1. Progress Update on Municipal Audit Outcomes
Presentation to Portfolio Committee on COGTA
14 August 2012

2. Background on Operation Clean Audit Municipal Audit Outcome
Outline of Presentation
Introduction
Background on Operation Clean Audit
Municipal Audit Outcome
2008/ /11 Municipal Accounting Officers
2010/11 Municipal Audit Outcomes
Movement in Municipal Audit Outcomes
STATS on municipal audit remedial plans
What are the linkages
Obervations by CoGTA
Proposed solutions
Conclusion

3. Introduction
We hereby present to the Portfolio Committee, a comparative state of Municipalities on Audit Outcomes for the Financial Years 2010/2011, 2009/2010 and 2008/2009, with a view to allow the Committee to analyse the currently released Auditor General’s 2010/2011 outcomes.
We also submit, for the Portfolio Committee to note too, the state of performance by Provincial and National Departments, as well as other State Entities, reflected in respective AG reporting periods, for the 2010 and cycles.

4. Introduction
This we do as we analyse how big the challenge is and how much we have to do, in mobilising all actors to work together, in the spirit of Cooperative Governance, to turn the situation around, with the aim of achieving the Local Government Turn Around Strategy’s two aims, namely: Build Confidence between the people and Government and build a model Municipality characterised by the ability to provide quality services, uphold good governance, enhance sound financial management, roll out and maintain infrastructure as well as fight corruption effectively.
We present additional information related to the state of public protests for the period 2004 to June 2012, with a view to facilitate the Portfolio Committee’s evaluation of the trends as public discourse suggests a close connection between the protests and the picture reflected as per the current AG’s report on the Audit Outcomes.

5. That all Municipalities shall achieve a Clean Audit opinion by 2014.
Background on Operation Clean Audit(2/2)
Audit Outcomes are financial performance accounting systems in terms of which the AG presents a report on the performance of Government Departments, Municipalities and State-owned Entities, reflecting on actual performance and providing details in dedicated Management letters indicating what each Unit should do
The picture of performance should be viewed against the background that Government has set a target in terms of one of the Turn-Around Strategy Projects: Operation Clean Audit, directing as follows:
That no Municipality should achieve a disclaimer or adverse rating by 2010/2011.
 That at least 60% of the 278 Municipalities should receive unqualified Audit Opinion by 2011/2012;
 That Municipalities achieving unqualified Audit Opinion should increase to 75% by 2013; and
 That all Municipalities shall achieve a Clean Audit opinion by 2014.

6. THE MUNICIPAL AUDIT OUTCOMES
We provide as follows, the information on the state of performance by Municipalities in terms of which it is indicated as to which Municipality in a particular Province received a Clean, Unqualified, Qualified, Disclaimer or Adverse rating, with the understanding that:
 A Clean Audit (unmodified) rating is a performance level where the Municipality is found to have satisfied all the audit expectations and the AG has no further audit comment.
 An Unqualified Audit (Modified) rating is a performance level where there are matters that are courses for concern and which the AG gives a specific directive that such should be attended to.
A Qualified rating is where significant matters are highlighted but overall the financials still present a fair view
 An Adverse-significant matters highlighted, financials do not present a fair view
A Disclaimer rating is where there is fundamental lack of documentation to the extent that an opinion cannot be expressed.
 There are those Municipalities that even just fail to submit Annual Financial Statements.

7. THE MUNICIPAL AUDIT OUTCOMES
The details of the Audit outcomes are:
The three year comparison is presented in Annexure A- it must be noted that this is the status quo as at 27th July 2012.
There are 7 municipalities that did not submit their Annual Financial Statements (AFS).
These are the municipalities per province:
Free State (1): Nala local municipality. The National and Provincial Treasury have sent finance experts to assist with compilation of AFS
Northern Cape (1): Renosterberg local municipality. The National and Provincial Treasuries have sent finance experts to assist with compilation of AFS.
North West (5): Moretele local municipality, Kgetleng River local municipality, Ditsobotla local municipality, Mamusa local municipality & Kagisano-Molopo local municipality. The North West Provincial Treasury is providing support to these 5 local municipalities through the deployment of the MFMA Practitioners.

8. Comment on movement on audit outcomes Clean 5% 2% 0,3%
2008/09 To 2010/11 Municipal Audit Outcomes: National
Audit Opinion
2010/11
2009/10
2008/09
Comment on movement on audit outcomes
Clean 5% 2%
0,3%
Lack of forward movement in audit outcomes is mainly due to two reasons, namely, stagnant and regressing municipalities.
2 municipalities that received clean audits in 2009/10 did not in 2010/11.The third did not but has been disestablished. Out of 278 municipalities to which audits were issued in 2010/11, 15% improved, whilst 63% remained unchanged and 16% regressed, audit pertaining to 6% not issued. From 2008/09 to 2009/10, 57 municipalities improved, whilst 165 remained unchanged and 15 regressed.
Financially unqualified with findings
41%
43%
Financially unqualified financial statements
46%
45%
42%
Qualified
20%
26%
17%
Adverse 3% 4%
Disclaimer
23%
25%
37%
Audits not issued 6%
Total municipalities
278
AFS submission outstanding
Notes: Based on information as of 27 July 2012.

