Accountancy as heroism

The financial health of South Africa’s cities and towns is worse than ever before, with only 18 out of 257 municipalities getting clean audit reports for the 2017/18 financial year. Surely it’s long past time to introduce more transparency into our government spending. 

There are plenty of unenviable jobs in South Africa these days (university vice-chancellor, anyone?), but Auditor-General Kimi Makwetu and his team have been having a particularly hard time lately. Municipalities have been brazenly disregarding audit recommendations – the performance of 63 of them actually got worse last year, with only 22 doing better. To make matters worse, Makwetu says his audit teams have experienced people pressuring them to change their findings, questioning their motives, and even outright threats and intimidation. 

Accountancy shouldn’t have to be an heroic profession, so it’s good news that the new Public Audit Act gives the Auditor-General stronger powers to press for further investigations and initiate binding remedial action. But relying on the auditors to catch irregularities years after they’ve happened is much too little, too late. 

Like mould in a damp cellar, dodgy dealings, bad faith and even plain old incompetence thrive in darkness. Transparency and free-flowing information are the light and air a democracy needs if it’s not to start rotting at the foundations – and with today’s technology, there is no excuse for a lack of transparency. 

What does transparency look like? It means real-time access to information that’s easy to understand, even if you’re not a professional accountant. It means being able to dive below the top layer of aggregated numbers, all the way down to individual transactions if necessary. And most of all, it means the people who are responsible for spending money are also held accountable for it. 

Imagine if your local municipality’s accounting systems were open to public scrutiny in real time. Ordinary citizens could see exactly what was being spent on travel, or entertainment, or mystery consultants—and just as important, what was not being spent on upgrading sewerage plants, fuel for refuse collection trucks or maintenance of public roads and housing. And they’d be able to see it within days, not months or years – which means there might be time to stop problems in their tracks, before the money has been siphoned away into offshore bank accounts and properties in Dubai. Best of all, people who know their actions are being watched are less likely to go wrong in the first place. 

None of this is impossible to do right now – it’s not even particularly difficult or expensive, especially compared to the billions we’re continuing to lose to “irregularities”. The technology to achieve all of this already exists and is in use around the world, including in many places right here in South Africa. So is government not making its spending transparent because it can’t – or because it doesn’t want to?

Did you know that South Africa’s national Budget is rated as one of the most transparent in the world? In fact, in 2017 we tied first with New Zealand in the International Budget Partnership’s Open Budget Survey of 102 countries. So we’re getting one side of the equation right. Now it’s time to focus attention on the other side, and get our spending right as well. 

As published in Accountancy SA - September 2019

Recession and Resilience

There might be a recession coming soon; or it might come later. Economists are notoriously bad at recognising recessions until we’re in one – but we do know, at least, that another one will be along eventually.

Given this certainty, what’s the best way to deal with a looming downturn? For most people, the instinctive response is to prepare as if for disaster: nail up the windows, batten down the hatches, tighten belts or whatever the metaphor of choice might be for stockpiling resources, cutting spending and reducing exposure to risk.

Our instinctual response makes sense in the context of storing food for a long winter, or in anticipation of a famine – but in a more complex world than our ancestors faced, some of these reflexes can be counterproductive, particularly the instinct to stop spending. Deloitte, for example, reports from its latest survey of European CFOs that companies that reinvested more during the last recession, particularly those who were more advanced in the use of ICTs, achieved higher growth rates during the recovery. They attribute this success to thinking ahead and planning to take early advantage of the opportunities that inevitably arrive with a recovery.

Similarly, McKinsey partners writing in the Harvard Business Review say that during the next recession they expect companies to invest in, and rely increasingly on, digital tools to improve quality, simplify operations and boost productivity.

A recession, then, is an opportunity to invest, thoughtfully and strategically, in tools that will boost your organisation’s resilience and agility. Some of the most valuable tools are those that are able to improve communication, transparency and accountability across the company.

For example, depending on their needs and culture, some organisations centralise during times of trouble – others choose to disperse. Whichever choice they make, visibility is key: decision makers need to know what is happening at every level in the organisation, employees need clear direction from their managers and leaders, and teams need to communicate clearly across the organisation. Whatever level of confusion and mismatch we might be able to get away with in good times, we cannot afford it when things get tight. In particular, we need to take full advantage of the combined brains of everyone in the organisation – we need to gather and use all the resources of knowledge, skill, talent, experience and creativity we have.

In some ways this is common sense – but then again, we all know common sense is not all that common, particularly when people are feeling worried or fearful.  One of the most dangerously self-defeating reactions is to start hiding or withholding information, usually in the entirely misguided belief that giving people access to an accurate picture of reality will cause panic or encourage defeatism.

There’s a great example of this in the deservedly acclaimed TV series Chernobyl. In the first episode, local party officials agree on the night of the explosion at the nuclear reactor not to tell the local townspeople what has happened – for their own good. It was nearly two days before the town was evacuated. Other lies, omissions and concealments contributed greatly to human suffering in the wake of the disaster.

Tempting as it might be to tell ourselves that concealment of information was a disease peculiar to Soviet-era Russia, we all know it’s not. Again and again, leaders withhold or soften the truth about problems facing their organisations  – whether out of shame, fear, belief that they can fix it on their own, outright denial or some combination of all of these.

The truth may indeed hurt – but avoiding it always hurts more in the end. Leading people successfully through difficult times requires the courage to share the truth – and to seek, then accept, input from the rest of the organisation.

Only when everyone in an organisation has access to all the information they need can they truly apply themselves to fixing problems, developing new ideas and creating new opportunities. Choosing and using digital tools that facilitate information flows throughout the organisation is essential to building the resilience that’s needed to weather tough times.

So if you find yourself worried about the future, put your instinctive reactions on hold. Pause; reflect; look ahead – and then choose the actions and investments that will strengthen your organisation rather than weakening it.

As published AccountingWeb - 28th August 2019