Developing of a framework to evaluate the internal audit functions at municipalities in South Africa

Abstract

This research examines internal audit functions (IAFs) in municipalities in South Africa. Municipalities are established to provide services to the people residing within them, and do so by providing various services such as water and electricity supply, sanitation, roads, etc. It is therefore important for every IAF within municipalities to continuously evaluate their operational plans and best practice business processes to ensure that citizens’ expectations are met. The Auditor-General South Africa (AGSA) continues to express concern about the quality of financial governance in municipalities, as evidenced by the adverse audit opinions issued annually by the auditor-general’s office. This research therefore intends to contribute to the existing body of academic knowledge by pursuing the following objectives: developing a practical framework to effectively add value to municipalities by facilitating their IAFs; identifying the roles and responsibilities of IAFs within municipalities; identifying the challenges that prevent the smooth functioning of IAFs in municipalities; considering and discussing what must be done to ensure that the internal audits are independent; identifying the characteristics of effective IAFs for South African municipalities. To achieve the research objectives, a non-positivist paradigm or constructivist paradigm was applied for objectivity, reliability, and in support of generalisation. The study followed a qualitative and sequential explanatory design to achieve the stated objectives. Data was collected from the auditor-general’s consolidated municipal reports from all existing South African municipalities as at 31 December 2017. It was then condensed to concepts that described the research phenomenon. The research was limited to the use of municipal audit reports for all the municipalities in each of the three types of municipalities, over a period of five years. Using a content analysis approach, 30 auditor-general reports were examined for each of the five years between 2011/2012 − 2015/2016. This produced a set of 150 reports for analysis. Atlas.ti software was used to analyse these reports and the results were translated to develop the framework suggested by this study. Results of the analyses revealed that the IAFs within many South African municipalities do not fulfil their responsibilities, leading to these municipalities obtaining qualified audit opinions, disclaimer opinions, and claims of mismanagement of resources. The lack of progress within the municipalities was often found to be due to inadequate oversight of the IAF, which was not always fully capacitated with skilled, experienced staff trained to perform the necessary oversight. It is apparent that in many municipalities, IAFs do not contribute positively to the audit outcomes, and that senior management fails to take these functions seriously, resulting in the same audit opinions and findings by the Auditor-General South Africa (AGSA) year after year. Findings from the analysis corroborated those found in the literature, thus confirming the four stated research objectives. From this analysis, the researcher developed a framework for an effective IAF for municipalities in South Africa. The framework was developed based on the literature gathered, the key findings obtained from the audit reports and the recommendations made by AGSA. This framework contributes to the current body of knowledge on the topic, and constitutes the achievement of the primary objective of the research.