Public sector audit should prioritise performance over mere compliance, says dtic CFO Shabeer Khan

Shabeer says the future of public sector audit is performance auditing, moving beyond a check-box mindset.

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Shabeer Khan, CFO at the Department of Trade, Industry and Competition (dtic), says that audit remains an extremely important assurance tool that ensures accountability, whether in a listed entity, or within the public service. This assurance needs to meet the needs of various stakeholders, from the board and its sub-committees to investors and regulators. In the public sector, the stakeholders include every taxpayer in the country.

“Irrespective of which direction audit evolves into, it's important that with each step in this direction, we ensure that the expectations of the different stakeholders are met,” he says. “As a CFO, I would want to see the future of audit keeping pace with the rapidly evolving business environment as new technologies are deployed. As technology moves the world forward, it’s becoming more important that auditors are abreast with these technological developments.”

Shabeer has been CFO at the Department of Trade and Industry since 2013 and continued in the role of CFO in the newly formed Department of Trade, Industry and Competition in 2019. Shabeer also serves in various governance roles as a non-executive director of the Coega Development Corporation and in numerous audit committees.

Before that, he served in various roles in the Office of the Auditor-General of South Africa. He thus has a solid understanding of the broader public services audit ecosystem. In fact, he was one of the eight candidates shortlisted for the position of Auditor-General in 2020, and scooped three awards (Young CFO of the Year Award, the Public Sector CFO Award and the Compliance & Governance Award) at the 2020 CFO Awards.

Shabeer says that auditors need to work side by side with business leaders to evolve the audit product and to close expectation gaps. He also believes that the role of internal audit needs to be emphasised. While it is accepted within the financial reporting ecosystem, it is not fully understood by the broader public.

“When we see business failures, the tendency is for the public to look only to the external auditors. Whilst they have an important role, I think we need to find a way of elevating the role of internal audit,” he says. “Internal audit is closer to the business, and can add a lot more value. They can provide timely information on where things are working or not working, so that these can be addressed timeously.”

He believes that addressing this public expectation gap requires both audit assurance providers working hand in hand. He is also an advocate of continuous auditing.

Real-time corrective measures
“Continuous auditing tools assist the business quite early on to understand whether there are any weaknesses or irregularities,” Shabeer says. This allows businesses to understand what is happening in real-time, rather than waiting until after the financial year-end and an auditor providing an opinion on the state of affairs for the past 12 months.

“That’s almost too late,” he says, “Where I see the future of audit is as a tool to effectively provide real-time information, which then will then enable the business to proactively implement corrective measures as and when required, rather than dealing with an issue at a later stage.”

The future of public sector auditing
Shabeer says that the Auditor-General plays a key role in building a capable state. A capable state is a state that is free of corruption, delivering on its constitutional mandate and dealing with the challenges of poverty, under development and facilitating economic growth. He believes that to fulfil this role effectively, national audit offices should consider moving from statutory regulatory audits towards value-added performance auditing, something which South Africa’s national audit office has done well.

“It’s all well and good to receive an unqualified audit opinion, but in the public sector it is also important to ensure that monies that were appropriated for a specific purpose have been spent in accordance with that purpose,” he says. For example, if funds were set aside for the provision of human settlements, were the monies actually spent on housing; were the houses of the right quality and was value for money achieved?

“Performance auditing moves beyond just making sure the numbers are correct; it’s focusing on service delivery,” Shabeer says, adding that many national audit offices have now adopted this approach in mature environments and economies.

“We need to move past the compliance ‘check-box’ mindset and ensure that whatever we do, we add value,” he says. “That's where performance audits play an important role in promoting an innovative state, and also advising, for example, which laws and regulations are prohibiting the country from growing.

“My observation is that we need to have a state that is performance driven, rather than compliance driven. Because, at the end of the day, you don't want a non-corrupt or a compliance-driven state that is ineffective. Or an effective state that is spending huge amounts of money, which is wasteful expenditure. You need to have that balance.”

A collaborative effort
Shabeer points to the dtic’s industry masterplans as an example of the power of collaboration between government and its social partners. “Whilst the state has an extremely important role to play in driving change, we will only see success through collaboration,” he says. “If the state is moving in one direction and business or labour moves in a different direction, success may be difficult to achieve.”

The state’s role includes ensuring that success is inclusive. Shabeer says that the Auditor-General of SA plays a critical role in ensuring that government priorities are achieved. For example, the Preferential Procurement Policy Framework Act mandates public sector procurement of locally manufactured goods in certain sectors. Another example is the state’s commitment to paying SMMEs within 30 days.

“The Auditor General of SA ensures as part of its regulatory and compliance audits that these fundamental compliances are adhered to,” says Shabeer. “So, as the state deploys various policy instruments to ensure economic growth towards building a capable state, the Auditor-General of SA's role becomes imperative in ensuring that these policy and regulatory instruments are adhered to.”