1 Operation Clean Audit Briefing to Portfolio Committee on Cooperative Governance and Traditional Affairs 15 March 2011

Outline of Presentation 2  Background  Overview of Municipal Audit Outcomes 2009/2010 Progress on performance of municipalities in respect of Operation Clean Audit Some of the areas to continue concentrating upon during the 2011/12 financial year Key Partners  Overview of Provincial Audit Outcomes 2009/2010 Progress on performance of municipalities in respect of Operation Clean AuditQulification issues  Conclusion

Background (1/3) 3  Operation Clean Audit was launched in 2009  The vision of Operation Clean Audit is “By 2014, all 283 municipalities and 9 provinces’ departments in South Africa will have achieved clean audits on their Annual Financial Statements and maintaining systems for sustaining quality financial statements and management information”.

Background (2/3) 4  Specific targets for municipalities: 2010/11 municipal financial year: No municipality achieving disclaimer or adverse opinion; 2012: At least 60% of the 283 municipalities achieving unqualified audit opinion; 2013: At least an increase in municipalities achieving unqualified audit opinion to 75%; and 2014: All municipalities achieving unqualified audit opinion.

Background (3/3) 5  Specific targets for provinces: 2010/11 provincial financial year: No provincial department achieving disclaimer or adverse opinion; 2012: At least 60% of provincial departments achieving unqualified audit opinion; 2013: At least an increase in provincial departments achieving unqualified audit opinion to 75%; and 2014: All provincial departments achieving unqualified audit opinion.

Overview of Municipal Audit Outcomes for 2009/2010 (1/3) 6  The Auditor-General has still to publish (release) the “Consolidated General Report on the Local Government Audit Outcomes: ”. The information in this briefing is based on work-in- progress based on Reports of audit outcomes as obtained from both or either provincial departments responsible for local government and the provincial offices of the Auditor-General, and is still subject to change as information pertaining to 47 municipalities is still outstanding at this stage. The challenges facing these 47 municipalities may be far much greater than that facing those municipalities with disclaimers and adverse audit opinions.

Overview of Municipal Audit Outcomes for 2009/2010 (2/3) 7 Type of audit opinion 2008/09 audit outcomes 2009/10 audit outcomes Disclaimers8150 Adverse opinions87 Qualified opinions4749 Unqualified with other matters Unqualified with no other matters 45 NOTE: (1) In terms of Operation Clean Audit target, by the end of the 2010/11 municipal financial year, no municipality should be achieving disclaimer or adverse opinion. (2) Info relating to 47 municipalities outstanding (serious challenge).

Overview of Municipal Audit Outcomes for 2009/2010 (3/3) 8  Comparing progress in respect of the audit outcomes of the 247 municipalities (audit outcomes for 36 municipalities not finalized timely) in respect of 2008/09 and the 236 municipalities (47 municipalities still outstanding) in respect of 2009/10 financial years, so far the national picture of audit outcomes is as follows: 62 municipalities have improved upon their 2008/09 audit outcomes; 15 municipalities have regressed; and 159 municipalities remain unchanged

Some of the areas to continue concentrating upon during the 2011/12 financial year(1/3) 9  Establishment of Municipal Public Accounts Committees (MPAC's) Workshops on establishment of (MPAC's) were convened in all provinces However following the LG elections all municipalities, including those in Gauteng that established MPAC’s will have to establish or re- establish them.

Some of the areas to continue concentrating upon during the 2011/12 financial year(2/3) 10  Individual or shared Internal Audit Units have been established in 246 municipalities and audit committees in 252 municipalities. To assist those municipalities that have not yet established Internal Audit Units and Audit Committees to e  Through provinces, monitor and support municipal action plans to address previous audit outcomes.

Some of the areas to continue concentrating upon during the 2011/12 financial year(3/3) 11 Among others, key partners in supporting municipalities include the following: Provincial departments responsible for LG; The National Treasury and provincial treasuries; Salga; The Auditor-General; Association of Public Accounts Committees (APAC)

Overview of Provincial Audit Outcomes for 2009/2010 (1/4) 12 Type of audit opinion 2008/09 audit outcomes 2009/10 audit outcomes Disclaimers410 Adverse opinions20 Qualified opinions3124 Unqualified with other matters 8675 Unqualified with no other matters(Clean Audits) 414

Overview of Provincial Audit Outcomes for 2009/2010 (2/4) 13 The audit outcomes of provincial departments for the current year generally showed a steady reduction in audit qualifications. This positive trend is, however, distorted by the continued deterioration in the education, health and public works sectors in five provinces, as evidenced by the disclaimers or adverse opinions of 8% ( : 5%) of departments.

Overview of Provincial Audit Outcomes for 2009/2010 (3/4) 14 Overall the provincial outcomes of departments showed 61% ( : 70%) unqualified opinions with internal control shortcomings (related to reporting on predetermined objectives and/ or compliance with laws and regulations) and an improvement in clean audits (financially unqualified with no findings on reporting on predetermined objectives and compliance with laws and regulations) to 11% ( :4%). With regard to audit qualifications, 20% ( : 25%) of departments received qualified opinions

Overview of Provincial Audit Outcomes for 2009/2010 (4/4) 15 Capital assets remained the major reason for qualifications, constituting 79% of departments qualified. Other areas that were qualified and require attention at provincial departments are disclosure notes (59%) and reporting on unauthorised, irregular as well as fruitless and wasteful expenditure (53%).

Conclusion 16  The targets for operation clean audit are ambitious, but concerted effort is being exerted toward realising them.  It is hoped that the establishment/re-establishment of MPACs following the LG elections will be a useful intervention. Thank You