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Item Performance audit approach for internal auditors in the Gauteng public sector.(Tshwane University of Technology, 2022-11-01) Myambo, Vusi; Dr K.N. Motubatse; Ms F. Ncongwane; Ms M.C.C. MolateThis study aims to examine the performance audit approach followed by internal auditors in the Gauteng public sector. The starting point of this research is the assumption that performance auditing is strongly present in the South African public sector today. A critical review of the literature describing the spread of auditing as a global practice for achieving good governance and accountability and examining how performance auditing has greatly influenced society in a democratic country like South Africa, was undertaken. Arising from the literature reviews the indications are that performance auditing has an enormous influence on citizens’ daily lives through its ability to identify methods and practices that facilitate economy, efficiency, and effectiveness in the delivery of government services. The problem identified in this study is directly linked to the audit challenges and to the audit methodology followed in the execution of performance audits. It should be noted that performance audits are performed by both internal and external auditors. The literature review identified gaps in the knowledge base: that prompted this study which examines the government’s management practices, controls, and reporting systems in relation to its own public administration policies and to globally recognised best practices. Analysis of the literature revealed that performance auditing requires flexibility, imagination and analytical skills to provide organisations with innovative solutions and new ideas. Another challenge arises from the fact that performance audit is a relatively new type of audit when compared to financial and compliance audits in that it expands audit’s realm beyond simply the verification of controls. However, regardless of the increase in use of performance audits in the South African public sector, there is no formal and/or universally accepted audit methodology to follow. Concerns have been raised about this lack of an internationally accepted, standardised approach. Moreover, performance audits in the public sector environment follow the standard internal audit approach, which is a risk-based approach, whereas the performance audit typically employs a symptom-based approach in its efforts to identify the gaps in the value-for-money chain in the delivery of services. This researcher adopted a quantitative research methodology using descriptive statistics to summarise and describe the data. The descriptive statistics were used to provide a detailed summary of the questionnaire responses received from performance auditors operating in internal audit environments about the practice of performance audit within their internal audit environments. This study examines specifically the performance audit approach followed by internal auditors in the Gauteng Province’s public sector. The study identified 98 performance auditors in the Gauteng public sector environment: thereafter a convenience sampling approach was followed, and the research instrument achieved a response rate of 68 percent. Data were collected through a questionnaire consisting of three (3) sections that addressed: alignment of performance audit methodology with IIA Internal Audit Standards; differences and similarities in roles played by internal auditors and external auditors in relation to conducting performance audits; and challenges faced by internal auditors in conducting performance audits within the public sector internal audit environment. Collected data sets were analyzed using SPSS software. The study used a cross-sectional survey method through questionnaires to collect data from performance auditors. Data were analyzed using descriptive statistics and inferential statistics using SPSS results. A one sample t-test was run on a 4-point Likert scale to evaluate statements related to factors that affect choice of performance audit approach for internal auditors in the public sector. The reference point was defined as 2.5, and the mean scores for all responses regarding alignment of performance audit methodology with IIA items were significant. The findings from the research illustrate that performance audits added value. The Bartlett's Test of Sphericity showed statistically significant results (p< .001) in all three question sets and further indicates that Principal Component Analysis was appropriate for the alignment and challenges, with the Bartlett test being statistically significant for both the similarities and differences. Thus, overall, there is strong evidence to conclude that the majority of respondents agreed or strongly agreed with statements regarding alignment of performance audit methodology with the IIA’s standards. The findings of this study indicate that there is a statistically significant relationship between alignment, similarities and challenges at the 1% level of significance. The study’s limitations relate to its heavy reliance on the research survey of performance audit approaches of internal auditors in the Gauteng provincial administration. Similarly, the information received was “filtered” by what respondents believed was within their discretion to share with the researcher. Beyond that, only performance audit practitioners were invited to participate in the study. Despite these limitations, this study contributes to the debate of how to align the audit processes and methodologies of compliance and performance audits. The research conclusion thus highlights the need for formal IIA guidance for performance audit practitioners which, at this relatively early stage in performance audit’s life, are identified as areas in need of further research.Item The root causes of modified audit opinion in Polokwane Local Municipality(Tshwane University of Technology, 2023-02-17) Ngoepe, Noko Lesedi Mpho; Dr KN Motubatse; Mrs MCC MolateA modified audit opinion is one of the characteristics of poor municipal performance. In general, the modified audit opinion results from the inability to perform certain audit procedures, and no other procedures can be undertaken to produce the required quality of reliable audit evidence. As a result, modified audit opinions are becoming more common in municipalities where there is a scope limitation. Modified audit opinions have had the most widespread negative impact on the going concern possibilities of any type of audit opinion. As stated, this study is motivated by the various circumstances that