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Mogale City Local Municipality | Chapter 6 – Auditor General Audit Findings 328
CHAPTER 6 – AUDITOR GENERAL AUDIT FINDINGS
INTRODUCTION
Note: The Constitution S188 (1) (b) states that the functions of the Auditor-General includes the auditing and reporting on the accounts, financial statements and financial management of all municipalities. MSA section 45 states that the results of performance measurement… must be audited annually by the Auditor-General. The audit opinion was issued with matters of emphasis and legislative compliance issues as outlined in the report of the Auditor General of South Africa included in the annual report. No material findings were raised on the usefulness and reliability of the reported performance information for the selected development priorities.
The reported information on selected development priorities was found to be useful and reliable in all material aspects because all misstatements were corrected on the 2015/16 Annual Performance report. Audit Action plans were yet again developed based on the findings raised by AG, these were continuously monitored through the Operation Clean Audit Committee meetings, which take place twice a month. These meetings give the Municipality an opportunity to monitor the progress that has been made on addressing issues raised by the Auditor-General as well as preparation for the upcoming audit process. The Municipality has regressed from unqualified audit status (clean audit) to unqualified audit opinion. Due to current audit status as per AG report, the municipality is in the process of engaging with various stakeholders to ensure that compliance and regulations are adhered to in order to change the current status.
T6.0.1
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COMPONENT A: AUDITOR-GENERAL OPINION OF FINANCIAL STATEMENTS 2014/15
6.1 AUDITOR GENERAL REPORT 2014/15
Auditor-General Report on Financial Performance 2014/15
Audit Report Status*: Unqualified with matters of emphasis
Non-Compliance Issues Remedial Action Taken
Significant uncertainties
With reference to note 48 to the financial
statements, the municipality is the defendant
in various court cases. The ultimate outcome
of the matter cannot presently be determined
and no provision for any liability that may
result has been made in the financial
statements.
Restatement of corresponding figures
As disclosed in note 44 to the financial
statements, the corresponding figures for
3ue 2014 have been restated as a result of
errors discovered in the financial statements
of the Mogale City Local Municipality during
the year ended 30 June 2015.
The municipality’s contingency liabil ity has
reduced from the previous financial year.
The legal services has done a due dil igence
in all l it igious matters against the
municipality wherein we identif ied the
causes of contingency matters, with
possible solutions. The due dil igence will be
conducted annually to identify areas of lack
with the view of putting systems in place to
ensure that contingency matters are further
reduced.
Prior adjustments are allowed hence there is
GRAP 03 which state how prior year adjustments
must be disclosed in the financial statements.
Reinstatement of corresponding figures when
compared to June 2013 figures was reduced by
51%. However Management will analyze all
accounts to determine the root cause of all errors
on the financial statement and put control
measures to eliminate recurrence.
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Material losses
As disclosed in note 39 to the financial
statements, the municipality incurred material
losses amounting to R78 069 967 (2013-14:
R77 539 902) as a result of water distr ibution
losses, which represents 42% (2013-14: 44%)
of the total water purchased. the total
technical losses of water amounted to R27
963 152 (2013-14: R26 361 109). non-
technical losses amounted to R50 106 815
(2013-14: R51 178 793) and are mainly due
to faulty prepaid meters, straight pipes in
some areas and leakages.
The infrastructure department can attr ibute
the 2% reduction on water losses to the
successful implementation of water
conservation demand management strategy
which is a multi-pronged approach
implemented as and when the budget is
made available.
The strategy includes the installation of
prepaid water meters, replacement of
asbestos pipes and ageing infrastructure.
The installation of the telemetry system to
remotely monitor the water reservoirs and
pump stations. The vigorous maintenance of
the water infrastructure using the internal
maintenance teams. The biggest challenge
is the extent of the budget required both to
replace the ageing infrastructure and to
continue with planned maintenance.
The department will appoint additional
competent staff in vacant posit ions to assist
with day to day activit ies that are aimed at
addressing the losses.
The department will continue to lobby
various government institutions such as the
Department of Water and Sanitation and
COGTA for additional funding that can help
accelerate the interventions to curb losses.
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Material impairments
As disclosed in note 3 to the financial
statements, the allowance for impairment of
receivables from non-exchange transactions
amounted to r458 011 880
(2013-14: R343 430 252). The recoverabil ity
of these amounts is doubtful.
As disclosed in note 4 to the financial
statements, the allowance for impairment of
receivables from exchange transactions
amounted to R416 875 219
(2013-14: R445 900 236). The recoverabil ity
of these amounts is doubtful.
The MCLM has appointed eleven debt
collectors to assist with collection, cut offs
and restr iction of services is taking place to
try to collect the debt within 60 days.
Note:*The report status is supplied by the Auditor General and ranges from unqualified (at best); to unqualified with other matters specified; qualified; adverse; and disclaimed (at worse)
T6.1.1
Auditor-General Report on Service Delivery Performance 2014/15
Audit Report Status*: Unqualified with matters of emphasis
Non-Compliance Issues Remedial Action Taken
Non-compliance with respect to submissions to Treasury
To ensure that the SDBIP is submitted timeously (within 10 days)
Adjustments budget and supporting documentation
A schedule has been developed to ensure that the SDBIP and budget adjustment is tabled in council simultaneously.
