PRESENTATION TO THE NCOP SELECT COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS DEPARTMENTAL ACTION PLAN: 2010/11 CONSOLIDATED GENERAL REPORT ON AUDIT OUTCOMES OF LOCAL GOVERNMENT 04 SEPTEMBER 2012 cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE

CONTENT cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE Clean Audit 2014 Vision Audit outcomes Provincial Targets not met Main Root Causes for Disclaimer and Qualified Audit Opinions Taking Clean Audit Forward: Budget Allocation for Operation Clean Audit Provincial Support: CaseWare GRAP 17 Compliance Deployment of Expertise

cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE The Clean Audit Vision: In July 2009, Government Launched Operation Clean Audit and outlined a vision that by 2014 all 283 Municipalities and all Provincial Departments in the nine Provinces in South Africa will have achieved clean audits in their financial statements and they will also be maintaining systems for sustaining quality financial statements and management information. What is a Clean Audit? There is no specific definition in the Auditing Standards, However a clean audit can be defined as an Unqualified Opinion, an opinion with no qualifications, non compliance and other matters. CLEAN AUDIT 2014 VISION

AUDIT OUTCOMES

AUDIT OUTCOMES (CONT..)

PROVINCIAL TARGETS NOT MET cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE This Province set the following targets towards Operation Clean Audit for 2009/10 and 2010/11 in respect of Municipalities: No adverse or disclaimer audit opinions. This Province set the following targets towards Operation Clean Audit for 2011/12 in respect of Municipalities: No adverse or disclaimer audit opinions; 60% of Municipalities to receive unqualified audit opinions. Despite efforts by both the Department of Cooperative Governance and Traditional Affairs and the Free State Provincial Treasury Municipalities could not meet these targets, which puts the 2014 Clean Audit Vision at risk.

cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE MAIN ROOT CAUSES FOR DISCLAIMER AND QUALIFIED AUDIT OPINIONS Non-compliance with Supply Chain Management Regulations. Lack of capacity and Technical expertise. Critical vacancies in Budget and Treasury Offices, Internal Audit Units and Risk Management. The Service Provider Agreements for Consultants used by some Municipalities were found not to be on standard, with the result that it becomes impossible to enforce performance due to a lack of deliverables. At some Municipalities more than one Service Provider are appointed and coordination is not included in the SLA nor properly managed. Often, inappropriate timing for migration to new Financial Management System. However, National Treasury has addressed the matter by means of a Directive that Municipalities need to consult before changing Financial Systems.

MAIN ROOT CAUSES FOR DISCLAIMER AND QUALIFIED AUDIT OPINIONS (C0NT….) cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE Prior year Audit issues not always resolved in time and impacts on current year Audit findings. Municipalities fail to report to the Mayor and Provincial Treasury in terms of the Key Control Matrix. Solutions to address Legacy issues raised by the AGSA not fully implemented (MFMA Circulars No. 16 & 23).

TAKING CLEAN AUDIT FORWARD: BUDGET ALLOCATION cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE Budget Allocation of R 24,388 million received for Clean Audit in 2012/13 financial year. Allocation inadequate to address all challenges and constraints facing Municipalities towards achieving Clean Audits by During the 2010/11 financial year an amount of R 47,573 million was barely enough to support the Xhariep District Municipality and its Local Municipalities, as well as the Sec 139 Intervention Municipalities of Masilonyana, Nala and Thabo Mofutsanyana towards Clean Audit. The Honourable Premier was obliged to table a Memorandum in the Presidents’ Coordinating Council during March 2012 requesting an additional R 100 million for support to Municipalities. Feedback in this regard is still awaited. Due to the constraints of this nature and to economise on available resources the Department and its strategic partner, Provincial Treasury concluded partnerships with other role players to support Municipalities towards Clean Audit 2014.

