An Analysis of Internal Auditing as a Mechanism for Detecting and Preventing Supply Chain Management Fraud in the Public Sector

Abstract

Amongst some of the challenges confronted in South Africa is wasteful expenditure in the public service, which has resulted in massive loss of public funds. The main problem is systemic lapses when it comes to internal processes. This is particularly seen in relation to the supply chain, where internal lapses are fully expressed. Public financial management policies such as the Municipal Finance Management Act (No. 56, 2003) and the Public Finance Management Act (No. 1, 1999) requires that public organisations to implement internal supply chain management controls which include an internal audit as a management control to evaluate the systems of supply chain management and processes. These policies aimed to ensure that processes are followed to minimize lapses and inconsistencies in supply chain management. Despite all of these measures, there has been a huge spike in terms of fraud and therefore the effectiveness of supply chain management needs to be re-evaluated. This paper argues that the major problem has to do with monitoring and evaluating the supply chain management process; and ensuring that processes are followed. The systems, policies and procedures for supply chain management are in place; however, the lapse appears to be in the monitoring thereof. The question, therefore, arises whether internal audit rules are clear, sound and implementable. This paper analyses the effectiveness of internal audits in preventing and detecting fraud in supply chain management. Fraud prevention and detection have been part of the internal audit function's responsibilities, and yet internal auditors do not have sufficient skills to understand the fraud risks as they are not expected to have the proficiency of an individual whose main responsibility is identifying and investigating fraud. The latter is possible if internal auditors could work together with but are not limited to Forensic Auditors; investigators; supply chain officers and risk officers