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 institutions 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 departments 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 Commissions 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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