Preventative controls: Stopping corruption before it happens

The preventative control guides recently launched by the Auditor-General of South Africa (AGSA) is an additional measure to safeguard public money. The guides cover the main preventative controls that should be in place and include key questions that oversight structures and executive authorities can ask to obtain assurance on whether the controls have been implemented and are working effectively.

“Preventative controls promote transparency, strengthen accountability and are predictable with known expected outcomes. In essence, preventative controls are an invincible fortress against all possible abuses of the public purse,” said Auditor-General Kimi Makwetu.

According to the AGSA, preventative controls are the controls designed and implemented by management to avoid threats to the objectives of the institution materialising.

Impunity and accountability

According to Makwetu, for years the AG’s audit findings and recommendations were disregarded.

“At this point, impunity was beginning to take centre stage as evidenced through the audit outcomes. Impunity cannot coexist with accountability.”

This led to the amendment of the Public Audit Act, which introduces the concept of a material irregularity.

“It means that when- ever the AG performs an audit, the staff on the audit must satisfy

themselves, through various tests of transactions, account balances and systems of control, that there has been no non- compliance or contravention of a financial statute; that the entity is not exposed to situations of fraud which could result in a financial loss or the loss of a public asset; or that the entity is not deprived of providing certain services due to the financial losses incurred.”

Once a material irregularity has been identified or is suspected during an audit performed under this Act, the AG is empowered to refer any such material irregularity to a relevant public body for investigation, take appropriate legally binding remedial action and/

or issue a certificate of debt where an accounting officer or accounting authority has failed to comply with the remedial action.

Proactive controls

However, Makwetu pointed out that if the whole of government invests in activating preventative controls across the key areas of accountability, it will not be necessary to set in motion these new powers.

“If properly designed and implemented, such controls will detect most material irregularities that could result in a financial loss. These controls are proactive and are an eloquent expression of the key guards being at their posts at all times.”

He added this is relatively cheaper than relying on investigations that will be triggered af- ter money has changed hands in ways that are not credible or transparent.

“Once these controls are in place and are diligently pursued, there will be more resources available to do most of the things that citizens aspire to or government allocates money towards.”

Guides on preventative controls cover the following categories:

• The control environment as a basis for all preventative controls, presented within two broad categories, which are tone and control culture – dealing with controls that should be in place at an organisational level to enable an ethical and effective control culture, including leadership effectiveness and conduct.
• Institutionalised internal controls – dealing with controls that should be in place

at an organisational level to enable the implementation and monitoring of, and the assurance on, preventative controls.

• Transactional level controls – dealing with controls within the key business processes of institutions, such as procurement, payments, financial statement  preparation, and asset management.
• Project management and delivery controls – dealing with key delivery areas,

including infrastructure development and maintenance.

Speaking at the virtual launch of the guides, Director-General of National Treasury Dondo Mogajane noted that corruption continued to be one of the greatest obstacles to

development worldwide. He added that even the most successful law-enforcement

instruments and agencies only come into play after the crime has been committed and by then the damaging consequences of corruption have already occurred.

“Prevention is dependent on a suite of measures being implemented in concert, including and, for example, regular educational and appropriate public awareness to encourage public intolerance of corruption and developing public finance management primary tools to identify and ad- dress corruption risks to strengthen the integrity of public administration.”

Partnerships

These measures are best done in partnerships across departments and institutions responsible for good public financial management and the prevention of malfeasance.

“These AGSA’s preventative control guides … will add substantially

to the instructions and reporting measures National Treasury has taken.

Instructions on preventative measures including control systems, procurement procedures including prescribing maximum prices, and government-wide reporting including

standardised report templates, can only improve the management of public finances.”

The guides support accounting officers and executive authorities to prevent the corrosion of corruption taking hold, he added.

“They will assist them to exercise their obligation as defined by the Public Finance

Management Act and Municipal Finance Management Act to implement and maintain effective, efficient and transparent systems of financial and risk management and internal controls.”

Empowering management

He added that preventative controls are intended to empower management to identify the risks of misappropriation, fraud and corruption before a transaction takes place.

“It provides accounting officers with a toolkit of possible solutions to make preventative controls a reality at departments, municipalities and entities throughout government, creating a fresh new mindset of managing public resources, based on the old adage of ‘prevention is better than cure’.”

Mogajane encouraged accounting officers to use the guides as a basis for their day-to-day activities to create a strict culture of accountability throughout government.

The preventative control guides are available on the AGSA’s website – www.agsa.co.za