north west for print_part2

8/17/2019 NORTH WEST for Print_Part2

1/42

GENERAL REPORT ON THE AUDIT OUTCOMES OF THE NORTH WEST LOCAL GOVERNMENT 2010-11

41

SECTION 3: FINDINGS FROM THE AUDIT OFSUPPLY CHAIN MANAGEMENT

3.1 Background to the audit of supply chain managementThe audits included an assessment of procurement processes, contract managementand the related controls in place to ensure a fair, equitable, transparent, competitiveand cost-effective SCM system, the processes and controls need to comply withlegislation and that minimises the likelihood of fraud, corruption, favouritism as wellas unfair and irregular practices. The assessment was performed at a total of nine(100%) municipalities and two (100%) municipal entities.

As is evident from the analysis of irregular expenditure (section 2.4.5), R165 million(100%) of the irregular expenditure incurred by auditees was as a result of thecontravention of SCM legislation. Ninety-six per cent of the irregular expenditurewas identified during the audit process.

Findings from the audit were reported in the management reports of 91% of theauditees where the assessment was performed, while the findings were materialenough to warrant reporting in the auditor’s report of 91% of them.

The following figure presents a summary of SCM findings with a comparison to theresults of the previous year. Details of the most prevalent findings are provided underthe headings as depicted in the figure. The percentages are based on the numberof auditees where the findings were audited.

Figure 21: Summary of findings on supply chain management

79%

26%

84%

11%

21%

68%

82%

36%

82%

18%

64%

45%

Inadequate controls

Inadequate contract

management

Uncompetitive or unfair

procurement processes

Awards to close family

members of employees and

councillors

Awards to employees and

councillors or other state

officials

Limitation on planned

scope of audit of awards

2010-11 2009-10

3.2 Limitations on planned scope of audit of awards

Sufficient appropriate audit evidence could not be provided at five (45%)auditees that awards had been made in accordance with the requirements ofSCM legislation. No alternative audit procedures could be performed to obtainreasonable assurance that the expenditure incurred on these awards was not

irregular. The reasons for the limitations were inadequate record keeping anddocument management systems.

The following table depicts the auditees where limitations were experienced.Those auditees where limitations were also experienced in the previous year arehighlighted in red.


2/42


42

Table 24: Limitations experienced

Municipalities and municipal entities

Auditees Number of awardsValue of awards

R

City of Matlosana 41 133 476 625

Greater Taung Local Municipality 5 3 667 533

Madibeng Local Municipality 28 185 022 012

Maquassi Hills Local Municipality 38 19 486 282

Naledi Local Municipality 7 13 412 467

Total 119 355 064 919

As a result of the limitations experienced, the findings reported in the rest of thissection might not reflect the full extent of irregularities and SCM weaknesses at theauditees. This effectively means that 57% of the value of all awards selected fortesting could not be audited due to the required information or documentation notbeing made available by auditees.

3.3 Awards to state officials

SCM Regulation 44 prohibits awards to persons or to entities owned/managed

by them if they are in the employ of the auditee (i.e. employees and councillors) orif they are in the employ of any other state institution. Expenditure incurred in thisregard is also considered irregular.

The audit included the identification of such prohibited awards. Further testing wasalso performed to determine whether the legislated requirements with regard todeclarations of interest were adhered to.

The following table depicts the audit findings for the auditees where prohibitedawards were identified with an indication of the positions of the officials involved.If prohibited awards were also identified in the previous year the name of theauditee is highlighted in red.

Table 25: Awards to officials in the service of the auditee

Auditees

Awards made to

Awards made to of-ficials of other state

institutions

Providerdid notdeclareinterestOfficials in service of the auditee

Officialdid notdeclareinterest

Official wasinvolved inmaking the

award

No. R Positions % % No. R’000 %

Municipalities

City of Matlosana 34 5 580 374 Councillors, otherofficials

94% 0% 37 725 398 100%

Madibeng LocalMunicipality

14 5 173 143 Other officials 0% 0% 100%

Maquassi HillsLocal Municipality

3 46 950 Other officials 0% 0% 100%

Naledi LocalMunicipality

3 43 808 100%

Ratlou LocalMunicipality

7 1 269 775 100%

Ventersdorp LocalMunicipality

3 3 500 983 100%

Dr. Kenneth

Kaunda DistrictMunicipality

6 3 706 855 100%

Total 51 10 800 467 63% 0% 56 9 246 819 100%

* Number: indicates number of instances


3/42


43

3.4 Awards to close family members of state officials

Awards to persons or to entities owned/managed by persons that are close familymembers of persons in the service of the state, whether at the auditee or any other

state institution, are not prohibited. However, such awards of more thanR2 000 must be disclosed in the financial statements of the auditee for the sake oftransparency and as required by SCM Regulation 45. Close family member is aspouse, child or parent of a person in the service of the state.

The audit included the identification of awards to close family members, butinformation on close family members could only be obtained only at 11 (100%)auditees. Further testing was also performed to determine whether the financialstatement disclosure was made and the legislated requirements with regard todeclarations of interest were adhered to.

The following table depicts the audit findings for the auditees where awards toclose family members of officials of the auditee were identified with an indication

of the positions of the officials involved. If such awards were also identified in theprevious year the name of the auditee is highlighted in red.

Table 26: Awards to close family members

Auditees

Awards made to close family membersof persons in service of the auditee

Nodisclosurein financialstatements

Official didnot declare

interest

Provider didnot submit

declaration ofinterest

Providerdid notdeclareinterest

Number* R’000 Positions % % % %

Municipalities

Maquassi HillsLocal Municipality 1 17 535 Other official 0% 0% 0% 0%


1 163 960 Other official 0% 0% 0% 0%

Total 2 181 495 0% 0% 0% 0%


3.5 Uncompetitive or unfair procurement processes

The principles of contracting for goods and services in a manner that is fair,equitable, transparent, competitive and cost-effective come from our Constitution.

Legislation, most notably the MFMA and SCM Regulations, prescribes theprocesses and rules to be followed by municipalities and municipal entities in orderto consistently and correctly apply the constitutional principles and to safeguardthe process against abuse. The preferential procurement framework further giveseffect to the constitutional principle of providing preference to the previouslydisadvantaged in the allocation of work by the public sector.

Our audits also focus on whether procurement processes followed were fair andcompetitive in that it provided all suppliers equal opportunity to compete for publicsector contracts and that the process does not favour some suppliers over others.

It is important that the prescribed processes are followed to ensure that the selectedsupplier meets the requirements, has the capacity and ability to deliver the goods

and services, and that procurement is done at competitive and economical prices.

The procurement processes of 164 contracts (R240 million) and 339 quotations(R24,.8 million) were tested. The top five most prevalent findings on non-compliancewith SCM legislation that resulted in uncompetitive or unfair procurement processesare summarised in the following table. If the findings were also identified in theprevious year the name of the auditee is highlighted in red.


