The Provincial Auditor General has completed the 2010/2011 audit of all municipalities and has expressed an opinion on each one. These audit opinions differ from disclaimer of audit opinion to qualified and unqualified audit opinions.
Given the 2009/10 municipal audit outcomes which reflected a very poor and undesirable state of financial affairs at the municipal level and also taking into account the undertaking by provincial government state organs to assist municipalities to improve their financial affairs in line with the strategic objectives of Operation clean Audit 2014 as well as the local government turn-around strategy.
Provincial government conducted a review of the financial affairs of the municipalities and came to the conclusion that if there were to be any significant improvement in the audit outcomes of several municipalities especially those that have received disclaimer audit opinions from the Auditor General over the last five or more years, there has to be an intervention from the Provincial Government to address the issues leading to this undesirable state of affairs.
The intervention came in the form of the establishment of an Operation Clean Audit 2014 Steering Committee. This committee was put together to drive improvements in the audit outcomes of the municipalities and provincial departments. The aim of the committee is to coordinate all interventions, pull resources together in order to deploy them appropriately and to develop and monitor implementation action plans to address the audit outcomes and financial management issues in the province.
The committee is chaired by the Director General and the following stakeholders are represented in the committee.
Provincial Treasury
Cooperative Governance, Human Settlements & Traditional Affairs
South African Local Government Association (SALGA) NC
National Cooperative Governance and Traditional Affairs and
Office of the Premier
The committee meets monthly to strategise, receive reports, review progress made on decisions agreed upon in the previous meetings and agree on next steps. One of the critical and far reaching decisions that was taken and implemented by the committee was to mandate Provincial Treasury to coordinate a process of obtaining additional resources that would augment and complement the work of municipalities to ensure that processes leading towards year end closure are properly streamlined, that assets registers of municipalities are Generally Recognised Accounting Practice (GRAP) compliant and that elements associated with negative audit findings are addressed and dealt with in order to lead to improved audit outcomes.
An amount of R24 million was then agreed to and set aside for this purpose. A process was put in place to appoint service providers that would assist in turning around the situation at local government.
It was thus agreed that consultants will be appointed under the control and leadership of Provincial Treasury to assist municipalities with the preparation of 2012 financial statements and GRAP compliant asset registers. It should be noted that in performing this role, Provincial Government does not in any way intend to assume the responsibilities of the municipality as set out in the Municipal Finance Management Act (MFMA), which shall remain the responsibility of the municipality
History has shown that most municipalities are struggling to implement good financial management controls and are also still grappling with the implementation of accounting standards. In the 2010/11 financial year, medium capacity municipalities were expected to fully comply with all the applicable Generally Recognised Accounting Practice standards.
However, some still experienced challenges with the application and implementation, especially with GRAP 17 which deals with property, plant and equipment. Assets represent a significant share in the statement of financial position, especially the infrastructure assets which are the enablers of service delivery. If not properly accounted for by the municipalities, they will result in continuous qualification.
Low capacity municipalities will have to be fully compliant when reporting at the end of the 2011/12 financial year. Most of these municipalities have serious capacity challenges and will encounter problems in fully implementing and complying with the GRAP standards. Though some managed to obtain unqualified audit opinions, the challenge will be on compliance to the all requirements of GRAP 17.
Our assistance to municipalities is not a blanket approach and is tailored around the following principles
All district municipalities are excluded from the support intervention as they are self-sustainable and do not have serious challenges when compared to local municipalities.
Support is targeted to ailing medium capacity municipalities that were qualified on the incorrect application of GRAP 17.
Support is being provided to all low capacity municipalities towards the compilation of GRAP compliant asset registers. This is intended to augment existing municipal plans if there are any to obtain the desired results.
Municipalities that struggled to complete the 2010/11 financial statements due to technical know-how and capacity constraints are prioritised and assisted for a period of two years. (i.e. 2010/11 and 2011/12)
Fifteen municipalities were approached to determine if the assistance would be welcomed namely Renosterberg, !Kheis, Kamiesberg, Mier, Phokwane, Magareng, Siyancuma, Joe Morolong, Kai Garib, Hantam, Ubuntu, Gasegonyana, Nama Khoi, Siyathemba and Thembelihle.
Of the 15 municipalities that were identified, 11 declined the offer due to the fact that no funding was to be made available to the municipalities rather a hands on support was proposed. The remaining four welcomed the assistance and accepted the offer. The municipalities that welcomed the assistance are Mier, !Kheis, Kamiesberg and Renosterberg.
Audit outcomes for the past years have been poor due to the municipality’s inability to manage processes relating to annual financial statements and systems as described in the MFMA. Their environment is further challenged by a poor skills base, poor controls that leave the system open for abuse and fraudulent activities. Poor financial management with lack of controls and accountability systems impacts negatively on service delivery for communities, i.e. from lack of water and other services to inadequate funding for technical equipment for servicing basic infrastructure.
It is also a known fact that asset management is still the biggest challenge that municipalities are faced with.
Progress made to date
The preferred bidders after the finalisation of supply chain management process were Altimax and the University of the Free State Business School for the project. The companies were assessed on the approach to be followed, their experience in the municipal environment and qualifications of teams that will be on site to assist the municipalities.
Altimax was appointed to assist Mier, Kheis and Kamiesberg with the financial statements and asset registers for 2011/12 whilst the UFS Business School was appointed to assist Renosterberg with the 2010/11 and 2012 annual financial statements. These service providers have signed service level agreements and have provided the implementation project plans to Provincial Treasury. They were appointed in April 2012 and the first meeting between the municipalities, the service providers and Provincial Treasury took place on 12 and 13 April 2012.
Since the conclusion of the appointment process for the successful bidders four other municipalities have changed their positions and they would like to be assisted for the current financial year. It is unlikely that they will receive assistance for this municipal financial year given that the appointment process must be restarted and proper supply chain management process is followed. Furthermore the memorandums of understanding have been concluded between Provincial Treasury and municipalities to ensure that the assistance bears the desired results.
Progress meetings were held at the beginning of this month to receive feedback from the consultants. The following key issues emerged from the briefing by the service provider namely changes in key senior management personnel resulting in Acting Municipal Managers redeployed back to Cooperative Governance, Human Settlements and Traditional Affairs (COGHSTA) head office.
In one municipality the municipal manager has been acting for the past three years. Severe lack of personnel with the requisite skills as a result the municipalities put heavy reliance on interns who are supposed to be guided by experienced personnel. Permanent personnel are not appropriately skilled thus they are unable to guide interns.
Backlogs in day to day transaction processing as the municipalities had not kept up with bookkeeping transaction processing from month to month. Systems used by the municipality not talking to each other. Last year annual financial statements not agreeing or tying up with the general ledger. Previous service provider unable to provide information on adjustments of prior year annual financial statements.
All these issues and others need to be resolved before these municipalities can be brought back to a healthy financial management environment. Despite these challenges we are confident that appropriate solutions will be found and concerns raised by the Auditor General will be addressed and clean audits achieved.
Acting Premier Ms G. Cjiekella municipal audit outcomes 2010/11
Province
