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INTERNAL AUDIT IN SOUTHERN AFRICA

Syaj - Drew Wynne

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INTERNAL AUDIT IN SOUTHERN AFRICA Andy Wynne FCCA is editor of the ACCA e-mail bulletin for internal auditors. Andy can be contacted by e-mail at andywynne@lineone.net He recently led a workshop of Internal Auditors from 12 countries in east and southern Africa. This article describes central government internal audit functions in the five southern African countries of Botswana, Malawi, Namibia, Zambia and Zimbabwe. It is based on questionnaires that were completed in 1998 and 1999. Like the countries themselves, the internal audit sections are very varied; for example, the number of staff employed in central government internal audit ranges from 18 to 350 staff. However, the heads of internal audit all recognise that their service could further improve, in almost all cases through further training. I hope that this article can lay the basis for greater knowledge and understanding of the role of internal audit in southern Africa and that it will facilitate the further development of these internal audit sections and lead to further improvements in the quality of the services that they provide. Basis statistics for Southern Africa: Area Population GNP Per capita Thousands km² millions $ billions GNP $000’s Botswana 567 1.6 5.2 3.2 Malawi9410.81.90.2Namibia 823 1.7 3.2 1.9 Zambia7439.93.30.3Zimbabwe38711.96.30.5 Organisational position of Internal Audit In most of the countries the head of internal audit has a direct reporting ...

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INTERNAL AUDIT IN SOUTHERN AFRICA

Andy Wynne FCCA

is editor of the ACCA e-mail bulletin for internal auditors.

Andy can be contacted by

e-mail at andywynne@lineone.net

He recently led a workshop of Internal Auditors from 12 countries in

east and southern Africa.

This article describes central government internal audit functions in the five southern African

countries of Botswana, Malawi, Namibia, Zambia and Zimbabwe.

It is based on questionnaires

that were completed in 1998 and 1999.

Like the countries themselves, the internal audit sections

are very varied; for example, the number of staff employed in central government internal audit

ranges from 18 to 350 staff.

However, the heads of internal audit all recognise that their service

could further improve, in almost all cases through further training.

I hope that this article can

lay the basis for greater knowledge and understanding of the role of internal audit in southern

Africa and that it will facilitate the further development of these internal audit sections and lead

to further improvements in the quality of the services that they provide.

Basis statistics for Southern Africa:

Area

Thousands km²

Population

millions

GNP

$ billions

Per capita

GNP $000’s

Botswana

567

1.6

5.2

3.2

Malawi

10.8

1.9

0.2

Namibia

823

1.7

3.2

1.9

Zambia

743

9.9

3.3

0.3

Zimbabwe

387

11.9

6.3

0.5

Organisational position of Internal Audit

In most of the countries the head of internal audit has a direct reporting line to the Permanent

Secretary (or equivalent, for example, the Secretary to the Treasury in Zambia) in their ministry.

In Zimbabwe, the head of internal audit reports to the deputy accountant-general and in Malawi

internal audit is in the Accountant-General's Department.

To be effective, internal audit needs to

have adequate authority and report at a sufficiently senior level within the organisation.

As a

result, the head of internal audit should report at a level at least equivalent to the Accountant-

General in the Ministry of Finance or the Permanent Secretary in other ministries.

It is generally considered that internal audit should not report to a manager if internal audit

regularly reviews systems that this manager is directly responsible for. In some countries, for

example, Botswana, it is considered inappropriate for the Accountant-General to be in charge of

internal audit.

The reason for this is that the Accountant-General is the accounting advisor to the

Permanent Secretary in the Ministry of Finance and is also in charge of the treasury and the

national accounts.

The Head of Internal Audit regularly reviews systems that the Accountant-

General is responsible for and so should not report on these systems to the same officer.

In other

countries it is suggested that a unit in the President's Office and not the Ministry of Finance

should be responsible for internal audit. Recent guidance on internal audit from the UK

recommended that the head of internal audit should report to a senior director, preferably the

chief executive.

There may be merits in all these alternative approaches.

The important

principals being that internal audit has the necessary independence and authority or status to

ensure that it can achieve its objectives effectively.

Page 1

In Botswana and Zambia the independence and status of internal audit is strengthened as internal

audit sections in each ministry are seconded from the internal audit department in the Ministry

of Finance.

The head of this internal audit is a very senior official in the Ministry of Finance

with status equivalent to the Accountant-General.

Scope of Internal Audit

In all of these countries the scope of internal audit is included in legislation and/or government

regulations.

In each country the scope of internal audit in central government includes

reviewing the following seven aspects of internal control:

•

design and operation of the accounting system and related internal controls

•

prepayment checks to ensure that:

expenditure is allowed by parliament etc and has a suitable budget

there is appropriate backing documentation

the cost is appropriate

•

financial and operating management information and the methods of producing

and reporting it

•

compliance with laws, regulations, policies and procedures

•

procedures to safeguard government money and property

•

the economy, efficiency and effectiveness of operations

•

fraud investigations.

In Botswana the scope of internal audit also includes reviewing and evaluating the adequacy,

reliability and effectiveness of internal controls within the system.

Prepayment checks are not

generally undertaken by internal audit.

However, internal audit does undertake checks on

pensions and gratuities before they are paid to retiring officers.

In Malawi the scope of internal audit also includes measuring, evaluating and reporting on the

effectiveness of internal controls as a contribution to the efficient use of resources within the

relevant ministry or department.