4/42


44

Table 27: Findings on uncompetitive or unfair procurement processes

Auditees

Three price quotations notobtained

Competitive bids not invitedProcurement from supplierswithout SARS tax clearance

Points incorrectly allocated/calculated – incorrect bidder won

award

Bids specifications notcompiled by properly

constituted committee

Other findings

Number R Number R Number R Number R Number R Number R

Municipalities

Bojanala Platinum District Municipality 18 1 748 604

City of Matlosana 14 1 167 104 1 918 265 5 16 662 381 17 22 273 409

Dr. Kenneth Kaunda District Municipality 1 52 529 1 507 024 4 4 744 881 4 31 000

Greater Taung Local Municipality 18 2 400 284 11 7 324 049 24 3 193 714

Maquassi Hills Local Municipality 10 1 141 895 3 3 570 804 1 #

Naledi Local Municipality 6 13 379 423 6 13 379 423 1 1 622 459

Ratlou Local Municipality 3 132 004 1 2 077 355 1 261 402 10 10 507 682 10 10 507 682

Ventersdorp Local Municipality 4 206 097 3 9 670 090

Municipal entities

Dr KKDM Economic Agency (Pty) Ltd 9 #

Total 67 6 795 988 21 26 351 631 8 14 350 217 3 2 390 885 19 31 914 944 64 45 675 895

* Number: indicates number of instances # No R-value for this finding


5/42


45

Further details on the legislation not complied with are as follows:

Table 28: Findings on non-compliance with legislation

Finding DetailThree price quotations not obtained A price quotation process is prescribed for the procurement of goods and services below R200 000.

Three written price quotations were not always obtained from prospective providers as prescribed andthe deviations were not approved by a delegated official

Competitive bids not invited A competitive bidding process should be followed for the procurement of goods and services aboveR200 000. Competitive bids were not always invited and the deviations were not approved by aproperly delegated official.

Procurement from suppliers without SARStax clearance

Awards were made to suppliers without proof from South African Revenue Service (SARS) that theirtax matters were in order.

Points incorrectly allocated/ calculated -incorrect bidder won award

The Preferential Procurement Regulations require that the awarding of tenders and quotations be doneon a preference points system. Due to mistakes in the calculation of the points, the incorrect wrongbidders won the award.

Bids specifications not compiled by

properly constituted committee

Bid specifications for each case of procurement of goods and services were not compiled by a properly

constituted committee as per SCM Regulation 27.

3.6 Inadequate contract management

Shortcomings in the manner that contracts are managed result in delays, wastageand fruitless expenditure, which impact directly on service delivery to the citizens.

The top five most prevalent findings on inadequate contract management aresummarised in the following table. If the findings were also identified in the previous year the name of the auditee is highlighted in red.

Table 29: Findings on contract management

Auditees

Performance ofcontractors not

monitored on monthlybasis

Inadequate contractperformance

measures andmonitoring

Contracts amendedor extended –

reasons not tabledin council

No signed contract/

not signed bydelegated official

Payments madein excess of ap-proved contract

price (withfurther approved

extensions)No R No R No R No R No R

Municipalities

City ofMatlosana

46 150 139 007 34 163 286 744


2 1 386 980 2 1 386 980

VentersdorpLocalMunicipality

3 9 670 090 3 9 670 090

Dr. KennethKaundaDistrict

Municipality

1 746 256 5 13 395 055 2 219 865

Total 52 161 942 333 5 11 057 070 5 13 395 055 34 163 286 744 0 219 865


Further details on the findings are as follows:

Table 30: Findings on contract management

Finding Detail

Performance of contractors not monitored on amonthly basis

The performance of the contractor in terms of the contract or agreement was not monitoredon a monthly basis as required by the MFMA.

Inadequate contract performance measures andmonitoring

Measures applied in monitoring the performance of contractors were not always sufficient toensure that contractors delivered in accordance with the contract.

Contracts amended or extended -– reasons nottabled in the council

In order to enable accountability and oversight the MFMA prescribes that reasons foramendment or extension of contracts should be tabled in the council. Instances wereidentified where the council was not informed.

No signed contract/not signed by delegated official Goods and services were received and payments made to suppliers without a written, signedcontract or the contracts were not approved by a delegated official.

Payments made in excess of approved contractprice (with further approved extensions)

A contract prescribes the prices, terms and maximum values, which can be increased throughapproved extensions and variations. Instances were identified where payments were madeto suppliers in excess of these approved contract prices.


6/42


46

3.7 Inadequate SCM controls

Findings on deficiencies in fundamental SCM controls are summarised in thefollowing table.

Table 31: Findings on SCM controls

Auditees

Inadequatecontrols to

ensure interestis declared

No controlsto monitor

performance ofcontractors

SCM policy/ pro-cedures in conflictwith applicable

legislation/ do notinclude all require-

ments

Other controls

Municipalities

Bojanala Platinum District Municipality

City of Matlosana

Dr. Kenneth Kaunda District Municipality

Greater Taung Local Municipality

Madibeng Local Municipality

Maquassi Hills Local Municipality

Naledi Local Municipality

Ratlou Local Municipality

Ventersdorp Local Municipality

Total 6 4 3 4

Percentage of auditees tested 55% 36% 27% 36%

Further details on the findings are as follows:

Table 32: Findings on SCM controls

Finding Detail

Inadequate controls to ensure

interest is declared

The controls at some auditees were inadequate to ensure that:

• officials declare whether they or their close family members, partners and associates haveinterests in suppliers to the auditee;

• suppliers declare any connections to persons in the service of the auditee or other stateconstitutions.

No controls to monitor performanceof contractors

The controls at some auditees were inadequate to ensure that contractor performance is monitoredin accordance with the contract.

SCM policy/ procedures in conflictwith applicable legislation/ do notinclude all requirements

The auditee’s SCM policy and procedures were in conflict with the application legislation or did notinclude all of the requirements of the legislation.

3.8 Overall conclusion on SCM matters

Despite findings raised on the same matters in prior years no improvements havebeen noted, which is indicative of auditee’s disregard for legislation rather thana lack of understanding or not being aware of the requirements. Poor documentmanagement systems remain a huge problem at most municipalities and resulted inlimitations on the scope of the audit of awards at five auditees.

Despite prior year commitments made to improve the controls relating to SCM,auditees have failed to improve the document management systems. Appropriateaction plans to address the control weakness identified have not been developedor implemented. Internal audit’s continued lack of appropriate audit coverage ofcompliance with SCM policies remains a concern. The only way how this situationcan be turned around is if the leadership sets the tone at the top to improve the

official’s attitude towards compliance.


7/42


47

?

?


8/42


48


9/42


49

SECTION 4: DRIVERS OF AUDIT OUTCOMES

4.1 Significant deficiencies in auditees’ systems of internal control

4.1.1 Statutory responsibility of accounting officers and senior officials to maintaineffective systems of internal control

A key responsibility imposed by the MFMA and other legislation on accountingofficers and other municipal officials is to implement and maintain effective, efficientand transparent systems of financial and risk management and internal control.

The implementation of effective internal control helps achieve important objectivesand sustain and improve performance. Objectives are derived from the regulatoryenvironment and fall into the categories of:

• operations -– Effectiveness and efciency of operations, including goalsfor operational and financial performance and safeguarding against loss

(financial and performance management).• reporting – Pertaining to the reliability of reporting including internal andexternal reporting of financial and non financial information.

• compliance -– Pertaining to compliance with laws and regulations.

The objectives are driven by the mandate and the mission and vision of theorganisation. Setting objectives is a prerequisite to internal control and a key part ofstrategic planning.

