MFMA 2019-20

94 Consolidated general report on the local government audit outcomes • MFMA 2019-20 However, our audit process generally does not consider the impact of the irregularities identified (for example, if a financial loss is likely), as it is not required by the auditing standards. The requirements and processes to follow for a material irregularity as prescribed by the Public Audit Act and the Material Irregularity Regulations introduce additional steps in the audit process, new processes for referrals and remedial action, and the establishment of new structures and additional capacity. The impact of the expanded mandate on our audit process and organisation as well as the profound implications thereof requires us to implement the changes in a careful, but progressive manner. As agreed with the Standing Committee on the Auditor-General, we are phasing in the implementation of our expanded mandate. The phasing-in allows us to responsibly align the organisational resources with the demand placed on us by the Public Audit Act and to establish relationships with the public bodies to which we will be referring material irregularities. A phased- in approach also enables us to manage any risks associated with implementation, such as possible disputes and litigation, as well as the costs associated with implementation. Our phased-in approach is guided by a step-by-step implementation of the material irregularity definition. In 2018-19, our focus was on the non-compliance with legislation scoped in for auditing as part of normal audits that resulted in, or is likely to result in, a material financial loss. In 2019-20, we expanded this to any non-compliance with, or contravention of, legislation that resulted in, or is likely to result in, a material financial loss. We also considered fraud, theft or a breach of a fiduciary duty if it constituted non-compliance with legislation. The prevalence of municipalities with disclaimed opinions at the conclusion of our 2019-20 audits compelled us to expand the definition further by considering the harm caused to a public sector institution (the municipality) by this persistent lack of proper documents and records. We incrementally increased the number of auditees in local government where the material irregularity process was implemented from nine in 2018-19 to 57 in 2019-20. We focused on those auditees where we were most likely to have the greatest impact. The selected 57 auditees included the metros, most of the secondary cities (classified as such by the National Treasury based on their rapidly increasing population and economic growth) and some of the smaller municipalities and municipal entities that had high irregular expenditure in the past. The selected auditees are shown on the map that follows.