Auditing SA Edition 7

Jan-March 2024 Edition. Vol 7

2024 S

SAIGA EVENT CALENDAR

MINISTER RONALD LAMOLA

Prevention is better than cure

AGILE AUDITING IN THE PUBLIC SECTOR

Navigating Dynamic Environments

EVALUATION OF AUDITING AND ACCOUNTING

Framework within Quantum Perspective Advancing Auditing &Accountability

NATIONAL HEALTH INSURANCE

Does it mean 31% more tax & 69% less benefits?

SA GEARS UP FOR '24 ELECTIONS

Will political newbies make an impact?

7 STRATEGIC RISKS Threatening future internal auditing

Kgomotso Sethusha

Contibutors:

Ronald Lamola Amos Zungu Dr Mfanufikile Mwelase Sezer Bozkuş Kahyaoğlu Prof. Bernard Peter Agulhas Richard Chambers Phillip Rakgwale Ciaran Ryan Mathabatha Julius Mojapelo Cobus van Rensburg Mike Levington Siyasanga Nondlazi Craig Butters Wandile Sihlobo

CONTRIBUTORS

Editorial Director:

CONTENTS 06

Letter from the President

08

CEO’s Note

Nardine Nelson nardine@kwedamedia.co.za

10

Letter from the Editor

12

Prevention Audit

Publishing Partner:

18

Improve Audit

22

Internal Audit

26

Quantum Perspective

32

Tide Turning

38

7 Internal Audit Risks

42

Discourse Budget

48

NHI

52

Internal Audit Optimise

54

Agile Auditing

58

Power Grid

62

ASB

64

Politics

66

Agricultural Sector

69

Dysfunctional Municipalities

72

PFMA

77

Saiga Membership

Sales Director:

Kweda Media www.kwedamedia.co.za

Editorial Enquiries

T: 012 004 0741 E: researcher@saiga.co.za

Advertising Enquiries

T: 082 739 3932 E: auditingsa@kwedamedia.co.za

DISCLAIMER: Auditing SA is published by the Southern African Institute of Government Auditors (SAIGA): www.saiga.co.za, PO Box 36303, Menlo Park, 0102, South Africa, Tel: 012 004 0741, WhatsApp No: 069 5387276, Editor: Kgomotso Sethusha email: researcher@saiga.co.za SAIGA accepts no responsibility for any loss incurred by any individual acting or refraining from acting as a result of any material in Auditing SA. SAIGA cannot accept responsibility for any opinions expressed by contributors, nor for the accuracy of the information contained in articles, contributions, advertisements or other material. The editor reserves the right to edit material.

COPYRIGHT NOTICE: All rights reserved. No part of this electronic publication may be reproduced by any means without the written permission of the publishers. This includes making photocopies or uploading portions of the publication. Extracts of reasonable length may be made for personal research purposes. ISSN: 1028-9011

4

www.saiga.co.za

WE ARE BMW KEMPTON PARK As a BMW driver, you have certain expectations when it comes to customer service. At BMW Kempton Park, we make it our mission to exceed them every time.

All our team members are professional, passionate and friendly - and we're proud of the trust that's been placed in us by our customers and our community.

We like to go above and beyond in terms of enhancing your BMW experience. As one of our Premium Members, you can look forward to: Invitations to exclusive events, including launches and test drives in the latest BMW models. Preferential service bookings and while you wait servicing (on request).

Competitive pricing on all BMW Lifestyle Collection items. A Sales Executive dedicated to your account.

It all adds up to a superb experience, because noone is more important to us than you are.

We look forward to being of service Simply scan the QR Code below to become a BMW Kempton Park Premium Member.

Where to find us:

BMW Kempton Park Cnr of Brabazon & Isando Rd, Croydon Tel: +27 11 392-6263 Web: www.bmw-autobahnbmw.co.za

Letter from the President

A

s SAIGA President, I’d like to wish every member and stakeholders well wishes for 2024. We begin the year by looking in the rear mirror. One of the proud moments was the turnaround of PSAAA through its new board and leadership they managed to close on a positive note, by ensuring that we continue to capacitate the public sector to ensure accountability is upheld in the prudent management of public financial resources.

•

The accreditation process with the Independent Regularity body of Auditors (IRBA) is at an advanced stage with submission in due course.

•

Forming the Certified Forensic Accountant qualification (collaboration of 10 professional institutions)

•

Being accepted into the Anti-Intimidation and Ethical Practices Forum (AEPF)

Some of the achievements being:

•

Being accepted into the Public Sector Audit & Risk Forum

•

Fasset funding and LGSETA for the next three years to host trainees across the nine provinces and the sectors.

•

Collaboration of University of Bakircay on various programmes and research.

•

•

•

•

The repositioning of the Southern African Institute of Government Auditors (SAIGA) to focus on both auditing and accounting disciplines within the public sector through our recent discussions with CIPFA on possible collaboration.

The SAIGA new competency framework is the first framework in the public sector for finance professionals in an effort to professionalise the public sector.

The Institute has registered the public sector auditor qualification at the NQF 8 level, the first of its kind in the public sector both locally and globally. QCTO has accredited PSAAA to offer the qualification as a training provider.

Building capacity within the broader public sector environment and expanding the Institute’s presence within the SADC region, in Eswatini and Lesotho to name a few.

•

SAIGA has achieved the goal of being a global institution, recognised on the international stage through collaborations with PAFA and API.

•

In terms of our publications, our academic research journal, SAJAAR has reached almost 195 countries, read by 1458 readers per month and at least 70 subscribers per month.

•

We have reintroduced the Auditing SA Journal/ Magazine, which covers topical content including technical research relating to the public sector, specifically auditing and finance. The journal has attracted the attention of the public sector and to date we have an agreement with the government communication agency.

•

We have accredited universities in terms of the public finance programmes and to offer our public auditor qualification.

•

The association has also given our trainees options by accrediting numerous audit businesses to host the SAIGA trainees.

6

We are now part of the accounting quality advisory board of the Pan- African Federation of Accountants (PAFA), which is the continental arm of the International Federation of Accountants (IFAC), the international body responsible for setting accounting.

We will continue building strategic partnerships that will position SAIGA as the preferred professional body to serve the public interest through our MOU Partners.

We will continue to build capacity within the broader public sector environment and expanding the Institute’s presence within the SADC region. SAIGA has multiple relationship across Africa through its relationship with PAFA, Afrosai, INTOSAI and recently the African Diplomatic Community.

In order for SAIGA to serve as a platform for the development of public sector financial management capacity throughout Africa, we have launched the African Professionalisation Initiative programme in collaboration with Afrosai. Through this initiative, we are training public sector personnel, such as the staff of the Auditor General, and finance professionals throughout the continent.

And finally, we are thrilled about our partnership with CIPFA, which will provide our members and our partners with excellent mobility options for capacity building. 

SAIGA President Phillip Rakgwale

www.saiga.co.za

A

ccountancy is among the ever-evolving, challenging professions that require mandatory continuous education.

This continuous education may be a result of changing standards, environmental, legislation and policy amendments.

On the other hand, the challenges of this profession may also be a result of public outcry or scandalous transactional activities and shenanigans exposed in corporate and government institutions.

In 2023, the IFAC (International Federation of Accountants) standards-setting boards in the accountancy profession i.e., IAASB, IAESB, IESBA, and IPSASB released not less than four proposed changes in some of the standards.

CEO's Note

In fact, IFAC suggests that the ISSA 5000 standard is likely to become a core element of all auditing education.

What does this mean for existing auditing curricular at our universities? What about professional training programmes and examinations?

A journalist from a business publication sought my view on the recent “PhDGate” involving economist Thabi Leoka. For me, this ongoing saga has emphasised how important it is for boards of large corporations to adhere to a rigorous vetting process when appointing directors and accounting officers. What role should the auditors have played in a case such as this?

The bottom line is that the accountancy profession is not suitable for people who do not subscribe to continuous education, development and learning. When one completes an undergraduate, honours degree, and concludes their article-ship or learnership programme, this only puts them at the foothills of the accountancy professional peak they need to scale.

CEO's Note

The one that caught my attention was the International Auditing and Assurance Standards Board (IAASB) on its proposed sustainability assurance standard. The he basic relationship between the state In her keynote address, Gcaleka hammered home International Standard on Sustainability Assurance (ISSA) and its citizens, in which the state this point even further by emphasising the crucial A greater challenge faces educators, especially SAIGA 5000, general requirements for sustainability assurance accounts for its actions in terms of how role auditors and accountants play in fostering as action is constantly required to trust in engagements, was considered a watershed moment for fundstechnical it uses public and makes staff, decisions, openness, accountability, and public has broken down. At the heartthe of this institutions. support development of initiatives i.e., the ISSA 5000 the accountancy profession in 2023. malaise is the lack of accountability and corruption – theofassurance of our which has crippled service delivery basic humancapacity Her views are professionals fully detailed in thewith coverthe piece of this Spring edition. needs.

The proposed amendments confirm that sustainability necessary sustainability and sustainability assurance competencies to perform the proposed amendments in reporting has become a matter of global importance, This has led to Minister of Justice and Correctional The edition also contains interesting and thoughtRonald Lamola tabling that seeks provoking articles, that, however, are not limited to oura bill standards. and its reliability is a key issue for manyServices stakeholders, strengthen the National Prosecution Authority’s auditing and accounting, but also cover politics and including investors, regulators, ordinaryto citizens and non(NPA) independence and capacity to pursue highhealth issues, in light of the current water crisis.

The journey of an accountancy professional has many governmental organisations.This is because sustainability level crimes. about how improving twists and turns. It is You notmay for also the read lazy-minded and the audit assurance can enhance the reliability of sustainability If passed, the bill will see the establishment of outcomes in South Africa is a multifaceted indolent.

A sustained endeavour professional development for our reporting and reduce the extent of “greenwashing”, the Investigative Directorate Against Corruption, that requires addressing challenges, targeting among other the ‘state capture’is non-negotiable upholding independence, embracing technology and – even the SAIGA CPD helping entities drive towards net zero commitments and cases,professionals crimes. promoting transparency. policy stipulates the same. support the public interest.

T

It will ensure the effective implementation of

Has the AI summer arrived? Find out why leading

the recommendations from the State Capture players in the audit sector are starting to experiment Not only does this ever-changing, challenging and Our professionals should not have excuses not to submit Commission as it will allow the NPA to apply the with various AI-driven tools to improve audit annual CPD activities.

Professional mandatory education force practising professionals experience gained from Souththeir Africa’s effortsmandatory to processes, and many more. tackle high-level to improve themselves but, perhaps importantly, alsocorruption. organisations ought to be critical of professionals who necessitates academics to fine-tune curricular andbillrelated dostep notindemonstrate the required level of All in all, this is an essential reinforcing Enjoy your reading!  continuous South Africa’s anti-corruption professional efforts and ensuring development in society. Society has invested assessments thereof. that those suspected of corrupt activities are held its trust in professional bodies to represent public interest. accountable.

It also means that professional bodies like the Southern This was onehave of the main takeaways from Lamola’s Enjoy SAIGA’s first edition of Auditing SA magazine African Institute of Government Auditors (SAIGA) presentation at the 3rd Annual SAIGA Conference, in 2024.

Keep adding valueMorena to the public sector, to influence these changes in the existing professional Russel which was held at Emperors Palace last month.

SAIGA training programmes and through the Continuing organisations, society, andCEO your clientele.

Themed “Advancing auditing and accountability Professional Development (CPD) programmes.

One for citizens and the future,” the conference, which Happy reading!  cannot practically and realistically conclude a full-year coincided with SAIGA’s 35-year anniversary CPD programme due to the continuouscelebrations, changes inbrought the together auditing and accounting professionals, politicians, opinion accountancy profession. makers and thought leaders.

Russel Morena These included among the many speakers and SAIGA CEO For instance, the ISSA 5000 mandates changes in the panelists, the Acting Public Protector, Adv Kholeka core auditing curriculum during the pre-qualification Gcaleka, Deputy Auditor-General Vonani Chauke, CEO Development of IRBA, Imre Nagy, Prof Mabutho Sibanda, phase, or the so-called “Initial Professional SARS Deputy Commissioner Bridgette Backman, (IPD)”. It is common knowledge that some practitioners the CEO of PwC, Shirley Machaba and Dr Liezl Groenewald from the Ethics Institute. may have historically gone on to specialise in other types of assurance as their careers developedThis through CPD year, we revisited the principles that have remained central to SAIGA’s existence as we ignited programmes. meaningful discussions around the critical role that auditors play in the public and promoted the core values of this Institute.

8

www.saiga.co.za 6

www.saiga.co.za

T

Letter from the Editor

he dying embers are gone on the holiday season as we get into the business of the new year.

I hope the holidays have left you healthy, hearty and marginally solvent and that you’ve returned into the saddle pumped up for 2024.

and policymakers globally with insights on current issues in adopting and implementing whistleblower protection legislation, and key policy considerations to help ensure that local frameworks are fit for purpose.

After all, there is a lot to look forward to this year, the celebration of the 30th anniversary of South Africa’s democracy, the keenly awaited elections and of course, the five big SAIGA events, including the annual conference.

The lively discussions reaffirmed the existing gaps between adoption and implementation across the globe and the difficulty of further enhancing whistleblower protection.

Whistleblowers still face prosecution, lawsuits and termination.

From SAIGA’s perspective, 2023 was a successful year marked by several milestones, including the Institute’s 35th anniversary, the re-election of Phillip Rakgwale as SAIGA president, the re-evaluation of SAIGA competency framework, as well as the certificate of Recognition as awarded to the University of KwaZulu-Natal for the Bachelor of Commerce in Accounting degree.

Naturally, my thoughts gravitated towards things closer to home, and I thought immediately of our Justice Department’s recommendations regarding the major changes to the Witness Protection Act and the Protected Disclosures Act, which are based on the recommendations of the Commission of Inquiry into State Capture to improve whistleblower protection.

The significance of this is that UKZN Bachelor of Commerce in Accounting graduates are now eligible for SAIGA membership as their qualification is a direct feeder to the RGA designation – the highest professional designation within public sector finance and auditing.

The Act is currently being reviewed, with oversight from Justice Minister Ronald Lamola. The review’s objective is to assess South Africa’s current laws regarding protected disclosures and witness protection, searching for flaws in the system and analysing the practices, procedures, and legal framework in addition to the resources available to support whistleblowers.

Personally, though, I have grown and acquired the necessary soft and business abilities to function in dynamic business and accounting environments.

But apart from the best “tea guzzler” award I graciously accepted at our staff year-end function, I have a few proud moments to look back on, the most notable of which was attending the webinar hosted by the International Federation of Accountants (IFAC) themed “Beyond Silence: Understanding the Evolution of Whistleblower Protection Laws from the Accountancy Profession’s Perspective”.

Together with Chartered Professional Accountants of Canada, IFAC convened policymakers and regulators with the accountancy and legal professions for a global event to launch their new report titled “Understanding Whistleblower Protection: Laws, Practices, Trends and Key Implementation Considerations”.

Attended by over 340 live participants from over 130 countries, the webinar provided a platform for experts to discuss the role of whistleblowers and how they can help address some of the most serious issues facing society in various countries. Of course, this was done with great appreciation for varying legislation in different countries.

The report offers evidence-based research and practical perspectives on whistleblower protection legislation.

Developed with contributions from the Whistleblowing International Network, it provides professional accountancy organisations, professional accountants, relevant authorities,

10

Similar to Lamola’s initiative, IFAC and CPA Canada’s report comprehensive review explores the positive legislative improvements in whistleblower protection in various jurisdictions and opportunities for further enhancement.

The minister expands on this review in one of the articles in this issue.

On the whole, though, is that financial fraud poses a major threat not only to the financial markets but, in the case of South Africa, affects the state’s capacity to provide essential services to its people.

Accountants and auditors, therefore, have an even greater role in the fight against the scourge of corruption because of the unique positions they occupy within organisations.

As J.T. Wells, the founder of the Association of Certified Fraud Examiners, says, when whistleblowers, including internal auditors, feel more empowered, their actions raise “the perception of detection”. And they are likely to have a deterrent effect on those perpetrating fraud.

Here’s hoping for a better year in 2024!  Kgomotso Sethusha Editor

www.saiga.co.za

33054/R

Commercial Banking

Want a bank that’s serious about public sector growth?