Internal control is a multi-dimensional iterative process of ongoing tasks andactivities which are performed by the people, not just policies and systems,which give assurance concerning the achievement of objectives. The fundamentalprinciples contained in the key drivers of internal control must be present andoperate together in order for the system of internal control to be effective.

The leadership of an organisation establishes the tone from the top regarding theimportance of internal controls and expected standards of conduct. The controlenvironment is the foundation for all other components of internal control andprovides discipline, process and structure. A risk assessment should be conductedto establish what control activities (policies and procedures) are required to ensureachievement of the control objectives. The availability of accurate and complete

information and the communication of information are required to carry outday-to-day internal control activities. The ongoing monitoring of activities (goodgovernance) is necessary to ascertain whether all components of internal control arepresent and functioning.

When internal control is effective, management and those charged withgovernance have reasonable assurance that the entity understands the extent towhich the operations are managed effectively and efficiently, prepares reliablereports, and complies with laws and regulations.

An explanation of the details of each driver of internal control is contained in theglossary of terms.

The assessment below is based on significant deficiencies relating to the following:

• Material misstatements in the nancial statements presented for auditpurposes (whether or not these have been corrected as a result of the audit)

• Findings on PDOs

• Findings on compliance with laws and regulations.


10/42


50

Table 33: Assessment of the key drivers of internal control

Internal control driver

Objectives impacted on

F in an ci al r epor ti ng ( mi sst at emen ts i n fin an ci al s ta tement s) Se rv ic e del iv ery p lann ing and r epor ti ng Compl iance w it h l aws and r egul at ions

Leadership 4% 29% 68% 4% 21% 75% 0% 32% 68%

Effective leadership culture 7% 29% 64% 7% 21% 71% 4% 32% 64%

Oversight responsibility 0% 18% 82% 4% 11% 86% 0% 21% 79%

HR management 4% 29% 68% 4% 21% 75% 0% 36% 64%

Policies and procedures 0% 36% 64% 4% 25% 71% 0% 29% 71%

Action plans 4% 32% 64% 4% 25% 71% 0% 32% 68%

IT governance 7% 25% 68% 7% 25% 68% 4% 32% 64%

Financial and performance management 4% 25% 71% 4% 18% 79% 0% 21% 79%

Proper record keeping 4% 18% 79% 4% 11% 86% 0% 21% 79%

Processing and reconciling controls 4% 29% 68% 4% 21% 75% 0% 25% 75%

Reporting 0% 18% 82% 4% 7% 89% 0% 18% 82%

Compliance 4% 25% 71% 4% 18% 79% 0% 18% 82%

IT systems controls 7% 29% 64% 7% 25% 68% 4% 29% 68%

Governance 0% 18% 82% 4% 18% 79% 0% 25% 75%

Risk management 0% 25% 75% 4% 25% 71% 0% 29% 71%

Internal audit 0% 14% 86% 4% 14% 82% 0% 18% 82%

Audit committee 0% 18% 82% 4% 18% 79% 0% 25% 75%

No significant deficiency Deficiencies in the process of being addressed Intervention required


11/42


51

4.1.2 Movement in implementation of key drivers and recommendations for improvement

The following table summarises the movement from the prior year and outlines specific ways in which the drivers of internal controls can be improved.

Table 34: Summarised recommendations for improvement of key drivers

Leadership element Movement since last audit Summarised comments

Provide effective leadership based on a culture of honesty, ethical businesspractices and good governance, protecting and enhancing the best interestsof the entity

It is important that the mayor should play an active oversight role in ensuring that the key elements of good internal control and governance are adhered to. Notwithstanding thecommitment that we received from the mayors during the door-to-door visits that were conducted in the province, the mayors did not perform the oversight that was discussed and agreedupon. During these visits the role and responsibilities between the mayor, the municipal manager and the chief financial officer were cleared and there was no uncertainty regarding whatrole the mayor will have to play to ensure that the municipalities move to better audit outcomes.

The need for competent and skilled staff to support the CFO and the municipal manager was identified as a priority to improve on the prior year audit outcomes and the production oftimeous and quality financial and performance information. Thus the leadership needs to take active steps in ensuring that adequately skilled staff are recruited and appointed. Thecontracting of independent consultants to assist auditees to compile financial statementa have not contributed to the improvement of audit outcomes. Consultants are often appointed closeto year-end the and controls to produce accurate and complete financial recorde during the year (which the financial statements are based on) are not in place. No transfer of skills takeplace when consultants are appointed. Future improvement in audit outcomes will depend on stability at senior management level and continued direction provided by the leadership.

Where IT systems are not adequate, the leadership has not established an IT governance framework due to a lack of skills in the IT section and did not prioritise action plans or the

implementation of the action plans to address the deficiencies. Performance information structures and systems need to be integrated within existing management processes and systems toimprove audit outcomes. Furthermore, municipalities and municipal entities need to develop and implement a strategic IT plan that supports business requirements.

The leadership needs to be involved in the financial management and performance management and set the tone at the top to create an environment conducive to good financialmanagement and service delivery; thereby improving the audit outcomes. The audit outcomes indicate that the leadership tone on human resource capacity and the monitoring of actionplans is crucial.

Exercise oversight responsibility regarding financial and performance report-ing and compliance and related internal controls

Implement effective HR management to ensure that adequate and suf- ficiently skilled resources are in place and that performance is monitored

Establish and communicate policies and procedures to enable and supportunderstanding and execution of internal control objectives, processes, andresponsibilities

Develop and monitor the implementation of action plans to address internal

control deficiencies

Establish an IT governance framework that supports and enables the busi-ness, delivers value and improves performance


12/42


52

Financial and performance management element

Implement proper record keeping in a timely manner to ensure thatcomplete, relevant and accurate information is accessible and available to

support financial and performance reporting

Pertinent information should be identified and captured in a form and time frame to support effective financial and performance reporting, which reduces instances of material amendmentsresulting from the audit. Adherence to basic financial controls throughout the financial year, i.e. daily processing of transactions, monthly reconciliation of accounts and the continuous reviewthereof, needs to be actively monitored by management in order to improve audit outcomes.

Documents supporting the financial statements and other information should be readily available, without any significant delay, when requested throughout the audit process. There weremunicipalities and municipal entities that were not able to supply documentation that supports the information in the financial statements or the report on predetermined objectives due toan inadequate archive system.

Basic reporting disciplines, such as proper record keeping, regular processing of transactions and reconciliations, preparation of monthly reporting, and controls over compliance with fiduciaryresponsibilities, also require leadership attention. Monthly monitoring of these key controls will enhance the level of accountability to executive authorities and improve the quality ofreporting on financial and service delivery information.

The quality of the financial statements submitted for auditing is still not adequate based on the increase in the material misstatements identified and corrected. The municipalities andmunicipal entities did not have competent individuals who understand the financial reporting framework and performance management requirements to perform proper reviews prior to thesubmission of the financial statements. This is the main reason for the appointment of consultants. The pervasive material misstatements identified by auditors were mainly the result of alack of supervision and review of monthly reports used in the preparation of the financial statements by the leadership, particularly the chief financial officers. Furthermore, it is critical for theleadership to ensure that the required skills are transferred to staff where consultants are appointed.

