Auditor-General of South Africa (AGSA) facilitates a process of in-year reviews of key controls by management and oversight structures
When you read this, my second in a series of candid opinion pieces on public sector governance and clean administration, many elected public representatives will still be settling into their new roles as local government councillors, mayors or senior administrators of their respective municipalities. And I would like to believe that clean administration will be the top item in all their in-trays as they acquaint themselves with their new offices and demanding roles, which are under close scrutiny by the communities that elected them.
As I join millions of fellow South Africans in welcoming our new local government leadership, my office commits to continue working closely with them towards sustainably clean administration and visible service delivery. I also trust they will find these monthly articles useful and make them part of their toolbox as they roll up their sleeves to facilitate good governance.
In the previous article I briefly mentioned the importance of leadership in relation to the design, implementation and maintenance of effective internal control systems within government departments, municipalities and entities. The AGSA has developed a tracking process (which incorporates the more commonly known “key control dashboard”) to assist management and oversight structures to closely monitor the effectiveness of their internal controls. These controls, which comprise leadership involvement, financial and performance management and governance, are the key drivers of improved audit outcomes. Senior members of my team are working throughout the financial year in partnership with auditees to assess, on a quarterly basis, whether auditees are aware of and addressing any deficiencies in these key controls.
There have been enquiries as to whether our assessment of internal controls constitutes an audit. I must emphasise that our assessment of internal controls does not constitute an audit; the process is part of an early warning system to guide leadership towards enhanced audit outcomes. The process is limited to obtaining an understanding of internal controls in place over financial and performance reporting and compliance with laws and regulations as at the assessment date. We do not test or evaluate the operational effectiveness of internal controls. The assessment is purely meant to gauge the strength of key controls, point out any deficiencies and address lapses before the commencement of the annual audit cycles. We do provide management with a formal record that outlines any areas identified during the visit as requiring attention, and prompt them for firm dates by which such matters will have been addressed.
Among other important matters, we assess the following during the quarterly key control visits.
The role of leadership in driving improved audit outcomes When we interact with our auditees as part of this assessment, we discuss, among other important aspects, the role of leadership in driving improved audit outcomes.
In terms of our key controls checklist, we look at whether the auditee's leadership focuses on establishing and maintaining a culture of honesty, ethical business practices and good governance to protect and enhance the interests of the entity. This would be evidenced by the adoption and active monitoring of formal codes of ethics and conduct. The code of ethics would clearly communicate ethical values to all staff members, while the code of conduct would ensure that service delivery and financial prudence were understood by all to be prerequisites that were embedded in the entity's values.
The leadership and executive management are also responsible for constant monitoring of action plans aimed at enhancing financial and performance reporting and compliance with laws and regulations.
Leadership should also confirm that effective human resource management policies and practices are in place and that adequate and sufficiently skilled resources are available. Moreover, information technology (IT) tools that enable government to deliver value and improve performance should be in place and managed in accordance with good IT governance parameters.
Financial and performance management Our key control visits review the auditee's controls over daily and monthly processing and reconciling of transactions. For an entity to have sound financial controls, the appropriate level of management should regularly review interim/monthly reporting and prepare regular, accurate and complete financial and performance reports that are supported by reliable sources of information. Leadership and management must also regularly review and monitor compliance by officials with applicable laws and regulations. The focus should be on measures that prevent unauthorised and irregular transactions and enable the discharge of statutory responsibilities by management and senior officials. In this regard, a compliance checklist is recommended as a handy tool to proactively prevent deviations from laws and regulations.
Final thrust towards clean administration While there is still much to be done to have all these key controls in place at all auditees, it is encouraging to note that government leadership in most entities has introduced and started implementing key controls – this points to the sober realisation that to have clean administration, basic internal controls need to be in place. As I always emphasise: instilling a culture of clean administration in government and thus sustaining clean audits is not difficult – it simply needs leadership commitment to implementing and monitoring the basic internal controls. This will create an environment where deficiencies in financial management, service delivery and compliance are prevented and detected in a timely manner. A clean audit therefore does not mean that all is perfect in government; it simply means that the control environment is sound enough to prevent and detect the imperfections early enough, and that there is conclusive evidence to this effect.
Our recently released general reports on municipalities, provincial and national departments indicate that the auditees with positive audit outcomes are those that have paid attention to these key controls.
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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."