SA Fakie Auditor-General Presentation to Select Committee on Finance 9 June 2006 SA Fakie Auditor-General

Municipalities & Municipal Entities Background Municipalities & Municipal Entities - 284 Municipalities - 77 Municipal Entities - 20 must prepare Consolidated FS

Provincial Spread of Municipalities Eastern Cape 45 Free State 25 Gauteng 15 KwaZulu-Natal 61 Limpopo 31 Mpumalanga 21 Northern Cape 31 North West 25 Western Cape 30 TOTAL 284 Potentially the most important tool Information over and above that which would rest easily in audit reports A chance to show information holistically by portfolio. Something that isn’t currently available represents a opportunity to show comparative information over time Feedback from SCOPA and Other Groups Already generated improvements through taking coignaisance of stakeholders Discuss the hearing and types of questions Note to the AG Consistency This approach is trying to ensure similar reporting at the same time. This will enable the weaker provinces to be assisted.

3. Legislative reforms & Transformation L.G. Municipal Demarcation Act L.G. Municipal Structures Act L.G. Municipal Systems Act L.G. Municipal Property Act MFMA 3 sets of Accounting standards - IMFO - GAMAP (Old & New) - GRAP Ordinances & Treasury regulations Challenge – repeal absolute ordinances to enable coherent legal framework

4. Macro Challenges Legislation does not automatically mean better service delivery – means to an end Rapid ratio of urbanisation Rapid development & growth Inadequate and deteriorating infrastructure Audit Flavours have been requested for the purposes of 2002-03 planning by the 14 May. To date only Guateng, Northern Cape and North West provinces have responded. Note to the AG Urging them to respond for the purposes of their inputs into the areas we focus on would be extremely valuable and beneficial.

5. Audit Outcomes 2004 - Medium Capacity Municipalities 107 National Treasury Classification - High Capacity Municipalities 50 - Medium Capacity Municipalities 107 - Low Capacity Municipalities 127 Audit Flavours have been requested for the purposes of 2002-03 planning by the 14 May. To date only Guateng, Northern Cape and North West provinces have responded. Note to the AG Urging them to respond for the purposes of their inputs into the areas we focus on would be extremely valuable and beneficial.

6. Submission of Financial Statements 2004 17 (6%) end of August 83 (29%) end of September 144 (51) after September 40 (14%) Not submitted by end April 2005 Top 50 Municipalities 25 (50%) end of September 23 (46%) end of April 2 (4%) Not submitted by end April 2005 Audit Flavours have been requested for the purposes of 2002-03 planning by the 14 May. To date only Guateng, Northern Cape and North West provinces have responded. Note to the AG Urging them to respond for the purposes of their inputs into the areas we focus on would be extremely valuable and beneficial.

7. Submission of Financial Statements as at 30 June 2005 133 (47%) submitted by end of August 124 (44%) submitted between April and March 2006 27 (9%) outstanding at March 2006 Effectiveness of General Report The benefits of an effective report will be to improve the profile of the Office and this in turn could attract staff with an interest in government as well as auditing. The report will also raise the profile of the Provincial Offices and as stated earlier improve the role we play in respect of the provincial legislature. TSS Support Wessel and Khalid are currently working on developing a workshop that will encapsulate all the ideas as well as give an indication where further on the job training may be required. They will also support provinces experiencing a capacity problem.

8. Audit Opinions - 2004 Only 95 of 284 audit finalised by end April 2005 Only 23 of Top 50 audit finalised by end April 2005 58 (61%) where qualified 3 (3%) Disclaimers 10 (11%) Adverse Opinions Effectiveness of General Report The benefits of an effective report will be to improve the profile of the Office and this in turn could attract staff with an interest in government as well as auditing. The report will also raise the profile of the Provincial Offices and as stated earlier improve the role we play in respect of the provincial legislature. TSS Support Wessel and Khalid are currently working on developing a workshop that will encapsulate all the ideas as well as give an indication where further on the job training may be required. They will also support provinces experiencing a capacity problem.

9. Transversal Issues Reported on (Top 50) Asset Management (24) Debtors (33) Personal Expenditure (31) Internal Audit (13) Unauthorised Expenditure (5) ICT (29) Other Internal Control Issues (28) Effectiveness of General Report The benefits of an effective report will be to improve the profile of the Office and this in turn could attract staff with an interest in government as well as auditing. The report will also raise the profile of the Provincial Offices and as stated earlier improve the role we play in respect of the provincial legislature. TSS Support Wessel and Khalid are currently working on developing a workshop that will encapsulate all the ideas as well as give an indication where further on the job training may be required. They will also support provinces experiencing a capacity problem.

10. Financial Performance (Top 50) Debt Collection period Provision for Bad debt Liquidity

11. Debt Collection For 23 of the top 50 municipalities – average is 136 days Total debtors – R19.2 billion 9 collect within 100 days 14 collect longer than 100 days

12. Provision for Bad Debt Average provision 59% Total provision R11,4 billion City of JHB R7,2 billion

13. Liquidity Benchmark 2:1 Average 1,2:1 Whilst below norm = acceptable

14. Performance Management Only 22 of top 50 Performance Audit been done Report format Number of municipalities 2003-04 Number of municipalities 2002-03 Sufficient progress made - 3 Some progress made 21 20 Fully-fledged PMS audit * 1 Not yet audited 28 26 TOTAL 50 * Although a fully fledged PMS report had been issued, only compliance issues were addressed during the audit and not the effectiveness and efficiency of the inputs, processes, outputs and outcomes.

15. Service Delivery Initiatives Improve accountability arrangements (IDP) Project Consolidate (136 municipalities identified) - Develop capacity - Improve financial position - Improve service delivery

Thank you. Any questions?