1. City of Tshwane GDS 2055 3 August 2012

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

3. 33 Table of contents What is a clean audit? How to achieve a clean audit? Governance structures Council, Executive and Leadership driving clean audits Role of Council, Executive and Leadership Specific focus areas for MPAC Specific focus areas for Audit Committees Specific focus areas for Internal Audit 2010/11 Audit Outcomes Impact of MPACs on audit outcomes City of Tshwane Mayor’s commitments Conclusion

4. 4 What is a clean audit? A clean audit relates to only three aspects: o The financial statements are free from material misstatements o There are no material findings on the annual performance report o There are no material findings on compliance with key laws and regulations

5. 5 How to achieve a clean audit? Matters reported by external and internal auditors should receive timeous management attention Internal controls should address the following key areas: 1.Leadership 2.Financial and performance management 3.Governance 1. Leadership –Establish a culture of honesty, ethical business practices and good governance –Exercise oversight responsibility –Ensure effective human resource practices –Implement appropriate policies and procedures –Approve and monitor the implementation of action plans to address internal control deficiencies –Approve appropriate IT governance frameworks

6. 6 How to achieve a clean audit (cont.) ? 2. Financial and performance management –Ensure proper record keeping of all transactions –Maintain effective controls over daily and monthly processing and reconciliations of transaction –Produce regular, accurate and complete financial and performance (‘service delivery’) reports –Review and monitor compliance with applicable laws and regulations –Design and implement formal controls to mitigate IT risks 3. Governance –Ensure that risks are periodically identified, assessed and effectively mitigated –Maintain an adequately resourced and functioning internal audit unit that audits to accepted norms and standards –Maintain an audit committee that performs its legislated duties and that promotes accountability and service delivery

7. 7 Governance Structures Council Mayoral Committee Sub committees of Council and Mayoral Committee Municipal Public Accounts Committee Audit committee Intergovernmental relations forums

8. EXCO/ Council sets the tone / drives clean audits Accounting officer CFO supported by integrated and robust systems Audit Committee Internal audit MPAC / SCOPA Endorsement of information as credible and useful, or rejection and repudiation Interrogation of information in order for MPAC /SCOPA to provide assurance to Council Validation of key controls and information by independent professionals at least quarterly Production of monthly financial, performance and compliance information Council, Executive and Leadership driving clean audits Flow of service delivery information Exco/Board/Council pro-actively draws on support available from district, provincial and national structures to build and sustain capacity

9. 9 Role of Council (Legislature), Executive and Leadership

10. 10 Specific focus areas for MPAC Consider and evaluate the contents of the annual report and make recommendations to council when adopting an oversight report on the annual report Review information relating to past recommendations made in the annual report, including quarterly mid-year and annual reports Examine the financial statements and audit reports and consider improvements on previous statements and reports Evaluate the extent to which recommendations of the audit committee and the AGSA are being implemented Promote good governance, transparency and accountability in the use of municipal resources

11. 11 Specific focus areas for Audit Committee Reviews internal audit reports Reviews monthly budget statements, mid year performance reports and AFS Advises Council on: o internal financial controls and internal audits o Risk management o Accounting policies o Annual Financial Statements o Performance Management o Performance evaluation o Effective governance o Compliance with MFMA, DORA, and other applicable legislation

12. 12 Specific focus areas for Internal Audit Prepare a risk based audit plan and internal audit programme annually Accounting officer to respond to Audit Committee on implementation of the annual audit plan Conduct frequent audits on internal controls and quality of Management Accounts and Performance Information at Metro and Entities Issue reports in line with accepted norms and standards for review by the Audit Committee Management to respond to reports at the Audit Committee and implement recommendations Internal audit must expand its scope to include municipal entities

13. 13 2010/11 audit findings: Key focus areas for all governance committees to address Supply chain management (Awards to persons in service of state; SCM deviations; Irregular expenditure) Usefulness and reliability of reporting on Predetermined objectives Quality of monthly Financial management (Material amendments to financial statements, Unauthorized expenditure) IT controls (Security, Access, Continuity) Human resource and performance management Effective management and use of consultants Sustainability of public finances (working capital, distribution losses) Governance structures in municipal entities

14. 14 Impact of MPACs on audit outcomes Interaction with Executive Monitoring of implementation of resolutions Resolutions on financial management reporting on PDO and compliance Timeous hearings and resolutions Resolution should not only deal with purely financial matters but should deal with financial management, PDO reporting and compliance for the committee to be truly effective. The role within the municipality should submit quarterly reports to MPAC on the implementation of its resolution A closer relationship with the portfolio committees id required to ensure coordination of resolutions an the monitoring thereof. Training and capacity building New MPAC members should undergo a thorough induction session where all the concepts contained in the audit report are explained. The AGSA is committed to enhancing the understanding of reports and will assist with this process where considered necessary. MPAC hearings should be prioritised to ensure that the monitoring and review is conducive to the reporting timelines of municipalities and in a rapid response to audit committees.

15. 15 Executive Mayor’s commitments to improve audit outcomes Mayor affirmed their commitment to clean audits by ensuring ongoing monitoring of the oversight of all reports Mayor continues to chair the OPCA committee Mayor and Audit Committee chair to meet quarterly to discuss key controls Supporting internal audit to be involved in preparing of quarterly key controls Supporting training on Audit of Predetermined Objectives for internal auditors Implement effective oversight over municipal entities Providing monthly financial statements that are credible tabled to audit committee and Mayoral committee Facilitate training for municipal officials to raise awareness about compliance with SCM legislation

16. 16 Conclusion The building blocks of good governance in the municipality exists The challenge lies in implementation of the basic principles to achieve clean audit outcomes Thank you.