1. Taking accountability to improve audit outcomes

2. “Plan-Do-Check-Act Cycle”, also the Deming cycle , courtesy of the International Organization for Standardization 2

3. Audit outcomes over three years
278 municipalities

4. Movement per province (all auditees)
Gauteng
Limpopo 3 5
Mpumalanga 2 7 5 2 2 4
North West 2
Free State 2
KwaZulu-Natal 1
Northern Cape 6 5 4 1 7 3 8 14 1 2
Eastern Cape
Western Cape 10 14 2 4 3 1

5. Audit outcomes: Financial statements
023. Sec 4.1 – F1 – Audit of financial statements
Audit outcomes: Financial statements
278 municipalities
278 municipalities
278 municipalities
Financial statements submitted with no material misstatements
Financial statements submitted on time
Unqualified
Qualified
Adverse
Disclaimed
Outstanding audits

6. Most common qualification areas
024. Sec 4.1 – F2 – Three most common financial statement qualification areas
Most common qualification areas

7. Irregular expenditure (63)7

8. Property, infrastructure, plant and equipment (61)8

9. Revenue (53) 9

10. Compliance – overall audit outcomes
026. Sec 4.2 – F1 – Municipalities with findings on compliance with key legislation
Compliance – overall audit outcomes
278 municipalities
278 municipalities
278 municipalities
With no findings
With findings
Outstanding audits

11. Most common non-compliance area
027. Sec 4.2 – F2 – Most common areas of non-compliance
Most common non-compliance area

12. Irregular expenditure over three years
10%
With no IE =
MFMA
98% ( : 96%) of occurrences were related to contraventions of SCM prescripts
R m
(236 municipalities [90%])
Provincial breakdown of irregular expenditure incurred
R m
(225 municipalities [86%])
R m
(232 municipalities [88%])
24%
(R2 662 m)
municipalities ( : 63) were qualified on irregular expenditure, which means the amounts could have been higher.
The types of SCM contraventions leading to irregular expenditure were:
52% ( : 62%) related to non-compliance with procurement processes
42% ( : 31%) related to procurement without competitive bidding or quotation process
6% ( : 7%) related to non-compliance with legislation on contracts
Incurred in previous years – identified in current year
Identified by auditees
Identified during audit

13. Identified by auditees Identified during audit
Unauthorised expenditure over three years
31%
MFMA
99% ( : 97%) of occurrences caused by overspending of budget / main sections in budget
Provincial breakdown of unauthorised expenditure incurred
R m
(181 municipalities [69%])
R m
(190 municipalities [72%])
R m
(187 municipalities [71%])
Nature
Reasons include poorly prepared budgets, inadequate budget control, and lack of monitoring and oversight
Highest contributors
City of Tshwane Metro (GP) R1 914 million ( : R786 million)
All UE relates to overspending of budget/ main sections within the vote (43% is non-cash items)
Emalahleni (MP) R831 million ( : R233 million)
98% of UE relates to overspending of budget/ main sections within the vote (91% is non-cash items)
Madibeng (NW) R796 million ( : R1 258 million)
All UE relates to overspending of budget/ main sections within the vote (74% is non-cash items)
Non-cash items including depreciations, impairments, debt written off etc.
Identified by auditees
Identified during audit

14. Little movement in SCM findings since previous year
83% (219)
58% (153), R2 520 million
44% (115)
28% (74), R1 396 million
Uncompetitive or unfair procurement processes:
Findings include:
Competitive bidding or three written quotations not obtained (42%)
Deviation approved not reasonable/ justified (47%)
Procurement from suppliers without tax clearance (32%)
Preference point system not applied or incorrectly applied (33%)
Non-compliance with requirements for the procurement of commodities from local suppliers (17%)
Awards to other state officials: Tender or quotation is given to a supplier owned by the employee of another state entity e.g. municipality A awarded a tender to a supplier owned by an employee of municipality B
Inadequate contract management: The awarded tender is not properly managed e.g. contracts amended or extended without approval or performance of contractors not monitored
Awards to close family members of employees: A tender or quotation is given to a supplier owned by a family member of the employee of the municipality and it was not declared or disclosed e.g. contract awarded to the company owned by the wife of the CFO in the municipality
Awards to employees: Tender or quotation is given to a supplier owned by an employee or councillor of the municipality e.g. contract awarded to a company owned by the municipal manager
Limitation in planned scope of audit awards: Documents could not be provided for audit purposes
20% (52), R56 million
20% (52)
With findings
With material findings (reported in audit report)