Nedbank is committed to being the business banking partner for the public sector. Our bigger-picture approach to banking is designed to provide groundbreaking solutions for your municipality. With the expertise and knowledge of our community specialists, we can ensure continuity, accessibility and quick decision-making that guides your business growth.

Think bigger.

Think Nedbank Commercial Banking.

For more information email us at publicsector@nedbank.co.za.

Auditing SA

Terms and conditions apply.

11

Nedbank Ltd Reg No 1951/000009/06. Licensed financial services and registered credit provider (NCRCP16).

COVER STORY

PREVENTION

IS BETTER THAN CURE Ronald Lamola

SA Minister of Justice and Correctional Services

12

Advancing Auditing &Accountability

www.saiga.co.za

P

revention is better than cure, or better still, far less costly than investigation and prosecution. Auditing is a crucial component in maintaining the integrity of the national system and preventing corrupt practices.

Auditors play a crucial role within organisations as they represent the public interest and oversee the entity's adherence to established standards. The scope and significance of auditing continues to expand.

The role of auditors in the fight against corruption, however, has been ambiguous in some parts of the world. Academics argue that there is an "expectation gap" concerning the responsibility of auditors in detecting corruption.

The infamous FIFA football corruption scandal brought to light the criticism that auditors face for their failure to identify corruption.

There is a direct link between auditing failure and corruption, which is not a victimless crime.

A lapse in auditing can have catastrophic consequences in society For instance, consider the impact of a company that must report accurate data on its greenhouse emissions to a department such as Environmental Affairs. The manipulation of data by internal auditors could lead to a polluted climate, robbing future generations of a clean environment.

A robust internal auditing system is necessary as we strengthen our corruption prevention architecture and law enforcement agencies.

The recently amended Public Audit Act has introduced the concept of material irregularity.

During an audit process, auditors must satisfy themselves, through various tests of transactions, account balances and control systems, that there has been no non-compliance or contravention of a financial statute. >

Auditing SA

Advancing Auditing &Accountability

13

COVER STORY

They must also guarantee that the organisation is not subjected to fraud that can result in financial loss or the loss of public assets, or that the organisation is not prevented from offering specific services because of financial losses.

The auditor-general has the power to refer any material irregularity that is found or suspected during an audit conducted under this act to a relevant public authority for investigation.

The auditor-general can also take appropriate legally binding remedial action or issue a certificate of debt where an accounting officer or accounting authority has failed to comply with the remedial measures.

Activating preventative controls across key areas of accountability will eliminate the need to invoke

14

these new powers.

Such controls are proactive, detect most material irregularities that could lead to financial loss, and are relatively cheaper than relying on investigations triggered after the money has changed hands in unreliable or transparent ways.

Preventative controls promote transparency, strengthen accountability, and are predictable with known expected outcomes.

In essence, preventative controls are an invincible fortress against all possible abuses of the public purse.

Public trust in the government has declined in recent years due to public scandals and allegations of corruption. These events have exposed loopholes that allowed

Advancing Auditing &Accountability

private interests to influence political decision-making.

The State Capture Commission, in particular, highlighted issues with the current system and the need for greater transparency and accountability As a result, democratic institutions like parliament have been scrutinised and questioned for their ability to provide adequate oversight.

Auditors play a critical role in ensuring that government processes are effective and that transactions yield the desired value. However, it is essential to consider what happens when auditors fail or act unethically.

While corruption by law enforcement

www.saiga.co.za

agencies is appropriately classified as such, auditors who fall short are frequently branded with more mild terminology, such as "accounting irregularities."

Fighting corruption is a top pri ority for the government, but it is a complex issue that cannot be resolved overnight. We must build institutions that can effectively investigate and prosecute corruption cases and ensure the justice system can support these efforts. The recent measures taken to combat corruption in South Africa, such as the introduction of the procurement bill, are a positive step in the right direction.

The Investigating Directorate Against Corruption plays a crucial role in this effort. As per the constitution, the National

Prosecuting Authority is responsible for conducting criminal proceedings on behalf of the state and carrying out investigative and forensic functions. Establishing the Hawks within the SAPS structure was a legitimate response by the government to enhance the police force's capacity to investigate national priorities and other crimes.

President Ramaphosa's announcement in the State of the Nation Address will come to pass once the amendment is approved, establishing the Investigating Directorate Against Corruption a permanent feature of our nation’s anti-corruption law enforcement initiatives.

The goal is to ensure the effective implementation of the recommendations of the State Capture Commission.

The Directorate for Priority Crime Investigation investigates corruption-related crimes uncovered by various commissions, including the South African Revenue Service and Public Investment Corporation.

Adopting a prosecution-led investigation model is the most effective way to prosecute crimes like corruption, as international best practices demonstrate. The new bill will allow the NPA to apply the experience gained from South Africa's efforts to tackle high-level corruption.

The bill is a significant step towards enhancing the NPA's independence and ability to prosecute high-level crimes. Creating a specialised entity within the NPA staffed with trained individuals who enjoy the requisite level of independence, resources and security of tenure will enable tackling corruption head-on.

Auditing SA

Advancing Auditing &Accountability

The Investigating Directorate against Corruption has taken on 34 cases, with 203 accused over the last four years. During the 2022-23 financial year, it added 18 new cases and authorised 13 new investigations, bringing the total to 97 cases in the last four years. The Directorate has also played a significant role in recovering R2.5 billion that was deposited into the Criminal Asset Recovery Account.

This bill is a crucial step towards strengthening South Africa's anticorruption efforts It aims to hold those who engage in corrupt practices accountable for their actions.

The Department of Justice and Constitutional Development has released recommendations for reforming whistleblowing laws.

The recommendations are based on thorough research and comparative analysis of whistleblower systems in various countries worldwide, including the United States, the United Kingdom, New Zealand, Canada and Australia.

The Department also evaluated whistleblower systems in five African nations - Uganda, Namibia, Kenya, Tanzania, and Ghana. The research and recommendations follow President Cyril Ramaphosa's response to the Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector on 24 October 2022. The President emphasised the importance of whistleblowing in fighting corruption and the need to protect whistleblowers from victimization, prejudice or harm. >

15

COVER STORY

Government auditing is a cornerstone of good public sector governance; providing unbiased, objective assessments of whether public resources are responsibly and effectively managed to achieve intended results.

Transparency International has noted that robust whistleblower protection laws and public scrutiny are crucial in protecting citizens and institutions from corruption.

With the ability to come forward and report cases to their employer, authorities, or civil society, individuals are empowered to prevent or expose potential corruption. By creating

a culture of transparency and accountability, we can build a brighter future for all.

As the process unfolds, we are actively collaborating with various stakeholders to establish a provisional framework to implement some of the proposed recommendations and offer support to whistleblowers who have suffered retaliation. 

The document seeks to evaluate the current legislation on protected disclosures and witness protection in South Africa and identify any gaps or shortcomings in the system.

It proposes several measures to enhance the protection of whistleblowers, including expanding the scope of the Protected Disclosures Act beyond the employer-employee relationship, establishing a fund to support whistleblowers, and granting greater authority to the South African Human Rights Commission in handling protected disclosures.

These changes could have a positive impact on promoting transparency and accountability in various sectors.

Furthermore, the discussion document recommends that whistleblowers be offered the necessary legal and emotional assistance to help them navigate the complicated legal system and deal with the emotional challenges that come with it.

These recommendations aim to strengthen accountability and transparency, provide a haven for whistleblowers, and motivate more individuals to expose social injustice and wrongdoing.

16

Advancing Auditing &Accountability

www.saiga.co.za

­

APPLICATIONS TO STUDY THE FOLLOWING POSTGRADUATE PROGRAMMES IN 2024 ARE NOW OPEN:

FOR FULL DETAILS, VISIT: WWW.SAEF.UKZN.AC.ZA

INSPIRING GREATNESS

IMPROVE AUDIT

IMPROVING AUDIT QUALITY TO ADDRESS MATERIAL IRREGULARITIES Amos Zungu

Registered Government Auditor Lecturer: Auditing and Taxation, Durban University of Technology

W

e have not seen improvements in audit outcomes in municipalities, provincial and national departments with huge budgets and significant public interest like education, health etc and on key SOEs like the power utility, Eskom.

Instead, clean audits have been recorded in a few municipalities, particularly in the Western Cape.

There have also been clean audits reported in departments and public entities with small budgets and less significant public interest.

The questions that could be asked are: •

What is it that the leadership has done to improve the audit outcomes of municipalities, major/significant departments and SOEs with huge public interest?

•

Why are leaders failing to provide leadership on the outcomes that must be

18

maintained by municipalities/ significant departments & SOEs? •

How can consequence management be implemented for ministers, and accounting officers in key departments who fail to achieve improved audit outcomes?

Financial management by government departments, SOEs and municipalities; material irregularities and financial losses as per the Public Audit Act. PFMA section 38 and MFMA section 62 contain the general financial management responsibilities of the accounting officers.

The PFMA and MFMA require accounting officers to manage the revenue, expenditure, assets and liabilities of the departments and municipalities. Importantly, they must prevent unauthorised, irregular, fruitless and wasteful expenditures and other losses. Departments and municipalities have been failing to prevent irregular expenditures and financial losses.

Advancing Auditing &Accountability

www.saiga.co.za

The audit outcomes released by the Auditor General of South Africa reflected the concerning state of financial management and service delivery in municipalities. Poor financial management and lack of service delivery resulted in some municipalities incurring financial losses, while others caused substantial harm to communities because they could not fulfil their mandates to deliver services to the communities.

As a result of the non-compliance with financial management legislations in municipalities, the Auditor General, guided by the Public Audit Act, identified financial losses and several financial mismanagement issues such as failure to manage the assets of the state, acquisition of goods and services at very high amounts than at fair values, payments for goods and services not received, tenders given to political leadership, such as councillors and their families, and tenders awarded to officials and families.

The Public Audit Act defines a material irregularity as follows: Any non-compliance with, or contravention of, legislation, fraud, theft or a breach of a fiduciary duty identified during an audit performed under the Public Audit Act that resulted in or is likely to result in a material financial loss, the misuse or loss of a material public resource, or substantial harm to a public sector institution or the general public.

The overall aim of the Public Audit Act is to promote accountability, to improve the safeguarding of municipal resources, to enhance service delivery encourage an ethical culture in the municipalities and to strengthen >

Auditing SA

Advancing Auditing &Accountability

19

IMPROVE AUDIT

Accountability ecosystem local government internal audit unit

Municipal council

Treasuries

Municipal public accounts ccommittee

Cooporate governance Audit committee

Mayor and speaker

Senior management

Accounting Officer

Parliament/provincial legislatures and oversite committees

Offices of the premier

Coordinating institutions Provincial leadership

Officials

Active citizenry

Source: Consolidated general report on local government audit outcomes MFMA 2021-22. Page 11.

municipalities to better serve communities.

Questions could be asked as to why the leadership is tolerant of such financial losses and irregularities by government departments, SOEs and municipalities. How can departments, SOEs and municipalities be structured/ managed for them to be able to prevent financial losses and irregularities or recover financial losses from officials and political leaders?

How can fraud and corruption, stealing and looting be prevented in departments, SOEs and municipalities? How can departments, SOEs and municipalities be held accountable for their mandates? Most of the municipalities are unable to fulfil

20

their mandatory roles of providing basic services, such as clean water, sanitation, provision of infrastructure, refuse and waste removal etc.

poor economic activities, thereby impacting the quality of lives of ordinary citizens.

How can the challenges faced by municipalities be resolved or mitigated? The questions should interrogate the failure of municipalities to provide drinkable water, to provide roads, and clean towns, illegal dumping, failure to provide electricity and poor service delivery whereby contractors are appointed but deliver very poor infrastructure and services.

The accountability ecosystem

Importantly, the questions must probe the impact of poor service delivery on investments, tourism and the general economic atmosphere, because the effects of poor service delivery, financial mismanagement fraud and corruption result in

Advancing Auditing &Accountability

The Auditor General of South Africa has identified an accountability ecosystem for local government.

The different role players within the accountability ecosystem of municipalities are shown in the table below.

The role players identified above are officials, senior managers, municipal managers, Internal Auditors, Audit Committees, councillors, coordinating departments such as parliament/provincial legislatures and oversight committees etc.

The same ecosystem for local

www.saiga.co.za

government can be adapted to provincial and national departments and SOEs, and add role players like portfolio committees, SCOPA, Board of Directors, HODs of departments and CEOs of SOEs. Questions can be asked about the contributions/challenges faced by each of the role players in improving audit outcomes. How can each role player improve in order to meaningfully contribute to good governance and service delivery? Why the different roles are not able to play their roles within municipalities, departments and SOEs? I would recommend that you push the audience to identify role players not mentioned in the AG reports.

The risk with limiting conversations on the AG reports is that you will never know what the participants have got in their minds or how they perceive the public sector financial management environment.

The role of political parties Role players such as the private sector, construction mafias, business forums, and professional bodies (accountants, auditors, engineers, valuators, lawyers etc) play a huge role in infrastructure rollout, financial management and audit outcomes.

It is important also to probe the role of political parties, more especially their deployment structures and committees because they are the ones who are responsible for seconding their members to departments, SOEs and municipalities either as ministers, mayors, councillors, HODs, municipal managers and directors and senior managers. The deployment committees indeed play a huge role as they deploy political heads, accounting officers and even service providers. 

Auditing SA

Advancing Auditing &Accountability

21

INTERNAL AUDIT

Dr Mfanufikile Mwelase

Senior Audit Manager: eThekwini Municipality Audit and Risk Assurance Services

P

ost 1994, the South African public sector embarked on a process to restructure its operational efficiency through the then-public management approach, which essentially meant a

22

conversion of the traditional management mechanisms within the public sector to mirror private sector practi-ces (Coetzee & Erasmus, 2017).

The move to embrace a new approach when dealing with performance management meant that, amongst other role players, Internal Auditing had to execute a more leading role in assisting management in improving organisational performance.

An organisation’s ability to achieve its

Advancing Auditing &Accountability

goals depends on how well its internal auditing operates.

Lenz (2013) submitted that ‘Internal Auditing Effectiveness’ is a concept that describes how Internal Auditing supports the organisation in the achievement of its goals by positively impacting the quality of corporate governance within that organisation.

Practically, internal auditing assists an organisation when its recommendations are implemented by those managing its operations (Huong, 2018).

www.saiga.co.za

Despite all efforts made towards ensuring more efficiency, productivity and therefore better performance, the South African public sector has, however, not performed well.

The performance of the local government has continued to deteriorate. In her 2021-2022 Municipal Finance Management Act (MFMA) General Report, South Africa Auditor-General Tsakane Maluleke indicated that “Local government has been characterised by dysfunctional municipalities, financial mismanagement, council and administrative instability, and crumbling municipal infrastructure.

This leads to deteriorating standards of living and service delivery failures, resulting in service delivery protests.”

In 2023, Maluleke went further to say that the state of local government is deteriorating and requires urgent attention as municipalities continuously fail to address issues of accountability, integrity, performance and good governance. The main proposal from the AGSA office to rescue the situation is that a culture of accountability must be enforced to improve performance and thereby improve service delivery.

THE ROOT CAUSE

FOR NON-IMPLEMENTATION OF INTERNAL AUDIT RECOMMENDATIONS Auditing SA

Advancing Auditing &Accountability

The report and proposed solution by the AGSA raise important questions about the effectiveness of the current accountability mechanisms at local government, particularly Internal Auditing.

If Internal Auditing exists to assist management to better manage risks, governance and internal controls then how did we get to the situation as described in the 20212022 MFMA General Report? >

23

INTERNAL AUDIT

Has Internal Auditing as a function failed to discharge its legislated mandate within this sector?

To understand the reasons for what appears to be failures of Internal auditing and to possibly derive worthwhile reforms, one has to understand the legislative framework that governs the functioning of Internal Auditing.

When South Africa adopted the constitution as the supreme law of the country in 1996, the aim of the government, amongst others, was to empower communities at local government to take responsibility for community services to improve the quality of life of all citizens and free the potential of each person (Moller & Dickow, 2002).