can be identified in the context of a modified audit opinion; thus, references to the main concepts of modified audit opinion are made where appropriate. The current study aims to investigate the root causes of modified audit opinions obtained by the Polokwane Local Municipality in the period 2015/16 to 2019/20. The problem that motivated this study was the researcher's belief that modified audit opinions paint a worrying picture of municipalities with poor audit outcomes. Despite increased attention paid to improving local government audit outcomes, annual financial statements do not meet quality standards, there is insufficient evidence behind financial statements, financial statements contain material misstatements, there is insufficient monitoring for corrective action, and municipal managers are politically influenced and do not act on irregularities. The study begins with a review of legislative frameworks as the primary impetus for local government, as well as the literature, policy documents and contemporary articles. The review of literature assessed some of the various approaches to general elements of modified audit opinions. This aided in identifying patterns within various academic contributions and explaining how modified opinions are expressed. To comprehend and define the concept of modified audit opinion, a thorough review of the literature was conducted to gain a necessary background, which in turn shed light on several key concepts. Insights are extrapolated from literature, and patterns, themes and subthemes are identified. The triangulation of literature and empirical data research revealed that there is agreement with the study's findings. The interpretivism research design was used. Using a qualitative approach, this study sought to gain a clear understanding of the audit committees, chief financial officer's (CFO), divisional managers', audit manager's and internal auditor's perceptions of the root causes of modified audit opinions obtained by the Polokwane NLocal Municipality. This was accomplished through qualitative data collection and analysis methods, specifically in-depth personal interviews with participants from the financial management unit and textual analysis of previous annual reports. A series of semi-structured interviews with 11 financial management unit and audit committee members were conducted. Data were collected through e-interviews using Computer Mediated Communications (CMCs), and were then analysed and coded systematically through Hermeneutic Unit of Atlas.ti™ Version 22. A representative from each division was interviewed and organisational documents were researched. A preliminary investigation was conducted with the supervisors and employees of the municipality to ensure the questions stated were answered. This investigation aided in the refinement of information-gathering plans for substance and strategies to be considered. After establishing and describing the study's research methodology, the analysis and results of the study were presented, organised according to the order of the questions in the pre-defined interview guide. The information gathered concerns the participants' perceptions of a modified audit opinion in terms of themes and sub-themes. The findings of this study showed that the major hurdles to achieving a better audit opinion within the Polokwane Local Municipality were (1) different interpretations of Generally Recognised Accounting Practices (GRAP), (2) lack of proper implementation of internal controls, (3) instability key staff vacancies, (4) poor records management, (5) insufficient or inadequate audit evidence, (6) lack of financial statement quality, (7) capacity constraints, (8) insufficient monitoring and corrective action, (9) lack of accountability and effective consequences management and (10) previous audit finding and recommendations not corrected. Modified audit opinions can take a variety of forms, depending on how seriously the auditor believes the financial statements' accuracy is jeopardised. However, the revised audit opinion does not necessarily imply that there was any wrongdoing but is merely an indication that the financial statements are likely to misrepresent the organisation's compliance with laws, financial statement presentation and predetermined standards. These findings shed light on the topic of modified audit opinion, which, despite the interest shown by scholars in the topic, is still in its infancy in terms of research. The findings of this study also showed that modified audit opinions are prevalent in municipalities, as local government finances continue to deteriorate and serious weaknesses in financial reporting are identified. The findings showed that the respondents in this study attributed changes in audit opinion to poor governance, accountability and consequence management in order to put local government back on track and provide high-quality service delivery. This dissertation's main contribution is to highlight the critical intervention of reducing modified audit opinions and its importance in improving the Polokwane Local Municipality’s audit opinions. The findings substantiated local and international literature. The study makes recommendations on how to mitigate the effects of modified audit opinions.Item The effectiveness of audit committee activities in internal controls, financial reporting and information technology.(Tshwane University of Technology, 2022-12-01) Lebese, Thapelo; Dr KN Motubatse; Dr AH LegodiNearly two decades have lapsed since the introduction of the Municipal Finance Management Act 56 of 2003. Despite this, good governance in the South African local government sphere has deteriorated significantly over this period, albeit that there are a few local municipalities that are seeing success and achieving stable and effective governance. The audit committee is a critical formalized structure of governance intended to oversee the financial management activities of the municipality. The audit committee is also intended to advise and provide recommendations to the municipal manager, senior management and council of the municipality relating to the adequacy, reliability and accuracy of the municipality’s financial reporting and its non-financial information. However, the effective functioning of audit committees within the Sekhukhune District Municipality and its constituent local municipalities remains a concern. These committees have failed to exercise their oversight role in financial reporting, internal control, and information technology and have demonstrated a lack of essential soft skills necessary to manage the activities of the