The Auditor-General of South Africa (AGSA) issued their General Report on the outcomes of Local Government Audits covering the 2011 financial year on the 23 July 2012. The number of clean audit opinions remained unchanged compared to the previous financial year with 6 new municipalities achieving clean audit opinions. On the other hand, the number of municipal entities with clean audit opinions had regressed from ten last year to four this year.
There has always been ongoing debate to the meaning of the term "clean audit". But what does it really mean? And do South African citizens have a full understanding of its meaning?
Many people are familiar with the terms "qualified" or "unqualified" opinions on audits, says Mohammed Lorgat, Project Director, Public Sector at the South African Institute of Chartered Accountants (SAICA). "These refer to an opinion expressed by auditors on the financial statements of entities."
Unlike private sector audits, the AGSAs audit scope in the public sector is much broader. Besides the audit of financial statements, it also covers reporting of performance against predetermined objectives as well as compliance with laws and regulations.
"Therefore, in the South African public sector audit context, an entity needs to be unqualified in all the audit areas mentioned above in order to obtain a "clean audit". If any of these three areas are deficient, then the audit will not be clean even in instances where the audit of the financial statements is unqualified, explains Lorgat
These three elements are complementary and not exclusive to each other. It may be asked how they impact South African citizens. One can assume that an entity that has a clean audit opinion has strong financial management, sound internal controls and a robust budgeting process. All of these elements bear witness to the fact that the entity spends the funds at their disposal efficiently and effectively towards meeting the targets set out in their strategic plans which ultimately will result in improved service delivery for the citizens of that area.
Hadley Francis, Chair of the SAICA Public Sector Committee says: "We must take caution when interpreting the audit opinions issued by the Auditor-General and not misinterpret these in anyway. Furthermore, obtaining an unqualified audit opinion on financial statements with certain reportable deficiencies on matters pertaining to reporting on performance against predetermined objectives and compliance with laws and regulations may suggest that an entity may not be too far off from achieving a "clean audit".
The elements required to make the full transition to clean may not be too onerous to achieve in certain circumstances. Getting this right may require some additional interventions such as improved processes and better skills competencies in public finance. "Clean audits" are therefore critical to achieve as it demonstrates a fully functional entity and this ultimately enhances public confidence and accountability significantly. All entities must therefore strive to achieve a "clean audit".
Corporate Executive at the AGSA and member of the SAICA Public Sector Committee, Imran Vanker re-emphasised the role of leadership in addressing the audit outcomes. "We have witnessed commitments made by political leaders at the national, provincial and local government spheres to put operation "clean audit" firmly on the agenda. These commitments are necessary and welcomed because they are the first step to remedying the current situation."
A common ingredient in the few entities that have produced excellent audit outcomes has been the readiness of leadership to take a direct and personal interest in a properly functioning internal control environment. These leaders make effort to understand the value to be obtained from them playing their part in monitoring of key controls, and reach out to their audit committees and internal auditors to support them in their goals. AGSA's interest is in seeing excellence in government in all spheres.
In respect of the role of professionals, Vanker highlighted that skills at the municipal level could benefit from securing professionals for posts, bringing along relevant practical experience. "Accountants, auditors, engineers, lawyers are just some of the varied professional skills that are needed to be deployed to municipalities. The efforts of SAICA to recognize the part it can play together with its formidable 33,000 strong membership, is an example of the contributions other professions could be planning as well."