THE KEY PIECES OF LEGISLATION In addition, the government further intended to encourage people to take an active role in effective governance and service delivery practices. The government machinery adopted by the state to implement the ideals enshrined in the constitution consists of three spheres, namely, local, provincial and national spheres of government. Whilst some people would argue that the National and Provincial spheres of government are important, performance indicators have indicated over the years that the proper functioning of local government as part of government machinery is essential for the achievement of constitutional objectives since that sphere is where service delivery to all citizens take place.

To achieve identified objectives, the constitution prescribed legislation and/or laws or acts which are

24

instruments of government in its efforts to organise society and protect citizens, for through legislation government can allocate rights and obligations to individuals and authorities to whom the legislation applies. Regulations, guidelines, standards, circulars and interpretation statements were then derived from legislation to further provide guidance for Municipalities and thus form what is referred to as The Municipal Legislative Framework (de Jager, 2000).

Key pieces of legislation which form part of the Municipal Legislative Framework aimed at guiding each Municipality to achieve the set Constitutional objectives include the Municipal Systems Act, the Municipal Structures Act and the Municipal Finance Management Act. A focus on the Municipal Structures Act (enacted into law in 1998) is important for understanding the reason for what appears to be failures of Internal Auditing in local government. Chapter Two of the Municipal Structures Act stipulates that there must be a Municipality for every Municipal area in the Republic and that each Municipality (Chapter Three) must have a council (comparable to a Board of Directors in the private sector) to run its affairs.

FREE FOR ALL This chapter further indicates that “Every citizen who is qualified to vote for a particular municipal council has the right- (a) to stand as a candidate in an election for that council” (with a few exceptions as per section 158 (1) of the Constitution)

be a South African citizen, at least 18 years or older, with an ID book. In a nutshell, this means that the main requirements/criteria to be part of the highest decision-making body of a Municipality which is similar to the Board (in the private sector) is that one must be a South African.

In terms of the Legislative Framework, a person who is qualified to vote is one who should

Therein lies the source of the many problems found in local government.

Some political parties indeed have

Advancing Auditing &Accountability

www.saiga.co.za

has left councils across the country with simply inadequate governance.

The complexities involved in running a 21st-century municipality in an information-driven society that is forever evolving, combined with the type of mechanism to elect leaders that South Africa has opted for, has created many of the problems the Auditor-General has highlighted in her report and has contributed to the frustration of many Internal Auditors across the country.

In many instances, the Internal Auditing log of previously reported issues reflects the issues raised in the 2021-2022 MFMA General Report. This means that Internal Auditors have been raising similar issues around weaknesses in the management of risks, governance and internal controls over many years, but management is not heeding their call.

When those same issues are reported by Internal Auditing to oversight committees, as required by the prescripts, little to no action is taken to ensure management implements recommendations. If the current trajectory continues, we can unfortunately be sure that municipalities will reach unprecedented lows of dysfunctionality. their criteria for selecting individuals who can stand for public office.

It is also true that some councillors have formal qualifications, and some have experience in one or another field.

But the lack of certain standards or prerequisites beyond being a registered voter for the purpose of getting elected as a councillor has led to a free-for-all scenario, which

Auditing SA

The current legislative framework, which is at the centre of the malaise, should be improved upon as a mechanism to arrest the deterioration witnessed in local government. Many democratic societies with currently high-performing public sector organisations have, over the years and amongst other initiatives, been able to adapt their election mechanisms to include an element of selection.

Advancing Auditing &Accountability

SOUND ELECTION ELEMENT The selection element of the election process would naturally be a process of carefully identifying individuals within society with a proven track record of success around a few agreed-upon key societal imperatives for a particular municipal area and creating a pool of eligible candidates for voters to elect from.

As an example, a proven track record around economic development as a Key Performance Area (KPA) and maybe GDP (or similar) growth and job creation as Key Performance Indicators (KPIs) under that KPA would possibly be a reasonable selection criteria item to be considered for a councillor seat.

Similarly, a comprehensive list of important KPAs and KPIs derived from key societal challenges for a particular municipal area would then inform the selection criteria, meaning individuals the council candidates must demonstrate their ability to perform in those areas.

Individuals who can sufficiently demonstrate their capability to perform would then make it to the list of candidates that can be elected.

If individuals with a proven track record of high performance in critical areas are elected, that would certainly improve the quality of governance found at councils around the country. That would help cultivate a culture of accountability where the recommendations from Internal Auditing are implemented, thus resulting in improvements in the areas of efficiency, productivity and performance at the local government level. 

25

QUANTUM PERSPECTICVE

W

e are in a period where we witness the destructive effects of technological innovations in many sectors, different lines of business, and professions.

There are a wide variety of innovations and approaches enabled by technology, such as artificial intelligence (AI), Blockchain, machine learning, big data analytics, cloud computing, and automation.

Sezer Bozkuş Kahyaoğlu Associate Professor of Finance, University of South Africa

26

Although all of these are important, Quantum theory remains one step ahead and is described as the "queen of disciplines" in the literature (Ron 2023). In this context, this study evaluates the

Advancing Auditing &Accountability

field of accounting and auditing, and its framework within the quantum perspective, which are amongst the basic elements of social sciences and a major part of the world of economics and finance.

Prof. Qadir (1978) was the first to use the concept of “quantum” in the field of social sciences (Qadir 1978).

The quantum implementations in accounting and auditing can be said to date back to Prof. Qadir’s 1978 paper, and incorporate findings from the developing fields of quantum cognition and quantum social science. In this respect, Prof Qadir argued that the money system is best viewed and analysed as a “quantum system” in its own right, with its own versions of superposition, interference, and entanglement.

www.saiga.co.za

EVALUATION OF ACCOUNTING AND AUDITING FRAMEWORK WITHIN THE QUANTUM PERSPECTIVE Prof. Davies (Milburn 1997) defined this period as follows, “The nineteenth century was known as the machine age; the twentieth century will go down in history as the information age. I believe the twentyfirst century will be the quantum age.”

Therefore, within the framework of technological developments, figure 1 shows the indicators with a highcapacity computer technology based on algorithms, complex, and capable of processing big data, based on the point at which the computer infrastructure has transformed in terms of past, present, and future periods. Quantum computers are processors that can solve problems with a different approach, compared to classical computers (figure 1).

When evaluated in terms of its functioning, classical computers

Auditing SA

represent a structure that can accommodate one of two states, known as "bit", consisting of 0 and 1. Here, these are machines that represent and solve problems based on physical units. On the other hand, when we consider quantum computers, it works using logic and bits. Therefore, a quantum computer can do anything a classical computer can do. In addition, the quantum bits (“qubits”) rely on more complex mathematical approaches during the calculations performed when solving problems based on quantum algorithms.

The first quantum state can be a "superposition", by holding multiple values at once. This situation reveals the difference between a qubit and a classical bit, with the approach referred to as "quantum

Advancing Auditing &Accountability

superposition". In other words, a qubit can have values 0 and 1 simultaneously, whereas a classical bit can only have values 0 or 1. The second quantum state can be "entanglement", by having correlations between qubits, and this position provides stronger rules compared to classical probability approaches.

The third quantum state can be "interference", by forcing specific combinations of quantum qubit values to follow less likely or more likely conditions. The solution of various tasks that cannot be solved with classical algorithms has become much more efficient and faster, based on quantum algorithms developed through these basic properties of quantum states (Ron 2023). >

27

QUANTUM PERSPECTICVE

1011

Classical Computer

19th - Machine age

0101

0000 0001 0011 0100 0110 0111 1000 1001 1010 1100 1101 1110 1111

Quantum Computer

20th - Information age

0100 1111 0010 0011 0001 0101 0110 1101 1000 0111 1010 1011 1100 1001 0000

21st - Quantum age

Figure 1: Indicator of the Past, Present and Next Century (Source: Prepared by the author, adapted from Hurst [2015]).

The quantum approach that offers the tools to discern the macroscopic world from the microscopic world, has made quantum applicable to this field, especially in the economic world, with the analysis of its structure in such form that each decision unit is termed “microscopic”, and the total is designated “macroscopic” (Aspect 2023; Snyder & Hui 2023).

It reveals that in the new era, we can deepen our understanding of the universe by using quantum computers, to solve problems that we have never been able to attempt with classical computers. However, how much better a quantum computer will solve these problems, is a complex and esoteric issue.

The strategic importance of quantum computers, one of the most advanced inventions ever conceived by humankind, is obvious for all industries requiring complex simulation capabilities and data processing speed, including cryptography. Even though quantum technology has a long history based on Nobel Prize-winning scientists'

28

pioneering works in Physics, namely Planck, Einstein, Bohr, Heisenberg, Schrödinger, and Dirac (Pleijel 1933), it is regarded as not quite sufficiently developed as yet, so as to increase its wide use and reward the investments made.

by technological innovations (Kahyaoğlu & Aksoy 2021a; 2021b).

The workplace, workforce, and work itself are in a stage of significant change, within the ongoing digital transformation process (Kahyaoğlu 2019; Kahyaoğlu & Coskun 2022).

Notwithstanding the many advantages of quantum computer technologies, there are difficulties in expanding its expansive use in practice. This is primarily ascribed to the need for extremely low temperatures, silent environmental conditions (noise sensitivity), and scalability issues (Ron 2023; Snyder & Hui 2023).

This is simply termed a “VUCA”—a volatile, uncertain, complex, and ambiguous world, with new dynamics and challenges (Liang, Lee & Sang 2016; Kahyaoğlu, Durst & Coskun 2023; Snyder & Hui 2023; Steenkamp, Smidt, Kahyaoğlu & Coderre 2023). In this regard— owing to the increase in data processing capacity and speed— analytical tools, techniques, and applications have become much more practical for professionals, work process owners, and end users, in general. For this reason, restructuring auditing- and accounting functions is one of the strategic priorities of businesses all over the world (Nuijten, Van Twist & Van der Steen 2015; Kahyaoğlu & Coskun 2022).

As mentioned before, the twentyfirst century will be the quantum age. The era of classical computers is over, and the same should be true for classical accounting and auditing frameworks. In this context, we have entered a period that requires the complete redesign of the accounting- and auditing framework and rethinking the cultural issues, that are amongst the areas most affected

Advancing Auditing &Accountability

It is observed that executives are

www.saiga.co.za

seeking a better understanding of all these innovations and areas of change, and to make the right decisions (Liang, Lee & Sang 2016). When evaluated from this perspective, it is critical to ensure the functionality and value-added position of accounting and auditing functions, that have a significant impact on and contribution to the sustainability of businesses. Hence, it is necessary to carefully examine Complexity theory, in order to better understand the needs of accounting and the auditing framework, based on the quantum perspective (Hurst 2015; Turner & Baker 2019; Snyder & Hui 2023).

It may not be appropriate to offer a direct definition of “Complexity theory”, as there is yet no single agreed-upon definition in the literature (Turner & Baker 2019; Snyder & Hui 2023). Nevertheless,

Auditing SA

Complexity theory is presented as a "paradigm shift" and a "new perspective" on what is happening in the world. As such, it is common cause that the recent cultural shift to digital, technological change, and the understanding of “risk society” (Beck 1992; Lupton 2016; Kahyaoğlu et al. 2023) reflect greatly on the accounting- and auditing functions, its conceptual framework, and the expectations from the practising process owners (Schillemans & Van Twist 2016; Kahyaoğlu 2019).

Contrary to simplistic Newtonian approaches (Snyder & Hui 2023), it is argued that the functioning of the entire universe has a complex and chaotic structure, whether viewed in terms of any living thing and humans in general, natural events or the functioning of international markets (Hayles 1990; Holte 1993;

Advancing Auditing &Accountability

Eve, Horsfall & Lee 1997, Ron 2023). This situation brings about interdisciplinary collaborations and new approaches to social science.

Whether starting from a "restricted complexity" structure or a complete "general complexity" structure, we can summarise its common and known characteristics (figure 2) in connection to social science, in general, as follows (Turner & Baker 2019; Kahyaoğlu 2023): The "selforganised" structure.

Elements within a complex system can organise themselves according to rules that arise from direct interactions amongst themselves, without the influence of any central control. It has newly discovered and “emergent” properties. There are new and emerging aspects of elements of a complex system that cannot be fully understood from the outside, at first glance. >

29

QUANTUM PERSPECTICVE

“Non-linear” structure. As one of the prominent features of a complex system, a relatively small change can lead to major changes in the entire system, owing to non-linearity, and this may be of a time-varying nature. "Unpredictable" structure. Within the framework of the basic features of the complex system, it can self-organise without central control, is nonlinear, and becomes unpredictable, as its elements cannot be known precisely.

Although the quantum approach is expected to become widespread in the future, we are still at the very beginning. In this process, "quantum corporate governance principles" are needed to carry out the development process, on

a well-designed, controlled, safe, transparent, and ethical basis.

This issue, addressed by the World Economic Forum (2022), evaluates quantum corporate governance principles, areas that require standardisation, and practices within the framework of cyber security and sustainability.

Establishing common and shared goals from a global perspective— with coordination by the World Economic Forum (2022)—quantum performance measurements, corporate governance standards, and road maps for strategic transformation prepared with a realistic approach, will contribute to the development process of quantum computing technology.

The accounting- and auditing

function will be most affected by the full implementation of these principles.

In such a digital business environment, where uncertainty increases, and complexity, chaos, and unknowns are undetermined (figure 2), it is necessary to benefit from quantum technology, to enable the use of AI and/or blockchain applications, in practice, especially to detect increasing cybersecurity risks via early warning mechanisms.

New approaches have been developed, based on quantum computing, that provides a structure for analysing complexity and, at the same time, provide tools for testing it, based on big data. Current, generally accepted

COMPLICATED

Unknown Unknowns

Known Unknowns

UNORDERED

CHAOTIC Unknowables

ORDERED

SIMPLE Known Knowns

SYSTEM-THEORETICAL APPROACHES

COMPLEX DISORDER

COMPLEXITY THEORY

Complex Adaptive Systems (CAS) General Systems Theory (GST)

Figure 2: Overview of Complexity Theory (Turner & Baker 2019)

30

Advancing Auditing &Accountability

www.saiga.co.za

accounting-understanding and -approaches are built on the principle of periodicity, and present instantaneous developments with a delay by the rules, depending on this periodicity to present it as information. However, the world of complexity requires the preliminary determination of losses that will occur when risks arise or occur owing to their existence.

A new era has begun with the risk management techniques that emerged as a result of the global financial crises, especially within the framework of the regulations issued in the financial markets and systems, and its reflection in accounting, auditing and fraud detection (Quantum Zeitgeist 2021).

Here, considering the general effects of the Complexity theory in the field of social sciences and its reflection in the accounting and auditing profession, there is a need for restructuring that has strategic importance for businesses.

In terms of accounting and auditing, advanced techniques are being used in the processing of transactions, the data generation process, and its monitoring, control, and auditing (Gartner 2023; Grant Thornton 2023). In particular, the possibilities of taking precautions against new types of risks that emerge within the framework of the changing audit universe and risk universe and even turning these risks into opportunities with the quantum perspective should be evaluated.

There is a need for analysis and reasoning, appropriate to the non-linear, asymmetric and complex structures, particularly big data structures, that replace linear and symmetric analysis

Auditing SA

based on conventional tools and techniques. The point to be considered here is that the work and operations performed with classical computers can be continued for a while. This signifies that classical computers will not replace quantum computers, as they can be used simultaneously, for different purposes. However, the most important constraint is that, at the current point in the business world, there is a need for process owners, and appropriate tools and infrastructure that can execute tasks from a quantum perspective (Roberts 2019).

In the digitalised business world, accounting needs to provide a structure that will reflect potential loss and/or default risks, especially depending on these advanced risk management tools. When evaluated from this perspective, these accounting records will be created using tools to detect situations that may occur in real life, depending on many economic factors. It should be noted that many economic factors, in this sense, also constitute the elements of the Complexity.

Therefore, analysis of this Complexity and its transformation into accounting records necessitates the creation of a new business culture and professional rules. In this respect, whilst accounting becomes a digital recording system in which the possible consequences of risks can be monitored, a process that will ensure instantaneous continuity of auditing, i.e., continuous auditing and continuous monitoring (CACM) will emerge, for this system to be more effective (Vasarhelyi et al., 2014; Chan, Chiu & Vasarhelyi 2018).

