1. Module 1 The Role of Strategic Partners in Oversight APAC MPAC Training Roll-out 2012 1

2. Introduction The role of oversight conducted by MPACs is supported by many institutions that are able to provide information and guidance The MPACs utilise these in order to get insights into the workings of municipalities and how they can strengthen their oversight function. Municipal oversight is expected to perform oversight of the: –Municipal Planning process –Budgeting Process –Implementation of the municipal strategic plan and budget –Effective in-year and year-end reporting 2

3. The Role of the Auditor-General The Auditor-General of South Africa is established in terms of section 181(1)(e) of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996) as a state institution supporting constitutional democracy. The constitutional functions of the AGSA are set out in section 188 of the Constitution and section 4 of the Public Audit Act, 2004 (Act No. 25 of 2004). 3

4. Specific mandate and standards 4 Regularity Constitutional Mandate Section 188 Section 4 & 20 of PAA Full application of ISAs Supplemented by public sector perspectives based on ISSAIs Performance Full application of ISAs and ISSAIs Investigations Section 5 of PAA Based on ISA principles Own documented standards and methodology Special Section 5 of PAA Full application Of ISA’s after consideration of decisions to accept in own guidance

5. Different Types of Audits Conducted Mandatory Annual Audits Regularity Audit –Report on the Financial Statements –Report on other and legal and regularity requirements –Findings on the report of Predetermined Objectives –Findings on Compliance with Laws and Regulations –Status of Internal Controls pertaining to the above. –Discretionary Audits 5

6. Different Types of Audits Conducted Non-mandatory audits Investigations –Report on Factual findings with regards to financial misconduct, maladministration and impropriety. Based on allegations or matters of public interest Special Audits –Report on Factual findings e.g. donor funding certificates for legislative compliance. Performance Audits (Including Environmental Audits) –Economic, Efficient & Effective Utilization of scarce resources –Effect of policy implementation, excluding policy evaluation 6

7. The Regularity Audit Process 7 Engagement Activities Engagement Risk Assessment Determine Skills & Competence of audit team Establish terms of Engagement Planning Risk assessment at: Overall FS level Detailed Accounts and Transaction Level Perform the Audit Design audit procedures to address risk identified in planning Perform planned procedures Evaluate, Conclude and Reporting Evaluate all evidence obtained Communication Findings Prepare Management Report Prepare Auditor’s Report

8. Audit of the Financial Statements Required in terms of the Constitution, section 188 and the Public Audit Act, section 4 International Standards on Auditing and General Notice 111 of 2010 issued in the Government Gazette 33872 of 15 December 2011 require that the Auditor-General comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatements. The audit report must at least reflect at least an opinion or conclusion on whether the annual financial statements of the auditee fairly present, in all material respects, the financial position at a specific date and results of its operations and cash flow for the period which ended on that date in accordance with the applicable financial framework and legislation. 8

9. Audit of pre-determined objectives Required in terms of Sections 20 and 28 of the Public Audit Act Limited assurance is provided with respect to the presentation, usefulness and reliability of information contained in the municipality’s or municipal entities’ report on predetermined objectives At present, an opinion on predetermined objectives is expressed in the management report for high capacity municipalities and metros only. An opinion on predetermined objectives for medium and low capacity municipalities is not expressed 9

10. Difference between AoPO and Performance Auditing Auditing of predetermined objectives can be defined as an annual audit of reported actual performance against predetermined objectives. This is an integral part of the annual regularity audit, confirming the credibility of the reported performance information in the annual reports of government entities. Performance auditing can be defined as an independent evaluation of the management measures instituted by a government entity to ensure the economical procurement and efficient and effective utilisation of resources. 10

11. Difference between AoPO and Performance Auditing 11 The key evaluation concepts can further be defined as follows: Economical – to procure resources of the right quality in the right quantities at the right time and place at the lowest possible cost. Efficient – to achieve the optimal relationship between the output of goods, services or results and the resources used to produce them. Effective – to achieve policy objectives, operational goals and other intended effects. The insight gained through auditing and analysing the audit outcomes to the level of root causes is shared with stakeholders through audit reports, creating foresight in the process of strategic planning, enhancing good governance and service delivery in the country.

