The Impact of Audit Local Government – Thuso May

Tone at the top, commonly referred to in auditing, is used to define a company’s management and board of directors’ leadership and their commitment to being honest and ethical.  In a political environment, this refers to the mayors, councilors, municipal managers, and departmental heads. During his annual visits as part of the Auditor General post municipal audits, the former AG, Mr Terence Nombembe used to highlight the importance of leadership in setting the tone.

The impact of the office of the Auditor General on the local government audit has been for the past years limited by interference from political leadership through instabilities, disruptions, lack of oversight, political infighting and power struggles and a lack of implementation of audit recommendations. The constitution of South Africa states that the audit office must be impartial and must exercise its powers and perform its functions without fear, favour or prejudice.

In its mission statement, known as a reputational promise, The Auditor General highlights that in order to build public confidence, they need to strengthen the country’s democracy by enabling oversight, accountability, and governance in the public sector through auditing. Auditing, therefore, aims to provide credibility to financial and non-financial information provided by management.

In 2009, Operation Clean Audit (OCA) 2014, was launched as part of the government’s plan to turn around local government.  OCA had two instalments, firstly, no municipality or provincial government should have a disclaimer or adverse opinion or fail to submit financial statements for audit by 2011. Secondly, all municipalities and provincial governments should achieve clean audits by the financial year 2014.

In terms of Section 20 of the Public Audit Act (PAA) of 2004, the audit report from the Auditor-General must reflect at least an opinion or conclusion on whether the annual financial statements of the auditee, gives a true and fair view in line with the normative guideline of the accounting framework. In addition, the report must reflect on compliance with laws and reporting on performance information reflective of the municipality’s management of public resources and accountable governance.

As per AG Report on MFMA 2013/14, the final year of Operation Clean Audit, the status of local government was as follows: Clean audit (40), Unqualified with findings (108), Qualified with findings (68), Adverse with findings (2), Disclaimer with findings (50) and outstanding audit (10). From the audit outcome, it is very clear that the strategic objectives of OCA failed dismally.

The root causes as highlighted by the AG in its 2014/15 report when making an assessment of previous 5-year audits for municipalities pointed fingers at leadership, the tone at the top. The report highlighted that Mayors, Municipal councils, Municipal managers, and Senior Management did not provide the required level of assurance. The report further stated that even though both the internal audit and audit committee had a positive impact on the audit outcome, the main reason for the lack of impact was a failure by management to address audit findings.

If one looks at the post OCA, from 2014 to 2022, there is only a 1% improvement in terms of the number of clean audits, the 15% clean audits achieved in 2021/22 to 14% achieved in 2014 and overall, the situation has slightly regressed as per AG Report.

Out of the 257 municipalities in the 2021/22 financial year, the following outcome were reported by AG: 38 Municipalities received Clean Audit ,104 municipalities received Unqualified with findings ,78 Municipalities received Qualified with findings, 6 Municipalities received Adverse with findings ,15 Municipalities received Disclaimer with findings while 16 Audits were outstanding, meaning financial statements were not submitted/ submitted late to AG for audit.

The report also highlighted that the audit outcome is in a bad state and there is no improvement as compared to the 2020/21 outcome.The bad state is characterised by amongst others, a decrease in clean audits, an increase in adverse with findings, and a number of outstanding audits, the instability and disruption in councils, the ineffective of municipal public accounts committees, and the lack of implementations of audit findings by leadership, thereby rendering both the internal audit and audit committee ineffective.

According to The World Bank’s Supreme audit institutions independence index: global synthesis report 2021 studies, The Auditor-General of South Africa is one of two national audit offices recognised by the World Bank for having full independence to carry out their mandates without undue interference. So, there is no question about the integrity and independence of the AG as far as auditing is concerned.

The only way to realise the full impact of the audit is to separate political interference from administration. Allow CFOs and departmental heads to execute their responsibilities without any fear or favour while the political leadership ensure that they are being accountable, transparent and stay committed to changing the status quo of the audit outcome.

In her opening remarks, as per MFMA Report 2021/22, The Auditor General, Ms. Tsakani Maluleke says that her office is determined to instil a culture of performance, accountability, transparency, and integrity in local government through their constitutional mandate by making recommendations and advocating for leadership at all spheres of government to play their part.

With the coalition government at play and the possible increase thereof amid national elections in 2024, It remains to be seen whether the government will play their role in ensuring that the status quo does not remain the same.

REFERENCES

  1. Auditor General: MFMA Report 2021/22, MFMA Report 2013/14, MFMA Report 2014/15
  2. News 24 – 05 August 2021 – World Bank ranks SA’s Auditor-General as one of two in the world that has ‘full independence
  3. UWC research report examines the lessons to be drawn from the failure of Government’s Operation Clean Audit 2014

 

 

 

Written by:

Name: Thuso May

Title: Consultant

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