Maximising effectiveness: Internal audit in the public sector
Maximising effectiveness: Internal audit in the public sector
How do we maximise the effectiveness of internal audit in the public sector? Here, Cobie van Antwerpen, Director in Risk Advisory Services at BDO South Africa, unpacks her answer.
When it comes to the governance of South Africa’s public sector, the role of internal audit functions cannot be overstated. As custodians of accountability, transparency, and efficiency, internal auditors play a crucial role in providing assurance related to safeguarding public resources, enhancing governance frameworks, and promoting trust and confidence among stakeholders. However, ensuring the effectiveness of internal audit in the public sector demands strategic approaches and a nuanced understanding of the sector's unique challenges.
This is where the new Global Internal Audit Standards come into play. By highlighting the public sector’s unique characteristics, the new standards draw attention to specific responsibilities that the sector’s internal audit functions need to consider, apart from the requirements and obligations as legislated and regulated in the PFMA and Treasury Regulations, as well as the MFMA and related regulations.
Below are six ways the public sector must respond to the new standards to achieve greater effectiveness.
1. Alignment with public sector objectives
Effective internal audit in the public sector begins with a clear understanding of the Department, SOE, Public Entity, Business Enterprise, Municipality or Municipal Entity’s objectives and priorities. This means an internal audit must align their activities with the strategic goals and mission — as well as the related strategic risks — of the public sector entity they audit.
In the past, the focus of internal audits has been on Supply Chain Management, Asset Management and Finance in general to ultimately confirm controls are in place to be audit ready before the AGSA commences their annual audits. This meant an audit focus aligned to objectives was often overlooked. To be effective in the public sector, internal auditors need to broaden their scope and focus beyond the risks related to that entity’s service delivery, to include overall plans and objectives too.
By understanding and aligning with the strategic goals of their respective entities, internal auditors can better contribute to achieving broader public sector objectives. I believe internal auditors must become more effective in testing the actual operations of the entities and departments they serve. An understanding of the core legislative frameworks that your department or entity operates within will prove critical for the success of an internal audit unit in the public sector.
2. Enhanced risk management
Given the dynamic nature of public sector operations, effective risk management is critical. The Chief Audit Executive and Internal Auditors must collaborate closely with Chief Risk Officers to develop comprehensive risk management plans that respond to emerging sector and global risks effectively. This symbiotic relationship ensures that internal audit plans are credible and aligned with organisational goals.
Internal Auditors must understand present and future risks, with relevant foresight to ensure we create credibility in what we do. Do we know, for instance, if the top three risks in 2034 will still be cybersecurity, talent management and technology?
3. Strengthened governance and compliance
Oversight and assurance provided by Internal Auditors in the Public Sector addresses whether government entities are doing what they are supposed to do, and serves to detect and deter public corruption. Operational challenges, however, impact the effectiveness of internal audit in the South African public sector. These include inadequate resources, both financial and human, to carry out comprehensive audits and reviews.
Limited access to information and data can further hinder the ability of internal auditors to perform their duties effectively. Additionally, resistance from management to implement audit recommendations or address identified weaknesses can undermine the impact of internal audit findings. Therefore, Internal Auditors in the public sector need to think and operate differently.
Internal audit functions in the public sector play a critical role in strengthening governance frameworks and ensuring compliance with laws, regulations, and ethical standards.
This requires robust internal controls, policies, and procedures to mitigate risks and safeguard public resources. Internal auditors must conduct thorough and independent assessments of governance structures, control environments, and compliance practices to identify weaknesses and recommend remedial actions.
The new standards state that adequate quality assurance must be conducted by reviewers with appropriate competencies for the area they’re involved with. This requires specialised knowledge of the relevant legislative frameworks applied to that sector, or department.
Government must ensure that skilled internal auditors are employed in the Public Sector. This means that the Certified Internal Auditor designation must be prioritised as the preferred qualification of Chief Audit Executives.
