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Compliance with laws and regulations in government will fulfil the aspirations of citizens

Compliance with laws and regulations in government will fulfil the aspirations of citizens

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:

  • Adherence to reporting requirements as prescribed in the finance management acts (PFMA and MFMA) as well as the Treasury Regulations. This is required in order to minimise material misstatements in the financial and service delivery information as contained in financial statements and annual reports.
  • Adherence to supply chain management prescripts in procuring goods and services. Examples of non- compliance in this area include unfair tender processes and government employees or their relatives conducting business with government, amongst others.
  • Prevention and detection of irregular, unauthorised and fruitless and wasteful expenditure.
  • Human resource planning and appointment processes.
  • Whether money allocated for special projects, e.g. learner transport at schools or the building of clinics, is used for the purpose as legislated.
  • Late payment of service providers. Legislation prescribes the payment of service providers within a 30-day period.

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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