Abstract
Internal control is considered to be the most important measure necessary in all organisations to ensure that organisational goals are achieved. Like all other organisations, municipalities must design and implement certain controls in order to achieve positive audit outcomes and fulfil their mandate of good service delivery. This study was conducted to generate an in-depth understanding of internal control and how it impacts audit outcomes. The study addresses the absence of qualitative studies on internal control in South African municipalities relating to their financial statements. The following research question was set: which internal controls underpin clean audits compared to those with unclean audits? To answer the research question, the following objectives were met: a literature review was conducted in order to understand the concept of internal control; a review of the relevant laws and regulations applicable to municipalities serving as a means of internal control was performed in order to understand the regulatory internal control framework applicable to municipalities in South Africa; a content analysis was conducted on selected municipalities that had obtained clean audit outcomes, versus those that received unclean audit opinions. This helped the researcher to gain understanding of the type of internal controls relevant to the two extremes of audit outcomes. A qualitative research design using document analysis was implemented to achieve the research objectives. Data was collected through secondary data available in the public domain. The criterion sampling method was used for metropolitan municipalities whilst simple random sampling method was used for district and local municipalities. The basic internal controls identified by the Auditor-General of South Africa were examined and from these, five basic categories of internal control were identified. The findings revealed that internal control is essential in achieving positive and clean audit outcomes. To attain and maintain clean audit status, municipalities with unclean audits could benefit from this study as it provides a clear comparison of municipalities with clean vs unclean audits. The study recommends that the municipal leadership should attain adequate training to ensure that instability, and under-performance of employees may be addressed. Furthermore, financial management risk can be reduced through implementation and managing internal control systems and monitoring by relevant assurance providers...
M.Com. (Auditing)