4. Utilisation of technology and data analytics
In today's digital age, leveraging technology and data analytics is indispensable for enhancing audit efficiency and effectiveness. Internal auditors must harness automation tools, artificial intelligence, and predictive analytics to streamline audit processes and identify potential risks or opportunities for improvement. Furthermore, addressing cybersecurity risks is paramount to safeguarding sensitive public sector information.
However, government needs to upgrade the systems used for financial reporting and financial management. Systems are not integrated and integration of data analytics in audit procedures are generally less effective at Departments still operating on BAS and LOGIS.
Government Internal Auditors need to ensure technology is applied and data analysed to enhance coverage achieved in testing available information.
5. Promotion of accountability and transparency
Transparency and accountability are fundamental principles of public sector governance, engrained in our Constitution. Internal audit functions play a pivotal role in promoting accountability by conducting independent and objective assessments of organisational performance, financial management, and compliance with laws and regulations.
The new standards place specific and explicit emphasis on the courage that the internal auditor should have in the public sector to protect the public interest. This was added because of the political environment facing whistleblowers and internal auditors who’ve been targets of syndicates that loot the coffers of the Government.
In terms of accountability, ethics and professionalism, the standards also specifically mentions how public sector internal auditors should address potential impairments related to advisory engagements considering jurisdictional requirements. The new Standards also include specifics for the public sector internal auditors to maintain knowledge and awareness of jurisdictional requirements around public records and safeguarding information. This involves communicating audit findings and recommendations transparently to stakeholders, including elected officials, oversight bodies, and the public.
6. Investment in professional development
Continuous professional development is vital to enhancing the effectiveness and credibility of internal audit functions. As stated in the new standards, internal auditors must prioritise training and development, including obtaining relevant certifications such as the Certified Internal Auditor (CIA). By staying abreast of emerging trends and best practices, auditors can address evolving challenges and fulfill their responsibilities effectively.
In conclusion, the Internal Auditor of the Public Sector must remain courageous and must not be afraid of being controversial in its recommendations to enhance transparency and governance, including accountability in the sector.
A Public Sector institution that values inputs from its internal auditor thrives… and the Batho Pele Principles that have been adopted as Government must remain key to any successful internal audit team - “People First” - “We belong, we care, we serve.”
When it comes to the governance of South Africa’s public sector, the role of internal audit functions cannot be overstated. As custodians of accountability, transparency, and efficiency, internal auditors play a crucial role in providing assurance related to safeguarding public resources, enhancing governance frameworks, and promoting trust and confidence among stakeholders. However, ensuring the effectiveness of internal audit in the public sector demands strategic approaches and a nuanced understanding of the sector's unique challenges.
This is where the new Global Internal Audit Standards come into play. By highlighting the public sector’s unique characteristics, the new standards draw attention to specific responsibilities that the sector’s internal audit functions need to consider, apart from the requirements and obligations as legislated and regulated in the PFMA and Treasury Regulations, as well as the MFMA and related regulations.
Below are six ways the public sector must respond to the new standards to achieve greater effectiveness.
1. Alignment with public sector objectives
Effective internal audit in the public sector begins with a clear understanding of the Department, SOE, Public Entity, Business Enterprise, Municipality or Municipal Entity’s objectives and priorities. This means an internal audit must align their activities with the strategic goals and mission — as well as the related strategic risks — of the public sector entity they audit.
In the past, the focus of internal audits has been on Supply Chain Management, Asset Management and Finance in general to ultimately confirm controls are in place to be audit ready before the AGSA commences their annual audits. This meant an audit focus aligned to objectives was often overlooked. To be effective in the public sector, internal auditors need to broaden their scope and focus beyond the risks related to that entity’s service delivery, to include overall plans and objectives too.
By understanding and aligning with the strategic goals of their respective entities, internal auditors can better contribute to achieving broader public sector objectives. I believe internal auditors must become more effective in testing the actual operations of the entities and departments they serve. An understanding of the core legislative frameworks that your department or entity operates within will prove critical for the success of an internal audit unit in the public sector.