Advancing Auditing &Accountability

It is expected to become a new business process, where reporting can be performed at any time, at the end of the period, and decisions can be made according to new situations. Thus, it becomes possible to perform financial and operational audits instantly, through accounting records. Considering that the accounting system is a structure where a large amount of information is processed, quantum tools will provide important information in determining whether there is any external intervention in the systems. Especially in cyber security—considering the speed of digital tools—cyber defence, -security and -countermeasures, quantum cyber security infrastructure, and quantum cryptography become necessary, to ensure stability and sustainability in the economy, especially for financial institutions.

Quantum approaches will definitely be needed in order to reach the necessary speed in the implementation of AI-based algorithms, in the new era. This is a fact that executives should consider, in terms of corporate sustainability and cybersecurity issues. It is especially important that the accounting- and auditing functions—that ensure the business continuity, transparency and accountability of the digital business models, structures, systems and processes within the organisation—comply with optimisation needs based on quantum computing. Therefore, we are in a period that requires those who practice accounting and auditing professionally, and those who want to continue doing so in the future, to be prepared for a new learning process. This should not be forgotten. 

31

TIDE TURNING

OUR WORLD IS CHANGING, AND WE MUST CHANGE WITH IT 32

Advancing Auditing &Accountability

www.saiga.co.za

Prof. Bernard Peter Agulhas CA(SA)

What is certain is that our world is changing, and we must change with it

W

Another change which was believed to leave entities with no alternative but to respond to public expectations was climate change. Suddenly companies must take responsibility for what they put into and take out of our threatened environment, and authorities realised that they, too, have a responsibility to hold others accountable for taking the necessary actions to protect the changing environment. Agendas of World Economic Summits have been dominated by environmental topics and countries signing up to various treaties to demonstrate commitment to changing their behaviours to ‘do the right thing’.

Agulhas is the former audit regulator and an adjunct professor in auditing at the University of the Free State

e cannot ignore the stark changes in the world around us.

While change is inevitable, what has caught us unawares is the pace of change and that even the pace is accelerating at an ever-increasing rate.

The most important competency in professions of the future will be adaptability. Teaching and training will hardly be able to keep up with the rate of change and the best that can be done to ensure that qualifications remain relevant is to develop the necessary skills to change with the world around us.

Auditing SA

Managing the Change

While most professions will be affected by the above, few have and will be impacted as much as the auditing profession. Not only must auditors implement changes in their own firms, but also be prepared to understand the changes occurring in their client base – changes which will be impacted by their size, the industry in which they operate, the legislative environment, changing customer needs and not in the least, technology.

Global standard-setters have been slavishly and diligently developing standards to guide countries to report on Environmental, Social and Governance (ESG) matters, notably the International Sustainability Standards Board (ISSB) which issued its first standards in 2023 with an effective date of 1 January 2024: S1: General Requirements for Disclosure of Sustainability-Related Information S2: Climate-Related Disclosures

As if keeping up with these expected (sometimes unexpected) changes is not enough, further changes over which we have little control continue to take place in our biophysical environment and society. Equality, embracing differences and respecting others is no longer optional, and entities which do not respond to this New World do so at the risk of their demise – at least, that has been the word on the street thus far.

The lofty objectives of these standards were to disclose information about sustainabilityrelated risks and opportunities that would be useful to users in changing their decision-making about the resources of the entity, the ability of the entity to generate cashflows linked to stakeholders, society, the economy and the natural environment throughout the value chain, and how to disclose this information. >

Advancing Auditing &Accountability

33

TIDE TURNING

Irrespective of what has changed, achieving these objectives still requires preparers to go back to the basic principles and concepts of reporting, including the following:

The difference is therefore centred around ‘ticking the boxes’ for reporting purposes and a long-term commitment to add sustainable value.

•

Information must be relevant and faithfully represent what it purports to represent.

More changes, more questions

•

Information must be comparable verifiable, timely and understandable.

•

Users must understand the connectivity between disclosures on risk, strategy and governance, as well as between sustainability-related disclosures and other financial information.

Before we return to these lofty objectives and basic reporting principles, it is important also to understand that there is a distinction between the terms ‘ESG’ and ‘Sustainability’, which is well described in Nedbank’s 2022 Group Society Report as follows:

More changes raise more questions. Do companies’ financial statements and annual reports faithfully represent sustainabilityrelated information?

To faithfully represent information, financial and non-financial, disclosures must be balanced and include both positive and negative impacts the company have on its environment, society

and in applying its governance practices.

While some financial statements and annual reports provide glowing renditions of their positive impacts (and often get awarded for these renditions), it is not often that one reads about what companies continue to take from the environment and continue to contribute to the issues which cause climate change, its bad practices regarding how it responds to social issues such as equality (despite having the best policies which should drive the desired behaviour) or any bad governance practices (e.g. not fully embracing the need for independence of members of its governance structures).

Adherence to ESG standards and frameworks is typically delivered through company reporting. This is a valuable means of assessing the resilience of an organisation and the extent of its sincere commitment to ESG imperatives, offering a framework to evaluate companies’ extra–financial performance against peers.

In contrast, sustainability is explicitly strategic and forwardfocused, considering the optimisation of value across the six capitals (natural, social and relational, financial, manufactured and intellectual) and the balancing of these in the short, medium and long-term).

34

Advancing Auditing &Accountability

www.saiga.co.za

Surely, while most companies will strive to achieve the objectives of sustainability–related reporting, none of them can be perfect.

How is assurance provided on the accuracy of the disclosures?

Granted, it is not that easy to measure some of the elements in sustainability-related reporting, although the development of metrics will go a long way in ensuring comparability and consistency, amongst others.

Kudos to the ISSB for timeously developing some relevant reporting frameworks, which is a requirement if assurance is to be provided on this information.

And while auditing and assurance standard-setters are producing

Auditing SA

guidance on how to audit these disclosures, a further question remains as to whether it is those who are skilled in auditing or those who are skilled in ESG matters who will be able to provide the necessary confidence in the reported information. And let us not forget the recent reputational damage caused by inappropriate opinions provided which caused investors and others to lose billions (on financial information which is expected to be far less prone to manipulation and misrepresentation and supposedly much easier to verify).

If society were required to trust and rely on opinions on financial information, how much more would they demand

Advancing Auditing &Accountability

reliable opinions on information which impacts their (and future generations) welfare, safety and continued existence?

Who will make companies disclose sustainability-related information?

Jurisdictions retain the prerogative to adopt financial reporting and auditing standards. However, for these standards to be enforceable, they must have legal backing.

One would expect that holding role players to account for events which could inform our continued existence would be the number 1 priority for the State. >

35

TIDE TURNING

It must deal with matters of policy to ensure transparency, accountability and sound financial controls in the management of public finances, including financial stability to protect the economy and the people from major shocks to the financial establishment and building resilience through effectively managing all potential risks – not only those of a financial nature.

The Climate Change Bill was passed by the South African National Assembly on 24 October 2023, which recognises that ‘everyone has the constitutional right to an environment that is not harmful to their health and wellbeing, and to have the environment protected for the benefit of present and future generations through reasonable legislative and other matters that secure ecologically sustainable development and the use of natural resources while promoting justifiable economic and social development.’

It further recognises that ‘climate change policy needs to be implemented in the context of sustainable development objectives and the achievement of national development goals’, as well as the need to ‘develop a legal and institutional framework for the implementation of the Republic’s national climate change response.’

which will lead to its ultimate assent.

The tide is turning...

In the meantime, while questions abound, an article by Chip Cutter and Emily Glazer appeared in the 10 January 2024 edition of the Wall Street Journal, which further questions the reference to ‘ESG’ in reports given investor backlash, political pressure and legal consequences as well as putting too much emphasis on disclosure requirements (refer to the Nedbank distinction above and the famous Black Rock asset management giant which was criticised for its stance on ‘ESG’ reporting). The article further quotes the CEO of Brewster’s preference to refer to ‘responsible business’ instead of ESG. The Americans might have a point here.

It may sound as if we are merely playing around with words, but as we know, words have consequences. The public must be able to trust what is reported

to them, more so on matters which impact their, and future generations’ sustainable existence.

In terms of ESG parlance, this is only fair and responsible.

Nobody expects answers to every question, and it must be acknowledged that the increasing pace of change will only cause a greater abyss between the need for a response and a fitting response. And it will do us well to remember that while disclosure and transparency will go a long way in building trust and confidence in the legitimacy of company reports, they hold empty promises if they veer from faithfully representing the truth and what a company really does in pursuing sustainability. This cannot change.

This is truly a case of ‘actions speaking louder than words’ and we can only strive to mirror Mark Twain’s comment on Hamilton W. Mabie as far back as 1901, which requires us to act on our intentions: ‘A man is always better than his printed opinions.’ 

This would mean that regulators will have the means to enforce compliance with relevant standards and implementation of regulations to honour those lofty international commitments and obligations signed up for at the various world economic summits. Now the Bill just needs to be tabled at the various parliamentary structures

36

Advancing Auditing &Accountability

www.saiga.co.za

Exclusive Offer

For More Info:

(+27) 69 538 7276 (+27) 12 004-0741 mymembership@saiga.org.za

Are you a finance student looking to start your finance career in the public sector finance or audit?

Attention Finance Students! Kickstart your career in public sector finance or audit with SAIGA! Introducing our FREE Student Membership Package designed just for you!

Unlock exclusive benefits: Access SAIGA's training resources and valuable articles.

Engage with seasoned technical experts.

Enjoy complimentary industry CPD programs.

SAIGA conference at reduced rates.

Elevate your academic journey with SAIGA! Visit saiga.co.za or email mymembership@saiga.co.za for more information. #FinanceStudents #CareerBoost #SAIGAOpportunity

www.saiga.co.za

7 INTERNAL AUDIT RISKS

STRATEGIC RISKS THREATENING THE FUTURE OF INTERNAL AUDITING

Over the past decade, I have often discussed the strategic risks facing the internal audit profession. That includes several warnings I offered back in 2014: •

•

Richard Chambers

CIA, CFE, CGFM, QIAL, CRMA, CGAP Founder and Chief Executive of Richard F. Chambers and Associates, LLC

I

n 2022, I posed this question on LinkedIn: What are the most critical strategic risks facing the profession in the decade ahead? Although it was an impromptu poll with only four options, I was amazed that more than 1,000 people responded.

38

•

•

•

The credibility of the profession would be diminished by too many “where were the internal auditor” moments.

Key stakeholder perceptions of the profession would decline as we rely too heavily on assurance to the exclusion of insight and foresight.

Noncompliance with standards would negatively impact the quality of our work.

Blurring lines of defense would afford management the opportunity to rely on other monitoring and oversight functions in lieu of internal audit.

The profession would struggle to recruit and retain talent to address technology risks.

Advancing Auditing &Accountability

www.saiga.co.za

Richard Chambers has served as the president and CEO of The Institute of Internal Auditors (IIA), the global professional association and standard-setting body for internal auditors.

Chambers has more than four decades of experience serving in and on behalf of the internal audit profession

Realizing how rapidly the world is changing, and how strategic risks to our profession are likely to follow suit, I conducted the survey again in 2023 and the response was similarly impressive. It showed internal auditors realize that understanding strategic risks is integral to the resilience, adaptability and overall success of the profession.

As 2024 gets underway, I have cast the net again, asking survey takers to rank strategic risks that are “most likely to threaten your internal audit function in the next five years.”

Based on the three top responses from a list of risks presented, here are the seven greatest strategic risks as seen through the eyes of our colleagues: Inability to Attract and Retain Talent: This risk has topped the list each time I’ve asked the question.

That’s not surprising, considering the overall talent shortage in overheated economies around the world. However, I believe it also reflects the challenges (as several other strategic risks indicate) of recruiting and retaining skills that are crucial to the profession’s mission – particularly technology.

Inability to Effectively Leverage Technology: As with the talent risk, the ability to leverage technology in the execution of internal audit’s mission has remained steady at No. 2 in each of these surveys.

Leveraging technology solutions is no longer seen as a leading practice in the profession. Rather, it has become essential to delivering value and meeting stakeholder expectations. Yet, the prominence of this risk reflects a recognition that we still have much work to do to harness the power of technology. >

Auditing SA

Advancing Auditing &Accountability

39

INTERNAL AUDIT RISKS

Inability to Leverage Artificial Intelligence as a Capacity Multiplier: In the past year, we have witnessed a breathtaking acceleration in the adoption/ proliferation of AI. So, it’s not surprising that the profession’s ability to leverage AI is now seen as a strategic imperative. Generative AI presents huge opportunities for the profession, yet as observed in a recent co-authored article for Audit Board, “At most, 10% of internal auditors are using generative AI in any way in their own work, and 50– 75% have not made any efforts to explore or implement generative AI in internal audit.” This is a strategic risk that is not going away.

Lack of IT Expertise: This strategic risk differs from No. 2. Here, internal auditors are recognizing that our skills and expertise in auditing technology risks are sorely lacking.

The gap is likely to grow as AI risks become even more prominent in our organisations.

Inability to Identify Critical Risks: It is not surprising that this continues to be seen as a strategic risk. Fortunately, it is no longer seen among the top three. Yet, for those internal audit functions that don’t adequately assess and address the critical risks facing their organization, this risk could be existential,

risk is an inability to differentiate the value we deliver compared with second-line functions. Stakeholder fatigue refers to the risk that our stakeholders won’t support us (particularly during economic downturns), because they think there are “too many checkers and not enough doers.”

Stakeholder Audit/Oversight Fatigue: The first quarter of the 21st century is almost in the books. One key trend in the corporate sector has been the proliferation of second and third-line functions, such as risk management, compliance and even internal audit. Some industries, such as financial services, have seen exponential growth in these functions. For internal audit, the

Inability to Identify Emerging Risks: The profession continues to register concern that challenges in identifying emerging risks will lead to the inevitable “where were the internal auditor” moments.

Surprisingly, this risk has receded at a time when risk chaos and uncertainty have never been greater. Let’s hope this risk is not as significant as many of our

40

Advancing Auditing &Accountability

colleagues think.

There you have it. The seven most significant strategic risks your colleagues fear as threats in the future. Two risks that didn’t make the top seven were: “AI assuming some or all our mission,” with only 17 percent of respondents rating it among their top three risks; and an “inability to comply with the new IIA standards,” ranked by five percent.

Finally, there were a few write-ins and strategic risks that are worth noting. A few respondents were concerned about a lack of internal audit independence and a lack of effective leadership, diversity and adequate compensation. All are worth monitoring. 

www.saiga.co.za

Assurance Services The assurance division is a highly specialized department that focuses on external audits including Statutory, Financial management, IT, performance audits, advisory and agreed upon procedures to public and private sector entities..

Consulting & Advisory The Rakoma Consulting and Advisory Division is the solution driven, problem-solving arm of the firm and helps clients improve their financial position, overturn adverse audit outcomes, and enhance internal processes and procedures to prevent fraud and to investigate fraud where it has occurred. We diagnose financial problems, identify risks or gaps, and provide workable solutions to resolve the company challenges

Governance, Risk & Compliance with IT Audits Rakoma & Associates' Governance Risk and Compliance division continues to support organisations in both the public and private sectors through internal control reviews and subsequent remediation efforts to improve their control environments.

WHY CHOOSE US We are a leading Auditing Firm who have practiced with some of the largest Audit Firms in South Africa.

WHAT WE DO Rakoma & Associates Inc. has been in operation since 2006 and is a reputable service provider with a proven track record in the delivery of quality service to our evergrowing clientele.

DISCOURSE BUDGET

In recent years, there has been a shift in budgetary processes towards a greater emphasis on the proper utilisation of resources, rather than just how they are allocated.

THE DISCOURSE OF BUDGETARY MATTERS 42

Advancing Auditing &Accountability

www.saiga.co.za

E

mpirical evidence points to the existence of a dynamic equilibrium relationship between domestic and foreign debt, the budget deficit, inflation rate, and economic growth, both in the long and short term.

Based on statistical research, the results indicate that real GDP growth in South Africa is negatively correlated with external debt, and this relationship is consistent over the long and short time. Numerous consequences for policy have resulted from the research findings.

South Africa has to enhance its debt management practices and make the country's public debt more manageable. Additionally, government can privatise failed state-owned businesses by employing debt-to-equity swaps as a strategy. This would enhance their competitiveness and efficiency.

