Auditor-General buoyed by local government leaders whose commitment has resulted in their entities’ improved audit results

PRETORIA – Three municipalities and three municipal entities improved their previous year’s audit outcomes to progress to clean audit opinions in the 2011-12 financial year, while the local government audit results generally regressed in the year under review, Auditor-General (AG) Terence Nombembe announced today.

Clean audit opinions are achieved when the financial statements are unqualified and there are no reported audit findings in respect of either reporting on predetermined objectives or compliance with laws and regulations.

Leadership commitment sets the right tone towards improved audit results

Releasing his last general report on local government before his fixed seven-year term as South Africa’s AG ends in November, Nombembe said the exemplary results of the three municipalities – the Western Cape’s local municipalities of George, Langeberg and Mossel Bay – and the municipal entities – Johannesburg Fresh Produce Market (Gauteng), Durban Marine Theme Park (Pty) Ltd and ICC and Durban (Pty) Ltd (both in KwaZulu-Natal) – are commendable, as they prove beyond doubt that clean administration is achievable where there is leadership commitment.

The winning formula of these auditees, the AG said, was that their leadership led by example and made concerted efforts to resolve audit matters raised in their previous year’s audit reports, "and their results are a testimony that where political and administrative leadership set the right tone and work together to implement and constantly monitor basic internal controls, good governance is achievable".

He said the next step in the march towards wholesale clean administration was for these auditees to work hard to sustain their clean audit status as done by their eight counterparts – the three district municipalities of Waterberg (in Limpopo), Ehlanzeni (Mpumalanga) and West Coast (Western Cape); the three local municipalities of Umtshezi (KwaZulu-Natal), Steve Tshwete (Mpumalanga) and Swartland (Western Cape); and the two municipal entities Fezile Dabi District Municipality Trust (Free State) and Johannesburg Social Housing Company (Gauteng) – who maintained the clean audit results they had received in the previous year.

Unfortunately the overall municipal audit results regressed instead of emulating the exemplary tone

Regrettably, the rest of the country’s local government audit results are not that exemplary. Overall, the municipal audit outcomes have regressed, with only 48% of the auditees being able to obtain financially unqualified audit opinions, most of whom did so by correcting the mistakes identified through the audit process.

Local government consists of eight metropolitan municipalities, 44 district municipalities and 226 local municipalities (totalling 278 municipalities) as well as 60 municipal entities. The AGSA completed the audits of 317 (94%) of the 338 auditees that had submitted financial statements by 31 August 2012 (or by 30 September 2012 in the case of consolidated financial statements) within the legislated time frame of three months from receipt of the financial statements.

The AG’s latest report shows that the progress towards clean audits has been slow, with the number of clean audits remaining at the same low level of 5% for the past three years, and the overall audit outcomes regressed, as 41 auditees improved, but 50 auditees regressed.

Moreover, almost half of the auditees that obtained a clean audit opinion were municipal entities, rather than municipalities. In the Free State, Gauteng and KwaZulu-Natal, almost all the clean audits were achieved by municipal entities, while in Limpopo, Mpumalanga and the Western Cape, all the clean audits were achieved by municipalities.

Unfortunately, the metropolitan municipalities faltered in their crucial role of providing exemplary leadership to smaller municipalities, as none of the eight metros obtained a clean audit opinion.