In an effort to strengthen public financial accountability, the Public Financial Management (PFM) Act, 2016 (Act 921) has introduced Audit Committee in the covered entities as part of public financial governance infrastructure to replace the Audit Report Implementation Committee (ARIC). Many experts hold the view that ARIC did not perform well due to lack of independence and legal framework. To address these lapses, the PFM Act paid attention to the composition of the Audit Committee and empowers the Minister of Finance to issue regulations for the effective functioning of the committee. A good number of Audit Committees have since been inaugurated and operational.
Required:
i) Describe the composition of the Audit Committee and explain how the structure of the committee could enhance the effectiveness of public financial governance. (5 marks)
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Composition of the Audit Committee.
The Audit Committee is made of five members as follows:
- Three of the members nominated by the Institute of Chartered Accountants, Ghana and the Internal Audit Agency. These members should be independent of the operation of the covered entity.
- Two members nominated by the Principal Account Holder of the covered entity. These should exclude Principal Account Holder, Deputy Minister and the Principal Spending Officers.
- Chairman of the committee shall be selected among the three independent members. The Principal Spending Officer or Principal Account Holder in consultation with the Audit Committee shall appoint a person to provide secretariat support to the committee.
- The Principal Account Holder shall appoint all the members and the Chairman.
How the structure of the committee could enhance the effectiveness of the committee.
The structure of Audit Committee may improve effectiveness in the following ways:
- Independent of majority of members, including Chairman will enhance the work of the committee by minimizing opportunity of influence and likely victimization of out spoken members. This affords the committee free hands to operate.
- Finance expertise on the Committee is also enhanced as majority of members are from accounting, finance and audit backgrounds. This enhances individual effectiveness on the Committee.
ii) Explain THREE (3) responsibilities of the Audit Committees as enshrined in the PFM Act and the related guidelines issued by the Minister of Finance. (3 marks)
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Statutory responsibilities
- The Audit Committee shall ensure that the head of a covered entity pursues the implementation of recommendation(s) contained in internal audit reports, Parliament’s decisions on the Auditor-General’s report, Auditor-General’s Management Letter, and report of an internal monitoring unit in the covered entity particularly, in relation to financial matters raised.
- The Audit Committee shall ensure that the head of a covered prepares an annual statement showing the status of implementation of recommendations contained in internal audit reports, Parliament’s decisions on the Auditor-General’s report, Auditor-General’s Management letter, report of internal monitoring unit in the covered entity particularly, in relation to financial matters raised; and any other related directives of Parliament.
Advisory role and responsibilities
- Providing advice on sound, transparent and reliable financial management practices,
- Ensuring the risk management process is comprehensive and effective.
- Helping achieve organization-wide strong and effective internal controls in the covered entity.
- Reviewing corporate policies relating to compliance with laws and regulations, ethics, conflicts of interest, and investigations of misconduct and fraud.
- Reviewing current and pending corporate governance related litigation or regulatory proceedings to which the covered entity is a party.
- Ensuring the internal auditors’ access to the Audit Committee, encouraging communication beyond scheduled Committee meetings.
- Reviewing internal audit plans, internal audit charters, risk (including fiscal risk) assessment reports.
- Ensuring the development, approval and update of the code of conduct. The Committee should also ensure that all employees receive the code of conduct, understand it, and obtain appropriate training regarding it.
- Follow up on significant issues, investigations, and disciplinary actions.
- Collaborating with the Internal Audit Agency to initiate investigation into matters involving fraud or misuse of public funds by the Principal Spending Officer.
- Reviewing audit reports for assurance on efficiency, effectiveness and economy in the administration of programmes and operations of the covered entity.
iii) Suggest TWO (2) ways by which the effectiveness of Audit Committee can be enhanced. (2 marks)
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- Offering training for members to equip them with the current knowledge on the working of Audit Committee. This will enhance members’ effectiveness.
- Regular review and monitoring of the Audit Committee should be carried out by the ICAG and Internal Audit Agency. This will ensure assessment of the Audit Committee and those not performing will be worked upon.
- Collaboration with other institutions of accountability such as the Public Accounts Committee and Auditor General to promote effective financial governance.