PADM 211

ASSIGNMENT 1
Table of Contents
Introduction.....................................................................................................................2
Role of the Auditor-General in Public Financial Management................................3
What is the role of the auditor general (AG) in South Africa’s local government
sphere?....................................................................................................................................3
The legal framework of the AG.............................................................................................3
Responsibilities of AG in financial statements.................................................................4
The powers of the AG............................................................................................................5
Examples.................................................................................................................................5
Challenges faced by external auditors in various municipalities...................................5
Complexity..............................................................................................................................5
Capacity...................................................................................................................................5
Political interference..............................................................................................................6
Inadequate internal controls:...............................................................................................6
High turnover:.........................................................................................................................6
How Auditing Boosts Accountability..........................................................................7
Transparency..........................................................................................................................7
Independence Oversight.......................................................................................................7
Identification of weaknesses and Risks:............................................................................7
Enforcement of Compliance:................................................................................................7
Public trust..............................................................................................................................7
Ethical issues associated with auditing.....................................................................8
Familiarity threat....................................................................................................................8
Self-interest threat.................................................................................................................8
Advocacy threat.....................................................................................................................8
Intimidation threat..................................................................................................................8
Self-review threat:..................................................................................................................8
Conclusion......................................................................................................................9
Appendix..........................................................................................................................10
Reference list:...............................................................................................................11
Reference list....................................................................................................................11

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Introduction
In public financial management, auditing is essential to maintaining accountability,
openness, and sound governance. This conversation explores the particular setting
of South Africa’s local government sector, with a focus on the Auditor General,
challenges encountered by external auditors, how auditing might boost
accountability, and the ethical issues raised by auditing procedures. The Auditor-
General has audited the Department of Cooperative Governance’s financial
statements for the financial year ending 31st March 2023.
Taking these points into consideration, this discussion aims to provide a thorough
examination of the function of auditing in South Africa’s local government sector,
highlighting the opportunities, difficulties, and moral requirements that support the
practice of auditing in the context of public financial management. By examining
these topics, we hope to gain a deeper understanding of the forces that shape
municipal governance and accountability. We also hope to find ways to improve the
integrity and efficacy of auditing processes in protecting public resources.

The Auditor-General provides a qualified opinion on the financial statements. Except

for the effects described in the basis for qualified opinion section, the financial
statements present fairly, in all material respects, the financial position of the
Department of Cooperative Governance as of 31 March 2023, as well as its financial
performance and cash flows for the year then ended, per the Modified Cash
Standard (MCS) prescribed by National Treasury (NT) and the requirements of the
Public Finance Management Act 1 of 1999 (PFMA) and the Division of Revenue Act
No. 05 of 2022 (DORA).

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Role of the Auditor-General in public financial management
What is the role of the auditor general (AG) in South Africa’s local government
sphere?
When examining whether public funds have been used effectively and for the
intended purposes, the Auditor General verifies how public funds are being spent.
This is done through an audit, which is the annual review of all government spending
(mfma-2022.agsareports.co.za, 2022).
 Financial audits: a third-party examination and assessment of an
organisation’s financial accounts and its purpose is to ensure that the financial
records fairly and accurately reflect the transactions they claim to represent
(Tuovila, 2023).
 Performance audits: an independent evaluation of an organization’s
operations to determine if particular programs or functions are carried out as
intended to meet set goals. Since the majority of government organisations
get federal funding, performance audits are usually connected to government
agencies at all levels (Kenton, 2021).
 Compliance with Laws and Regulations: it refers to following the rules and
legislation that control company operations in the nation. Compliance protects
a company’s brand, maintains stakeholder trust, and helps it stay out of
trouble legally and financially (National, 2023).
 Promoting Accountability: acting honourably and morally towards others is
referred to as accountability. In the business sector, a company’s stakeholders
include its workers, shareholders, and the larger community in which it
conducts business. Accountability in a broader meaning implies a readiness to
face performance evaluation. The Auditor General hold public servants
responsible for managing public funds by publishing audit reports. These
reports draw attention to problem areas and areas that need improvement
(Kenton, 2023).
 Enhancing public confidence: the public’s confidence is enhanced by the
Auditor General’s unbiased evaluations. To make wise judgments,
stakeholders such as investors and citizens depend on audit reports. See
(Appendix A).