council. This is according to the Auditor General of South Africa (AGSA) in numerous annual reviews of the South African municipal management environment. The objective of the study was to investigate the perceived effectiveness of audit committee activities in relation to enhancing internal controls, improving financial reporting and the information technology environment in the Sekhukhune District Municipality, and assessing the impact of soft skills and audit committees’ independence in executing these activities. The study was guided by the following objectives: to investigate whether the audit committee is effective in enhancing internal controls, financial reporting, and information technology governance; and to investigate the influence of audit committee members' soft skills and their independence when reviewing the processes of the municipalities. The study employs a wide literature review concerned mainly with effective governance. The literature presented offers different perspectives on the roles of the audit committee. The literature further highlights sources which explore the origins of good governance, with particular emphasis on local government. These are all discussed in context of effective governance and its benefits to sound financial management in local government. A quantitative research methodology was employed. The study adopted a descriptive research design, involving a population of 99 participants (thus a census type survey) and a sample of 91 participants. The targeted individuals were members of the audit committees, and municipal management consisting of: chief financial officers, accounting officers, chief audit executives, internal audit managers, directors and heads of divisions. After describing the research methodology followed, the analysis and the results of the study are presented and organised according to the research questions. Data was ultimately collected from only three of the four local municipalities within the Sekhukhune District Municipality and from the district municipal office itself. A response rate of 52% (47 respondents) was obtained. The non-participation of any individual from Makhuduthamaga Local Municipality (no responses or excuses were received) does pose a limitation in the study’s wider applicability. A survey response rate of 50% or higher is considered excellent in most circumstances and is sufficient for the study to produce valid results. Data were statistically analysed through Stata/SE software, using descriptive factor analysis and inferential statistics. Stata/SE version 16 was used to analyse the statistical data obtained through the completed survey questionnaires. The findings of the study revealed that the audit committee is perceived to be effective in enhancing internal control in all of the identified areas. The results further indicate that the audit committees are effective in fulfilling their financial reporting oversight responsibilities. Thus, the audit committee effectively monitors changes in accounting policies and principles adopted by the municipality. The findings also show that the audit committee is aware of cyber risk exposure, and further indicate participants’ concern with regard to the audit committee’s effectiveness in enhancing oversight of information technology governance. The findings also show that the internal audit function is not adequately resourced or skilled to assist in providing assurance regarding the information technology risks control environment of the municipalities. Further statistical analysis revealed that a statistically significant relationship exists between audit skills and expertise, audit committee interpersonal skills, and key stakeholder relationship management. The study also reveals a statistically significant correlation between the audit committee’s information technology governance, skills, experience, and oversight responsibility. The relationship between financial reporting, audit committee interpersonal skills and stakeholder relations was found to be positively significant. Based on these research findings, it was concluded that there is a positive perception that the audit committee provides a positive oversight role over internal control, financial reporting, and information technology governance: and that audit committee members possess adequate levels of soft skills and independence. The study thus recommends strengthening the position of the audit committee chairperson, thus encouraging them to tackle under-performance from the finance team. This can be achieved through re-appointment and re-organization of key functions and personnel in the external and internal audit functions. The study also recommends that audit committees reinforce internal controls and risk management by communicating their 'control culture' requirements to management. Another recommendation is that there should be open communication channels between the audit committee chairperson and the chief audit executive. This will allow the audit committee to understand the controls and processes implemented by management and ensure that financial statements and supporting systems comply with relevant standards and are subject to appropriate management review. The main contribution of this research is to highlight the necessity of building a sound and effective audit committee. The current study aims to contribute to the audit committee and governance literature by providing empirical evidence of the audit committee’s effectiveness in the local government environment. The study contributes to the extensive body of literature on governance by providing up-to date empirical evidence on the effectiveness of audit committees in their oversight of internal control, financial reporting and information technology governance. The study has the potential to benefit municipal governance, financial managers, and auditors of local government, assisting all key stakeholders to understand the roles of audit committees and how they can benefit from their functional responsibilities. The study could also benefit the wider accounting and auditing professions in various sectors to understand that the audit committee has an oversight role over financial reporting, information technology security and operational matters relating to the audit process, internal controls and compliance with laws and regulations. This significance can be extended to academic researchers and the National School of Government in that its insights could be useful in directing capacity building and developing interventions to address the training needs of those already employed in local municipal governance.