1. Audit outcomes of local government IMFO 5 March 2015 MFMA 2012-13

2. Our reputation promise/mission The Auditor-General of South Africa (AGSA) has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

3. 2012-13 MFMA 3 Financial statements Fair presentation and reliability of information (no material misstatements) Annual performance reports Whether the reported information is reliable and credible (no material findings) Compliance with legislation Whether the auditee complied with key legislation on financial and performance management (no material non-compliance) We audit … to determine … Focus of our audits

4. 2012-13 MFMA 4 Auditees that received a financially unqualified opinion with findings are those that were able to produce financial statements without material misstatements but are struggling to: align their performance reports to the predetermined objectives they committed to in their annual performance plans set clear performance indicators and targets to measure their performance against their predetermined objectives report reliably on whether they achieved their performance targets determine which legislation they should comply with and implement the required policies, procedures and controls to ensure they comply. An unqualified opinion with no findings (clean audit) means the auditee was able to: produce financial statements free of material misstatements. report in a useful and reliable manner on performance as measured against predetermined objectives in the annual performance plan. comply with key legislation. Adverse and disclaimed opinions mean the auditee was … unable to provide sufficient supporting documentation for amounts in the financial statements and achievements reported in the annual performance report. not complying with key legislation. Various categories of the audit outcomes Auditees that received a financially qualified audit opinion with findings have the same challenges as those that were unqualified with findings but, in addition, they could not produce credible and reliable financial statements. There are material misstatements in their financial statements, which they could not correct before the financial statements were published.

5. Audit outcomes Improved Regressed Stagnant or little progress 5 2012-13 MFMA Unqualified with no findings Unqualified with findings Qualified with findings Adverse or disclaimer with findings Audits outstanding Free State Limpopo Mpumalanga KwaZulu-Natal Gauteng North West Northern Cape National government Eastern Cape Western Cape

6. 1 6 2012-13 MFMA What is the status and progress of audit outcomes of local government?

7. … the key role players need to... Improvement in audit outcomes Outstanding audits To improve/maintain the audit outcomes... Unqualified with no findings Unqualified with findings Qualified with findings Adverse/disclaimed with findings Assurance levels Provides assurance Provides some assurance Provides limited/ no assurance Not established Senior management Municipal managers/ chief executive officer Mayors Internal audit units Audit committees Coordinating/ monitoring departments Municipal public accounts committees Municipal councils First level of assuranceSecond level of assuranceThird level of assurance Our message (MFMA) Legislature/ NCOP and portfolio committees

8. Key controls Leadership Financial and performance management Governance Root causes Slow response by political leadership to address the root causes of poor audit outcomes... give attention to the key controls, … Good Concerning Intervention required the risk areas, and … Lack of consequences for poor performance and transgressions Key positions vacant or key officials lacking appropriate competencies Quality of submitted financial statements Supply chain management Human resource management Risk areas Quality of submitted performance reports Information technology Financial health GoodConcerningIntervention required Our message (MFMA) (continued) … the root causes.

9. Significant non-compliance with legislation by 88 of the auditees Slight improvement over 2011-12 90% Status of compliance with legislation 9 With no findings With findings 2012-13 MFMA

10. 2012-13 MFMA These areas must receive attention: Findings on non-compliance with legislation 10 Improved Regressed Stagnant or little progress Management of strategic planning and performance 2012-13 MFMA

11. Quality of annual performance reports 11 With no findings With findings The annual performance reports of only of auditees were useful and reliable Improvement over 2011-12 34% 2012-13 MFMA