Findings on predetermined objectives and the design and implementation of formal controls over IT systems are concerning. Targets set by municipalities are not always clear andmeasurable and supporting documentation to substantiate the outcomes cannot always be submitted. IT systems to report on predetermined objectives are generally not in place. The ITenvironment, with specific reference to controls regarding access control and protection of information which are not in place, is also of concern. Furthermore, manual or automated controlswere not always adequately designed to ensure that the transactions did occur, were authorised, and were completely and accurately processed to ensure compliance with all applicable lawsand regulations.

Implement controls over daily and monthly processing and reconciling oftransactions

Prepare regular, accurate and complete financial and performance reportsthat are supported and evidenced by reliable information

Review and monitor compliance with applicable laws and regulations

Design and implement formal controls over IT systems to ensure the reliabil-ity of the systems and the availability, accuracy and protection of information


13/42


53

Governance

Implement appropriate risk management activities to ensure that regularrisk assessments, including consideration of IT risks and fraud prevention,are conducted and that a risk strategy to address the risks is developed andmonitored

The leadership needs to ensure that comprehensive risk assessments are performed that cover all critical areas to improve audit outcomes.

There is a need to adequately resource the internal audit function to ensure that it operates effectively by identifying internal control deficiencies in a timely manner and by recommendingand monitoring corrective action.

While audit committees have in general been appointed and are meeting, there is scope for improving the interaction of the mayor and the municipal manager with a view to providing feedback on the identification of risk areas and an assessment of the effectiveness of the control environment.

To improve audit outcomes it is critical that audit committees and internal audit units function effectively by reviewing the financial statements submitted for audit purposes, and ensuringthat measures have been implemented to correct previous year audit findings by monitoring the action plans to correct audit findings.Ensure that there is an adequately resourced and functioning internal audit

unit that identifies internal control deficiencies and recommends correctiveaction effectively

Ensure that the audit committee promotes accountability and service deliverythrough evaluating and monitoring responses to risks and providing oversightover the effectiveness of the internal control environment including financialand performance reporting and compliance with laws and regulations

Overall progress

made

No significant

overall changeoverall regression


14/42


54

4.2 Effective human resource management as a specific driver ofaudit outcomes

Effective HR management is a key driver of all three facets of audit outcomes.

In this context, HR management is deemed effective if adequate and sufficientlyskilled resources are in place and their performance and productivity are managed.Auditees often identify a lack of capacity as the root cause of audit outcomes,which prompted the AGSA to specifically focus on HR management.

Inadequate HR management negatively impacts on internal control and is one ofthe root causes of the following matters outlined in this report.

• Material misstatements in the nancial statements presented for auditpurposes (whether or not these have been corrected as a results of theaudit)

• Findings on PDOs• Findings on compliance with laws and regulations.

The assessment of the drivers of internal control at the time of the audit, as analysedin paragraphs 2.2.6, 2.3.4 and 2.4.6, identified HR management as the areawhere significant attention is still required for audit outcomes to improve.

The AGSA’s assessment of HR management focused on the following areas:

■ HR planning and organisation ■ management of vacancies ■ appointmentprocesses ■ performance management ■ acting positions ■ management of leave,overtime and suspensions

The following figure depicts the three weakest areas of HR management at auditeeswhich should be improved to positively affect audit outcomes.

Figure 22: Summary of HR management weaknesses

64%

92%

100%

Management of vacancies

Performance management

Competencies of key personnel

Auditees' ability to address vacancies with competent and skilled staff remains amajor concern. The overall vacancy rate at the nine municipalities and two entitiesis approximately 21% (2009-10: 23%). The vacancy rate at senior manager level

is approximately 31% (2009-10: 24%). The officials that are appointed also donot always have the appropriate skills and knowledge specifically relating to thepreparation of financial statements in terms of GRAP standards. This is mainly due tothe inherent difficulty to source, appoint and retain skilled individuals in the province(especially in rural areas) and municipalities that do not do proper HR planning,including not regularly updating or approving organisational structures.

4.3 Information technology (IT) management as a specific driver ofaudit outcomes

4.3.1 Overview of IT systems management

This section gives an overview of the adequacy and effectiveness of IT controls

relating to the IT environment on which financial and management systems reside.

Municipalities rely on IT systems to perform their statutory financial management,reporting and administrative functions. The information processed and stored onIT systems is vital to the accuracy and reliability of the financial and performanceinformation used by management for planning, monitoring and reporting.


15/42


55

Eight audited municipalities in the province utilise four different financial systems andtwo different payroll systems. These range from off-the-shelf packages (computerpackages bought) as well as customised systems (computer packages bought andmodified).

The management and support of these financial and payroll systems are depicted inthe figure below:

Municipalities

Municipalities and municipal entities do not have a formal IT structure in place and entities suchas the South African Local Government Association (SALGA) and Cooperative Governance andTraditional Affairs (COGTA) are not playing any role to provide assistance from an IT perspective.

4.3.2 Summary of overall IT weaknessesIT management of financial systems was evaluated at eight municipalities within theprovince. Key areas in the management of IT where weaknesses were identified aresummarised in the following table:

Table 35: Summary of IT control weaknesses

Focus area Outline of aspects audited

Incidence of control weaknesses identified

Municipalities

Number auditedNumber with

findingPercentage

IT governance

The structures, policies and processes throughwhich the auditee ensures that IT is in line withthe business requirements. Key focus was on themanagement of service level agreements.

7 7 100%

Securitymanagement

Controls that prevent unauthorised access to thenetworks, operating systems and applicationsystems that generate and prepare financialinformation.

8 6 75%

User access

management

Procedures through which the auditees ensure thatonly valid, authorised users are allowed segregated

access to initiate and approve transactions on thesystem.

8 8 100%

IT servicecontinuity

Processes of managing the availability of hardware,system software, application software and data toenable auditees to recover/establish informationsystem services in the event of a disaster. Key

focus was on the application backup process.

8 8 100%

4.3.3 Analysis of IT control weaknesses identified

During the review of the IT control environment the weaknesses were categorisedinto three phases, namely the control design phase during which managementdesigns the IT controls to address the risk identified in the IT environment, the controlimplementation phase during which the designed controls are implemented bymanagement and the control effectiveness phase, when the implemented controlsare continuously operating effectively over a period.


16/42


56

Operating

effectiveness

Implementation

Level 3Management

to ensureeffectivenessof controls

Level 2Management to implement

design ITcontrols

Level 1Management

to designIT

controls

E f f

e c t i v

e I T

c o n t r

o l e

n v i

r o n m e n t

Design

The IT control weaknesses for the province were summarised as follows:

Control design: The majority of municipalities are still in the process of designingkey IT controls to ensure effective and efficient IT management within themunicipalities.

Control implementation: Although some of the municipalities have adequatelydesigned key controls, they are still experiencing difficulties in implementing these ITcontrols effectively.

Control operating effectiveness: Municipalities have not implemented the controlsfully to test for operating ef fectiveness.

The drivers of the IT control weaknesses are categorised and depicted in the table

below.

