MFMA 2019-20

156 Consolidated general report on the local government audit outcomes • MFMA 2019-20 municipalities and their ability to settle obligations. It furthermore contributed to the overall increase in the number of municipalities with unfavourable financial health indicators over the last year. The material irregularity process was expanded in the period under review to include a further six municipalities in addition to the City of Cape Town Metro. At the time of finalising the audit reports, no material irregularity notifications had been issued. Two material irregularity notices were issued to the City of Cape Town subsequent to the audit report being finalised. These irregularities related to one contract where payments were made for services not received as well as payments for goods and services that were in excess of the rates stipulated in the contract. While there has been an improvement in the audit outcomes, only some of our recommendations from the previous year were implemented. Work is still required on the implementation of sound preventative controls in the area of compliance with laws and regulations, especially relating to procurement and contract management. Although irregular expenditure decreased from R2,6 billion in 2018-19 to R1,4 billion in 2019-20, we remain concerned about the findings raised on contract and supply chain management and the resultant irregular expenditure at the majority of municipalities, as past experience has shown that even clean municipalities are susceptible to regressions when recurring compliance findings become material. Factors that contribute to the continued reporting of supply chain management findings include the following: • Municipalities considering procurement legislation to be onerous with many requirements to be complied with and differences in the interpretation of prescripts in some instances. • The attitude of management in that they believe compliance with all legislative prescripts stifles their ability to deliver services efficiently and effectively. • Compliance controls failing due to human error or omission. Although the quality of performance reports improved from 2018-19, it remains concerning that some municipalities again submitted performance reports that contained material misstatements. Two of these municipalities were unable to correct the material misstatements during the audit process. These misstatements were due to corrective action not being implemented to address the control weaknesses identified, a lack of standard operating procedures, and inadequate reviews resulting in differences between the performance reported and the relevant supporting documentation. Municipalities that were able to maintain their clean audit outcomes for two or more consecutive years are encouraged to continue focusing on the maintenance and improvement of their control environments, inclusive of robust risk assessments to maintain compliance with laws and regulations. Municipalities that were not able to attain this level should implement action plans to improve their control environments as well as design and implement controls that are preventative in nature. Generally, accounting officers and mayors provided the required level of assurance by instilling an effective leadership culture and oversight. At senior management level there is room for improvement, as the majority of senior managers were rated as providing only some assurance as a result of non-material findings at clean auditees and material findings at other municipalities. The area of supply chain management and the resultant irregular expenditure must be given increased attention by proactively addressing the issues identified, thereby reducing non-compliance and such unwanted expenditure. The premier in conjunction with the coordinating provincial local government department and provincial treasury should continue with their oversight roles through the municipal governance review outlook processes and other initiatives aimed at achieving clean administration across the province. Extra effort and intervention are required at Beaufort West, Kannaland and Laingsburg, which had been previously categorised as municipalities with control environments that are dysfunctional as their audit outcomes remained the same or regressed. We remain committed to support all institutions in the drive to embed preventative controls and good governance as a culture in the province. Improvement but concerns remain