The role of internal audit – assisting government to
achieve its objectives and ensuring compliance with the
public finance management act (PFMA)
Address by: Prof S S Sangweni
Chairperson : Public Service Commission At
The 8th Southern African Internal Audit Conference
Caesars Gauteng
16 to 18 August 2004
Distinguished guests, ladies and gentlemen, good morning. I
feel honoured to be afforded an opportunity to talk about
this very important topic.
1. As the Chairperson has already indicated, I am from an
organisation called the Public Service Commission. I am not
sure how many of you know about the Commission, its mandate
and the work it has carried out over the past eight years of
its revised role.
THE PUBLIC SERVICE COMMISSION
2. As a result, I believe it is imperative that I take you
through the role of the Commission. Thereafter, I trust that
you will probably understand the linkage between the work of
an internal audit function in a government department and
that of the Commission within the Public Service.
3. The Public Service Commission is a constitutional entity
established in terms of Chapter 10, section 196 of the
Constitution of the Republic of South Africa, 1996. As you
are aware, most of the institutions that support democracy
are established in terms chapter 9 of the Constitution (i.e.
Human Rights Commission, Public Protector, etc.). That is
what really separates the Commission from these other
institutions, otherwise we are, for all intents and
purposes, an institution that supports democracy. The
Commission is accountable to the National Assembly.
4. In terms of section 196 (4) of the Constitution, the
powers and functions of the Commission are as follows:
• To promote the values and principles set out in section
195 of the Constitution, throughout the public service.
These include effectiveness, efficiency and economy in use
of public resources, as well as transparency and
accountability to the public;
• To investigate, monitor and evaluate the organisation and
administration, and the personnel practices, of the public
service
• To propose measures to ensure effective and efficient
performance within the public service;
• To give directions aimed at ensuring that personnel
procedures relating to recruitment, transfers, promotions
and dismissals comply with the values and principles set out
in section 195 of the Constitution;
• To report to executive authorities and Parliament and
Provincial legislatures in respect of its activities and the
performance of its functions, including any finding it may
make and directions and advice it may give, and to provide
an evaluation of the extent to which the values and
principles set out in section 195 are complied with;
• Either of its own accord or on receipt of any complaint:
o To investigate and evaluate the application of personnel
and public administration practices;
o To investigate grievances of employees in the public
service concerning official acts or omissions, and recommend
appropriate remedies;
o To monitor and investigate adherence to applicable
procedures in the public service; and
o To advise national and provincial organs of state
regarding personnel practices in the public service,
including those relating to the recruitment, appointment,
transfer, discharge and other aspects of the careers of
employees in the public service.
5. It is important to note that the basic values and
principles governing public administration set out in
section 195 of the Constitution are not materially different
to the values and principles promoted by the Public Finance
Management Act. I believe that having listened to me
explaining the role and mandate of the Commission, you are
probably beginning to realize that we are partners in the
promotion of good governance within the Public Service. That
is why the Public Service Commission has chosen as its
slogan “Custodians of Good Governance”. Furthermore, you may
have also noted that the Commission is not a policy making
body but a monitoring and evaluation entity which in many
respects is almost similar to the role and responsibility of
the internal audit function. Therefore, for those of you who
previously had difficulty distinguishing between the
Commission and the Department of Public Service and
Administration (i.e. DPSA), this is precisely where the
difference is between the two organs. We work in the same
terrain though i.e. the public service.
THE INTERNAL AUDIT FUNCTION/ACCOUNTING OFFICER/CHIEF
FINANCIAL OFFICER
6. Now that you know more about the Commission, I want to
take you through what you already know and that is the
regulatory expectations from the internal audit function
within government. The PFMA requires the National Treasury
to make regulations or issue instructions concerning
financial management and internal control; internal audit
components and their functioning [Section 76(4)(b) and (e)].
7. Broadly explained, Internal Audit is an independent,
objective assurance and consulting activity designed to add
value and improve the operations within an entity. For the
purposes of our discussion, entity would mean the various
organs of state (e.g. a government department). It should
further help an entity to accomplish its objectives by
bringing a systematic and disciplined approach to evaluate
and improve the effectiveness of risk management, control,
governance processes and compliance with the relevant
regulatory framework. Again, this would be compliance with
the PFMA, Treasury Regulations, Public Service Act, Public
Service Regulations, etc.
8. The PFMA requires that an Accounting Officer be appointed
for each department and constitutional entity. The Act also
provides very specific and onerous responsibilities to the
Accounting Officer. I am not going to take you through these
responsibilities because my assumption is that you are well
aware of them. But it is important to underscore the core
responsibilities of the Accounting Officer, namely:
• Ensuring that a department has and maintains -
o Effective, efficient and transparent systems of financial
and risk management as well as internal control;
o A system of internal audit under the control and direction
of an audit committee complying with and operating in
accordance with regulations and instructions prescribed at
sections 76 and 77 of the PFMA.
