Transcript Slide 1

MFMA 2012-13
Audit outcomes of
local government
IMFO 5 March 2015
Our reputation promise/mission
The Auditor-General of South Africa (AGSA) has a
constitutional mandate and, as the Supreme Audit
Institution (SAI) of South Africa, exists to
strengthen our country’s democracy by enabling
oversight, accountability and governance in the
public sector through auditing, thereby building
public confidence.
Focus of our audits
We audit …
2012-13
MFMA
to determine …
Financial
statements
Fair presentation and reliability of
information (no material misstatements)
Annual
performance
reports
Whether the reported information is reliable
and credible (no material findings)
Whether the auditee complied with key
Compliance
legislation on financial and performance
with legislation
management (no material non-compliance)
3
Various categories of the audit outcomes
An unqualified opinion with no findings (clean audit) means the auditee was
able to:
•
produce financial statements free of material misstatements.
•
report in a useful and reliable manner on performance as measured against
predetermined objectives in the annual performance plan.
•
comply with key legislation.
2012-13
MFMA
Auditees that received a financially unqualified opinion with findings are those
that were able to produce financial statements without material misstatements but are
struggling to:
•
align their performance reports to the predetermined objectives they committed to in
their annual performance plans
•
set clear performance indicators and targets to measure their performance against
their predetermined objectives
•
report reliably on whether they achieved their performance targets
•
determine which legislation they should comply with and implement the required
policies, procedures and controls to ensure they comply.
Auditees that received a financially qualified audit opinion with findings have the same
challenges as those that were unqualified with findings but, in addition, they could not
produce credible and reliable financial statements. There are material misstatements in
their financial statements, which they could not correct before the financial statements were
published.
Adverse and disclaimed opinions mean the auditee was …
• unable to provide sufficient supporting documentation for amounts in the financial
statements and achievements reported in the annual performance report.
• not complying with key legislation.
4
19
32
13
2 1
PFMA
2
MFMA
1
1
15
9
9
10
7
3
MFMA
PFMA
132
28
Northern Cape
11
PFMA
1
Western Cape
18
18
11
MFMA
5
PFMA
16
6
8
15
4
6
MFMA
6
PFMA
5
8
9
13
4
MFMA
12
6
8
4
9
10
8
2
MFMA
5
PFMA
Eastern Cape
9
1
Free State
North West
53
2012-13
MFMA
Mpumalanga
National
government
Limpopo
Gauteng
3
1
18
21
13
2
MFMA
4
1
PFMA
KwaZulu-Natal
Audit outcomes
2
3
5
Unqualified with
no findings
11
8
Unqualified with
findings
5
4
Qualified with
findings
MFMA
PFMA
Adverse or disclaimer
with findings
Audits outstanding
11
9
Improved
46
12
3
MFMA
21
6
3
PFMA
Stagnant or little
progress
Regressed
4
15
6
1
PFMA
5
2012-13
MFMA
1
What is the status and progress of
audit outcomes of local
government?
6
Our message (MFMA)
25%
29%
15%
16%
22%
7%
11%
26%
29%
55%
42%
45%
5%
2012-13
Unqualified with no findings
Unqualified with findings
Qualified with findings
1%
2011-12
Legislature/ NCOP
and portfolio
committees
Municipal public
accounts
committees
Municipal councils
Coordinating/
monitoring
departments
Third level of
assurance
18%
13%
20%
Second level of assurance
Internal audit units
22%
48%
First level of assurance
Mayors
43%
5%
Municipal managers/
chief executive officer
41%
5%
Senior
management
9%
Assurance levels
Audit committees
Improvement in audit outcomes
53%
52%
49%
45%
39%
30%
30%
3%
5%
2010-11
Adverse/disclaimed
with findings
34%
33%
Outstanding
audits
Provides assurance
To improve/maintain the audit outcomes ...
35%
Provides some assurance
45%
45%
42%
6%
2%
Provides limited/
no assurance
Not established
… the key role players need to ...
53%
47%
Our message (MFMA) (continued)
Key controls
Leadership
Financial and
performance
management
Risk areas
Governance
Quality of submitted
financial statements
Root causes
Quality of submitted
performance reports
34%
18%
23%
25%
20%
Slow response by political leadership to address
the root causes of poor audit outcomes
20%
28%
30%
82%
66%
Supply chain management
34%
43%
32%
39%
Financial health
15%
41%
24%
17%
36%
68%
41%
34%
38%
Human resource management
48%
41%
31%
34%
Information technology
31%
48%
2012-13
2011-12
Good
2012-13
2011-12
Concerning
2012-13
2011-12
Intervention required
Lack of consequences for poor performance and
transgressions
38%
43%
Good
... give attention to the key controls, …
13%
Key positions vacant or key officials lacking
appropriate competencies
26%
39%
Concerning
Intervention required
the risk areas, and …
… the root causes.
