Auditing is a crucial domain in regional and local authority councils in terms of financial operations. The word audit is derived from the Latin word ‘audire’, which means to hear.
The origin of the concept of auditing stems from the custom of hearing the accounts of merchants in ancient times.
The emphasis is to hear, which means to report on something that has already taken place, rather than prevent the occurrence of fraud or mismanagement.
The general definition of an audit is an evaluation of a person, organisation, system, process, project or product.
Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a system’s internal control.
The overall purpose of auditing is to express an opinion on the person, organisation, system, etc., in question, under evaluation regarding the work, activity or system that was done and completed.
An audit is put into use to provide only reasonable assurance that the statements are free from a material error from the time of operation to the time the work has to be audited.
Therefore, statistical sampling is always applied in auditing. In financial auditing, financial statements can be regarded as true and fair only if they are free of material misstatements.
This is solely influenced by the use of quantitative and qualitative factors during the auditing period.
Auditing is an integral part of accounting systems.
An audit is an independent assessment of the fairness by which a company’s financial statements are presented by the management of the organisation to shareholders, financiers, central government, service users, etc.
Auditing is conducted by competent, independent and objective person(s), referred to as auditors or accountants, who afterwards submit an auditors’ report based on the results of the audit.
These systems must adhere to accepted standards, set by governing bodies regulating businesses.
These standards assure third parties or external users that such statements are compatible with the organisation’s financial condition and results of operations that are regarded as fair.
There are three main types of auditors: internal auditors, external auditors and the auditor general – in the case of the public sector. Internal auditors are employees of a company or organisation, hired to assess and evaluate the system of internal control.
For these internal auditors to ensure they maintain independence, they present their reports directly to the top management or board of directors or whichever relevant body or person or persons need that audit report. In the case of regional and municipal councils, the internal auditors will issue these audit reports to the regional or municipal council.
The auditors will only provide functional operation to the organisation to rectify the possible and actual problems identified but have no power or mandate to enforce any directives or the expected details that need adjustments or rectification.
Internal auditors are always employed by the management or any relevant body or organisation, which requests them to conduct an audit on behalf of such an organisation.
It is important that the internal auditors are familiar with the knowledge of the organisation. This plays a greater insight into potential fraud and wrongdoing of the organisation in terms of its financial and systems usage.
These internal auditors are crucial in that they are a valuable tool to manage, and they mainly assist in enhancing transparency and accountability.
External auditors are independent staff, tasked by an auditing firm to evaluate the financial statements of the firms that appoint them to conduct such audits as agreed.
External auditors are mainly employed
by accounting firms for the annual conducting of audits in firms. These auditors are needed and would always come from outside the firm to conduct audits independently.
These kinds of auditors pursue and restrict their audit duties to the accounts of the firms to ensure these firms’ financial statements comply with the Office of the Auditor General.
In the case of the public sector, they ensure their audit assignments comply with standards established by the Office of the Auditor General as well.
These auditors may have different positions in each jurisdiction, but the duties they perform are similar.
The Auditor General is an agent of the Cabinet, responsible directly to Cabinet and charged with auditing government expenditures and revenue collections.
The auditor general is charged with the traditional role of financial ‘watchdog’ of Parliament to ensure public funds are fully accounted for and expended in accordance with the stipulations of the legislature.
This agent has his or her role extended to include making observations on the economy, efficiency and effectiveness of government expenditures.
Important to note here is that the auditor general is restricted from evaluating policy or determining whether a particular policy or program is justified.
It is, therefore, important that the position should at all times retain its political neutrality and not get involved in partisan political debate in all the operations of this office.
The critical issue is that regional and municipal councils and public institutions should be able to understand the role of an auditor.
The purpose of the position of an auditor is believed that it can cure all the mismanagements of central, regional and municipal council funds that plague regional, municipal and public sector financial management into existing corruption.
The position of an auditor may not be fully understood, because an auditor may not have the powers that the general public believes that he has and can control and command all financial aspects as a result of the nature of his or her office.
The auditor should be entrusted with the duty of an auditor to perform the skill, care, and caution that a reasonably competent, careful, and cautious auditor would use in dealing with financial matters he is tasked with.
It is not a requirement that an auditor be a detective or who conducts his work with suspicion, or with a conclusion that there is something wrong before all his audits had been fully conducted and then pass the results of his work.
Auditors should be freely allowed to track out ingenious and carefully laid schemes of fraud without fears that arouse their suspicion.
The auditor needs to be intolerant. The decision made by an auditor may have been in the organisation for a very long time, but this can help shape the auditing profession all the time even in the future.
This legal duty is still true today that the auditor holds the key to probe, rectify and justify accounts of firms with dignity, regardless of numerous changes that are currently being used in accounting standards and constitutional demands.
It must also be stated here that many aspects of the financial world have changed, but the demand for more transparency and accountability is still not met as it should be the case.
The fact is that the work of an auditor normally deals with factual issues on the ground and not just mere speculations.
It is, therefore, important that the auditor is given special powers to be able to work as a ‘watchdog’.
The municipal auditor will be required to perform those functions of auditing regional and municipal councils’ financial accounts, and the benefits of this would be to increase efficiency and accountability of funds in regional and municipal councils; keep municipal politicians honest and help them do their jobs better; undertake comprehensive auditing of regional and municipal expenditures (verify compliance and value for money); allow regional and municipal councils to share best financial practices, and keep expenditures of large municipalities in check.
In recent cases of corporate fraudulent activities, it is not a lack of auditing that results in fraudulent activities, but a combination of ‘off-balance sheet’ transactions and rules that govern the relationship between auditors and consultants.
The auditor’s responsibilities are to guard against huge expenditures and tax increases not been accounted for; instil effective stringent controls on the disappearance of large amounts of funds; devise plans to look into politicians’ expenses believed not to be conducted with scrutiny; probe politicians’ expenses because the position is meant more to keep an eye on a bigger picture on spending and ensure to keep up with best practices; guard against lack of proper rules and oversight; ensure to work against vague rules governing personal expenses, or where there is no enforcement of current regional and municipal regulations; ensure guarding against infrastructure grants allocated by central government to regional and municipal councils that are used without proper accounting procedures.
Moreover, the auditor is to ensure that auditors with no teeth are encouraged to do more in their duties to expose corrupt practices done on financial matters; ensure that excesses of corruption in most regional and municipal councils are uprooted; ensure that excessive expenditures and waste still existing as a result of toothless auditors are done away with; ensure that recommendations of the competent auditors often ignored are fully implemented; ensure that dispute between regional and municipal councils and auditors that normally result because of the auditors having enough independence to perform their audit duties are protected and tightly upheld.
It is also the auditor’s role to ensure that refusals of regional and municipal councils to enforce the existing rules of the minister are guarded against all regional and local authorities councils and that actions and/or recommendations from the minister are fully in line with fairness on all council financial matters are implemented; be able to examine any complaints and redress these issues with further consequences imposed on regional and municipal councils or individual offenders.
Finally, the auditor is tasked to ensure strengthening of the appearance of accountability; ensure to resolve any of the financial problems incurred in regional and municipal councils and finally as well as to ensure guarding against central government tactics that are meant to delay or deny access to information pertinent to the creation of transparency.
Part 2, 3 & 4 to follow during the next weeks