Press release: Ethical audits, a way to effectively combat corruption

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The internal audit function has received increasing attention as an essential component of government financial management.

South Africa has suffered a loss of more than $800 million in procurement contracts during the first months of the pandemic and the number keeps increasing. These are findings from internal audits that were conducted over the past two years by IIASA.

Recently the South African Auditor General released the 2021-22 General Report (GR) and material irregularity report for national and provincial departments and their entities. The report not only highlights shortcomings within government but also shines the light on the importance of ethical and proper internal audit operations to the development of any organisation.

This function continues to unearth corruption and provide valuable insights and recommendations for governments and organisations looking to reach their financial goals and objectives.

Unfortunately, the internal audits function in government entities face many challenges, difficulties and perceptions, and to some extent, credibility problems that hamper activities.

Internal auditors are usually not seen as partners in the developmental agenda of the government but rather as independent fault finders. Their findings usually reveal financial embezzlement and misappropriation of public funds every year. Oftentimes auditors are seen by management as a threat to the organisation, and therefore the necessary corporation, and support are not given to them to carry out their mandate.

Sustaining and improving the culture of reporting
South Africa has dealt with many instances of financial misapplications and allegations of corruption within the government in areas such as the distribution of food parcels, social relief grants, the procurement of personal protective equipment and other medical supplies, and UIF special Covid-19 scheme.

The government has introduced numerous programs and initiatives throughout the years to better South Africans' daily lives and address these issues. These commitments include the implementation of the Economic Reconstruction and Recovery Plan and the recommendations made in the reports issued by the Judicial Commission of Inquiry into allegations of State Capture, Corruption, and Fraud in the Public Sector to combat such behaviour. But the government organisations continue to be plagued by corruption.

Effective internal audit activity is a valuable resource for the management and the board or its equivalent and audit committee due to its understanding of the organisation and its culture, operation, and risk profile. The objectivity skills and knowledge of competent internal auditors can significantly add value to an organisational internal control, risk management, and governance processes.

We have also seen little improvement in the area of financial management, despite consistently reporting the same deficiencies. Non-compliance with legislation remains high, resulting in unfair and uncompetitive procurement processes and payments for goods and services not received. These are also the areas where the risk of fraud is highest; hence it is necessary for a culture of compliance and respect for the law to be re-enforced.

The internal auditors are expected to provide recommendations for improvement in the areas where opportunities or deficiencies are identified while management is responsible for internal control, the internal audit activities provide assurance to management and the audit committee that internal controls are effective and working as intended.

Internal auditors cannot be expected to enforce good governance on their own without the existence of other workable controlling mechanisms to enforce accountability. In particular, it cannot substitute for external audit or compensate for a weak external audits system. Rather, the two systems should go hand-in-hand and complement each other.

The benefits of an ethical internal auditor for the public sector
Internal auditors help organisations to succeed through a combination of assurance and consulting. This includes telling managers and governors how well the systems and processes designed to keep the organisation on track are working. They also assist with improving those systems and processes where necessary.

The internal audit activity evaluates risk exposures relating to the organisations governance operation and information system in relation to the:

  • Effectiveness and efficiency of operation.
  • Reliability and integrity of financial and operating information.
  • Safeguarding of assets.
  • Compliance with law, regulations, and contract.

Through monitoring and reviewing processes, auditors identify control recommendations to improve the efficiency and effectiveness of processes. It is a necessary process that is effective in preventing financial losses in delivering much-needed services to South Africans and for the government to achieve its strategic priorities.

A common reason for delayed resolution is prolonged investigations or delays by public bodies, which hamper timeous financial loss recoveries, consequence management processes, and criminal proceedings. The lack of transparency for the use of funds and the financial position of these municipalities by councils, provincial and national leadership, or oversight is unfortunately a common occurrence.

The national and local government internal auditors are required to conduct their work following the professional standards relevant to the profession. However, the optimal implementation of the role of internal auditors also requires the support and commitment of leaders, which could be in the form of giving authority to carry out tasks independently and improve auditor competency.

The continuing apparent absence of negative consequences and a liking for prolonging investigations have contravened policies, codes of conduct, and/or legislation and resulted in a culture of continuous and possibly contagious transgression.

The government needs internal auditing that will recommend and monitor the effective execution of the following action toward mitigating the issue of state financial misappropriation.

  • Appointing capable and qualified officials in key positions.
  • Conducting regular performance planning review processes to ensure effective service delivery.
  • Adopting monitoring controls and project management disciplines to achieve planned service delivery.
  • Maintaining a robust financial management culture.
  • Action consequences for non-compliance with legislation and accountability failures.
  • So, with a properly staffed internal audit function, management would have, at its fingertips: an advocate, a risk management assurer, a controls expert, an efficiency specialist, a problem-solving partner, and a safety net.

Investing in good preventative controls is more effective than having to deal with the consequences thereof.

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