This policy measure has the potential to attract an influx of foreign direct investment and increase job opportunities, both of which would contribute to the enhancement of South Africa's economic growth.

The budget speech and resources

Phillip Rakgwale

CISA, CIA, CFE, RGA, M.Inst.D Chairperson of the SAIGA council

Auditing SA

The budget speeches reflect a heightened level of involvement with the NDP, notably in the early years following its implementation.

The 2012 budget address, like the State of the Nation Address (SONA), primarily emphasised the identification of commonalities between the National Greening Program (NGP) and the National

Advancing Auditing &Accountability

Development Plan (NDP).

In the 2013 budget address, there was a focus on the areas of resemblance between the National Growth Path (NGP) and the National Development Plan (NDP).

However, it was evident at that time that a clear hierarchy had been established, with the NGP being described as providing support to the NDP. According to Naidoo and Maré (2015: 421–422), there is a notable transition in focus from the NGP to the NDP. The shift in focus does not inherently imply a modification in the substance of economic policy but rather implies a shift in the message sent by the budget speech on the comparative significance of various conceptualisations of economic policy.

The continuity of this signal was shown in 2013, as shown by the budget speech which emphasised the alignment of the National Development Plan with the 2013 Budget. Furthermore, it was said that the strategic goals of the government and the mediumterm expenditure plans would be coordinated to effectively achieve our objectives. Therefore, the speech supported the plan for implementing the National Development Plan (NDP).

The budget speech of 2014 emphasised the significance of the NDP and the initiation of the alignment process. The initial stage of executing the NDP involved the formulation of a five-year plan and a medium-term budget framework.

The speech highlighted the NDP's focus on the importance of mobilising society in support of the agenda. >

43

DISCOURSE BUDGET

In 2015, the budget speech reiterated the ongoing efforts to execute the NDP and emphasised the significant role of the budget in that regard. The assertion that a strong budgetary framework is crucial for the NDP’s effective implementation was made to support the case for public expenditure control. The 2016 budget address explained that the NDP had an impact on the budget and provided a thorough synopsis of the key elements taken from the NDP. Nevertheless, in the 2017 budget address, a cautionary note was sounded for the first time, emphasising that the level of growth achieved “significantly deviates from our National Development Plan objectives.”

allotments for certain sectors.

The foreword and introduction, which precede the specific departmental information, offer a contextual framework for understanding the alignment of the budget with the National Development Plan (NDP). The foreword to the 2013 Estimates of National Expenditure aimed to utilise the NDP to reinforce the Treasury’s emphasis on optimising the utilisation of current resources.

The foreword emphasised that any future improvements in results must stem from improvements in the way that current funds and other resources are used.

The 2013 Estimates of National Expenditure for Basic Education underscored the alignment

between the NDP and the department’s existing education plans. It emphasised that the department’s action plan and vision for schooling in 2025, as well as the proposals for basic education in the NDP, are mutually supportive.

Furthermore, both plans prioritize the continuous improvement of education quality (National Treasury, 2013: 315).

The Estimates of National Expenditure for Basic Education in both 2013 and 2014 featured a section dedicated to programmes that made a telling contribution to the NDP. These activities were comprehensively detailed, covering a wide spectrum of initiatives.

A number of these initiatives were specifically aligned with the Treasury's prioritized objective of enhancing quality, including

Furthermore, it stressed the importance of having a clear vision and the sector-specific objectives and programmes outlined in the NDP. The latest budget speeches have emphasised alternative initiatives, including the Economic Growth Strategy for 2020 and the Economic Reconstruction and Recovery Plan in 2021.

Estimation of national spending The estimation of national spending is a crucial aspect of economic analysis and policy formulation.

It involves the calculation and projection of the total amount of money that a nation is expected to spend during a certain period.

The comprehensive Estimates of National Expenditure show a comparable level and manner of involvement, as they furnish specific information on budgetary

44

Advancing Auditing &Accountability

www.saiga.co.za

efforts to raise the pass rate of examinations and reform the evaluation methodology for assessing school performance.

This part also includes other actions that have discernible financial ramifications, such as the provision of increased scholarships for aspiring educators and the resolution of existing deficiencies in school infrastructure, by the expenditure plans that are in line with the objectives of the NDP. Starting in 2015, the Estimates of National Expenditure for Basic Education underwent reforms wherein a distinct section dedicated to activities associated with the NDP was no longer included. Instead, each year, particular actions that were aligned with the NDP were

included within the broader narrative of the education sector.

Proper utilisation of resources

While the New Democratic Party (NDP) and the New Green Party (NGP) used to be in a dominant position, current events indicate that the NDP may have given up its position because of the rise of creative economic policies.

In recent years, there has been a shift in budgetary processes towards a greater emphasis on the proper utilisation of resources, rather than just how they are allocated. This shift is reflected in the increased significance placed on the narrative explanations that accompany budgetary decisions.

This change in focus can be attributed to the evolving nature of public financial management, which has moved from a focus on inputs to a focus on outputs (Schick, 1983: 6).

However, it is worth noting that these policies might be viewed as furthering the broad objectives stated by the NDP. The emphasis in budget speeches has shifted from highlighting the importance of the NDP to restating the process of implementation and then to other economic policies, all the while retaining the assertion that the NDP plays a central role.

The contemporary trend in national development planning aligns with this transition, as planning efforts now prioritise alignment with budgetary narratives rather than only focusing on resource allocation. The concept of signalling draws our attention to the way budgets respond to, make allowances for, or modify signals originating from the national plan.

Additionally, it sheds light on the signals that budgets themselves transmit on the significance of national development plans.

According to Chimhowu et al.

(2019: 83), the authors propose that the aspect of funding is often the least developed in most plans.

This is especially true when the plan is formulated by entities other than the Ministry of Finance. However, it is important to acknowledge that this does not necessarily diminish the significance of these plans in terms of their signalling function.

According to research by the World Bank (2017: 27), >

Auditing SA

Advancing Auditing &Accountability

45

DISCOURSE BUDGET

the issue of planning in Malaysia was examined, specifically focusing on the discrepancy between the planned objectives and their actual execution. The report identified this gap as being caused by a lack of coordination between the planning process and the budgeting process.

Budget officials often encounter significant challenges when attempting to balance competing priorities and mandates. They are tasked with evaluating spending programmes against a wide range of measures, including national development plans, poverty-reduction strategies, vision documents, and political party manifestos. These various sources of guidance frequently have conflicting requirements, and there is often a lack of clarity regarding how they should be prioritized (CABRI, 2006: 2).

The issue of harmonising plans and budgets has also been seen in specific sectors. Tsofa et al. (2016) observed that the Kenyan health sector has difficulties in achieving alignment between planning and budgeting due to the presence of an entrenched division between these two processes within the institutional framework.

However, when considering the signalling function of a national plan, the concern may not lie in the lack of cost estimation for the plan, but rather in the extent to which the budget aligns with the signals conveyed by the plan.

allocations. According to Kelly and Wanna (two thousand), the implementation of budgetary reform has the potential to disrupt the distribution of power between those responsible for overseeing budgets and those responsible for spending them.

Consequently, disruption can influence the actual strategies that budget actors can employ, impacting budget outcomes.

Moreover, the revival of national development planning is expected to influence budget processes, even in cases where these plans lack cost estimates.

approaches that prioritised the identification and funding of specific projects. If the current emphasis of national planning is in the delineation of a vision and objectives, as well as in the mobilisation of the state and society towards these goals, then the significance of finance systems may not be paramount.

The primary factor to consider is the strategic significance of the strategy. A limited number of individuals would engage in a comprehensive reading of such a text. Even if they were to do so, each reader would distinctly interpret the text. The plan attains influence by its resonance and subsequent adaptation in many other written materials.

According to Hadley et al. (2019: 32), the role of budget officers in managing departmental spending is significantly influenced by the specific circumstances and systems of each country. This contextual factor is likely to shape the way budget officers interact with a national development plan and the subsequent impact on the budgetary process.

The aforementioned papers serve as intermediaries in facilitating the connection between the plan and its execution through a process known as alignment.

Chimhowu et al. (2019) argue that the primary barrier to implementation lies in the insufficient availability of financial resources. This perspective aligns more closely with past planning

Understanding the relationship between planning and budgeting in the context of the resurgence of national development planning is made easier by looking at signalling processes. 

However, it is important to note that this alignment might manifest in several ways, deviating from the commonly assumed top-down approach.

A plan lacking a cost analysis maintains the power of the finance ministry in determining budgetary allocations without opposition.

However, outlining priorities, also allows ministries to contest these

46

Advancing Auditing &Accountability

www.saiga.co.za

(GASP) PSA QUALIFICATION

Public Sector Auditor Qualification, NQF level 8, 315 credits REGISTRATION OPEN

PROGRAMME STRUCTURE: Knowledge modules can be completed in the following timelines: 12 months | 18 months | 24 months | 36 months Note: Students will be credited for the modules they have already completed.

COURSE OUTLINE

Registration for second intake now open ENROLL NOW!

Entry requirements: NQF Level 7 in Accounting or Auditing

Year 1 Programme 1: Principles & Ethics of Auditing

Assessments Final Integrated Summative Assessment (FISA) External Integrated Summative Assessment (EISA)

88 Multi-model (18 classroom days) 63,5 Practicals days Year 2 Programme 2: Public Financial Management 47 Multi-model (9 classroom days) 60 Practical days

Work experience modules

Programme 3: Financial Accounting & Reporting

100 workplace days

49 Multi-model (10 days classroom days) 62,5 Practical days Programme 4: Financial Governance 47 Multi-model (9 classroom days ) 66 Practical days.

Programme 5: Modified Cash Framework 7 Multi-modal (2 classroom days)

010 109 6243 | training@publicsectoracademy.co.za

www.publicsectoracademy.co.za

HEALTHCARE

NHI: DOES IT MEAN

31% MORE TAX AND 69% LESS BENEFITS IN RETURN? 48

Advancing Auditing &Accountability

www.saiga.co.za

is the crucial wording in the proposed NHI Bill, and that’s likely a decade or possibly more away, argues Gore.

The current NHI proposal amounts to a cost of R714 per person per month, which is a quarter of what the NHS costs, even after allowing for purchasing power parity.

T

he National Health Insurance (NHI) Bill has got a nod from the National Council of Provinces and is now being plonked in the lap of President Cyril Ramaphosa.

Other than expropriation without compensation, few statutory artefacts have elicited such exasperation from those most affected – medical schemes and their members, for the most part.

Should the bill pass as is, it will almost certainly be challenged in the courts on the grounds of irrationality and constitutionality, primarily because the country cannot afford it.

Ciaran Ryan

Journalist & Host of Moneyweb Crypto Podcast

At a media presentation in response to the NHI Bill’s relatively smooth passage through the National Council of Provinces, Discovery CEO Adrian Gore pointed to one of the offending clauses in the proposed legislation – Section 33, which would disallow medical schemes from covering the benefits provided for under the NHI once it is fully implemented.

“Once it is fully implemented”

Auditing SA

Advancing Auditing &Accountability

Section 33 reads: “Once National Health Insurance has been fully implemented as determined by the Minister through regulations in the Gazette, medical schemes may only offer complementary cover to services not reimbursable by the Fund.”

In this respect, South Africa seems to be an outlier globally.

No other country appears to have imposed a regulatory limit on the scope of private healthcare cover where, for example, private healthcare providers are prevented from covering hip replacements or kidney dialysis if these are covered by the NHI. The financial impacts of the NHI are potentially horrifying.

Discovery estimates the NHI will cost R859 billion for prescribed minimum benefits against the 2023 public healthcare budget of R233 billion.

Where will government get the R626 billion shortfall?

That’s where the NHI plan seems to run aground. Apart from roughly R100 billion in tax credits and government employer medical scheme subsidies, roughly R528 billion will have to come from raising personal income tax.

Expressed another way, that’s the equivalent of an 82% increase in personal income taxes. And this from a small and shrinking taxpayer base. >

49

HEALTHCARE

A resident in Diepsloot near Johannesburg should not have to drive past several private hospitals to get to a distant public hospital when medical attention is available closer to home.

This means medical scheme members will be required to pay 31% more tax and receive 69% less benefits in return.

Gore emphasises that Discovery acknowledges the inequalities in access to healthcare in SA and that something must be done to rectify this, but the current version of the NHI Bill is not the way to go about it.

It’s hard to imagine that the government has not thought this through.

50

Nicholas Crisp, deputy directorgeneral for the NHI, has argued that the 8.5% of GDP spent on health in South Africa could be allocated far more wisely if placed in a single pool. He also refers to the superior healthcare outcomes in peer nations, which spend roughly 5.6% of GDP, while the private sector in SA has the highest incidence of tonsillectomies in the world, and 72% of all C-sections in the country are done in the private sector, suggesting unnecessary medical diagnosis and spending.

Advancing Auditing &Accountability

The existing chasm between private and public There is no disputing the gulf between private and public sector healthcare. The crucial issue is whether the NHI will be able to effectively assume the functions of the private sector when it comes to prescribed minimum benefits without pushing the country (further) off a fiscal cliff. Many would argue that’s already been done years ago, and the NHI would merely tap-dance on the taxpayer’s corpse.

www.saiga.co.za

NHI will offer a comprehensive package of benefits similar to what the National Health Service (NHS) offers in the UK. Private care currently costs R2 332 a month. Even after removing any potential profit, the figure would drop to R2 028 a month, which is three times more than the NHI’s proposed R714 a month.

Even this highly ambitious target of R714 a month is unlikely to provide anything close to the NHI’s prescribed minimum benefits. That means there will always be gaps in medical cover.

The idea that everyone will have access to private healthcare facilities is unrealistic, adds Gore, since there are not enough doctors to serve the whole population.

Bumping up the doctor numbers will require more investment, but the proposed structure of the NHI will lead to disinvestment, and doctors will be incentivised to move to better-paying markets abroad.

Way forward Crisp has repeatedly argued that the government is not interested in taking over from private sector doctors and hospitals but would purchase services from the public and private sector providers.

NHI advocates point to the roughly 15% admin fees charged by the private sector, some of which could be saved, and private medical inflation, which typically runs at consumer price inflation plus 2% or 3%. An NHI pool could extract far better economies of scale,

Auditing SA

which would further reduce purchase and delivery costs.

That seems to make economic sense, but the reality is something quite different. Gore says pooled procurement in healthcare is not as simple as it looks. There are already cross-subsidies between the public and private sectors, and the idea that profit margins can be shaved will simply drive out investment.

Gore points out that there is a common misconception that the

Advancing Auditing &Accountability

One of the solutions proposed by Discovery is an amended wording of Section 33 of the NHI Bill that will allow for a collaborative and flexible approach, with the minister of health consulting with a benefits advisory committee and a stakeholder advisory committee leading to a “progressive realisation of sustainable access to quality healthcare services”.

Without any change to the NHI Bill, universal healthcare may only be realised a decade from now, and “in our view, the funding realities will ultimately prevail”, says Gore. 

51

OPTIMISING INTERNAL AUDITS

The PFMA Perspective

Mathabatha Julius Mojapelo Chartered Accountant (SA), Certified Internal Auditor, RGA

In the realm of public sector auditing and accounting, the Auditor General’s reports under the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) serve as crucial barometers, providing insights into the efficiency and effectiveness of governance structures. The latest reports underscore a critical issue the underutilisation of Audit Committees and Internal Audit Units as resources for enhancing governance.

52

The 2022-23 AGSA PFMA report reveals that, despite the significant role of Audit Committees and Internal Audit Units in advising on internal controls, risk management, and compliance, their impact remains suboptimal. While Audit Committees show a marginally higher influence, a staggering 20% of auditees did not implement their recommendations. Internal Audit Units, designed to offer independent assurance on controls and risk mitigation, face similar challenges, with 26% having little to no impact due to management's failure to act on their suggestions.

The MFMA Outlook Shifting the focus to the 2021-22 AGSA MFMA report, a more nuanced picture emerges. Audit Committees demonstrated slightly better

Advancing Auditing &Accountability

effectiveness, with 51% making some impact.

However, the report highlights that 34% faced inertia from management in implementing their recommendations. Coordinating institutions and executive council members played a role in interventions, yet their impact was limited. To unlock the full value of investments in Audit Committees and Internal Audit Units, municipalities need to ensure robust implementation, monitoring and accountability mechanisms for the recommendations.

