SA Schools: To Audit or not to Audit
The South African Schools Act (SASA) of 1996 establishes the legal framework for the governance, establishment, and funding of public schools in South Africa. It emphasises the rights and responsibilities of learners, educators, and other stakeholders, promoting inclusivity and the right to quality education for every child, regardless of their social, cultural, or economic background. SASA designates School Governing Bodies (SGBs) to manage school funds and report thereon. Specifically, sections 42 and 43 outline financial records, statements, and their audit or examination requirements.
Legislative requirements
Section 42 of the South African Schools Act, 84 of 1996, mandates that SGBs keep detailed records of the school's financial transactions and prepare annual financial statements within three months of the financial year-end, adhering to the Member of the Executive Council (MEC) guidelines.
Section 43 requires the appointment of a registered auditor to audit these records and financial statements. If an audit is not feasible, an examination by an accounting officer or a person approved by the MEC is required instead. However, the engagement standard that the accounting officer or another person must follow is not defined by the Act or the Circulars. This creates an opportunity for different interpretations of what reporting engagement should be performed.
The available reporting engagements are:
Audit (following ISAs)
Independent Review (following ISRE2400)
Factual Findings (including accounting officer engagement following ISRS4400)
Compilation Engagement (following ISRS4410)
These standards are available in CIBA’s Practice Support Library here.
In addition, the following Circulars were issued to assist with the interpretation of various sections of SASA by the Department of Basic Education:
M2 of 2019: Investigation into misconduct of registered auditors and accounting officers in schools
Circular M1 of 2018: Legal interpretation for Section 43(2) of SASA
Circular M2 of 2018: Legal interpretation for Section 27 of SASA regarding "necessary expenses
Circular M2 of 2018 Interpretation of section 43(2) of ‘Is not reasonably practicable.’
Circular M1 of 2017: Measures to improve management of school finances
Circular M2 of 2017: Measures to strengthen and improved personnel administration of educators
Circular M3 of 2017: Measures to strengthen compliance to sections 42 and 43 of SASA
Circular M4 of 2017: Measures to strengthen compliance relating to disclosure of interest
Circular M5 of 2017: Clarity on paragraph 1 of Circular M1
Since their introduction in the Companies Act of 2008, independent reviews have emerged as a favored option for financial assurance. Carried out by qualified professionals who are not employees of the school, these reviews offer a viable alternative to the more comprehensive audits. While less exhaustive, independent reviews still provide meaningful oversight. They aim to ascertain if there's any reason to believe the school's financial statements do not accurately reflect its financial status, albeit without the extensive procedures involved in an audit.
Differing applications per province
Our comprehension of the methods adopted by the different provincial departments suggests that each Department of Education has the autonomy to interpret and implement sections 42 and 43 in a distinct manner. While some provinces accept accounting officers’ engagements, others mandate independent reviews or audits. In certain provinces, audits are exclusively permitted.
CIBA’s recommendations
CIBA is a statutorily recognised professional accountancy organisation performing a public service in terms of the following empowering legislation:
South Africa
Recognised Professional Body and Registered Professional Designations: National Qualifications Framework Act 67 of 2008
Recognised Controlling Body for Tax Practitioners: Section 240A of the Tax Administration Act, 2011
Professional Accountancy Organisation for Assurance and Non-assurance providers: Regulation 29(4) of the Companies Act, 2008 and Section 60(2) of the Close Corporations Act, 1984.
Namibia
Professional Accountancy Organisation for Accounting Officers: Section 60(2) of the Close Corporations Act, 1988.
CIBA’s objectives are to protect the public interest by adopting and enforcing standards of ethics, conduct, quality, and service engagement standards that seek to ensure the delivery of accountable and transparent professional service by CIBA members.
According to CIBA, qualified accountants who seek to provide services to schools should consider the following steps:
Arrange a meeting with the MEC to discuss the unique requirements set by each province.
Apply to be recognized on the list of accredited professionals acknowledged by the Department for performing accounting officer examinations or independent reviews.
