Divisions in senior management, and the bosses' bad attitude towards internal controls were some of the problems identified by the Auditor General as it issued Makana Municipality with a disclaimer for the second year running.
Divisions in senior management, and the bosses' bad attitude towards internal controls were some of the problems identified by the Auditor General as it issued Makana Municipality with a disclaimer for the second year running.
A disclaimer is where a lack of the right sort of audit evidence makes it impossible for the auditor to form an opinion about the correctness of the financial statements. It is the worst type of five possible audit outcomes.
The Auditor-General also noted that the problems leading to the disclaimer in the previous year remained unsolved. News of the AG's judgement on the municipality's finances is broken to Council each year in the draft annual report, which incorporates the AG's report for the year ending 30 June 2011, as well as the recommendations of the audit committee.
The Makana Council met on Tuesday to discuss the report. Lawsuits in which the municipality faces claims of up to R50 million, and unauthorised expenditure to the value of R47.7m were just some of the shocking facts to be digested by councillors.
And Makana's ongoing underspending saga, in which electricity, water and municipal infrastructure grants remain unused, was quantified at just under 30%. And the AG said the municipality lacked proper record-keeping and management systems: The entity did not have staff knowledge about Generally Recognised Accounting Practice reporting framework and performance management requirements.
The report mentioned that the municipality was a defendant in a number of lawsuits to the estimated amount of R50m. These are claims the municipality is opposing – but hasn't provided for any liability that may result.
* Unauthorised expenditure to the value of R47.7m was identified. This related to overspending on votes.
* Irregular expenditure amounting to R3.7m was identified and disclosed by management in the initial annual financial statements submitted for audit. The report further stated that additional irregular expenditure amounting to R7m was identified during the audit and included in the amount of R10.8 million, as disclosed in the corrected financial statements. The irregular expenditure related mainly to non-compliance with supply chain regulations.
* Fruitless and wasteful expenditure to the tune of R2.4 million was reported.. The municipality's underspending also entered the AG's radar. It spent 72% of its capital expenditure, leaving funds in the electricity, water and municipal infrastructure grants unused. Listed by the AG as being deficient in audit evidence were:
* Reconciling items to the value of R9 million, between the bank overdraft of R3.9 million and the cash book balance of R2.7m, as per the year-end bank reconciliation;
* Existing debtors amounting to R16m;
* The write-off of trade payables amounting to R1.4 million and the existence and valuation of other payables amounting to R2.7 million;
* The existence, obligations, completeness and valuation and allocation of the leave pay accrual amounting to R4.1m.
* The occurrence, completeness, accuracy, cut-off and classification of other revenue to R4.4 million. Effective leadership based on ethical business practises and good governance… was not demonstrated by top management, read the report about leadership in the municipality.
According to the report:
* Senior managers and municipal manager are expected to have discussed and agreed on the content and quality of reports tabled to council. The committee says that the opposite happened.
* Divisions in senior management. This impacts negatively on the decision process and corporate governance * Internal controls have not being effective and adequate to ensure that the financial records may be relied upon for preparing the annual financial statements and accountability for assets and liabilities is maintained.
* The committee drew attention to the AG report which indicates that there are serious weaknesses in the functioning controls, procedures and systems during the 2010/11 financial year.
* The committee has noted with concern that management attitude towards development, implementation and maintenance of internal controls was seriously lacking in many instances. This is evidenced by the fact that many issues raised by the AG and internal audit have not been adequately resolved to date.
* In some instances, some executive directors did not attend all the meetings and subordinates would attend unprepared or partially prepared. Chairperson of the audit committee, Mzukisi Madlavu, said the committee agreed with and accepted the AG ‘s report, as he presented some highlights. “We are aware that we are walking on eggshells. But the observations we make were reflected on the annual financial statements.”
Executive Mayor, Zamuxolo Peter said that the council had to take ownership of the criticism in the documents in order to move forward. He was addressing the Makana Councillors and officials from Operation Clean Audit, Cacadu district and National Treasury. Municipal Manager, Ntombi Baart said that the office of the Auditor General was unable to be at the meeting on Tuesday.
However, they agreed to attend the municipal public accounts committee. Councillors opted to return to council to discuss the report, since they said they had received it only late the previous Friday and needed more time to read the content, to allow for a better-informed debate.
