Report of the auditor-general to the Northern Cape
Provincial Legislature and the council on John Taolo
Gaetsewe District Municipality
Report on the financial statements
1 . I audited the financial statements of the John Taolo Gaetsewe District Municipality set
out on pages X to X, which comprise the statement of financial position as at
30 June 2016, the statement of financial performance, statement of changes in net
assets, cash flow statement and the statement of comparison of budget and actual
amounts for the year then ended, as well as the notes, comprising a summary of
significant accounting policies and other explanatory information.
Accounting officer’s responsibility for the financial statements
2. The accounting officer is responsible for the preparation and fair presentation of these
financial statements in accordance with the South African Standards of Generally
Recognised Accounting Practice (SA Standards of Grap) and the requirements of the
Municipal Finance Management Act of South Africa, 2003 (Act No. 56 of 2003) (MFMA)
and the Division of Revenue Act of South Africa, 2015 (Act No. 1 of 2015) (Dora), and
for such internal control as the accounting officer determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
3. My responsibility is to express an opinion on these financial statements based on my
audit. I conducted my audit in accordance with the International Standards on Auditing.
Those standards require that I comply with ethical requirements, and plan and perform
the audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement.
4. An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the financial statements. The procedures selected depend on the
auditor’s judgement, including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the
5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide
a basis for my audit opinion.
6. In my opinion, the financial statements present fairly, in all material respects, the
financial position of the John Taolo Gaetsewe District Municipality as at 30 June 2016
and its financial performance and cash flows for the year then ended, in accordance
with the SA Standards of Grap and the requirements of the MFMA and Dora.
Emphasis of matters
7. I draw attention to the matters below. My opinion is not modified in respect of these
Restatement of corresponding figures
8. As disclosed in note 39 to the financial statements, the corresponding figures for
30 June 2015 have been restated as a result of an error discovered during 2016 in the
financial statements of the John Taolo Gaetsewe District Municipality at, and for the
year ended, 30 June 2015.
Material underspending of the budget
9. As disclosed in the appropriation statement, the municipality materially underspent the
budget to the amount of R6 176 376.
10. As disclosed in note 36 to the financial statements, the municipality incurred irregular
expenditure of R2 493 810 (2015: R9 777 582) during the year under review mainly due
to non-compliance with supply chain management requirements. The total amount of
irregular expenditure recorded in the annual financial statements at 30 June 2016
amount to R12 310 905 (2015; R9 817 095)
11. I draw attention to the matter below. My opinion is not modified in respect of this matter.
Unaudited disclosure notes
12. In terms of section 125(2)(e) of the MFMA the municipality is required to disclose
particulars of non-compliance with the MFMA. This disclosure requirement did not form
part of the audit of the financial statements and, accordingly, I do not express an opinion
Unaudited supplementary information
1 3. The supplementary information set out on pages XX to XX does not form part of the
financial statements and is presented as additional information. I have not audited this
schedule and, accordingly, I do not express an opinion thereon
Report on other legal and regulatory requirements
14. In accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004)
(PAA) and the general notice issued in terms thereof, I have a responsibility to report
findings on the reported performance information against predetermined objectives of
selected development priorities presented in the annual performance report, compliance
with legislation and internal control. The objective of my tests was to identify reportable
findings as described under each subheading but not to gather evidence to express
assurance on these matters. Accordingly, I do not express an opinion or conclusion on
15. I performed procedures to obtain evidence about the usefulness and reliability of the
reported performance information of the following selected development priorities
presented in the annual performance report of the municipality for the year ended
30 June 2016:
• Development priority 1 : basic services and infrastructure, on pages x to x
• Development priority 2: local economic development, on pages x to x.
16. I evaluated the usefulness of the reported performance information to determine
whether it was consistent with the planned development priorities. I further performed
tests to determine whether indicators and targets were well defined, verifiable, specific,
measurable, time bound and relevant, as required by the National Treasury’s
Framework for Managing Programme Performance Information (FMPPI).
17. I assessed the reliability of the reported performance information to determine whether it
was valid, accurate and complete.
18. The material findings in respect of the selected development priorities are as follows:
Basic services and infrastructure
Usefulness of reported performance information
19. Section 41(c) of the Municipal Systems Act, 2000 (Act No. 32 of 2000) requires the
integrated development plan to form the basis for the annual report, therefore requiring
consistency of objectives, indicators and targets between planning and reporting
documents. A total of 25% reported objectives were not consistent with those in the
approved integrated development plan.
