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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 
Introduction 

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. 

Auditor-general’s responsibility 

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 
financial statements. 

5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide 
a basis for my audit opinion. 


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 
matters. 

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. 

Irregular expenditure 

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) 

Additional matter 

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 
thereon. 



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 
these matters. 

Predetermined objectives 

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 
development plan. 

Additional matters 

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 
information. 

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 
19(a). 

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. 

Expenditure management 

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. 

Consequence management 

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 
MFMA. 

Internal control 


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. 



Leadership 


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 
against. 

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 
financial statements. 

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. 



Governance 


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. 



Kimberley 
30 November 2016 



AUDITOR-OEtMERAL 
SOUTH AFRICA 


Auditing to build public confidence