The legal framework of the AG

The constitution of South Africa serves as the main legal document outlining the
rules, authority, and responsibilities of the auditor general. other laws and regulations
also play a role in this regard. The following are the main elements of the legal
framework:
 Constitution of South Africa (1996): the auditor general is established as a
chapter 9 institution under the constitution along with other independent
organizations responsible for defending democracy and good governance.
Institutions under Chapter 9 must maintain constitutional democracy by
encouraging accountability, integrity, and transparency in the public sector.
 Public Audit Act (2004): the legal framework guiding the duties, authority,
and responsibilities of the auditor general is provided in this Act. The public
act creates the auditor general's office as an independent body that answers
directly to parliament and gives the Auditor General independence. The act

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 specifies the auditor general's authority to order departments of the federal,
provincial, and local governments as well as public organisations and
municipalities.
 Auditing Profession Act (2005): the auditing profession in South Africa is
governed by this legislation, which also covers the registration and
supervision of auditing firms and auditors. The Independent Regulatory Board
of Auditors (IRBA), which is responsible for regulating the standards and
professional behaviour of auditors, is established by the act. The Auditing
Profession Act covers auditors in the private sector, but the Auditor General’s
office and its auditors should also take note of its rules regarding professional
ethics and standards.
 Auditor General’s Act (1995): the organizational structure, employees, and
administrative responsibilities of the auditor general's office are outlined in this
Act. It describes the powers of the Auditor General to select employees, carry
out orders, and produce audit reports (Constitutional Assembly, 2023).
Together, these legal documents establish A framework for the auditor general's role,
which includes promoting transparency and accountability, upholding the values of
good governance in South Africa, and auditing and reporting on the financial
operations of government agencies. The legal framework places a strong emphasis
on the auditor general's office independence, honesty, and professionalism -
qualities that are crucial for protecting public resources and preserving public
confidence in the audit process.

Responsibilities of AG in financial statements

1. Examine financial statements: the auditor general is in charge of looking
over the financial statements of all government agencies, including
municipalities, to make sure that they accurately represent the state and
performance of the organization’s finances. This entails evaluating the
financial data that is provided in the statements in terms of accuracy,
completeness, and reliability.
2. Ensure compliance: the Auditor General make sure that financial statements
abide by the laws, rules, and accounting standards that apply to financial
reporting in the public sector. Respect for generally accepted accounting
principles (GRAP) guidelines as well as any relevant reporting obligations are
parts of this.
3. Evaluates internal controls: the Auditor General assesses how well internal
controls related to financial reporting in government agencies are working.
This entails evaluating the effectiveness of the systems and control
mechanisms put in place to stop, identify, and fix serious financial statement
fraud.
4. Assist law and regulation compliance: the Auditor General evaluates
whether the organization complies with the laws, rules, and guidelines that
control financial reporting and management. This entails checking for
compliance with spending restrictions, revenue collection, and purchasing
laws.
5. Report findings: the Auditor General prepares audit reports that provide a
summary of the findings, conclusions, and suggestions relating to the financial
accounts, based on the audit investigation. Stakeholders are reassured by
this report on the accuracy and consistency of financial data that government
agencies give (Woolman and Schutte, n.d.).

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The powers of the AG
Access to information: to perform audits of government agencies, the Auditor
General is authorized to obtain access to all relevant information, records, and
paperwork. This involves having the power to approach towns and associated
organisations for financial records, transactions, and other data.
Conduct audits: to evaluate compliance with financial reporting regulations and the
efficiency of internal controls, the Auditor General is authorized to carry out audits of
government organizations, including municipalities. This includes the authority to
carry out audits for compliance, performance, and finances as needed.
Issue Audit opinions: the auditor general can provide audit views about the
financial statements of government agencies based on audit exams. These
assessments offer an unbiased evaluation of the quality and reliability of the financial
data included in the statements.

Examples
The following is a list of examples of skills auditors can utilize to carry out their
financial investigations:
1. Communication: communicating effectively can assist auditors in sharing
their industry knowledge with shareholders and corporate executives. One of
an auditor’s strengths is their ability to communicate difficult concepts to
employees who lack financial expertise as well as other financial
professionals. written communication abilities are also advantageous because
auditors also communicate through reports.
2. Analysis skills: analytical thinking must be used when conducting an audit to
assist in conclusion-making. You can draw more accurate conclusions from an
audit of a company’s operations if you have analytical skills. You may show
businesses how knowledgeable you are by using these abilities (Indeed
Editorial Team, 2024).
Challenges faced by external auditors in various municipalities
When performing audits in different municipalities throughout South Africa, external
auditors encounter a variety of difficulties. These difficulties may have a major effect
on the audit process’s effectiveness and efficiency as well as the validity of the
audit’s conclusions. these are a few of the main obstacles that external auditors must
overcome:

Complexity
Many sources of revenue, complex financial transactions, and multi-tiered
governance systems are characteristics of complicated environments in which
municipalities frequently function. The complex nature of municipal operations can
present difficulties for auditors when it comes to understanding and evaluating
financial data, discovering mistakes or errors in financial statements, and assessing
risks. A further degree of complexity is added by the complicated legal and regulatory
frameworks controlling municipal finances, which necessitates the position of
specialized knowledge and expertise by auditors (Mnguni and Subban, 2022).

