Cheryl Reddy believes that historic audit methodology is not solving government audit issues.
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“The historic way of testing compliance, financial statements, IT and performance, is not, in my opinion, assisting government in improving its financial position, and more especially local government,” says Cheryl Reddy, president of the Chartered Institute of Government Finance, Audit & Risk Officers (CIGFARO).
“If you look at the recent report from the Auditor General (AG), municipalities have not improved significantly. In the 2021 report, the audit outcomes were not necessarily an indicator of the financial health in municipalities. Six out of the 27 municipalities that received unqualified audit opinions with no findings were still classified as financially distressed.”
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She says that as local government grapples with how to generate and collect revenue, the way it is audited needs to transform to assist with challenges. “Audit in this context should mean being able to perform certain tests that will easily identify instances where the law may not be followed, but there's value for money, as an example,” she says.
“Yes, we’ve got regulations on material irregularity in the Public Audit Act, but I don’t think the AG has sufficient resources to audit all municipalities at present on material irregularities. In terms of Unauthorised, Irregular, Fruitless and Wasteful Expenditure (UIFW), the circular 68 processes must be followed by the municipality to either investigate or condone. Often the UIFW is condoned or no action is taken. Reporting on the UIFW and then coming back in a year’s time to check whether anything has been done is not improving audit outcomes.”
She believes a firmer approach needs to be adopted, with stricter controls in place, and a transformation in audit outcomes. “Clean audits are a sign that things are ‘right’ in the municipality and we should be striving towards delivering those,” she says. Once audits are clean, municipalities can move beyond compliance and prioritise service delivery.
In this regard, she says there needs to be a mind shift. Rather than calling in a consultant at the end of the financial year and hoping they deliver perfect financial statements that result in a clean audit, the process should begin on the first day of the financial year. “Municipalities need to develop standard operating procedures (SOPs) and to have properly resourced internal audit teams, which can test the SOPs and ensure daily activities are taking place,” she urges.
She says it’s also important for everyone involved – the municipality’s mayor, executive committee, municipal manager (MM), CFO, deputy municipal managers and heads of departments – to be on the same page and speaking the same language. “We’ve got to ensure compliance with the relevant regulations,” she says. “Most often, we find UIFW has taken place as a result of procurement processes. This will only improve if we undertake strategic planning, ensure our tenders go out on time and that they are evaluated and awarded timeously. We need to start to implement business practices in our municipalities, such as cost accounting and checking market prices to make sure what we pay is realistic.”
She says provincial and national government also needs to be more responsive to local government grant requests, particularly in the wake of natural disasters, such as the recent KwaZulu-Natal floods. “We find ourselves dealing with public protests from communities because we cannot deliver services,” she says. “For us to be able to respond, we need access to additional finance, but approvals for funding might take months, by which time communities are frustrated, and then we experience protests.”
CIGFARO believes that the public finance role needs to be professionalised, and that this will assist with improved audit outcomes. “There is a need for skilled and competent staff in government. Every post in the municipality’s finance department should be directly related to professional capability,” says Cheryl, explaining that CIGFARO offers a range of membership categories, right from a finance officer to a CFO.
“We’re a membership body for government finance officials and we include risk, internal audit of performance and finance,” she says. “We pride ourselves in being a repository of knowledge for our members. While the government has given certain professional bodies legislative backing, those are for municipalities with a budget above R500 million. At CIGFARO, we’re advocating for professionalisation from zero budget.”
CIGFARO aims to cater for and support municipalities of every size. Members are required to commit to a code of professional conduct and maintain CPD points. They have access to training, which has largely moved online since the onset of COVID-19, and CIGFARO has also partnered with LexisNexis to start offering on-demand e-learning modules of the handbook it has developed specifically for public sector CFOs.
“Our CFO handbook gives you the legislation, the theory, and the practical application, and assists you with how to implement this at local government,” explains Cheryl. “Added to that, we’ve also offered master classes on the material in the handbook to upskill our members.”
CIGFARO works closely with the Accounting Standards Board (ASB) and has an opportunity to comment on proposed changes to standards, as well as keeping members abreast of any developments. “We have a special annual public sector conference, which is held at the beginning of July for our members, aimed at bringing them up to speed on all the changes in terms of the Generally Recognised Accounting Practice (GRAP) standards. We invite the ASB to present, as well as the AG.”
The organisation’s upcoming annual conference will take place in October, and Cheryl says the speaker line-up promises to be impressive. “We look forward to addressing some of the key issues facing public sector finance, and to have valuable conversations in this regard,” she concludes.