Key Challenges and Opportunities Despite the strides made in aligning governance structures with legislative requirements, challenges persist, particularly in the quality of financial statements

www.saiga.co.za

UNLEASHING THE FULL POTENTIAL OF AUDIT COMMITTEES AND INTERNAL AUDITS and performance reports. The reports prompt us to reflect on the following key challenges and explore opportunities for improvement:

Lack of Implementation: Among potential obstacles is the ongoing problem of management failing to execute recommendations.

There is a need for a paradigm shift, fostering a culture that values and acts upon the insights provided by Audit Committees and Internal Audit Units.

Ineffective Support Initiatives: Coordinating institutions and executive council members must reassess and strengthen their support initiatives. This includes bolstering structures such as disciplinary boards and municipal public accounts committees to enhance accountability.

Monitoring and Accountability: Municipalities should establish

Auditing SA

robust mechanisms for monitoring and ensuring accountability. This involves actively tracking the implementation of recommendations related to financial and performance management and holding responsible officials accountable for any lapses.

Recommendations for Improvement

Strengthening Disciplinary Mechanisms: Local governments should focus on fortifying disciplinary mechanisms, ensuring they are robust and capable of addressing lapses promptly.

Transparent Reporting: Promote transparency in reporting by municipalities, enabling stakeholders to assess the true impact of Audit Committees and Internal Audit Units on governance.

Enhanced Collaboration: Foster collaboration between Audit Committees, Internal Audit Units, and coordinating institutions to create a unified front in addressing governance challenges.

Capacity Building:

The Auditor General’s reports serve as a call to action for public sector auditors and accountants. To optimise the governance structures in place, concerted efforts are required to overcome challenges and seize opportunities for improvement.

Invest in capacity-building programmes to empower Audit Committees and Internal Audit Units with the necessary skills and resources, ensuring they can fulfil their roles effectively.

By doing so, we can unlock the full potential of Audit Committees and Internal Audit Units, ushering in a new era of effective and accountable public sector governance. 

Advancing Auditing &Accountability

53

AGILE AUDITING

NAVIGATING DYNAMIC ENVIRONMENTS: AGILE AUDITING IN THE SA PUBLIC SECTOR Cobus van Rensburg

Internal Audit Manager: Moore Southern Cape

I

t is no secret that the world has undergone significant changes over the last few years. The recent COVID-19 pandemic, followed by two major wars in Eurasia, is but two of the factors that are still causing disruptive changes in the business world. Organisations are forced to adapt to rapidly dynamic environments to manage risk and continuously ensure the creation of stakeholder value.

Assurance providers, such as public sector internal and external auditors, also operate in these environments and are therefore confronted with the challenge of adapting their methodologies to effectively address the dynamic nature of government operations.

Traditional audit approaches may struggle to keep pace with the everchanging environment, making it imperative for auditors to consider agile auditing practices.

54

Agile auditing can be defined as a flexible and iterative approach that aims to enhance the efficiency and effectiveness of audit processes.

Originally derived from agile project management methodologies in the software development industry, agile auditing underlines the principles of adaptability, collaboration, and customer satisfaction (Wolters Kluwer 2021).

Agile auditing can be defined as a flexible and iterative approach that aims to enhance the efficiency and effectiveness of audit processes.

It also involves the adoption of more frequent communication strategies with audit clients to update audit plans and management schedules more regularly to reflect current risk management priorities, rather than

Advancing Auditing &Accountability

www.saiga.co.za

being limited to what was established at the beginning of the year. Some internal auditors have referred to this as “auditing at the speed of risk.”

The main benefits of agile auditing include inter alia improved risk identification; time saved; increased collaboration; shorter, but more effective meetings; more timely presentation of findings; and abbreviated audit plans.

Agile auditing is underpinned by several key principles. The remainder of this article will explore five of these principles:

1. Risk assessment: Agile auditing

demands a more continuous risk assessment approach, where risks are not merely assessed at the beginning of the audit, but throughout the audit process. This allows for more timely identification of emerging risks and a quicker adjustment of audit plans and approaches to suit dynamic client needs. The South African public sector risk environment is full of uncertainties, emanating from factors such as fraud, corruption, fiscal sustainability, service delivery and infrastructure backlogs, socioeconomic factors, political instability and cybersecurity. By conducting risk assessments on a more continuous basis, auditors will be more proactive and more able to assist their clients in a dynamic environment. This principle requires auditors to respond faster to risks and changes, instead of merely relying on a plan and assessment that was conducted once at the beginning of an audit project.

2. Flexible planning: When adaptability is prioritised over rigid planning, auditors can respond to

Auditing SA

Advancing Auditing &Accountability

changing circumstances, instead of sticking to an outdated plan that was developed a year ago. Agile auditing requires a mere high-level plan that can be adjusted as and when circumstances change. The South African public sector is characterised by frequent policy changes and evolving priorities. Flexible planning enables audit professionals to navigate these uncertainties and changes. It ensures that audit plans remain relevant, responsive and aligned with the dynamic nature of the public sector environment.

Additionally, as audit plans are based on a shorter term (example quarterly), the risk of outdated planning, is reduced.

3. Collaborative stakeholder engagement: This principle highlights the importance of continuous collaboration and communication with key stakeholders throughout the audit process. This will facilitate an improved understanding of the audit environment, identification of risks, and alignment of audit objectives with organisational goals. It will also assist auditors in navigating the political, economic, and social complexities intrinsic to South Africa.

Engaging with government officials, policymakers, and citizens ensures a holistic approach to audit planning and execution. This goes beyond traditional stakeholder engagement during audits, which were mostly limited to communication at the beginning and at the end of the audit.

The principle can also be extended beyond specific audit engagements.

For example, auditors can arrange for monthly meetings with management to discuss business risks.

4. Iterative cycle: Agile auditing advocates for an iterative approach,

55

AGILE AUDITING

where the audit is broken down into smaller cycles or “sprints”, which must be time-boxed. For example, during and internal audit review of information security controls, the audit team can break the audit project down into six sprints: Sprint 1, planning; Sprint 2, access controls; Sprint 3, data protection, Sprint 4, network security; Sprint 5, business continuity; and Spring 6, reporting.

Each sprint will commence with a planning session, where the task, deliverables and timeframe of the sprint wil be determined. This wil be followed by daily stand-up meetings to discuss progress and challenges.

have been experienced by those who implemented it. For example, the approach requires a shift in culture, a new skills set and a need to embrace new technologies.

Many organisations are resistant to change.

Agile auditing represents a transformative approach for audit professionals that offers a solution to navigate the challenges of a dynamic

environment. By embracing the principles of agility, audit teams can enhance responsiveness, improve risk identification, and promote increased stakeholder engagement.

While challenges exist, the potential benefits of agile auditing position it as a strategic imperative for auditors seeking to uphold the integrity and effectiveness of audits in the evolving landscape of the South African public sector. 

At the end of each sprint, the tasks and deliverabls are reviewed and presented to stakeholders. The sprint is the concluded when the team reflect on the sprint and discusses the aspects that went well and the aspects that needs improvement. For consulting audit firms, this approach holds specific benefits, as it can contribute to quicker, more streamline audit projects, which will assist in meeting deadlines and staying within budget limitations.

5. Harnessing technology: The optimal utilisation of information technology is one of the core principles of agile auditing.

Technologies such as data analytics and artificial intelligence, can assist auditors to improve efficiency, gain deeper insights, and automate repetitive tasks. Although these technologies are used by many auditors, some audit teams are yet to exmplore them. Auditors that want to enjoy the benefits of agile auditing, will need to embrace these technologies.

Although the benefits of agile auditing is clear, some challenges

56

Advancing Auditing &Accountability

www.saiga.co.za

Recognition of Prior Learning (RPL) for RGA designation - How to apply STEP 1

Eligibility Criteria NQF 8 qualification in Accounting, Auditing or equivalent Minimum five years’ experience in external audit or public financial management OR Completed and signed off articles with a focus in the public sector.

SAIGA member or in the process of applying.

STEP 2

Application Documents Submit detailed CV and contactable references Complete RPL Application Form Submit RPL Evaluation template.

STEP 3

Submission Process Submit Online Application Submit all attachments to admin@saiga.org.za

www.saiga.co.za

POWER GRID

SOUTH AFRICA NEEDS TO FACE GRID REALITIES TO OVERCOME THE POWER CRISIS For the last 20 years, the increasingly polarised arguments about South Africa’s electricity mix have obsessed with generation technologies – with the assumption that transmission and distribution were such a small part of the overall capital expenditure, that it was not important.

Mike Levington

CEO at HYD•RE•GEN Energy

Levington is the founder of Nexuses (Pty) Ltd., a strategic advisory practice that focuses on the adoption of the green economy in South Africa’s just energy transition. He is a member of the Green Hydrogen Panel and the Project Committee of the South African Renewable Energy Masterplan.

G

overnment, business and labour have consistently been self-serving in their approach to managing the electricity supply industry which has prioritised their vested interests over that of the general public.

58

The electricity crisis has changed all of that. Electricity, no matter how it is generated, is of no use unless it can be delivered cost-effectively to a commercial enterprise that can convert it into economic value or to a residential customer to access a better life.

We’re facing a situation where Eskom’s coal fleet is organically decommissioning itself, the energy policy-making framework has become fractured along ideological lines and, whilst legislation has been in place for over two years, SA Inc has woken up to the reality that self-generation is not the free lunch that Eskom has provided them for the last 90 years.

Most importantly, all of South Africa’s key stakeholders have finally woken up to the global new reality that any realistic net zero ambitions over any time horizon will rely as much on the grid as it

Advancing Auditing &Accountability

will on the mass adoption of solar photovoltaic (PV) and wind.

The architecture of South Africa’s electricity sector as we know it today was set by close interactions between Eskom and South Africa’s mining sector in the 1950s.

And it is here that the history of our electricity supply industry (ESI) determines the extent of the challenge facing the country’s energy transition from both an economic and just transition perspective.

From the 1950s to the 1970s, there was a dramatic scaling up of the size of power stations to exploit the country’s huge coal resources located in Mpumalanga and deliver power to the gold and platinum fields located to the north and west of Johannesburg.

The scale of these capital projects dwarfed the economics of any transmission infrastructure required and thus the pattern was set that the needs of industrial-scale electricity customers would always

www.saiga.co.za

be prioritised over those of residential or even small commercial consumers. To some extent, Apartheid was just the formalisation of that relationship between the government of the time and the mining titans.

Today, South Africa yearns for a Just Energy Transition (JET) that will see a large-scale acceleration in the deployment of renewable energy, supported by natural gas and batteries, to solve our fossil fuel addiction and cure all of our social ills. In studies performed by the Council for Scientific and Industrial Research (CSIR) and Meridian Economics in 2021, even a moderate growth scenario for South Africa forecast a 2050 electricity mix with over 150 GW of renewables deployed.

If we were to believe the electric vehicle and green hydrogen ambitions in the JET Investment Plan, we could easily add 100 GW on top of that. Whilst fossil fuel purists might want to scoff at such ambition, it should be recognised that China alone will install more than 300 GW of wind and solar in 2023.

However, if we want to be genuine in meeting both our economic and developmental goals using renewable energy then South Africa needs to wake up to a few realities concerning its grid: The spatial deployment of a renewables-rich 2050 electricity mix should mean that a National Distribution (rather than Transmission) Plan is critical to address energy poverty and access.

The role of transmission is to move large blocks of power from one part of the country to another: a future >

Auditing SA

Advancing Auditing &Accountability

59

POWER GRID

energy system where distributed generation will be located closer to where it will be consumed will mean we should be as deliberate about the planning and implementation of the future electricity distribution system as we now are about transmission.

South Africa’s transmission voltages are an anachronism of its past, set at 275 kV because this was the lowest voltage that Eskom power stations connected to each other.

Elsewhere in the world, 80 kV and above are generally regarded as transmission voltages.

This causes all kinds of misalignment around grid planning and grid connection. Many independent power producers connect at 132 kV (which is oddly referred to by Eskom as “sub-transmission”).

The digitalisation of economies the world over and the rise of the “prosumer” class will require such networks to create a “smart” relationship between customer and electricity distributor. This will lead to greater integration between traditional electricity distribution and information and communication technology sectors.

Lastly, the historical thesis on which South Africa’s electricity system was designed, whereby the lion’s share of the benefits flow to the political and business elites, needs to be reversed.

To do this, the impact on the delivered cost of electricity due to the prioritisation of the mineral-energy industrial complex, as well as socalled “baseload” technologies, needs to be properly understood and should play a critical role in any decisions on South Africa’s future electricity mix. 

60

Advancing Auditing &Accountability

www.saiga.co.za

ASB

SIMPLIFYING AND ENHANCING APPLICATION OF GRAP STANDARDS Siyasanga Nondlazi

Standard-setter at the Accounting Standards Board

T

he ASB is continually working to find innovative and stakeholder-focused ways of supporting preparers and users of financial statements. Our vision is only fully realised when we produce relevant and implementable accounting standards that translate into financial statements that can be used to promote accountability and effective financial management in the public sector.

Over the years, the ASB has received feedback from stakeholders indicating that the practical application of GRAP Standards can be complex. As a response to the needs of our stakeholders, we have initiated a project to enhance the application of the Standards of GRAP. As part of this project, we aim to communicate the basic principles of GRAP Standards simply and concisely. We will achieve this through easy-to-digest mediums such as short videos on our YouTube channel. The content will benefit both preparers and users of financial statements.

Auditing SA

Introduction to ASB and the GRAP Reporting Framework As the initial output of this project, the Secretariat produced content on the ASB and the work that the ASB does, as well as how to navigate the ASB website. These videos provide information on the Standards of GRAP and the GRAP Reporting Framework applicable for 2023 onwards, including the changes that were made to the Standards of GRAP. A longer YouTube video below on improving the quality of financial statements covers specific considerations when preparing financial statements that will assist in improving the quality of financial statements.

Application of GRAP 17 on Property, Plant and Equipment The most recent series of videos addresses various asset-related principles in GRAP 17 on Property, Plant and Equipment. The videos include the following topics:

Advancing Auditing &Accountability

•

Why is applying GRAP 17 important?

•

How should assets be classified?

•

Fully depreciated assets still in use.

•

Is land accounted for using only title deeds?

•

Approach and frequency of revaluing assets in GRAP 16 and GRAP 17.

Common questions on depreciation (what depreciation is, when does it commence or end, why are useful lives reviewed and how).

Enhancing understanding of the financial statements The next series of YouTube videos will be tailored towards enhancing the users' knowledge and understanding of the financial statements. The videos will include content on how the information presented in the financial statements can be used effectively to make informed decisions and hold entities accountable. 

61

SAIGA Audit and Finance INDABA

Local Government Summit – Hybrid Event

About the SAIGA Audit and Finance INDABA:

About the SAIGA Local Government Summit:

One of the cornerstones of the Institute is to be a trusted advisor and capacity building partner to the public sector, with regard to the developmental, service delivery, accountability and governance matters, and to protect the interests of the public sector accounting and auditing.

This inaugural SAIGA local government summit is inspired by the cornerstones of the Institute as the trusted advisor and capacity building partner to the public sector aimed at assisting with the developmental, service delivery, accountability and governance matters, and to protect the interests of the public sector accounting and auditing professionals.

FRIDAY, MARCH 15, 2024 08:00 - 13:30 (GMT+2)

The inaugural SAIGA Audit & Finance indaba is inspired by the INTOSAI and IFAC ever evolving standards and South African legislative and Treasury frameworks. The indaba aims to focus on the external audit and public finance areas that impacts public entities and the role of the professional auditors and accountants.

This annual half day event will feature decision makers, experts from government, business and standard setters, insights and solutions in ensuring that the annual financial statements and audit outcomes of SOEs, and all spheres of government remain intact with global standards.

Theme: The era of big data and cybercrime.

CPD hours: There will be 6 CPD hours allocated to attendees.

