ETHEKWINI: 02 October 2013
Presentation flow
Discussion points
• Background
• Internal Controls
• Concluding Remarks
• The AG identified weaknesses in the procurement processes and contract
management of even more auditees than last year (10/11), bringing the
percentage of auditees with findings in this regard to 84%.
• Weaknesses relating to non-compliance with legislation were also identified by
the AG in 11/12, which translated into irregular expenditure of R9,2 billion.
• There has been minimal improvement in the information technology controls that
should be ensuring the confidentiality, integrity and availability of local
government information.
• It was reported in the media on the 19th September that Public works had been
charged in the region of R200 by service providers for a drinking glass per
evening during some of the state functions, the deputy minister has attributed
this to tenderpreneurs working in cahoots with corrupt officials.
• All municipalities have to: collect resources from the economy, in a sufficient and appropriate
manner; and allocate and use those resources responsively, efficiently and effectively.
• The municipall budget is the main instrument through which these transactions are planned an
carried out.
• The core of public finance depends on spending someone else's money by elected office bear
• Countries use different internal control procedures to limit actual spending to what is authorize
in the budget. .
• Significant risk in expenditure management ;
– Risk: municipal resources lost or stolen through unauthorized/improper expenditures.
Adequate controls over the expenditure process are essential in preventing and detecting
fraud and other improprieties involving municipal resources.
Internal control Systems
• Internal control is a process, effected by an entity’s board of directors,
management, and other personnel, designed to provide reasonable assurance
regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
Reliability and integrity of financial information and financial reporting
* Committee Of Sponsoring Organizations of the Treadway Commission
Internal Control Systems
• The system consists of five interrelated components
– Control environment
– Risk assessment
– Control Activities
– Information and communication
– Monitoring
Control Environment
• Control environment is defined to a large extent by the statements below;
– Sets the tone of an organisation
– Influencing the control consciousness of its people
– The foundation of all other components of the system of internal
– Provides discipline and structure
– Its factors include the integrity, ethical values and competence of an
organisation’s people
Balancing Risk and
• In order to achieve goals and objectives, management needs to effectively
balance risks and controls.
• Control procedures need to be developed so that they decrease risk to a level
where management can accept the exposure to that risk.
• In order to achieve a balance, internal controls should be:
– Proactive
– Value-adding
– Cost-effective
– Address exposure to risk
• Internal control is effected by people at every level, not merely policy manuals 8
and forms
Internal controls
(myths and facts)
• Myth
– Internal control starts with a strong set of policies and procedures.
– Internal control—that’s why we have internal auditors.
– Internal control is integral to every aspect of the business.
• Fact
– Internal control starts with a strong control environment.
– Management is the owner of internal control.
– Internal control is a finance thing. We do what the Controller’s Office tells us 9
to do.
Internal Controls
(myths and facts)
• Myth
– Internal controls are a necessary evil. They take time away from our core
activities—service delivery, housing, health, roads, water and electricity and
most importantly delays issuing out tenders.
– Internal controls are a list of “thou shalt nots.”
– If controls are strong enough, we can be sure there will be no fraud, and
financial statements will be accurate.
• Fact
– Internal controls should be built into, not on to business processes.
– Internal control makes the right things happen the first time, and every time.
– Internal controls provide reasonable, but not absolute assurance that
Control activities
Actions, supported by policies and procedures that, when carried out
properly and timely, manage or reduce risks
 Approvals
 Authorizations
 Verifications
 Reconciliations
 Segregation of duties
 Security of assets
 Performance reviews
 Information system controls
Effective Internal Controls……
 Make sense within each organization’s unique operating environment.
 Benefit rather than encumber management.
 Are not stand-alone practices; they are woven into day-to-day
 Are cost-effective.
Concluding remarks
• Benefits of Internal Control systems
– Reducing and preventing errors in a cost- effective manner.
– Ensuring priority issues are identified and addressed.
– Protecting employees & resources.
– Providing appropriate checks and balances.
– Having more efficient audits, resulting in shorter timelines, less
testing, and fewer demands on staff.
Concluding remarks
Thank You
Thank you
Letlhogonolo Moroeng
[email protected]

Significance of Sound Internal Controls In Expenditure Management