Focus: Public sector – The impact of 4IR on accounting and finance in the public sector

The 4IR involves the ongoing automation of certain systems and processes and the digitisation of technologies to give them cognitive (human) abilities. As accountants, we can no longer ignore the fact that we will have to adapt and learn new skills, which could include data analytics and programming. The South African Institute of Chartered Accountants (SAICA), for example, has recently introduced a new competency framework for chartered accountants (CA2025 for trainees and Pathways to Relevance for members and associates). In this new framework, trainee accountants are expected to showcase more than technical competence during their training period. The use of technology and integrated thinking are going to be imperative in this framework for the CA(SA) of the future to add value to organisations.

Firstly, the private sector is ahead of the government in advancements and innovations in Artificial Intelligence (AI). This is because companies in the private sector have integrated AI to be part of their businesses and not merely another research and development cost. Companies like Netflix have seen a rise in their revenue because of making AI part of their core business: the consumer patterns identified by the algorithms in analysing consumer behaviour help to market the relevant content to consumers, which attracts more viewers. Checkers, under the Shoprite Group, has also disrupted the market by creating a cashless and queue-less store, which is a first of its kind in South Africa. This will bring an exciting discovery of the use of chatbots in our retail stores.

There is a real need for the application of 4IR technologies such as AI in the public sector because of Big Data: for example, the Department of Health deals with large amounts of data in the form of patient records which are confidential and would need to be backed up and encrypted using cloud computing. Big Data in the Department of Health can be managed with quantum computers which are able to process large data sets at a fast speed. The data could provide meaningful propositions if analysed properly, such as providing trends of the COVID-19 contractions from patients who have tested positive so that the Health Department can predict the number of people who might need to be hospitalised in the future.

Other departments such as the Home Affairs Department could also benefit from the use of AI branches such as natural language processing (NLP) to improve efficiencies in their processes. Automation of some of the services, such as the application of IDs and passports and the replacement of certificates, would be important. The department has implemented some of these developments, which is a step to better service delivery and efficiency in the public sector.

While in the accounting, support and reporting (ASR) rotation in the Office of the Accountant-General (OAG) at National Treasury, I was mainly responsible for the consolidation of annual financial statements of public entities and providing accounting advisory services to public entities and national departments. My cluster had over 100 entities and that fact alone made me wonder which functions within my cluster could be automated to improve the efficiency of the function and redirect the focus to more complex issues.

Unlike the private sector, the business of the public sector is mainly the supply of public goods and services. Public entities have to comply with the Public Finance Management Act (PFMA) and Treasury Regulations in reporting and accounting for that supply of goods and services.

National Treasury (NT) could use a private blockchain application for the reporting function of public entities and national departments which will allow NT to access the financial statements of public entities in real-time for the consolidation of the annual financial statements. As the information on the blockchain would be immutable, this would result in more accurate and complete financial statements, and it would result in fewer delays in the consolidation of the financial statements since the financial statements will be easily accessible.

Other functions that could be automated include the compliance communication with entities where NT sends year-end instructions and reminders to entities regarding the submission of their financial statements for reporting purposes. The compliance communication with entities is currently done manually and is a repetitive task which could be automated.

Many other directorates in other divisions, such as market risk, credit risk and cash management, could use machine learning tools under supervised learning algorithms such as support vector machine algorithms or decision trees to predict forecasts of cash flows and determine the level of risk of each public entity. This will enable NT to make strategic decisions about the hedging strategies and recommendations to make to the entities in order to minimise the risks.

A prevalent issue in public entities is irregular expenditure and fruitless and wasteful expenditure. The aim of the public sector is to reduce this kind of expenditure, and AI could play a role in reducing this expenditure. NT could use NLP tools such as semantic analysis, which analyses documents for any terms that are contrary to the agreement, to ensure that only valid expenses are approved by NT.

It goes without saying that the costs associated with the 4IR will be high. In order to reduce the capital required for some AI tools, the government could use AI tools that already exist or are in use in the short term, such as software that has been created (for example Software as a Service, SaaS), which can then be customised. In the medium to long term, government could partner with technical experts to research more appropriate AI tools for public sector reporting and processes.

Many emerging technologies will likely need to be exploited in the public sector over the coming years to ensure effective and efficient reporting, service delivery and decision-making. For accounting and finance, the objective to provide reliable information remains, with evolving expectations that include advice on emerging tech solutions. As trusted advisors to the government, chartered accountants in the public sector need to ensure that they are well equipped to provide advice and responsible leadership, as these solutions are considered, explored and implemented. We need to maintain a flexible approach and be agile and adaptable while remaining cognizant of the nature of the sector in which we operate.

Author
Naledi Liphapang, Chartered Accountants Academy (CAA) trainee, National Treasury