Status of compliance with legislation
2012-13
MFMA
• Significant non-compliance with legislation by 90%
88
of the auditees
With no findings
• Slight improvement over 2011-12
With findings
10% (33)
5% (17)
7% (21)
90% (286)
95% (299)
93% (293)
2012-13
2011-12
2010-11
9
Findings on non-compliance with legislation
These areas must receive attention:
Quality of the financial statements submitted for auditing
Supply chain management
Prevention of unauthorised, irregular and/or fruitless and
wasteful expenditure
82%
(261)
68%
(216)
64%
(205)
2012-13
MFMA
2012-13
MFMA
Improved
Stagnant or
little progress
Regressed
Payment within 30 days and expenditure management
52%
(167)
Management of strategic planning and performance
50%
(160)
Preparation and control of budget
45%
(145)
Audit committees and internal audit
45%
(144)
10
Quality of annual performance reports
• The annual performance reports of only
34%
2012-13
MFMA
of auditees
With no findings
were useful and reliable
• Improvement over 2011-12
34% (107)
66% (212)
2012-13
With findings
25% (79)
27% (86)
75% (237)
73% (228)
2011-12
2010-11
11
Movements in clean audits
Clean audits
Clean audits
Progressed to clean [17]
Retained [13]
Eastern Cape (1)
Gauteng (2)
• Mandela Bay Development
Agency
Gauteng (1)
• Sedibeng District
KwaZulu-Natal (7)
• Msinga
• Ntambanana
• Okhahlamba
• Ubuhlebezwe
• uMhlathuze
• uMzimkhulu
• Uthungulu District
Northern Cape (1)
• ZF Mgcawu District
Western Cape (7)
• Breede Valley
• Cape Town International
Convention Centre
• City of Cape Town Metro
• Knysna
• Overstrand
• Theewaterskloof
• Witzenberg
• Johannesburg Fresh Produce
Market
• Johannesburg Social Housing
Company
Regressed from
clean audit to
unqualified with
findings
2012-13
2012-13
MFMA
MFMA
KwaZulu-Natal (1)
• ICC, Durban (Pty) Ltd
KwaZulu-Natal (4)
• Durban Marine Theme Park
(Pty) Ltd
• Safe City Pietermaritzburg
• uThungulu Financing
Partnership
• uThungulu House
Development Trust
Mpumalanga (1)
• Ehlanzeni District
Regressed from
clean audit to
financially
qualified
Western Cape (6)
• George
• Langeberg
• Mossel Bay
• Steve Tshwete
• Swartland
• West Coast District
KwaZulu-Natal (1)
• Umtshezi
Limpopo (1)
• Waterberg District
12
Characteristics of those that advanced to
clean audits…
•
Basic accounting and daily disciplines in place
•
Enforcing compliance with all legislation
•
Employing staff with the required level of technical competence and
experience
•
Calling for information and reports regularly
•
Allowing CFO to be in charge of the financial records and report thereon to
the MM
•
The monitoring of the financial improvement plan kept on the council’s
quarterly meeting agenda
•
The municipal manager reviewing management accounts with the CFO
every month
•
Effective combined assurance environment
2012-13
2012-13
MFMA
MFMA
13
2012-13
2012-13
MFMA
MFMA
What assurances
did the key role players provide and
what vital actions and interactions
should take place?
2
14
Attention should be given to basic controls (MFMA)
2012-13
MFMA
Effective
leadership
Human resource
controls
ICT governance and
controls
30%
23%
43%
41%
27%
36%
Good
19%
42%
39%
Concerning
Intervention required
Audit action plans
19%
48%
33%
Improved
Proper record
keeping
Daily and monthly
controls
Review and monitor
compliance
26%
40%
34%
Stagnant or
limited
progress
Regressed
26%
15%
37%
40%
37%
45%
15
Understanding and monitoring of the municipal manager’s role are
key to improving internal control environment
Role of the municipal manager
Robust financial and performance
management
systems
Oversight and
accountability
Full and proper records of financial
affairs
Effective, efficient, economical and
transparent use of resources
Effective, efficient and transparent
systems for financial and risk
management and internal controls
Prevention of unauthorised, irregular
and fruitless and wasteful expenditure
and other losses
System of internal audit
Develop and implement policies –
tariff, rates, credit control, debt
collection and SCM
Commitment and
ethical behaviour
Act with fidelity honesty, integrity and in
best interest of municipalities
Manage and safeguard assets and liabilities
Take appropriate disciplinary steps against
any official who commits act of financial
misconduct or an offence
Disclose all material facts to council or mayor
Appropriate management, accounting
and information systems – assets,
liabilities, revenue and expenditure
The role of the municipal manager is critical to ensure:
timely, credible information
+ accountability + transparency + service delivery
Combined assurance approach to oversight
Management assurance
First level of assurance
Accounting
Senior
officers/
Management
authority
Executive
authority
Required assurance levels
Extensive
Extensive
Extensive
Oversight assurance
Second level of assurance
Coordinating /
Internal
Monitoring
audit
institutions
Audit
committee
Required assurance levels
Extensive
Extensive
Extensive
Independent assurance
Third level of assurance
Oversight
Public
(portfolio
accounts
committees/
committee
councils)
National
Assembly
Required assurance levels
Extensive
Extensive
Extensive
Management’s assurance role
Oversight’s assurance role
• Senior management – take
immediate action to address specific
recommendations and adhere to
financial management and internal
control systems
• Accounting officers/ authority –
hold officials accountable on
implementation of internal controls
and report progress quarterly and
annually
• Executive authority – monitor the
progress of performance and enforce
accountability and consequences
• National Treasury/ DPSA – monitor • Oversight (portfolio committees)
compliance with laws and regulations
– review and monitor quarterly
and enforce appropriate action
progress on the implementation of
• Internal audit – follow up on
action plans to address
management’s actions to address
deficiencies
specific recommendations and
• Public accounts committee –
conduct own audits on the key
exercise specific oversight on a
focus areas in the internal control
regular basis on any report which it
environment and report on quarterly
may deem necessary
progress
• National Assembly – provide
• Audit committee – monitor risks and
independent oversight on the
the implementation of commitments
reliability, accuracy and credibility
on corrective action made by
of National and provincial
management as well as quarterly
government
progress on the action plans
Role of independent assurance