Local economic development
Usefulness of reporfed performance informofion
20. Section 41(c) of the Municipal Systems Act requires the integrated development plan to
form the basis for the annual report, therefore requiring consistency of objectives,
indicators and targets between planning and reporting documents. A total of 29%
reported objectives were not consistent with those in the approved integrated
21. I draw attention to the following matters:
Achievemenf of planned fargefs
22. Refer to the annual performance report on page(s) x to x for information on the
achievement of the planned targets for the year. This information should be considered
in the context of the material findings on the usefulness of the reported performance
information in paragraphs 17 and 18 of this report.
Adjusfmenf of maferial missfafemenfs
23. I identified material misstatements in the annual performance report submitted for
auditing. These material misstatements were on the reported performance information
of development priority 1: basic services and infrastructure and development priority 2:
local economic development. As management subsequently corrected only some of the
misstatements, I raised material findings on the usefulness of the reported performance
Unaudifed supplementary schedules
24. The supplementary information set out on pages x to x does not form part of the annual
performance report and is presented as additional information. I have not audited these
schedules and, accordingly, I do not report on them.
Compliance with legislation
25. I performed procedures to obtain evidence that the municipality had complied with
applicable legislation regarding financial matters, financial management and other
related matters. My material findings on compliance with specific matters in key
legislation, as set out in the general notice issued in terms of the PAA, are as follows:
strategic planning and performance management
26. The service delivery and budget implementation plan for implementing the municipality's
delivery of municipal services and annual budget did not indicate projections for each
month of the revenue to be collected, by source and/or the operational and capital
expenditure, by vote, as required by sections 1 and 53(1 )(c) of the MFMA.
Financial statements, pertormance and annual reports
27. The financial statements submitted for auditing were not prepared, in all material
respects, in accordance with the requirements of section 122 of the MFMA. Material
misstatements of non-current assets, current assets, liabilities, revenue, and disclosure
items identified by the auditors in the submitted financial statement were subsequently
corrected and/or the supporting records were provided subsequently, resulting in the
financial statements receiving an unqualified audit opinion.
Procurement and contract management
28. Goods and services of a transaction value above R200 000 were procured without
inviting competitive bids, as required by supply chain management (SCM) regulation
29. Awards were made to providers who were in the service of other state institutions or
whose directors were in the service of other state institutions, in contravention of section
1 12(j) of the MFMA and SCM regulation 44.
30. Money owed by the municipality was not always paid within 30 days, as required by
section 65(2) (e) of the MFMA.
31. Reasonable steps were not taken to prevent unauthorised irregular and fruitless and
wasteful expenditure, as required by section 62(1 )(d) of the MFMA.
32. Unauthorised expenditure incurred by the municipality was not investigated to determine
if any person was liable for the expenditure, as required by section 32(2)(a) of the
33. I considered internal control relevant to my audit of the financial statements, draft
adjusted annual performance report and compliance with legislation. The matters
reported below are limited to the significant internal control deficiencies that resulted in
the findings on the draft adjusted annual performance report and the findings on
compliance with legislation included in this report.
34. The leadership was not fully successful in monitoring the action plan to ensure that
corrective actions were taken when required and within the required time frames. This
resulted in previous material findings on compliance and reported performance
information recurring in the financial year under review.
35. There were inadequate processes to ensure that reviews were performed before
submission of the financial statements. However, the material errors that I identified in
the financial statements were subsequently adjusted.
36. The municipality’s internal processes and systems did not prevent material non-
compliances, irregular, unauthorised as well as fruitless and wasteful expenditure.
37. The information technology strategy was not submitted for approval as management
was not satisfied with the content of the draft information technology strategy. This was
due to a lack of skills and training on documenting the information technology strategy.
In addition, the municipality did not have any source document to refer to or benchmark
Financial and performance management
38. Finance staff members did not have knowledge of Grap, as a result the municipality
chose to use consultants to prepare the annual financial statements. Finance staff
members did not use the Grap checklist to ensure that the financial statements
prepared were free from errors. This resulted in the material amendments to the
39. The collation of different information from various units for incorporation in the annual
performance report was not done timeously to allow for adequate reviews. This resulted
in the material amendments and the inability to ensure valid, accurate and complete
reporting of actual achievements against planned objectives, indicators and targets.
40. There were inadequate internal controls over property, plant and equipment. This
resulted in inappropriate accounting treatment in terms of the Grap standards.
Misstatements were inevitably identified on the financial statements and adjustments to
the financial statements needed to be made for overall fair presentation.
41 . There was a lack of internal control over the accounting treatment of employee benefits
as data provided to the experts for the performance of the provision for employee
benefits was not reviewed and assessed by management. This had resulted in
misstatements on the financial statements.
42. Continuous monitoring and supervision were not undertaken to enable an assessment
of the effectiveness of internal control over financial and performance reporting
regarding information technology controls.
30 November 2016
Auditing to build public confidence