Whilst in Namibia internal audit also reviews and evaluates the

adequacy, reliability and effectiveness of internal controls; undertakes special investigations at

all ministries as required by management; and also provides advice to management on the

financial activities of government.

Prepayment checks are not undertaken by internal audit in

Namibia.

In addition to the above bullet points, the scope of internal audit in Zambia includes reviewing

and appraising the appropriateness, adequacy and application of authorisation and other

operating controls and promoting effective control at reasonable cost.

It also includes appraising

the quality of performance achieved by units in carrying out their assigned responsibilities.

Zambian internal audit only undertakes pre-payment checks for larger payments of, for example

K50,000 in smaller departments and over K1million in larger ones.

The scope of internal audit in Zimbabwe includes all of the above bullet points. In addition, it

also includes monitoring the financial administration and procedures of the relevant ministry,

carrying out value for money audit and undertaking special investigations or assignments as

required by the treasury.

Page 2

Internal audit in each country, except for Namibia, spends a significant proportion of its time

undertaking pre-audit checks.

That is ensuring that payments are valid, accurate and proper

before the payment is made.

In these situations internal audit is itself acting as a control rather

than being responsible for reviewing and improving other internal controls.

International best practice on the scope of internal audit suggests that internal audit will be more

effective if it resists the pressure to undertake prepayment checks.

Internal audit should instead

concentrate on the twin objectives of:

•

providing reasonable assurance that the organisation’s significant risks are being

appropriately managed, with an emphasis on the role of internal controls

•

ensuring that the organisation’s risk management and internal control systems are

continually being improved and optimised in response to an ever-changing environment.

Internal Audit Reports

In each of the five countries regular internal audit reports are sent to the permanent secretary at

the relevant ministry.

In Zambia, they are also sent to the Controller of Internal Audits in the

Ministry of Finance and Economic Planning.

The Auditor-General in each country receives

copies of all internal audit reports.

Internal audit in each country also produces an annual report, although in Botswana, this was

undertaken for the first time in 1999.

The annual reports are reported at the same level as the

regular internal audit reports.

An audit committee is increasingly seen as good practice.

Audit committees are just being

established in these countries.

In Zambia they are in the pipeline and have been set up in some

ministries.

In the other countries audit committees have yet to be established although they have

been proposed or talked about.

Annual internal audit plans are produced in each country.

They are developed by the head of

internal audit and authorised by the accountant general / permanent secretary.

In Zambia a

strategic audit plan is also produced.

This should encourage a wider scope for internal audit

beyond the basic financial systems.

Manuals and Training

The government internal audit services in Malawi and Botswana have internal audit manuals,

although in the case of Malawi, this is over 12 years old.

Internal audit manuals for the

government internal audit service are being developed currently in the other countries.

One has

been written in the last year by internal audit management in Namibia.

Training was an area that the heads of internal audit in each country mentioned that could be

improved.

However, auditors in each country received some training in the last year.

Auditors

from Malawi and Namibia attended training courses organised by ESAMI and auditors from

Botswana are sent regularly to the City University Business School Internal Audit course in

London.

Some training is also provided by the Auditor-General’s Staff in each country,

although the extent of this training varies from country to country.

Page 3

In addition, a number of the internal audit staff have formal professional qualifications.

However, this varies greatly between countries as the following table shows:

Number of internal audit

staff

Percentage of internal audit staff who

are professionally qualified

Botswana

Malawi

Namibia

Zambia

Zimbabwe

164

350

The amount of technical support available in each country for internal audit staff in the form of

books and periodicals is limited.

Only the section in Botswana is planning to receive periodicals

from the Institute of Internal Auditors (UK).

The Botswana section also has access to several

internal auditing books, as do the sections in Malawi and Zimbabwe.

However, audit staff in

Namibia and Zambia do not have access to any internal audit textbooks.

In each country, except for Namibia, the Auditor-General reports to parliament on their review

of central government internal audit.

As mentioned above, the Auditor-General also provides

training for internal audit in each of the five countries.

In addition, the Auditor-General usually

relies on the work of internal audit to target their effort or to highlight weak areas.

Support for Internal Audit

In each country, except for Malawi and Zambia, the government internal audit service has

received external support in the last two years.

In Malawi and Zambia external funding for

internal audit is expected over the next year.

This support has been from a variety of sources

including the UN, the Commonwealth and the UK Government (DfID).

However, as this survey

has shown, further support is still needed if internal audit in each of these five countries is to

reach its full potential.

This should allow each of them to assist in ensuring accountability and

transparency in their countries and helping to reduce the occurrence of fraud and corruption.

The most effective aid would appear to be in the development of internal audit manuals that are

up to date and tailored to local needs.

Training of internal audit staff could then be focused on

the audit manual.

This should ensure that all auditors have access to a reference work on

effective internal audit techniques and they have received suitable training on their practical

implementation.

A major step forward was made earlier this year when a workshop was held in Botswana with

the heads of internal audit, or their representatives, from 12 countries in east and southern

Africa.

This workshop, organised by the East and Southern African Association of Accountants

General (ESAAG), agreed revised

Internal Auditing Guidelines

These should assist with the

adoption of best international auditing practice in each of the member countries.

The formation

of an Internal Audit Association was also floated at the workshop.

Such an organisation would

be able to assist with the obtaining of cost effective training for internal audit staff in each

country.

Page 4

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