Table 36: Drivers of IT control weaknesses

25%13%

29%


17/42


57

Figure 23: Status of management commitment implemented to addressIT weaknesses

20%

100%

100%

80%

100%

IT servicecontinuity

User accesscontrol

Securitymanagement

IT governance

Municipalities

Municipalities complete Municipalities in progress Municipalities not started

The above analysis only includes the five municipalities where IT was audited inboth 2009-10 and 2010-11 and shows that there has been some progress inaddressing the previous year’s weaknesses, although the majority of municipalitiesdid not fully address the commitments as per the previous year’s audits. However, atall of the remaining municipalities and entities in the province significant interventionis required to address IT control weaknesses.

Table 37: Summary of significant IT weaknesses of the 2010-11 financial year

IT foc us areas Significant IT weakne sse s

IT governance There are no service level agreements between the municipalities and the vendors supporting their financial

systems. The IT spending amounted to approximately R20 million.

The monitoring of services rendered by service providers is not being performed by the municipalities.

IT organisational structures do not exist.

Security management IT security policy has not been documented and approved by management.

Security settings, e.g. passwords on operating systems were inadequate.

No person was assigned the responsibility for information security at the districts and their local municipalities

User accessmanagement

User account management procedures have not been formally documented and approved.

Key monitoring or reviews of user access profiles and review of administrators have not been performed.

Formal access requests have not been used to manage user accounts.

IT service continuity Backup and retention procedures have not been formally documented and approved by management.

Backups have not been monitored nor have they been periodically tested.

Backups are not kept or retained at an off-site facility.

4.3.5 Root causes and way forward for key role players

The following overall root causes exist:• Overreliance on IT consultants at small municipalities

• Lack of IT skills and experience within municipalities

• Lack of management commitment on IT matters


18/42


58

Working group

onmunicipalities’

IT systems

Districtmunicipalities

GITOC

I T e n v i r o n m e n t w i t h a d e q u a t e c o n t r

o l s t o

m i t i g a t e r i s k s o v e r f i n a n c i a l s y s t e

m s

Municipalities

• The working group consisting of municipalities and the IT system vendorsshould be re-established.

•Should play a role in local government information systems to ensure thatadequate IT policies and procedures are implemented..

•Should follow up on pr ogress made in addressing IT findings in conjunctionwith its internal audit function.

•More standardisation should take place at the municipalities with regard tothe IT systems used and the vendors that support these systems.

•Management should ensure that staff are up-skilled by consultantsperforming services .

• IT consultants should be monitored on a continuous basis to ensureservice delivery.

Provincial

treasury

• Should assist municipalities with the implementation of IT controls. This canbe done through the establishment of the local government IT council.

SALGA•Should play a more prominent role of oversight in ensuring the presence of ITcontrols across municipalities.

• Should ensure that IT governance forums are established and function well.• Should also play a more active role in the formulation of policies and

procedures for the local municipalities under their control.• Neighbouring municipalities should consider making use of each other’s

facilities for purposes of off-site backups and disaster recovery.

4.4 Role of audit committees in promoting clean administration

In terms of the MFMA an audit committee must be established by all auditees.Audit committees must serve as an independent governance structure whosefunction is to provide an oversight role in the systems of internal control, compliancewith legislation, risk management, and governance. In executing its duties, theaudit committee assists the accounting officer in the effective execution of his/herresponsibilities with the ultimate aim of achieving the organisation’s objectives. Therole of the audit committee worldwide is evolving and audit committees need tolook wider than their legally prescribed duties and focus on intent of legislation. Inthe public sector this means that audit committees need a level of maturity in orderto serve the society as a whole.

Figure 24: Role of audit committees in assessing and reporting on governance,risk management and control at auditees

Executive

LegislatureOther users

Leadership

Reporting bymunicipality/

municipal entity

Audit committees ensuringcredibility of information andmonitoring implementation of

recommendations

Credibleinformation

Credible information

C r e d i b l e

i n f o r m a t i o n

C

r e d i b l e

i n f

o r m a t i o n

Monitoring

M o n i t o r i n g

O v e r s i g h t

Oversight

The responsibilities of the audit committee include providing assurance on thecredibility of various reports produced for purposes of oversight, decision-makingand accountability. Should the audit committee fail in executing this responsibilityeffectively, vital decisions relating to funding, accountability and service deliverywill be based on information that may be inaccurate, incomplete and unreliable.The figure below depicts the current status and effectiveness of audit committees inthe province.


19/42


59

Figure 25: Effectiveness of audit committees

27%

18%

55%

91%

73%

82%

45%

9%

Interaction with executive

Impact on audit outcome

Compliant with legislation

Audit committee in place

Yes No

Auditees assessed (100%)

The main concern regarding the audit committee’s effectiveness is that most districtsmunicipalities use shared committees to serve the local municipalities. Localmunicipalities feel that they do not get the required assistance from these sharedcommittees as in most cases the shared committee does not have sufficient capacityto serve all municipalities in the district to the full extend required. Audit committee’s’continued view to only comply to the letter of the law and not to expand their role isstill a problem. If these committees that expand the scope of their work, specificallyalso with regard to review of financial statements and quarterly reporting on servicedelivery, they can have a much bigger impact.


20/42


60

4.5 Assessment of monitoring and oversight by key role players at the time of the audit

Between February 2012 and the date of this report, the AGSA has engaged provincial role players on all nine specific focus areas where their contributions to improveaudit outcomes could be further enhanced. An assessment of the monitoring capacity and effectiveness of the role players in relation to these focus areas at the time of theaudit is depicted in the following table.

Table 38: Assessment of monitoring capacity of key provincial role players to address audit outcomes at the time of the audit

Assessment of impact of provincial role-player plans and initiatives on current year audit outcomes

Areas of focus and where support/intervention was required

Role playersSupply chainmanagement

Predeterminedobjectives

F in anc ia l m ana gement Tu rn aro und p la ns IT C on tr olsHuman resource

managementUse of consultants

Municipalities underadministration

Governance structures

O v e r s i g h t A c c o u n t a b i l i t y

Premier

MEC FinanceMEC Local government

Provincial Treasury

Provincial DCOG

Portfolio committee onfinance

Speaker

MPAC

Accounting officers, Accounting authorities, CFOs and senior officials

Administrative accountability

No significant identified impact on 2010-11 outcomes

Some impact on 2010-11 outcomes Not within mandate or direct sphere of influence of role-player


21/42


61

?

?


22/42


62


23/42


63

SECTION 5: COMMITMENTS TO IMPROVE AUDIT OUTCOMES AND OTHER MATTERS REQUIRING ATTENTION FROM THE LEADERSHIP AND ROLE PLAYERSThis general report concludes by providing details of commitments received from the provincial leadership and other role players in response to the 2010-11 audit

outcomes. The AGSA’s continuing initiatives to encourage clean administration are summarised and other important current and emerging matters relating to localgovernment in the province are outlined.

