The role of internal audit in fighting corruption in government and private sector

Several obstacles have arisen in recent years, including the unplanned and unpredictable disruption of the Covid-19 worldwide pandemic, which has changed the way we work, live, and interact. South Africa has lately experienced load shedding, as well as numerous other governance concerns that the audit function may strive to address.

Due to the implementation of load shedding and escalating governance issues in the public sector, our current environment is chaotic. The need to preserve organisations and entities is more important than ever, and the key is to apply good governance principles and maintain governance structures to strengthen our institutions.

There is a dire need to enhance corporate governance to inform new avenues for value creation, innovation, and a path forward that is both viable and beneficial.

Internal auditing is still critical to governance, while  Internal audit is in a good position to execute the assurance reality check. It analyses the relevance to the management or governance committee as well as the level of assurance offered.

Internal auditing may hold the key to combating corruption and fraud in both commercial and public sector organisations.
It has long been seen as a monitoring role for organisations, tolerated as a necessary component of organisational management, but regarded as a need for the achievement of key corporate objectives.

There are still numerous difficulties in our country, notably in the leadership area, where more is needed to push for good governance practises. Professionals in the governance, accounting, and auditing sectors play an important role in promoting good governance concepts, which leads to increased organisational efficiency and the adoption of governance principles throughout South Africa’s economic structures.

The Internal Auditors Corporate Governance Index (CGI) is viewed as a barometer to measure the state of governance in organisations by rating seven governance dimensions, namely,Ethics, Compliance, Leadership, Performance, Operational Risk, External Risk, and Assurance. Its role is to recommend improvements needed to enable organisations to remain reputable and ethical in the eyes of stakeholders. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

According to CGI South Africa’s overall score has increased by 10 basis points since 2020. However, the 3.2 rating out of 4 for the first CGI report in 2013 has still not been attainable to date. The report which is based on public sector respondents also showed improved results in the Agriculture, Defence, Mining, Wholesale and Retail sectors.

When the surveying function is completed, the report information is validated and analysed by the University of Pretoria’s Department of Auditing. This is done to guarantee that the survey questions are consistent with the King IV Codes of Good Governance and include all seven governance elements, which are Ethics, Compliance, Leadership, Performance, External Risk, Operational Risk, and Assurance.

These characteristics are then graded on a scale of 0 to 4, with 0 being the lowest degree of governance performance and 4 representing the best level of governance performance. The Chief Audit Executives respond to the survey questions since they are best positioned to offer a full review of the organization’s corporate governance processes.

According to the research, these industries had better governance ratings in ethics, leadership, risk, and performance in 2022, compared to prior years. A further reduction might indicate a state of emergency, necessitating a more extensive and long-term response.

The pandemic spearheaded the global adoption of digital technology, resulting in the introduction of new regulations, standards, and laws. It also brought significant changes to the way we work, including the prompt implementation of hybrid policies. Some of these changes contributed to unethical practices, online crime, business closures, and an increase in unemployment. However, it also played a part in assisting the embrace of technological advances to improve overall performance in 2020 – 2022.

The report also identified the top three emerging risks for organisations are cybersecurity, political interference, and fraud. The threat from cyberattacks is significant and continuously evolving. Internal audit plays an integral role in assessing and identifying opportunities to strengthen enterprise security. ICT should be on the agenda of oversight bodies, and members of oversight bodies should familiarise themselves with the key ICT trends affecting their industries to ensure that they ask the right questions of management.

Ransomware, phishing, and hacking are examples of cybersecurity threats that affect public sector internal auditors. Any of these factors can impair an organization’s capacity to serve its people and put it at danger of utilising public funds to pay hackers.

Local governments and agencies receive massive amounts of highly regulated personal and other sensitive data, including personally identifiable information and credit or bank card information, from both staff and consumers. Data security is a big issue, as public agencies are common targets for data breaches and ransomware. If organisations do not adequately safeguard the data they keep, they risk losing their reputation and confidence.

Internal auditors have an edge in defending against fraud and providing foresight in risk detection. When organisations adapt to operational risk, such as a fluctuating business climate, supply chain disruptions, workforce shortages, and an increase in cyberattacks, to mention a few, it leaves them open to fraudsters looking to exploit the situation with more sophisticated technological tools.

As a result of how they are adjusting to deal with operational risk, such as a volatile business environment, supply chain disruptions, talent shortages, and an increase in cyberattacks, organisations are becoming more vulnerable to fraudsters looking to exploit the situation by using increasingly sophisticated technology tools to commit their crimes.

Audit teams can be proactive in their defence of risk detection by thinking about:

• Conducting regular fraud risk assessments.
• Anticipate fraud.
• Raise awareness in audit reports to governing bodies and senior management.
• Be prepared for scrutiny and accountability.

The CGI shows that ethics is another area of focus that has seen improvements over the years, however there are still challenges faced particularly in the political leadership space, where more is needed to advocate good governance practices. Organisations with effective ethical practices increase the adoption rate of governance principles internally and make a small contribution to South Africa’s economic structures.

It is vital to remember that ethics encompass activities such as the misuse of authority, manipulation of others, harming the environment, making bad judgements for stakeholders, engaging in discrimination, etc. As a result, leaders cannot afford to feel that their job is over after they establish the tone. Establishing the tone includes behaving visibly and implementing regulations to ensure that the tone pervades the whole organisation.

It is critical for leaders to have a deep awareness of the context in which they operate and to consider ethics holistically. The variety of South African organisations allows CEOs to engage in-depth talks about ethics while considering a wide range of perspectives.

Internal auditors are being trained and developed globally and locally to prepare them for future-fit roles in organisations. The Institute of Internal Auditors South Africa (IISA) has focused its continuous development programmes and activities on developing a future-ready internal auditor, with a special emphasis on the technology and digital demands of organisations in the future.

The CGI study continues to provide adequate insight into the future for the profession. The report’s findings also assist to guide auditors in staying ahead of the curve and up to date on emerging digital developments. To fulfil the various expectations of important stakeholders, time should be efficiently divided between tangible objective assurance activities and ongoing professional growth.