Dumisani Dlamini - 5 ways public sector CFOs can get a clean audit

The National Arts Council (NAC) of South Africa recently received a clean audit and was praised by the Auditor-General South Africa, Thembekile Kimi Makwetu. NAC CFO Dumisani Dlamini is one of our Expert Insight contributors. In this article he discusses 5 things that public sector CFOs should consider in the pursuit of a clean audit.

By Dumisani Dlamini

There is an increasing focus on improving the quality of public financial management around the globe, with many countries in both the developed and developing world making important and impressive achievements in strengthening public financial management and governance. In South Africa, public entities, most of which are implementing agencies of various Government departments carry huge mandates while facing major challenges pertaining to limited financial and human resources. With that said these limitations the entities are still expected to perform and meet their mandates.

Nonetheless, much still remains to be done. The public sector landscape is rapidly changing with an increasing emphasis on fiscal management and discipline, prioritisation of expenditure and value for money. As a result it is even more important that donors, governments, national and local institutions, including regulators and professional accountancy bodies, work together in partnership to achieve long-lasting improvements, transparency and accountability in public financial management.

Public financial management is absolutely critical to improving the quality of public service outcomes. It affects how funding is used to address national and local priorities, the availability of resources for investment and the cost-effectiveness of public services. Also, it is more than likely that the general public will have greater trust in public sector organisations if there is strong financial stewardship, accountability and transparency in the use of public funds. It is important for us to get this right and ensuring a clean administration is part of the journey.

Clean audits are awarded on the basis of public entities being financially sound and managerially stable. Unlike private sector audits, the Auditor- General's scope in the public sector is broader and rigorous, reporting on performance against predetermined objectives as well as compliance with applicable laws and regulations. Attaining and maintaining clean audit opinions is a sure sign of getting it right and below are five things that can assist CFOs within the public sector get it right!

  1. Correct Application of Accounting Standards and Policies
    It said that the only constant thing in life is change. This is no different in any professional field. It is critical for CFOs to keep abreast of new accounting standards that have become effective and establishing controls that will assist in complying with those standards. In the same breath, policies need to be regularly updated to comply with accounting standards and treasury regulations. Most of errors made in the financial statements of most public entities are due to oversight or lack of correct knowledge in application of accounting standards and policies. Using old school "T" account is very helpful in establishing a correct accounting entry to process a particular transaction. This can save a CFO a huge amount of time in processing journals to correct previous incorrect entries.

  2. All figures in the Financial Statement must be Mapped to Support Evidence
    Proper record keeping is an essential ingredient for a clean audit. The proper record keeping is so important to the extent that it should be embedded in the team's performance agreement. It's a basic item that cannot be ignored or de-prioritised as it makes the transaction valid. Lack of sufficient evidence has been main reasons behind many public institutions obtaining negative audit outcomes. It is critical that the CFO collect enough supporting evidence for all transactions at the time the transaction takes place. If there is no enough documentation, probably the transaction is not worth going into the accounting system. The mentality of "process the entry now and obtain the information later" catches up with most CFOs as there is not much time to gather supporting documents during the preparation of annual financial statements due to volume of work required to complete financial statements within a short space of time.

  3. Consistent Review of Information
    It is the role of the CFO to put in place controls and processes that will assist in reviewing organisational information to ensure accuracy and comprehensiveness. Consistent implementation of audit recommendations is critical towards achieving a clean audit; therefore it is important that a Public Sector CFO develop proper action plans for implementation. This implementation plan needs to be time bound with relevant person/s assigned to complete each task. CFO then needs to coordinate the process to ensure the successful implementation and execution of the plan. Good communication between the CFO and Auditor-General is very important as the Auditor-General is a partner in ensuring sound financial management and proper governance. A harmonious working relationship can lead to great results.

  4. Commitment and Teamwork
    A dedicated team goes a long way in assisting the CFO create and maintain a financially sound environment with proper governance. Every team member who has personal accountability needs to understand what is at stake and what the possible results can be should there be a missing piece in the puzzle. Every piece of the puzzle is important. This also means that is it critical to not only have the commitment from the team but to ensure that team is adequately skilled and continuously being given opportunities to reach their maximum potential. Of course everyone makes mistakes - within certain parameters - but your team should always learn from their mistakes and with time make less to no mistakes. Believing in every single person as the CFO makes each individual within the team aspire to belong to a winning team and will do everything possible to ensure success of the organisation. Every team member understands that while efforts are appreciated, results and achievement is the ultimate goal. What counts is what is produced at the end of the day and everyone on the team needs to buy into that.

  5. Interim Financial Statements and Audit
    Some Public Sector CFO assume that preparations of interim financial statements is a private sector concept perhaps used to measure performance of the organisation, understand trends and also use the information to improve the results half way through the year. While this can be true, the interim financial statements can be prepared and used as a yardstick to review the extent to which the CFO has implemented recommendations of the auditors and to also correct any incorrect information. The completed interim financial statements can be submitted to the Auditor- General for interim audit. This provides a good basis for the CFO to establish status of the books and what the current issues are giving the CFO sufficient time to resolve issues identified by auditors during the interim period. The reality is an independent review provides more assurance than an internal review. It might be too late to leave this for year-end as the CFO might not have enough time to resolve all the issues or sometimes some to the issues requires resolution before the end of the accounting period. Preparation of interim financial statements and allowing auditors to audit these statements is a must for CFOs to achieve a clean audit.

Achieving a clean audit is not a destination but rather a journey and the above-mentioned tips can assist Public Sector CFOs on this journey. The achievement of a clean audit is not annual event; it is daily maintenance of internal controls and effective record keeping. It is about being prudent, integrity, asking difficult questions and making difficult decisions. After all, financial management and proper governance is not easy but it is about accountability and installing public confidence in public institutions. Let's all take this journey and make it happen!

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