5.1 Commitments subsequent to the audit by key role players to address audit outcomes

Responses and commitments emanating from the February and March 2012 interactions and roadshows in the province are outlined below

Table 39: Commitments and actions by the provincial executive leadership and oversight

Outline of role player commitment/ proposed action plans

Focus areas targeted by commitments and action plans

P r o g r e s s m a d e o n p r i o r y e a r

c o m

m i t m e n t

S u p p l y c h a i n

m a n a g e m

e n t

P r e d e t e r m

i n e d

o b j e c t i v

e s

F i n a n c i a l

m a n a g e m

e n t

T u r n a r o u n d

p l a n s

I T c o n t r o l s

H R m a n a g e m e n t

U s e o f c o n s u l t a n t s

M u n i c i p a l i t i e s

u n d e r

a d m i n s t r a

t i o n

G o v e r n a

n c e

s t r u c t u r

e s

Provincial political leadership (Premier, MEC Local Government and MEC Finance)

1 Municipalities to prioritise the significant human resources deficiencies, particularly vacancies

2 All municipalities to assess capacity of CFOs to perform to expectations of role

3 Training all staff and new councillors, specifically on their oversight role in so far as it pertains to finance and infrastructure

4 SALGA to research training needs at municipal and provincial level

5 Engage with the University of the North West to design specific programmes aimed at capacitating councillors

6 Support the Speaker with the programmes aimed at capacitating municipal speakers to be more effective in advancing municipal oversight

7 Ensure the involvement of provincial government in the appointment process of municipal managers and CFOs

8 Monitor performance management of senior managers within municipalities


24/42


64

Outline of role player commitment/ proposed action plans

Focus areas targeted by commitments and action plans

P r o g r e s s m a d e o n p r i o r y e a r

c o m m i t m e n t

S u p p l y c h a i n

m a n

a g e m e n t

P r e d e t e r m i n e d

o b j e c t i v e s

F i n a n c i a l

m a n

a g e m e n t

T u r n a r

o u n d p l a n s

I T c o n t r o l s

H R m a n a g e m e n t

U s e o f

c o n s u l t a n t s

M u n i c i p a l i t i e s

u

n d e r

a d m i n s t r a t i o n

G o v

e r n a n c e

s t r

u c t u r e s

Coordinated provincial oversight

9 Provincial Speakers Forum to be established to monitor oversight role of councils and the Legislature

10 MPAC’s to be established and trained to perform an effective oversight role

11 Auditor-General to have regular interaction with the Portfolio Committees on Finance and Local Government

Post-audit commitment/initiative (new)

Commitment/ initiative from prior year

In progress Intervention required Good


25/42


65

5.2 AGSA initiatives to encourage clean administration

The initiatives taken by the AGSA to encourage clean administration include thefollowing:

• The AGSA provincial leadership has interacted regularly with the provincialleadership, including the premier, speaker and the executive committee(Exco).

• Quarterly visits to mayors to review and give feedback on implementationof key controls and commitments made to address prior year findings.

• Regular interactions between the management of municipalities andmunicipal entities and senior managers and managers of the AGSA tomake recommendations and assess action plans.

• The AGSA assisted with the training of newly appointed councillors in June2011 and training of new MPAC members in August 2011.

5.3 Other current and emerging matters that require attention

5.3.1 Financial sustainability of auditees

Many municipalities and even municipal entities are experiencing difficulties inmaintaining a financially sustainable position. These include matters such as debtcollection, payment of creditors, ability to fund operations, and the maintenanceof infrastructure. Detailed below are some matters which are highlighted forconsideration in this regard. Reporting on this concern will be expanded on furtherin the general report of 2011-12.

Funding of operations

Concerns regarding the ability to fund ongoing operations or being financiallysustainable were identified at three (27%) auditees [(2009-10: 6 (32%)]. Thefollowing figure and table depict the extent of such concerns in the province and themain reasons for such concerns.

Figure 26: Auditees with concerns related to ongoing funding of operations

2

51

1

2010-11 2009-10 2010-11 2010-11

Number of auditees with financial sustainability concerns Number of auditees withfinancial recovery plans

Number of municipalities placedunder administration (Section

139 of MFMA)Municipalities Municipal entities


26/42


66

Table 40: Reasons for funding and financial sustainability concerns at auditees

AuditeeHigh reliance on grants/Own revenue generated not

suffient to cover operatingcosts

Serious challengesbeing experiencedin the recovery ofconsumer debtors

No cash forunspentgrants

Debtcollectionproblems

Currentliabilitiesexceed

current assets

Significantfinancial

challenges

Municipalities

Naledi

Ventersdorp

Municipal entities

Dr KKDM Economic Agency

Total 0 0 0 0 3 0

None of the municipalities and entities that submitted financial statements on timeis currently under administration in terms of section 139 of the MFMA. Currently,there are numerous municipalities who are in significant financial trouble, however,most of them have not submitted financial statements and are therefore not analysedin this report. The financial trouble they are experiencing coincides with the poorfinancial management at these municipalities that resulted in them not submittingfinancial statements on time. Poor debt collection problems (more detail in section5.3.2), poor financial management and high reliance on grants are the mainreason for the municipalities’ current liabilities exceeding the current assets. Hadthese municipalities been private institutions (without major financial assistance fromother spheres of government) they would not have been able to continue to operate.

5.3.2 Material losses incurred and material impairment of assetsThe details of material losses and asset impairments as disclosed in the financialstatements of auditees for the year ended 30 June 2011 are depicted below. Thisnon-cash expenditure often gives rise to unauthorised expenditure. While thesetypes of losses are not planned they do occur in the normal course of business,and should therefore be taken into consideration in the development of the budget;however, reasonable care should be taken to minimise them and to manage them

constructively.

Table 41: Material losses incurred and impairment of assets

Auditees Material losses(R’000)

Materialimpairment ofassets (R’000)

Reason(s)

Municipalities

1Naledi LocalMunicipality

- 26 812 830 Impairment of receivables (bad debts)

2Madibeng LocalMunicipality


3Greater Taung LocalMunicipality

1 285 275 - Irrecoverable debts written off


4 Ratlou LocalMunicipality


5Maquassi Hills LocalMunicipality


6Ventersdorp LocalMunicipality

631 257 - Irrecoverable debts written off


7 City of Matlosana

440 489 529 - Irrecoverable debts written off


8 Dr Kenneth KaundaDistrict

- 184 536 Impairment of receivables (bad debts)

Total 442 406 061 405 709 201


27/42


67

All the material losses relate to irrecoverable debts written off by the municipality.The highest instance was at City of Matlosana. Of further concern at Matlosanawas that the write-off was qualified because the correct procedures were not

followed to write off the debt. All the material impairment of assets was impairmentof receivables (provision for bad debts); this i s necessitated by poor debt collectionpractices at the municipalities. The impairment of receivables was also qualifiedat most municipalities for either the impairment not being complete or not done interms of the requirements of the GRAP requirements.

5.3.3 Material underspending of votes and/or conditional grants

Five municipalities (45%) [(2009-10: 3 (16%))] under-spent their votes and/orconditional grants for the year ended 30 June 2011, as depicted in the followingfigure. This underspending, which is not an economic saving, is an indicator ofpoor financial management and often results in the non-performance on servicedelivery, and the neglect of other functions such as maintenance of infrastructure.

Figure 27: Material under-spending of votes or conditional grants

R247 million

R173 million

2010-11 2009-10

Rand value

5

3

2010-11 2009-10

Number of municipalities

It is of concern that, in an environment where most municipalities do not haveadequate funding, those with adequate funding has materially underspent. This hasadversely impacted on services delivery at the department where it was identified.