PROVINCIAL SUPPORT: CASEWARE cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE During 2010/11 and 2011/12 CaseWare Software (compatible with all Municipal Financial Management Systems) was rolled out to District and Local Municipalities as part of Operation Clean Audit. The Project yielded a measure of success in improving the quality of Annual Financial Statements. For 2012/13 CaseWare will be rolled out in partnership with Provincial Treasury to the remaining Municipal and Provincial Entities. Training and Implementation for Provincial Entities was completed during 3 May 2012 to 18 May Training and Implementation for Municipal Entities was scheduled for 28 May 2012 to 1 June To reinforce previous CaseWare Training and add value to the 2011/12 Annual Financial Statements of Municipalities 2 Refresher Training Courses has been scheduled as follows; 31 May 2012Bloemfontein 01 June 2012 Bethlehem

PROVINCIAL SUPPORT: CASEWARE (CONT.) cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE Municipal and Provincial Entities will now also share in the following benefits offered by CaseWare; CaseWare provides a fully GRAP compliant Annual Financial Statement template including Accounting policies. CaseWare automates the compilation of fully GRAP compliant Annual Financial Statements by 75%, with the remaining 25% to be completed manually. Trial balance is imported and statements and notes are populated. CaseWare is the only integrated engagement solution that includes working papers, audit trials, record of all adjustments, GRAP compliant financial statements and compliance reporting. CaseWare’s user-friendly and intuitive interface automates a full set of Annual Financial Statements according to GRAP including:  Statement of Financial Position as at year-to-date  Statement of Comprehensive Income for the financial year  Statement of Changes in Equity for the year  Statement of Cash Flows for the year  Notes to the Financial Statements, as required by GRAP

cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE PROVINCIAL SUPPORT: GRAP 17 COMPLIANCE Partnership concluded with Provincial Treasury and Institute for Municipal Engineering of South Africa (IMESA) in 2011/12 for a Infrastructure Asset Management System solution as currently used by eThekwini Metropolitan Municipality. The Kopanong, Masilonyana and Moqhaka Local Municipalities was selected as Pilot Municipalities during 2011/12. Pilots were completed through IMESA Sponsorship and close-out meeting with the HOD, Provincial Accountant-General and IMESA was scheduled for 28 May Roll-out to some other Municipalities commenced during June 2012 with the signing of Clean Audit / IMESA Memorandum of Understanding with Municipalities. The Department of Cooperative Governance and Traditional Affairs will sponsor the roll-out to other Municipalities.

PROVINCIAL SUPPORT: GRAP 17 COMPLIANCE (CONT) cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE The System will have the following benefits for Municipalities: Improve knowledge of the infrastructure assets within Municipalities. Assist Municipalities with a proven method to determine the condition of their infrastructure assets. Calculate the expected remaining useful life of infrastructure. Determine impairment of infrastructure based on the condition of the infrastructure. Provide a proven method of standardising the condition assessment of the infrastructure. Use of Software is included. A secure data server and password protection is included. No Software licenses are required. Upgrades done automatically and at no cost to Municipality. Data belongs to Municipality. Cost to Municipality – R per month for Low Capacity Municipalities and R per month for High and Medium Capacity Municipalities.

PROVINCIAL SUPPORT: DEPLOYMENT OF EXPERTISE cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE Agreements concluded with Individuals and Service Providers for deployment to selected Municipalities to strengthen and expand available capacity towards achieving and maintaining Clean Audits. Some identified Municipalities includes the following; Masilonyana Local Municipality Nala Local Municipality Ngwathe Local Municipality Phumelela Local Municipality Ngwathe Local Municipality Moqhaka Local Municipality Matjhabeng Local Municipality Tokologo Local Municipality Kopanong Local Municipality Naledi Local Municipality Mohokare Local Municipality Setsoto Local Municipality

PROVINCIAL SUPPORT: DEPLOYMENT OF EXPERTISE (CONT.) cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE The following financial areas impacting directly on the achievement of clean audits will be addressed through this support o Supply Chain Management. o Revenue enhancement. o Cash flow management. o Financial recovery (debt collection and credit control). o Budgeting (Management accounting). o Asset management. o Financial reporting and compliance. o Record management. o Grant management. o Audit related matters. o Internal control (Internal Audit and Risk Management).

EXECUTIVE COUNCIL INTERVENTION cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE Municipal audits are discussed on the Premier’s Coordinating Forum (PCF). PCF benchmarks with Provincial departments audit outcomes to demystify municipal focus. PCF established common understanding that there should be consequences for poor performance.

THANK YOU cooperative governance and traditional affairs Department of Cooperative Governance and Traditional Affairs FREE STATE PROVINCE