Expenditure management – prevention is better than cure

This old adage seems to be more appropriate now than ever before with the focus on various State-owned enterprises (SOEs) regarding alleged or apparent mismanagement of funds. With failing to adhere to financial budgets, financial limits being exceeded, wasteful expenditure in the area of Expense Management, one has to question the processes in place to prevent this from re-occurring, Tracey Shaw, Sales Director at Tra velUxion, tells SmartProcurement.

“The ‘horse has already bolted’ by the time auditing firms discover financial problems, and these enterprises are left with deficits in the R-millions. The weaknesses in South African Airways’ (SAA) internal controls were only identified during a R15-million forensic audit by KPMG.

“The cost of recovery and of the various audits that take place post such irregularities are sizable compared with installing electronic systems that seek to prevent and expose such expenditure prior to the damage being done.

SAA is taking legal action against a former CEO for a sum of R31-million, the cost of which will be considerable.

“Financial Heads must explore the cost of preventative measures against the cost of mismanagement and expensive external forensic audits and litigation.

In all responsible enterprises, large or small, there are approval and authorisation policies that limit the risk of financial mismanagement. However in Shaw’s experience most of these are paper-based, the processes are there, the intent is visible, but the possibility of abuse is high in any paper-based process.”

“Wrongdoing happens when systems are not sufficiently robust,” SAA board Chairwoman Cheryl Carolus told MPs when she addressed parliament on the audit findings.

“In my organisation,” says Shaw, “if I want to travel to Cape Town for business I require approval from my line manager for this expense. My line manager is responsible for his or her budget, and as such, there would be some checks and balances against the pending trip to Cape Town and whether there is sufficient budget available, and if the cost relates to genuine business activity. This process can be electronic, which would decrease the time taken for approval and prevent manipulation of data.”

“There are intelligent and effective Spend Management tools that are available to organisations to prevent fraud, mismanagement and wastage. Spend Management tools provide an audit trail that has clear approval and escalation processes and do not allow for an individual to operate outside his or her approval mandate. These spend management technologies provide companies and government departments alike with internal spend management controls, visibility and accountability, and the cost is minimal compared with the price of litigation and forensic audits to recover spent millions.

“Other SOEs have featured heavily in the media in the last couple of months, however, this does not detract from the fact that the likelihood of this occurring in the private sector in the absence of a preventative solution is highly likely.

“The South African business sector must adopt and embrace such technologies in order to align with the sound business principles of the King III report (a governance report that provides a list of best practice principles to assist and guide directors to make the right choice for their company), Public Finance Management Act (PFMA) and other regulatory bodies. Spend Management solutions are today’s prevention to cure corporate mismanagement and fraud and should be adopted just as readily as e-mail technology.

Meanwhile, SAA’s board is tightening up the airline’s risk management and procurement processes to bring them in line with international best practice. KPMG has undertaken a high-level review of SAA’s procurement procedures.

TravelUxion is represented by Bespoke Sourcing Solutions, for more information email info@bespokesourcing.co.za

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