2. Enhanced risk management
Given the dynamic nature of public sector operations, effective risk management is critical. The Chief Audit Executive and Internal Auditors must collaborate closely with Chief Risk Officers to develop comprehensive risk management plans that respond to emerging sector and global risks effectively. This symbiotic relationship ensures that internal audit plans are credible and aligned with organisational goals.
Internal Auditors must understand present and future risks, with relevant foresight to ensure we create credibility in what we do. Do we know, for instance, if the top three risks in 2034 will still be cybersecurity, talent management and technology?
3. Strengthened governance and compliance
Oversight and assurance provided by Internal Auditors in the Public Sector addresses whether government entities are doing what they are supposed to do, and serves to detect and deter public corruption. Operational challenges, however, impact the effectiveness of internal audit in the South African public sector. These include inadequate resources, both financial and human, to carry out comprehensive audits and reviews.
Limited access to information and data can further hinder the ability of internal auditors to perform their duties effectively. Additionally, resistance from management to implement audit recommendations or address identified weaknesses can undermine the impact of internal audit findings. Therefore, Internal Auditors in the public sector need to think and operate differently.
Internal audit functions in the public sector play a critical role in strengthening governance frameworks and ensuring compliance with laws, regulations, and ethical standards.
This requires robust internal controls, policies, and procedures to mitigate risks and safeguard public resources. Internal auditors must conduct thorough and independent assessments of governance structures, control environments, and compliance practices to identify weaknesses and recommend remedial actions.
The new standards state that adequate quality assurance must be conducted by reviewers with appropriate competencies for the area they’re involved with. This requires specialised knowledge of the relevant legislative frameworks applied to that sector, or department.
Government must ensure that skilled internal auditors are employed in the Public Sector. This means that the Certified Internal Auditor designation must be prioritised as the preferred qualification of Chief Audit Executives.
4. Utilisation of technology and data analytics
In today's digital age, leveraging technology and data analytics is indispensable for enhancing audit efficiency and effectiveness. Internal auditors must harness automation tools, artificial intelligence, and predictive analytics to streamline audit processes and identify potential risks or opportunities for improvement. Furthermore, addressing cybersecurity risks is paramount to safeguarding sensitive public sector information.
However, government needs to upgrade the systems used for financial reporting and financial management. Systems are not integrated and integration of data analytics in audit procedures are generally less effective at Departments still operating on BAS and LOGIS.
Government Internal Auditors need to ensure technology is applied and data analysed to enhance coverage achieved in testing available information.
5. Promotion of accountability and transparency
Transparency and accountability are fundamental principles of public sector governance, engrained in our Constitution. Internal audit functions play a pivotal role in promoting accountability by conducting independent and objective assessments of organisational performance, financial management, and compliance with laws and regulations.
The new standards place specific and explicit emphasis on the courage that the internal auditor should have in the public sector to protect the public interest. This was added because of the political environment facing whistleblowers and internal auditors who’ve been targets of syndicates that loot the coffers of the Government.
In terms of accountability, ethics and professionalism, the standards also specifically mentions how public sector internal auditors should address potential impairments related to advisory engagements considering jurisdictional requirements. The new Standards also include specifics for the public sector internal auditors to maintain knowledge and awareness of jurisdictional requirements around public records and safeguarding information. This involves communicating audit findings and recommendations transparently to stakeholders, including elected officials, oversight bodies, and the public.
6. Investment in professional development
Continuous professional development is vital to enhancing the effectiveness and credibility of internal audit functions. As stated in the new standards, internal auditors must prioritise training and development, including obtaining relevant certifications such as the Certified Internal Auditor (CIA). By staying abreast of emerging trends and best practices, auditors can address evolving challenges and fulfill their responsibilities effectively.
In conclusion, the Internal Auditor of the Public Sector must remain courageous and must not be afraid of being controversial in its recommendations to enhance transparency and governance, including accountability in the sector.
A Public Sector institution that values inputs from its internal auditor thrives… and the Batho Pele Principles that have been adopted as Government must remain key to any successful internal audit team - “People First” - “We belong, we care, we serve.”