1. Module 5 The Use Of The Annual Report As An Oversight Tool APAC MPAC Training Rollout 2012

2. Primarily for accountability purposes Important tool in accountability loop Serves to inform oversight structures & other key stakeholders about the performance of an municipality or entity in relation to services provided Accountability loop –Policy development – identify desired impact of interventions –Strategic planning (IDP) – specify outcomes and outputs required –Implementation planning and budgeting –set targets and resource allocation –Implementation – implement, monitor and manage processes –Year-end reporting – report, evaluate and make any policy adjustments The Purpose of the Annual Report

3. Statutory Documents –Strategic plans/IDPs –Budgets –In-year monitoring reports –Annual reports –Audit Report issued by Auditor-General –General Report of the Auditor-General on Audit Outcomes of Local Government Guides –Regulations for preparing strategic plans –Guide for the preparation of Annual Reports and AFS –Guide to understand oversight reports of municipality –Framework for Managing Programme Performance Information Accountability Instruments

4. Contents of the Annual Report Vision, Mission & Values HR information Annual Financial Statements Information on predetermined objectives Auditor General’s Audit report

5. Process related questions –Was the report delivered on time? –Does the layout of the report facilitate understanding? –Is the information communicated simply and clearly? –Is the report original, or are key portions copied from previous reports? –Is each measurable objective specified in the strategic plan/IDP reported on in the report? –Is the service delivery information consistent with the mandate of the municipality? –Was an excessive amount spent on the production of the annual report? Evaluating Annual Reports

6. Content related considerations: –Look for an overview or summary of performance –Look for the major goals and objectives of the municipality –Look at the performance measures to assess how well the municipality is doing in achieving its objectives & how cost- effectively resources are being used –Look at explanations to help determine wither the measures reported are useful or important for assessing performance –Look at information to help understand what the results mean (narrative explanations, graphics & comparisons) Analysing the Annual Report

7. Statement of financial position [Assets, Liabilities, Net assets] Statement of financial performance [Revenue, Expenses, Surplus or deficit] Cash flow statement [Operating, Investing, Financing, Net cash] Statement of comparison of actual and budget information – based on budget basis [Revenue, Expenses] Notes to the financial statements Segment information [Revenue, Expenditure, Assets, Liabilities: Illustrative: Water, electricity, parks & recreation, healthcare] Accounting policies General purpose financial statements

8. Strength of management accounting function: –The nature of the qualification as well as the root causes –Has the municipality or entity been receiving repeated qualifications? Is it the same matters? Have they been resolved? Effectiveness of the Accounting function, control environment, and management commitment to address queries. –Extent of funds shifted or virements for last six months –Expenditure by programme with reference to service delivery achievements per programme as well as explanation for variances in expenditure –Compliance with legislation including that of municipal entities under the same municipality’s responsibility Annual financial statements issues

9. Common anomaly types: –Errors identified relating to the previous financial year –Any unusual transactions that do not relate to the purpose of the entity or municipality –Follow items in the qualification paragraph of the AG to the various reports –Understand the extent & the nature of unauthorised expenditure, as well as uncleared unauthorised expenditure as well as irregular, fruitless and wasteful expenditure –The impact of unauthorised, irregular and fruitless and wasteful expenditure to service delivery in the future Annual financial statements issues

10. An audit committee report should cover: –Membership and attendance to committee meetings; –the effectiveness of the internal control systems; –the effectiveness of the internal audit function; –the risk areas of the entity’s operations to be covered in the scope of internal and external audits; –Significant accounting & auditing concerns, and follow up recommendations made by internal & external audit; and –The municipality’s compliance with legal & regulatory provisions. The Audit Committee Report

11. Management’s opportunity to deal with the state of financial affairs, the activities and the results of the entity Capacity constraints Municipality’s business strategy going forward Managements response & plans to address any significant audit findings & MPAC resolutions Corporate Governance Arrangements Entities reporting to the municipality including their compliance with the MFMA Organisations receiving transfer payments Events after reporting date The Accounting Officer’s Report

12. Content: –Overview of the municipality or entity’s total actual performance over the specified period with a surplus/deficit being the difference between amounts received and paid during the year Use of content for reader: –Information is analysed at entity level in economic classification –Understanding of the surplus/deficit: split into surplus/deficit on Appropriated funds, municipality receipts and spending of conditional grants. Statement of Financial Performance

13. Content –This statement illustrates the assets and liabilities of the municipality or entity at the end of its reporting period. Use of content for the reader –Cash resources available in the municipality or entity & indicates any overdrafts –Current assets maintained by the municipality or entity –Unauthorised expenditure to be approved –Debt: inter-departmental debt & staff debt –Current liabilities maintained by the municipality or entity –Long term liabilities and borrowings –Capital assets, such as Property plant and equipment, Investment properties in the control of the municipality or entity. –Any finance leases in the control of the municipality or entity –The short term portion of any liabilities and loans to be repaid in the short term. Statement of Financial Position

14. Content –Presents the movement in cash (receipts and payments made/received during the year) in terms of operating activities, investing activities and financing activities. Use of content for the reader –Analysis of current (operating activities) and non- current (investing & financing activities) revenue and expenditure transactions –Cash impact of movements in assets and liabilities Cash Flow Statement

15. Content –Accounting policies –Supplementary information to the primary statements Use of content for reader (examples) –Extent of consulting fees vs employee related costs –Extent of spending on training and staff development –Material losses, unauthorised, irregular and fruitless and wasteful expenditure –Analysis of aging of receivables (indicates collectability and commitment to collection of debt) –Extent of donor support Notes to Financial Statements

16. Content: –Are the principles, bases, rules and practices applied by the municipality or entity in preparing and presenting the financial statements. Use of content for reader: –Provides framework used to prepare AFS –How transactions, balances and events are recognised and disclosed in the annual financial statements –Provides insight to the numbers influenced by management’s judgement Accounting Policies

17. Content: –Provides useful information on balances not recognised in the primary financial statements Use of content for reader: –Indication of contingent liabilities, commitments and accruals (to assess impact on future resources) –Irregular expenditure and fruitless & wasteful expenditure & steps taken by management to deal with the incidents –Estimations on the doubtful debts –Related party transactions (to assess impact of inter-entity transactions on performance) Disclosure Notes & Appendices

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