9. Financially unqualified with findings 41% 28% 21% 67% 77% 10% 33% 25%
2010/11 Municipal Audit Outcomes
Audit Opinion
Nat EC FS GP
KZN LP MP NC NW WC
Clean 5% 0% 8% 6%
19%
Financially unqualified with findings
41%
28%
21%
67%
77%
10%
33%
25% 9%
73%
Financially unqualified financial statements
46%
85%
17%
52%
80%
Qualified
20%
29%
13%
11%
43%
14%
Adverse 4% 2%
26%
Disclaimer
23%
38%
54%
27%
53%
Audits not issued
n/a 3%
Total munics
278 45 24 12 61 30 21 32 23
AFS sub outstanding
Notes: Based on information as of 27 July GP, KZN and WC have achieved the 2012 target of 60% unqualified opinion

10. Province Nat EC FS GP KZN LP MP NC NW WC Improvement 15% 29% 13% Nil
Movement in Municipal Audit Outcomes per province from 2009/10 to 2010/11)
Province
Nat EC FS GP
KZN LP MP NC NW WC
Improvement
15%
29%
13%
Nil
17%
10%
19% 9%
23%
Unchanged
63%
44%
75%
92%
70%
53%
71%
69%
48%
60%
Regressed
16%
27% 8%
37%
n/a 7%
Audits not issued 6% 4% 3%
52%
Notes: Based on information as of 27 July 2012.
LP has the highest number of municipalities that regressed while NW lead in relation to audit not issued

11. % of municipalities with Municipal Audit remedial Action Plans
Stats on Municipal Audit Remedial Action Plans to Address the 2010/11 Municipal Audit Outcomes
Province
% of municipalities with Municipal Audit remedial Action Plans
Info as of EC
100%
17 July 2012 FS
96%
20 July 2012 GP
23 March 2012
KZN
16 July 2012 LP
90%
4 April 2012 MP
95%
9 May 2012 NC
53%
2 April 2012 NW
43%%
24 May 2012 WC
83%
National
86%
Note: Stats takes into account information from provinces & the National Treasury.

12. Are there linkages between service delivery protests and the poor financial management of municipalities depicted by Audit outcomes?
Again, for the reasons indicated in the Introduction, we present a trend analysis done on service delivery protests, as in the attached Annexure C, and for the period 2004 up to June 2012

13. May and June protests vs opinion
PROVINCE
Municipality
No of protests
Audit outcome EC
Nelson MMB 1
Unqualified
Buffalo City
Adverse FS
Managaung
Disclaimer
Kopanong 2
Gauteng
Ekurhuleni 3
KZN
No protest recorded
Mpumalanga
Albert Luthuli
Emakhazeni
Dr JS Moroka
Bushbuckridge
Mbombela 4

14. May and June protests vs Audit opinion
PROVINCE
Municipality
No of protests
Audit outcome
Limpopo
Musina 1
Qualified
Polokwane 4
Greater Giyani
Disclaimer
Mogalakwena
Unqualified
Modimole
Adverse
Northern Cape
Umsobomvu
Sol Plaatjie
Gamagara

15. May and June protests vs Audit opinion
PROVINCE
Municipality
No of protests
Audit outcome
North West
Rustenburg 4
AFS submitted late
Mahikeng 1
Dr. Ruth Segomotsi Mompati
AFS not submitted
Western Cape
City of Cape Town
Unqualified
Theewaterskloof
Breede Valley

16. What is our observations regarding all these?
The Municipal Audit outcomes is instructive for us to work harder if we are to succeed in realising the objectives we set ourselves as Government, of achieving audit ratings that will speak of a model Municipality we referred to earlier.
 We should take a cue of success stories in Provinces, Municipalities and entities that are doing well and continue in the spirit of cooperative Governance to mobilise support for Local governance.

17. Most municipalities are grant dependent
What is our observations regarding all these?
There are five focus areas in which we must get things right to achieve effective, efficient and accountable local government, namely, governance, financial management, service delivery, infrastructure and fighting corruption. Analysis of LG state of affairs on the five areas is as follows:
Governance
There are 84% of municipalities with MPACs , 91% with AC and 79% with IA units.
There is 72% of municipalities with MM positions filled while 28% were still vacant as of March 2012
There is 78% of municipalities that have filled the CFO’s position as of March 2012
Financial Management
Most municipalities are grant dependent
There is high level of consumer debt-struggling to collect
Non adherence to regulations especially SCM regulation

18. Infrastructure delivery
What is our observations regarding all these?
Service Delivery
Conditional grants used in certain municipalities for operational activities like salaries
There is under –spending on conditional grants
Shortage of skills in various municipalities
Vandalization of infrastructure by communities during protests
Infrastructure delivery
Municipalities are inadequately budgeting for repairs and maintenance
The quality of infrastructure delivered is also very poor
Fighting Corruption
SCM processes not followed
Corruption not brought to finality

19. 108 municipalities identified using the diagnostic analysis of MISA
Solutions to assist in the challenges above
The establishment of MISA will assist in the multiple challenges faced in municipalities-
108 municipalities identified using the diagnostic analysis of MISA
Provincial plans that focus on areas mentioned above have been finalized
The deployment of SDFs to municipalities to deal with governance matters
There are also 75 financial experts deployed by NT to Municipalities that require assistance and the majority of these deployees are in municipalities that obtained unfavourable audit opinion.

20. Conclusion
The political leadership in the municipal environment must take keen interest and provide regular oversight on issues raised in the management letter.
If this is achieved then consequence management will be applied and in many instances will deter certain practices at the municipal spaces.
It should also be noted that the support by national and provincial government may be required but we have not achieved unmodified audit opinion at that level