FS municipalities show progress

Manyoni says must work harder to achieve clean audits

There is an urgent need to constantly monitor municipalities that continue to receive poor audit outcomes so that they can improve their operations and workers who fail to abide by the set rules should be made to account, the South African Local Government Association (SALGA) has said.

SALGA chairman Thabo Manyoni yesterday told The Weekly that while some municipalities in the Free State had improved their audit outcomes for the 2013/14 financial year, his organisation was concerned that the improvements were minimal and strongly believed that more could be done to achieve better results.

Manyoni said this following the release of audit outcomes for the country’s municipalities and municipal entities by the auditor-general (AG) Kimi Makwetu in Cape Town on Wednesday.
According to the AG’s report, there was a noticeable increase in the number of municipalities and municipal entities in the country that received unqualified audit opinions with no findings — or clean audits as they are commonly known — in the 2013-14 financial year, a move he said was a laudable step towards wholesale good governance for South Africa’s public sector.

But even though 41 percent of the auditees in the Free State received unqualified opinions after correcting material misstatements found in their financial statements during the audit process, no municipality or municipal entity achieved a clean audit.

A total of 22 percent of the auditees received qualified opinions on their financial statements while 33 percent disclaimed opinions.
A qualified audit opinion is obtained when an institution submits to the AG financial statements that contain material misstatements in specific amounts, or there is insufficient evidence for the AG to conclude that specific amounts included in the financial statements are not materially misstated.

A disclaimer is issued when the financial statements of the audited entity are so materially defective or inadequate that the auditor is unable to and refuses to express an opinion on the statements.
“There is some slight improvement in the audit outcomes of the municipalities in the Free State but it’s not enough,” said Manyoni in a telephone interview yesterday.

“We as SALGA are very much concerned about the state of municipalities in the Free State. There are factors underlining that position. These municipalities need to really stick to the basics in order to achieve better audit outcomes,” added Manyoni, who is also the executive mayor of Mangaung Metropolitan Municipality.

He added that it was important for the municipalities to have decisive leadership both at the political and administrative levels to ensure that there was progress.
Manyoni said: “You need people who would not tolerate wrong things in their own municipalities as politicians. These are people who will always monitor progress or no progress and demand results. The same thing with administration, you need people who would want results.

“You will realise that most of these municipalities that are not performing well do not have the necessary capacity in terms of the structures to assist.
“For instance, most do not have functioning internal audit committees or functioning performance monitoring committees. These committees are important because they give you early warnings on the lack of performance of the municipalities.”

He said municipalities should closely look into the culture of non-commitment which had crept into most municipalities and ensure that they addressed the matter by implementing the consequence management policy which called people to account.

“We say there must be consequences for not doing the right thing in municipalities and it is quite important that this is observed. When there are no consequences, people will just do as they please. Those are the basics that you need to put in place in municipalities,” said the SALGA chairperson.

“I am fully aware that most of the municipalities do not have the necessary capabilities and capacity because they cannot attract the necessary skills. Some of the municipalities are very small and cannot afford to pay for some of the required skills.

“But that cannot always be an excuse because national treasury and the cooperative governance and traditional affairs departments have been coming in to assist,” he added.
Mangaung Metro together with Tokologo and Setsoto local municipalities improved from a qualified audit outcome in the 2012/13 financial year to an unqualified opinion with findings last year.

Lejweleputswa and Thabo Mofutsanyana district municipalities as well as Dihlabeng, Nketoana and Tswelopele local municipalities remained unchanged from the previous year, both receiving unqualified opinions with findings.

Xhariep District Municipality and Mohokare Local Municipality also maintained their performance from the previous year when they were issued with qualified audit opinions.
Phumelela, Ngwathe, Nala, Moqhaka, Matjhabeng, Mantsopa, Maluti-A-Phofung, Mafube and Letsemeng local municipalities failed to improve after they got disclaimers for the 2013/14 financial year as they did in the previous one.

“The overall picture of audit outcomes in the current year is not much different from the previous year,’ said Makwetu.
“Although the audit results of six auditees improved, these improvements were overshadowed by financial statements that were subject to material audit adjustments and high unauthorised and irregular expenditure,” he added.

The AG said the quality of financial information submitted for audit remained poor, with 96 percent of auditees making audit adjustments to their financial statements even though 61 percent of them had appointed qualified chief financial officers.

Makwetu also expressed concern that “leadership had taken no visible action to improve this situation and address the root causes of audit findings.”
He said instead, the entities had continued hiring consultants to assist them prepare their financial reports at a cost of R130 million compared to R116 million spent in the 2012/13 financial year.
“Another concern remains that very few municipalities were able to avoid findings on predetermined objectives. Only 15 percent of municipalities generated useful and reliable performance reports,” he said.

According to the AG’s report, all auditees from the Free State had material findings on compliance. The main reason for this was a lack of formal consequence management with only 74 percent of the auditees decisively dealing with contraventions or poor performance.

At least R2.33 billion went to unauthorised expenditure R934 million going into irregular expenditure at the provinces’ municipalities and entities.
Makwetu said: “I am also particularly concerned about the high level of supply chain management transgressions that are driven by uncompetitive or unfair procurement processes, conflicts of interests and internal control failures.

“This not only translates into high irregular expenditure, but also provides very little assurance that value for money was received from the acquisition of goods and services.

“These transgressions are largely the result of: an unwillingness to comply with legislation (which saw) 67 percent of auditees not having a head of supply chain management appointed at year end as well as a lack of performance management.”