Honourable Mayors
Municipal Managers
The Head of Department of Cooperative Governance and Traditional Affairs (COGTA)
Government officials
Good morning
Ladies and gentlemen, thank you very much for responding positively to the invitation to this very critical meeting this morning.
Firstly, I wish to start with a reminder that all municipalities in the province are signatories to Operation Clean Audit by 2014, which was launched officially in Pietermaritzburg in January 2010. Even though some of you gathered here today may not have personally put their individual signatures to the pledge of commitment to Operation Clean Audit because they were not yet elected mayors, the mere fact that you are now donning the mayoral chain with pride, makes you the heir to every commitment made by your predecessors. Indeed, we are all bound by that pledge to travel through our municipal spaces in terms of that road map leading to 2014, where all municipalities are expected to have clean audits.
Secondly, it becomes important that we continuously sensitise ourselves on the fact that the local government sphere in which we are operating is a very delicate environment where all role players ought to tread very carefully. In view of the weaknesses identified in this sphere in relation to service delivery, a national decision has been taken to make local government one of the critical areas of focussed improvement.
We have been reminded that if we are truly determined to improve the lives of our people and provide realistic water and electricity services, then we need to upscale the manner in which local government, as the implementing agents of service delivery, is positioned.
You will by now be aware of the 12 key Outcomes of the holistic government national strategy to improve the state of our country. You will also be aware that in terms of Outcome 9, the commitment is to create and maintain a responsive, accountable, effective and efficient local government system.
This system cannot be established successfully unless we close all gaps that have always led to our municipalities failing to carry out their mandate of service delivery successfully. Finances are one key area. If we are unable to handle finances adequately and inculcate a culture of proper reporting about how we have used those finances in keeping with the legal prescriptions, then we are not only heading for a negative audit opinion, but we doomed to fail in carrying out our mandate.
Our Clean Audit goals are an objective that we must achieve. Since the launch of Operation Clean Audit 2014, we have since introduced a phased-in approach, which will lead us to our clean audit destination. By the end of this 2011/12 financial year, we must have eradicated qualified audits, adverse and disclaimer opinions. We can no longer justify disclaimers and adverse audit opinions.
For these goals to be realised, it is imperative that we have municipal councils that perform effective oversight. This means that councillors have to ensure that they address internal control weaknesses, non-compliance and certain governance matters, such as the effectiveness of internal audit units and audit committees. Colleagues, for this to happen, we have to ensure our books are clean, annual reports are meaningful and compliant with legislation and that we have full public engagement in these processes.
Our department, through its Municipal Support business unit, has consistently provided feedback to municipalities regarding aspects of non-compliance in respect of financial management generally as well as, particularly, in respect of the annual report, audit report and responses received from municipalities to the audit report.
Despite this aid, we have still continuously witnessed non-compliance. I have been getting reports suggesting that among the contributory reasons that lead to poor fiscal management and accountability in our municipalities is the fact that senior administrators in municipalities do not always welcome the support and advice from our department.
The purpose of the meeting today is to address non compliance with the MFMA by certain municipalities in the province. As the MEC, I am engaging as I did previously with those municipalities that did not achieve positive financial outcomes based on our assessment of municipalities in the province and particularly with the new political leadership of these municipalities.
Mayors have significant financial responsibilities in terms of the MFMA and also to exercise oversight over the administration. It is therefore important that Mayors take accountability for the financial state of our municipalities and the audit outcomes and exercise oversight over the remedial plans that have been prepared by municipal officials.
The financial management area is of importance to ensure that municipalities are viable and that they function in a manner that enables them to successfully deliver services to our people. Sound financial management and accountability for public funds therefore becomes critical.
The specific areas of non-compliance that we are looking at today include:
- The negative audit outcomes, particularly in relation to municipalities that received disclaimed, adverse and qualified audit opinions.
- Those municipalities who did not respond to the audit reports or provided inadequate responses.
- As the MEC, I must also fulfil certain statutory obligations based on my department’s monitoring and reporting processes. In accordance with Section 131(2) of the MFMA, our department has analysed all annual financial statements, annual reports, audit reports and municipal responses to audit reports and prepared our report to the Provincial Legislature – as is required of me as the Executive Authority of this department.
Some of the municipalities here have improved from a disclaimed audit opinion to a qualified opinion. These include: Nqutu, Okhahlamba, Mfolozi and Umkhanyakude District. However, there is still much to be done to display totally sound financial management and addressing issues emerging as “Other Matters” in the report of the Auditor-General. In addition, it is important that municipalities sustain the improved audit outcomes.
Indaka municipality also improved from a disclaimer to an adverse audit opinion. This being the only such case in the province. A great deal of work still has to be done, colleagues. Edumbe municipality is the only municipality in the province that received a disclaimer audit opinion and for two successive years now. The Mayor should note very seriously that this is a criteria for a discretionary intervention in terms of section 138(f) of the MFMA, which reads as follows:
“Criteria for determining serious financial problems
When determining for the purposes of section 137 the seriousness of a financial problem, all relevant facts must be considered, and the following factors, singly or in combination, may indicate a serious financial problem:
(f) the Auditor-General has withheld an opinion or issued a disclaimer due to inadequacies in the financial statements or records of the municipality, or has issued an opinion which identifies serious financial problem in the municipality;...”
So, to the Mayor of Edumbe, this meeting is also part of the consultation process required of the MEC responsible for local government in terms of section 136(1) of the MFMA. I, therefore, am requesting a written representation to be submitted to me by 5 August 2011, indicating why I should not intervene in the municipality in terms of section 137 of the MFMA.
There may also be issues of possible financial misconduct due to this non-compliance because, in terms of section 171 of the MFMA,
“1. The accounting officer of a municipality commits an act of financial misconduct if that accounting officer deliberately or negligently –
a. Contravenes a provision of this Act.
b. Fails to comply with a duty imposed by a provision of this Act on the Accounting Officer of a municipality;...”
The municipality must deal with this matter in terms of Section 171(4) of the MFMA which requires it to:
“investigate allegations of misconduct against the accounting officer, the chief financial officer, a senior manager or other official of the municipality unless those allegations are frivolous, vexatious, speculative or obviously unfounded; and If the investigation warrants such a step, institute disciplinary proceedings against the accounting officer, the chief financial officer, or that senior manager or other official in accordance with Section 67 of the Municipal Systems Act (MSA) read with Schedule 2 of that Act.”
I would like to call on all of you Mayors with us today to take note of the above directives of the law. Mayors should thus institute this action and report thereon to the department within one month of the date of this meeting.
Today we are also looking at specific audit responses and the responses of municipalities. This is for all municipalities here as you have had a number of issues highlighted in your reports. Of major concern are issues of emphasis in the reports of the Auditor-General relating to Non-Compliance with the MSA and MFMA, Performance Management, leadership and governance issues.
Leadership refers to the Administrative and political leadership and governance refers to both the council processes, audit committees and internal audit units.
I am also here today to hear from you how you are going to fix some of the problems that have been identified so I will now be addressing individual municipalities on your performance and I expect Mayors to make their representations on the basis of assistance from your accounting officers.
Thank you.
Source: KwaZulu-Natal Department of Cooperative Governance and Traditional Affairs
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