62

FRIDAY, JUNE 28, 2024 08:00 - 13:30 (GMT+2)

This annual half day event will feature decision makers, experts from government, business and standard setters, thought leaders, insights and solution seekers to tackle local government issues, review the envisaged MFMA audit outcomes of 2022/2023 financial year to be released by the AG. The ultimate goal of the summit shall be to formulate tasks and set targets for the proceeding local government summit. Selected municipalities will be chosen to assist with skills, capacity and audit challenges by SAIGA professionals, and subsequently report back during the 2025 summit.

Theme: Local government that meets evolving societal needs.

CPD hours: There will be 6 CPD hours allocated to attendees.

Advancing Auditing &Accountability

www.saiga.co.za

Women In Leadership Breakfast- Hybrid Event

Anti-Fraud and Corruption Dialogue - Hybrid Event

About the SAIGA Women in Leadership Breakfast:

About the SAIGA Anti-fraud and corruption dialogue:

Women empowerment cuts across the Institute's capacity development initiatives.

The inaugural SAIGA Women in Leadership Breakfast is inspired by the challenges women leaders, face in society and within executive leadership roles. The Institute must always advocate for capacity building initiatives and protection of the public interests, and advancement of public sector accounting and auditing professionals.

The inaugural SAIGA dialogue on Anti-fraud and corruption is inspired by the emergent role that auditors and accountants play as defenders of fraud and corruption.

THURSDAY, AUGUST 8, 2024 08:00 - 12:00 (GMT+2)

The 2024 Women in Leadership Breakfast aims to celebrate women leaders and provide a platform which women leaders can share lessons and experiences for the advancement of young woman, future women leaders and current women in leadership. The breakfast shall also share lessons in acquiring business funding.

FRIDAY, NOVEMBER 15, 2024 08:00 - 13:30 (GMT+2)

The 2024 dialogue aims to formulate a framework which organisations in both private and public sectors can utilise for the protection of whistle blowers. Legal recourse and protection for auditors and accountants from fraud and corruption instigators shall also be unpacked by the experts.

Theme: Protecting the whistle blowers.

CPD hours: There will be 6 CPD hours allocated to attendees.

Theme: A woman leader.

CPD hours: There will be 6 CPD hours allocated to attendees.

4thAnnualSAIGA Conference2024-HybridEvent SEPTEMBER12&13,2024 08:30 - 17:00 (GMT+2)

For more info please visit the SAIGA website

Our participants, speakers, panelists, sponsors and partners made our last three conferences quite exceptional. This year will be even more special as we plan to deliver a truly amazing conference experience while celebrating over 35 years of Advancing Accounting and Auditing.

Theme: "Navigating change and innovation for a sustainable South Africa" Venue: Emperors Palace

2024EVENTS

Auditing SA

Advancing Auditing &Accountability

63

POLITICS

WILL NEW PARTIES MOVE THE NEEDLE IN SOUTH AFRICAN POLITICS?

64

Advancing Auditing &Accountability

www.saiga.co.za

Craig Butters

Independent Analyst and Investor

Y

ou’d have to be blind not to realise that South Africa is on the precipice of state failure.

I could easily list all the issues, but every South African is affected daily by some or all of them, be it loadshedding, a lack of access to water, inadequate sanitation, alarming logistical bottlenecks and crime.

Also, let’s not forget the scourge of corruption that continues unabated, despite the excellent work of the Zondo Commission of Inquiry into state capture.

On top of that, the frightening prospect of an ANC-EFF alliance looms large, given the likelihood that the governing party will fail to obtain an outright majority in next year’s elections.

For this reason, the emergence of Change Starts Now, under the leadership of Roger Jardine, seems at first glance to be a welcome alternative. Reports that the party has R1bn of funding from various business leaders appear to add further credibility to it.

Despite some confusion about Jardine’s exact standing in relation to the DA, one could perhaps understand how some, including potential funders of Change Starts Now, might conclude that additional votes for the DA-led multiparty charter could result in a favourable election outcome in 2024. After all, more votes for the coalition should surely be supported, given the

Auditing SA

ANC’s dismal performance?

Sadly, however, I believe this thinking is based on a flawed understanding of the voter landscape. Without trying to sound like a prophet of doom, I believe this initiative will fail to get out of the starting blocks — or will at best stumble at the first hurdle. Business leaders would do well to think long and hard about their financial support for an initiative that will likely fail to move the needle in any meaningful way. In my view, Change Starts Now will not get the opposition coalition over the line, and any mention of Jardine as president is premature at best.

Why do I say this? For any party to make inroads in an ANC-EFF alliance majority it must simply take votes away from the ANC. Or encourage disenchanted ANC voters — those who have lost faith in the governing party but won’t vote for any other existing party, least of all the DA — to return to the polls in support of a viable alternative to the ANC. Support for the DA is likely capped at 25% at best. Even if financial backers were to throw another R1bn in its direction it would not increase its performance at the polls in any meaningful way. It’s the simple reality of our voter landscape.

It is difficult to see how Jardine and Change Starts Now will even come close to attracting votes away from the ANC, even more so now that Change Starts Now’s discussions with the DA are out in the open.

Instead, Jardine and his party are far more likely to take votes away from the DA and fragment the opposition even further, thus

Advancing Auditing &Accountability

achieving the exact opposite to what our country desperately needs.

In the long term, in a worst-case scenario, this may even result in the gradual demise of the DA. Funders are under serious misapprehension if they believe that parachuting in a new political party will result in on-the-ground support by a diverse voter base and result in key additional votes. Surely, they should realise this.

While Jardine should be commended for standing up to be counted, I am concerned that the outcome of these efforts hasn’t been thought through and that his party will serve and appeal to an overly narrow base. And so, its publicised financial support, considerable as it seems, will not translate into meaningful and broadbased voter support.

Before I am accused of being overly pessimistic, let me say that I am extremely positive about a viable “third way”, which I believe to be worthy of support. The newly formed political party Rise Mzansi is already operating well and represents a realistic alternative with its broad-based, inclusive, nation-building approach. The party is channelling its much-needed efforts into the communities that matter, which could make a meaningful difference in next year’s elections.

Still, saving the country for the benefit of all requires money. I can only urge business leaders to consider using theirs in a far more effective way to bring about change.

Given the precipice on which we find ourselves, we all simply cannot afford not to. 

65

AGRICULTURE

30 YEARS INTO DEMOCRACY: How has South Africa's agricultural sector performed?

T

here are divergent views about the effectiveness and extent to which South Africa's agricultural policies have been implemented. Regardless of how experts feel about the capacity of the state and the policy stance of the South African government since the dawn of democracy, the one undeniable fact is that the sector has grown tremendously – as illustrated in the figure below.

Data from the Department of Agriculture, Land Reform and Rural Development show that domestic agricultural output in 2022/23 was twice as much as in 1993/94.

Whether this growth has been inclusive and transformative is a question I will return to later in this piece. For now, it's important to emphasize the growth of the industry and the drivers of its expansion.

66

Wandile Sihlobo

Advancing Auditing &Accountability

www.saiga.co.za

140,0 120,0

2015 = 100

100,0 80,0 60,0 40,0 20,0 0,0

1993/94

1999/00

2004/05

2009/10

2014/15

2019/20

Figure 1: South Africa's agriculture's journey from 1994 (volumes of production of all agricultural subsectors). Source: DALRRD and Agbiz Research

Significantly, this expansion was not driven by a few sectors but has been widespread -livestock, horticulture and field crops have all seen strong growth over this period.

Of course, the production of some crops, most notably wheat and sorghum, has declined over time. This, however, had a lot to do with changes in agroecological conditions and falling demand in the case of sorghum, not policies.

These higher production levels have been underpinned, mainly by adopting new production technologies, better farming skills, growing demand (locally and globally), and progressive trade policy. The private sector has played a major role in this progress.

I use the words – progressive trade policy – solely to highlight South Africa's standing in global agriculture. South Africa was the 32nd world's largest agricultural exporter in 2022 – the only African country within the top 40 world's largest agricultural exporters in value terms. This is according to data from Trade Map.

Auditing SA

This was made possible by a range of trading agreements the South African government secured over the past decades, with the most important ones being with the African continent, Europe, the Americas and some Asian countries.

The African continent and Europe now account for about two-thirds of South Africa's agricultural exports.

Asia is also an important market for South Africa's agricultural exports.

The agricultural subsectors that have primarily enjoyed these signs of progress in exports are horticulture (and wine) and grains.

Broadly, South Africa now exports roughly half its agricultural products in value terms. In 2022, South Africa's agricultural exports reached a record US$12,8 bn.

Aside from the exports The increase in agricultural output is why South Africa is now ranked 59th out of 113 countries in the Global Food Security Index, making it the most food secure in subSaharan Africa. I recognise that boasting about this ranking when millions of South Africans go to bed hungry every day may ring

Advancing Auditing &Accountability

hollow, as I pointed out after a few presentations where I cited these statistics.

However, it is essential to note that the lack of access to food that most South Africans face is due to the income poverty challenge rather than lack of availability due to low agricultural output, as is the case elsewhere in other parts of Africa. In essence, we need to ensure that there is employment and that households have a sufficient income.

We must remember that the Global Food Security Index balances the four elements (affordability and availability, as well as quality and safety) to arrive at a rating and covers matters at a broad national level.

In this regard, South Africa produces enough food to fill the shelves of supermarkets with high-quality products but still has a long way to go in addressing household food insecurity, as many households cannot afford the food that is available in a way that meets their nutritional demands.

This is a topic for another day! >

67

AGRICULTURE

Transformation Earlier on, I noted that the consensus on agricultural growth is at variance with the diversity and sometimes polarizing views around the extent to which this growth is sustainable, inclusive and transformative.

To my admission, the gains we've seen in agricultural production over the past two decades have not been equitably distributed across the agricultural industry. Specifically, the growth in the agricultural sector has been mainly restricted to organised commercial agriculture, sometimes at the expense of a distinct but heterogeneous cohort of farmers in South Africa.

As I argued in my recent book, A Country of Two Agricultures, “Nearly three decades after the dawn of democracy, South Africa has remained a country of 'two agricultures'. On the one hand, we have a subsistence, primarily non-commercial and black farming segment; on the other, we have predominantly commercial and white farmers.”

The book adds that “The democratic government's corrective policies and programmes to unify the sector and build an inclusive agricultural

economy have suffered failures since 1994. The private sector has also not provided many successful partnership programmes to foster the inclusion of black farmers in commercial production at scale.

It is no surprise that institutions such as the National Agricultural Marketing Council estimate that black farmers account for less than 10%, on average, of commercial agricultural production in South Africa. This lacklustre performance by black farmers in commercial agriculture cannot be blamed solely on historical legacies.”

South Africa's agriculture industry in 1994, according to data from Statistics South Africa.

While this paints a bleak picture of transformation in the agricultural sector, what we can also not ignore is the anecdotal evidence pointing to a rise of black farmers in some corners of South Africa. We see this in field crops, horticulture and livestock in provinces such as Free State, Western Cape, Eastern Cape and other regions.

As South Africa moves forward, let's always be mindful of the progress that has been made in boosting our agricultural fortunes (see Figure 1). And in the quest to grow and be more inclusive, be forever vigilant of the unintended consequences of the policies we seek to implement.

Equally, we must never be complacent with the dualism we continue seeing in South Africa's agricultural sector.

Employment Even with the adoption of technology that catalyses agricultural productivity improvements, employment in South Africa's agriculture has remained robust. For example, there were about 922 000 people employed in

This is both seasonal and permanent labour. While the share of seasonal and regular labour changed over time, the broad employed conditions remained vibrant. In the third quarter of 2023, about 956 000 people were working in primary agriculture, up 4% from 1994.

Concluding remarks

The task, then, is how to grow South Africa's agricultural sector more inclusive and transformatively.

I think this will need both the private sector (organized agriculture groups and agribusinesses, etc.) and the government to craft a common vision for the sector with clear rules of engagement and monitoring systems.

This can build on the work of the National Development Plan (chapter six to be specific), Agriculture and Agro-processing Master Plan, Land Reform Agency (yet to be launched by the government), and other progressive programmes and policies available to the nation. 

68

Advancing Auditing &Accountability

www.saiga.co.za

DYSFUNCTIONAL MUNICIPALITIES, COALITION GOVERNMENTS! Phillip Rakgwale

CISA, CIA, CFE, RGA, M.Inst.D Chairperson of the SAIGA council

T

he Constitution stipulates that the purpose of local governments is to provide an accountable government to local communities and promote social and economic development.

The responsibility extends to the provision of essential public services such as water and sanitation, electricity and adequate public health care in a sustainable manner while also encouraging the involvement of communities and community organisations in the issues of local government.

But not many can access basic municipal services, a right enshrined in Section 153 (1) of the Constitution.

This can be attributed to several factors, including the lack of professionalism in local government, unqualified public servants, the state of municipalities and the regular service delivery protests in many communities across the country.

However, the process of professionalising local government involves enhancing the level of professionalism within the local government sector.

The drive to enhance the professionalisation of local government was further >

The lack of an outright winner in national or local government elections makes it difficult to form a government that can deliver public services.

Auditing SA

Advancing Auditing &Accountability

69

DYSFUNCTIONAL MUNICIPALITIES

propelled by the implementation of restrictions on the political rights of top managers in municipalities, as outlined in the Municipal Systems Amendment Act No. 7 of 2011.

This statute prohibits holding political posts within a political party by individuals who are serving as city administrators or directly reporting to one; this prohibition applies to acting, temporary, and permanent positions.

The proposed revision to the Municipal Systems Act aims to tackle the ongoing problem of governance that results from the political-administrative dynamics between top municipal officials and elected officials belonging to the ruling party. Its specific goal is to lessen political office-bearers' tendency to meddle in day-today operations related to local government.

However, the Constitutional Court declared the laws mentioned above to be invalid because it believed that the parliamentary procedure used to pass this legislation was fundamentally flawed. The information presented above makes it clear that municipalities require coordinated, focused, and nationally guided support and action.

to local government entities and consider implementing a practical framework for managing municipal affairs.

This model proposes a possible constitutional amendment that would grant the national government the authority to directly intervene in municipal affairs. This intervention would aim to hold municipal political and administrative executives accountable for the dysfunctional state of their municipalities.

Additionally, this model proposes that the salaries and benefits of councillors should be funded through the national fiscus, in coordination with both national and provincial legislative authorities.

Doing so would relieve municipal coffers from the burden of funding these expenses, freeing up funds to provide long-term, basic municipal services.

Lack of agreements has been cited as one of the primary reasons behind the failure of coalition governments. These findings have important implications for policymakers and politicians who should draw up formal and binding coalition agreements that contain conflict resolution mechanisms.

The lack of an outright winner in national or local government elections makes it difficult to form a government that can deliver public services. This complexity often happens when three or more political parties contest an election, and none of them gets more than 50% of the total votes cast. In other cases, the complexity is due to

It is worth noting that many municipalities currently rely entirely on conditional grants, resulting in a significant portion of funds being directed towards salaries and benefits for municipal personnel and political office-bearers.

Coalition Governments

The continuous dysfunctionality of municipalities, their poor financial performance, and the absence of strong political leadership are evident in the ongoing issues in municipal governance that have been present since the dawn of the democratic era.

Following the last local government elections, the number of hung councils increased from 27 in 2016 to 67 in 2021. This increase meant coalition governments had to be formed in such councils as there were no outright winners.

These issues highlight the need for the national government to reevaluate and reassess the constitutional authority granted

The formation of coalition governments is not new in South Africa. However, forming and managing such coalition

70

governments have not been easy tasks. Two metropolitan municipality coalition governments, the City of Joburg in Gauteng and Eastern Cape’s Nelson Mandela Bay, emerged after the 2016 local government elections and collapsed before their terms of office expired.

Advancing Auditing &Accountability

www.saiga.co.za

political disputation that yields a narrow win, making it difficult for the winning party to govern alone.

Often there are two solutions to this political conundrum: The first is to rerun the election, and the second is to form a coalition government, the choice depending on the legal provisions of the jurisdiction. In the case of South Africa, the latter has been employed since 1994. The first such case was at the national level and saw the formation of the Government of National Unity under the leadership of the African National Congress (ANC), which governed between 1994 and 1999.

Since then, coalition governments have also been formed at the subnational and local levels.

The November 2021 local government elections in South Africa produced an unprecedented number of hung municipalities, resulting in more local coalition municipalities than ever before.

