AS WE BRACE FOR THE AUDITOR-GENERAL’S REPORT, THE NEED FOR AUDIT REMEDIATION AND INTERNAL CONTROL IMPROVEMENT ACROSS GOVERNMENT CANNOT BE OVEREMPHASIZED
By Mustapha Wai, CPA, November 27, 2019
As we brace for the next government audit report, i would like to emphasize a notion introduced in a previous submission. Pursuant to Section 86 of the Public Finance Act of 2016, Sierra Leone Government ministries and departments (MDAs) are required to submit their financial statements to the Auditor-General (AG) within three months after the end of the fiscal year. Accordingly, the 2018 financial statements were submitted to the AG for audit by March 31, 2019 and have since been under audit. As mandated by Section 95 of the Public Finance Act (PFM), the AG is required to, within twelve months after the end of the immediately preceding fiscal year, submit an audit report on the annual government-wide financial statements to the Parliament. Therefore, the AG will be issuing the Annual Report on the Accounts of Sierra Leone 2018 in about a month. The pending report will include an opinion on government’s financial statements and underlying financial activities of the first year of His Excellency President Julius Maada Bio’s administration. The report will more than likely include several findings and recommendations and the underlying matters will be subject to public debate.
Year after year, government audit reports have concluded that majority of the recommendations from prior audits have not been resolved. According to the most recent audit report, only 34% of the 232 audit recommendations issued by the AG were addressed. Many of the outstanding audit findings describe conditions of extremely weak internal control environment. Such conditions create an opportunity for fraud, waste and abuse in government, and ultimately nurtures a breeding ground for corruption in public financial management.
For example, the 2016 audit report cited several internal control weaknesses including unsupported and questionable bank and cash transactions and reconciliations; revenues not recorded in government accounts; weak local council financial management system in a number of councils; lack of key controls in the government’s Integrated Financial Management Information System (IFMIS), among others. Similar observations are described in the 2017 report in which it was noted that “Ministries, Departments and Agencies (MDAs) showed slow response to the Auditor-General’s previous year’s messages of embracing their responsibility to guide and direct the development and performance of a strong system of internal controls.” Unless outstanding audit recommendations underlying these weaknesses are resolved through audit remediation, the AG will continue to cite them in subsequent reports.
Generally, an independent audit is not intended to be an “end” in itself. Instead, it is designed to be a means to an “end”—with the “end” being to help identify areas in need of improvement. The war against corruption will be greatly complimented by a sound system of internal control in the Sierra Leone public financial management system. And this cannot be achieved unless concrete actions are taken to implement audit recommendations in ways that will improve financial management processes across government. Remediating audit findings and recommendations is the responsibility of management of the respective MDAs. While external audits point to errors, deviations, omissions, and weaknesses in internal control over operations and underlying financial reporting in government, addressing those observations requires a great deal of commitment by senior management in identifying and deploying the right resources—people, process and tools necessary to remediate them. Governments in developed countries spend significant portions of their budgets on improving internal control, a conduit for minimizing fraud, waste and abuse, as well as for ensuring compliance with laws and regulations. Strong internal control will also greatly complement the fight against corruption by reducing the opportunities for corrupt acts and help deter and/or prevent corruption before it occurs.
In recent years, the AG’s reports have received increased publicity and have been used as yardstick for measuring the performance and stewardship of past administrations. This will be the same for the Bio administration. Donors, Parliament, opposition parties, advocacy groups, as well as the general public have all used audit findings to measure performance and hold the ruling government to account. Several corruption and mismanagement scenarios reported in government including the missing Ebola funds, $12 million-dollar bus procurement saga, $25 million questionable arms procurement deal, and many others were made public via AG’s audit reports. Improving internal control across government will not only help in addressing prior years’ audit findings but can also limit the number of findings that will result from future audits. This will also reduce surprises that may come out of the AG’s annual audit reports.
To improve internal control across government, the Bio administration should consider initiating and championing a government-wide internal control, internal audit and quality assurance improvement initiative. The initiative should be geared towards improving the internal control environment; audit readiness and quality assurance; and the overall external audit engagement management, facilitation, coordination, and remediation activities.
Specifically, the following should be considered:
1. conducting a current state assessment of internal audit and quality assurance functions, audit readiness and overall internal control across government;
2. developing and implementing and/or improving on existing internal control and audit compliance framework and monitoring mechanisms;
3. establishing a systematic framework for facilitating, coordinating, and responding to external audits and training the audit stakeholder community across government; and
4. design and implement a comprehensive system for audit remediation (corrective action implementation), audit readiness and sustainment.
The above proposed initiatives are consistent with generally accepted internal control improvement best practices adopted by government agencies in developed countries, including the United States. Leveraging these will provide an opportunity for the Sierra Leone government to achieve measurable results in reducing audit findings, improving overall internal control environment across government, reducing corruption, and ultimately leading to a sound public financial management system. How the Bio administration receives the pending audit report, reacts to the findings therein, and prepares to address the recommendations will speak volume and provide renewed assurance to the public that the government, is for once willing and committed to addressing audit findings.