OVERVIEW ON CAUSES OF FINANCIAL STATEMENT QUALIFICATIONS

1. IN-HOUSE COMPILATION OF ANNUAL FINANCIAL STATEMENTS, AUDIT OUTCOMES & CLEAN AUDIT SALGA29 APRIL 2013PRESENTED BY: WILLIE FOUCHEMUNICIPAL MANAGERSTEVE TSHWETE LOCAL MUNICPALITY

2. OVERVIEW ON CAUSES OF FINANCIAL STATEMENT QUALIFICATIONS • Property Plant and Equipment (GRAP 17) • Residual values, Useful lives not reviewed • Fixed asset register incomplete and not updated • Reconciliations of registers with GL not performed. • Supporting documentation to support evidence. • Performance Information and Predetermined Objectives • Performance reports not submitted • Usefulness of reported information measured against relevance and measurability • Non-Compliance with Laws and Regulations • Unauthorised, irregular & fruitless and wasteful expenditure • Submitted financial statements required material adjustments • Non functional audit committees & Internal Control

3. OVERVIEW ON CAUSES OF FINANCIAL STATEMENT QUALIFICATIONS • Critical Supply Chain Management Issues • General non compliance to procurement and contract management. (Bid committees, Quotations etc) • Awards made to persons in the service of the state. • Competitive bids not invited. • Missing contract documentation • Governance • Leadership • Performance management • Systems and processes • Lack of proper record keeping

4. Elements of Clean Audit

5. Core Compliance Identify and ensure core compliance issues are in place: • Governance • Internal Audit and Control. • Performance Audits. • Audit Committee. • Legislative Compliance. (MFMA) • Financial: • Unqualified Report. • Proper Records and Documentation. • Reporting and Legislative Compliance. • Understand and Comply with Accounting Standards Framework. (GRAP)

6. Financial Management • Monthly & Yearend Procedures & Reconciliations • Institute measures and control procedures to ensure all registers, control or suspense accounts are balanced monthly for example debtors, creditors, bank reconciliation, stores etc. • Prepare and commence timeously with financial year end closure procedures- At least four months before financial year end; • Benefits: • Immediately detect if monthly accounts are not balanced and correct before next month end. • It allows sufficient time to properly review general ledger account balances. • Bring team together to understand roles and responsibilities with financial year end closure.

7. Preparation of Financial Statements • Outsourced versus In-House • 68% of municipalities are assisted by consultants • Audit outcomes statistics • 107 out of 127 - Qualified & Adverse/Disclaimed • 93 out of 156 - Unqualified with findings • 7 out of 13 - Unqualified with no findings • Consultants were able to correct parts of financial statements that had been misstated but are unable to ensure that auditees progress towards unqualified reports. • Disadvantages • Consultants Appointed close to year-end – No real impact • Deficiencies in record keeping and reconciliations limit ability to prepare GRAP compliant statements. • Vacancies and capacity of finance department staff.

8. Preparation of Financial Statements • Prepare Financial statements in-house. • Benefits: • Build in-house capacity. • Responsibility/Ownership rests with municipality. • Better control over balancing and verification of figures in general ledger with source documents. • Informed responses to Auditor-General enquiries. • Better understanding of accounting records and procedures • Defend fairness of enquiries raised. • Accurate and timeously response to AG on queries raised.

9. Other important issues • With implementation of new accounting standards a gap analysis was undertaken to inform on shortcomings. Based on the results an action plan was implemented. • Capacitate responsible officials who implement accounting standards. • Ensure each official has and understands their job duties and responsibilities. • Understanding and application of policies and procedures especially SCM. • Proper segregation of duties. • Share best practises with colleagues. • Commitment of every official to diligently perform their duties from the lowest to highest level.

10. Relationship with Auditor-General • Know the Auditor-General. • Make sure there is a good and positive working relationship. • Listen to their requirements during Audits. • Respond to informal enquiries quickly and efficiently. • Provide information as requested and if not available inform AG accordingly. • Have a open office approach and assist as far as possible. • Designate an official to be available during audit.

11. STLM APPROACH • The municipality has achieved unqualified reports since 2002 with emphasis of matters and other matters. • With each audit report corrective and preventative measures with action plans were implemented to rectify these issues before the next audit. • Eventually everything came together and a clean audit was achieved. • Clean Audit is a constant process. • Dedicated team. • Get the basics right. • Submit on time. • Accuracy of information. • No material misstatements. • Supporting documentation.

12. CHALLENGES FOR 2012/13 AUDITS • New Standards of GRAP, effective date of 1 April 2012 i.e applicable to 2012/2013 financial year. • GRAP 21 - Impairment of non-cash-generating assets • GRAP 23 - Revenue from non-exchange transactions • GRAP 24 - Presentation of budget information in financial statements • GRAP 26 - Impairment of cash-generating assets • GRAP 103 - Heritage assets • GRAP 104 - Financial instruments • The ASB has issued the following additional Standard of GRAP, effective date of 1 April 2013 i.e 2013/2014 financial year. • GRAP 25 Employee benefits • Minimum competency regulations. As per regulation 15 and 18, all municipalities must ensure that their staff comply with the competency requirements with effect from 1 January 2013. This means that the requirements are applicable for the financial year 2012-13 (financial period ending 30 June 2013). Municipalities need to align their recruitment policies to the regulations and put measures in place to ensure that their personnel comply with the requirements.

13. OUR COMMITMENT There are many faces in the municipality contributing to the clean audit achievement.

14. 10 OTHER CRITICAL ISSUES • Records Management • Delegation register • Legal Compliance register • Litigation register • Contract Management • Monitoring system (Political and Administrative) • Competent and qualified personnel • Billing system • PMS (SMART ) • Internal control

15. THANK YOU NGIYATHOKOZA