Capacity
when performing auditing municipalities, especially in smaller or less resource-rich
towns, external audit firms run across capacity issues. Within audit businesses, a
lack of people, experience, and resources makes it difficult for them to complete

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comprehensive orders in the period provided. Furthermore, a lack of resources could
make audit procedures less thorough and of higher quality call mum which increases
the chance that significant Irregularities or errors will go unnoticed (Mnguni and
Subban, 2022).

Political interference
The independence and objectivity of external auditors may be compromised by
political involvement and excessive influence from stakeholders or municipal
officials. the audit process may be compromised by pressure to ignore errors, hide
negative results, or modify audit reports to fit political goals. The public's confidence
in ordered results can be damaged by interference from politicians, which may
hinder attempts to hold local government officials responsible for financial
mismanagement or fraud (Mnguni and Subban, 2022).

Inadequate internal controls:

Inadequate internal controls in municipalities make it extremely difficult for outside
auditors to carry out efficient audits. The danger of fraud, errors, and misstatements
and financial accounts is increased by inadequate record keeping, a lack of
monitoring over our financial procedures, and inadequate division of roles. To
address the potential hazards resulting from control shortcomings, auditors must
invest more time and money in evaluating the efficiency of internal controls and
developing audit processes (van Tromp, 2022).

High turnover:
High turnover rates among financial employees and municipal theories can cause
problems for audit engagements and hinder the audit process consistency. Regular
turnover in the main persons in charge of financial management and oversight can
lead to inaccurate or incomplete financial records, hold-ups in supplying audit proof,
and make it difficult to get important information from employees who live. To lessen
the influence of employee turnover on audit quality and timelessness, auditors must
adjust to changes in staffing and create efficient channels of communication with
municipal management (Mnguni and Subban, 2022).

Government organizations, local stakeholders, and external auditors must work

together to address these issues. to overcome the difficulties of external auditors,
have well-auditing municipalities, they must be audit capability be strengthened,
internal controls before certified, auditor independence must be preserved, and
transparency and accountability must be encouraged in municipal governance. By
taking these issues, interested parties may help ensure public resources are
protected and local good governance is promoted by strengthening the efficiency of
audit procedures and legitimacy of audit results.

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How Auditing Boosts Accountability
In South Africa, auditing is essential to accountability in local government because it
increases transparency, encourages checks and balances, makes corrective
measures easier, and boosts public confidence in the administration of justice. The
following is how auditing accomplishes these goals:

Transparency
Organisations can promote confidence among stakeholders, including clients, staff,
partners, and regulators, by keeping an open book on all of their operations. In
sectors where data security and integrity are critical, transparency is important
(Riyani, 2023).

Independence Oversight
Auditing methods, particularly those carried out by external auditors or oversight
agencies such as the auditor general's office, provide independent oversight of
government institutions’ financial activities. Independent auditors monitor compliance
with laws, rules, and internal controls, lowering the risk of fraud, mismanagement,
and resource abuse. Audit says to improve the credibility and integrity of audit
findings by working independently of the entities they ordered command hence
increasing accountability in the public sector (Carlitz, 2013).

Identification of weaknesses and Risks:

Auditing detects flaws, shortcomings, and dangers in financial management
methods, internal controls, and governance structures of public entities. Auditors
identify areas for improvement by examining financial data, transactions, and
processes and recommending measures to fix shortcomings. Auditing procedures
help stakeholders reduce risk tightening controls and improve accountability and
financial management by assuring weaknesses and areas of noncompliance (Carlitz,
2013).

Enforcement of Compliance:
Auditing methods serve an important role in enforcing compliance with the legal and
regulatory standards that regulate public sector financial management. Auditors
evaluate compliance with the laws, rules, and accounting standards, ensuring that
public bodies function within established frameworks. The findings of an audit may
result in corrective action, disciplinary actions, or legal consequences for non-
compliance, reinforcing accountability and governance standards (Carlitz, 2013).

