Exploring the importance of internal control mechanisms in attaining a clean audit : the case of Sedibeng District Municipality

Abstract

The South African local government environment has a number of cross-cutting legislation in place to govern its portfolio over municipalities. This field is a much specialised area of expertise as each function is customised to its environment based on the policies and procedures taken from the legislation as a guide to minimise risk in a municipality. The SA Constitution (1996), Chapter 7 on local government, governs the autonomy of each municipality. The main legislation encompassed to ensure that the municipal control environment is in place is found in the Municipal Financial Management Act (MFMA) (56 of 2003). Since its implementation, the focus was to ensure sound and sustainable management of the financial affairs of a municipality and its entities, as well as to establish treasury norms and standards for the local sphere of government, and to provide for matters connected therewith. The matters connected therewith are not stated. It is for this reason that the research was undertaken to show the importance of the entire internal control environment that impacts on the clean audit opinion received from the Auditor-General of South Africa (AGSA). The analysis obtained, showed that more emphasis are placed on financial management when it is the area of leadership, compliance to laws and regulations and pre-determined objectives (performance management) that are also key and are weighted the same as financial management, to obtain a clean audit report. In addition, this study was conducted to test the hypothesis, namely the weaknesses in the internal control environment within the municipality. Information was obtained from five groups by means of one-on-one interviews and hand delivered questionnaires. Group 1, 2 and 3 consisted of ten political office bearers in the political management team (executive mayor, speaker of council, chief-whip of council and mayoral committee members), councilors, and ten from the senior management (executive of the administration level 1-3). Group 4 and 5 (level 4-12 respectively) consisted of ten officials not in management positions. The questionnaire comprised of six sections of questions (governance controls, financial management controls, predetermined objectives/performance management, leadership controls, cluster specific controls and general and other information on controls), that was aimed at determining the extent of experience, knowledge and attitude of the respondent towards planning, implementing, reviewing, monitoring, assessing, documenting and response towards their internal control environment within each specific department, and the legal responsibility on political office bearers oversight role. The analysis of the results indicated clearly that the overall understanding of internal controls differed per group. The planning, implementing, reviewing, monitoring, assessing, documenting and response to internal controls for non-management officials were unclear, but their awareness towards a clean audit was understood. Respondents in the political executive and the administration were more aware of their responsibilities and accountabilities towards internal control and the important task of achieving a clean audit. However, they acknowledged that the questionnaire made them aware of more aspects from a compliance perspective to be performed by the administration. The executive of the administration acknowledged that limited emphasis is made on internal controls to detect weaknesses. The analysis also proved that more emphasis and priority must be placed on internal controls from the respondents. The results are supported by the AGSAs intervention with the implementation of the key control questionnaire within the municipality to ensure that weaknesses in the internal control can be identified and corrected at an earlier stage before the audit starts. The importance of internal controls during the analysis has proven that process management is an important attribute and tool for internal controls in achieving a clean audit. Other municipalities might benefit from this study as it provides key points towards a clean audit that highlight the importance of leadership, performance management, planning and governance and embracing diversity as a strategic move towards financial sustainability and management towards the achievement of a clean.