While some might view this as a sign of a mature democracy, coalition governments are a fragile marriage of convenience (Bergman, Ilonszki & Müller, 2020). Due to their susceptibility to competing loyalties, divergent views, and the need to appease a wide range of audiences (Matthews, 2019), the capacity of coalition local governments to administer and deliver services is often limited.

To mitigate the adverse effects of coalition municipalities, the South African Local Government Association (Salga) produced a framework for coalitions in local government that hung municipalities can use in forming and running coalition municipalities (Beukes & De Visser, 2021). Such a move has heralded an end to the era of single-party dominance that the ANC has enjoyed since 1994 and marks the beginning of another era of coalition governments. To underscore this, the former and late executive mayor of the 2019 City of Johannesburg coalition government, Councillor Geoff Makhubo, in a presentation to the national parliament, notes that “the future of local government, especially in the metropolitan municipalities, might be decided by various forms of coalition governments”.

The specific goal of the proposed revision to the Municipal Systems Act is to lessen political officebearers' tendency to meddle in day-to-day operations related to local government.

Auditing SA

Advancing Auditing &Accountability

The emergence of coalition governments in South Africa has attracted scholarly attention from various fields and disciplines. There is a growing corpus of literature on coalition governance in South African local government (Beukes & De Visser, 2021; Hanabe & Malinzi, 2019). For instance, Booysen (2021) explores the impact of coalitions on South Africa’s metropolitan administrations in Johannesburg, Ekurhuleni and Tshwane.

Drawing on the Weberian administrative model and Woodrow Wilson’s politics and administration dichotomy, Booysen (2021) argues that the line between politics and administration is blurred.

Politics often encroach on the administrative field, adversely impacting service delivery. Like Booysen, Pietersen (2021) assesses the performance of the three coalition governments in Gauteng.

While their conclusions on poor performance are similar, Pietersen perceives a lack of coalition agreements as the primary cause.

Nonetheless, Pietersen’s argument is based on conjecture without empirical or theoretical support (Pietersen, 2021). Moreover, while these studies should be applauded for providing a valuable springboard for future research on the government of local unity in South Africa, they are primarily descriptive with a narrow focus on metropolitan municipalities. They, therefore, ignore local and district municipalities. Consequently, such studies have limited applicability outside metropolitan municipalities.

As South Africa looks forward to the 2024 National and Provincial elections, the future seems more uncertain than ever before. 

71

PFMA

WHAT DO PFMA AUDIT RESULTS REALLY MEAN? Phillip Rakgwale

CISA, CIA, CFE, RGA, M.Inst.D Chairperson of the SAIGA council

S

outh Africa is facing unprecedented levels of corruption within its public sector. The audit results from the Auditor General South Africa (AGSA) reveal that just one-third of the national and provincial ministries have achieved clean audits.

The primary goal of financial management is to optimise value, establish sustainability, and concentrate on their fundamental operations. The Public Finance Management Act (PFMA) governs the obligations and tasks of public authorities in adhering to financial regulations.

The findings indicated that a substantial proportion of South African national and provincial departments, as well as stateowned enterprises did not get clean audit reports and failed to adhere to the financial management standards outlined under the PFMA .

As a result, large sums of money are not distributed to the intended recipients.

This failure negatively impacts

72

South Africa’s prospects for growth and of addressing the challenges of inequality.

The irregular expenditure disclosed in 2022-23 totalled R63,37 billion, with high-impact auditees (Key service delivery departments and entities) being responsible for R53,77 billion (85%) of this amount.

In terms of a National Treasury instruction note issued in December 2022, auditees do not have to include irregular expenditures incurred in prior years or the closing balance of irregular expenditures in their financial statements.

Therefore, the actual amounts incurred may differ where prior-year amounts were not disclosed in the annual report or where the annual report was not submitted.

Key findings from the Auditor General's report The audit results indicate a general improvement; yet there are still deficiencies in the planning and reporting of service delivery, difficulties in managing infrastructure, and imprudent

Advancing Auditing &Accountability

www.saiga.co.za

The primary goal of financial management is to optimise value, establish sustainability, and concentrate on their fundamental operations.

Regrettably, AG have observed a frequent occurrence of delays, cost overruns, and subpar workmanship in infrastructure delivery projects. Furthermore, there are also instances of infrastructure experiencing delays in becoming operational.

Once again, AG provide an account of the current state of infrastructure that is gradually declining due to inadequate maintenance and protection.

utilisation of limited resources, which further strains government budgets.

•

•

In general, these auditees that are considered 'high impact” (Key service delivery departments and entities)' have worse audit results compared to other auditees. They also have difficulties in managing their performance, finances, and infrastructure.

•

The material irregularity procedure has had a significant effect, resulting in the recovery, ongoing recovery, or prevention of financial damages amounting to an estimated R2.55 billion.

•

•

Auditing SA

The audit outcomes have shown a net improvement, with a greater number of auditees improving their outcomes compared to those who experienced regression.

High-impact auditees are crucial in attaining the goals outlined in the MediumTerm Strategic Framework.

However, AG have once again discovered deficiencies in their performance plans and reports, comparable to the issues highlighted in the last report.

AG detected shortcomings in more than 80% of the 137 projects inspected.

Advancing Auditing &Accountability

•

Inadequate fiscal management by the government diminishes the already constrained financial resources. The primary factors contributing to the ongoing financial losses and inefficiency that AG observed, particularly at high-impact auditees, were prevalent inadequate payment practices, noncompetitive and uneconomical procurement practices, limited value and costeffectiveness of expenditures, mismanagement of government properties and accommodation leases, and deficiencies in project management.

Claims filed against departments and auditees exceeding their budgets and have poor financial standing have the effect of reducing government funding for operations related to service delivery.

Struggling institutions such as stateowned companies add strain on the government by requiring financial assistance and creating future liabilities due to guarantees.

Insufficient management of performance, finances and infrastructure by auditees, particularly those with significant influence, has a direct impact >

73

PFMA

on the implementation of crucial government programmes aimed at enhancing the well-being of South Africans and mitigating the challenges arising from difficult economic circumstances and poverty.

Wasteful expenditure leads to a reduction in funding for projects aimed at providing services, placing a heavy load on taxpayers.

Overall, the audit results for both departments and public bodies showed improvement, with a greater number of auditees achieving better outcomes each year of the administration term compared to those who experienced a decline.

The net improvement in 2022-23 was 37 auditees, representing a 9% increase. This was the largest change observed over the four years. The provincial government demonstrated a net improvement of 44, equivalent to a 27% increase, while the national government exhibited a net improvement of 34, which corresponds to a 15% increase.

Inadequate fiscal management by the government diminishes the country’s already constrained financial resources.

Audit of performance and delivery of services As of September 30, 2023, AG have finished conducting audits for 127 auditees of high impact.

Out of the auditees, 74 of them (58%) had no significant issues indicated in the performance reports of the audit reports. This is an increase compared to 54

74

(45%) in the previous year, 2018-19.

The enhancement in the calibre of performance reports for auditees with substantial influence during the administration tenure is a notable advancement.

Nevertheless, a few of these auditees managed to get this outcome mainly because the AG’s allowed them to rectify the inaccuracies that AG discovered throughout the audit procedure.

Additionally, several auditees have eliminated performance indicators that draw attention or examination from oversight committees.

Advancing Auditing &Accountability

Infrastructure upkeep and protection According to the Government Immovable Asset Management Act, a condition assessment must be conducted every five years. In the fiscal year 2022-23, the Property Management Trading Entity conducted condition evaluations on just 107 properties, which accounts for a mere 0.13% of the total 80,034 properties in its portfolio. This number is less than half of the 236 properties that were assessed in the previous year. The reason for this small number of assessments

www.saiga.co.za

not being used, there are still costs such as taxes and property fees that must be paid.

The Property Management Trading Entity must enter into lease agreements because there aren't enough suitable properties available for the departments, something which could have been avoided with a proper maintenance of property.

Infrastructure projects are susceptible to acts of vandalism and theft. These illegal operations not only endanger human lives but also lead to excessive expenses for infrastructure projects and substantial investments in security services to protect the infrastructure.

Wasteful expenditure leads to a reduction in funding for projects aimed at providing services, placing a heavy load on taxpayers.

Delivery of the projects was due to the entity's constrained capacity.

Government officials and the public keep utilising dilapidated premises, risking the safety of officials and the public. In the fiscal year 2022-23, the Property Management Trading Entity identified a total of 6,943 properties as being in bad condition.

Presently, 2,394 government properties are vacant, with most of them being poorly managed and in poor condition.

Even though these properties are

Auditing SA

AG documented the results of the investigation on 112 projects examined, which accounts for 82% of the total. AG findings indicate a frequent occurrence of delays, cost overruns, and subpar quality in infrastructure delivery projects.

Furthermore, there are also instances of newly constructed infrastructure experiencing delays in becoming operational.

AG report on project delays indicates that either the projects were finished behind schedule or were still being constructed after

Advancing Auditing &Accountability

the agreed-upon completion date.

Delayed commissioning has a detrimental impact on service delivery as it prevents the public from accessing infrastructure and related services. Additionally, it results in the wastage of revenue, such as payments made for municipal and security services that are not utilised.

Concluding remarks and ultimate evaluation: Billions of rands received from taxpayers are not being allocated to their designated beneficiaries and are instead being given to unauthorised recipients. This leads to subpar service delivery and destruction of infrastructure caused by angry community members who do receive essential services. There is a correlation between violent protests and infrastructure damage costs.

Although the PFMA has explicit and commendable objectives to enhance financial administration in the public sector, many institutions are encountering difficulties in implementing key components of it.

The internal audit operations and audit committees lack effectiveness. The audit committees are not adhering to the written terms of reference, as mandated by Treasury Regulation 3.1.8.

•

Internal audit plans are absent, not as mandated by Treasury Regulation 3.2.7.

•

Limitations on capacity.

•

Challenges in recruiting highly trained staff.

75

PFMA

Risk management is a crucial aspect of an organisation’s strategic management. It involves the organisation’s efforts to identify and mitigate risks associated with its operations. The Public Finance Management Act (PFMA) mandates departments to establish and uphold robust, streamlined, and transparent risk management systems.

Additionally, the Treasury Regulations compel departments to regularly carry out risk assessments and formulate risk management plans, which must encompass a fraud prevention strategy.

Since its inception in the public sector, risk management has been a novel idea. Consequently, the National Treasury deemed it appropriate to offer departments assistance in comprehending and applying its principles.

The construction of a Risk Management Framework has resulted in the creation of a comprehensive guide for implementing risk management techniques in the public sector.

Despite the initiative, departments are still encountering challenges in implementing risk management systems to the point where the AG has expressed concern about the lack of performance in conducting risk assessments and the absence of risk management strategies and fraud prevention plans.

Considering these challenges, the National Treasury has implemented various measures to enhance capacity development.

The purpose of risk management people is to offer assistance to departments with risk management concerns.

76

Since the initiation of performance information audits, the AuditorGeneral has maintained the perspective that institutions need to enhance the quality of the performance information they offer.

unaddressed by the government due to corruption and leakages.

South Africa encounters infrastructural concerns ranging from energy supply problems, water scarcity to transportation constraints.

The identified issues encompass fundamental deficiencies:

Despite the government’s failure to provide necessary support to meet public expectations, there is still hope in the form of the AGSA, which is actively trying to reduce the losses our country has incurred in the government sector.

•

The collection and presentation of performance information and reporting is not cohesive or unified.

•

The yearly report does not include all the performance information.

The objectives and performance information presented in the annual reports, the ENE, and the strategic plans of a department exhibit disparities: •

The failure to meet objectives is not disclosed or explained in the annual report.

•

There is insufficient oversight at the program, departmental, and national levels.

•

Some indicators are excluded from the Performance Plans.

•

Indicators lack measurability and reliability.

The National Treasury should continue offering consistent guidance and support about matters regarding performance information.

In terms of infrastructure upkeep in South Africa, the country faces major challenges that remain

Advancing Auditing &Accountability

In the financial year 2022-23, the Auditor-General of South Africa (AGSA) introduced its material irregularity procedure in 202 public sector institutions at the national and provincial government level, as well as 170 institutions at the local government level.

The AGSA was also on schedule to apply this process in all 879 audited institutions for the 2024/25 financial year. The material irregularity procedure has avoided a financial loss of R655 million. Additionally, R164 million has already been recovered, and there is an ongoing effort to collect an additional R820 million.

AGSA has been granted enhanced authority under the Public Audit Act to initiate enforcement measures in instances of significant irregularities pertaining to noncompliance with or violation of legislation, fraudulent activities, theft, or breach of fiduciary duty that have led to or are expected to result in substantial financial losses. The accounting officer will bear ultimate responsibility if no corrective measures are implemented. 

www.saiga.co.za

Exclusive Offer

For All SAIGA Members!

Exciting News! We now offer Free Continuous Professional Development programmes for all our members!

Sign up to become a SAIGA member, Elevate your skills and grow with us!

����

#Members First #Professional Development

For More Info:

(+27) 69 538 7276 (+27) 12 004-0741 mymembership@saiga.org.za www.saiga.co.za

TRIVIA QUESTIONS

TRIVIA ?

NO 2

Welcome to the Auditing SA Trivia Challenge! Test your knowledge on a variety of fun and interesting topics, and discover how well you know the inner workings of financial oversight, accountability, and public sector audits in this engaging quiz. Let’s begin!

ANSWERS TRIVIA NO 01 (Oct-Dec edition)

1.

2.

3.

4.

5.

6.

7.

25 Oil 1993 No 2000 Kepler Wessels TJ Canty

8.

9.

10.

11.

12.

13.

Mike “Grant” Rowbotham Argentina and Uruguay Cobus Reinach Scarlet 12 False

READER'S OPINIONS A great magazine overall. As SAIGA members we have a product that represents our voice in the auditing public discourse. I also like the fact that it covers a variety of issues and not only accountancy matters.

Great work, team!

- Sonwabile Mayile I’m happy that the Institute has brought back the Auditing SA magazine.

It’s good to have the platform to express our views and also get to hear from the experts in the field

- Nomonde Gedze Help develop our eMag with your insightful comments. What topics do you want the Auditing SA to feature?

What would make it a great magazine for our diverse audience of auditors and accountants?

We would appreciate your feedback on our magazine and the SAIGA website. By hearing from you, we aim to stimulate conversations, tackle complex topics, follow developments in your industry, and share knowledge.

Your feedback will be published in the next edition. So, tell us what you think and be a contributor.

Your Magazine, Your Say! Email your comment to: researcher@saiga.org.za

78

Advancing Auditing &Accountability

www.saiga.co.za

1

When the auditor is an employee of the organization being audited (auditee), the audit is classified as an ........ quality audit. Internal, external, Compliance, Both A & B

2

An example of an unmodified audit opinion is: Unqualified audit opinion with an emphasis of matter b. Adverse audit opinion c. Qualified audit opinion d. None of the above

3

Who was the president of the USA during the great depression?

Franklin D Roosevelt Herbert Hoover Abraham Lincoln Donald Trump

4

Who wrote the play "Romeo and Juliet"?

a.

5

In what year did the Titanic sink?

1912 | 1905 | 1925 | 1901

6

What is the world’s largest river?

Months in History January •

On January 24, 1848, gold was discovered at Sutter's Mill in California, sparking the California Gold Rush.

•

On January 1, 1999 - Eleven European nations began using a new single European currency, the Euro, for electronic financial and business transactions. Participating countries included Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.

February •

Nelson Mandela was released from prison after 27 years on February 11, 1990, a momentous event that signalled the beginning of the end of apartheid and paved the way for democratic reforms in South Africa.

•

On February 4, 2004, Mark Zuckerberg launched Facebook from his dormitory at Harvard University, marking the beginning of a social media platform that would become one of the most influential in the world.

March •

On March 24, 1882, Robert Koch announced the discovery of the bacterium responsible for tuberculosis (TB), a significant milestone in the field of medicine.

•

On March 28, 1920, the University of Southern California (USC) and the University of Notre Dame played the first-ever radio broadcast of a college football game, marking a historic moment in sports broadcasting.

Auditing SA 79

Advancing Auditing &Accountability

?

www.saiga.co.za 79

Become a SAIGA member today Get your membership now and receive

Advancing Auditing & Accountability

www.saiga.co.za