Public trust
Auditing increases public trust in the integrity and accountability of public sector
institutions. Auditors establish confidence amongst stakeholders by ensuring that
financial statements are free of serious errors and appropriately reflect the
organizations financial status. Transparent communication of audit findings and
recommendations promotes accountability and displays A commitment to
responsible financial management, increasing public trust in government institutions
(Carlitz, 2013).

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Ethical issues associated with auditing
Conflict of interest operations that could impair an auditor’s independence or
professional judgments are considered ethical difficulties in auditing (Brown, 2018).
Here are some examples of ethical issues associated with auditing:

Familiarity threat
This happens when auditors get too close or too acquainted with their clients, which
may lead to biased assessments. Auditors’ objectivity and independence may be
compromised if they form personal relationships with staff members of their clients.
For instance, because they have become used to the client’s activities, auditors may
ignore errors or neglect to question management allegations (O’Regan, 2015).

Self-interest threat
This happens when auditors have an interest in the audit engagement’s outcome,
either financially or otherwise. For example, auditors may be financially invested in
the client or have motives to win over more business from the client, which could
affect their objectivity and independence. Threats from self-interest compromise the
integrity and legitimacy of audit procedures (Maroun, 2015).

Advocacy threat
This happens when auditors compromise their independence and objectivity in
favour of representing their client’s interests. Auditors’ objectivity as judges may be
compromised if they take on the role of advocates for management stances or
financial reporting outcomes. Threats from advocacy groups have the potential to
damage audit reports’ credibility and the public’s trust in the auditing procedures
(Simnett and Huggins, 2014).

Intimidation threat
This happens when auditors sense pressure or intimidation from client management
or other stakeholders to take a specific course of action or to hide negative results.
Threats of legal action lost potential business possibilities, or direct assaults on the
integrity of auditors are some examples of intimidation tactics. The integrity of audit
processes can be jeopardised, and the independence of auditors compromised by
intimidation (Dimitrova and Sorova, 2016).

Self-review threat:
this happens when auditors are asked to examine or assist their work or the work of
employees in their company who have given the customer non-audit services.
Threats from self-review may make auditors less likely to spot or disclose flaws in
their work, which can hinder their capacity to remain neutral and fair and their
evaluations (Simnett and Huggins, 2014).

To guarantee the independence, impartiality, and integrity of audit procedures,

auditors and regulatory agencies must take these ethical concerns into account.
Auditors may respect professional ethics and preserve the public’s trust in the
accuracy of audit reports and financial data by addressing and reducing these risks.

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Conclusion
To conclude this discussion, auditing is an essential component and strengthening
accountability within South Africa's complex public sector framework, particularly
within the decentralized structure of local governments. Auditing, with its deferred
processes, not only provides openness but also develops cultural or responsible
management, active monitoring, and uncompromising integrity.
The auditor general's office is at the top of this accountability structure, charged with
the demanding duty of independently examining the financial accounts of
government institutions, including municipalities. The Auditor General gives essential
insights into these entities’ financial health and governance processes by carefully
reviewing financial statements, adhering to legislative frameworks, and evaluating
internal controls. By releasing audit reports that fully describe findings,
recommendations, and areas for improvement, the Auditor General encourages
stakeholders to make informed decisions while holding management accountable for
their responsibilities as trustees.
External audit companies, together with regulatory authorities like the Independent
Regulatory Board for Auditors (IRBA), contribute to the accountability environment by
sustaining professional standards, ethical principles, and thorough auditing methods.
These organizations act as guardians of public confidence, ensuring that audit
engagements are done impartially, effectively, and with the utmost integrity. External
auditors improve public sector accountability by detecting risks, assisting complaints,
and advocating for best practices.
Despite the difficulties faced by complicated financial contexts, capacity restrictions,
and moral dilemmas common auditing systems continue in their mission to promote
accountability and governance integrity. Auditors may reinforce their role as
guardians of public trust by enforcing these difficulties head-on, utilizing
technological advancements, and investing in professional development. This will
drive good change and build an accountability culture throughout the South African
public sector.
In summary, auditing is more than just financial assessment, it represents A
commitment to transparency, honesty, and responsible governance. By embracing
accountability principles, adhering to ethical norms, and using the power of auditing
processes, South Africa can pave the path for a future marked by financial caution,
institutional resilience, and inclusive success for all its people.

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Appendix
Appendix A: Extracts from Department Cooperative Governance Annual Report
2022/2023; Part F: Financial Information.

Appendix A

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Tuovila, A. (2023). What is an Audit? [online] Investopedia. Available at:

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Woolman, S. and Schutte, Y. (n.d.). Chapter 24B Auditor-General. [online] Available at:
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