15. Condoned or authorised through adjustment budget
Movement in UIFW balances
Movement of unauthorised, irregular and fruitless and wasteful expenditure as a percentage of previous year’s closing balance
Movement of unauthorised, irregular and fruitless and wasteful expenditure as a percentage of amount incurred in previous year
R1 186 m (4%)
R1 789 m (7%)
R1 789 m (14%)
R1 186 m (11%)
Recovered
Condoned or authorised through adjustment budget
Written off
Not dealt with

16. Municipalities assisted by consultants – financial reporting
R767 million paid to consultants on financial reporting services
Reasons for the financial reporting consultants being ineffective
Audit outcomes of municipalities assisted by consultants – financial reporting
Province
% of municipalities assisted by consultants with financial reporting
CFO appointed at year-end and finance department’s capacity is acceptable LP
96%
56% NC
92%
46% NW
91%
25% EC
89%
35%
Material misstatements in area of consultant's responsibility
No material misstatements
Material misstatement in area of consultant work

17. Audit of performance information
066. Sec 5.1 – F1 – Findings on performance reports and quality and timeliness of submission for auditing
Audit of performance information
Property, infrastructure, plant and equipment
278 municipalities
278 municipalities
278 municipalities
With no findings
With findings
No performance report / performance report submitted late
Outstanding audits
Submitted performance report with no material misstatements

18. Root causes 18% Best practices =
Management (accounting officers and senior management), the political leadership (mayor and council) and oversight bodies MPACs and portfolio committees) do not respond with the required urgency to our messages about addressing risks and improving internal controls
If officials who deliberately or negligently ignore their duties and contravene legislation are not held accountable for their actions, such behaviour can be seen as acceptable and tolerated.
Note: Percentage is calculated on number of municipalities that are not clean
Slow response by management to improving key controls and addressing risk areas
Management (accounting officers and senior management), the political leadership (mayor and council) and oversight bodies MPACs and portfolio committees) do not respond with the required urgency to our messages about addressing risks and improving internal controls
Inadequate consequences for poor performance
The low level of action in response to the high levels of non-compliance, poor audit outcomes, SCM transgressions and unauthorised, irregular as well as fruitless and wasteful expenditure demonstrate a lack of consequences in local government for poor performance and transgressions. If officials who deliberately or negligently ignore their duties and contravene legislation are not held accountable for their actions, the perception is created that such behaviour and its results are acceptable and tolerated.
Instability or vacancies in key positions
The high demand for consultants and support from national and provincial government highlights a competency gap that showcases the negative impact of instability and prolonged vacancies in key positions on the audit outcomes.
Prior year assessment
Slow response 88% (184)
Consequences 60% (125)
Instability 70% (146)
Some examples of internal control failures are as follows:
• Leadership instability and CFO positions not filled for prolonged period of time
• Invalid reconciliations of bank statements
• Invalid indigents included in the register
• Municipal staff not hold accountable – no / inadequate performance management system
• No supervision over daily transactions
• Staff without job descriptions
• Monthly creditors reconciliations not performed
• Vat reconciliations not done / Vat returns not done timeously / accurately
• Policies not approved / policies outdated
• Suspense accounts not cleared
• Predetermined objective info not reconciled and reviewed
• Assets not counted regularly
• Asset register not maintained during the year
• Lack of monitoring the work of the consultants
• Contract with suppliers not signed and/or not filed.
Specific cases / examples
Knysna: Municipal manager was suspended and the CFO resigned in August Struggle to get info/documents as the municipal manager did not hold staff accountable and failed to supply documents to the audit team.
At Ngaka Modiri Molema District Municipality a legacy of a previous period of administration was a 100% vacancy rate at senior manager (section 57) level for a significant period of time.
At Matlosana Local Municipality a CFO, as part of the previous administration team, was seconded to the municipality. However, due to the uncertainty of his role at the municipality after the administration ended and the temporary nature of the appointment, consultants were still relied on to prepare the financial statements, with limited involvement by the seconded CFO. In addition, only three of the nine senior manager positions were filled during the last two years.
At Mahikeng, no proper controls were in place to ensure that all consumers’ meters were read on a regular basis so that consumer billing was accurate and complete.
At Sedibeng District Municipality there was instability as a result of the municipal manager and CFO being seconded to Emfuleni Local Municipality. The head of Performance had been appointed as the acting municipal manager, which contributed to a regression in audit outcomes from clean to unqualified with findings on reported performance information.
At Tshwane metro, the CFO position has been occupied by an acting CFO for two years and vacancies in the finance department, particularly in the asset division, contributed to instability and material misstatements in a number of areas, including assets.
The instability and prolonged vacancies in key positions can cause a competency gap that leads to a high demand for consultants and support. 18

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