9. It is, however, recognized that it is not feasible for
the Accounting Officer to fulfill all these responsibilities
without any assistance. Therefore, the Treasury Regulations
do provide for the appointment of a Chief Financial Officer
whose main responsibility is to assist the Accounting
Officer in discharging his/her responsibility as set out in
the PFMA.
THE AUDIT COMMITTEE AND THE INTERNAL AUDIT FUNCTION
10. Furthermore, the role of the Internal Audit function and
an Independent Audit Committee also comes into play. The
Audit Committee, created by the PFMA Section 77, must
amongst others review the following:
• The effectiveness of the internal control systems;
• The effectiveness of the internal audit function;
• The risk areas of the institution’s operations to be
covered in the scope of internal and external audits;
• The adequacy, reliability and accuracy of the financial
information provided to management and other users of such
information.
It is for this reason that there is a requirement for the
Internal Audit function to report directly to the Accounting
Officer as well as the Audit Committee.
11. I am aware that, in reality, this reporting requirement
has not really been functioning, as it should be. In most
instances this basically becomes the sole responsibility of
the Chief Financial Officer. What is more, even the
presentation of the internal audit reports, ends up being
presented to the Chief Financial Officer rather than the
Accounting Officer as required by the PFMA. This is largely
as a result of most Accounting Officers not being entirely
comfortable in dealing with financial matters. This
situation is not only unique to government. We all have been
reading about a number of financial scandals in the private
sector as well. This prompted our Minister of Finance, Mr
Trevor Manuel, to express concern about the very close
working relationship between the Chief Financial Officer and
the auditors.
12. It is worth making the point here that one of the main
aims of the PFMA is to regulate financial management in
government and also to promote accountability. Therefore,
the name Accounting Officer is derived from this
expectation. Thus, it follows that the internal audit
function has a very important role to fulfill in terms of
assisting the Accounting Officer to discharge his PFMA
responsibilities as well as the overall objectives of this
Act. I therefore, call upon everyone here to resist the
aforementioned temptation, be assertive enough and demand to
be heard and listened to.
GOVERNMENT EXPECTATIONS ON INTERNAL AUDIT
13. I have mentioned how the internal audit function can
assist the Accounting Officer and I believe that I also have
to explain broadly what are probably the governments
expectations of the function as well as the role it could
play in ensuring the effective implementation of the PFMA.
Therefore, you could assist the government by:
• Reviewing the reliability and integrity of financial and
operating information;
• Reviewing the systems established by management to ensure
compliance with the internal policies, plans, procedures,
laws and regulations that could have a significant impact on
operations and determine whether the organisation is in
compliance;
• Reviewing the means of safeguarding assets and verifying
the existence of assets;
• Appraising the economic and efficient manner in which
resources are employed and also identifying opportunities to
improve operating performance;
• Reviewing operations or programmes to ascertain whether
results are consistent with established objectives and goals
and whether the operations or programmes are being carried
out as planned; and
• Reviewing the planning, designing, development,
implementation and operation of major computer-based systems
to ensure that adequate controls are incorporated, the
documentation of the system is complete and that it meets
the user requirements.
INTERNAL AUDIT AND RISK MANAGEMENT
14. In concluding my presentation I need to make a few
observations on the question of risk management. To many of
us, non-financial persons, including myself, there is a
perception that internal audit is about figures. But, if one
considers the above expectations, it appears to encompass
accountability, risk management, value adding and
achievement of stated objectives. To further illustrate the
point I am raising, we were recently engaged in some
discussion in-house and we ended up talking about
departmental risk assessment. During this discussion it
became clear that one of the department’s highest risk had
nothing to do with money as such but more to do with people.
Therefore, management had to put in place a non-financial
risk management strategy to deal with the identified risk. I
suppose, taking into account my earlier comment, with more
interaction between the Internal Audit function and the
Accounting Officer, a much closer working relationship will
develop and consequently a high level appreciation of the
work being performed by the internal audit function.
15. In line with the Commission’s mandate to promote a high
standard of professional ethics in the public service, the
Office of the Public Service Commission and National
Treasury developed risk management principles, processes and
practices in the public service. The development of these
guidelines will also contribute to a culture where every
public servant has a role and responsibility in the
implementation of risk management strategies. Risk
management has erroneously been seen as the sole
responsibility of the Accounting Officer and Internal Audit.
These guidelines will emphasize the role of each public
servant at the various levels and strengthen the concept of
individual accountability. These guidelines will be made
available to all public servants, after approval by National
Treasury.
With those words I would like to thank the Institute of
Internal Auditors South Africa for having given me and my
organisation recognition, to the extent that we were invited
to do a presentation at this very important event. I hope
you now know more about the Commission as well as the fact
that we are your partners as “Custodians of Good
Governance”.
Thank you over to you Chairperson!!!
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