PRESENTATION OUTLINE

1. IMFO WOMEN IN LOCAL GOVERNMENT SEMINAR ACHIEVING 2014 CLEAN AUDIT OBJECTIVESPRESENTED BY: MS E WASSERMANNCHIEF FINANCIAL OFFICER STEVE TSHWETE LOCAL MUNICIPALITY7 MARCH 2014Emperors Palace, Kempton Park

2. PRESENTATION OUTLINE • Root causes why municipalities do not achieve clean audits. • What a clean audit report entails. • Elements of a clean audit. • Core compliance aspects. • General financial management. • Other important matters to be considered. • Relationship with Auditor-General. • STLM approach. • Challenges for 2013/2014 financial year.

3. Root causes why municipalities do not achieve clean audits • Property Plant and Equipment (GRAP 17). • No, or incorrect assessment of impairment and review of useful lives. • Fixed asset register incomplete and not updated. • Reconciliations of registers with GL not performed. • No supporting documentation to support evidence. • Performance Information and Predetermined Objectives. (74% of auditees) • Performance reports not submitted. • Usefulness and reliability of reported information. (Performance indicators not well defined). • No supporting documentation to support evidence. • Non-Compliance with Laws and Regulations (94% of auditees) • Unauthorised, irregular & fruitless and wasteful expenditure. • Submitted financial statements required material adjustments. • Non-functional audit committee & internal control.

4. Root causes why municipalities do not achieve clean audits • Supply Chain Management • General non-compliance to procurement and contract management. (Bid committees, quotations etc.). • Awards made to persons in the service of the state. • Uncompetitive bids or unfair procurement processes. • Lost procurement documentation. • CIBD requirements and Restricted Suppliers Database. • Unauthorised, irregular and wasteful expenditure. • Governance • Lack of leadership. • Internal audit & audit committees. • Risk and fraud prevention. • Key positions vacant or key officials lacking skills. • Lack of proper record keeping.

5. What a clean audit report entails The municipality must be no material findings in the report on the following matters: • Misstatements in the financial statements. • Emphasis of matters. • Annual performance report. • Compliance with laws and regulations. • Internal control. • Significant findings from the audit on procurement and contract management.

6. ELEMENTS OF A CLEAN AUDIT

7. Preparation of financial statements Outsourced versus In-House • 71% of municipalities were assisted by consultants. • Audit outcomes statistics (includes municipal entities). • 70 out of 85 - Adverse/Disclaimed • 56 out of 71 – Qualified • 93 out of 144 - Unqualified with findings • 7 out of 17 - Unqualified with no findings • Consultants were able to correct parts of financial statements that had been misstated but were not necessarily able to ensure that auditees progress towards unqualified reports. • Disadvantages • Consultants are appointed close to financial year-end – No real impact. • Poor accounting information and record keeping. • Un-reconciled registers limit ability to prepare GRAP compliant statements. • Vacancies and capacity of finance staff.

8. Preparation of financial statements • Prepare financial statements in-house. • Benefits: • Build in-house capacity. • Responsibility/Ownership rests within the 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 followed. • Defend fairness of queries raised. • Accurate and timeous response to Auditor-General.

9. core compliance aspects Identify gaps and ensure the following core aspects are in place and functional: Governance • Internal audit and control. • Risk assessments including IT risks and fraud prevention. • Performance management (reporting & audits). • Audit committee. • Legislative compliance. Financial • Achieve unqualified report. • Proper record keeping and documentation. • Reporting and legislative compliance. (MFMA & Supply Chain) • Understand and adhere to accounting standards framework. (GRAP) • Daily and monthly reconciling of transactions.

10. General financial management • Daily, monthly & year-end procedures. • Ensure all registers and / or suspense accounts are cleared and balanced monthly for example debtors, creditors, bank reconciliation, stores etc. • Commence immediately with audit action plan to rectify findings raised during past audits. • At least four months before financial year end prepare financial year-end procedures. • Benefits: • Immediately detect if monthly accounts are not balanced and correct before next month end. • It allows sufficient time to properly review general ledger with account balances. • Bring team together to understand roles and responsibilities for financial year-end closure.

11. Other important matters • Gap analysis for new accounting standards. Based on the results, prepare an action plan to implement. • Capacitate responsible officials who are involved in implementing accounting standards. • Ensure each official understands their duties and responsibilities. • Understand and apply the 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.

12. Relationship with auditor-general • Know the Auditor-General and team. • Make sure there is a good and positive working relationship. • Listen and adhere to the audit requirements. • Establish clear communication lines. • Designate an official to be available during the whole audit process. • Respond to informal queries 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.

13. 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. • The achievement of a Clean Audit is a continuous process. • Get the basics right: • Submit on time. • Accuracy of information. • No material misstatements. • Supporting documentation. • Legislation compliance.

14. Challenges for 2013/14 audits • New Standards of GRAP, effective date of 1 April 2013 i.e. applicable to 2013/2014 financial year. • GRAP 25 Employee benefits • Corporate governance of information and communication technology (IT) policy framework. • Matters raised in previous audit.

15. MUNICIPAL COMMITMENT There are many faces in the municipality contributing to a clean audit achievement.

16. Thank you