JOHANNESBURG - Auditor-General (AG) Terence Nombembe today released his 2009-10 provincial general report which shows that the audit results of Gauteng municipalities have remained relatively static with a high concentration of unqualified financial audit opinions, while municipal entities have registered a significant improvement towards clean audits.
Tabling the report to the provincial legislature, Nombembe acknowledged that whilst the province had made some progress in the municipal-owned entities, “the impact of leadership interventions did not translate into an overall improvement in the audit outcomes from predominantly unqualified audit opinions to clean audit opinions”. The renewed commitment by the provincial leadership towards an enhanced and clear level of oversight and coordinated monitoring of municipal results by the provincial parliamentary committees and the provincial coordinating ministries of local government and provincial treasury is encouraging and will be met with full support by the AGSA,” said Nombembe.

2009-10 financial audit outcomes

Gauteng local government comprises 15 municipalities (of which three are metropolitan municipalities) and 25 municipal entities. It is commendable that Metsweding Local Municipality sustained for the second year the distinction of having a clean audit report, whilst seven municipal entities also achieved clean audit reports.
Ten municipalities (Ekurhuleni Metro; City of Tshwane Metropolitan Municipality; Sedibeng District; West Rand District; Lesedi; Merafong City; Midvaal; Nokeng Tsa Taemane; Randfontein and Westonaria) and 13 municipal entities ( Ekurhuleni Development Company (Pty) Ltd; Johannesburg City Parks; Johannesburg Development Agency; Johannesburg Fresh Produce Market; Johannesburg Metropolitan Bus Services; Johannesburg Roads Agency; Johannesburg Tourism Company; Johannesburg Zoo; Metropolitan Trading Company; Pharoe Park Housing Company (Pty) Ltd; Phase 2 Housing Company (Pty) Ltd; Pikitup Johannesburg and Sandspruit Works) received unqualified audit opinions with findings on predetermined objectives and/or non-compliance with laws and regulations, whilst four municipalities (City of Johannesburg, Mogale City, Kungwini and Emfuleni)and three municipal entities (City power, Johannesburg Water and Westrand Development Agency)received qualified opinions.
The audits of the City of Johannesburg Metropolitan Municipality, City Power Johannesburg (Pty) Ltd and Johannesburg Water (Pty) Ltd were finalised after 31 January 2011 due to additional time allocated for extended audit coverage of the revenue and receivables process. The phased migration to the new billing system during the year resulted in the audit identifying material errors and significant journal adjustments within the revenue process and consequently the inability to verify the information provided by management with ease. Having exhausted alternative audit procedures we still could not satisfy ourselves with regard to the completeness, validity and accuracy of the revenue and receivables balances reported by the City of Johannesburg Metropolitan Municipality, City Power Johannesburg (Pty) Ltd and Johannesburg Water (Pty) Ltd. Consequently, the qualified audit opinion on revenue and receivables was unavoidable. The leadership of the City of Johannesburg led by the executive mayor, has already commenced a process of strengthening the internal control environment. This will also enable the city to understand the resources required to reverse the control weaknesses that gave rise to the qualified opinion.
The poor internal control environment at two municipal entities (the Housing Company of Tshwane and Civirelo Water) falling under the City of Tshwane is receiving the urgent attention of the municipal leadership. Inadequacy of preventative controls to ensure compliance with the relevant laws and regulations related to predetermined objectives and supply chain management (SCM) contributed to the slowing of a trend towards clean administration.
The lack of skills to deal with developments in Generally Recognised Accounting Practice (GRAP) has resulted in a dependence on consultants at some municipalities. For the year under review, annual financial statements submitted for auditing were subjected to corrections due to material misstatements in most municipalities and some entities.
The internal control deficiencies in SCM resulted in irregular expenditure of R203 million in the current year and there has been a significant increase in unauthorised expenditure to R1, 7 billion (2008-09: R552 million).
Municipalities and municipal entities have not made progress in enhancing the key controls in the IT environment. The IT deficiencies continue to compromise the reliability of computer systems for financial reporting purposes, whilst security around the data and physical computers remains inadequate.
The majority of municipalities have well-established and properly functioning audit committees and internal audit units. However, the audit committees were unable to address deficiencies in the area of risk management.
The provincial leadership has affirmed their commitment to ensuring the attainment of clean audit opinions. Whilst progress has been made, the impact of their interventions continued to be limited given the nature of findings, and more importantly, the slow improvement in the audit results.
Consequently, the provincial departments of finance and local government will enhance their own processes, for example through the Operation clean audit team, so as to strengthen the monitoring and support function of local government in the province. A particular focus area for the team will be to manage the transfer of skills to the incumbent finance units by the consultants and also to strengthen the effectiveness of municipal public accounts committees (MPACs). These efforts will be complemented by a more coordinated oversight by the relevant committees of the legislature. The AGSA team will continue with the quarterly assessment of the impact of these initiatives on the status of key controls in local government.