12. Compliance with Laws and Regulations 12 Reporting by the AG is limited to key legislation e.g. Municipal Finance Management Act (MFMA), Related Legislation ( e.g. MSA, MSA ) Division of Revenue Act (DoRA) Companies Act 2008 Specific enabling legislation Material instances of non-compliance are reported per category.

13. Internal Control Environment 13 Status of Internal Controls relevant to the audit of the financial statements, predetermined objectives and compliance with laws and regulations are reported under the three fundamentals of effective internal control: Leadership - Tone at the top creating an environment favorable to good financial management and service delivery Financial and Performance Management - Implementation of sound financial and performance management systems Governance - Adequately resourced and effectively functioning internal audit and audit committee

14. Format of the Audit report 14 Report on the Financial Statements Opinion paragraph Emphasis of matter Additional matters Report on other legal and regulatory requirements Findings on the report on predetermined objectives Findings on compliance with applicable laws and regulations Status of Internal control Leadership Financial and performance management Governance Information on other audits conducted Investigations Agreed upon procedures Performance audits

15. The Different Audit Opinions 15 Unmodified/Unqualified  The financial statements present fairly in all material respects. Unqualified with findings on predetermined objectives and/or compliance with laws and regulations The financial statements present fairly in all material respects with an emphasis of matter paragraph Qualified (except for)  The auditor concludes that, except for specifically listed material misstatements, the financial statements remain a fair reflection. Adverse  The auditor disagrees with the representation made by management in the financial statements to the extent of confirming that it is not a fair reflection of the financial position, financial performance and cash flows. Disclaimer  Where there is a lack of sufficient appropriate audit evidence to the extent that the auditor is not able to form an opinion on the financial statements as a whole

16. Emphasis of Matter and Additional Matter Paragraphs 16 If it is considered necessary to include additional communication in the auditor’s report that does not have an effect on the auditor’s opinion, the following would be used: An emphasis of matter paragraph only to draw user’s attention to a matter presented or disclosed in the financial statements that is of such importance that it is fundamental to their understanding of the financial statements Any other matter/Additional Matters paragraph: to draw users attention to any matter other than those presented or disclosed in the financial statements that is relevant to users understanding of the audit, the auditor’s responsibilities or the auditor’s report

17. Role of the National & Provincial Treasuries 17 The NT manages effective channels of communication and coordination with its Strategic Partners to achieve optimal  good governance practices  service delivery outcomes and  financial management  municipal audit outcomes MPACs is Not Legislated

18. Role of NT and PT 18 Legislative Requirement of the MFMA The Provincial Treasury to assist the NT to undertake and manage the Monitoring Function over all municipalities – section 5 (3) & (4) of the MFMA The PTs to submit quarterly MFMA Reports to the NT with regard to the outcomes on their Monitoring Function The NT provides technical guidance, assistance and support – PTs to improve Institutional Capability – to undertake the Monitoring Function The NT is supported by the PTs in performance evaluation meetings – convened by the Select Committee on Finance (National Assembly)

19. The Municipal Public Accounts Committee 19 To assist the NT & PT to undertake the Oversight Function over the performance of the municipality The Oversight Function Outcomes  Institutional Functionality within the municipality  good governance practices  service delivery outcomes  financial management and  municipal audit outcomes The NT to provide guidance and advice to the MPAC for effective functionality of the Committee – to undertake its work The NT creates an Enabling Environment – empower the knowledge, conceptual understanding and capability of the Members of the Committee Create access to the NT website i.e. MFMA Circulars, Guidelines, Procedures, Processes & Regulations

20. The Role of Department of Cooperative Governance 20 The first call of providing support to municipalities is the provincial departments responsible for local government (LG), thus, both the Municipal Structures Act (1998) and Municipal Systems Act (2000) provides the MEC responsible for LG with various functions or responsibilities. Section 18(c) of the Local Government Laws Amendment Act (2008) states that the “Minister may request the MEC to investigate maladministration, fraud, corruption or any other serious malpractice which, in the opinion of the Minister, has occurred or is occurring in a municipality in the province”

