In the public eye

SA’s public sector could benefit from more frequent audits

Doing some calculations

In early 2014, Minister of Co-operative Governance and Traditional Affairs Pravin Gordhan kicked off his tenure with an undertaking to improve the financial management of municipalities. Public sector organisations are now held accountable to deliver on their mandates as well as increase their effectiveness and efficiency. However, keeping an eye on the vast array of deliverables and managing stakeholders can often prove to be more challenging than initially anticipated. Head of Internal Audit at SekelaXabiso (SkX), Jabulile Nkosi says the role of Internal Auditing is key to effective, efficient and economical practices within the Public Sector.

In 2014 President Jacob Zuma gave Jeff Radebe the task of setting up the Department of Planning, Monitoring and Evaluation (DPME) in his role as Minister in the Presidency.

The establishment of the new department was important and it enabled the various municipal, provincial and national service delivery vehicles to set out clear pre-determined performance objectives, an important requirement of the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA).

The National Treasury’s Framework for Managing Programme Performance Information provides a guideline for the development of these performance objectives.

The current challenge is that public entities tend to view the role of this risk management assurance function as a compliance issue rather than a value-adding one.

This is where the hugely under-underutilised function of Internal Audit can serve to ensure that resources are maximised and objectives are set out clearly from the onset.

Auditing of every possible piece of information related to an organisation’s performance, not just the finance, is vital, especially when dealing with public service delivery.

This includes assessment of data, operations, legal affairs, human resources, strategic planning, and financial management.

In July 2014, the Cabinet published the Medium-Term Strategic Framework (MTSF), aimed at enabling government to monitor progress on the implementation of the National Development Plan (NDP).

The MTSF contains 14 priority outcomes. The targets and indicators contained in these priority outcomes are designed to provide tangible and practical means of assessing the country’s developmental trajectory in the current 5-year term of administration.

The first priority outcome aims to achieve improved ‘quality of basic education’ by 2030. Equipped with solid research, monitoring and evaluation evidence, the government is developing a range of interventions to improve school readiness, including the plan to introduce an extra year of Early Childhood Development.

Quality targets for 2019 is that 75% of learners tested through the Annual National Assessment tool in Grades 3, 6, and 9 should achieve above 50% in both literacy and numeracy, as well as increase the number of matriculants who qualify for university to 250 000 in 2019 from 172 000 in 2013.

Another priority area is the level of local government service delivery. Out of a total of 44 District Municipalities, the greatest number of households without water and sanitation that meet minimum standards reside in 27 districts and mining towns.

Here the desired outcome is to achieve ‘an efficient, effective and development-oriented public service’ by 2030.

The NDP highlights the need for well-run and effectively coordinated state institutions with skilled public servants who are committed to public good and capable of delivering consistent high-quality services, and contribute meaningfully to our developmental goals.

The NDP further identifies challenges such as the unevenness in capacity that leads to inconsistent performance in the public service.

This according to Radebe is partly attributed to factors such tensions in the political-administrative interface, instability of administrative leadership, skills deficits, insufficient attention to the role of the state in reproducing the skills it needs, the erosion of accountability and authority, poor organizational design and low staff morale.

The current challenge is that administrators wait until the end of the operational cycle before conducting audits on entities’ failure (or success) to reach such targets. External auditors invariably find huge inefficiencies, and while the Treasury may seek to remedy the situation with more money and adjusted targets, the most important element is often missed.

Governments need to assess, very early on in the process, how many divisions an organisation has and if it is fully resourced to meet the ultimate mandate and strategic objectives for the given period.

To offer even further guidance the National Treasury’s framework states that whatever targets are set should be SMART - Specific, Measurable, Achievable, Relevant and Time Bound.

Internal auditing can overcome a lot of the unnecessary inefficiencies by intervening at the early planning stages when targets are being set and ensure that this SMART principle is met.

An ideal solution for South Africa’s public sector could be found in the process of continuous auditing – expanding audits so they are done more frequently, on a monthly basis (rather than just quarterly).

One of the benefits of this is that it eases the pressure on the overall auditing process and gives added assurance to management. Certainly, these regular reports will provide comfort to Minister Radebe that the areas the public sector is reporting on are accurate and deliverables have been met.

This is where there needs to be an emphasis of the three values of Effectiveness, Efficiency and Economical.

Effectiveness

Simply put, effectiveness means that organisations end the year achieving what was set out at the beginning of the year. The challenge with the public sector environment is there are different objectives for different divisions, organisations, entities, subsidiaries and stakeholders.

Manual compilation of the information at year-end means not all the information pertaining to each and every division may be collected. Changes to objectives and deliverables may also arise, which can lead to discrepancies.

According to National Treasury guidelines, a government department is allowed an opportunity to review its strategic plan halfway the financial year, when challenges arise and an organisation is unable to achieve its original objectives.

This mid-year monitoring and review process is where the internal auditor can assist in revising the strategy and determine if the plan was realistic to begin with, what the challenges are and what is more realistic to achieve.

This value-adding exercise, while it may increase the workload, can contribute significantly to the organisation’s effectiveness, by continually redefining goals. Internal audit can also highlight the activities that won’t be attained and ensure that the most important objectives for the remaining six months are planned for.

Efficiency

Organisations’ objectives are often not well-defined or even realistic, which can have put a strain on their ability to deliver, and creates inefficiencies. This is further compounded by limited resources – departments do not have the available manpower to deliver what is required.

Many public sector departments have a five year strategic plan, but every year this plan needs to be reviewed and refined in order to focus on that particular year. This review of strategic plans ensures proper alignment with their mandate, and ensures proper resourcing.

The key then is to take all the latest globally aligned SMART principles of service delivery and turn them into observable action points.

Economical

It goes without say that the utilisation of allocated funds is a key performance area for the public sector. Through the monthly continuous monitoring process we are able to monitor spending in specific programmes. With the Government being a spending environment by nature, internal audit focuses not only on efficiencies and effectiveness, but also on ensuring that the various financial processes are working as intended.

Continuous auditing of performance information can ensure that many unnecessary financial issues are avoided and that we are able to assist public entities to become more productive on a daily basis.

The way forward

As public sector entities seek to achieve increasingly regular clean audits, it is becoming more urgent and beneficial for internal auditors to, not only increase the frequency of audits, but also increase the scope to look at every possible performance measure.

Jabulile Nkosi, Head of Internal Audit at SekelaXabiso

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