration of the extent of findings on the issue of compliance, I can highlight for example that in the 2010-11 financial year, material instances of non-compliance were reported for 67% of departments and public entities. They were thus not able to obtain a clean audit opinion partly because of non- compliance with laws and regulations. Initial indica- tors show that the figure is significantly higher at local government level. There is a direct relationship between service delivery, compliance with laws and regulations and the status of financial management in the public sector.
Compliance with laws and regulations can be improved Leadership and oversight structures can play a significant role in improving the outcomes relating to compliance with laws and regulations. Such focused attention is vital and will ensure that auditees operate within the boundaries of rules set by legislation. Leadership must therefore set the tone for officials to acknowledge that legislation does not represent red tape or bureaucracy, but reflects through Parliament the will of the citizens in respect of how public funds should be used and also how services should be delivered.
Furthermore, oversight mechanisms such as public accounts committees should strengthen their focus on compliance matters and ensure that members have sufficient knowledge of legislation to interact meaningfully on matters of compliance and thus adopt effective resolutions.
In order to build an ethical culture and ensure compliance, accountability should be enforced with severe consequences for those who intentionally fail to comply with legislation.
To ensure effective implementation, once policies and procedures of individual institutions are aligned with legislation, an important proactive measure is to train officials effectively, in order to enable them to understand their roles and responsibilities and thus incorporate compliance as part of the daily routine of activities.
The role of internal audit units in government is key in monitoring compliance with laws and regulations. Where any weaknesses are experienced in this area, audit committees should improve their support to internal audit by directing and supporting efforts appropriately.
I am confident that with the right amount of commitment and direction by leadership within government, all public sector entities can make a positive turnaround in their audit outcomes as early as in the next financial year.
A public sector that can demonstrate adherence to the laws and regulations of the country will instil confidence in the ability of government to deliver services and manage public finances in accordance with the expectations of the citizens.
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Personal history Terence was born on 30 September 1961 in Qumbu, Transkei. He matriculated at Umtata Technical College in 1979. He was awarded a BCom degree by the University of Transkei in 1982 and BCompt (Hons) by the University of South Africa in 1986. He qualified as a chartered accountant in 1990.
Terence gained valuable experience during his work in the private sector which developed his technical competencies as an accountant, external auditor and internal auditor. He also developed solid management and leadership competencies upon which he bases his leadership style.
Terence is married to Nokwanda and has three children, Mphiwa, Fezekile and Kamvalethu.
Career developments Terence started his career as a trainee accountant with KPMG in Umtata in 1983. He left KPMG in 1987 and joined Unilever in Durban as internal auditor and later as an accountant in the Lipton Tea and Soup factory in Pietermaritzburg. He then joined BP Southern Africa (BPSA) in Cape Town in 1991 as senior internal auditor. While with BP, Terence joined BP Botswana in Gaborone as finance manager in 1994. He returned to BPSA in Cape Town as market research manager in 1996.
In May 1997, Terence helped establish and was a partner-in-charge of the auditing firm Gobodo Incorporated in Cape Town where he initiated the formation of Gobodo Corporate Governance Services, an internal audit division which operates nationally with regional offices in Cape Town and Pretoria.
Auditor-General Terence joined the Auditor-General on 1 June 2000 in the capacity of Deputy Auditor-General and Chief Executive Officer. He brought to the organisation a firm commitment to supporting mechanisms for instituting stable governance within government. In December 2006 he was appointed to the position of Auditor-General of the Republic of South Africa. He is the first African to hold the position of Auditor-General in the organisation’s 100-year history.
His contribution to the accounting and auditing profession includes participation in some of the most prestigious professional bodies, such as:
He currently serves in the following capacities:
Terence believes that the vision of the Auditor-General of South Africa, namely “To be recognised by all our stakeholders as a relevant Supreme Audit Institution (SAI) that enhances public sector accountability”, is his biggest motivator. Terence regards this as a powerful vision that should be carried through.
"We operate in a constantly transforming and developing country. To be relevant in such a changing environment, my office is continuously redefining itself to meet challenges presented by change. For example, to make a meaningful impact we had to first acknowledge that public sector auditing is more challenging and different from private sector auditing. Public sector audits go beyond merely expressing an opinion on the financial statements. When we audit the public sector, we also comment on the effectiveness of key management processes and give feedback on compliance with laws and regulations. This qualitative approach enables public sector managers better to understand the financial impact of the identified problems and assists in helping them to prioritise the corrective actions. This is how we add value and help improve public sector financial management and our contribution to service delivery," says Terence.
Terence has committed his office to the continued unearthing and grooming of young chartered accountants and financial managers who will, in turn, use their acquired skills to help boost and continue upgrading the public sector financial management systems.
"South Africa is a rich mine of young, bright and talented youths. It is our task to help unearth and polish this latent talent. Through our trainee accountant scheme we have started that search, and we are going to all corners of the country looking for future auditors and auditors-general who will take over from us and continue helping our country manage its public resources effectively."