An evaluation of the effectiveness of the audit committee in the Westonaria Local Municipality
Chaka, Matsiliso Merriam
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Audit committees are an integral part of good corporate governance and their establishment strengthens the credibility of governments. As a foundation of good governance, audit committees are positioned to provide an objective assessment of whether or not public resources are responsibly and effectively managed. They also promote accountability and integrity, as well as improvement in the operations of governments and municipalities. The establishment of audit committees in the local sphere of government came with the advent of modernisation in terms of the budget and financial management, which was intended to strengthen accountability. The requirement for effective utilisation of resources by local government is critical for the support and empowerment of local communities and delivery of effective services. The audit committee framework for local government, which is provided by the Municipal Finance Management Act (56 of 2003), is underpinned by principles of good governance and accountability, which promote the effective functioning of audit committees. However, there are perceptions and arguments advanced in the literature regarding the effectiveness of audit committees as an accountability structure. This was brought about by the recurring reported incidences of the failure of businesses, which took place despite the existence of rules and laws regulating the function. As a result, trends of leading best practices were established, which enhanced audit committees' performance and were adopted as a proxy for the measurement of audit committees’ effectiveness. The focus of the study is on validating the perception by management that the audit committee of the Westonaria Local Municipality (WLM) is effective in the execution of its oversight role. A literature study on the functioning of audit committees have been undertaken, official municipal documents were analysed and a questionnaire has been developed and utilised as a means for gathering data, in order to prove the hypothesis to be either true or false. The areas investigated in this study demonstrate that the audit committee of WLM is generally effective in the execution of its oversight function. The findings of the study also identified certain areas in the audit function which require the attention of both management and the audit committee of the municipality. More specifically, the observations made in the study include the following: (i) that audit committee members are not provided with the agendas and reports in sufficient time for them to adequately prepare for meetings; (ii) that a productive relationship between the audit committee and the management of the local government has to be maintained; (iii) that there is a lack of informal meetings between the audit committee and the external and internal auditors; (iv) that no appropriate training of the audit committee on existing and potential audit risks in local government is in place; (v) that there is an absence of continuous learning programmes for the members of the audit committee; and (vi) that audit committee members do not evaluate themselves in terms of their level of knowledge regarding the functioning and activities of their audit committee. Attending to these aspects, as identified through this study, will further improve the audit committee’s activities in the WLM. These aspects are therefore not viewed in a negative light, but are rather regarded as a positive venture to be addressed by municipal management and the audit committee, in order to improve the functioning of the audit committee. These aspects should therefore be added to the many positives aspects that are identified concerning the WLM audit committee, as discussed in this study.