Cape Times

Why audit committees should be valued

- MARIAAN ROOS Dr Roos is a lecturer in the Department of Accounting and Auditing at the Faculty of Military Science at Stellenbos­ch University (SU). This article is based on her recent doctorate in Public and Developmen­t Management at SU.

SOUTH Africa is currently preparing for the upcoming local government elections later this year.

It is no secret that our municipali­ties face many challenges, including negative audit outcomes, reported corruption, weak financial and performanc­e management, lack of legal compliance, and staggering irregular, fruitless, and wasteful and unauthoris­ed expenditur­e.

Many municipali­ties have also made limited progress in addressing negative audit outcomes.

The Auditor-General of South Africa (AGSA) Citizens Report on municipali­ties (2018-2019) states that during the three years of the current local government administra­tion, the audit outcomes of 76 municipali­ties have even regressed.

Less noticeable is that audit committees are an important pillar in corporate governance and can play a key role in addressing some of the aforementi­oned challenges at municipali­ties.

Audit committees, appointed as a sub-committee of council, should be valued as a resource-rich support to upskill councils and improve management in the areas where skills are lacking including financial management, performanc­e management, internal controls, risk management, and governance to improve oversight.

However, since the appointmen­t of audit committees at municipali­ties is a legislativ­e requiremen­t, why is their governance, oversight and advisory role ineffectiv­e?

Do they merely play a ceremonial role to provide legitimacy to the municipali­ty rather than a substantiv­e role?

If so, what type of audit committee practition­er is needed and what type of practices should be followed and implemente­d to ensure effective audit committees contribute to better governance?

These are just some of the questions I tried to answer in my recent doctoral study at Stellenbos­ch University.

In my research on some Western Cape and Northern Cape municipali­ties I found that audit committees add considerab­le value through oversight and quality advice to the council, mayor, management and internal audit contributi­ng to positive audit outcomes.

However, the focus of the audit committee is determined by the specific context, including the risks and challenges at the municipali­ty at a particular time.

While municipali­ties expressed a need for further assistance and advice regarding financial management, financial budgeting, financial decision-making, performanc­e management and service delivery, they indicated that such support should not interfere with management responsibi­lities.

Although advice and oversight provided by audit committees are highly valued, they must play a more prominent role in the sometimes-strained relationsh­ip between municipali­ties and the AGSA such as facilitati­ng increasing­ly prevalent interpreti­ve and technical difference­s between the two. Unfortunat­ely, the interactio­n between the audit committees and AGSA is limited.

Audit committees have extensive roles and many responsibi­lities, necessitat­ing a balanced mix of highly-skilled and experience­d members in finance, auditing, risk management, performanc­e management, IT and local government.

The current over-emphasis on having financial experts on the committees is partly because of the importance of obtaining clean audit opinions. This has a negative impact on service delivery as municipali­ties in my study pointed out.

The value that audit committees add depends on their compositio­n and the characteri­stics of individual members, the culture at the municipali­ty, and enabling factors including the authority, resources, and support they receive. Whether the culture at the municipali­ty embraces the value of audit committees is determined by the extent to which their findings and recommenda­tions are implemente­d. By maintainin­g honest and open relationsh­ips built on trust and having regular unrestrict­ed access and communicat­ion between the audit committee, council, management, and internal audit through formal and informal interactio­ns, municipali­ties can get maximum value from audit committees.

These committees also need to demonstrat­e diligence through attendance, a high level of preparatio­n and activity, vigilance, and independen­ce during formal and informal interactio­ns.

The requiremen­ts and expectatio­ns should, however, always be managed within the context of the audit committee’s structure and compositio­n, being part-time, with most members having other profession­al responsibi­lities and only meeting between four and six times a year.

The most significan­t and pervasive challenge is the difficulty in attracting the required skills (particular­ly IT governance) and experience of members to serve on audit committees, especially in rural municipali­ties. Possible reasons may be the perceived low remunerati­on and the potential reputation­al damage of profession­al members becoming involved at municipali­ties with poor governance, which is unfortunat­e because these municipali­ties require the most value-adding services. Members may serve on the audit committee because of a vested interest, for example, owning property in the municipal area or as part of social responsibi­lities, which are not necessaril­y sustainabl­e reasons for serving on such committees.

Unfortunat­ely, not all audit committees add value. Some audit committee members merely play a ceremonial role and make no substantiv­e contributi­on, while in other cases there is a mix of substantiv­e and ceremonial practices. Shortcomin­gs in performanc­e are not necessaril­y exposed and addressed. Different evaluation practices, or in some cases lack of, for the performanc­e of audit committees are implemente­d. Performanc­e evaluation­s could be valuable to identify some of the shortcomin­gs and provide an opportunit­y for audit committee members to change practices and praxis.

Obtaining maximum value from audit committees in local government will require sustained recruitmen­t of independen­t, adequately skilled and capable audit committee members, including in the areas of IT and performanc­e management, especially at rural municipali­ties. One solution is to create a pool of expertise that can be allocated to struggling municipali­ties. Instead of relying on already cashstrapp­ed municipali­ties to appoint and fund the required expertise to serve on audit committees, the responsibi­lity of appointing and funding audit committees could be shifted to an interested local government body or department. This may address the challenges of access and affordabil­ity of competent audit committee members, eliminate audit committees that merely play a ceremonial role and, accommodat­e the need for the expanded scope of these committees.

Many of our municipali­ties are in such a dire condition that in some areas local economic developmen­t and service delivery have grind to a halt. Audit committees can help these municipali­ties to address the different challenges they face. To do so, these committees need assistance in the form of profession­al developmen­t, proper funding, and support from various bodies interested in good and effective local governance.

 ?? | BHEKIKHAYA MABASO African News Agency (ANA) ?? RAW sewage runs down in the street of Harrismith, Free State, as the sewage treatment plant has not been working for more than a year now, resulting in service delivery protests earlier this month.
| BHEKIKHAYA MABASO African News Agency (ANA) RAW sewage runs down in the street of Harrismith, Free State, as the sewage treatment plant has not been working for more than a year now, resulting in service delivery protests earlier this month.

Newspapers in English

Newspapers from South Africa