The Auditor-General provided a detailed analysis of the audit outcomes of municipalities and municipal entities as at 31 January 2011. Only five of the 283 municipalities had a completely clean audit – this was up from two the previous year. There were 110 qualified audits (with 53 of those issued with a disclaimer.) There were 120 with matters of emphasis only and the Auditor-General believed that these could very easily become clean audits in the next year.
Comparing the audit outcomes with those of the 2008/09 financial year, a total of 57 municipalities had improved, 164 municipalities remained unchanged and a total of 16 had regressed. The Auditor-General then provided a detailed analysis of the 2009/10 Municipal Audit Outcomes.
The Auditor-General identified the South African Local Government Association (SALGA), National Treasury, the National Council of Provinces and National Assembly as key role players in working towards clean audits. In his assessment of the NA and NCOP’s monitoring effectiveness, he advised that there had to be visible action plans and recommendations showing intervention in the following areas of focus: Supply Chain Management, Predetermined Objectives, Financial Management, Turnaround Plans, IT Controls, Human Resource Management, Use of Consultants, Municipalities under Administration and Governance structures.
Committee members were pleased with the detailed presentation. They emphasized the importance of collaborative efforts to get municipalities to adhere to the advice of the Auditor-General. A Committee member suggested that late submissions and non-compliance should incur penalties such as fines to achieve better results. The Committee pointed to SALGA and said that it was not playing its part and that it needed capacity building.
The Director-General for the Department of Co-operative Governance and Traditional Affairs suggested that the Committee host a follow-up meeting with National Treasury, SALGA and his department to obtain feedback as to what government was doing in response to the Auditor-General's findings.
Briefing by the Auditor-General
Mr Terence Nombembe, Auditor-General of
Likewise, for municipal entities, 12 had improved, 32 had remained unchanged, two had regressed and three were new municipal entities. A total of 49 had been reported on.
Mr Nombembe then compared these results according to province for both municipalities and municipal entities as at 31 January 2011.
He outlined the seven key reasons for the qualified audits of the 110 municipalities in terms of compliance with laws and regulations. These were:
▪ unauthorized, irregular, fruitless and wasteful expenditure
▪ other disclosure items
▪ capital assets
▪ current assets
He showed the percentage in each category that had repeat qualification findings, those that were new qualifications and the percentage of 2008/09 qualified findings that had been addressed. On average, only 13% of the municipalities had managed to address the reason for qualification and avoid a repeat finding.
Mr Nombembe turned his attention to performance auditing where auditors now look at outcomes based on the predetermined objectives of that institution. Those municipalities that had qualified audits were typically failing at both (1) reporting on predetermined objectives and (2) compliance with laws and regulations. However, there had been a huge improvement in late or non-submissions of performance reporting (improving from 37% to 25% late/non-submissions), non-compliance stayed at a high of 88%, those reports that had “not been useful” had increased from 58% to 68%; and those that had reported information that had “not been reliable” had decreased from 55% to 47% of findings.
Top findings for non-compliance with laws and regulations for municipalities were:
▪ Transversal material misstatements
▪ Expenditure was not paid within the parameters set by the applicable legislation
▪ Supply Chain Management (SCM) resulting in irregular expenditure
▪ SCM issues not resulting in irregular expenditure
▪ The Mayor/Accounting Officer / Officials did not adhere to their statutory responsibilities
▪ The Audit Committee was not properly established or not functioning properly
▪ The Internal Audit Unit was not properly established or not functioning properly.
In 2009/10, R5 billion had been spent on unauthorized expenditure (compared to R3,03 billion in 2008/09).
Half had been identified by the auditees and half by the auditors (R1,1 billion was written off or authorized)
In 2009/10, R4,14 billion had been spent on irregular expenditure (compared to R2,4 billion in 2008/09).
In 2009/10, R189 million had been spent on fruitless and wasteful expenditure (R128 million in 2008/09).
Mr Nombembe looked at reasons for municipalities using consultants (lack of technical expertise; vacancies) and the impact of these consultants (transfer of skills; reduction of material misstatements). He also looked at AGSA’s findings on information systems audits for municipalities in terms of Information Technology (IT) Governance, Security Management, User access control, IT service continuity planning, Facility and control environment and Program change management.
The briefing analysed the number of municipalities and municipal entities with funding concerns: 52 municipalities had financial sustainability concerns, 21 had financial recovery plans; 7 municipalities had been placed under administration in 2009/10 in terms of Section 139 of the Municipal Fund Management Act.
Mr Nombembe provided an analysis of the drivers required for improved audit outcomes and identified these drivers as: Leadership; Financial and performance management; Governance. He then identified municipalities that were (1) good, (2) work in progress or (3) intervention required. He further analysed the components of each of these three drivers. Leadership was particularly weak at exercising oversight of financial and performance reporting and compliance as well as in IT matters. With regards to the establishment of an IT governance framework that was supportive of business, 7% were identified as good, 15% as work in progress and 78% required an intervention.
In terms of financial and performance management pertaining to “application systems susceptible to compromised data integrity”, 7% were tabled as good, 10% were identified as work in progress and 68% required intervention in this sector.
Mr Nombembe identified and assessed the commitment of key role players who could help address the audit outcomes. They were the South Africa Local Government Association (SALGA), National Treasury, the National Council of Provinces (NCOP) and National Assembly.
In his assessment of the NA and NCOP’s monitoring capacity and effectiveness, there had to be visible action plans and recommendations showing intervention in the following areas of focus: Supply Chain Management, Predetermined Objectives, Financial Management, Turnaround Plans, IT Controls, Human Resource Management, Use of Consultants, Municipalities under Administration and Governance structures.
Mr J Gunde (ID,
Mr A Watson (DA,
He found the non-compliance and late submissions disturbing. The AGSA had to work closely with the National Assembly (NA) and the National Council of Provinces (NCOP) to get people to submit on time, even if it meant introducing penalties such as fines.
Mr Watson noted the issue of consultants costing a lot of money was noted as well as those municipalities who were still receiving disclaimers even though they had consultants.
Mr A Matila (ANC,
Mr Van Rooyen (DA,
Mr T Beyleveldt (DA,
Mr Elroy Afrika, the Director-General (DG) for the Department of Co-operative Governance and Traditional Affairs, thanked the AGSA for the presentation and referred to it as insightful. He suggested that the Committee consider hosting a follow-up meeting. The reason for his suggestion was that the picture had not being completed, even though the feedback from the AGSA had been excellent. What was missing from the presentation was what government was doing in response to AGSA's findings. That would complete the briefing and allow for a more fruitful discussion. He asked the Committee to get the Department, as well as National Treasury, to make a detailed presentation ON THIS. National Treasury’s financial management support system should be discussed. He added that if SALGA could also make a presentation that would complete the discussion.
Mr Nombembe said that from the engagement, there had been a very fruitful and constructive response from all the key role players. He made reference to role-player intervention on page 19 and 20 of the presentation and said that those slides were looking like that because there were initiatives but that they were lacking the momentum to follow through and get the end result, which was service delivery.
Mr R Tau (ANC,
The meeting was adjourned.
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