5.3.4 Changes expected in the 2011-12 financial year

The following matters are expected to have an impact transversally across localgovernment on the 2011-12 financial year and measures should be implementedto ensure that these do not negatively impact on audit outcomes in the province:

Accounting matters

The current standards of GRAP have been in a process of being fully implementedover a period of years and to this end transitional provisions for full adherencewere developed. In the current financial year the transitional provisions for medium-capacity municipalities came to an end. The transitional provisions for low-capacitymunicipalities expire in the 2011-12 financial year with the effect that all currentlyapplicable standards of GRAP will be fully applicable for the year-end financialstatements. There will be no additional GRAP standards applicable for the


28/42


68

2011-12 year.

Developments in SCM legislation

The revised Preferential Procurement Regulations came into effect on 7 December

2011. The most significant changes were the introduction of B-BBEE certificatesand the requirement for evaluation of functionality. Municipalities and municipalentities should ensure that their policies and procedures are in compliance with theseregulations to avoid any regression in terms of compliance findings.

Municipal regulations at minimum competency level

Minimum competency regulations were issued on 15 June 2007. As per regulations15 and 18, all municipalities must ensure that their staff comply with the competencyrequirements with effect from 1 January 2013. This means that the requirementsare not yet applicable for the financial year 2011-2012 (financial period ending30 June 2012). However, municipalities will need to start aligning their recruitmentpolicies to the regulations and putting measures in place to ensure that they comply

with the requirements by 1 January 2013.


29/42


69

?

?


30/42


70


31/42


71

GLOSSARY OF KEY TERMINOLOGY USED IN THE REPORT

Accounts payable/accruals/liabilities Money owed by the entity to those who have supplied goods and services. .

Accounts receivable (debtor) Money owed to the entity by those who have received goods or services from the entity.Adverse audit opinion The financial statements contain misstatements that are not confined to specific amounts or the misstatements represent a

substantial portion of the financial statements.

Asset Any item belonging to the entity, which may constitute property, plant, cash or debtors.

Asset impairment The reduction in value of an asset below its normal realisable value

Balance sheet Summary of an entity’s financial status, including assets, liabilities and equity.

Carrying value Also referred to as book value or carrying value; the cost of a plant asset less the accumulated depreciation since the assetwas acquired and less any impairments.

Cash flow The flow of monies from operations: incoming funds are revenue and outgoing funds are expenses.

Commitment (financial) This represents the cost of goods and services to be received in the next year in respect of which the entity has alreadyentered into an agreement to purchase.

Comparative figures The figures recorded in the previous year which correspond to the figures for the same item in the current year

Consolidated financial statements Financial statements that reflect the combined financial position and results of a municipality and those of municipal entitiesunder its control.

Contingent liability A potential liability, the amount of which will depend on a future event.

Current assets Current assets comprise cash and other assets, such as inventory or debtors, which will be traded or consumed or convertedto cash in a period not exceeding 12 months. All other assets are classified as non-current and typically include property,plant and equipment and long-term investments.

Disclaimer of audit opinion There was insufficient appropriate evidence (documentation) on which the auditor could base an opinion concerning theitems reported in the financial statements. The lack of sufficient evidence is not confined to specific amounts or represents asubstantial portion of the information contained in the financial statements.

Financial and performance management Management of resources in order to achieve the financial and service delivery objectives of the municipality. This is one ofthe three key overall drivers of internal control which should be addressed to improve audit outcomes.


32/42


72

Fruitless and wasteful expenditure Expenditure that was made in vain and could have been avoided had reasonable care been exercised. This includes penalties and interest on late payments, as well as payments for services not utilised or goods not received.

General ledger A record of all financial transactions undertaken by an entity.

Governance In the context of this general report it refers to the governance structures (audit committees) and processes (internal auditand risk management) as one of the three key overall drivers of internal control that should be addressed to improve auditoutcomes.

Information technology (IT) Computer systems used for recording and reporting financial and non-financial transactions.

IT governance The structures, policies and process whereby the auditee ensures that information technology is in line with the businessrequirements.

IT service continuity Processes of managing the availability of hardware, system software, application software and data to enable auditees torecover/establish information system services in the event of a disaster.

IT security management Controls preventing unauthorised access to the networks, operating systems and application systems that generate andprepare financial information.

IT user access management Procedures through which the auditees ensures that only valid, authorised users are allowed segregated access to initiateand approve transactions on the system.

Internal control (key controls) Internal control is the process designed and implemented by those charged with governance, management and otherpersonnel to provide reasonable assurance about the achievement of the auditee’s objectives with regard to the reliabilityof financial reporting, effectiveness and efficiency of operations, and compliance with the applicable laws and regulations.Internal controls consist of all the policies and procedures implemented by auditee management to assist in achieving theorderly and efficient conduct of business, including adherence to policies, safeguarding of assets, prevention and detectionof fraud and error, the accuracy and completeness of the accounting records and the timely preparation of reliable financialand service delivery information.

Inventory Goods held for resale or for internal use.

Irregular expenditure Expenditure incurred without complying with applicable laws and regulations.

Leadership Local government leadership refers to both political (mayors and council) and administrative leaders (municipal managerand senior managers). It is also one of the three key overall drivers of internal control that should be addressed to improveaudit outcomes.

Material finding Audit findings on reporting on predetermined objectives or non-compliance with laws and regulations which are significantenough in terms of value and/or nature that they would influence the understanding of the reported information.


33/42


73

Material misstatement Misstatements which are significant enough to influence the opinions of users of the reported information. Materiality isconsidered in terms of the rand value and/or the nature and cause of the misstatement.

Misstatement Incorrect or omitted information in the financial statements or annual performance report.

Modified opinion Qualified, adverse or disclaimer of opinion.Payroll A list of employees and their wages.

Pervasive findings Findings that are not confined to specific items in the reported information or that represent a substantial proportion of thereported information.

Property, plant and equipment Includes land, buildings, leasehold improvements, equipment, furniture, fixtures, delivery trucks, vehicles, etc. that areowned by the entity.

Qualified audit opinion The financial statements contain material misstatements in specific amounts or there is insufficient evidence for the auditor toconclude that specific amounts included in the financial statements are not materially misstated.

Reconciliation The process of matching one set of data to another, i.e. the bank statement to the cheque register, the accounts payable

journal to the general ledger, etc.

Reporting against predetermined objectives (PDOs) Reporting by auditees on their actual service delivery achievements against their annual performance plans.

Residual value The estimated scrap or salvage value at the end of the asset’s useful life.

Root causes The underlying causes or drivers of audit findings, i.e. why the problem occurred. Addressing the root cause helps ensurethat the actions address the real issue or opportunity, thus preventing or reducing the incidents of recurrence as opposed tosimply providing a one-time or short-term fix.

Supply chain management Procurement by auditees of goods and services through a tender or quotation process and monitoring the quality andtimeliness of goods and services provided.

Transversal findings Findings that are cross-cutting or occurring in a number of entities.Unauthorised expenditure Expenditure that was in excess of the amount budgeted or allocated by government to the entity or that was not incurred in

accordance with the purpose for which it was intended.

Useful lives This is the period of time that it will be economically feasible to use an asset. Useful life is used in calculating depreciationon an asset.


