KIMBERLEY – The Auditor-General (AG), Terence Nombembe, has noted with concern that only 15 of the 32 Northern Cape municipalities had submitted their financial statements for auditing in accordance with the legislated time frames. The province is one of only two provinces that did not submit financial statements for more than 50% of their portfolio of municipalities for audit on time. This has adverse implications for the timely exercise of oversight by those charged with governance and may defer the opportunity for accelerated movement towards achievement of clean administration, the AG cautioned.
In his 2009-10 general report on local government for the province, he says overreliance on one firm of financial consultants and the lack of capacity and skills within finance units of most municipalities accounted for the late submission of financial statements.
“Capital assets remained a major qualification area in municipalities, with 71% being qualified. There was a decrease in the number of municipalities qualified in respect of other disclosure items, at 64% compared to 88% in the previous financial year. However, there was an increase in the number of municipalities that received qualifications in respect of revenue to 86% compared with 77% in 2008-09,” says Nombembe.
Nombembe also highlighted an increase in the amounts of irregular (R159 million) and unauthorised expenditure (R122 million). “Irregular expenditure primarily related to incidents of non-adherence to the supply chain management process. Unauthorised expenditure primarily related to the overspending of budgets, as well as conditional grants not being applied in accordance with their purpose. Twenty-one municipalities had findings relating to compliance with laws and regulations.”
For all municipalities where information system controls were tested in the province, significant general control weaknesses were reported. Twenty-one municipalities had findings relating to reporting on performance against predetermined objectives. “The findings on non-compliance (91%) and usefulness (88%) of reporting on predetermined objectives remained high, as the leadership of most municipalities do not have officials delegated to manage and report on predetermined objectives,” comments Nombembe.
The poor audit outcomes outlined above reflect a lack of effective leadership in the areas of oversight, developing and monitoring implementation of action plans, establishing an IT governance framework, effective management of consultants employed to assist in the preparation of financial statements, ensuring that CFO vacancies are filled and the finance units are manned by adequately skilled finance staff, and monitoring and enforcing compliance with SCM policies.
Basic financial disciplines, such as proper record keeping and regular processing of transactions, also require leadership intervention. Monthly monitoring of these will enhance the level of accountability of senior municipal officials and improve the quality of reporting and service delivery information. “Recruitment of skilled permanent staff to manage the financial process and prepare the financial statements, and the establishing and strengthening of shared governance structures such as internal audit and audit committees will complement the leadership’s monitoring role,” states Nombembe.
The AGSA is following a schedule of key controls for discussion with municipalities on a quarterly basis. “I undertook door-to-door visits to each municipality in the province with the AGSA leadership during August and September 2010 to discuss the drivers of improved audit outcomes and to present the purpose of key controls to the municipal councils. To achieve the desired improvements in audit outcomes, the provincial and municipal leadership will have to follow through on their commitments to the entire process of key control implementation,” says Nombembe.
Of the six audit opinions that improved, three – the Gamagara, Hantam and //Khara Hais local municipalities – moved from qualified to financially unqualified with findings and the other three – Karoo Hoogland, Ubuntu and Umsobomvu – from disclaimer to qualified. Of the two audit opinions that regressed, one (Kareeberg) moved from a clean audit report to financially unqualified with findings and the other (John Taolo Gaetsewe District) from financially unqualified with findings to a qualified opinion. Nine (Dikgatlong, Emthanjeni, Ga-Segonyana, Kamiesberg, ! Kheis, Mier, Phokwane, Siyathemba and Sol Plaatje) of the municipalities that received a disclaimer in 2008-09, again received a disclaimer. Despite this, there was a glimmer of hope as Nombembe concluded that: “Through effective leadership oversight and monitoring by its mayor and senior officials, Frances Baard District Municipality has maintained the clean audit report it achieved in 2008-09.”