Audit Quality Indicators for auditor authorisation within medical schemes industry

Pictured: Kedibone Sono

Recent research conducted by the CMS has highlighted the dominance of two major audit firms within the medical schemes sector. These firms accounted for a substantial 79% of the amounts paid to external auditors in 2021 and 77% in 2020. In contrast, the remaining firms only secured a little over 20% of the market share. Currently, there are twelve accredited audit firms listed by the CMS, most of which have accreditations set to expire in September 2025. By comparison, the Independent Regulatory Board for Auditors (IRBA) has registered a total of 1,760 audit firms. This means that medical schemes are serviced by only 0.68% of the broader auditing community, presenting an opportunity for more players to enter the market. However, this potential growth is now at risk due to the impending implementation of the National Health Insurance (NHI) system, which could fundamentally change the landscape of healthcare financing and auditing.

The CMS maintains a pre-approved listing of auditors authorized to operate within the medical schemes industry. Firms and individuals who would like to audit medical schemes must submit an application, which is evaluated based on a set of stringent standards. The criteria for approval, as outlined, include eligibility requirements for both firms and individual auditors, as well as specific procedures for authorization. Once approved, auditors are placed on the CMS's authorized list for a three-year term. At the end of this period, they must apply for renewal at least four months before their accreditation expires in order to remain eligible to audit medical schemes in the following financial year.

In terms of the AQIs, the CMS has several firm-level and engagement-level indicators aimed at assessing the overall effectiveness of audits within the medical schemes industry. These indicators provide insight into various aspects of audit performance, including the capacity of firms to deliver high-quality audits and the ability of individual audit partners to maintain ethical and professional standards. On implementation, they will be phasing processes to allow the industry to adjust.

Independence: One of the primary concerns in audit quality is maintaining independence. Indicators here include measures such as the maturity of a firm’s client acceptance and continuation processes. Also considered is the ratio of audit fees to total firm fees and the length of the audit tenure. Long or close relationships between auditors and clients can potentially compromise independence, and this factor is assessed both at the firm and engagement levels. At engagement level, it focuses on the individual audit partner's capacity to conduct thorough audits while adhering to professional standards. These indicators address how well the audit partner manages the audit process, maintains independence, and ensures that all aspects of the audit are conducted ethically and efficiently.

Audit quality and technical competence: This indicator assesses the resources available to ensure audit quality. It includes factors such as the firm’s experience in the medical schemes sector, the availability of an internal quality review system, the presence of technical expertise, and IT audit capabilities. Firms with robust support systems and a deep understanding of the medical schemes industry are better equipped to provide high-quality audits.

External inspections: Regulatory bodies, such as the IRBA and the CMS, conduct external inspections to assess the quality of audits. These inspections evaluate several factors, including firm leadership, ethics, audit quality, engagement performance, and the firm’s monitoring and review processes. The outcomes of these inspections often lead to remedial actions that can enhance future audit quality.

As of now, firms and individual auditors authorised to audit medical schemes for the financial period ending 31 December 2022 have had their authorization extended. Meanwhile, consultations are underway to refine the approval process for auditors in the medical schemes industry, ensuring that the regulatory framework continues to evolve in response to industry needs and challenges. SAICA monitoring these developments to ensure it timeously updates its medical schemes audit committee guidance to assist its members and industry-wide with navigating the changes.

The CMS's efforts to regulate and improve the quality of audits in the medical schemes sector reflect a commitment to enhancing the accountability and transparency of the industry. By empowering medical schemes' boards, refining audit standards, and encouraging a broader range of auditing firms to participate, the CMS aims to foster a more diverse and competitive auditing environment. However, this is not without challenges, especially with the potential impact of the National Health Insurance system. The future of medical scheme auditing will depend on how well these reforms are implemented and how the industry adapts to these changes.