RONETTE ENGELA | Rigid compliance trumps meaningful evaluation in auditing government departments

Every year the auditor-general’s findings make for dismal reading. Audit outcomes seem to deteriorate annually, with rising adverse findings. In the public mind this is all due to corruption. But is this really the case?

In the private sector audited accounts provide a relatively straightforward understanding of the performance of the business. The integrity of the accounts is audited based on well-established standards for testing for trustworthiness and judging the materiality threshold. These internationally accepted auditing standards mean audited accounts can be trusted globally (bar a Steinhoff or two).

By contrast, government is audited on three sets of metrics: financial, performance and compliance. The auditing of financial transactions is similar to the auditing in the private sector. However, government departments and public entities are also audited on performance information and compliance with legislation. These two types of auditing are far removed from typical private sector audits.

A recent study on auditing trends in government shows 90% of irregular expenditure over three years was due to procurement compliance issues. Only a small percentage of these led to any financial loss for the government. There are very tight technical definitions of what constitutes “irregular”, “fruitless and wasteful” and “unauthorised” expenditure, but the public perception is that any expenditure classified in these categories is “lost” due to corruption.

There are undoubtedly corrupt practices in tendering. However, even honest supply chain officials are so scared of audit findings that they spend far more time checking auditing compliance requirements than they do on the technical evaluation required to find suitable service providers. In this author’s recent experience, a highly technical tender took three days to evaluate, and then required four weeks to check on compliance matters. With the lead time required to advertise it is impossible, even with the best will in the world, to award a tender in a period shorter than eight weeks.

Audit overreach

Part of the problem is that the auditor-general audits against generic procurement rules and procedures, whereas in reality tenders must be adapted to diverse circumstances. Disagreements, essentially over the interpretation of administrative rules, take up hundreds of pages of correspondence. Countless days are lost to this type of unproductive labour. This is costly in itself. But the damage to managerial confidence, commitment and reputation from audit overreach is incalculable.

To demonstrate that compliance has been reached with required legislation is an annual battle that is extremely difficult to win. One has to demonstrate all regulations, instructions, directives and guidelines have been followed.

First, one must demonstrate compliance with all the requirements in planning regulations, instructions and guidelines. This is relatively straightforward. However, showing evidence of compliance with monitoring and reporting requirements is more onerous as 216 reports must be submitted annually (nearly one per working day). This is painful, but with proper systems and effort one can provide proof of compliance.

However, regarding compliance with audit requirements to demonstrate implementation, the wheels come off. The process requirements vary from year to year and differ between departments. Requests range from attendance registers for all meetings, which are deemed inadequate if they do not include gender, the IP addresses of people included in surveys or physical signatures on final documents where electronic signatures are not deemed acceptable. These are petty requirements that change from year to year and are difficult to manage, with days of valuable working time spent chasing the information.

Audits have metastasised into a rule-bound, narrow reading of government processes. Auditors do not have to provide reasons for their decisions, and any appeal is to the very people who made the finding.

One public entity changed the measuring of its results from percentage to numbers. There was no change in service delivery, and the minister therefore felt there was no need to resubmit the results to parliament. This led to an audit finding that the outcome was not credible, placing the entity in the same position as hugely corrupt departments with dubious accounts.

Audits have metastasised into a rule-bound, narrow reading of government processes. Auditors do not have to provide reasons for their decisions, and any appeal is to the very people who made the finding.

In assessing performance the office of the auditor-general does not look at performance per se, nor does it attempt to look at value for money by linking performance with budgets. Rather, the auditor-general has structured these audits to focus on the processes that have produced performance information.

Applying principles that work in the field of finance and money to complex social policy issues is deeply problematic. It is expected that the management of performance and attendant performance information should follow predetermined rules, similar to accounting practices.

The consequence has been that every step of managerial decision-making is being questioned, and managerial discretion is deeply frowned upon. Obvious work processes and technical terms that are well-known and understood by the specialists involved are questioned by auditors. Much time and money is spent on defending management decisions on implementation choices to the auditors.

Departments have to appoint dedicated full-time officials to deal with the queries on performance information. This approach has limited value in assessing policy success and is of little use in any serious policy debate. Frequently, managers decide to avoid adverse audit findings in future by simply removing targets and indicators from annual performance plans.

Billions of rands are spent on audit functions, and many thousands of management hours are taken up with these processes. But senior officials are questioning the balance between management needs and the growth of ever-expanding auditing requirements. Do these benefit the government or simply support an ever-expanding auditing industry? Anecdotally, senior officials talk about audit careers being built on the graveyard of ruined departmental reputations.

The system cannot prevent corruption

Sadly, we sit with the worst possible situation — rules that tie up good officials in knots while the system cannot prevent corruption. The auditor-general has created and oversees an auditing regime that disincentivises civil servants from acting, let alone responding to crises.

In one metro, a unit responsible for sanitation lacked the funds for an emergency intervention needed to clean a river, so managers authorised another unit to pay for the service. They received a negative audit finding that took two years to resolve. No-one will take such a sensible decision again.

Good civil servants have resigned rather than be tainted by a negative audit. In some cases negative audit findings appear to have been leaked as part of co-ordinated processes to get rid of officials known for their tough anticorruption stances.

It is time to reconsider the onerous rules that tie up government officials. With the availability of big data, transparency can take a different form and consideration should be given to total transparency on all government transactions. All tenders and accounts can be published and be open to scrutiny. The technology exists. Strong algorithms can compare government payments for goods and services to market prices and detect outliers.

With lifestyle audits for senior officials, such an approach could provide a better solution than current practices.

• Engela is acting head of the National Treasury’s Government Technical Advisory Centre.