21. The Role of Department of Cooperative Governance 21 Section 18(c) further states that the “MEC must table a report detailing the outcome of the investigation in the relevant provincial legislature within 90 days from the date on which the Minister requested the investigation and must simultaneously send a copy of such report to the Minister, the Minister of Finance and the National Council of provinces.” While the primary responsibility to investigate and recommend appropriate action regarding a Councilor’s breach of the “Code of Conduct for Councillors” lies with the municipal council, the Local Government Laws Amendment Act (2008) enables the MEC to appoint a person or a committee to investigate any alleged breach of the Code and to make a recommendation as to the appropriate sanction if a municipal council does not conduct an investigation and the MEC considers it necessary.

22. Role of SALGA 22 In line with its mandate SALGA has set out its role to: Represent, promote and protect the interests of local government Transform local government to enable it to fulfil its developmental role Raise the profile of local government Ensure full participation of women in local government Perform its role as an employer body Develop capacity within municipalities

23. 23 Role of SALGA SALGA’s role can thus be summarized into four key roles: Advice and support – policy analysis, research and monitoring, knowledge exchange and support to members. Representation – stakeholder engagement; lobbying on behalf of local government in relation to national policies and legislation Act as an employer body – collective bargaining on behalf of our members; and capacity building Strategic Profiling – building the profile and image of local government locally and internationally. Our role as an organization is effectively played out through various programmes and working groups.

24. The Role of the Public, CSO’s and the Media 24 Given that local government is at the coalface of service delivery, it becomes crucial that the public, various interest groups which may be represented by Civil Society Organisations and the media be engaged directly about the work of the municipality as part of the accountability and transparency mechanisms of the municipalities. In order to be supportive to MPACs, civil society and the media need access to: Full and accurate information Timeous information Understanding/Education

25. The Public, CSO’s and the Media 25 The media may not necessarily be fully aware of the MPAC environment and as such it becomes the responsibility of the MPACs to ensure that the media understands where the MPACs fit in the overall local government oversight cycle and how MPACs function as well their mandate and powers. In this way, the media would be able to report appropriately and inform the public as well in terms of the MPAC mandate, functions and powers. MPACs are expected to ensure that their hearings are open to the public and that their full transcripts and minutes are made available to the public. However, it does not help if MPAC meetings are open to the public and the public is not made aware of such privileges.

26. The Public, CSO’s and the Media 26 CSOs are generally non-state, not-for-profit, voluntary organizations formed by people within the social sphere of civil society. The term “CSO” refers to a wide of array of organizations, including: o community groups, o social movements o non-governmental organizations (NGOs), o labour unions, o women’s organisations o indigenous groups, o charitable organizations, o faith-based organizations, o professional associations, o foundations

27. The Public, CSO’s and the Media 27 It would then be crucial for an MPAC to determine which groupings may have a direct stake in the matters that are being addressed. The best approach would be to look at the following determinants: o Diversity of interests and capacities of various CSOs o Decide whether the CSO has an actual or potential Interest o Decide whether there is actual or potential assistance that the CSO can offer to the MPAC o Decide whether to engage and encourage all or just a selection of those that seemingly have either a direct interest in the work of the MPAC or have the ability to assist the work of the MPAC? The MPAC framework circular jointly issued by CoGTA and National Treasury suggests that MPACs may: o “engage directly with the public and consider public comments when received “ o “invite representatives of the community and co-opt members of the public who have expertise…to assist and advise”

28. 28 The Public, CSO’s and the Media Furthermore, according to Section 152 of the Constitution: (1) Objects of local government are – (a) to provide democratic and accountable government for local communities; (b) to ensure the provision of services to the communities in a sustainable manner; (c) to promote social and economic development; (d) to promote a safe and healthy environment; and (e) to encourage the involvement of communities and community organisations in the matters of local government. The engagement of the public, CSOs and the media in the work of MPACs is in line with the provisions of section 152 (1)(a), (b) and (e).