Encourage the school governing body to apply to the Provincial Department of Education, arguing that the audit requirement does not apply to them as it is not ‘reasonably practicable.’ They should propose adopting either an independent review engagement or a factual findings engagement based on an accounting officer’s involvement, justifying this choice with the economic viability of the school. The term “reasonably practicable” is not defined by the Act. Elements that could be considered may include:
Feasibility, fairness, and the need for inclusivity.
The economic significance of the school is measured against revenue, assets, number of employees, and similar factors.
The nature of the school and the community within which it operates.
The cost of a registered auditor’s report.
The availability of a registered auditor
The economic significance of the school can be used to determine a threshold for when an audit is not “reasonably practicable.” Drivers such as revenue, assets, and whether the school collects school fees will directly impact the school’s ability to afford an audit. For example, In KwaZulu-Natal, the provincial department has issued the “School Funding Norms Policy Implementation Manual for Public Schools.” These manuals only apply to KZN. According to this manual, an audit is required for all fee-earning schools in KZN. An examination is required for all non-fee-earning schools.
Support public schools in formulating financial governance policies, serving as a guideline for determining the appropriate type of financial engagement without specific provincial circulars.
Develop skills: Before accepting an independent review engagement, the accountant should ensure that he/she can perform the engagement with care, skill, and diligence. This means only CIBA members who have completed the Independent Review License may undertake these engagements.
Only auditors can audit: In those provinces that mandate audits, only individuals registered with IRBA as auditors are eligible to conduct such engagements. CIBA, SAIPA, and SAICA members lacking auditor credentials are prohibited from performing audit engagements.
CIBA members do audit preparation: Members of the Chartered Institute of Business Accountants (CIBA) have a crucial role in supporting educational institutions through audit preparation, tax, and accounting services. According to the Handbook for the International Code of Ethics for Auditors, section 600 issued in 2022, auditors must maintain a stringent level of independence when auditing public interest entities. This stipulation explicitly delineates the roles within the audit process: auditors are to focus solely on conducting the audit, ensuring impartiality and objectivity. Consequently, this segregation of duties allows CIBA professionals to specialize in and provide the necessary audit preparation, tax, and accounting work, thereby safeguarding the audit's integrity and compliance with ethical standards.
Collaborate with an audit firm: If a School is required to appoint its own auditors, CIBA members can play a pivotal role by recommending audit firms that are in a strategic alliance with CIBA. This arrangement fosters a collaborative environment and enhances the service offerings to schools. By leveraging this partnership, CIBA members can prominently feature these audit firms on their websites and brochures, effectively broadening the exposure of the audit firms' services. Moreover, they can act as intermediaries, facilitating communication between the school and the audit firm, ensuring that the audit preparation work is thoroughly conducted in alignment with the school's needs once the groundwork is laid by the CIBA member, the strategically allied audit firm steps in to perform the audit, thereby delineating the financial responsibilities: audit fees are directed to the audit firm, while the CIBA member is compensated for the audit preparation, tax, and accounting services. This symbiotic relationship not only streamlines the audit process for schools but also ensures a clear separation of duties, maintaining the integrity and independence of the audit.
CIBA Strategic Alliance Partners:
Mazars is a global audit, tax, and advisory firm, uniting over 50,000 professionals in 100+ countries. It provides various services to various industries, emphasizing a fair and prosperous world through its commitment to clients, markets, and professional integrity.
Nexia SAB&T is a South African accountancy, auditing, and consulting firm that is part of Nexia International. It offers services like audit and assurance, business consulting, and legal services, focusing on personal touch and community support through the SAB&T Foundation.
Example letters to use when engaging with Schools
Auditors and PIE
Auditors responsible for public interest entities are prohibited from engaging in accounting, tax, and audit preparation services for educational institutions. Independent auditors and accounting officers, particularly those affiliated with the Chartered Institute of Business Accountants (CIBA), are advised to communicate to schools the critical importance of maintaining audit independence. Additionally, they should outline the support services they can offer in the areas of accounting, tax, and audit preparation, emphasizing how these services can enhance the integrity and reliability of financial reporting.
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