12. KwaZulu-Natal (1) Umtshezi Limpopo (1) Waterberg District Progressed to clean [17] Eastern Cape (1) Mandela Bay Development Agency Gauteng (1) Sedibeng District KwaZulu-Natal (7) Msinga Ntambanana Okhahlamba Ubuhlebezwe uMhlathuze uMzimkhulu Uthungulu District Northern Cape (1) ZF Mgcawu District Western Cape (7) Breede Valley Cape Town International Convention Centre City of Cape Town Metro Knysna Overstrand Theewaterskloof Witzenberg 2012-13 MFMA Clean audits Regressed from clean audit to unqualified with findings Regressed from clean audit to financially qualified Movements in clean audits 12 KwaZulu-Natal (1) ICC, Durban (Pty) Ltd Retained [13] Gauteng (2) Johannesburg Fresh Produce Market Johannesburg Social Housing Company KwaZulu-Natal (4) Durban Marine Theme Park (Pty) Ltd Safe City Pietermaritzburg uThungulu Financing Partnership uThungulu House Development Trust Mpumalanga (1) Ehlanzeni District Western Cape (6) George Langeberg Mossel Bay Steve Tshwete Swartland West Coast District Clean audits 2012-13 MFMA

13. 2012-13 MFMA 13 Characteristics of those that advanced to clean audits… Basic accounting and daily disciplines in place Enforcing compliance with all legislation Employing staff with the required level of technical competence and experience Calling for information and reports regularly Allowing CFO to be in charge of the financial records and report thereon to the MM The monitoring of the financial improvement plan kept on the council’s quarterly meeting agenda The municipal manager reviewing management accounts with the CFO every month Effective combined assurance environment 2012-13 MFMA

14. 2012-13 MFMA 2 14 What assurances did the key role players provide and what vital actions and interactions should take place? 2012-13 MFMA

15. 2012-13 MFMA 15 Attention should be given to basic controls (MFMA) Effective leadership Human resource controls ICT governance and controls Audit action plans Daily and monthly controls Review and monitor compliance Proper record keeping Good Concerning Intervention required Improved Regressed Stagnant or limited progress

16. Understanding and monitoring of the municipal manager’s role are key to improving internal control environment Role of the municipal manager Robust financial and performance management systems Full and proper records of financial affairs Effective, efficient and transparent systems for financial and risk management and internal controls System of internal audit Develop and implement policies – tariff, rates, credit control, debt collection and SCM Appropriate management, accounting and information systems – assets, liabilities, revenue and expenditure Effective, efficient, economical and transparent use of resources Prevention of unauthorised, irregular and fruitless and wasteful expenditure and other losses Oversight and accountability Act with fidelity honesty, integrity and in best interest of municipalities Manage and safeguard assets and liabilities Take appropriate disciplinary steps against any official who commits act of financial misconduct or an offence Disclose all material facts to council or mayor Commitment and ethical behaviour The role of the municipal manager is critical to ensure: timely, credible information + accountability + transparency + service delivery

17. Executive authority Required assurance levels Extensive Management’s assurance role Senior management – take immediate action to address specific recommendations and adhere to financial management and internal control systems Accounting officers/ authority – hold officials accountable on implementation of internal controls and report progress quarterly and annually Executive authority – monitor the progress of performance and enforce accountability and consequences Management assurance First level of assurance Senior Management Accounting officers/ authority Combined assurance approach to oversight Oversight assurance Second level of assurance Coordinating / Monitoring institutions Internal audit Audit committee Extensive Required assurance levels Oversight’s assurance role National Treasury/ DPSA – monitor compliance with laws and regulations and enforce appropriate action Internal audit – follow up on management’s actions to address specific recommendations and conduct own audits on the key focus areas in the internal control environment and report on quarterly progress Audit committee – monitor risks and the implementation of commitments on corrective action made by management as well as quarterly progress on the action plans Independent assurance Third level of assurance Oversight (portfolio committees/ councils ) Public accounts committee National Assembly Extensive Required assurance levels Role of independent assurance Oversight (portfolio committees) – review and monitor quarterly progress on the implementation of action plans to address deficiencies Public accounts committee – exercise specific oversight on a regular basis on any report which it may deem necessary National Assembly – provide independent oversight on the reliability, accuracy and credibility of National and provincial government