34/42


74


35/42


75

ANNEXURE 1: Audit outcomes, areas qualified and findings on predetermined objectives

2010-11 Audit year 2009-10 Audit yearFinancial statementqualification areas

Findings onpredetermined objectives

N u m b e r

Auditee Audit outcome 2010-11

P r e d e t e r m i n e d o b j e c t i v e s

C o m p l i a n c e w i t h l a w s a n d r e g u l a t i o n s

Audit outcome 2009-10



N o n - c u r r e n t a s s e t s

C u r r e n t a s s e t s

L i a b i l i t i e s

C a p i t a l a n d r e s e r v e s

O t h e r d i s c l o s u r e i t e m s

R e v e n u e

E x p e n d i t u r e

U n a u t h o r i s e d ,

i r r e g u l a r , a n d f r u i t l e s s

a n d w a s t e f u l e x p e n d i t u r e

P r e s e n t a t i o n

R e p o r t e d i n f o r m a t i o n n o t u s e f u l

R e p o r t e d i n f o r m a t i o n n o t r e l i a b l e

I n f o r m a t i o n n o t s u b m i t t e d i n t i m e f o r

a u d i t

N o a n n u a l p e r f o r m a n c e r e p o r t

O t h e r n o n - c o m p l i a n c e w i t h r e l a t e d

l e g i s l a t i o n

District municipalities

1 Bojanala Platinum District Financially unqualified with findings Financially unqualified with findings2 Dr. Kenneth Kaunda District Qualified Qualified

3 Dr. Ruth S Mompati District Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date

4 Ngaka Modiri Molema District Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date

Local municipalities

5 Matlosana Disclaimer Disclaimer

6 Ditsobotla Audit not finalised at GR cut-off date Disclaimer

7 Greater Taung Qualified Qualified

8 Kagisano Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date

9 Kgetleng River Audit not finalised at GR cut-off date Disclaimer

10 Lekwa-Teemane Audit not finalised at GR cut-off date Disclaimer

11 M adibeng Disclaimer Disclaimer

12 Mafikeng Audit not finalised at GR cut-off date Disclaimer

13 Mamusa Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date

14 Maquassi Hills Disclaimer Disclaimer

15 Molopo Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date 0 0 0 0 0 0 0 0

16 Moretele Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date 0 0 0 0 0 0 0 0


36/42


76

ANNEXURE 1: Audit outcomes, areas qualified and findings on predetermined objectives

2010-11 Audit year 2009-10 Audit yearFinancial statementqualification areas

Findings onpredetermined objectives

N u m b e r

Auditee Audit outcome 2010-11



Audit outcome 2009-10



N o n - c u r r e n t a s s e t s

C u r r e n t a s s e t s

L i a b i l i t i e s

C a p i t a l a n d r e s e r v e s

O t h e r d i s c l o s u r e i t e m s

R e v e n u e

E x p e n d i t u r e

U n a u t h o r i s e d ,

i r r e g u l a r , a n d f r u i t l e s s

a n d w a s t e f u l e x p e n d i t u r e

P r e s e n t a t i o n

R e p o r t e d i n f o r m a t i o n n o t u s e f u l

R e p o r t e d i n f o r m a t i o n n o t r e l i a b l e

I n f o r m a t i o n n o t s u b m i t t e d i n t i m e f o r

a u d i t

N o a n n u a l p e r f o r m a n c e r e p o r t

O t h e r n o n - c o m p l i a n c e w i t h r e l a t e d

l e g i s l a t i o n

17 Moses Kotane Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date 0 0 0 0 0 0 0 0

18 Naledi Disclaimer Disclaimer 1 1 1 1 1 1 1 1 1 1 0 1 1 0 0 1

19 Ramotshere Moiloa Audit not finalised at GR cut-off date Qualified 1 1 0 0 0 0 0 0

20 Ratlou Financially unqualified with findings Financially unqualified with findings 1 1 0 1 1 0 0 1

21 Rustenburg Audit not finalised at GR cut-off date Qualified 1 1 0 0 0 0 0 0

22 Tlokwe Audit not finalised at GR cut-off date Qualified 1 1 0 0 0 0 0 0

23 Tswaing Audit not finalised at GR cut-off date Disclaimer 1 1 0 0 0 0 0 0

24 Ventersdorp Disclaimer Disclaimer 1 1 1 1 1 1 1 1 1 1 0 0 0 1 0 1

Municipal entities

25 Dr KKDM Economic Agency (Pty) Ltd Financially unqualified with findings Financially unqualified with findings 1 0 1 1 0 0 0 0

26 Moretele Development Agency Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date 0 0 0 0 0 0 0 0

27 Moses Kotane Development Agency Audit not finalised at GR cut-off date Audit not finalised at GR cut-off date 0 0 0 0 0 0 0 0

28 Rustenburg Water Services Trust Qualified Financially unqualified with findings 1 1 1 0 0 0 0 0 0 0 0 0 0 0 1 0


37/42


77

ANNEXURE 2: Five-year history of audit outcomes of all auditees

N u m b e r

Auditee Audit outcome 2010-11 Audit outcome 2009-10 Audit outcome 2008-09 Audit outcome 2007-08 Audit outcome 2006-07

District municipalities

1 Bojanala Platinum District Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings

2 D r. K enne th Kaunda Di st ri ct Qualified Qualified Qualified Qualified Disclaimer

3 Dr. Ruth S Mompati District Audit not finalised at legislated date Audit not finalised at legislated date Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings

4 Ngaka Modiri Molema District Audit not finalised at legislated date Audit not finalised at legislated date Disclaimer Qualified Disclaimer

Local municipalities

5 Matlosana Disclaimer Disclaimer Disclaimer Disclaimer Disclaimer

6 Ditsobotla Audit not finalised at legislated date Disclaimer Disclaimer Disclaimer Disclaimer

7 Greater Taung Qualified Qualified Disclaimer Disclaimer Disclaimer

8 Kagisano Audit not finalised at legislated date Audit not finalised at legislated date Qualified Financially unqualified with findings Disclaimer

9 Kgetleng River Audit not finalised at legislated date Disclaimer Disclaimer Disclaimer Disclaimer

10 Lekwa-Teemane Audit not finalised at legislated date Disclaimer Disclaimer Disclaimer Disclaimer

11 Madibeng Disclaimer Disclaimer Disclaimer Adverse Adverse

12 Mafikeng Audit not finalised at legislated date Disclaimer Disclaimer Disclaimer Disclaimer

13 Mamusa Audit not finalised at legislated date Audit not finalised at legislated date Audit not finalised at legislated date Audit not finalised at legislated date Disclaimer

14 Maquassi Hills Disclaimer Disclaimer Disclaimer Disclaimer Disclaimer

15 Molopo Audit not finalised at legislated date Audit not finalised at legislated date Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings

16 Moretele Audit not finalised at legislated date Audit not finalised at legislated date Disclaimer Disclaimer Disclaimer

17 Moses Kotane Audit not finalised at legislated date Audit not finalised at legislated date Disclaimer Financially unqualified with findings Financially unqualified with findings

18 Naledi Disclaimer Disclaimer Adverse Disclaimer Disclaimer

19 Ramotshere Moiloa Audit not finalised at legislated date Qualified Qualified Disclaimer Disclaimer

20 Ratlou Financially unqualified with findings Financially unqualified with findings Financially unqualified with findings Disclaimer Disclaimer

21 Rustenburg Audit not finalised at legislated date Qualified Qualified Qualified Disclaimer