Material adjustments to the annual performance report
Misstatements have been corrected on the annual performance report and necessary amendments will be made during the SDBIP/Budget adjustments
Note:*The report status is supplied by the Auditor General and ranges from unqualified (at best); to unqualified with other matters specified; qualified; adverse; and disclaimed (at worse)
T6.1.2
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AUDITOR GENERAL AUDIT OPINION FOR THE PAST TEN YEARS
Mogale City Local Municipality has obtained an unqualified audit opinion meaning the municipality submitted financial statements that were free from material mis-statements, complied with legislation and no material findings were identified by AG on the usefulness and reliability of the reported performance information during 2014/15 Financial Year. The trends of audit opinion are as follows:
2006/07: Qualified 2007/08: Qualified 2008/09: Unqualified with 5 findings 2009/10: Qualified 2010/11: Qualified 2011/12: Unqualified with 3 findings 2012/13: Unqualified with 3 findings 2013/14: Unqualified with no findings (Clean Audit) 2014/15: Unqualified with no findings (Clean Audit) 2015/16: Unqualified with 1 finding
T6.1.2.1
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COMPONENT B: AUDITOR-GENERAL OPINION 2015/16
6.2 AUDITOR GENERAL REPORT 2015/16
AUDITOR-GENERAL REPORT ON FINANCIAL PERFORMANCE 2015/16
Audit Report Status: Unqualif ied with matters of emphasis
Significant uncertainties
With reference to note 48 to the financial
statements, the municipality is the defendant in a
number of legal cases. The ultimate outcome of
these matters cannot presently be determined, and
no provision for any liability that may result has
been made in the financial statements. If the
outcome of these matters change and a liability is
raised, these matters can have a material impact
on the financial sustainability of the municipality.
Restatement of corresponding figures
As disclosed in note 44 to the financial statements,
the corresponding figures for 30
June 2016 have been restated as a result of errors
discovered in the financial statements of Mogale
City Local Municipality at, and for the year ended
30 June 2016.
Material losses
As disclosed in note 41 to the financial statements,
the municipality incurred material losses amounting
to R89 381 666.21 (2014-15: R78 069 966.66) as a
The Municipality has conducted due diligence on
both Labour and Civil Cases with the aim of
reducing the Contingency liabilities. The Labour
Contingency was reduced significantly after the due
diligence was completed and measures implanted
as per the recommendations thereof.
Currently, due diligence is being conducted on Civil
matters and will report on same once finalized.
Prior adjustments are allowed hence there is GRAP
03 which state how prior year adjustments must be
disclosed in the financial statements.
Replacement of pipelines- replacement of the ageing infrastructure will increase the asset value of the
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result of water distribution losses, which represents
34.80% (2014-15: 27%) of the total water
purchased. The losses are mainly due to
deterioration of water reticulation system, burst
pipes and unauthorised consumption.
Material impairments
As disclosed in note 3 and 4 to the financial
statements, material impairment amounting to
R467 849 424 (2014-15: R422 623 8790) and
R537 966 434 (2014-15: R458 419 390) were
incurred as a result of irrecoverable consumer
debtors.
Procurement and contract management
Goods and services with a transaction value of
more than R200 000 were not procured through a
competitive bidding process, as required by Supply
Chain Management (SCM) Regulation 19(a).
Certain deviations were approved by the
accounting officer even though it was not
impractical to invite competitive bids, in
contravention of SCM regulation 36(1).
Municipality and will increase potential revenue generated since a huge portion of water is lost through the system at the present moment
Installation of smart meters in industries and private developments- be well monitored in order to ensure that there is proper accounting for water and accurate billing as a result.
Installation of prepaid water meters- eliminate straight connections were done and these contributed to water losses.
Pressure Management Programme- Water lost due to high pressure contributes to NRW and this is difficult to quantify and must be monitored on a continuous basis.
Leak detection and repair programme- the Water and Sanitation Division will conducts regular leak detection routines. Will expose and repair the leaks
Resealing Reservoirs
Install water pipelines in rural areas
The municipality continues to conduct cut off and
restriction of services is taking place to try to collect
the debt within 60 days. The debt aging 90 days
and above gets handed over to debt collectors.
Ensure that supply chain management team gives
advice, monitor and enforce the compliance in
accordance with legislations that govern supply
chain management procedures and processes.
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Contracts were awarded to bidders based on points
given for criteria that differed from those stipulated
in the original invitation for bidding and quotations,
in contravention of SCM regulations 21(b) and
28(1)(a) and the Preferential Procurement
Regulations.
Contracts were awarded to providers whose tax
matters had not been declared by the South African
Revenue Service to be in order, as required by
SCM regulation 43.
Contracts and quotations were awarded to bidders
based on preference points that were not allocated
and calculated in accordance with the requirements
of the Preferential Procurement Policy Framework
Act, 2000 (Act no. 5 of 2000)(PPPF), and its
regulations.
Contracts and quotations were awarded to bidders
that did not score the highest points in the
evaluation process, as required by section 2(1)(f) of
Preferential Procurement Policy Framework Act.
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AUDITOR-GENERAL REPORT ON SERVICE DELIVERY PERFORMANCE 2015/16
* This table will be completed prior to the publication of the Annual report but following the receipt of the Auditor- General
Report on Service Delivery Performance Year 0 ** Inclusion of "Status" depends on nature of AG's remarks on Performance Data
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T6.2.3
COMMENTS ON AUDITOR-GENERAL’S OPINION 2015/16:
The report of the Auditor General of South Africa is noted and welcomed. The municipality would
earnestly consider the recommendations of the AG. Relevant action plans will be developed to ensure
that the findings as raised in this financial year are addressed and will not be raised in the following
financial year. This will also ensure that in terms of the performance, the municipality does improve.
T6.2.4