Third Special Report

Third special report on the financial management of government’s covid-19 initiatives 20 MUNICIPALITY MANAGEMENT DID NOT ATTEND TO CERTAIN CRITICAL MOMENTS AND REQUIREMENTS FOR OVERALL FRAUD RISKMANAGEMENT We found that all 12 of themunicipalities reviewed either did not update or did not adequately update their fraud risk registers and fraud prevention plans to reflect and address the heightened level of fraud risks during these changing circumstances. Inmany instances, themunicipalities did not implement stricter controls or a stronger control environment tomitigate the heightened level of fraud risks. This is especially concerning at the bigger metros where forensic and risk management functions are in place. We reported this finding to all municipal managers, but it is concerning that we received no comment on the correctness of the finding or on howmanagement intends to address the shortcoming fromMangaung Metro (Free State), Ga-Segonyane (Northern Cape), Mopani District (Limpopo) and Ngaka Modiri Molema District (NorthWest). Municipal managers should continuously assess and update their fraud prevention plans and fraud risk assessments to align their control environments to changing circumstances that may affect the level of potential fraud risks. RESPONSES FROMMUNICIPAL MANAGERS Management disagreed or only partially agreed withmore than half of our observations on fraud risk and control weakness. In our conclusion, we state that although we have consideredmanagement comments, these observations should remain. This ismainly becausemanagement did not provide sufficient supporting documents to support its comments, or becausemanagement indicated that it does not have resources available to improve the control weakness. The observations should also remain because the fraud risks are inherent to the processes andmanagement should continuously ensure that preventative and detective controls are in place, and effective, tomitigate the fraud risks. CONCLUSION Fraud risks are prevalent at municipalities andmanagement did not update the fraud risk management plans to mitigate the increased level of fraud risks during the changing circumstances arising from the covid-19 pandemic. The transversal control weaknesses we identified at themunicipalities imply that the systems and processes are vulnerable to abuse, and the control inadequacies could lead to the fraud risks materialising. Management should continuously assess and update the fraud prevention plans and fraud risk assessments to align control environments to the increased levels of potential fraud risks. These responses should also include preventative and detective controls and should be implemented to address the control weaknesses. Fraud risks remain inherent in a process andmanagement should continuously ensure that the control environment is adequate and effective to guard against these fraud risks materialising. Management should also not underestimate the impact of collusion between government officials and third parties that could result in the control environment being overridden to process fraudulent transactions.