IMFO Audit and Risk Indaba 26-28 October 2011

1. Welcome… IMFO Audit and Risk Indaba 26-28 October 2011 Interchangeable roles of Audit Committee and Municipal Public Accounts Committee in enhancing oversight within a municipality 1

2. Introduction General • Local Government Turn Around Strategy emphasised the concept of oversight by council over the executive • To be strengthened by separation of executive and legislative components of municipal council • To be done within the context of existing legislation and council policies. • Paper deals with exposition of • audit committee • Internal audit unit • King III principles • Establishment of MPAC • Incorporation into municipal governance framework

3. Audit committee • MFMA requires each municipality to have audit committee • Is independent advisory body, advises council, office bearers, accounting officer, board and staff of entity on • internal financial control and internal audits; • risk management; • accounting policies; • the adequacy, reliability and accuracy of financial reporting and information; • performance management; • effective governance; • compliance with the MFMA, the annual Division of Revenue Act and any other applicable legislation; • performance evaluation; and • any other issues referred to it by the municipality or municipal entity;

4. Audit comm cont. • Review annual financial statements so as to provide authoritative and credible view of the financial position, on overall compliance with MFMA, DORA, etc • Respond to council on any matter raised by A-G • Carry out such investigations into financial affairs of municipality/entity • Functions as may be prescribed. • Members are appointed by council • At least three persons with appropriate experience • Chairperson cannot be in employ of municipality • Councillor cannot be member • Is a committee of council • Have no executive or enforcement functions

5. Audit comm cont. • Audit committee must interrogate the following governance and financial aspects in the municipality • internal financial controls in the municipality • identification of strategic risks in the municipality • the establishment and updating of a municipal risk register • management and mitigation of risks contained in the risk register • accounting policies in the municipality • the frequency, accuracy and reliability of financial reporting by the municipality and where applicable, municipal entities • the performance management system of the municipality

6. Audit comm cont. • the implementation and effectiveness of the performance management system • evaluation of the actual performance of the municipality • compliance with legislation • effective governance in the municipality • review of the annual financial statements • financial position of the municipality • the municipal response to the A-G report • loss control • the implementation of the King III principles • The development of strategies to address the above rests with the internal audit unit. • The audit committee therefore casts an expert eye on strategies developed by internal audit and the implementation thereof by the municipality

7. Internal audit unit • MFMA requires each municipality to have internal audit unit, best situated in office of MM, and it must • prepare a risk-based audit plan and an internal audit program for each financial year; • advise the accounting officer and report to the audit committee on the implementation of the internal audit plan and matters relating to • internal audit; • internal controls; • accounting procedures and practices; • risk and risk management; • performance management; • loss control; and • compliance with the MFMA, the annual Division of Revenue Act and any other applicable legislation; and • perform such other duties as may be assigned to it by the accounting officer.

8. Internal audit cont. • Internal audit plan and internal audit program must be submitted to council for approval • In addition to statutory requirements, internal audit must also ensure that King III principles, in so far as they relate to LG, are implemented. • Actual implementation is cross-cutting but implementation plan and monitoring rests with internal audit • King III deals with • Ethical leadership and corporate citizenship • Boards and directors • Audit committee • Risk governance • Governance of IT

9. Internal audit cont. • Compliance with laws, rules, codes, and standards • Internal audit • Governing stakeholder relationships • Integrated reporting and disclosure • Alternative dispute resolution • Internal financial controls • Remuneration of directors and senior executives

10. Municipal Public Accounts Comm • MFMA requires for an oversight report to be prepared commenting on the annual report • Council must consider annual report within two months of tabling • Must adopt an oversight report, with comments on the report • Must indicate whether annual report has been approved with or without reservations, or rejected, or refer back for revision • MFMA circular 32 provides guidance on oversight process • NT may also issue guidelines on the manner in which councils should consider annual reports • NT, in consultation with DCOG, issued guidelines on establishment of MPACs. • Main purpose is to provide oversight over the executive obligations of council.

11. MPAC cont • Is a section 79 committee • Not to overlap with audit committee but to strengthen oversight function • May engage directly with internal audit, with direct access to certain documentation within municipality. Functions include – • to consider and evaluate the annual report and to make recommendations to the council when adopting the oversight report, • review past recommendations made on the annual report and ensure implementation thereof, • examine financial statements and audit reports and consider improvements or deterioration from previous reports and evaluate how Audit Committee and AG recommendations have been implemented, • promote good governance, transparency and accountability on the use of municipal resources, • recommend or undertake investigations in its area of competency, • perform any other function assigned to it by the municipal council.

12. MPAC cont. • MPAC must prepare annual work programme, and report to council on quarterly basis • MPAC must consider the mid-year budget review against the IDP and SDBIP targets, and measure implementation of clean audit initiatives • Rules of order of meetings must be agreed to • Must have administrative support staff, required tools of trade, and dedicated budget • Terms of reference must be drafted and approved by council, to avoid unnecessary overlap with audit committee, internal audit. • Terms of reference must include a list of documents that must be submitted to MPAC as a matter of course. • These include -

13. MPAC cont. • agendas and minutes of the audit committee meetings • all formal recommendations made by the audit committee • the accounting policies of the municipality and all subsequent amendments • the annual financial statements • the A-G report • the risk based audit plan • audit program • risk register of the municipality • details of the municipality’s compliance with its statutory reporting requirements • the performance management system of the municipality • the annual performance evaluation of the municipality, the municipal manager as well as senior managers • an annual report on loss control in the municipality • an annual report on the implementation of the King III principles in the municipality • mid-year and annual reports on any municipal entities

14. MPAC cont • MPAC must have authority to request any official to appear before it • Content of agenda is determined by Chairperson, and prepared by MM and the administration • Meetings of MPAC should be open to the public.

15. In conclusion • Internal management controls are crucial in order to deliver services effectively and efficiently • Internal audit and audit committee centres mainly on internal management controls • MPAC is centred on oversight over executive obligations of council • Is a tool, by the municipal council, to hold the executive accountable for the execution of its mandate in terms of IDP, budget, and SDBIP.

16. Thank you